* *

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**Washington,D.C. 20549

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**FORM 10-K**

**ANNUALREPORTPURSUANT TO SECTIONS 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

| **(Mark One)**                                   | ** ** | ** **                                                                                                                                   |
|-------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| x                                                     | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                |
| **For the  fiscal year ended December 31, 2006** |
| **or**                                                |
| o                                                     | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                            |
| ** **                                            | ** ** | **For the  transition period  from        to         ** |

 

**Commission file number 001-32290**

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**GMH Communities Trust**(Exactname of registrant as specified in its charter)

| **Maryland**                              |   | **201181390**                         |
|-------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)           |   | ** **                            |
| **10 Campus Boulevard**                   |   |                                  |
| **Newtown  Square, Pennsylvania**         |   | **19073**                             |
| (Address of  principal executive offices) |   | (Zip Code)                            |

 

Registrant’stelephone number, including area code: (610) 355-8000

Securitiesregistered 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**                   |
| **$0.001 par value per share**            | ** ** | ** **                                     |

 

Securities registered pursuant to Section 12(g) ofthe Act:

**None**(Titleof Class)

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.  Yes  o    No  x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes  o    No  x

Indicate by check markwhether the registrant (1) has filed all reports to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days.  Yes  x    No  o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K.  x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    o        Acceleratedfiler    x        Non-acceleratedfiler    o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).    Yes  o  No  x

The aggregate market valueof the voting common equity held by non-affiliates of the registrant as of thelast business day of the registrant’s most recently completed second fiscalquarter (June 30, 2006), was $547,315,290.

The number of common shares of beneficial interest ofthe registrant outstanding as of March 15, 2007 was 41,567,146 shares.

**DOCUMENTS INCORPORATED BYREFERENCE**

None.

* *

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**GMH COMMUNITIESTRUSTINDEX TO FORM 10-K**

|                                                       | ** ** | ** **                                                                                                         | ** ** | **Page** |
|-------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|----------|
| Cautionary Note Regarding Forward-Looking  Statements |       | ii                                                                                                                 |
| **PART I**                                       |       |                                                                                                               |
| Item 1.                                               |       | Business                                                                                                           |       | 1        |
| Item  1A.                                             |       | Risk  Factors                                                                                                      |       | 30       |
| Item 1B.                                              |       | Unresolved Staff Comments                                                                                          |       | 55       |
| Item 2.                                               |       | Properties                                                                                                         |       | 56       |
| Item  3.                                              |       | Legal  Proceedings                                                                                                 |       | 58       |
| Item 4.                                               |       | Submission of Matters to a Vote of Security Holders                                                                |       | 59       |
| **PART II**                                      |       |                                                                                                               |
| Item 5.                                               |       | Market for Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       | 60       |
| Item 6.                                               |       | Selected Financial Data                                                                                            |       | 63       |
| Item 7.                                               |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                        |       | 64       |
| Item 7A.                                              |       | Quantitative and Qualitative Disclosure About Market  Risk                                                         |       | 92       |
| Item 8.                                               |       | Financial Statements and Supplementary Data                                                                        |       | 93       |
| Item 9.                                               |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                              |       | 131      |
| Item 9A.                                              |       | Controls and Procedures                                                                                            |       | 131      |
| Item  9B.                                             |       | Other  Information                                                                                                 |       | 135      |
| **PART III**                                     |       |                                                                                                               |
| Item 10.                                              |       | Directors, Executive Officers and Corporate Governance                                                             |       | 136      |
| Item 11.                                              |       | Executive Compensation                                                                                             |       | 141      |
| Item 12.                                              |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                    |       | 161      |
| Item 13.                                              |       | Certain Relationships and Related Transactions, and  Director Independence                                         |       | 164      |
| Item 14.                                              |       | Principal Accountant Fees and Services                                                                             |       | 167      |
| **PART IV**                                      |       |                                                                                                               |
| Item 15.                                              |       | Exhibits and Financial Statement Schedules                                                                         |       | 169      |

 

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**CautionaryNote Regarding Forward-Looking Statements**

Our disclosure andanalysis in this document and in the documents that are or will be incorporatedby reference into this document contain forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. Forward-lookingstatements provide our current expectations or forecasts of future events andare not statements of historical fact. These forward-looking statementsinclude information about possible or assumed future events, including, amongother things, operating or financial performance, strategic plans andobjectives, or regulatory or competitive environments. Statements regarding thefollowing subjects are forward-looking by their nature:

·       ourability to successfully implement our current business strategy, including ourability to acquire and manage student housing properties and to secure andoperate military housing privatization projects;

·       ourprojected operating results and financial condition;

·       completionof any of our targeted acquisitions or development projects, sales of assets,refinancings or joint venture transactions within our expected timeframe or atall;

·       ourability to obtain future financing arrangements on terms acceptable to us, orat all;

·       estimatesrelating to, and our ability to pay, future dividends;

·       ourability to qualify as a REIT for federal income tax purposes;

·       ourunderstanding of our competition, market opportunities and trends;

·       projectedtiming and amounts of capital expenditures;

·       ourability to successfully implement remedial measures that will effectivelyaddress any deficiencies that have been identified with respect to ourdisclosure controls and internal controls over financial reporting; and

·       theimpact of technology on our properties, operations and business.

The forward-lookingstatements are based on our beliefs, assumptions and expectations of our futureperformance, taking into account the information currently available to us.These beliefs, assumptions and expectations can change as a result of manypossible events or factors, not all of which are known to us. If a changeoccurs, our business, financial condition, liquidity and results of operationsmay vary materially from those expressed in our forward-lookingstatements. Factors that could cause actual results to differ materially fromour management’s current expectations include, but are not limited to:

·       thefactors referenced in the sections of this report titled “Our Business,” “RiskFactors” and “Management’s Discussion and Analysis of Financial Condition andResults of Operations”;

·       changesin our business strategy, including acquisition, sales, and developmentactivities;

·       availability,terms and deployment of capital, including equity and debt financing;

·       availabilityof qualified and/or sufficient personnel, including, but not limited, withinour accounting staff;

·       failureto effectively remediate any deficiencies or material weaknesses in ourdisclosure controls and procedures and internal control over financialreporting, including through the implementation of such measures as discussedin the section of this report titled “*Controls and Procedures*”under Part II, Item 9A of this report, or failure to identify additionalmaterial weaknesses and deficiencies 

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in our disclosure controlsand procedures and internal control over financial reporting that could occurin the future;

·       theadverse effects of pending litigation or any investigation of the Company bythe U.S. Securities and Exchange Commission, or SEC;

·       unanticipatedcosts associated with the acquisition and integration of our student housingproperty acquisitions and development projects, and military housingprivatization projects;

·       theeffects of military base realignment and closures, or deployments, oninstallations covered by our military housing privatization projects;

·       highleverage on the entities that own the military housing privatization projects;

·       reductionsin government military spending;

·       changesin student population enrollment at colleges and universities or adverse trendsin the off-campus student housing market;

·       changesin the student and military housing industry, interest rates or the generaleconomy;

·       changesin local real estate conditions (including changes in rental rates and thenumber of competing properties) and the degree and nature of our competition;

·       failureto lease unoccupied space in accordance with management’s projections;

·       potentialliability under environmental or other laws; and

·       theexistence of complex regulations relating to our status as a REIT and theadverse consequences of our failure to qualify as a REIT.

When we use the words “believe,” “expect,” “may,” “potential,”“anticipate,” “estimate,” “plan,” “will,” “could,” “intend” or similarexpressions, we intend to identify forward-looking statements. You shouldnot place undue reliance on these forward-looking statements. Weundertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise,except to the extent otherwise required by law.

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**PART I**

**Item1.**                        Business

*GMH Communities Trust commenced operations on November 2,2004, upon completion of its initial public offering and the simultaneousacquisition of the sole general partnership interest in GMH Communities, LP,referred to throughout this report as our operating partnership. Any historicaloperations prior to completion of our initial public offering that aredescribed in this report refer to the operations of College Park Management, Inc.,GMH Military Housing, LLC, 353 Associates, L.P., and Corporate Flight Services,LLC, which are collectively referred to, together with our operatingpartnership, as The GMH Predecessor Entities or our predecessor entities. Inconnection with our formation transactions completed prior to and simultaneouslywith completion of our initial public offering, the interests in The GMHPredecessor Entities were contributed to our operating partnership as describedin Note 1 of the financial statements included in this report.*

**Our Company**

We are a self-advised, self-managed, specialty housingcompany that focuses on providing housing to college and university studentsresiding off-campus and to members of the U.S. military and their families.Through our operating partnership, we own and operate our student housingproperties and own equity interests in joint ventures that own our militaryhousing privatization projects. Generally, we provide through our taxable REITsubsidiaries the development, construction, renovation and management servicesfor our military housing privatization projects and property managementservices for student housing properties owned by others. In addition, throughour operating partnership, we provide consulting services with respect to themanagement of certain student housing properties owned by others, includingcolleges, universities and other private owners. We are one of the leadingproviders of housing, lifestyle and community solutions for students andmembers of the U.S. military and their families.

As of December 31, 2006, we owned or hadownership interests in 77 student housing properties, containing a total of14,432 units and 46,696 beds. We also owned seven******undeveloped or partially developedparcels of land held for development as student housing properties, and wemanaged a total of 18 student housing properties owned by others, containing atotal of 3,053 units and 9,900 beds, as well as 51 units and 279 bedscurrently under construction.

With respect to our military housing segment, as of December 31,2006, our operating partnership had an ownership interest in, and throughvarious wholly-owned subsidiaries operated, nine military housing privatizationprojects, comprising an aggregate of approximately 17,489 end-state housingunits on 21 military bases. End-statehousing units are the housing units, including units subject to newconstruction and existing units, whether or not subject to renovation, that areapproved for completion and management by the end of the initial developmentperiod, or IDP,  for the project. On October 23,2006, we announced that we had been chosen by the Department of the Army todesign, construct and manage two single soldier housing projects, located atFort Bliss and Fort Stewart. These two projects are among the first ofunaccompanied housing privatization awards made by the Army. On November 30,2006, we announced the expansion of our Fort Carson project, covering anadditional 396 end-state housing units over an existing inventory of 2,664end-state housing units, and having a three-year IDP with total project costsestimated at $124 million. In addition, on February 6, 2007, weclosed on our AETC Group I project with the Department of the Air Force, amilitary housing privatization project covering four bases and 2,875 end-statehousing units. The AETC Group I project represents our first military housingproject with the Department of the Air Force. Also, on February 26, 2007,we announced that we were selected by the Department of the Navy to enter intoexclusive negotiations for the design, construction, management and maintenanceof the military family housing at 11 Southeast Region Navy bases in fivestates. The 50-year term of the Navy Southeast project is expected tocommence with a six-year IDP that is valued in excess of $700 million andcovering approximately 5,501 end-state housing units. On March 8, 2007, wealso 

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announced that we wereselected by the Department of the Army to enter into exclusive negotiations forthe family housing privatization project at the U.S. Military Academy at WestPoint, New York, which is expected to have a five-year IDP with project costsvalued in excess of $160 million and cover 628 end-state housing units.

GMH Communities Trust was formed in May 2004 tocontinue and expand upon the student and military housing businesses of ourpredecessor entities and other affiliated entities, collectively referred to asGMH Associates. GMH Associates was founded in 1985 principally to acquire,develop and manage commercial and residential real estate, focusing on studenthousing. Beginning in 1999, GMH Associates also competed for the award ofcontracts to develop, construct, renovate and manage housing units for membersof the U.S. military and their families, referred to as military housingprivatization projects.

We seek to capitalize on the highly fragmented studenthousing market at colleges and universities and the related need for qualityand affordable off-campus, privately owned student housing. Focusing on thisopportunity, we have, and prior to our formation, GMH Associates had, acquiredor entered into joint ventures that acquired student housing propertiesstrategically located near college or university campuses. In addition, we havecontinued to expand upon the military housing business developed by GMH Associatesand to seek the award of additional military housing privatization projectsgranted by the Department of Defense, or DoD, under the 1996 National DefenseAuthorization Act.

We elected to be treated as a real estate investmenttrust, or REIT, under the Internal Revenue Code of 1986, as amended, or theCode, commencing with our taxable year ended December 31, 2004, and intendto continue to qualify as a REIT. We perform certain management and otherservices relating to student and military housing, which if performed directlyby a REIT could adversely affect its qualification as a REIT, through ourtaxable REIT subsidiaries, GMH Military Housing, LLC and College ParkManagement TRS, Inc. A “taxable REIT subsidiary” is an entity, taxed as acorporation, in which a REIT directly or indirectly holds shares and whichmakes a joint election with the REIT to be treated as a taxable REIT subsidiaryof the REIT. Taxable REIT subsidiaries are generally subject to federal incometaxation in the same manner as regular corporations and not as REITs. Theextent to which a REIT can conduct its operations through a taxable REITsubsidiary is limited by provisions of the Code, which require that (i) dividendsfrom a taxable REIT subsidiary, together with other nonqualifying gross incomeof the REIT, constitute not more than 25% of the REIT’s gross income in anytaxable year and (ii) securities issued by taxable REIT subsidiariesrepresent not more than 20% of the value of the REIT’s total assets as of theclose of any quarter of a taxable year of the REIT.

Our Internet address is *www.gmhcommunities.com*. We make availablefree of charge on or through our website our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-Kand amendments to those reports, as soon as reasonably practicable after weelectronically file such material with, or furnish it, to the SEC. Our Internetwebsite and the information contained therein or connected thereto do notconstitute a part of this Annual Report on Form 10-K.

**2007 BusinessStrategy**

In December 2006, we announced that ourmanagement expected to implement a business strategy in 2007 that would involvethe sale, refinancing and/or entrance into a joint venture covering a number ofour currently-owned student housing properties. The proceeds from thesetransactions will be used to repay outstanding indebtedness under our line ofcredit with Wachovia Bank, which has an initial maturity date of June 1,2007. In connection with this business strategy, we completed the refinancingof four of our currently-owned student housing properties in February 2007,for a total of $90 million in new 10-year mortgage debt at a fixedinterest rate of 5.6%. We used the net proceeds from this refinancing to paydown $73.6 million in outstanding borrowings under our line of credit, whichresulted in the replacement of the indebtedness under the line of credit thatwas carrying a variable LIBOR-based interest rate of 7.32% as of 

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the date of therefinancing. Immediately following this transaction, we had approximately $138million in remaining borrowings outstanding under our line of credit.

As of the date of thisreport, we had executed letters of intent to sell seven of our currently-ownedstudent housing properties, as well as a non-binding letter of intent with athird party institutional investor to form a joint venture that will cover anadditional six of our currently-owned student housing properties. For moreinformation on our properties that are subject to these letters of intent, seeItem 2 of this report titled “*Properties*.”Although these transactions were still in the due diligence phase as of thedate of this report, and we have not executed binding agreements, we currentlyexpect to complete them during the second quarter of 2007. The proceeds fromthese transactions also will be used to repay outstanding indebtedness underour line of credit. Based on the terms provided under these letters of intent,we expect to receive a sufficient amount of net proceeds from thesetransactions to pay down the remainder of our outstanding indebtedness underour line of credit.

**Student HousingBusiness**

***Overview***

Through its development, redevelopment and strategicacquisitions of student housing properties, directly and indirectly throughjoint ventures, our management team has led GMH Communities Trust to become, asmeasured by our internal competitive analysis estimates, one of the largestprivate operators of off-campus housing for college and university students inthe U.S.

We seek to acquire and manage high quality studenthousing properties strategically located near college or university campusesand other points of interest, such as restaurants or other nightlifedestinations that cater to students. The properties we seek to acquire andmanage include town homes and high-rise, mid-rise and garden-styleapartment complexes. The amenities we offer residents vary by property, butinclude many of those commonly sought by students, such as private bedrooms andbathrooms, high quality student furnishings, cable television, wired andwireless high speed Internet access, a washer and dryer in each unit, fitnesscenters, swimming pools, computer centers, study rooms and game rooms.Additionally, we strive to create attractive environments for our residents byproviding, among other things, student housing employees living on-site as wellas 24-hour maintenance and emergency services. Although we target studentresidents, a small percentage of our residents are non-students.

We believe there are substantial opportunities toacquire and manage off-campus student housing. Currently, the student housingmarket is highly fragmented and primarily served by local property owners. Inaddition, a significant number of existing student housing properties areobsolete, creating demand by students for high quality housing and premiumservices. We also believe that, because of the structural and functionalobsolescence of many existing on-campus and off-campus student housingproperties, future opportunities may exist to establish joint ventures withcolleges and universities to manage, lease, renovate or develop on- andoff-campus student housing, although we have not yet entered into any sucharrangements. Opportunities may exist for us to participate in thesearrangements through the ownership or leasing of properties or otherwise.

We believe that the student housing industry has beenunder managed to date, and that the key factors in the successful execution ofour business plan include, among other things, the provision of high qualitystudent housing with a high degree of customer interaction, the implementationof well-managed marketing, leasing, maintenance, retention and collectionprograms for our properties and the ability to incentivize our management byempowering them to achieve specific objectives.

We will only consideropportunities for those types of arrangements in the student housing businessthat are consistent with our ability to maintain our status as a REIT forfederal income tax purposes. In order to qualify as a REIT, a specifiedpercentage of our gross income must be derived from certain 

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sources,including rents from real property (and generally excluding income from theoperation of non-rental related assets).

***Strategy***

From a growth perspective, our strategy in the studenthousing business is to acquire, own and effectively manage a diverse portfolioof attractive and high quality off-campus student housing properties locatednear college and university campuses throughout the U.S. We focus on owning andoperating primarily garden-style apartment complexes, as well as townhomes, and high-rise and mid-rise apartment complexes. Our operational strategyis to manage our own student housing properties, as well as those we manage forcolleges, universities and private owners, with a focus on catering to thecollege and university student, whose needs and lifestyle differ greatly fromthe needs and lifestyle of a typical apartment resident. We implement thesestrategies as follows:

*Targetselect properties/markets.**  *We seek to acquire and manage high quality studenthousing properties strategically located near college or university campusesand other points of interest, such as restaurants or other nightlifedestinations that cater to students. We specifically target those acquisitionsites that are located near colleges or universities with a student enrollmentof at least 5,000, where the college or university is a primary driver of thelocal economy and where there is a shortage of existing modern student housing.We seek to identify properties in student housing markets with high barriers toentry and provide strong growth opportunities. We typically target sites withinapproximately two miles of the college or university campus. Our managementteam has found that most students prefer to live within a narrowly-definedgeographic radius around a particular college or university campus because itprovides students with the feeling of being a part of the campus community andalso shortens students’ commutes to and from classes. We also believe that wehave identified a trend of students, particularly upperclassmen, wanting tolive near entertainment venues near campus, such as restaurants or nightlifedestinations. In order to capitalize on this trend, we intend not only to seekto acquire and manage premium student housing properties strategically locatednear college or university campuses, but also those properties close to otherpoints of interest close to campus.

We believe that many of the local satellite campusesof large, state-funded colleges and universities have significant growthpotential as the main campuses of these institutions begin to cap the number ofstudents accepted. These caps on student enrollment at large, state-fundedinstitutions also have had a positive effect on campus enrollment at competingcolleges and universities located near these institutions.

Given our management team’s experience in andknowledge of the student housing market, we believe that we have developed asolid foundation upon which to identify, evaluate and acquire high qualityproperties in the future. We believe that our size and financial strength givesus a competitive advantage over smaller, less established competitors in ourtarget markets.

*Deliverfull range of high quality product.**  *We seek to acquire and managemodern, state-of-the-art town homes and high-rise, mid-rise and garden-styleapartments that are tailored to the “student lifestyle.” The typical designlayout of a housing unit consists of one to four bedrooms, with a complementarynumber of bathrooms, centered around a common area consisting of a living room,a dining area and a kitchen. In addition to functionality and appearance, wehave found that students want to be offered a variety of amenities, similar tothose found at typical luxury apartment communities. Amenities such as privatebedrooms and high quality furnishings, cable television, wired and wirelesshigh-speed Internet access, a washer and dryer in each unit, fitness centers,swimming pools, computer centers, study rooms and game rooms are found in somecombination at all of our properties. We also employ student housing personnelthat live on-site and provide our residents with 24-hour residentservices, including maintenance and emergency services.

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Our message to prospective student residents is thatour properties provide a home-like environment with state-of-the-arttechnological capabilities and amenities and services designed to maximizetheir college or university experience. In our marketing efforts, we convey themessage that living at one of our properties, unlike a typical apartmentproperty, is like becoming a part of a small community within the largercollege or university community. To this end, we offer regular “events” at ourproperties, such as athletic competitions, including volleyball and basketballtournaments, “battle of the bands” nights and non-alcoholic social events. Wealso offer prospective residents a roommate matching program, where studentswishing to find roommates provide us with their background information,including their likes and dislikes, so that our property staff may attempt tomatch these individuals with compatible roommates.

Each of our properties is managed, leased andmaintained by an experienced staff of on-site employees. These employees areavailable to our student residents around the clock to provide routinemaintenance service or to assist in emergencies. We also employ regional vicepresidents who are responsible for coordinating the operations of ourproperties within each of their respective regions. Our management team worksclosely with the college and university housing and development staffs near ourproperties to ensure that the needs of students, parents and the institutionsare being met throughout the year. For example, our management team coordinateswith colleges and universities to provide students with access, whereavailable, to the college or university computer network from each property’scomputer room or from student apartment units, and to become an approvedprovider of student housing for the local college or university.

We have developed specific management systems that aredesigned to optimize student housing operations and to maintain the value ofour properties. These systems include implementing standard lease terms thatgenerally require parental guarantees, making frequent and regular apartmentinspections conducted during the course of the lease term, and maintaining anddistributing a “price list” to our residents for any property damages incurredduring the lease term and thereby incentivizing students to maintain theirunits. Two exceptions for which we generally do not seek parental guaranteesinclude leases with international students, due to the high burden of obtainingor collecting on guarantees from parents of students who are not located in theU.S., and leases with residents who provide evidence of satisfactory personalincome.

*Superiorexecution of operations.**  *We utilize dynamic, professional marketing servicesprimarily to create web- and Internet-based applications to market andmake information about us and our properties easily accessible to students, andinitiate word-of-mouth campaigns to attract student residents. Recognizing theimportance of the Internet, we have an individualized website dedicated foreach of our student housing properties containing information about eachproperty, amenities and services available at each property and pricing and leasinginformation. To a lesser degree, we also advertise through more traditionalmedia, such as radio and print, particularly focusing on media such asstudent-run newspapers that target the student market.

The support of colleges and universities is beneficialto the continued success of our off-campus properties and, to this end, weactively seek to have these institutions recommend our properties to theirstudents. Specifically, we attempt to enter into informal arrangements withcolleges and universities to have them include information about certainoff-campus properties that we manage on their home pages and to have themprovide direct hyperlinks to these properties’ websites, in addition todistributing brochures relating to these properties. We currently havearrangements with several educational institutions that provide their studentswith informational materials directing them to our properties. In cases wherecolleges and universities do not offer active recommendations for ouroff-campus housing, most nonetheless provide lists of suitable off-campusproperties to their students. We continually work to ensure that our propertiesare on these lists in each of the markets that we serve.

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Many of our properties are all-inclusive, meaning thatwe attempt to simplify the bill-paying process by including all costsassociated with living at our properties, including water, electricity, gas,cable services and Internet services, in one monthly rental check to be paid tous by students or their parents. We limit our exposure to excessive utilitybills from residents by setting a reasonable limit on how much we will pay perresident per month for a particular utility, such as water or electricity. If aresident’s monthly bill for a utility exceeds the set limit, the excess costmay be charged to the resident on a subsequent bill.

In addition to our streamlined bill-payment system, webelieve that our method of leasing is attractive to student residents and theirparents. Under a traditional apartment lease, housing units are leased by theunit, and, therefore, all residents living in a particular unit are responsiblefor any liabilities of their roommates. We circumvent this situation bytypically leasing our housing units by the bed, not the unit. As a result, studentsin our properties are contractually responsible for making only paymentsassociated with their individual or pro-rata use of the unit.

We seek to maximize incomeby operating at a high level of efficiency through intensive management andprudent capital expenditures. In addition, property acquisitions in our targetmarkets should permit us to increase student awareness of our propertiesthrough our cross-marketing programs, gain economies of scale by enablingus to consolidate management and leasing services and reduce costs of capitalgoods, supplies, furniture and other goods and services bought in bulk.

***Student Leases***

Our property leasestypically contain the following terms:

·       a12-month lease term (rent payable in equal monthly installments);

·       rentpayments typically include charges for all amenities provided at the property,such as basic cable, Internet service, a fitness center, a swimming pool andusually parking, or some combination of these, and in many instances unitinterior charges for utilities such as water, gas, sewer and electric, subjectto a monthly utility cap per unit;

·       aguarantee by parents or legal guardians, relating to, among other things, theamounts payable under the lease, unless a resident can provide evidence ofsatisfactory personal income, or international residence status;

·       requirethat residents pay a security deposit and/or a non-refundable move-in fee. Thedeposit is applied against any damages to the unit caused by the resident(including furnishings and household items in the unit). Residents and theirlease guarantors also are required to assume personal responsibility for anydamages caused to a unit or common areas of a property;

·       restrictionson the subletting of units without our prior written consent;

·       leasedefault provisions in the event of failure to pay rent when due, breach of anycovenant contained in the lease or abandonment of the unit; and

·       extensive rules andregulations governing the property and the behavior of residents in order toensure effective controls.

***Lease Administration and Marketing Systems***

We believe we are an industry leader in identifyingand implementing solutions to improve the on-site decision-makingprocesses of local management at each of the college and university communitieswhere we either own or manage properties. We continue to focus on studenthousing information technology innovations, including customizing web-basedapplications designed to reduce operating costs, reacting 

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quickly to frequentleasing and market changes and improving real-time operating information andservices to student residents.

We have implemented state-of-the-art, real timesystems that provide for on-line resident applications, on-line work orders andfacilities management and occupancy reporting. We also have an on-line paymentsystem which is currently being used to facilitate all credit card payments atmost of our student housing properties. These exclusive systems havedramatically improved the efficiency of our operations and have improved servicesto an increasingly tech-savvy student market.

Additionally, we havecreated a web-based infrastructure designed to standardize systems andprocedures to improve data tracking at all levels within our student housingbusiness. These systems provide us with real-time access to customized datamanagement tools that track leasing, occupancy, expenditures and purchasesthrough national accounts, and with other e-business solutions designed toimprove the speed and accuracy of our property management services.

***Market Opportunity***

*The Student HousingMarket*

Demographic patterns and trends in education over thepast several years suggest that there are an increasing number of college-agedindividuals and an increasing number of students enrolling in colleges anduniversities in the U.S. According to a 2005 report by the U.S. Department ofEducation’s National Center for Educational and Statistics or NCES, fallenrollment at four-year institutions of higher education in the U.S. isexpected to increase from the 17.3 million students that were enrolled in2004 to 19.5 million in 2014.

The major catalyst for projected enrollment increases,and subsequent student housing demand in the near future, will be the growth inthe college-aged population represented by the “Echo Boom” generation, which ismade up of the sons and daughters of the “Baby Boomer” generation, and is equalin size to the Baby Boomer generation. While the Baby Boomers are nearingretirement, much of the Echo Boom generation, which was born between 1977 and1997, is entering, or has yet to enter, adulthood. According to the U.S. CensusBureau, in 2003, 4.0 million Americans turned 18; by 2010, that numberwill peak at 4.4 million and remain above 4.0 million annually forsome time thereafter.

The impact of demographic changes on collegeenrollment levels will not be felt equally across all states. During the pastdecade, the fastest growth of post-secondary enrollment has been concentratedprimarily in the Rocky Mountain States and the Sunbelt, which consists of theSoutheast and Southwest portions of the U.S. The Sunbelt, Pacific and Northeastregions of the U.S. are projected to be the fastest growing regions in collegeenrollment between 2000 and 2010, fueled by above average growth projections, inthe young adult population in these regions.

Among individual states, California, Florida, Texasand New York are projected to have the four largest populations of 18 to24 year-olds during the next decade, according to the U.S. Census Bureau’sApril 2005 projections. We expect these states will continue to serve asmajor immigration gateways, which also should bolster future demographic andaccompanying college enrollment growth well into the future. These four statesare forecasted to experience the greatest absolute increase in collegeenrollment. Rounding out the top ten states with the highest absolutepopulation growth projections for 18 to 24 year-olds are North Carolina,Virginia, Maryland, Arizona, Georgia and Washington. As of December 31,2006, more than 38% of our student housing properties were located in these“top 10” states.

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As of December 31,2006 and based on the U.S. Census Bureau’s April 2005 projections, thestates in which we owned properties were projected to experience an averagegrowth of 11.9% in the 18 to 24 year-old population, which is an averageof 84,221 persons between 2000 and 2010.

We believe that theseprojected increases in the 18 to 24 year-old population and in collegestudent enrollment will place a greater demand on off-campus student housing.While both on- and off-campus student housing markets will compete for theseadditional students, we believe that existing on-campus properties will be at adisadvantage because, according to NCES data, those properties tend to be olderunits that have not been sufficiently expanded, renovated or modernized to meetstudents’ increasing needs and expectations.

*Highly Fragmented Ownership of Student HousingProperties*

The student housing marketis highly fragmented, and consolidation in the industry has been limited. Basedupon our internal competitive analysis estimates, we believe that there arefewer than 12 firms that own a multi-regional network of off-campusstudent housing properties and have the ability to offer an integrated range ofspecialized student housing services, including design, construction and financing.

Our management experiencesuggests that none of the specialized student housing firms dominates aparticular region. Instead, they each seek to maintain a presence in multiplemarkets with large student populations. Therefore, most are active in the samemarkets, particularly Texas, California, Florida, Georgia, North Carolina andPennsylvania, due primarily to the presence of large state university systemsthat allow developers and operators to take advantage of economies of scale. Incontrast, the Northeast, Southwest and Pacific Northwest are three regions inwhich small, local owner-operators have significant market share.

*Status of the On-Campus Student Housing Market*

As student enrollmentincreases, we believe that one of the biggest challenges facing many collegesand universities is an antiquated student housing infrastructure. In additionto the need for additional housing to accommodate an expanding studentpopulation, universities must also deal with the problems of maintaining,refurbishing and marketing their aging existing inventory. Many schools haveundertaken large-scale renovations and others are under pressure tofollow suit to stay competitive. In addition to significant cosmetic upgrades,outdated heating and plumbing systems and roofs and windows are being replacedin many on-campus housing facilities. In some cases, institutions are findingthat the costs of renovations are often prohibitive and are opting to takeexisting facilities out of service, thereby creating a greater demand foroff-campus student housing.

In addition, variousamenities that used to be considered rare luxuries in the student housingindustry, such as kitchens, private bedrooms and bathrooms, Internetconnectivity and cable television systems, and a washer and dryer in each unit,are now more common and increasingly becoming a factor in a student’s housingand university selection.

In addition to increasingcosts associated with the renovation of existing on-campus student housing bycolleges and universities, budget deficits or budget restrictions are affectingthe amount of funds available to colleges and universities for education,thereby limiting states’ abilities to increase funding for student housingprojects. According to the Center for the Study of Education Policy, stateappropriations for higher education have been decreasing consistently. Eachstate’s ability to boost post secondary education spending, whilesimultaneously handling the strain on health care budgets from a rapidly agingpopulation and increasing funding to primary and secondary education, remainsto be seen. Traditionally, both health care and primary education have takenprecedence over higher education for political reasons. Based on informationprovided by the Association of Governing Boards of Colleges and Universities,we believe it is unlikely that states will have enough money to fund allprograms completely. As a result of 

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thesetrends in state budgets, we believe public universities’ finances are strainingtheir capacity to fund significant capital projects such as student housing.

*Supply of Student Housing*

Based upon currentprojections of enrollment growth, we believe that colleges and universitieswill be unable to meet the increase in student housing demand with traditional on-campushousing, thereby creating incremental demand for off-campus student housing.Furthermore, our management experience suggests that college and universitystudents increasingly prefer to live in modern, off-campus housing thatprovides greater privacy and modern amenities, rather than live in on-campusdormitories. Consequently, we believe colleges and universities are turning toprivate sector developers to bridge the gap between demand for on- andoff-campus housing and their ability to provide additional on-campus housingfrom their own capital resources.

We expect new constructionand development by colleges and universities, various commercial developers,real estate companies and other owners of real estate that are engaged in theconstruction and development of student housing to compete with us in meetingthe anticipated increased demand in student housing over the next10 years. The development and construction of new student housingproperties is extremely capital intensive. Since leases are typically executedfor an August or September delivery, construction delays can causelate completion and jeopardize rents for an entire year. As a result, we arepursuing several development opportunities in high barrier-to-entry markets,but we intend to focus our efforts on acquiring existing properties oracquiring newly constructed properties from third party developers in ourtarget markets.

We believe that we arewell-positioned to capitalize on the projected shortage of student housing inthe U.S. due to our management’s experience in the student housing industry,the economies of scale afforded by our size, our access to capital for theacquisition of additional student housing, our high quality student housingproduct and our systems designed to optimize student housing operations.

***Management Services***

As of December 31,2006, we managed all of the student housing properties owned by us and 18student housing properties not owned by us. We manage the student housingproperties not owned by us through our taxable REIT subsidiary, College ParkManagement TRS, Inc. For more information regarding the properties wemanage for others, see the section of this report under Part I—Item 2titled “*Properties*.”

***Investment Criteria***

Inanalyzing proposed student housing acquisitions, we consider various factorsincluding, among others, the following:

·       theability to increase rent and maximize cash flow from the student housingproperties under consideration;

·       whetherthe student housing properties are accretive, or will become accretive, to ourper share financial performance measures;

·       theterms of existing or proposed leases, including a comparison of current orproposed rents and market rents;

·       thecreditworthiness of the student residents and/or parent guarantors;

·       localdemographics and college and university enrollment trends, and the occupancy ofand demand for similar properties in the market area, specifically populationand rental trends;

·       theability to efficiently lease or sublease any unoccupied rentable space;

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·       theexpected capital improvements to be made to the property and the ability of thestudent housing property to achieve long-term capital appreciation;

·       theability of the student housing property to produce free cash flow fordistribution to our shareholders;

·       theage and projected residual value of the student housing property;

·       thelocation of the property, including its proximity to a college’s or university’smain campus or other academic buildings, as well as athletic and other entertainmentvenues frequented by students;

·       theopportunity to expand our network of relationships with colleges anduniversities as well as other strategic firms; and

·       potential effect on ourREIT status.

***UnderwritingProcess***

We have designed ourunderwriting strategy to enable us to deliver attractive risk-adjusted returnsto our shareholders. Our acquisition selection process includes severalfactors, including a comprehensive analysis of the property’s profitability,financial trends in a property’s revenues and expenses, barriers tocompetition, the need in a property’s market for the type of student housingservices provided by the property, the strength of the location of a propertyand the underlying value of a property. We also analyze the operating historyof each property, including the property’s earnings, cash flow, occupancy,student mix and anticipated capital improvements, to evaluate its financial andoperating strength.

In addition, as part ofour due diligence process, we obtain and evaluate title, environmental andother customary third-party reports. Currently, ouracquisition/development policy generally requires the approval of our Board ofTrustees for all acquisitions and development projects, including acquisitionsthrough joint venture structures, regardless of valuation.

***Competition***

We compete with otherowners, operators and managers of off-campus student housing in a number ofmarkets. The largest of these competitors are Education Realty Trust (NYSE:EDR) and American Campus Communities, Inc. (NYSE: ACC), each of which arenational, publicly-traded companies focused on growing their studenthousing businesses. We also compete in a number of markets with smallernational and regional companies, such as the following: Place Properties, FirstWorthing, Ambling Companies, Campus Advantage, The Dinerstein Companies, JPIStudent Living, The Preiss Company, Paradigm Properties and University HousingGroup. In addition, we compete on a highly localized basis with substantialnumbers of small, local owner-operators. Currently, the student housingindustry is highly fragmented, with no participant holding a dominant marketshare on a national level. The entry of one or more additional national orregional companies could increase competition for students and for theacquisition, management and development of student housing properties.

There are various on- andoff-campus student housing complexes that compete directly with us located nearor in the same general vicinity of many of our current and targeted properties.We also are subject to competition for students from on-campus housing operatedby colleges and universities, other public authorities and privately-heldfirms. We also are subject to competition for the acquisition of off-campus studenthousing with other existing local, regional and national owners and operatorsof student housing. Further, we generally believe that the pace and size ofacquisitions in the real estate industry have increased significantly over thepast 10 years. Consequently, prices have generally increased while returnon invested capital has fallen.

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**Military Housing Business**

***Overview***

In order to address poorhousing quality, a significant backlog of repairs and rehabilitations to itsmilitary housing units on and near bases, and a shortage of affordable, qualityprivate housing available to members of the U.S. military and their families,Congress included the Military Housing Privatization Initiative, or MHPI, inthe 1996 National Defense Authorization Act. Under the MHPI, the DoD wasgranted the authority to award projects to private-sector companies todevelop, construct, renovate and manage military housing. Since 1996, accordingto statistics available on the DoD’s website as of March 9, 2007, the U.S.military has awarded to private companies long-term agreements and rights toexclusively negotiate agreements with the U.S. military for 78 domesticprojects containing, in the aggregate, a total of 160,366 end-state housingunits. The DoD has targeted another 41 domestic projects containing anadditional 36,674 end-state housing units that have yet to be awarded byCongress, and agreements for the related development, construction, renovationand management services for these additional projects. According to the DoD,the previously awarded privatization projects and projects under exclusivenegotiations, together with these additional targeted projects, reflect theopportunity to develop, construct, renovate and manage a total of 197,040end-state housing units.

As of December 31,2006, our operating partnership held an ownership interest in, and operated,through various wholly-owned subsidiaries, nine military housing privatizationprojects at the Department of the Army’s Fort Stewart, Hunter Army Airfield,Fort Carson, Fort Hamilton, Fort Eustis, Fort Story, Walter Reed Army MedicalCenter, Fort Detrick, Fort Bliss, White Sands Missile Range, Fort Gordon,Carlisle Barracks/Picatinny Arsenal, and eight Navy bases. We refer to thesenine projects as the Stewart Hunter project, the Fort Carson project, the FortHamilton project, the Fort Eustis/Fort Story project, the Walter Reed/FortDetrick project, the Fort Bliss/White Sands Missile Range project, the FortGordon project, the Carlisle/Picatinny project and the Navy Northeast Regionproject, respectively. These projects in operation covered 21 domestic baseslocated in 12 states and Washington D.C., and we expect them to containapproximately 17,489 end-state housing units once full development,construction and renovation have been completed for all the projects.

In addition to ourprojects in operation at year-end, on February 6, 2007, we officiallyclosed on the award of our AETC Group I project with the Department of the AirForce, which covers four bases and 2,875 end-state housing units. Also, duringthe fourth quarter of 2006, the Army selected us to design, construct andmanage single soldier housing at Fort Bliss and Fort Stewart, which representamong the first of unaccompanied housing privatization projects awarded by theArmy to date and are expected to cover an aggregate of up to 840 end-statehousing units. We currently expect to close on the award of these twounaccompanied housing privatization projects before the end of 2007.

Inaddition, on February 26, 2007, we announced that we were selectedby the Department of the Navy to enter into exclusive negotiations for thedesign, construction, management and maintenance of the military family housingat 11 Southeast Region Navy bases in five states. The 50-year term of theNavy Southeast project is expected to commence with a six-year initialdevelopment period, or IDP, that is valued in excess of $700 million andcovering approximately 5,501 end-state housing units. On March 8, 2007, wealso announced that we were selected by the Department of the Army to enterinto exclusive negotiations for the family housing privatization project at theU.S. Military Academy at West Point, New York, which is expected to have afive-year IDP with project costs valued in excess of $160 million and cover 628end-state housing units.

Each of these militaryhousing privatization projects includes the renovation and management ofexisting housing units, as well as the development, construction, renovationand management of new units over a 50-year period, which, in the case ofthe Army, potentially could extend for up to an additional 25 years. The 50-yearduration of each project calls for continuing renovation, rehabilitation,demolition and reconstruction of housing units through various predeterminedproject phases.

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Some of the bases included in our military housingprivatization projects were targeted for closure or realignment as a result ofthe most recent round of the Base Realignment and Closure, or BRAC, process,which was initiated in 1988 and reached its fifth and, under currentlegislation, final round in 2005. On November 9, 2005, the BRAC round wascompleted when Congress approved the BRAC Commission’s recommendations to closethe Naval Air Station in Brunswick, Maine and to close the Walter Reed ArmyMedical Center in Washington, DC. Under the final BRAC list, the possiblenumber of affected military housing units covered by our existing projects was700 end-state housing units, all of which units are located at the Naval AirStation in Brunswick, Maine. We believe that the closure of the Walter ReedArmy Medical Center will not result in the loss of end-state housing units, asthese housing units are likely to be utilized by personnel in the greaterWashington, DC metropolitan area. In addition to the reduction in end-statehousing units resulting from the anticipated closure of the Naval Air Station,we expect that the number of housing units covered at Fort Bliss/White SandsMissile Range projects may increase as a result of base realignments.

We conduct our militarydevelopment, construction/renovation and management services for all of ourprojects, other than our most recent AETC Group I project with the Air Force,through our taxable REIT subsidiary, GMH Military Housing, LLC.

***Our Military Housing Privatization Projects inOperation as of December 31, 2006***

As of December 31,2006, we had an ownership interest in and operated nine military housingprivatization projects. Each of our projects in operation as of December 31,2006 included the renovation of existing housing units and the construction ofnew units. The 50-year duration of each project calls for continuedrenovation, rehabilitation, demolition and reconstruction of the project. Thefollowing table provides a summary of the terms of each military housingprivatization project in which we owned an interest as of December 31,2006.

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**MilitaryHousing Privatization Projects in Operationas of December 31, 2006**
| Project Name           | ** ** | ** **                                                                       | ** ** | **Location** | ** ** | **Initial  Development  Period(1)** | ** ** | **Initial  Development  Period  Expected  Completion  Date** | ** ** | **Initial  Development  Period Project  Costs(2)  (in millions)** | ** ** | **Expected  End-State  Housing  Units at Initial  Development Period  Completion Date** |
|------------------------|------------|----------------------------------------------------------------------------------|------------|--------------|------------|-------------------------------------|------------|--------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|
|                        |       |                                                                             |       |         |       |                                |       |                                                         |       | 1,868                                                             |       | new units                                                                               |
| Fort Stewart and       |       | Hinesville, GA                                                                   |       |         |       |                                |       |                                                         | ** ** | 1,597                                                             | ** ** | renovated units                                                                         |
| Hunter Army Airfield   |       | Savannah, GA                                                                     |       | 8 years      |       | October 2011                   |       | $358.2                                                       |       | 237                                                               |       | existing units(3)                                                                       |
|                        |       |                                                                             |       |         |       |                                |       |                                                         |       | **3,702**                                                         |       |                                                                                    |
|                   |       |                                                                             |       |         |       |                                |       |                                                         |       | 841                                                               |       | new units                                                                               |
| Fort Carson(4)         |       | Colorado Springs, CO                                                             |       | 5 years      |       | Completed                           |       | Completed                                                    |       | 1,823                                                             |       | renovated units                                                                         |
|                   |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **2,664**                                                         | ** ** | ** **                                                                              |
|                   |       |                                                                             |       |         |       |                                |       |                                                         |       |                                                              |       |                                                                                    |
| Fort Carson Expansion  |       | Colorado Springs, CO                                                             |       | 3 years      |       | November 2009                  |       | 124.3                                                        | ** ** | **396**                                                           |       | new units                                                                               |
|                   |       |                                                                             |       |         |       |                                |       |                                                         |       | 185                                                               |       | new units                                                                               |
| Fort Hamilton          |       | Brooklyn, NY                                                                     |       | 3 years      |       | May 2007                       |       | 54.9                                                         |       | 43                                                                |       | renovated units                                                                         |
|                   |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **228**                                                           | ** ** | ** **                                                                              |
| Walter Reed Army       |       |                                                                             |       |         |       |                                |       |                                                         |       | 407                                                          |       | new units                                                                               |
| Medical Center/        |       | Washington, DC                                                                   |       |         |       |                                |       |                                                         | ** ** | 156                                                               | ** ** | renovated units                                                                         |
| Fort Detrick(5)        |       | Frederick, MD                                                                    |       | 4 years      |       | June 2008                      |       | 89.3                                                         | ** ** | 36                                                                | ** ** | existing units(3)                                                                       |
|                        |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **599**                                                           | ** ** | ** **                                                                              |
| Fort Eustis/Fort Story |       | Newport News, VA                                                                 |       |         |       |                                |       |                                                         |       | 651                                                               |       | new units                                                                               |
|                   |       | Virginia Beach, VA                                                               |       | 6 years      |       | February 2011                  |       | 167.0                                                        | ** ** | 473                                                               | ** ** | renovated units                                                                         |
|                   |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **1,124**                                                         | ** ** | ** **                                                                              |
|                   |       |                                                                             |       |         |       |                                |       |                                                         |       | 1,959                                                        |       | new units                                                                               |
| Fort Bliss/White Sands |       | El Paso, TX                                                                      |       |         |       |                                |       |                                                         | ** ** | 1,178                                                             | ** ** | renovated units                                                                         |
| Missile Range(6)       |       | Las Cruces, NM                                                                   |       | 6 years      |       | June 2011                      |       | 440.5                                                        | ** ** | 140                                                               | ** ** | existing units(3)                                                                       |
|                        |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **3,277**                                                         | ** ** | ** **                                                                              |
| Navy Northeast         |       | Brunswick, ME;                                                                   |       |         |       |                                |       |                                                         |       |                                                              |       |                                                                                    |
| Region(7)              |       | Kittery, ME;  Newport, RI;  Groton, CT;  Saratoga Springs, NY;  Long Island, NY; |       |         |       |                                |       |                                                         | ** ** | 1,251                                                             | ** ** | new units                                                                               |
|                   |       | Colts Neck, NJ;                                                                  |       |         |       |                                |       |                                                         | ** ** | 1,227                                                             | ** ** | renovated units                                                                         |
|                   |       | Lakehurst, NJ                                                                    |       | 6 years      |       | October 2010                   |       | 612.8                                                        | ** ** | 1,786                                                             | ** ** | existing units(3)                                                                       |
|                   |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **4,264**                                                         | ** ** | ** **                                                                              |
|                   |       |                                                                             |       |         |       |                                |       |                                                         |       | 310                                                               |       | new units                                                                               |
| Fort Gordon            |       | Augusta, GA                                                                      |       | 6 years      |       | April 2012                     |       | 110.5                                                        | ** ** | 577                                                               | ** ** | renovated units                                                                         |
|                        |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **887**                                                           | ** ** | ** **                                                                              |
|                   |       |                                                                             |       |         |       |                                |       |                                                         |       | 209                                                               |       | new units                                                                               |
| Carlisle/Picatinny     |       | Carlisle, PA                                                                     |       |         |       |                                |       |                                                         |       | 110                                                               |       | renovated units                                                                         |
|                   |       | Dover, NJ                                                                        |       | 5 years      |       | July 2011                      |       | 78.2                                                         | ** ** | 29                                                                |       | existing units(3)                                                                       |
|                   |       |                                                                             |       |         |       |                                |       |                                                         | ** ** | **348**                                                           |       |                                                                                    |
| **Total**              | ** ** | ** **                                                                       | ** ** | ** **   | ** ** | ** **                          | ** ** | **$2,035.7**                                                 | ** ** | **17,489**                                                        | ** ** | ** **                                                                              |

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(1)             The first phase of the project, known asthe initial development period, covers the period of initial construction orrenovation of military housing on a base, typically lasting three to eightyears.

(2)             As of December 31, 2006, representsestimated total project costs for the initial development period, includingclosing, development, construction, financing and related costs and excludingestimated capitalized interest associated with the project. These total projectcosts are determined at the time we and the relevant military branch executedefinitive business agreements to commence the project, and may be modifiedonly upon the approval of a formal change order, which may affect the term ofthe initial development period as well. See also the section of this reporttitled “*Risk Factors—Risks Related to our Military HousingBusiness*.”

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(3)             These units will not be renovated duringthe initial development period.

(4)             Additional financing for the expansion ofthe Fort Carson project was completed during the fourth quarter of 2006.

(5)             Walter Reed has been designated forclosure under BRAC. We believe that the closure will not result in the loss ofhousing units, as these housing units are likely to be utilized by personnelwho will be relocating from Walter Reed to nearby military medical facilities.

(6)             We are in discussions with the Departmentof the Army to review the possibility of expanding the number of end-statehousing units covered by this project, which if approved, would likely requirethe placement of additional debt financing on the project

(7)             We are in the process of finalizing planswith the Navy to restructure the terms and debt financing for the NavyNortheast Region project as a result of the (i) anticipated closure of theNaval Air Station in Brunswick, Maine, which covers approximately 700 end-statehousing units and (ii) need to further reduce the number of end-statehousing units for the project overall by an approximate 620 end-state housingunits due to changes in area housing market conditions that are affectingoccupancy rates for the project. See also the section of this report titled “*Risk Factors—Risks Related to our Military Housing Business*.”

***Military HousingPrivatization Initiative***

The MHPI is a programauthorized under the 1996 National Defense Authorization Act that allows theDoD to award military housing privatization projects to private sectoroperators. Under the MHPI, private-sector developers may own, operate,maintain, improve and assume responsibility for housing on U.S. military bases.According to the authority granted to it by the MHPI, the DoD can work with theprivate sector to revitalize military housing over a 50-year ground leaseperiod by employing a variety of financial tools to obtain private capital toleverage government dollars, make efficient use of limited resources and use avariety of private-sector approaches to build and renovate militaryhousing faster and at a lower cost to U.S. taxpayers.

The MHPI is designed toremedy both the poor condition and shortage of current military housing.According to the DoD, in 1997 it owned approximately 300,000 family housingunits, on and off U.S. military bases, and estimated that more than 50% ofthese units required renovation or replacement as a result of insufficientmaintenance or modernization over the previous 30 years. The DoD believesthat improving the poor housing conditions as well as the shortage of quality,affordable private housing on military bases will significantly improve themorale and quality of life for members of the U.S. military and their families,thereby boosting retention and enrollment in today’s voluntary military forces.The majority of members of the U.S. military and their families live in localcommunities near U.S. military bases. Most of these members of the U.S.military are enlisted personnel whose salaries are at the lower end of themilitary pay scale. Their salaries make it difficult for them to find quality,affordable housing within a reasonable commuting distance. Furthermore, many ofthese communities do not have enough affordable, quality rental housing toaccommodate members of the U.S. military and their families. The MHPI providesa creative and effective solution to address the quality housing shortage, andwill result in the construction of more housing built to market standards forless money than through the military’s own construction process. Furthermore,traditional military construction requires contractors to adhere to stringentmilitary specifications, which make projects significantly more costly than buildingto market standards. Commercial construction is both faster and less costlythan military construction, and private-sector funds significantlystretch and leverage the DoD’s limited housing funds and, at the same time,open the military construction market to a greater number of development firmsand stimulate the economy through increased building activity.

***Competitive BiddingProcess for Military Housing Privatization Projects***

In order to implement theMHPI and foster a coordinated approach by the military branches, the DoDcreated the Housing and Competitive Sourcing Office to develop the legal,financial and operational aspects of the MHPI. Each military branch assessesits own current and future housing requirements, and determines the best courseof action necessary for revitalizing inadequate housing units and keeping itshousing inventory in good condition. Each military branch also individuallyassesses the viability of particular privatization projects and makes the finaldecision whether to privatize housing on a particular 

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base,taking into consideration housing needs and available resources of that branch.Once the military branch and the Office of the Secretary of Defense approvesite development, they conduct an industry forum to obtain private-sectorinput. Though each military branch must follow certain general DoD policyguidelines, each service branch has its own privatization project awardprogram. The solicitation process differs slightly among the various militarybranches; however, in all cases, a competitive bidding process is the method bywhich projects are awarded to private-sector developers. Projects areintroduced to the private sector through the use of a request for proposal or arequest for qualifications. Developers that satisfy the respective militarybranch’s requirements respond with detailed project proposals, and a selectionis made from among them. The project winner is awarded the exclusive right tonegotiate the final plan, and assuming approval of such final plan, to develop,construct, renovate and manage family housing at a military base, which, basedon our experience, is typically for a 50-year period and, in the case ofthe Army, contains certain extension rights.

Based on our experience,during the exclusivity period for an Army project, which typically lastsbetween six and 12 months, the project winner initially enters into acontract with the Army pursuant to which it will create a community developmentand management plan, or CDMP, relating to the planned development of theawarded project. If the CDMP is approved by Congress, the project winner entersa transition period, ranging from 60 to 90 days, during which it preparesto implement its CDMP, finalizes documentation relating to the implementation ofthe CDMP, including arranging and negotiating necessary financing andnegotiating final documents and agreements with the Army, and prepares to takeover the base housing operations on the date of closing. Closing occurs afterthe transition period when all the documentation and negotiations with the Armyhave been finalized, at which point the project winner may commence itsoperation of the project.

Based on our experience,during the period of exclusive negotiations with the Navy, the project winnerworks towards finalization of required project and environmental documentation,pursues local approvals, develops design plans and working drawings, reaches anagreement with the Naval officials regarding all aspects of the project, andarranges and negotiates necessary financing. Also based on our experience todate, the Air Force ranks bidders based on numerous factors and then entersinto exclusive discussions with the highest ranking bidder. If the highestranking bidder meets the Air Force’s requirements and the project is approvedby Congress, then that bidder becomes the “successful bidder.” The successfulbidder is then authorized by the Air Force to close the transaction.

The result of these exclusive negotiations will bebusiness agreements that describe all relevant characteristics of thedevelopment, and defines all business terms and conditions, schedules andfinancial arrangements between the parties. This process generally takesapproximately six to 12 months to complete from the time of the award tothe execution of the business agreement.

***OrganizationalStructure of Our Military Housing Privatization Projects***

The operations of ourmilitary housing privatization projects are generally conducted through anorganizational structure that involves two wholly owned subsidiaries of ouroperating partnership, GMH Military Housing Investments LLC and one of ourtaxable REIT subsidiaries, GMH Military Housing, LLC. GMH Military HousingInvestments LLC owns equity interests in the various projects. GMH Military Housing,LLC develops, manages and sometimes constructs/renovates the military housingin all of our projects, other than our AETC Group I project, through two of itssubsidiaries: GMH Military Housing Development LLC and GMH Military HousingManagement LLC, which are referred to as GMH Development and GMH Management,respectively, throughout this report. This organizational structure isdescribed as follows:

*The Project Entity.**  *We typically create a project-specificlimited liability company or limited partnership, the Project LLC, to serve asthe managing member of the Project Owner. In most of our projects, the ProjectLLC is a joint venture between GMH Military Housing Investments LLC and a jointventure partner. The joint venture partner typically is a third-partyarchitectural and/or design company or 

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constructioncompany with whom we have an existing relationship. GMH Military HousingInvestments LLC is the manager of the Project LLC.

In the case of our Navyproject, the Project Owner is a joint venture between the Navy and the ProjectLLC. The Project Owner is created for the purpose of owning the project. TheProject Owner is also the ground lessee of the land upon which the project issituated. The Project Owner contracts with GMH Development for projectdevelopment services, GMH Management for property and asset management, andanother wholly owned subsidiary of GMH Military Housing, LLC for design/buildservices. That design/build entity subcontracts with (i) a joint venturepartner for project architectural and design services, (ii) a third partyconstruction company for construction services, and (iii) GMH Managementfor construction/renovation services. Our Navy project is financed through acombination of equity from the Project Owner and third-party debt.

In the case of our Armyprojects, the Project Owner is a joint venture between the Army and the ProjectLLC. The Project Owner contracts with GMH Development, GMH Management and athird-party partner for development, management, renovation,architectural and design and construction services. The Project Owner iscreated for the purpose of owning the project. The Project Owner also is theground lessee of the land upon which the project is situated. The Project LLCis typically the manager of the Project Owner. The Army projects are financedthrough a combination of equity, provided by the Project LLC and the Army(which typically approximates up to 10% of the total project value), and third-partydebt (which is typically up to 90% of the total project value).

In the case of our AETCGroup I project, the Project Owner is owned entirely by the Project LLC. In theAETC Group I project, the Project Owner contracts with another subsidiary ofGMH Military Housing Investments LLC, GMH AETC Management/Development LLC, forproperty and management, renovation and development services and withthird-party providers for architectural/design and construction services. TheProject Owner owns the project and is the ground lessee of the land upon whichthe AETC project is situated. The Project LLC is the manager of the ProjectOwner. The AETC project is financed through equity provided by the Project LLCand a third-party construction and permanent loan.

*Debt Financing for theProject.**  *Financingfor our projects is procured through either taxable revenue bonds orconventional commercial lending. Financing is typically obtained at the projectclosing, which occurs on the date that the relevant branch of the U.S. militarytransfers operation and management of those housing units at the project to theProject Owner. Based on our management’s experience, we believe the terms ofthe debt are consistent with the terms typically used for conventional multi-familyhousing projects. In each instance, the debt generally is non-recourse to usand is secured by a first priority lien on the project and requires theassignment of all of the Project Owner’s rights for the benefit of thebondholders or the lender, as applicable. The security therefore includes theProject Owner’s interest in the ground lease. Based on our experience, therepayment terms require payments of interest only during the first three toseven years of the loan and, thereafter, payments of interest and principal,amortized over a 35- to 45-year period, for the remaining term ofthe loan. While the Project LLC is able to obtain debt financing for up to 90%of the total value of each project, based on our management’s experience,lenders typically will not lend in excess of a specified debt service coverageratio projected for the first stabilized year following the end of the initialdevelopment period (typically ranging from three to eight years, out of the 50-yearproject term). Accordingly, if interest rates increase, the Project LLC may berequired to finance a greater portion of the project cost with equity. Inaddition, if the minimum debt service coverage is not met, we may not haveaccess to cash flows from the project, other than for project operatingexpenses, until the debt service coverage is restored.

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The following diagram shows the structure of all ofour projects, other than our AETC Group I project:

As its contribution to theproject, the U.S. military branch contributes the existing houses and relatedimprovements and may also contribute cash. The Project LLC also contributescash, typically at the end of the initial development period for our Armyprojects, and at the outset of the initial development period, for our Navyproject. For the AETC Group I project, the Project LLC contributes cash at theoutset of the initial development period. Typically, the Project LLC and theU.S. military branch are not required to make additional capital contributionsto the project, and neither is permitted to make any additional contribution tothe project without the approval of the other. The Project LLC’s return oninvestment is dependent on both the structure of the transaction and the U.S.military branch involved.

*The Development Company.**  *GMH Development provides development servicesto our privatization projects, other than the AETC Group I project. Theseservices are provided through development agreements typically having 50-yearterms, which extend automatically upon any renewal of the related ground lease.GMH Development generally assists the Project Owner by coordinating andmonitoring the planning, design, demolition, renovation and constructionactivities on the Project Owner’s behalf, including the evaluation of projectsites and requirements for each project, assisting the Project Owner with thedevelopment of the project schedule and budget, establishing coordinationbetween the relevant military branch and primary contractors, reviewingcompleted construction and renovation work, and certifying payments or primarycontractors for such work. GMH Development also establishes and implementsadministrative and financial controls for the design and construction of theproject and assists the Project Owner in obtaining and maintaining generalliability insurance and other types of insurance. These services are providedby GMH AETC Management/Development LLC in the AETC Group I project.

The Project Owner pays GMHDevelopment a base fee equal to a percentage of the total development costs forthe project, from the beginning of the initial development period throughoutthe life of the project. Additionally, GMH Development typically is entitled toreceive incentive development fees from the Project Owner upon the satisfactionof designated milestones. During the initial development period, GMHDevelopment is entitled to receive an incentive fee which is based upon a totalof the development costs during the period. After the initial developmentperiod of a project, the incentive development fees typically are a percentageof total development costs for the remainder of the project term. Milestonesfor payment of incentive development fees typically include completing aspecified number of homes according to schedule, achieving specific safetyrecords and implementing small business or minority subcontracting plans. Thecombined base and incentive development fees generally ranges from 3.0% to 4.0%for our current projects.

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The Project Ownergenerally may terminate the development agreement upon written notice to GMHDevelopment if it breaches any of its material obligations under the managementagreement and fails to cure such breach within 30 days.

*TheConstruction/Renovation Company and Property Manager.**  *GMH Management providesconstruction/renovation and property management services to our privatizationprojects. Construction/renovation refers to the minor and major renovation workthat we perform at our projects. With regard to projectconstruction/renovation, the Project Owner pays GMH Management a base fee equalto a percentage of the total construction/renovation costs for the project,from the beginning of the initial development period throughout the life of theproject. Additionally, GMH Management typically is entitled to receiveconstruction/renovation incentive fees from the Project Owner upon thesatisfaction of designated milestones. During the initial development period,GMH Management is entitled to receive an incentive fee which is based upon atotal of the construction/renovation costs during the period. After the initialdevelopment period of a project, the construction/renovation incentive fees area percentage of total construction/renovation costs for the remainder of theproject term. Milestones for payment of construction/renovation incentive feestypically include completing a specified number of homes according to schedule,achieving specific safety records and implementing small business or minoritysubcontracting plans. The combined base and incentive construction/renovationfee generally ranges from 3.0% to 4.0% for our current projects.

In addition, in certaininstances, GMH Management may receive fees relating to the performance ofpre-construction/renovation services. These pre-construction/renovation feesare determined on a project-by-project basis, and are paid in proportion to theamount of pre-construction/renovation costs incurred by GMH Management for theproject.

With regard to propertymanagement, the Project Owner contracts with GMH Management to provide propertymanagement services for the project. These services are provided throughmanagement agreements, typically having 50-year terms, which extendautomatically upon any renewal of the applicable ground lease. GMH Managementoversees the leasing of housing units in accordance with the requirements ofthe ground lease, day-to-day operations of the project, collection of revenuesand depositing the revenues into appropriate accounts, day-to-day maintenanceof the project, ordinary repairs, decorations, alterations and improvements,completion of backlogged maintenance and repairs, payment of taxes imposed onthe project, and compliance with applicable laws and regulations.

GMH Management typicallyis required to prepare and submit an operating budget for the project to theProject Owner on an annual basis. The management agreement typically grants GMHManagement the authority to make expenditures and incur obligations included inthe operating budget. GMH Management also has the authority to make certainemergency expenditures.

As standard compensationfor the services it provides, in general, GMH Management is paid a base fee,equal to a percentage of effective gross revenue for the project. In addition,GMH Management is entitled to receive an incentive fee from the Project Ownerupon the satisfaction of designated benchmarks relating to emergency work orderresponses, occupancy rates, home turnover and resident satisfaction surveys.The combined base and incentive management fee generally ranges from 3.0% to4.5% for our current projects.

The Project Ownergenerally may terminate the management agreement upon written notice to GMHManagement if it breaches any of its material obligations under the managementagreement and fails to cure such breach within 30 days.

Property management andrenovation services for the AETC Group I project are provided by GMH AETCManagement/Development LLC.

*Design/Build Agreement.**  *In our Navy project, the Project Owner enteredinto a design/build agreement with a subsidiary of GMH Military Housing, LLCfor construction, renovation and architectural and design services that areprovided through subcontracts with GMH Management and certain third parties.

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*The Ground Lease.**  *In all our projects, the ProjectOwner and the Army, Navy or Air Force, as applicable, enter into a ground leasepursuant to which the U.S. military branch leases to the Project Owner the realproperty upon which a particular privatization project is located. We expectfuture-awarded privatization projects to operate in a similar fashion.Typically, the initial term of a ground lease is 50 years. With respect toArmy privatization projects, the ground lease may be renewable for anadditional period of up to 25 years upon request by the Army and acceptanceby the Project Owner. As partial consideration for the execution of a groundlease and performance of its obligations thereunder, the Project Owner agreesto design, develop, manage, rehabilitate, renovate and maintain theprivatization project. At all times during the term of a ground lease, the U.S.military branch provides the Project Owner access to the privatization project.The use and occupancy of the privatization project is subject to the generalsupervision and approval of the applicable military branch, and to such rules andregulations as the U.S. military branch prescribes. The Project Owner has theright to lease housing units to non-military or non-DoD tenants if vacancyrates hit certain levels.

Some of the Army groundleases and the Air Force ground lease provide that in the event a base issubject to closure under the BRAC regulations, the Project LLC has the option,subject to then-existing applicable law, to acquire fee simple title to thereal property. There is no guarantee that any purchase option agreement will beenforceable or that any corresponding purchase option will be exercisable inthe event of a base closure under BRAC. The ground leases on our Navy project,and some of our Army projects, do not provide the Project LLC with a purchaseoption upon a base closure under BRAC.

***Basic Allowance forHousing***

The U.S. military’s BasicAllowance for Housing, or BAH, is the primary source of operating revenues ofour military housing privatization projects. BAH is a cost of living stipenddistributed monthly by the DoD to members of the U.S. military to cover theirand their families’ costs of living (i.e., rent and utility expenses) inprivately-owned housing, on or near bases. The intent of BAH is toprovide members of the U.S. military equivalent and equitable housingcompensation based upon the market prices of rental housing in the localhousing markets surrounding the U.S. military bases. Each year, Congress mustappropriate an aggregate budget for BAH for all of the military branches.

The DoD adjusts, on anannual basis, the BAH stipend to be received by each individual member of theU.S. military to reflect changes in the profile of that particular individualmember of the U.S. military. Specifically, a BAH stipend is computed byestimating the market price of housing that the member of the U.S. militarywould be expected to rent, based upon his or her geographic area, pay grade andnumber of dependents, adding in average utilities and insurance. The particulargeographic area surrounding a military base is called a Military Housing Area,or MHA. In computing a BAH, MHA price data for rentals, average utilities andinsurance is collected annually in the spring and summer months when housingmarkets are most active. Pricing information is surveyed from local apartments,townhouses and duplexes, as well as from single-family rental units ofvarious bedroom sizes. Although BAH rates can decrease for a geographic dutylocation, members of the U.S. military that collect BAH cannot have the amountof their BAH decreased unless a change in status occurs (except that promotionsare specifically excluded in the definition of a change in status), such as abase transfer, a decrease in pay grade or a change in the number of dependents.

***Revenue Stream***

Typically, a member of theU.S. military who is leasing a housing unit on one of our project bases willelect for his or her monthly BAH to be directly deposited by the government,via wire transfer, into an operating revenue fund controlled by the ProjectOwner, subject to certain restrictive covenants required by any outstandingconstruction finance bonds. Rental revenues derived from BAH are subsequentlypaid out of the operating revenue fund by the Project Owner according to adistributive “waterfall” plan set forth in the Project Owner operatingagreement. In general, the BAH revenues associated with our currentprivatization projects “flow out” of the operating revenue fund on a monthlybasis.

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·       *Operating and Other Expenses*.   Operating activitiesinclude normal administrative, leasing, marketing and maintenance functionsconsistent with a typical conventional multi-family project. Expensesrelating to these operating activities are financed through equitycontributions from the DoD and the Project LLC, debt financing and otheroperating cash flow derived from BAH. Revenues first are applied to payoperating expenses, including GMH Management’s standard management fee, equalto a percentage of project revenues derived from BAH, monthly utilities,insurance premiums, real estate taxes, if any, and other routine maintenanceexpenses, such as landscaping and preventative maintenance, associated with thehousing units.

·       *Debt Service (including amortization) and Capital Reserves andReplacements*.   The Project Owner then uses remaining revenuesto pay down principal and interest on any outstanding indebtedness that wasissued to finance a portion of the costs of design, demolition, construction,replacement and renovation of housing on a particular military base. Debtfinancing, including taxable revenue bonds and commercial lending arrangements,typically covers up to 90% of total project costs. The indebtedness is fullyfunded at the time we enter into definitive agreements for the project. Thisindebtedness typically requires payments of interest only during the firstthree to seven years and is amortized over the remainder of its 35 to45 year term. The Project LLC allocates revenues to make capital repairsor replacements on any of the existing housing units, such as roofing or sidingrepairs.

·       *Incentive-based Subordinated Management Fee.*   GMHManagement next receives its incentive management fee, equal to a percentage ofproject revenues, derived from any excess rental revenues from BAH, uponsatisfying debt service and certain benchmarks.

·       *Construction/Renovation Fees and Development Fees.*   Atthe start of a project’s initial development period, which typically rangesfrom three to eight years and continues throughout the term of the project aswe renovate existing housing and develop and construct additional housing on aparticular military base, GMH Management and GMH Development are entitled toreceive standard and incentive construction/renovation and development fees,respectively. In addition, in certain instances, GMH Management may receivefees relating to the performance of pre-construction/renovation services. Thesepre-construction/renovation fees are determined on a project-by-project basis,and are paid in proportion to the amount of pre-construction/renovation costsincurred by GMH Management for the project. Construction/renovation fees areequal to a percentage of the total construction/renovation costs, anddevelopment fees are equal to a percentage of the total development costs.Development costs include hard costs associated with newconstruction/renovation, as well as certain soft costs. Generally, the majorityof new construction work is completed during the beginning years of an initialdevelopment period, while construction/renovation work is completed throughoutthe initial development period. During the initial development period thesecosts are paid out of a construction account, which is funded by excess cashflow from rental revenues and proceeds from equity contributions and debtofferings. Excess cash flow, for purposes of funding the construction account,includes cash flow available from BAH rental revenues after payment ofoperating expenses, debt service, subordinated management fees and preferredreturns (to the extent such preferred returns have not been deferred as part ofthe project financing). The construction account may have an equity sub-accountto the extent of equity contributed to the Project LLC. Subsequent to theinitial development period, all remaining funds are transferred to areinvestment account and the construction account is closed. Construction,development and renovation costs will be paid out of the reinvestment accountto continuously construct, renovate and rebuild a project. The payment ofconstruction/renovation fees and development fees to us during the life of aproject is not subordinate to the payment of any other fees.

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·       *Preferred Return.  *The Project LLC will typicallyreceive, to the extent that adequate funds are available, an annual, minimumpreferred rate of return. On our existing projects, this annual minimumpreferred rate of return ranges from 9% to 12% of the Project LLC’s initialequity contribution to the project. It should be noted, however, that duringthe initial development period, the Project Owner is precluded fromdistributing funds to pay the Project LLC the minimum preferred rate of return.The unpaid amounts generally will accrue and accumulate, and can be used tofund renovation and construction costs, if necessary. If the accumulated fundsare not needed to fund renovation and construction costs, they would, at theend of the initial development period, be distributed to pay accrued preferredreturns to the Project LLC.

·       *Split of Remaining Revenues.*   Subsequent to the initialdevelopment period, any revenues remaining after the annual, minimum preferredrate of return is paid, as described above, are split between the Project LLCand the reinvestment account held by the Project Owner for the benefit of thegovernment. On our existing projects, the total amount that the Project LLC isentitled to receive (inclusive of the preferred return) is generally capped atan annual, modified rate of return, or cash-on-cash return, of between 11% and17% (depending on the particular project) on its initial equity contribution tothe project. The total capital return generally will include the annual,minimum preferred return discussed above. The reinvestment account is anaccount established for the benefit of the military, but funds may be withdrawnfor ongoing construction, development and renovation costs during the remaininglife of a privatization project only upon approval of the applicable militarybranch.

·       *Return of Equity.*   Generally, at the end of a projectterm, any monies remaining in the reinvestment account are distributed to theProject LLC and the Army, Navy or Air Force, as applicable, in a predeterminedorder of priority. Typically these distributions will have the effect ofproviding the Project LLC with sufficient funds to provide a minimum annualreturn over the life of the project and to result in a complete return of itsinitial capital contribution. After payment to the Project LLC of the minimumannual return and the return of its initial contribution, all remaining fundswill typically be distributed to the Army, Navy or Air Force, as applicable.

In addition, we receivefees from our relationship partners that provide architectural and design orconstruction services for our military housing privatization projects. Thesefees are for our efforts and expenses incurred while competing for aprivatization project award from one of the U.S. military branches, with such aproject award not just benefiting us, but our relationship partners as well. Someexamples of the business development services provided by us for the benefit ofour relationship partners include acting as the point of contact for,coordinating discussions with, and preparing and making presentations to, theDoD. Additionally, we take the lead in preparing and drafting the transactiondocuments for a potential privatization project, evaluating and communicatingpotential privatization project requirements, coordinating marketing efforts,providing information technology and temporary on-site offices, andfacilitating potential pilot programs and other development activities.Typically, our partners pay these fees for our business development services toGMH Management, GMH Development and GMH Military Housing Construction LLC, orGMH Construction, another wholly owned subsidiary of our taxable REITsubsidiary, GMH Military Housing, LLC.

***Strategy***

*SelectiveGrowth.**  *Byleveraging the substantial industry experience of our management team, we focuson winning military housing privatization projects on which we selectivelychoose to bid, based on the strategic importance of the base, and the primelocation and profit potential for these projects.

*Committedto Superior Management.**  *In the performance of our obligations under existingmilitary housing privatization projects, our management team has been, and willcontinue to be, fully committed to 

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ensuring that members of theU.S. military and their families have high quality, safe, attractive andaffordable housing.

*Capitalizeon Industry Relations.**  *Ourmanagement team has developed relationships with national and regional firmsthat specialize in residential and military residence community formation andconstruction. On October 22, 2003, our subsidiary, GMH Military HousingInvestments LLC, entered into a joint venture agreement with a subsidiary ofThe Benham Companies, LLC, Benham Military Communities, LLC, which sets forththe terms by which Benham will participate in the equity structure on certainof our privatization projects and provide architectural, engineering and designservices on those military privatization projects awarded to us. Under thisagreement, we and Benham are permitted to bid on future privatization projectsindependently of the other. We also maintain business relationships withconstruction companies, such as Centex Construction Company, LLC and PhelpsDevelopment LLC, pursuant to which these third parties provide constructionservices to certain of our awarded military projects. We team with thesecompanies because of their proven experience in the construction industry, aswell as their size and strength to undertake and to bond construction work onthe large, complex military housing privatization projects. Additionally, thesebusiness partners pay fees to GMH Management, GMH Development or GMHConstruction for our business efforts and expenses associated with attractingand winning military privatization projects. We believe that the retention ofhighly experienced national and regional companies will provide us withsignificant competitive advantages in pursuing and winning new privatizationprojects.

*Acquire Existing MilitaryHousing Privatization Projects.**  *We will consider using ourfinancial strength and management’s past experience to acquire competitors orthe military housing privatization projects that have been awarded to them. Forexample, in November 2003, GMH Associates acquired the military housingprivatization project for Fort Carson in Colorado Springs, Colorado as well asthe right to exclusively negotiate the Fort Eustis/Story project out ofunrelated bankruptcy proceedings instituted by an entity affiliated with theJ.A. Jones Corporation. In addition, in February 2006, we acquired fromAmerican Eagle Communities Northeast, LLC the right to exclusively negotiatethe Carlisle/Picatinny project. The military housing privatization projects aretypically very large and complex. As a result, they require experienced andcommitted larger scale operators who have the financial strength to develop,construct, renovate and manage housing units during the initial developmentperiod of a project, which typically ranges from three to eight years, and thenadminister the continuing development, construction, renovation and managementof housing for the remainder of the 50-year project term. The obligationsto be performed under these projects are extremely difficult for smaller,regionalized companies to meet, and we believe our experience in the militaryhousing market provides us with a material competitive advantage in thisregard. As the number of new privatization projects grows, we believe ourpotential to acquire such projects for additional bases will growcorrespondingly.

***Market Opportunity***

As of March 9, 2007, according to the informationmade available by the DoD, the remaining military family housing privatizationmarket contains 36,674 housing units to be privatized through 41 additionalprojects. These remaining housing units are expected to generate approximately$590 million in total annual rental revenue based on the 2007 average BAHof approximately $16,100 per year. As of March 9, 2007, awarded projectsand exclusive negotiations represent 160,366 end-state housing units through 78projects.

Although the DoD’s program has focused its effortsalmost exclusively on the privatization of family housing, the next stage ofdevelopment will include the privatization of unaccompanied personnel(bachelor) housing. For example, during the fourth quarter of 2006, the Armyselected us to design, construct and manage single soldier housing at FortBliss and Fort Stewart, which represent among the first of unaccompaniedhousing privatization projects awarded by the Army to date and are expected to 

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cover an aggregate of upto 840 end-state housing units. We currently expect to close on the award ofthese two unaccompanied housing privatization projects before the end of 2007. Inaddition, the Navy has identified three initial sites which will serve as apilot program for the privatization of unaccompanied military personnelhousing, one of which has yet to be awarded and which we expect to solicit foraward during 2007.

We believe the potential market for unaccompaniedpersonnel housing is significantly larger than that for family housing. Givenour management’s experience in bidding on military housing privatizationprojects, coupled with their extensive student housing experience, we believethat we will have a competitive advantage in bidding for privatization projectsin the unaccompanied housing market; however, we cannot assure you that the DoDwill privatize any of these unaccompanied military personnel housing unitsbeyond those that have already been awarded.

Our military housingstrategy includes the pursuit of already privatized bases from competitorswhich have been awarded targeted projects. As the number of new privatizationprojects grows, the potential for our targeted acquisition of alreadyprivatized bases will grow correspondingly.

***Additional Military Housing Privatization Projects andDevelopment Opportunities under Review***

In addition to themilitary housing privatization projects for which we have been selected, ourmanagement team also had under review, as of March 9, 2007, six additionalpotential privatization project opportunities. These projects span multiplebases and total, in the aggregate, approximately 11,800 end-state housingunits. Individual projects identified as opportunities range from approximately900 to 4,700 end-state housing units per project. We consider a project as “underreview” once a base has been identified by the DoD for privatization and ourmanagement begins initial due diligence and evaluation of the economic andstrategic value of the project. After further due diligence, we may decide notto pursue any of these potential privatization projects.

***Competition***

Competition pursuing thisbusiness has evolved from a select number of local and regional developmentfirms in 1996, to a distinguished group of national and internationaldevelopers, owners and operators of commercial and residential real estate.

**Profile of MajorCompetitors**

| **Company Name**                | ** ** | ** ** | ** ** | **Awarded  Projects(1)** | ** ** | **Number  of Units** | ** ** |
|--------------------------------------|------------|------------|------------|--------------------------|------------|---------------------------|------------|
| Actus Lend Lease                     |       |       | 10         |                     |       |                      | 33,220     |   |   |
| Clark Realty                         |       |       | 11         |                     |       |                      | 32,094     |   |   |
| Picerne Military  Housing            |       |       | 5          |                     |       |                      | 17,559     |   |   |
| American Eagle  Communities, LLC     |       |       | 6          |                     |       |                      | 8,369      |   |   |
| Lincoln  Properties                  |       |       | 10         |                     |       |                      | 31,560     |   |   |
| Hunt Building  Corporation           |       |       | 20         |                     |       |                      | 25,912     |   |   |
| Equity  Residential Properties Trust |       |       | 1          |                     |       |                      | 3,982      |   |   |
| Forest City Enterprises              |       |       | 4          |                     |       |                      | 7,298      |   |   |

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Source:  Information reported by the DoD as of March 9,2007.

(1)          Includesprojects for which exclusive rights of negotiation have been awarded.

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**Financing Strategy**

Ourtargeted leverage ratio is in the range of 45% to 60%. Our debt level changesas we acquire properties or projects and refinance existing properties. Theamount of total indebtedness we decide to incur during any particular perioddepends on how we structure and finance our property acquisitions and thecurrent market cost of debt. The formula we use to calculate our leverage ratiois as follows:

|        | Total debt                  |   |
|--------|-----------------------------|--------|
|   | Total market capitalization |   |

 

As of December 31, 2006, our leverage ratio wasapproximately 62.3%. Neither our declaration of trust nor our bylaws requiresus to maintain a specific leverage ratio and we may determine to exceed themaximum range of our target ratio depending on the circumstances. If wedetermine to exceed the maximum range of our target ratio, we may do so withoutshareholder approval. We will generally decide whether to use debt or equityfinancing to acquire a property by considering the most attractive interestrates, repayment terms and maturity dates available in the marketplace at thetime, and customize our financing strategy for each individual transaction. Wealso may obtain unsecured and/or secured financing through public and privatemarkets. We will access various sources of capital including banks, financialinstitutions and institutional investors through lines of credit, bridge loansand other arrangements, including joint ventures with third parties. We alsomay finance the acquisition of properties through additional equity securitiesofferings, including offerings of preferred or common stock or units of ouroperating partnership.

We currently have a secured $250.0 millionrevolving line of credit with Wachovia Bank, National Association. As of December 31,2006, we had approximately $199.4 million in outstanding borrowings drawn fromthis credit facility, which funds were used as financing for acquisitions,payment of our third and fourth quarter 2006 dividend distributions, and forworking capital and other general corporate purposes. Other than with respectto pending student housing acquisitions, investments in military housingprojects and certain limited working capital needs that have been pre-approvedby our lender under the line of credit, we must obtain consent from the lenderwith respect to the use of additional funds drawn on the line. In addition,other than certain pending transactions that have been pre-approved by ourlender, we are restricted from incurring any additional indebtedness (includingmortgage indebtedness on student housing properties that we may acquire)without the lender’s prior consent. See also “*DividendPolicy and Distributions*” and “*Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidityand Capital Resources*” in this report. Any additional indebtednessthat we pursue in the future may be recourse, non-recourse, unsecured, securedor cross-collateralized. If the indebtedness is recourse, general assets of thedebtor may be included in the collateral. If the indebtedness is non-recourse,the collateral will be limited to the particular property to which theindebtedness relates. In addition, we may invest in properties subject toexisting loans secured by mortgages or similar liens on the properties orrefinance properties acquired on a leveraged basis. We may use the proceedsfrom any borrowings to refinance existing indebtedness, to finance acquisitionsor the redevelopment of existing properties, for general working capital or topurchase interests in partnerships or joint ventures.

