UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 
 FORM 10-K 
  (Mark One)x

          

          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the year ended December 31, 2010 OR  o

          

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 001-16785 
 American Spectrum Realty, Inc. (Exact name of Registrant as specified in its charter)  State of Maryland

          

          52-2258674(State or other jurisdiction of incorporation or organization)

          

          (I.R.S. Employer Identification No.)
  2401 Fountain View, Suite 510 Houston, Texas

          

          77057(Address of principal executive offices)

          

          (Zip Code)
 (713) 706-6200 (Registrants telephone number, including area code) 
 Securities registered under Section 12(b) of the Act:  Title of each class

          

          Name of each exchange on which registeredCommon Stock, $.01 par value

          

          NYSE Amex
 Securities registered pursuant to Section 12(g) of the Act: None 
 Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and small reporting company in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer o

          

          Accelerated filer oNon-accelerated filer o

          

          Smaller reporting company x
 Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x As of June 30, 2010, the last business day of the Registrants most recent completed second quarter, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $18,885,819. The aggregate market value was computed with reference to the price on the American Stock Exchange at which the voting stock was last sold as of such date. For this purpose, 1,322,876 shares of Common Stock held by officers and directors are deemed to be held by affiliates but exclusion of shares held by any person should not be construed to indicate that such person is an affiliate of the Registrant for any other purpose. As of March 31, 2011, 2,966,294 shares of Common Stock ($.01 par value) were outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Part III: Portions of the Registrants definitive proxy statement to be issued in connection with the Registrants 2011 stockholders meeting, which will be filed on or before April 30, 2011.
     TABLE OF CONTENTS TABLE OF CONTENTS  Page No.PART IItem 1Business





1Item 1ARisk Factors





3Item 1BUnresolved Staff Comments





9Item 2Properties





10Item 3Legal Proceedings





12Item 4Submission of Matters to a Vote of Security Holders





13PART IIItem 5Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities





14Item 6Selected Financial Data





15Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations





15Item 8Financial Statements and Supplementary Data





25Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure





59Item 9A(T)Controls and Procedures





59Item 9BOther Information





60PART IIIItem 10Directors, Executive Officers and Corporate Governance





61Item 11Executive Compensation





61Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters





61Item 13Certain Relationships and Related Transactions, and Director Independence





61Item 14Principal Accountant Fees and Services





61PART IVItem 15Exhibits and Financial Statement Schedules





62
 i    TABLE OF CONTENTS PART I NOTE ABOUT FORWARD LOOKING STATEMENTS Certain statements either contained in or incorporated by reference into this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally include statements that are predictive in nature and depend upon
or refer to future events or conditions, and include words such as believes, plans, anticipates, projects, estimates, expects, intends, strategy, future, opportunity, may, will, should, could, potential, or similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in this report in the sections entitled Risk Factors (Part I, Item 1A) and Managements Discussion and Analysis of Financial Condition and Results of Operations (Part II, Item
7). The reader is cautioned not to unduly rely on these forward-looking statements. We expressly disclaim any intent or obligation to update or revise publicly these forward-looking statements except as required by law. ITEM 1. BUSINESS General We provide comprehensive integrated real estate solutions for our own property portfolio (properties in which we own a controlling interest) and the portfolios of our third party clients (variable interest entities) (VIEs). We own and manage commercial, industrial, self storage and residential income-properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States. American Spectrum Realty, Inc. was incorporated in Maryland in August of 2000. Our business is conducted through an Operating Partnership in which we are the sole general partner and a limited partner with a total equity interest of 65% at December 31, 2010. As the sole general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership. In general, except as noted below, the Operating Partnership units that are not held by us (approximately 35% of the outstanding units) are exchangeable for either common stock on a two-to-one basis or cash equal to the value of such stock at our sole discretion. We refer to ourselves throughout this report as the the Company or ASR. Corporate Background Our principal offices are located at 2401 Fountain View, Suite 510, Houston, Texas 77057 and our telephone number is (713) 706-6200. Our Annual Reports on Form 10-K, as well as our Code of Ethics, Corporate Governance Guidelines, and Audit Committee, Compensation Committee and Nominating Committee Charters are available through our website, www.americanspectrum.com, under the Investor Relations section, free of charge. Our filings with the Securities and Exchange Commission, or SEC, are posted as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge at www.sec.gov. Description of Business We operate as one segment that encompasses all geographic regions. We provide one group of comprehensive real estate services. At December 31, 2010, the Company owned 31 properties, which consisted of 23 office properties, five industrial, one retail property, one self-storage facility and one parcel of land. The properties are located in four geographic regions in five states.
 1    TABLE OF CONTENTS We deliver integrated property, facility, asset, business and engineering management services to a host of third party clients as well as to our own properties. We offer customized programs that focus on tenant retention through cost-efficient operations. We manage a comprehensive range of properties that include commercial, industrial, self storage, student and assisted living facilities and residential income-properties. We are committed to expanding the scope of products and services offered. We believe this expansion will help us meet our own portfolio property needs as well as the needs of our third party clients. During 2010, we expanded the number of third party properties that we managed. We maintained our existing relationship with the 688,000 square feet of third party properties in Texas. We significantly expanded our management contract portfolio during the year by purchasing property and asset management contracts. Please see Item 8  Consolidated Financial Statements  Note 2. Acquisition and Disposition Activities for information regarding our property management assets acquired. We have a management presence in approximately 22 states. Growth Strategy We intend to grow our portfolio of owned properties through opportunistic investments in well-located properties where cost effective enhancements combined with effective leasing and management strategies, can improve the long term values and economic returns of those properties. We may invest in real estate, or interests in real estate, located anywhere in the United States; however, we currently plan to focus our investments in the approximately 22 states in which we already have a presence. Similarly, we may invest in any type of real estate or interest in real estate, including, but not limited to, office buildings, apartment buildings, shopping
centers, industrial and commercial properties, special purpose buildings and undeveloped acreage. We believe the current United States real estate market provides us with an unprecedented opportunity to acquire interests in or ownership of undervalued and undermanaged properties. We believe there are many properties currently priced below their replacement costs. We believe that our presence in approximately 22 states, coupled with our local market knowledge and management expertise will allow us to capitalize on this opportunity in the near future. Please see Item 8  Consolidated Financial Statements  Note 2. Acquisition and Disposition Activities for information regarding our property management assets acquired,
our properties acquired and disposed of. Industry and Competition The availability of real estate financing has greatly diminished over the past few years as a result of the global credit crisis and overall decline in the real estate market. These events have had an adverse impact on our liquidity and capital resources. These economic conditions have increased the complexity in obtaining real estate loans, as well as, reduced the number of loans available to finance new real estate opportunities and refinance existing real estate. It has also increased the time and marketing costs necessary to sell properties. We face competition from other regional and national service providers. Many of our competitors are local or regional firms that are similarly sized; some competitors are substantially larger than we are on a local, regional, national and/or international basis. In most of the markets we do business in, investors both institutional and private and developers of properties compete vigorously for the acquisition, development and leasing of space. Many of these competitors have greater resources and more experience than we do. Employees As of December 31, 2010, the Company employed a total of 219 individuals, compared to 49 at December 31, 2009, many of whom were added during 2010 in connection with the Companys increase in the third party management business. See Item 8  Consolidated Financial Statements  Note 2. Acquisition and Disposition Activities.
 2    TABLE OF CONTENTS Environmental Matters Federal, state and local laws and regulations impose environmental restrictions, use controls, disclosure obligations and other restrictions that impact the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities, as well as the willingness of mortgage lenders to provide financing, with respect to some properties. These laws and regulations could cause transactions that we are involved in to be delayed or abandoned as a result of these restrictions. In addition, if we fail to disclose known environmental concerns in connection with a real estate transaction we may be subject
to liability. We generally undertake a third party Phase I investigation of potential environmental risks when evaluating an acquisition. A Phase I investigation is an investigation for the presence or likely presence of hazardous substances or petroleum products under conditions that indicate an existing release, a post release or a material threat of a release. A Phase I investigation does not typically include any sampling. We may acquire a property with environmental contamination, subject to a determination of the level of risk and potential cost of remediation. Various environmental laws and regulations also can impose liability for the costs of investigating or remediation of hazardous or toxic substances at sites currently or formerly owned or operated by a party, or at off-site locations to which such party sent wastes for disposal. In addition, an increasing number of federal, state, local and foreign governments have enacted various treaties, laws and regulations that apply to environmental and climate change, in particular seeking to limit or penalize the discharge of materials such as green house gas into the environment or otherwise relating to the protection of the environment. As a property
manager, we could be held liable as an operator for any such contamination or discharges; even if the original activity was legal and we had no knowledge of, or did not cause, the release or contamination. Further, because liability under some of these laws is joint and several, we could be held responsible for more than our share, or even all, of the costs for such contaminated site if the other responsible parties are unable to pay. We could also incur liability for property damage or personal injury claims alleged to result from environmental contamination or discharges, or from asbestos-containing materials or lead-based paint present at the properties that we manage. Insurance for such matters may not always be available, or sufficient to cover our losses. Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property managers to inspect for and remove lead-based paint in certain
buildings, could increase our costs to comply and could potentially subject us to violations or claims. Although such costs have not had a material impact on our financial results in 2010, the enactment of additional regulations, or more stringent enforcement of existing regulations, could cause us to incur significant costs in the future, and/or adversely impact our business. ITEM 1A. RISK FACTORS Risks Related to Our Business in General The ongoing downturn in the general economy and the real estate market has negatively impacted and could continue to negatively impact our business and financial results. Periods of economic slowdown or recession, significantly reduced access to credit, declining employment levels, decreasing demand for real estate, declining real estate values or the perception that any of these events may occur, can reduce transaction volumes or demand for our services. The current recession and the downturn in the real estate market have resulted in and may continue to result in: 

          a decline in acquisition, disposition and leasing activity; 

          a decline in the supply of capital invested in commercial and residential real estate; and 

          a decline in the value of real estate and in rental rates, which would cause us to realize lower revenue from: 

          property management and transaction fees, which in certain cases are calculated as a percentage of the revenue of the property under management; and 

          rental revenue, respectively.
 3    TABLE OF CONTENTS The declining real estate market in the United States, the availability and cost of credit, increased unemployment, volatile oil prices, declining consumer confidence and the instability of United States banking and financial institutions, have contributed to increased volatility, an overall economic slowdown and diminished expectations for the economy and markets going forward. The fragile state of the credit markets, the fear of a global recession for an extended period and the current economic environment have impacted real estate services and management firms like ours through reduced transaction volumes, falling transaction values, lower real
estate valuations, liquidity restrictions, market volatility, and the loss of consumer confidence. Due to the economic downturn, it may take us longer to sell real estate assets and investments and the selling prices may be lower than originally anticipated. In addition, the performance of certain properties in our management portfolio may be negatively impacted, which would likewise affect our fees. As a result, the carrying value of certain of our real estate investments may become impaired and we could record losses as a result of such impairment or we could experience reduced profitability related to declines in real estate values. We are not able to predict the severity or duration of the current adverse economic environment or the disruption in the financial markets. The real estate market tends to be cyclical and related to the condition of the overall economy and to the perceptions of investors, developers and other market participants as to the economic outlook. The ongoing downturn in the general economy and the real estate market has negatively impacted and could continue to negatively impact our business and our results of operations. The ongoing adverse conditions in the credit markets and the risk of continued market deterioration have adversely affected our revenues, expenses and operating results and may continue to do so. We are sensitive to credit cost and availability as well as market place liquidity. We anticipate needing to borrow funds to meet our operating cash flow needs. In addition, the revenues in our business are dependent to some extent on overall volume of activity and pricing in the real estate market. In 2009 and 2010, the credit markets experienced an unprecedented level of disruption and uncertainty. This disruption and uncertainty has reduced the availability and significantly increased the cost of most sources of funding. In certain cases, sources of funding have been eliminated. Disruptions in the credit markets have adversely affected, and may continue to adversely affect, our business of providing services to owners, purchasers, sellers, investors and occupants of real estate in connection with acquisitions, dispositions and leasing of real property. If we and/or our clients are unable to obtain credit on favorable terms, there will be fewer completed acquisitions, dispositions and leases of property. In addition, if purchasers of real estate are not able to obtain favorable financing resulting in a lack of disposition opportunities for funds, our property management fee revenues will decline and we may also experience
losses on real estate held for investment. The recent decline in real estate values and the inability to obtain financing has either eliminated or severely reduced the availability of our historical funding sources and to the extent credit remains available, it is currently more expensive. We may not be able to continue to access sources of funding for our needs, or, if sources are available to us, those sources may not be available with favorable terms. Any decision by lenders to make additional funds available to us in the future for our operational or investment needs will depend upon a number of factors, such as industry and market trends in our business, the lenders own resources
and policies concerning loans and investments, and the relative attractiveness of alternative investment or lending opportunities. The depth and duration of the current credit market and liquidity disruptions are impossible to predict. In fact, the magnitude of the recent credit market disruption has exceeded the expectations of most if not all market participants. This uncertainty limits our ability to develop future business plans and we believe that it limits the ability of other participants in the credit markets and the real estate markets to do so as well. This uncertainty may lead market participants to act more conservatively than in recent history, which may continue to depress demand and pricing in our markets.
 4    TABLE OF CONTENTS Our ability to access credit and capital markets may be adversely affected by factors beyond our control, including turmoil in the financial services industry, volatility in financial markets and general economic downturns. There can be no assurances that our anticipated cash flow from operations will be sufficient to meet all of our cash requirements. We intend to continue to make investments to support our growth and may require additional funds to respond to business challenges. We have historically relied upon access to the credit markets from time to time as a source of liquidity for portions of our working capital requirements not provided by cash from operations. Market disruptions such as those currently being experienced in the United States and other countries may increase our cost of borrowing or adversely affect our ability to access sources of capital.
These disruptions include turmoil in the financial services and real estate industries, including substantial uncertainty surrounding particular lending institutions, and general economic downturns. If we are unable to access credit at competitive rates or at all, or if our short-term or long-term borrowing costs dramatically increase, our ability to finance our operations, meet our short-term obligations and implement our operating strategy could be adversely affected. We are in a highly competitive business with numerous competitors; some competitors may have greater financial and operational resources than we do. We compete in a variety of service disciplines within the real estate industry. Each of these areas is highly competitive on a national as well as on a regional and local level. We face competition not only from national real estate service providers, but also from global real estate service providers and boutique real estate firms. Depending on the service, we also face competition from other real estate service providers, institutional lenders, insurance companies, investment banking firms, investment managers and accounting firms, some of which may have greater financial resources than we do. We are also subject to competition from other large
national firms and from multi-national firms that have similar service competencies to us. Although many of our competitors are local or regional firms that are similarly sized, many of our competitors are substantially larger than us on a local, regional, national or international basis. In general, there can be no assurance that we will be able to continue to compete effectively with respect to any of our business or on an overall basis, or to maintain current fee levels, or maintain or increase our market share. As a service-oriented company, we depend upon the retention of senior management and key personnel, and the loss of our current personnel or our failure to hire and retain additional personnel could harm our business. Our success is dependent upon our ability to retain our executive officers and other key employees and to attract and retain highly skilled personnel. We believe that our future success in developing our business and maintaining a competitive position will depend in large part on our ability to identify, recruit, hire, train, retain and motivate highly skilled executive, managerial, sales, marketing and customer service personnel. Competition for these personnel is intense, and we may not be able to successfully recruit, assimilate or retain sufficiently qualified personnel. We use equity incentives to attract and retain our key personnel. Poor
performance of our stock may diminish our ability to offer attractive incentive awards to new hires. Our failure to recruit and retain necessary executive, managerial, sales, marketing and customer service personnel could harm our business and our ability to obtain new customers. If we fail to manage any future growth effectively, we may experience a material adverse effect on our financial condition and results of operations. The future integration of acquisitions and additional growth may place a significant strain upon management, administrative, operational and financial infrastructure. Our ability to grow also depends upon our ability to successfully hire, train, supervise and manage additional executive officers and new employees, obtain financing for our capital needs, expand our systems effectively, allocate our human resources optimally, maintain clear lines of communication between our transactional and management functions and our finance and accounting functions, and manage the pressures on our management and administrative, operational and financial
infrastructure. Additionally, managing future growth may be difficult due to the new geographic locations and service offerings. There can be no assurance that we will be able to accurately anticipate and respond to the changing demands we will face as we integrate and continue to expand our operations, and we
 5    TABLE OF CONTENTS may not be able to manage growth effectively or to achieve growth at all. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Property Management If the properties that we manage fail to perform, then our business and results of operations could be harmed. Our success partially depends upon the performance of the properties we manage. We could be adversely affected by the nonperformance of, or the deteriorating financial condition of, certain of our clients. The revenue we generate from our property management fees is generally a percentage of aggregate rent collections from the properties. The performance of these properties will depend upon the following factors, among others, many of which are partially or completely outside of our control: 

          our ability to attract and retain creditworthy tenants; 

          the magnitude of defaults by tenants under their respective leases; 

          our ability to control operating expenses; 

          governmental regulations, local rent control or stabilization ordinances which are in, or may be put into, effect; 

          various uninsurable risks; 

          financial condition of certain clients; 

          financial conditions prevailing generally and in the areas in which these properties are located; 

          the nature and extent of competitive properties; and 

          the general real estate market. These or other factors may negatively impact the properties that we manage, which could have a material adverse effect on our business and results of operations. We may have liabilities in connection with property and facilities management activities. We could become subject to claims by participants in real estate sales, as well as building owners and companies for whom we provide management services, claiming that we did not fulfill our statutory obligations as a broker. In addition, with regard to our property and facilities management services, we hire and supervise third party contractors to provide construction and engineering services for our properties and our third party clients properties. While our role is limited to that of a supervisor, we may be subject to claims for construction defects or other similar actions. Adverse outcomes of property and facilities management litigation could have a material adverse effect on our business, financial condition and results of operations. Third party management contracts can be terminated. Loss of a significant number of contracts and fees could have a material adverse effect on our business, results of operations and financial condition. Environmental regulations may adversely impact our business and/or cause us to incur costs for cleanup of hazardous substances or wastes or other environmental liabilities. Federal, state and local laws and regulations impose various environmental restrictions, use controls, and disclosure obligations which impact the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities, as well as mortgage lending availability, with respect to some properties. A decrease or delay in such transactions may adversely affect our results of operations and financial condition. In addition, a failure by us to disclose environmental concerns in connection with a real estate transaction may subject us to liability to a buyer or lessee of property.
 6    TABLE OF CONTENTS In addition, in our role as a property manager, we could incur liability under environmental laws for the investigation or remediation of hazardous or toxic substances or wastes at properties we currently or formerly managed, or at off-site locations where wastes from such properties were disposed. Such liability can be imposed without regard for the lawfulness of the original disposal activity, or our knowledge of, or fault for, the release or contamination. Further, liability under some of these laws may be joint and several, meaning that one liable party could be held responsible for all costs related to a contaminated site. We could also be held
liable for property damage or personal injury claims alleged to result from environmental contamination, or from asbestos-containing materials or lead-based paint present at the properties we manage. Insurance for such matters may not be available or sufficient. Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local ordinances obligating property managers to inspect for and remove lead-based paint in certain buildings, could increase our cost to comply with the law and potentially subject us to violations or claims. Although such costs have not had a material impact on our financial results or competitive position during fiscal year 2010 or 2009, the enactment of additional regulations, or more stringent enforcement of existing regulations, could cause us to incur significant costs in the future, and/or adversely impact our management
services fees. Risks Related to Investment in Properties There are a variety of risks associated with our acquisition activities. We intend to continue to consider possible acquisitions of existing properties. We anticipate that we will be financing our acquisitions with debt, lines of credit or other forms of financing. If properties are initially financed with lines of credit there is a risk that permanent financing on these properties might not be available or would be available only on disadvantageous terms. In addition, any projects requiring development are subject to a number of risks, including risks of construction delays or cost overruns that may increase project costs, risks that the properties will not achieve anticipated occupancy levels or sustain anticipated rent
levels, and new development commencement risks such as receipt of zoning, occupancy and other required governmental permits and authorizations and the incurrence of development costs in connection with projects that are not pursued to completion. If permanent debt or equity financing is not available on acceptable terms to refinance new development or acquisitions undertaken without permanent financing, further development activities or acquisitions might be curtailed or cash available for operations might be adversely affected. Acquisitions entail risks that investments will fail to perform in accordance with expectations and that judgments with respect to the costs of improvements to bring an acquired property up to standards established for the market position intended for that property will prove inaccurate, as well as general investment risks associated with any new real estate investment. Properties that we acquire may be located in new markets where we may face risks associated with investing in an unfamiliar market. We may acquire or develop properties in markets that are new to us. When we acquire or develop properties located in these markets, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. Because real estate investments are generally illiquid, and various factors limit our ability to dispose of assets, we may not be able to sell properties when appropriate. Real estate investments are relatively illiquid and, therefore, we have limited ability to vary our portfolio quickly in response to changes in economic or other conditions. Climate change and weather pattern shifts may adversely affect our profitability. We consider our largest risk related to climate change to be legislative and regulatory changes intended to slow or prevent it, and the potential costs to us to implement these changes. We are also subject to physical risks inherent in owning real property that include but are not limited to; severe weather events such as hurricanes and tornadoes. To the extent that changes in climate effect changes in weather patterns (such as
 7    TABLE OF CONTENTS more severe weather events) or changes in sea level where we have properties, we could be adversely affected. To the extent that climate change results in changes in sea level, we would expect such effects to be gradual and amenable to structural mitigation during the useful life of our buildings. However, if this is not the case it is possible that we would be impacted in an adverse way, potentially materially so. We could experience both risks and opportunities as a result of related physical impacts. For example, more extreme weather patterns  namely, a warmer summer or a cooler winter  could increase demand for our
properties in areas that are not as adversely impacted as other areas. However, we also could experience more difficult operating conditions in that type of environment. We maintain various types of insurance in amounts we consider appropriate for risks associated with weather events. Should an uninsured loss or a loss in excess of insured limits occur, we could lose our capital invested in the property, as well as the anticipated future revenues from the property and, in the case of debt which has recourse provisions, we would remain obligated for any mortgage debt or other financial obligations related to the property. Any such loss would adversely affect us. We will generally be liable for any unsatisfied obligations other than non-recourse obligations. We believe that our properties are adequately insured. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future. We filed insurance claims related to Hurricane Ike, which affected the greater Houston area in September 2008, and for damage caused by a fire at one of our Houston area properties. Our insurance carrier, ACE American Insurance Company, did not pay these claims. In 2010 we filed a law suit against ACE seeking actual and other damages. See Part I, Item 3  Legal Proceedings below. Joint venture investments will expose us to certain risks. We may from time to time enter into joint venture transactions for portions of our existing or future real estate assets. Investing in this manner subjects us to certain risks, among them the following: 

          we will not exercise sole decision-making authority regarding the joint ventures business and assets and, thus, we may not be able to take actions that we believe are in our companys best interests; 