During the fourth quarterof 2006, we announced that our management expects to implement a businessstrategy beginning in early 2007 that will involve the sale, refinancing and/orentrance into a joint venture with respect to a number of our currently ownedstudent housing properties. The proceeds from these transactions will be usedprimarily to repay outstanding indebtedness under our line of credit, which hasan initial maturity date of June 1, 2007. As part of this strategy, wealso are seeking to obtain a replacement line of credit in order to providefunds needed (i) to acquire additional student housing properties orinterests in such properties, (ii) to invest in additional militaryhousing projects, or (iii) to fund future working capital needs. There canbe no guarantee that our management team will be able to 

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executeupon this business strategy at all or on terms that are currently anticipated,and we must obtain approval from the lender under our current line of creditwith respect to our business strategy while the line of credit remainseffective. To the extent that we are unable to successfully implement ourbusiness strategy at all or on terms that are currently anticipated by ourmanagement team, then we would be required to identify other sources of capitalto repay the outstanding indebtedness under our line of credit, which may beextended only through October 2, 2007. For a discussion of the risksassociated with failure to implement this business strategy, see the section ofthis report titled “*Risk Factors—RisksRelating to our Business and Growth Strategy*.”

**Line of Credit**

On October 2, 2006, our operating partnershipentered into a $250.0 million secured revolving credit facility with WachoviaBank, National Association. Simultaneously with the execution of the loanagreement covering the line of credit, GMH Communities Trust, and severaldirect and indirect subsidiaries of our operating partnership, executedguaranty agreements guaranteeing the obligations of the operating partnershipunder the line of credit. As collateral security for the borrower’s obligationsunder the line of credit, we, our operating partnership and several of itsdirect and indirect subsidiaries that own and operate our student housingoperations, including third-party management contracts, and our militaryhousing privatization projects, entered into a Security Agreement, dated October 2,2006, in favor of the lender. Pursuant to the Security Agreement, the partiesgranted a security interest in the assets owned by each respective party. Asadditional collateral security for the borrower’s obligations under the line ofcredit, our operating partnership and several of its direct and indirectsubsidiaries that own the student housing properties that were previouslyunencumbered under our former credit facility, and the student housingproperties that we acquired pursuant to our Capstone portfolio acquisition,also entered into a Pledge Agreement, dated October 2, 2006, in favor ofthe lender. Pursuant to the Pledge Agreement, the parties thereto have granteda security interest in the equity interests in the entities that own, directlyor indirectly, the aforementioned student housing properties, our third-partymanagement business and the contracts pursuant to which we receive management,development and renovation fees with respect to operation of our militaryhousing privatization projects.

The line of credit has an initial term through June 1,2007, referred to as the Initial Maturity Date, and provides for either of twoadditional extension options: (i) an additional three month extensionthrough September 1, 2007, referred to as the Option One Maturity Date, inthe event that we have entered into a definitive agreement relating to a mergeror the sale of substantially all of our assets, which merger/sale agreement hasbeen approved by our Board of Trustees, has been announced publicly and is notsubject to financial contingencies; and (ii) an additional four monthextension option through October 2, 2007 (provided notice is given nolater than fifteen days prior to the later of the Initial Maturity Date or theOption One Maturity Date), subject to payment of a fee in an amount equal to2.00% of the outstanding principal balance of the loan as of the InitialMaturity Date or the Option One Maturity Date, as the case may be (thisextension right is referred to as the Option Two Maturity Extension). In no event,however, will the maturity date of the line of credit extend beyond October 2,2007.

Our operating partnership borrowed funds under theline of credit in order to finance the Capstone portfolio acquisition, to fundportions of our dividend distributions for the third and fourth quarters of2006, as well as to fund the equity portion of the purchase price for certainpre-approved student housing acquisitions, investments in military housingprojects, and for general working capital purposes as approved by the lender. Asof March 15, 2007, we had $138.0 million of indebtedness drawn under theline of credit, after the recent repayment of approximately $73.6 million innet proceeds received from the refinancing of existing mortgage indebtedness onfour of our student housing properties. As described above, generally allfuture draws from the line of credit will be subject to approval by the lender.

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Indebtedness under the line of credit bears interestat an annual rate of LIBOR plus 2.00% through the Initial Maturity Date of theloan, as well as through the Option One Maturity Date, if applicable. In theevent that the line of credit is extended pursuant to the Option Two MaturityExtension, then the applicable interest rate increases to LIBOR plus 4.50%. Underthe terms of the line of credit, our operating partnership may request theapplicable interest rate period, including 30, 60 or 90-day LIBOR;provided that it may not elect more than five distinct interest periods, in theaggregate, under the loan at any one time. The principal balance of loans shallbe due and payable in full on the Initial Maturity Date, or the maturity dateunder an applicable extension. Upon closing of the line of credit, we paid acommitment fee to the lender in the amount of $2.5 million.

The line of credit contains customary affirmative andnegative covenants and also contains financial covenants which, among otherthings, require that we maintain a consolidated net tangible worth of at least$455.0 million, and a student housing fixed charge coverage ratio of not lessthan 1.25 to 1.00. In addition, we must maintain a quarterly minimum aggregateAdjusted Management EBITDA (as defined in the line of credit) of $5.0 million.We are also prohibited during the term of the line of credit from creating,incurring, assuming or suffering to exist any additional indebtedness, subjectto exceptions described in the line of credit.

The line of creditincludes usual and customary events of default for loans of this nature andprovides that, upon the occurrence of an event of default, payment of allamounts payable under the line of credit may be accelerated and/or the lender’scommitment may be terminated. In addition, upon the occurrence of certaininsolvency or bankruptcy related events of default, all amounts payable underthe line of credit will automatically become immediately due and payable, andthe lender’s commitment shall automatically terminate. As of December 31,2006, we were in compliance with our debt covenants.

**Our OperatingPartnership**

We own our properties andconduct substantially all of our business through our operating partnership,GMH Communities, LP, and its subsidiaries. Holders of limited partnership unitsof our operating partnership, other than us, after a one-year holding periodand subject to earlier redemption in certain circumstances, will be able toredeem their limited partnership units for our common shares on a one-for-onebasis, subject to adjustments for share splits, dividends, recapitalizationsand similar events. At our option, in lieu of issuing common shares uponredemption of limited partnership units, we will be able to pay holders ofunits a cash amount equal to the then-current value of our common shares,except that Gary M. Holloway, Sr. will have the right to direct us toissue common shares upon redemption of limited partnership units that he or hisaffiliates own subject to his restriction from owning more than 20% of theCompany’s outstanding common shares. These redemption rights generally may beexercised by the limited partners at any time after one year. Holders oflimited partnership units will receive distributions equivalent to thedividends we pay to holders of our common shares, but holders of limitedpartnership units will have no voting rights, except in certain limitedcircumstances. As the sole owner of the general partner of our operatingpartnership, we have the exclusive power to manage and conduct our operatingpartnership’s business, subject to the limitations described in the partnershipagreement of our limited partnership. In connection with the investment byaffiliates of Vornado Realty L.P. in our operating partnership, we and ouroperating partnership have, however, agreed to certain restrictions regardingour activities and assets and the activities and assets of our operatingpartnership, a violation of which could expose us and our operating partnershipto substantial liability for damages. See “*Our Business—OurAgreements with Vornado Realty L.P. and its Affiliates Restrict our Activities*”below.

**Our Agreements withVornado Realty Trust and its Affiliates Restrict Our Activities**

In connection with Vornado Realty Trust’s investmentin our operating partnership as it existed prior to our initial publicoffering, Vornado also purchased for $1.0 million a warrant to acquireunits of limited 

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partnership interest inour operating partnership, common shares of GMH Communities Trust, or acombination of such units of limited partnership and common shares. Upon closing of our initial public offering,Vornado exercised the warrant to purchase 6,666,667 units of limitedpartnership interest in our operating partnership at a price of $7.50 per unit.On May 2, 2006, the warrant exercise period ended, and the remainingportion of the warrant automatically converted into 1,817,247 common sharesthrough a net, or cashless, exercise feature under the warrant. We have agreedto register for resale all of the common shares issuable upon exercise of thewarrant, including common shares that may be issuable upon redemption of unitsof limited partnership interest of the operating partnership issued under thewarrant.

Inconnection with Vornado’s investment in our operating partnership, we agreedwith Vornado to restrict our activities and investments and those of ouroperating partnership in a manner intended to facilitate our qualification as aREIT and to prevent our direct and indirect activities and assets, and those ofour operating partnership, from having adverse tax consequences to Vornado andits affiliates and transferees. Among other things, these restrictions requirethat neither we nor our operating partnership, without Vornado’s consent, hold,directly or indirectly:

·       securities other than:

(i)             equityinterests in entities that are treated as partnerships or disregarded entitiesfor federal income tax purposes;

(ii)         stockof corporations for which an election to be a taxable REIT subsidiary will bemade, or of entities qualifying as real estate investment trusts for federalincome tax purposes; and

(iii)     securitiesthat are treated as qualifying assets for purposes of the REIT 75% asset test;

·       assetsthat are treated as inventory for federal income tax purposes; or

·       REMICresidual interests.

Inaddition, these restrictions require that neither we nor our operatingpartnership, without Vornado’s consent, directly or indirectly:

·       provideservices other than specified services to tenants of our properties other thanthrough an independent contractor or through a taxable REIT subsidiary; or

·       operateor manage a health care facility or a hotel or similar facility.

If we breach theserestrictions and, as a result, Vornado or certain of its affiliates ortransferees fails to qualify as a REIT or otherwise incurs liability for taxes,penalties or similar charges, we and our operating partnership will be requiredto indemnify Vornado or certain of its affiliates or transferees for alllosses, liabilities, costs and expenses attributable to the breach, which maybe substantial.

**Taxable REIT Subsidiaries**

GMH CommunitiesTRS, Inc., a taxable REIT subsidiary that is wholly owned by our operatingpartnership, is the parent company of both College Park ManagementTRS, Inc. and GMH Military Housing, LLC. College Park ManagementTRS, Inc. is the taxable REIT subsidiary through which we provide propertymanagement services to certain third party owners of student housing properties,including colleges, universities and other private owners. GMH MilitaryHousing, LLC is the taxable REIT subsidiary through which we manage thedevelopment, construction and operation of the properties in our militaryhousing business, among other services that neither we nor our operatingpartnership can undertake directly under applicable REIT tax rules. Each of ourtaxable REIT subsidiaries pays income taxes at regular corporate rates on theirtaxable income.

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**Regulatory Matters**

Many laws and governmental regulations are applicableto the properties we own or will own, and changes in the laws and regulations,or their interpretation by agencies and the courts, occur frequently. Ourcurrent properties and any additional acquired properties must comply with theAmericans with Disabilities Act of 1990, or the ADA, and the Fair HousingAmendments Act of 1988, or the FHAA. Under the ADA, all places of publicaccommodation are required to meet certain federal requirements related toaccess and use by disabled persons. The ADA generally requires that publicfacilities be made accessible to people with disabilities. In order to complywith the ADA requirements, we may be required to make improvements at ourproperties in order to remove barriers to access.

The FHAA, its state law counterparts and theregulations promulgated by the U.S. Department of Housing and Urban Developmentprohibit discrimination in the sale, rental and financing of dwellings, and inother housing-related transactions, based on race, color, nationalorigin, religion, sex, familial status (including children under the age of 18living with parents or legal custodians, pregnant women and people securingcustody of children under the age of 18) and handicap or disability, andin some states, on financial capability. Violation of these laws can result insignificant damage awards to victims. We have a strong policy against any kindof discriminatory behavior and train our employees to avoid discrimination orthe appearance of discrimination. In addition, the FHAA requires apartmentproperties first occupied after March 13, 1990, to be accessible to thehandicapped. The FHAA further requires that we allow residents, at their ownexpense and subject to our review, to make private facilities within ourproperties accessible to people with disabilities. When requested by residents,we will attempt to make the appropriate and required accommodations to enablethem to make the improvements.

Non-compliance with eitherthe ADA or the FHAA could result in the imposition of fines or an award ofdamages to private litigants. We believe that our current properties are, andproperties to be acquired will be, in compliance in all material respects withpresent ADA and FHAA requirements.

**Insurance**

We maintain generalliability insurance that provides coverage for bodily injury and propertydamage to third parties resulting from our ownership of the properties that areleased and occupied. We believe that our properties are covered adequately byinsurance.

**EnvironmentalMatters**

Under various federal, state and local environmentallaws and regulations, a current or previous owner, operator or tenant of realestate may be required to investigate and clean up hazardous or toxic substancesor petroleum product releases or threats of releases at such property and maybe held liable to a government entity or to third parties for property damageand for investigation, clean-up and monitoring costs incurred by such partiesin connection with the actual or threatened contamination. These laws typicallyimpose clean-up responsibility and liability without regard to fault, orwhether or not the owner, operator or tenant knew of or caused the presence ofthe contamination. The liability under these laws may be joint and several forthe full amount of the investigation, clean-up and monitoring costs incurred orto be incurred or actions to be undertaken, although a party held jointly andseverally liable may obtain contributions from other identified, solvent,responsible parties of their fair share toward these costs. These costs may besubstantial and can exceed the value of the property. The presence ofcontamination, or the failure to properly remediate contamination, on aproperty may adversely affect the ability of the owner, operator or tenant tosell or rent that property or to borrow funds using such property as collateraland may adversely impact the value of our investment in that property.

Federal regulations require building owners and thoseexercising control over a building’s management to identify and warn, via signsand labels, of potential hazards posed by workplace exposure 

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to installed asbestos-containingmaterials and potentially asbestos-containing materials in their building.The regulations also set forth employee training, record keeping and duediligence requirements pertaining to asbestos-containing materials andpotentially asbestos-containing materials. Significant fines can beassessed for violation of these regulations. Building owners and thoseexercising control over a building’s management may be subject to an increasedrisk of personal injury lawsuits by workers and others exposed to asbestos-containingmaterials and potentially asbestos-containing materials as a result ofthese regulations. The regulations may affect the value of a buildingcontaining asbestos-containing materials and potentially asbestos-containingmaterials in which we have invested. Federal, state and local laws andregulations also govern the removal, encapsulation, disturbance, handling anddisposal of asbestos-containing materials and potentially asbestos-containingmaterials when such materials are in poor condition or in the event ofconstruction, remodeling, renovation or demolition of a building. Such laws mayimpose liability for improper handling or a release to the environment ofasbestos-containing materials and potentially asbestos-containingmaterials and may provide for fines to, and for third parties to seek recoveryfrom, owners or operators of real property for personal injury or improper workexposure associated with asbestos-containing materials and potentiallyasbestos-containing materials.

Prior to closing any property acquisition, we obtainPhase I environmental assessments in order to attempt to identify potentialenvironmental concerns at the properties. These assessments are carried out inaccordance with an appropriate level of due diligence and generally include aphysical site inspection, a review of relevant federal, state and localenvironmental and health agency database records, one or more interviews withappropriate site-related personnel, review of the property’s chain of title andreview of historic aerial photographs and other information on past uses of theproperty. We may also conduct limited subsurface investigations and test forsubstances of concern where the results of the Phase I environmentalassessments or other information indicates possible contamination or where ourconsultants recommend such procedures. As of December 31, 2006, we werenot aware of any environmental issues regarding our student housing portfoliothat would materially adversely affect our student housing business.

While we may purchase manyof our properties on an “as is” basis, all of our purchase contracts contain adue diligence contingency clause, which permits us to reject a property becauseof any due diligence issues discovered at the property.

**Employees**

As of December 31,2006, the student housing business employed 470 full-time employees and 970part-time employees, the military housing business employed 509 full-timeemployees and seven part-time employees, and we employed in our corporate staff124 full-time employees. Employees include those at the property levelproviding services as well as regional and corporate staff directly providingservices to both the student housing and military housing properties. Part-timeemployees are primarily located at the property level in various studenthousing resident assistance programs. We believe that our relations with ouremployees are good. As of December 31, 2006, none of our student housingemployees were members of an organized labor union; and, with respect to ourmilitary housing employees, 13 employees employed at our Fort Gordon projectare represented by the Transport Workers Union of America Local 527 and we werein the process of negotiating a collective bargaining agreement with theseemployees.

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**Item 1A.**                RiskFactors

***Risks Relating to Our Business and Growth Strategy***

**The initial maturity date of our current line ofcredit is June 1, 2007, and unless we are able to repay outstandingindebtedness under the line at that time, or by any extended maturity datewhich may be no later than October 2, 2007,  the loss of any of our assets securing suchdebt could adversely affect our business.**

Our current line of creditwith Wachovia Bank, National Association, has a maturity date of June 1,2007, at which time all outstanding indebtedness under the line will become dueand payable. As of March 15, 2007, we had $138.0 million in outstandingindebtedness under the line of credit. In December 2006, we announced thatour management expected to implement a business strategy beginning in 2007 thatwould involve the sale, refinancing and/or entrance into a joint venture withrespect to a number of our currently owned student housing properties. Theproceeds from this business strategy would be used to repay outstandingindebtedness under our line of credit. While the line of credit remains effective,the lender has the sole discretion to approve of various aspects of ourbusiness strategy, such as the release of any student housing assets securingthe line for sale to third parties or the placement of such assets into a jointventure with a third party. There can be no guarantee that our management teamwill be able to execute upon its business strategy at all or on terms that arecurrently anticipated, and therefore that we will be able to obtain thenecessary funds to repay the outstanding indebtedness under the line of creditwhen it becomes due and payable on the initial maturity date. To the extentthat we are unable to successfully implement this business strategy at all oron terms that are currently anticipated by our management team, then we needeither (i) to extend the initial maturity date, or (ii) to identifyother sources of capital in order to repay the outstanding indebtedness underour line of credit at its maturity date. If we elect to extend the maturitydate, we would only be able to extend it under the current agreement through nolater than October 2, 2007. Such extension would trigger the payment of anadditional fee and an increase in the effective interest rates under the termsof the loan. For a discussion of the extension terms of our current line ofcredit, see the section of this report titled “*Our Business—Lineof Credit*.” To the extent that we elect to extend the initial termof our credit facility and become subject to a higher interest rate onoutstanding borrowings thereunder, our results of operations will be adverselyimpacted. In addition, if we fail to identify the capital necessary to repayour line of credit upon its maturity date (whether or not extended), our lendermay pursue its remedies to take control over certain assets that secure theline of credit. The loss of any such assets could impact our ability to qualifyas a real estate investment trust and could adversely affect our business.

**If we were to default in the future on any of ourmortgage indebtedness, the loss of any of our assets  securing such debt could adversely affect ourbusiness or result in the secured indebtedness under our line of credit beingimmediately due and payable.**

A substantial portion ofour student housing properties are secured by first mortgages. In addition, asdiscussed in the risk factor above, in connection with obtaining our currentline of credit with Wachovia Bank in October 2006, we granted the lender asecurity interest in the cash flows from our operating partnership and itssubsidiaries that own and operate our student housing properties andthird-party management contracts. As additional collateral security for ourobligations under this line of credit, our operating partnership and several ofits direct and indirect subsidiaries that own the student housing propertiesthat were previously unencumbered under our former credit facility, and thestudent housing properties acquired in our Capstone portfolio acquisition, alsoentered into a pledge agreement in favor of Wachovia. Pursuant to this pledgeagreement, we granted a security interest in the equity interests in theentities that own, directly or indirectly, these student housing properties, aswell as our third-party management business and the contracts pursuant to whichwe receive management, development and renovation fees with respect tooperation of our military housing privatization projects. Our cash flow may 

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beinsufficient to make required payments of principal and interest on our debt.Any default in payment of our indebtedness or violation of any covenants in ourloan documents could result in the loss of our investment in the properties orassets securing the debt or result in our debt obligations under our line ofcredit being immediately due and payable, to the extent that we are unable toobtain waivers of financial covenants from our lenders or amend the loandocuments. Additionally, some of our indebtedness contains cross defaultprovisions. A default under a loan with cross default provisions could resultin default on other indebtedness.

**Our internal control over financial reporting may notbe sufficient to ensure timely and reliable financial information.**

As discussed under Item 9A of our Annual Report on Form 10-Kfor the year ended December 31, 2005, in connection with the completion ofthe audit of our financial statements for the fiscal year ended December 31,2005 and an investigation performed by our Audit Committee commenced during thefirst quarter of 2006, the Company identified and communicated to the Company’sindependent registered public accounting firm “material weaknesses” involvinginternal control over financial reporting and its function. Although management’sreport on internal control over financial reporting as contained in Item 9A ofthis report indicates the presence of no material weaknesses in internalcontrol as of December 31, 2006, there can be no assurance that internalcontrol systems will continue to remain effective going forward, or thatfurther remediation efforts will not be required in order to maintain ourinternal control over financial reporting.

The Company’s growth couldcontinue to place stress on its internal control systems, and there can be noassurance that the Company’s current control procedures will be adequate. Evenafter corrective actions have been implemented, the effectiveness of theCompany’s internal control over financial reporting may be limited by a varietyof risks, including faulty human judgment and simple errors, omissions andmistakes, inappropriate management override of procedures, and risk thatenhanced controls and procedures may still not be adequate to assure timely andreliable financial information. If the Company fails to have effective internalcontrol over financial reporting in place, it could be unable to provide timelyand reliable financial information.

**Pending material litigation or the commencement of aninvestigation by the SEC could adversely affect the Company’s financialcondition and results of operations.**

There have been several class action complaints filedagainst the Company and our chief executive officer and former chief financialofficer. These complaints allege, among other things, that the defendantscommitted securities fraud in connection with the offer, purchase and sale ofthe Company’s common shares between October 28, 2004 and March 10,2006. As of the date of this report, the court has appointed a lead plaintiff,but the class has not yet been certified. In addition, the sellers of aportfolio of student housing properties that we acquired in June 2005, whoreceived units of limited partnership interests in our operating partnership inconnection with the transaction, have filed suit against us under a similarsecurities fraud claim. The outcome of this litigation is uncertain, andalthough the Company will defend itself against the claims made in theselawsuits, no assurance can be given as to the outcome of this litigation. For adiscussion of this pending and threatened litigation, see the section of thisreport titled “*Legal Proceeding*s.” Costsassociated with defending this securities litigation, or with the payment ofany judgments in or settlements of such litigation, could adversely affect theCompany’s financial condition and results of operations.

In addition, after wealerted the SEC of the Audit Committee investigation and related matters, theSEC staff initiated an informal inquiry in connection with these matters. Ifthe SEC ultimately investigates these matters, or any restatements of ourfinancial statements, the investigation could adversely affect the Company’sability to access the capital markets. In addition, the Company could incursignificant legal, 

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accountingand other costs in connection with responding to any such investigation, andcould be required to pay large civil penalties and fines resulting from anyenforcement actions that could be instituted by the SEC. The SEC also couldimpose other sanctions against us or certain of our executive officers. Theseadditional costs, together with the likely strain on management’s time andattention and other of our operational resources in addressing any suchinvestigation, could adversely affect our financial condition and results ofoperations.

**We have reportednet losses in the past and may continue to do so in the future.**

For the second, third andfourth quarters, as well as for the full year ended December 31, 2006, wereported net losses. These losses were primarily attributable to increasedexpenses incurred during those periods relating to our previously disclosedAudit Committee special investigation and activities of the Special Committeeof the Board of Trustees. We also have experienced increases in expensesrelating to our student housing business, and to the extent we are unable tomanage those expenses going forward, our operating results from this segmentcould contribute to additional losses for the Company on a consolidated basis.As referenced in the risk factor above, we also may incur significant legalexpenses relating to defending the pending class action securities litigationagainst the Company. If our student housing and military housing businesses donot generate sufficient revenue from operations to maintain profitability, wemay continue to experience losses from operations.

**Since our initial public offering, our cash flow fromoperations has been insufficient to fund our dividend distributions to ourshareholders, and it could continue to be so in the future. To the extent ourcash flow from operations is insufficient to fund our dividend distributions,we expect to borrow funds or to lower our dividend distributions.**

Since completion of ourinitial public offering, we have used borrowings under our credit facility topay a portion of dividend distributions to our shareholders. We expect thatduring 2007 our cash flow from operations will continue to be the primarysource of funding for our distributions to shareholders. To the extent that weare unable to fund our dividend distributions with cash flow from operations,we may be required to borrow funds in order to make distributions at historicallevels. In the past, we have relied on third-party debt financing,including funds from our line of credit, in order to fund a portion of ourdividend distributions. Under our current line of credit with Wachovia Bank,our lender must consent to the use of funds borrowed thereunder for payment ofany future dividend distributions. Similarly, if we seek to borrow funds fromanother lending source, we would be required to obtain prior consent from ourlender under the line of credit while it remains effective. There can be noguarantee that our lender will approve this use of funds from the line ofcredit, or outside borrowing of funds from a third party, for any futurequarterly dividend distributions to our shareholders. To the extent that ourlender does not approve such use, and we do not have sufficient funds fromoperations to fund our dividend distributions at historical levels, we may berequired to lower our dividend distributions. Any additional indebtedness thatwe incur with respect to payment of our dividend distributions also willincrease our leverage and could decrease our ability to borrow money for otherneeds, such as the acquisition or development of student housing properties andinvestments in military housing privatization projects.

**We commenced operations through our operatingpartnership in 2004, have a limited history of operating and owning our studenthousing properties and military housing privatization projects, and thereforemay have difficulty successfully and profitably operating our business.**

We have only recentlycommenced operations through the acquisition of our student housing properties,investments in military housing privatization projects and agreements to managestudent housing for others by our operating partnership in connection with ourinitial public offering in November 2004 and the related formationtransactions at the time of our initial public offering. As a result, 

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we havea limited operating history and limited experience in owning these studenthousing properties and operating these military housing privatization projects.Furthermore, we acquired our student housing properties and investments inmilitary housing privatization projects we own as of December 31, 2006primarily within the past two years and we have limited operating histories forthe properties currently under management. Consequently, our historicaloperating results and the financial data set forth in this report may not beuseful in assessing our likely future performance. We cannot assure you that wewill be able to generate sufficient net income from operations to makedistributions to our shareholders.

**Historically, we have experienced rapid growth in ourstudent housing and military housing businesses and may not be able to adaptour management and operational systems to respond to the acquisition andintegration of these properties and investments in privatization projects, orto respond to new properties and projects that we acquire in the future,without unanticipated disruption or expense.**

We acquired all of our student housing properties andinvestments in military housing privatization projects since July 2004 andexpect to continue to acquire additional student housing properties and investin military housing privatization projects going forward.

As a result of the rapidhistorical growth of our portfolio, we cannot assure you that we will be ableto adapt our management, administrative, accounting and operational systems, orhire or retain sufficient operational staff to integrate these student housingproperties and military housing privatization projects into our portfolio andmanage any future acquisitions of additional student housing properties ormilitary housing privatization projects without operating disruptions orunanticipated costs. Our failure to successfully integrate any future studenthousing property acquisitions, student housing property management contracts ormilitary housing privatization projects into our portfolio could have amaterial adverse effect on our results of operations and financial conditionand our ability to make distributions to our shareholders.

**We expect our real estate investments to continue tobe concentrated in student housing and military housing, making us morevulnerable to economic downturns in these housing markets than if ourinvestments were diversified across several industry or property types.**

We elected to be treatedas a REIT for federal income tax purposes in connection with the filing of ourtax return for the taxable year ended December 31, 2004, and we expect tocontinue to qualify as a REIT in the future. Accordingly, we will investprimarily in real estate. We intend to acquire, manage, and to a lesser extent,develop student housing properties, and to develop, construct, renovate andmanage military housing properties. We are subject to risks inherent inconcentrating investments in real estate. The risks resulting from a lack ofdiversification become even greater as a result of our business strategy toinvest primarily in student and military housing properties. A downturn in thestudent or military housing markets could negatively affect our ability tolease our properties to new student residents and our ability to profitablyoperate our military housing privatization projects or obtain new privatizationprojects. These adverse effects could be more pronounced than if we diversifiedour investments outside of real estate or outside of the student and militaryhousing markets.

**If we are unable to successfully perform ourobligations under our current student housing property management agreementsand current military housing privatization projects, our ability to execute ourbusiness plan and our operating results could be adversely affected.**

We cannot assure you thatwe will be able to successfully manage our student housing properties, ordevelop, construct, renovate and manage the military housing properties underour privatization projects, or that we will be able to perform our obligationsunder our current student housing property management agreements or militaryhousing privatization projects. If we are unable to perform, we may be unableto 

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executeour business plan, which could have a material adverse effect on our operatingresults and financial condition and our ability to make distributions to ourshareholders.

**We have agreed with Vornado Realty L.P. that ouractivities will satisfy certain requirements. If we are unable to satisfy theserequirements we could be liable for substantial amounts.**

In connection with theinvestment by affiliates of Vornado Realty L.P. in our operating partnershipand the issuance of a warrant to Vornado Realty L.P., we and our operatingpartnership have agreed to certain restrictions regarding our activities andassets and the activities and assets of our operating partnership. If we breachany of these agreements, and, as a result, Vornado Realty L.P. fails tomaintain its qualification as a REIT or otherwise incurs liability for any tax,penalty or similar charges, we and our operating partnership could be exposedto substantial liability for damages attributable to our breach.

**We are subject to risks associated with the generaldevelopment of housing properties, including those associated withconstruction, lease-up, financing, real estate tax exemptions, cost overrunsand delays in obtaining necessary approvals, and the risk that we may be unableto meet schedule or performance requirements of our contracts.**

We intend tocontinue to acquire, manage, and to a lesser extent, develop student housingproperties, and to develop, construct, renovate and manage military housingproperties under our privatization projects, in accordance with our businessplan. We also engage in the development and construction of student housingproperties. These activities may include the following risks:

·       construction/renovationcosts of a property may exceed original estimates, possibly making thedevelopment uneconomical;

·       occupancyrates and rents at newly completed student housing properties or militaryhousing properties may be insufficient to make the properties profitable to usor to provide sufficient cash flows to fund future development, construction orrenovation periods;

·       acceptablefinancing may not be available on favorable terms for development oracquisition of a property;

·       leasingof a property may take longer than expected;

·       developmentefforts may be abandoned;

·       obtainingreal estate tax exemptions acceptable to the DoD; and

·       newconstruction may not be completed on schedule, resulting in increased debtservice expense and development costs, delayed leasing and possible terminationof our management contracts (particularly with respect to our military housingprivatization projects).

In addition, any new development or managementactivities, regardless of whether or not they are ultimately successful,typically will require a substantial portion of the time and attention of ourmanagement. Development and management activities also are subject to risksrelating to the inability to obtain, or delays in obtaining, the necessary zoning,land-use, building, occupancy and other required governmental permits andauthorizations.

The development andoperation of real estate projects entails certain risks, including risks thatcosts of a project may exceed original estimates, and that the project willfail to conform to building plans, specifications and timetables, which may inturn be affected by strikes, weather, government regulations and otherconditions beyond our control. In addition, we may become liable for injuriesand accidents occurring on our properties and for environmental liabilitiesrelated to our property sites.

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**Ourmanagement has limited prior experience operating a REIT or a public company.These limitations may impede the ability of our management to execute ourbusiness plan successfully and operate our business profitably.**

Our management has limitedprior experience in operating a REIT or in managing a publicly owned company,or managing growth at level that may occur in the future. We cannot assure youthat the operating performance of our student housing properties and militaryhousing privatization projects will not decline under our management. We may beunable to hire additional personnel on a timely basis. Therefore, you should beespecially cautious in drawing conclusions about the ability of our managementteam to execute our business plan.

***Specific RisksRelated to Our Student Housing Business***

**Virtually all of our student housing leases, whichtypically have a 12-month lease term, become subject to renewal withexisting student residents or lease-up with new student residents prior to thestart of the academic year at colleges and universities. If we are unable torenew or lease-up our student housing properties prior to the start of theacademic year, our chances of leasing these properties during subsequent monthsis reduced, and correspondingly, our rents and operating results will beadversely affected.**

As a result of the studentdemand for rental housing during the several months prior to the beginning ofthe academic year at colleges and universities, which typically lasts fromJanuary through July, we generally lease our student housing properties tostudents under 12-month leases during this period. During this lease-upperiod, we typically will execute the majority of our leases for studenthousing units and therefore are dependent on the effectiveness of the marketingefforts of our on-site management teams. Because the terms of these leases willend at, or near the same time, we must re-lease the majority of our studenthousing units during this limited timeframe. If our marketing and leasing effortsare unsuccessful during this limited lease-up period, we may be unable to leasea substantial majority of our student housing units. Consequently, the failureto adequately market and lease-up our properties could have a material adverseeffect on our operating results and financial condition.

**We face significant competition from university-ownedon-campus student housing, from other off-campus student housing properties andfrom traditional multi-family housing located near colleges anduniversities.**

On-campus student housinghas certain advantages over off-campus student housing in terms of physicalproximity to the university campus and integration of on-campus facilities intothe academic community. Colleges and universities can generally avoid realestate taxes and borrow funds at lower interest rates than we and other privateowners and operators can.

Currently, the off-campusstudent housing industry is fragmented with no participant holding asignificant market share. We also compete with national and regional owner-operatorsof off-campus student housing in a number of markets, as well as with smallerlocal owner-operators. Our properties often compete directly with anumber of student housing complexes that are located near or in the same generalvicinity of many of our properties. These competing student housing complexesmay be newer than our properties, located closer to campus, charge less rent,possess more attractive amenities or offer more services or shorter terms ormore flexible leases.

Rentalincome at a particular property could also be affected by a number of otherfactors, including the construction of new on-campus and off-campus residences,increases or decreases in the general levels of rents for housing in competingcommunities, increases or decreases in the number of students enrolled at oneor more of the colleges or universities in the property’s market and othergeneral economic conditions.

We believe that a numberof other large national companies with substantial financial and marketingresources may be potential entrants in the student housing business. The entryof one or more of these companies could increase competition for students andfor the acquisition, development and management of other student housingproperties.

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**Ourstudent housing operations may be adversely affected by changing universityadmission and housing policies and our inability to maintain relationships withlocal colleges and universities.**

A change in universityadmission policies could adversely affect our ability to lease our studenthousing properties. For example, if a university reduces the number of studentadmissions or requires that a certain class of students (e.g., freshmen) livein a university-owned facility, the demand for beds at our properties maybe reduced and our occupancy rates may decline. We may be unable to modify ourmarketing efforts to compensate for a change in a college’s or university’sadmission policy prior to the commencement of the annual lease-up period or anyadditional marketing efforts may be unsuccessful.

In addition, our abilityto successfully lease our student housing properties depends on a number offactors, including maintaining good relationships with college and universitycommunities (especially in connection with colleges and universities that referstudents to us) and our continued ability to attract student residents to ourproperties. Many colleges and universities assist their students in theidentification of attractive student-friendly off-campus housing throughthe distribution of off-campus property materials and the recommendation ofcollege- and university-approved off-campus housing properties ontheir web sites. If colleges and universities change their policies onrecommending off-campus student housing to their students, or ceasedistribution of off-campus student housing marketing materials to theirstudents, our ability to attract student residents and to lease and collectrents on our student housing properties could be adversely affected. Consequently,the failure to maintain relationships with local colleges and universitiescould have a material adverse effect on our student housing business.

**Wemay be unable to successfully acquire, develop and manage student housingproperties on favorable terms.**

Our future growth withinthe student housing business is dependent upon our ability to successfullyacquire or develop new properties on favorable terms. As we acquire or developadditional properties, we will be subject to risks associated with managing newproperties, including lease-up and integration risks. Newly-acquired propertiesmay not perform as expected and may have characteristics or deficienciesunknown to us at the time of acquisition. During at least the first half of2007, we may seek to acquire or develop new student housing properties solelythrough joint ventures with third parties. There can be no assurance thatfuture acquisition and development opportunities will be available to us onterms that meet our investment criteria, that we will be able to identifysuitable joint venture partners on terms acceptable to us, or that we will besuccessful in capitalizing on such opportunities. Our ability to capitalize onsuch opportunities will be largely dependent upon external sources of capitalthat may not be available to us on favorable terms, or at all.

Ourability to acquire properties on favorable terms and successfully operate themmay expose us to the following significant risks:

·       potentialinability to acquire a desired property because of competition from other realestate investors;

·       wemay be unable to locate acceptable joint venture partners with whom we wouldnegotiate to acquire and/or develop  theproperties;

·       competitionfrom other potential acquirers may significantly increase a property’s purchaseprice;

·       wemay be unable to finance our equity portion of an acquisition on favorableterms or at all;

·       wemay have to incur significant capital expenditures to improve or renovateacquired properties;

·       wemay be unable to quickly and efficiently integrate new acquisitions,particularly acquisitions of portfolios of properties, into our existingoperations;

·       marketconditions may result in higher than expected vacancy rates and lower thanexpected rental rates; and

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·       wemay acquire properties subject to liabilities without any recourse, or withonly limited recourse, to the sellers, or with liabilities that are unknown tous, such as liabilities for clean-up of undisclosed environmentalcontamination, claims by tenants, vendors or other persons dealing with theformer owners of our properties and claims for indemnification by members,directors, officers and others indemnified by the former owners of ourproperties.

Our failure to financeproperty acquisitions on favorable terms, or operate acquired properties tomeet our financial expectations, could adversely affect our financial conditionand results of operations.

**Thelenders of certain non-recourse mortgage indebtedness that we assume or placeon our properties could have recourse against us for the full amounts of theirloans under certain circumstances.**

As of December 31,2006, we had $1,028.3 million in aggregate principal amount of mortgagedebt secured by our properties. In general, mortgage debt is non-recourse toour subsidiary that owns the property and places the mortgage debt on theproperty, and will be non-recourse to us. However, the terms of each of theloans to which the mortgage debt relates include provisions that enable thelender to have recourse to the borrower generally if the borrowermisrepresented certain facts or committed fraud. In addition, there areprovisions under our current line of credit with Wachovia Bank, NationalAssociation that could result in an event of default to the extent we experiencea material default under certain of our mortgage indebtedness relating to ourproperties. If one or more of the borrowers under our mortgage indebtednessexercises its rights to recourse against us for the full amount of the mortgagedebt outstanding under their loans, our liquidity and financial condition couldbe adversely affected.

***Specific RisksRelated to our Military Housing Business***

**Certainmilitary bases for which we own and operate a military housing privatizationproject have been approved for reduction of troops or closure under the BaseRealignment and Closure, or BRAC, regulations. Our operating revenues fromthese projects and the value of our equity interest in the projects may bereduced, and our overall military housing segment revenues could be adverselyaffected with respect to the military bases under any of these military housingprivatization projects.**

As part of the DoD’ssubstantial reduction in the size of the U.S. military following the end of theCold War, the federal government undertook four rounds of BRAC beginning in1988, and again in 1991, 1993 and 1995. The fifth round of BRAC was initiatedin 2004 and was completed on November 9, 2005, when, under currentlegislation, the final list of additional bases recommended for realignment orclosure was approved by both President Bush and Congress. The BRAC law sets outa process that includes specific dates for government action and the creationof an independent commission appointed by the President. By way of background,the DoD released its initial recommendations for BRAC in May 2005, and theBRAC Commission then voted to amend the DoD’s initial list on July 19,2005. Under the BRAC Commission’s revisions, several bases were removed fromthe DoD’s list of bases targeted for closure, including the Submarine Base inNew London, Connecticut and the Portsmouth Naval Shipyard in Kittery, Maine,both of which are part of our Navy Northeast Region military housingprivatization project. In addition, the BRAC Commission also proposed a lesssignificant realignment at the Fort Eustis base under our Fort Eustis/FortStory project in Newport News, Virginia than was proposed by the DoD. However,the BRAC Commission proposed to close the Naval Air Station in Brunswick,Maine, which had been recommended by the DoD to be realigned. Finally, the BRACCommission voted to uphold the DoD’s recommendation to close the Walter ReedArmy Medical Center in Washington, DC. In September 2005, President Bushaccepted the BRAC Commission’s recommendations in their entirety. OnNovember 9, 2005, the BRAC round was completed when Congress approved theBRAC Commission’s recommendations in their entirety.

Under the final BRAC listas compared to the original DoD recommendations, the possible number ofaffected military housing units covered by our existing projects was reducedfrom 2,500 to 700 units, which remaining 700 units are located at the Naval AirStation in Brunswick, Maine. We believe that the 

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closureof the Walter Reed Army Medical Center will not result in the loss of housingunits, as these housing units are likely to be utilized by personnel who willbe relocated from serving at Walter Reed to serving at nearby military medicalfacilities.

If a base for which wemaintain a privatization project is realigned or closed, our main source oftenants, members of the U.S. military and their families, will not continue torequire housing at or near the base, resulting in a decreased rental revenuestream. This in turn may jeopardize our ability to collect future fees, and thevalue of our equity interest in the project could be adversely affected due toa reduction in its scope, to the extent that we are unable to re-lease anyvacant units. The military housing privatization initiative had not beenundertaken at the time of previous BRAC rounds, and therefore there is nohistorical information regarding the impact of a base closure on a militaryhousing privatization project. To date, there has been no indication from theDoD or the BRAC Commission that the federal government has factored into itsanalysis the possible effects that a base closure or realignment resulting fromBRAC could have with respect to the outstanding debt financing for a project.In addition, prior BRAC rounds have shown that even once a base is approved forclosure or realignment, the actual closing or realignment of the base couldtake several years to be completed. Accordingly, management currently expectsthat the closure of the Naval Air Station in Brunswick, Maine will not occurfor at least three years. We are unable to determine with any certainty,however, the specific impact, and the timing of any such impact, that baseclosures and realignments at our projects will have on our military housingoperating results, other than the possible cessation or reduction of feesrelated to the affected bases.

In addition, it isinherent in the nature of military service that members of the military may bedeployed and stationed away from a particular base for an extended period oftime or permanently be reassigned to another base. As a result of suchabsences, dependents may move out of military housing facilities resulting invacant housing units to be managed and re-leased by us. Typical militaryhousing lease agreements, which have a one-year lease term and continuemonth-to-month thereafter, provide that a military resident may terminate alease and be released from any further obligations under the lease upon receiptof orders requiring the resident to be deployed or temporarily or permanently stationedaway from the base for more than 90 days by providing us with proof oforders and an appropriate letter from the resident’s commanding officer. If weare unable to re-lease these vacant units, the management fee revenue derivedfrom the project’s rental revenues will decrease, and the project may be unableto be appropriately funded for construction and renovation of units throughoutthe term of the project. We also may be unable to receive any other fees thatwe may have otherwise earned under the project, and the projected, or any,return on our investment in the project. Any such effect could have an adverseeffect on our financial condition and results of operations.

If there are significantnumbers of base closures, force reductions or troop deployments that affect ourexisting military housing privatization projects, we may be unable to achievethe anticipated operating revenues to be derived from these projects and ourresults of operations may be adversely affected.

**As aresult of the anticipated closure of the Brunswick Naval Air Station covered byour Navy Northeast Region military housing privatization project, our jointventure with the Department of the Navy that owns the project must modify theterms of the project documents to amend various construction scope and timingrequirements that were set prior to the BRAC announcement. Certain initialconstruction requirements under the original scope have not been met due toconstruction delays at bases slated for closure, and therefore the jointventure is currently in default under the terms of the trust indenture relatingto the bonds issued to finance the project. The exercise of any defaultremedies by the bondholders relating to this project may adversely impact theoperations of the project and our equity investment in the project.**

As a result of the initialBRAC recommendations relating to the Submarine Base in New London, Connecticut,the Portsmouth Naval Shipyard in Kittery, Maine, and the Naval Air Station inBrunswick, Maine, each of which are included in our Navy Northeast Regionproject, our joint venture with the Navy 

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thatowns the project delayed construction of new housing units at these basesthroughout 2005 and 2006. Once the final BRAC recommendations as approved byCongress removed the Submarine Base and Naval Shipyard from the closure list,the joint venture re-commenced construction at those two locations but hascontinued to delay construction at the Brunswick Naval Air Station. The projectdocuments that were executed at the time of award of the project to our jointventure with the Navy did not provide for a reduced scope for the project inthe event that bases under the project were targeted for reduction or closure.As a result, the project documents still contemplate that we will complete theoriginal scope of project and contain covenants that require completion ofconstruction of a certain number of housing units at each base included in theproject by times that were agreed upon prior to the BRAC announcements. While weare currently working with the Navy to modify the project documents to reducethe scope of the project in light of the closure of the Brunswick Naval AirStation, the joint venture may be unable to complete the necessary amendments prior to the date that such constructionscope and time requirements are required to be met and cured, and suchinability to complete the necessary amendments in time could trigger adefault under the project documents. In addition, due to the aforementionedconstruction delays, the joint venture was unable to meet a requirement todeliver a certain number of new construction housing units under the terms ofthe trust indenture that covers the bonds originally issued to finance theproject. The joint venture was required to provide notice of this anticipateddefault to the bondholder representative and other related parties under theterms of the trust indenture, and did so in July 2006 andDecember 2006. As a result of this technical default, the trust indentureprovides that a majority of the bondholders or the bond trustee can elect todeclare all of the principal of, premium, if any, and interest on the bondsimmediately due and payable. Such an acceleration of the bonds could result inthe foreclosure on all or a portion of the project assets to the extent thatthe project’s available cash is insufficient to pay the bondholders in full.While the bonds are nonrecourse to us, to the extent that the bondholders areable to foreclose on all or a portion of the project, our future income streamfrom the project and our initial equity investment in the joint venture wouldbe significantly or completely impaired. There also can be no guarantee that wewill be able to complete amendments to the project documents and trustindenture needed to address the reduced scope of the project prior to thetriggering of other events of default under the terms of such documents.

**The joint ventures that own our military housingprivatization projects have high leverage ratios which could cause us to losecash flows and our investments in those projects if the joint ventures areunable to pay their debt service obligations.**

Typically,up to 90% of the capitalization of the joint ventures that own our militaryhousing privatization projects is debt, such as through the sale of taxablebonds to the public. These joint ventures generally are not required to beconsolidated with our operations, and as a result this indebtedness is notreflected on our balance sheet. As a result of the high leverage ratios ofthese joint ventures, reductions in their revenues could impair their abilityto service their debt. For example, if the BAH paid to members of the U.S.military is reduced, the personnel is reduced at the bases where our projectsare located or these bases are closed, the revenue generated by these jointventures could decrease. In addition, to the extent that any of our projectsare restructured, resulting in a significant loss of end-state housing unitscovered by the project, the revenues generated by the project would be reducedand could materially impair the ability to make payments to bondholders forbonds issued in connection with the project’s financing. If any of the jointventures covering our military housing privatization projects cannot serviceits indebtedness, we may not be paid with respect to certain projects on ourdevelopment, construction, renovation and/or management fees, which wouldadversely affect our operating results. We also could lose our entire initialequity and any other additional investments in the project, which couldadversely affect our financial condition.

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**Our ability to earn development,construction/renovation and management fees, including related incentive fees,depends on the joint ventures that own our military housing privatizationprojects achieving specified operating milestones and thresholds.**

The joint ventures thatown our military housing privatization projects derive substantially all oftheir revenues from the BAH of their tenants. This revenue is then paid out bythe joint ventures according to a distribution “waterfall” plan set forth in thejoint ventures’ governing documents. Other than the standard management fee weearn, which is typically 2% to 3% of the BAH-related project revenues, andother disbursements, such as routine maintenance, utilities, taxes andinsurance, no funds are available to be paid out to us until the jointventures’ debt service obligations are satisfied. Thereafter, we only earnincentive management fees, preferential and other returns and on-goingconstruction/renovation and development fees if the joint venture achievesoperating milestones and thresholds specified in their governing documents,such as maintaining a certain number of end-state housing units online orcompleting the construction or renovation of a certain number of housing unitsby certain dates. Due to the inherent inability to predict possible delays inconstruction or renovation as a result of weather or unknown site conditions(such as environmental or structural concerns), our joint ventures with themilitary could experience construction/renovation delays that could impact thejoint venture’s ability to meet deadlines or achieve operatingmilestones/thresholds. Our joint ventures have historically sought changeorders in order to approve certain construction/renovation delays or approveadditional draws needed to complete construction/renovation work relating tosuch delays. These change orders must be approved by the lenders associatedwith the financing of the project, and there can be no guarantee that the jointventure’s change orders will be approved in order to meet the operatingmilestones/thresholds under the project documents, or at all. Accordingly,  we cannot assure you that the joint ventureswill achieve these operating milestones and thresholds, or that if the jointventures achieve these milestones and thresholds, that funds will remain to payincentive management fees, preferential and other returns and on-goingconstruction/renovation and development fees. If the joint ventures fail toachieve these milestones and thresholds or, if funds are not available to payincentive management fees, preferential and other returns and on-goingconstruction/renovation and development fees, the operating results of ourmilitary housing business could fluctuate significantly over the course of theproject and could suffer.

**We rely on key partners and contractors in connectionwith the construction and development of our military housing privatizationprojects, and our inability to maintain these relationships or to engage newpartners or subcontractors under commercially acceptable terms to us couldimpair our ability to successfully complete the construction and development ofour military housing privatization projects and to obtain new military housingprivatization projects.**

We are dependent upon ourrelationships with partners and subcontractors in connection with theconstruction, renovation and development of our military housing privatizationprojects. Particularly, our management team has relationships with CentexConstruction Company, LLC, The Benham Companies, LLC, and Phelps Development,LLC. Subject to the terms of our agreements with these construction, renovationand design partners and contractors, these parties provide services to thosemilitary housing privatization projects in which they are involved. To theextent that we are unable to maintain our relationships with these partners andcontractors or to engage new partners and contractors under terms acceptable tous, our ability to complete a project in a timely fashion, or at a profit, maybe impaired. If the amount we are required to pay for these services exceedsthe amount we have estimated in bidding for military housing privatizationprojects or other fixed-price work, we could experience losses in theperformance of these projects. In addition, if a partner or subcontractor wasunable to deliver its services according to our negotiated terms with them forany reason, including the deterioration of its financial condition, anothersubcontractor would need to be obtained to perform the services, potentially ata higher price. This may result in the significant delay or additional costsassociated with performance under our military housing privatization projects,the adverse effect on our operating results through a reduction in 

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theprofit to be realized, or the recognition of a loss on a project for which theservices were needed. In addition, if we are unable to successfully manage theprovision of services by our partners and contractors, we may not be awardedfuture military housing privatization projects.

**We are subject to the risks associated with conductingbusiness with the federal government, such as the government’s discontinuationof federal funding for some or all of its military housing privatizationprojects and the need to win new military housing privatization projectsthrough a competitive bidding process.**

We are subject to risks associated with conductingbusiness with the federal government. The DoD, pursuant to its authoritygranted under the 1996 National Defense Authorization Act, has approved, as ofMarch 9, 2007, the award of 78 military housing privatization projects toprivate owners, and the future award of an additional 41 projects. AnyCongressional action to reduce budgetary spending by the DoD could limit thecontinued funding of these private-sector projects and could limit ourability to obtain additional privatization projects, which would have amaterial adverse effect on our business. The risks of conducting business withthe federal government also include the risk of civil and criminal fines andthe risk of public scrutiny of our performance at high profile sites.

In addition, privatization projects are currentlyawarded pursuant to a competitive bidding process, which differs procedurallywith respect to each U.S. military branch. Generally, after a proposed site hasbeen identified by a military branch for privatization, prospective companiesmust submit a proposal complying with specified guidelines demonstrating thatthe company will be able to successfully complete the project in accordancewith the government requirements. The project winner is awarded the exclusiveright to develop, construct, renovate and manage family housing at a militarybase throughout the duration of the ground lease, typically for a 50-yearperiod. The competition pursuing privatization projects currently consists of asmall, distinguished list of national and international developers, owners andoperators of commercial and residential real estate. We cannot predict whetherthe number of companies that we compete against for the award of privatizationprojects will increase significantly in the future, or that we will be able toeffectively compete against other private owners for projects awarded in thefuture.

The termination of theDoD’s authority to grant privatization projects, the reduction of governmentfunding for such projects and our inability to effectively compete for theaward of future projects could have a material adverse effect on our militaryhousing business and, correspondingly, on our operating results and financialcondition.

**If Congress does not approve appropriations each yearrelating to the provision of the BAH paid to members of the U.S. military,which is the primary source of rental revenues under our military housingprivatization projects, or if BAH were eliminated, our operating revenues andprojected returns on investments from our military housing privatizationprojects would be significantly reduced.**

Each year Congress mustappropriate a budget for BAH for all of the branches of the U.S. military. Wecannot assure you that such appropriations will be made in any given year, theappropriation each year will occur on a timely basis, or the amount of BAHappropriated will be sufficient to keep up with escalations in cost of livingexpenses. Moreover, we cannot assure you that the method of calculation, timingof payment, analysis of comparable market rents, cost of living increases orother issues affecting the amount and receipt of BAH by members of the U.S.military will not change from time to time, with possible material adverseconsequences for the amount of operating revenues generated by our militaryhousing privatization projects. The foregoing description of BAH is based oncurrent law and DoD procedures. Congress can change the law and the DoD canrevise its procedures at any time. We cannot assure you that such changes willnot be made and, if changes are made, such changes may have a material adverseeffect on the level of our operating revenues generated by our privatizationprojects.

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**If we are unable to reach definitive agreementsregarding the military housing privatization projects that are under exclusivenegotiations with the U.S. military or as to which we are participating in a solicitationprocess, we would be unable to recover any costs incurred during the period ofexclusivity or solicitation.**

When we are initially selected for a military housingprivatization project through the bidding process, we receive only the right toenter into exclusive negotiations with the applicable U.S. military branch, andthe award of the project to us is subject to final approval from the U.S.military branch and Congress. During this exclusivity period, or during apre-award solicitation period, each of which typically lasts between six monthsto one year, we will develop and present our plans to develop, construct,renovate and manage the project and may incur significant costs during thisprocess. These costs include, among other things, surveyors, equipment,vehicles, on-site personnel salary and wages, inventory, and office andadministrative set-up costs.

We cannot assure you thatwe will receive final approval from Congress on the award of any projectscurrently under exclusive negotiations or as to which we are participating in asolicitation process, or that the U.S. military branch will not decide to awardthe project to a competitor at the end of our exclusive negotiations or thesolicitation process. If we do not receive final approval on the award of theproject from the U.S. military branch or Congress, we may be unable to recoverall of the costs that we have incurred during the exclusivity period or thesolicitation process through our general military housing operations. Ourfailure to recover costs that we incur in connection with military housingprivatization projects that are under exclusive negotiations or as to which weare participating in a solicitation process may cause the operating results ofour military housing business to be adversely affected.

***Risks Relating to Our Organization and Structure***

**Our Board ofTrustees may authorize the issuance of additional shares that may causedilution.**

Our declaration oftrust authorizes our Board of Trustees, without shareholder approval, to:

·       amendthe declaration of trust to increase or decrease the aggregate number of sharesof beneficial interest or the number of shares of beneficial interest of anyclass that we have the authority to issue;

·       authorizethe issuance of additional common or preferred shares, or units of ouroperating partnership which may be convertible into common shares; and

·       classifyor reclassify any unissued common shares or preferred shares and to set thepreferences, rights and other terms of such classified or reclassified shares,including preferred shares that have preference rights over the common shareswith respect to dividends, liquidation, voting and other matters or commonshares that have preference rights with respect to voting.

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

**Our Board of Trustees may approve the issuance of aclass or series of common or preferred shares with terms that may discourage athird party from acquiring us.**

Our Board of Trustees mayclassify or reclassify any unissued common or preferred shares and establishthe preferences and rights (including the right to vote, participate inearnings and convert into common shares) of any such shares. Therefore, ourBoard of Trustees could authorize the issuance of a class or series of commonor preferred shares with terms and conditions which could have the effect ofdiscouraging a takeover or other transaction in which holders of some or amajority of the common shares might receive a premium for their shares over thethen current market price of our common shares.

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**Our rights and the rights of our shareholders to takeaction against our trustees and officers are limited, which could limit yourrecourse in the event of actions taken that are not in your best interests.**

Our declaration oftrust authorizes us and our bylaws require us to indemnify and advance expensesto our trustees and officers for actions taken by them in those capacities tothe fullest extent permitted by Maryland law. In addition, our declaration oftrust limits the liability of our trustees and officers for money damages,except for liability resulting from:

·       actualreceipt of an improper benefit or profit in money, property or services; or

·       afinal judgment based upon a finding of active and deliberate dishonesty by thetrustee or officer that was material to the cause of action adjudicated.

As a result, we and ourshareholders may have more limited rights against our trustees and officersthan might otherwise exist.

**Our ownershiplimitations may restrict business combination opportunities.**

Toqualify as a REIT under the Code, no more than 50% of our outstanding shares ofbeneficial interest may be owned, directly or indirectly, by five or fewerindividuals (as defined in the Code to include certain types of entities)during the last half of each taxable year (other than our first REIT taxableyear). Our declaration of trust prohibits, subject to certain exceptions,direct or indirect ownership (including by virtue of applicable constructiveownership rules) by any person of more than 7.1% of our outstanding commonshares (as determined by reference to number or value, whichever is morerestrictive), other than (i) Gary M. Holloway, Sr. and certainrelated persons, who are permitted in the aggregate to own up to 20% of thenumber or value of our outstanding common shares, whichever is morerestrictive, (ii) Steven Roth and certain related persons, who arepermitted in the aggregate to own up to 8.5% of the number or value of ourcommon shares, whichever is more restrictive and (iii) Vornado RealtyL.P., certain persons related to Vornado Realty L.P., certain of transferees orassignees of Vornado Realty L.P. or related persons and affiliates of suchtransferees or assignees, to which no ownership limit applies. Generally,common shares owned by affiliated owners will be aggregated for purposes of theownership limitation. The definition of “person” in our declaration of trust isbroader than the definition of “individual” that applies under the Code forpurposes of the REIT qualification requirement that no more than 50% of ouroutstanding shares of beneficial interest be owned, directly or indirectly, byfive or fewer individuals. As a result, our declaration of trust will prohibitshare ownership in some circumstances where the ownership would not cause aviolation of the REIT ownership requirement. Any transfer of our common sharesthat would violate the ownership limitation under our declaration of trust willbe null and void, and the intended transferee will acquire no rights in suchshares. Instead, such common shares will be designated as “shares-in-trust” andtransferred automatically to a trust effective at the close of business on theday before the purported transfer of such shares. The beneficiary of a trustwill be one or more charitable organizations named by us. The ownershiplimitation could have the effect of delaying, deterring or preventing a changein control or other transaction in which holders of common shares might receivea premium for their common shares over the then current market price or whichsuch holders might believe to be otherwise in their best interests. Theownership limitation provisions also may make our common shares an unsuitableinvestment vehicle for any person seeking to obtain, either alone or withothers as a group, ownership of more than 7.1% in number or value, whichever ismore restrictive, of our outstanding common shares.

**Our executive officers and certain of our trustees mayexperience conflicts of interest in connection with their ownership interestsin our operating partnership.**

Certain of our executiveofficers and trustees, including Gary M. Holloway, Sr., may experienceconflicts of interest relating to their ownership interests in our operatingpartnership. With regard to ownership interests in our operating partnership,as of December 31, 2006, Mr. Holloway beneficially 

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ownedapproximately 24.0% limited partnership interest in our operating partnershipand our other executive officers, including Bruce F. Robinson, who is also oneof our trustees, collectively owned approximately 1.8% of the limited partnership interests in our operatingpartnership. Michael D. Fascitelli, also one of our trustees, is the presidentand a member of the Board of Trustees of Vornado Realty Trust, which,indirectly through its operating partnership and an affiliated entity, owned anaggregate of 7,337,857 units, or approximately 10.1% of the limited partnershipinterests in our operating partnership, and 2,517,247 of our common shares, orapproximately 6.1% of GMH Communities Trust. Conflicts may arise as a result ofthese persons’ ownership interests in, or their affiliates’ interests in, ouroperating partnership to the extent that their interests as limited partnersdiverge from our interests, particularly with regard to transactions, such assales of assets or the repayment of indebtedness, that could be in our bestinterests and our shareholders but may have adverse tax consequences to thelimited partners in our operating partnership.

**Gary M. Holloway, Sr. may have conflicts ofinterest as a result of his ownership of an entity that provides services tous, leases space from us.**

Mr.  Holloway owns a 100% equity interest in GMH Capital Partners, LP, anentity that provides property management and real estate brokerage services foroffice, retail, industrial, multi-family and corporate properties as wellas general contracting and construction management services and acquisition,disposition and development services. GMH Capital Partners, LP is notcontractually prohibited from competing with us. In addition, GMH CapitalPartners, LP leases space in our corporate headquarters, which we acquired inconnection with our initial public offering. As a result of the ongoingownership interests that Mr. Holloway owns in GMH Capital Partners, LP,there may be conflicts of interest with regard to the terms that we enter intopursuant to our lease to GMH Capital Partners, LP. In addition, we may engageGMH Capital Partners, LP to provide certain real estate brokerage services forus in the future.

**Because Gary M. Holloway, Sr. owns a significantnumber of units in our limited partnership, he may be able to exert substantialinfluence on our management and operations, which may prevent us from takingactions that may be favorable to our shareholders.**

As of December 31,2006, Mr. Holloway beneficially owned approximately 24.0% of theoutstanding units of limited partnership interest in our operating partnership.If the maximum number of units redeemable for our common shares byMr. Holloway were actually redeemed, Mr. Holloway would beneficiallyown approximately 20.0% of our outstanding common shares. Although the terms ofour declaration of trust limit Mr. Holloway’s ability to redeem hislimited partnership interests to up to 20.0% of our outstanding common shares,such an ownership concentration of our shares may adversely affect the tradingprice of our common shares if investors perceive disadvantages to owning sharesin companies with controlling shareholders. If we were to redeem the maximumnumber of Mr. Holloway’s units for common shares and Mr. Hollowaywere to retain those shares, he would have the ability to exert significantinfluence over all matters requiring approval of our shareholders, includingthe election and removal of trustees and any proposed merger, consolidation orsale of substantially all of our assets. In addition, he could influencesignificantly the management of our business and affairs. This concentrationalso could have the effect of delaying, deferring or preventing a change ofcontrol of us or impeding a merger or consolidation, takeover or other businesscombination that could be favorable to you. Further, Mr. Holloway’sconcentration of ownership in our operating partnership affords him the abilityto exert substantial influence over matters, such as a merger, consolidation orsale of substantially all of the assets of our operating partnership, all ofwhich, under certain circumstances, require the consent of limited partnersowning more than 50% of the partnership interest of the limited partners (otherthan those held by us or our subsidiaries).

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**One of our trustees may have a conflict of interest asa result of his affiliation with Vornado Realty Trust, one of our largestshareholders on a fully-diluted basis.**

Mr.  Fascitelli, one of our trustees, is the president and a member ofthe Board of Trustees of Vornado Realty Trust. As described elsewhere in thisreport, our operating partnership was initially formed in July 2004through a joint venture between entities owned by Mr. Holloway and VornadoRealty L.P., the operating partnership of Vornado Realty Trust. In connectionwith our formation transaction, we issued a warrant to Vornado Realty L.P.,under which Vornado has purchased 6,666,667 units of limited partnership in ouroperating partnership. On May 2, 2006, the expiration date under thewarrant, Vornado received an additional 1,817,247 of our common shares througha net, or cashless, exercise feature of the warrant. Vornado also purchased700,000 shares in our 2005 follow-on offering of common shares. Vornado CCAGainesville, LLC, an affiliate of Vornado Realty L.P., also owns 671,190 unitsof limited partnership interest in our operating partnership, which were issuedin connection with the contribution of an interest in a student housingproperty to our operating partnership at the time of our initial publicoffering. In addition, we are required to register for resale the common sharesissuable upon exercise of the warrant and the other units currently held byVornado CCA Gainesville, LLC. Under the terms of the warrant, Vornado has theright to designate for election to our Board of Trustees Mr. Fascitelli orsuch other officer of Vornado who is reasonably acceptable to us, so long as itholds common shares or units of limited partnership interest in our operatingpartnership acquired under the warrant at an aggregate price of not less than$10.0 million. Vornado exercised this right in August 2005, andMr. Fascitelli was elected to serve on our Board of Trustees onAugust 10, 2005. As of result of the foregoing, Mr. Fascitelli couldexperience conflicts of interest between his duties to us and our shareholdersand his duties to Vornado and its shareholders.

**Some of our executive officers and trustees have otherbusiness interests that may hinder their ability to allocate sufficient time tothe management of our operations, which could jeopardize our ability to executeour business plan.**

Some of our executiveofficers and trustees have other business interests that may hinder theirability to spend adequate time on our business. Mr. Holloway retains 100%of the interests in GMH Capital Partners, LP, an entity that we did not acquirein our formation transactions, and several other entities relating to GMHAssociates. GMH Capital Partners, LP provides various property managementservices and real estate brokerage services for office, retail, industrial,multi-family and corporate properties as well as construction managementservices and acquisition, disposition and development services.Mr. Holloway’s employment agreement permits him to continue to providemanagement and other services to this entity, and the provision of such servicesmay reduce the time Mr. Holloway is able to devote to our business.

**Maryland law maydiscourage a third party from acquiring us.**

Maryland law provides broad discretion to our Board ofTrustees with respect to its duties in considering a change in control of ourcompany, including that our board is subject to no greater level of scrutiny inconsidering a change in control transaction than with respect to any other actby our Board.

The Maryland Business Combination Act restrictsmergers and other business combinations between our company and an interestedshareholder. An “interested shareholder” is defined as any person who is thebeneficial owner of 10% or more of the voting power of our common shares andalso includes any of our affiliates or associates that, at any time within thetwo year period prior to the date of a proposed merger or other businesscombination, was the beneficial owner of 10% or more of our voting power. Aperson is not an interested shareholder if, prior to the most recent time at whichthe person would otherwise have become an interested shareholder, our Board ofTrustees approved the transaction which otherwise would have resulted in theperson becoming an interested shareholder. For a period of five years 

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after the most recentacquisition of shares by an interested shareholder, we may not engage in anymerger or other business combination with that interested shareholder or anyaffiliate of that interested shareholder. After the five year period, anymerger or other business combination must be approved by our Board of Trusteesand by at least 80% of all the votes entitled to be cast by holders ofoutstanding voting shares and two-thirds of all the votes entitled to be castby holders of outstanding voting shares other than the interested shareholderor any affiliate or associate of the interested shareholder unless, among otherthings, the shareholders (other than the interested shareholder) receive aminimum price for their common shares and the consideration received by thoseshareholders is in cash or in the same form as previously paid by theinterested shareholder for its common shares. Our Board of Trustees has adopteda resolution, reflected in our bylaws, providing that we have opted out of theMaryland Business Combination Act. However, our Board of Trustees may opt atany time, without the approval of our shareholders, to make the statuteapplicable to us again. To the extent it applies, the business combinationstatute could have the effect of discouraging offers from third parties toacquire us and increasing the difficulty of successfully completing this typeof offer.

Additionally, the “controlshares” provisions of the MGCL are applicable to us as if we were acorporation. These provisions eliminate the voting rights of shares acquired inquantities so as to constitute “control shares,” as defined under the MGCL. Ourbylaws 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 atany time, and may do so on a retroactive basis.

**We depend on the business relationships and experienceof Gary M. Holloway, Sr. and our other executive officers, the loss ofwhom could threaten our ability to execute our strategies.**

Wedepend on the services of Gary M. Holloway, Sr., our president, chiefexecutive officer and chairman of our Board of Trustees, to carry out ourbusiness strategies. If Mr. Holloway were to leave the Company, it may bemore difficult to locate attractive acquisition targets and manage theproperties that we acquire. Additionally, as we expand, we will continue toneed to attract and retain qualified additional senior executive officers. Theloss of the services of any of our senior executive officers, or our inabilityto recruit and retain qualified personnel in the future, could have a materialadverse effect on our business and financial results.

**Certain of our executive officers have agreements thatprovide them with benefits in the event their employment is terminated by us withoutcause, by the executive for good reason, or under certain circumstancesfollowing a change of control of our company.**

We have entered intoemployment agreements with each of our executive officers, including Gary M.Holloway, Sr., Bruce F. Robinson, John DeRiggi, Joseph M. Macchione and J.Patrick O’Grady that provide them with severance benefits if their employmentis terminated by us without cause, by them for good reason (which includes,among other reasons, failure to be elected to the Board with respect toMr. Holloway’s agreement, and any election by us not to renew ouragreements with them), or under certain circumstances following a change ofcontrol of our company. Certain of these benefits, including the related taxindemnity with respect to the employment agreements for Mr. Holloway andMr. Robinson, could prevent or deter a change of control of our companythat might involve a premium price for our common shares or otherwise be in thebest interest of our shareholders.

**Our Board of Trustees may alter our investmentpolicies at any time without shareholder approval, and the alteration of thesepolicies may adversely affect our financial performance.**

Our major policies, including our policies andpractices 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 totime without a vote of our shareholders. Accordingly, our shareholders willhave limited control over changes in our policies.

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We have set a targetedrange for the amount of indebtedness that we incur from time to time. Thistarget ratio may be amended or waived at any time without shareholder approvaland without notice to our shareholders. In addition, our declaration of trust andbylaws do not limit the amount of indebtedness that we or our operatingpartnership may incur. If we become highly leveraged, then the resultingincrease in debt service could adversely affect our ability to make payments onour outstanding indebtedness and harm our financial condition.

**Througha wholly owned subsidiary, we are the sole general partner of our operatingpartnership, and, should the subsidiary be disregarded, we could become liablefor the debts and other obligations of our operating partnership beyond theamount of our investment.**

We are the sole generalpartner of our operating partnership, GMH Communities, LP, through our whollyowned subsidiary, GMH Communities GP Trust, a Delaware statutory trust, and wealso owned units of limited partnership interest in our operating partnershipequal to approximately 56.0% of the total partnership interests in ouroperating partnership as of December 31, 2006. If GMH Communities GP Trustwere disregarded as the general partner, we would be liable for our operatingpartnership’s debts and other obligations. In such event, if our operatingpartnership is unable to pay its debts and other obligations, we will be liablefor such debts and other obligations beyond the amount of our investment in ouroperating partnership. These obligations could include unforeseen contingentliabilities.

***Risks Relating toReal Estate Investments***

**Illiquidityof real estate investments could significantly impede our ability to respond toadverse changes in the performance of our targeted properties and harm ourfinancial condition.**

Real estate investmentsare relatively illiquid. Our ability to quickly sell or exchange any of ourstudent housing properties or military housing privatization projects inresponse to changes in economic and other conditions will be limited. Noassurances can be given that we will recognize full value for any property thatwe are required to sell for liquidity reasons. Our inability to respond rapidlyto changes in the performance of our investments could adversely affect ourfinancial condition and results of operations.

**Ourtargeted properties may not achieve forecasted results or we may be limited inour ability to finance future acquisitions, which may harm our financialcondition and operating results, and we may not be able to make thedistributions required to maintain our REIT status.**

Acquisitions anddevelopments entail risks that the properties will fail to perform inaccordance with expectations and that estimates of the costs of improvementsnecessary to acquire, develop and manage properties will prove inaccurate, aswell as general investment risks associated with any new real estateinvestment. We anticipate that acquisitions and developments will largely befinanced through externally generated funds such as borrowings under creditfacilities and other secured and unsecured debt financing and from issuances ofequity securities. Because we must distribute at least 90% of our REIT taxableincome, determined without regard to the dividends-paid deduction and byexcluding any net capital gain, each year to maintain our qualification as aREIT, our ability to rely upon income from operations or cash flow fromoperations to finance our growth and acquisition activities will be limited.Accordingly, if we are unable to obtain funds from borrowings or the capitalmarkets to finance our acquisition and development activities, our ability togrow would likely be curtailed, amounts available for distribution toshareholders could be adversely affected and we could be required to reducedistributions, thereby jeopardizing our ability to maintain our status as aREIT.

Newly-developed ornewly-renovated properties do not have the operating history that wouldallow our management to make objective pricing decisions in acquiring theseproperties. The purchase prices of these properties will be based in part uponprojections by management as to the expected operating results of suchproperties, subjecting us to risks that these properties may not achieve anticipatedoperating results 

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or maynot achieve these results within anticipated time frames. In addition, we havewitnessed a compression of capitalization rates for the student housingproperties that we are targeting under our investment criteria. During 2006,capitalization rates declined, and may continue to decline in the future. We,therefore, may be unable to purchase student housing properties at attractivecapitalization rates.

**If wesuffer losses that are not covered by insurance or that are in excess of ourinsurance coverage limits, we could lose investment capital and anticipatedprofits.**

We have general liabilityinsurance that provides coverage for bodily injury and property damage to thirdparties resulting from our ownership of the properties that are leased to, andoccupied by, our residents. However, there are certain types of losses,generally of a catastrophic nature, such as earthquakes, floods, hurricanes,wars and acts of terrorism that may be uninsurable or not insurable at a price wecan afford. Inflation, changes in building codes and ordinances, environmentalconsiderations and other factors also might make it impracticable to useinsurance proceeds to replace a property after it has been damaged ordestroyed. Under these circumstances, the insurance proceeds we receive mightnot be adequate to restore our economic position with respect to the affectedproperty. If any of these or similar events occur, it may reduce our returnfrom the property and the value of our investment.

**Capitalexpenditures for property renovations may be greater than forecasted and mayadversely impact rental payments by our residents and our ability to makedistributions to shareholders.**

Properties,particularly those that consist of older structures, have an ongoing need forrenovations and other capital improvements, including periodic replacement offurniture, fixtures and equipment. Renovation of properties involves certainrisks, including the possibility of environmental problems, construction costoverruns and delays, uncertainties as to market demand or deterioration inmarket demand after commencement of renovation and the emergence ofunanticipated competition from other properties. All of these factors couldadversely impact rental payments by our residents, have a material adverseeffect on our financial condition and results of operations, and adverselyaffect our ability to make distributions to our shareholders.

**All ofour student housing properties are subject to property taxes, and some of our militaryhousing properties may be subject to property taxes. If these taxes were to besignificantly increased by applicable authorities in the future, our operatingresults and ability to make distributions to our shareholders would beadversely affected.**

Our student housingproperties are subject to real and personal property taxes, and some of ourmilitary housing properties may be subject to real and personal property taxes,that may increase as property tax rates change and as the properties are assessedor reassessed by taxing authorities. As the owner of the student housingproperties and a member of or partner in the joint venture entity that owns themilitary housing privatization projects that cover military housing properties,we will be responsible, in whole or in part, for payment of the taxes to thegovernment. Increases in property tax rates may adversely affect our operatingresults and our ability to make expected distributions to our shareholders.

**Ourperformance and the value of our common shares will be affected by risksassociated with the real estate industry.**

Ourability to make expected dividend payments to our shareholders and the value ofour common shares depend largely on our ability to generate cash revenues inexcess of expenses, debt obligations and capital expenditure requirements.Factors that may adversely affect our ability to generate cash revenuesinclude:

·       changesin the national, regional and local economic climate;

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·       risinginterest rates;

·       localconditions such as an oversupply of, or a reduction in demand for, student andmilitary housing;

·       increasedoperating costs, including insurance premiums, utilities and real estate taxes;

·       attractivenessof our properties to residents;

·       costsof complying with changes in governmental regulations; and

·       competitionfrom other real estate developers of student housing and companies pursuing theaward of future military housing privatization projects.

In addition, periods ofeconomic slowdown or recession, rising interest rates or declining demand forreal estate, or the public perception that any of these events may occur, couldresult in a general decline in rents or an increased incidence of defaultsunder existing leases, which would adversely affect us.

**As theowner and lessor of real estate, we are subject to risks under environmentallaws, the cost of compliance with which, and any violation of which, couldmaterially adversely affect us.**

Ouroperating expenses could be higher than anticipated due to the cost ofcomplying with existing and future environmental and occupational health andsafety laws and regulations. Various environmental laws may impose liability ona current or prior owner or operator of real property for removal or redemptionof hazardous or toxic substances. Current or prior owners or operators may alsobe liable for government fines and damages for injuries to persons, naturalresources and adjacent property. These environmental laws often imposeliability whether or not the owner or operator knew of, or was responsible for,the presence or disposal of the hazardous or toxic substances. The cost ofcomplying with environmental laws could materially adversely affect amountsavailable for distribution to our shareholders and could exceed the value ofall of our properties. In addition, the presence of hazardous or toxicsubstances, or the failure of our residents to properly dispose of or remediatesuch substances, may adversely affect our residents or our ability to use, sellor rent such property or to borrow using such property as collateral which, inturn, could reduce our revenue and our financing ability. We intend to obtainPhase I environmental assessments on any properties we acquire, manage ordevelop. However, even if the Phase I environmental reports do not reveal anymaterial environmental contamination, it is possible that materialenvironmental liabilities may exist of which we are unaware.

Although the leases forour student housing properties generally will require our student residents tocomply with laws and regulations governing their operations, and to indemnifyus for certain environmental liabilities that they create, the scope of theirobligations may be limited. We cannot assure you that our student residents ortheir guarantors will be able to fulfill their indemnification obligations. Inaddition, environmental and occupational health and safety laws constantly areevolving, and changes in laws, regulations or policies, or changes ininterpretations of the foregoing, could create liabilities where none existstoday.

With regard to ourmilitary housing properties, the federal government will not indemnify us forany environmental liability on these properties. As a result, we may be exposedto substantial liability to remove or remediate hazardous or toxic substances,which could materially adversely affect our financial condition and results ofoperation.

**Futureterrorist attacks in the U.S. could harm the demand for and the value of ourproperties.**

Futureterrorist attacks in the U.S., such as the attacks that occurred onSeptember 11, 2001, and other acts of terrorism or war, or threats of thesame, could diminish the demand for and the value of our properties. Themilitary bases at which we have privatization projects may be terrorist targets.Also, certain 

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of our properties are near universities which containwell-known landmarks and may be perceived as more likely terrorist targets thansimilar, less recognizable properties. A decrease in demand in our marketswould make it difficult for us to renew or re-lease our properties at leaserates equal to or above historical rates.

Terrorist attacks alsocould directly impact the value of our properties through damage, destruction,loss, or increased security costs, and the availability of insurance for suchacts may be limited or may cost more. If we receive casualty proceeds, we maynot be able to reinvest such proceeds profitably or at all, and we may beforced to recognize taxable gain on the affected property.

**We mayincur significant costs complying with the Americans with Disabilities Act andsimilar laws.**

Underthe Americans with Disabilities Act of 1990, or ADA, all public accommodationsmust meet federal requirements related to access and use by disabled persons.Additional federal, state and local laws also may require modifications to ourproperties, or restrict our ability to renovate our properties. For example,the Fair Housing Amendments Act of 1988, or FHAA, requires apartment propertiesfirst occupied after March 13, 1990, to be accessible to the handicapped.We have not conducted an audit or investigation of all of our properties todetermine our compliance. Noncompliance with the ADA or FHAA could result inthe imposition of fines or an award or damages to private litigants and alsocould result in an order to correct any non-complying feature. We cannotpredict the ultimate amount of the cost of compliance with the ADA, FHAA or anyother legislation. If we incur substantial costs to comply with the ADA, FHAAor any other legislation, we could be materially and adversely affected.

**We mayincur significant costs complying with other regulations.**

Theproperties in our portfolio are subject to various other federal, state andlocal regulatory requirements, such as state and local fire and life safetyrequirements. If we fail to comply with these various requirements, we mightincur governmental fines or private damage awards. If we are not in compliancewith existing requirements, or if existing requirements change, we may have to makesignificant unanticipated expenditures that would materially and adverselyaffect us.

***Risks Relating toOur Common Shares***

**Themarket price and trading volume of our common shares may be volatile in thefuture.**

The market price of ourcommon shares may be highly volatile and subject to wide fluctuations in thefuture. The stock market has experienced extreme price and volume fluctuationsthat have affected the market price of many companies in industries similar orrelated to ours and that have been unrelated to these companies’ operatingperformances. These broad market fluctuations could reduce the market price ofour common shares. Furthermore, our operating results and prospects may bebelow the expectations of public market analysts and investors or may be lowerthan those of companies with comparable market capitalizations, which couldlead to a material decline in the market price of our common shares. Inaddition, the trading volume in our common shares may fluctuate and causesignificant price variations to occur.

Wecannot assure you that the market price of our common shares will not fluctuateor decline significantly in the future. Some of the factors that couldnegatively affect our share price or result in fluctuations in the price ortrading volume of our common shares include:

·       thelikelihood that an active market for our common shares will continue;

·       actualor anticipated variations in our operating results;

·       changesin our funds from operations or earnings estimates;

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·       publicationof research reports about us or the real estate industry;

·       increasesin market interest rates may lead purchasers of our common shares to demand ahigher dividend rate which, if our distributions do not rise, will mean ourshare price will fall;

·       changesin market valuations of similar companies;

·       adversemarket reaction to any increased indebtedness we incur in the future;

·       additionsor departures of key management personnel;

·       actionsby institutional shareholders;

·       speculationin the press or investment community;

·       generalmarket and economic conditions; and

·       futureofferings of debt securities or preferred shares, which would be senior to ourcommon shares upon liquidation, and additional offerings of equity securities,which would dilute our existing shareholders and may be senior to our commonshares for the purposes of dividend distributions, may adversely affect themarket price of our common shares.

In the future, we mayattempt to increase our capital resources by making offerings of debt oradditional offerings of equity securities, including commercial paper,medium-term notes, senior or subordinated notes and series of preferred sharesor common shares. Upon our liquidation, holders of our debt securities andpreferred shares and lenders with respect to other borrowings will receive adistribution of our available assets prior to the holders of our common shares.Additional equity offerings may dilute the holdings of our existingshareholders or reduce the market price of our common shares, or both. Ourpreferred shares, if issued, could have a preference on liquidatingdistributions or a preference on dividend payments that could limit our abilityto make a dividend distribution to the holders of our common shares. Becauseour decision to issue securities in any future offering will depend on marketconditions and other factors beyond our control, we cannot predict or estimatethe amount, timing or nature of our future offerings. Thus, holders of ourcommon shares bear the risk of our future offerings reducing the market priceof our common shares and diluting their share holdings in us.

**Commonshares eligible for future sale may have adverse effects on our share price.**

Wecannot predict the effect, if any, of future sales of common shares or the availabilityof shares for future sales, on the market price of our common shares. We arerequired to register for resale up to 34,141,864shares, which are either currently held by Vornado Realty L.P. as a result ofits exercise of a warrant or which shares may be received by various personsand entities upon redemption of units of limited partnership interest in ouroperating partnership. We expect to file a registration statement covering theresale of these shares as soon as possible after the filing of this AnnualReport on Form 10-K. Sales of substantial amounts of commonshares, or the perception that these sales could occur, may adversely affectprevailing market prices for our common shares. Under the terms of ouroperating partnership agreement, the common shares eligible for issuance uponredemption of units of limited partnership interest in our operatingpartnership, including units that we may issue to third parties in the future,are required to be registered within nine months following the date of initialissuance of such units. In addition, we filed a registration statement withrespect to the 2,000,000 common shares authorized for issuance under our EquityIncentive Plan in connection with the grant of restricted common share awards,option grants or other equity-based awards authorized by the CompensationCommittee of our Board of Trustees. We also may issue from time to timeadditional common shares or units of limited partnership interest in ouroperating partnership in connection with the acquisition of properties and wemay grant additional demand or piggyback registration rights in connection withthese issuances. Sales of substantial amounts of common shares or theperception that these sales could occur may adversely effect the prevailingmarket 

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price for our common shares. In addition, the sale ofthese shares could impair our ability to raise capital through a sale ofadditional equity securities.

**Themarket value of our common shares could decrease based on our performance andmarket perception and conditions.**

Themarket value of our common shares may be based primarily upon the market’sperception of our growth potential and current and future cash dividends, andmay be secondarily based upon the market value of our underlying assets. Weexpect the market price of our common shares to be influenced by the dividendon our common shares relative to market interest rates. Rising interest ratesmay lead potential buyers of our common shares to expect a higher dividendrate, which would adversely affect the market price of our common shares. Inaddition, rising interest rates would result in increased interest expense onour variable rate debt and adversely affect cash flow and our ability toservice our indebtedness and make distributions to our shareholders.

***Tax RisksAssociated with Our Status as a REIT***

**If wefail to qualify for or lose our tax status as a REIT, we would be subject tosignificant adverse consequences and the value of our common shares maydecline.**

We intend to continue tooperate in a manner that will allow us to continue to qualify as a REIT forfederal income tax purposes under the Code. We elected to be taxed as a REITupon the filing of our tax return for the taxable year ended December 31,2004. Our qualification as a REIT depends, and will continue to depend, on ourability to meet various requirements concerning, among other things, theownership of our outstanding common shares, the nature of our assets, thesources of our income and the amount of our distributions to our shareholders.The REIT qualification requirements are extremely complex, and theinterpretations of the federal income tax laws governing qualification as aREIT are limited. Accordingly, there is no assurance that we will be successfulin operating so as to qualify as a REIT. At any time, new laws, regulations,interpretations or court decisions may change the federal tax laws relating to,or the federal income tax consequences of, qualification as a REIT. It ispossible that future economic, market, legal, tax or other considerations maycause our Board of Trustees to revoke the REIT election, which it may dowithout shareholder approval.

If werevoke, lose or fail to achieve our REIT status, we will face serious taxconsequences that will substantially reduce the funds available fordistribution because:

·       wewould not be allowed a deduction for distributions to shareholders in computingour taxable income;

·       wewould be subject to federal income tax at regular corporate rates, and we mightneed to borrow money or sell assets in order to pay any such tax;

·       wealso could be subject to the federal alternative minimum tax and possiblyincreased state and local taxes; and

·       unlesswe are entitled to relief under statutory provisions, we also would be disqualifiedfrom taxation as a REIT for the four taxable years following the year duringwhich we ceased to qualify.

In addition, if we fail toqualify as a REIT, we will not be required to pay dividends to shareholders,and all dividends to shareholders will be subject to tax to the extent of ourcurrent and accumulated earnings and profits. As a result of all of thesefactors, a failure to achieve, or a loss or revocation of our REIT status couldhave a material adverse effect on our financial condition and results ofoperations and would adversely affect the value of our common shares.

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In addition, incircumstances where we fail to qualify as a REIT, it is likely that we willalso have failed to comply with the restrictions on our activities and those ofthe operating partnership that we agreed to with Vornado Realty L.P., in whichcase we would also be liable for any damages incurred by Vornado Realty L.P.,certain of its affiliates and its transferees and assignees, together withcertain of their affiliates, as a result of such failure.

**Tomaintain our REIT status, we may be forced to borrow funds on a short-termbasis during unfavorable market conditions.**

Inorder to maintain our qualification as a REIT, we are required under the Codeto distribute annually at least 90% of our REIT taxable income, determinedwithout regard to the dividends-paid deduction and excluding any net capitalgain. In addition, we will be subject to income tax at regular corporate ratesto the extent that we distribute less than 100% of our net taxable income,including any net capital gains. Because of these distribution requirements, wemay not be able to fund future capital needs, including any necessaryacquisition financing, from operating cash flow. Consequently, we will be compelledto rely on third party sources to fund our capital needs. We may not be able toobtain this financing on favorable terms or at all. Any additional indebtednessthat we incur will increase our leverage. Our access to third party sources ofcapital depends, in part, on:

·       generalmarket conditions;

·       ourcurrent debt levels and the number of properties subject to encumbrances;

·       ourcurrent performance and the market’s perception of our growth potential;

·       ourcash flow and cash dividends; and

·       theprice of our common shares.

If we cannot obtaincapital from third party sources, we may not be able to acquire or developproperties when strategic opportunities exist, satisfy our debt serviceobligations or make the cash dividends to our shareholders necessary tomaintain our qualification as a REIT.

**Failure to make required distributions would subjectus to tax.**

Inorder to qualify as a REIT, each year we must distribute to our shareholders atleast 90% of our REIT taxable income, determined without regard to thedividends-paid deduction and by excluding any net capital gain. To the extentthat we satisfy the distribution requirement, but distribute less than 100% ofour taxable income, we will be subject to federal corporate income tax on ourundistributed income. In addition, we will incur a 4% nondeductible excise taxon the amount, if any, by which our distributions in any year are less than thesum of:

·       85%of our ordinary income for that year;

·       95%of our capital gain net income for that year; and

·       100% of our undistributedtaxable income from prior years.

We intend to pay out ourincome to our shareholders in a manner that satisfies the distributionrequirement and avoids corporate income tax and the 4% nondeductible excisetax. We may be required to make distributions to shareholders atdisadvantageous times or when we do not have funds readily available fordistribution. Differences in timing between the recognition of income and therelated cash receipts or the effect of required debt amortization paymentscould require us to borrow money or sell assets to pay out enough of ourtaxable income to satisfy the distribution requirement and to avoid corporateincome tax and the 4% nondeductible excise tax in a particular year. In thefuture, we may borrow to pay distributions to our shareholders and the limitedpartners of our operating partnership. Any funds that we borrow would subjectus to interest rate and other market risks.

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**Complying with REITrequirements may cause us to forgo otherwise attractive opportunities.**

To qualify as a REIT forfederal income tax purposes, we must continually satisfy tests concerning,among other things, the sources of our income, the nature and diversificationof our assets, the amounts we distribute to our shareholders and the ownershipof our shares. As a result, we may be required to forgo attractive business orinvestment opportunities in order to meet these tests. Thus, compliance withthe REIT requirements may hinder our ability to operate solely on the basis ofmaximizing profits.

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

At any time, the federalincome tax laws or regulations governing REITs or the administrativeinterpretations of those laws or regulations may be amended. Any of those newlaws or interpretations may take effect retroactively and could adverselyaffect us or you as a shareholder. Effective for taxable years beginning afterDecember 31, 2002, the Jobs and Growth Tax Relief Reconciliation Act of2003, which we refer to as the Jobs and Growth Tax Act, generally reduces themaximum rate of tax applicable to most domestic noncorporate taxpayers on dividendincome from regular C corporations to 15%. This reduces substantially theso-called “double taxation” (that is, taxation at both the corporate andshareholder levels) that has generally applied to corporations that are nottaxed as REITs. Generally, dividends from REITs will not qualify for thedividend tax reduction because, as a result of the dividends paid deduction towhich REITs are entitled, REITs generally do not pay corporate level tax onincome that they distribute to shareholders. The implementation of the Jobs andGrowth Tax Act may cause domestic noncorporate investors to view stocks ofnon-REIT corporations as more attractive relative to shares of REITs than wasthe case previously. We cannot predict what impact this legislation may have onthe value of our common shares.

**The income earnedby our taxable REIT subsidiaries will be subject to federal income tax.**

We own active taxable REITsubsidiaries that earn income that, if earned by us outside of a taxable REITsubsidiary, would jeopardize our status as a REIT. For example, our taxableREIT subsidiaries earn fees from developing, constructing, renovating andmanaging military housing properties and providing management services tocertain third party owners of student housing, as well as fees for providingcertain noncustomary services for our student housing properties, that wouldnot be qualifying income for purposes of the REIT income tests. A taxable REITsubsidiary is taxed as a regular C corporation. The income from the activitiesdescribed above and other income earned by our taxable REIT subsidiaries istherefore subject to a corporate level tax, notwithstanding that we qualify asa REIT.

**We may not conduct all of our third party studenthousing management business through a taxable REIT subsidiary, which couldjeopardize our ability to comply with one of the REIT gross incomerequirements.**

In general, at least 95%of our gross income for each taxable year must consist of income that isqualifying income for purposes of the 75% REIT gross income test, other typesof interest and dividends, gain from the sale or disposition of shares orsecurities, or any combination of these. Fees that we earn from providingproperty management services to third party owners of student housing propertiesdo not constitute qualifying income for purposes of the 95% REIT gross incometest. We conduct all (or as nearly all as possible) of our third party studenthousing property management business through a taxable REIT subsidiary. Thefees we earn from that business other than through a taxable REIT subsidiary,together with all other income that does not constitute qualifying income underthe 95% gross income test, cannot exceed 5% of our total gross income. If wefail to manage our business in a manner that allows us to satisfy the 95% REITgross income test, the portion of income associated with the amount in excessof this 95% threshold would be taxed at 100%, and we could lose our REITqualification which would, among other 

54

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things,cause all of our earnings to be subject to federal income tax and would reduceour cash available for distributions to shareholders.

**To maintain our REIT status, we will be required tocomply with a number of requirements relating to the relative values of ourassets, and we may be required to limit activities conducted through a taxableREIT subsidiary.**

As a REIT we will be required to satisfy, as of theclose of each quarter of each of our taxable years, a number of requirementsrelating to the relative values of our assets, including requirements that notmore than 25% of the value of our total assets be represented by assets otherthan real estate assets, cash and cash items and government securities and thatnot more than 20% of the value of our total assets be represented by securitiesof taxable REIT subsidiaries. We intend to monitor our compliance with thevarious asset test requirements. As a number of these requirements are based onvalue, however, it is possible that the IRS could successfully argue for avalue of our nonqualifying assets that was such that we would fail to satisfy aREIT asset requirement. In such circumstances, we could fail to qualify as aREIT for the taxable year of such failure and the following four taxable years.

**Tomaintain our status as a REIT, no more than 20% of the value of our totalassets may consist of the securities of our taxable REIT subsidiaries, such asGMH Military Housing, LLC and College Park Management TRS, Inc. Certain ofour activities, such as development, construction, renovation, and managementservices, must be conducted through a taxable REIT subsidiary in order for usto maintain our REIT status. In addition, certain non-customary servicesgenerally must be provided by a taxable REIT subsidiary or an independentcontractor from which we do not derive any income. If the revenues from suchactivities create a risk that the value of our interest in our taxable REITsubsidiaries, based on revenues or otherwise, approach the 20% threshold, wewill be forced, in order to maintain our REIT status, to curtail suchactivities or take other steps to remain under the 20% threshold. Since ourformation transactions, the development, construction, renovation, andmanagement services provided to our military housing privatization projects andthe management services provided to certain third party owners of studenthousing have been conducted through taxable REIT subsidiaries. Consequently,income earned by these taxable REIT subsidiaries is subject to corporate incometax.**

**We may be subject to tax if our taxable REITsubsidiaries provide services to our tenants other than on an arm’s lengthbasis.**

If our taxable REITsubsidiaries provide services to our tenants for other than an arm’s lengthcharge (payable from the tenants or from us), we would be subject to a 100% taxon the difference between the amount in fact derived by the taxable REITsubsidiary and the arm’s length charge. In addition, if our taxable REITsubsidiaries pay more than an arm’s length charge to our operating partnership,GMH Communities Trust or any of their affiliates for services or overheadprovided to the taxable REIT subsidiaries, we would be subject to a 100% tax onthe difference between the amount in fact paid by the taxable REIT subsidiaryand the arm’s length charge.

**Item 1B. UnresolvedStaff Comments**

None.

55

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**Item 2.**                        Properties.

*Properties we own.**  *The 77 student housing propertiesthat we owned or had ownership interests in as of December 31, 2006consisted of 14,432 units containing 46,696 beds that were located near 51colleges and universities in 27 states, and had an average occupancy level of94.4%. The following table presents information regarding the 77 studenthousing properties, and six undeveloped parcels of land and one partiallydeveloped parcel of land that we owned or had ownership interests in as of December 31,2006: 
| Property Name                       | ** ** | ** ** | ** **     | **Year   Built/Renovated** | ** ** | **Primary University Served**        | ** ** | **Occupancy   Rate(1)** | ** ** | **Number of   Units(1)** | ** ** | **Number of   Beds(1)** | ** ** | **Revenues(2)** | ** ** |
|------------------------------------------|------------|------------|----------------|----------------------------|------------|------------------------------------------------|------------|-------------------------|------------|-------------------------------|------------|------------------------------|------------|-----------------|------------|
| Abbott Place                             |       |       | 1999           |                       |       | Michigan  State University                     |       |                    | 98.3       | %                             |       |                         | 222        |            |       |   | 654 |   |   |   | $ | 802 |   |   |
| Aztec Corner                             |       |       | 1997/2001/2005 |                       |       | San  Diego University                          |       |                    | 97.3       |                          |       |                         | 179        |            |       |   | 600 |   |   |   | 1,550 |   |   |
| Blanton Commons                          |       |       | 2005           |                       |       | Valdosta  State University                     |       |                    | 89.9       |                          |       |                         | 204        |            |       |   | 596 |   |   |   | 3,222 |   |   |
| Brookstone Village                       |       |       | 1994           |                       |       | University  of North Carolina—Wilmington  |       |                    | 98.3       |                          |       |                         | 124        |            |       |   | 238 |   |   |   | 877 |   |   |
| Burbank Commons                          |       |       | 1999           |                       |       | Louisiana  State University                    |       |                    | 100.0      |                          |       |                         | 134        |            |       |   | 532 |   |   |   | 562 |   |   |
| Cambridge at Southern                    |       |       | 2006           |                       |       | Georgia  Southern University                   |       |                    | 99.3       |                          |       |                         | 228        |            |       |   | 564 |   |   |   | 394 |   |   |
| Campus Club—Gainesville(3)          |       |       | 1997           |                       |       | University  of Florida                         |       |                    | 93.0       |                          |       |                         | 252        |            |       |   | 924 |   |   |   | 4,493 |   |   |
| Campus Club—Statesboro              |       |       | 2003           |                       |       | Georgia  Southern University                   |       |                    | 84.6       |                          |       |                         | 276        |            |       |   | 984 |   |   |   | 4,882 |   |   |
| Campus Commons(3)                        |       |       | 1991/1993      |                       |       | University  of Oregon                          |       |                    | 97.0       |                          |       |                         | 252        |            |       |   | 696 |   |   |   | 726 |   |   |
| Campus Connection(4)                     |       |       | 1998           |                       |       | University  of Illinois—Urbana Champaign  |       |                    | 88.0       |                          |       |                         | 270        |            |       |   | 864 |   |   |   | 4,166 |   |   |
| Campus Connection—Phase II(4)       |       |       | N/A            |                       |       | University  of Illinois—Urbana Champaign  |       |                    | N/A        |                          |       |                         | N/A        |            |       |   | N/A |   |   |   | N/A |   |   |
| Campus Corner                            |       |       | 1994           |                       |       | Indiana  University                            |       |                    | 98.4       |                          |       |                         | 252        |            |       |   | 792 |   |   |   | 1,067 |   |   |
| Campus Ridge Apartments(5)               |       |       | 2000           |                       |       | East  Tennessee State University               |       |                    | 97.9       |                          |       |                         | 132        |            |       |   | 528 |   |   |   | 1,900 |   |   |
| Campus Ridge Apartments—Phase II(5) |       |       | N/A            |                       |       | East  Tennessee State University               |       |                    | N/A        |                          |       |                         | N/A        |            |       |   | N/A |   |   |   | N/A |   |   |
| Campus Trails                            |       |       | 1997           |                       |       | Mississippi  State University                  |       |                    | 100.0      |                          |       |                         | 156        |            |       |   | 480 |   |   |   | 391 |   |   |
| Campus Walk                              |       |       | 2001           |                       |       | University  of Mississippi                     |       |                    | 98.8       |                          |       |                         | 108        |            |       |   | 432 |   |   |   | 1,964 |   |   |
| Campus Walk—UNCW                    |       |       | 1990           |                       |       | University  of North Carolina—Wilmington  |       |                    | 99.7       |                          |       |                         | 289        |            |       |   | 290 |   |   |   | 1,578 |   |   |
| Campus Way                               |       |       | 1998           |                       |       | University  of Alabama                         |       |                    | 99.4       |                          |       |                         | 192        |            |       |   | 676 |   |   |   | 767 |   |   |
| Chapel Ridge                             |       |       | 2003           |                       |       | University  of North Carolina—Chapel Hill |       |                    | 86.2       |                          |       |                         | 180        |            |       |   | 544 |   |   |   | 3,375 |   |   |
| Chapel View                              |       |       | 1986           |                       |       | University  of North Carolina—Chapel Hill |       |                    | 98.0       |                          |       |                         | 224        |            |       |   | 358 |   |   |   | 1,831 |   |   |
| Collegiate Hall                          |       |       | 2001           |                       |       | University  of Alabama—Birmingham         |       |                    | 81.1       |                          |       |                         | 176        |            |       |   | 528 |   |   |   | 2,211 |   |   |
| Fields(3)                                |       |       | 1999           |                       |       | University  of Illinois—Urbana Champaign  |       |                    | 97.4       |                          |       |                         | 192        |            |       |   | 588 |   |   |   | 2,916 |   |   |
| GrandMarc at Seven Corners               |       |       | 2000           |                       |       | University  of Minnesota                       |       |                    | 100.0      |                          |       |                         | 186        |            |       |   | 440 |   |   |   | 4,057 |   |   |
| GrandMarc at University Village          |       |       | 2001           |                       |       | University  of California—Riverside       |       |                    | 69.3       |                          |       |                         | 212        |            |       |   | 824 |   |   |   | 5,504 |   |   |
| Hawk’s Landing                      |       |       | 1996           |                       |       | Miami  University of Ohio                      |       |                    | 95.2       |                          |       |                         | 122        |            |       |   | 484 |   |   |   | 691 |   |   |
| Huntsville Land(6)                       |       |       | N/A            |                       |       | Sam  Houston State University                  |       |                    | N/A        |                          |       |                         | N/A        |            |       |   | N/A |   |   |   | N/A |   |   |
| Jacob Heights                            |       |       | 2004           |                       |       | Minnesota  State University—Mankato       |       |                    | 96.9       |                          |       |                         | 42         |            |       |   | 162 |   |   |   | 831 |   |   |
| Jacob Heights III                        |       |       | 2006           |                       |       | Minnesota  State University—Mankato       |       |                    | 100.0      |                          |       |                         | 24         |            |       |   | 96 |   |   |   | 203 |   |   |
| Lakeside                                 |       |       | 1991           |                       |       | University  of Georgia                         |       |                    | 90.9       |                          |       |                         | 242        |            |       |   | 772 |   |   |   | 708 |   |   |
| Lincoln View                             |       |       | 1994/1999      |                       |       | University  of Illinois—Urbana Champaign  |       |                    | 97.8       |                          |       |                         | 254        |            |       |   | 732 |   |   |   | 664 |   |   |
| Lion’s Crossing                     |       |       | 1996           |                       |       | Pennsylvania  State University                 |       |                    | 99.7       |                          |       |                         | 204        |            |       |   | 696 |   |   |   | 2,910 |   |   |
| Nittany Crossing                         |       |       | 1996           |                       |       | Pennsylvania  State University                 |       |                    | 100.0      |                          |       |                         | 204        |            |       |   | 684 |   |   |   | 3,348 |   |   |
| Orchard Trails(7)                        |       |       | 2006           |                       |       | University  of Maine—Orono                |       |                    | 89.4       |                          |       |                         | 144        |            |       |   | 576 | ** ** | ** ** | ** ** | **—** | (7) | ** ** |
| Pegasus Connection                       |       |       | 2000           |                       |       | University  of Central Florida                 |       |                    | 99.4       |                          |       |                         | 312        |            |       |   | 930 |   |   |   | 6,408 |   |   |
| Pirate’s Cove                       |       |       | 2000           |                       |       | East  Carolina University                      |       |                    | 75.8       |                          |       |                         | 264        |            |       |   | 1,056 |   |   |   | 4,356 |   |   |
| Riverside Estates                        |       |       | 1995           |                       |       | University  of South Carolina                  |       |                    | 98.4       |                          |       |                         | 206        |            |       |   | 700 |   |   |   | 788 |   |   |
| Seminole Suites(3)                       |       |       | 2004           |                       |       | Florida  State University—Tallahassee     |       |                    | 95.7       |                          |       |                         | 264        |            |       |   | 924 |   |   |   | 5,253 |   |   |
| South View Apartments                    |       |       | 1996-1998      |                       |       | James  Madison University                      |       |                    | 100.0      |                          |       |                         | 240        |            |       |   | 960 |   |   |   | 4,343 |   |   |
| Stadium Suites                           |       |       | 2004           |                       |       | University  of South Carolina                  |       |                    | 99.9       |                          |       |                         | 264        |            |       |   | 924 |   |   |   | 3,620 |   |   |
| State College Park                       |       |       | 1991           |                       |       | Pennsylvania  State University                 |       |                    | 99.9       |                          |       |                         | 196        |            |       |   | 752 |   |   |   | 3,459 |   |   |
| Stone Gate Apartments                    |       |       | 1999-2000      |                       |       | James  Madison University                      |       |                    | 99.9       |                          |       |                         | 168        |            |       |   | 672 |   |   |   | 3,126 |   |   |
| The Centre                               |       |       | 2004           |                       |       | Western  Michigan University                   |       |                    | 92.0       |                          |       |                         | 232        |            |       |   | 700 |   |   |   | 3,057 |   |   |
| The Club                                 |       |       | 1989/2001      |                       |       | University  of Georgia                         |       |                    | 99.0       |                          |       |                         | 120        |            |       |   | 480 |   |   |   | 1,662 |   |   |
| The Commons                              |       |       | 1991           |                       |       | James  Madison University                      |       |                    | 97.9       |                          |       |                         | 132        |            |       |   | 528 |   |   |   | 2,153 |   |   |
| The Commons on Oak Tree                  |       |       | 1995           |                       |       | University  of Oklahoma                        |       |                    | 76.5       |                          |       |                         | 254        |            |       |   | 780 |   |   |   | 2,389 |   |   |
| The Courtyards                           |       |       | 1993           |                       |       | University  of Kentucky                        |       |                    | 83.6       |                          |       |                         | 182        |            |       |   | 676 |   |   |   | 703 |   |   |
| The Edge I(3)                            |       |       | 1998           |                       |       | University  of North Carolina—Charlotte   |       |                    | 100.0      |                          |       |                         | 96         |            |       |   | 384 |   |   |   | 1,911 |   |   |
| The Edge II(3)                           |       |       | 1999           |                       |       | University  of North Carolina—Charlotte   |       |                    | 100.0      |                          |       |                         | 84         |            |       |   | 336 |   |   |   | 1,579 |   |   |
| The Enclave                              |       |       | 2002           |                       |       | Bowling  Green State University                |       |                    | 86.3       |                          |       |                         | 120        |            |       |   | 480 |   |   |   | 1,748 |   |   |
| The Enclave—Phase II(7)        |       |       | 2006           |                       |       | Bowling  Green State University                |       |                    | 76.6       |                          |       |                         | 144        |            |       |   | 576 |   |   |   | — | (7) |   |
| The Highlands                            |       |       | 2004           |                       |       | University  of Nevada—Reno                |       |                    | 94.4       |                          |       |                         | 216        |            |       |   | 732 |   |   |   | 3,363 |   |   |
| The Ridge(3)                             |       |       | 2002           |                       |       | West  Virginia University                      |       |                    | 100.0      |                          |       |                         | 168        |            |       |   | 644 |   |   |   | 2,988 |   |   |
| The Summit                               |       |       | 2003           |                       |       | Minnesota  State University—Mankato       |       |                    | 99.4       |                          |       |                         | 192        |            |       |   | 672 |   |   |   | 3,532 |   |   |

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| The Towers at Third    |   |   | 1973      |   |   | University  of Illinois—Urbana Champaign     |   |   | 98.0   | %          |       |       | 147        |       |       |       | 295        |       |       |       | $     | 2,941       |       |       |
|------------------------|--------|--------|-----------|--------|--------|---------------------------------------------------|--------|--------|--------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-------|-------------|------------|------------|
| The Verge              |   |   | 2004      |   |   | California  State University—Sacramento      |   |   | 67.7   |       |       |       | 288        |       |       |       | 792        |       |       |       | 4,301 |        |       |
| The View               |   |   | 2003      |   |   | University  of Nebraska                           |   |   | 77.0   |       |       |       | 156        |       |       |       | 588        |       |       |       | 1,666 |        |       |
| University Court       |   |   | 2001      |   |   | Michigan  State University                        |   |   | 94.0   |       |       |       | 138        |       |       |       | 516        |       |       |       | 2,178 |        |       |
| University Crescent    |   |   | 1999      |   |   | Louisiana  State University                       |   |   | 97.4   |       |       |       | 192        |       |       |       | 660        |       |       |       | 3,185 |        |       |
| University Crossing(3) |   |   | 1997      |   |   | University  of Kansas                             |   |   | 98.1   |       |       |       | 229        |       |       |       | 700        |       |       |       | 2,685 |        |       |
| University Crossings   |   |   | 1929/2003 |   |   | Drexel  University and University of Pennsylvania |   |   | 99.9   |       |       |       | 260        |       |       |       | 1,026      |       |       |       | 6,146 |        |       |
| University Edge(3)     |   |   | 2003      |   |   | University  of Southern Mississippi               |   |   | 97.6   |       |       |       | 156        |       |       |       | 552        |       |       |       | 2,863 |        |       |
| University Estates     |   |   | 2001      |   |   | Ball  State University                            |   |   | 91.8   |       |       |       | 144        |       |       |       | 552        |       |       |       | 1,672 |        |       |
| University Gables      |   |   | 2001      |   |   | Middle  Tennessee State University                |   |   | 96.1   |       |       |       | 180        |       |       |       | 648        |       |       |       | 2,649 |        |       |
| University Glades(3)   |   |   | 2000      |   |   | University  of Florida                            |   |   | 99.1   |       |       |       | 120        |       |       |       | 432        |       |       |       | 2,188 |        |       |
| University Greens      |   |   | 1999      |   |   | University  of Oklahoma                           |   |   | 90.7   |       |       |       | 156        |       |       |       | 516        |       |       |       | 1,958 |        |       |
| University Heights(3)  |   |   | 1999      |   |   | University  of Tennessee                          |   |   | 96.7   |       |       |       | 204        |       |       |       | 636        |       |       |       | 2,865 |        |       |
| University Lodge       |   |   | 2002      |   |   | University  of Wyoming                            |   |   | 86.5   |       |       |       | 121        |       |       |       | 481        |       |       |       | 1,978 |        |       |
| University Manor       |   |   | 2002      |   |   | East  Carolina University                         |   |   | 92.5   |       |       |       | 168        |       |       |       | 600        |       |       |       | 2,701 |        |       |
| University Meadows     |   |   | 2001      |   |   | Central  Michigan University                      |   |   | 95.9   |       |       |       | 184        |       |       |       | 616        |       |       |       | 2,310 |        |       |
| University Mills       |   |   | 2002      |   |   | Northern  Iowa University                         |   |   | 99.6   |       |       |       | 121        |       |       |       | 481        |       |       |       | 1,903 |        |       |
| University Oaks        |   |   | 2004      |   |   | University  of South Carolina                     |   |   | 100.0  |       |       |       | 181        |       |       |       | 662        |       |       |       | 3,617 |        |       |
| University Pines       |   |   | 2001      |   |   | Georgia  Southern University                      |   |   | 97.1   |       |       |       | 144        |       |       |       | 552        |       |       |       | 2,664 |        |       |
| University Place       |   |   | 2003      |   |   | University  of Virginia                           |   |   | 92.0   |       |       |       | 144        |       |       |       | 528        |       |       |       | 2,153 |        |       |
| University Pointe      |   |   | 2004      |   |   | Texas  Tech University                            |   |   | 97.4   |       |       |       | 204        |       |       |       | 682        |       |       |       | 3,534 |        |       |
| University Trails      |   |   | 2003      |   |   | Texas  Tech University                            |   |   | 99.4   |       |       |       | 240        |       |       |       | 684        |       |       |       | 3,159 |        |       |
| University Village     |   |   | 1979/2006 |   |   | California  State Sacramento                      |   |   | 94.2   |       |       |       | 250        |       |       |       | 394        |       |       |       | 1,915 |        |       |
| University Walk(3)     |   |   | 2002      |   |   | University  of North Carolina - Charlotte         |   |   | 99.6   |       |       |       | 120        |       |       |       | 480        |       |       |       | 2,618 |        |       |
| Uptown(3)              |   |   | 2004      |   |   | North  Texas University                           |   |   | 98.1   |       |       |       | 180        |       |       |       | 528        |       |       |       | 3,296 |        |       |
| Willow Tree Apartments |   |   | 1967-1968 |   |   | University  of Michigan                           |   |   | 98.6   |       |       |       | 312        |       |       |       | 572        |       |       |       | 3,218 |        |       |
| Willow Tree Towers     |   |   | 1974      |   |   | University  of Michigan                           |   |   | 100.0  |       |       |       | 163        |       |       |       | 283        |       |       |       | 1,494 |        |       |
| **Totals**             |   |   |      |   |   |                                              |   |   |   | ** ** | ** ** | ** ** | **14,432** | ** ** | ** ** | ** ** | **46,696** | ** ** | ** ** | ** ** | **$** | **188,885** | ** ** | ** ** |

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(1)                As of December 31, 2006.

(2)                For properties acquired during 2006,revenues consist of rent and other property income for the period from the dateof our acquisition of the property through December 31, 2006.

(3)                As of March 15, 2007, this propertywas under a non-binding letter of intent for sale or to be placed into a jointventure with a third party institutional investor. We currently expect thesales and joint venture process to be completed during the second quarter of2007.

(4)                Campus Connection (formerly referred to byus as Melrose Apartments—Phase I) consists of a land parcel containing anexisting student housing building that is contiguous to a 13.1 acre,undeveloped parcel of land. The undeveloped parcel of land is referred to asCampus Connection—Phase II (formerly referred to by us as MelroseApartments—Phase II). When developed, Campus Connection—Phase II isexpected to contain 168 units and 534 beds.

(5)                Campus Ridge Apartments consists of a landparcel containing an existing student housing building that is contiguous to a6.1-acre partially-developed parcel of land. This partially-developedparcel is referred to as Campus Ridge Apartments—Phase II. When developed,Campus Ridge Apartments—Phase II is expected to contain 72 units and 288 beds.

(6)                Consists of five contiguous land parcels,totaling approximately 26 acres. We currently plan to construct a 23-buildingstudent housing community that upon completion will contain 318 units and 894beds.

(7)                Orchard Trails consists of 144 units and576 beds, and The Enclave—Phase II consists of 144 units and 576 beds.Construction on both properties began in August 2005 was completed in August 2006.We contributed land to the joint venture in exchange for a 10% interest andcash. We have an option to purchase our joint venture partner’s interest in thejoint venture within one year after completion of the student housingproperties and we also provide certain guarantees on the outstanding loanamounts. Our ownership interest in this joint venture is accounted for as afinancing arrangement, whereby we record the real estate as an asset,depreciate the property, and record a financing obligation. Accordingly, we arenot presenting annual revenues for these properties.

In addition to the student housing properties that weowned as of December 31, 2006, as listed above, on January 26, 2007,we acquired a 50.1-acre land parcel located adjacent to The View, acurrently-owned student housing property located in Lincoln, Nebraska andserving the University of Nebraska.

*Propertieswe have under contract and a non-binding letter of intent.**  *As of March 15, 2007, we hadagreements to purchase one additional student housing property containing atotal of 72 units and 264 beds, and 13 undeveloped parcels of land for thedevelopment of one future student housing property. We also, as of March 15,2007, had entered into a non-binding letter of intent to (i) sell sevenstudent housing properties, and (ii) enter into a joint venture with athird party institutional investor that would cover six of our currently-ownedstudent housing properties. These transactions are subject to certainconditions, and we provide no assurance that we will be successful incompleting the transactions under the terms currently outlined our letters ofintent, or at all.

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*Properties we manage forothers.**  *Wemanage each of the student properties we own. As of December 31, 2006, wealso managed 18 student housing properties owned by others, containing a totalof 3,053 units and 9,900 beds, including 51 units and 279 beds that arecurrently under construction. We manage these student housing properties ownedby others through one of our taxable REIT subsidiaries. The following tablepresents information regarding the student housing properties that we managedfor others as of December 31, 2006:
| Property Name                                                          | ** ** | ** **      | ** ** | **Year  Built**                                                 | ** ** | **Primary University Served** | ** ** | **Occupancy  Rate(1)** | ** ** | **Number of  Units(1)** | ** ** | **Number  of Beds(1)** |
|------------------------------------------------------------------------|------------|-----------------|------------|-----------------------------------------------------------------|------------|-------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|
| 2040  Lofts                                                            |       | 2006            |       | University  of Wisconsin at Milwaukee                           |       | 55.7%                         |       | 132                    |       | 377                     |
| Blanton  Common Phase II(2)                                            |       | 2006            |       | Valdosta  State                                                 |       | 81.4                          |       | 72                     |       | 264                     |
| Campus  Connection                                                     |       | 2000            |       | University  of North Carolina at      Charlotte  |       | 91.1                          |       | 158                    |       | 576                     |
| Campus  Pointe at EIU                                                  |       | 2005            |       | Eastern  Illinois University                                    |       | 66.1                          |       | 120                    |       | 336                     |
| Campus  Pointe at WKU                                                  |       | 2005            |       | Western  Kentucky University                                    |       | 76.6                          |       | 132                    |       | 372                     |
| Nittany  Pointe                                                        |       | 2000            |       | Pennsylvania  State University—     Altoona |       | 97.8                          |       | 156                    |       | 624                     |
| Magnolia  Park                                                         |       | 2006            |       | Georgia  State University                                       |       | 79.7                          |       | 136                    |       | 444                     |
| Pegasus  Landing                                                       |       | 1999            |       | University  of Central Florida                                  |       | 96.7                          |       | 744                    |       | 2,532                   |
| Pegasus  Pointe                                                        |       | 1999            |       | University  of Central Florida                                  |       | 96.5                          |       | 432                    |       | 1,224                   |
| Presbyterian  House(3)                                                 |       | N/A             |       | University  of Wisconsin                                        |       | N/A                           |       | 51                     |       | 279                     |
| Scott  Residence Hall & Conference      Center |       | 2000            |       | University  of Nebraska—Omaha                              |       | 100.0                         |       | 50                     |       | 168                     |
| Scott  Village                                                         |       | 2003            |       | University  of Nebraska–Omaha                              |       | 99.4                          |       | 120                    |       | 480                     |
| The  Artists’ Residence                                           |       | 2001            |       | Massachusetts  College of Art                                   |       | 100.0                         |       | 90                     |       | 310                     |
| The  Village at West Chester                                           |       | 2004            |       | West  Chester University                                        |       | 99.6                          |       | 131                    |       | 524                     |
| University  Courtyard                                                  |       | 1999            |       | Florida  A&M University                                     |       | 80.0                          |       | 96                     |       | 384                     |
| University  Hall at West Chester                                       |       | 2004            |       | West  Chester University                                        |       | 100.0                         |       | 88                     |       | 265                     |
| University  Towers                                                     |       | 1996            |       | San  Diego State University                                     |       | 99.7                          |       | 290                    |       | 570                     |
| Westminster  - North and South                                         |       | 1923/1926- 1927 |       | University  of California at Berkeley                           |       | 93.6                          |       | 55                     |       | 171                     |
| Total                                                                  |       |            | ** ** | ** **                                                      |       |                          |       | 3,053                  |       | 9,900                   |

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(1)          Asof December 31, 2006.

(2)          Weare currently under contract to acquire this property within 30 days after theearlier of (i) the date the property becomes 95% occupied, or (ii) August 1,2007.

(3)          PresbyterianHouse consists of a student housing property that is currently underconstruction and, when completed, is expected to contain 51 units and 279 beds.The property is expected to be completed in August 2007. We are currentlyproviding pre-leasing services with respect to this property.

*Our corporate headquarters and other leased space*.   Weown our corporate headquarters building, which is located in Newtown Square,Pennsylvania and consists of approximately 44,721 square feet of administrativeoffices. As of December 31, 2006, we leased approximately 7,682 squarefeet of our headquarters building to several entities affiliated with Gary M.Holloway, Sr. We believe that our current facilities are adequate for ourpresent purposes.

**Item3.**   Legal Proceedings.

On April 5, 2006, theCompany, Gary M. Holloway Sr., our Chairman, President and Chief ExecutiveOfficer, and Bradley W. Harris, our former Chief Financial Officer, were namedas defendants in a class action complaint filed in United States District Courtfor the Eastern District of Pennsylvania, or the Court. The complaint providesthat the Plaintiff has filed a federal class action on behalf of purchasers ofthe publicly traded securities of the Company between October 28, 2004 andMarch 10, 2006, referred to as the Class Period, seeking to pursueremedies under the Securities Act of 1933 and the Securities Exchange Act of1934. Plaintiff alleges that defendants issued a series of false and misleadingfinancial results 

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regardingthe Company to the market during the Class Period, and more specifically,failed to disclose: (1) that the Company’s earnings, net income andrevenues were materially inflated and expenses were materially understated; (2) thatthe Company’s funds from operations were materially inflated; (3) that theCompany lacked adequate internal controls; (4) that the Company’s reportedfinancial results were in violation of generally accepted accountingprinciples, or GAAP; and (5) that as a result of the foregoing, theCompany’s financial results were materially inflated at all relevant times. Plaintiffalleges claims under Section 11 of the Securities Act with respect to allof the defendants; Section 12(a)(2) of the Securities Act withrespect to the Company; Section 15 of the Securities Act with respect to Mr. Hollowayand Mr. Harris; Section 10(b) and Rule 10b-5 of theExchange Act with respect to all of the defendants; and Section 20(a) ofthe Exchange Act with respect to Mr. Holloway and Mr. Harris.

On April 11, 2006, April 20,2006, April 27, 2006 and May 15, 2006, four additional class actioncomplaints were filed with the Court against the defendants by separate lawfirms, and the Company anticipates that additional complaints may be filed inthe near future until a class has been certified by the Court. Each of theseadditional filed complaints alleges the same claims against the defendants asdescribed above with respect to the complaint filed on April 5, 2006,except that the complaint filed on April 20, 2006 restricts the classperiod to purchasers of the publicly traded securities of the Company to thetime period between May 5, 2005 and March 10, 2006.

On January 22, 2007,the court entered an order appointing two lead plaintiffs, as well as leadcounsel and a liaison counsel. In addition, on that date, the court entered anorder indicating that the lead plaintiffs shall file a consolidated complaintwithin 60 days of the date of the order and that defendants shall respond tothe consolidated complaint within 60 days of service of such consolidatedcomplaint. This order also stated that the parties shall not file anydispositive motions before attending a settlement conference with an assignedmagistrate judge. Accordingly, the defendants do not expect to file adispositive motion, such as a motion to dismiss the action, until aconsolidated complaint has been filed and a settlement conference has occurred.The outcome of this litigation is uncertain, and while the Company believesthat it has valid defenses to Plaintiff’s claims and intends to defend theclass action lawsuit vigorously, no assurance can be given as to the outcome ofthis litigation. An adverse outcome could have a material adverse effect on ourfinancial condition and results of operations.

In addition, onMarch 12, 2007, the sellers of a portfolio of student housing propertiesthat we acquired in June 2005, and who received units of limitedpartnership interests in our operating partnership in connection with thetransaction, have filed a lawsuit against the Company for securities fraudrelating to our sale of the partnership interests. The sellers have allegedsimilar claims to those asserted in our pending class action litigationdescribed above, including that we provided false and misleading financialresults in connection with the offer and sale of the partnership interests. Inconnection with the acquisition of the portfolio, we purchased four studenthousing properties in exchange for a combination of cash, assumption of debtand the issuance of 1,940,282 units of limited partnership interests in ouroperating partnership valued at a total of approximately $76.8 million.The units of limited partnership interest were issued for a total value ofapproximately $27.5 million or $14.17 per unit of limited partnership interest.The outcome of this litigation is uncertain; and while we believe we have validdefenses to the claims and will defend ourselves vigorously, no assurance canbe given as to the outcome of this litigation. An adverse outcome could have a materialadverse effect on our financial condition and results of operations.

The Company also issubject to routine litigation, claims and administrative proceedings arising inthe ordinary course of business. Other thanthe matters described above, we are not involved in any other materiallitigation nor, to our knowledge, is any material litigation pending orthreatened against us.

**Item4.**   Submission of Matters to a Vote ofSecurity Holders.

We did not submit anymatters to the vote of security holders during the fourth quarter of our fiscalyear ended December 31, 2006.

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**PART II**

**Item 5.**                        Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.

Ourcommon shares are traded on the New York Stock Exchange under the symbol “GCT.”Our common shares commenced trading on October 28, 2004. The followingtable sets forth, for the indicated periods, the high and low sales prices ofour common shares as quoted on the New York Stock Exchange and the dividends wehave paid to our shareholders.

| ** **                                     | ** ** | **Price Range of  Common Shares** | ** ** | **Dividend Paid** | ** ** |
|------------------------------------------------|------------|--------------------------------------------------|------------|------------------------|------------|
| ** **                                     | ** ** | **High**                                         | ** ** | **Low**                | ** ** | **Per Share** | ** ** |
| **Fiscal year ended  December 31, 2005:** | ** ** | ** **                                       | ** ** | ** **             | ** ** |   | ** ** | ** ** |   |
| First Quarter                                  |       | $                                                | 14.00      |                   | $          | 11.30 |   |   | $ | 0.2275 |   |   |
| Second Quarter                                 |       | $                                                | 14.59      |                   | $          | 11.34 |   |   | $ | 0.2275 |   |   |
| Third Quarter                                  |       | $                                                | 15.65      |                   | $          | 13.64 |   |   | $ | 0.2275 |   |   |
| Fourth Quarter                                 |       | $                                                | 15.89      |                   | $          | 14.10 |   |   | $ | 0.2275 |   |   |
| **Fiscal  year ended December 31, 2006:** | ** ** | ** **                                       | ** ** | ** **             | ** ** |   | ** ** | ** ** |   |
| First Quarter                                  |       | $                                                | 17.10      |                   | $          | 10.80 |   |   | $ | 0.2275 |   |   |
| Second Quarter                                 |       | $                                                | 13.18      |                   | $          | 10.75 |   |   | $ | 0.2275 |   |   |
| Third Quarter                                  |       | $                                                | 13.73      |                   | $          | 11.80 |   |   | $ | 0.2275 |   |   |
| Fourth Quarter                                 |       | $                                                | 14.18      |                   | $          | 10.04 |   |   | $ | 0.1650 | (1) |   |

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(1)          Declared on December 18,2006 and paid on February 1, 2007 to shareholders of record as of theclose of business on December 29, 2006.

On December 31, 2006, the last reported saleprice of our common shares on the New York Stock Exchange was $10.15.

On December 31, 2006, there were approximately27 holders of record of our common shares. This number does not includeshareholders whose shares are held of record by a brokerage house or clearingagency, but does include any such brokerage house or clearing agency as onerecord holder.

We intend to pay regular quarterly distributions toour shareholders. Federal income tax law requires that a REIT distributeannually at least 90% of its REIT taxable income determined without regard tothe dividends-paid deduction and excluding any net capital gains, and that itpay tax at regular corporate rates to the extent that it annually distributesless than 100% of its net taxable income, including capital gains. Weanticipate that our estimated cash available for distribution will exceed theannual distribution requirements applicable to REITs. However, under somecircumstances, we may be required to pay distributions in excess of cashavailable for distribution in order to meet these distribution requirements andwe may need to borrow funds to pay some distributions.

Our ability to fund these distributions will depend,in part, upon cash flow from our student housing properties, our managementcontracts regarding student housing properties owned by others, from management,construction/renovation and development fees and preferred equity returns underour military housing privatization projects, and the continued successfulleasing of our student housing portfolio and the acquisition of additionalstudent housing properties and military housing privatization projects. Thetiming and amount of our anticipated cash flows is inherently uncertain. To theextent these sources are insufficient, we may seek to lower our distributionsor borrow funds for distributions from our line of credit, as we have done withrespect to the dividends we have paid since the completion of our initialpublic offering. Availability under our current line of credit is limited. Asof December 31, 2006, we had approximately $50.6 million in availablefunds remaining from our $250 million line of credit. Under 

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the terms of the line ofcredit, the lender pre-approved only the following uses of borrowings: (i) toacquire or fund certain pending student housing acquisitions and militaryhousing projects that have been pre-approved by the lender and (ii) tofund the third and fourth quarter distribution, and other general workingcapital advances pursuant to the terms of the agreement. The use of the line ofcredit for any other purpose must be approved by the lender in its sole andabsolute discretion. Accordingly, the lender may not approve the use of fundsfrom the line of credit for quarterly dividend distributions to shareholdersafter the payment of the dividend relating to the fourth quarter of 2006. Seealso “*Management’s Discussion and Analysisof Financial Condition and Results of Operations—Liquidity and CapitalResources*.” In addition, the line of credit contains affirmative andnegative covenants and also contains financial covenants which, among otherthings, require that we maintain (i) a fixed charge coverage ratio withrespect to the student housing properties, as defined in the line of credit, ofat least 1.25 to 1.00, (ii) a consolidated tangible net worth, as definedby the line of credit agreement, of at least $455 million, (iii) maintainquarterly minimum aggregate adjusted management EBITDA relating to the militaryhousing segment and student housing managed properties, as defined in the lineof credit agreement, of $5.0 million, and (iv) our federal tax statusas a REIT.

Distributions made by us will be authorized anddetermined by our Board of Trustees out of funds legally available thereforeand will be dependent upon a number of factors, including restrictions underapplicable law or contained in our debt instruments or agreements or in termsof any future preferred shares. Since our initial public offering, ourdistributions have exceeded our then current and accumulated earnings andprofits as determined for federal income tax purposes due to non-cash expenses,primarily depreciation and amortization charges that we have incurred, and weexpect them to continue to do so in the near term**.**Therefore,a portion of these distributions will represent a return of capital for federalincome tax purposes. Distributions in excess of our current and accumulatedearnings and profits and not treated by us as a dividend will not be taxable toa taxable U.S. shareholder under current federal income tax law to the extentthose distributions do not exceed the shareholder’s adjusted tax basis in hisor her common shares, but rather will reduce the adjusted basis of the commonshares. Therefore, the gain (or loss) recognized on the sale of the commonshares or upon our liquidation will be increased (or decreased) accordingly. Tothe extent those distributions exceed a taxable U.S. shareholder’s adjusted taxbasis in his or her common shares, they generally will be treated as a capitalgain realized from the taxable disposition of those shares.

Approximately 95% of our distributions for the yearending December 31, 2006 represented a return of capital for federalincome tax purposes. With respect to our dividend distribution of $0.165 percommon share for the fourth quarter of 2006, this dividend will be included inour distributions for 2007 due to the fact that it was paid on February 1,2007. To the extent not inconsistent with maintaining our REIT status, we mayretain accumulated earnings of our taxable REIT subsidiaries in suchsubsidiary. The percentage of our shareholder distributions that exceeds ourcurrent and accumulated earnings and profits may vary substantially from yearto year.

For the period from October 28, 2004 through December 31,2004, we declared and paid our initial partial quarterly dividend of $0.16 percommon share. At the same time, our operating partnership paid an equivalentdistribution of $0.16 per unit to holders of limited partnership interests inour operating partnership. With respect to this distribution, $0.109319 of the$0.16 per common share represented a return of capital for federal income taxpurposes. During the fiscal year 2005, and through the third quarter of 2006,we declared and paid quarterly dividends of $0.2275 per common share, and ouroperating partnership paid an equivalent distribution of $0.2275 per unit toholders of limited partnership interests in our operating partnership. Inaddition, on December 18, 2006, we declared a dividend of $0.165 percommon share to shareholders of record as of the close of business on December 29,2006, that was paid on February 1, 2007. With respect to distributionspaid to shareholders during the fiscal year 2005, approximately 59% of ourdistributions represented a return of capital for federal income tax purposes.

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As noted above, we lowered our quarterly distributionto shareholders for the fourth quarter of 2006 from historical levels. Prior tothis decrease, we had historically paid a distribution of $0.91 per year. Wecannot assure you that we will continue to have cash available fordistributions at historical levels or at all. Any distributions we pay in thefuture will depend upon our actual results of operations, economic conditionsand other factors that could differ materially from our current expectations.Our actual results of operations will be affected by a number of factors,including the revenue we receive from our student housing properties, revenuesfrom management and consulting fees in connection with management services thatwe will provide for student housing properties owned by others, revenues fromour military housing privatization projects, our operating expenses, interestexpense and unanticipated expenditures. For more information regarding riskfactors that could materially adversely affect our actual results ofoperations, see “*Risk Factors*.”

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**Item 6.   Selected Financial Data.**

| ** **                                                                                               | ** ** | **For the Year Ended December 31,**       | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **Company**                                                        | ** ** | **Predecessor Entities** | ** ** |
| ** **                                                                                               | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2004**(1) | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                               | ** ** | **(in thousands, except per share data)** | ** ** |
| **Operating  Data:**                                                                                     |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Revenue**                                                                                              |       |                                                               |       |   |   |   |   |   |   |   |   |
| Rental revenue                                                                                           |       | $                                                                  | 189,041    |   | $ | 132,094 |   | $ | 25,650 |   | $ | 636 |   | $ | 736 |   |
| Operating expense  reimbursements                                                                        |       | 70,243                                                             |       | 62,580 |   | 40,512 |   | 10,591 |   | 3,711 |   |
| Fee  income:                                                                                             |       |                                                               |       |   |   |   |   |   |   |   |   |
| Related parties                                                                                          |       | 8,481                                                              |       | 7,005 |   | 4,355 |   | 3,892 |   | 6,578 |   |
| Third parties                                                                                            |       | 3,167                                                              |       | 3,774 |   | 3,986 |   | 2,624 |   | 1,983 |   |
| Other fee income—related  party                                                                     |       | 21,635                                                             |       | 18,321 |   | 8,460 |   | 842 |   | 372 |   |
| Other income                                                                                             |       | 564                                                                |       | 378 |   | 915 |   | 230 |   | 295 |   |
| Total revenue                                                                                            |       | 293,131                                                            |       | 224,152 |   | 83,878 |   | 18,815 |   | 13,675 |   |
| **Expenses:**                                                                                            |       |                                                               |       |   |   |   |   |   |   |   |   |
| Property operating expenses                                                                              |       | 87,845                                                             |       | 57,619 |   | 21,188 |   | 9,218 |   | 7,799 |   |
| Reimbursed expenses                                                                                      |       | 70,243                                                             |       | 62,580 |   | 40,512 |   | 10,591 |   | 3,711 |   |
| Real estate taxes                                                                                        |       | 18,010                                                             |       | 12,191 |   | 1,887 |   | 83 |   | 79 |   |
| Administrative expenses                                                                                  |       | 17,682                                                             |       | 12,254 |   | 6,006 |   | 1,405 |   | 295 |   |
| Audit Committee and Special  Committee expenses                                                          |       | 7,821                                                              |       | — |   | — |   | — |   | — |   |
| Profits interest and  employee initial public offering bonus expense                                     |       | —                                                             |       | — |   | 37,502 |   | — |   | — |   |
| Depreciation and  amortization                                                                           |       | 43,830                                                             |       | 34,188 |   | 7,154 |   | 822 |   | 821 |   |
| Interest                                                                                                 |       | 55,333                                                             |       | 31,025 |   | 6,072 |   | 396 |   | 542 |   |
| Total expenses                                                                                           |       | 300,764                                                            |       | 209,857 |   | 120,321 |   | 22,515 |   | 13,247 |   |
| (Loss) income before equity  in earnings of unconsolidated entities, minority interest, and income taxes |       | (7,633                                                             | )          | 14,295 |   | (36,443 | ) | (3,700 | ) | 428 |   |
| Equity in earnings of  unconsolidated entities                                                           |       | 3,523                                                              |       | 3,073 |   | — |   | 751 |   | — |   |
| (Loss) income before  minority interest and income taxes                                                 |       | (4,110                                                             | )          | 17,368 |   | (36,443 | ) | (2,949 | ) | 428 |   |
| Income taxes                                                                                             |       | 4,733                                                              |       | 5,580 |   | 312 |   | — |   | — |   |
| (Loss) income before  minority interest                                                                  |       | (8,843                                                             | )          | 11,788 |   | (36,755 | ) | (2,949 | ) | 428 |   |
| Minority interest                                                                                        |       | (3,857                                                             | )          | 5,729 |   | 247 |   | — |   | — |   |
| Net (loss) income                                                                                        |       | $                                                                  | (4,986     | ) | $ | 6,059 |   | $ | (37,002 | ) | $ | (2,949 | ) | $ | 428 |   |
| Basic earnings per share                                                                                 |       | ($0.12                                                             | )          | $ | 0.19 |   | $ | 0.01 | (2) |   |   |   |   |
| Diluted earnings per share                                                                               |       | ($0.12                                                             | )          | $ | 0.18 |   | $ | 0.01 | (2) |   |   |   |   |

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(1)             The results ofoperations for the year ended December 31, 2004 reflect the results ofoperations of the GMH Predecessor Entities for the period from January 1,2004 through November 1, 2004, and the results of operations for theCompany, after completion of our initial public offering, for the period from November 2,2004 through December 31, 2004.

(2)             Basic and diluted earningsper share reflect our operations for the period November 2, 2004 (the dateof the closing of the Company’s initial public offering) to December 31,2004. Net income for this period was $251 (in thousands).

| ** **                                 | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|
| ** **                                 | ** ** | **Company**                           | ** ** | **Predecessor Entities** | ** ** |
| ** **                                 | ** ** | **2006**                              | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                 | ** ** | **(in thousands)**               | ** ** |
| **Balance Sheet Data**                     |       |                                  |       |   |   |   |   |   |   |   |   |
| Real estate investments,  net              |       | $                                     | 1,592,567  |   | $ | 1,181,216 |   | $ | 634,730 |   | $ | — |   | $ | — |   |
| Corporate office, net                      |       | 8,425                                 |       | 7,613 |   | 11,384 |   | 6,963 |   | 7,100 |   |
| Cash and cash  equivalents                 |       | 22,539                                |       | 2,240 |   | 60,926 |   | 515 |   | 96 |   |
| Total assets                               |       | 1,713,990                             |       | 1,277,951 |   | 773,061 |   | 16,146 |   | 13,536 |   |
| Mortgage notes payable  and line of credit |       | 1,227,725                             |       | 728,069 |   | 370,007 |   | 10,977 |   | 11,806 |   |
| Total liabilities                          |       | 1,298,718                             |       | 792,452 |   | 395,242 |   | 12,552 |   | 13,099 |   |
| Minority interest                          |       | 157,972                               |       | 188,633 |   | 182,118 |   | — |   | — |   |
| Equity                                     |       | 257,300                               |       | 296,866 |   | 195,701 |   | 3,594 |   | 437 |   |
|                                            |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

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**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations.

*GMH CommunitiesTrust commenced operations on November 2, 2004, upon completion of ourinitial public offering and the simultaneous acquisition of the sole generalpartnership interest in GMH Communities, LP, referred to throughout this reportas our operating partnership. The historical operations prior to completion ofour initial public offering that are described in this report refer to theoperations of College Park Management, Inc., GMH Military Housing, LLC,353 Associates, L.P., and Corporate Flight Services, LLC, which arecollectively referred to, together with our operating partnership, as the GMHPredecessor Entities or our predecessor entities.*

*In connection with our formation transactionscompleted prior to and simultaneously with the completion of our initial publicoffering, the ownership interests in the GMH Predecessor Entities werecontributed to our operating partnership as described in Note 1 of thefinancial statements included in this report. We have described our operationsin this report as if the historical operations of our predecessor entities wereconducted by us for the full fiscal year ended December 31, 2004.*

**Overview**

We are a self-advised, self-managed, specialty housingcompany that focuses on providing housing to college and university studentsresiding off-campus and to members of the U.S. military and their families. Asof December 31, 2006, we owned, or had ownership interests in, 77 studenthousing properties containing a total of 14,432 units and 46,696 beds andseven  undeveloped or partially developedparcels of land held for development as student housing properties. Inaddition, we managed a total of 18 student housing properties owned by others,containing a total of 3,053 units and 9,900, as well as 51 units and 279 bedscurrently under construction. Additionally, as of December 31, 2006, ouroperating partnership had an ownership interest in, and through various wholly-ownedsubsidiaries operated, nine military housing privatization projects, comprisingan aggregate of 17,489 end-state housing units on 21 military bases. Throughour taxable REIT subsidiaries, we provide development, construction, renovationand management services to our military housing privatization projects (otherthan our AETC Group I project), and property management services to studenthousing properties owned by others. In addition, throughout 2006, we providedconsulting services with respect to the management of certain student housingproperties owned by others, including colleges, universities, and other privateowners. In order to comply with the applicable requirements under the REITprovisions of the Code, we must limit the operations of taxable REITsubsidiaries so that securities issued to us by our taxable REIT subsidiariesdo not represent more than 20% of our total assets as of the close of anyquarter in our taxable year and so that dividends from our taxable REITsubsidiaries, together with our other non-qualifying gross income, do notexceed 25% of our gross income for any taxable year.

Currently, our operationsare managed within three operating segments that are separately reported: (1) studenthousing owned properties  (2) studenthousing management, and (3) military housing. This structure provides aneffective platform for maximizing market penetration and optimizing operatingeconomies of scale. In addition, we separately report the activities of certaindepartments from a corporate level, which includes personnel that service GMHCommunities Trust as a whole and support our overall operations.

**2007 BusinessStrategy**

In December 2006, we announced that ourmanagement expected to implement a business strategy beginning in 2007 thatwould involve the sale, refinancing and/or entrance into a joint venturecovering a number of our currently-owned student housing properties. Theproceeds from these transactions will be used to repay outstanding indebtednessunder our line of credit with Wachovia Bank, which has an initial maturity dateof June 1, 2007. In connection with this business strategy, we completedthe refinancing of four of our currently-owned student housing properties in February 2007,for a total of $90.0 million in 

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new 10-year mortgagedebt at a fixed interest rate of 5.6%. We used the net proceeds from thisrefinancing to repay $73.6 million in outstanding borrowings under our line ofcredit, which resulted in the replacement of the indebtedness under the line ofcredit that was carrying a variable LIBOR-based interest rate of 7.32% as ofthe date of the refinancing. Immediately following this transaction, we hadapproximately $138.0 million in remaining borrowings outstanding under our lineof credit.

As of the date of thisreport, we had executed letters of intent to sell seven of our currently-ownedstudent housing properties, as well as a non-binding letter of intent with athird party institutional investor to form a joint venture that will cover anadditional six of our currently-owned student housing properties. For moreinformation on our properties that are subject to these letters of intent, seeItem 2 of this report titled “*Properties*.”Although these transactions were still in the due diligence phase as of thedate of this report, and we have not executed binding agreements, we currentlyexpect to complete them during the second quarter of 2007. The proceeds fromthese transactions also will be used to repay outstanding indebtedness underour line of credit. Based on the terms provided under these letters of intent,we expect to receive a sufficient amount of net proceeds from thesetransactions to pay down the remainder of our outstanding indebtedness underour line of credit.

***Student Housing—Owned Properties***

The student housing owned properties segment reflectsthe revenues and expenses of off-campus student housing properties acquired andowned through the REIT ownership structure which are strategically located nearcollege or university campuses. During the years ended December 31, 2004,2005 and 2006, our rental revenue increased substantially as a result of theacquisition of an aggregate of 75 properties (excluding two properties in whichwe have a 10% interest together with a joint venture partner). During the year endedDecember 31, 2006, we acquired 21 of these properties. Additionally,operating expenses, real estate taxes and depreciation and amortization haveincreased as a result of these acquisitions. Further, interest expense hasincreased related to the financing of the properties we have acquired.

Historically, we have found certain property revenuesand operating expenses to be cyclical in nature, and therefore not incurredratably over the course of the year. As our properties are leased predominantlyon an academic-year basis, certain of our operating revenues and expenses willvary from quarter to quarter depending on the leasing cycle. For example, weexperience significant turnover costs commencing towards the end of the secondquarter and more significantly during the third quarter of our fiscal year, inconnection with preparing our properties for new residents prior tocommencement of the new academic-year lease period, which typically begins in August orSeptember. In addition, we also typically incur higher lease-up costs duringthe first two quarters of our fiscal year, as this is the period during whichwe heavily target students for leases that will commence for the next academicyear. Property revenues and expenses may differ from expected results in theyear of acquisition, depending on the timing of the acquisition in relation tothe leasing cycle. In comparing our operating statistics for the fiscal year2006 versus 2005, most of the key operating metrics, such as rent and otherproperty income, depreciation and amortization, interest expense and propertyoperating expense, for the student housing owned properties segment experiencedsignificant increases, primarily as a result of (i) the presentation of afull year of operations during 2006 with respect to properties acquired in2005, and (ii) the acquisition of an additional 21 properties during 2006.The increase in real estate taxes was disproportionately higher than theincrease in rent and other property income due to more aggressive assessmentsby local taxing authorities with respect to certain of our student housingproperties throughout 2005 and 2006. The increase in property operatingexpenses was disproportionately higher than the increase in rent and otherproperty income due primarily to increased utility expense. During 2006, wealso experienced, and expect to continue to experience, increases in operatingexpenses (in addition to the proportionate increase associated with theincreased 

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number of properties ownedin 2006 versus 2005) that will include increased utility expenses resultingfrom national trends in higher energy-related costs.

Until we are able tosuccessfully execute our 2007 business strategy to repay indebtedness under ourcurrent line of credit as outlined above under “2007 Business Strategy,” weexpect to place less emphasis on the acquisition of additional student housingproperties, and to continue to focus on the operational performance of ourexisting student housing properties and development projects. After we completethis business strategy, and to the extent we are able to obtain a new long-termline of credit, we may determine that it is appropriate to place greateremphasis on the acquisition of additional student housing properties that arelocated in our targeted markets and that meet management’s underwritingcriteria for creating long-term growth potential. To the extent that we seek toacquire student housing properties during at least the first half of 2007, wewill consider funding the acquisition through joint venture structures similarto the joint venture terms that we entered into with respect to our Orono,Maine and Bowling Green, Ohio development properties. The timing of anyadditional acquisitions or development projects will be dependent upon variousfactors, including the ability to complete satisfactory due diligence, to findsuitable joint venture partners and agree upon mutually acceptable jointventure terms, to obtain appropriate debt financing on the properties, and theavailability of capital. We would consider funding our equity portion of anyjoint ventures by using funds from available cash from operations orborrowings. We may also determine that it is appropriate to purchase additionalstudent housing properties outright, as opposed to with a joint venturepartner, depending upon many factors which may include, but are not limited to,the applicable purchase price, available capital, and projected returns withrespect to the property.

***Student Housing—Management***

The student housing management segment provides theon-site management function for, and generally oversees the management of, alloff-campus student housing properties for the Company and for properties wemanage that are owned by third parties. Third parties may be related parties orparties unaffiliated with the Company. The properties are strategically locatednear college or university campuses. Total revenues from management activities,including reimbursement of expenses, increased by approximately 22% from 2006to 2005, including management fees earned from the properties managed for theCompany.

We earn management feesfrom managing properties for third parties. These fees are typically equal to apercentage of cash receipts or gross rental revenues generated by the managedproperties, or equal to a fixed monthly amount, according to the managementagreements for the properties we manage. We also have the ability to earnincentive management fees by achieving specified property-levelperformance criteria for certain properties we manage for third parties.Further, certain operating expenses incurred related to properties we managefor others are reimbursed by the owners of the properties managed. We expect tocontinue generating fee revenue and operating expense reimbursements from theproperties that we manage for others, although the amounts are expected tobecome less significant as a percentage of our overall revenues as rentalincome increases from the properties we own. During 2007, we expect to continueto pursue new third-party management agreements by utilizingrelationships in the student housing market and providing our significantoperational economies of scale as a savings mechanism for other third-partyowners, including institutional owners and individual student housing owners.  However, we expect management fees tocontribute less significantly as a percentage of overall revenue in futureperiods, as a result of the continued growth in rental revenue that we expectto generate from the operations of properties we own and from the full year ofoperations of properties that we acquired during 2006.

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***Military Housing***

Our military housing segment develops, constructs,renovates and manages military housing privatization projects in which weacquire equity interests. Our military housing segment began generating revenuein the fourth quarter of 2003 with the initiation of our Fort Carson and FortStewart/Hunter projects. Revenue grew throughout 2004, 2005, and 2006 with theaddition of various other projects. Revenue from our military housing segmentis comprised primarily of fee income for providing development,construction/renovation and management services to our military housingprivatization projects. In addition, we also are entitled to returns on theequity we invest in the projects. In addition, we earn business developmentfees from certain of our business partners in connection with our militaryhousing privatization projects, such as our construction andarchitectural/engineering partners. We seek these fees as payment for ourbusiness development efforts incurred by us in connection with pursuing andcoordinating the completion of military housing privatization projects thatbenefit these business partners. We also receive expense reimbursements,consisting primarily of payroll and related expenses, closing costs andtransition costs we incur for the project in the periods preceding theinitiation of our management of the project. Typically, at the time we initiatemanagement on a project, the project reimburses us for these amounts from theproceeds of the debt securities issued by the military housing privatizationproject.

As of December 31, 2006, we owned equityinterests in the joint ventures that owned the nine military housingprivatization projects in operation, encompassing 21 military bases totaling17,489 housing units. During the year ended December 31, 2006, we earnedfees for providing development, construction/renovation and management servicesto these nine military housing privatization projects.

On May 1, 2006, we closed on the formal award ofour Fort Gordon project with the Army and officially commenced operations ofthis project. The project has a six-year initial development period with newconstruction and renovations of 887 end-state housing units. The 50-yearproject term involves the development, management and construction ofhigh-quality homes, the targeted renovation of existing homes, and the additionof community enhancing facilities and services. Also on May 1, 2006, weacquired an ownership interest in our Carlisle/Picatinny project and beganmanagement and maintenance services for this project. As of July 21, 2006,financing was secured for the project, and construction/renovation activitieshave commenced. This 50-year project has a five-year initial developmentperiod with new construction and/or renovation of 348 end-state housing units.

On October 23, 2006, we announced that we hadbeen chosen by the Department of the Army to design, construct and manage twosingle soldier housing projects, located at Fort Bliss and Fort Stewart. Thesetwo projects are among the first of unaccompanied housing privatization awardstargeted by the Army.

In November 2006, we announced completion of arefinancing for the Fort Carson project in order to obtain additional projectfunding for the development and construction/renovation of an additional 396new housing units. This expansion project has an initial development period offour years, and as with the original scope of the project, we will earn feesrelating to the new construction of these additional housing units, in additionto the fees we currently earn for managing the existing housing units.

In addition, on February 6, 2007, we closed onour AETC Group I project with the Department of the Air Force, a militaryhousing privatization project covering four bases and 2,875 end-state housingunits. The AETC Group I project represents our first military housing projectwith the Department of the Air Force.

Also, on February 26, 2007, we announced that wewere selected by the Department of the Navy to enter into exclusivenegotiations for the design, construction, management and maintenance of themilitary family housing at 11 Southeast Region Navy bases in five states. The 50-yearterm of the Navy Southeast project is expected to commence with a six-yearinitial development period, or IDP, that is valued in excess 

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of $700 million andcovering approximately 5,501 end-state housing units. On March 8, 2007, wealso announced that we were selected by the Department of the Army to enterinto exclusive negotiations for the family housing privatization project at theU.S. Military Academy at West Point, New York, which is expected to have afive-year IDP with project costs valued in excess of $160 million.

With regard to trends anduncertainties in the military housing market see the section of this reporttitled “*Risk Factors—Specific Risks Related to our MilitaryHousing Business*.” Our management team also had under review, as of March 9,2007, six potential additional military housing privatization projectopportunities, and will continue to pursue opportunities to acquire projects orproject rights from our competitors, as well as opportunities to participate inpilot housing programs for unaccompanied military personnel. For additionaldetails with respect to these projects see the section titled “*Military Housing Business—Additional Military HousingPrivatization Projects and Development Opportunities under Review*”located in Part I, Item 1 of this report.

**Critical AccountingPolicies**

Our “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” discusses the Company’s consolidatedfinancial statements and the GMH Predecessor Entities’ combined financialstatements, which have been prepared in accordance with U.S. generally acceptedaccounting principles. The preparation of these financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and the disclosure of contingent liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting periods. While the estimates and judgmentsassociated with the application of these accounting principles may be affectedby different assumptions or conditions, we believe the estimates and judgmentsassociated with the reported amounts are appropriate under the circumstances inwhich they were made. In addition, other companies in similar businesses mayutilize different estimation policies and methodologies, which may impact thecomparability of our results of operations and financial condition to thosecompanies.

The following policiesrequire significant judgments and estimates on our part in preparing theCompany’s consolidated financial statements and the GMH Predecessor Entities’combined financial statements. Changes in these judgments and estimates couldhave a material effect on these financial statements.

**Revenue Recognition**

*Student Housing*

Student housing revenueincludes rental revenue and other property income, standard and incentivemanagement fees, and reimbursements of certain operating expenses. Thesesources of revenue are described in greater detail below:

·       werecognize student housing rental revenue when due over the lease terms, whichare generally 12 months or less;

·       werecognize other property income, including, but not limited to, leaseprocessing fees, move-in fees, and activity fees as earned throughout thecourse of the year. The timing of these fees typically fluctuates in relationto the academic year leasing cycle;

·       standardmanagement fees are based on a percentage of monthly cash receipts or grossmonthly rental and other revenues generated by the properties managed forothers. We recognize these fees on a monthly basis as the services areperformed;

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·       weearn incentive management fees as a result of the achievement of certainoperating performance criteria over a specified period by certain managedproperties, including targeted annual debt service coverage ratios of theproperties. We recognize these fees at the amount that would be due under thecontract if the contract was terminated on the balance sheet date; and

·       expense reimbursements arecomprised primarily of salary and related costs of certain of our employeesworking at certain properties we manage for others, the cost of which isreimbursed by the owners of the related properties. We accrue operating expensereimbursements as the related expenses are incurred.

*Military Housing*

We earn militaryhousing revenues for providing services to our military housing privatizationprojects, including the following:

·       standardand incentive management fees, which are based on a percentage of revenuegenerated by the military housing privatization projects from the basicallowance for housing provided by the government to service members, referredto as BAH, are recognized when the revenue is earned by the military housingprojects. Incentive management fees are based upon the satisfaction of certaincriteria including, among other things, satisfying designated benchmarksrelating to emergency work order response, occupancy rates, home turnover andresident satisfaction surveys. Incentive management fees are recognized whenthe various criteria stipulated in the management contract have been satisfied;

·       standardand incentive development and construction/renovation fees, which are based ona percentage of development and construction/renovation costs incurred by themilitary housing privatization projects, including hard and soft costs andfinancing costs, are recognized on a monthly basis as the costs are incurred bythe military housing projects. Incentive development andconstruction/renovation fees are based upon the satisfaction of certaincriteria including, among other things, completing a number of housing unitsaccording to schedule, achieving specific safety records and implementing smallbusiness or minority subcontracting plans. The incentive development andconstruction/renovation fees are recognized when the various criteriastipulated in the contract have been satisfied. In addition, in certaininstances, we may receive fees relating to the performance ofpre-construction/renovation services. These pre-construction/renovation feesare determined on a project-by-project basis, and are paid in proportion to theamount of pre-construction/renovation costs incurred by us for the project andrecognized as revenue upon performance of the pre-construction/renovationservices;

·       revenueson fixed-price renovation contracts are recorded on thepercentage-of-completion method. When the percentage-of-completion method isused, contract revenue is recognized in the ratio that costs incurred to datebear to estimated costs at completion. Adjustments to cost estimates are madein the period in which the facts requiring such revisions become known. Whenthe revised estimates indicate a loss, such loss is provided for currently inits entirety.

·       businessdevelopment fees are earned from our business partners that providearchitectural and design or construction services for our military housingprojects. These fees are received in connection with pursuing and coordinatingthe completion of military housing projects. The fees consist of (i) anannual base fee, which is a fee paid to us in consideration of our ongoingpursuit of additional projects and is not contingent upon the success of thoseefforts and can be cancelled at any time, and (ii) an additional fee,which is paid over the course of an awarded project based on a percentage ofrevenue earned by these business partners for providing services to themilitary housing projects. The base fees are recognized on a straight-linebasis over the term of the related business development agreement, which isgenerally one year. The additional fee is recognized and 

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paid to us as the relatedservices are provided to our military housing projects by our businesspartners.

·       equity returns are earnedon our investments in military housing projects. During the initial developmentperiod for a project, the equity returns are a fixed percentage of ourinvestment and subsequent to the initial development period for a project, theequity returns are based on a fixed percentage of our investment and on theproject’s net operating income, subject to cash distribution caps, as definedin the operating agreements related to the particular project. As of December 31,2006, only the Fort Carson project had passed its initial development period.

***Real Estate Investments and Corporate Assets***

We carry real estate investments and corporate assetsat cost, net of accumulated depreciation. Cost of acquired assets includes thepurchase price and related closing costs. We allocate the cost of real estateinvestments to net tangible and identified intangible assets based on relativefair values in accordance with Statement of Financial Accounting Standards No. 141(“SFAS 141”), *Business Combinations*.We estimate fair value based on information obtained from a number of sources,including our due diligence, marketing and leasing activities, independentappraisals that may be obtained in connection with the acquisition or financingof the respective property, and other market data.

The value of in-place leases is based on the differencebetween (i) the property valued with existing in-place leases and (ii) theproperty valued as if vacant. As lease terms typically are 12 months orless, actual rates on in-place leases generally approximate market rentalrates. Factors that we consider in the valuation of in-place leases include anestimate of incremental carrying costs during the expected lease-up periodsconsidering current market conditions and nature of the tenancy. Purchaseprices of student housing properties to be acquired are not expected to beallocated to tenant relationships considering the terms of the leases and theexpected levels of renewals. We amortize the value of in-place leases toexpense over the remaining term of the respective leases, which is generallyone year or less.

We expense routine repair and maintenance costs thatdo not improve the value of an asset or extend its useful life, includingturnover costs. We capitalize expenditures that improve the value and extendthe useful life of an asset. We compute depreciation using the straight-linemethod over the estimated useful lives of the assets, which is generally40 years for buildings including student housing properties and thecommercial office building, and three to five years for residential furniture andappliances. Commencing towards the end of the second quarter and moresignificantly during the third quarter of each fiscal year, we typically willexperience an increase in property operating expenses over other quarters as aresult of repair and maintenance expenditures relating to turnover of units atstudent housing properties. Our student housing lease terms generally commencein August or September to coincide with the beginning of the academicyear. Accordingly, we expect to incur a majority of its repair and maintenancecosts during the second and third quarters to prepare for new residents.

In accordance withStatement of Financial Accounting Standards No. 144 (“SFAS 144”), *Accounting for the Impairment or Disposal ofLong-Lived Assets*, long-lived assets, such as real estateinvestments and purchased intangibles subject to amortization, are reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. These circumstances may include, but arenot limited to, operational performance, market conditions and competition fromother off-campus properties and on-campus housing, legal and environmentalconcerns, and results of appraisals or other information obtained as part of afinancing or disposition strategy. When required, we review the recoverabilityof assets to be held and used through a comparison of the carrying amount of anasset to estimated undiscounted future cash flows expected to be generated bythe asset. If the carrying amount of an asset exceeds its estimatedundiscounted future cash flows, an impairment charge is recognized in an amountby which the carrying value of the asset exceeds the fair value of the assetdetermined using 

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customaryvaluation techniques, such as the present value of expected future cash flows.Assets to be disposed of would be separately presented in the balance sheet andreported at the lower of the carrying amount or fair value less costs to sell,and no longer would be depreciated.

***Allowance for Doubtful Accounts***

We estimate the collectibility of receivablesgenerated by rental and other income as a result of the operation of ourstudent housing properties. If we believe that the collectibility of certainamounts is questionable, we record a specific reserve for these amounts toreduce the amount outstanding to an amount we believe will be collectible and areserve for all other accounts based on a range of percentages applied to agingcategories, which is based on historical collection and write-off experience.

We also evaluate thecollectibility of fee income and expense reimbursements generated by themanagement of student housing properties owned by others and through theprovision of development, construction, renovation and management services toour military housing privatization projects based upon the individual facts andcircumstances, and record a reserve for specific amounts, if necessary.

***Minority Interest***

Minority interest asinitially recorded at the date of our initial public offering represented thenet equity of our operating partnership, including the proceeds received fromthe sale of the warrant to Vornado, multiplied by the ownership percentage ofholders of limited partnership units in our operating partnership other thanthe Company. Our operating partnership is obligated to redeem, at the requestof a holder, each unit of limited partnership interest for cash or commonshares on a one-for-one basis, at our option, subject to adjustments for sharesplits, dividends, recapitalizations or similar events; except that GaryM. Holloway, Sr. has the right to require our operating partnershipto redeem his and his affiliates’ units of limited partnership interest forcommon shares, subject to his restriction from owning more than 20% of ouroutstanding common shares. If the minority interest unit holders’ share of acurrent year loss would cause the minority interest balance to be less thanzero, the minority interest balance will be reported as zero unless there is anobligation of the minority interest holders to fund those losses. Any losses inexcess of the minority interest will be charged against equity. If futureearnings materialize, equity will be credited for all earnings up to the amountof those losses previously absorbed. Distributions to limited partnership unitholders other than us are recorded as a reduction to minority interest.

***Investments in Military Housing Projects and StudentHousing Joint Ventures***

We own equity interests in the joint ventures that ownour military housing privatization projects with the U.S. military to design,develop, construct/renovate and manage the military family housing located onor near various bases throughout the United States. We evaluate our investmentsin military housing project joint ventures in which we have a variable interestto determine if the underlying entity is a variable interest entity (“VIE”) asdefined under FASB Financial Interpretation No. 46 (as revised) (“FIN 46(R)”).We have concluded that each of the military housing project joint ventures inwhich we have a variable interest is a VIE and we are not the primarybeneficiary of any of these VIEs. We record our investments in joint venturesunder our military housing projects in accordance with the equity method ofaccounting. Our investment is initially recorded at cost, and then subsequentlyadjusted at each balance sheet date to an amount equal to what we would receivefrom the joint venture in the event that it were liquidated at net book valueas of that date, and assuming that the proceeds from the liquidation aredistributed in accordance with the terms of, and priority of returns set forthunder, the joint venture’s operating agreement. We have exposure to loss to theextent of our investments, if any, and any receivables due from the project.