          we may be required to accept liability for obligations of the joint venture (such as recourse carve-outs on mortgage loans) beyond our economic interest; 

          our returns on joint venture assets may be adversely affected if the assets are not held for the long-term. Our ability to renew leases or re-lease space on favorable terms as leases expire significantly affects our business. We are subject to the risks that, upon expiration of leases for space located in our properties, the premises may not be re-let or the terms of re-letting (including the cost of concessions to tenants) may be less favorable than current lease terms. If a tenant does not renew its lease or if a tenant defaults on its lease obligations, there is no assurance we could obtain a substitute tenant on acceptable terms. If we cannot obtain another tenant with comparable needs, we may be required to modify the property for a different use, which may involve a significant capital expenditure and a delay in re-leasing the property. Further, if we are unable to
re-let promptly all or a substantial portion of our space or if the rental rates upon such re-letting were significantly lower than expected rates, our revenues and ability to provide cash for our operations would be adversely affected. There can be no assurance that we will be able to retain tenants in any of our properties upon the expiration of their leases. A property that incurs a vacancy could be difficult to sell or re-lease. A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. Certain of our properties may be specifically suited to the particular needs of a tenant. We may have difficulty obtaining a new tenant for any vacant space we have in our properties. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash available to meet our operational needs. In addition, the resale value of a property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.
 8    TABLE OF CONTENTS Leveraging our portfolio subjects us to increased risk of loss, including loss of properties in the event of a foreclosure. Our portfolio is highly leveraged. The use of leverage presents an additional element of risk in the event that; 

          the cash flow from lease payments on our properties is insufficient to meet debt obligations; 

          we are unable to refinance our debt obligations as necessary or on as favorable terms; or 

          there is an increase in interest rates. If a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the property could be foreclosed upon with a consequent loss of income and asset value to us. Our organization documents contain no limitation on the amount or percentage of indebtedness which we may incur. Therefore, our board of directors, without a vote of the stockholders, could alter the general policy on borrowings at any time. If our debt capitalization policy were changed, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our operating cash flow and our ability to make expected cash distributions for our operating needs, and could result in an increased risk of default on our obligations. See Item 8  Consolidated Financial Statements Note 8. Notes Payable for
additional information on our debt. Covenants in our credit agreements could limit our flexibility and adversely affect our financial condition. The terms of our credit facilities and other indebtedness require us to comply with a number of customary financial and other covenants. These covenants may limit our flexibility in our operations, and breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness even if we have satisfied our payment obligations. If our properties were foreclosed upon, or if we are unable to refinance our indebtedness at maturity or meet our payment obligations, the amount of our cash flows and our financial condition could be adversely affected. See Item 8  Consolidated Financial Statements Note 8.
Notes Payable for additional information on our debt. Other Risks Certain officers and directors may have interests that conflict with the interests of stockholders. Certain of our officers and members of our board of directors own operating partnership units in our Operating Partnership. These individuals may have personal interests that conflict with the interests of our stockholders with respect to business decisions affecting us and our Operating Partnership, such as interests in the timing and pricing of property sales or refinancing in order to obtain favorable tax treatment. As a result, the effect of certain transactions on these unit holders may influence our decisions affecting these properties. We have a history of losses which may continue, which may negatively impact our ability to achieve our business objectives. We incurred net losses attributable to the Company of $8.0 million and $8.3 million for the years ended December 31, 2010 and 2009, respectively. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue. We may not achieve our business objectives and the failure to achieve such goals
would have an adverse impact on us. ITEM 1B. UNRESOLVED STAFF COMMENTS This item is not applicable because we are neither an accelerated filer, a large accelerated filer nor a well known seasoned issuer. As described in Item 9A, the Company received comments from the Staff of the SEC regarding its accounting for a business combination and treatment of certain interests as variable interest entities. The Company believes that it has responded to all of these comments, but the Staff has not yet indicated that it fully concurs with the response.
 9    TABLE OF CONTENTS ITEM 2. PROPERTIES The Location and Type of the Company's Owned Properties The following table sets forth the location, type and size of the properties (by rentable square feet and/or units) along with annualized net rent, rented square feet, occupancy, and rent per square foot owned by us as of December 31, 2010. All properties listed below are encumbered by debt.  State

          

          Property

          

          Type

          

          Total Gross Leasable Area (Square Feet)

          

          Percent of Gross Leasable Area Occupied(1)

          

          Rented Square Feet

          

          Annualized Net Rent(2)

          

          Rent per Square Feet(3)CA

          

          

          7700 IRVINE

          

          

          

          Office

          

          

          

          209,343

          

          

          

          81.1

          %

          

          

          169,753

          

          

          

          5,763,984

          

          

          

          33.96CA

          

          

          BRISTOL BAY

          

          

          

          Office

          

          

          

          50,073

          

          

          

          96.3

          %

          

          

          48,241

          

          

          

          1,286,592

          

          

          

          26.67CA

          

          

          CREEKSIDE Office

          

          

          

          Office

          

          

          

          47,810

          

          

          

          40.8

          %

          

          

          19,513

          

          

          

          455,952

          

          

          

          23.37CA

          

          

          PACIFIC SPECTRUM

          

          

          

          Office

          

          

          

          71,112

          

          

          

          77.5

          %

          

          

          55,101

          

          

          

          927,648

          

          

          

          16.84Arizona California Region

          

          

          

          

          

          

          

          378,338

          

          

          

          77.3

          %

          

          

          292,608

          

          

          

          8,434,176

          

          

          

          28.82MO

          

          

          NORTHWEST CORPORATE CENTER II

          

          

          

          Office

          

          

          

          86,900

          

          

          

          86.4

          %

          

          

          75,079

          

          

          

          1,265,148

          

          

          

          16.85IN

          

          

          MORENCI PROFESSIONAL PARK

          

          

          

          Industrial

          

          

          

          105,600

          

          

          

          58.0

          %

          

          

          61,200

          

          

          

          370,776

          

          

          

          6.06Upper Midwest Region

          

          

          

          

          

          

          

          192,500

          

          

          

          70.8

          %

          

          

          136,279

          

          

          

          1,635,924

          

          

          

          12.00TX

          

          

          888 WEST SAM HOUSTON PARKWAY

          

          

          

          Office

          

          

          

          45,841

          

          

          

          82.4

          %

          

          

          37,793

          

          

          

          590,784

          

          

          

          15.63TX

          

          

          800 WEST SAM HOUSTON PARKWAY

          

          

          

          Office

          

          

          

          42,735

          

          

          

          97.5

          %

          

          

          41,660

          

          

          

          520,944

          

          

          

          12.50TX

          

          

          11500 NW FREEWAY

          

          

          

          Office

          

          

          

          83,004

          

          

          

          76.0

          %

          

          

          63,064

          

          

          

          987,816

          

          

          

          15.66TX

          

          

          5450 NW CENTRAL

          

          

          

          Office

          

          

          

          56,290

          

          

          

          87.2

          %

          

          

          49,106

          

          

          

          717,288

          

          

          

          14.61TX

          

          

          8100 WASHINGTON

          

          

          

          Office

          

          

          

          44,060

          

          

          

          95.6

          %

          

          

          42,137

          

          

          

          633,576

          

          

          

          15.04TX

          

          

          8300 BISSONNET

          

          

          

          Office

          

          

          

          91,060

          

          

          

          67.7

          %

          

          

          61,620

          

          

          

          763,716

          

          

          

          12.39TX

          

          

          12000 WESTHEIMER

          

          

          

          Office

          

          

          

          58,041

          

          

          

          95.5

          %

          

          

          55,433

          

          

          

          985,236

          

          

          

          17.77TX

          

          

          16350 PARK TEN

          

          

          

          Office

          

          

          

          73,210

          

          

          

          81.0

          %

          

          

          59,278

          

          

          

          1,124,124

          

          

          

          18.96TX

          

          

          16360 PARK TEN

          

          

          

          Office

          

          

          

          68,599

          

          

          

          83.8

          %

          

          

          57,492

          

          

          

          1,081,632

          

          

          

          18.81TX

          

          

          2401 FOUNTAINVIEW

          

          

          

          Office

          

          

          

          174,860

          

          

          

          94.0

          %

          

          

          164,318

          

          

          

          3,821,472

          

          

          

          23.26TX

          

          

          2470 GRAY FALLS DRIVE

          

          

          

          Office

          

          

          

          41,273

          

          

          

          91.2

          %

          

          

          37,643

          

          

          

          587,400

          

          

          

          15.60TX

          

          

          2855 MANGUM

          

          

          

          Office

          

          

          

          72,054

          

          

          

          87.5

          %

          

          

          63,016

          

          

          

          895,356

          

          

          

          14.21TX

          

          

          6677 NORTH GESSNER

          

          

          

          Office

          

          

          

          93,912

          

          

          

          100.0

          %

          

          

          93,912

          

          

          

          849,996

          

          

          

          9.05TX

          

          

          1501 MOCKINGBIRD

          

          

          

          Office

          

          

          

          70,255

          

          

          

          92.8

          %

          

          

          65,169

          

          

          

          929,028

          

          

          

          14.26TX

          

          

          6420 RICHMOND ATRIUM

          

          

          

          Office

          

          

          

          77,328

          

          

          

          78.6

          %

          

          

          60,800

          

          

          

          935,100

          

          

          

          15.38TX

          

          

          6430 RICHMOND ATRIUM

          

          

          

          Office

          

          

          

          44,884

          

          

          

          82.8

          %

          

          

          37,158

          

          

          

          544,380

          

          

          

          14.65TX

          

          

          FOUNTAINVIEW PLACE I & II

          

          

          

          Office

          

          

          

          175,875

          

          

          

          88.6

          %

          

          

          155,739

          

          

          

          2,472,468

          

          

          

          15.88TX

          

          

          2620  2630 FOUNTAINVIEW

          

          

          

          Office

          

          

          

          124,403

          

          

          

          79.5

          %

          

          

          98,923

          

          

          

          1,350,132

          

          

          

          13.65TX

          

          

          8 CENTRE

          

          

          

          Industrial

          

          

          

          48,000

          

          

          

          84.5

          %

          

          

          40,560

          

          

          

          420,720

          

          

          

          10.37TX

          

          

          WINDROSE

          

          

          

          Retail

          

          

          

          28,000

          

          

          

          43.3

          %

          

          

          12,115

          

          

          

          230,076

          

          

          

          18.99TX

          

          

          BELTWAY INDUSTRIAL

          

          

          

          Industrial

          

          

          

          389,720

          

          

          

          95.7

          %

          

          

          373,120

          

          

          

          2,130,360

          

          

          

          5.71TX

          

          

          SOUTHWEST POINTE

          

          

          

          Industrial

          

          

          

          101,269

          

          

          

          77.6

          %

          

          

          78,587

          

          

          

          638,124

          

          

          

          8.12TX

          

          

          TECHNOLOGY

          

          

          

          Industrial

          

          

          

          118,413

          

          

          

          0.0

          %

          

          

          

          

          

          

          

          

          

          

          TX

          

          

          SABO ROAD

          

          

          

          Self Storage

          

          

          

          57,850

          

          

          

          81.8

          %

          

          

          47,345

          

          

          

          465,408

          

          

          

          9.83Texas Region Total

          

          

          

          

          

          

          

          2,180,936

          

          

          

          82.3

          %

          

          

          1,795,988

          

          

          

          23,675,136

          

          

          

          13.18Total/Weighted Average

          

          

          

          

          

          

          

          2,751,774

          

          

          

          80.9

          %

          

          

          2,224,875

          

          

          

          33,745,236

          

          

          

          15.17
  (1)

          Includes gross leasable area for leases that have been executed and have commenced as of December 31, 2010. (2)

          Represents base rent at December 31, 2010 for occupied square footage. (3)

          Represents annualized net rent divided by rented square feet. For the year ended December 31, 2010, no tenant contributed 10% or more of the total rental revenue of the Company. A complete listing of properties owned by the Company at December 31, 2010, is included as part of Schedule III in Item 15.
 10    TABLE OF CONTENTS Lease Expirations The following table sets forth, for the periods specified, the number of expiring leases by property category, the total rentable area subject to expiring leases, average occupancy represented by expiring leases, and total effective annual base rent represented by expiring leases for ASR owned properties excluding the consolidated variable interest entities (VIEs). See Item 8  Consolidated Financial Statements  Note 3. Variable Interest Entities. LEASE EXPIRATIONS  Expirationyear(2)

          

          Number ofexpiring leases

          

          Rented square footage subject to expiring leases(3)

          

          Annual base rent under expiring leases(in thousands)(4)

          

          Percentage oftotal annual baserent represented by expiring leases(1)For Office Properties2011

          

          

          532

          

          

          

          575,547

          

          

          $

          10,787

          

          

          

          38

          %2012

          

          

          166

          

          

          

          286,640

          

          

          

          5,399

          

          

          

          19

          %2013

          

          

          89

          

          

          

          280,758

          

          

          

          4,989

          

          

          

          18

          %2014

          

          

          49

          

          

          

          229,461

          

          

          

          3,184

          

          

          

          11

          %2015

          

          

          24

          

          

          

          160,133

          

          

          

          3,249

          

          

          

          11

          %thereafter

          

          

          14

          

          

          

          94,482

          

          

          

          696

          

          

          

          2

          %874

          

          

          

          1,627,021

          

          

          $

          28,304

          

          

          

          100

          %For Industrial Properties2011

          

          

          75

          

          

          

          271,711

          

          

          $

          2,021

          

          

          

          57

          %2012

          

          

          20

          

          

          

          90,126

          

          

          

          671

          

          

          

          19

          %2013

          

          

          24

          

          

          

          79,253

          

          

          

          382

          

          

          

          11

          %2014

          

          

          9

          

          

          

          48,561

          

          

          

          336

          

          

          

          9

          %2015

          

          

          5

          

          

          

          61,442

          

          

          

          153

          

          

          

          4

          %thereafter

          

          

          1

          

          

          

          4,000

          

          

          

          

          

          

          

          0

          %134

          

          

          

          555,093

          

          

          $

          3,563

          

          

          

          100

          %For Retail Property2013

          

          

          1

          

          

          

          6,000

          

          

          $

          114

          

          

          

          50

          %2015

          

          

          1

          

          

          

          6,115

          

          

          

          116

          

          

          

          50

          %thereafter

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0

          %2

          

          

          

          12,115

          

          

          $

          230

          

          

          

          100

          %For Self-Storage Property2011

          

          

          374

          

          

          

          47,345

          

          

          $

          350

          

          

          

          100

          %thereafter

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          0

          %374

          

          

          

          47,345

          

          

          $

          350

          

          

          

          100

          %
  Footnotes (1)

          Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual increases). (2)

          2011 includes leases that have initial terms of less than one year. (3)

          This figure is based on square footage actually occupied (which excludes vacant space), which accounts for the difference between this figure and total gross leasable area (which includes vacant space). (4)

          This figure is based on square footage actually occupied and incorporates contractual rent increases arising after 2010, and thus differs from annualized net rent in the table under The Location and Type of the Companys Properties, which is based on 2010 rents.
 11    TABLE OF CONTENTS Office Properties At December 31 2010, we owned twenty-three office properties with total rentable square footage of 1,902,922. The office properties range in size from 41,273 square feet to 209,373 square feet, and have remaining lease terms ranging from less than one to 10 years. The office leases generally require the tenant to reimburse us for increases in building operating costs over a base amount. Certain of the leases provide for rent increases that are either fixed or based on a consumer price index. As of December 31, 2010, the weighted average occupancy of the office properties was 85%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2010, was $18.16. Industrial Properties At December 31, 2010, we owned five industrial properties aggregating 763,002 square feet. The industrial properties are primarily designed for warehouse, distribution and light manufacturing usage and range in size from 48,000 square feet to 389,720 square feet. As of December 31, 2010, multiple tenants occupied all five of the industrial properties. As of December 31, 2010, the weighted average occupancy of the industrial properties was 73%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2010, was $6.43. The industrial properties have leases whose remaining terms range from less than one to five years. Most of the leases are industrial gross leases whereby the tenant pays as additional rent its pro rata share of common area maintenance and repair costs and its share of the increase in taxes and insurance over a base amount. Certain of these leases call for fixed or consumer-price-index-based rent increases. Some of the leases are triple net leases whereby the tenants are required to pay their pro rata share of the properties' operating costs, common area maintenance, property taxes, insurance and non-structural repairs. Retail Property At December 31, 2010, we owned one retail property in Houston, Texas with rentable square footage of 28,000. There are two tenants in this property, each occupying approximately 6,000 square feet with four year lease terms. The lease requires the tenant to reimburse us for increases in certain building operating costs over a base amount. As of December 31, 2010, the occupancy of the retail property was 43%. The average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2010, was $18.99. Self-Storage Property At December 31, 2010, we owned one self-storage property aggregating 57,850 square feet. The self-storage properties are primarily month-to-month lease terms. As of December 31, 2010, the weighted average occupancy of the self-storage properties was 82%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2010, was $8.92. Development Land The Company owns an 11.86 acre parcel of land in Houston, Texas. The land is adjacent to an industrial property owned by the Company and is held for future development. ITEM 3. LEGAL PROCEEDINGS We made a claim under our insurance policy for damage to twenty of our buildings in Houston caused by Hurricane Ike in 2008. In March 2010, the insurance carrier filed a lawsuit against us in Pennsylvania seeking a declaratory judgment that the carrier owes nothing more than it has already paid under the policy. We have filed counterclaims against the insurance carrier. The total claims made by us for property damages, business interruption, bad faith damages, violations of the Texas Insurance Code, interest and attorneys' fees exceeds $50 million. Several experts have been engaged to assist us with our property damage claims. A valuation consultant
has been engaged to assist us with our business interruption claims. In January 2011, a one day mediation was held with respect to the lawsuit and both parties agreed to continue the mediation at a future date. No trial date has been set for this lawsuit. The Company can make no prediction as to the result of such litigation.
 12    TABLE OF CONTENTS On March 2, 2011, the Company filed an action against Evergreen Realty Group, LLC and certain of its affiliates (Evergreen) relating to its acquisition of assets from Evergreen in January 2010. The purchase price of the assets was $18.0 million, subject to adjustment as provided in the purchase agreement, and was paid in the form of (a) the assumption of $500,000 of payables, (b) the issuance of a $9.5 million promissory note and (c) the issuance of operating partnership units (which would be redeemable by Evergreen after June 30, 2011 for a number of shares of the Company's common stock (or, at the Companys option, the cash
equivelant) equal to the quotient obtained by dividing $8.0 million by the greater of the Company's share price or net asset value as of December 31, 2010. In its action, the Company is alleging various offsets and adjustments to the purchase price, as well as defaults by Evergreen, and is seeking damages and a declaration that the principal amount of the promissory note should be reduced to zero, that the operating partnership units should be cancelled and that Evergreen should refund to the Company payments of at least $578,000 which have been made on the promissory note. On March 7, 2011, New West Realty, Inc. (New West), an affiliate of Evergreen, filed a complaint for damages in Orange County Superior Court against ASR and other related entities. New West alleges in the complaint that ASR has failed to pay amounts due under a promissory note held by New West in the amount of $9.5 million. The Company has subsequently paid all amounts due and payable under the note and
therefore disputes the claim, denies that is obligated under the note and has itself filed a separate lawsuit against New West and others seeking damages in excess of the amount of New Wests claim. Evergreen has not answered the Company's complaint, and the Company cannot give an assurance that it will obtain the declaration or the damages that it seeks. See Item 8  Consolidated Financial Statements  Note 2. Acquisition and Disposition Activities for information relating to the acquisition of Evergreen and Note 15  Subsequent Events. Certain other claims and lawsuits have arisen against the Company in its normal course of business, including lawsuits by creditors with respect to past due accounts payable. The Company believes that such claims and lawsuits will not have a material adverse effect on the Companys financial position, cash flows or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no submission of matter to a vote of security holders during the quarter ended December 31, 2010.
 13    TABLE OF CONTENTS PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Companys Common Stock trades on the NYSE Amex under the symbol AQQ. The following table sets forth the high and low closing prices per share of the Companys Common Stock for the periods indicated, as reported by the NYSE Amex.  High

          

          LowYear Ended December 31, 2010First Quarter

          

          $

          11.56

          

          

          $

          9.12Second Quarter

          

          $

          14.50

          

          

          $

          7.90Third Quarter

          

          $

          14.05

          

          

          $

          10.00Fourth Quarter

          

          $

          18.59

          

          

          $

          12.25Year Ended December 31, 2009First Quarter

          

          $

          12.35

          

          

          $

          8.50Second Quarter

          

          $

          11.00

          

          

          $

          8.50Third Quarter

          

          $

          11.38

          

          

          $

          6.35Fourth Quarter

          

          $

          11.20

          

          

          $

          7.75
 As of February 28, 2011, there were approximately 2,775 holders of record of our common stock. Stock Split Pursuant to a 2-for-1 stock split effective May 10, 2010, shareholders of record as of the end of business on April 30, 2010 received an additional share of stock for every share they held. Share and per share data and the OP Unit exchange ratio in the consolidated financial statements and notes for all periods presented have been adjusted to reflect the stock split. Dividend Policy Common Stock Cash dividends were last declared to holders of the Companys Common Stock in 2003. The Companys Board of Directors has a policy of meeting on or about the 45th day after the end of each calendar quarter to consider the declaration and payment of dividends on Common Stock. Preferred Stock Series A Preferred Stock holders are entitled to cumulative dividends at a rate of 15% per year. These dividends are payable quarterly. The Company has paid $240,000 in dividends during each of the years ended December 31, 2010 and 2009, respectively. The shares were issued in a private transaction exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended. Securities Authorized for Issuance under Equity Compensation Plan See the information incorporated by reference into Part III, Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this report for information regarding securities authorized for issuance under our equity compensation plans. During the years ended December 31, 2010 and 2009 we issued 28,500 and 11,500 shares of restricted stock to certain employees and board members, respectively, under our equity compensation plan. The recipient has the right to vote all shares, to receive and retain all cash dividends payable to holders of shares of record on or after the date of issuance and to exercise all other rights, powers and privileges of a holder of our shares, with the exception that the recipient may not transfer the shares during the restriction period that lapses over various periods ranging from one to five years. The issuances of Common Stock were exempt from
registration pursuant to Section 4(2) under the Securities Act of 1933, as amended.
 14    TABLE OF CONTENTS Issuer Purchases of Equity Securities Neither we nor any affiliated purchaser of ours purchased any of our equity securities during the year ended December 31, 2010. ITEM 6. SELECTED FINANCIAL DATA Not applicable. ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following Managements Discussion and Analysis (MD&A) is intended to help the reader understand the results of operations and financial condition of American Spectrum Realty, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the consolidated financial statements (Notes). Business Overview We provide comprehensive integrated real estate solutions for our own property portfolio and the portfolios of our third party clients. We own and manage; commercial, industrial, self storage and residential income-properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States. Our business is conducted through an Operating Partnership in which we are the sole general partner and a limited partner with a total equity interest of 65% at December 31, 2010. As the sole general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership. Our primary business objective is to acquire and manage multiple tenant real estate in strategically located areas where our cost effective enhancements combined with effective leasing and management strategies, can improve the long term values and economic returns of those properties. We focus on the following fundamentals to achieve this objective: 

          An opportunistic yet disciplined acquisition strategy that focuses on mid-tier multi-tenant real estate in locations that allow us to capitalize on our existing management infrastructure currently servicing our own properties and that of our third party clients; coupled with, 

          Organic (internally developed opportunities) and in-organic (acquisition generated opportunities) growth of our third party property management contracts. Financial Operations Overview Revenues: Rental Revenues of ASR-owned properties.  We derive our rental revenues from our tenants that occupy space in our portfolio of owned properties. There are three key drivers to our rental revenue; 1.

          Occupancy in ASR-owned properties  Our rental revenues are dependent on our ability to lease the spaces we own to quality tenants. Our initiatives to reduce vacancy in our owned properties have resulted in about the same weighted average occupancy rates in 2010 as compared to 2009.  Weighted Average Occupancy as of December 31,Property Type

          

          2010

          

          2009Office properties

          

          

          85

          %

          

          

          88

          %Industrial properties

          

          

          73

          %

          

          

          70

          %Retail property

          

          

          43

          %

          

          

          21

          %Self-storage property

          

          

          82

          %

          

          

          N/AWeighted average

          

          

          81

          %

          

          

          82

          %
 15    TABLE OF CONTENTS 2.

          Rental rates related to ASR-owned properties  Market rental rates are often inversely related to vacancy rates. Increased vacancy in the market place tends to drive down rental rates. Our leases typically have one to ten year terms based on property type. As leases expire, we replace the existing leases with new leases at the current market rental rate.  Weighted Average Base Rent per occupied square foot as of December 31,Property Type

          

          2010

          

          2009Office properties

          

          $

          18.16

          

          

          $

          17.92Industrial properties

          

          $

          6.43

          

          

          $

          6.35Retail property

          

          $

          18.99

          

          

          $

          20.00Self-storage property

          

          $

          8.92

          

          

          

          N/A
 3.

          Tenant retention in ASR-owned properties  Retaining existing tenants is essential, as high customer retention leads to increased occupancy, less downtime between leases, and reduced leasing costs. We believe in providing superior customer service; hiring, training, retaining and empowering our employees. We strive to create an environment of open communication both internally and externally with our customers. Third party management and leasing revenue.  We derive these revenues from the fees charged to our third party clients for such management services, tenant acquisition fees, leasing fees and loan advisory fees for arranging financing related to properties under management. When and if our third party client elects to sell the property we manage for them, we will receive transaction fees and commissions relating to the sale of the property. Our same core skill set that influences our rental income also drives our third party client revenue. Many of the fees we charge our third party clients are linked to occupancy, rental rates and
customer retention. Expenses: Property operating expenses.  Property operating expenses consist primarily of property taxes, insurance, repairs and maintenance, personnel costs and building service contracts. General and administrative expenses.  General and administrative expenses consist primarily of personnel expenses for accounting, human resources, information technology and corporate administration, professional fees including audit and investor relations. Depreciation and amortization expenses.  Depreciation and amortization expenses consist primarily of depreciation associated with our real estate held for investment, depreciation of additional capital improvements and the amortization of lease costs associated with owned properties. Interest expenses.  Interest expenses consist primarily of the interest we owe to our creditors for debt associated with our owned properties. CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we re-evaluate our judgments and estimates. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering
available information, including assumptions that are believed to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies.
 16    TABLE OF CONTENTS We believe the following critical accounting policies reflect our most significant estimates, judgments and assumptions used in the preparation of our consolidated financial statements: 

          Variable Interest Entity accounting; 

          Business combinations; 

          Investment in real estate assets; 

          Purchase price allocation of real estate acquired; 

          Discontinued operations; 

          Sales of real estate assets; 

          Fair value measurements; 

          Impairment of assets; and 

          Income taxes. Variable Interest Entity Accounting We have many relationships with many different types of entities; some of those entities are Variable Interest Entities (VIEs). We consolidate any VIE for which we are the primary beneficiary. In accordance with the requirements of the Consolidation Topic, we analyze our variable interests, including equity investments, guarantees, management agreements and advances, to determine if an entity in which we have a variable interest is a VIE. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the estimated future cash flows of the entity, and our qualitative analysis on the design of the entity, its
organizational structure including decision-making ability and relevant financial agreements. All of these factors are highly subjective and require significant judgment on the part of management. Business Combinations The Company applies the provisions of FASB ASC Topic 805 to all transactions or events in which an entity obtains control of one or more businesses, including those effected without the transfer of consideration, for example, by contract or through a lapse of minority veto rights. These provisions require the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establish the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and require expensing of most transaction and
restructuring costs. The Company determines whether acquisitions should be accounted for as a business combination. This policy applies to all transactions or events in which an entity obtains control of one or more businesses, including those effected without the transfer of consideration, for example, by contract or through a lapse of minority veto rights. The Company determines and allocates the purchase price of an acquired company to the tangible and intangible assets acquired and liabilities assumed as of the business combination date. The purchase price allocation process requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date. We utilize third-party valuation companies to help us determine certain fair value estimates used for assets and liabilities. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships. The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts
allocated to below market lease values are included in accrued and other liabilities in the accompanying consolidated balance sheets and are amortized to rental income over the remaining non-cancelable lease term plus any below market renewal options of the acquired leases with each property.
 17    TABLE OF CONTENTS While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchase price allocation period, which is generally one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Investment in Real Estate Assets Rental properties are stated at cost, net of accumulated depreciation, unless circumstances indicate that cost, net of accumulated depreciation, cannot be recovered. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. The useful lives are as follows:  Building and Improvements

          

          5 to 40 yearsTenant Improvements

          

          Term of the related leaseFurniture and Equipment

          

          3 to 5 years
 Discontinued Operations The Company classifies assets as held for sale when management a) approves the action and commits to a plan to sell the asset(s); b) the asset(s) are available for immediate sale in its present condition customary for sales of those types of assets; c) an active program to locate a buyer and other actions required to complete the plan to sell the asset(s) have been initiated; d) the sale of the asset(s) is probable, and transfer of the asset(s) is expected to within one year; e) the asset(s) is being actively marketed for sale at a price that is reasonable in relation to its current fair value and; f) actions required to complete the plan indicate
that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. At the time a property is held for sale, the property is carried at the lower of (i) its carrying amount or (ii) fair value less costs to sell. In addition, no depreciation or amortization of tenant origination cost is recorded for a property classified as held for sale. The Company classifies operating properties as properties held for sale in the period in which all of the required criteria are met. The Company reports, for both current and prior periods, the assets, liabilities and results of operations of any component of the Company which has either been disposed of, or is classified as held for sale, as discontinued operations. In instances when a company expects to have significant continuing involvement in the component beyond the date of sale, the operations of the component instead continue to be fully recorded within the continuing operations of our books through the date of sale. The Company records any results of operations related to our real estate held for sale as discontinued operations only when we expect not to have significant
continuing involvement in the real estate after the date of sale. Sales of Real Estate Assets Gains on property sales are recognized in full when real estate is sold, provided (i) the gain is determinable, that is, the collectability of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and (ii) the earnings process is virtually complete, that is, the Company is not obligated to perform significant activities after the sale to earn the gain. Losses on property sales are recognized immediately. Fair Value Measurements Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. A fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability
 18    TABLE OF CONTENTS (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entitys own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Impairment of Assets Rental properties and intangibles are individually evaluated for impairment when conditions exist which may indicate it is probable that the sum of expected future undiscounted cash flows is less than the carrying amount. Impairment indicators for our rental properties are assessed by project and include, but is not limited to, significant fluctuations in estimated net operating income, occupancy changes, rental rates and other market factors. The Company assess the expected undiscounted cash flows based upon numerous factors, including, but not limited to, appropriate capitalization rates, available market information, historical operating results,
known trends and market/economic conditions that may affect the property and our assumptions about the use of the asset, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration. Upon determination that impairment has occurred and that the future undiscounted cash flows are less than the carrying amount, a write-down will be recorded to reduce the carrying amount to its estimated fair value. Income Taxes The Company accounts for income taxes under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. We have assessed, using all available positive and negative evidence, the likelihood that
the deferred tax assets will be recovered from future taxable income. An enterprise must use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (i) the more positive evidence is necessary and (ii) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion, or all, of the deferred tax asset. Among the more significant types of evidence that we considered are: that future anticipated property sales will produce more than enough taxable income to realize
the deferred tax asset; taxable income projections in future years; and whether the carryforward period is so brief that it would limit realization of tax benefits. We have incurred taxable losses for each of the two years ended December 31, 2010 and 2009. Historically, we have incurred taxable losses in years in which we do not sell any real estate assets for gains. A property was sold during 2010 and a profit of $4.3 million was realized on that sale. We expect to sell real estate assets in the future and have determined that it is more likely than not that future taxable income, primarily from gains on the sales of real estate assets, will be sufficient to enable us to realize all of our deferred tax assets. Therefore, for each of the two years ended December 31, 2010 and 2009, no valuation allowance has been
recorded. See Item 8  Consolidated Financial Statements Note 15. Subsequent Events for additional information on the pending sale of a property.
 19    TABLE OF CONTENTS RESULTS OF OPERATIONS Revenues by Period The following table sets forth revenues for the fiscal years ending 2010 and 2009, and the percentage change between periods.  Years Ended December 31,2010

          

          2009

          

          % Change(in thousands except percentages)Rental revenue

          

          $

          51,627

          

          

          $

          33,018

          

          

          

          56

          %Third-party management and leasing revenue

          

          $

          3,742

          

          

          $

          239

          

          

          

          1466

          %
 The changes in revenues during 2010 as compared to 2009 were primarily due to the following: 

          Rental revenue for the year ended 2010 increased by $18.6 million, or 56%, in comparison to the year ended December 31, 2009. The increase in rental revenue was primarily due to the consolidation of VIEs, which resulted in additional rental revenues of approximately $20.0 million. Rental revenue for owned properties decreased by approximately $1.4 million principally due to an increase in rent concessions. The decrease in rental revenue for owned properties was also attributable to a decrease in occupancy. The weighted average occupancy of the Companys owned properties decreased from 82% at December 31, 2009 to 81% at December 31, 2010. 

          The increased third party management and leasing revenue was directly related to our acquisition of property management and asset management contracts. See Item 8. Consolidated Financial Statements  Note 2. Acquisition and Disposition Activities for additional details regarding our purchase of these assets. We expect rental revenues to remain relatively flat with respect to ASR wholly owned properties in the next year for our existing square footage. If we are able to acquire properties in the next year we will experience in-organic growth of our rental revenues. We anticipate seeing continued growth in our third party management and transaction revenues as we retain our clients and add additional clients to our portfolio. Operating Expenses by Period The following table sets forth expenses for the fiscal years ending 2010 and 2009, and the percentage change between periods.  Years Ended December 31,2010

          

          2009

          

          % Change(in thousands except percentages)Property operating expense

          

          $

          21,542

          

          

          $

          15,837

          

          

          

          36

          %General and administrative

          

          

          9,659

          

          

          

          4,572

          

          

          

          111

          %Depreciation and amortization

          

          

          23,807

          

          

          

          14,704

          

          

          

          62

          %Interest expense

          

          

          21,840

          

          

          

          13,307

          

          

          

          64

          %Impairment expense

          

          

          3,387

          

          

          

          

          

          

          

          N/A$

          80,235

          

          

          $

          48,420

          

          

          

          66

          %
 The changes in operating expenses during 2010 as compared to 2009 were primarily due to the following: 

          Property operating expenses increased by approximately $5.5 million due to consolidation of VIEs and remained relatively flat relating to ASR owned properties as we continued to seek reductions in our assessed values for property tax purposes but had those reductions offset by a slight increase in expenses.
 20    TABLE OF CONTENTS 

          General and administrative expenses increased significantly during 2010 relating to the additional head count needed to service our third party clients. We also had increased legal fees and professional fees relating not only to our litigation against our insurance company (see Part I Item 3), but also relating to our acquisition of property and the property management and asset management contracts (see Item 8  Consolidated Financial Statements  Note 2. Acquisition and Disposition Activities). 

          Depreciation and amortization increased by approximately $8.5 million as a result of our VIEs, with the additional increase resulting from additional improvements being capitalized and certain intangible assets acquired being depreciated. 

          Interest expense increased due to the increase in notes payable owed by us and our consolidated VIEs. 

          Impairment expense relates to certain management contracts with entities/properties that were either terminated or their fair value was determined to be lower than book value. See Item 8 Consolidated Financial Statements  Note 2. Acquisitions and Disposition Activities for more information on impairment charges. All of our expenses are significantly influenced by acquisition activity. We continue to be committed to our philosophy of opportunistic yet disciplined acquisitions of both real estate and asset management contracts to provide for both organic and in-organic growth. We expect all our operating expenses to remain relatively the same over the next year for our properties owned and our third party clients currently being serviced at December 31, 2010. Other Income Statement Items by Period The following table sets forth our other income statement items for the fiscal years ending 2010 and 2009, and the percentage change between periods.  Years Ended December 31,2010

          

          2009

          

          % Change(in thousands except percentages)Interest and other income

          

          $

          274

          

          

          $

          40

          

          

          

          585

          %Deferred income tax benefit

          

          

          6,749

          

          

          

          5,631

          

          

          

          20

          %Discontinued operations

          

          

          2,847

          

          

          

          190

          

          

          

          1398

          %Non-controlling interests

          

          

          6,959

          

          

          

          1,030

          

          

          

          576

          %$

          16,829

          

          

          $

          6,891

          

          

          

          144

          %
 The changes in other income statement items during 2010 as compared to 2009 were primarily due to the following: 

          Deferred income tax benefit was increased by the amount of benefit we anticipate potentially realizing in future periods as a result of this years net loss. 

          Discontinued operations reflected the sale of our property at 5850 San Felipe. 

          Non-controlling interests consist of: 1.

          Operating partnership unit holders other than the company, 2.

          The non-controlling interests held by our VIEs; and 3.

          Until it was sold in September of 2009, 49% interest in two income producing properties held by our single purpose limited partnership. We have not elected to be treated as a REIT for federal income tax purposes, but we intend to consider making such an election and may decide to do so in the future if we believe it will be advantageous to do so. If we were to be treated as a REIT, we would not be subject to federal corporate income tax. In order to be able to make this election, we would need to qualify under various tests relating to the nature of our assts and the level of distribution of our income. We would also not be able to qualify as a REIT if fewer than five
 21    TABLE OF CONTENTS individuals are deemed to own more than 50% of our shares. Based on our share ownership structure at December 31, 2010, we would need to issue additional shares or some of our principal stockholders would need to reduce their ownership to meet the 50% qualification parameter. We anticipate continuing to offer certain properties for sale and currently have a property on the market. We can make no guarantees as to the timing of the sale of any of our properties or the cash that we will be able to receive as a result of those sales. See Item 8 Consolidated Financial Statements  Note 15. Subsequent Events. LIQUIDITY AND CAPITAL RESOURCES Current and historic sources of cash for the company: 

          rent payments 

          management fees 

          transaction fees 

          proceeds from the sale of assets 

          proceeds from borrowing money 

          proceeds from equity placements Current and historic uses of cash: 

          debt service payments 

          personnel costs 

          building maintenance costs 

          property improvements 

          property taxes 

          cash needed to acquire assets We believe that we will have adequate cash to meet our needs based on our anticipated cash derived from revenues and the sale of one of our properties, less the anticipated cash we will need to service our operating costs, debt and capital expenditures that we anticipate. We can make no guarantees as to the timing of the sale of our property that we are projecting in 2011. If we are unable to sell this property, we will need to look to a combination of cost-cutting measures and additional debt and or equity to cover the potential shortfall in cash. We have approximately 982 leases expiring in various periods over the next calendar year. Self-storage leases account for approximately 374 of these leases and are typically month to month in duration. Our rental revenue projections could be impacted if we are not capable of maintaining the high occupancy rates (82% for self-storage) in 2011 that we enjoyed in 2010. This type of property, however, accounts for the lowest per square foot average rent of all the property types we have in our portfolio. We anticipate seeing continued growth in our third party management and transaction revenues as we retain our clients and add additional clients to our portfolio. Transaction fees such as tenant acquisition fees, leasing fees and loan advisory fees for arranging financing related to properties under management, and fees and commissions relating to the sale of third party client properties, are all when-and-if-they-occur revenue streams. We can make no guarantee that there will not be some variability in the amounts and timing of amounts related to our transaction fees. We may continue to acquire additional properties and management contracts based on information that leads us to believe the assets will produce cash and income. Acquisitions entail risks that investments will fail to perform in accordance with expectations. If this is the case we may need to seek additional funding to help us meet our operational cash flow needs. We cannot guarantee that such funds will be available to us to meet our short-term or long-term operational cash needs at competitive rates or at all.
 22    TABLE OF CONTENTS We have elected not to service debt of $27.8 million due to the unpaid balances of the mortgages exceeding the value of the properties covered by the mortgages. Additionally, we are in default on a note payable for another property with an outstanding balance $17.2 million at December 31, 2010 as the maturity date has lapsed without pay off. We are actively negotiating with the lenders; there can be no assurance, however, that these negotiations, which may result in loan modifications or discounted pay-offs, will be successful, and the lenders could initiate foreclosure proceedings. The loans are secured only by the real estate assets. Each of the
properties securing the debt in default is held by a consolidated wholly owned subsidiary and the mortgages are non recourse. All of notes in which we have elected to forego servicing the debt have payment acceleration clauses contained within the notes and payment in full could be demanded by the lenders holding these notes. Certain of these properties currently have operating deficits. See Item 8   Consolidated Financial Statements Note 8. Notes Payable for additional information on our debt. In addition to the $45 million in notes payable discussed in the above paragraph, we have $63 million in notes payable maturing in 2011 and 2012. We are actively negotiating with our lenders for modifications of the maturities associated with this debt. We are also currently seeking refinancing alternatives in addition to modifications from the original lenders. We can make no guarantees that we will be successful in our negotiations or efforts to refinance. We need to generate cash to meet our current liquidity requirements. The Company currently has accounts payable over 90 days totaling $8.4 million. These payables in large part relate to damages resulting from Hurricane Ike in 2008, the 2010 acquisitions and tenant improvements, and leasing costs associated with ASR owned properties. We have made demand to our insurance carrier for $50 million in property damages, business interruptions and other expenses caused by Hurricane Ike. See Part I  Item 3  Legal Proceedings. We intend to meet these obligations by selling one or more of our properties or through borrowing
activities or a combination of those two. See Item 8  Consolidated Financial Statements  Note 15. Subsequent Events for information regarding our properties in the process of being sold. We can make no guarantees that we will be successful in our efforts to meet these obligations. Most of our mortgage debt is not cross-collateralized. We have four mortgage loans that are cross collateralized by a second property. Because of uncertainties caused by the current credit crisis, our current debt level and our historic losses, there can be no assurance as to our ability to obtain the funds necessary for the refinancing of our maturing debts. If refinancing transactions are not consummated, we will seek extensions and/or modifications from existing lenders. If these refinancings or extensions do not occur, we will not have sufficient cash to meet our obligations. FUNDS FROM OPERATIONS The Company believes that Funds From Operations (FFO) is a useful supplemental measure of its operating performance. The Company computed FFO in accordance with standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT) in April 2002. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property plus real estate-related depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that FFO is helpful to investors as a measure of performance of the Company because, along with cash flow from operating activities, FFO provides investors with an indication of our ability to incur and service debt, to make capital expenditures and to fund other cash needs. FFO is a non-GAAP financial measure. FFO does not represent net income or cash flows from operations, as defined by GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's operating performance or as an alternative to cash flows from operating, investing and financing activities (determined in accordance with GAAP) as a measure of liquidity. FFO does not necessarily indicate that cash flows will be sufficient to fund all of the Company's cash needs, including principal amortization, capital improvements and distributions to stockholders. Further, FFO as disclosed by other companies
may not be comparable to the Company's calculation of FFO.
 23    TABLE OF CONTENTS The following table sets forth the Companys calculation of FFO for the years ended December 31, 2010 and 2009 (in thousands):  December 31,2010

          

          2009(in thousands)Net loss attributable to the Company

          

          $

          (8,037

          )

          

          $

          (8,272

          )Depreciation and amortization from discontinued operations

          

          

          

          

          

          

          456Gain on sale of discontinued operations

          

          

          (4,315

          )

          

          

          Impairment expense

          

          

          3,387Deferred income tax benefit

          

          

          (5,108

          )

          

          

          (5,521

          )Depreciation and amortization attributable to the Company's owned properties

          

          

          13,334

          

          

          

          14,704Funds From Operations

          

          $

          (739

          )

          

          $

          1,367
 The decrease in FFO for the year ended December 31, 2010 compared to the year ended December 31, 2009 was in large part attributable to the Evergreen acquisition, costs associated with the acquisition of 2620-2630 Fountain View, and other business development costs. INFLATION Inflation has not had a significant impact on our results because of the relatively low inflation rate in our geographic areas of operation. Additionally, most of our leases require the customers to pay their pro rata share of operating expenses, including common area maintenance, real estate taxes, utilities and insurance, thereby reducing our exposure to increases in operating expenses resulting from inflation.
 24    TABLE OF CONTENTS ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AMERICAN SPECTRUM REALTY, INC.   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  Page No.Reports of Independent Registered Public Accounting Firms





26Consolidated Balance Sheets at December 31, 2010 and 2009





28Consolidated Statements of Operations for the years ended December 31, 2010 and 2009





29Consolidated Statements of Equity (Deficit) for the years ended December 31, 2010 and 2009





30Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009





31Notes to Consolidated Financial Statements





32
 25    TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders American Spectrum Realty, Inc. Houston, Texas We have audited the accompanying consolidated balance sheet of American Spectrum Realty, Inc. as of December 31, 2010 and the related consolidated statement of operations, equity (deficit), and cash flows for the year in the period ended December 31, 2010. Our audit also included the financial statement schedules listed in Item 15(a). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Spectrum Realty, Inc. as of December 31, 2010 and the consolidated results of its operations and its cash flows for the year in the period ended December in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We were not engaged to examine managements assertion about the effectiveness of American Spectrum Realty, Inc.s internal controls over financial reporting as of December 31, 2010 included in the accompanying Managements Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon. EEPB, PC   Houston, Texas March 31, 2011
 26    TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders American Spectrum Realty, Inc. Houston, Texas We have audited the accompanying consolidated balance sheet of American Spectrum Realty, Inc. as of December 31, 2009 and the related consolidated statement of operations, equity (deficit), and cash flows for the year in the period ended December 31, 2009. Our audit also included the financial statement schedules listed in Item 15(a). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Spectrum Realty, Inc. as of December 31, 2009, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We were not engaged to examine managements assertion about the effectiveness of American Spectrum Realty, Inc.s internal controls over financial reporting as of December 31, 2009 included in the accompanying Managements Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon. The Company adopted the provisions of Financial Accounting Standards Board Codification 810, Non-controlling Interest in Consolidated Financial Statements  an amendment of ARB No 51, during the year ended December 31, 2009 HEIN & ASSOCIATES LLP   Houston, Texas March 31, 2010
 27    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.   CONSOLIDATED BALANCE SHEETS  December 31,2010