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Weentered into a joint venture in the third quarter of 2005 to develop andconstruct two student housing properties. We contributed land to the jointventure in exchange for its 10% interest and cash. In addition, we have theoption to purchase the joint venture partner’s interest in the joint venturewithin one year of completion of the properties, and we have provided certainguarantees for the completion of construction and for a portion of theconstruction loans. As such, the transaction is being accounted for under thefinancing method, whereby we record the real estateas an asset, depreciate the property, and record a financing obligation.Construction of both properties was completed in August 2006.

***Income Taxes***

We elected to be taxed as a REIT under the Codecommencing with its taxable year ended December 31, 2004. To continue toqualify as a REIT, we must meet a number of organizational and operationalrequirements, including a requirement that we currently distribute at least 90%of our adjusted taxable income to our shareholders. We believe we are organizedand operate in a manner that allows us to qualify for taxation as a REIT underthe Code, and it is our intention to adhere to these requirements and maintainour REIT status in the future. Accordingly, no provision has been made forfederal income taxes in the accompanying consolidated financial statements,other than with respect to our taxable REIT subsidiaries.

In conformity with theCode and applicable state and local tax statutes, taxable income or loss of TheGMH Predecessor Entities was required to be reported in the tax returns ofGary M. Holloway, Sr. and Vornado, as such entities were treated aspass-through entities for tax purposes. Accordingly, no income tax provisionhas been reflected in the accompanying combined statements of operations of theGMH Predecessor Entities.

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**Resultsof Operations**

The results of operationsfor the year ended December 31, 2006 and 2005 presented below reflect the results of operations of the Company.The eliminations column represents the management fees that are charged to ourstudent housing—owned segment from our student housing management segment. Suchamounts have been eliminated in consolidation.

***Comparison of theyear ended December 31, 2006 to the year ended December 31, 2005***

| ** **                                                                                              | ** ** | **Year Ended December 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **Student  Housing—  Owned  Properties**        | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent and other property income                                                                          |       |                                                 | $          | 188,885 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 156 |   |   |   | $ | — |   |   | $ | 189,041 |   |
| Expense  reimbursements:                                                                                |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                           |       |                                                 | —     |   |   |   | 390 |   |   |   | 63,622 |   |   |   | 218 |   |   |   | — |   |   | 64,230 |   |
| Third party                                                                                             |       |                                                 | —     |   |   |   | 6,013 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 6,013 |   |
| Management  fees:                                                                                       |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management fees—owned properties                                                                   |       |                                                 | —     |   |   |   | 7,290 |   |   |   | — |   |   |   | — |   |   |   | (7,290 | ) |   | — |   |
| Related party                                                                                           |       |                                                 | —     |   |   |   | 93 |   |   |   | 8,388 |   |   |   | — |   |   |   | — |   |   | 8,481 |   |
| Third party                                                                                             |       |                                                 | —     |   |   |   | 3,167 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 3,167 |   |
| Other fee income-related party                                                                          |       |                                                 | —     |   |   |   | — |   |   |   | 21,635 |   |   |   | — |   |   |   | — |   |   | 21,635 |   |
| Other income                                                                                            |       |                                                 | 225        |   |   |   | 35 |   |   |   | 72 |   |   |   | 232 |   |   |   | — |   |   | 564 |   |
| Total revenue                                                                                           |       |                                                 | 189,110    |   |   |   | 16,988 |   |   |   | 93,717 |   |   |   | 606 |   |   |   | (7,290 | ) |   | 293,131 |   |
| **Operating Expenses:**                                                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property operating expense                                                                              |       |                                                 | 74,927     |   |   |   | 6,516 |   |   |   | 6,402 |   |   |   | — |   |   |   | — |   |   | 87,845 |   |
| Intercompany management fees                                                                            |       |                                                 | 7,290      |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (7,290 | ) |   | — |   |
| Reimbursed expenses                                                                                     |       |                                                 | —     |   |   |   | 6,403 |   |   |   | 63,622 |   |   |   | 218 |   |   |   | — |   |   | 70,243 |   |
| Real estate taxes                                                                                       |       |                                                 | 17,913     |   |   |   | — |   |   |   | — |   |   |   | 97 |   |   |   | — |   |   | 18,010 |   |
| Administrative expenses                                                                                 |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | 17,682 |   |   |   | — |   |   | 17,682 |   |
| Audit Committee and Special Committee expenses                                                          |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | 7,821 |   |   |   | — |   |   | 7,821 |   |
| Profits interest and employee initial public offering  bonus expense                                    |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Depreciation and amortization                                                                           |       |                                                 | 42,984     |   |   |   | — |   |   |   | 444 |   |   |   | 402 |   |   |   | — |   |   | 43,830 |   |
| Interest                                                                                                |       |                                                 | 50,251     |   |   |   | — |   |   |   | — |   |   |   | 5,082 |   |   |   | — |   |   | 55,333 |   |
| Total operating expenses                                                                                |       |                                                 | 193,365    |   |   |   | 12,919 |   |   |   | 70,468 |   |   |   | 31,302 |   |   |   | (7,290 | ) |   | 300,764 |   |
| (Loss) income before equity in earnings of  unconsolidated entities, minority interest and income taxes |       |                                                 | (4,255     | ) |   |   | 4,069 |   |   |   | 23,249 |   |   |   | (30,696 | ) |   |   |   |   |   | (7,633 | ) |
| Equity in earnings of unconsolidated entities                                                           |       |                                                 | —     |   |   |   | — |   |   |   | 3,523 |   |   |   | — |   |   |   | — |   |   | 3,523 |   |
| (Loss) income before minority interest and income  taxes                                                |       |                                                 | (4,255     | ) |   |   | 4,069 |   |   |   | 26,772 |   |   |   | (30,696 | ) |   |   | — |   |   | (4,110 | ) |
| Income tax expense (benefit)                                                                            |       |                                                 | —     |   |   |   | (337 | ) |   |   | 5,070 |   |   |   | — |   |   |   | — |   |   | 4,733 |   |
| (Loss) Income before minority interest                                                                  |       |                                                 | (4,255     | ) |   |   | 4,406 |   |   |   | 21,702 |   |   |   | (30,696 | ) |   |   | — |   |   | (8,843 | ) |
| Minority interest                                                                                       |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | (3,857 | ) |   |   | — |   |   | (3,857 | ) |
| **Net  (loss)income**                                                                                   |       |                                                 | $          | (4,255 | ) |   |   | $ | 4,406 |   |   |   | $ | 21,702 |   |   |   | $ | (26,839 | ) |   |   | $ | — |   |   | $ | (4,986 | ) |

 

73

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| ** **                                                                                              | ** ** | **Year Ended December 31, 2005** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **Student  Housing—  Owned  Properties**        | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                                            |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent and other property income                                                                          |       |                                                 | $          | 131,849 |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 245 |   |   |   | $ | — |   |   | $ | 132,094 |   |
| Expense reimbursements:                                                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                           |       |                                                 | —     |   |   |   | 176 |   |   |   | 57,436 |   |   |   | 318 |   |   |   | — |   |   | 57,930 |   |
| Third party                                                                                             |       |                                                 | —     |   |   |   | 4,650 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 4,650 |   |
| Management fees:                                                                                        |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management fees—owned properties                                                                   |       |                                                 | —     |   |   |   | 5,141 |   |   |   | — |   |   |   | — |   |   |   | (5,141 | ) |   | — |   |
| Related party                                                                                           |       |                                                 | —     |   |   |   | 197 |   |   |   | 6,808 |   |   |   | — |   |   |   | — |   |   | 7,005 |   |
| Third party                                                                                             |       |                                                 | —     |   |   |   | 3,774 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 3,774 |   |
| Other fee income-related party                                                                          |       |                                                 | —     |   |   |   | 290 |   |   |   | 18,000 |   |   |   | 31 |   |   |   | — |   |   | 18,321 |   |
| Other income                                                                                            |       |                                                 | 123        |   |   |   | 19 |   |   |   | 108 |   |   |   | 128 |   |   |   | — |   |   | 378 |   |
| Total revenue                                                                                           |       |                                                 | 131,972    |   |   |   | 14,247 |   |   |   | 82,352 |   |   |   | 722 |   |   |   | (5,141 | ) |   | 224,152 |   |
| **Operating Expenses:**                                                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property operating expense                                                                              |       |                                                 | 48,992     |   |   |   | 4,196 |   |   |   | 4,431 |   |   |   | — |   |   |   | — |   |   | 57,619 |   |
| Intercompany management fees                                                                            |       |                                                 | 5,141      |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | (5,141 | ) |   | — |   |
| Reimbursed expenses                                                                                     |       |                                                 | —     |   |   |   | 4,826 |   |   |   | 57,436 |   |   |   | 318 |   |   |   | — |   |   | 62,580 |   |
| Real estate taxes                                                                                       |       |                                                 | 12,191     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 12,191 |   |
| Administrative expenses                                                                                 |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | 12,254 |   |   |   | — |   |   | 12,254 |   |
| Audit Committee and Special Committee expenses                                                          |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Profits interest and employee initial public offering  bonus expense                                    |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Depreciation and amortization                                                                           |       |                                                 | 33,369     |   |   |   | — |   |   |   | 299 |   |   |   | 520 |   |   |   | — |   |   | 34,188 |   |
| Interest                                                                                                |       |                                                 | 29,493     |   |   |   | — |   |   |   | — |   |   |   | 1,532 |   |   |   | — |   |   | 31,025 |   |
| Total operating expenses                                                                                |       |                                                 | 129,186    |   |   |   | 9,022 |   |   |   | 62,166 |   |   |   | 14,624 |   |   |   | (5,141 | ) |   | 209,857 |   |
| Income (loss) before equity in earnings of  unconsolidated entities, minority interest and income taxes |       |                                                 | 2,786      |   |   |   | 5,225 |   |   |   | 20,186 |   |   |   | (13,902 | ) |   |   | — |   |   | 14,295 |   |
| Equity in earnings of unconsolidated entities                                                           |       |                                                 | —     |   |   |   | — |   |   |   | 3,073 |   |   |   | — |   |   |   | — |   |   | 3,073 |   |
| Income (loss) before minority interest and income  taxes                                                |       |                                                 | 2,786      |   |   |   | 5,225 |   |   |   | 23,259 |   |   |   | (13,902 | ) |   |   | — |   |   | 17,368 |   |
| Income tax expense                                                                                      |       |                                                 | —     |   |   |   | 66 |   |   |   | 5,514 |   |   |   | — |   |   |   | — |   |   | 5,580 |   |
| Income (loss) before minority interest                                                                  |       |                                                 | 2,786      |   |   |   | 5,159 |   |   |   | 17,745 |   |   |   | (13,902 | ) |   |   | — |   |   | 11,788 |   |
| Minority interest                                                                                       |       |                                                 | —     |   |   |   | — |   |   |   | — |   |   |   | 5,729 |   |   |   | — |   |   | 5,729 |   |
| **Net  income (loss)**                                                                                  |       |                                                 | $          | 2,786 |   |   |   | $ | 5,159 |   |   |   | $ | 17,745 |   |   |   | $ | (19,631 | ) |   |   | $ | — |   |   | $ | 6,059 |   |

 

***Student Housing—Owned Properties***

*Revenue.*Of the 75properties owned as of December 31, 2006 (not including two propertiesheld through a joint venture), we acquired 21 and 24 of the student housingproperties during 2006 and 2005, respectively. Rent and other property incomefrom these 75 properties totaled $188.9 million in 2006. Rent and otherproperty income from the 54 properties we owned as of December 31, 2005was $131.8 million in 2005. The increase in rent and other property incomeexperienced during 2006 relates primarily to (i) the presentation of afull year of operations during 2006 with respect to the 24 properties acquiredin 2005, and (ii) the acquisition of an additional 21 properties during2006. Although we generally seek rent increases that will exceed projectedincreases in property operating expenses, increases in our property operatingexpenses exceeded our rent increases from 2005 to 2006, primarily as a resultof increases in repairs and maintenance costs, bad debt expense, utilityexpenses and real estate taxes incurred during 2006. In future periods, our netincome will be negatively affected to the extent property operating expensesare higher than those projected by our management for such period prior tolease execution for the applicable academic year.

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With respect to properties we owned during the yearended December 31, 2006 and 2005, referred to herein as our same storeproperties, our revenues decreased $2.2 million, or 2.4%, in 2006 as comparedto 2005. Our revenues were adversely affected by six of these same storeproperties (which we refer to as the focus properties) that did not achieve theeconomic occupancy levels we had targeted upon commencement of the 2006-2007academic year. We believe that these lower than anticipated leasing results aretemporary in nature at all of these six focus properties, and we have committedresources to improving their occupancy levels. Our same store revenues,excluding the six focus properties referred to above, increased $0.3 million,or 0.5% , in 2006 as compared to the prior year.

Other income increased slightly to $225,000 in 2006from $123,000 in 2005. This other income consisted primarily of interest incomeon invested cash.

*Expenses.**  *Property operating expensesincreased to $74.9 million in 2006 from $49.0 million in 2005, primarily due toexpenses attributable to the 21 properties acquired in 2006 and our ownershipand operation for a full year during 2006 of properties acquired in 2005. Theincrease of $25.9 million is attributable to the following: a $10.0 millionincrease in utilities expenses; a $2.8 million increase in turnover and repairsand maintenance expenses; a $5.7 million increase in payroll expenses at theproperty level; a $1.0 million increase in bad debt expense relating touncollected rents and other income; and a $6.5 million increase in theproperty expenses, consisting of marketing, insurance, landscaping and othersimilar property operating expenses.

With respect to our same store properties, weexperienced an increase in property operating expenses of approximately $3.3million in 2006. Of this increase, $1.6 million relates to utilities; $0.2million relates to marketing costs; $0.4 million relates to payroll expensesassociated with the hiring of additional staff at the property level; $0.5million relates to bad debt expense associated with uncollected rents; and $0.6 millionrelates to an increase in other property operating expenses.

We have implemented new policies and proceduresrelating to capital spending and maintenance, as well as purchasing activities,that are designed to assist with cost containment of future repairs andmaintenance expenditures at our properties. We also recently placed a renewedemphasis on our rent collection, which we believe should result in lower baddebt expense in future periods.

Real estate taxes increased to $17.9 million in 2006from $12.2 million in 2005, primarily due to the acquisition of 21properties in 2006 and the full year of real estate taxes with respect to the24 properties we acquired during  2005. Ofthe $5.7 million increase we experienced in real estate taxes, approximately$0.6 million is specifically related to our same store properties, of which$0.1 million relates to the six focus properties. We expect an overall increasein real estate taxes during 2007 due to a full year of results for the 21properties acquired during 2006, offset by a decrease as management implements its business strategy to sell or enterinto joint venture agreements with respect to certain of our currently ownedstudent housing properties. We may also see an increase in real estate taxes tothe extent that local authorities continue to aggressively pursue higher realestate tax assessments on properties that we currently own.

Depreciation and amortization increased to $43.0million as compared to $33.4 million in 2005, primarily as a result ofacquiring 21 properties in 2006 for an aggregate purchase price of$409.7 million, as well as the inclusion of a full year of depreciationexpense relating to the 24 properties acquired during 2005.  The $43.0 million in 2006 is comprised of$37.8 million of depreciation and $5.2 million of lease intangibleamortization. We expect depreciation expense to remain essentially unchanged in2007 due to an increase generated from a full year of results for the 21properties acquired during 2006, offset by a decrease resulting from management’s2007 business strategy to sell, or enter into joint venture agreements withrespect to certain of our currently owned student housing properties.

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Interest expense increasedto $50.3 million in 2006 from $29.5 million in 2005, as a result ofincurring additional debt, including placement of new mortgage debt and theassumption of existing mortgage debt, as well as borrowings under our line ofcredit, in connection with the acquisition of 21 properties in 2006. During2006, we placed $266.8 million of new mortgage debt, assumed $46.5 millionof existing mortgage debt, net of premiums, and increased borrowings under ourcredit lines by approximately $163.4 million. We expect interest expense todecrease as management implements its business strategy to sell, refinance orenter into joint venture agreements with respect to our currently owned studenthousing properties, as proceeds from these transactions are used to repayoutstanding balances under our line of credit. For more information regardingthe amount of fixed-rate and variable-rate indebtedness we held as of December 31,2006, see the section titled *Quantitativeand Qualitative Disclosures About Market Risk* under Item 7A of thisreport.

***Student Housing Management***

*Revenue*   Expensereimbursements from related parties increased to $390,000 in 2006 from $176,000in 2005. As of December 31, 2006, the Company no longer manages studenthousing properties for related parties as the one property that we managed fora related party was sold during December 2006.

Expense reimbursements from third parties increased to$6.0 million in 2006 from $4.7 million in 2005, primarily due to anincrease in payroll expenses related to an increase in overall head count formanaged  student housing properties in  2006 over 2005. Although we will continue topursue new third-party management agreements during 2007, we expectexpense reimbursements from third parties to contribute less significantly as apercentage of overall revenue going forward, as a result of our increased focuson operations of our own properties and the continued growth in rental revenuethat we expect to generate from the full year operations of properties weacquired during 2006, as well as additional properties we acquire in thefuture.

Management fee income from related parties decreasedto $93,000 in 2006 from $197,000 in 2005.  As of December 31, 2006, the Company nolonger manages student housing properties for related parties.

Management fee income from third parties decreasedfrom $3.8 million in 2005 to $3.2 million in 2006. We recorded a one-timemanagement fee of $0.8 million that was paid and recognized in 2005 fordeferred management fees paid in connection with the sale of the managedproperty by the third party owner. Excluding the $0.8 million of managementfees earned in 2005, management fees would have increased by $0.2 million. Althoughwe will continue to pursue new third-party management agreements during2007, we expect management fees to contribute less significantly as apercentage of overall revenue going forward.

Other fee income from related parties was $290,000 in2005. We did not earn other fee income from related parties in 2006. Weanticipate that we will generate such revenue during 2007, as a result of feesthat we expect to earn from providing development and management services tojoint ventures with third-parties that we enter into to finance thedevelopment and construction of additional student housing properties.

*Expenses.**  *Property operating expenses increased from $4.2million in 2005 to $6.5 million in 2006, due to the acquisition of 21properties in 2006. These expenses are comprised of payroll and general andadministrative expenses directly associated with the operations of the Company’sowned and managed portfolios. While those employees who are directlyresponsible for the oversight of specific properties are charged directly tothe Student Housing Owned segment, this segment staffs a full operationsdepartment. This department includes those employees responsible for portfoliooversight, which includes regional vice presidents, regional property managers,regional leasing specialists and the associated expenses such as traveldirectly related to those employees who perform this function. Such expensesare considered part of our student housing management operation.

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Reimbursed expenses, which includes related party andthird party managed properties, increased to $6.4 million in 2006 from$4.8 million in 2005. Reimbursed expenses are comprised mostly of payrollexpenses for on-site employees. This increase is due to an increase in overallheadcount as a result of additional properties managed in 2006 over 2005.

Income taxes amounted to atax benefit of $337,000 in 2006 as compared to the tax expense of $66,000 in2005. Income taxes consist primarily of taxes associated with the operations ofour student housing taxable REIT subsidiary, which manages properties for thirdparties. The tax benefit is due to a taxable loss recognized during 2006.

***Military Housing***

*Revenue.**  *Expense reimbursements totaled$63.6 million in 2006 as compared to $57.4 million in 2005. This increasewas primarily due to payroll and renovation expenses related to the ninemilitary housing projects in operation as of December 31, 2006 as comparedwith the seven military housing projects in operation as of December 31,2005;  and closing costs and transitionexpenses for our Fort Gordon project, which commenced operations in May 2006;and closing costs and transition expenses for our Carlisle/Picatinny project. Wealso experienced an increase in expense reimbursements in 2006 as a result ofgreater renovation activities at our Fort Bliss/White Sands and Navy NortheastRegion projects. This increase was offset by decreases at our FortStewart/Hunter, Walter Reed Army Medical Center and Fort Detrick projectscaused by anticipated declines in construction and renovation activities, aswell as by decreases at our Fort Carson project due to changes in the terms ofthe management contract in December 2005, which resulted in fewerreimbursable expenses being incurred directly by the project.

| **Project**                                               | ** ** | ** **             | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------|------------|----------|------------|
| ** **                                                | ** ** | **(in millions)** | ** ** |
| **Expense Reimbursements**                                | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                      | 5.4        | ** ** | $          | 9.4      |       |
| Fort Carson  Project                                      |       | 2.7                    | ** ** | 6.9        |       |
| Fort Hamilton  Project                                    |       | 1.1                    | ** ** | 0.5        |       |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | 0.8                    | ** ** | 1.4        |       |
| Fort Eustis/Fort  Story Project                           |       | 4.6                    | ** ** | 4.7        |       |
| Navy Northeast  Region Project                            |       | 33.3                   | ** ** | 29.0       |       |
| Fort Bliss/White  Sands Missile Range Project(1)          |       | 11.5                   | ** ** | 5.5        |       |
| Fort Gordon  Project(2)                                   |       | 2.4                    | ** ** | —     |       |
| Carlisle/Picatinny  Project(2).                           |       | 1.8                    | ** ** | —     |       |
| Total expense  reimbursements                             |       | $                      | 63.6       | ** ** | $          | 57.4     |       |

----

(1)          Commenced operations inthe third quarter of 2005.

(2)          The Fort Gordon projectcommenced operations in the second quarter of 2006, and the Carlisle/Picatinnyproject commenced operationsin the third quarter of 2006.

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Management fees fromrelated parties totaled $8.4 million in 2006 as compared to $6.8 millionin 2005. The table below sets forth certain information regarding the revenuefrom management fees from related parties for each of our military housingprojects for 2006 and 2005. The amount of management fees from related partiesthat we receive during a fiscal period is affected by the number of housingunits that we manage under our military housing projects during that period,which number will fluctuate based on the number of housing units that weconstruct/renovate or demolish during that period. Management fees from relatedparties increased during 2006 as compared to 2005 primarily due to full yearoperation of our Fort Bliss/White Sands Missile Range project which startedduring the third quarter of 2005, as well as due to increased occupancy andrental activity at our Fort Stewart/Hunter project, and the commencement of ourFort Gordon project and Carlisle/Picatinny project, during the second quarterof 2006.

| **Project**                                               | ** ** | ** **             | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                | ** ** | **(in millions)** | ** ** |
| Fort Stewart and Hunter  Army Airfield Project            |       | $                      | 1.4        |     | $          | 1.0      |       |
| Fort Carson Project                                       |       | 1.2                    |       | 1.2      |       |
| Fort Hamilton Project                                     |       | 0.2                    |       | 0.2      |       |
| Walter Reed Army Medical  Center and Fort Detrick Project |       | 0.3                    |       | 0.2      |       |
| Fort Eustis/Fort Story  Project                           |       | 0.5                    |       | 0.5      |       |
| Navy Northeast Region  Project                            |       | 3.2                    |       | 3.2      |       |
| Fort Bliss/White Sands  Missile Range Project(1)          |       | 1.3                    |       | 0.5      |       |
| Fort Gordon Project(2)                                    |       | 0.1                    |       | —   |       |
| Carlisle/Picatinny  Project(2)                            |       | 0.2                    |       | —   |       |
| Total                                                     |       | $                      | 8.4        |     | $          | 6.8      |       |

----

(1)          Commenced operations inthe third quarter of 2005.

(2)          The Fort Gordon projectcommenced operations in the second quarter of 2006, and we commenced managementoperations for the Carlisle/Picatinny project in the second quarter of 2006.

Other fee income fromrelated parties, which includes development and construction fees and businessdevelopment fees, totaled $21.6 million in 2006 as compared to$18.0 million in 2005. The table below sets forth certain informationregarding the revenue from other fee income from related parties for each ofour military housing projects for 2006 and 2005. The amount of other fee incomefrom related parties that we receive during a fiscal period is affected by thelevel of housing unit development and construction that we perform under ourmilitary housing projects during that period. Other fee income from relatedparties increased during 2006, as compared to 2005,  primarily due to (i)  increased construction/renovation activity relating to our Navy Northeast Region and Fort Eustis/FortStory projects, (ii)  commencement of operations relating to our FortBliss/White Sands Missile Range project during the third quarter of 2005, (iii) commencementof operations at our Fort Gordon and Carlisle/Picatinny project during thesecond quarter of 2006 and (iv) the commencement of an expansion at ourFort Carson project during the fourth quarter of 2006. These increases wereoffset by previously expected declines in activities at our Fort Stewart/Hunterproject and our Walter Reed Army Medical Center and Fort Detrick project.

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| **Project**                                               | ** ** | ** **             | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------|------------|----------|------------|
| ** **                                                | ** ** | **(in millions)** | ** ** |
| **Development and Construction  Fees**                    | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                      | 1.6        |       | $          | 3.9      |       |
| Fort Carson  Project                                      |       | 0.8                    |       | 0.3        |       |
| Fort Hamilton  Project                                    |       | 0.6                    |       | 0.9        |       |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | 0.5                    |       | 1.2        |       |
| Fort Eustis/Fort  Story Project                           |       | 1.8                    |       | 1.1        |       |
| Navy Northeast  Region Project                            |       | 6.9                    |       | 4.5        |       |
| Fort Bliss/White  Sands Missile Range Project(1)          |       | 3.6                    |       | 2.1        |       |
| Fort Gordon  Project(2)                                   |       | 1.0                    |       | —     |       |
| Carlisle/Picatinny  Project(2)                            |       | 0.4                    |       | —-    |       |
| Total development  and construction/renovation fees       |       | $                      | 17.2       |       | $          | 14.0     |       |
| **Business  Development Fees**                            |       | $                      | 4.4        |       | $          | 4.0      |       |
| **Total  Other Fee Income—Related Parties**          |       | $                      | 21.6       |       | $          | 18.0     |       |

----

(1)          Commenced operations inthe third quarter of 2005.

(2)          The Fort Gordon projectcommenced operations in the second quarter of 2006, and the Carlisle/Picatinnyproject commencedoperations in the third quarter of 2006.

Equity in earnings of unconsolidated entities, whichincludes preferred returns from military housing project joint ventures,totaled $3.5 million and $3.1 million in 2006 and 2005, respectively. Of the amount for 2006, $0.9 million related to thepreferred returns from our Navy Northeast Region project, and $2.6 millionrelated to our investment in the Fort Carson project. Of the 2005 amount,$1.0 million related to preferred returns from our Navy Northeast Regionproject, and $2.1 million related to our investment in the Fort Carsonproject.

*Expenses.**  *Property operating expenses include costsrelated to operating the military housing segment of our business, such as thecompensation expense related to our military housing personnel located in ourcorporate headquarters. These costs increased to $6.4 million in 2006 from$4.4 million in 2005. The increase was due to (i) increases in ourrenovation company operations, (ii) increases in management andadministrative expenses related to our overall expansion of our business, and(iii) a favorable adjustment of $0.8 million in 2005 relating to expensereimbursements of 2004 costs associated with the exclusive negotiation-relatedcosts we incurred prior to the closing of the Fort Eustis/Fort Story project.

Reimbursed expenses increased to $63.6 million in 2006from $57.4 million in 2005 primarily due to payroll and renovationexpenses related to the nine military housing projects in operation as of December 31,2006 as compared with the seven military housing projects in operation as of December 31,2005, offset by anticipated declines in construction and renovation activity atcertain projects as well as by decreases at our Fort Carson project due tochanges in the terms of the management contract in December 2005.

*Income Taxes.**  *The effective tax rate on income taxes remainedrelatively consistent at 35.5% in 2006 versus 35.1% in 2005.

***Corporate***

Rental revenue and expense reimbursements, which wererecognized with respect to the portion of our corporate headquarters leased toentities affiliated with Gary M. Holloway, Sr., and payroll and relatedexpenses reimbursed by entities affiliated with Mr. Holloway for theprovision of common services, remained relatively consistent during the yearsending December 31, 2006 and 2005.

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Other income, consisting primarily of interest income,remained substantially the same during the years ending December 31, 2006and 2005.

Administrative expenses, primarily relating tomanagement of our corporate office, accounting, legal, human resources,information technology and acquisition department, increased to $17.7 millionin 2006 from $12.3 million in 2005, primarily due to increased staffingresulting from growth in our operating segments, additional costs incurred inconnection with the transition of financial management and an increase inprofessional fees.

Audit Committee and Special Committee expenses consistof legal fees, forensic accounting fees and waiver fees associated with waiversof the covenants under our former credit facility, incurred as a result ofdelays in the filings of reports with the SEC in connection with the specialinvestigation performed by our Audit Committee and its independent counsel thatcommenced in the first quarter of 2006, and legal and financial advisory andSpecial Committee fees associated with the activities of the Special Committeeto explore strategic alternatives for the Company. During the year ended December 31,2006, these fees totaled $7.8 million. The special investigation was completedduring the third quarter of 2006, and the Special Committee was dissolved in December 2006.

Depreciation, relating primarily to our corporateassets, decreased to $0.4 million in 2006 from $0.5 million in 2005, primarily due to the transfer of thecorporate aircraft in February 2005 to Mr. Holloway.

Interest expense increased to $5.1 million in 2006from $1.5 million in 2005, primarily due to a $1.1 million write-offof deferred costs associated with our former line of credit with Bank ofAmerica, which was terminated and replaced with a new line of credit withWachovia Bank in October 2006, amortization of $1.7 million of deferredcosts associated with our new line of credit, as well as increased outstandingborrowings under our lines of credit coupled with an increase in interestrates.

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***Comparison of theyear ended December 31, 2005 to the year ended December 31, 2004***

| ** **                                                                           | ** ** | **Year Ended December 31, 2005** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **Student  Housing-  Owned  Properties**             | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                         | ** ** |                                                 | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Rent and other property income                                                       |       |                                                 | $          | 131,849 | ** ** |   |   | $ | — | ** ** |   | $ | — |   |   | $ | 245 |   |   |   | $ | — |   |   | $ | 132,094 |   |
| Expense  reimbursements:                                                             |       |                                                 |       | ** ** |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                        |       |                                                 | —     | ** ** |   |   | 176 | ** ** |   | 57,436 |   |   | 318 |   |   |   | — |   |   | 57,930 |   |
| Third party                                                                          |       |                                                 | —     | ** ** |   |   | 4,650 | ** ** |   | — |   |   | — |   |   |   | — |   |   | 4,650 |   |
| Management  fees:                                                                    |       |                                                 |       | ** ** |   |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management fees—owned properties                                                |       |                                                 | —     | ** ** |   |   | 5,141 | ** ** |   | — |   |   | — |   |   |   | (5,141 | ) |   | — |   |
| Related party                                                                        |       |                                                 | —     | ** ** |   |   | 197 | ** ** |   | 6,808 |   |   | — |   |   |   | — |   |   | 7,005 |   |
| Third party                                                                          |       |                                                 | —     | ** ** |   |   | 3,774 | ** ** |   | — |   |   | — |   |   |   | — |   |   | 3,774 |   |
| Other fee income-related party                                                       |       |                                                 | —     | ** ** |   |   | 290 | ** ** |   | 18,000 |   |   | 31 |   |   |   | — |   |   | 18,321 |   |
| Other income                                                                         |       |                                                 | 123        | ** ** |   |   | 19 | ** ** |   | 108 |   |   | 128 |   |   |   | — |   |   | 378 |   |
| Total revenue                                                                        |       |                                                 | 131,972    | ** ** |   |   | 14,247 | ** ** |   | 82,352 |   |   | 722 |   |   |   | (5,141 | ) |   | 224,152 |   |
| **Operating  Expenses:**                                                             | ** ** |                                                 | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |   | ** ** | ** ** |   | ** ** | ** ** |
| Property operating expenses                                                          |       |                                                 | 48,992     | ** ** |   |   | 4,196 | ** ** |   | 4,431 |   |   | — |   |   |   | — |   |   | 57,619 |   |
| Intercompany management fees                                                         |       |                                                 | 5,141      | ** ** |   |   | — | ** ** |   | — |   |   | — |   |   |   | (5,141 | ) |   | — |   |
| Reimbursed expenses                                                                  |       |                                                 | —     | ** ** |   |   | 4,826 | ** ** |   | 57,436 |   |   | 318 |   |   |   | — |   |   | 62,580 |   |
| Real estate taxes                                                                    |       |                                                 | 12,191     | ** ** |   |   | — | ** ** |   | — |   |   | — |   |   |   | — |   |   | 12,191 |   |
| Administrative expenses                                                              |       |                                                 | —     | ** ** |   |   | — | ** ** |   | — |   |   | 12,254 |   |   |   | — |   |   | 12,254 |   |
| Profits interest and employee initial public offering  bonus expense                 |       |                                                 | —     | ** ** |   |   | — | ** ** |   | — |   |   | — |   |   |   | — |   |   | — |   |
| Depreciation and amortization                                                        |       |                                                 | 33,369     | ** ** |   |   | — | ** ** |   | 299 |   |   | 520 |   |   |   | — |   |   | 34,188 |   |
| Interest                                                                             |       |                                                 | 29,493     | ** ** |   |   | — | ** ** |   | — |   |   | 1,532 |   |   |   | — |   |   | 31,025 |   |
| Total operating expenses                                                             |       |                                                 | 129,186    | ** ** |   |   | 9,022 | ** ** |   | 62,166 |   |   | 14,624 |   |   |   | (5,141 | ) |   | 209,857 |   |
| Income (loss) before equity in earnings of  unconsolidated entities and income taxes |       |                                                 | 2,786      | ** ** |   |   | 5,225 | ** ** |   | 20,186 |   |   | (13,902 | ) |   |   | — |   |   | 14,295 |   |
| Equity in earnings of unconsolidated entities                                        |       |                                                 | —     | ** ** |   |   | — | ** ** |   | 3,073 |   |   | — |   |   |   | — |   |   | 3,073 |   |
| Income (loss) before income taxes                                                    |       |                                                 | 2,786      | ** ** |   |   | 5,225 | ** ** |   | 23,259 |   |   | (13,902 | ) |   |   | — |   |   | 17,368 |   |
| Income taxes                                                                         |       |                                                 | —     | ** ** |   |   | 66 | ** ** |   | 5,514 |   |   | — |   |   |   | — |   |   | 5,580 |   |
| Income (loss) before minority interest                                               |       |                                                 | 2,786      | ** ** |   |   | 5,159 | ** ** |   | 17,745 |   |   | (13,902 | ) |   |   | — |   |   | 11,788 |   |
| Minority interest                                                                    |       |                                                 | —     | ** ** |   |   | — | ** ** |   | — |   |   | 5,729 |   |   |   | — |   |   | 5,729 |   |
| **Net  income (loss)**                                                               |       |                                                 | $          | 2,786 | ** ** |   |   | $ | 5,159 | ** ** |   | $ | 17,745 |   |   | $ | (19,631 | ) |   |   | $ | — |   |   | $ | 6,059 |   |

 

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| ** **                                                                           | ** ** | **Year Ended December 31, 2004** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **Student  Housing-  Owned  properties**             | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                         |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent and other property income                                                       |       |                                                 | $          | 25,251 |   |   |   | $ | — |   |   | $ | — |   |   | $ | 399 |   |   |   | $ | — |   |   | $ | 25,650 |   |
| Expense  reimbursements:                                                             |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                        |       |                                                 | —     |   |   |   | 1,140 |   |   | 31,822 |   |   | 347 |   |   |   | — |   |   | 33,309 |   |
| Third party                                                                          |       |                                                 | —     |   |   |   | 7,203 |   |   | — |   |   | — |   |   |   | — |   |   | 7,203 |   |
| Management  fees:                                                                    |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management fees—owned properties                                                |       |                                                 | —     |   |   |   | 1,028 |   |   | — |   |   | — |   |   |   | (1,028 | ) |   | — |   |
| Related party                                                                        |       |                                                 | —     |   |   |   | 1,458 |   |   | 2,897 |   |   | — |   |   |   | — |   |   | 4,355 |   |
| Third party                                                                          |       |                                                 | —     |   |   |   | 3,986 |   |   | — |   |   | — |   |   |   | — |   |   | 3,986 |   |
| Other fee income-related party                                                       |       |                                                 | —     |   |   |   | — |   |   | 8,460 |   |   | — |   |   |   | — |   |   | 8,460 |   |
| Other income                                                                         |       |                                                 | 34         |   |   |   | 92 |   |   | 393 |   |   | 396 |   |   |   | — |   |   | 915 |   |
| Total revenue                                                                        |       |                                                 | 25,285     |   |   |   | 14,907 |   |   | 43,572 |   |   | 1,142 |   |   |   | (1,028 | ) |   | 83,878 |   |
| **Operating  Expenses:**                                                             |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property operating expenses                                                          |       |                                                 | 9,420      |   |   |   | 5,271 |   |   | 6,497 |   |   | — |   |   |   | — |   |   | 21,188 |   |
| Intercompany management fees                                                         |       |                                                 | 1,028      |   |   |   | — |   |   | — |   |   | — |   |   |   | (1,028 | ) |   | — |   |
| Reimbursed expenses                                                                  |       |                                                 | —     |   |   |   | 8,343 |   |   | 31,822 |   |   | 347 |   |   |   | — |   |   | 40,512 |   |
| Real estate taxes                                                                    |       |                                                 | 1,887      |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   | 1,887 |   |
| Administrative expenses                                                              |       |                                                 | —     |   |   |   | — |   |   | — |   |   | 6,006 |   |   |   | — |   |   | 6,006 |   |
| Profits interest and employee initial public offering  bonus expense                 |       |                                                 | —     |   |   |   | — |   |   | — |   |   | 37,502 |   |   |   | — |   |   | 37,502 |   |
| Depreciation and amortization                                                        |       |                                                 | 6,214      |   |   |   | — |   |   | 25 |   |   | 915 |   |   |   | — |   |   | 7,154 |   |
| Interest                                                                             |       |                                                 | 5,579      |   |   |   | — |   |   | — |   |   | 493 |   |   |   | — |   |   | 6,072 |   |
| Total operating expenses                                                             |       |                                                 | 24,128     |   |   |   | 13,614 |   |   | 38,344 |   |   | 45,263 |   |   |   | (1,028 | ) |   | 120,321 |   |
| Income (loss) before equity in earnings of  unconsolidated entities and income taxes |       |                                                 | 1,157      |   |   |   | 1,293 |   |   | 5,228 |   |   | (44,121 | ) |   |   | — |   |   | (36,443 | ) |
| Equity in earnings of unconsolidated entities                                        |       |                                                 | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   | — |   |
| Income (loss) before income taxes                                                    |       |                                                 | 1,157      |   |   |   | 1,293 |   |   | 5,228 |   |   | (44,121 | ) |   |   |   |   |   | (36,443 | ) |
| Income taxes                                                                         |       |                                                 | —     |   |   |   | 33 |   |   | 279 |   |   | — |   |   |   | — |   |   | 312 |   |
| Income (loss) before minority interest                                               |       |                                                 | 1,157      |   |   |   | 1,260 |   |   | 4,949 |   |   | (44,121 | ) |   |   | — |   |   | (36,755 | ) |
| Minority interest                                                                    |       |                                                 | —     |   |   |   | — |   |   | — |   |   | 247 |   |   |   | — |   |   | 247 |   |
| **Net  income (loss)**                                                               |       |                                                 | $          | 1,157 |   |   |   | $ | 1,260 |   |   | $ | 4,949 |   |   | $ | (44,368 | ) |   |   | $ | — |   |   | $ | (37,002 | ) |

 

***Student Housing—Owned Properties***

*Revenue.**  *Of the 54 properties owned as of December 31,2005, we acquired 30 of the student housing properties during 2004 and theremaining 24 properties during 2005. Rent and other property income from these54 properties totaled $131.8 million in 2005. Rent and other propertyincome from the 30 properties we owned as of December 31, 2004 was$25.3 million in 2004. The increase in rent and other property incomeexperienced during 2005 relates primarily to (i) the presentation of afull year of operations during 2005 with respect to the 30 properties acquiredin 2004, and (ii) the acquisition of an additional 24 properties during2005. Although we generally seek rent increases that will exceed projectedincreases in property operating expenses, increases in our property operatingexpenses exceeded our rent increases from 2004 to 2005, primarily as a resultof increases in utility expenses and real estate taxes experienced during 2005that were greater than what we had anticipated when establishing rental rates.

Other income increased to $123,000 in 2005 from$34,000 in 2004. This other income consisted primarily of interest income oninvested cash.

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*Expenses.**  *Property operating expensesincreased to $49.0 million in 2005 from $9.4 million in 2004,primarily due to expenses attributable to the 24 properties acquired in 2005and our ownership and operation throughout 2005 of the 30 properties acquiredin 2004.

Real estate taxes increased to $12.2 million in2005 from $1.9 million in 2004 primarily due to the acquisition of 24properties in 2005 and the full year of real estate taxes with respect to the30 properties we owned as of December 31, 2004.

Depreciation and amortization increased to$33.4 million in 2005 from $6.2 million in 2004 primarily as a resultof acquiring 24 properties in 2005 for an aggregate purchase price of$545.7 million. The $33.4 million in 2005 is comprised of $25.2 millionof depreciation and $8.2 million of lease intangible amortization.

Interest expense increasedto $29.5 million in 2005 from $5.6 million in 2004 as a result ofincurring additional debt, including placement of new mortgage debt and theassumption of existing mortgage debt, as well as borrowings under our line ofcredit, in connection with the acquisition of 24 properties in 2005. During2005, we placed $274.3 million of new mortgage debt, assumed$118.9 million of existing mortgage debt, and increased borrowings underour line of credit by a net of $36.0 million.

***Student Housing Management***

*Revenue.**  *Expense reimbursements from related parties decreasedto $0.2 million in 2005 from $1.1 million in 2004, primarily due toour acquisition in March 2005 from related parties of two student housingproperties that we managed prior to purchase. In addition, in March 2005,we ceased managing an additional student housing property owned by a relatedparty upon the sale of the property.

Expense reimbursements from third parties decreased to$4.7 million in 2005 from $7.2 million in 2004, primarily due to ourceasing in 2005 to provide services to five student housing properties owned bythird parties upon the sale of the properties.

Management fee income from related parties decreasedto $0.2 million in 2005 from $1.5 million in 2004. The decrease inmanagement fee income was primarily due to our acquisition in March 2005from related parties of two student housing properties that we managed prior topurchase. In addition, in March 2005 we ceased managing an additionalstudent housing property owned by a related party upon the sale of theproperty.

Management fee income from third parties decreasedfrom $4.0 million in 2004 to $3.8 million in 2005, which incomeincluded an increase of $0.8 million related to our recognition of aone-time management fee in 2005 that had not been previously recognized becauseit was deemed to be uncollectible and was paid to us upon the sale of theproperty by the third party owner, and which was partially offset by ourceasing to manage five student housing properties owned by third parties uponthe sale of the properties.

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Other fee income from related parties in 2005 was$290,000 compared to no other fee income in 2004.

*Expenses.**  *Property operating expenses decreased from $5.3million in 2004 to $4.2 million in 2005. These expenses are comprised ofpayroll and general and administrative expenses directly associated with theoperations of our owned and managed portfolios. The amounts for 2004 includethose costs incurred for the predecessor entities from January 2004through November 1, 2004 and the various management businesses we operatedat that time.

Reimbursed expenses decreased to $4.8 million in2005 from $8.3 million in 2004, primarily due to our acquisition fromrelated parties in March 2005 of two student housing properties that wemanaged prior to our purchase. In addition, during 2005, we ceased providingmanagement services relating to five student housing properties owned by thirdparties and a student housing property owned by a related party upon the saleof the properties.

Income taxes amounted to$66,000 in 2005 compared to $33,000 in 2004. Income taxes consist primarily oftaxes associated with the operations of our student housing taxable REITsubsidiary.

***Military Housing***

*Revenue.**  *Expense reimbursements totaled$57.4 million in 2005, as compared to $31.8 million in 2004,primarily due to payroll and renovation expenses related to the seven militaryhousing projects in operation as of December 31, 2005 as compared with thefive military housing projects in operation as of December 31, 2004; closingcosts and transition expenses for the Fort Bliss/White Sands Missile Rangeproject, which commenced operations in the third quarter of 2005; andreimbursed expenses for the Fort Hamilton project, the Walter Reed Army MedicalCenter and Fort Detrick project, the Fort Eustis/Fort Story project and theNavy Northeast Region project, which were in operation for all of 2005 but onlya portion of 2004.

Inaddition, reimbursements of costs incurred in the development of CDMPs totaled$0.4 million in 2005 relating to the Fort Bliss/White Sands Missile Rangeproject, and $1.0 million in 2004 relating to the Fort Hamilton project,Walter Reed Army Medical Center/Fort Detrick project and the Fort Eustis/FortStory project. The table below sets forth certain information regarding therevenue from expense reimbursements and reimbursed costs for CDMP developmentfor each of our military housing projects for 2005 and 2004. Only the FortStewart and Hunter Army Airfield project and the Fort Carson project were in operationthroughout all of 2004 and 2005.

| **Project**                                                  | ** ** | ** **             | ** ** | **2005**   | ** ** | **2004** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|------------|------------|----------|------------|
| ** **                                                   | ** ** | **(in millions)** | ** ** |
| **Expense Reimbursements**                                   | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fort Stewart and  Hunter Army Airfield Project               |       | $                      | 9.4        |       | $          | 7.0      |       |
| Fort Carson  Project                                         |       | 6.9                    |       | 11.8       |       |
| Fort Hamilton  Project(1)                                    |       | 0.5                    |       | 1.1        |       |
| Walter Reed Army  Medical Center and Fort Detrick Project(2) |       | 1.4                    |       | 0.9        |       |
| Fort Eustis/Fort  Story Project(3)                           |       | 4.7                    |       | 4.3        |       |
| Navy Northeast  Region Project(3)                            |       | 29.0                   |       | 6.7        |       |
| Fort Bliss/White  Sands Missile Range Project(4)             |       | 5.5                    |       | —     |       |
| Total expense  reimbursements                                |       | $                      | 57.4       |       | $          | 31.8     |       |
| **Reimbursed costs**                                         |       | $                      | 0.4        |       | $          | 1.0      |       |

----

(1)          Commenced operations inthe second quarter of 2004.

(2)          Commenced operations inthe third quarter of 2004.

(3)          Commenced operations inthe fourth quarter of 2004.

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(4)          Commenced operations inthe third quarter of 2005.

Managementfees from related parties totaled $6.8 million in 2005 compared to$2.9 million in 2004. The table below sets forth certain informationregarding the revenue from management fees from related parties for each of ourmilitary housing projects for 2005 and 2004. The amount of management fees fromrelated parties that we receive during a fiscal period is affected by thenumber of housing units that we manage under our military housing projectsduring that period, which number will fluctuate based on the number of housingunits that we construct/renovate or demolish during that period. Managementfees from related parties increased significantly during 2005 primarily due tocommencement of operations relating to our Navy Northeast Region project in thefourth quarter of 2004 and a full year of operations for our other projects.

| **Project**                                                  | ** ** | ** **             | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|----------|------------|----------|------------|
| ** **                                                   | ** ** | **(in millions)** | ** ** |
| Fort Stewart and  Hunter Army Airfield Project               |       | $                      | 1.0        |     | $          | 1.0      |       |
| Fort Carson  Project                                         |       | 1.2                    |       | 1.1      |       |
| Fort Hamilton  Project(1)                                    |       | 0.2                    |       | 0.1      |       |
| Walter Reed Army  Medical Center and Fort Detrick Project(2) |       | 0.2                    |       | 0.1      |       |
| Fort Eustis/Fort Story Project(3)                            |       | 0.5                    |       | —   | (4)        |
| Navy Northeast  Region Project(3)                            |       | 3.2                    |       | 0.5      |       |
| Fort Bliss/White  Sands Missile Range Project(5)             |       | 0.5                    |       | —   |       |
| Total                                                        |       | $                      | 6.8        |     | $          | 2.9      |       |

----

(1)          Commenced operations inthe second quarter of 2004.

(2)          Commenced operations inthe third quarter of 2004.

(3)          Commenced operations inthe fourth quarter of 2004.

(4)          Amount constituted lessthan $0.1 million.

(5)          Commenced operations inthe third quarter of 2005.

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Otherfee income from related parties, which includes development and constructionfees and business development fees, totaled $18.0 million in 2005 comparedto $8.5 million in 2004. The table below sets forth certain informationregarding the revenue from other fee income from related parties for each ofour military housing projects for 2005 and 2004. The amount of other fee incomefrom related parties that we receive during a fiscal period is affected by thelevel of housing unit development and construction that we perform under ourmilitary housing projects during that period. Other fee income from relatedparties increased significantly during 2005 primarily due to commencement ofoperations relating to our Navy Northeast Region project in the fourth quarterof 2004 and a full year of operations for our other projects.

| **Project**                                                  | ** ** | ** **             | ** ** | **2005**   | ** ** | **2004** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|------------|------------|----------|------------|
| ** **                                                   | ** ** | **(in millions)** | ** ** |
| **Development  and Construction Fees**                       | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fort Stewart and  Hunter Army Airfield Project               |       | $                      | 3.9        |       | $          | 2.3      |       |
| Fort Carson  Project                                         |       | 0.3                    |       | 0.8        |       |
| Fort Hamilton  Project(1)                                    |       | 0.9                    |       | 0.5        |       |
| Walter Reed Army  Medical Center and Fort Detrick Project(2) |       | 1.2                    |       | 1.0        |       |
| Fort Eustis/Fort  Story Project(3)                           |       | 1.1                    |       | —     | (4)        |
| Navy Northeast  Region Project(3)                            |       | 4.5                    |       | 1.7        |       |
| Fort Bliss/White  Sands Missile Range Project(5)             |       | 2.1                    |       | —     |       |
| Total development and construction/renovation fees           |       | $                      | 14.0       |       | $          | 6.3      |       |
| **Business  development fees**                               |       | $                      | 4.0        |       | $          | 2.2      |       |
| **Total Other Fee Income—Related  Parties**             |       | $                      | 18.0       |       | $          | 8.5      |       |

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(1)          Commenced operations inthe second quarter of 2004.

(2)          Commenced operations inthe third quarter of 2004.

(3)          Commenced operations inthe fourth quarter of 2004.

(4)          Amount constituted lessthan $0.1 million.

(5)          Commenced operations inthe third quarter of 2005.

Equity in earnings of unconsolidated entities, which includespreferred returns from military housing project joint ventures, totaled$3.1 million for 2005. Of the 2005 amount, $1.0 million related topreferred returns from our Navy Northeast project, and $2.1 millionrelated to our investment in Fort Carson Family Housing LLC.

*Expenses.**  *Property operating expenses includecosts related to operating the military housing segment of our business. Thesecosts decreased to $4.4 million in 2005 from $6.5 million in 2004primarily due to the presence in 2004 of costs associated with integrating theFort Eustis/Fort Story project and the Navy Northeast Region project, both ofwhich commenced operations in the fourth quarter of 2004; partially offset bycosts in 2005 associated with integrating the Fort Bliss/White Sands MissileRange project, which commenced operations in the third quarter of 2005.

Reimbursed expensesincreased to $57.4 million in 2005 from $31.8 million in 2004primarily due to payroll and renovation expenses related to the seven militaryhousing projects in operation as of December 31, 2005 as compared with thefive military housing projects in operation as of December 31, 2004;closing costs and transition expenses for the Fort Bliss/White Sands MissileRange project, which commenced operations in the third quarter of 2005; andreimbursed expenses for the Fort Hamilton project, the Walter Reed Army MedicalCenter and Fort Detrick project, the Fort Eustis/Fort Story project and theNavy Northeast Region project, which were in operation for all of 2005 but onlya portion of 2004.

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***Corporate***

Rental revenue, other fee income—related party, otherincome, and expense reimbursements, which were recognized with respect to theportions of our corporate headquarters leased to entities affiliated with GaryM. Holloway, Sr., and payroll and related expenses reimbursed by entitiesaffiliated with Mr. Holloway for the provision of common services,decreased to $0.7 million in 2005 from $1.1 million in 2004,primarily as a result of a reduced level of services provided to these entitiesas compared to 2004.

Reimbursed expenses remained unchanged at$0.3 million for the year ended December 31, 2005 from$0.3 million for the year ended December 31, 2004.

Administrative expenses, primarily relating tomanagement of our corporate office, accounting, legal, human resources,  information technology, corporate aircraft,and acquisitions department increased to $12.3 million in 2005 from $6.0 millionin 2004, primarily due to increased staffing and additional costs incurred in connectionwith becoming a public company and growth in our operating segments.

Depreciation, relating primarily to our corporateassets, decreased to $0.5 million in 2005 from $0.9 million in 2004,primarily due to the transfer of the corporate aircraft in February 2005back to Mr. Holloway.

Interest expense increased to $1.5 million in2005 from $0.5 million in 2004, primarily due to increased outstandingborrowings on our line of credit.

Compensation expense wasrecorded in 2004 relating to profits interests awarded by Gary M. Holloway tocertain employees of the GMH Predecessor Entities and other entities affiliatedwith Mr. Holloway in recognition of past services. These employees wereeligible to participate in the net proceeds or value received by Mr. Hollowayupon the sale or disposition of certain student housing properties and themilitary housing business in excess of Mr. Holloway’s equity investmentsin such assets. These employees rendered all services and satisfied allconditions necessary to earn the right to benefit from these profits interestsas of the date that such profits interests were awarded. In accordance withFinancial Accounting Standards Statement No.5, *Accountingfor Contingencies*, compensation expense relating to the award ofthese profits interests was required to be recognized by the GMH PredecessorEntities when the sale or disposition of the assets resulting in proceedsreceived by Mr. Holloway in an amount in excess of his equity investmentin such assets became probable. This amount became probable during the thirdquarter of 2004 when, in connection with the contribution of the ownershipinterests in GMH Military Housing LLC, College Park Management Inc. andother assets by Mr. Holloway to our operating partnership in anticipationof the initial public offering of the Company, the remaining profits interestsawards were amended to fix the value of such awards at $33.2 million to bepaid to these employees unconditionally. Accordingly, this amount wasrecognized in the third quarter of 2004 and Mr. Holloway’s obligationsregarding the profits interests were satisfied upon the transfer of$33.2 million of units of limited partnership in our operating partnershipto these employees on November 2, 2004, the closing date of our initialpublic offering.

**Liquidity andCapital Resources**

Short-term liquidity requirements consist primarily offunds necessary to pay operating expenses and other costs. These expenses andcosts include (i) recurring maintenance and capital expenditures to maintainand lease our properties, (ii) interest expense and scheduled principalpayments on outstanding indebtedness, (iii) real estate taxes andinsurance, (iv) corporate salaries, employee benefits and other corporateoverhead and administrative expenses, (v) equity contributions to ourinvestments in military housing projects, and (vi) distributions toshareholders and unitholders of our operating partnership. We currently areusing existing working capital and cash provided by operations, together with amountsavailable to us under our $250 million revolving line of credit with WachoviaBank, to meet our short-term 

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liquidity requirements. Asof March 15, 2007, we had approximately $138 million of indebtednessoutstanding under the line. Going forward, however, our additional borrowingsfrom the line of credit generally must be approved by Wachovia in its sole andabsolute discretion. The line of credit has an initial maturity date of June 1,2007, but may be extended for up to an additional four months, subject topayment of a fee in an amount equal to 2% of the outstanding principal balanceof the loan as of the initial maturity date and an increase in the interestrate under the line from a Eurodollar rate based on LIBOR plus 2% to LIBOR plus4.5%. In no event may the maturity date of the line of credit extend beyond October 2,2007.

In December 2006, our management announced astrategic plan, to begin in early 2007, that involves the identification ofvarious currently-owned student housing properties that would be placed forsale, refinanced and/or contributed into a joint venture in an effort togenerate cash proceeds to be used to pay down our line of credit prior to itsinitial maturity date. In February 2007, we completed the refinancing offour student housing properties, resulting in net proceeds of approximately$73.6 million that were used to repay an equal amount of indebtedness under theline of credit and reducing our outstanding loan balance under the line fromapproximately $211 million to $138 million. In addition, we have entered intoletters of intent regarding the sale of seven student housing properties and toform a joint  venture with a third partyinstitutional investor covering another six properties. Currently, we expectthese sales and joint venture to be completed in the second quarter of 2007. TheCompany also is in discussions with several financial institutions with respectto a new line of credit, targeted to have a three-year term and be in the rangeof $50 to $100 million.

Our current line of credit contains affirmative andnegative covenants and also contains financial covenants which, among otherthings, require that we maintain (i) a fixed charge coverage ratio withrespect to the student housing properties, as defined in the line of credit, ofat least 1.25 to 1.00, (ii) a consolidated tangible net worth, as definedby the line of credit agreement, of at least $455 million, (iii) maintainquarterly minimum aggregate Adjusted Management EBITDA relating to the militaryhousing segment and student housing managed properties, as defined in the lineof credit agreement, of $5 million, and (iv) our federal tax status as aREIT. As of December 31, 2006, we were in compliance these financialcovenants.

We elected to be treated as a REIT for federal incometax purposes commencing with our taxable year ended December 31, 2004. Asa REIT, we are required to distribute at least 90% of our REIT taxable incometo our shareholders on an annual basis. Therefore, except as discussed below,as a general matter, a substantial portion of cash generated by our operationswill be used to fund distributions to shareholders and holders of limitedpartnership interests in our operating partnership, and will not be availableto satisfy our liquidity needs. Future dividends will be declared at thediscretion of our Board of Trustees and will depend on our actual cash flow,our financial condition, capital requirements, the annual distributionrequirements under the REIT provisions of the Code and other such factors asour Board of Trustees deems relevant. Forthe fourth quarter of 2006, we declared a quarterly dividend distribution of$0.165 per common share, payable to shareholders of record on December 29,2006. We distributed this dividend on February 1, 2007, and at the sametime, our operating partnership paid a distribution of $0.165 per unit toholders of limited partnership interest in our operating partnership.Historically, since our initial public offering in 2004, our full quarterlydividend distributions were equal to $0.2275 per common share. Our Board ofTrustees lowered our quarterly dividend distribution for the fourth quarter of2006 after an evaluation of the Company’s liquidity, and we cannot assure youthat we will continue to have cash available for distributions at historicallevels or at all. Any distributions we pay in the future will depend upon ouractual results of operations, economic conditions and other factors that coulddiffer materially from our current expectations. To the extent that ourcash flow from operations is insufficient to fund our anticipated dividenddistributions, we may seek to borrow funds under our credit facility or throughother third party debt financing or we may lower our dividend distribution. Our available cash for distributions will beaffected by a number of factors, including: our ability to complete ourstrategic plans for the sale, 

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refinancingand joint venture of multiple student housing properties as outlined above; therevenue we receive from our student housing properties; revenues frommanagement fees in connection with management services that we will provide forstudent housing properties owned by others; revenues from our military housingprojects; our operating expenses; interest expense; costs related to ourpending class action lawsuits; and any unanticipated expenditures. For moreinformation regarding risk factors that could materially adversely affect ouractual results of operations, please see the section entitled “Risk Factors” inPart I, Item 1A of this report.

As of December 31,2006, 68 of our owned student housing properties, two student housingproperties in which we have an ownership interest, as well as our corporateoffice building, were encumbered by security interests relating to notespayable aggregating $1.018 billion, exclusive of net debt premium amounts,and secured by first liens on the individual assets with a net book value ofapproximately $1.023 billion. These notes payable had a weighted-averageinterest rate of 5.18%, mature at various dates between March 2007 and June 2024and require monthly payments of principal and interest or monthly payments ofinterest only. The table below sets forth for 2007, the five succeeding yearsand thereafter the aggregate annual principal payments of the above-referencedindebtedness (dollars in thousands):

| 2007                 |   | $       | 46,369    |   |
|----------------------|--------|---------|-----------|--------|
| 2008                 |   | 32,684  |      |
| 2009                 |   | 45,042  |      |
| 2010                 |   | 100,008 |      |
| 2011                 |   | 95,565  |      |
| 2012 and  thereafter |   | 698,374 |      |
|                 |   | $       | 1,018,042 |   |

 

With regard to our military housing privatizationprojects, we are typically required to fund our portion of the equitycommitment to the project’s joint venture after all other sources of fundingfor the project have been expended. With respect to our Navy Northeast Regionproject and our AETC Group I project, however, we were required to fund theequity commitment at commencement of the project. We made a $9.5 millionequity contribution in November 2004 relating to our Navy Northeast Regionproject, an $8.0 million equity contribution in February 2007 relating toour AETC Group I project, and, as of December 31, 2006, had contractuallycommitted to contribute an aggregate of $2.0 million in 2007 to our FortHamilton project; $5.9 million in 2007 to our Walter Reed Army MedicalCenter/Fort Detrick project of which $4.0 million has been funded through February 2007;$3.6 million in 2010 for our Fort Eustis/Fort Story project;  $3.0 million in 2010 or 2011 for ourCarlisle/Picatinny project; $8.0 million in 2011 for our Fort Stewart and Hunter Army Airfieldproject;  an aggregate of $4.5 million toour Fort Gordon project in several phases that commence in 2011 and end in2012, and $6.3 million in 2012 for our Fort Bliss/White Sands project.These equity contributions help to fund the development, construction andrenovation of housing units at these bases during their respective initialdevelopment periods.

Typically, we are reimbursed for certain payrollexpenses relating to the student housing properties we manage for thirdparties, for certain costs we incur after we are awarded the right toexclusively negotiate agreements for a military housing project until we enterinto agreements for the project and for transition costs we incur shortlybefore initiation of our management of a military housing project. However, weare required to fund these costs prior to the time we receive thereimbursements. Typically, our military projects require approximately$1.0 million to $7.0 million in costs associated with transition andexclusive negotiations, depending on the size of the project. The expenditurestypically begin 12 months prior to executing an agreement for the militaryhousing project. Accordingly, the timing between our payments andreimbursements for projects may add to our short-term liquidity needs.

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If cash flows from any of our military housingprivatization projects are insufficient to meet the coverage ratios orbenchmarks entitling us to receive fee payments, any unpaid fees willaccumulate and be subsequently paid from operations or upon dissolution of theprojects to the extent that funds are available and the applicable thresholdsare met. If these thresholds are not met, we will not have access to or receivecertain of the fees we have earned. The unavailability of these funds would materiallyimpact our ability to meet our short-term and long-term liquidity needs. Wewill be required to make equity contributions at the beginning of the initialdevelopment period for typical Navy transactions and at the end of the initialdevelopment period for typical Army transactions. We also were required to makeour equity contribution at the beginning of the initial development period forour AETC Group I project with the Air Force. Based on our current expectationsregarding the terms of the debt funding for our military housing projects, weexpect that the projects will generate sufficient cash flows to fund thereinvestment account and pay anticipated equity returns.

With regard to our currently owned student housingproperties, we do not have any material short-term capital commitments, otherthan with respect to our short-term capital needs relating to the generalexpenses and costs associated with operating and managing these properties. Wewill require, however, funds in connection with our anticipated acquisitions ofstudent housing properties. During at least the first half of 2007, wecurrently expect to place less emphasis on the acquisition of additionalstudent housing properties, and to continue to focus on the operationalperformance of our existing student housing properties and development projects.If we are able to complete our strategic plan as outlined above, pay down ourexisting line of credit and obtain a new long-term line of credit, we maydetermine that it is appropriate to place greater emphasis on the acquisitionof student housing properties that are located in our targeted markets and thatmeet management’s underwriting criteria for creating long-term growthpotential. To the extent that we seek to acquire student housing propertiesduring at least the first half of 2007, we will consider funding theacquisition through joint venture structures similar to the joint venture termsthat we entered into with respect to our Orono, Maine and Bowling Green, Ohiodevelopment properties. The timing of any acquisitions or development projectswill be dependent upon various factors, including the ability to completesatisfactory due diligence, to find suitable joint venture partners and agreeupon mutually acceptable joint venture terms, to obtain appropriate debtfinancing on the properties, and the availability of capital. We would alsoconsider funding our equity portion of any joint ventures by using funds fromavailable cash from operations or borrowings. We may also determine that it isappropriate to purchase student housing properties outright, as opposed to witha joint venture partner, depending upon factors which may include, but are notlimited to, the applicable purchase price, available capital, and projectedreturns with respect to the property.

For the remainder of 2007, we also expect to incursignificant legal fees in connection with our pending class action litigation.These fees could impact the level of cash from operations that we wouldotherwise expect to be available for the acquisition of student housingproperties, and therefore could affect the number of acquisitions that we seekto complete during the next six to 12 months.

Long-term liquidity requirements with respect to ourstudent housing and military housing segments consist primarily of amountsnecessary to fund scheduled debt maturities, renovations and othernon-recurring capital expenditures that need to be made periodically at ourproperties, and the costs associated with acquisitions of student housing propertiesand awards or acquisitions of military housing privatization projects that wepursue. Historically, we have satisfied our long-term liquidity requirements throughvarious sources of capital, including existing working capital, cash providedby operations, and long-term mortgage indebtedness. We now expect our long-termliquidity requirements to be satisfied primarily through cash generated byoperations that is not used to fund distributions and the additional externalfinancing sources discussed above.

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*ContractualObligations*

Thefollowing table summarizes our contractual obligations, as well as obligationsunder certain acquisition contracts we consider probable of completion as of December 31,2006 for this year, the four succeeding years and thereafter, in the aggregate.

| **Contractual Obligations**(1)  | ** ** | ** **              | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| ** **                           | ** ** | **(in thousands)** | ** ** |
| Notes payable(2)                     |       | $                       | 46,369     |     | $          | 32,684   |       | $        | 45,042     |     | $          | 100,008  |       | $              | 95,565     |      | $          | 698,374 |   | $ | 1,018,042 |   |
| Line of credit                       |       | 199,435                 |       | —   |       | —   |       | —   |       | —   |       | —   |       | 199,435        |       |
| Interest(3)                          |       | 65,902                  |       | 53,912   |       | 50,477   |       | 46,580   |       | 42,181   |       | 133,787  |       | 392,839        |       |
| Operating leases(4)                  |       | 393                     |       | 393      |       | 395      |       | 405      |       | 405      |       | 18,692   |       | 20,683         |       |
| Acquisitions of  properties(5)       |       | 19,009                  |       | —   |       | —   |       |     |       | —   |       | —   |       | 19,009         |       |
| Equity  contribution(6)              |       | 7,830                   |       | —   |       | —   |       | 6,600    |       | 12,510   |       | 6,300    |       | 33,240         |       |
| Employment/consulting  agreements(7) |       | 1,464                   |       | 876      |       | 438      |       | —   |       | —   |       | —   |       | 2,778          |       |
|                                 |       | $                       | 340,402    |     | $          | 87,865   |       | $        | 96,352     |     | $          | 153,593  |       | $              | 150,661    |      | $          | 857,153 |   | $ | 1,686,026 |   |

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(1)          Excludes individualcontractual obligations with a value of less than $25,000, contractualobligations relating to our operations that may be terminated with notice ofone month or less and contractual obligations for which we expect to bereimbursed.

(2)          Represents scheduledpayments of principal.

(3)          Represents estimatedfuture interest payments on debt outstanding at December 31, 2006,including borrowings under our line of credit. These estimated amounts assumethat all debt remains outstanding until the debt maturity date as provided inthe applicable loan agreement, and also assumes the same interest rates thatwere in effect as of December 31, 2006. We also have assumed for purposesof this table, that we repay our line of credit on its initial maturity date ofJune 1, 2007.

(4)          Represents ground leaseswith respect to two of our student housing properties. One ground lease ends onSeptember 1, 2051 with the ability to renew for two additional five-yearterms. The other ground lease ends on October 31, 2054 with the ability torenew for one additional 49-year term. The rental payment is subject toincreases every five years, based on increases in the consumer price index(CPI) of at least 3%. The rental increases are based on an assumed CPI increaseof 3% every five years. Actual rental payments may vary from the amountspresented based on the actual CPI increases that are used to calculate the rentincreases.

(5)          Represents thecontractual obligations to purchase one student housing property and fourteenundeveloped parcels of land that we had under agreement of sale as of December 31,2006.

(6)          Represents contractualcommitments to fund equity contributions to military housing privatizationprojects. Excludes $8.0 million in equity funded in connection with our AETCGroup I project, which was paid upon closing of the project award on February 6,2007.

(7)          Weare subject to employment agreements with each our executive officers,including Gary M. Holloway, Sr., Bruce F. Robinson, John DeRiggi, J. Patrick O’Grady and Joseph M.Macchione. Each of these agreement has an initial term of three years. Theinitial term of the agreements for Messrs. Holloway and Robinson ends on November 2,2007. In addition, we are subject to a consulting agreement with Joseph M.Coyle, the former president of our student housing business, who resigned fromthe Company. The consulting agreement, which became effective on January 1,2006, had an initial term of 17 months.

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**Cash DistributionPolicy**

Commencing with ourtaxable year ended December 31, 2004, we filed a tax return electing to betreated as a REIT under the Code, and we expect to continue to qualify as aREIT. As a REIT, we generally will not be subject to federal income tax to theextent that we distribute our REIT taxable income to our shareholders, but thetaxable income generated by our taxable REIT subsidiaries will be subject toregular corporate income tax. We intend to make at least the minimumdistributions required to maintain our REIT qualifications under the Code.Holders of units of our limited partnership will also be entitled todistributions of cash equivalent to dividends per share paid to our commonshareholders.

**Inflation**

As a majority of ourstudent housing leases are 12 months or less, rates on in-place leasesgenerally approximate market rental rates. We believe that inflationaryincreases in expenses may be offset to a certain extent by rent increases uponrenewal. A majority of our military housing management fees,construction/renovation fees and business development fees are based on a percentageof revenue or expenses generated by us or the military housing privatizationprojects. Inflationary increases in expenses may not be offset by increases inrevenue.

**Item 7A.**                Quantitativeand Qualitative Disclosures About Market Risk.

Given current market conditions, our strategy favorsfixed-rate, secured debt over variable-rate debt to minimize our exposure toincreases in interest rates. As of December 31, 2006, 79% of theoutstanding principal amount of our notes payable secured by properties we ownedhad fixed interest rates with a weighted-average rate of 5.18%. Theremaining 21% of outstanding principal amount of our notes payable and our lineof credit, at December 31, 2006, had variable interest rates primarilyequal to LIBOR plus 2.0%.

As of December 31, 2006, we had $199.4 million infunds drawn from our credit facility, bearing a variable weighted averageinterest rate of 7.35%.

As of December 31,2006, based on our variable rate debt balances described above, if interestrates were to increase by 1.0%, our interest expense would increase byapproximately $2.6 million on an annual basis.

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**Item 8.**                        FinancialStatements and Supplementary Data

**INDEX TO FINANCIALSTATEMENTS**

|                                                                                                                                                                                                                                                                                                                                                  | ** ** | **PAGE** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Reports of Independent Registered Public Accounting  Firms                                                                                                                                                                                                                                                                                       |       |     | 94         |   |   |
| GMH  Communities Trust Consolidated Balance Sheets as of December 31, 2006  and 2005                                                                                                                                                                                                                                                        |       |     | 96         |   |   |
| GMH Communities Trust and The GMH Predecessor Entities  Consolidated and Combined Statements of Operations for the years ended  December 31, 2006 and 2005, the period from November 2, 2004  through December 31, 2004, and the period from January 1, 2004  through November 1, 2004                                  |       |     | 97         |   |   |
| GMH Communities Trust and The GMH Predecessor Entities  Consolidated and Combined Statements of Beneficiaries’ and Owners’ Equity for  the years ended December 31, 2006 and 2005, the period from  November 2, 2004 through December 31, 2004, and the period from  January 1, 2004 through November 1, 2004 |       |     | 98         |   |   |
| GMH Communities Trust and The GMH Predecessor Entities  Consolidated and Combined Statements of Cash Flows for the years ended  December 31, 2006 and 2005, the period from November 2, 2004  through December 31, 2004, and the period from January 1, 2004  through November 2, 2004                                  |       |     | 99         |   |   |
| Notes to Consolidated and Combined Financial  Statements                                                                                                                                                                                                                                                                                         |       |     | 100        |   |   |

 

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Trustees and ShareholdersGMH Communities Trust

We have audited the accompanying consolidated balancesheet of GMH Communities Trust as of December 31, 2006, and the relatedconsolidated statements of operations, beneficiaries’ equity and cash flows forthe year ended December 31, 2006. In connection with our audits of theconsolidated financial statements, we also have audited the financial statementschedules as listed in Item 15(c). These consolidated financial statementsand financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements and financial statement schedules based on our audits.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the financialposition of GMH Communities Trust as of December 31, 2006, and the resultsof their operations and their cash flows for the year ended December 31,2006, in conformity with accounting principles generally accepted in the UnitedStates of America.  Also in our opinion,the related financial statement schedules, when considered in relation to thebasic consolidated financial statements taken as a whole, present fairly, inall material respects, the information set forth therein.

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of GMH Communities Trust’ s internal controlover financial reporting as of December 31, 2006, based on criteriaestablished in*Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO), and our report dated March 14, 2007 expressedan unqualified opinion on management’s assessment of internal control overfinancial reporting and an unqualified opinion on the effectiveness of internalcontrol over financial reporting.

/s/  REZNICK GROUP,  P.C.Baltimore, MarylandMarch 14, 2007

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**Report ofIndependent Registered Public Accounting Firm**

The Board of Trustees and Shareholders of GMHCommunities Trust

We have audited the accompanying consolidated balancesheet of GMH Communities Trust as of December 31, 2005, and the relatedconsolidated statements of operations, beneficiaries’ equity, and cash flowsfor the year ended December 31, 2005 and for the period from November 2,2004 to December 31, 2004 and the combined statements of operations, owner’sequity, and cash flows of The GMH Predecessor Entities for the period from January 1,2004 to November 1, 2004. Our audits also included the financial statementschedules as of December 31, 2005 and 2004 and for each of the years thenended, listed in the Index at Item 15(c). These financial statements andschedules are the responsibility of the Companies’ management. Ourresponsibility is to express an opinion on these financial statements andschedules based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of GMH Communities Trust at December 31,2005, and the related consolidated results of its operations and its cash flowsfor the year ended December 31, 2005 and for the period from November 2,2004 to December 31, 2004 and the combined results of operations and cashflows of The GMH Predecessor Entities for the period from January 1, 2004to November 1, 2004, in conformity with U.S. generally accepted accountingprinciples. Also, in our opinion, the related financial statement schedules,when considered in relation to the basic financial statements taken as a whole,present fairly in all material respects the information set forth therein asof  December 31, 2005 and 2004 andfor each of the years then ended.

/s/ ERNST &YOUNG LLPPhiladelphia, PennsylvaniaJuly 27, 2006, except Note 13 (for 2005 and 2004)as to which the date is March 15, 2007

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**GMH COMMUNITIES TRUSTCONSOLIDATED BALANCE SHEETS(in thousands, except par valueand number of shares)**

| ** **                                                                                                                                                                                  | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                  |       |                        |       |                        |       |   |   |   |   |
| Real estate investments:                                                                                                                                                                    |       |                        |       |                        |       |   |   |   |   |
| Student housing  properties                                                                                                                                                                 |       |                        | $          | 1,659,422                   |       |   |   | $ | 1,210,255 |   |   |
| Accumulated depreciation                                                                                                                                                                    |       |                        | 66,855     |                        |       |   | 29,039 |   |   |
|                                                                                                                                                                                        |       |                        | 1,592,567  |                        |       |   | 1,181,216 |   |   |
| Corporate assets:                                                                                                                                                                           |       |                        |       |                        |       |   |   |   |   |
| Corporate assets                                                                                                                                                                            |       |                        | 9,427      |                        |       |   | 8,178 |   |   |
| Accumulated depreciation                                                                                                                                                                    |       |                        | 1,002      |                        |       |   | 565 |   |   |
|                                                                                                                                                                                        |       |                        | 8,425      |                        |       |   | 7,613 |   |   |
| Cash and cash  equivalents                                                                                                                                                                  |       |                        | 22,539     |                        |       |   | 2,240 |   |   |
| Restricted cash                                                                                                                                                                             |       |                        | 16,955     |                        |       |   | 11,625 |   |   |
| Accounts and other receivables, net:                                                                                                                                                        |       |                        |       |                        |       |   |   |   |   |
| Related party                                                                                                                                                                               |       |                        | 17,131     |                        |       |   | 19,191 |   |   |
| Third party                                                                                                                                                                                 |       |                        | 2,762      |                        |       |   | 2,925 |   |   |
| Investments in military  housing projects                                                                                                                                                   |       |                        | 37,987     |                        |       |   | 37,828 |   |   |
| Deferred contract costs                                                                                                                                                                     |       |                        | 2,480      |                        |       |   | 1,063 |   |   |
| Deferred financing  costs, net                                                                                                                                                              |       |                        | 5,103      |                        |       |   | 4,088 |   |   |
| Lease intangibles, net                                                                                                                                                                      |       |                        | 2,468      |                        |       |   | 3,201 |   |   |
| Deposits                                                                                                                                                                                    |       |                        | 907        |                        |       |   | 2,856 |   |   |
| Other assets                                                                                                                                                                                |       |                        | 4,666      |                        |       |   | 4,105 |   |   |
| Total assets                                                                                                                                                                                |       |                        | $          | 1,713,990                   |       |   |   | $ | 1,277,951 |   |   |
| **LIABILITIES AND BENEFICIARIES’ EQUITY**                                                                                                                                              |       |                        |       |                        |       |   |   |   |   |
| Mortgage notes payable                                                                                                                                                                      |       |                        | $          | 1,028,290                   |       |   |   | $ | 692,069 |   |   |
| Line of credit                                                                                                                                                                              |       |                        | 199,435    |                        |       |   | 36,000 |   |   |
| Accounts payable                                                                                                                                                                            |       |                        | 3,213      |                        |       |   | 5,566 |   |   |
| Accrued expenses                                                                                                                                                                            |       |                        | 27,257     |                        |       |   | 21,253 |   |   |
| Dividends and  distributions payable                                                                                                                                                        |       |                        | 12,077     |                        |       |   | 16,227 |   |   |
| Other liabilities                                                                                                                                                                           |       |                        | 28,446     |                        |       |   | 21,337 |   |   |
| Total liabilities                                                                                                                                                                           |       |                        | 1,298,718  |                        |       |   | 792,452 |   |   |
| Minority interest                                                                                                                                                                           |       |                        | 157,972    |                        |       |   | 188,633 |   |   |
| Commitments and  Contingencies (Note 11)                                                                                                                                                    |       |                        | —     |                        |       |   | — |   |   |
| Beneficiaries’ equity:                                                                                                                                                                 |       |                        |       |                        |       |   |   |   |   |
| Common shares of  beneficial interest, $0.001 par value; 500,000,000 shares authorized,  41,567,146 and 39,699,843 issued and outstanding at December 31, 2006  and 2005, respectively |       |                        | 42         |                        |       |   | 40 |   |   |
| Preferred  shares—100,000,000 shares authorized, no shares issued or outstanding                                                                                                       |       |                        | —     |                        |       |   | — |   |   |
| Additional paid-in  capital                                                                                                                                                                 |       |                        | 325,347    |                        |       |   | 325,135 |   |   |
| Cumulative earnings                                                                                                                                                                         |       |                        | 1,324      |                        |       |   | 6,310 |   |   |
| Cumulative dividends                                                                                                                                                                        |       |                        | (69,413    | )                           |       |   | (34,619 | ) |   |
| Total beneficiaries’  equity                                                                                                                                                           |       |                        | 257,300    |                        |       |   | 296,866 |   |   |
| Total liabilities and beneficiaries’ equity                                                                                                                                            |       |                        | $          | 1,713,990                   |       |   |   | $ | 1,277,951 |   |   |

 

*See accompanying notes to consolidated and combined financial statements.*

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIESCONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS(in thousands, exceptper share information)**

| ** **                                                                                              | ** ** | **For the year  ended  December 31,  2006  (Company)** | ** ** | **For the year  ended  December 31,  2005  (Company)** | ** ** | **Period from  January 1 to  November 1,  2004  (Predecessor)** | ** ** | **Period from  November 2 to  December 31,  2004  (Company)** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| **Revenue:**                                                                                            |       |                                                                  |       |                                                                  |       |                                                                                |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Rent and other property income                                                                          |       |                                                                  | $          | 189,041                                                               |       |                                                                                |       | $                                                                                 | 132,094    |   |   |   | $ | 11,453 |   |   |   | $ | 14,197 |   |   |
| Expense  reimbursements:                                                                                |       |                                                                  |       |                                                                  |       |                                                                                |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Related party                                                                                           |       |                                                                  | 64,230     |                                                                  |       |                                                                                | 57,930     |                                                                              |       |   | 19,494 |   |   |   | 13,815 |   |   |
| Third party                                                                                             |       |                                                                  | 6,013      |                                                                  |       |                                                                                | 4,650      |                                                                              |       |   | 6,287 |   |   |   | 916 |   |   |
| Management fees:                                                                                        |       |                                                                  |       |                                                                  |       |                                                                                |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Related party                                                                                           |       |                                                                  | 8,481      |                                                                  |       |                                                                                | 7,005      |                                                                              |       |   | 3,120 |   |   |   | 1,235 |   |   |
| Third party                                                                                             |       |                                                                  | 3,167      |                                                                  |       |                                                                                | 3,774      |                                                                              |       |   | 3,537 |   |   |   | 449 |   |   |
| Other fee income—related party                                                                     |       |                                                                  | 21,635     |                                                                  |       |                                                                                | 18,321     |                                                                              |       |   | 4,899 |   |   |   | 3,561 |   |   |
| Other income                                                                                            |       |                                                                  | 564        |                                                                  |       |                                                                                | 378        |                                                                              |       |   | 509 |   |   |   | 406 |   |   |
| Total revenue                                                                                           |       |                                                                  | 293,131    |                                                                  |       |                                                                                | 224,152    |                                                                              |       |   | 49,299 |   |   |   | 34,579 |   |   |
| **Operating  Expenses:**                                                                                |       |                                                                  |       |                                                                  |       |                                                                                |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Property operating expenses                                                                             |       |                                                                  | 87,845     |                                                                  |       |                                                                                | 57,619     |                                                                              |       |   | 13,234 |   |   |   | 7,954 |   |   |
| Reimbursed expenses                                                                                     |       |                                                                  | 70,243     |                                                                  |       |                                                                                | 62,580     |                                                                              |       |   | 25,781 |   |   |   | 14,731 |   |   |
| Real estate taxes                                                                                       |       |                                                                  | 18,010     |                                                                  |       |                                                                                | 12,191     |                                                                              |       |   | 824 |   |   |   | 1,063 |   |   |
| Administrative expenses                                                                                 |       |                                                                  | 17,682     |                                                                  |       |                                                                                | 12,254     |                                                                              |       |   | 3,095 |   |   |   | 2,911 |   |   |
| Audit Committee and Special Committee expenses                                                          |       |                                                                  | 7,821      |                                                                  |       |                                                                                | —     |                                                                              |       |   | — |   |   |   | — |   |   |
| Profits interests and employee initial public  offering bonus expense                                   |       |                                                                  | —     |                                                                  |       |                                                                                | —     |                                                                              |       |   | 37,502 |   |   |   | — |   |   |
| Depreciation and amortization                                                                           |       |                                                                  | 43,830     |                                                                  |       |                                                                                | 34,188     |                                                                              |       |   | 3,264 |   |   |   | 3,890 |   |   |
| Interest                                                                                                |       |                                                                  | 55,333     |                                                                  |       |                                                                                | 31,025     |                                                                              |       |   | 2,852 |   |   |   | 3,220 |   |   |
| Total operating expenses                                                                                |       |                                                                  | 300,764    |                                                                  |       |                                                                                | 209,857    |                                                                              |       |   | 86,552 |   |   |   | 33,769 |   |   |
| (Loss) income before equity in earnings of  unconsolidated entities, minority interest and income taxes |       |                                                                  | (7,633     | )                                                                     |       |                                                                                | 14,295     |                                                                              |       |   | (37,253 | ) |   |   | 810 |   |   |
| Equity in earnings of unconsolidated entities                                                           |       |                                                                  | 3,523      |                                                                  |       |                                                                                | 3,073      |                                                                              |       |   | — |   |   |   | — |   |   |
| (Loss) income before minority interest and income  taxes                                                |       |                                                                  | (4,110     | )                                                                     |       |                                                                                | 17,368     |                                                                              |       |   | (37,253 | ) |   |   | 810 |   |   |
| Income taxes                                                                                            |       |                                                                  | 4,733      |                                                                  |       |                                                                                | 5,580      |                                                                              |       |   | — |   |   |   | 312 |   |   |
| (Loss) income before minority interest                                                                  |       |                                                                  | (8,843     | )                                                                     |       |                                                                                | 11,788     |                                                                              |       |   | (37,253 | ) |   |   | 498 |   |   |
| Minority interest                                                                                       |       |                                                                  | (3,857     | )                                                                     |       |                                                                                | 5,729      |                                                                              |       |   | — |   |   |   | 247 |   |   |
| Net (loss) income                                                                                       |       |                                                                  | $          | (4,986                                                                | )          |                                                                                |       | $                                                                                 | 6,059      |   |   |   | $ | (37,253 | ) |   |   | $ | 251 |   |   |
| (Loss) Earnings per share—basic                                                                    |       |                                                                  | $          | (0.12                                                                 | )          |                                                                                |       | $                                                                                 | 0.19       |   |   |   |   |   |   |   | $ | 0.01 |   |   |
| (Loss) Earnings  per share—diluted                                                                 |       |                                                                  | $          | (0.12                                                                 | )          |                                                                                |       | $                                                                                 | 0.18       |   |   |   |   |   |   |   | $ | 0.01 |   |   |

 

*See accompanying notes to consolidated and combined financial statements.*

97

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIESCONSOLIDATED AND COMBINED STATEMENTS OF BENEFICIARIES’ AND OWNER’S EQUITY(in thousands, exceptnumber of shares and per share information)**

| ** **                                                                                  | ** ** | ** **               | ** ** | **The Company** | ** ** |
|---------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| ** **                                                                                  | ** ** | **Predecessor**          | ** ** | ** **           | ** ** | **Par Value  of** | ** ** | **Additional** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                  | ** ** | **Owner’s  Equity** | ** ** | **Common  Shares**   | ** ** | **Common  Shares** | ** ** | **Paid-in  Capital** | ** ** | **Cumulative  Earnings** | ** ** | **Cumulative  Dividends** | ** ** |
| Balance at  January 1, 2004                                                            |       |                     | $          | 3,594                |       |   | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Cash contributions                                                                          |       |                     | 129,330    |                 |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Cash distributions                                                                          |       |                     | (32,253    | )                    |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Profits interest (See  Note 10)                                                        |       |                     | 33,180     |                 |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Net property  contributions                                                                 |       |                     | 1,992      |                 |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Net loss from  January 1, 2004 to November 1, 2004                                |       |                     | (37,253    | )                    |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Exchange of equity for  units of limited partnership                                        |       |                     | (13,255    | )                    |       |   |   |   | — |   |   | 13,255 |   |   | — |   |   |   | — |   |   |
| Balance at  November 1, 2004                                                           |       |                     | 85,335     |                 |       | — |   |   | — |   |   | 13,255 |   |   | — |   |   |   | — |   |   |
| Sale of common stock,  net of offering costs                                                |       |                     | —     |                 |       | 30,350,989 |   |   | 30 |   |   | 331,695 |   |   | — |   |   |   | — |   |   |
| Redemption of Vornado’s Class B  partnership interests (see Note 1)          |       |                     | (77,300    | )                    |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Cash distributions                                                                          |       |                     | (8,035     | )                    |       | — |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Transfer to minority  interest (see Note 2)                                            |       |                     | —     |                 |       | — |   |   | — |   |   | (144,674 | ) |   | — |   |   |   | — |   |   |
| Dividends  ($0.16 per common share)                                                         |       |                     | —     |                 |       | — |   |   | — |   |   | — |   |   | — |   |   |   | (4,856 | ) |   |
| Net income from  November 2, 2004 to December 31, 2004                            |       |                     | —     |                 |       | — |   |   | — |   |   | — |   |   | 251 |   |   |   | — |   |   |
| Balance at  December 31, 2004                                                          |       |                     | —     |                 |       | 30,350,989 |   |   | 30 |   |   | 200,276 |   |   | 251 |   |   |   | (4,856 | ) |   |
| Transfer of Corporate  Flight Services to Gary M. Holloway, Sr. (see Note 9) |       |                     | —     |                 |       | — |   |   | — |   |   | 87 |   |   | — |   |   |   | — |   |   |
| Sale of common stock,  net of offering costs                                                |       |                     | —     |                 |       | 9,315,000 |   |   | 10 |   |   | 124,641 |   |   | — |   |   |   | — |   |   |
| Dividends  ($0.91 per common share)                                                         |       |                     | —     |                 |       | — |   |   | — |   |   | — |   |   | — |   |   |   | (29,763 | ) |   |
| Shares issued to non-employee  trustees                                                     |       |                     | —     |                 |       | 33,854 |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Amortization of share  compensation                                                         |       |                     | —     |                 |       | — |   |   | — |   |   | 131 |   |   | — |   |   |   | — |   |   |
| Net income for year  ended December 31, 2005                                           |       |                     | —     |                 |       | — |   |   | — |   |   | — |   |   | 6,059 |   |   |   | — |   |   |
| Balance at  December 31, 2005                                                          |       |                     | —     |                 |       | 39,699,843 |   |   | 40 |   |   | 325,135 |   |   | 6,310 |   |   |   | (34,619 | ) |   |
| Dividends ($0.8475 per  common share)                                                       |       |                     | —     |                 |       | — |   |   | — |   |   | — |   |   | — |   |   |   | (34,794 | ) |   |
| Shares issued to  employee and non-employee trustees                                        |       |                     | —     |                 |       | 50,056 |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |
| Shares issued upon  conversion of warrants                                                  |       |                     | —     |                 |       | 1,817,247 |   |   | 2 |   |   | (2 | ) |   | — |   |   |   | — |   |   |
| Redemption of limited partnership  units                                                    |       |                     | —     |                 |       | — |   |   | — |   |   | (46 | ) |   | — |   |   |   | — |   |   |
| Amortization of share  compensation                                                         |       |                     | —     |                 |       | — |   |   | — |   |   | 260 |   |   | — |   |   |   | — |   |   |
| Net loss for year ended  December 31, 2006                                             |       |                     | —     |                 |       | — |   |   | — |   |   | — |   |   | (4,986 | ) |   |   | — |   |   |
| Balance at December 31, 2006                                                           |       |                     | $          | —               |       |   | 41,567,146 |   |   | $ | 42 |   |   | $ | 325,347 |   |   | $ | 1,324 |   |   |   | $ | (69,413 | ) |   |
|                                                                                             |            |                          |            |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*See accompanying notes to consolidated and combined financial statements.*

98

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIESCONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS(in thousands)**

| ** **                                                                                          | ** ** | **For the year ended  December 31, 2006  (Company)** | ** ** | **For the year ended  December 31, 2005  (Company)** | ** ** | **Period from  January 1 to  November 1, 2004  (Predecessor)** | ** ** | **Period from  November 2, to  December 31, 2004  (Company)** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **Cash flows from operating activities:**                                                           |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Net (loss) income                                                                                   |       |                                                                          | $          | (4,986                                                                        | )          |                                                                                    |       | $                                                                                      | 6,059      |   |   |   | $ | (37,253 | ) |   |   | $ | 251 |   |   |
| Adjustments to reconcile  net (loss) income to net cash provided by (used in) operating activities: |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Depreciation                                                                                        |       |                                                                          | 38,280     |                                                                          |       |                                                                                    | 25,678     |                                                                                   |       |   | 2,372 |   |   |   | 2,469 |   |   |
| Amortization:                                                                                       |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Lease intangibles                                                                                   |       |                                                                          | 5,167      |                                                                          |       |                                                                                    | 8,235      |                                                                                   |       |   | 893 |   |   |   | 1,421 |   |   |
| Amortization of  debt premium                                                                       |       |                                                                          | (2,511     | )                                                                             |       |                                                                                    | (2,242     | )                                                                                      |       |   | (295 | ) |   |   | (374 | ) |   |
| Deferred loan  costs                                                                                |       |                                                                          | 4,040      |                                                                          |       |                                                                                    | 1,245      |                                                                                   |       |   | 60 |   |   |   | 329 |   |   |
| Other amortization                                                                                  |       |                                                                          | 643        |                                                                          |       |                                                                                    | 406        |                                                                                   |       |   | — |   |   |   | — |   |   |
| Bad debt expense                                                                                    |       |                                                                          | 2,693      |                                                                          |       |                                                                                    | 1,632      |                                                                                   |       |   | — |   |   |   | — |   |   |
| Equity in earnings  of unconsolidated entities in excess of distributions received             |       |                                                                          | (904       | )                                                                             |       |                                                                                    | (3,073     | )                                                                                      |       |   | — |   |   |   | — |   |   |
| Minority interest                                                                                   |       |                                                                          | (3,857     | )                                                                             |       |                                                                                    | 5,729      |                                                                                   |       |   | — |   |   |   | 247 |   |   |
| Changes in operating  assets and liabilities:                                                       |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Restricted cash                                                                                     |       |                                                                          | (5,330     | )                                                                             |       |                                                                                    | (9,312     | )                                                                                      |       |   | (2,595 | ) |   |   | 282 |   |   |
| Accounts and other  receivables                                                                     |       |                                                                          | (470       | )                                                                             |       |                                                                                    | (13,198    | )                                                                                      |       |   | (4,737 | ) |   |   | (2,076 | ) |   |
| Deferred contract  costs                                                                            |       |                                                                          | (1,417     | )                                                                             |       |                                                                                    | (937       | )                                                                                      |       |   | (5,972 | ) |   |   | 5,785 |   |   |
| Deposits and other  assets                                                                          |       |                                                                          | 1,388      |                                                                          |       |                                                                                    | (2,241     | )                                                                                      |       |   | (7,040 | ) |   |   | 13,529 |   |   |
| Accounts payable                                                                                    |       |                                                                          | 1,855      |                                                                          |       |                                                                                    | 4,129      |                                                                                   |       |   | 4,175 |   |   |   | (2,455 | ) |   |
| Accrued expenses  and other liabilities                                                             |       |                                                                          | 12,018     |                                                                          |       |                                                                                    | 28,192     |                                                                                   |       |   | 11,564 |   |   |   | (5,472 | ) |   |
| Accrued profits  interest                                                                           |       |                                                                          | —     |                                                                          |       |                                                                                    | —     |                                                                                   |       |   | 33,180 |   |   |   | — |   |   |
| Net cash provided  by (used in) operating activities                                                |       |                                                                          | 46,609     |                                                                          |       |                                                                                    | 50,302     |                                                                                   |       |   | (5,648 | ) |   |   | 13,936 |   |   |
| **Cash flows from investing activities:**                                                           |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Property  acquisitions                                                                              |       |                                                                          | (367,308   | )                                                                             |       |                                                                                    | (407,428   | )                                                                                      |       |   | (167,140 | ) |   |   | (272,975 | ) |   |
| Capitalized  expenditures                                                                           |       |                                                                          | (19,890    | )                                                                             |       |                                                                                    | (20,316    | )                                                                                      |       |   | (87 | ) |   |   | (207 | ) |   |
| Distributions  received from unconsolidated entities in excess of earnings                          |       |                                                                          | 412        |                                                                          |       |                                                                                    | 5,468      |                                                                                   |       |   | — |   |   |   | — |   |   |
| Contributions to  unconsolidated entities                                                           |       |                                                                          | —     |                                                                          |       |                                                                                    | —     |                                                                                   |       |   | — |   |   |   | (10,600 | ) |   |
| Purchase of  management contract                                                                    |       |                                                                          | —     |                                                                          |       |                                                                                    | —     |                                                                                   |       |   | (1,189 | ) |   |   | — |   |   |
| Net cash used in  investing activities                                                              |       |                                                                          | (386,786   | )                                                                             |       |                                                                                    | (422,276   | )                                                                                      |       |   | (168,416 | ) |   |   | (283,782 | ) |   |
| **Cash flows from financing activities:**                                                           |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Owner  distributions                                                                                |       |                                                                          | (65,748    | )                                                                             |       |                                                                                    | (50,987    | )                                                                                      |       |   | (32,253 | ) |   |   | (126,463 | ) |   |
| Owner  contributions                                                                                |       |                                                                          | —     |                                                                          |       |                                                                                    | —     |                                                                                   |       |   | 129,330 |   |   |   | 41,128 |   |   |
| Redemption of unit  holders                                                                         |       |                                                                          | (45        | )                                                                             |       |                                                                                    | —     |                                                                                   |       |   | — |   |   |   | — |   |   |
| Proceeds from  mortgage notes payable                                                               |       |                                                                          | 272,487    |                                                                          |       |                                                                                    | 277,989    |                                                                                   |       |   | 103,898 |   |   |   | 61,470 |   |   |
| Repayment of  mortgage notes payable                                                                |       |                                                                          | (4,598     | )                                                                             |       |                                                                                    | (71,852    | )                                                                                      |       |   | (808 | ) |   |   | (507 | ) |   |
| Line of credit  borrowings                                                                          |       |                                                                          | 327,435    |                                                                          |       |                                                                                    | 306,000    |                                                                                   |       |   | — |   |   |   | — |   |   |
| Line of credit  payments                                                                            |       |                                                                          | (164,000   | )                                                                             |       |                                                                                    | (270,000   | )                                                                                      |       |   | — |   |   |   | — |   |   |
| Payment of  financing costs                                                                         |       |                                                                          | (5,055     | )                                                                             |       |                                                                                    | (2,513     | )                                                                                      |       |   | (1,031 | ) |   |   | (2,165 | ) |   |
| Proceeds of public  offerings                                                                       |       |                                                                          | —     |                                                                          |       |                                                                                    | 132,749    |                                                                                   |       |   | — |   |   |   | 342,359 |   |   |
| Costs related to  public offerings                                                                  |       |                                                                          | —     |                                                                          |       |                                                                                    | (8,098     | )                                                                                      |       |   | (5,443 | ) |   |   | (5,194 | ) |   |
| Net cash provided  by financing activities                                                          |       |                                                                          | 360,476    |                                                                          |       |                                                                                    | 313,288    |                                                                                   |       |   | 193,693 |   |   |   | 310,628 |   |   |
| Net increase  (decrease) in cash and cash equivalents                                               |       |                                                                          | 20,299     |                                                                          |       |                                                                                    | (58,686    | )                                                                                      |       |   | 19,629 |   |   |   | 40,782 |   |   |
| Cash and cash  equivalents, beginning of period                                                     |       |                                                                          | 2,240      |                                                                          |       |                                                                                    | 60,926     |                                                                                   |       |   | 515 |   |   |   | 20,144 |   |   |
| Cash and cash  equivalents, end of period                                                           |       |                                                                          | $          | 22,539                                                                        |       |                                                                                    |       | $                                                                                      | 2,240      |   |   |   | $ | 20,144 |   |   |   | $ | 60,926 |   |   |
| **Supplemental information**                                                                        |       |                                                                          |       |                                                                          |       |                                                                                    |       |                                                                                   |       |   |   |   |   |   |   |   |   |
| Real estate  acquired by assuming debt including debt premium                                       |       |                                                                          | $          | 47,388                                                                        |       |                                                                                    |       | $                                                                                      | 122,376    |   |   |   | $ | 128,622 |   |   |   | $ | 61,258 |   |   |
| Issuance of units  of limited partnership interest for purchase of student housing properties       |       |                                                                          | $          | —                                                                        |       |                                                                                    |       | $                                                                                      | 28,570     |   |   |   | $ | — |   |   |   | $ | 8,054 |   |   |
| Property  distributed at net book value                                                             |       |                                                                          | $          | —                                                                        |       |                                                                                    |       | $                                                                                      | 3,854      |   |   |   | $ | (381 | ) |   |   | $ | — |   |   |
| Debt distributed  at net book value                                                                 |       |                                                                          | $          | —                                                                        |       |                                                                                    |       | $                                                                                      | 4,208      |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Issuance of units  of limited partnership interest for purchase of military housing joint  venture  |       |                                                                          | $          | —                                                                        |       |                                                                                    |       | $                                                                                      | —     |   |   |   | $ | — |   |   |   | $ | 31,000 |   |   |
| Furniture and  computers contributed at net book value                                              |       |                                                                          | $          | —                                                                        |       |                                                                                    |       | $                                                                                      | —     |   |   |   | $ | 463 |   |   |   | $ | — |   |   |
| Interest paid                                                                                       |       |                                                                          | $          | 51,318                                                                        |       |                                                                                    |       | $                                                                                      | 28,686     |   |   |   | $ | 2,142 |   |   |   | $ | 2,617 |   |   |
| Income taxes paid                                                                                   |       |                                                                          | $          | 4,683                                                                         |       |                                                                                    |       | $                                                                                      | 5,115      |   |   |   | $ | — |   |   |   | $ | — |   |   |

 

*See accompanying notes to consolidated and combined financial statements.*

99

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements December 31, 2006**

**1.**   Organizationand Basis of Presentation

***Organization***

GMH Communities Trust (the “Trust,” the “Company,” orsometimes referred to as “we”) elected to qualify as a real estate investmenttrust, or REIT, under the Internal Revenue Code of 1986, as amended (the “Code”)commencing with its taxable year ended December 31, 2004. The Trust wasformed as a Maryland real estate investment trust in May 2004 and prior tocompletion of our initial public offering, had no operations. We completed ourinitial public offering on November 2, 2004, pursuant to which we sold anaggregate of 30,350,989 common shares of beneficial interest at an offeringprice of $12.00 per share, and raised an aggregate of $331.7 million innet proceeds, after deducting the underwriters’ discount and other offering-relatedexpenses. We contributed the net proceeds from the offering to our operatingpartnership, GMH Communities, LP, a Delaware limited partnership (the “OperatingPartnership”), in exchange for units of partnership interest.

On October 4, 2005, we sold 9,315,000 commonshares of beneficial interest, including 1,215,000 shares issued upon fullexercise of the underwriters’ over-allotment option, at an offering price of$14.25 per share. The Company raised an aggregate of $124.6 million in netproceeds from the offering after deducting the underwriters’ discounts, paymentof financial advisory fees and other offering-related expenses. The netproceeds of this offering, which the Company contributed to the OperatingPartnership in exchange for units of partnership interest, were used by theOperating Partnership to repay outstanding indebtedness under our creditfacility. As of December 31, 2006, the Operating Partnership had73,191,763 units of partnership interest outstanding, of which the Trust owned40,985,977 units of limited partnership interest; and through a wholly-ownedsubsidiary, GMH Communities GP Trust, the Trust owned 581,169 units of generalpartnership interest, which represents 100% of the general partnership interestin the Operating Partnership. As of December 31, 2006, there were31,624,617 units of limited partnership interest outstanding that were notowned by the Company.

We, through the OperatingPartnership and its subsidiaries, are a self-advised, self-managed, specialtyhousing company that focuses on providing housing to college and universitystudents residing off-campus and to members of the U.S. military and theirfamilies located on or near military bases throughout the United States.Through the Operating Partnership, we own and operate our student housingproperties and the interests in joint ventures that own military housingprivatization projects (“military housing projects”).

***Formation Transactions***

The Operating Partnership commenced operations on July 27,2004, when Gary M. Holloway, Sr., our chairman, president, and chiefexecutive officer, Vornado Realty Trust (“Vornado”), and certain entitiesaffiliated with Mr. Holloway and Vornado, entered into an agreement tocontribute various assets to the Operating Partnership. Under the terms of thecontribution agreement, Mr. Holloway contributed equity interests relatingto student housing properties and military housing projects owned by him and byentities affiliated with him, including College Park Management, Inc., GMHMilitary Housing, LLC, other entities owning a 10% interest in four studenthousing properties, and other related assets in exchange for 66,000 Class Apartnership interests in the Operating Partnership. Vornado agreed tocontribute up to $159.0 million to the Operating Partnership in exchangefor 34,000 Class B partnership interests. In connection with itsinvestment in the Operating Partnership, Vornado also purchased a warrant for 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**1.**   Organization and Basis of Presentation (Continued)

$1.0 million toacquire, at its option, a number of units of limited partnership interest inthe Operating Partnership, common shares in the Trust, or a combination ofboth, representing a 38.264% economic interest in the Operating Partnership orthe Trust, as the case may be, immediately prior to completion of our initialpublic offering. In addition, in connection with the closing of our initialpublic offering on November 2, 2004, Mr. Holloway further contributedhis interests in 353 Associates, L.P. and Corporate Flight Services, LLC,a student housing property and other related assets to the OperatingPartnership. We collectively refer to College Park Management, Inc., GMHMilitary Housing, LLC, 353 Associates, L.P. and Corporate Flight Services,LLC, together with the Operating Partnership, as The GMH Predecessor Entities.

The following aredescriptions of each of The GMH Predecessor Entities, other than the OperatingPartnership:

·       353Associates, L.P. owns and operates a 44,721 square foot commercial officebuilding located in Newtown Square, Pennsylvania. In connection with thecompletion of our initial public offering on November 2, 2004, Mr. Hollowayand an entity wholly-owned by him contributed 100% of the equityinterests in 353 Associates, L.P. to the Operating Partnership. The building iscurrently used as the Company’s corporate headquarters. 353 Associates,L.P. historically leased the building to certain of The GMH PredecessorEntities and other entities owned or controlled by Mr. Holloway. Wecontinue to lease a portion of the building to certain other entities owned orcontrolled by Mr. Holloway that were not contributed to the Company inconnection with our initial public offering.

·       CollegePark Management, Inc. performed property management and asset managementservices for residential apartment properties leased to students at collegesand universities located throughout the United States. In connection with theformation of the Operating Partnership on July 27, 2004, Mr. Hollowayconsented to the merger of College Park Management, Inc. with and intoCollege Park Management, LLC, a wholly-owned subsidiary of the OperatingPartnership. College Park Management TRS, Inc., a subsidiary of CollegePark Management, LLC, has made an election to be treated for federal income taxpurposes as a “taxable REIT subsidiary,” as defined in the Code.

·       GMHMilitary Housing, LLC, through its wholly-owned subsidiaries, engages inthe development, construction, renovation and management of family militaryhousing units located on or near military bases throughout the United States.In connection with the formation of the Operating Partnership on July 27,2004, Mr. Holloway contributed 100% of the outstanding equity interests inGMH Military Housing, LLC and each of its wholly-owned subsidiaries tothe Operating Partnership. GMH Military Housing, LLC has made an election to betreated as a corporation for federal income tax purposes as a “taxable REITsubsidiary,” as defined in the Code.

·       CorporateFlight Services, LLC owned and operated a corporate aircraft that had beenleased to certain of The GMH Predecessor Entities and other entities owned orcontrolled by Mr. Holloway that were not contributed to the Company inconnection with our initial public offering. In connection with the completionof our initial public offering on November 2, 2004, Mr. Hollowaycontributed 100% of the outstanding equity interests in Corporate FlightServices, LLC to the 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**1.**   Organization and Basis of Presentation (Continued)

Operating Partnership. In February 2005,the Company transferred its interest in Corporate Flight Services, LLC,including the corporate aircraft and associated debt initially contributed tothe Operating Partnership at the time of the initial public offering, back to Mr. Holloway.See Note 9.

The exchange ofcontributed interests has been accounted for as a reorganization of entitiesunder common control. Accordingly, the contributed assets and assumedliabilities have been recorded at the historical cost of The GMH PredecessorEntities.

***Redemption of Operating Partnership Interests***

Prior to our initial public offering, Vornado and Mr. Hollowaywere the sole equity holders of the Operating Partnership and each held,through affiliated entities, general partnership interests in the OperatingPartnership. Concurrent with the closing of the Company’s initial publicoffering on November 2, 2004, we became the sole general partner of theOperating Partnership. In accordance with the terms of the limited partnershipagreement of the Operating Partnership and concurrent with the completion ofour initial public offering on November 2, 2004, we paid approximately$77.3 million to Vornado relating to the redemption of all of Vornado’s Class Bpartnership interests in the Operating Partnership based on Vornado’s$113.8 million contribution to the Operating Partnership as of the date ofthe offering, plus a preferential return in the amount of $13.5 million,and after giving effect to the surrender by Vornado of $50.0 million invalue of its pre-offering partnership interest in the Operating Partnership, aspayment for the portion of its warrant required to be exercised upon completionof our initial public offering under the terms of the warrant. Upon closing ofour initial public offering, Vornado exercised the warrant to purchase6,666,667 units of limited partnership interest in our Operating Partnership ata price of $7.50 per unit, which represented a 20.972% economic interest in theOperating Partnership immediately prior to our initial public offering. On May 2,2006, the expiration date under the warrant, Vornado received an additional1,817,247 of our common shares through a net, or cashless, exercise feature ofthe warrant.

In addition, in connectionwith the redemption of Vornado’s Class B interests in the OperatingPartnership and amendment to the partnership agreement for the OperatingPartnership on November 2, 2004, Mr. Holloway’s Class A limitedpartnership interest and managing general partnership interest in the OperatingPartnership were exchanged for 19,624,294 limited partnership units and Mr. Hollowaycontributed additional assets to the Operating Partnership, including interestsin entities that own our corporate headquarters and aircraft and interests inan additional student housing property.

***Basis of Presentation***

The financial statements of GMH Communities Trustincluded herein present the consolidated financial position of the Company andits subsidiaries as of December 31, 2006 and 2005 and the consolidatedresults of their operations and their cash flows for the years ended December 31,2006 and 2005 and the period from November 2, 2004 through December 31,2004. All intercompany items and transactions have been eliminated.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**1.**   Organization and Basis of Presentation (Continued)

The financial statementsof The GMH Predecessor Entities included herein present the combined results oftheir operations and their cash flows for the period from January 1, 2004to November 1, 2004. All intercompany items and transactions have beeneliminated.

***Liquidity***

On October 2, 2006, the Company entered into a$250.0 million revolving line of credit with Wachovia Bank. The line of credithad an initial term of six months, which was subsequently amended in February 2007to extend the initial term through June 1, 2007. If not repaid, theCompany can extend the maturity to October 2, 2007, with the payment of anadditional 2% of the outstanding principal balance and an increase in theinterest rate charged from LIBOR plus 2% to LIBOR plus 4.5%. In December 2006,the Company announced that it had developed a business strategy to repay theoutstanding line of credit through a combination of refinancing certainproperties and selling other properties to third parties or through a jointventure in which the Company would retain an interest. While an overall pool ofassets were evaluated to effect this strategy, the specific properties to besold had not been identified and, therefore, did not meet the requirementsunder Statement of Financial Accounting Standards (“SFAS”) No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*(“SFAS 144”), to be presented as discontinued operations at December 31,2006. During the first quarter of 2007, the criteria for classification as heldfor sale under SFAS No. 144 was met, as the specific properties for salewere identified and the Board of Trustees approved the plan to sell thespecific properties.

The refinancing portion of this strategy was completedin February 2007 and generated net proceeds of $73.6 million thatwere used to repay an equal amount of outstanding indebtedness under theCompany’s line of credit. As of the date of this report, the Company had executed letters of intentto sell seven of our currently-owned student housing properties, as well as anon-binding letter of intent with a third party institutional investor to enterinto a joint venture that will cover an additional six of our currently-ownedstudent housing properties. The net carrying value and outstanding notespayable balances of these 13 properties were $236.3 million and$138.6 million, respectively as of December 31, 2006. Although thesetransactions were still in the due diligence phase as of the date of thisreport, and the Company has not executed binding agreements, the Companycurrently expects to complete these transactions during the second quarter of2007. The proceeds from these transactions also will be used to repayoutstanding indebtedness under our line of credit. The Company intendsto terminate the line of credit upon repayment of all outstanding balances, andalso is negotiating for a long-term line of credit to be in effect upon thetermination of the existing line of credit.

The Company currentlyexpects that the business strategy outlined above, if successful, will resultin the repayment of the existing line of credit and leave two currently-ownedstudent housing properties unencumbered. The unencumbered properties shouldprovide sufficient financing capacity throughout 2007 and the Company expectsto supplement that capacity with a new line of credit.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.   Summary of SignificantAccounting Policies**

***Use of Estimates***

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions that affectvarious amounts reported in the financial statements and accompanying notes.Actual results could differ from those estimates.

***Real Estate Investments and Corporate Assets***

We carry real estate investments and corporate assetsat cost, net of accumulated depreciation. Cost of acquired assets includes thepurchase price and related closing costs. We allocate the cost of real estateinvestments to net tangible and identified intangible assets based on relativefair values in accordance with SFAS No. 141 (“SFAS 141”), *Business Combinations*. We estimate fairvalue based on information obtained from a number of sources, including our duediligence, marketing and leasing activities, independent appraisals that may beobtained in connection with the acquisition or financing of the respectiveproperty, and other market data.

The value of in-place leases is based on thedifference between (i) the property valued with existing in-place leasesand (ii) the property valued as if vacant. As lease terms typically are12 months or less, actual rates on in-place leases generally approximatemarket rental rates. Factors that we consider in the valuation of in-placeleases include an estimate of incremental carrying costs during the expectedlease-up periods considering current market conditions and nature of the tenancy.Purchase prices of student housing properties to be acquired are not expectedto be allocated to tenant relationships considering the terms of the leases andthe expected levels of renewals. We amortize the value of in-place leases toexpense over the remaining term of the respective leases, which is generallyone year or less. Accumulated amortization related to intangible lease costswas $2.0 million at December 31, 2006 and $3.2 million at December 31,2005.

We expense routine repair and maintenance expendituresthat do not improve the value of an asset or extend its useful life, includingturnover costs. We capitalize expenditures that improve the value and extendthe useful life of an asset. We compute depreciation using the straight-linemethod over the estimated useful lives of the assets, which is generally40 years for buildings including student housing properties and thecommercial office building, and three to five years for residential furnitureand appliances. Commencing towards the end of the second quarter and moresignificantly during the third quarter of each fiscal year, the Companytypically will experience an increase in property operating expenses over otherquarters as a result of repair and maintenance expenditures relating to turnoverof units at student housing properties. The Company’s student housing leaseterms generally commence in August or September to coincide with thebeginning of the academic year. Accordingly, the Company expects to incur amajority of its repair and maintenance costs in the second and third quartersto prepare for new residents.

In accordance withSFAS 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets*, long-lived assets, such as realestate investments and purchased intangibles subject to amortization, arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. These circumstances mayinclude, but are not limited to, operational performance, market conditions andcompetition from other off-campus properties and on-campus housing, legal and 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summary of Significant Accounting Policies (Continued)

environmentalconcerns, and results of appraisals or other information obtained as part of afinancing or disposition strategy. When required, we review recoverability ofassets to be held and used through a comparison of the carrying amount of anasset to estimated undiscounted future cash flows expected to be generated bythe asset. If the carrying amount of an asset exceeds its estimatedundiscounted future cash flows, an impairment charge is recognized in an amountby which the carrying value of the asset exceeds the fair value of the assetdetermined using customary valuation techniques, such as the present value ofexpected future cash flows. Assets to be disposed of would be separatelypresented in the balance sheet and reported at the lower of the carrying amountor fair value less costs to sell, and no longer would be depreciated.

***Cash Equivalents***

All highly-liquidinvestments with an original maturity of three months or less are considered tobe cash equivalents. The Company has substantially all of its cash andshort-term investments with one major financial institution. Such cashbalances, at times, may exceed FDIC limits.

***Restricted Cash***

Restricted cash consistsof security deposits and cash held as escrow for real estate taxes, capitalexpenditures and other amounts, as required by the terms of various loanagreements.

***Allowance for Doubtful Accounts***

We estimate the collectibility of receivablesgenerated by rental and other income as a result of the operation of ourstudent housing properties. If we believe that the collectibility of certainamounts is questionable, we record a specific reserve for these amounts to reducethe amount outstanding to an amount we believe will be collectible and areserve for all other accounts based on a range of percentages applied to agingcategories, which is based on historical collection and write-off experience.

We also evaluate the collectibility of fee income andexpense reimbursements generated by the management of student housingproperties owned by others and through the provision of development,construction, renovation, and management services to our military housingprojects based upon the individual facts and circumstances, and record areserve for specific amounts, if necessary.

Accounts receivable arepresented net of the allowance for doubtful accounts of $331,000 and $710,000at December 31, 2006 and 2005, respectively.

***Deferred Financing Costs***

Costs incurred inconnection with obtaining financing are deferred and amortized on astraight-line basis over the term of the related loan, which is not materiallydifferent than the effective interest method. Amortization of deferredfinancing costs is included in interest expense. Accumulated amortization ofdeferred financing costs was $2.9 million and $1.2 million at December 31,2006 and 2005, respectively.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summary of Significant Accounting Policies (Continued)

***Deferred Contract Costs***

Deferred contract costsinclude costs attributable to a specific military housing project incurred inconnection with seeking Congressional approval of a Community Development andManagement Plan, or CDMP, subsequent to the project being awarded by theDepartment of Defense, or DoD. In addition, deferred contract costs alsoinclude transition and closing costs incurred that are expected to bereimbursed by the military housing project. Such amounts are evaluated as tothe probability of recovery and costs that are not considered probable ofrecovery are written off. Revenue is recognized and the related costs areexpensed at the time that the reimbursement for preparing the CDMP is approvedby Congress or at closing of the military housing project.

***Deposits***

Deposits primarily consistof amounts paid to third parties in connection with planned acquisitions,amounts paid to lenders that provide related financing or the refinancing ofexisting loans and deposits paid to utility companies. At December 31,2006, deposits for planned acquisitions totaled $155,000 and other depositstotaled $752,000. At December 31, 2005, deposits for planned acquisitionstotaled $2.1 million, deposits related to financings totaled $160,000 andother deposits totaled $623,000.

***Fair Value of Financial Instruments***

The carrying amount of cash and cash equivalents,restricted cash, accounts and other receivables, deposits, other assets,accounts payable, accrued expenses, dividends and distributions payable, andother liabilities approximate fair value because of the relatively short-termnature of these instruments.

Debt assumed in connection with property acquisitionsis recorded at fair value at the date of acquisition and the resulting premiumor discount is amortized through interest expense over the remaining term ofthe debt, resulting in a non-cash decrease (in the case of a premium) orincrease (in the case of a discount) in interest expense.

The carrying value andfair value of fixed-rate notes payable at December 31, 2006 was approximately$971 million and $964 million, respectively. Fair value was estimatedusing rates the Company believed were available to it as of December 31,2006 for debt with similar terms. The carrying value of variable-rate notespayable approximates fair value at December 31, 2006.

***Advertising Costs***

Advertising costs areexpensed as incurred. Advertising expense was $2.0 million , $1.7 million,$0.1 million, and $0.1 million for the years ended December 31, 2006 and 2005, the period from January 1,2004 to November 1, 2004 and  the periodfrom November 2, 2004 to December 31, 2004, respectively.

***Revenue Recognition***

**Student HousingOwned Properties Segment**

Rental revenue is recognized when due over the leaseterms, which are generally 12 months or less.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summaryof Significant Accounting Policies (Continued)

Other property income,including, but not limited to, lease processing fees, move-in fees, andactivity fees is recognized as earned throughout the course of the year. Thetiming of these fees typically fluctuates in relation to the academic yearleasing cycle.

**Student HousingManaged Properties Segment**

Standard management fees are based on a percentage ofmonthly cash receipts or gross monthly rental and other revenues generated bythe properties managed for others. We recognize these fees on a monthly basisas the services are performed.

Incentive management fees are earned as a result ofthe achievement of certain operating performance criteria over a specifiedperiod by certain managed properties, including targeted annual debt servicecoverage ratios of the properties. We recognize these fees at the amount thatwould be due under the contract if the contract was terminated on the balancesheet date.

Expense reimbursements arecomprised primarily of salary and related costs of certain of our employeesworking at certain properties we manage for others, the cost of which isreimbursed by the owners of the related properties. We accrue operating expensereimbursements as the related expenses are incurred.

**Military HousingSegment**

Standard and incentive management fees, which arebased on a percentage of effective gross revenue generated by the militaryhousing privatization projects from the basic allowance for housing (BAH)provided by the government to service members are recognized when the revenueis earned by the military housing projects. Incentive management fees are basedupon the satisfaction of certain criteria including, among other things,satisfying designated benchmarks relating to emergency work order response,occupancy rates, home turnover and resident satisfaction surveys. Incentivemanagement fees are recognized when the various criteria stipulated in themanagement contract have been satisfied. Accrued and unbilled incentive managementfees of $1.0 million are included in accounts receivable—related party at both December 31,2006 and 2005.

Standard and incentive development andconstruction/renovation fees, which are based on a percentage of developmentand construction/renovation costs incurred by the military housing projects,including hard and soft costs and financing costs, are recognized on a monthlybasis as the costs are incurred by the military housing projects. Incentivedevelopment and construction/renovation fees are based upon the satisfaction ofcertain criteria including, among other things, completing a number of housesaccording to schedule, achieving specific safety records and implementing smallbusiness or minority subcontracting plans. Incentive development and construction/renovationfees are recognized when the various criteria stipulated in the contract havebeen satisfied. Accrued and unbilled incentive development andconstruction/renovation fees of $2.3 million and $2.7 million areincluded in accounts receivable—related party at December 31, 2006 and2005, respectively.

Revenues on fixed-price renovation contracts arerecorded on the percentage-of-completion method. When thepercentage-of-completion method is used, contract revenue is recognized in theratio that costs incurred to date bear to estimated costs at completion.Adjustments to cost estimates are made in the 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summary of Significant Accounting Policies (Continued)

period in which the factsrequiring such revisions become known. When the revised estimates indicate aloss, such loss is currently provided for in its entirety.

Business development fees are earned from our businesspartners that provide architectural and design or construction services for theCompany’s military housing projects. The fees consist of (i) an annualbase fee, which is a fee paid to the Company in consideration of the Company’songoing pursuit of additional projects and is not contingent upon the successof those efforts and can be cancelled at any time, and (ii) an additionalfee, which is paid over the course of an awarded project based on a percentageof revenue earned by these business partners for providing services to theCompany’s military housing projects. The base fees are recognized on astraight-line basis over the term of the related business developmentagreement, which is generally one year. The additional fee is recognized andpaid to us as the related services are provided to our military housingprojects by our business partners.

In certain instances, the Company may receive feesrelating to the performance of pre-construction/renovation services. Thesepre-construction/renovation fees are determined on a project-by-project basis,and are (i) paid in proportion to the amount ofpre-construction/renovation costs incurred by us for the project, and (ii) recognizedas revenue upon performance of the pre-construction/renovation services.

The Company earns equity returns on its investments inmilitary housing projects. During the initial development period for a project,the equity returns are a fixed percentage of our investment and subsequent tothe initial development period for a project, the equity returns are based on afixed percentage of our investment and on the project’s net operating income,subject to cash distribution caps, as defined in the operating agreementsrelated to the particular project. As of December 31, 2006, only the FortCarson project had passed its initial development period.

Expense reimbursements arecomprised primarily of renovation expenses and property management expenses,the costs of which are reimbursed by the military housing projects to whichthey relate. The expenses include payments to third parties for renovationservices, and include salaries and related costs of the Company’s employeesthat are managing the renovation and property management services. The Companyaccrues expense reimbursements as the related expenses are incurred.

***Minority Interest***

Minority interest asinitially reported at the date of our initial public offering represented thenet equity of the Operating Partnership, including the proceeds received fromthe sale of the warrant to Vornado, multiplied by the ownership percentage ofholders of limited partnership units in the Operating Partnership other thanthe Company. The Operating Partnership is obligated to redeem, at the requestof a holder, each unit of limited partnership interest for cash or commonshares on a one-for-one basis, at the Company’s option, subject to adjustmentsfor share splits, dividends, recapitalizations and similar events; except thatGary M. Holloway, Sr. has the right to require the Operating Partnershipto redeem his and his affiliates’ units of limited partnership interest forcommon shares, subject to his restriction from owning more than 20% of theCompany’s outstanding common shares. If the minority interest unitholders’share of a current year loss would cause the minority interest balance to beless than zero, the minority interest balance will be reported as zero unlessthere is an obligation of the minority interest holders to fund those 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summary of Significant Accounting Policies (Continued)

losses.Any losses in excess of the minority interest will be charged against equity.If future earnings materialize, equity will be credited for all earnings up tothe amount of those losses previously absorbed. Distributions to limitedpartnership unitholders other than the Company are recorded as a reduction tominority interest.

***Investments in Military Housing Projects and StudentHousing Joint Ventures***

We own equity interests in the joint ventures that ownour military housing privatization projects with the U.S. military to design,develop, construct/renovate and manage the military family housing located onor near various bases throughout the United States. The Company evaluates itsinvestments in military housing project joint ventures in which we have avariable interest to determine if the underlying entity is a variable interestentity (“VIE”) as defined under FASB Financial Interpretation No. 46 (asrevised) (“FIN 46(R)”). The Company has concluded that each of themilitary housing project joint ventures in which it has a variable interest isa VIE and that the Company is not the primary beneficiary of any of these VIEs.We record our investments in joint ventures under our military housing projectsin accordance with the equity method of accounting. Our investment is initiallyrecorded at cost, and then subsequently adjusted at each balance sheet date toan amount equal to what we would receive from the joint venture in the eventthat it were liquidated at net book value as of that date, and assuming thatthe proceeds from the liquidation are distributed in accordance with the termsof, and priority of returns set forth under, the joint venture’s operatingagreement. The Company has exposure to loss to the extent of its investments,if any, and any receivables due from the project.

The Company entered into ajoint venture in the third quarter of 2005 to develop and construct two studenthousing properties. The Company contributed land to the joint venture inexchange for its 10% interest and cash. In addition, the Company has the optionto purchase the joint venture partner’s interest in the joint venture withinone year of completion of the properties, and the Company has provided certainguarantees for a portion of the construction loans. As such, the transaction isbeing accounted for as a financing arrangement, whereby the Company records thereal estate as an asset, depreciates the property, and records a financingobligation. Construction was completed in August 2006.

***Income Taxes***

The Company elected to be taxed as a REIT under theCode commencing with its taxable year ended December 31, 2004. To continueto qualify as a REIT, the Company must meet a number of organizational andoperational requirements, including a requirement that we currently distributeat least 90% of our adjusted taxable income to our shareholders. We believe weare organized and operate in a manner that allows us to qualify for taxation asa REIT under the Code, and it is our intention to adhere to these requirementsand maintain the Company’s REIT status in the future. Accordingly, no provisionhas been made for federal income taxes in the accompanying consolidatedfinancial statements, other than with respect to the Company’s taxable REITsubsidiaries.

In conformity with theCode and applicable state and local tax statutes, taxable income or loss of TheGMH Predecessor Entities was required to be reported in the tax returns ofGary M. Holloway, Sr. and Vornado, as such entities were treated aspass-through entities for tax purposes. Accordingly, no income 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summary of Significant Accounting Policies (Continued)

taxprovision has been reflected in the accompanying combined statement ofoperations of The GMH Predecessor Entities.

***Audit Committee and Special Committee Expenses***

During the first quarter of 2006, the Audit Committeeof our Board of Trustees initiated an investigation promptly following receiptof a letter from the Company’s former Chief Financial Officer, alleging, amongother things, a “tone at the top” problem within management, and raising concernsregarding various accounting methodologies that were being considered bymanagement in connection with certain transactions that occurred in the fourthquarter of 2005. The Audit Committee conducted the investigation with theassistance of independent legal counsel, as well as a forensic accounting firmretained by the Audit Committee’s counsel. The investigation was completedduring the third quarter of 2006.

During 2006, the Board of Trustees formed a SpecialCommittee to explore strategic alternatives for the Company. The SpecialCommittee was disbanded in December 2006.

The Company incurredsignificant legal, accounting, financial advisory as well as committee fees inconnection with both the Audit Committee investigation and activities of theSpecial Committee. All costs have been expensed as incurred and are reported inAudit Committee and Special Committee expenses on the accompanying consolidatedstatements of operations.

***Adoption of Recent Accounting Pronouncements***

*Share basedcompensation*

On January 1, 2006,the Company adopted the provisions of SFAS No. 123R, as revised, *“Share-Based Payments.”*SFAS No. 123R replaces SFAS No. 123,“Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees.” The scope of SFAS No. 123Rincludes a wide range of share-based compensation arrangements including stockoptions, restricted share plans, performance-based awards, stock appreciationrights, and employee stock purchase plans. SFAS No. 123R requires companiesto recognize in their financial statements the compensation expense relating toshare-based payment transactions. The adoption of SFAS No. 123R did nothave a material impact on the Company’s financial condition or results ofoperations during 2006.

*Accounting formisstatements*

In September 2006,the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin(SAB) No. 108 (SAB 108) which addresses how the effects of prior-yearuncorrected misstatements should be considered when quantifying misstatementsin current-year financial statements. SAB 108 requires companies toquantify misstatements using both the balance-sheet and income-statementapproaches and to evaluate whether either approach results in quantifying anerror that is material in light of relevant quantitative and qualitativefactors. Upon initial adoption, if the effect of the misstatement is determinedto be material, SAB 108 allows companies to record that effect as acumulative effect adjustment to beginning of year retained earnings. TheCompany adopted SAB 108 during 2006 and there was no impact on the Company’sfinancial condition.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**2.**   Summary of Significant Accounting Policies (Continued)

***Recent Accounting Pronouncements***

In June 2006, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation No. 48,*“Accounting for Uncertainty in Income Taxes,*”(FIN 48), which prescribes detailed guidance for the financial statementrecognition, measurement and disclosure of uncertain tax positions recognizedin an enterprise’s financial statements in accordance with SFAS No. 109,*“Accounting for Income Taxes.”* Taxpositions must meet a more-likely-than-not recognition threshold at theeffective date to be recognized upon the adoption of FIN 48 and insubsequent periods. FIN 48 will be effective for fiscal years beginning after December 15,2006, which for the Company is January 1, 2007, and the provisions ofFIN 48 will be applied to all tax positions accounted for under SFAS No. 109upon initial adoption. The cumulative effect of applying the provisions of thisinterpretation will be reported as an adjustment to the opening balance of retainedearnings for that fiscal year. The Company is currently evaluating thepotential impact of the adoption of FIN 48 on its consolidated financialstatements.

In September 2006,the FASB issued SFAS No. 157, “*FairValue Measurements*” (SFAS 157). SFAS 157 defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements.SFAS 157 applies where other accounting pronouncements require or permitfair value measurements. This statement is effective for financial statementsissued for fiscal years beginning after November 15, 2007, which for theCompany is January 1, 2008, and interim periods within those fiscal years.The Company is evaluating the impact this statement will have on itsconsolidated financial statements.

***Reclassifications***

Certain amounts in theprior period financial statements have been reclassified to be consistent withthe current period presentation

**3.   Real EstateInvestments**

As of December 31,2006, the Company owned 75 student housing properties and had ownershipinterests in two student properties through a joint venture, located near 51colleges and universities in 27 states. These properties contain an aggregateof 14,432 units and 46,696 beds. The Company’s investment in student housingproperties at December 31, 2006 and 2005, which includes the two jointventure properties that were under development and placed into service duringthe third quarter of 2006 are as follows (in thousands):

| ** **                            | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|---------------------------------------|------------|-----------|------------|-----------|------------|
| Land                                  |       | $         | 168,579    |      | $          | 110,634 |   |
| Building and  improvements            |       | 1,444,349 |       | 1,055,157 |       |
| Residential  furniture and appliances |       | 44,902    |       | 26,159    |       |
| Construction in  Progress             |       | 1,592     |       | 18,305    |       |
|                                  |       | $         | 1,659,422  |      | $          | 1,210,255 |   |

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**4.   Real EstateAcquisitions**

*2006 acquisitions*

During the year ended December 31, 2006, theCompany acquired 21 student housing properties and five undeveloped parcels ofland with an aggregate of 3,904 units and 12,128 beds for an aggregate purchaseprice of approximately $409.7 million. These acquisitions were financed throughthe placement of $266.8 million of new mortgage debt on the properties;assumption of $46.5 million of existing mortgage debt and the remainingbalance was financed through borrowings under the Company’s credit facilities. TheCompany ascribed $4.4 million of the aggregate purchase price to the fairvalue of the in-place leases acquired. The results of operations of theseproperties are included in the accompanying statements of operations as of therespective acquisition dates.

Thefollowing unaudited proforma results of operations reflect the 2006acquisitions as if they had occurred on January 1, 2005 (in thousands):

| ** **                  | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Pro forma revenue           |       | $                     | 322,117    |   | $ | 277,089 |   |
| Pro forma net  (loss)income |       | $                     | (8,453     | ) | $ | 2,333 |   |
| Pro forma  EPS—Basic   |       | $                     | (0.21      | ) | $ | 0.07 |   |
| Pro forma EPS—Diluted  |       | $                     | (0.21      | ) | $ | 0.07 |   |

 

*2005 and 2004acquisitions*

During the year ended December 31, 2005, theCompany acquired 24 student housing properties and three undeveloped parcels ofland with an aggregate of 4,753 units and 14,302 beds for an aggregate purchaseprice of approximately $548.5 million. The Company ascribed $6.4 millionof the aggregate purchase price to the fair value of in-place leases acquired. Theresults of operations are included in the accompanying statements of operationsbeginning on the respective acquisition dates.

Gary M. Holloway, Sr. and three other employeesof the Company at the time, including two executive officers of the Company, andan employee of an entity owned by Mr. Holloway, held an ownership interestin two student housing properties that were acquired by the Company during thefirst quarter of 2005 for a total purchase price of $38.2 million. TheCompany paid $36.5 million in cash to investors in the selling entity notaffiliated with the Company and issued a total of 141,549 units of limitedpartnership interest in the Operating Partnership to Mr. Holloway andthese individuals with an aggregate fair value of $1.7 million inconnection with the purchase. The fair value of the limited partnership unitswas based on the closing price of the Company’s common shares on theacquisition date. The fair value of the units of limited partnership interestwas recorded as an increase to minority interest.

In connection with the acquisition of two otherstudent housing properties in the second quarter of 2005, the Company issued atotal of 1,940,282 units of limited partnership interest in the OperatingPartnership to the sellers with an aggregate fair value of $26.9 million.The fair value of the limited partnership units was based on the closing priceof the Company’s common shares on the acquisition date. The fair value of theunits of limited partnership interest was recorded as an increase to minorityinterest.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**4.**   RealEstate Acquisitions (Continued)

In August 2005, the Company entered into a jointventure with an institutional investor to develop and construct two studenthousing properties, located in Orono, Maine and Bowling Green, Ohio, withestimated aggregate costs of $43.4 million for acquiring, developing andconstructing a total of 1,152 beds. The Company contributed land to the jointventure in exchange for its 10% interest and cash. In addition, the Company hasthe option to purchase the joint venture partner’s interest in the jointventure within one year of completion of the properties, and the Company hasprovided certain guarantees for a portion of the construction loans that arestill outstanding. During 2006 and 2005 the Company capitalized interest costsof $1.2 million and $0.5 million, respectively. As such, thetransaction is being accounted for as a financing arrangement, whereby theCompany records the real estate as an asset, depreciates the property, andrecords a financing obligation. Construction was completed in August 2006.

The remaining acquisitions were financed through theplacement of $210.9 million of new mortgage debt on the properties,assumption of $118.9 million in existing mortgage debt and the remainingbalance was primarily financed through borrowings under the Company’s creditfacilities.

During the year ended December 31, 2004, theCompany acquired 30 student housing properties, and one undeveloped parcel ofland for development as a student housing property, for an aggregate purchaseprice of $633.1 million. The results of operations of each of the acquiredproperties have been included in our statements of operations from therespective purchase dates.

Thefollowing unaudited pro forma financial information for the years ended December 31,2005 and 2004 gives effect to the 2005 and 2004 student housing propertyacquisitions as if the transactions had occurred on January 1, 2004 (inthousands). The pro-forma financial information for the year ended December 31,2004 includes the $33.2 million of profits interest expense.

| ** **                   | ** ** | **December 31,** | ** ** |
|------------------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Pro forma revenue            |       | $                     | 255,159    |   | $ | 200,942 |   |
| Pro forma net  income (loss) |       | $                     | 7,675      |   | $ | (33,105 | ) |
| Pro forma  EPS—Basic    |       | $                     | 0.19       |   | — |   |
| Pro forma EPS—Diluted   |       | $                     | 0.18       |   | — |   |

 

**5.   Investments inMilitary Housing Projects**

We record our investments in joint ventures under ourmilitary housing projects in accordance with the equity method of accounting.Our investment is initially recorded at cost, and subsequently adjusted at eachbalance sheet date to an amount equal to what we would receive from the jointventure in the event that it were liquidated at net book value as of that date,and assuming that the proceeds from the liquidation are distributed inaccordance with the terms of, and priority of returns set forth under, thejoint venture’s operating agreement. The terms of the various agreementsgenerally provide for the payment to the Company of an agreed upon preferredreturn on the Company’s invested capital and a return of the Company’s investedcapital prior to the distribution of any amounts to the government entity thatis a member of the joint venture.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**5.**   Investments in Military Housing Projects (Continued)

As of December 31, 2006, we held a 10% and 9%ownership interest in eight and one, respectively, of the joint ventures thatown and operate the military housing projects. As of December 31, 2006 wehave invested capital in two of the joint ventures as discussed below.

The acquisition of our ownership interests in the jointventure that owns a 10% interest in Fort Carson Family, LLC and had the rightsto exclusively negotiate the Fort Eustis/Fort Story military housing projectswas recorded at fair value of the consideration paid in the amount of$31.0 million. The Fort Carson Family, LLC owns and operates the FortCarson project. The underlying book value of the equity on the acquisition datewas approximately $11.5 million. The remaining $19.5 million of thisinvestment is being amortized based on the then current fiscal year revenue asa percentage of the estimated revenue to be earned over the remaining lives ofthe projects, which are 45 years for the Fort Carson project and50 years for the Fort Eustis/Fort Story project. Amortization expense was$383,000, and $275,000 in 2006, and 2005, respectively.

The carrying value of the Company’s investment in FortCarson Family Housing, LLC was $25.3 million at December 31, 2006 and$26.1 million at December 31, 2005. The Company is entitled to apreferred return on its investment in Fort Carson Family Housing LLC, plus 30%of the project’s net operating income. The project began repaying the Company’sequity investment in Fort Carson Family Housing LLC in July 2005. Theequity investment is expected to be completely repaid by 2015. During 2006 and 2005,the Company received $3.1 million and $4.5 million respectively, ofequity distributions from Fort Carson Family Housing LLC.

In November 2004, the Company and Benham MilitaryCommunities, LLC formed a joint venture known as GMH/Benham MilitaryCommunities LLC for the purpose of investing in the Navy Northeast Regionmilitary housing project. The Company contributed $9.5 million toGMH/Benham Military Communities LLC in return for a 90% interest and BenhamMilitary Communities, LLC invested $1.1 million for the remaining 10%interest. The Company consolidates GMH/Benham Military Communities LLC as ithas a 90% economic interest and controls a majority of the voting interests.Benham Military Communities, LLC’s 10% interest is accounted for as minorityinterest and is included in accrued expenses on the accompanying consolidatedbalance sheets at December 31, 2006 and 2005. In November 2004,GMH/Benham Military Communities, LLC invested $10.6 million for its 10%equity interest in Northeast Housing LLC, which owns and operates the NavyNortheast Region military housing project. GMH/Benham Military Communities LLCis entitled to a preferred return on its investment in Northeast Housing LLC.The preferred return will accrue, but not be paid, until the end of the initialdevelopment period for the project in October 2010. The carrying value ofthis investment was $12.7 million at December 31, 2006 and$11.7 million at December 31, 2005.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**5.**   Investments in Military Housing Projects (Continued)

The following is a summaryof the unaudited financial position of the unconsolidated military housingprojects in which the Company had invested capital as of December 31, 2006and 2005 (in thousands):

| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Net property                    |       | $                     | 331,066    |   | $ | 353,447 |   |
| Other assets                    |       | 621,371               |       | 472,312 |   |
| Liabilities                     |       | 36,859                |       | 28,527 |   |
| Debt                            |       | 778,530               |       | 662,135 |   |
| Equity                          |       | 137,048               |       | 135,097 |   |
| Company’s share of  equity |       | 19,146                |       | 18,605 |   |
|                                 |            |                       |            |  |  |  |  |

 

Thefollowing is a summary of unaudited results of operations of the unconsolidatedmilitary housing projects in which the Company had invested capital as of December 31,2006 and 2005 (in thousands):

| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Revenue                        |       | $                                          | 101,493    |   | $ | 111,319 |   |
| Operating  expenses            |       | 57,174                                     |       | 61,463 |   |
| Interest expense,  net         |       | 19,249                                     |       | 28,028 |   |
| Depreciation and  amortization |       | 20,539                                     |       | 23,205 |   |
| Net income                     |       | 4,531                                      |       | (1,377 | ) |
| Company’s equity income   |       | 3,523                                      |       | 3,073 |   |
|                                |            |                                            |            |  |  |  |  |

 

**6.   Income Taxes**

The Company operates in a manner intended to enable itto continue to qualify as a REIT under Sections 856-860 of theInternal Revenue Code of 1986, as amended. As a REIT, the Company generally isnot subject to federal income tax (including alternative minimum tax) on netincome that it currently distributes to its shareholders, provided that theCompany satisfies certain organizational and operational requirements includingthe requirement to distribute at least 90 percent of its REIT taxableincome to its shareholders. If the Company fails to qualify as a REIT in anytaxable year, the Company will be subject to federal income tax (including anyapplicable alternative minimum tax) on its taxable income at regular corporatetax rates. The Company is subject to certain state and local taxes.

The Company has elected to treat certain of itscorporate subsidiaries as taxable REIT subsidiaries (each a “TRS”). In general,a TRS of the Company may perform additional services for tenants of the Companyand generally may engage in any real estate or non-real estate related business(except for the operation or management of health care facilities or lodgingfacilities). A TRS is subject to corporate federal and state income tax. TheTRS follows SFAS No. 109, *Accountingfor Income Taxes,* which requires the use of the asset and liabilitymethod. Deferred income taxes represent the tax effect of the differencesbetween the book and tax bases of assets and liabilities. Deferred tax assetsand liabilities are measured using enacted tax rates in effect in the years inwhich those temporary differences are expected to reverse. The TRS has recordeda deferred tax asset of $436,000 and $741,000 in 2006 and 2005 which areincluded in other assets on the accompanying consolidated balance sheets,primarily relating to development fees 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**6.**   Income Taxes (Continued)

received and recognizedfor income tax purposes that have been deferred in the accompanying financialstatements.

Theprovision for income taxes is comprised of the following for the years ended2006 and 2005, and for the period November 2, 2004 to December 31,2004 (in thousands):

| ** **                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Current federal                   |       | $        | 3,695      |     | $          | 5,334    |       | $ | 263 |   |
| Current state                     |       | 733      |       | 987      |       | 49       |       |
| Total current                     |       | 4,428    |       | 6,321    |       | 312      |       |
| Deferred federal                  |       | 256      |       | (630     | )          | —   |       |
| Deferred state                    |       | 49       |       | (111     | )          | —   |       |
| Total deferred                    |       | 305      |       | (741     | )          | —   |       |
| Provision for income tax  expense |       | $        | 4,733      |     | $          | 5,580    |       | $ | 312 |   |

 

The provision for incometaxes differs from the amount computed by applying the statutory income taxrate to income before provision for income taxes. The effective tax rate of thetaxable REIT subsidiaries was 35.5% and 35.1% for the years ended December 31,2006 and 2005, respectively and 24.9% for the period from November 2, 2004to December 31, 2004. The Company’s effective tax rate is lower than thestatutory tax rate as a result of permanent depreciation and amortizationdifferences between income subject to income tax for book and tax purposes.

**7.   Mortgage NotesPayable**

Thefollowing table sets forth information regarding our mortgage indebtednessoutstanding at December 31, 2006 and 2005 (in thousands):

| ** **                                                                                                                                                                                                                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Fixed rate  mortgages encumbered by student housing properties, bearing interest rates  ranging from 4.03% to 6.19% at December 31, 2006, maturing at various  dates through 2024, adjusted for unamortized net debt premium of $10.2 million                 |       | $        | 964,817    |     | $          | 658,358 |   |
| Variable rate mortgages encumbered by student  housing properties we own and two in which we have an ownership interest  through a joint venture, bearing interest rates ranging from 7.23% to 7.43%  at December 31, 2006, maturing at various dates through 2015 |       | 57,773   |       | 33,711   |       |
| Fixed rate mortgage encumbered by corporate office  building bearing interest at 5.58%, requiring payments of interest only with  balloon payment due in 2016                                                                                                           |       | 5,700    |       | —   |       |
| Total mortgage  notes payable                                                                                                                                                                                                                                           |       | $        | 1,028,290  |     | $          | 692,069 |   |

 

The weighted-average interest rate on our mortgagenotes payable was 5.18%, 4.97% and 4.65% during 2006, 2005 and 2004respectively. As of December 31, 2006 and 2005, the net carrying value ofthe properties that are encumbered by mortgage indebtedness, including the twoproperties that we have an ownership interest in and our corporate officebuilding was $1.433 billion and $1.013 billion, respectively.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**7.**   MortgageNotes Payable (Continued)

Thetable below sets forth for 2007, the five succeeding years and thereafter theaggregate annual principal payments of the above-referenced indebtedness(in thousands):

| ** **           | ** ** | **Principal  Amortization** | ** ** | **Balloon  Payments** | ** ** | **Total** | ** ** |
|----------------------|------------|-----------------------------|------------|-----------------------|------------|-----------|------------|
| 2007                 |       |                        | $          | 5,541                 |       |      | $          | 40,828 |   | $ | 46,369 |   |
| 2008                 |       |                        | 5,598      |                  |       | 27,086    |       | 32,684 |   |
| 2009                 |       |                        | 5,170      |                  |       | 39,872    |       | 45,042 |   |
| 2010                 |       |                        | 5,153      |                  |       | 94,855    |       | 100,008 |   |
| 2011                 |       |                        | 5,247      |                  |       | 90,318    |       | 95,565 |   |
| 2012 and  thereafter |       |                        | 16,675     |                  |       | 681,699   |       | 698,374 |   |
|                 |       |                        | $          | 43,384                |       |      | $          | 974,658 |   | $ | 1,018,042 |   |
| Net debt premium     |       |                        |       |                  |       |      |       | 10,248 |   |
|                 |       |                        |       |                  |       |      |       | $ | 1,028,290 |   |

 

**8.   Line of Credit**

*New Line of credit*

On October 2, 2006 the Company entered into a$250 million revolving line of credit with Wachovia Bank, NationalAssociation, as amended. In connection with this transaction, the Companyincurred approximately $3.3 million of transaction costs that are beingamortized over the term of the agreement. Borrowings under this line of creditwere used to (i) repay all the obligations under the Former CreditFacility, as defined below, and (ii) fund the equity portion of the purchaseprice for our acquisition of a portfolio of eleven properties that closed in October 2006.Borrowings from the line of credit may be used for only those purposes approvedby the lender. Upon entering into the line of credit, the lender pre-approved thefollowing uses: (i) acquire or fund certain pending student housingacquisitions and military housing projects, and (ii) fund the third andfourth quarter distributions, other general working capital advances pursuantto the terms of the agreement, and such other transactions as may be approvedby Wachovia in its sole and absolute discretion. The new line of credit had aninitial term of six months, which was subsequently amended in February 2007to extend the initial term through June 1, 2007, referred to as theInitial Maturity Date, and provides for either of two additional extensionoptions: (i) an additional three-month extension through September 1,2007, referred to as the Option One Maturity Date, in the event that we haveentered into a definitive agreement relating to a merger or the sale ofsubstantially all of our assets, provided such merger/sale agreement has beenapproved by our Board of Trustees, has been announced publicly and is notsubject to financial contingencies; and (ii) an additional four-monthextension option through October 2, 2007 (provided notice is given nolater than fifteen days prior to the later of the Initial Maturity Date or theOption One Maturity Date), subject to payment of a fee in an amount equal to 2%of the outstanding principal balance of the line as of the Initial MaturityDate or the Option One Maturity Date, as the case may be (this extension rightis referred to as the Option Two Maturity Extension). In no event, however,will the maturity date of the line of credit extend beyond October 2,2007.

Borrowings under this new line of credit currentlybear interest at a Eurodollar rate based on LIBOR plus 2% and LIBOR plus 4.5%during the Option Two Maturity Extension.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**8.**   Line of Credit (Continued)

The Operating Partnership and several of its directand indirect subsidiaries that own and operate the student housing properties,including third party management contracts and our military housing projectsguarantee the indebtedness under the line of credit. These entities havegranted a security interest in the entities that own, directly or indirectly,the student housing properties, our third party management business and thecontracts, pursuant to which we receive management, development and renovationfees with respect to operation of its military housing projects.

The new line of credit contains affirmative andnegative covenants and also contains financial covenants which, among otherthings, require that the Company maintain (i) a fixed charge coverageratio with respect to the student housing properties, as defined in the line ofcredit agreement, of at least 1.25 to 1.00, (ii) a consolidated tangiblenet worth, as defined in the line of credit agreement, of at least $455 million,(iii) maintain quarterly minimum aggregate adjusted management EBITDArelating to the military housing segment and student housing managedproperties, as defined in the line of credit agreement, of $5 million, and(iv) maintain the Company’s federal tax status as a REIT. As of December 31,2006, the Company was in compliance with these debt covenants.

As of December 31,2006, the Company had $199.4 million outstanding under the line of credit,bearing interest at a weighted-average rate of 7.35%, and an additional$50.6 million was available for draw under the facility under the termsand conditions referred to above.

*Former CreditFacility*

In November 2004, the Company entered into a$150 million three-year unsecured revolving credit facility, subject toincrease to $250 million (the “Former Credit Facility”), with a consortiumof banks. The Former Credit Facility was terminated and all outstandingborrowings were paid on October 2, 2006 with proceeds from the new line ofcredit, as described above. The Company wrote off approximately $1.1 millionof deferred financing costs relating to the termination of the Former CreditFacility during the fourth quarter of 2006. The Former Credit Facility providedfor the issuance of up to $20 million of letters of credit, which wasincluded in the $150 million availability. During certain periods in 2006,the Company was not in compliance with certain of its debt covenants under theformer credit facility. All such events of non compliance had been previouslywaived.

As of December 31,2005, the weighted average interest rate on borrowings outstanding under theformer Credit Facility was 6.5%.

**9.   Transactions withRelated Parties**

*Related PartyManagement and Other Services*

In the ordinary course of its operations, the Companyhas on-going business relationships with Gary M. Holloway, Sr.,entities affiliated with Mr. Holloway, and entities in which Mr. Hollowayor the Company has an equity investment. The operating results or financialposition of the Company and the GMH Predecessor Entities could be significantlydifferent from those that would have been reported if the entities wereautonomous. These relationships and related transactions are summarized below.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**9.**   Transactions with Related Parties (Continued)

In connection with the Company’s initial publicoffering, Mr. Holloway, and various entities wholly-owned by Mr. Holloway,entered into a Contribution Agreement, dated October 18, 2004, with theOperating Partnership. Pursuant to the Contribution Agreement, Mr. Hollowaycontributed to the Operating Partnership all of the partnership interests of353 Associates, L.P., which entity’s sole asset was the corporate headquartersbuilding located in Newtown Township, Pennsylvania. The Commonwealth ofPennsylvania and Newtown Township each impose a 1% transfer tax on the transferof these partnership interests. Mr. Holloway paid the Companyapproximately $61,000 as reimbursement for one-half of the aggregate transfertax that was originally paid for by the Company in connection with transfer taxassessed against the transfer of the partnership interests. The amount wasreceived by the Company in 2006 from Mr. Holloway, and was recorded as areduction to corporate assets on the Company balance sheet as of December 31,2005.

Through the completion of the Company’s initial publicoffering on November 2, 2004, common costs for human resources,information technology, office equipment and furniture, and certain managementpersonnel were allocated to the various entities owned or controlled by Mr. Holloway,including The GMH Predecessor Entities, using assumptions based on headcountthat management believed were reasonable. During the period from January 1,2004 to November 1, 2004, or such costs totaled $2.1 million and areincluded in administrative expenses in the accompanying combined statement ofoperations. Subsequent to November 2, 2004, such costs were incurreddirectly by the Operating Partnership. The allocation of such costs to otherentities owned or controlled by Mr. Holloway during the years ended December 31,2006 and 2005 and the period from November 2, 2004 to December 31,2004 totaled $218,000, $318,000 and $47,000, respectively, and are reflected asexpense reimbursements from related parties in the accompanying consolidatedstatements of operations.

The Company leases space in its corporate headquartersto entities wholly-owned by Mr. Holloway. During the years ended December 31,2006 and 2005, rental income from these entities totaled $156,000 and $245,000,respectively, and during the period from November 2, 2004 to December 31,2004, rental income from these entities totaled less than $0.1 million. Theseamounts are included in other property income in the accompanying consolidatedand combined statements of operations.

The Company provided property management consultingservices to GMH Capital Partners Asset Services, LP, an entity wholly-ownedby Mr. Holloway, in connection with property management services that GMHCapital Partners Asset Services, LP performed during the year ended December 31,2005 and for the period November 2, 2004 to December 31, 2004relating to five student housing properties containing a total of 2,174 beds.The Company earned consulting fees equal to 80% of the net management fees thatGMH Capital Partners Asset Services, LP earned for providing the propertymanagement services. For the year ended December 31, 2005 and for theperiod November 2, 2004 to December 31, 2004, such fees totaled$0.3 million and less than $0.1 million, respectively. As of January 1,2006, the management agreements relating to four of these properties wereassigned from GMH Capital Partners Asset Services, LP to a subsidiary of theCompany, and the management agreement relating to the fifth property wasterminated. As a result, no such consulting fees were earned by the Companyduring 2006.

The Company earned management fees from properties inwhich Mr. Holloway was an investor. During the years ended December 31,2006 and 2005, the period from November 2, 2004 to December 31, 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**9.**   Transactions with Related Parties (Continued)

2004, and the period from January 1,2004 to November 1, 2004, such income totaled $0.1 million,$0.2 million, $0.1 million, and $1.1 million, respectively. Thisproperty was sold during 2006.

The Company is reimbursed by the joint venturesrelating to certain of its military housing projects in which the Company hasan ownership interest, as well as student housing properties under the Company’smanagement in which Mr. Holloway was an investor through March 2005,for the cost of certain employees engaged in the daily operation of thosemilitary housing projects and student housing properties. The reimbursement ofthese costs is included in expense reimbursements—related party in theaccompanying consolidated and combined statements of operations. During theyear ended December 31, 2006 and 2005, the period from January 1,2004 to November 1, 2004, and the period from November 2, 2004 to December 31,2004, such expense reimbursements relating to these military housing projectsand student housing properties totaled $64.0 million, $57.9 million,$19.5 million and $13.8 million, respectively.

The GMH Predecessor Entities previously paid managementfees and reimbursed expenses to entities owned by Mr. Holloway that werenot contributed to the Company in connection with its initial public offering.During the period from January 1, 2004 to November 1, 2004, themanagement fees and reimbursed expenses totaled less than $0.1 million.

Mr. Holloway owns Bryn Mawr Abstract, Inc.,an entity that provides title abstract services to third party title insurancecompanies, from which we have purchased title insurance with respect to certainstudent housing properties and military housing projects that we have acquiredor refinanced. In connection with the purchase of title insurance for thesestudent housing properties and military housing projects, premiums were paid toother title insurance companies, which fees in some cases are fixed accordingto statute. From these premiums, the other title insurance companies paid toBryn Mawr Abstract, Inc. $0.4 million, $0.3 million and$0.5 million during the years ended December 31, 2006, 2005 and 2004,respectively, for providing title abstract services.

Mr. Holloway owns GMH Capital Partners CommercialRealty LP, an entity that provides real estate consulting and brokerageservices for real estate transactions. During the year ended December 31,2005, GMH Capital Partners Commercial Realty LP received aggregate commissionsof $0.3 million from the sellers of two student housing properties thatthe Company purchased. In addition, in connection with the Company’s NavyNortheast Region project, GMH Capital Partners Commercial Realty LP receivedbrokerage service fees of $0.2 million during the year ended December 31,2004, in connection with the sale of a land parcel by the Navy that wasformerly part of the Company’s Navy Northeast Region project. No such paymentswere made during the year ended December 31, 2006.

In February 2005, the Company transferred itsinterest in Corporate Flight Services, LLC, including the corporate aircraftand associated debt initially contributed to the Operating Partnership at thetime of the initial public offering, back to Mr. Holloway. CorporateFlight Services, LLC had a net deficit of $171,000, net of $180,000 tax expenserelated to the taxable gain upon the transfer to Mr. Holloway, on the dateit was transferred back to Mr. Holloway. This transfer was accounted foras a capital contribution to additional paid-in capital. During the year ended December 31,2006 and 2005, the Company paid Corporate Flight Services, LLC $993,000 and$290,000, respectively for use of an aircraft owned by Corporate FlightServices, LLC.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**9.**   Transactions with Related Parties (Continued)

Gary M. Holloway, Sr.and three other employees of the Company at the time, including two executiveofficers of the Company, and an employee of an entity wholly-owned by Mr. Holloway,held an ownership interest in two student housing properties that were acquiredby the Company during the first quarter of 2005 for a total purchase price of$38.2 million. The Company paid $36.5 million in cash to investors inthe selling entity not affiliated with the Company and issued a total of141,549 units of limited partnership interest in the Operating Partnership to Mr. Hollowayand these individuals with an aggregate fair value of $1.7 million inconnection with the purchase.

*Loan from GeneralElectric Capital Corporation*

During 2005, Denis J.Nayden, one of our trustees, served as a consultant to General ElectricCompany, which is the parent company of General Electric Capital Corporation. Priorto 2005, he served as a senior vice president of General Electric Company. Asof December 31, 2005, we had outstanding mortgage indebtedness owed toGeneral Electric Capital Corporation in an aggregate amount of $253.6 millionsecured by properties or other assets that we owned. Mr. Nayden ceased hisconsulting relationship with General Electric Company as of December 31,2005.

**10.   ProfitsInterests**

In recognition of pastservices, certain employees of The GMH Predecessor Entities and other entitiesaffiliated with Mr. Holloway were previously awarded profits interests by Mr. Holloway.These employees were eligible to participate in the net proceeds or valuereceived by Mr. Holloway upon the sale or disposition of certain studenthousing properties and the military housing business in excess of Mr. Holloway’sequity investments in such assets. These employees rendered all services andsatisfied all conditions necessary to earn the right to benefit from theseprofits interests as of the date that such profits interests were awarded. Inaccordance with SFAS No. 5, *Accountingfor Contingencies*, compensation expense relating to the award ofthese profits interests was required to be recognized by The GMH PredecessorEntities when the sale or disposition of the assets resulting in proceeds receivedby Mr. Holloway in an amount in excess of his equity investment in suchassets became probable. This amount became probable during the third quarter of2004 when the remaining profits interests awards were amended to fix the valueof such awards at $33.2 million to be paid to these employeesunconditionally. Accordingly, we recognized compensation expense in this amountin the third quarter of 2004. Mr. Holloway’s obligations regarding theprofits interests were satisfied upon the transfer to these employees of$33.2 million of units of limited partnership in the Operating Partnershipowned by Mr. Holloway on November 2, 2004, the closing date of ourinitial public offering.

**11.   Employee 401(k) Plan**

Subsequent to the formation of the OperatingPartnership, the Company established a tax deferred defined contribution 401(k) planfor its eligible employees. Participants may elect to defer a portion of theircompensation by salary reduction. The Company’s contributions to the plan,which are based on a percentage of participant contributions, for the yearsended December 31, 2006 and 2005 and the period from November 2, 2004to December 31, 2004 totaled $0.2 million, $0.1 million and lessthan $0.1 million, respectively.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**11.**   Employee 401(k) Plan (Continued)

The GMH PredecessorEntities’ employees were eligible to participate in a multi-employertax-deferred defined contribution 401(k) plan. Participants elected todefer a portion of their compensation by salary reduction. The GMH PredecessorEntities’ contributions to the plan, which were based on a percentage ofparticipant contributions, amounted to $35,000 for the period from January 1,2004 to November 1, 2004.

**12.   Commitments andContingencies**

As of December 31, 2006, we had an agreement toacquire one student housing property and 14 undeveloped parcels of land,of which 13 parcels relate to one project, for an aggregate purchase price of$19.0 million and had placed deposits related to such planned acquisitionstotaling $155,000.

Withregard to military housing privatization projects, the Company is typicallyrequired to fund its portion of the equity commitment to the project’s jointventure after all other sources of funding for the project have been expended.With respect to the Company’s Navy Northeast Region project, however, theCompany was required to fund the equity commitment at commencement of theproject. In connection with finalizing the agreements with the DoD for theCompany’s military housing projects, the Company has committed to contributethe following aggregate amounts as of December 31, 2006 (in thousands):

| 2007  |   | $      | 7,830  |   |
|-------|--------|--------|--------|--------|
| 2010  |   | 6,600  |   |
| 2011  |   | 12,510 |   |
| 2012  |   | 6,300  |   |
| Total |   | $      | 33,240 |   |

 

In connection with the development, management,construction, and renovation agreements for certain of the military housingprojects, the Company guarantees the completion of its obligations under theagreements. The guarantees require the Company to fund any costs in excess ofthe amounts budgeted in the underlying development, management, construction,and renovation agreements. The maximum exposure to the Company on theseguarantees cannot be determined at this time. Management believes that theseguarantees will not have a material adverse impact on the Company’s financialposition or results of operations.

The Company has two ground leases with respect to twoof its student housing properties, one of which expires on September1, 2051 andthe other of which expires on October 31, 2054. Each ground lease providesfor additional renewal terms. Aggregate annual payments under these groundleases are approximately $400,000.

As of December 31, 2006 the Company hademployment agreements in place with each of its executive officers, of whichtwo were executed in 2004 and three in 2006. Each employment agreement is foran initial three-year term and provides for base salaries aggregating$2.8 million over the next three years. The base salaries are increasedannually effective January 1 of each year by a minimum amount equal to atleast the percentage increase in the Consumer Price Index.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**12.**   Commitmentsand Contingencies (Continued)

On December 31, 2005, the Company and one of itsexecutive officers entered into a separation agreement, pursuant to which theexecutive resigned from his position as an officer of the Company andeffectively terminated his employment agreement with the Company. Under theterms of the separation agreement, the executive remained eligible for anincentive bonus award for the fiscal year 2005, which was paid to the executivein June 2006. In addition, the executive has agreed to remain subject tocertain restrictive covenants contained in the employment agreement, includingnon-disclosure of confidential information, non-competition andnon-solicitation of employees, assignment of intellectual property rights, and on-goingcooperation with the Company in connection with pending matters. The Companyand the executive separately executed a Consulting Agreement, datedJanuary 1, 2006, pursuant to which the executive has agreed to provideconsulting services to the Company for an initial term through May 31,2007. The Company is paying the executive $25,000 per month during the term ofthe Consulting Agreement as compensation for his services, which is beingcharged to expense as incurred.