          

          2009(In thousands, except shareand per share data)ASSETSReal estate held for investment (includes $381,354 from consolidated VIE's at Dec 31, 2010)

          

          $

          646,255

          

          

          $

          251,336Accumulated depreciation (includes $8,446 from consolidated VIE's at Dec 31, 2010)

          

          

          (94,090

          )

          

          

          (72,404

          )Real estate held for investment, net (includes $372,908 from consolidated VIE's at Dec 31, 2010)

          

          

          552,165

          

          

          

          178,932Real estate held for sale

          

          

          

          

          

          

          6,364Cash and cash equivalents

          

          

          2,003

          

          

          

          462Restricted cash (includes $4,016 from consolidated VIE's at December 31, 2010)

          

          

          5,008

          

          

          

          992Tenant and other receivables, net of allowance for doubtful accounts of $421 and $701, respectively (includes $1,515 from consolidated VIE's at Dec 31, 2010)

          

          

          2,403

          

          

          

          891Deferred rents receivable

          

          

          2,331

          

          

          

          1,883Deferred tax asset

          

          

          14,083

          

          

          

          8,813Purchased intangibles

          

          

          9,060

          

          

          

          Goodwill

          

          

          4,003

          

          

          

          Investment in management company

          

          

          4,000

          

          

          

          4,000Investments in unconsolidated real estate assets from related parties

          

          

          194

          

          

          

          Notes receivable from related parties

          

          

          2,000

          

          

          

          Interest receivable from related parties

          

          

          272

          

          

          

          Accounts receivable from related parties

          

          

          262

          

          

          

          Account receivable from Evergreen

          

          

          414

          

          

          

          Prepaid and other assets, net (includes $8,858 from consolidated VIE's at Dec 31, 2010)

          

          

          20,164

          

          

          

          12,749Total Assets

          

          $

          618,362

          

          

          $

          215,086LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITYLiabilities:Notes payable (includes $268,776 from consolidated VIE's at Dec 31, 2010)

          

          $

          482,819

          

          

          $

          193,920Liabilities related to real estate held for sale

          

          

          

          

          

          

          6,091Accounts payable (includes $5,734 from consolidated VIE's at Dec 31, 2010)

          

          

          14,848

          

          

          

          5,070Accounts payable to related parties

          

          

          286

          

          

          

          Liabilities related to insurance claims

          

          

          1,444

          

          

          

          1,474Accrued and other liabilities (includes $1,809 from consolidated VIE's at Dec 31, 2010)

          

          

          12,154

          

          

          

          9,520Total Liabilities

          

          

          511,551

          

          

          

          216,075Commitments and Contingencies (Notes 12 and 15):Non-controlling interest classified as temporary equity

          

          

          

          

          

          

          3,962Equity (Deficit):American Spectrum Realty, Inc. stockholders (deficit) equity:Preferred stock, $.01 par value; authorized, 25,000,000 shares; issued and outstanding, 55,172 and 55,172 shares, respectively

          

          

          1

          

          

          

          1Common stock, $.01 par value; authorized, 100,000,000 shares; issued, 3,422,706 and 3,291,310 shares, respectively; outstanding, 2,951,294 and 2,819,898 shares, respectively

          

          

          34

          

          

          

          33Additional paid-in capital

          

          

          49,067

          

          

          

          48,546Accumulated deficit

          

          

          (60,509

          )

          

          

          (52,472

          )Treasury stock, at cost, 471,412 shares

          

          

          (3,095

          )

          

          

          (3,095

          )Total American Spectrum Realty, Inc. stockholders deficit

          

          

          (14,502

          )

          

          

          (6,987

          )Non-controlling interests

          

          

          121,313

          

          

          

          2,036Total Equity (Deficit)

          

          

          106,811

          

          

          

          (4,951

          )Total Liabilities and Equity (Deficit)

          

          $

          618,362

          

          

          $

          215,086
 The accompanying notes are an integral part of these consolidated financial statements
 28    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.   CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)  Years Ended December 31,2010

          

          2009REVENUES:Rental revenue

          

          $

          51,627

          

          

          $

          33,018Third party management and leasing revenue

          

          

          3,742

          

          

          

          239Interest and other income

          

          

          274

          

          

          

          40Total revenues

          

          

          55,643

          

          

          

          33,297EXPENSES:Property operating expense

          

          

          21,542

          

          

          

          15,837General and administrative

          

          

          9,659

          

          

          

          4,572Depreciation and amortization

          

          

          23,807

          

          

          

          14,704Interest expense

          

          

          21,840

          

          

          

          13,307Impairment expense

          

          

          3,387

          

          

          

          Total expenses

          

          

          80,235

          

          

          

          48,420Loss from continuing operations before deferred income tax benefit

          

          

          (24,592

          )

          

          

          (15,123

          )Deferred income tax benefit

          

          

          6,749

          

          

          

          5,631Loss from continuing operations

          

          

          (17,843

          )

          

          

          (9,492

          )Discontinued operations:Income from operations

          

          

          173

          

          

          

          300Gain on sale of discontinued operations

          

          

          4,315

          

          

          

          Income tax expense

          

          

          (1,641

          )

          

          

          (110

          )Income from discontinued operations

          

          

          2,847

          

          

          

          190Net loss, including non-controlling interests

          

          $

          (14,996

          )

          

          $

          (9,302

          )Plus: Net loss attributable to non-controlling interests

          

          

          6,959

          

          

          

          1,030Net loss attributable to American Spectrum Realty, Inc.

          

          

          (8,037

          )

          

          

          (8,272

          )Preferred stock dividend

          

          

          (240

          )

          

          

          (240

          )Net loss attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (8,277

          )

          

          $

          (8,512

          )Basic and diluted per share data:Loss from continuing operations attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (3.45

          )

          

          $

          (3.00

          )Income from discontinued operations attributable to American Spectrum Realty, Inc. common stockholders

          

          

          0.69

          

          

          

          0.06Net loss attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (2.76

          )

          

          $

          (2.94

          )Basic and diluted weighted average shares used

          

          

          2,916,145

          

          

          

          2,812,048Amounts attributable to American Spectrum Realty, Inc. common stockholdersLoss from continuing operations

          

          $

          (10,288

          )

          

          $

          (8,440

          )Income from discontinuing operations

          

          $

          2,011

          

          

          $

          168Net loss

          

          $

          (8,277

          )

          

          $

          (8,512

          )
 The accompanying notes are an integral part of these consolidated financial statements
 29    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY INC.   CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT) (In thousands, except share amounts)  Preferred Shares

          

          CommonShares

          

          Non-controllingInterests

          

          PreferredStock

          

          CommonStock

          

          AdditionalPaid-InCapital

          

          Accumulated Deficit

          

          TreasuryStock

          

          Total Equity (Deficit)Balance, December 31, 2008

          

          

          55,172

          

          

          

          1,620,304

          

          

          $

          3,542

          

          

          $

          1

          

          

          $

          16

          

          

          $

          48,393

          

          

          $

          (44,200

          )

          

          $

          (3,095

          )

          

          $

          4,657Issuance of common stock

          

          

          

          

          

          

          5,750

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Acquisition of non-controlling interest in the operating partnership

          

          

          

          

          

          

          

          

          

          

          (2

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (2

          )Conversion of operating partnership units to common stock

          

          

          

          

          

          

          19,601

          

          

          

          (314

          )

          

          

          

          

          

          

          

          

          

          

          314

          

          

          

          

          

          

          

          

          

          

          

          Preferred stock dividends

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (240

          )

          

          

          

          

          

          

          

          

          

          

          (240

          )Stock-based compensation

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          96

          

          

          

          

          

          

          

          

          

          

          

          96Distributions to non-controlling interests

          

          

          

          

          

          

          

          

          

          

          (160

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (160

          )Non-controlling interests share of loss

          

          

          

          

          

          

          

          

          

          

          (1,030

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,030

          )Net loss

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (8,272

          )

          

          

          

          

          

          

          (8,272

          )Balance, December 31, 2009

          

          

          55,172

          

          

          

          1,645,655

          

          

          $

          2,036

          

          

          $

          1

          

          

          $

          16

          

          

          $

          48,563

          

          

          $

          (52,472

          )

          

          $

          (3,095

          )

          

          $

          (4,951

          )Issuance of one-for-one stock split

          

          

          

          

          

          

          1,645,655

          

          

          

          

          

          

          

          

          

          

          

          18

          

          

          

          (18

          )

          

          

          

          

          

          

          

          

          

          

          Issuance of common stock

          

          

          

          

          

          

          28,500

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Conversion of operating partnership units to common stock

          

          

          

          

          

          

          102,896

          

          

          

          (211

          )

          

          

          

          

          

          

          

          

          

          

          211

          

          

          

          

          

          

          

          

          

          

          

          Issuance of operating partnership units

          

          

          

          

          

          

          

          

          

          

          12,316

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          12,316Non-controlling interests in acquired properties

          

          

          

          

          

          

          

          

          

          

          1,386

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          1,386Non-controlling interests in consolidated VIEs

          

          

          

          

          

          

          

          

          

          

          108,973

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          108,973Acquisition of non-controlling interest in the operating partnership

          

          

          

          

          

          

          

          

          

          

          (21

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (21

          )Reclassification of non-controlling interest from temporary equity

          

          

          

          

          

          

          

          

          

          

          3,962

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          3,962Reclassification of non-controlling interest to additional paid-in capital

          

          

          

          

          

          

          

          

          

          

          (370

          )

          

          

          

          

          

          

          

          

          

          

          370

          

          

          

          

          

          

          

          

          

          

          

          Repurchase of non-controlling interest in consolidated partnership

          

          

          

          

          

          

          

          

          

          

          (1,785

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,785

          )Distributions to non-controlling interests

          

          

          

          

          

          

          

          

          

          

          (514

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (514

          )Non-controlling interests share of loss

          

          

          

          

          

          

          

          

          

          

          (6,959

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (6,959

          )Preferred interest in consolidated subsidiary

          

          

          

          

          

          

          

          

          

          

          2,500

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          2,500Preferred stock dividends

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (240

          )

          

          

          

          

          

          

          

          

          

          

          (240

          )Stock-based compensation

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          181

          

          

          

          

          

          

          

          

          

          

          

          181Net loss

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (8,037

          )

          

          

          

          

          

          

          (8,037

          )Balance, December 31, 2010

          

          

          55,172

          

          

          

          3,422,706

          

          

          $

          121,313

          

          

          $

          1

          

          

          $

          34

          

          

          $

          49,067

          

          

          $

          (60,509

          )

          

          $

          (3,095

          )

          

          $

          106,811
 The accompanying notes are an integral part of these consolidated condensed financial statements
 30    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC   CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)  Years ended December 31,2010

          

          2009Cash flows from operating activities:Net loss

          

          $

          (14,996

          )

          

          $

          (9,302

          )Adjustments to reconcile net loss to net cash (used in) provided by operating activities:Depreciation and amortization

          

          

          23,791

          

          

          

          15,160Impairment expense

          

          

          3,387

          

          

          

          Gain on sales of real estate asset

          

          

          (4,315

          )

          

          

          Income tax benefit

          

          

          (5,108

          )

          

          

          (5,521

          )Deferred rental income

          

          

          (446

          )

          

          

          (88

          )Stock-based compensation expense

          

          

          181

          

          

          

          96Amortization of note payable premiums, included in interest expense

          

          

          

          

          

          

          (19

          )Changes in operating assets and liabilities:Increase in tenant and other receivables

          

          

          280

          

          

          

          (90

          )Increase in related party receivables

          

          

          (226

          )

          

          

          Increase in accounts payable

          

          

          4,944

          

          

          

          1,615Increase in accounts payable to related parties

          

          

          317

          

          

          

          Decrease (increase) in prepaid and other assets

          

          

          105

          

          

          

          (774

          )Decrease in accrued and other liabilities

          

          

          (246

          )

          

          

          (1,265

          )Net cash provided by (used in) operating activities:

          

          

          7,668

          

          

          

          (188

          )CASH FLOWS FROM INVESTING ACTIVITIES:Real estate acquisitions

          

          

          (2,017

          )

          

          

          Proceeds received from sales of real estate asset

          

          

          10,166

          

          

          

          Capital improvements to real estate assets

          

          

          (3,567

          )

          

          

          (1,947

          )Investments in unconsolidated real estate assets

          

          

          (82

          )

          

          

          Proceeds received related to insurance claims

          

          

          

          

          

          

          2,700Payments for damages related to insurance claims

          

          

          (30

          )

          

          

          (1,726

          )Net cash provided by (used in) investing activities:

          

          

          4,470

          

          

          

          (973

          )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings

          

          

          8,194

          

          

          

          4,847Repayment of borrowings  property sales

          

          

          (5,067

          )

          

          

          Repayment of borrowings  refinances

          

          

          

          

          

          

          (1,474

          )Repayment of borrowings  scheduled payments

          

          

          (6,537

          )

          

          

          (2,781

          )Repayment of borrowings  other

          

          

          (1,260

          )

          

          

          (3,757

          )Repurchase of preferred partnership interest

          

          

          (1,785

          )

          

          

          Proceeds from partial sale of consolidated partnership interests

          

          

          2,500

          

          

          

          4,000Proceeds from issuance of operating partnership units

          

          

          727

          

          

          

          Acquisition of non-controlling in the operating partnership

          

          

          (21

          )

          

          

          (2

          )Acquisition of notes receivable

          

          

          (2,905

          )

          

          

          Dividend payments to preferred stockholders

          

          

          (302

          )

          

          

          (152

          )Distributions to non-controlling interests

          

          

          (3,653

          )

          

          

          (158

          )Change to restricted cash

          

          

          (488

          )

          

          

          (992

          )Net cash used in financing activities:

          

          

          (10,597

          )

          

          

          (469

          )Increase (decrease) in cash and cash equivalents

          

          

          1,541

          

          

          

          (1,630

          )Cash and cash equivalents, beginning of year

          

          

          462

          

          

          

          2,092Cash and cash equivalents, end of year

          

          $

          2,003

          

          

          $

          462SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion of operating partnership units to common stock

          

          $

          211

          

          

          $

          314Issuance of operating partnership units in connection with Evergreen acquisition

          

          

          8,000

          

          

          

          Issuance of operating partnership units in connection with notes receivable and account receivable acquisition

          

          

          3,081

          

          

          

          Issuance of operating partnership units in connection with real estate acquisitions

          

          

          2,586

          

          

          

          Issuance of operating partnership units in connection with investment in unconsolidated real estate asset

          

          

          28

          

          

          

          Debt assumed in connection with real estate acquisition

          

          

          6,297

          

          

          

          Conversion of accounts payable to notes payable

          

          

          498

          

          

          

          Financing in connection with investment in unconsolidated real estate asset

          

          

          33

          

          

          

          Financing in connection with Evergreen acquisition

          

          

          9,500

          

          

          

          Cash paid for interest

          

          $

          16,767

          

          

          $

          13,017Cash paid for income taxes

          

          $

          70

          

          

          $

          108
 The accompanying notes are an integral part of these consolidated financial statements
 31    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 1. BUSINESS OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Overview We provide comprehensive integrated real estate solutions for our own (controlling interests) property portfolio and the portfolios of our third party clients (VIEs and others). We own and manage; commercial, industrial, self storage and residential income-properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States. Our business is conducted through an Operating Partnership in which we are the sole general partner and a limited partner with a total equity interest of 65% at December 31, 2010. As the sole general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership. Our primary business objective is to acquire and manage multiple tenant real estate in strategically located areas where our cost effective enhancements combined with effective leasing and management strategies, can improve the long term values and economic returns of those properties. We focus on the following fundamentals to achieve this objective: 

          An opportunistic yet disciplined acquisition strategy that focuses on mid-tier multi-tenant real estate in locations that allow us to capitalize on our existing management infrastructure currently servicing our own properties and that of our third party clients; coupled with, 

          Organic (internally developed opportunities) and in-organic (acquisition generated opportunities) growth of our third party property management contracts. The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Principles of consolidation and basis of presentation.  The consolidated financial statements include the accounts of American Spectrum Realty, Inc., its subsidiaries and those variable interest entities in which American Spectrum Realty, Inc. is the primary beneficiary. Intercompany transactions and balances have been eliminated. Use of Estimates.  Accounting estimates are an integral part of the financial statements prepared by management and are based on managements knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was managements estimate of the fair value of its real estate assets that is based on a discounted cash flow
method of valuing the property. The discounted cash flow method included assumptions concerning future net cash flows and also capitalization rates. Management evaluated the key factors and assumptions used to develop the fair value in determining that it is reasonable in relation to the financial statements taken as a whole. Actual results could differ from those estimates. Reclassifications.  Certain balance sheet amounts in the 2009 financial statements have been reclassified to conform to the 2010 presentation. Share and per share data and the OP Unit exchange ratio in the consolidated financial statements and notes for all periods presented have been adjusted to reflect the stock split granted by the Companys Board of Directors to all share holders of record at the close of business on April 30, 2010. On May 7, 2010, each shareholder received one additional share of common stock for every outstanding share held. Cash and Cash Equivalents.  The Company considers all highly-liquid investment instruments with an original maturity of three months or less to be cash equivalents. As of December 31, 2010 and 2009, the Company held its cash and cash equivalents in checking accounts, money market accounts and investment accounts with several financial institutions. Some accounts exceeded FDIC insurance limits.
 32    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 1. BUSINESS OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   (continued) Restricted Cash.  The Company had restricted cash of $5.0 million as of December 31, 2010. The cash includes $4.0 million related to consolidated VIEs. The remaining cash of $0.9 million secures a bank loan, which matures in June 2012. Fair Value of Financial Instruments.  The Companys financial instruments, including cash, prepaid expenses and other current assets, accrued liabilities and accounts payable are carried at cost, which approximates fair value because of the short term nature of those instruments. Deferred Financing and Other Fees  Fees paid in connection with the financing and leasing of the Company's properties are amortized to interest expense using the effective interest method over the term of the related note payable or lease and are included in other assets. Rental Revenue.  The Company records rental income for the full term of each lease on a straight-line basis. Any rent holidays given to the tenant as part of their lease is recorded as a deferred rent receivable. When a property is acquired, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation. Many of the Companys leases provide for Common Area Maintenance Escalations (CAM/ESC) as additional rental revenue. Each tenant is typically responsible for their prorated share of increases in operating expenses. Tenants are billed an estimated CAM/ESC charge based on the budgeted operating expenses for the year. Within 90 days after the end of each fiscal year, a reconciliation and true up billing of CAM/ESC charges is performed based on actual operating expenses. For each of the two years ended December 31, 2010 and 2009 no tenants represented 10% or more of rental revenue of the Company. Allowance for Doubtful Accounts.  The Company maintains an allowance reserve for accounts receivable which may not be ultimately collected. The allowance balance maintained is based upon historical collection experience, current aging of amounts due and specific evaluations of the collectability of individual balances. All tenant account balances over 90 days past due are fully reserved. Accounts are written off against the reserve when they are deemed to be uncollectible. Goodwill and Intangible Assets.  Goodwill is tested for impairment whenever events or changes in circumstances indicate that goodwill carrying amounts may be impaired. If the implied fair value of goodwill is lower than its carrying amount, impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. Intangible assets are amortized on a straight-line basis over their estimated lives. Such assets are evaluated for impairment whenever events or changes in circumstances indicate that the recoverability of their carrying value may be impaired. Variable Interest Entity Accounting.  The company has many relationships with many different types of entities; some of those entities are VIEs. The Company consolidates any VIE for which it is the primary beneficiary. Variable interests are analyzed, including equity investments, guarantees, management agreements and advances, to determine if an entity in which the Company has a variable interest, is a VIE. The analysis includes both quantitative and qualitative reviews. The quantitative analysis is based on the estimated future cash flows of the entity, and the qualitative analysis on the design of the entity, its organizational
structure including decision-making ability and relevant financial agreements. All of these factors are highly subjective and require significant judgment on the part of management. Recent Accounting Pronouncements Effective January 1, 2010, we adopted ASU No. 2010-06,Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 provides that
 33    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 1. BUSINESS OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   (continued) significant transfers in or out of measurements classified as Levels 1 or 2 should be disclosed separately along with reasons for the transfers. Information regarding purchases, sales, issuances and settlements related to measurements classified as Level 3 are also to be presented separately. Disclosures include fair value measurement disclosures for each class of assets and liabilities and information regarding the valuation techniques and inputs used to measure fair value in measurements classified as either Levels 2 or 3. The guidance is effective for fiscal years beginning after December 15, 2009. The adoption of this guidance did not have an
impact on our consolidated financial statements. Effective January 1, 2010, we adopted ASU No. 2009-16,Transfers and Servicing: Accounting for Transfers of Financial Assets (ASU 2009-16). The guidance eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets and requires additional related disclosures. The new accounting guidance is effective for fiscal years beginning after November 15, 2009. The adoption of this guidance did not have an impact on our consolidated financial statements. Effective January 1, 2010, we adopted ASU No. 2009-17,Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-17 modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting, or similar, rights should be consolidated. The guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entitys purpose and design and a companys ability to direct the activities of the entity that most significantly impact the
entitys economic performance. This guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. It also requires additional disclosure about a companys involvement in variable interest entities and any significant changes in risk exposure due to that involvement. The guidance is effective for fiscal years beginning after November 15, 2009. The adoption of this guidance had an impact on the Companys consolidated financial statements, see Note 3. Variable Interest Entities for details regarding the impact of adoption. On February 24, 2010, the FASB issued ASU No. 2010-09,Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09). ASU 2010-09 amends the disclosure provision related to subsequent events by removing the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated. The new accounting guidance was effective immediately and the Company adopted ASU No. 2010-09 upon the date of issuance. In July 2010, the FASB issued ASU No. 2010-20,Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 requires entities to provide extensive new disclosures in their financial statements about their financing receivables, including credit risk exposures and the allowance for credit losses. The new disclosures include information regarding credit quality, impaired or modified receivables, nonaccrual or past due receivables and activity related to modified receivables and the allowance for credit losses. The disclosures are effective for the first interim or annual
reporting periods ending on or after December 15, 2010, with the exception of the activity disclosures, which are effective for interim or annual reporting periods beginning on or after December 15, 2010. The adoption of ASU 2010-20 did not have an impact on the Companys consolidated financial statements. In December 2010, the FASB issued ASU 2010-28 when to perform step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The FASB amended the existing guidance to modify Step 1 of the goodwill impairment test for a reporting unit with a zero or negative carrying amount. Upon adoption of the amendment, an entity with a reporting unit that has a carrying amount that is zero or negative is required to assess whether it is more likely than not that the reporting units goodwill is impaired. If the entity determines that it is more likely than not that the goodwill of the reporting unit is impaired,
the entity should perform Step 2 of the goodwill impairment test for the reporting unit. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Any goodwill impairments occurring after the initial adoption of the amendment should be
 34    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 1. BUSINESS OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   (continued) included in earnings. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company is currently assessing the impact, if any, this may have on its consolidated financial statements. In December 2010, the FASB issued ASU 2010-29 Disclosure of supplementary pro forma information for business combinations. The FASB amended the existing guidance to require a public entity, which presents comparative financial statements, to disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendment also expanded the required supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination, which are included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The company will assess the impact on its reporting on a transaction by transaction basis. NOTE 2. ACQUISITION AND DISPOSITION ACTIVITIES Acquisition of Property Management and Asset Management Contracts In January 2010, the Company acquired the property management and asset management contracts held by Evergreen Realty Group, LLC and affiliates (Evergreen) for a total of approximately 80 separate properties, pending receipt of all required approvals for the acquisition; until such approvals are received, the Company is managing the properties and assets under subcontract from Evergreen. The Company also acquired from Evergreen (i) Evergreen's interest as the manager of limited liability companies which have invested in 27 of the managed properties (in eight of which it has also acquired an equity interest); (ii) Evergreen's interest as
the general partner of limited partnerships which have invested in four of the managed properties (in none of which it acquired an equity interest), and (iii) direct tenant-in-common interests in two properties. The Evergreen-managed properties consist of 5,051,240 square feet of office and industrial properties, 2,934 multi-family units, 12,098 self storage units consisting of 1,793,881 square feet, 3,206 student housing units consisting of 9,107 beds and nine assisting living facilities consisting of 776 beds. The purchase price is subject to adjustment after December 31, 2010, based on the revenues generated by the property management and asset management contracts during 2010 and certain costs incurred. The Company focuses on acquisition candidates that build upon its national property management portfolio. The acquisition of the Evergreen property management and property management contracts significantly increased the Companys third party management presence in the continental United States. The allocation of the purchase price for these assets is as follows:  Asset Class