Under the provisions of FIN 45, *“Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others an interpretation ofFASB Statements No. 5, 57, and 107 and rescission of FASBInterpretation No. 34,”* a guarantor is to recognize, at theinception of a guarantee, a liability for the fair value of the obligationundertaken by issuing the guarantee. The Company enters into indemnificationagreements in the ordinary course of business that are subject to theprovisions of FIN 45. Under these agreements, the Company indemnifies, holdsharmless, and agrees to reimburse the indemnified party for losses suffered orincurred by the indemnified party. The maximum potential amount of futurepayments the Company could be required to make under these indemnificationagreements is unlimited. The Company believes the estimated fair value of theseagreements is immaterial. Accordingly, there were no liabilities recorded forthese agreements as of December 31, 2006 and 2005.

On April 5, 2006, the Company, Gary M.Holloway Sr., our Chairman, President and Chief Executive Officer, andBradley W. Harris, our former Chief Financial Officer, were named asdefendants in a class action complaint filed in United States District Courtfor the Eastern District of Pennsylvania, or the Court. The complaint providesthat the Plaintiff has filed a federal class action on behalf of purchasers ofthe publicly traded securities of the Company between October 28, 2004 andMarch 10, 2006, referred to as the Class Period, seeking to pursueremedies under the Securities Act of 1933 and the Securities Exchange Act of1934. Plaintiff alleges that defendants issued a series of false and misleadingfinancial results regarding the Company to the market during the Class Period,and more specifically, failed to disclose: (1) that the Company’searnings, net income and revenues were materially inflated and expenses werematerially understated; (2) that the Company’s funds from operations werematerially inflated; (3) that the Company lacked adequate internalcontrols; (4) that the Company’s reported financial results were inviolation of generally accepted accounting principles, or GAAP; and (5) thatas a result of the foregoing, the Company’s financial results were materiallyinflated at all relevant times. Plaintiff alleges claims under Section 11of the Securities Act with respect to all of the defendants; Section 12(a)(2)of the Securities Act with respect to the Company; Section 15 of theSecurities Act with respect to Mr. Holloway and Mr. Harris; Section 10(b)and Rule 10b-5 of the Exchange Act with respect to all of thedefendants; and Section 20(a) of the Exchange Act with respect to Mr. Hollowayand Mr. Harris.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**12.**   Commitments and Contingencies (Continued)

On April 11, 2006, April 20, 2006, April 27,2006 and May 15, 2006, four additional class action complaints were filedwith the Court against the defendants by separate law firms, and additionalcomplaints may be filed in the near future until a class has been certified bythe court. Each of these additional filed complaints alleges the same claimsagainst the defendants as described above with respect to the complaint filedon April 5, 2006, except that the complaint filed on April 20, 2006restricts the class period to purchasers of the publicly traded securities ofthe Company to the time period between May 5, 2005 and March 10,2006.

On January 22, 2007, the court entered an orderappointing two lead plaintiffs, as well as lead counsel and a liaison counsel.In addition, on that date, the court entered an order indicating that the leadplaintiffs shall file a consolidated complaint within 60 days of the date ofthe order and that defendants shall respond to the consolidated complaintwithin 60 days of service of such consolidated complaint. This order alsostated that the parties shall not file any dispositive motions before attendinga settlement conference with an assigned magistrate judge. Accordingly, thedefendants do not expect to file a dispositive motion, such as a motion todismiss the action, until a consolidated complaint has been filed and asettlement conference has taken place. The outcome of this litigation isuncertain, and while the Company believes that it has valid defenses toPlaintiff’s claims and intends to defend the class action lawsuit vigorously,no assurance can be given as to the outcome of this litigation. The Company has not established a reserve forthese claims as it has not determined that a loss is probable nor is it able toreasonably estimate potential losses, if any, related to this lawsuits. Anadverse outcome could have a material adverse effect on our consolidatedfinancial position and results of operations.

In addition, on March 12, 2007, the sellers of a portfolio of studenthousing properties that we acquired in June 2005, and who received units oflimited partnership interests in our operating partnership in connection withthe transaction, filed a lawsuit against the Company for securities fraudrelating to our sale of the partnership interests. The sellers have allegedsimilar claims to those asserted in the Company’s pending class actionlitigation described above, including that the Company provided false and misleadingfinancial results in connection with the offer and sale of the partnershipinterests. In connection with the acquisition of the portfolio, the Companypurchased four student housing properties in exchange for a combination of cash,assumption of debt and units of limited partnership interests at a total value ofapproximately $76.8 million. The units of limited partnership interestwere issued for a total value of approximately $27.5 million or $14.17 perunit of limited partnership interest. The outcome of this litigation isuncertain; and while the Company believes it has valid defenses to the claimsand will defend itself vigorously, no assurance could be given as to theoutcome of this litigation. The Company hasnot established a reserve for this claim as it has not determined that a lossis probable nor is it able to reasonably estimate potential losses, if any,related to these lawsuit. An adverse outcome could have a material adverseeffect on the Company’s consolidated financial position and results ofoperations.

The Company also issubject to other routine litigation, claims and administrative proceedingsarising in the ordinary course of business. The maximum exposure to the Companyrelating to these matters cannot be determined at this time. Managementbelieves that the disposition of these routine litigation matters will not havea material adverse impact on the Company’s financial position or results ofoperations.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**13.   SegmentReporting**

TheCompany is managed as individual entities that comprise four reportablesegments: (1) student housing—owned properties (2) student housingmanagement (3) military housing and (4) corporate. The operatingresults of our student housing owned properties and student housing managementwhich included our acquisitions department had been previously classified asone segment. The acquisition department is now included in the corporatesegment. The segment data for 2005 and 2004 have been restated to conform withthe current year presentation. The other segment also includes the corporateoverhead and other service departments. The Company’s management evaluates eachsegment’s performance based upon net income. The accounting policies of thereportable segments are the same as those described in the summary ofsignificant accounting policies. (dollars in thousands)

| ** **                                                                                               | ** ** | **2006**                                      | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                               | ** ** | **Student  Housing—  Owned  Properties** | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                                             | ** ** | ** **                                    | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| Rent and other  property income                                                                          |       | $                                             | 188,885    |   |   | $ | — |   |   | $ | — |   | $ | 156 |   |   | $ | — |   |   | $ | 189,041 |   |
| Expense  reimbursements:                                                                                 |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                            |       | —                                        |       |   | 390 |   |   | 63,622 |   | 218 |   |   | — |   |   | 64,230 |   |
| Third party                                                                                              |       | —                                        |       |   | 6,013 |   |   | — |   | — |   |   | — |   |   | 6,013 |   |
| Management fees:                                                                                         |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management  fees—owned properties                                                                   |       | —                                        |       |   | 7,290 |   |   | — |   | — |   |   | (7,290 | ) |   | — |   |
| Related party                                                                                            |       | —                                        |       |   | 93 |   |   | 8,388 |   | — |   |   | — |   |   | 8,481 |   |
| Third party                                                                                              |       | —                                        |       |   | 3,167 |   |   | — |   | — |   |   | — |   |   | 3,167 |   |
| Other fee income-related  party                                                                          |       | —                                        |       |   | — |   |   | 21,635 |   | — |   |   | — |   |   | 21,635 |   |
| Other income                                                                                             |       | 225                                           |       |   | 35 |   |   | 72 |   | 232 |   |   | — |   |   | 564 |   |
| Total revenue                                                                                            |       | 189,110                                       |       |   | 16,988 |   |   | 93,717 |   | 606 |   |   | (7,290 | ) |   | 293,131 |   |
| **Operating Expenses:**                                                                                  | ** ** | ** **                                    | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| Property operating  expense                                                                              |       | 74,927                                        |       |   | 6,516 |   |   | 6,402 |   | — |   |   | — |   |   | 87,845 |   |
| Intercompany  management fees                                                                            |       | 7,290                                         |       |   | — |   |   | — |   | — |   |   | (7,290 | ) |   | — |   |
| Reimbursed  expenses                                                                                     |       | —                                        |       |   | 6,403 |   |   | 63,622 |   | 218 |   |   | — |   |   | 70,243 |   |
| Real estate taxes                                                                                        |       | 17,913                                        |       |   | — |   |   | — |   | 97 |   |   | — |   |   | 18,010 |   |
| Administrative  expenses                                                                                 |       | —                                        |       |   | — |   |   | — |   | 17,682 |   |   | — |   |   | 17,682 |   |
| Audit Committee  and Special Committee Expenses                                                          |       | —                                        |       |   | — |   |   | — |   | 7,821 |   |   | — |   |   | 7,821 |   |
| Profits interest  and employee initial public offering bonus expense                                     |       | —                                        |       |   | — |   |   | — |   | — |   |   | — |   |   | — |   |
| Depreciation and  amortization                                                                           |       | 42,984                                        |       |   | — |   |   | 444 |   | 402 |   |   | — |   |   | 43,830 |   |
| Interest                                                                                                 |       | 50,251                                        |       |   | — |   |   | — |   | 5,082 |   |   | — |   |   | 55,333 |   |
| Total operating  expenses                                                                                |       | 193,365                                       |       |   | 12,919 |   |   | 70,468 |   | 31,302 |   |   | (7,290 | ) |   | 300,764 |   |
| (Loss) income  before equity in earnings of unconsolidated entities, minority interest and  income taxes |       | (4,255                                        | )          |   | 4,069 |   |   | 23,249 |   | (30,696 | ) |   | — |   |   | (7,633 | ) |
| Equity in earnings  of unconsolidated entities                                                           |       | —                                        |       |   | — |   |   | 3,523 |   | — |   |   | — |   |   | 3,523 |   |
| (Loss) income  before minority interest and income taxes                                                 |       | (4,255                                        | )          |   | 4,069 |   |   | 26,772 |   | (30,696 | ) |   | — |   |   | (4,110 | ) |
| Income tax expense  (benefit)                                                                            |       | —                                        |       |   | (337 | ) |   | 5,070 |   | — |   |   | — |   |   | 4,733 |   |
| (Loss) income  before minority interest                                                                  |       | (4,255                                        | )          |   | 4,406 |   |   | 21,702 |   | (30,696 | ) |   | — |   |   | (8,843 | ) |
| Minority interest                                                                                        |       | —                                        |       |   | — |   |   | — |   | (3,857 | ) |   | — |   |   | (3,857 | ) |
| **Net  (loss)income**                                                                                    |       | $                                             | (4,255     | ) |   | $ | 4,406 |   |   | $ | 21,702 |   | $ | (26,839 | ) |   | $ | — |   |   | $ | (4,986 | ) |

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**13.**   Segment Reporting (Continued)

| ** **                                                                                               | ** ** | **2005**                                      | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                               | ** ** | **Student  Housing—  Owned  Properties** | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                                             | ** ** | ** **                                    | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| Rent and other  property income                                                                          |       | $                                             | 131,849    |   |   | $ | — | ** ** |   | $ | — |   | $ | 245 |   |   | $ | — |   |   | $ | 132,094 |   |
| Expense reimbursements:                                                                                  |       |                                          |       |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                            |       | —                                        |       |   | 176 | ** ** |   | 57,436 |   | 318 |   |   | — |   |   | 57,930 |   |
| Third party                                                                                              |       | —                                        |       |   | 4,650 | ** ** |   | — |   | — |   |   | — |   |   | 4,650 |   |
| Management fees:                                                                                         |       |                                          |       |   |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |
| Management  fees—owned properties                                                                   |       | —                                        |       |   | 5,141 | ** ** |   | — |   | — |   |   | (5,141 | ) |   | — |   |
| Related party                                                                                            |       | —                                        |       |   | 197 | ** ** |   | 6,808 |   | — |   |   | — |   |   | 7,005 |   |
| Third party                                                                                              |       | —                                        |       |   | 3,774 | ** ** |   | — |   | — |   |   | — |   |   | 3,774 |   |
| Other fee income-related  party                                                                          |       | —                                        |       |   | 290 | ** ** |   | 18,000 |   | 31 |   |   | — |   |   | 18,321 |   |
| Other income                                                                                             |       | 123                                           |       |   | 19 | ** ** |   | 108 |   | 128 |   |   | — |   |   | 378 |   |
| Total revenue                                                                                            |       | 131,972                                       |       |   | 14,247 | ** ** |   | 82,352 |   | 722 |   |   | (5,141 | ) |   | 224,152 |   |
| **Operating Expenses:**                                                                                  | ** ** | ** **                                    | ** ** |   | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |
| Property operating  expense                                                                              |       | 48,992                                        |       |   | 4,196 | ** ** |   | 4,431 |   | — |   |   | — |   |   | 57,619 |   |
| Intercompany  management fees                                                                            |       | 5,141                                         |       |   | — | ** ** |   | — |   | — |   |   | (5,141 | ) |   | — |   |
| Reimbursed  expenses                                                                                     |       | —                                        |       |   | 4,826 | ** ** |   | 57,436 |   | 318 |   |   | — |   |   | 62,580 |   |
| Real estate taxes                                                                                        |       | 12,191                                        |       |   | — | ** ** |   | — |   | — |   |   | — |   |   | 12,191 |   |
| Administrative  expenses                                                                                 |       | —                                        |       |   | — | ** ** |   | — |   | 12,254 |   |   | — |   |   | 12,254 |   |
| Audit Committee  and Special Committee Expense                                                           |       | —                                        |       |   | — | ** ** |   | — |   | — |   |   | — |   |   | — |   |
| Profits interest  and employee initial public offering bonus expense                                     |       | —                                        |       |   | — | ** ** |   | — |   | — |   |   | — |   |   | — |   |
| Depreciation and  amortization                                                                           |       | 33,369                                        |       |   | — | ** ** |   | 299 |   | 520 |   |   | — |   |   | 34,188 |   |
| Interest                                                                                                 |       | 29,493                                        |       |   | — | ** ** |   | — |   | 1,532 |   |   | — |   |   | 31,025 |   |
| Total operating  expenses                                                                                |       | 129,186                                       |       |   | 9,022 | ** ** |   | 62,166 |   | 14,624 |   |   | (5,141 | ) |   | 209,857 |   |
| Income (loss)  before equity in earnings of unconsolidated entities, minority interest and  income taxes |       | 2,786                                         |       |   | 5,225 | ** ** |   | 20,186 |   | (13,902 | ) |   | — |   |   | 14,295 |   |
| Equity in earnings  of unconsolidated entities                                                           |       | —                                        |       |   | — | ** ** |   | 3,073 |   | — |   |   | — |   |   | 3,073 |   |
| Income (loss)  before minority interest and income taxes                                                 |       | 2,786                                         |       |   | 5,225 | ** ** |   | 23,259 |   | (13,902 | ) |   | — |   |   | 17,368 |   |
| Income tax expense                                                                                       |       | —                                        |       |   | 66 | ** ** |   | 5,514 |   | — |   |   | — |   |   | 5,580 |   |
| Income (loss)  before minority interest                                                                  |       | 2,786                                         |       |   | 5,159 | ** ** |   | 17,745 |   | (13,902 | ) |   | — |   |   | 11,788 |   |
| Minority interest                                                                                        |       | —                                        |       |   | — | ** ** |   | — |   | 5,729 |   |   | — |   |   | 5,729 |   |
| **Net  income**                                                                                          |       | $                                             | 2,786      |   |   | $ | 5,159 | ** ** |   | $ | 17,745 |   | $ | (19,631 | ) |   | $ | — |   |   | $ | 6,059 |   |

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**13.**   Segment Reporting (Continued)

| ** **                                                                           | ** ** | **2004 and Predecessor Companies** | ** ** |
|--------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                           | ** ** | **Student  Housing—  Owned  Properties**     | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
| **Revenue:**                                                                         |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                      |       |                                              | $          | 25,251 |   |   |   | $ | — |   |   | $ | — |   | $ | 399 |   |   | $ | — |   |   | $ | 25,650 |   |
| Expense reimbursements:                                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                        |       |                                              | —     |   |   |   | 1,140 |   |   | 31,822 |   | 347 |   |   | — |   |   | 33,309 |   |
| Third party                                                                          |       |                                              | —     |   |   |   | 7,203 |   |   | — |   | — |   |   | — |   |   | 7,203 |   |
| Management fees:                                                                     |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Management  fees—owned properties                                               |       |                                              | —     |   |   |   | 1,028 |   |   | — |   | — |   |   | (1,028 | ) |   | — |   |
| Related party                                                                        |       |                                              | —     |   |   |   | 1,458 |   |   | 2,897 |   | — |   |   | — |   |   | 4,355 |   |
| Third party                                                                          |       |                                              | —     |   |   |   | 3,986 |   |   | — |   | — |   |   | — |   |   | 3,986 |   |
| Other fee income-related  party                                                      |       |                                              | —     |   |   |   | — |   |   | 8,460 |   | — |   |   | — |   |   | 8,460 |   |
| Other income                                                                         |       |                                              | 34         |   |   |   | 92 |   |   | 393 |   | 396 |   |   | — |   |   | 915 |   |
| Total revenue                                                                        |       |                                              | 25,285     |   |   |   | 14,907 |   |   | 43,572 |   | 1,142 |   |   | (1,028 | ) |   | 83,878 |   |
| **Operating Expenses:**                                                              |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property operating  expenses                                                         |       |                                              | 9,420      |   |   |   | 5,271 |   |   | 6,497 |   | — |   |   | — |   |   | 21,188 |   |
| Intercompany  management fees                                                        |       |                                              | 1,028      |   |   |   | — |   |   | — |   | — |   |   | (1,028 | ) |   | — |   |
| Reimbursed  expenses                                                                 |       |                                              | —     |   |   |   | 8,343 |   |   | 31,822 |   | 347 |   |   | — |   |   | 40,512 |   |
| Real estate taxes                                                                    |       |                                              | 1,887      |   |   |   | — |   |   | — |   | — |   |   | — |   |   | 1,887 |   |
| Administrative  expenses                                                             |       |                                              | —     |   |   |   | — |   |   | — |   | 6,006 |   |   | — |   |   | 6,006 |   |
| Profits interest  and employee initial public offering bonus expense                 |       |                                              | —     |   |   |   | — |   |   | — |   | 37,502 |   |   | — |   |   | 37,502 |   |
| Depreciation and  amortization                                                       |       |                                              | 6,214      |   |   |   | — |   |   | 25 |   | 915 |   |   | — |   |   | 7,154 |   |
| Interest                                                                             |       |                                              | 5,579      |   |   |   | — |   |   | — |   | 493 |   |   | — |   |   | 6,072 |   |
| Total operating  expenses                                                            |       |                                              | 24,128     |   |   |   | 13,614 |   |   | 38,344 |   | 45,263 |   |   | (1,028 | ) |   | 120,321 |   |
| Income (loss)  before equity in earnings of unconsolidated entities and income taxes |       |                                              | 1,157      |   |   |   | 1,293 |   |   | 5,228 |   | (44,121 | ) |   | — |   |   | (36,443 | ) |
| Equity in earnings  of unconsolidated entities                                       |       |                                              | —     |   |   |   | — |   |   | — |   | — |   |   | — |   |   | — |   |
| Income (loss)  before income taxes                                                   |       |                                              | 1,157      |   |   |   | 1,293 |   |   | 5,228 |   | (44,121 | ) |   | — |   |   | (36,443 | ) |
| Income taxes                                                                         |       |                                              | —     |   |   |   | 33 |   |   | 279 |   | — |   |   | — |   |   | 312 |   |
| Income (loss)  before minority interest                                              |       |                                              | 1,157      |   |   |   | 1,260 |   |   | 4,949 |   | (44,121 | ) |   | — |   |   | (36,755 | ) |
| Minority interest                                                                    |       |                                              | —     |   |   |   | — |   |   | — |   | 247 |   |   | — |   |   | 247 |   |
| **Net  income (loss)**                                                               |       |                                              | $          | 1,157 |   |   |   | $ | 1,260 |   |   | $ | 4,949 |   | $ | (44,368 | ) |   | — |   |   | $ | (37,002 | ) |
|                                                                                      |            |                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| ** **                        | ** ** | **Student  Housing** | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|----------------------|------------|----------------------------------|------------|-----------------------|------------|---------------|------------|-----------|------------|
| **As of December 31, 2006:** |       |                 |       |                             |       |                  |       |          |       |      |       |   |   |
| Total assets                      |       | $                    | 1,619,776  |                             |       | $                     | 2,560      |          |       | $         | 58,714     |   | $ | 32,940 |   | $ | 1,713,990 |   |
| Total liabilities                 |       | $                    | 1,087,819  |                             |       | $                     | 4,435      |          |       | $         | (16,551    | ) | $ | 223,015 |   | $ | 1,298,718 |   |
| **As of December 31, 2005:** |       |                 |       |                             |       |                  |       |          |       |      |       |   |   |
| Total assets                      |       | $                    | 1,142,563  |                             |       | $                     | 63,992     |          |       | $         | 59,242     |   | $ | 12,154 |   | $ | 1,277,951 |   |
| Total liabilities                 |       | $                    | 722,105    |                             |       | $                     | 47,364     |          |       | $         | (3,682     | ) | $ | 26,665 |   | $ | 792,452 |   |

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**14.**   EquityIncentive Plan

In November 2004, the Company established anequity incentive plan (the “Plan”) that provides for the issuance of up to2,000,000 common shares pursuant to options, restricted share awards, shareappreciation rights, performance units and other equity based awards, of which1,916,090 were available for grant at December 31, 2006. As of December 31,2006, the Company issued 83,910 restricted common shares under the Plan tonon-employee members of the Company’s Board of Trustees and to an executiveofficer of the Company. The restricted common shares vest over a three-yearperiod from the grant date. The restricted common shares are entitled to thesame dividend and voting rights during the vesting period as the issued andoutstanding common shares. The fair value of the awards was calculated based onthe closing market price of the Company’s common shares on the grant date andis expensed on a straight-line basis over the vesting period.

In 2006 and 2005, the Company recognized non-cashstock-based compensation expense related to the restricted common sharesof $260,000 and $131,000, respectively. The Company did not issue any sharesunder the Plan in 2004.

Thefollowing table presents unvested restricted share activity during the yearended December 31, 2006:

| ** **                          | ** ** | **Unvested Number of   Restricted Shares** | ** ** | **Weighted Average   Grant—Date Fair Value** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| Unvested at  December 31, 2005 |       |                                                           | 26,854     |                                                                  |       |   | $ | 13.40 |   |   |
| Granted                             |       |                                                           | 50,056     |                                                                  |       |   | $ | 13.28 |   |   |
| Vested and  distributed             |       |                                                           | (11,285    | )                                                                     |       |   | $ | 13.32 |   |   |
| Forfeited                           |       |                                                           | —     |                                                                  |       |   | — |   |   |
| Unvested at  December 31, 2006 |       |                                                           | 65,625     |                                                                  |       |   | $ | 13.32 |   |   |

 

As of December 31,2006, there was $724,000 of total unrecognized compensation cost related tofuture service periods for unvested restricted common shares, which is expectedto be recognized once the remaining vesting periods have lapsed.

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**15.**   EarningsPer Share

Thefollowing table details the number of shares and net income used to calculatebasic and diluted earnings per share for the years ended December 31, 2006and 2005 and for the period from November 2, 2004 to December 31,2004 (in thousands, except share and per share amounts):

| ** **                                                      | ** ** | **Year Ended  December 31, 2006** | ** ** | **Year Ended  December 31, 2005** | ** ** | **Period from November 2, 2004  To December 31, 2004** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **Basic**                                        | ** ** | **Diluted**                                      | ** ** | **Basic**                                                                                 | ** ** | **Diluted** | ** ** | **      Basic      ** | ** ** | **      Diluted      ** | ** ** |
| Net (loss) income                                               |       | $                                                | (4,986     | )                                                | $          | (4,986                                                                                    | )          | $ | 6,059 |   | $ | 6,059 |   | $ | 251 |   |   | $ | 251 |   |   |
| Minority interest                                               |       | —                                           |       | (3,857                                           | )          | —                                                                                    |       | 5,729 |   | — |   |   | 247 |   |   |
| (Loss) income available to common shareholders                  |       | $                                                | (4,986     | )                                                | $          | (8,843                                                                                    | )          | $ | 6,059 |   | $ | 11,788 |   | $ | 251 |   |   | $ | 498 |   |   |
| Weighted-average common shares outstanding                      |       | 40,889,508                                       |       | 40,889,508                                       |       | 32,623,564                                                                                |       | 32,623,564 |   | 29,965,418 |   |   | 29,965,418 |   |   |
| Warrant                                                         |       | —                                           |       | 818,100                                          |       | —                                                                                    |       | 2,340,761 |   | — |   |   | 1,721,726 |   |   |
| Units of limited partnership held by minority  interest holders |       | —                                           |       | 31,625,283                                       |       | —                                                                                    |       | 30,639,345 |   | — |   |   | 29,545,486 |   |   |
| Restricted common shares                                        |       | —                                           |       | 12,104                                           |       | —                                                                                    |       | 5,682 |   | — |   |   | — |   |   |
| Total weighted-average shares outstanding                       |       | 40,889,508                                       |       | 73,344,995                                       |       | 32,623,564                                                                                |       | 65,609,352 |   | 29,965,418 |   |   | 61,232,630 |   |   |
| (Loss) earnings per common share                                |       | $                                                | (0.12      | )                                                | $          | (0.12                                                                                     | )          | $ | 0.19 |   | $ | 0.18 |   | $ | 0.01 |   |   | $ | 0.01 |   |   |

 

**16.**   Summaryof Quarterly Results (unaudited)

Thefollowing tables summarize the quarterly financial data for the years endedDecember 31, 2006 and 2005:

| ** **                                | ** ** | **2006**         | ** ** |
|-------------------------------------------|------------|------------------|------------|
| ** **                                | ** ** | **1**st  Quarter | ** ** | **2**nd  Quarter | ** ** | **3**rd  Quarter | ** ** | **4**th  Quarter | ** ** | **Total** | ** ** |
| Total revenue                             |       | $                | 66,571     |   | $ | 71,479 |   | $ | 73,648 |   | $ | 81,433 |   | $ | 293,131 |   |
| Net income (loss)                         |       | $                | 1,140      |   | $ | (541 | ) | $ | (4,292 | ) | $ | (1,293 | ) | $ | (4,986 | ) |
| Basic earnings  (loss) per common share   |       | $                | 0.03       |   | $ | (0.01 | ) | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.12 | ) |
| Diluted earnings (loss)  per common share |       | $                | 0.03       |   | $ | (0.01 | ) | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.12 | ) |

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES Notes to Consolidated and Combined Financial Statements (Continued) December 31, 2006**

**16.**   Summary of Quarterly Results (unaudited) (Continued)

During the first, second,third and fourth quarters of 2006, the Company incurred $2.6 million,$2.3 million, $1.8 million and $1.1 million of costs,respectively, associated with the Audit Committee investigation which commencedduring the first quarter of 2006 and the Special Committee fees associated withthe activities of the Special Committee to explore strategic alternatives forthe Company which was disbanded in December 2006. In addition, during thefourth quarter, the Company wrote-off approximately $1.1 million ofdeferred financing costs associated with the termination of the $150 millioncredit facility.

| ** **                         | ** ** | **2005**         | ** ** |
|------------------------------------|------------|------------------|------------|
| ** **                         | ** ** | **1**st  Quarter | ** ** | **2**nd  Quarter | ** ** | **3**rd  Quarter | ** ** | **4**th  Quarter | ** ** | **Total** | ** ** |
| Total revenue                      |       | $                | 40,972     |   | $ | 49,661 |   | $ | 65,146 |   | $ | 68,373 |   | $ | 224,152 |   |
| Net income (loss)                  |       | $                | 1,445      |   | $ | 826 |   | $ | (32 | ) | $ | 3,820 |   | $ | 6,059 |   |
| Basic earnings  per common share   |       | $                | 0.05       |   | $ | 0.03 |   | $ | 0.00 |   | $ | 0.10 |   | $ | 0.19 |   |
| Diluted earnings per  common share |       | $                | 0.05       |   | $ | 0.03 |   | $ | 0.00 |   | $ | 0.10 |   | $ | 0.18 |   |

 

**17.**   SubsequentEvents

On January 26, 2007, we acquired a 50.1-acreland parcel located adjacent to a currently-owned student housing propertylocated in Lincoln, Nebraska and serving the University of Nebraska, for totalconsideration of approximately $1.2 million.

On February 6, 2007, we closed on the AirEducation and Training Command (“AETC”) Group I project with theDepartment of the Air Force. This military housing privatization project coversfour bases and 2,875 end-state housing units. The AETC Group I projectrepresents our first military housing project with the Department of the AirForce. The 50-year term of the project commences with a five-year InitialDevelopment Period (“IDP”) that includes the design, construction, and/orrenovation of, as well as the overall management and operationalresponsibilities over the end-state housing units. We invested $8.0 millionfor our 80% interest in the partnership that owns the rights to the AETCGroup I project.

On February 28, 2007, we completed the refinancingof four currently-owned student housing properties. Under the refinancing, theCompany placed an aggregate of $90.0 million in mortgage indebtednesscovering the four properties, with each loan having a 10-yearinterest-only term and bearing a fixed interest rate of 5.6%. As a result ofthe refinancing, the Company realized net proceeds of $73.6 million, afterrepayment of existing mortgage loans, payment of prepayment penalties andclosing costs. These net proceeds were used to repay an equal portion of theoutstanding indebtedness under the Company’s line of credit.

 

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

None.

**Item 9A.**                Controlsand Procedures

(a)           *Evaluation of Disclosure Controls and Procedures*

Our management,with the participation of our Chief Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of the Company’s disclosure controls andprocedures (as defined in the Rule 13a-15(e) of the SecuritiesExchange Act of 1934, as amended) as of December 31, 2006. Based upon theevaluation, the Chief Executive Officer and the Chief Financial Officerconcluded that the Company’s disclosure controls and procedures as of December 31,2006 were functioning effectively to provide reasonable assurance that theinformation required to be disclosed by the Company in reports filed under theSecurities Exchange Act of 1934, as amended, is (i) recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and (ii) accumulated and communicated to our management, includingour Chief Executive Officer and Chief Financial Officer, as appropriate, toallow timely decisions regarding disclosure.

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

Management isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f)under the Securities Exchange Act of 1934, as amended. Our internal controlover financial reporting is designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally acceptedaccounting principles. Our internal control over financial reporting includesthose policies and procedures that:

(i)    pertain tothe maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of our assets;

(ii)   providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that our receipts and expenditures are being madeonly in accordance with authorizations of our management and directors; and

(iii)  providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of our assets that could have a material effecton the financial statements.

There are inherent limitations in the effectiveness ofany system of internal control, including the possibility of human error andthe circumvention or overriding of controls. Accordingly, even aneffective internal control system may not prevent or detect misstatements andcan provide only reasonable assurance with respect to financial statementpreparation. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions or that the degree of compliance with the policies orprocedures may deteriorate.

Management conducted an assessment of the Company’sinternal control over financial reporting as of December 31, 2006, usingthe framework specified in *Internal Control—IntegratedFramework*, published bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO).Based on such assessment, management has concluded that the Company’s internalcontrol over financial reporting was effective as of December 31, 2006.

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The attestation reportconcerning management’s assessment of the effectiveness of our internal controlover financial reporting as of December 31, 2006, issued by Reznick Group,P.C., our independent auditors, appears in Item 8 of this Annual Report onForm 10-K for the year ended December 31, 2006.

**Remediation ofPrior Year Material Weaknesses**

As previously disclosed inItem 9A of our Annual Report on Form 10-K for the year ended December 31,2005, as filed with the SEC on July 31, 2006, management concluded thatits internal control over financial reporting was not effective as of December 31,2005. Throughout 2006, and primarily during the second half of 2006, theCompany completed significant remediation efforts to enhance both entity levelcontrols as well as process and transaction level controls.

*Entity-widecontrols*

***Tone at the top established by members of seniormanagement***

The investigation initiated by the Company’s AuditCommittee during the first quarter of 2006 found that senior members of ourmanagement exerted significant pressure on the Company’s former Chief FinancialOfficer and other accounting personnel. In response to this investigation,during the first and second quarters of fiscal 2006, the Audit Committee inconjunction with other members of the Board of Trustees held extensivediscussions with senior management regarding the Company’s control environmentand the need to establish an appropriate tone-at-the-top. These discussionswere supplemented with mandatory training for all of senior management heldduring the fourth quarter of 2006, which was provided by a third-party whichfocuses on SEC filing and reporting requirements as well as public companyoversight and responsibilities.

In addition to theremediation efforts implemented during the first and second quarters of 2006 asdiscussed in Item 9A of our Annual Report on Form 10-K for theyear ended December 31, 2005, the Company conducted a formal “tone at thetop” survey during the third quarter of 2006, under the direction of theCompany’s Audit Committee. The survey was distributed to a wide group ofemployees involved in operations, including accounting personnel, and resultswere compiled by independent counsel to the Audit Committee. During the fourthquarter of fiscal 2006, the Audit Committee reviewed the results of the surveyand concluded that no significant tone-at-the top concerns were present as ofthe survey date. Management is currently considering the feedback obtained inthe survey for continued design and implementation of tone-at-the top programs.A similar survey is expected to be conducted on an annual basis.

***Sufficient personnel in our accounting department withrequisite skills and competencies***

Effective July 1,2006, the Company hired an Executive Vice President and Chief FinancialOfficer, J. Patrick O’Grady, with substantive credentials and requisite experience.In the last six months of the year, Mr. O’Grady assessed the competenciesof the accounting department and has made the following changes:

·       Hiredadditional key personnel including, among others, a corporate controller,military housing segment controller, and military housing segment assistantcontroller.

·       Examinedexisting policies and procedures to identify areas where more explicit guidancewas required, clarified policies and procedures with the accounting team andrelated operations personnel, and as of December 31, 2006, was in theprocess of establishing a plan for formalized modification in 2007.

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·       Createda process through which all new, non-routine transactions within each of theCompany’s business segments are evaluated against generally accepted accountingprincipals, documented, and approved by the Chief Financial Officer.

·       Assessedexisting processes and controls to validate existence and made revisionsnecessary to streamline and improve communication and accountability by appropriateaccounting personnel.

·       Increased staffing levelsin 2006 hiring additional permanent and temporary personnel qualified toprepare and review financial results and transactions.

***Adequate monitoring and information and communicationcontrols***

The hiring of key accounting personnel with requisiteskills and competencies in conjunction with training of senior management,discussed above, created an organization structure that facilitated thenecessary information flow to enable the Company to monitor its businessactivities effectively. In the third and fourth quarters of fiscal 2006, seniormanagement met at least twice per month to discuss strategic activities andbusiness risks, and to review the financial results of the current period. Inaddition, various monitoring activities including property level varianceanalyses, financial close checklists, and certification mechanisms weredeveloped, monitored, and approved on a timely basis.

During the second quarter of fiscal 2006, seniormanagement, in conjunction with the Audit Committee, reviewed the Company’sCode of Business Conduct and Ethics and ensured that all employees, includingnew hires and senior management, re-affirmed their understanding of this Codeand signed a statement to that effect.

Furthermore, the newlyhired Chief Financial Officer, in conjunction with the Chief Executive Officer,established a protocol requiring that the Chief Financial Officer or hisdesignee participate at the onset of discussions for all significanttransactions to review the appropriate accounting treatment in accordance withgenerally accepted accounting principles. This protocol is evidenced byaccounting treatment memorandums reviewed and approved by appropriateaccounting personnel prior to consummation of each significant transaction.

*Process andTransaction Level Controls*

***RevenueRecognition:  ******Within our student housingsegment, we implemented a process through which leases are reconciled tooccupants at the beginning of the new academic year. Subsequent to thisreconciliation, the student housing controller and property managers complete avariance analysis to monitor significant changes in occupancy levels and leases.Furthermore, the Company monitors all student housing receivables open forgreater than 60 days and records the appropriate reserve, in accordance withour policy, for these receivables.***

***Purchasing andAccounts Payable:***   Throughout the third andfourth quarters of 2006, we implemented a policy requiring property managersand regional vice presidents to report and certify that they submitted allinformation related to expenses for goods and services received but not yet invoicedas of the end of each month. In addition, the Company monitors the activity ofthe properties through monthly conference calls with the property managers andregional vice presidents to determine the appropriate level of accruedliabilities to record.

***Capital spendingand maintenance.******  ***During the third quarter offiscal 2006, we implemented a policy requiring generation, review and approvalof a detailed capital spending analysis each month for each property andfunctional department. These analyses, along with the depreciation/amortizationanalysis and journal entries, are reviewed and approved, in accordance with ourcapitalization policy, by the student housing controller and our corporatecontroller in conjunction with the period end financial reporting process.

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***Real estateacquisitions.******  ***During the second quarter of fiscal2006, we established a policy requiring that all acquisitions of studenthousing properties be recorded at their fair market value based on valuationsperformed by professional land surveyors and property estimates. Appraisals bythird party professionals were obtained during the due diligence process andwere the basis for the allocation of the purchase price of each property. Timelyreview and approval by the investment committee, cross-functional due diligenceteam, and the Board of Trustees occurred for each acquisition. Capital assets,and costs to be capitalized in connection with acquisition transactions, wereidentified, recorded, depreciated/amortized and continue to be monitored incompliance with the agreed upon investment documents and capital budgetsapproved by the various parties.

***Period-end financial reporting.******  ***We improvedour monthly close procedures and controls in each of the reporting divisions tofacilitate the timely reporting of financial statements in accordance withgenerally accepted accounting principals through the application of consistent,formalized, close procedures and the routine analysis of accounts. Newlyimplemented and monitored controls include:

·       reviewand documented approval of recurring and non-recurring journal entries,

·       preparationand documented review of significant account reconciliations,

·       thecompletion of review checklists for close and other critical month-endprocedures, and,

·       analysisand documented review of accounts at the property and consolidated levels.

Furthermore, we have implemented controls for thepreparation of the external financial statements prepared during the quartersand at year end. These include the establishment of no less than bi-monthlyexecutive and accounting department meetings to discuss results and potentialissues in the business and internal control procedures, review and evidence ofapproval of the results and position of each of our segments by its respectivecontroller, and enforcement of the adherence to the internal control proceduresdocumented by the Company.

As of December 31,2006, we substantially completed the execution of our remediation plan,evaluated and tested the effectiveness of these controls as of December 31,2006 and determined that the prior year control deficiencies have beenremediated effectively.

Management’s assessment ofthe effectiveness of internal control over financial reporting has been auditedby Reznick Group, P.C., our independent registered public accounting firm.Their report appears below.

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Trustees andShareholders of GMH Communities Trust

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control Over FinancialReporting, that GMH Communities Trust maintained effective internal controlover financial reporting as of December 31, 2006, based on criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). GMH Communities Trust’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in 

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all material respects. Ouraudit included obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and(3) provide reasonable assurance regarding prevention or timely detectionof unauthorized acquisition, use, or disposition of the company’s assets thatcould have a material effect on the financial statements.

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

In our opinion, management’s assessment that GMHCommunities Trust maintained effective internal control over financialreporting as of December 31, 2006, is fairly stated, in all materialrespects, based on criteria established in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO). Also in our opinion, GMH Communities Trust maintained,in all material respects, effective internal control over financial reportingas of December 31, 2006, based on criteria established in *Internal Control—Integrated Framework* issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheet and the related consolidated statements ofoperations, beneficiaries’ equity, and cash flows of GMH Communities Trust, andour report dated March 14, 2007 expressed an unqualified opinion.

/s/ Reznick Group, P.C.

Baltimore, MarylandMarch 14, 2007

(c)           *Changes in Internal Control Over Financial Reporting*

Other than the remediationsteps described above, there have been no changes in our internal control overfinancial reporting during the fourth quarter of fiscal 2006 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

**Item 9B.**               OtherInformation.

None.

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**PART III**

**Item 10.**                 Directors,Executive Officers and Corporate Governance.

**Our Trustees andExecutive Officers**

Ourbusiness and affairs are managed under the direction of our Board of Trustees.Our Board of Trustees consists of nine members. We believe Messrs. Buchholz,Eastwood, Kessler, Nayden and Silfen meet the independence requirements of theNew York Stock Exchange, or NYSE. Our board is responsible for determiningindependence. Our shareholders elect our trustees annually and our trusteesserve and hold office until our next annual shareholder meeting and until theirsuccessors are duly elected and qualify except as otherwise described below. All executive officers are elected by the Board ofTrustees to serve in their respective capacities until their successors areelected and qualified or until their earlier resignation or removal. Thefollowing table sets forth certain information regarding our executive officersand trustees:
| Name                           | ** ** | ** ** | ** ** | **Age** | ** ** | **Title**                                                           |
|--------------------------------|------------|------------|------------|---------|------------|---------------------------------------------------------------------|
| Gary M.  Holloway, Sr.(1) |       |       | 51         |    |       | Chairman, President and  Chief Executive Officer                    |
| Bruce F. Robinson(1)           |       |       | 51         |    |       | President of Military  Housing Business and Trustee                 |
| Frederick F. Buchholz          |       |       | 61         |    |       | Trustee                                                             |
| RADM James W. Eastwood         |       |       | 61         |    |       | Trustee                                                             |
| Michael D. Fascitelli(2)       |       |       | 50         |    |       | Trustee                                                             |
| Steven J. Kessler              |       |       | 64         |    |       | Trustee                                                             |
| Denis J. Nayden                |       |       | 52         |    |       | Trustee                                                             |
| Dennis J. O’Leary(1)      |       |       | 59         |    |       | Trustee                                                             |
| Richard A. Silfen              |       |       | 43         |    |       | Trustee                                                             |
| John DeRiggi                   |       |       | 40         |    |       | President of Student Housing Business and Chief  Investment Officer |
| J. Patrick O’Grady        |       |       | 46         |    |       | Executive Vice President  and Chief Financial Officer               |
| Joseph M. Macchione            |       |       | 41         |    |       | Executive Vice President, General Counsel and  Secretary            |

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(1)          Gary M.Holloway, Sr. designated each of these individuals for nomination to ourBoard pursuant to his right to nominate up to three trustees under the terms ofhis employment agreement. Mr. O’Leary served as our Interim ChiefFinancial Officer from March 31, 2006 through July 1, 2006, at whichtime he became an Executive Vice President and retained the position ofprincipal financial officer. On August 15, 2006, Mr. O’Leary ceasedto be an employee of the Company.

(2)          Vornado Realty L.P., theoperating partnership of Vornado Realty Trust, has designated this individualpursuant to its right to designate for nomination to our Board a trustee underthe terms of the warrant it received in connection with our formationtransactions.

Messrs. Holloway and Robinson have served astrustees since the initial formation of GMH Communities Trust in May 2004.The other trustees have served as trustees since October 28, 2004, thedate on which our common shares were first publicly traded on the New YorkStock Exchange, except that Mr. Fascitelli was appointed to our Board ofTrustees on August 10, 2005.

*GaryM. Holloway, Sr.* is our chairman, president andchief executive officer. Since 1985 and prior to our initial public offering,Mr. Holloway founded and operated GMH Associates, our predecessor entitiesand other affiliated entities, as a fully integrated and diverse real estatecompany with divisions specializing in the student and military housingindustries, as well as the commercial real estate and investment servicessectors. Under Mr. Holloway’s direction, GMH Associates has acquired,built, managed and expanded residential and commercial properties throughoutthe U.S. since its inception. Prior to the formation of GMH Associates,Mr. Holloway was involved in various aspects of the real estate industry.He served as 

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chief financial officerfor the Holloway Corporation, a closely held business that specialized inresidential and senior housing developments, and began his career with ToucheRoss & Co., Certified Public Accountants, where he provided accountingand tax services to real estate clients.

*BruceF. Robinson*is president of our military housingdivision, GMH Military Housing, a military housing company which providesdevelopment, management, and construction/renovation services for housinglocated on military bases throughout the United States. In addition, he managesour military joint venture and partner relationships. Prior to joining themilitary division, Mr. Robinson directed GMH Capital Partners, LP, aninternational corporate real estate company. During his tenure at the firm,which began in 1986, he has been a key participant in the formation andoperation of all entity structures as well as financing issues, due diligenceand global planning. Prior to joining GMH Associates, he was a senior taxmanager for Touche Ross & Co., Certified Public Accountants, where hespecialized in real estate syndication, partnerships and corporateacquisitions.

*FrederickF. Buchholz*worked with Lend Lease Real Estateinvestments or its predecessors from 1968 until retiring in June 1998.Since his retirement, Mr. Buchholz has served as an independent realestate consultant. He was appointed senior vice president of Equitable RealEstate in December 1990 and executive vice president in 1992. Prior to hisretirement, Mr. Buchholz was the officer in charge of the Lend LeasePhiladelphia region, supervising new business, asset management andrestructuring/workout activities on behalf of a total mortgage and equityportfolio exceeding $2.5 billion. At various times, Mr. Buchholz wasalso the officer in charge of Equitable Real Estate’s New York and Washington,D.C. regional offices. Mr. Buchholz is a member of the Board of Trusteesof Liberty Property Trust, and is a member of the Appraisal Institute and theInvestment Review Committee of the Delaware Valley Real Estate Investment Fund,L.P.

*RADMJames W. Eastwood (Ret)*is chairman of GranaryAssociates, a project management, architectural, interior design and realestate development firm, a position he has held since 1990. Admiral Eastwoodbecame executive vice president of Granary Associates in 1983, served aspresident from 1990 through 2004, and led the company through extraordinarygrowth and expansion in the healthcare, public and corporate sectors. Heretired from the Naval Reserves in November 2001 as a Two Star Admiralhaving completed his final tour as Deputy, Vice-Commander, Commander-in-ChiefAtlantic Fleet. Admiral Eastwood also serves on the board of directors of FirstPenn Bank. Admiral Eastwood is an NROTC graduate of Villanova University with aBachelor of Engineering degree.

*MichaelD. Fascitelli*has been president of Vornado RealtyTrust since December 1996. Vornado Realty Trust is a NYSE-listed realestate investment trust that currently owns and manages approximately87 million square feet of commercial real estate in the U.S.Mr. Fascitelli also currently serves as the president ofAlexander’s Inc. Prior to his employment with Vornado Realty Trust,Mr. Fascitelli was a partner at Goldman, Sachs & Co., where hewas head of the firm’s real estate investment banking business.Mr. Fascitelli currently serves on the boards of Vornado Realty Trust,Alexander’s Inc., and Toys “R” Us, Inc. Mr. Fascitelli receiveda Bachelor of Science in industrial engineering from the University of RhodeIsland in 1978 and his MBA from the Harvard Graduate School of BusinessAdministration in 1982.

*StevenJ. Kessler* has been an executive vice president andthe chief financial officer of Resource America, Inc., an asset managementcompany that specializes in real estate, financial fund management and commercialfinance since 2005, and served as senior vice president from 1997 to thepresent. From March 2005 to September 2005, he served as chieffinancial officer, and since September 2005 he has served as senior vicepresident, of Resource Capital Corp., a NYSE-listed specialty finance REIT thatis externally managed by an indirect, wholly-owned subsidiary of ResourceAmerica, Inc. In addition, from 2002 to 2004, Mr. Kessler served asthe chief financial officer of Atlas Pipeline Partners, L.P., a NYSE-listedmaster limited partnership. Prior to that, Mr. Kessler was vicepresident-finance and acquisitions at 

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Kravco Company fromMarch 1994 until 1997. From 1983 through March 1994, Mr. Kesslerwas chief financial officer and chief operating officer at StrouseGreenberg & Co., Inc., a regional full service real estatecompany, and vice president-finance and chief accounting officer at itssuccessor, The Rubin Organization. Prior thereto, Mr. Kessler was apartner at Touche Ross & Co., Certified Public Accountants.Mr. Kessler received a Bachelor of Science degree in accounting fromTemple University in 1965 and became a certified public accountant in 1967.

*DenisJ. Nayden*was a senior vice president of GeneralElectric Company and is the former chairman and chief executive officer of GECapital Corporation. Mr. Nayden joined GE Capital as marketingadministrator for Air/Rail Financing in 1977, and in 1986 joined the CorporateFinance Group as vice president and general manager. In 1987, he was appointedsenior vice president and general manager of the Structured Finance Group, andexecutive vice president of GE Capital in 1989. Mr. Nayden was namedpresident and chief operating officer of GE Capital in 1994, and chairman andchief executive officer of GE Capital in June 2000. Currently,Mr. Nayden serves as Senior Advisor and Managing Partner of the Oak HillPartners, L.P., a private investment group. He also is a Member of AlixPartners Holdings/Questor Partners Holdings Advisory Board, and serves on theboards of Accretive Healthcare Services, Inc., DuaneReade, Inc. andGecis Global Holdings. Mr. Nayden received his Bachelor of Arts in Englishand his MBA in Finance from the University of Connecticut in 1976 and 1977,respectively.

*DennisJ. O’Leary*served as our interim Chief FinancialOfficer from March 31, 2006 through June 30, 2006. Effective as ofJuly 1, 2006, Mr. O’Leary’s position with the Company becameExecutive Vice President and Principal Financial Officer. Mr. O’Learyceased to be an employee of the Company on August 15, 2006 after thefiling of the Company’s Quarterly Report on Form 10-Q for thequarter ended March 31, 2006. Mr. O’Leary has been an independentconsultant and a private investor since January 2004, working as a consultantto GMH Communities Trust and its predecessor entities on financial, structuringand compensation matters since March 2004. He was a partner withErnst & Young LLP during 2002 and 2003, heading up the firm’s New YorkRegion—Insurance Tax Practice. From 1985 to 2001, Mr. O’Leary was a seniorvice president with Reliance Group Holdings, Inc. where he was responsiblefor worldwide tax planning. Prior to that time, he was a partner with ToucheRoss & Co, Certified Public Accountants. Mr. O’Leary received hisBachelor of Arts in Economics from LaSalle University in 1970 and an MBA inAccounting and Finance from Temple University in 1973. He became a certifiedpublic accountant in 1974.

*RichardA. Silfen*has been a partner of the law firm of DuaneMorris LLP, based in its Philadelphia, PA office, since January 2007.Prior to that time, he served as president and chief financial officer ofCangen Biotechnologies, Inc., a biotechnology company developing moleculardiagnostic tests for the early detection of cancer and other technologiesdesigned to enhance the selection of cancer therapeutic regimes, fromSeptember 2004 through July 2006. From May 2000 untilAugust 2004, Mr. Silfen was a partner of the law firm of Morgan,Lewis & Bockius LLP. Mr. Silfen has extensive experiencecounseling real estate investment trusts and other publicly traded companies inconnection with capital raising transactions and other securities matters, aswell as mergers and acquisitions and other business and financial matters. He isalso a member of the National Association of Real Estate Investment Trusts.Prior to May 2000, Mr. Silfen was a partner of the law firm of Wolf,Block, Schorr and Solis-Cohen LLP and was vice chairman of its corporatedepartment. From 1987 through 1990, Mr. Silfen worked in the Securitiesand Exchange Commission’s Division of Corporation Finance. Mr. Silfenreceived his Bachelor of Arts in Physics from Baylor University in 1983 and hisJ.D. from the University of Alabama in 1987.

*JohnDeRiggi*is president of our student housing businessand chief investment officer. Mr. DeRiggi was promoted to the position ofpresident of our student housing business on July 1, 2006, from his priorposition as Executive Vice President. As president of our student housing business,Mr. DeRiggi is responsible for the oversight of all aspects of the studenthousing division, including management and operations. As chief investmentofficer, Mr. DeRiggi will continue to be responsible for capital markets 

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activities for GMH CommunitiesTrust, including asset level financing. In his prior position as Executive VicePresident, Mr. DeRiggi was responsible for acquisition of student housingassets, and development of new student housing properties. Previously,Mr. DeRiggi was senior vice president of GMH Capital Partners, LP, withdirect oversight of the Corporate Services Group, the Investment ServicesGroup, and portfolio/data administration. Previously, Mr. DeRiggi was amember of GMH Associates’ Investment Acquisition Group, where he wasresponsible for structuring the acquisition of residential and commercialproperties for the Company’s investment accounts. Prior to joining GMHAssociates in 1997, Mr. DeRiggi was an investment property specialist withthe Tampa, Florida office of the Grubb & Ellis Company. He holds aBachelor of Science degree in Business from the State University of New Yorkand an MBA with distinction from Hofstra University.

*J.Patrick O’Grady*is our executive vice president andchief financial officer. Mr. O’Grady oversees the Company’s accounting andfinancial reporting activities, including its student housing and militaryhousing divisions. Prior to joining the Company, Mr. O’Grady served as anAssurance Partner with KPMG LLP from May 2002 and previously as a partnerwith Arthur Andersen LLP from September 1997-May 2002.Mr. O’Grady has served many entrepreneurial companies primarily in thereal estate and healthcare industries and has been involved with three REITIPO’s and has served many REIT’s, developer’s, broker’s and property managersduring his career. He has participated in transactions raising over $3 billionof debt and equity financing. Mr. O’Grady is a member of the AICPA, PICPAand NAREIT and is a licensed certified public accountant in Pennsylvania andFlorida. Mr. O’Grady holds a Bachelor of Science degree in accounting fromLaSalle University where he graduated *magna cum laude*.

*JosephM. Macchione*is our executive vice president, generalcounsel and secretary. Mr. Macchione oversees all legal matters for GMHCommunities Trust, including its student housing and military housingdivisions. Before joining GMH Associates in February 2001,Mr. Macchione practiced at the law firm of Morgan, Lewis &Bockius LLP from March 1998 to February 2001, and prior to that timeat the law firm of Ballard, Spahr, Andrews & Ingersoll LLP, where hislegal practice focused on commercial real estate, construction, environmentaland telecommunications law matters. Mr. Macchione is an Executive CommitteeMember of the Real Property Section of the Philadelphia Bar Association,and is licensed to practice law in Pennsylvania and New Jersey.Mr. Macchione received his J.D., *cumlaude,* from Temple University School of Law, and his undergraduatedegree, *summa cum laude*, fromTemple University.

**Audit Committee and Audit Committee Financial Expert**

The Company’s AuditCommittee is comprised of three independent trustees, Messrs. Eastwood,Kessler and Silfen. The Audit Committee has been established as a separately-designatedstanding committee of the Company’s Board of Trustees in accordance withsection 3(a)(58)(A) of the Securities Exchange Act of 1934, asamended. Each of the members of the Audit Committee meets the financialliteracy requirements of the NYSE and is independent as defined under theCompany’s Corporate Governance Guidelines and consistent with the listingstandards of the NYSE. The Board has affirmatively determined thatMr. Kessler, who serves as the chairperson of the Audit Committee, is an“audit committee financial expert” as defined under applicable SEC regulations.In accordance with the terms of the Audit Committee formal charter, the AuditCommittee oversees, reviews and evaluates:

·       ourfinancial statements;

·       ouraccounting and financial reporting processes;

·       theintegrity and audits of our financial statements;

·       ourdisclosure controls and procedures;

·       ourinternal control functions;

·       ourcompliance with legal and regulatory requirements;

·       thequalifications and independence of our independent auditors; and

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·       theperformance of our internal and independent auditors.

TheAudit Committee also:

·       hassole authority to appoint, compensate, oversee, retain or replace ourindependent auditors;

·       hassole authority to approve in advance all audit and permissible non-auditservices, if any, by our independent auditors and the fees to be paid inconnection therewith;

·       isresponsible for establishing and maintaining whistleblower procedures;

·       conductsan annual self-evaluation;

·       preparesan Audit Committee report for publication in our annual proxy statement;

·       monitorscompliance of our employees with our standards of business conduct and conflictof interest policies; and

·       meetsat least quarterly with our senior executive officers, internal audit staff andour independent auditors in separate executive sessions.

**Section 16(a) Beneficial Ownership ReportingCompliance**

Section 16(a) of the Securities Exchange Actof 1934 requires the Company’s executive officers and trustees and persons whoown more than 10% of the Company’s common shares to file reports of ownershipand changes in ownership of the Company’s common shares and any other equitysecurities with the SEC and the NYSE. Executive officers, trustees and greaterthan 10% shareholders are required by SEC regulations to furnish the Companywith copies of all Section 16(a) forms they file.

Based solely on its review of the copies of Forms 3, 4and 5 furnished to the Company during or with respect to 2006, or writtenrepresentations from certain reporting persons that no such forms were requiredto be filed by such persons, we believe that all of the Company’s executiveofficers, trustees and greater than 10% shareholders complied during 2006 withall filing requirements applicable to them.

**Code of Ethics**

*Code of Business Conductand Ethics.**  *TheCompany has adopted a Code of Business Conduct and Ethics in accordance withthe corporate governance rules of the NYSE. The code contains a policythat prohibits conflicts of interest between the Company’s officers, employeesand trustees on the one hand, and the Company on the other hand, except whereour Audit Committee approves of the transaction involving the potentialconflict. The Company’s conflicts of interest policy states that a conflict ofinterest exists when a person’s private interest is not aligned or appears notto be aligned, or interferes or appears to interfere, in any way, with theCompany’s interest. For example, the Company’s conflicts of interest policyprohibits its officers, employees and trustees from entering into agreements,transactions or business relationships, or otherwise taking actions, thatinvolve conflicts of interest, other than such agreements, transactions orbusiness relationships or other actions that are (i) otherwisecontemplated in the prospectus relating to the Company’s initial publicoffering, or (ii) approved in advance by the Company’s Audit Committee.Except as otherwise permitted as described in the foregoing sentence, theCompany is prohibited from, among other things, engaging in the following activities:

·       acquiringany assets or other property from, or selling any assets or other property to,any of the Company’s trustees, officers or employees, any of their immediatefamily members or any entity in which any of the Company’s trustees, officersor employees or any of their immediate family members has an interest of 5% ormore;

·       makingany loan to, or borrowing from, any of the Company’s trustees, officers oremployees, any of their immediate family members or any entity in which any ofthe Company’s trustees, officers or employees or any of their immediate familymembers has an interest of 5% or more;

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·       engagingin any other transaction with any of the Company’s trustees, officers oremployees, any of their immediate family members or any entity in which any ofthe Company’s trustees, officers or employees or their immediate family membershas an interest of 5% or more; or

·       permittingany of the Company’s trustees or officers to make recommendations regarding orto approve compensation decisions that will personally benefit such trustees orofficers or their immediate family members whom the Company employs, other thancustomary compensation for service on the Company’s Board of Trustees and itscommittees.

A copy of this code may be viewed on the CorporateGovernance section of the “Investor Relations” page on the Company’swebsite at *www.gmhcommunities.com.*

*Codeof Ethics for Chief Executive Officer and Senior Financial Employees.**  *The Company has adopted a Code ofEthics for Chief Executive Officer and Senior Financial Employees that appliesto the Company’s principal executive officer, principal financial officer,principal accounting officer or controller and persons performing similarfunctions. A copy of this code may be viewed on the Corporate Governancesection of the “Investor Relations” page on the Company’s web site at *www.gmhcommunities.com.*To the extentpermitted by the corporate governance rules of the NYSE, the Companyintends to satisfy the disclosure requirement under Item 5.05 of Form 8-Kregarding the amendment to, or waiver of, a provision of the code by postingsuch information under the Corporate Governance section of the “InvestorRelations” page on the Company’s website at *www.gmhcommunities.com.*

**Item 11.**                 ExecutiveCompensation.

***Compensation Discussion and Analysis***

*Overview of Compensation Program*

The Compensation Committee (for purposes of thisanalysis, the “Committee”) of the Board has been appointed to discharge theBoard’s responsibilities relating to the compensation of the Company’sexecutive officers. The Committee has the overall responsibility for approvingand evaluating the Company’s executive officer compensation plans, policies andprograms. The Committee’s primary objectives include serving as an independentand objective party to review these compensation plans, policies and programs.

Throughout this report, the individuals who served asthe Company’s chief executive officer and chief financial officer during fiscal2006, as well as the other individuals included in the Summary CompensationTable presented below, are sometimes referred to in this report as the “namedexecutive officers.”

*Compensation Philosophy and Objectives*

TheCompensation Committee believes that a well-designed compensation programshould align the goals of the shareholders with the goals of the chiefexecutive officer, and that a significant part of the executive’s compensation,over the long term, should be dependent upon the value created forshareholders. In addition, all executives should be held accountable throughtheir compensation for the Company’s performance, and compensation levelsshould also reflect the executive’s individual performance during the period inan effort to encourage increased individual contributions to the Company’sperformance. The compensation philosophy, as reflected in the Company’semployment agreements with its executives, is designed to motivate executivesto focus on operating results and create long-term shareholder value by:

·       establishinga plan that attracts, retains and motivates executives through compensationthat is competitive with a peer group of other publicly-traded real estateinvestment trusts, or REITs;

·       linkinga portion of executives’ compensation to the achievement of the Trust’sbusiness plan by using measurements of the Trust’s operating results andshareholder return; and

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·       buildinga pay-for-performance system that encourages and rewards successful initiativeswithin a team environment.

The Compensation Committeebelieves that each of the above factors is important when determiningcompensation levels. Initially, the Committee reviews and approves annually thechief executive officer’s proposed corporate and individual performance goalsand objectives relevant to executive officers and subsequently evaluatesperformance of the executive officers in light of those goals and objectives.The Committee considers the Company’s performance, relative shareholder return,the total compensation provided to comparable officers at similarly-situatedcompanies, and compensation given to executive officers in prior years. To thatend, the Committee believes executive compensation packages provided by theCompany to its executive officers should include both base salaries and annualbonus awards that reward corporate and individual performance, as well asincentivize those executives to meet or exceed established goals.

*Role of ExecutiveOfficers in Compensation Decisions*

The Committee makes all final compensation decisionsfor the Company’s executive officers. The chief executive officer annuallyreviews the performance of the executive officers other than himself (hisperformance is reviewed solely by the Committee), and then presents his conclusionsand recommendations to the Committee with respect to base salary adjustmentsand annual cash bonus award amounts. The Committee then has the ability toexercise its own discretion in modifying any recommended adjustments or awardsto the executives (subject where relevant to applicable terms under employmentagreement), but does consider the recommendations from the chief executiveofficer, as well as any self-evaluations prepared by executive officers inlight of any individual performance goals that have been pre-approved by theCommittee.

*Role ofEquity-Based Compensation in Compensation Analysis*

Historically, the Committee has approved only annualbase salary adjustments and cash bonus awards for executive officers, and hasnot established any program pursuant to which executive officers receiveequity-based awards under the Company’s Equity Incentive Plan. To date, theonly named executive officer to whom equity-based compensation has been awardedis Mr. O’Grady, the Company’s current chief financial officer. The grantto Mr. O’Grady was part of his initial employment package under anemployment agreement that became effective on July 1, 2006. The grant toMr. O’Grady consisted of 40,000 restricted common shares as called for by theemployment agreement, which shares will vest over a three-year period (10,000shares upon the first anniversary of employment, and 15,000 shares for each ofthe second and third anniversaries of employment).

No other equity-basedawards have been granted to executive officers or other Company employees sinceinception of the Company’s Equity Incentive Plan. The Committee has, however,discussed its intention to implement a formal equity-based compensation programfor executive officers and other Company employees by the end of 2007. TheCommittee views any such equity-based program as a form of long-termcompensation, and currently expects to structure the program to include thegrant of restricted common shares with vesting restrictions over one or moreyears of employment. The Committee also currently plans to work with anindependent compensation consultant in structuring the terms of any suchequity-based compensation program, and to review the terms of similar programsutilized by other peer group companies. The Committee believes that the grantof equity-based compensation that includes a vesting period over several yearsof employment will promote the Company’s goal of retaining key employees, andalign the key employee’s interests with those of the Company’s shareholdersfrom a long-term perspective.

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*Role of Employment Agreements in Determining ExecutiveCompensation*

Each of the Company’scurrently employed executive officers is a party to an employment agreement. Atthe time of the Company’s initial public offering in October 2004, theCompany executed employment agreements with three of its then top executiveofficers:  the chief executive officerand the presidents of the Company’s student housing and military housingdivisions. Then, in July 2006, in light of recommendations received fromindependent counsel engaged by the Company’s Audit Committee to conduct aspecial investigation relating to accounting and auditing matters, the Companyexecuted employment agreements with the Company’s new chief financial officer,J. Patrick O’Grady, as well as with the Company’s new president of the studenthousing division, John DeRiggi, and the Company’s general counsel, Joseph M.Macchione. More specifically, the recommendations from the Audit Committee’sindependent counsel provided that the Committee should consider entering intoan employment agreement with its new chief financial officer, which agreementwould include severance provisions, and would reduce, compared to the Company’spast employment agreements with other executive officers, the percentage of overallcompensation linked to overall Company performance. These measures wererecommended for consideration by the Committee in an effort to ensure the chieffinancial officer’s independence, in light of the Company’s tone-at-the-topmaterial weakness identified as part of the Company’s evaluation of internalcontrol over financial reporting as of December 31, 2005. Uponconsideration of these recommendations, the Committee determined that it wasappropriate to enter into such an employment agreement with Mr. O’Grady.

In addition, the Committeeconcluded that the same considerations of promoting Mr. O’Grady’sindependence were applicable to the Company’s other executive officers, andtherefore the Committee simultaneously approved of the execution of employmentagreements with the Company’s other executive officers who had no suchagreement at that time. Based on the foregoing objectives, the Committee hasstructured the compensation terms under these other employment agreements tomotivate executives to achieve the business objectives set by the Company andreward the executives for achieving such objectives, as well as to promote theCompany’s goal of retaining key employees.

*Annual Base Salaries*

Base salaries are paid forongoing performance throughout the year. In order to compete for and retaintalented executives who are critical to the Company’s long-term success,the Committee has determined that the base salaries of executive officersshould be generally in line with the average of those of executives of otherequity REITs that compete with the Company for employees, investors andbusiness, while also taking into account the executive officer’s individualperformance and tenure and the Company’s performance relative to its peercompanies within the REIT sector.

Each of the Company’semployment agreements is subject to an initial three-year term and provides forthe following initial annual base salaries: Gary M. Holloway, Sr.,$350,000; Bruce F. Robinson, $325,000; John DeRiggi, $300,000; J. Patrick O’Grady,$300,000; and Joseph M. Macchione, $250,000. The initial base salaries includedin the Company’s employment agreements for Messrs. Holloway and Robinsonwere reviewed and recommended by The Schonbraun McCann Group LLC, anindependent consulting firm engaged prior to completion of the Company’sinitial public offering in November 2004. The initial base salariesincluded in the Company’s employment agreements for Messrs. O’Grady,DeRiggi and Macchione were evaluated by the Committee on the basis of a peergroup report compiled by the Committee’s compensation consultant, whichprovided an analysis of salary and bonus amounts paid to similarly-situatedemployees at several comparably-sized companies. Prior to the date ofeffectiveness of the employment agreements for Messrs. DeRiggi andMacchione on July 1, 2006, their annual base salaries for 2006 ($275,000and $250,000, respectively) had been similarly evaluated by the Committee inconjunction with its review of the independent compensation consultant’s peergroup report. The Committee’s compensation consultant included the followingcompanies as part of the Company’s peer 

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groupfor purposes of comparing compensation of executives: American CampusCommunities, American Financial Realty Trust, Brandywine Realty Trust,Education Realty Trust, Pennsylvania Real Estate Investment Trust, and LibertyProperty Trust. In evaluating the compensation provided within this peer group,the Committee considers differences between the relevant peer group company andthe Company, such as location, market presence, size, type of real estateholdings, market capitalization, and other pertinent factors. The Committee,together with itscompensation consultant, will periodically review and updatethe Company’s list of peer group companies to ensure that it is comprised ofthose companies that compete for similar talent and investors.

Under the terms of theexecutive officers’ employment agreements, the base salaries are to beincreased annually effective January 1 of each year during the term of theemployment agreement, and such increases will be a minimum positive amountequal at least to the percentage increase in the Consumer Price Index. Duringthe first quarter of 2006, the Committee determined that it would seek to enterinto employment agreements with Messrs. DeRiggi and Macchione (as well aswith Mr. O’Grady, who had been offered the position of chief financialofficer but not yet accepted employment), but that in the meantime it wasappropriate to set the annual adjustments of the 2006 base salaries for Messrs. DeRiggiand Macchione. The Committee also agreed that it was appropriate to adjust the2006 base salaries to amounts similar to the base salaries that were to beoffered under the employment agreements with these executive officers. Asreferenced above, the Committee used a peer group compensation report providedby its compensation consultant in evaluating the initial base salaries to beoffered to these executives under their employment agreements, and sought to ensurethat the base salaries would be near the average of the base salaries receivedby similarly-situated employees at the peer group companies. Accordingly,during the first quarter of 2006, the Committee approved of a 2006 annual basesalary for Mr. Macchione of $250,000, and for Mr. DeRiggi of$275,000, each of which was made retroactive to January 1, 2006. At thetime that the Committee approved of this 2006 annual base salary for Mr. DeRiggi(which was the initial base salary to be offered under his employmentagreement), Mr. DeRiggi had not yet been appointed to the position ofpresident of the student housing business. Once Mr. DeRiggi was appointedto the position of president of the student housing business, in addition tohis current role as chief investment officer, the Committee determined that itwas appropriate to increase the initial base salary under his employmentagreement to $300,000. The base salary under Mr. DeRiggi’s employmentagreement did not become effective until July 1, 2006.

Upon the termination ofBradley W. Harris, the Company’s former chief financial officer, on March 31,2006, the Board appointed Dennis J. O’Leary, a non-employee trustee of theBoard, as the interim chief financial officer of the Company, to serve until aformal replacement for the position could be located. In approving the salaryto be provided to Mr. O’Leary during his employment by the Company, theCommittee considered that Mr. O’Leary was accepting the position under aset of extremely volatile circumstances, including (i) the pending outcomeof the special investigation being conducted by the Audit Committee, (ii) anticipatedrestatements to the Company’s previously filed financial results, (iii) threatsof class action shareholder litigation, and (iv) the need to work with theCompany’s independent auditors and the Company’s forensic accountants tocomplete additional procedures necessary to complete the Company’s audit forthe fiscal year 2005. Mr. O’Leary served as the Company’s interim chieffinancial officer from April 1, 2006 through June 30, 2006, and thenas executive vice president and principal accounting officer from July 1,2006 through August 15, 2006.

*Annual Incentive Bonus Awards*

In addition to theprovisions for base salaries under the terms of our employment agreements, eachexecutive is entitled to receive an annual cash bonus for each calendar yearduring the term of the agreement, based on the achievement of  individual and corporate performance goalsset by the Committee. The Committee establishes achievement thresholds for thebonuses to be paid with respect to the achievement of these goals, as follows: (a) forMr. Holloway, threshold, target, superior and 

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outperformancelevels equal to 40%, 80%, 120%, and 200%, respectively, of his base salary; (b) forMr. Robinson, threshold, target, superior and outperformance levels equalto 40%, 80%, 120%, and 175%, respectively, of his base salary; and (c) forMessrs. DeRiggi, O’Grady and Macchione, threshold, target and superiorlevels equal to 40%, 80% and 120%, respectively, of their respective basesalaries. Under the terms of Mr. O’Grady’s employment agreement, whichbecame effective on July 1, 2006, he was guaranteed a cash bonus for thecalendar year 2006 equal to no less than $120,000, of which $100,000 wasrequired to be paid and was paid, within five business days after the effectivedate of his employment agreement.

Under the terms of the employment agreements, theBoard or the Committee is required to meet during the first 90 days of eachcalendar year (120 days solely with respect to the 2006 calendar year for Messrs. DeRiggi,O’Grady and Macchione) to determine the relevant individual and corporateperformance goals for each executive officer for the then-current year. At theend of that year, an assessment of individual and corporate performance againstthese goals is used to determine the cash incentive bonuses to be awarded inaccordance with the following formula set forth under the employmentagreements:

**total annual incentive bonus = individual performancebonus + corporate performance bonus**

where:

*individualperformance bonus* = individual performance levelachieved (threshold, target, superior or outperformance percentage, asapplicable) x individual goals allocation x base salary

*corporateperformance bonus* = corporate performance levelachieved (threshold, target, superior or outperformance percentage, asapplicable) x corporate goals allocation percentage x base salary

With respect to theallocation of individual and corporate goals, the applicable percentages underthe employment agreements are 20% and 80%, respectively, for Messrs. Holloway,Robinson and DeRiggi, and 40% and 60%, respectively, for Messrs. O’Gradyand Macchione. In setting individual performance goals, the Committee obtains alist of such goals from each of the executive officers, which generally includepersonal objectives of the individual for the coming year that relate to theirmanagement, and the general performance, of their respective department (or theCompany as a whole, as it relates to the chief executive officer). With respectto corporate goals, management as a whole submits its recommendations to theCommittee as to various Company performance objectives for the coming year,which generally are divided into goals for each of the student housing andmilitary housing segments, as well as the Company’s overall performance on thebasis of funds from operations, or FFO. These corporate performance goals arefurther broken down into threshold, target, superior or (where applicable)outperformance levels. Historically, the corporate performance goals relatingto student housing have been based on the dollar value of student housingacquisitions completed during a fiscal year, and goals covering militaryhousing have been based on the number of military housing end-state housingunits awarded under military housing privatization projects during a fiscalyear. With respect to FFO, the Committee historically has reviewed analystconsensus for projected fiscal year FFO of the Company in setting the targetlevel of performance. In addition to these purely quantitative factors, theCommittee also performs a qualitative analysis with respect to the Company’sand each business segment’s performance for the fiscal year. The Committeereviews the recommendations submitted by management for both individual andcorporate performance goals, and uses its discretion in making appropriateadjustments to the recommendations before finally approving them.

In light of the events surroundingthe special investigation performed by the Audit Committee of the Board, whichcommenced in the first quarter of 2006 and did not end until the third quarterof 2006, the Committee did not set individual and corporate performance goalsfor the executive officers during the 

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respectivetimeframes called for by the employment agreements in 2006. Accordingly, the2006 cash bonus awards for executive officers, as approved by the Committee in March 2007,were not determined pursuant to the compensatory plan as specifically calledfor under the employment agreements. Rather, for purposes of determining cashbonus awards for 2006, the Committee calculated the awards by categorizing the2006 individual performance of each executive officer into a threshold, target,superior or outperformance level (to the extent applicable under the executive’semployment agreement), and then multiplying the percentage associated with suchlevel under the executive’s employment agreement by his then-current basesalary. For example, if the Committee determined that an executive officer’sindividual performance during 2006 was at a superior level, then his basesalary was multiplied by 120% in order to determine the total cash bonus awardto be paid.

In terms of evaluating theappropriate performance levels to assign to each of the executive officers for2006, the Committee considered recommendations from the chief executiveofficer, as well as its own assessment of the work that had been performed bythe executives throughout the year. With respect to Mr. Holloway, theCommittee concurred with his position that he not be considered for any bonusaward for 2006 and, accordingly, did not award any bonus award to Mr. Hollowayfor 2006. With respect to Mr. O’Grady, who commenced employment as theCompany’s chief financial officer on July 1, 2006, his employmentagreement provided that he was entitled to receive a minimum 2006 bonus awardof $120,000, of which $100,000 was paid within five business days of hiscommencement of employment, as discussed above. The Committee awarded Mr. O’Gradyan additional $20,000 above this minimum bonus amount called for under theemployment agreement, in recognition of Mr. O’Grady’s contributions duringthe second half of 2006, including his management of the engagement of areplacement independent auditing firm for the Company and the timely filing ofthe Company’s Quarterly Report on Form 10-Q for the third fiscalquarter of 2006, which was the first timely filed filing achieved by theCompany during 2006 and was made especially challenging by the replacement ofthe independent auditors during the third quarter. The Committee also notedthat Mr. O’Grady had been awarded 40,000 restricted common shares as partof his initial employment package under the terms of his employment agreement.

In evaluating 2006individual performance for Messrs. DeRiggi and Macchione, the Committeeconsidered the additional responsibilities that each had managed throughout theyear. With respect to Mr. DeRiggi, the Committee noted his dual role asboth chief investment officer and president of the student housing division (towhich position he was appointed  atmid-year). As to Mr. Macchione, the Committee noted his coordination of,and assistance with, a number of unexpected legal and operational matters,including the Audit Committee’s special investigation, pending class actionlitigation and activities relating to the Special Committee of the Board. As toMr. Robinson’s 2006 performance, the Committee acknowledged that theCompany’s military housing division had performed in line with management’s2006 budget and successfully closed on the award of several military housingprivatization projects slated for 2006. In recognition of the efforts exertedby Messrs. Robinson, DeRiggi and Macchione on these fronts, the Committeedetermined that each executive had performed at a superior level of individualperformance, equating to a 120% multiplier in accordance with the methodologyfor determining 2006 bonus levels discussed above.

In addition to itsdetermination of the executive’s individual performance levels for 2006, theCommittee also compared the executive’s total compensation for 2006 to that ofsimilarly-situated personnel under the Company’s peer group analysis provided bythe Committee’s independent compensation consultant. The Committee noted thatthe 2006 total compensation to be awarded to these executives was within theaverage range of combined total compensation for similarly-situated positionsunder the applicable peer group analysis. The Committee also solicited feedbackfrom non-management members of the Board prior to making its finaldetermination of 2006 cash bonus awards, and considered, most notably withrespect to Mr. DeRiggi, the importance of promoting the retention ofemployees holding key positions within the Company.

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*Equity-Based Compensation*

The employment agreementsalso provide that the executives are eligible for grants of stock options andrestricted common shares under the Company’s Equity Incentive Plan, pursuant tothe terms and conditions as determined by the Committee. With respect torestricted share grants, the employment agreements provide that the shares willhave voting and dividend rights, and following the applicable restrictionperiod as determined by the Committee, will be fully transferable to theexecutive. As stated above, the Committee has not granted any equity-basedcompensation to the Company’s executive officers to date, other than therestricted common shares awarded to Mr. O’Grady as part of his initialemployment package. The Committee does, however, expect to implement a formalequity-based compensation program for executive officers and other Companyemployees by the end of 2007.

*Perquisites and Other Personal Benefits*

The Company’s employmentagreements provide the executive officers with perquisites and other personalbenefits that the Company and the Committee believe are reasonable andconsistent with its overall compensation program to better enable the Companyto attract and retain superior employees for key positions. The Committeeperiodically reviews the levels of perquisites and other personal benefitsprovided to the executive officers.

The executive officers areprovided the following benefits under the terms of their employment agreements:an allotted number of paid vacation weeks; eligibility for the executive andhis spouse and dependents in all Company sponsored employee benefits plans,including 401(k) plan, group health, accident, disability insurance, grouplife insurance and supplemental life insurance, on such terms no less favorablethan applicable to any other executive; eligibility for participation in anyCompany sponsored deferred compensation plans (of which there are currentlynone that are utilized); an annual physical medical examination at the Company’scost; a monthly car allowance; reimbursement for costs associated with tax andfinancial planning assistance; coverage under a Company-paid director andofficer insurance plan on terms no less favorable than coverage provided to anyother then current officer or trustee; and, supplemental renewable long-termdisability insurance, at the Company’s cost, as agreed to by the Company andthe executive. Attributed costs of the personal benefits described above forthe named executive officers for the fiscal year ended December 31, 2006,are included in column (i) of the “Summary Compensation Table providedbelow under Item 11 of this report.

In addition, theexecutives’ employment agreements each contain provisions relating to paymentsupon change in control events and severance upon termination for events otherthan without cause or good reason (as defined under the terms of the employmentagreements). These change in control and severance terms are designed topromote stability and continuity of senior management. Information regardingapplicable potential payments under these provisions for the named executiveofficers is provided under the heading “Potential Payments Upon Termination orChange in Control” presented below in Item 11 of this report.

*Federal Tax Regulations*

Section 162(m) ofthe Code limits the deductibility on the Company’s income tax return tocompensation of $1.0 million for certain executive officers unless, in general,the compensation is paid pursuant to a plan that is performance-based,nondiscretionary and has been approved by the Company’s shareholders. TheCompensation Committee’s policy with respect to Section 162(m) sincethe Company’s initial public offering is to make reasonable efforts to ensurethat compensation is deductible to the extent permitted, while simultaneouslyproviding the Company’s executives with appropriate rewards for theirperformance.

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**COMPENSATIONCOMMITTEE REPORT**

The Compensation Committeeof the Company has reviewed and discussed the Compensation Discussion andAnalysis required by Item 402(b) of Regulation S-K with managementand, based on such review and discussions, the Compensation Committeerecommended to the Board that the Compensation Discussion and Analysis beincluded in this report.
|        | THE COMPENSATION COMMITTEE              |
|--------|-----------------------------------------|
|   | RADM James W.  Eastwood (Ret), Chairman |
|   | Frederick F.  Buchholz                  |
|   | Denis J. Nayden                         |

 

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**SummaryCompensation Table**

Thetable below summarizes the total compensation paid or earned by each of thenamed executive officers for the year ended December 31, 2006. The Companyhas entered into employment agreements with each of its currently-employednamed executive officers.

| Name and Principal Position (a) | ** ** | ** ** | ** ** | **Year**(b) | ** ** | **Salary  ($)**(c) | ** ** | **Bonus  ($)**(d) | ** ** | **Share  Awards  ($)**(e)(1) | ** ** | **Option  Awards  ($)**(f) | ** ** | **All Other  Compensation ($)**(i)(2) | ** ** | **Total ($)**(j) | ** ** |
|------------------------------------------------|------------|------------|------------|-------------|------------|--------------------|------------|-------------------|------------|------------------------------|------------|----------------------------|------------|-------------------------------------------------|------------|-----------------------|------------|
| **Gary M. Holloway, Sr.**                 |       | 2006       |       | $           | 360,000    |               | $          | 0                 |       | $                            | 0          |                       |       | $                                               | 0          |                  |       |   | $ | 37,556 |   |   | $ | 397,556 |   |
| Chairman,  President & Chief          |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Executive Officer                              |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| **J. Patrick O’Grady**                    |       | 2006       |       | $           | 150,000    |               | $          | 140,000           |       | $                            | 88,733     |                       |       | $                                               | 0          |                  |       |   | $ | 9,812 |   |   | $ | 388,545 |   |
| Executive Vice  President &           |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Chief Financial Officer                        |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| (July 1,  2006 through                    |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| December 31, 2006)                        |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| **Dennis J. O’Leary**                     |       | 2006       |       | $           | 288,000    |               | $          | 0                 |       | $                            | 1,376      |                       |       | $                                               | 0          |                  |       |   | $ | 0 |   |   | $ | 289,376 |   |
| Interim Chief Financial                        |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Officer (April 1, 2006  through           |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| June 30, 2006)                            |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| EVP & Principal  Accounting           |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Officer (July 1, 2006  through            |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| August 15, 2006)                          |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| **Bradley W. Harris**                          |       | 2006       |       | $           | 60,000     |               | $          | 0                 |       | $                            | 0          |                       |       | $                                               | 0          |                  |       |   | $ | 349,615 |   |   | $ | 409,615 |   |
| Former Chief Financial                         |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Officer (January 1,  2006 through         |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| March 31, 2006)                           |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| **Bruce F. Robinson**                          |       | 2006       |       | $           | 335,000    |               | $          | 402,000           |       | $                            | 0          |                       |       | $                                               | 0          |                  |       |   | $ | 32,978 |   |   | $ | 769,978 |   |
| President of Military  Housing                 |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Business                                       |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| **John DeRiggi**                               |       | 2006       |       | $           | 287,500    |               | $          | 345,000           |       | $                            | 0          |                       |       | $                                               | 0          |                  |       |   | $ | 30,113 |   |   | $ | 662,613 |   |
| President of Student  Housing                  |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Business &  Chief Investment          |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| Officer                                        |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| **Joseph M. Macchione**                        |       | 2006       |       | $           | 250,000    |               | $          | 300,000           |       | $                            | 0          |                       |       | $                                               | 0          |                  |       |   | $ | 17,786 |   |   | $ | 567,786 |   |
| Executive Vice President,                      |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |
| General Counsel &  Secretary          |       |       |       |        |       |               |       |              |       |                         |       |                       |       |                                            |       |                  |       |   |   |

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(1)    Theamounts in column (e) reflect the dollar amount recognized by the Companyas an expense for financial statement reporting purposes for the fiscal yearended December 31, 2006, in accordance with FAS 123R, with respect toawards pursuant to the Company’s Equity Incentive Plan. Mr. O’Gradyreceived 40,000 restricted shares on July 1, 2006, in accordance with theterms of his employment agreement that became effective as of that date. Therestricted shares vest over a three-year period, with 10,000 vesting on July 1,2007 and 15,000 shares vesting on each of July 1, 2008 and July 1,2009. Mr. O’Leary, who served as the Company’s interim chief financialofficer during a portion of 2006, receives grants of restricted shares for hisservice as a non-employee trustee on the Company’s Board of Trustees. Additionalinformation relating to the annual grant of restricted shares to the Company’snon-employee trustees is provided in the table below titled “TrusteeCompensation.”  The number of restrictedshares granted to Mr. O’Leary for the fiscal year 2006 was pro-rated toexclude the period of time that he served as an employee of the Company. Bothvested and unvested restricted shares receive dividend distributions made bythe Company.

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(2)    Mr. Holloway’semployment agreement provides that he will receive a monthly car allowance of$1,500, and other benefits as are commensurate with his position, includingreimbursement for the cost of tax preparation and financial planning servicesup to a maximum aggregate of $10,000 annually, an annual medical examinationand six weeks of paid vacation annually and various other customary benefits.Pursuant to Messrs. Robinson’s and DeRiggi’s employment agreements, eachwill receive a monthly car allowance of $1,000 and other benefits as arecommensurate with his position, including reimbursement for the cost of taxpreparation and financial planning services up to a maximum aggregate of$10,000 annually, an annual medical examination, five weeks of paid vacationannually and various other customary benefits. Pursuant to Messrs. O’Grady’sand Macchione’s employment agreements, each will receive a monthly carallowance of $650 and other benefits as are commensurate with his position,including reimbursement for the cost of tax preparation and financial planningservices up to a maximum aggregate of $5,000 annually, an annual medicalexamination, five weeks of paid vacation annually and various other customarybenefits. The employment agreements for Messrs. DeRiggi, O’Grady andMacchione became effective as of July 1, 2006.

During 2006, theCompany paid car allowances for Messrs. Holloway, Robinson, DeRiggi, O’Gradyand Macchione of $18,000, $12,000, $9,900, $3,900 and $7,800 respectively; andpaid tax planning services for each of Messrs. Holloway, Robinson,DeRiggi, O’Grady and Macchione of $10,000, $10,000, $9,900, $2,500 and $7,800,respectively. During 2006, the Trust made the following matches under theCompany’s 401(k) plan: $1,328 (Mr. Holloway); $2,750 (Mr. Robinson);$2,485 (Mr. DeRiggi); $669 (Mr. O’Grady); and $104 (Mr. Macchione);and paid medical benefits as follows: $8,228 (Mr. Holloway); $8,228 (Mr. Robinson); $8,228 (Mr. DeRiggi);$2,743 (Mr. O’Grady);  and $2,082 (Mr. Macchione).The amount shown for Mr. O’Leary includes $21,946 of cash fees paid inconnection with service as a non-employee trustee of the Company’s Board ofTrustees.

(3)    Mr. Harrisserved as the Company’s chief financial officer until his termination ofemployment effective March 31, 2006. On June 28, 2006, the Companyentered into a Confidential Settlement Agreement and General Release withMr. Harris, pursuant to which Mr. Harris received the right to thefollowing payments: (i) payment of $75,000, less applicable deductions andwithholdings, representing an amount equal to four months of pay at employee’sbase salary as of the termination date, (ii) a payment of $18,750,representing an amount equal to Mr. Harris’ bonus attributable to the yearended December 31, 2005, (iii) a payment of $1,250, representingpayment toward outplacement service fees incurred by Mr. Harris,(iv) commencing on August 15, 2006, a sum of $250,000, lessapplicable deductions and withholdings, to be paid in semi-monthly installmentsof $9,375 in accordance with the company’s normal payroll cycle, and (v) apayment of $4,615 representing payment of his earned but unused vacation as ofhis termination date. In addition, the Company has made a payment toMr. Harris’ legal counsel in the gross amount of $25,000.

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**Grantsof Plan-Based Awards**

| Name  (a)                                                                                                        | ** ** | ** **              | ** ** | **Grant Date  (b)** | ** ** | **All  Other  Share  Awards:  Number  of  Shares  or Units  (#)  (i)** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying  Options  (#)  (j)** | ** ** | **Grant Date Fair  Value of Share and  Option Awards  (l)** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| **Gary M. Holloway, Sr.**                                                                                   |       | —                  |       |                     | —     | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | — | ** ** |   |
| Chairman, President & Chief  Executive Officer                                                          |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| **J. Patrick O’Grady**                                                                                      |       | July 1, 2006       |       |                     | 40,000     | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | $ | 532,400 | ** ** |   |
| Executive Vice  President & Chief Financial Officer (July 1, 2006 through  December 31, 2006) |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| **Dennis J. O’Leary**                                                                                       |       | September 5,  2006 |       |                     | 948        | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | $ | 12,381 | ** ** |   |
| Interim Chief Financial Officer  (April 1, 2006 through June 30, 2006)                                 |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| EVP & Principal Accounting  Officer (July 1, 2006 through August 15, 2006)                    |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| **Bradley W. Harris**                                                                                            |       | —                  |       |                     | —     | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | — | ** ** |   |
| Former CFO  (January 1, 2006 through March 31, 2006)                                                   |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| **Bruce F. Robinson**                                                                                            |       | —                  |       |                     | —     | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | — | ** ** |   |
| President of Military Housing Business                                                                           |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| **John DeRiggi**                                                                                                 |       | —                  |       |                     | —     | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | — | ** ** |   |
| President of Student  Housing Business & Chief Investment Officer                                       |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |
| **Joseph M. Macchione**                                                                                          |       | —                  |       |                     | —     | ** **                                                                  |       |                                                                                           | —     | ** **                                                                                |       |   | — | ** ** |   |
| Executive Vice President, General  Counsel & Secretary                                                  |       |                    |       |                     |       | ** **                                                                  |       |                                                                                           |       | ** **                                                                                |       |   |   | ** ** |   |

 

The amounts in column (l) ofthe foregoing table reflect the grant date fair value calculated in accordancewith FAS 123(R). During 2006, J. Patrick O’Grady was the only individual toreceive a plan-based award for service as an employee. The grant was made as ofJuly 1, 2006 under the Company’s Equity Incentive Plan, and approved aspart of Mr. O’Grady’s compensation pursuant to his employment agreement,which also became effective as of July 1, 2006. Pursuant to the terms ofhis employment agreement, Mr. O’Grady received a grant of 40,000restricted common shares, of which 10,000 shares will vest on July 1, 2007and 15,000 shares will vest on each of July 1, 2008 and July 1, 2009.On July 1, 2006, the fair market value of the Company’s common shares,based on the closing price as reported by the New York Stock Exchange, was$13.18 per share. Under the terms of the grant, Mr. O’Grady will receivedividends on all 40,000 restricted shares while he remains employed with theCompany. The Company has historically paid a dividend with respect to each ofits fiscal quarters, at a rate that is determined at the discretion of itsBoard of Trustees. The restricted shares will continue to vest while Mr. O’Gradyremains employed with the Company, but will vest 100% immediately upon (i) achange of control of the Company, (ii) upon the employee’s termination ofemployment by the Company without cause (as defined in the Equity IncentivePlan), and (iii) upon the employee’s death or becoming permanentlydisabled (as defined in the Equity Incentive Plan). To the extent that Mr. O’Gradyis terminated from employment by the Company with cause, the unvested portionof the restricted shares will be forfeited immediately to the Company.

Mr. O’Leary received a grant of 948 restrictedshares on September 5, 2006 in connection with his service as anon-employee trustee of the Company’s Board of Trustees. Additional informationrelating to the annual grant of restricted shares to the Company’s non-employeetrustees is provided in the table below titled “Trustee Compensation.” Thenumber of restricted shares granted to Mr. O’Leary for the fiscal year2006 was pro-rated to exclude the period of time that he served as an employeeof the Company. Under the terms of the restricted share grant, Mr. O’Learywill receive dividends on all 948 restricted shares, and the shares will vestin equal annual installments over a three-year period (with the firstinstallment vesting on June 30, 2007).

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**Outstanding Equity Awards at Fiscal Year-End**

|                                                                                                                                                                                | ** ** | **Option Awards**                                                                | ** ** | **Share Awards**                                                                   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| **Name**                                                                                                                                                                       | ** ** | **Number   of   Securities   Underlying   Unexercised   Options   (#)   Exercisable** | ** ** | **Number   of   Securities   Underlying   Unexercised   Options   (#)   Unexercisable** | ** ** | **Equity    Incentive    Plan    Awards:   Number    of   Securities   Underlying   Unexercised   Unearned   Options   (#)** | ** ** | **Option    Exercise   Price   ($)** | ** ** | **Option    Expiration   Date** | ** ** | **Number   of   Shares    or   Units    of    Shares    That   Have    Not   Vested   (#)** | ** ** | **Market   Value    of   Shares    or   Units    of   Shares    That   Have    Not   Vested   ($)** | ** ** | **Equity    Incentive    Plan    Awards:   Number of    Unearned    Shares,    Units or   Other    Rights   That Have   Not    Vested   (#)** | ** ** | **Equity   Incentive   Plan   Awards:   Market or   Payout   Value  of   Unearned   Shares,   Units  or   Other   Rights  That   Have Not   Vested   ($)** | ** ** |
| **(a)**                                                                                                                                                                        | ** ** | **(b)**                                                                               | ** ** | **(c)**                                                                                 | ** ** | **(d)** | ** ** | **(e)** | ** ** | **(f)** | ** ** | **(g)** | ** ** | **(h)** | ** ** | **(i)** | ** ** | **(j)** | ** ** |
| **Gary M. Holloway, Sr.**                                                                                                                                                 |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Chairman, President & Chief  Executive Officer                                                                                                                        |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **J. Patrick O’Grady**                                                                                                                                                    |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 40,000 | (1) |   |   | $ | 406,000 | (1) |   |
| Executive  Vice President & CFO (July 1, 2006 through December 31,  2006)                                                                                   |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dennis J. O’Leary**                                                                                                                                                     |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,095 | (2) |   |   | $ | 31,414 | (2) |   |
| Interim Chief Financial Officer  (April 1, 2006 through June 30, 2006) EVP & Principal  Accounting Officer (July 1, 2006 through August 15, 2006) |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Bradley W. Harris**                                                                                                                                                          |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Former  CFO (January 1, 2006 through March 31, 2006)                                                                                                                 |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Bruce F. Robinson**                                                                                                                                                          |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| President of Military Housing Business                                                                                                                                         |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **John DeRiggi**                                                                                                                                                               |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| President  of Student Housing Business & Chief Investment Officer                                                                                                     |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Joseph M. Macchione**                                                                                                                                                        |       |                                                                                  | —     |                                                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Executive Vice President, General  Counsel & Secretary                                                                                                                |       |                                                                                  |       |                                                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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(1)             Represents 40,000 restricted shares granted to Mr. O’Gradyunder the Company’s Equity Incentive Plan on July 1, 2006, pursuant to theterms of Mr. O’Grady’s employment agreement. The shares vest over athree-year period, with 15,000 vesting on July 1, 2007 and 10,000 vestingon each of July 1, 2008 and July 1, 2009. Under the terms of thegrant, Mr. O’Grady will receive dividends on all 40,000 restricted shareswhile he remains employed with the Company. The Company has historically paid adividend with respect to each of its fiscal quarters, at a rate that isdetermined at the discretion of its Board of Trustees. The restricted shareswill continue to vest while Mr. O’Grady remains employed with the Company,but will vest 100% immediately upon (i) a change of control of theCompany, (ii) upon the employee’s termination of employment by the Companywithout cause (as defined in the Equity Incentive Plan), and (iii) uponthe employee’s death or becoming permanently disabled (as defined in the EquityIncentive Plan). To the extent that Mr. O’Grady is terminated fromemployment by the Company with cause, the unvested portion of the restrictedshares will be forfeited immediately to the Company. The market value of theunvested shares is based on the closing price of the Company’s common shares onDecember 29, 2006 as reported on the New York Stock Exchange, which was$10.15 per common share.

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(2)             Represents the unvested portion of restricted sharesgranted to Mr. O’Leary in connection with his service as a non-employeetrustee of the Company’s Board of Trustees. Additional information relating tothe annual grant of restricted shares to the Company’s non-employee trustees isprovided in the table below titled “Trustee Compensation.”  The amount of restricted shares granted to Mr. O’Learyfor the fiscal year 2006 was pro-rated to exclude the period of time that heserved as an employee of the Company. Under the terms of the restricted sharegrants, Mr. O’Leary will receive dividends on unvested and vested shares,and the shares will vest in equal annual installments over a three-year period.The unvested restricted shares as of December 31, 2006 will vest asfollows: with respect to a grant made on January 1, 2005, 1,167 shareswill vest on October 28, 2007; with respect to a grant made on March 31,2005, 142 shares will vest on March 31, 2007 and 143 shares will vest on March 31,2008; with respect to a grant made on  June 30,2005, 120 shares will vest on June 30, 2007 and 121 shares will vest on June 30,2008; with respect to a grant made on  September 30,2005, 227 shares will vest on September 30, 2007 and 228 shares will veston September 30, 2008; and with respect to a grant made on September 5,2006, 316 shares will vest on each of June 30, 2007, June 30, 2008and  June 30, 2009. The market valueof the unvested shares is based on the closing price of the Company’s commonshares on December 29, 2006 as reported on the New York Stock Exchange,which was $10.15 per common share.

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**OptionExercises and Shares Vested**

|                                                                                                                                                                                | ** ** | **Option Awards** | ** ** | **Share Awards**                                            | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------------------------------------------------|------------|
| **Name  (a)**                                                                                                                                                                  | ** ** | ** **             | ** ** | **Number of  Shares  Acquired  on Exercise  (#)  (b)** | ** ** | **Value  Realized  on Exercise  ($)  (c)** | ** ** | **Number of  Shares  Acquired  on Vesting  (#)  (d)** | ** ** | **Value  Realized  on Vesting  ($)  (e)** | ** ** |
| **Gary M. Holloway, Sr.**                                                                                                                                                 |       |                   | —     |                                                             |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Chairman,  President & Chief Executive Officer                                                                                                                        |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **J. Patrick O’Grady**                                                                                                                                                    |       |                   | —     |                                                             |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Executive Vice  President & Chief Financial Officer (July 1, 2006 through  December 31, 2006)                                                               |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Dennis J. O’Leary**                                                                                                                                                     |       |                   | —     |                                                             |       |   | — |   |   |   | 2,823 | (1) |   |   | $ | 39,710 | (1) |   |
| Interim Chief Financial  Officer (April 1, 2006 through June 30, 2006) EVP &  Principal Accounting Officer (July 1, 2006 through August 15, 2006) |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Bradley W. Harris**                                                                                                                                                          |       |                   | —     |                                                             |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Former Chief Financial  Officer (January 1, 2006 through March 31, 2006)                                                                                             |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Bruce F. Robinson**                                                                                                                                                          |       |                   | —     |                                                             |       |   | — |   |   |   | — |   |   |   | — |   |   |
| President of Military  Housing Business                                                                                                                                        |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **John DeRiggi**                                                                                                                                                               |       |                   | —     |                                                             |       |   | — |   |   |   | — |   |   |   | — |   |   |
| President of Student  Housing Business & Chief Investment Officer                                                                                                     |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Joseph M. Macchione**                                                                                                                                                        |       |                   | —     |                                                             |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Executive Vice President,  General Counsel & Secretary                                                                                                                |       |                   |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                |            |                        |            |                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Representsrestricted shares pursuant to multiple grants in connection with Mr. O’Leary’sservice as a non-employee trustee of the Company’s Board of Trustees. Additionalinformation relating to the annual grant of restricted shares to the Company’snon-employee trustees is provided in the table below titled “TrusteeCompensation.”   Under the terms of therestricted share grants, Mr. O’Leary will receive dividends on unvestedand vested shares, and the shares will vest in equal annual installments over athree-year period. The value of the vested shares realized is calculated basedon the closing price of the Company’s shares as reported on the New York StockExchange on the applicable vesting date for the shares, and specifically wereas follows: with respect to a grant made on January 1, 2005, 1,167 sharesvested on October 28, 2005 with a value of $14.92 per share and 1,167shares vested on October 28, 2006 with a value of $13.88 per share; withrespect to a grant made on March 31, 2005, 142 shares vested on March 31,2006 with a value of $11.64 per share; with respect to a grant made on  June 30, 2005, 120 shares vested on June 30,2006 with a value of $13.18 per share; and with respect to a grant made on  September 30, 2005, 227 shares vested onSeptember 30, 2006 with a value of $12.62 per share.

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**Potential Payments Upon Termination or Change inControl**

Pursuant to the Company’semployment agreements, Messrs. Holloway, Robinson, DeRiggi, O’Grady andMacchione, each of the executives is entitled to certain termination orchange-in-control payments. The employment agreements provide that theexecutive officers agree to devote substantially all of their business time tothe performance of their duties to us under their employment agreements (exceptas we otherwise agree). At the end of the initial three-year term, theemployment agreements will automatically extend for two additional one-yearperiods (each, an “Extension Term”), unless either party terminates theagreement by providing prior written notice to the other party not later than60 days prior to expiration thereof. These employment agreements permit usto terminate the executives’ employment with appropriate notice for or without “cause.”“Cause” is generally defined to mean:

·       convictionof, or the entry of a plea of guilty or nolo contendere to, a felony, excludingany felony relating to the negligent operation of a motor vehicle or aconviction, plea of guilty or nolo contendere arising under a statutoryprovision imposing per se criminal liability due to the position held by theexecutive with us, provided the act or omission of the executive or officerwith respect to such matter was not taken or omitted to be taken incontravention of any applicable policy or directive of the Board of Trustees;

·       awillful breach of the executive’s duty of loyalty which is materiallydetrimental to us; and

·       awillful failure to adhere to explicitly stated duties that are consistent withthe executive’s employment agreement, or the reasonable and customaryguidelines of employment or reasonable and customary corporate governanceguidelines or policies, including without limitation the business code ofethics adopted by our Board of Trustees, or the failure to follow the lawfuldirectives of our Board of Trustees provided such directives are consistentwith the terms of the executive’s employment agreement, which continues for aperiod of 30 days after written notice to the executive.

In addition, eachexecutive has the right under his employment agreement to resign for “goodreason” upon certain events that occur without such executive’s writtenconsent, provided the executive notifies us of his determination that “good reason”exists within 60 days of when the executive knows of the occurrence of theevent upon which his determination is based. For these purposes, “good reason”means (i) any material reduction in duties, responsibilities or reportingrequirements, or the assignment of any duties, responsibilities or reportingrequirements that are inconsistent with his positions with us; (ii) areduction in his annual base salary; (iii) the termination or materialreduction of certain employee benefit plans, programs or material fringebenefits other than in connection with modifications to plans that areapplicable to all similarly situated officers; (iv) relocation of ouroffices outside of a 35-mile radius of Newtown Square, Pennsylvania; (v) afailure by us to renew his employment agreement on at least comparable terms atthe close of the initial term or of either extension term; or (vi) ourmaterial breach of his employment agreement which continues for a period of30 days after written notice. In addition, with respect to Mr. Holloway,such “good reason” also includes his removal from the board, other than for “cause,”or failure to be nominated or elected to the board, other than for “cause,”absent his prior written consent.

In theevent of a termination of the executive’s employment by the executive or by us(or our successor) for any reason other than “cause” following a change ofcontrol, the executive will become fully vested in his options and restrictedshares and shall have a two-year period from his or her date of termination toexercise his or her vested options. In general terms, a change of controloccurs:

·       ifa person, entity or affiliated group (with certain exceptions) acquires morethan 50% of our then outstanding voting securities;

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·       ifwe merge into another entity, unless the holders of our voting sharesimmediately prior to the merger have at least 50% of the combined voting powerof the securities in the merged entity or its parent;

·       uponthe liquidation, dissolution, sale or disposition of all or substantially allof our assets such that after that transaction the holders of our voting sharesimmediately prior to the transaction own less than 50% of the voting securitiesof the acquiror or its parent;

·       ifour board members are elected such that a majority of the board members havebeen members of the board for less than two years, unless the election ornomination for the election of each new board member who was not a board memberat the beginning of such two year period was approved by at least two-thirds ofthe board members then still in office who were board members at the beginningof such period; or

·       ifa majority of our board votes in favor of a resolution stating that a change ofcontrol has occurred.

With respect to Messrs. Hollowayand Robinson, if payments become due as a result of a change of control and theexcise tax imposed by Section 4999 of the Code applies, the terms of theiremployment agreements require us to gross up the executives for the amount ofthis excise tax plus the amount of income and other taxes due as a result ofthe gross up payment.

Each executive has agreedwith the Company that for a period after termination of his employment (18months for Messrs. Holloway and Robinson, 24 months for Messrs. DeRiggi,O’Grady and Macchione), such executive will not compete with the Company byworking with or investing in, subject to certain limited exceptions notedbelow, any enterprise engaged in a business substantially similar to anyprimary segment of our business as conducted during the period of the executive’semployment with the Company. The executive will not be subject to theserestrictions if the Company commits a material breach of the executive’semployment agreement. In addition, these restrictions will not preclude the executivefrom (i) making any investment in a public company or any entity in whichhe is the owner of 5% or less of the issued and outstanding voting securities,provided ownership does not result in his being obligated or required to devotea substantial amount of managerial efforts, (ii) engaging in charitable,academic or community activities, or in trade or professional organizations, or(iii) holding directorships in other companies consistent with ourconflict of interest policies and corporate governance guidelines.

The employment agreementsprovide that, if the executive’s employment ends due to termination by uswithout cause, or termination by the executive for good reason, we will beobligated to pay the following severance benefit: (i) a lump sum paymentequal to (A) with respect to Mr. Holloway, three times base salaryhis average annual bonus determined at the superior level of both corporate andindividual performance for the year in which the termination occurs, (B) withrespect to Mr. Robinson, two times such amount if not in connection with achange of control and three times such amount if in connection with a change ofcontrol, and (C) with respect to Messrs. DeRiggi, O’Grady andMacchione, two times such amount, (ii) a prorated amount of the incentivebonus at the superior level for individual and corporate performance for theyear in which the termination occurs, and (iii) an amount equal to accruedbut unpaid base salary through the date of termination plus any othercompensation then due and owing. The Company will also permit the executive tocontinue to participate in, and will pay the premiums for, group healthcoverage for a period of three years following the executive’s date oftermination with respect to Messrs. Holloway and Robinson, and two yearswith respect to Messrs. DeRiggi, O’Grady and Macchione. Additionally, allof the options and restricted shares granted to the executive will become fullyvested, and the executive will have a period of at least two years from theeffective date of termination in which to exercise all vested options. If,however, any executive resigns for “good reason” upon notice of non-renewal bythe Company after the second Extension Term, the multiplier described in clause(i) above will be reduced to one times such amount. Assuming a triggeringevent for these severance benefits upon 

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termination took place as of December 31, 2006,the following payments would have been due and payable to the executiveofficers:

|                                                                                             | **Named Executive Officer With Employment Agreements** | ** ** | ** ** | **Estimated Aggregate Payment Upon   Termination For Cause, or by Employee   with Good Reason, as of December 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Gary M. Holloway, Sr.**                                                              |                                                                            |       | $          | 2,376,000                                                                                                                                                                                                     |       |   |
| Chairman,  President & CEO                                                         |                                                                            |       |       |                                                                                                                                                                                                          |       |
| **J. Patrick O’Grady**                                                                 |                                                                            |       | $          | 1,320,000                                                                                                                                                                                                     |       |   |
| Executive Vice  President & CFO (July 1, 2006 through December 31, 2006) |                                                                            |       |       |                                                                                                                                                                                                          |       |
| **Bruce F. Robinson**                                                                       |                                                                            |       | $          | 1,474,000                                                                                                                                                                                                     |       |   |
| President of Military  Housing Business                                                     |                                                                            |       |       |                                                                                                                                                                                                          |       |
| **John DeRiggi**                                                                            |                                                                            |       | $          | 1,265,000                                                                                                                                                                                                     |       |   |
| President of  Student Housing Business & Chief Investment Officer                  |                                                                            |       |       |                                                                                                                                                                                                          |       |
| **Joseph M. Macchione**                                                                     |                                                                            |       | $          | 1,100,000                                                                                                                                                                                                     |       |   |
| Executive Vice President,  General Counsel & Secretary                             |                                                                            |       |       |                                                                                                                                                                                                          |       |

 

If anexecutive’s employment ends due to death or permanent disability, the Companywill pay to the executive, or his estate or beneficiary, an amount equal to onetimes the executive’s base salary and the executive’s annual incentive bonus(determined at the superior level for both corporate and individual performancefor the year in which the termination of employment occurs) within 10 daysof the occurrence of the relevant event. Further, the executive will becomevested in all options and restricted shares and the executive or theexecutive’s personal representative will have one year from the date of theevent to exercise all vested options. The Company will pay to the executive orthe executive’s representative any base salary, annual bonus, expensereimbursement, and all other compensation related payments payable as of thedate of the relevant event. In addition, the Company will pay to the executiveor the executive’s representative a prorated amount of the incentive bonus atthe target level for corporate and individual performance for the year in whichthe relevant event occurred. Assuming a triggering event for these severancebenefits upon termination took place as of December 31, 2006, thefollowing payments would have been due and payable to the executive officers:

| Named Executive Officer With Employment Agreements                 | ** ** | ** ** | ** ** | **Estimated Aggregate Payment Upon  Termination as a result of Death or  Permanent Disability, as of December 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Gary M. Holloway, Sr.**                                                              |       |       | $          | 792,000                                                                                                                                                                                             |       |   |
| Chairman,  President & CEO                                                         |       |       |       |                                                                                                                                                                                                |       |
| **J. Patrick O’Grady**                                                                 |       |       | $          | 660,000                                                                                                                                                                                             |       |   |
| Executive Vice  President & CFO (July 1, 2006 through December 31, 2006) |       |       |       |                                                                                                                                                                                                |       |
| **Bruce F. Robinson**                                                                       |       |       | $          | 737,000                                                                                                                                                                                             |       |   |
| President of Military  Housing Business                                                     |       |       |       |                                                                                                                                                                                                |       |
| **John DeRiggi**                                                                            |       |       | $          | 632,500                                                                                                                                                                                             |       |   |
| President of Student  Housing Business & Chief Investment Officer                  |       |       |       |                                                                                                                                                                                                |       |
| **Joseph M. Macchione**                                                                     |       |       | $          | 550,000                                                                                                                                                                                             |       |   |
| Executive Vice President, General  Counsel & Secretary                             |       |       |       |                                                                                                                                                                                                |       |

 

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In the event of a termination of the executive’semployment by the executive or by us (or our successor) for any reason otherthan “cause” following a change of control as described above, the executivewill become fully vested in his options and restricted shares and shall have atwo-year period from his or her date of termination to exercise his or hervested options.

Withrespect to Messrs. Holloway and Robinson, if payments become due as aresult of a change of control and the excise tax imposed by Section 4999of the Code applies, the terms of their employment agreements will require usto gross up the executives for the amount of this excise tax plus the amount ofincome and other taxes due as a result of the gross up payment. Effective as ofJuly 27, 2006, the Company entered into an amendment to its employmentagreement with Bruce F. Robinson, President of the Military Housing division.Under the terms of the amendment, in the event of the occurrence of a change ofcontrol (as defined in the agreement), other than a change of control resultingfrom a transaction in which Gary M. Holloway, Sr. or Mr. Robinson isa majority owner or managing member of the Company (or any successor) followingthe transaction, then Mr. Robinson and the Company (or the buyer oracquirer in such change of control transaction) shall enter into good faithnegotiations not later than 15 days following the closing of suchtransaction as to Mr. Robinson’s position with, and role and compensationin the post-closing business. If the parties to such negotiation have notreached an agreement and have not executed an employment agreement with respectto Mr. Robinson’s ongoing employment after the closing not later than30 days following such closing, then Mr. Robinson shall have the right,not later than 15 days following the expiration of the 30-dayperiod, to terminate employment with the Company and have such terminationdeemed to constitute “good cause” pursuant to the agreement; provided, however,that such election shall not be available in the event (i) thatMr. Robinson has become entitled to severance under any other provision ofthe employment agreement prior to his termination of employment, or(ii) of his death, permanent disability or the occurrence of any eventthat would give the Company valid reason to terminate for cause. Assuming atriggering event for these severance benefits upon termination took place as ofDecember 31, 2006, the following payments would have been due and payableto the executive officers:

| Named Executive Officer With Employment Agreements                 | ** ** | ** ** | ** ** | **Estimated Aggregate Payment Upon**

**Termination For any reason other than Cause,  as of December 31, 2006** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Gary M. Holloway, Sr.**                                                              |       |       | $          | 2,971,470                                                                                                                                                                        |       |   |
| Chairman,  President & CEO                                                         |       |       |       |                                                                                                                                                                             |       |
| **J. Patrick O’Grady**                                                                 |       |       | $          | 1,320,000                                                                                                                                                                        |       |   |
| Executive Vice  President & CFO (July 1, 2006 through December 31, 2006) |       |       |       |                                                                                                                                                                             |       |
| **Bruce F. Robinson**                                                                       |       |       | $          | 2,802,367                                                                                                                                                                        |       |   |
| President of Military  Housing Business                                                     |       |       |       |                                                                                                                                                                             |       |
| **John DeRiggi**                                                                            |       |       | $          | 1,265,000                                                                                                                                                                        |       |   |
| President of Student  Housing Business & Chief Investment Officer                  |       |       |       |                                                                                                                                                                             |       |
| **Joseph M. Macchione**                                                                     |       |       | $          | 1,100,000                                                                                                                                                                        |       |   |
| Executive Vice President,  General Counsel & Secretary                             |       |       |       |                                                                                                                                                                             |       |

 

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**TrusteeCompensation**

| **Name  (a)**                 | ** ** | ** ** | ** ** | **Fees Earned or  Paid in Cash  ($)  (b)(1)** | ** ** | **Share  Awards  ($)  (c)(2)** | ** ** | **All Other  Compensation  ($)  (g)** | ** ** | **Total  ($)  (h)** | ** ** |
|-------------------------------|------------|------------|------------|-------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------------------|------------|---------------------|------------|
| Frederick F.  Buchholz        |       |       | $          | 117,048                                                           | (1)        |                           | $          | 25,170                                     |       |                | —     |   |   | $ | 142,218 |   |
| RADM James W.  Eastwood (Ret) |       |       | $          | 168,548                                                           | (1)        |                           | $          | 25,170                                     |       |                | —     |   |   | $ | 193,718 |   |
| Michael D.  Fascitelli        |       |       | $          | 29,500                                                            | (1)        |                           | $          | 22,606                                     |       |                | —     |   |   | $ | 52,106 |   |
| Steven J. Kessler             |       |       | $          | 136,500                                                           | (1)        |                           | $          | 25,170                                     |       |                | —     |   |   | $ | 161,670 |   |
| Denis J. Nayden               |       |       | $          | 34,000                                                            | (1)        |                           | $          | 25,170                                     |       |                | —     |   |   | $ | 59,170 |   |
| Richard A. Silfen             |       |       | $          | 251,815                                                           | (1)        |                           | $          | 25,170                                     |       |                | —     |   |   | $ | 276,985 |   |

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(1)          The aggregate cashamounts shown for each trustee include the following: Mr. Buchholz—$20,000for annual retainer fee, $13,000 for Board meeting attendance fees, and $84,048for Committee retainer and meeting attendance fees; Adm. Eastwood—$20,000 forannual retainer fee, $13,000 for Board meeting attendance fees, and $135,548for Committee retainer, service and meeting attendance fees;Mr. Fascitelli—$20,000 for annual retainer fee and $9,500 for Boardmeeting attendance fees; Mr. Kessler—$20,000 for annual retainer fee,$13,500 for Board meeting attendance fees and $103,000 for Committee retainer,service and meeting attendance fees; Mr. Nayden—$20,000 for annualretainer fee, $12,500 for Board meeting attendance fees and $1,500 forCommittee retainer and meeting attendance fees; and Mr. Silfen—$20,000 forannual retainer fee, $13,500 for Board meeting attendance fees and $218,315 forCommittee retainer, service and attendance fees. Dennis O’Leary, who is also anon-employee trustee of the Company, is listed as a named executive officer inthe “Summary Compensation Table” presented above, and therefore is not shown inthis table.

(2)          The amounts in column(c) reflect the dollar amount recognized by the Company as an expense  for financial statement reporting purposesfor the fiscal year ended December 31, 2006, in accordance with FAS 123Rof awards pursuant to the Company’s Equity Incentive Plan. All trustees shownin the table received a grant of 1,518 restricted common shares onJune 30, 2006 under the Company’s Equity Incentive Plan. The grant datefair values of the awards, also computed in accordance with FAS 123(R), withrespect to the 1,518 restricted shares granted to each of the trustees onJune 30, 2006 was $120,042. The restricted shares all vest in three equalinstallments over a three-year period. Additional information relating to theannual grant of restricted shares to the Company’s non-employee trustees isprovided in the narrative disclosure below this table. Both vested andun-vested restricted shares receive dividend distributions made by the Company.As of the year ended December 31, 2006, each of the non-employee trusteesheld the following aggregate restricted share awards: Messrs. Buchholz,Kessler, Nayden , Silfen and Adm. Eastwood each held 3,665 restricted commonshares; and Mr. Fascitelli held 4,207 restricted common shares.

As compensation for serving on the Company’s Board,each non-employee trustee receives an annual fee of $40,000, of which $20,000is paid in the form of restricted shares and $20,000 is paid in cash. The cashportion of this annual fee is paid on a quarterly pro-rata basis, and therestricted share portion of this annual fee is paid on June 30th of each fiscal year. These restricted sharesvest in three equal annual installments, are considered outstanding commonshares for purposes of voting along with our common shareholders, and receivedividend-equivalent cash payments along with our common shareholders. Inaddition, prior to 2007, non-employee trustees received $1,000 for each Boardor committee meeting attended in person and $500 for each Board or committeemeeting attended telephonically. Commencing on January 1, 2007,non-employee trustees will receive $1,000 for each Board or committee meetingattended either in person or telephonically. Committee chairmen receive anadditional annual fee with the lead independent trustee receiving an additional$5,000 per year, the Audit Committee chairman receiving an additional $7,500per year, and the Compensation Committee chairman and the Nominating and 

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Corporate GovernanceCommittee chairman each receiving an additional $5,000 per year. OnSeptember 15, 2006, the Board of Trustees, upon recommendation of theNominating and Corporate Governance Committee and the Company’s management,also approved a one-time payment to members of the Audit Committee inrecognition of their additional work in performing the Company’s specialinvestigation initiated during the first quarter of 2006. These additionalAudit Committee service fees were payable as follows: Mr. Kessler($67,500); Mr. Silfen ($52,500) and Adm. Eastwood ($30,000).

The Board of Trustees also appointed a SpecialCommittee in March 2006 to consider and analyze strategic and financialalternatives, including potential offers to acquire the Company. The SpecialCommittee was dissolved officially in December 2006. Members of theSpecial Committee, which consisted of Mr. Silfen (Chairman),Mr. Buchholz and Adm. Eastwood, received the following fees:(i) an initial retainer in the amount of $10,000 for the Chairman and$5,000 for other members, (ii) for each full or partial month of servicerendered by the Special Committee, a monthly retainer of $10,000 for theChairman and $5,000 for other members, plus such other amounts as may be deemedappropriate by the Board of Trustees following the date on which these retainerfees were paid, and (iii) attendance fees for participating in meetings inthe same manner as described above for standing committees ($1,000 forattendance in person, and $500 for attendance via telephone conference).

Trustees who also are officers or employees of theCompany receive no additional compensation as trustees. In addition, wereimburse our trustees for their reasonable out-of-pocket expenses incurred inattending Board and committee meetings. Upon joining the Board of Trustees,each non-employee trustee receives 3,500 restricted common shares that vest inthree equal annual installments. The Board of Trustees may change thecompensation of non-employee trustees in its discretion, and has delegated thisauthority to the Nominating and Corporate Governance Committee.

**CompensationCommittee Interlocks and Insider Participation**

All of the members of theCompensation Committee of the Company’s Board have been determined to beindependent trustees in accordance with the listing standards and corporategovernance rules of the NYSE and the terms of the Company’s CorporateGovernance Guidelines. None of these trustees, or any of our executiveofficers, serves as a member of a board or any compensation committee of anyentity that has one or more executive officers serving as a member of the Boardof Trustees.

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**Performance Graph**

The following performance graph below compares thecumulative total return of the Company’s common shares with that of the S&P500 Index and the S&P REIT Index from October 28, 2004 (the date theCompany’s common shares began to trade publicly) through December 31,2006. The performance graph assumes that a shareholder invested $100 at theclose of market on October 28, 2004 in the Company’s common shares and$100 invested at that same time in each index. The comparisons in this graphare provided in accordance with SEC disclosure requirements and are notintended to forecast or be indicative of the future performance of our commonshares.

**COMPARISON OF CUMULATIVE TOTAL RETURN FOR THE PERIODOCTOBER 28, 2004 TO DECEMBER 31, 2006(GMH COMMUNITIES TRUST, S&P 500 INDEX AND THE S&P REIT INDEX)(includes reinvestment of dividends)**

****

| ** **                                 | ** ** | ** ** | ** ** | **INDEXED RETURNS** | ** ** |
|--------------------------------------------|------------|------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **Period** | ** ** | **Years Ending**    | ** ** |
| **Company / Index**              | ** ** | ** ** | ** ** | **10/28/04**             | ** ** | **12/31/04** | ** ** | **12/31/05** | ** ** | **12/31/06** | ** ** |
| GMH COMMUNITIES  TRUST                     |       |       | 100        |                     |       |   | 118.86 |   |   |   | 139.59 |   |   |   | 98.02 |   |   |
| S&P 500 INDEX                          |       |       | 100        |                     |       |   | 107.85 |   |   |   | 113.15 |   |   |   | 131.02 |   |   |
| S&P 500 REAL ESTATE  INVESTMENT TRUSTS |       |       | 100        |                     |       |   | 108.79 |   |   |   | 122.46 |   |   |   | 173.59 |   |   |
|                                            |            |            |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

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**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.

The following table sets forth the beneficial ownershipof common shares, as of February 15, 2007, by (i) each of theCompany’s trustees, (ii) each of the Company’s executive officers,(iii) all of the Company’s trustees and executive officers as a group and(iv) any shareholders known to the Company to be the beneficial owner ofmore than 5% of our common shares (based solely on information provided in Schedule 13Dor 13G filings made by such beneficial owners with the SEC). The SEC hasdefined “beneficial” ownership of a security to mean the possession, directlyor indirectly, of voting power and/or investment power. A shareholder is alsodeemed to be, as of any date, the beneficial owner of all securities that suchshareholder has the right to acquire within 60 days after that datethrough (a) the exercise of any option, warrant or right, (b) theconversion of a security, (c) the power to revoke a trust, discretionaryaccount or similar arrangement or (d) the automatic termination of atrust, discretionary account or similar arrangement.

Under the terms of the Company’s Declaration of Trust,shareholders generally may not have “beneficial” or “constructive” ownership(as those terms are defined in the Declaration of Trust) of more than 7.1% ofthe outstanding common shares of the Company at any time. Common sharesindicated as beneficially owned in the following table may not be deemed to be“beneficially” and/or constructively” owned by the shareholder under theDeclaration of Trust. The Declaration of Trust provides that the Board mayapprove exceptions to this limitation of ownership, provided that the ownershipexception would not threaten the Company’s ability to qualify as a real estateinvestment trust under the Internal Revenue Code of 1986, as amended (the“Code”), and currently provides the following exceptions:(i) Mr. Holloway and persons whose share ownership would beattributed to him under the Declaration of Trust’s constructive ownershipprovisions may own no more than 20% of the outstanding shares of the Company;(ii) Steven Roth, the chief executive officer of Vornado Realty Trust, andpersons whose share ownership would be attributed to him under the Declarationof Trust’s constructive ownership rules may own no more than 8.5% of theoutstanding shares of the Company, and (iii) Vornado Realty, L.P., VornadoRealty Trust, and designated affiliates or permitted transferees of VornadoRealty, L.P. under the terms of a warrant issued by the Company, generally haveno restriction on ownership levels in the Company (except that any person whois treated as an “individual” for purposes of the Code may not benefit fromthis unlimited ownership exception).

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| **Name of   Beneficial  Owner**                    | ** ** | ** ** | ** ** | **Number of Shares  Beneficially Owned** | ** ** | **Percentage of  Outstanding  Common Shares(1)** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------|------------|
| *Trustees and Executive Officers*                            |       |       |       |                                                    |       |                                                       |       |   |   |
| Gary M.  Holloway, Sr.(2)                               |       |       | 17,000,379 | (2)                                                     |       |                                                       | 20.0       | %(2) |   |
| Bruce F. Robinson                                            |       |       | 1,014,305  | (3)                                                     |       |                                                       | 2.4        |   |   |
| John DeRiggi                                                 |       |       | 251,250    | (3)                                                     |       |                                                       | *          |   |   |
| J. Patrick  O’Grady                                     |       |       | 40,000     | (3)                                                     |       |                                                       | *          |   |   |
| Joseph M.  Macchione                                         |       |       | 63,700     | (3)                                                     |       |                                                       | *          |   |   |
| Frederick F.  Buchholz                                       |       |       | 12,488     | (4)                                                     |       |                                                       | *          |   |   |
| RADM James W.  Eastwood (Ret)                                |       |       | 103,038    | (4)                                                     |       |                                                       | *          |   |   |
| Michael D.  Fascitelli                                       |       |       | 5,552      | (5)                                                     |       |                                                       | *          |   |   |
| Steven J. Kessler                                            |       |       | 11,488     | (4)                                                     |       |                                                       | *          |   |   |
| Denis J. Nayden                                              |       |       | 41,488     | (4)                                                     |       |                                                       | *          |   |   |
| Dennis J. O’Leary                                       |       |       | 53,418     | (4)                                                     |       |                                                       | *          |   |   |
| Richard A. Silfen                                            |       |       | 12,488     | (4)                                                     |       |                                                       | *          |   |   |
| All executive  officers and trustees as a group (12 persons) |       |       | 18,609,594 |                                                    |       |                                                       | 44.8       | %(6) |   |
| *5% Shareholders*                                            |       |       |       |                                                    |       |                                                       |       |   |   |
| Cohen &  Steers(7)                                  |       |       | 4,666,151  |                                                    |       |                                                       | 11.2       | % |   |
| FMR Corp.(8)                                                 |       |       | 6,235,029  |                                                    |       |                                                       | 15.0       | % |   |
| Franklin  Resources, Inc.(9)                            |       |       | 2,957,355  |                                                    |       |                                                       | 7.1        | % |   |
| Heitman Real  Estate Securities LLC(10)                      |       |       | 4,771,661  |                                                    |       |                                                       | 11.5       | % |   |
| JP Morgan  Chase & Co.(11)                          |       |       | 2,532,620  |                                                    |       |                                                       | 6.1        | % |   |
| The Vanguard  Group, Inc.(12)                           |       |       | 2,535,083  |                                                    |       |                                                       | 6.1        | % |   |
| Vornado Realty Trust(5)                                      |       |       | 9,855,104  |                                                    |       |                                                       | 20.2       |   |   |

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                  * Lessthan 1%.

          (1) Basedon 41,567,146 common shares outstanding as of February 15, 2007. Under theterms of the partnership agreement of the Company’s operating partnership,units of limited partnership interest generally may be redeemed for cash orcommon shares after the units have been held for one year from the date suchunits are issued (unless otherwise agreed to be redeemed earlier at the discretionof the general partner of the operating partnership).

          (2) Theaddress for Gary M. Holloway is c/o GMH Communities Trust, 10 Campus Boulevard,Newtown Square, PA 19073. The number of common shares shown as beneficiallyowned by Mr. Holloway includes 11,550 common shares beneficially owned byMr. Holloway’s wife, and includes common shares issuable upon redemptionof 16,988,829 OP units that were beneficially owned by Mr. Holloway as ofFebruary 15, 2007. Under the terms of the partnership agreement of theCompany’s operating partnership, Mr. Holloway may require that his and hisaffiliates’ units of limited partnership interest be redeemed for common sharesrather than cash; provided, however, that he is limited to redeeming such unitsfor a number of common shares equal to no more than 20% of the outstandingcommon shares at the time of such redemption.

          (3) Thenumber of common shares shown as beneficially owned includes common sharesissuable upon redemption of the following OP units that were beneficially ownedas of July 31, 2006: Bruce F. Robinson—1,010,305 units; JohnDeRiggi—251,250 units; and Joseph M. Macchione—62,500 units. All of the OPunits held by Messrs. Robinson, DeRiggi and Macchione had been held formore than one year as of February 15, 2007 (See Footnote 1), and thereforewere redeemable for common shares within 60 days. The number of commonshares shown as beneficially owned by Mr. Robinson also includes 4,000common shares held in a trust for the benefit of his children. The number ofshares shown as beneficially owned by Mr. O’Grady consists of restrictedcommon shares issued pursuant to the Company’s Equity Incentive Plan.

          (4) Numberof common shares presented includes 5,806 restricted common shares issued toeach of the non-employee trustees under the Company’s Equity Incentive Plan.Mr. Silfen possesses shared voting and dispositive power with his spouseover 6,000 of the common shares reported as beneficially owned by him.Mr. Kessler possesses shares voting and dispositive power with his spouseover 5,000 of the common shares reported as beneficially owned by him. AdmiralEastwood’s holdings include 10,000 common shares held by his spouse.

          (5) Numberof common shares presented for Mr. Fascitelli includes 5,552 restricted commonshares issued to him in connection with his service as a non-employee trusteeunder the Company’s Equity Incentive Plan. The number of common shares shownwith respect to Vornado Realty Trust includes: (i) the 700,000 commonshares owned by Vornado Investments L.L.C., (ii) 6,666,667 OP units issuedupon exercise of a warrant held by Vornado Realty L.P., (ii) 671,190 OPunits issued to Vornado CCA Gainesville, L.L.C., an affiliate of Vornado RealtyTrust, and (iii) 1,817,247 common shares issued to Vornado Realty 

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L.P. on May 2,2006, in connection with a net exercise of the remaining portion of the warrantreferenced above. Vornado Investments L.L.C. is a wholly-owned subsidiaryof Vornado Realty L.P., which is the operating partnership of Vornado RealtyTrust. Mr. Fascitelli is a Trustee and the President of Vornado RealtyTrust. Mr. Fascitelli has reported in his filings with the SEC that hedisclaims beneficial ownership in the 700,000 common shares held by VornadoInvestments L.L.C., the 1,817,247 common shares held by Vornado Realty L.P.,and the 7,337,857 OP units collectively issued to Vornado Realty L.P. andVornado CCA Gainesville, L.L.C., except to the extent he has any pecuniaryinterest therein. The address of Vornado Realty Trust is 888 Seventh Avenue,New York, NY 10019.

          (6) Numberof common shares indicated as beneficially owned by all trustees and executiveofficers includes a total of 18,324,434 common shares issuable upon redemptionof outstanding OP units held by Messrs. Holloway, Robinson, DeRiggi andMacchione. Includes full redemption of Mr. Holloway’s 16,988,829outstanding OP units, although he is only permitted to redeem such units for anumber of common shares equal to no more than 20% of the outstanding commonshares at the time of such redemption.

          (7) Basedupon information contained in a Schedule 13G/A filed with the SECreporting beneficial ownership as of February 13, 2007. TheSchedule 13G was filed jointly by Cohen & Steers, Inc. andCohen & Steers Capital Management, Inc. The address of thereporting persons is 280 Park Avenue, 10th Floor, New York, New York 10017. Cohen andSteers, Inc. and Cohen & Steers Capital Management, Inc.possessed sole voting power over 4,418,851 and sole dispositive power over4,666,151 shares.

          (8) Basedupon information contained in a Schedule 13G filed with the SEC reportingbeneficial ownership as of February 14, 2007. The Schedule 13G wasfiled jointly by FMR Corp. and Edward C. Johnson 3d. The address of thereporting person is 82 Devonshire Street, Boston, Massachusetts 02109. TheSchedule 13G discloses the following regarding power to vote and disposeof the common shares: Fidelity Management & Research Company(“Fidelity”), 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-ownedsubsidiary of FMR Corp. and an investment adviser registered underSection 203 of the Investment Advisers Act of 1940, is the beneficialowner of 5,904,329 shares or 14.204% of the Company as a result of acting asinvestment adviser to various investment companies registered underSection 8 of the Investment Company Act of 1940. The ownership of oneinvestment company, Real Estate Invest Portfolio, amounted to 3,847,450 sharesor 9.256% of the Common Stock outstanding. Real Estate Invest Portfolio has itsprincipal business office at 82 Devonshire Street, Boston, Massachusetts 02109.Edward C. Johnson 3d and FMR Corp., through its control of Fidelity, and thefunds each has sole power to dispose of the 5,904,329 shares owned by theFunds.Members of the family of Edward C. Johnson 3d, Chairman of FMR Corp., arethe predominant owners, directly or through trusts, of Series B shares ofcommon stock of FMR Corp., representing 49% of the voting power of FMR Corp.The Johnson family group and all other Series B shareholders have enteredinto a shareholders’ voting agreement under which all Series B shares willbe voted in accordance with the majority vote of Series B shares.Accordingly, through their ownership of voting common stock and the  execution of the shareholders’ votingagreement, members of the Johnson family may be deemed, under the InvestmentCompany Act of 1940, to form a controlling group with respect to FMR Corp.Neither FMR Corp. nor Edward C. Johnson 3d has the sole power to vote or directthe voting of the shares owned directly by the Fidelity Funds, which powerresides with the Funds’ Boards of Trustees. Fidelity carries out the voting ofthe shares under written guidelines established by the Funds’ Boards ofTrustees. Pyramis Global Advisors Trust Company (“PGATC”), 53 State Street,Boston, Massachusetts, 02109, an indirect wholly-owned subsidiary of FMR Corp.and a bank as defined in Section 3(a)(6) of the Securities ExchangeAct of 1934, is the beneficial owner of 300,700 shares or 0.723% of the outstandingcommon shares of the Company as a result of its serving as investment managerof institutional accounts owning such shares. Edward C. Johnson 3d and FMRCorp., through its control of Pyramis Global Advisors Trust Company, each hassole dispositive power over 300,700 shares and sole power to vote or to directthe voting of 300,700 shares of common shares owned by the institutionalaccounts managed by PGATC as reported above. Fidelity International Limited(“FIL”), Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, and variousforeign-based subsidiaries provide investment advisory and management servicesto a number of non-U.S. investment companies and certain institutionalinvestors. FIL, which is a qualified institution under section 240.13d-1(b)(1) pursuantto an SEC No-Action letter dated October 5, 2000, is the beneficial ownerof 30,000 shares or 0.072% of the common shares outstanding of the Company.Partnerships controlled predominantly by members of the family of Edward C. Johnson3d and FIL, or trusts for their benefit, own shares of FIL voting stock withthe right to cast approximately 47% of the total votes which may be cast by allholders of FIL voting stock. FMR Corp. and FIL are separate and independentcorporate entities, and their Boards of Directors are generally composed ofdifferent individuals. FMR Corp. and FIL are of the view that they are notacting as a “group” for purposes of Section 13(d) under theSecurities Exchange Act of 1934 (the “1934” Act) and that they are nototherwise required to attribute to each other the “beneficial ownership” ofsecurities “beneficially owned” by the other corporation within the meaning ofRule 13d-3 promulgated under the 1934 Act. Therefore, they are ofthe view that the shares held by the other corporation need not be aggregatedfor purposes of Section 13(d). However, FMR Corp. is making this filing ona voluntary basis as if all of the shares are beneficially owned by FMR Corp.and FIL on a joint basis.

          (9) Basedupon information contained in a Schedule 13G/A filed with the SECreporting beneficial ownership as of January 31, 2007. The address of thereporting persons is One Franklin Parkway, San Mateo, CA 94403-1906. TheSchedule 13G was filed jointly by Franklin Resources, Inc., CharlesB. Johnson, Rupert H. Johnson, Jr. and Franklin Advisers, Inc.Franklin Advisers, Inc. possessed sole voting and dispositive power over2,953,900 shares, Franklin Templeton Portfolio Advisers, Inc. possessedsole voting and dispositive power over 3,444 shares, and FranklinResources, Inc., Charles B. Johnson and Rupert H. Johnson, Jr. didnot possess sole voting or dispositive power over any shares.

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(10)     Basedupon information contained in a Schedule 13G/A filed with the SECreporting beneficial ownership as of February 7, 2007. The address of thereporting person is Heitman Real Estate Securities, LLC, 191 North WackerDrive, Suite 2500, Chicago, Illinois 60606. Heitman Real Estate SecuritiesLLC serves as sub-investment adviser to the Old Mutual Advisor Funds II OldMutual Heitman REIT Fund, the Penn Series Funds, Inc. REIT Fund, theOld Mutual Advisor Funds OM Asset Allocation Balanced Portfolio, the Old MutualAdvisor Funds OM Asset Allocation Moderate Growth Portfolio, the Old MutualAdvisor Funds OM Asset Allocation Growth Portfolio, the Russell InvestmentFunds Real Estate Securities Fund and the Frank Russell Investment Company RealEstate Securities Fund, all registered investment companies, and as investmentadviser to 4,750 separate account clients. The Old Mutual Advisor Funds II OldMutual Heitman REIT Fund, the Penn Series Funds, Inc. REIT Fund, theOld Mutual Advisor Funds OM Asset Allocation Balanced Portfolio, the Old MutualAdvisor Funds OM Asset Allocation Moderate Growth Portfolio, the Old MutualAdvisor Funds OM Asset Allocation Growth Portfolio, the Russell InvestmentFunds Real Estate Securities Fund and the Frank Russell Investment Company RealEstate Securities Fund and 4,750 separate account clients have given dispositivepower to Heitman Real Estate Securities LLC the right to receive or the powerto direct the receipt of dividends from, or proceeds from the sale of 4,771,661shares, 11.48% of this issuer. The reporting indicates that it has sole votingpower over 2,179,372 shares and sole dispositive power over 4,771,661.

(11)     Basedupon information contained in a Schedule 13G filed with the SEC reportingbeneficial ownership as of February 7, 2007. The address of the reportingperson is 270 Park Avenue, New York, NY 10017. The reporting person indicatesthat it has sole voting power over 647,720 shares and sole dispositive powerover 2,532,620 shares.

(12)     Based uponinformation contained in a Schedule 13G filed with the SEC reporting beneficialownership on February 14, 2007. The address of the reporting person is 100Vanguard Blvd., Malvern, PA  19355. TheVanguard Group, Inc. possessed sole voting power over 71,454 shares andsole dispositive power over 2,535,083 shares.

**Equity Incentive Plan Information**

Thefollowing table gives information about the Company’s common shares that may beissued upon the exercise of options, warrants and rights under all of theCompany’s existing equity compensation plans as of December 31, 2006.

| **Plan Category**                                  | ** ** | ** ** | ** ** | **(a)  Number of Securities  to be Issued Upon Exercise  of Outstanding Options,  Warrants and Rights** | ** ** | **(b)  Weighted Average  Exercise Price of  Outstanding Warrants,  Options and Rights** | ** ** | **(c)  Number of Securities  Remaining Available for  Future Issuance under  Equity Compensation Plans  (Excludes Securities Reflected  in Column (a))** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity  compensation plans approved by shareholders(1)  |       |       | —     |                                                                                                                                                      |       |                                                                                                                  | $          | —                                                                                                                                                                                                               |       |   |   | 1,916,090 |   |   |
| Equity  compensation plans not approved by shareholders |       |       | —     |                                                                                                                                                      |       |                                                                                                                  | —     |                                                                                                                                                                                                                 |       |   | — |   |   |
| Total                                                   |       |       | —     |                                                                                                                                                      |       |                                                                                                                  | $          | —                                                                                                                                                                                                               |       |   |   | 1,916,090 |   |   |

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(1)          Relates to the Company’sEquity Incentive Plan. The plan was approved in October 2004 by the soleshareholder of the Company prior to completion of the Company’s initial publicoffering. As of the date of the filing of this report, an aggregate of 43,910restricted common shares had been granted to non-employee trustees under theCompany’s Equity Incentive Plan, and 40,000 restricted common shares had beengranted to an executive officer of the Company.

**Item 13.   CertainRelationships and Related Transactions, and Director Independence.**

From time to time, the Company may acquire, manageor develop properties in which its trustees or executive officers have aninterest. The Company may recruit other persons with experience in the studentor military housing industries to join its board or management team who hasfinancial interests in housing properties the Company intends to acquire,develop or manage. In transactions of this nature, there will be conflictsbetween the Company’s interests and the interest of the trustee or executiveofficer involved, and the Company does not intend to engage in thesetransactions without the approval of a majority of our independentdisinterested trustees.

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**Related PartyManagement and Other Services**

In the ordinary course of the Company’s businessoperations, the Company has on-going business relationships with Gary M.Holloway, Sr., entities affiliated with Mr. Holloway, and entities inwhich Mr. Holloway or the Company has an equity investment. Theserelationships and related transactions are summarized below.

In connection with the Company’s initial public offering,Mr. Holloway, and various entities wholly-owned byMr. Holloway, entered into a Contribution Agreement, datedOctober 18, 2004, with GMH Communities, LP, the Company’s operatingpartnership. Pursuant to the Contribution Agreement, Mr. Hollowaycontributed to the operating partnership all of the partnership interests ofGMH 353 Associates, L.P., which entity’s sole asset was the corporateheadquarters building located in Newtown Township, Pennsylvania. TheCommonwealth of Pennsylvania and Newtown Township each impose a 1% transfer taxon the transfer of these partnership interests. During 2006, Mr. Hollowaypaid the Company approximately $61,000 as reimbursement for one-half of theaggregate transfer tax that was originally paid by the Company to theCommonwealth and Township in connection with transfer tax assessed against thetransfer of the partnership interests. The amount paid by Mr. Holloway tothe Company was recorded as a reduction to corporate assets on the Company’sbalance sheet as of December 31, 2005.

Sincecompletion of the Company’s initial public offering, the Company and certain ofits employees have continued to provide services for entities that are wholly-ownedor controlled by Mr. Holloway, which services include legal, IT, humanresources, payroll, accounting, marketing, and costs for office equipment andfurniture. These entities reimbursed the Company for these services providedduring the fiscal year 2006, which totaled approximately $218,000.

The Company leases space in its corporate headquartersto entities wholly-owned by Mr. Holloway, including GMH CapitalPartners, LP, an entity that provides property management services for office,retail, industrial, multi-family and corporate properties, as well asacquisition and disposition services. During the fiscal year 2006, theseentities paid an aggregate of approximately $156,000 for the lease of space inthe Company’s corporate headquarters.

The Company is reimbursed by the joint venturesrelating to certain of its military housing projects in which the Company hasan ownership interest, as well as student housing properties under theCompany’s management in which Mr. Holloway was an investor throughMarch 2005,  for the cost of certainemployees engaged in the daily operation of those military housing projects andstudent housing properties. During the year ended December 31, 2006, suchexpense reimbursements relating to these military housing projects and studenthousing properties totaled $64.0 million.

The Company earnedmanagement fees amounting to $93,000 from properties in which Mr. Hollowaywas an investor during 2006.

Mr.  Hollowayowns Bryn Mawr Abstract, Inc., an entity that provides title abstractservices to third party title insurance companies, from which the Company haspurchased title insurance with respect to student housing properties andmilitary housing projects during 2006. In connection with the Company’spurchase of title insurance for these student housing properties and projects,the Company paid premiums to other title insurance companies, which fees insome cases are fixed according to statute. From these premiums, the other titlecompanies paid to Bryn Mawr Abstract $373,000 during the year endedDecember 31, 2006 for the provision of title abstract services.

In February 2005, theCompany transferred its interest in Corporate Flight Services, LLC, includingthe corporate aircraft and associated debt initially contributed to theCompany’s operating partnership at the time of the Company’s initial publicoffering, back to Mr. Holloway. During the year ended December 31,2006, the Company paid Corporate Flight Services, LLC $993,000 for use of theaircraft owned by Corporate Flight Services, LLC.

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*Review, Approval orRatification of Transactions with Related Persons*

Under the Company’sconflicts of interest policy contained in its Code of Business Conduct and Ethics,a conflict of interest exists when a person’s private interest is not alignedor appears to be not aligned, or interferes or appears to interfere, in any waywith the Company’s interest. For example, the Company’s conflicts of interestpolicy prohibits its officers, employees and trustees from entering intoagreements, transactions or business relationships, or otherwise takingactions, that involve conflicts of interest, other than such agreements,transactions or business relationships or other actions that are(i) otherwise contemplated in the prospectus relating to the Company’sinitial public offering, or (ii) approved in advance by the Company’sAudit Committee. Except as otherwise permitted as described in the foregoingsentence, the Company is prohibited from, among other things, engaging in thefollowing activities:

·       acquiringany assets or other property from, or selling any assets or other property to,any of the Company’s trustees, officers or employees, any of their immediatefamily members or any entity in which any of the Company’s trustees, officersor employees or any of their immediate family members has an interest of 5% ormore;

·       makingany loan to, or borrowing from, any of the Company’s trustees, officers oremployees, any of their immediate family members or any entity in which any ofthe Company’s trustees, officers or employees or any of their immediate familymembers has an interest of 5% or more;

·       engagingin any other transaction with any of the Company’s trustees, officers oremployees, any of their immediate family members or any entity in which any ofthe Company’s trustees, officers or employees or their immediate family membershas an interest of 5% or more; or

·       permittingany of the Company’s trustees or officers to make recommendations regarding orto approve compensation decisions that will personally benefit such trustees orofficers or their immediate family members whom the Company employs, other thancustomary compensation for service on the Company’s Board of Trustees and itscommittees.

In accordance with this policy, all related partytransactions that would be required to be reported under Item 404(a) ofRegulation S-K as promulgated by the SEC, must be approved in advance by theAudit Committee, or are otherwise deemed to be violations of the Company’s Codeof Business Conduct and Ethics. In evaluating related party transactions forapproval, the Audit Committee has considered the business purpose of thetransaction, whether the terms of the transactions are consistent with thosethat could be obtained in arms-length negotiations with unaffiliatedthird-parties, the dollar value of the individual transaction and the aggregatedollar value of all related party transactions with the related party. A copyof the Company’s Code of Business Conduct and Ethics may be viewed on theCorporate Governance section of the “Investor Relations” page on theCompany’s web site at *www.gmhcommunities.com.*

***Trustee Independence.******  ***Our Boardcurrently consists of nine members, two of whom were executive officers as ofMarch 15, 2007, and five of whom our Board has determined are“independent,” with independence being defined in the manner established by ourBoard and in a manner consistent with corporate governance rules establishedby the NYSE. These independent trustees are Messrs. Buchholz, Eastwood,Kessler, Nayden and Silfen. Our Board has adopted categorical standards, whichare contained in our Corporate Governance Guidelines and conform to theindependence standards established by the NYSE, to assist it in makingdeterminations of independence. Our Corporate Governance Guidelines requirethat at all times a majority of the members of our Board be independent.

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**Item 14.   PrincipalAccountant Fees and Services.**

Ernst & Young LLP served as the Company’sindependent public accountants, and principal registered public accountingfirm, from the Company’s formation in May 2004 through September 15,2006. During its engagement with the Company throughout 2006, Ernst &Young LLP performed certain non-audit services for the Company. The AuditCommittee considered whether the provision of these non-audit services wascompatible with maintaining the accountants’ independence. The Audit Committeediscussed these services with representatives of Ernst & Young LLP andmanagement to determine that they were permitted under the rules andregulations concerning auditor independence promulgated by the SEC to implementthe Sarbanes-Oxley Act of 2002, as well as by the American Institute ofCertified Public Accountants.

On September 29, 2006, the Audit Committee of theBoard approved of the appointment of Reznick Group, P.C. as the Company’s newindependent public accountants and principal registered public accounting firm.During its engagement with the Company throughout 2006, Reznick Group, P.C.performed certain non-audit services for the Company. The Audit Committeeconsidered whether the provision of these non-audit services was compatiblewith maintaining the accountants’ independence. The Audit Committee discussedthese services with representatives of Reznick Group, P.C. and management todetermine that they were permitted under the rules and regulationsconcerning auditor independence promulgated by the SEC to implement theSarbanes-Oxley Act of 2002, as well as by the American Institute ofCertified Public Accountants.

Thefollowing table presents the aggregate fees billed by Ernst & YoungLLP for the most recent fiscal years ended December 31, 2005 and 2006:
|                        | ** ** | **2005** | ** ** | **2006** | ** ** |
|------------------------|------------|----------|------------|----------|------------|
| Audit Fees(1)          |       | $        | 3,334,718  |     | $          | 975,345 |   |
| Audit-Related  Fees(2) |       | $        | 160,000    |     | $          | 12,500 |   |
| Tax Fees(3)            |       | $        | 273,099    |     | $          | 288,312 |   |
| All Other Fees         |       | -0-      |       | $        | -0-        |   |
| Total fees             |       | $        | 3,767,817  |     | $          | 1,276,157 |   |

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(1)          Feesfor audit services in 2005 and 2006 related to (i) audits of our annualfinancial statements and all related financial statements required to beaudited pursuant to regulatory filings, including student housing propertyand/or portfolio acquisitions, (ii) reviews of unaudited quarterly financialstatements, and (iii) services related to the issuance of comfort letters,consents and other services related to SEC matters.

(2)          Feesfor audit-related services billed in 2005 and 2006 included militaryhousing joint venture audits and financial accounting and reportingconsultations in connection with the Company’s student housing acquisitions.

(3)          Fees for tax servicesrelating to tax compliance services and tax planning and advice services,including preparation of tax returns for the fiscal years endedDecember 31, 2005 and December 31, 2006.

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The following table presents the aggregate fees billedby Reznick Group, P.C. for the most recent fiscal years ended December 31,2005 and 2006:
|                       | ** ** | **2005** | ** ** | **2006** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
| Audit Fees(1)         |       | -0-      |       | $        | 1,000,000  |   |
| Audit-Related Fees(2) |       | $        | 64,075     |     | 110,000    |   |
| Tax Fees(3)           |       | 5,000    |       | 10,000   |       |
| All Other Fees        |       | -0-      |       | -0-      |       |
| Total fees            |       | $        | 69,075     |     | $          | 1,120,000 |   |

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(1)          Fees for audit servicesin 2006 related to (i) audits of our annual financial statements and allrelated financial statements required to be audited pursuant to regulatoryfilings, including student housing property and/or portfolio acquisitions,(ii) reviews of unaudited quarterly financial statements, and (iii) servicesrelated to the issuance of comfort letters, consents and other services relatedto SEC matters.

(2)          Feesfor audit-related services billed in 2005 and 2006 included militaryhousing joint venture audits.

(3)          Fees for tax servicesrelating  to our military housing jointventures.

The Audit Committee has pre-approved certain specificaudit and non-audit services to be provided to the Company by the independentauditors during 2007, based on a pre-approved maximum dollar amount per serviceand maximum quarterly threshold for each service. In connection with thispre-approval process, the independent auditors provided the Audit Committeewith a list that described in reasonable detail the services expected to beperformed by the independent auditor during 2007. Any request for services notcontemplated by this list must be submitted to the Audit Committee for specificpre-approval and the provision of such services cannot commence until suchapproval has been granted. Normally, pre-approval is provided at regularlyscheduled meetings. All audit, audit-related, tax and other services werepre-approved by the Audit Committee.

The Company expects that a representative from ReznickGroup, P.C. will attend the 2007 Annual Meeting of Shareholders. Suchrepresentative will have an opportunity to make a statement, if he or shedesires, and will be available to respond to appropriate questions fromshareholders.

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**PART IV**

**Item 15.   Exhibitsand Financial Statement Schedules.**

(a)           Financial Statements.

The consolidatedand combined financial statements of GMH Communities Trust and the GMHPredecessor Entities for the year ended December 31, 2006 are included inPart II, Item 8 of this report.

(b)          ExhibitsRequired by Item 601 of Regulation S-K.

| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                    |
|---------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1     |       | Articles of Amendment and Restatement of Declaration  of Trust of the Registrant (Incorporated by reference from the Registrant’s  Amendment No. 7 to its Registration Statement on Form S-11  filed with the Securities and Exchange Commission on October 27, 2004,  as amended (File No. 333-116343)).                                             |
| 3.2     |       | Bylaws of the Registrant  (Incorporated by reference from the Registrant’s Amendment No. 7 to its  Registration Statement on Form S- 11 filed with the Securities and  Exchange Commission on October 27, 2004, as amended (File No. 333-116343)).                                                                                                    |
| 3.3     |       | Second Amended and  Restated Agreement of Limited Partnership of GMH Communities, LP  (Incorporated by reference from the Registrant’s Current Report on  Form 8-K filed with the Securities and Exchange Commission on  November 8, 2004).                                                                                                                     |
| 10.1    |       | Contribution Agreement,  dated July 27, 2004, by and among GMH Communities, LP, GMH Communities  GP, LLC and GMH LP LLC. (Incorporated by reference from the Registrant’s  Amendment No. 1 to its Registration Statement on Form S-11  filed with the Securities and Exchange Commission on August 11, 2004, as  amended (File No. 333-116343)). |
| 10.2    |       | Warrant, dated  July 27, 2004, as amended on October 28, 2004, issued to Vornado  Realty LP, by GMH Communities Trust and GMH Communities, LP. (Incorporated by  reference from the Registrant’s Current Report on Form 8-K as  filed with the Securities and Exchange Commission on October 29, 2004).                                               |
| 10.3*   |       | Employment Agreement by  and between the Registrant and Gary M. Holloway, Sr. (Incorporated by  reference from the Registrant’s Amendment No. 7 to its Registration  Statement on Form S-11 filed with the Securities and Exchange Commission  on October 27, 2004, as amended (File No. 333-116343)).                                           |
| 10.4*   |       | Employment Agreement by  and between the Registrant and Bruce F. Robinson (Incorporated by reference  from the Registrant’s Amendment No. 7 to its Registration Statement on  Form S-11 filed with the Securities and Exchange Commission on  October 27, 2004, as amended (File No. 333-116343)).                                                    |
| 10.5*   |       | Employment Agreement by  and between the Registrant and John DeRiggi. (Incorporated by reference from  the Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2005, as filed with the Securities and Exchange Commission  on July 31, 2006).                                                                                         |
| 10.6*   |       | Employment Agreement by  and between the Registrant and Joseph M. Macchione (Incorporated by reference  from the Registrant’s Annual Report on Form 10-K for the year  ended December 31, 2005, as filed with the Securities and Exchange  Commission on July 31, 2006).                                                                                   |
| 10.7*   |       | Employment Agreement by  and between the Registrant and J. Patrick O’Grady (Incorporated by reference  from the Registrant’s Annual Report on Form 10-K for the year  ended December 31, 2005, as filed with the Securities and Exchange  Commission on July 31, 2006).                                                                               |

 

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| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8*   |       | GMH Communities Trust  Deferred Compensation Plan (Incorporated by reference from the Registrant’s  Amendment No. 7 to its Registration Statement on Form S-11  filed with the Securities and Exchange Commission on October 27, 2004,  as amended (File No. 333-116343)).                                                                                                                                                                                                                                                              |
| 10.9*   |       | GMH Communities Trust  Equity Incentive Plan (Incorporated by reference from the Registrant’s  Amendment No. 7 to its Registration Statement on Form S-11  filed with the Securities and Exchange Commission on October 27, 2004,  as amended (File No. 333-116343)).                                                                                                                                                                                                                                                                   |
| 10.10   |       | Contribution Agreement,  effective as of October 18, 2004, by and among GMH Communities, LP,  Corporate Flight Services, Inc., GH 353 Associates, Inc., LVWD,  Ltd., GMH Capital Partners Asset Services, LP and Gary M. Holloway, Sr.  (Incorporated by reference from the Registrant’s Amendment No. 6 to its  Registration Statement on Form S-11 filed with the Securities and  Exchange Commission on October 26, 2004, as amended (File No. 333-116343)).                                                     |
| 10.11   |       | Form of Restricted  Common Shares Award Agreement for Non-Employee Trustees (Incorporated by  reference from the Registrant’s Registration Statement on Form S-8  filed with the Securities and Exchange Commission on January 5, 2005  (File No. 333-121853)).                                                                                                                                                                                                                                                                         |
| 10.12   |       | Form of Restricted  Common Shares Award Agreement for Employees pursuant to the GMH Communities  Trust Equity Incentive Plan (Incorporated by reference from the Registrant’s  Registration Statement on Form S-8 filed with the Securities and  Exchange Commission on January 5, 2005 (File No. 333-121853)).                                                                                                                                                                                                                         |
| 10.13   |       | Membership Interest  Purchase Agreement, effective as of February 28, 2005, by and between  GMH Military Housing, LLC and Gary M. Holloway, Sr. (Incorporated by  reference from the Registrant’s Current Report on Form 8-K, as  filed with the Securities and Exchange Commission on March 1, 2005).                                                                                                                                                                                                                                  |
| 10.14   |       | Agreement of Sale, dated  as of March 22, 2005, by and among Whitehall Street Real Estate Limited  Partnership IX, Bridge Street Real Estate Fund 1998, L.P., W9/JP-M Gen-Par  Inc., Stone Street W9/JP-M Corp., Stone Street Real Estate Fund 1998,  L.P., GHJP, Inc., Nittany Crossing Intermediate, LLC and GMH  Communities, LP, and the individuals as signatories thereto (Incorporated by  reference from the Registrant’s Current Report on Form 8-K, as  filed with the Securities and Exchange Commission on March 28, 2005). |
| 10.15   |       | Agreement of Sale, dated  as of March 22, 2005, by and among Whitehall V-S Real Estate  Limited Partnership V, Stone Street GMH-S Corp., Stone Street Real  Estate Fund 1996, L.P., Bridge Street Real Estate Fund 1996, L.P., State  College Park Intermediate, LLC and GMH Communities, LP, and the individuals  as signatories thereto (Incorporated by reference from the Registrant’s  Current Report on Form 8-K, as filed with the Securities and  Exchange Commission on March 28, 2005).                                            |
| 10.16   |       | Contribution Agreement,  dated as of March 22, 2005, by and among GMH Communities, LP and Gary M.  Holloway, Sr., Bruce F. Robinson, Joseph M. Coyle, Denise Hubley and  Robert DiGiuseppe (Incorporated by reference from the Registrant’s Current  Report on Form 8- K, as filed with the Securities and Exchange  Commission on March 28, 2005).                                                                                                                                                                                     |

 

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| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17   |       | Contribution Agreement, dated as of March 22,  2005, by and among GMH Communities, LP and Gary M. Holloway, Sr., Bruce  F. Robinson, Joseph M. Coyle, Denise Hubley and Robert DiGiuseppe  (Incorporated by reference from the Registrant’s Current Report on  Form 8- K, as filed with the Securities and Exchange Commission on  March 28, 2005).                                                                                                                                                                                                                                                                                                  |
| 10.18   |       | Aircraft Lease  Agreement, effective as of August 11, 2005, by and among Corporate  Flight Services, LLC, College Park Management, LLC, GMH Military Housing  Management, LLC and GMH Communities, LP (Incorporated by reference from the  Registrant’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2005, as filed with the Securities and Exchange Commission  on November 14, 2005).                                                                                                                                                                                                                                        |
| 10.19   |       | Second Amendment and  Waiver to Credit Agreement, dated August 10, 2005, by and among GMH  Communities, LP, GMH Communities Trust (“Trust”), each subsidiary of the  Trust that becomes a borrower, Bank of America, N.A., as Administrative  Agent, Swing Line Lender and L/C Issuer and the following lenders: Eurohypo  AG, New York Branch, JPMorgan Chase Bank, Deutsche Bank Trust Company  Americas, Merrill Lynch Bank USA, Morgan Stanley Bank, and Bank Midwest.  (Incorporated by reference to the Registrant’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2005, as filed with  the SEC on August 12, 2005). |
| 10.20   |       | Full Service Lease,  dated November 2, 2004, by and among 353 Associates; GMH Capital  Partners Commercial Realty Services, LP; GMH Capital Partners Asset Services,  LP; GMH Philadelphia Barrage, LLC; GMH Construction Company, Inc. and  GMH Associates, Inc. (Incorporated by reference from the Registrant’s  Quarterly Report on Form 10-Q for the quarter ended  September 30, 2005, as filed with the Securities and Exchange Commission  on November 14, 2005).                                                                                                                                                                  |
| 10.21   |       | First Amendment to  Lease, effective as of November 1, 2005, by and among 353 Associates, L.P.,  GMH Capital Partners Commercial Realty Services, LP, GMH Capital Partners  Asset Services, LP, GMH Philadelphia Barrage, LLC, GMH Construction  Company, Inc. and GMH Associates, Inc. (Incorporated by reference  from the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2005, as filed with the Securities and  Exchange Commission on November 14, 2005).                                                                                                                                            |
| 10.22   |       | Full Service Lease,  effective as of November 2, 2004, by and between 353 Associates, L.P.  and GMH Military Housing, LLC. (Incorporated by reference from the  Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2005, as filed with the Securities and Exchange Commission  on July 31, 2006).                                                                                                                                                                                                                                                                                                                              |
| 10.23   |       | Full Service Lease,  effective as of November 2, 2004, by and between 353 Associates, L.P.  and GMH Communities, LP. (Incorporated by reference from the Registrant’s  Annual Report on Form 10-K for the year ended December 31,  2005, as filed with the Securities and Exchange Commission on July 31,  2006).                                                                                                                                                                                                                                                                                                                                    |
| 10.24   |       | Confidential Separation  Agreement and General Release, as of December 31, 2005, by and between  GMH Communities Trust and Joseph M. Coyle. (Incorporated by reference from  the Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2005, as filed with the Securities and Exchange Commission  on July 31, 2006).                                                                                                                                                                                                                                                                                                             |
| 10.25   |       | Consulting Agreement, as  of January 1, 2006, by and between GMH Communities Trust and Joseph M.  Coyle d/b/a Joseph M. Coyle Enterprises, Inc. (Incorporated by reference  from the Registrant’s Annual Report on Form 10-K for the year  ended December 31, 2005, as filed with the Securities and Exchange  Commission on July 31, 2006).                                                                                                                                                                                                                                                                                                    |

 

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| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.26*  |       | First Amendment to Employment Agreement, dated as of  July 23, 2006, by and between GMH Communities Trust and Bruce F.  Robinson. (Incorporated by reference from the Registrant’s Annual Report on  Form 10-K for the year ended December 31, 2005, as filed with  the Securities and Exchange Commission on July 31, 2006).                                                                                                                                                                                                                                                                                                                                                          |
| 10.27   |       | Form of Agreement  of Sale between College Park Investments, LLC and entities affiliated with  Capstone Properties. (Incorporated by reference to Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.28   |       | First Amendment of Agreements  of Sale and Deposit and Escrow Agreement, entered into as of July 27,  2006, by and among College Park Investments, LLC, each of University  Commons-East Lansing, Ltd., Capstone Commons-Athens, Ltd., University  Commons-Baton Rouge, Ltd., University Commons-Bloomington, IN., Ltd.,  University Commons-Columbia, S.C., L.P., University Commons-Eugene, OR.,  Ltd., University Commons-Lexington, KY., Ltd., University Commons-Ohio, Ltd.,  University Commons-Starkville, Ltd., University Commons-Tuscaloosa, Ltd.,  University Commons-Urbana, IL., Ltd. (Incorporated by reference to Quarterly  Report on Form 10-Q for the quarter ended June 30, 2006). |
| 10.29   |       | Second Amendment of  Agreements of Sale, by and among College Park Investments, LLC and each of  University Commons-East Lansing, Ltd., Capstone Commons-Athens, Ltd.,  University Commons-Baton Rouge, Ltd., University Commons-Bloomington, IN.,  Ltd., University Commons-Columbia, S.C., L.P., University Commons-Eugene,  OR., Ltd., University Commons-Lexington, KY., Ltd., University Commons-Ohio,  Ltd., University Commons-Starkville, Ltd., University Commons-Tuscaloosa,  Ltd., University Commons-Urbana, IL., Ltd. (Incorporated by reference to  Quarterly Report on Form 10-Q for the quarter ended June 30,  2006).                                                                     |
| 10.30   |       | Third Amendment and  Waiver to Credit Agreement, dated September 1, 2006, by and among GMH  Communities, LP, the Registrant, each subsidiary of the Registrant that  becomes a borrower, Bank of America, N.A., as Lender, Administrative Agent,  Swing Line Lender and L/C Issuer and each lender party to the Credit  Agreement (Incorporated by reference to Quarterly Report on Form 10-Q  for the quarter ended June 30, 2006).                                                                                                                                                                                                                                                                  |
| 10.31   |       | Loan Agreement, dated as  of October 2, 2006, between GMH Communities, LP, as Borrower, and Wachovia  Bank, National Association, as Lender. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.32   |       | First Amendment to Loan  Agreement, dated as of October 31, 2006, between GMH Communities, LP and  Wachovia Bank, National Association. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.33   |       | Second Amendment to Loan  Agreement, dated as of February 6, 2007, between GMH Communities, LP and  Wachovia Bank, National Association. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.34   |       | Pledge Agreement, dated  as of October 2, 2006, by GMH Communities, LP, Savoy Village Associates  Intermediate, LLC, Croyden Avenue Associates Intermediate, LLC, Monks Road  Associates Intermediate, LLC, South Carolina Associates Intermediate, LLC,  Reno Associates Intermediate, LLC, Denton Associates Intermediate, LLC,  Lankford Drive Associates Intermediate, LLC, Campus View Drive Associates  Intermediate, LLC and the entities assuming the agreement in accordance with  Section 20 thereof, and College Park Investments, LLC, in favor of  Wachovia Bank, National Association. (Filed herewith).                                                                                     |

 

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| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.35   |       | Security  Agreement, dated as of October 2, 2006, by GMH Communities, LP, College  Park Management, LLC, GMH Communities Services, Inc., GMH Communities Trust,  GMH Communities TRS, Inc., GMH Military Housing Investments, LLC,  College Park Management TRS, Inc., and GMH Military Housing, LLC, in  favor of Wachovia Bank, National Association. (Filed herewith).                                                                                                                                                  |
| 10.36   |       | Guaranty, dated as of  October 2, 2006, by GMH Communities Trust for the benefit of Wachovia  Bank, National Association. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.37   |       | Guaranty, dated as of  October 2, 2006, by each of the parties as signatory thereto, for the  benefit of Wachovia Bank, National Association. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                      |
| 10.38   |       | Promissory Note, dated  as of October 2, 2006, executed by GMH Communities, LP, in favor of  Wachovia Association, National Association. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                           |
| 21.1    |       | Subsidiaries of the  Registrant. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 23.1    |       | Consent of  Ernst & Young LLP. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 23.2    |       | Consent of Reznick  Group, P.C. (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 31.1    |       | Certifications of  Principal Executive Officer Required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended. (furnished herewith)                                                                                                                                                                                                                                                                                                                                                                             |
| 31.2    |       | Certifications of  Principal Financial Officer Required by Rule 13a-14(a) of the  Securities Exchange Act of 1934, as amended. (furnished herewith)                                                                                                                                                                                                                                                                                                                                                                             |
| 32.1    |       | Certifications of  Principal Executive 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.) |
| 32.2    |       | Certifications 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.) |

 

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*                    Management contractor compensatory agreement.