          

          RemainingUseful Life

          

          FairValue(in thousands)Tangible Assets:Fractional Real Estate Interests

          

          

          Various

          

          

          $

          375Furniture, fixtures and equipment

          

          

          Various

          

          

          

          148Total tangible assets acquired

          

          

          

          

          

          

          523Intangible Assets:Property management contracts

          

          

          12

          

          

          

          13,474Goodwill, including assembled workforce

          

          

          

          

          

          

          4,003Total intangible assets acquired

          

          

          

          

          

          

          17,477Total purchase price

          

          

          

          

          

          $

          18,000
 35    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 2. ACQUISITION AND DISPOSITION ACTIVITIES   (continued) The goodwill identified as part of the acquisition relates to the value the Company believes it gained from the synergies of having a management presence in approximately 22 states. The Company believes these synergies will afford it the opportunity to actively pursue its policy of growing its portfolio of owned properties through opportunistic investments in well-located properties where cost effective enhancements combined with effective leasing and management strategies, can improve the long term values and economic returns of those properties. The Company also believes the goodwill acquired will allow it to expand its third party management and
transaction revenues. The Company expects the entire amount of goodwill to be deductible for tax purposes over the tax amortization period of 15 years. The consideration paid for the acquisition of the Evergreen property management and asset management contracts is as follows:  Consideration

          

          FairValue(in thousands)Promissory Note

          

          $

          9,500Issuance of 1.6 million operating partnership units

          

          

          8,000Assumption of debt

          

          

          500Total consideration

          

          $

          18,000
 The Company completed the Evergreen acquisition by assuming $0.5 million of Evergreen payables, issuing 1.6 million OP units with redemption terms that are different from the Company's other OP Units (the Evergreen OP Units) and issuing a $9.5 million promissory note. The promissory note is an obligation of American Spectrum Realty Management, LLC, a subsidiary, which matures on December 31, 2019 and bears an annual interest rate of 5.0%. The Evergreen purchase price was based on a multiple of the estimated revenues generated by the property management and asset management contracts during 2010 less certain costs incurred. This purchase price is subject to a true-up adjustment based on actual results through December 31, 2010. In addition, Evergreen has the option to exchange the Evergreen OP units for common stock or cash (at the election of the Company) at any time after June 30, 2011 at a rate that would convert the total proceeds to equal $8.0 million using the common stock price or the net asset value per share of the Company, whichever is higher, at December 31, 2010. Due to the
litigation with Evergreen as more fully described in Note 15. Subsequent Events, the purchase price adjustment and effect on the amount of the Evergreen OP units convertible into cash or stock cannot be determined at this time, although management believes that an adjustment is likely. Any adjustment made will influence the amount of debt, OP units and the assets those instruments were used to purchase including goodwill. The following unaudited pro forma statements of operations for the year ended December 31, 2010 has been prepared to give effect to the acquisition of assets and management contracts with the corresponding consolidation of VIEs, described above and in Note 3. Variable Interest Entities, assuming that these events occurred on January 1, 2010. The pro forma statements of income are presented for illustrative purposes only and are not necessarily indicative of the results of operations that would have been obtained had this transaction actually occurred at the beginning of the periods presented, nor do they intend to be a projection of future
results of operations. Reliable information to provide pro forma financial disclosure on the Evergreen acquisition for the year ending December 31, 2009 is currently unavailable and impracticable to prepare. Therefore, such pro forma financial information has not been included.
 36    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 2. ACQUISITION AND DISPOSITION ACTIVITIES   (continued) The pro forma information is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information, including without limitations, purchase accounting adjustments. The pro forma financial information presented below also includes depreciation and amortization based on the valuation of Evergreens tangible and intangible assets resulting from the acquisition plus consolidation of the VIEs as if such consolidation had occurred as of January 1, 2010. The pro forma financial information does not include any synergies or operating cost reductions that may be achieved from the combined operations. Pro forma statement of operations (unaudited)for the year ended December 31, 2010(in thousands)  Total Revenue

          

          $

          76,509Total Expenses

          

          

          (108,055

          )Net Income before Noncontrolling Interest & Tax

          

          

          (31,546

          )Discontinued Operations

          

          

          2,847Deferred Tax Benefit

          

          

          6,670Non-Controlling Interest

          

          

          13,652Proforma net loss

          

          $

          (8,377

          )
 The accompanying financial statements include the operations of Evergreen and the consolidated VIEs from the acquisition date and consolidation date in accordance with the Companys business combination and VIE policies. A summary of the effect on operations follows: Evergreen component of the consolidated statement of operationsfor the year ended December 31, 2010 (audited)(in thousands)  Total Revenue

          

          $

          23,126Total Expenses

          

          

          (28,021

          )Net Loss before Noncontrolling Interest & Tax

          

          

          (4,895

          )Deferred Tax Benefit

          

          

          (671

          )Non-Controlling Interest

          

          

          2,652Evergreen component of net loss

          

          $

          (2,914

          )
 The fair value of the management contracts acquired in the Evergreen transaction was adjusted through the remainder of the year for impairment and amortization. Amortization expense was $1.0 million for the year ended December 31, 2010. Amortization expense will be $0.8 million per year for the next five years ending December 31. Because of the termination of certain management contracts and an evaluation of future revenue streams and discounted cash flows on two other management contracts an impairment of $3.4 million was recorded for the year ended December 31, 2010. After the effect of the amortization expense and impairment the carrying value of the management contracts was $9.1million at December 31, 2010. For additional information related to the determination of fair value for the impaired management contracts see Note 6  Fair Value Measurements.
 37    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 2. ACQUISITION AND DISPOSITION ACTIVITIES   (continued) Acquisition of Notes Receivable and Accounts Receivable In September 2010, the Company acquired two notes receivable, each with a face amount of $0.5 million from American Spectrum REIT I, Inc. (ASRI). The acquisition was funded by the issuance of 154,524 OP Units. The two $0.5 million notes bear interest at a rate of 12% per annum and are payable on demand from Evergreen. The Company anticipates the notes receivable will be offset against either its note payable to Evergreen or through a reduction in OP Units currently held by Evergreen in 2011. Please refer to Part I Item 3 Legal Proceedings and Note 15 Subsequent Events for additional information regarding the Companys litigation against Evergreen. In June 2010, the Company acquired a note receivable and an account receivable with a total face amount of approximately $1.6 million from Evergreen Income and Growth REIT, LP (EIGRLP), whose general partner is Evergreen Income and Growth REIT, Inc. (EIGRI). The acquisition was funded by the issuance of 334,789 OP Units. The note, in the amount of approximately $1.0 million, bears interest at 12% per annum. The note and accrued interest is payable on demand from Central Florida Self Storage Acquisitions, LLC. Accrued and unpaid interest on the note totaled approximately $0.2 million as of June 30, 2010. The note was acquired to ultimately acquire certain real estate assets in which the obligors on the note have ownership interests. The Company is not recognizing interest income on the note. The account receivable acquired, which totaled approximately $0.4 million is due from Evergreen. The account receivable is related to organizational and offering costs paid in excess of the amounts established in EIGRIs 2008 private placement agreement. The Company anticipates the receivable from Evergreen will be offset against either its note payable to Evergreen or through a reduction in OP Units currently held by Evergreen in 2011. Property Acquisitions In 2010, controlling interests were acquired in certain properties being managed. Properties acquired were consolidated upon acquisition of the controlling interest. A summary of these acquisition purchase price consideration follows:  Purchase price consideration(in thousands)Cash

          

          $

          267Debt assumed

          

          

          5,350Equity contribution from third party investor

          

          

          1,000Operating partnership units

          

          

          1,019Total cost of acquisition

          

          $

          7,636
 During 2010 the Company incurred approximately $0.1 million in costs related to the acquisitions that were included in the consolidated statements of operations in general and administrative expenses. One of the properties was acquired from a REIT that is a related party. See the disclosure related to the Sabo Road property in Note 7  Related Parties for additional information. No properties were purchased in 2009.
 38    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 2. ACQUISITION AND DISPOSITION ACTIVITIES   (continued) Property Dispositions During March 2010, we closed escrow on 5850 San Felipe Road and realized proceeds of $5.2 million dollars. The proceeds allowed us to repurchase the preferred interest in the partnership that owned the property, reduce debt and payables. We recorded a gain on the sale of discontinued operations before income taxes in our consolidated statements of operations of $4.3 million. In September 2009, partial interests in two consolidated limited partnerships were sold to a third party for $4.0 million (Preferred Capital). Proceeds of $3.8 million, net of transaction costs, were received as a result of the sale. Each of the limited partnerships owned an income-producing property in Houston, Texas. The Company has a right to repurchase the preferred interests in each of the partnerships within five years for an amount equal to the remaining Preferred Capital plus a 15% annual internal rate of return. INTANGIBLE ASSETS PURCHASED Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, above and below market leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities), and allocates the purchase price to the acquired assets and assumed liabilities. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases. The Company evaluates acquired above and below market leases at their fair value (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) managements estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Acquired lease intangible assets (in-place leases and above-market leases) are amortized over the leases remaining terms, which range from 1 month to 6 years. Amortization of above-market leases is recorded as a reduction of rental income and the amortization of in-place leases is recorded to amortization expense. The Company currently has no intangible lease costs related to above-market leases. Acquired lease intangible liabilities (below-market leases) are accreted over the leases remaining terms, which range from 1 month to 6 years. Accretion of below-market leases was approximately $0.4 million and $0.5 million for the two years ended December 31, 2010 and December 31, 2009, respectively. Such accretion is recorded as an increase to rental income. The estimated aggregate amortization amounts from acquired lease intangibles for each of the next five years are as follows (in thousands):  Year Ending December 31,

          

          Amortization Expense (in-place lease value)2011

          

          

          3742012

          

          

          3432013

          

          

          3142014

          

          

          2892015

          

          

          67$

          1,387
 39    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 3. VARIABLE INTEREST ENTITIES Consolidated variable interest entities The Company has identified multiple variable interest entities where it is the primary beneficiary for accounting purposes since (a) the company has the power to direct the activities that most significantly impact each entitys economic performance such as; sign and enter into leases, set, distribute and implement the capital budgets, or authority to refinance or sell the property within contractually defined limits, and (b) the ability to receive fees that are significant to the property and a track record of funding any deficit cash flows. As a result, these entities were consolidated in the consolidated financial statements, after
eliminating intercompany transactions, and presenting the interests that are not owned by the Company as non-controlling interests in the consolidated balance sheets. The entities being consolidated include four self storage properties, three multifamily properties, five student living properties, and nine commercial properties. In addition, the Company consolidated American Spectrum REIT, Inc. which includes one assisted living property and seven self storage properties. The entities are generally self-financed through cash flows from property operations. The Company owns an insignificant interest in the VIEs, and therefore, substantially all operations are included in the net loss attributable to non-controlling interests. The carrying amounts associated with these entities, after eliminating the effect of intercompany transactions, were as follows:  Variable interest entity amounts

          

          December 31, 2010(in thousands)AssetsRestricted Cash

          

          $

          4,016Receivables

          

          

          1,515Fixed Assets Net of depreciation

          

          

          372,908Other Assets

          

          

          8,858Total Assets

          

          $

          387,297LiabilitiesAccounts payable

          

          

          5,734Notes payable

          

          

          268,776Other liabilities

          

          

          1,809Total liabilities

          

          $

          276,319Variable interest entity net carrying amount at December 31, 2010

          

          $

          110,978
 At December 31, 2010, none of the liabilities listed in the above table had recourse to the Company. The Company does not have the ability to leverage the assets of the above identified VIEs for the purpose of providing itself cash. The majority of the debt is non-recourse first deed of trust mortgages used to finance the properties owned by the entities. During the year ended December 31, 2010, the Company provided short term advances of approximately $0.7 million in cash to 13 properties that have been consolidated, of those funds provided $15,000 is still owed to the Company at December 31, 2010. This funding is typically provided to the entities that own the properties to help the entity with timing differences in its need for cash to pay its obligations. Management does not believe there is significant exposure to losses related to the VIEs.
 40    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 4. REAL ESTATE The cost and accumulated depreciation of rental property held for investment as of December 31, 2010 and 2009 are as follows (dollars in thousands):  2010

          

          Land

          

          Building and Improvements

          

          Total Cost

          

          Accumulated Depreciation

          

          Net Recorded ValueASR OwnedOffice

          

          $

          54,062

          

          

          $

          163,086

          

          

          $

          217,148

          

          

          $

          (73,250

          )

          

          $

          143,898Industrial

          

          

          8,709

          

          

          

          31,866

          

          

          

          40,575

          

          

          

          (11,071

          )

          

          

          29,504Shopping Center

          

          

          1,100

          

          

          

          2,672

          

          

          

          3,772

          

          

          

          (837

          )

          

          

          2,935Self-Storage

          

          

          536

          

          

          

          2,216

          

          

          

          2,752

          

          

          

          (38

          )

          

          

          2,714Other

          

          

          

          

          

          

          654

          

          

          

          654

          

          

          

          (448

          )

          

          

          206ASR total

          

          

          64,407

          

          

          

          200,494

          

          

          

          264,901

          

          

          

          (85,644

          )

          

          

          179,257VIE total Note 3

          

          

          72,001

          

          

          

          309,353

          

          

          

          381,354

          

          

          

          (8,446

          )

          

          

          372,908Total

          

          $

          136,408

          

          

          $

          509,847

          

          

          $

          646,255

          

          

          $

          (94,090)

          

          

          $

          552,165
  2009ASR OwnedOffice

          

          

          48,762

          

          

          

          157,857

          

          

          

          206,619

          

          

          

          (62,298

          )

          

          

          144,321Industrial

          

          

          8,709

          

          

          

          31,781

          

          

          

          40,490

          

          

          

          (9,148

          )

          

          

          31,342Shopping Center

          

          

          1,100

          

          

          

          2,658

          

          

          

          3,758

          

          

          

          (594

          )

          

          

          3,164Other

          

          

          

          

          

          

          469

          

          

          

          469

          

          

          

          (364

          )

          

          

          105Total

          

          $

          58,571

          

          

          $

          192,765

          

          

          $

          251,336

          

          

          $

          (72,404

          )

          

          $

          178,932
 FUTURE MINIMUM RENTS The Company leases its office, industrial, retail center and self-storage property under non-cancelable operating lease agreements. Future minimum rents to be received as of December 31, 2010, are as follows (dollars in thousands):  Year Ending December 31,

          

          Future Minimum Rents2011

          

          $

          28,3422012

          

          

          20,3392013

          

          

          13,8492014

          

          

          8,2012015

          

          

          4,248Thereafter

          

          

          4,084$

          79,063
 41    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 5. DISCONTINUED OPERATIONS Real estate assets held for sale. At December 31, 2009, 5850 San Felipe, a 101,880 square foot office property located in Houston, Texas, was classified as Real estate held for sale. The property was sold on March 31, 2010 for approximately $10.8 million. No real estate assets were classified as held for sale by the Company at December 31, 2010. The carrying amount of 5850 San Felipe at December 31, 2009 is summarized below:  December 31, 2009(In thousands)Real Estate

          

          $

          5,847Other

          

          

          517Real estate held for sale

          

          $

          6,364Note Payable

          

          $

          5,090Accounts payable

          

          

          515Accrued and other liabilities

          

          

          486Liabilities related to real estate held for sale

          

          $

          6,091
 Net income from discontinued operations. Income from discontinued operations of approximately $2.8 million for the year ended December 31, 2010 includes the gain on sale of 5850 San Felipe and the propertys operating results through its disposition date of March 31, 2010. Income from discontinued operations of approximately $0.2 million for the year ended December 31, 2009 represents the operations of 5850 San Felipe. The consolidated statements of operations of discontinued operations are summarized below:  Years ended December 31,2010

          

          2009(In thousands)Rental Revenue

          

          $

          482

          

          

          $

          1,909Expenses(1)

          

          

          (309

          )

          

          

          (1,609

          )Income from discontinued operations before gain on sale and income tax expense

          

          

          173

          

          

          

          300Gain on sale of discontinued operations

          

          

          4,315

          

          

          

          Income tax expense

          

          

          (1,641

          )

          

          

          (110

          )Income from discontinued operations

          

          $

          2,847

          

          

          $

          190
  (1)

          Includes interest expense of approximately $0.1 million and $0.3 million for the years ended December 31, 2010 and 2009, respectively. Mortgage debt related to the property included in discontinued operations was individually secured. As such, interest expense was based on the propertys respective debt.
 42    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 6. Fair Value Measurements The Fair Value Measurements and Disclosures Topic of the FASB ASC (Topic 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair
value are as follows: Level 1  Quoted prices in active markets for identical assets or liabilities. Level 2  Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The fair value measurements employed for our impairment evaluations were generally based on a discounted cash flow approach and/or review of comparable activities in the market place. Inputs used in these evaluations included risk-free rates of return, estimated risk premiums as well as other economic variables. The following non-recurring fair value measurements were recorded during the year ended December 31, 2010 (dollars in thousands):  Net CarryingValue

          

          Fair Value MeasurementRecorded Using

          

          Total ImpairmentChargesLevel 1

          

          Level 2

          

          Level 3Purchased intangibles

          

          $

          462

          

          

          

          

          

          

          

          

          

          

          

          462

          

          

          $

          3,387
 During the year ended December 31, 2010, the Company had its contractual relationships terminated or modified by the entities that owned some of the third party properties it managed. Based on this triggering event the Company evaluated the management contracts associated with some of its purchased intangibles for impairment and determined that impairment had occurred. NOTE 7. RELATED PARTY TRANSACTIONS The following disclosures are related party transactions which may include amounts that were eliminated in the consolidation of VIEs and controlled entities. During the year ended December 31, 2010, the Company recognized third party management fee and advisory revenues of $3.8 million attributable to the former Evergreen managed properties. At December 31, 2010, accounts receivable related to these revenues was approximately $0.2 million. The Company has a non-economic interest in many of the properties, held in most cases as the manager or general partner of entities which own tenant in common interests. In September 2010, the Company acquired two notes receivable, each with a face amount of $500,000, and interests in three apartment complexes and one student housing facility. The acquisitions, which were acquired from American Spectrum REIT I, Inc. (ASRI) for a total purchase price of $1.3 million, were funded by the issuance of 205,394 OP Units. William J. Carden is a director and President of ASRI and Jonathan T. Brohard is a director and Vice President of ASRI. Mr. Carden is Chief Executive Officer, Chairman of the Board, and a principal stockholder in the Company. Mr. Brohard is President of American Spectrum Realty Management, LLC,
a wholly-owned subsidiary of the Company.
 43    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 7. RELATED PARTY TRANSACTIONS   (continued) The two $0,5 million notes bear interest at a rate of 12% per annum and are payable on demand from Evergreen Realty Group, LLC (ERG). The Company anticipates the notes receivable will be offset against either its $9.5 million note payable to ERG or through a reduction in OP Units currently held by ERG in 2011. In June 2010, the Company acquired a 55% interest in Sabo Road, a 57,850 square foot self-storage property located in Houston, Texas. The partnership interest acquired in Sabo Road consists of the sole general partnership interest and a limited partnership interest. Also in June 2010, the Company acquired a 38.4% undivided interest in Loop 1604, a 178,595 square foot self-storage property located in San Antonio, Texas. The acquisitions were acquired from ASRI for a total purchase price of approximately $1.7 million, consisting of the 300,949 OP Units and cash of $50,000. In June 2010, the Company acquired two notes receivable and an account receivable from Evergreen Income & Growth REIT, LP (EIGRLP) with a total face amount of approximately $2.1 million The acquisition was funded by the issuance of 428,680 OP Units. Mr. Carden is a director and President of Evergreen Income & Growth REIT, Inc. (EIGRI), the general partner of EIGRLP. Mr. Brohard is a director and Vice President of EIGRI. The Company does not have an ownership interest in EIRGI or EIGRLP. The first note, in the amount of $1.0 million, bears interest at 12% per annum. The note and accrued interest is payable on demand from Central Florida Self Storage Acquisitions, LLC, an entity in which the Company has a non-economic tenant in common interest. Accrued and unpaid interest on the note totaled approximately $0.2 million at June 30, 2010. The note was acquired to ultimately acquire certain real estate assets in which the obligors on the notes have ownership interests. The Company is not recognizing interest income on the note. The second note in the amount of $0.4 million, which was due from ASRI, bore interest at 10% per annum. This note and accrued interest of approximately $77,000, was paid to the Company in January 2011. The account receivable acquired, which totaled approximately $0.4 million, is due from ERG. The account receivable is related to organizational and offering costs paid in excess of the amounts established in EIGRIs 2008 private placement agreement. The Company anticipates the receivable from ERG will be offset against either its $9.5 million note payable to Evergreen or through a reduction in OP Units currently held by ERG in 2011. In May 2010, the Company obtained financing for insurance premiums on both its owned and third party managed properties of which approximately $2.1 million was attributable to the Evergreen property portfolio. During 2010, the Company received approximately $2.0 million from these properties as payment on the premiums. As of December 31, 2010 unpaid amounts due to the Company from these properties was approximately $0.1 million. As of December 31, 2010, the Company had premium refunds of $0.3 million due to these properties from the cancellation of the prior insurance policy. In March 2010, 160,266 OP Units were exchanged for 80,132 shares of Common Stock by the spouse of Mr. Carden and 45,529 OP Units were exchanged for 22,764 shares of Common Stock by an entity controlled by Mr. Carden. In February 2009, Mr. Carden exchanged 78,406 OP Units for 39,202 shares of Common Stock. The Company pays a guarantee fee to Mr. Carden, Mr. Galardi and CGS Real Estate Company, Inc., a company owned indirectly by Messrs. Carden and Galardi (the Guarantors), in consideration for their guarantees of certain obligations of the Company. The Guarantors are paid an annual guarantee fee equal to between .25% and .75% (depending on the nature of the guarantee) of the outstanding balance as of December 31 of the guaranteed obligations (Guarantee Fee). The Guarantee Fee is paid for a maximum of three years on any particular obligation. The Guarantee Fee paid for the years ended December 31, 2010 and 2009 amounted to
approximately $80,000 and $68,000, respectively.
 44    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 7. RELATED PARTY TRANSACTIONS   (continued) During 2009, the Company incurred professional fees of approximately $0.2 million to Thompson & Knight LLP, the law firm in which Mr. Brown is a partner. During 2007, the Company entered into a lease agreement with Galardi Group as a Tenant for 15,297 square feet of office space at the Companys 7700 Irvine Center property. Mr. Galardi is a principal stockholder, director and officer of Galardi Group. The lease commenced March 1, 2008 and has a five-year term. The annual base rent due to the Company pursuant to the lease is approximately $0.5 over the term of the lease. NOTE 8. NOTES PAYABLE The Company had the following notes payable outstanding as of December 31, 2010 and 2009 secured by the following properties (dollars in thousands):  2010

          

          2009Property (unless otherwise noted)

          

          Maturity Date

          

          Principal Balance

          

          Interest Rate

          

          Principal Balance

          

          Interest RateFixed RatePacific Spectrum(1)

          

          

          6/10/2010

          

          

          

          5,191

          

          

          

          8.02

          %

          

          

          5,248

          

          

          

          8.02

          %Corporate  Unsecured(2)

          

          

          2/19/2011

          

          

          

          447

          

          

          

          3.40

          %

          

          

          

          

          

          

          Fountain View Place(3)

          

          

          4/29/2011

          

          

          

          1,031

          

          

          

          10.00

          %

          

          

          1,423

          

          

          

          10.00

          %Corporate  Secured(4)

          

          

          5/12/2011

          

          

          

          950

          

          

          

          8.75

          %

          

          

          

          

          

          

          Sabo Road Self Storage(5)

          

          

          7/31/2011

          

          

          

          1,974

          

          

          

          7.42

          %

          

          

          

          

          

          

          Bristol Bay

          

          

          8/1/2011

          

          

          

          6,792

          

          

          

          7.58

          %

          

          

          6,899

          

          

          

          7.58

          %Technology(1)

          

          

          8/1/2011

          

          

          

          7,091

          

          

          

          7.44

          %

          

          

          7,131

          

          

          

          7.44

          %Corporate   Secured(6)

          

          

          9/18/2011

          

          

          

          890

          

          

          

          8.75

          %

          

          

          890

          

          

          

          8.75

          %Creekside(1)

          

          

          12/1/2011

          

          

          

          5,747

          

          

          

          7.17

          %

          

          

          5,814

          

          

          

          7.17

          %Northwest Spectrum

          

          

          12/3/2011

          

          

          

          750

          

          

          

          8.75

          %

          

          

          750

          

          

          

          8.75

          %Corporate   Unsecured(7)

          

          

          5/1/2012

          

          

          

          40

          

          

          

          4.00

          %

          

          

          

          

          

          

          Corporate   Unsecured(7)

          

          

          5/1/2012

          

          

          

          31

          

          

          

          0.00

          %

          

          

          

          

          

          

          16350 Park Ten Place

          

          

          5/11/2012

          

          

          

          4,402

          

          

          

          7.45

          %

          

          

          4,466

          

          

          

          7.45

          %16360 Park Ten Place

          

          

          5/11/2012

          

          

          

          3,449

          

          

          

          7.45

          %

          

          

          3,499

          

          

          

          7.45

          %2855 Mangum

          

          

          5/11/2012

          

          

          

          2,535

          

          

          

          7.45

          %

          

          

          2,575

          

          

          

          7.45

          %2855 Mangum

          

          

          5/11/2012

          

          

          

          1,380

          

          

          

          6.00

          %

          

          

          1,422

          

          

          

          6.00

          %6430 Richmond Atrium

          

          

          5/11/2012

          

          

          

          2,127

          

          

          

          7.45

          %

          

          

          2,161

          

          

          

          7.45

          %Corporate  Unsecured(8)

          

          

          5/31/2012

          

          

          

          1,000

          

          

          

          9.50

          %

          

          

          500

          

          

          

          11.00

          %Southwest Pointe

          

          

          6/1/2012

          

          

          

          2,671

          

          

          

          7.33

          %

          

          

          2,710

          

          

          

          7.33

          %Corporate-Secured(9)

          

          

          6/15/2012

          

          

          

          992

          

          

          

          4.50

          %

          

          

          992

          

          

          

          4.50

          %Corporate  Unsecured(7)

          

          

          6/30/2012

          

          

          

          51

          

          

          

          0.00

          %

          

          

          

          

          

          

          16350 Park Ten Place

          

          

          8/11/2012

          

          

          

          484

          

          

          

          7.45

          %

          

          

          492

          

          

          

          7.45

          %16360 Park Ten Place

          

          

          8/11/2012

          

          

          

          380

          

          

          

          7.45

          %

          

          

          386

          

          

          

          7.45

          %Corporate  Secured(10)

          

          

          2/1/2013

          

          

          

          1,736

          

          

          

          5.50

          %

          

          

          1,950

          

          

          

          7.50

          %Corporate  Secured(4)

          

          

          3/8/2013

          

          

          

          863

          

          

          

          8.75

          %

          

          

          

          

          

          

          11500 Northwest Freeway

          

          

          6/1/2014

          

          

          

          4,008

          

          

          

          5.93

          %

          

          

          4,079

          

          

          

          5.93

          %11500 Northwest Freeway

          

          

          6/1/2014

          

          

          

          290

          

          

          

          5.93

          %

          

          

          295

          

          

          

          5.93

          %Morenci

          

          

          7/1/2014

          

          

          

          1,632

          

          

          

          7.25

          %

          

          

          1,689

          

          

          

          7.25

          %Northwest Corporate Center(1)

          

          

          8/1/2014

          

          

          

          5,312

          

          

          

          6.26

          %

          

          

          5,370

          

          

          

          6.26

          %14741 Yorktown

          

          

          9/1/2014

          

          

          

          8,545

          

          

          

          5.32

          %

          

          

          8,600

          

          

          

          5.32

          %Corporate  Unsecured

          

          

          10/1/2014

          

          

          

          220

          

          

          

          7.28

          %

          

          

          

          

          

          

          8100 Washington

          

          

          2/22/2015

          

          

          

          2,156

          

          

          

          5.59

          %

          

          

          2,196

          

          

          

          5.59

          %8300 Bissonnet(1)

          

          

          5/1/2015

          

          

          

          4,484

          

          

          

          5.51

          %

          

          

          4,527

          

          

          

          5.51

          %Corporate  Unsecured(7)

          

          

          6/1/2015

          

          

          

          282

          

          

          

          5.00

          %

          

          

          

          

          

          

          Corporate  Unsecured(7)

          

          

          6/1/2015

          

          

          

          52

          

          

          

          5.00

          %

          

          

          

          

          

          

          2620  2630 Fountain View(11)

          

          

          6/30/2015

          

          

          

          5,350

          

          

          

          7.00

          %

          

          

          

          

          

          

          
 45    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 8. NOTES PAYABLE   (continued) 2010

          

          2009Property (unless otherwise noted)

          

          Maturity Date

          

          Principal Balance

          

          Interest Rate

          

          Principal Balance

          

          Interest Rate1501 Mockingbird

          

          

          7/1/2015

          

          

          

          3,189

          

          

          

          5.28

          %

          

          

          3,239

          

          

          

          5.28

          %5450 Northwest Central

          

          

          9/1/2015

          

          

          

          2,585

          

          

          

          5.38

          %

          

          

          2,631

          

          

          

          5.38

          %Corporate  Unsecured(7)

          

          

          10/1/2015

          

          

          

          25

          

          

          

          5.00

          %

          

          

          

          

          

          

          Corporate  Unsecured(7)

          

          

          10/1/2015

          

          

          

          88

          

          

          

          17.52

          %

          

          

          

          

          

          

          Corporate  Secured(12)

          

          

          12/22/2015

          

          

          

          2,900

          

          

          

          5.00

          %

          

          

          

          

          

          

          800/888 Sam Houston Parkway

          

          

          12/29/2015

          

          

          

          4,528

          

          

          

          6.25

          %

          

          

          4,638

          

          

          

          6.25

          %2401 Fountain View

          

          

          3/1/2016

          

          

          

          11,967

          

          

          

          5.82

          %

          

          

          12,139

          

          

          

          5.82

          %12000 Westheimer/2470 Gray Falls

          

          

          1/1/2017

          

          

          

          7,267

          

          

          

          5.70

          %

          

          

          7,350

          

          

          

          5.70

          %6420 Richmond Atrium

          

          

          6/5/2017

          

          

          

          6,286

          

          

          

          5.87

          %

          

          

          6,364

          

          

          

          5.87

          %7700 Irvine Center

          

          

          8/1/2017

          

          

          

          45,000

          

          

          

          5.99

          %

          

          

          45,000

          

          

          

          5.99

          %Fountain View Place

          

          

          4/29/2018

          

          

          

          12,361

          

          

          

          6.50

          %

          

          

          12,521

          

          

          

          6.50

          %Corporate  Secured(5)

          

          

          12/31/2019

          

          

          

          9,410

          

          

          

          5.00

          %

          

          

          

          

          

          

          Subtotal

          

          

          $

          190,941

          

          

          

          

          

          

          $

          169,946Variable RateBeltway Industrial(13)

          

          

          5/9/2010

          

          

          

          17,170

          

          

          

          7.00

          %

          

          

          17,170

          

          

          

          7.00

          %Corporate Unsecured(8)

          

          

          5/31/10

          

          

          

          

          

          

          

          

          

          

          

          500

          

          

          

          6.00

          %Northwest Spectrum

          

          

          4/19/2012

          

          

          

          2,820

          

          

          

          2.90

          %

          

          

          3,013

          

          

          

          2.90

          %Windrose Plaza

          

          

          4/19/2012

          

          

          

          2,612

          

          

          

          2.90

          %

          

          

          2,791

          

          

          

          2.90

          %Corporate  Unsecured

          

          

          12/12/2013

          

          

          

          500

          

          

          

          6.00

          %

          

          

          500

          

          

          

          6.00

          %Subtotal

          

          

          $

          23,102

          

          

          

          

          

          

          $

          23,974Loan Premium

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          ASR Notes Payable

          

          

          Total

          

          

          $

          214,043

          

          

          

          

          

          

          $

          193,920VIE Notes Payable see Note 3

          

          

          

          

          

          

          268,776

          

          

          

          

          

          

          

          Balance sheet Notes Payable

          

          

          Total

          

          

          $

          482,819

          

          

          

          

          

          

          $

          193,920
  (1)

          The Company is currently electing not to pay its monthly payments and negotiating extension terms with the lender. Please see additional information regarding these debts below. (2)

          In May 2010, the Company obtained financing for insurance premiums on its owned and managed properties. (3)

          In April 2010, the Company made a principal payment of $0.2 million on the note and the lender extended the maturity date of the note to April 29, 2011. (4)

          Represents bank loans of $0.9 million obtained in May 2010 and $1.0 million obtained in March 2010. (5)

          Represents promissory note issued by the Company in January 2010 in connection with Evergreen. (6)

          In September 2010, maturity of the loan was extended to September 21, 2011. (7)

          Represents the conversion of accounts payables to promissory notes during the second quarter of 2010. (8)

          In May 2010, the Company refinanced two $0.5 million notes which were due to mature on May 31, 2010 with a new loan in the amount of $1.0 million with the same lender. (9)

          In October 2010, maturity of the loan was extended to June 15, 2012. (10)

          In August 2010, the Company made a principal pay-down of approximately $0.2 million on the note and the lender extended the maturity date to February 1, 2013. (11)

          Represents mortgage debt the Company assumed from the seller in connection with the property acquisition. The Company holds a 51% ownership interest in the property. (12)

          In December 2010, the Company obtained a $2.9 million secured bank loan. The loan was used to acquire from the bank, two mortgage notes receivable from Tampa and Ocala, which totaled the same amount. (13)

          The loan has matured and the Company is negotiating with the lender for an extension.
 46    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 8. NOTES PAYABLE   (continued) The required principal payments on the Company's debt for the next five years and thereafter, as of December 31, 2010, are as follows (dollars in thousands):  Year Ending December 31,20112012

          

          $

          50,5212013

          

          

          25,8642014

          

          

          4,2602015

          

          

          19,821Thereafter

          

          

          24,530Total

          

          

          89,047$

          214,043
 We are in default on the mortgages listed below due to non-payment of scheduled debt service. These notes have been marked with a (1) in the above table that agrees to our balance sheet:  Property securing debt

          

          Balance atDecember 31,2010Spectrum

          

          $

          5,191Technology

          

          $

          7,091Creekside

          

          $

          5,747Northwest Corporate Center

          

          $

          5,312Bissonnet

          

          $

          4,484$

          27,825
 We have elected not to service debt of $27.8 million due to the unpaid balances of the mortgages exceeding the value of the properties covered by the mortgages. Additionally, we are in default on a note payable for another property with an outstanding balance $17.2 million at December 31, 2010 as the maturity date has lapsed without pay off. We are actively negotiating with the lenders yet there can be no assurance, however, that these negotiations, which may result in loan modifications or discounted pay-offs, will be successful and the lenders could initiate foreclosure proceedings. The loans are secured only by the real estate assets. Each of the
properties securing the debt in default is held by a consolidated wholly owned subsidiary and the mortgages are non recourse. All of notes in which we have elected to forego servicing the debt have payment acceleration clauses contained within the notes and payment in full could be demanded by the lenders holding these notes. Certain of these properties currently have operating deficits. We evaluated the impairment related to the long-lived assets of the properties secured by these loans and determined that no impairment should be recorded at December 31, 2010. For further discussion see Capital Resources and Liquidity in item 7. Unamortized financing costs at December 31, 2010 and 2009 were $1.1 million and $1.4 million, respectively.
 47    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 9. NON-CONTROLLING INTERESTS AND OPERATING PARTNERSHIP UNITS The following table summarizes the activity for the operating partnership units (OP Units) for the years ended December 31, 2010 and 2009 (in thousands):  Beginning balance January 1, 2009

          

          

          6,392Other issuances

          

          

          23Balance December 31, 2009

          

          

          6,415Issued for Evergreen acquisition

          

          

          1,600Issued for other acquisitions

          

          

          1,037Other issuances

          

          

          57Balance December 31, 2010

          

          

          9,109
  Ownership of OP UnitsASR

          

          

          5,936

          

          

          

          65

          %Others (non-controlling interests)

          

          

          3,173

          

          

          

          35

          %9,109

          

          

          

          100

          %
 The following represents the effects of changes in the Companys equity related to non-controlling interests for the years ended December 31, 2010 and 2009 (dollars in thousands):  December 31,2010

          

          2009(in thousands)Net loss attributable to the Company

          

          $

          (8,037

          )

          

          $

          (8,272

          )Increase in the Companys paid-in capital on exchange of OP Units for shares of Common Stock

          

          

          211

          

          

          

          314Increase in the Company's paid-in-capital on reclassification of preferred interest from temporary equity

          

          

          370

          

          

          

          Change from net loss attributable to the Company on exchange of OP Units for shares of Common Stock

          

          $

          (7,456

          )

          

          $

          (7,958

          )
 NOTE 10. INCOME TAXES The provision for income taxes from continuing operations on income consists of the following for the years ended December 31, 2010 and 2009 (in thousands):  2010

          

          2009Current expense (benefit):Federal

          

          $

          

          

          

          $

          State

          

          

          163

          

          

          

          168$

          163

          

          

          $

          168Deferred expense (benefit):Federal

          

          $

          (4,608

          )

          

          $

          (5,116

          )State

          

          

          (663

          )

          

          

          (573

          )$

          (5,271

          )

          

          $

          (5,689

          )
 The Company has federal and state net operating loss carryforwards of approximately $26.8 million and $7.6 million, respectively, as of December 31, 2010. The Company is a loss corporation as defined in Section 382 of the Internal Revenue Code. Therefore, if certain changes in the Company's ownership should occur, there could be a significant annual limitation on the amount of loss carryforwards and future recognized losses that can be utilized and ultimately some amount
 48    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 10. INCOME TAXES   (continued) of loss carryforwards may not be available. Such changes could result in additional tax provision. The net operating loss carryforwards expire in 2022 through 2030. For the two years ended December 31, 2010, the reported income tax benefit differs from the amount of benefit determined by applying the federal statutory rate of 34% before income taxes as a result of the following (in thousands):  December 31, 2010

          

          December 31, 2009Expected income tax benefit at statutory federal rate

          

          $

          (6,959

          )

          

          $

          (5,032

          )Permanent differences:Non-controlling interest

          

          

          2,170

          

          

          

          229Note premium

          

          

          

          

          

          

          (6

          )Meals and entertainment

          

          

          14

          

          

          

          16Stock-based compensation

          

          

          22

          

          

          

          2Return to provision

          

          

          (20

          )

          

          

          (6

          )State income tax benefit

          

          

          (335

          )

          

          

          (288

          )Tax credits

          

          

          

          

          

          

          (85

          )Other

          

          

          

          

          

          

          (351

          )Income tax benefit

          

          $

          (5,108

          )

          

          $

          (5,521

          )
 The components of deferred tax assets and liabilities consist of the following as of December 31, 2010 and December 31, 2009, respectively (in thousands):  December 31, 2010

          

          December 31, 2009Deferred tax assets:Net operating losses

          

          $

          9,805

          

          

          $

          8,335Built-in gains

          

          

          3,684

          

          

          

          850Intangible assets

          

          

          1,151

          

          

          

          Allowance for bad debts

          

          

          154

          

          

          

          257Stock-based compensation

          

          

          50

          

          

          

          Charitable contributions

          

          

          8

          

          

          

          6Alternative minimum tax

          

          

          85

          

          

          

          85Total deferred tax asset

          

          

          14,937

          

          

          

          9,533Deferred tax liabilities:Straight-line rents receivable

          

          

          (854

          )

          

          

          (717

          )Stock compensation

          

          

          

          

          

          

          (3

          )Total deferred tax liabilities

          

          

          (854

          )

          

          

          (720

          )Net deferred tax asset

          

          $

          14,083

          

          

          $

          8,813
 Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company has assessed, using all available positive and negative evidence, the likelihood that the deferred tax assets will be recovered from future taxable income. An enterprise must use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (i) the more positive evidence is necessary and (ii) the more difficult it is to support a conclusion that a valuation allowance is not
 49    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 10. INCOME TAXES   (continued) needed for some portion, or all, of the deferred tax asset. Among the more significant types of evidence that the Company considered are: that future anticipated property sales will produce more than enough taxable income to realize the deferred tax asset; taxable income projections in future years; and whether the carryforward period is so brief that it would limit realization of tax benefits. The Company has incurred taxable losses for each of the two years ended December 31, 2010 and 2009. The Company expects to sell real estate assets in the future and has determined that it was more likely than not that future taxable income, primarily from gains on the sales of real estate assets, will be sufficient to enable it to realize all of its deferred tax assets. Therefore, for each of the two years ended December 31, 2010 and 2009, no valuation allowance has been recorded. NOTE 11. NET LOSS PER SHARE Net loss per share is calculated based on the weighted average number of common shares outstanding. Stock options outstanding, OP Units and preferred shares have not been included in the net loss per share calculation since their effect on the losses would be antidilutive. Net loss per share for each of the two years ended December 31, 2010 and 2009 is as follows (in thousands, except for shares and per share amounts):  Years Ended December 31,2010

          

          2009Loss from continuing operations

          

          $

          (17,843

          )

          

          $

          (9,492

          )Net loss attributable to non-controlling interests

          

          

          7,795

          

          

          

          1,052Loss from continuing operations attributable to American Spectrum Realty, Inc. common stockholders

          

          

          (10,048

          )

          

          

          (8,440

          )Discontinued operations:Income from discontinued operations

          

          

          173

          

          

          

          300Gain on sale of discontinued operations

          

          

          4,315

          

          

          

          Income tax expense

          

          

          (1,641

          )

          

          

          (110

          )Net income attributable to non-controlling interests

          

          

          (836

          )

          

          

          (22

          )Income from discontinued operations

          

          

          2,011

          

          

          

          168Preferred stock dividend

          

          

          (240

          )

          

          

          (240

          )Net loss attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (8,277

          )

          

          $

          (8,512

          )Basic and diluted per share data:Loss from continuing operations attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (3.45

          )

          

          $

          (3.00

          )Income from discontinued operations attributable to American Spectrum Realty, Inc. common stockholders

          

          

          0.69

          

          

          

          0.06Net loss attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (2.76

          )

          

          $

          (2.94

          )Basic weighted average shares used

          

          

          2,916,145

          

          

          

          2,812,048
 50    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 11. NET LOSS PER SHARE   (continued) The following outstanding preferred shares, employee stock options and OP units that can be converted into common stock on a two for one basis were excluded from the computation of diluted net income per share as they had an anti-dilutive effect:  Year Ended December 31,2010

          

          2009Preferred shares

          

          

          55,172

          

          

          

          55,172Stock Options

          

          

          58,750

          

          

          

          58,750OP Units

          

          

          3,172,675

          

          

          

          744,497Total

          

          

          3,286,597

          

          

          

          858,419
 NOTE 12. SHARE-BASED COMPENSATION Share-based compensation expense is measured at grant date, based on the fair value of the instrument, and is recognized as expense over the requisite service period. The following table sets forth the total share-based compensation expense included in the Companys Consolidated Statements of Operations:  Years Ended December 31,2010

          

          2009(in thousands)General and administrative

          

          

          181

          

          

          

          96Total

          

          $

          181

          

          