(c)           Financial StatementSchedules.

The following financialstatement schedules should be read in conjunction with the financial statementsincluded in Part II, Item 8 of this Annual Report on Form 10-K.

**Schedule II—Valuation andQualifying Accounts**

**Schedule III—Real Estate andAccumulated Depreciation**

Financial Statements andIndependent Auditor’s Report for Fort Carson Family Housing , LLC for the yearended December 31, 2006.

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**GMH CommunitiesTrustSchedule IIValuation and Qualifying Accounts(dollars in thousands)**

| **Description**                    | ** ** | ** ** | ** ** | **Balance  beginning  of Period** | ** ** | **Additions  Charged to  Cost and Expenses** | ** ** | **Write Off of  Accounts** | ** ** | **Balance  at End of  Period** | ** ** |
|------------------------------------|------------|------------|------------|----------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------------------|------------|
| Allowance for doubtful  accounts:  |       |       |       |                                   |       |                                                        |       |                                 |       |                                     |       |   |   |   |   |   |   |
| Year ended December 31, 2006  |       |       | $          | 710                                    |       |                                                        |       | $                                    | 2,693      |                                     |       |   | $ | (3,072 | ) |   |   | $ | 331 |   |   |
| Year ended December 31, 2005  |       |       | $          | 159                                    |       |                                                        |       | $                                    | 1,632      |                                     |       |   | $ | (1,081 | ) |   |   | $ | 710 |   |   |
| Year ended  December 31, 2004 |       |       | $          | —                                 |       |                                                        |       | $                                    | 159        |                                     |       |   | $ | — |   |   |   | $ | 159 |   |   |

 

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GMH Communities Trust

Schedule III—Real Estate andAccumulated Depreciation (dollars in thousands)

| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Costs**          | ** ** | ** **                                            | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       |
|--------------------|------------|-------------|------------|--------------|------------|------------|------------|-------------------|------------|-------------------|------------|--------------------|------------|-------------------------------------------------------|------------|---------------|------------|------------|------------|---------------|------------|------------|------------|------------------|------------|------------------|
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Capitalized**    | ** ** | ** **                                            | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Subsequent  to** | ** ** | **Gross  Amount at Which Carried at Close of Period** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | **Initial  Cost** | ** ** | **Acquisition**    | ** ** | **December 31,  2006(3)**                        | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Buildings**      | ** ** | ** **                                            | ** ** | **Buildings** | ** ** | ** ** | ** ** | **Buildings** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | **#  of**  | ** ** | **Encumbrances**  | ** ** | ** **        | ** ** | **and**            | ** ** | ** **                                            | ** ** | **and**       | ** ** | ** ** | ** ** | **and**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | **Date  of**     | ** ** | **Year** | ** ** | **Depreciable** |
| **Property  Name** | ** ** | **Address** | ** ** | **Location** | ** ** | **Beds**   | ** ** | **at  31-Dec-06** | ** ** | **Land**          | ** ** | **Furniture**      | ** ** | **Land**                                              | ** ** | **Furniture** | ** ** | **Land**   | ** ** | **Furniture** | ** ** | **Total**  | ** ** | **Depreciation** | ** ** | **Construction** | ** ** | **Acquired** | ** ** | **Life,  in years** |
|                    |            |             |            |              |            |            |            |                   |            |                   |            |                    |            |                                                       |            |               |            |            |            |               |            |            |            |                  |            |                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

| **Investments in student housing  properties** |   |                           |   |                 |   |   |   |   |   |         |   |                |   |                |   |                                                             |   |                                 |   |          |   |          |   |                                               |   |      |   |   |   |   |
|------------------------------------------------|--------|--------------------------------|--------|----------------------|--------|--------|--------|--------|--------|--------------|--------|---------------------|--------|---------------------|--------|------------------------------------------------------------------|--------|--------------------------------------|--------|---------------|--------|---------------|--------|----------------------------------------------------|--------|-----------|--------|--------|--------|--------|
| University  Crescent                           |   | 4500  Burbank Drive            |   | Baton  Rouge, LA     |   | 660    |   | 15,569 |   | $ 1,562 |   | $  19,052 |   | $  — |   | $          356 |   | $     1,562 |   | $ 19,408 |   | $ 20,970 |   | $       (1,369) |   | 1999      |   | 2004   |   | (2)    |
| University  Greens                             |   | 2900  Oak Tree Avenue          |   | Norman,  OK          |   | 516    |   | 7,710  |   | 947          |   | 11,588              |   | —              |   | 881                                                              |   | 947                                  |   | 12,469        |   | 13,416        |   | (909)                                              |   | 1999      |   | 2004   |   | (2)    |
| University  Heights                            |   | 1319  Knotty Pine Way          |   | Knoxville,  TN       |   | 636    |   | 11,966 |   | 1,122        |   | 13,689              |   | —              |   | 300                                                              |   | 1,122                                |   | 13,989        |   | 15,111        |   | (1,000)                                            |   | 1999      |   | 2004   |   | (2)    |
| University  Lodge                              |   | 2024  Binford Street           |   | Laramie,  WY         |   | 481    |   | 10,663 |   | 925          |   | 11,931              |   | —              |   | 116                                                              |   | 925                                  |   | 12,047        |   | 12,972        |   | (850)                                              |   | 2002      |   | 2004   |   | (2)    |
| University  Pines                              |   | 122  Lanier Drive              |   | Statesboro,  GA      |   | 552    |   | 12,557 |   | 1,210        |   | 13,974              |   | —              |   | 214                                                              |   | 1,210                                |   | 14,188        |   | 15,398        |   | (1,004)                                            |   | 2001      |   | 2004   |   | (2)    |
| University  Trails                             |   | 2210  Main Street              |   | Lubbock,  TX         |   | 684    |   | 15,725 |   | 5,921        |   | 19,993              |   | —              |   | 223                                                              |   | 5,921                                |   | 20,216        |   | 26,137        |   | (1,475)                                            |   | 2003      |   | 2004   |   | (2)    |
| University  Court                              |   | 4915  Belle Chase Boulevard    |   | East  Lansing, MI    |   | 516    |   | 13,737 |   | 1,081        |   | 15,057              |   | —              |   | 199                                                              |   | 1,081                                |   | 15,256        |   | 16,337        |   | (1,070)                                            |   | 2001      |   | 2004   |   | (2)    |
| University  Estates                            |   | 4500  W. Bethel Avenue         |   | Muncie,  IN          |   | 552    |   | 10,239 |   | 752          |   | 11,686              |   | —              |   | 208                                                              |   | 752                                  |   | 11,894        |   | 12,646        |   | (844)                                              |   | 2001      |   | 2004   |   | (2)    |
| University  Gables                             |   | 2827  S. Rutherford Boulevard  |   | Murfreesboro,  TN    |   | 648    |   | 15,843 |   | 778          |   | 17,528              |   | —              |   | 322                                                              |   | 778                                  |   | 17,850        |   | 18,628        |   | (1,248)                                            |   | 2001      |   | 2004   |   | (2)    |
| University  Glades                             |   | 3443  Southwest 39th Boulevard |   | Gainesville,  FL     |   | 432    |   | 10,315 |   | 1,134        |   | 10,465              |   | —              |   | 449                                                              |   | 1,134                                |   | 10,914        |   | 12,048        |   | (803)                                              |   | 2000      |   | 2004   |   | (2)    |
| University  Manor                              |   | 3535  E. 10th Street           |   | Greenville,  NC      |   | 600    |   | 14,600 |   | 1,615        |   | 16,042              |   | —              |   | 67                                                               |   | 1,615                                |   | 16,109        |   | 17,724        |   | (1,133)                                            |   | 2002      |   | 2004   |   | (2)    |
| University  Mills                              |   | 2124  W. 27th Street           |   | Cedar  Falls, IA     |   | 481    |   | 9,022  |   | 1,313        |   | 11,556              |   | —              |   | 38                                                               |   | 1,313                                |   | 11,594        |   | 12,907        |   | (820)                                              |   | 2002      |   | 2004   |   | (2)    |
| University  Place                              |   | 100  Wahoo Way                 |   | Charlottesville,  VA |   | 528    |   | 14,001 |   | 1,387        |   | 16,838              |   | —              |   | 79                                                               |   | 1,387                                |   | 16,917        |   | 18,304        |   | (1,186)                                            |   | 2003      |   | 2004   |   | (2)    |
| Collegiate  Hall                               |   | 500  Palisades Drive           |   | Birmingham,  AL      |   | 528    |   | 9,908  |   | 1,369        |   | 14,380              |   | —              |   | 301                                                              |   | 1,369                                |   | 14,681        |   | 16,050        |   | (1,039)                                            |   | 2001      |   | 2004   |   | (2)    |
| Campus  Club—Statesboro                   |   | 211  Lanier Drive              |   | Statesboro,  GA      |   | 984    |   | 18,811 |   | 2,089        |   | 28,429              |   | —              |   | 117                                                              |   | 2,089                                |   | 28,546        |   | 30,635        |   | (1,950)                                            |   | 2003      |   | 2004   |   | (2)    |
| Campus  Edge                                   |   | 105  Doleac Drive              |   | Hattiesburg,  MS     |   | 552    |   | 9,662  |   | 1,592        |   | 14,005              |   | —              |   | 199                                                              |   | 1,592                                |   | 14,204        |   | 15,796        |   | (908)                                              |   | 2003      |   | 2004   |   | (2)    |
| Campus  Connection(1)                          |   | 1601  North Linclon Avenue     |   | Urbana,  IL          |   | 864    |   | 14,193 |   | 2,248        |   | 20,388              |   | —              |   | 657                                                              |   | 2,248                                |   | 21,045        |   | 23,293        |   | (1,380)                                            |   | 1998      |   | 2004   |   | (2)    |
| University  Fields                             |   | 200  Curtis Street             |   | Savoy,  IL           |   | 588    |   | — |   | 1,319        |   | 17,061              |   | —              |   | 150                                                              |   | 1,319                                |   | 17,211        |   | 18,530        |   | (1,077)                                            |   | 1999      |   | 2004   |   | (2)    |
| University  Oaks                               |   | 21  National Guard Rd          |   | Columbia,  SC        |   | 662    |   | — |   | 1,734        |   | 23,442              |   | —              |   | 173                                                              |   | 1,734                                |   | 23,615        |   | 25,349        |   | (1,471)                                            |   | 2004      |   | 2004   |   | (2)    |
| University  Pointe                             |   | 2323  Glenna Goodacre Blvd.    |   | Lubbock,  TX         |   | 682    |   | 21,300 |   | 5,929        |   | 23,442              |   | —              |   | 214                                                              |   | 5,929                                |   | 23,656        |   | 29,585        |   | (1,513)                                            |   | 2004      |   | 2004   |   | (2)    |
| Chapel  Ridge                                  |   | 101  Legacy Terrace            |   | Chapel  Hill, NC     |   | 544    |   | 16,180 |   | 1,748        |   | 24,490              |   | —              |   | 288                                                              |   | 1,748                                |   | 24,778        |   | 26,526        |   | (1,618)                                            |   | 2003      |   | 2004   |   | (2)    |
| University  Centre                             |   | 5200  Croyden Avenue           |   | Kalamazoo,  MI       |   | 700    |   | — |   | 1,599        |   | 24,585              |   | —              |   | 151                                                              |   | 1,599                                |   | 24,736        |   | 26,335        |   | (1,550)                                            |   | 2004      |   | 2004   |   | (2)    |
| The  Summit                                    |   | 1801  Monks Avenue             |   | Mankato,  MN         |   | 672    |   | — |   | 1,291        |   | 22,151              |   | —              |   | 290                                                              |   | 1,291                                |   | 22,441        |   | 23,732        |   | (1,382)                                            |   | 2003      |   | 2004   |   | (2)    |
| University  Highlands                          |   | 2800  Enterprise Blvd          |   | Reno,  NV            |   | 732    |   | — |   | 4,744        |   | 27,759              |   | —              |   | 156                                                              |   | 4,744                                |   | 27,915        |   | 32,659        |   | (1,753)                                            |   | 2004      |   | 2004   |   | (2)    |
| University  Uptown                             |   | 2601  West Oak                 |   | Denton,  TX          |   | 528    |   | — |   | 2,574        |   | 19,617              |   | —              |   | 100                                                              |   | 2,574                                |   | 19,717        |   | 22,291        |   | (1,240)                                            |   | 2004      |   | 2004   |   | (2)    |
| Grand  Marc at University Village              |   | 3549  Iowa Avenue              |   | Riverside,  CA       |   | 824    |   | 42,091 |   | —       |   | 54,655              |   | —              |   | 360                                                              |   | —                               |   | 55,015        |   | 55,015        |   | (3,381)                                            |   | 2001      |   | 2004   |   | (2)    |
| The  Verge                                     |   | 6730  4th Avenue               |   | Sacramento,  CA      |   | 792    |   | 31,400 |   | 3,894        |   | 47,369              |   | —              |   | 74                                                               |   | 3,894                                |   | 47,443        |   | 51,337        |   | (2,517)                                            |   | 2004      |   | 2005   |   | (2)    |
| WillowTree  Apartments                         |   | 1819  Willowtree Lane          |   | Ann  Arbor, MI       |   | 572    |   | 15,456 |   | 1,843        |   | 22,438              |   | —              |   | 1,789                                                            |   | 1,844                                |   | 24,226        |   | 26,070        |   | (1,398)                                            |   | 1967-1968 |   | 2005   |   | (2)    |
| WillowTree  Towers                             |   | 1819  Willowtree Lane          |   | Ann  Arbor, MI       |   | 283    |   | 7,562  |   | 875          |   | 10,661              |   | —              |   | 106                                                              |   | 875                                  |   | 10,767        |   | 11,642        |   | (632)                                              |   | 1974      |   | 2005   |   | (2)    |
| Campus  Walk                                   |   | 401  Hathorn Road              |   | Oxford,  MS          |   | 432    |   | 8,133  |   | 1,469        |   | 11,758              |   | —              |   | 192                                                              |   | 1,469                                |   | 11,950        |   | 13,419        |   | (736)                                              |   | 2001      |   | 2004   |   | (2)    |
| Pirate’s  Cove                            |   | 3305  East 10th Street         |   | Greenville,  NC      |   | 1,056  |   | 20,971 |   | 2,243        |   | 28,595              |   | —              |   | 372                                                              |   | 2,243                                |   | 28,967        |   | 31,210        |   | (1,716)                                            |   | 2000      |   | 2004   |   | (2)    |
| University  Walk                               |   | 1205  University Walk Circle   |   | Charlotte,  NC       |   | 480    |   | 10,559 |   | 1,004        |   | 14,276              |   | —              |   | 475                                                              |   | 1,004                                |   | 14,751        |   | 15,755        |   | (862)                                              |   | 2002      |   | 2004   |   | (2)    |
| Campus  Club—Gainesville                  |   | 4000  S.W. 37th Boulevard      |   | Gainesville,  FL     |   | 924    |   | 18,475 |   | 1,479        |   | 26,953              |   | —              |   | 434                                                              |   | 1,479                                |   | 27,387        |   | 28,866        |   | (1,772)                                            |   | 1997      |   | 2004   |   | (2)    |
| The  Enclave                                   |   | 706  Napolean Road             |   | Bowling  Green, OH   |   | 480    |   | 10,062 |   | 1,144        |   | 12,423              |   | —              |   | 152                                                              |   | 1,144                                |   | 12,575        |   | 13,719        |   | (651)                                              |   | 2002      |   | 2005   |   | (2)    |
| The  Ridge                                     |   | 350  Wedgewood Drive           |   | Morgantown,  WV      |   | 644    |   | 15,370 |   | 1,828        |   | 20,435              |   | —              |   | 166                                                              |   | 1,828                                |   | 20,601        |   | 22,429        |   | (1,056)                                            |   | 2002      |   | 2005   |   | (2)    |
| The View                                       |   | 301 West Charleston Street     |   | Lincoln, NE          |   | 588    |   | 9,160  |   | 822          |   | 11,119              |   | —              |   | 258                                                              |   | 822                                  |   | 11,377        |   | 12,199        |   | (630)                                              |   | 2003      |   | 2005   |   | (2)    |

 

176

----

| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Costs**          | ** ** | ** **                                            | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       |       |
|--------------------|------------|-------------|------------|--------------|------------|------------|------------|-------------------|------------|-------------------|------------|--------------------|------------|-------------------------------------------------------|------------|---------------|------------|------------|------------|---------------|------------|------------|------------|------------------|------------|------------------|------------|
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Capitalized**    | ** ** | ** **                                            | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       |       |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Subsequent  to** | ** ** | **Gross  Amount at Which Carried at Close of Period** | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    |       |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | **Initial  Cost** | ** ** | **Acquisition**    | ** ** | **December 31,  2006(3)**                        | ** ** | ** **    | ** ** | ** ** | ** ** | ** **    |       |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **        | ** ** | ** **        | ** ** | **Buildings**      | ** ** | ** **                                            | ** ** | **Buildings** | ** ** | ** ** | ** ** | **Buildings** | ** ** | ** ** | ** ** | ** **       | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** |
| ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | **#  of**  | ** ** | **Encumbrances**  | ** ** | ** **        | ** ** | **and**            | ** ** | ** **                                            | ** ** | **and**       | ** ** | ** ** | ** ** | **and**       | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | **Date  of**     | ** ** | **Year** | ** ** | **Depreciable** |
| **Property  Name** | ** ** | **Address** | ** ** | **Location** | ** ** | **Beds**   | ** ** | **at  31-Dec-06** | ** ** | **Land**          | ** ** | **Furniture**      | ** ** | **Land**                                              | ** ** | **Furniture** | ** ** | **Land**   | ** ** | **Furniture** | ** ** | **Total**  | ** ** | **Depreciation** | ** ** | **Construction** | ** ** | **Acquired** | ** ** | **Life,  in years** |
|                    |            |             |            |              |            |            |            |                   |            |                   |            |                    |            |                                                       |            |               |            |            |            |               |            |            |            |                  |            |                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

| **Investments in student housing  properties**         |   |                            |   |               |   |   |   |      |     |    |   |      |   |   |      |   |   |    |   |      |   |      |   |     |   |         |      |   |   |      |
|--------------------------------------------------------|--------|---------------------------------|--------|--------------------|--------|--------|--------|-----------|----------|---------|--------|-----------|--------|--------|-----------|--------|--------|---------|--------|-----------|--------|-----------|--------|----------|--------|--------------|-----------|--------|--------|-----------|
| State College Park                                     |   | 348 Blue Course Drive           |   | State College, PA  |   | 752    |   | 11,759    |     | 1,456   |   | 17,669    |   | — |      | 264    |   | 1,456   |   | 17,933    |   | 19,389    |   | (923)    |   | 1991         |      | 2005   |   | (2)       |
| Nittany Crossing                                       |   | 601 Vairo Boulevard             |   | State College, PA  |   | 684    |   | 11,830    |     | 1,450   |   | 17,604    |   | — |      | 195    |   | 1,450   |   | 17,799    |   | 19,249    |   | (923)    |   | 1996         |      | 2005   |   | (2)       |
| Grand Marc at Seven  Corners                           |   | 1849 Washington Avenue  South   |   | Minneapolis, MN    |   | 440    |   | 18,867    |     | 3,616   |   | 24,276    |   | — |      | 1,003  |   | 3,616   |   | 25,279    |   | 28,895    |   | (1,259)  |   | 2000         |      | 2005   |   | (2)       |
| Campus Edge I                                          |   | 1300 Varsity Lane               |   | Charlotte, NC      |   | 384    |   | 9,849     |     | 1,205   |   | 14,650    |   | — |      | (3     | )      | 1,205   |   | 14,647    |   | 15,852    |   | (672)    |   | 1998         |      | 2005   |   | (2)       |
| Campus Edge II                                         |   | 1300 Varsity Lane               |   | Charlotte, NC      |   | 336    |   | 4,456     |     | 508     |   | 6,823     |   | — |      | 19     |   | 508     |   | 6,842     |   | 7,350     |   | (313)    |   | 1999         |      | 2005   |   | (2)       |
| Chapel View                                            |   | 2701 Homestead Road             |   | Chapel Hill, NC    |   | 358    |   | 9,690     |     | 2,510   |   | 12,584    |   | — |      | 974    |   | 2,510   |   | 13,558    |   | 16,068    |   | (638)    |   | 1986         |      | 2005   |   | (2)       |
| Campus Ridge  Apartments(1)                            |   | 1301 Seminole Drive             |   | Johnson City, TN   |   | 528    |   | 7,401     |     | 693     |   | 8,393     |   | — |      | 1,983  |   | 693     |   | 10,376    |   | 11,069    |   | (469)    |   | 2000         |      | 2005   |   | (2)       |
| Southview Apartments                                   |   | 1068-N Lois Lane                |   | Harrisonburg, VA   |   | 960    |   | 18,918    |     | 1,668   |   | 28,007    |   | — |      | 344    |   | 1,668   |   | 28,351    |   | 30,019    |   | (1,258)  |   | 1996-1998    |      | 2005   |   | (2)       |
| Stonegate Apartments                                   |   | 1820 Putter Court               |   | Harrisonburg, VA   |   | 672    |   | 14,264    |     | 1,271   |   | 21,136    |   | — |      | 479    |   | 1,271   |   | 21,615    |   | 22,886    |   | (958)    |   | 1999-2000    |      | 2005   |   | (2)       |
| The Commons                                            |   | 869 Port Republic Road          |   | Harrisonburg, VA   |   | 528    |   | 6,362     |     | 773     |   | 12,477    |   | — |      | 179    |   | 773     |   | 12,656    |   | 13,429    |   | (539)    |   | 1991         |      | 2005   |   | (2)       |
| University Crossing                                    |   | 2215 College Avenue             |   | Manhattan, KS      |   | 700    |   | 11,433    |     | 1,148   |   | 17,033    |   | — |      | 416    |   | 1,148   |   | 17,449    |   | 18,597    |   | (771)    |   | 1997         |      | 2005   |   | (2)       |
| Seminole Suites                                        |   | 2421 Jackson Bluff Road         |   | Tallahasee, FL     |   | 924    |   | 20,400    |     | 2,589   |   | 30,359    |   | 5      |      | 213    |   | 2,594   |   | 30,572    |   | 33,166    |   | (1,257)  |   | 2004         |      | 2005   |   | (2)       |
| Blanton Commons                                        |   | 1505 Lankford Drive             |   | Valdosta, GA       |   | 596    |   | —    |     | 1,885   |   | 22,961    |   | — |      | 307    |   | 1,885   |   | 23,268    |   | 25,153    |   | (898)    |   | 2005         |      | 2005   |   | (2)       |
| The Towers at Third                                    |   | 302 East John Street            |   | Champaign, IL      |   | 295    |   | 14,491    |     | 4,589   |   | 18,338    |   | 3      |      | 1,268  |   | 4,592   |   | 19,606    |   | 24,198    |   | (779)    |   | 1973         |      | 2005   |   | (2)       |
| Campus Walk - UNCW                                     |   | 455 Racine Drive                |   | Wilmington, NC     |   | 290    |   | 6,700     |     | 1,812   |   | 8,432     |   | — |      | 212    |   | 1,812   |   | 8,644     |   | 10,456    |   | (344)    |   | 1990         |      | 2005   |   | (2)       |
| University Crossing  (Conrail)                         |   | 3175 JFK Boulevard              |   | Philadelphia, PA   |   | 1,026  |   | 44,065    |     | 10,850  |   | 49,374    |   | — |      | 1,591  |   | 10,850  |   | 50,965    |   | 61,815    |   | (2,005)  |   | 1929/2003(5) |      | 2005   |   | (2)       |
| University Meadows                                     |   | 4310 Sterling Way               |   | Mount Pleasant, MI |   | 616    |   | 9,633     |     | 639     |   | 13,261    |   | — |      | 192    |   | 639     |   | 13,453    |   | 14,092    |   | (500)    |   | 2001         |      | 2005   |   | (2)       |
| Pegasus Connection                                     |   | 11841 Jefferson Commons  Circle |   | Orlando, FL        |   | 930    |   | 29,914    |     | 4,596   |   | 43,762    |   | — |      | 521    |   | 4,596   |   | 44,283    |   | 48,879    |   | (1,518)  |   | 2000         |      | 2005   |   | (2)       |
| University Village -Royal  Riverwood                   |   | 7767 La Riviera Drive           |   | Sacramento, CA     |   | 394    |   | 14,740    |     | 5,990   |   | 15,687    |   | — |      | 934    |   | 5,990   |   | 16,621    |   | 22,611    |   | (509)    |   | 1979/2006(5) |      | 2006   |   | (2)       |
| Jacob Heights                                          |   | 1801 Monks Avenue               |   | Mankato, MN        |   | 162    |   | 3,850     |     | 430     |   | 5,874     |   | — |      | 51     |   | 430     |   | 5,925     |   | 6,355     |   | (174)    |   | 2004         |      | 2006   |   | (2)       |
| The Commons on Oak Tree                                |   | 1111 Oak Tree Avenue            |   | Norman, OK         |   | 780    |   | 11,729    |     | 2,050   |   | 16,380    |   | — |      | 403    |   | 2,050   |   | 16,783    |   | 18,833    |   | (462)    |   | 1995         |      | 2006   |   | (2)       |
| Lion’s Crossing                                   |   | 201 Vairo Boulevard             |   | Aspen, GA          |   | 696    |   | 8,823     |     | 2,860   |   | 17,083    |   | — |      | 681    |   | 2,860   |   | 17,764    |   | 20,624    |   | (441)    |   | 1996         |      | 2006   |   | (2)       |
| The Club                                               |   | 425 Riverbend Parkway           |   | Wilmington, NC     |   | 480    |   | 10,161    |     | 2,002   |   | 10,585    |   | — |      | 373    |   | 2,002   |   | 10,958    |   | 12,960    |   | (305)    |   | 1989/2001(5) |      | 2006   |   | (2)       |
| Brookstone Village                                     |   | 420 Racine Drive                |   | State College, PA  |   | 238    |   | 4,141     |     | 950     |   | 5,168     |   | — |      | 49     |   | 950     |   | 5,217     |   | 6,167     |   | (145)    |   | 1994         |      | 2006   |   | (2)       |
| Stadium Suites                                         |   | 112 Silo Court                  |   | Columbia, SC       |   | 924    |   | 27,365    |     | 4,750   |   | 31,169    |   | — |      | 81     |   | 4,750   |   | 31,250    |   | 36,000    |   | (609)    |   | 2004         |      | 2006   |   | (2)       |
| Aztec Corner                                           |   | 5504 Montezuma Road             |   | San Diego, CA      |   | 600    |   | 28,600    |     | 10,400  |   | 26,978    |   | — |      | 969    |   | 10,400  |   | 27,947    |   | 38,347    |   | (393)    |   | 1997-2005(6) |      | 2006   |   | (2)       |
| Jacob Heights III                                      |   | 1801 Monks Avenue               |   | Mankato, MN        |   | 96     |   | 2,948     |     | 210     |   | 3,674     |   | — |      | — |   | 210     |   | 3,674     |   | 3,884     |   | (44      | )      | 2006         |      | 2006   |   | (2)       |
| Cambridge at Southern                                  |   | 130 Lanier Drive                |   | Athens, GA         |   | 564    |   | 18,388    |     | 1,900   |   | 22,331    |   | — |      | 24     |   | 1,900   |   | 22,355    |   | 24,255    |   | (54)     |   | 2006         |      | 2006   |   | (2)       |
| Lakeside                                               |   | 1000 Lakeside Drive             |   | Starkville, MS     |   | 772    |   | 14,100    |     | 1,448   |   | 16,297    |   | — |      | 21     |   | 1,448   |   | 16,318    |   | 17,766    |   | (117)    |   | 1991         |      | 2006   |   | (2)       |
| Campus Trails                                          |   | 1000 Campus View Drive          |   | Bloomington, IN    |   | 480    |   | 7,486     |     | 1,763   |   | 8,583     |   | — |      | 21     |   | 1,763   |   | 8,604     |   | 10,367    |   | (63)     |   | 1997         |      | 2006   |   | (2)       |
| Campus Corner                                          |   | 1150 Clarizz Boulevard          |   | Oxford, OH         |   | 792    |   | 22,266    |     | 1,598   |   | 26,717    |   | — |      | 26     |   | 1,598   |   | 26,743    |   | 28,341    |   | (192)    |   | 1994         |      | 2006   |   | (2)       |
| Hawk’s Landing                                    |   | 5262 Brown Road                 |   | Lexington, KY      |   | 484    |   | 15,600    |     | 847     |   | 19,575    |   | — |      | 17     |   | 847     |   | 19,592    |   | 20,439    |   | (140)    |   | 1996         |      | 2006   |   | (2)       |
| The Courtyards                                         |   | 845 Red Mile Road               |   | Tuscaloosa, AL     |   | 676    |   | 16,875    |     | 2,243   |   | 19,106    |   | — |      | 18     |   | 2,243   |   | 19,124    |   | 21,367    |   | (138)    |   | 1993         |      | 2006   |   | (2)       |
| Campus Way                                             |   | 301 Helen Keller  Boulevard     |   | Urbana, IL         |   | 676    |   | 15,375    |     | 1,439   |   | 18,145    |   | — |      | 28     |   | 1,439   |   | 18,173    |   | 19,612    |   | (131)    |   | 1998         |      | 2006   |   | (2)       |
| Lincoln View                                           |   | 1321 North Lincoln Avenue       |   | Columbia, SC       |   | 732    |   | 16,575    |     | 2,200   |   | 18,465    |   | — |      | 22     |   | 2,200   |   | 18,487    |   | 20,687    |   | (89)     |   | 1994/1999(7) |      | 2006   |   | (2)       |
| Riverside Estates                                      |   | 800 Alexander Road              |   | Baton Rouge, LA    |   | 700    |   | 16,200    |     | 3,659   |   | 15,560    |   | — |      | 27     |   | 3,659   |   | 15,587    |   | 19,246    |   | (114)    |   | 1995         |      | 2006   |   | (2)       |
| Burbank Commons                                        |   | 4600 Burbank Drive              |   | East Lansing, MI   |   | 532    |   | 14,887    |     | 2,908   |   | 15,982    |   | — |      | 27     |   | 2,908   |   | 16,009    |   | 18,917    |   | (116)    |   | 1999         |      | 2006   |   | (2)       |
| Abbott Place                                           |   | 2501 Abbott Road                |   | Eugene, OR         |   | 654    |   | 17,850    |     | 3,659   |   | 18,917    |   | — |      | 22     |   | 3,659   |   | 18,939    |   | 22,598    |   | (138)    |   | 1999         |      | 2006   |   | (2)       |
| Campus Commons                                         |   | 90 Commons Drive                |   | Statesboro, GA     |   | 696    |   | 16,148    |     | 2,635   |   | 19,543    |   | — |      | 25     |   | 2,635   |   | 19,568    |   | 22,203    |   | (140)    |   | 1991/1993(7) |      | 2006   |   | (2)       |
| Orchard Trails(8)                                      |   | 4 Empire Drive                  |   | Orono, ME          |   |   |   | 15,938    |     | 1,812   |   | —    |   | — |      | 23,279 |   | 1,812   |   | 23,279    |   | 25,091    |   | —   |   |         |      |   |   |      |
| The Enclave II(8)                                      |   | 706 Napolean Road               |   | Bowling Green, OH  |   | — |   | 11,273    |     | 980     |   | —    |   | — |      | 12,582 |   | 980     |   | 12,582    |   | 13,562    |   | (374)    |   | 2006         |      | 2005   |   | (2)       |
| Huntsville Land(9)                                     |   | Various                         |   | Huntsville, TX     |   | — |   | —    |     | 1,995   |   | —    |   | — |      | — |   | 1,995   |   | —    |   | 1,995     |   | —   |   | —       |      | 2006   |   | —    |
| Contruction in process                                 |   | Various                         |   | Various            |   | — |   | —    |     | —  |   | —    |   | — |      | 1,593  |   | —  |   | —    |   | 1,593     |   | —   |   | —       |      | — |   | —    |
| Total investments in  student  housing properties      |   |                            |   |               |   | 45,544 |   | 1,022,590 |     | 168,570 |   | 1,428,788 |   | 8      |      | 62,056 |   | 168,579 |   | 1,489,250 |   | 1,659,422 |   | (66,855) |   |         |      |   |   |      |
| **Corporate  assets**                                  |   |                            |   |               |   |   |   |      |     |    |   |      |   |   |      |   |   |    |   |      |   |      |   |     |   |         |      |   |   |      |
| Corporate headquarters(4)                              |   | 10 Campus Boulevard             |   | Newtown Square, PA |   | — |   | $         | 5,700    |    | 2,096  |      | 4,874  |   | —    |   | 327    |    | 2,096  |      | 5,201  |      | 7,297  |     | (310)  |         | 2000      |   | 2004   |      | (2) |
| Total investment in real  estate and corporate  assets |   |                            |   |               |   | 45,544 |   | $         | 1,028,29 |    | $      | 170,666   |   | $      | 1,433,662 |   | $      | 8       |   | $         | 62,383 |      | $      | 170,675  |   | $            | 1,494,451 |   | $      | 1,666,719 |   | $ | (67,165) |   |   |   |   |   |   |
|                                                        |        |                                 |        |                    |        |        |        |           |          |         |        |           |        |        |           |        |        |         |        |           |        |           |        |          |        |              |           |        |        |           |  |  |  |  |  |  |  |  |  |

 

177

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**Notes:**

(1)          Includes an undevelopedparcel of land.

(2)          Depreciationis computed based on the following estimated lives:

| Land                              |   | No depreciation |
|-----------------------------------|--------|-----------------|
| Buildings                         |   | 40 years        |
| Building Improvements             |   | 3-10 years      |
| Furniture, Fixtures and Equipment |   | 3-5 years       |

 

(3)          At December 31,2006, the aggregate net carrying amount for land and buildings and improvementsfor federal income tax reporting was approximately $1.5 billion.

(4)          Includes land andbuilding as reported in our Corporate Segment. This balance excludes certaintechnology equipment, furniture and other capital assets that are non realestate related.

(5)          Year Built/ YearRenovated

(6)          Built in three phases(1997, 2001, 2005)

(7)          Built in two phases

(8)          The Company currentlyholds a 10% interest through a joint venture on these properties.

(9)          Includesfive undeveloped parcels of land

**Summary of Real Estate and Accumulated DepreciationActivity:**

| ** **                         | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004** | ** ** |
|------------------------------------|------------|-----------|------------|-----------|------------|----------|------------|
| Balance beginning  of period       |       | 1,217,164 |       | 645,605   |       | 6,970    |       |
| Additions during  the period:      |       |      |       |      |       |     |       |
| Acquisitions                       |       | 409,756   |       | 549,139   |       | 638,464  |       |
| Capital expenditures               |       | 38,206    |       | 4,115     |       | 171      |       |
| Construction in progress           |       | 1,593     |       | 18,305    |       | —   |       |
| Write off fully depreciated assets |       |      |       |      |       |     |       |
| Dispositions                       |       |      |       |      |       |     |       |
| Balance at close of period         |       | 1,666,719 |       | 1,217,164 |       | 645,605  |       |
| Balance beginning of period        |       | 29,203    |       | 3,928     |       | —   |       |
| Depreciation expense               |       | 37,962    |       | 25,275    |       | 3,928    |       |
| Write off fully depreciated assets |       | —    |       | —    |       | —   |       |
| Dispositions                       |       | —    |       | —    |       | —   |       |
| Balance at close  of period        |       | 67,165    |       | 29,203    |       | 3,928    |       |

 

178

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**FINANCIALSTATEMENTS AND**

**INDEPENDENTAUDITORS’ REPORT**

**FORT CARSON FAMILYHOUSING, LLC**

**December 31,2006**

179

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**Fort Carson FamilyHousing, LLC**

**TABLE OF CONTENTS**

|                                                        | ** ** | **PAGE** |
|--------------------------------------------------------|------------|----------|
| INDEPENDENT  AUDITORS’ REPORT                     |       | 181      |
| FINANCIAL  STATEMENTS                                  |       |     |
| BALANCE SHEET                                          |       | 182      |
| STATEMENT OF OPERATIONS                                |       | 183      |
| STATEMENT OF CHANGES IN MEMBERS’ EQUITY (DEFICIT) |       | 184      |
| STATEMENT OF CASH FLOWS                                |       | 185      |
| NOTES TO FINANCIAL STATEMENTS                          |       | 186      |

 

180

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**INDEPENDENTAUDITORS’ REPORT**

To the MembersFort Carson Family Housing, LLC

We have audited the accompanying balance sheet of FortCarson Family Housing, LLC, as of December 31, 2006, and the relatedstatements of operations, changes in members’ equity, and cash flows for theyear then ended. These financial statements are the responsibility of FortCarson Family Housing, LLC’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

We conducted our audit in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal control over financialreporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonablebasis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Fort Carson Family Housing, LLC as of December 31,2006, and the results of its operations and its cash flows for the year thenended, in conformity with accounting principles generally accepted in theUnited States of America.

/s/ REZNICKGROUP, P.C.

Atlanta, GeorgiaMarch 15, 2007

181

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**Fort Carson Family Housing, LLCBALANCE SHEETDecember 31, 2006**

| ASSETS                                                                          |   |        |        |
|---------------------------------------------------------------------------------|--------|-------------|-------------|
| CURRENT ASSETS                                                                  |   |        |        |
| Cash and cash equivalents                                                       |   | $           | 1,999,309   |   |
| Tenant accounts receivable, net of allowance for doubtful  accounts of $170,694 |   | 2,444,494   |        |
| Other receivables                                                               |   | 51,542      |        |
| Total current assets                                                            |   | 4,495,345   |        |
| RESTRICTED  DEPOSITS AND FUNDED RESERVES                                        |   |        |        |
| Bond reserves held by trustee                                                   |   | 121,543,814 |        |
| Total deposits held in trust—funded                                        |   | 121,543,814 |        |
| RENTAL PROPERTY                                                                 |   |        |        |
| Leasehold improvements                                                          |   | 148,535,379 |        |
| Land improvements                                                               |   | 32,278,994  |        |
| Furniture and fixtures                                                          |   | 8,455,528   |        |
| Construction in progress                                                        |   | 6,495,473   |        |
|                                                                            |   | 195,765,374 |        |
| Less accumulated depreciation                                                   |   | (33,659,444 | )           |
|                                                                            |   | 162,105,930 |        |
| OTHER ASSETS                                                                    |   |        |        |
| Intangible assets, net of accumulated amortization  of $736,973                 |   | 5,981,142   |        |
| Total other assets                                                              |   | 5,981,142   |        |
|                                                                            |   | $           | 294,126,231 |   |
| LIABILITIES &  MEMBERS' EQUITY (DEFICIT)                                    |   |        |        |
| CURRENT  LIABILITIES                                                            |   |        |        |
| Accounts payable                                                                |   | $           | 1,898,359   |   |
| Accrued liabilities                                                             |   | 294,015     |        |
| Accrued management fee payable                                                  |   | 381,048     |        |
| Accrued interest payable                                                        |   | 883,030     |        |
| Development costs payable                                                       |   | 1,592,732   |        |
| Note payable—current portion                                               |   | 2,385,000   |        |
| Prepaid rent                                                                    |   | 111,088     |        |
| Total current liabilities                                                       |   | 7,545,272   |        |
| LONG-TERM  LIABILITIES                                                          |   |        |        |
| Notes payable, net of current portion                                           |   | 258,345,000 |        |
| Total long-term liabilities                                                     |   | 258,345,000 |        |
| COMMITMENTS AND CONTINGENCIES                                                   |   | —      |        |
| MEMBERS' EQUITY                                                                 |   | 28,235,959  |        |
|                                                                            |   | $           | 294,126,231 |   |

 

See notes to financial statements

182

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**Fort Carson Family Housing, LLCSTATEMENT OF OPERATIONSFor the year ended December 31, 2006**

| RENTAL REVENUE                     |   |       |       |
|------------------------------------|--------|------------|------------|
| Rent revenue—net              |   | $          | 30,850,335 |   |
| Miscellaneous revenue              |   | 83,536     |       |
| Total rental revenue               |   | 30,933,871 |       |
| OPERATING  EXPENSES                |   |       |       |
| Advertising and marketing          |   | 82,020     |       |
| Amortization expense               |   | 114,078    |       |
| Depreciation expense               |   | 7,363,193  |       |
| Bad debt expense                   |   | 245,657    |       |
| Benefits                           |   | 274,326    |       |
| Insurance expense                  |   | 726,630    |       |
| Legal expense                      |   | 150,174    |       |
| Maintenance & repairs          |   | 1,000,780  |       |
| Management fees                    |   | 1,554,461  |       |
| Military transition                |   | 152,362    |       |
| Office expenses                    |   | 292,797    |       |
| Other financial expenses           |   | 273,477    |       |
| Payroll taxes                      |   | 200,287    |       |
| Salaries and wages                 |   | 2,298,691  |       |
| Supplies                           |   | 2,688,415  |       |
| Utilities                          |   | 3,877,166  |       |
| Vehicle lease expense              |   | 247,445    |       |
| Total operating expenses           |   | 21,541,959 |       |
| Operating income                   |   | 9,391,912  |       |
| OTHER (INCOME)  AND EXPENSES       |   |       |       |
| Interest income—bond reserves |   | (562,126   | )          |
| Interest expense                   |   | 12,279,518 |       |
| Organization costs                 |   | 42,500     |       |
| Total other income and expenses    |   | 11,759,892 |       |
| Net loss                           |   | $          | (2,367,980 | ) |

 

See notes to financial statements

183

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**Fort Carson Family Housing, LLCSTATEMENT OF CHANGES IN MEMBERS’ EQUITY (DEFICIT)For the year ended December 31, 2006**

| ** **                 | ** ** | **GMH Military** | ** ** | **Department**  | ** ** | ** **          | ** ** | ** ** | ** ** |
|----------------------------|------------|-----------------------|------------|-----------------|------------|---------------------|------------|------------|------------|
| ** **                 | ** ** | **Housing—Fort** | ** ** | **of the** | ** ** | **GMH/Integrated,** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | **Carson, LLC**  | ** ** | **Army**        | ** ** | **LLC**             | ** ** | **Total**  | ** ** |
| Members' equity  (deficit) |       |                  |       |            |       |                |       |       |       |   |   |   |   |
| December 31, 2005          |       |                  | $          | 6,598,148       |       |                | $          | 26,581,729 |       |   | $ | — |   |   | $ | 33,179,877 |   |
| Distributions              |       |                  | (2,575,938 | )               |       | —              |       |       | —     |   |   | (2,575,938 | ) |
| Net income                 |       |                  | (2,367,980 | )               |       | —              |       |       | —     |   |   | (2,367,980 | ) |
| Members' equity  (deficit) |       |                  |       |            |       |                |       |       |       |   |   |   |   |
| December 31, 2006          |       |                  | $          | 1,654,230       |       |                | $          | 26,581,729 |       |   | $ | — |   |   | $ | 28,235,959 |   |

 

See notes to financial statements

184

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**Fort Carson Family Housing, LLCSTATEMENT OF CASH FLOWSFor the year ended December 31, 2006**

| Reconciliation of net  income to net cash provided by operating activities        |   |         |       |
|-----------------------------------------------------------------------------------|--------|--------------|------------|
| Net loss                                                                          |   | $            | (2,367,980 | ) |
| Adjustments to  reconcile net income to net cash provided by operating activities |   |         |       |
| Depreciation                                                                      |   | 7,363,193    |       |
| Amortization                                                                      |   | 114,078      |       |
| Bad debt                                                                          |   | 245,657      |       |
| (Increase)  decrease in assets                                                    |   |         |       |
| Tenant accounts receivable                                                        |   | (207,832     | )          |
| Other current assets                                                              |   | 589          |       |
| Increase  (decrease) in liabilities                                               |   |         |       |
| Accounts payable                                                                  |   | 1,893,237    |       |
| Management fee payable                                                            |   | (106,166     | )          |
| Accrued expenses                                                                  |   | (865,482     | )          |
| Accrued interest                                                                  |   | 411,103      |       |
| Prepaid rent                                                                      |   | 111,088      |       |
| Net cash provided by operating activities                                         |   | 6,591,485    |       |
| Cash flows from  investing activities                                             |   |         |       |
| Deposits to bond reserves                                                         |   | (110,768,669 | )          |
| Investment in rental property                                                     |   | (4,910,192   | )          |
| Net cash used in investing activities                                             |   | (115,678,861 | )          |
| Cash flows from  financing activities                                             |   |         |       |
| Bond proceeds                                                                     |   | 118,600,000  |       |
| Principal payments on bonds                                                       |   | (2,205,000   | )          |
| Distributions to members                                                          |   | (2,575,938   | )          |
| Payment of loan costs                                                             |   | (3,593,851   | )          |
| Net cash used in financing activities                                             |   | 110,225,211  |       |
| NET INCREASE IN CASH                                                              |   | 1,137,835    |       |
| Cash and cash equivalents, beginning                                              |   | 861,474      |       |
| Cash and cash equivalents, ending                                                 |   | $            | 1,999,309  |   |
| Supplemental  disclosure of cash flow information                                 |   |         |       |
| Cash paid during the year for interest, net of capitalized  of $27,642            |   | $            | 11,840,773 |   |
| Supplemental  schedule of noncash investing and financing activities              |   |         |       |
| Construction in progress                                                          |   | $            | (1,592,732 | ) |
| Development costs payable                                                         |   | 1,592,732    |       |
|                                                                              |   | $            | —     |   |

 

See notes to financial statements

185

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS December 31, 2006**

**NOTE 1—ORGANIZATION ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Fort Carson FamilyHousing, LLC, (the Company) was formed as a limited liability company on July 9,1999, under the laws of the State of Colorado, for the purpose of leasing,constructing, rehabilitating, developing, and operating housing at a militarybase located in Colorado Springs, Colorado, known as Fort Carson (theInstallation) under the terms of Contract Number DACA45-99-C-0066(the Contract) awarded by the United States Department of the Army (Army).

The construction sites arelocated on the northwest corner of Fort Carson. Approximately 467.18 acresare currently developed and 309.69 acres are undeveloped. All sites are locatedon land owned by the Army and leased to the Company pursuant to terms of a 50year ground lease. The original site development plan for the Installationrequires construction of 841 new housing units within four years from the dateof the contract award and renovation of the existing 1,823 units within five yearsfrom the date of the Contract award. As of December 31, 2006, all 841 newhousing units and all 1,823 renovation units were completed. During 2006,the Company began construction to build additional new homes. The sitedevelopment plan for the Installation includes the demolition of approximately8 units on the project site and the construction of 404 new housing unitswithin three years from the date of the Contract award.

The Company wasreorganized on December 21, 2005, under the laws of the State of Delaware.The original operating agreement was terminated and all members entered into anew operating agreement effective December 21, 2005. The members consistof GMH Military Housing - Fort Carson, LLC, who will serve as the managingmember (Managing Member) and the United States of America, acting by andthrough the Department of the Army (Government Member).

On November 29, 2006the operating agreement was amended to admit a third member, GMHArmy/Integrated, LLC (Integrated Member). The Members have acknowledged andagreed that the Integrated Member has not made and was not required to make acapital contribution to the Company as of November 29, 2006.

Priorto the effective date of the Second Amended and Restated Operating Agreement,which is effective November 29, 2006, available cash, as defined, shall bedistributed as follows:

(a)          Torepay any member loans;

(b)         Tothe Managing Member to the extent of any unpaid amortization amount, asdefined;

(c)          Tothe Managing Member to fully amortize the unreturned contribution amount at arate of 10 percent per year from July 1, 2005, to June 30, 2015,which should be paid monthly in accordance with the amortization schedule. Inany given month, if the amortization amount is not paid in full, the unpaidportion will accrue interest at the rate of 10 percent per annum;

(d)         UntilJune 30, 2015, 30 percent of the balance, if any, shall be distributed tothe managing member and the remainder shall be deposited into the ReinvestmentAccount and, after June 30, 2015, 10 percent of the balance, if any, shallbe distributed to the Managing Member and the remainder shall be deposited intothe Reinvestment Account;

(i)             Eachyear from 2005 to 2015, the Company shall recalculate the Internal Rate ofReturn (IRR) on the Managing Member’s initial capital contribution.

186

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (Continued)**

(ii)         Eachyear from 2005 to 2015, if the IRR for a given year does not exceed 18 percent,the annual percentage distribution to be made to the Managing Member will notbe capped or otherwise limited;

(iii)     Eachyear from 2005 to 2015, if the IRR for a given year exceeds 18 percent, thedistribution of the annual percentage distribution for such fiscal year will bedetermined as follows:

(a)           ifthe amount of the distribution necessary to meet the 18 percent ceiling is lessthan $1.745 million, the Managing Member will receive the full 30 percentannual percentage distribution of $1.745 million, whichever is less;

(b)          ifthe amount of the distribution necessary to meet the 18 percent ceiling is morethan $1.745 million, the annual percentage distribution to be made to theManaging Member shall be capped or otherwise limited to that amount that doesnot result in an IRR computation exceeding 18 percent;

(iv)       Foryear 2016,  and for each year thereafter,the annual percentage distribution will be limited to $1.745 million only if an18 percent IRR is received;

(v)           Thedisallowed portion of the annual percentage distribution for any fiscal yearthat would otherwise be payable to the Managing Member, but for the cap orlimit as provided above, shall be deposited into the Reinvestment Account.

(e)   The balance of the Reinvestment Account shallbe distributed to the Government Member upon any event of dissolution afterpayment of the above distributions.

During the year ended December 31,2006, $2,575,938 was distributed to the Managing Member in accordance with theoperating agreement that terminated on November 29, 2006. In addition,$502,167 was paid to the Managing Member as additional preferred return and isincluded in interest expense on the accompanying statement of operations.

Pursuant to the newoperating agreement, available cash, as defined, shall be distributed asfollows:

(a)          Torepay any member loans;

(b)         Tothe Managing Member to the extent of any unpaid amortization amount, asamended;

(c)          Tothe Managing Member to fully amortize the unreturned contribution amount at arate of 10 percent per year from July 1, 2005, to June 30, 2015,which should be paid monthly in accordance with the amortization schedule. Inany given month, if the amortization amount is not paid in full, the unpaidportion will accrue interest at the rate of 10 percent per annum;

(d)         Anamount equal to the annual percentage distribution shall be distributed to theManaging Member and the remainder, if any, shall be deposited into theReinvestment Account;

(i)    Until December 31, 2011, the annualpercentage distribution shall be equal to 50 percent of available cash, if any,after making the distributions provided for above; provided, however, in noevent shall the annual percentage distribution in any particular year exceedamounts as noted in the operating agreement;

187

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

NOTE1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(ii)         AfterDecember 31, 2011 until June 30, 2015, the annual percentagedistribution shall be equal to 30 percent of available cash, if any, aftertaking the distributions noted previously; provided, however, in no event shallthe annual percentage distribution in any particular year exceeds the greaterof an IRR of 18 percent or $1,745,000;

(iii)     AfterJune 30, 2015 and until December 31, 2024, the annual percentagedistribution shall be equal to 15 percent of available cash, if any, aftermaking the distributions noted previously; provided however, in no event shallthe annual percentage distribution in any particular year exceeds the greaterof an IRR of 18 percent or annual amounts as noted in the operating agreement;

(iv)       For2025 and for each year thereafter, the annual percentage distribution shall beequal to 10 percent of available cash, if any, up to a maximum of $1,745,000after making distributions above.

(e)          Upondissolution of the Company, the balance of the Reinvestment Account shall bedistributed to the Government Member after:

(i)             Paymentof the debts and liabilities of the Company, in the order of priority providedby law (excluding any member loans), and payment of the expenses ofliquidation; and then

(ii)         Paymentof any and all member loans made by members or their affiliates to the Company,plus any accrued but unpaid interest thereon, which amount shall be appliedfirst to interest and then to principal; provided, that in the event theCompany’s funds are insufficient to satisfy all such loans, then all memberloans made by all members or their affiliates shall be repaid on a pro-ratabasis; and then,

(iii)     Settingup of such reserves as the Manager or liquidating trustee deem reasonablynecessary for any contingent or unforeseen liabilities or obligations of theCompany or any obligation or liability not then due and payable; provided, anybalance of such reserve, at the expiration of such period as the members orliquidating trustee shall deem advisable, shall be distributed in the mannerherein provided; and then,

(iv)       Distributionto the Managing Member of the unpaid amortization amount, if any; and then,

(v)           Distributionto the Managing Member in an amount not to exceed the then outstandingamortization amount balance as set forth in the amortization schedule; andthen,

(vi)       Distributionto the members (or in the case of the Government Member, at the GovernmentMember’s election, to the Integrated Member) in accordance with the positivebalances in their capital accounts.

(f)            The balance of theReinvestment Account shall be distributed to the Government Member upon anyevent of dissolution after payment of the above distributions.

188

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE 1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (Continued)**

No distributions were madeunder the terms of the new operating agreement during the year ended December 31,2006.

Each year from 2006through 2015, for purposes of computing the cap on the annual percentagedistributions, the Company shall recalculate the IRR on the Managing Member’sInitial Capital Contribution. This calculation will include all cashdistributions received by the Managing Member from the Company since the year2000, such as distributions of the amortization amount, distributions fromavailable cash and any special distributions, but shall specifically excludethe fees paid to various third parties affiliated with the Managing Memberpursuant to contracts, including the Management Agreement, the RenovationAgreement and the Development Agreement, and any amounts paid for assetmanagement services.

Net profits are allocatedconsistently in both agreements, and are allocated as follows:

(a)          tothe Managing Member only to the extent the Managing Member actually receivescash distributions of available cash pursuant to the above;

(b)         anyremaining net profits to the Government Member.

Net losses are allocatedconsistently in both agreements, and are allocated as follows:

(a)          tothe Managing Member in an amount necessary to reduce the Managing Member’spositive capital account balance to zero

(b)         anyremaining net losses to the Government Member.

A summary of significantaccounting policies follows.

*Use of Estimates*

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period. Actual results could differ from those estimates.

*Accounts Receivable and Bad Debts*

Tenant receivables arereported net of an allowance for doubtful accounts. Management’s estimate ofthe allowance is based on historical collection experience and a review of thecurrent status of tenant accounts receivable. It is reasonably possible thatmanagement’s estimate of the allowance will change.

*Intangible Assets and Amortization*

Loan costs are amortizedover the term of the mortgage loan using the straight-line method, whichapproximates the effective interest method. Estimated amortization expense foreach of the five ensuing years is $223,891 annually.

*Rental Property*

All construction and softcosts associated with development are capitalized as construction in progressand are carried at cost. Leasehold improvements are removed from constructionin progress and are capitalized as housing units are placed in service based oncompletion of construction. Expenditures for maintenance and repairs arecharged to expense as incurred. Depreciation is provided for in amounts 

189

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

sufficientto relate the cost of depreciable assets to operations over the lesser of theterm of the ground lease or their estimated service lives by use of thestraight-line method for financial reporting purposes.

Theestimated lives used in determining depreciation are:

| Leasehold improvements |   | 40 years |
|------------------------|--------|----------|
| Land improvements      |   | 15 years |
| Furniture and fixtures |   | 5 years  |

 

*Cash Equivalents*

The Company considers allhighly liquid investments, including money market accounts with an originalmaturity date of three months or less when purchased to be cash equivalents.

*Rental Income*

Rentalincome is recognized as rentals become due. Rental payments received in advanceare deferred until earned. All leases between the Company and tenants of theproperty are operating leases. The Company receives rental payments from theUnited States Department of Defense on behalf of the tenants in the form of aBasic Allowance for Housing (BAH). Tenants authorized to occupy theInstallation are limited to military personnel, except under limitedcircumstances.

*Income Taxes*

No provision or benefitfor income taxes has been included in these financial statements since taxableincome or loss passes through to, and is reportable by, the membersindividually.

*Advertising Costs*

Advertising costs areexpensed as incurred.

*Capitalization of Interest, Insurance, and Real EstateTaxes*

During development of theInstallation, the Company will capitalize interest costs incurred that relateto development. For the year ended December 31, 2006, the Companycapitalized $27,642 of interest costs.

During the year ended December 31,2006, the Company did not capitalize any insurance costs.

During the year ended December 31, 2006, theCompany was exempt from real estate taxes, thus no amounts have beencapitalized.

*Fair Value of Financial Instruments*

The carrying value ofaccounts receivable, accounts payable and accrued expenses, and other assetsand liabilities are reasonable estimates of fair values because of theirrelatively short-term nature.

The fair value of thenotes payable were estimated using discounted cash flow analysis, based on theCompany’s estimated incremental borrowing rate at December 31, 2006. Thefair value of  the notes exceed thecarrying value by approximately $14,949,165 at December 31, 2006.

190

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE1—ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

*Impairment of Long-Lived Assets*

The Company hasimplemented Statement of Financial Accounting Standards No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*,**which requires the Company under certain circumstances toreview long-lived assets and certain intangibles to determine if the carryingvalue exceeds the undiscounted cash flows expected to be derived from theasset. If the carrying value exceeds the cash flows, then recorded amounts ofthe assets will be reduced to their fair value. No impairment losses have beenrecognized during the year ended December 31, 2006.

**NOTE 2—MORTGAGE PAYABLE**

The Company entered into a loan agreement with BankOne, Colorado, N.A. (Bank One) on November 15, 1999, in the amount of$147,035,000. The mortgage was funded on November 15, 1999 with proceedsfrom the issuance of $147,035,000 of taxable bonds, Fort Carson Family Housing,LLC Taxable Fort Carson Housing Revenue Bonds, Series 1999 (the 1999Bonds). Proceeds were specifically for funding development of the Installationand were placed in a restricted trust account with Bank One (the Trustee).

The mortgage bears interest at the rate of 7.78percent. Interest only payments were required through August 15, 2004 (thedate construction of the Installation was estimated to be completed). Monthlyinstallments of principal and interest shall be payable on the first day ofeach month beginning on September 15, 2004, until maturity onNovember 15, 2029.

The loan is non-recourse and is secured by a firstlien mortgage and security interest in the Installation and is also secured bya guaranteed loan. MBIA Insurance Corporation (MBIA) has provided a guaranteeunder a Financial Guaranty Insurance Policy dated February 12, 2001between Bank One and MBIA. Under the terms of the Guaranty, MBIA guarantees tothe full and complete payment of principal and interest as such payments becomedue. Furthermore, the United States of America (USA) has provided a guaranteeunder a Military Housing Loan Guaranty Agreement (Guaranty) datedNovember 15, 1999, between Bank One and the USA. Under the terms of theGuaranty, the USA will provide certain payments in the event of a paymentdefault under the loan which is securing the Bonds that is directly caused byan Installation closure, downsizing of at least 40 percent of Installationpersonnel, or deployment of at least 40 percent of Installation personnel.

On November 1, 2006, the Company amended itsTrust Indenture and Security Agreement with The Bank of New York (the Trustee).In addition to the financing secured by the original Indenture, the Companyobtained additional financing in the amount of $118,600,000. The mortgage wasfunded on November 29, 2006 with proceeds from the issuance of$118,600,000 of taxable bonds, Fort Carson Family Housing, LLC Taxable FortCarson Housing Revenue Bonds, Series 2006 (the 2006 Bonds). Proceeds werespecifically for funding new development of the Installation and were placed ina restricted trust account with The Bank of New York. The loan is secured bythe property as defined in the Trust Indenture and Security Agreement.

191

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE 2—MORTGAGE PAYABLE(Continued)**

The mortgage note bearsinterest at the rate of 5.65 percent. Interest only payments are requiredthrough December 15, 2009. Monthly installments of principal and interestshall be payable on the first day of each month beginning on January 15,2010, until maturity on September 15, 2044.

Principal paymentsrequired on the mortgages for each of the following five years are as follows:

| ** **        | ** ** | **Series 1999** | ** **  | **Series 2006** | ** ** | **Total**   | ** ** |
|-------------------|------------|----------------------|-------------|----------------------|------------|-------------|------------|
| December 21, 2007 |       | $                    | 2,385,000   |                 | $          | —      |       | $ | 2,385,000 |   |
| 2007              |       | 2,680,000            |        | —               |       | 2,680,000   |       |
| 2008              |       | 2,770,000            |        | —               |       | 2,770,000   |       |
| 2009              |       | 2,985,000            |        | —               |       | 2,985,000   |       |
| 2010              |       | 3,215,000            |        | 1,119,341            |       | 4,334,341   |       |
| Thereafter        |       | 128,095,000          |        | 117,480,659          |       | 245,575,659 |       |
|              |       | $                    | 142,130,000 |                 | $          | 118,600,000 |       | $ | 260,730,000 |   |

 

**NOTE 3—RESERVES HELD BYTRUSTEE**

In connection with themortgage, the Company was required to deposit the proceeds with the Trustee. Amountsin these funds are restricted as to use. As of December 31, 2006, theTrustee has invested the money, with the exception of the construction account,interest reserve fund, and amenity fund, in short-term U.S. Treasuryobligations. The Company has entered into a guaranteed investment contract withSociete Generale for a guaranteed rate of return of 6.25 percent per annum withrespect to the interest reserve fund and the amenity fund. The Company hasentered into a guaranteed investment contract with MBIA for a guaranteed rateof return of 4.933 percent per annum with respect to the construction account. Suchfunds are considered available for sale and are accounted for at their fairvalue, which approximates their cost at December 31, 2006.

The balances in these funds at December 31, 2006,are as follows:

| Bond proceeds  fund                  |   | $           | 192,896     |   |
|--------------------------------------|--------|-------------|-------------|--------|
| Construction fund                    |   | 108,089,569 |        |
| Amenity fund                         |   | 703,353     |        |
| Backlog repairs  and maintenace fund |   | 9,010       |        |
| Interest reserve  fund               |   | 18,821      |        |
| Repair and  replacement reserve      |   | 185,838     |        |
| Tax and insurance  escrow            |   | 263,282     |        |
| Revenue fund                         |   | 147,097     |        |
| Reinvestment fund                    |   | 2,286,488   |        |
| Senior bond  principal fund          |   | 10,000      |        |
| Operating expense  fund              |   | 108,330     |        |
| Utility Fund                         |   | 6,798,042   |        |
| Debt reserve fund                    |   | 200,000     |        |
| Demolition fund                      |   | 807,912     |        |
| Air conditioning  fund               |   | 1,723,176   |        |
|                                 |   | $           | 121,543,814 |   |

 

192

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE3—RESERVES HELD BY TRUSTEE (Continued)**

Eachfund is utilized specifically for purposes related to the operation of theInstallation as defined in the trust indenture.

**NOTE 4—RELATED PARTYTRANSACTIONS**

*Development Services Fee*

TheCompany entered into a development agreement on December 21, 2005, withGMH Military Housing Development, LLC, an affiliate of the Managing Member. Theagreement provides for a monthly development fee in the amount of 3 percent oftotal development costs relating to development and construction of theInstallation. The developer will also be entitled to a development incentivefee not to exceed 1 percent of development costs. As of December 31, 2006,$282,621 of the base development fee has been incurred and remains payable andis included as a component of development costs payable on the accompanyingbalance sheet. As of December 31, 2006, $94,207 of the incentivedevelopment fee has been incurred and remains payable and is included as acomponent of development costs payable on the accompanying balance sheet.

*Management and Asset Management Fees*

TheCompany entered into a management agreement on December 21, 2005, with GMHMilitary Housing Management, LLC, an affiliate of the Managing Member, toprovide day-to-day oversight of the operations of the leasing and maintenanceof the Installation. The agreement provides for a management fee of 3 percentand an asset management fee of 1 percent of monthly rental collections. For theyear ended December 31, 2006, $1,212,012 of management fees and assetmanagement fees were incurred and $281,764 is payable and is included as acomponent of accrued management fees on the accompanying balance sheet.

*General and Administrative Expense Fee*

Inaccordance with the management agreement, GMH is also entitled to a monthlygeneral and administrative expense fee. The agreement provides for a generaland administrative expense fee of an agreed-upon percentage of no less than 5.5percent of all general and administrative expenses set forth in the budget. Forthe year ended December 31, 2006, $342,449 of general and administrativeexpense fee was incurred and $99,284 is included as a component of accruedmanagement fees on the accompanying balance sheet.

*Municipal Services Agreement*

The Company entered into amunicipal services agreement on December 21, 2005, with the United Statesof America (USA), an affiliate of the Government Member. In accordance with theagreement, the USA agrees provide the Installation with services such asutilities, fire protection, police patrol, and emergency services. As ofDecember 31, 2006, the Company has incurred $3,593,524 of municipalservices fees which are included as a component of utilities expense on theaccompanying statement of operations. As of December 31, 2006, $911,473remains payable and is included as a component of accounts payable on theaccompanying balance sheet.

193

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE4—RELATED PARTY TRANSACTIONS (Continued)**

*Payment for MunicipalServices*

Pursuant to the Second Amended and Restated OperatingAgreement, the Government Member shall be responsible for provided utilityservice and fire, EMT and police service to the Project.  The Company shall use funds held in theReinvestment Account to pay utility costs and emergency services costs.  Funds in the Reinvestment Account shall beapplied in the following order of priority:

(a)   to payemergency services costs,

(b)   to payutility costs for housing units constructed as part of the 2006 project,

(c)   to payutility costs for housing units constructed as part of the 1999 project, and

(d)   for otherpurposes permitted.

The Company shall establish a utility reserve fundoutside of the Reinvestment Account (the “Utility Reserve Fund”) which shall befunded with proceeds of the bonds in the amount of $6,282,358.  To the extend funds in the Reinvestment Accountare insufficient to pay utility costs, the Company shall pay utility costs fromthe Utility Reserve Fund.  Funds ondeposit in the Utility Reserve Fund shall not be under the control of theTrustee or subject to the Trustee’s lien or encumbrance as security for thebonds or any loan to the Company, shall be invested in permitted investments,shall not be commingled with any other funds of the Company and shall not bepledged or voluntarily subjected to any lien or encumbrance.  Interest and investment earnings on amountsin the Utility Reserve Fund shall be credited to the Utility Reserve Fund.

In the event thatsufficient funds are not available in the Reinvestment Account to pay emergencyservices costs, or in the Reinvestment Account or Utility Reserve Fund to payutility costs related to housing units constructed as part of the 1999 project,payment for such expenses shall be carried as a payable from the ReinvestmentAccount and shall be paid out of the Reinvestment Account to the GovernmentMember, as soon as sufficient funds become available.

*Due to Affiliate*

As part of its managementactivities, GMH Military Housing Management Fort Carson, LLC, an affiliate ofthe Managing Member, pays operating and maintenance expenses on behalf of theInstallation and is then reimbursed. Amounts due to affiliates are non-interestbearing and are due upon demand. As of December 31, 2006, $88,641 is dueto the affiliate and is included in accounts payable on the accompanyingbalance sheet.

**NOTE 5—GROUND LEASE AGREEMENT**

On November 18, 1999, the Company entered into aGround Lease agreement with the Secretary of the Army (Secretary), an affiliateof the Trust. The consideration of the lease is the operation and maintenanceof the Installation for 50 years. The lease can be extended at the option ofthe Secretary beyond the initial 50-year term of the contract. Inaddition, if the Company and its related construction affiliates are removedfrom the renovation and construction of the Installation for violation of termsand conditions of the contract, the Secretary can terminate the Ground Lease.Because the Army is a member 

194

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE5—GROUND LEASE AGREEMENT (Continued)**

of the Company, thoseassets transferred under the lease have been contributed to the Company underaccounting principles generally accepted in the United States and have beenrecorded at the historical cost to the Army. Based on the age and estimatedinitial useful life of the existing structures, the historical cost to the Armywas determined to be zero. The leasehold improvements incurred under theconstruction and renovation contracts are being depreciated over the lesser oftheir useful lives or the lease term.

On December 21, 2005,the original Ground Lease with the Secretary was amended and restated. Theconsideration of the lease is the operation and maintenance of the Installationfor 50 years with an option by the Army to extend for an additional 25 years.

On November 29, 2006,the Ground Lease was amended by the Secretary to grant and convey by quitclaimdeed to the Company additional land parcels, including all buildings,improvements, and fixtures of whatever nature currently located thereon. Theadditional parcels were added to the lease to encompass the new constructionand rehabilitation phase of construction being funded by the new bonds. Thepayment terms of the lease remain unchanged. Existing structures on the newparcels are expected to be demolished as new construction progresses. No amounthas been recorded in connection with the lease amendment. Cost of the existingstructures located on the new parcels is estimated to be zero based on theArmy’s historical net book value and the existing age of the structures. Thesestructures are to be demolished and new structures to be constructed pursuantto plans described in Note 1.

**NOTE 6—REINVESTMENTACCOUNT**

The generating agreementthat terminated on November 26, 2006 required that a reinvestment accountbe established upon completion of the initial construction and renovation work.Funds available to be deposited in the reinvestment account are equal to thenet operating income less the payment of debt service, any shortfall loans,management fees, and any preferred return on equity. Such deposits shall bekept in the trust solely for the use and benefit of meeting the costs andlong-term capital expenses of the Installation. In the event that the operatingagreement is terminated by the Trust, the remaining funds shall be firstdisbursed to and for the sole use and benefit of the Managing Member, in additionto all other amounts due the Managing Member under any provision of theagreement. In the event there are funds remaining at the expiration of theagreement, such funds will be disbursed to the Government Member.

Pursuant to the Second Amended and Restated OperatingAgreement, the Company shall establish and maintain a separate,interest-bearing account known as the reinvestment account at a national bankor other financial institution.  Funds ondeposit in the reinvestment account shall not be under the control of theTrustee or subject to the Trustee’s lien or encumbrance as security for thebonds or any loan to the Company, shall be invested in permitted investments,shall not be commingled with any other funds of the Company and shall not bepledged or voluntarily subjected to any lien or encumbrance.  Interest and investment earnings on amountsin the reinvestment account shall be credited to the reinvestment account.  The Company shall hold in the reinvestmentaccount such amounts as were held in the reinvestment account establishedpursuant to the trust, which amounts were previously contributed by the trust pursuantto the available cash distributions as set forth in Note 1.  Expenditure of funds in, and disbursement offunds from, the reinvestment account shall require the consent of theGovernment Member and the Managing Member. Notwithstanding the foregoing, funds in the reinvestment account may bewithdrawn from the reinvestment account by the Manager, without further actionby the members, to pay for utility 

195

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE6—REINVESTMENT ACCOUNT (Continued)**

costs and emergencyservices costs, to pay for demolition, construction, maintenance and renovationof the family housing and associated ancillary facilities at the installationif such expenditures are provided for in the annual budget or any out-yeardevelopment plan, for emergency purposes not in excess of $50,000, and forexpenditures that in the aggregate do not exceed $200,000 in a fiscalyear.  In addition, upon the unanimousvote or consent of the Government Member and Managing Member, the Company maywithdraw amounts from the reinvestment account and apply such funds to thebenefit of any military housing development in which both Government Member andManaging Member or an affiliate of Managing Member holds an ownership interest.

As of December 31, 2006,$2,286,488 was held on deposit in the reinvestment account.

**NOTE 7—COMMITMENTS AND CONTINGENCIES**

*Construction Contract*

The Company entered into acost plus a fee with a guaranteed maximum price construction contract onNovember 29, 2006, with Centex Construction, LLC (Centex), in an amountnot to exceed $101,000,011, which is subject to additions and deductions bychange orders, for the construction of approximately 404 new military housingunits. As of December 31, 2006, $3,983,547 of the contract has beenincurred and $960,541 remains payable and is included as a component ofdevelopment costs payable on the accompanying balance sheet.

*Concentration of Credit Risk*

The primary source ofrevenue of the Installation will be rent collected from the tenants through theBAH. The BAH is adjusted and approved annually by the government and is basedon civilian rental costs by pay grade, dependency status, and location. TheCompany is subject to payment of the BAH through appropriations made annuallyby the Army.  If such appropriations wereremoved or delayed or significantly reduced, the Company and its operationswould be impaired.

The Company’s cashaccounts are maintained in a chartered banking institution and are insured bythe Federal Deposit Insurance Corporation up to $100,000. The Company has notexperienced any losses associated with deposits in excess of the maximuminsurable limits.

*Military Housing Loan Guaranty*

As discussed in Note 2,the USA previously provided payments of the mortgage payable in the event of apayment default caused by an Installation closure, downsizing of at least 40percent of Installation personnel, or deployment of at least 40 percent ofInstallation personnel.

On November 29, 2006,the loan guaranty agreement was amended to remove the guaranty of the mortgageobligations with respect to the 2006 bonds.

**NOTE 8—INVOLUNTARYCONVERSIONS**

During 2006, the Companyreceived $1,080,327 of insurance proceeds related to various damage to housingunits caused by wind in 2004 and 2005. Repairs were made to the damaged units.The Company has plans to make additional repairs in the amount of $654,532,which is included as a component of accrued liabilities on the accompanyingbalance sheet.

196

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**Fort Carson Family Housing, LLC NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 2006**

**NOTE 9—OPERATINGLEASE OBLIGATIONS**

The Company hasentered into several operating leases during 2006 related to vehicles underwhich it is a lessee. Rental expense related to these leases for the year endedDecember 31, 2006, was $150,279, which is included as a component ofvehicle lease expense on the accompanying statement of operations. Thefollowing is a schedule of future minimum lease payments as of December 31,2006, that have initial or remaining lease terms in excess of one year:

| December 31,  2007 |   | $       | 132,408 |   |
|-------------------------|--------|---------|---------|--------|
| 2008                    |   | 132,408 |    |
| 2009                    |   | 132,408 |    |
| 2010                    |   | 132,408 |    |
| 2011                    |   | 132,408 |    |
|                    |   | $       | 662,040 |   |

 

**NOTE 10—DEPLOYMENTOF TROOPS**

During the year ended December 31,2006, a military unit of approximately 5,000 soldiers was deployed. Duringtimes of deployment, family members often do not stay on base, but insteadreturn home to be near other family members. As a result, the Installationexperienced a significant increase in the number of vacant units with occupancyfalling from 92% to 86% during the year.

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**SIGNATURES**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

| Date: March 16, 2007 | GMH COMMUNITIES  TRUST                   |
|---------------------------|------------------------------------------|
|                      | /s/ GARY. M. HOLLOWAY                    |
|                      | Gary M. Holloway, Sr.               |
|                      | *President and Chief Executive  Officer* |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, this report has been signed below by thefollowing persons on behalf of the Registrant and in the capacities and on thedates indicated.

|                                  | **Signature** | ** **                                                           | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------------|---------------|----------------------------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
|                             |          |                                                                 |       |                 |
| /s/ GARY M. HOLLOWAY             |          | President, Chief  Executive Officer                                  |       | March 16,  2007 |
| Gary M.  Holloway, Sr.      |          | and Chairman of our  Board of Trustees (Principal Executive Officer) |       |                 |
| /s/ BRUCE F. ROBINSON            |          | President of  Military Housing                                       |       | March 16, 2007  |
| Bruce F. Robinson                |          | Business and Trustee                                                 |       |                 |
| /s/ J. PATRICK O’GRADY      |          | Executive Vice  President and                                        |       | March 16, 2007  |
| J. Patrick O’Grady          |          | Chief Financial Officer  (Principal Financial Officer)               |       |                 |
| /s/ FREDERICK F. BUCHHOLZ        |          | Trustee                                                              |       | March 16, 2007  |
| Frederick F. Buchholz            |          |                                                                 |       |                 |
| /s/ RADM JAMES W. EASTWOOD (Ret) |          | Trustee                                                              |       | March 16, 2007  |
| RADM James W. Eastwood  (Ret)    |          |                                                                 |       |                 |
| /s/ MICHAEL D. FASCITELLI        |          | Trustee                                                              |       | March 16, 2007  |
| Michael D. Fascitelli            |          |                                                                 |       |                 |
| /s/ STEVEN J. KESSLER            |          | Trustee                                                              |       | March 16, 2007  |
| Steven J. Kessler                |          |                                                                 |       |                 |
| /s/ DENNIS J. O’LEARY       |          | Trustee                                                              |       | March 16, 2007  |
| Dennis J. O’Leary           |          |                                                                 |       |                 |
| /s/ DENIS J. NAYDEN              |          | Trustee                                                              |       | March 16, 2007  |
| Denis J. Nayden                  |          |                                                                 |       |                 |
| /s/ RICHARD A. SILFEN            |          | Trustee                                                              |       | March 16, 2007  |
| Richard A. Silfen                |          |                                                                 |       |                 |

 

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