          $

          96
 As of December 31, 2010, approximately $0.4 million total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award over the weighted average period of 2.4 years. Valuation Assumptions  The Companys determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Companys stock price as well as assumptions regarding a number of highly complex and subjective variables. No options were granted during the twelve month periods ending December 31, 2010 and 2009. The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the options expected life and the price volatility of the underlying stock. The Companys issued and outstanding stock options for the years ended December 31, 2010 and 2009 are fully vested and expensed. The Company declared and paid cash dividends to common shareholders in 2003 but does not plan to pay cash dividends to common stock shareholders in the foreseeable future. The fair value of each restricted stock award (RSA) is estimated on the date of grant based on the closing price of the Companys stock on the grant date. Share-based compensation expense related to RSAs is recognized over the requisite service period.
 51    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 12. SHARE-BASED COMPENSATION   (continued) Equity Incentive Program The Company grants incentive and nonqualified stock options and RSAs to employees and directors under the Omnibus Stock Incentive Plan (the Plan). Stock options expire 10 years from the date they are granted and generally vest over service periods that range over three years. New shares are issued for options exercised and RSAs released. RSAs give the recipient the right to vote all shares, to receive and retain all cash dividends payable to holders of shares of record on or after the date of issuance and to exercise all other rights, powers and privileges of a holder of Company shares, with the exception that the
recipient may not transfer the shares during the restriction period that lapses over various periods ranging from one to three years. The Company has reserved 360,000 shares under the Plan. As of December 31, 2010 the Plan had issued 177,372 shares. The following table summarizes the combined activity under the equity incentive plans for the indicated periods:  Number ofOptionsOutstanding

          

          WeightedAverage Exercise Price per Share

          

          Number ofRSAs

          

          WeightedAverageGrant-datefair valueper ShareBalances at December 31, 2008

          

          

          58,750

          

          

          $

          11.97

          

          

          

          14,174Granted

          

          

          

          

          

          $

          

          

          

          

          11,500

          

          

          $

          9.67Options Exercised

          

          

          

          

          

          $

          Restricted Stock Award Releases

          

          

          

          

          

          

          

          

          

          

          (5,662

          )Forfeited/Expired

          

          

          

          

          

          $

          Terminated/cancelled

          

          

          

          

          

          

          

          

          

          

          Balances at December 31, 2009

          

          

          58,750

          

          

          $

          11.97

          

          

          

          20,012Granted

          

          

          

          

          

          $

          

          

          

          

          28,500

          

          

          $

          13.76Options Exercised

          

          

          

          

          

          $

          Restricted Stock Award Releases

          

          

          

          

          

          

          

          

          

          

          (9,500

          )Forfeited/Expired

          

          

          

          

          

          $

          Terminated/cancelled

          

          

          

          

          

          

          

          

          

          

          Balances at Dec 31, 2010

          

          

          58,750

          

          

          $

          11.97

          

          

          

          39,012
 The intrinsic value of RSAs was $683,490 as of December 31, 2010. The intrinsic value and the intrinsic value of exercisable in-the-money options was approximately $0.5 million as of December 31, 2010. The aggregate intrinsic value of the options and restricted stock awards outstanding at December 31, 2010 represents the total pretax intrinsic value, based on the Companys closing stock price of $17.52 per share as of December 31, 2010, which would have been received by the grant holders, had all option holders with in-the-money options exercised their options as of that date and if all restricted stock awards were vested as of December
31, 2010.
 52    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 12. SHARE-BASED COMPENSATION   (continued) Options outstanding, vested and currently exercisable by exercise price at December 31, 2010 are as follows:  Exercise Prices

          

          Number Outstanding and Exercisable

          

          Weighted Average Remaining Contractual Term

          

          Weighted Average Exercise Price(in years)$ 4.50

          

          $

          6.10

          

          

          

          25,000

          

          

          

          3.50

          

          

          $

          5.33$ 9.13

          

          $

          13.58

          

          

          

          22,500

          

          

          

          3.90

          

          

          $

          10.32$30.00

          

          $

          30.00

          

          

          

          11,250

          

          

          

          1.04

          

          

          $

          30.00$ 5.40

          

          $

          30.00

          

          

          

          58,750
 Information regarding vested and non vested RSAs for the Plan during the twelve months ending December 31, 2010 is as follows:  Number Outstanding

          

          Weighted Average Grant-date fair value per ShareNon-vested instruments beginning of year

          

          

          20,012

          

          

          $

          10.72Instruments vested during the year

          

          

          9,500

          

          

          $

          11.03Non-vested instruments end of year

          

          

          39,012

          

          

          $

          12.86
 Restricted Stock Awards During the years ended December 31, 2010 and 2009, the Company granted 28,500 and 11,500 restricted stock awards to certain officers and employees, respectively. The value of the restricted stock awards was based on the closing market price of the Companys common stock on the date of each award. The total grant date fair value of the restricted stock awards granted during the twelve months ended December 31, 2010 and 2009 was approximately $0.4 million and $0.1 million, respectively, which will be recognized over the vesting periods ranging from three to five years from the date of grant. NOTE 13. COMMITMENTS AND CONTINGENCIES In February 2010, the Company filed a third party action against its prior insurance carrier, ACE American Insurance Company, in Harris County, Texas, seeking payment under its insurance policy for the damage to 20 buildings in Houston, caused by Hurricane Ike. In March 2010, the insurance carrier filed a lawsuit against the Company in Pennsylvania seeking a declaratory judgment that it owed nothing under the policy. The total claims by the Company for actual damages, business interruption, statutory bad faith damages, interest and attorneys fees exceed $50.0 million. Several experts have been engaged to assist us with our property damage claims. A
valuation consultant has been engaged to assist us with our business interruption claims. In January 2011, a one day mediation was held with respect to the lawsuit and both parties agreed to continue the mediation at a future date. No trial date has been set for this lawsuit. The Company can make no prediction as to the result of such litigation. Certain other claims and lawsuits have arisen against the Company in its normal course of business including lawsuits by creditors with respect to past due accounts payable. The Company believes that such claims and lawsuits will not have a material adverse effect on the Companys financial position, cash flows or results of operations. Some of the Companys notes payable require that the Company maintain minimum cash and tangible net worth. The Company believes that it is in compliance with these requirements.
 53    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 14. PREFERRED STOCK The Company is authorized to issue up to 25.0 million shares of one or more classes or series of preferred stock with a par value of $.01 per share. On December 30, 2008, the Company filed Articles Supplementary to its Articles of Incorporation, which authorized the issuance of 68,965 of Series A Preferred Stock (Preferred Stock). On December 31, 2008, the Company issued 55,172 shares of the Preferred Stock to employees and/or directors Messrs. Carden, Galardi, and Brown (Also see Note 7  Related Party Transactions). Each share of Preferred Stock was sold for $29.00 and is entitled to annual dividends, payable quarterly, at an annual rate of 15%, and to a preference on liquidation equal to the following: (a) if on or prior to December 31, 2011, the sum of $29.00 and any accrued and unpaid dividends or (b) if after December 31, 2011, the greater of (x) the sum of $29.00 and any accrued and unpaid dividends or (y) the amount which would be paid on account of each
share of common stock upon liquidation if each share of Preferred Stock had hypothetically been converted into one share of common stock. The Preferred Stock is not required to be redeemed by the Company and the holders will have no right to require redemption. The Preferred Stock is redeemable at the option of the Company at any time after December 31, 2011. The shares were issued in a private transaction exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended. At of December 31, 2010, the Company had accrued and unpaid dividends on the Preferred Stock of $25,711 or $0.47 per preferred share. NOTE 15. SUBSEQUENT EVENTS On March 2, 2011, the Company filed an action against Evergreen Realty Group, LLC and certain of its affiliates (Evergreen) relating to its acquisition of assets from Evergreen in January 2010. The purchase price of the assets was $18.0 million, subject to adjustment as provided in the purchase agreement, and was paid in the form of (a) the assumption of $0.5 million of payables, (b) the issuance of a $9.5 million promissory note and (c) the issuance of operating partnership units which would be redeemable by Evergreen after June 30, 2011 for a number of shares of the Company's common stock (or, at the Companys option, the cash
equivelant) equal to the quotient obtained by dividing $8.0 million by the greater of the Company's share price or net asset value as of December 31, 2010. In its action, the Company is alleging various offsets and adjustments to the purchase price, as well as defaults by Evergreen, and is seeking damages and a declaration that the principal amount of the promissory note should be reduced to zero, that the operating partnership units should be cancelled and that Evergreen should refund to the Company payments of at least approximately $0.6 million which have been made on the promissory note. On March 7, 2011, New West Realty, Inc. (New West), an affiliate of Evergreen, filed a complaint for damages in Orange County Superior Court against ASR and other related entities. New West alleges in the complaint that ASR has failed to pay amounts due under a promissory note held by New West in the amount of $9.5 million. The Company has subsequently paid all amounts due and payable
under the note and therefore disputes the claim, denies that is obligated under the note and has itself filed a separate lawsuit against New West and others seeking damages in excess of the amount of New Wests claim. In March 2011, the Company entered into a purchase and sale agreement to sell its 7700 Irvine Center property located in Irvine, California. The buyer is currently performing due diligence on the property. The transaction is dependent of loan assumption approval by the mortgage lender on the property. The Company anticipates that the property will be sold in the second quarter of 2011. However, there can be no assurance that this transaction will occur. NOTE 16. RESTATEMENT (UNAUDITED) In connection with reviewing the January 2010 Evergreen transaction, the Company has determined that it should account for the transaction as the acquisition of a business and that several VIEs should have been consolidated at periods through the nine months ended September 30, 2010
 54    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 16. RESTATEMENT (UNAUDITED)   (continued) The following tables summarize the impact of the restatement discussed above on the previously issued Consolidated Financial Statements as of, and for the periods ended March 31, June 30 and Sept 30, 2010 (dollars in thousands except per share data):  As Previously Reported

          

          Adjustment

          

          RestatedStatement of Operations for the Three Months Ended Mar 31, 2010Rental revenue

          

          $

          8,183

          

          

          

          

          

          

          $

          8,183Third party management and transaction revenue

          

          

          1,104

          

          

          

          

          

          

          

          1,104Total revenues

          

          

          9,211

          

          

          

          

          

          

          

          9,211Property operating expense

          

          

          3,625

          

          

          

          

          

          

          

          3,625Depreciation and amortization

          

          

          3,570

          

          

          

          191

          

          

          

          3,761Interest expense

          

          

          3,400

          

          

          

          

          

          

          

          3,400Total expenses

          

          

          12,217

          

          

          

          191

          

          

          

          12,408Deferred income tax benefit

          

          

          1,134

          

          

          

          70

          

          

          

          1,204Net income attributable to non-controlling interests

          

          

          (466

          )

          

          

          32

          

          

          

          (434

          )Net income attributable to American Spectrum Realty, Inc.

          

          

          509

          

          

          

          (89

          )

          

          

          420Net income attributable to American Spectrum Realty, Inc. common stockholders

          

          

          449

          

          

          

          (89

          )

          

          

          360Basic and diluted earnings per share attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          0.18

          

          

          

          (0.03

          )

          

          $

          0.15Statement of Operations for the Three Months Ended June 30, 2010Rental revenue

          

          $

          7,603

          

          

          

          489

          

          

          $

          8,092Third party management and transaction revenue

          

          

          1,221

          

          

          

          (19

          )

          

          

          1,202Total revenues

          

          

          8,837

          

          

          

          470

          

          

          

          9,307Property operating expense

          

          

          3,913

          

          

          

          (3

          )

          

          

          3,910Depreciation and amortization

          

          

          3,579

          

          

          

          496

          

          

          

          4,075Interest expense

          

          

          3,524

          

          

          

          214

          

          

          

          3,738Total expenses

          

          

          13,532

          

          

          

          707

          

          

          

          14,239Deferred income tax benefit

          

          

          1,762

          

          

          

          105

          

          

          

          1,867Net loss attributable to non-controlling interests

          

          

          878

          

          

          

          11

          

          

          

          889Net loss attributable to American Spectrum Realty, Inc.

          

          

          (2,055

          )

          

          

          (121

          )

          

          

          (2,176

          )Net loss attributable to American Spectrum Realty, Inc. common Stockholders

          

          

          (2,115

          )

          

          

          (121

          )

          

          

          (2,236

          )Basic and diluted earnings per share attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (0.70

          )

          

          

          (0.04

          )

          

          $

          (0.74

          )
 55    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 16. RESTATEMENT (UNAUDITED)   (continued)  As Previously Reported

          

          Adjustment

          

          RestatedStatement of Operations for the Six Months Ended Jun 30, 2010Rental revenue

          

          $

          15,786

          

          

          

          489

          

          

          $

          16,275Third party management and transaction revenue

          

          

          2,235

          

          

          

          71

          

          

          

          2,306Total revenues

          

          

          18,048

          

          

          

          470

          

          

          

          18,518Property operating expense

          

          

          7,538

          

          

          

          (3

          )

          

          

          7,535Depreciation and amortization

          

          

          7,149

          

          

          

          687

          

          

          

          7,836Interest expense

          

          

          6,924

          

          

          

          214

          

          

          

          7,138Total expenses

          

          

          25,749

          

          

          

          898

          

          

          

          26,647Deferred income tax benefit

          

          

          2,896

          

          

          

          175

          

          

          

          3,071Net loss attributable to non-controlling interests

          

          

          412

          

          

          

          43

          

          

          

          455Net loss attributable to American Spectrum Realty, Inc.

          

          

          (1,546

          )

          

          

          (210

          )

          

          

          (1,756

          )Net loss attributable to American Spectrum Realty, Inc. common Stockholders

          

          

          (1,666

          )

          

          

          (210

          )

          

          

          (1,876

          )Basic and diluted earnings per share attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (.52

          )

          

          

          (.07

          )

          

          $

          (.59

          )Statement of Operations for the Three Months Ended Sep 30, 2010Rental revenue

          

          $

          8,307

          

          

          

          8,424

          

          

          $

          16,731Third party management and transaction revenue

          

          

          973

          

          

          

          (289

          )

          

          

          684Total revenues

          

          

          9,420

          

          

          

          8,135

          

          

          

          17,555Property operating expense

          

          

          4,703

          

          

          

          2,136

          

          

          

          6,839Depreciation and amortization

          

          

          3,608

          

          

          

          4,146

          

          

          

          7,754Interest expense

          

          

          3,494

          

          

          

          3,318

          

          

          

          6,812Total expenses

          

          

          14,362

          

          

          

          9,600

          

          

          

          23,962Deferred income tax benefit

          

          

          1,697

          

          

          

          105

          

          

          

          1,802Net loss attributable to non-controlling interests

          

          

          1,092

          

          

          

          1,241

          

          

          

          2,333Net loss attributable to American Spectrum Realty, Inc.

          

          

          (2,153

          )

          

          

          (119

          )

          

          

          (2,272

          )Net loss attributable to American Spectrum Realty, Inc. common Stockholders

          

          

          (2,213

          )

          

          

          (119

          )

          

          

          (2,332

          )Basic and diluted earnings per share attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (0.73

          )

          

          

          (.04

          )

          

          $

          (0.77

          )
 56    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 16. RESTATEMENT (UNAUDITED)   (continued)  As Previously Reported

          

          Adjustment

          

          RestatedStatement of Operations for the Nine Months Ended Sep 30, 2010Rental revenue

          

          $

          24,093

          

          

          

          8,913

          

          

          $

          33,006Third party management and transaction revenue

          

          

          3,208

          

          

          

          218

          

          

          

          3,426Total revenues

          

          

          27,468

          

          

          

          8,605

          

          

          

          36,073Property operating expense

          

          

          12,241

          

          

          

          2,133

          

          

          

          14,374Depreciation and amortization

          

          

          10,757

          

          

          

          4,833

          

          

          

          15,590Interest expense

          

          

          10,418

          

          

          

          3,532

          

          

          

          13,950Total expenses

          

          

          40,111

          

          

          

          10,498

          

          

          

          50,609Deferred income tax benefit

          

          

          4,593

          

          

          

          280

          

          

          

          4,873Net loss attributable to non-controlling interests

          

          

          1,504

          

          

          

          1,284

          

          

          

          2,788Net loss attributable to American Spectrum Realty, Inc.

          

          

          (3,699

          )

          

          

          (329

          )

          

          

          (4,028

          )Net loss attributable to American Spectrum Realty, Inc. common Stockholders

          

          

          (3,879

          )

          

          

          (329

          )

          

          

          (4,208

          )Basic and diluted earnings per share attributable to American Spectrum Realty, Inc. common stockholders

          

          $

          (1.27

          )

          

          

          (.09

          )

          

          $

          (1.36

          )Balance Sheet as of March 31, 2010Real estate held for investment

          

          $

          252,375

          

          

          

          21,925

          

          

          $

          274,300Accumulated depreciation

          

          

          (75,673

          )

          

          

          (4

          )

          

          

          (75,677

          )Restricted cash

          

          

          992

          

          

          

          925

          

          

          

          1,917Deferred tax asset

          

          

          8,348

          

          

          

          70

          

          

          

          8,418Investments in unconsolidated real estate assets from related parties

          

          

          

          

          

          

          375

          

          

          

          375Purchased intangibles subject to amortization

          

          

          18,000

          

          

          

          (4,713

          )

          

          

          13,287Goodwill

          

          

          

          

          

          

          4,003

          

          

          

          4,003Prepaid and other assets, net

          

          

          10,956

          

          

          

          940

          

          

          

          118,966Total Assets

          

          

          227,944

          

          

          

          23,521

          

          

          

          251,465Notes payable

          

          

          203,863

          

          

          

          15,234

          

          

          

          219,097Accounts payable

          

          

          6,377

          

          

          

          75

          

          

          

          6,452Accrued and other liabilities

          

          

          8,431

          

          

          

          848

          

          

          

          9,279Total Liabilities

          

          

          220,114

          

          

          

          16,157

          

          

          

          236,271Accumulated deficit

          

          

          (51,963

          )

          

          

          (89

          )

          

          

          (52,052

          )Non-controlling interests

          

          

          11,976

          

          

          

          7,453

          

          

          

          19,429American Spectrum Realty, Inc. stockholders equity (deficit)

          

          

          (5,931

          )

          

          

          (89

          )

          

          

          (6,020

          )Total Equity (Deficit)

          

          

          6,045

          

          

          

          7,364

          

          

          

          13,409Total Liabilities and Equity (Deficit)

          

          $

          227,944

          

          

          

          23,521

          

          

          $

          251,465
 57    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.  Notes to Consolidated Financial Statements NOTE 16. RESTATEMENT (UNAUDITED)   (continued)  As Previously Reported

          

          Adjustment

          

          RestatedBalance Sheet as of June 30, 2010Real estate held for investment

          

          $

          263,359

          

          

          

          322,197

          

          

          $

          585,556Accumulated depreciation

          

          

          (79,238

          )

          

          

          (218

          )

          

          

          (79,456

          )Restricted cash

          

          

          992

          

          

          

          3,371

          

          

          

          4,363Tenant and other receivables, net of allowance for doubtful accounts

          

          

          1,314

          

          

          

          262

          

          

          

          1,576Deferred tax asset

          

          

          10,146

          

          

          

          175

          

          

          

          10,321Investments in unconsolidated real estate assets from related parties

          

          

          1,386

          

          

          

          141

          

          

          

          1,527Purchased intangibles subject to amortization

          

          

          18,000

          

          

          

          (4,994

          )

          

          

          13,006Goodwill

          

          

          

          

          

          

          4,003

          

          

          

          4,003Prepaid and other assets, net

          

          

          11,803

          

          

          

          4,673

          

          

          

          16,476Total Assets

          

          

          239,867

          

          

          

          329,610

          

          

          

          569,477Notes payable

          

          

          214,663

          

          

          

          226,725

          

          

          

          441,388Accounts payable

          

          

          6,125

          

          

          

          3,227

          

          

          

          9,352Accrued and other liabilities

          

          

          9,132

          

          

          

          1,565

          

          

          

          10,697Total Liabilities

          

          

          231,287

          

          

          

          231,517

          

          

          

          462,804Accumulated deficit

          

          

          (54,018

          )

          

          

          (210

          )

          

          

          (54,228

          )Non-controlling interests

          

          

          16,600

          

          

          

          98,303

          

          

          

          114,903American Spectrum Realty, Inc. stockholders equity (deficit)

          

          

          (8,020

          )

          

          

          (210

          )

          

          

          (8,230

          )Total Equity (Deficit)

          

          

          8,580

          

          

          

          98,093

          

          

          

          106,673Total Liabilities and Equity (Deficit)

          

          $

          239,867

          

          

          

          329,610

          

          

          $

          569,477Balance Sheet as of September 30, 2010Real estate held for investment

          

          $

          280,033

          

          

          

          338,471

          

          

          $

          618,504Accumulated depreciation

          

          

          (82,344

          )

          

          

          (4,084

          )

          

          

          (86,428

          )Restricted cash

          

          

          992

          

          

          

          2,908

          

          

          

          3,900Tenant and other receivables, net of allowance for doubtful accounts

          

          

          1,223

          

          

          

          515

          

          

          

          1,738Deferred tax asset

          

          

          11,883

          

          

          

          280

          

          

          

          12,163Investments in unconsolidated real estate assets from related parties

          

          

          142

          

          

          

          129

          

          

          

          271Purchased intangibles subject to amortization

          

          

          18,000

          

          

          

          (5,275

          )

          

          

          12,725Goodwill

          

          

          

          

          

          

          4,003

          

          

          

          4,003Prepaid and other assets, net

          

          

          12,821

          

          

          

          5,860

          

          

          

          18,681Total Assets

          

          

          253,736

          

          

          

          342,807

          

          

          

          596,543Notes payable

          

          

          221,187

          

          

          

          240,509

          

          

          

          461,696Accounts payable

          

          

          8,408

          

          

          

          4,315

          

          

          

          12,723Accrued and other liabilities

          

          

          11,008

          

          

          

          1,168

          

          

          

          12,176Total Liabilities

          

          

          242,298

          

          

          

          245,992

          

          

          

          488,290Accumulated deficit

          

          

          (56,171

          )

          

          

          (329

          )

          

          

          (56,500

          )Non-controlling interests

          

          

          21,641

          

          

          

          97,144

          

          

          

          118,785American Spectrum Realty, Inc. stockholders equity (deficit)

          

          

          (10,203

          )

          

          

          (329

          )

          

          

          (10,532

          )Total Equity (Deficit)

          

          

          11,438

          

          

          

          96,815

          

          

          

          108,253Total Liabilities and Equity (Deficit)

          

          $

          253,736

          

          

          

          342,807

          

          

          $

          596,543
 58    TABLE OF CONTENTS ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. Controls and Procedures Our Chief Executive Officer and Chief Financial Officer, are responsible for evaluating the effectiveness of the Companys disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this annual report. Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Securities Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. As of the
date of this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports our Company files and submits under the Securities Exchange Act is recorded, processed, summarized and reported as and when required. Managements Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Companys principal executive, principal accounting and principal financial officers, or persons performing similar functions, and effected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. The Companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Companys assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Companys management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Companys management, including the Companys Chief Executive Officer and Principal Financial Officer assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2010. In making this assessment, management used the framework in Internal Control  Integrated Framework promulgated by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the COSO criteria. Based on the assessment performed, management believes that as of December 31, 2010, the Companys internal control over financial reporting was effective
based upon the COSO criteria. Additionally, based on managements assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2010, except as reported below.
 59    TABLE OF CONTENTS This Annual Report does not include an attestation report of the Companys independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only managements report in this Annual Report. Changes in Internal Controls As discussed elsewhere in this 10-K, based on comments we received from the Securities and Exchange Commission on our Annual Report on Form 10-K for 2009 and our subsequent Quarterly Reports on Form 10-Q and subsequent discussions with the Commission, we have restated our condensed consolidated financial statements for the interim periods ending March 31, 2010, June 30, 2010 and September 30, 2010. The restatements reflect changes in our reporting of a business combination (which had previously been reported as an acquisition of assets) and changes in our accounting for certain interests which we have now determined to be variable interest entities.
We believe that our initial reporting was based on a good faith reliance on expert advice which we now believe to have been in error. After our receipt of the comments and in connection with managements ongoing assessment of internal controls over financial reporting, the Companys Chief Executive Officer and Chief Financial Officer undertook a special evaluation of the effectiveness of the Companys internal control over financial reporting. As a result of their assessment, the Companys Chief Executive Officer and Chief Financial Officer identified a material weakness in the Companys internal control over financial reporting, in connection with accounting for business combinations and variable interest entities. The Companys management intends to
take all necessary steps to address this material weakness. Management approved a resolution to enhance verification of accounting treatment for business combinations and variable interest entities in the future, by retaining new expert consultants to review its accounting treatments, to more fully involve its Audit Committee in communicating with such expert consultants and to carefully validate that such treatments are in full alignment with U.S. GAAP. The Company believes that these remedial actions will improve the Companys internal controls over financial reporting and are sufficient to remediate the material weakness described above. ITEM 9B. OTHER INFORMATION None.
 60    TABLE OF CONTENTS PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 is incorporated by reference from the Companys definitive proxy statement to be filed on or before April 30, 2011 for its annual stockholders meeting. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the Companys definitive proxy statement to be filed on or before April 30, 2011 for its annual stockholders meeting. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is incorporated by reference from the Companys definitive proxy statement to be filed on or before April 30, 2011 for its annual stockholders meeting. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is incorporated by reference from the Companys definitive proxy statement to be filed on or before April 30, 2011 for its annual stockholders meeting. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is incorporated by reference from the Companys definitive proxy statement to be filed on or before April 30, 2011 for its annual stockholders meeting.
 61    TABLE OF CONTENTS PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) 1. Consolidated Financial Statements and Supplementary Data The following financial statements are included herein under Item 8 of this report:  Page No.Report of Independent Registered Public Accounting Firm





26Consolidated Balance Sheets at December 31, 2010 and 2009





28Consolidated Statements of Operations for the years ended December 31, 2010 and 2009





29Consolidated Statements of Equity (Deficit) for the years ended December 31, 2010 and 2009





30Consolidated Statements of Equity (Deficit) and Non-Controlling Interest for the years ended December 31, 2010 and 2009





30Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009





31Notes to Consolidated Financial Statements





32(2)Financial Statement SchedulesSchedule II  Valuation and Qualifying Accounts





63Schedule III  Real Estate and Accumulated Depreciation





64(3)Exhibits to Financial Statements
 On October 12, 2010, a report on Form 8-K was filed with respect to Item 8.01. On November 23, 2010, a report on Form 8-K was filed with respect to Item 8.01. (b) Exhibits The Exhibit Index attached hereto is hereby incorporated by reference to this Item.
 62    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.   SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)  Description

          

          Balance at Beginning of Year

          

          Additions Charged to Costs and Expenses

          

          Deductions

          

          Balance at End of YearYear Ended December 31, 2010Allowance for loss on purchased intangibles(1)

          

          $

          

          

          

          $

          3,387

          

          

          $

          

          

          

          $

          3,387Year Ended December 31, 2009Allowance for loss on purchased intangibles

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          Year Ended December 31, 2010Allowance for doubtful accounts

          

          $

          701

          

          

          $

          703

          

          

          $

          983

          

          

          $

          421Year Ended December 31, 2009Allowance for doubtful accounts

          

          $

          371

          

          

          $

          932

          

          

          $

          602

          

          

          $

          701
  (1)

          Impairment expense of $3,387 related to purchased intangibles where the Companys contractual relationships were terminated or modified by some of the entities that owned some of the third party properties it managed.
 63    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.   SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION   DECEMBER 31, 2010 (Dollars in thousands)  COLUMN A

          

          COLUMN B

          

          COLUMN C

          

          COLUMN D

          

          COLUMN EINITIAL COST TO COMPANY(1)

          

          COST CAP. SUBSEQ. TO ACQ(2)

          

          GROSS AMOUNT CARRIED AT DECEMBER 31, 2010(3)DESCRIPTION

          

          ENCUMB.

          

          LAND

          

          BLDS & IMPR

          

          IMPR.

          

          LAND

          

          BLDS & IMPR

          

          TOTALReal Estate Held for InvestmentCreekside

          

          

          5,747

          

          

          

          2,790

          

          

          

          6,460

          

          

          

          508

          

          

          

          2,790

          

          

          

          6,968

          

          

          

          9,758Bristol Bay

          

          

          6,792

          

          

          

          1,620

          

          

          

          7,880

          

          

          

          1,618

          

          

          

          1,620

          

          

          

          9,498

          

          

          

          11,118Daimler Chrysler

          

          

          45,000

          

          

          

          9,150

          

          

          

          40,390

          

          

          

          5,748

          

          

          

          9,150

          

          

          

          46,138

          

          

          

          55,288Northwest

          

          

          5,312

          

          

          

          1,550

          

          

          

          5,230

          

          

          

          2,071

          

          

          

          1,550

          

          

          

          7,301

          

          

          

          8,85116350 Park Ten

          

          

          4,886

          

          

          

          1,174

          

          

          

          5,324

          

          

          

          669

          

          

          

          1,174

          

          

          

          5,993

          

          

          

          7,16716360 Park Ten

          

          

          3,829

          

          

          

          900

          

          

          

          4,192

          

          

          

          827

          

          

          

          900

          

          

          

          5,019

          

          

          

          5,919800 Sam Houston

          

          

          2,264

          

          

          

          1,000

          

          

          

          1,121

          

          

          

          738

          

          

          

          1,000

          

          

          

          1,859

          

          

          

          2,859888 Sam Houston

          

          

          2,264

          

          

          

          500

          

          

          

          892

          

          

          

          474

          

          

          

          500

          

          

          

          1,366

          

          

          

          1,8665450 NW Central

          

          

          2,585

          

          

          

          854

          

          

          

          2,622

          

          

          

          771

          

          

          

          854

          

          

          

          3,393

          

          

          

          4,24712000 Westheimer

          

          

          4,203

          

          

          

          1,878

          

          

          

          2,432

          

          

          

          1,424

          

          

          

          1,878

          

          

          

          3,856

          

          

          

          5,7348100 Washington

          

          

          2,156

          

          

          

          600

          

          

          

          2,317

          

          

          

          590

          

          

          

          600

          

          

          

          2,907

          

          

          

          3,5078300 Bissonnet

          

          

          4,484

          

          

          

          1,400

          

          

          

          3,990

          

          

          

          517

          

          

          

          1,400

          

          

          

          4,507

          

          

          

          5,907Pacific Spectrum

          

          

          5,191

          

          

          

          1,460

          

          

          

          6,880

          

          

          

          1,869

          

          

          

          1,460

          

          

          

          8,749

          

          

          

          10,20911500 NW Frwy

          

          

          4,298

          

          

          

          2,278

          

          

          

          3,621

          

          

          

          607

          

          

          

          2,278

          

          

          

          4,228

          

          

          

          6,5066677 Gessner

          

          

          8,545

          

          

          

          2,375

          

          

          

          9,504

          

          

          

          3

          

          

          

          2,375

          

          

          

          9,507

          

          

          

          11,8822855 Mangum

          

          

          3,915

          

          

          

          2,134

          

          

          

          3,300

          

          

          

          269

          

          

          

          2,134

          

          

          

          3,569

          

          

          

          5,703Gray Falls

          

          

          3,064

          

          

          

          670

          

          

          

          1,956

          

          

          

          395

          

          

          

          670

          

          

          

          2,351

          

          

          

          3,0212401 Fountainview

          

          

          11,967

          

          

          

          3,500

          

          

          

          13,451

          

          

          

          1,053

          

          

          

          3,500

          

          

          

          14,504

          

          

          

          18,0041501 Mockingbird

          

          

          3,189

          

          

          

          1,000

          

          

          

          3,583

          

          

          

          81

          

          

          

          1,000

          

          

          

          3,664

          

          

          

          4,6646420 Richmond

          

          

          6,286

          

          

          

          3,384

          

          

          

          3,039

          

          

          

          367

          

          

          

          3,384

          

          

          

          3,406

          

          

          

          6,7906430 Richmond

          

          

          2,127

          

          

          

          1,645

          

          

          

          2,116

          

          

          

          308

          

          

          

          1,645

          

          

          

          2,424

          

          

          

          4,069Fountainview Office

          

          

          13,392

          

          

          

          6,900

          

          

          

          9,612

          

          

          

          453

          

          

          

          6,900

          

          

          

          10,065

          

          

          

          16,9652620  2630 Fountain

          

          

          5,350

          

          

          

          5,300

          

          

          

          1,868

          

          

          

          2

          

          

          

          5,300

          

          

          

          1,870

          

          

          

          7,170Office Total

          

          

          156,846

          

          

          

          54,062

          

          

          

          141,780

          

          

          

          21,362

          

          

          

          54,062

          

          

          

          163,142

          

          

          

          217,204Southwest Pointe

          

          

          2,671

          

          

          

          1,800

          

          

          

          1,530

          

          

          

          538

          

          

          

          1,800

          

          

          

          2,068

          

          

          

          3,868Morenci

          

          

          1,632

          

          

          

          790

          

          

          

          2,680

          

          

          

          141

          

          

          

          790

          

          

          

          2,849

          

          

          

          3,639Technology

          

          

          7,091

          

          

          

          580

          

          

          

          9,360

          

          

          

          144

          

          

          

          580

          

          

          

          9,504

          

          

          

          10,0848 Centre

          

          

          2,820

          

          

          

          1,711

          

          

          

          2,297

          

          

          

          86

          

          

          

          1,711

          

          

          

          2,383

          

          

          

          4,094Beltway Industrial

          

          

          17,170

          

          

          

          3,829

          

          

          

          14,764

          

          

          

          298

          

          

          

          3,829

          

          

          

          15,062

          

          

          

          18,891Industrial Total

          

          

          31,384

          

          

          

          8,710

          

          

          

          30,631

          

          

          

          1,207

          

          

          

          8,710

          

          

          

          31,866

          

          

          

          40,576Windrose

          

          

          2,612

          

          

          

          1,100

          

          

          

          2,440

          

          

          

          232

          

          

          

          1,100

          

          

          

          2,672

          

          

          

          3,772Retail Ctr Total

          

          

          2,612

          

          

          

          1,100

          

          

          

          2,440

          

          

          

          232

          

          

          

          1,100

          

          

          

          2,672

          

          

          

          3,772Sabo Road

          

          

          1,974

          

          

          

          535

          

          

          

          1,696

          

          

          

          520

          

          

          

          535

          

          

          

          2,216

          

          

          

          2,751Self Storage Total

          

          

          1,974

          

          

          

          535

          

          

          

          1,696

          

          

          

          520

          

          

          

          535

          

          

          

          2,216

          

          

          

          2,751Campus Court

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Apartments Total

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          ASR, Inc.  FF&E

          

          

          

          

          

          

          

          

          

          

          138

          

          

          

          460

          

          

          

          

          

          

          

          598

          

          

          

          598FF&E Total

          

          

          

          

          

          

          

          

          

          

          138

          

          

          

          460

          

          

          

          

          

          

          

          598

          

          

          

          598Combined Total

          

          

          192,816

          

          

          

          64,407

          

          

          

          176,685

          

          

          

          23,781

          

          

          

          64,407

          

          

          

          200,494

          

          

          

          264,901Corporate

          

          

          21,227ASR owned totals

          

          

          214,043

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          64,407

          

          

          

          200,494

          

          

          

          264,901VIE totals Note 3

          

          

          268,776

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          381,353Balance Sheet

          

          

          482,819

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          646,254
 64    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY, INC.   SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION   DECEMBER 31, 2010 (dollars in thousands)  COLUMN A

          

          COLUMN F

          

          COLUMN G

          

          COLUMN H

          

          COLUMN IDescription

          

          Accumulated Depreciation

          

          Date of Construction

          

          Date Acquired

          

          Life on which depreciation in latest income statements is computedOffice Properties:Creekside, CA

          

          

          3,782

          

          

          

          1984

          

          

          

          2001

          

          

          

          5  40Bristol Bay, CA

          

          

          5,095

          

          

          

          1988

          

          

          

          2001

          

          

          

          5  407700 Irvine Center, CA

          

          

          25,934

          

          

          

          1989

          

          

          

          2001

          

          

          

          5  40Northwest Corporate Center, MO

          

          

          3,879

          

          

          

          1983  1987

          

          

          

          2001

          

          

          

          5  4016350 Park Ten, TX

          

          

          3,129

          

          

          

          1979

          

          

          

          2002

          

          

          

          5  4016360 Park Ten, TX

          

          

          2,615

          

          

          

          1981

          

          

          

          2002

          

          

          

          5  40800 Sam Houston Parkway, TX

          

          

          989

          

          

          

          1980

          

          

          

          2004

          

          

          

          5  40888 Sam Houston Parkway, TX

          

          

          803

          

          

          

          1979

          

          

          

          2002

          

          

          

          5  405450 Northwest Central, TX

          

          

          1,548

          

          

          

          1979

          

          

          

          2003

          

          

          

          5  4012000 Westheimer, TX

          

          

          1,863

          

          

          

          1981

          

          

          

          2003

          

          

          

          5  408100 Washington, TX

          

          

          1,200

          

          

          

          1980

          

          

          

          2003

          

          

          

          5  408300 Bissonnet, TX

          

          

          1,898

          

          

          

          1981

          

          

          

          2003

          

          

          

          5  40Pacific Spectrum, AZ

          

          

          5,118

          

          

          

          1986

          

          

          

          2001

          

          

          

          5  4011500 NW Freeway, TX

          

          

          1,673

          

          

          

          1983

          

          

          

          2004

          

          

          

          5  4014741 Yorktown, TX

          

          

          2,665

          

          

          

          1996

          

          

          

          2006

          

          

          

          5  402855 Mangum, TX

          

          

          1,177

          

          

          

          1979

          

          

          

          2006

          

          

          

          5  402470 Gray Falls Drive, TX

          

          

          947

          

          

          

          1983

          

          

          

          2006

          

          

          

          5  402401 Fountain View, TX

          

          

          4,508

          

          

          

          1980

          

          

          

          2006

          

          

          

          5  401501 Mockingbird, TX

          

          

          994

          

          

          

          1981

          

          

          

          2006

          

          

          

          5  406420 Richmond Atrium, TX

          

          

          966

          

          

          

          1979

          

          

          

          2006

          

          

          

          5  406430 Richmond Atrium, TX

          

          

          722

          

          

          

          1974

          

          

          

          2006

          

          

          

          5  40Fountain View Place, TX

          

          

          1,722

          

          

          

          1979

          

          

          

          2008

          

          

          

          5  402620  2630 Fountain View, TX

          

          

          23

          

          

          

          1976

          

          

          

          2010

          

          

          

          5  40Office Total

          

          $

          73,250Industrial Properties:Southwest Point, TX

          

          

          1,121

          

          

          

          1972

          

          

          

          2001

          

          

          

          5  40Morenci, Professional Park, IN

          

          

          1,449

          

          

          

          1975  1979

          

          

          

          2001

          

          

          

          5  40Technology, TX

          

          

          4,400

          

          

          

          1986

          

          

          

          2001

          

          

          

          5  40Beltway Industrial, TX

          

          

          3,372

          

          

          

          1999

          

          

          

          2007

          

          

          

          5  40Northwest Spectrum, TX

          

          

          729

          

          

          

          2004

          

          

          

          2007

          

          

          

          5  25Industrial Total

          

          $

          11,071Retail Properties:Windrose, TX

          

          

          837

          

          

          

          2005

          

          

          

          2007

          

          

          

          5  25Retail Total

          

          $

          837Self-Storage Property:Sabo Road, TX

          

          

          39

          

          

          

          2006

          

          

          

          2010

          

          

          

          39Self-Storage Total

          

          $

          39

          

          

          

          

          

          

          

          

          

          

          

          39Development Land and Other:11755 West Little York, TX

          

          

          

          

          

          

          

          

          

          

          2007

          

          

          

          N/AAmerican Spectrum Realty  FF&E

          

          

          447

          

          

          

          

          

          

          

          

          

          

          

          3  5Other Total

          

          $

          447Combined Total

          

          $

          85,644
  (1)

          Initial cost and date acquired, where applicable. (2)

          Costs capitalized are offset by retirements and write-offs. (3)

          The aggregate cost for federal income tax purposes is $164,852.
 65    TABLE OF CONTENTS AMERICAN SPECTRUM REALTY INC.   SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION   December 31, 2010 (Dollars in thousands) Reconciliation of gross amount at which real estate was carried for the years ended December 31:  2010

          

          2009Rental Property:Balance at beginning of year

          

          $

          251,336

          

          

          $

          249,651Additions during year:Property acquisitions and additions

          

          

          13,565

          

          

          

          1,685Retirements

          

          

          

          

          

          

          Balance at end of year

          

          $

          264,901

          

          

          $

          251,336Accumulated Depreciation:Balance at beginning of year

          

          $

          72,404

          

          

          $

          59,160Additions during year:Depreciation

          

          

          13,240

          

          

          

          13,244Retirements

          

          

          

          

          

          

          Balance at end of year

          

          $

          85,644

          

          

          $

          72,404
 66    TABLE OF CONTENTS SIGNATURES Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  AMERICAN SPECTRUM REALTY INCBy:American Spectrum Realty Inc.,Date: March 31, 2011

          

          /s/ William J. CardenWilliam J. CardenChairman of the Board, President and Chief Executive Officer(Principal Executive Officer)Date: March 31, 2011

          

          /s/ G. Anthony EppolitoG. Anthony EppolitoVice President, Chief Financial Officer(Principal Financial and Accounting Officer),Treasurer and SecretaryDate: March 31, 2011

          

          /s/ Timothy R. BrownTimothy R. BrownDirectorDate: March 31, 2011

          

          /s/ William W. Geary, Jr.William W. Geary, Jr.DirectorDate: March 31, 2011

          

          /s/ Presley E. Werlein, IIIPresley E. Werlein, IIIDirectorDate: March 31, 2011

          

          /s/ John N. GalardiJohn N. GalardiDirector
 67    TABLE OF CONTENTS EXHIBIT INDEX  Exhibit No.

          

          Exhibit Title3.1

          

          Form of Amended and Restated Articles of Incorporation of the Company(1)3.2

          

          Bylaws of the Company(1)3.3

          

          Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.01 to the Companys Form 10-Q for the quarter ended June 30, 20023.4

          

          Articles of Amendment of the Company are incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 20033.5

          

          Articles of Amendment of the Company are incorporated herein by reference to the Companys Form 10-Q for the quarter ended March 31, 20063.6

          

          Articles Supplementary for 15% Cumulative Preferred Stock, Series A of the Company dated December 30, 2008 are incorporated herein by reference to the Companys Form 8-K filed January 8, 20094.1

          

          Form of Stock Certificate(1)10.1

          

          Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund(1)10.2

          

          Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund II(1)10.3

          

          Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund III(1)10.4

          

          Form of Agreement and Plan of Merger of Sierra Pacific Pension Investors 84(1)10.5

          

          Form of Agreement and Plan of Merger of Sierra Pacific Institutional Properties V(1)10.6

          

          Form of Agreement and Plan of Merger of Nooney Income Fund Ltd., L.P.(1)10.7

          

          Form of Agreement and Plan of Merger of Nooney Income Fund Ltd., L.P.(1)10.8

          

          Form of Agreement and Plan of Merger of Nooney Real Property Investors  Two, L.P.(1)10.9

          

          Omnibus Stock Incentive Plan(1)10.10

          

          Agreement of Limited Partnership of American Spectrum Realty Operating Partnership, L.P.(1)10.11

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and CGS Properties (Mkt./Col.), L.P.(1)10.12

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and Creekside/Riverside, L.L.C.(1)10.13

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and McDonnell Associates, L.L.C.(1)10.14

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and Pacific Spectrum, L.L.C.(1)10.15

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and Pasadena Autumn Ridge L.P.(1)10.16

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and Seventy Seven, L.L.C.(1)10.17

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and Villa Redondo L.L.C.(1)10.18

          

          Agreement and Plan of Merger, dated August 6, 2000, between the Company and Third Coast L.L.C.(1)10.19

          

          Agreement and Plan of Contribution, dated August 6, 2000, between the Company and No.-So., Inc.(1)10.20

          

          Form of Restricted Stock Agreement(1)10.21

          

          Form of Stock Option Agreement (Incentive Stock Options)(1)10.22

          

          Form of Stock Option Agreement (Directors)(1)
 68    TABLE OF CONTENTS Exhibit No.

          

          Exhibit Title10.23

          

          Form of Stock Option Agreement (Non-Qualified Options)(1)10.24

          

          Form of Indenture Relating to Notes(1)10.25

          

          Contribution Agreement, dated May 31, 2000, between the Company and CGS Real Estate Company, Inc.(1)10.26

          

          Contribution Agreement, dated May 31, 2000, between the Company and American Spectrum Real Estate Services, Inc.(1)10.27

          

          Agreement and Plan of Merger, dated May 31, 2001, between the Company and Lindbergh Boulevard Partners (Lindbergh), L.P.(1)10.28

          

          Agreement and Plan of Merger, dated May 31, 2001, between the Company and Nooney Rider Trail L.L.C.(1)10.29

          

          Agreement and Plan of Merger, dated May 31, 2001, between the Company and Back Bay L.L.C.(1)10.30

          

          Contribution Agreement, dated May 31, 2001, between American Spectrum Realty Management, Inc. and CGS Real Estate Company, Inc., American Spectrum  Midwest, American Spectrum  Arizona, American Spectrum  California and American Spectrum   Texas, Inc.(1)10.31

          

          Amendment of Agreement Plan of Merger between the Company and Villa Redondo L.L.C. is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200110.32

          

          Amendment of Agreement Plan of Merger between the Company and Pasadena Autumn Ridge, L.P. is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200110.33

          

          Amendment of Agreement Plan of Merger between the Company and Third Coast L.L.C. is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200110.34

          

          Registration Rights Agreement between the Company, the Operating Partnership, and other parties is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200110.35

          

          Employment Agreement dated October 15, 2001 between the Company and Harry A. Mizrahi is incorporated herein by reference to Exhibit 10.01 to the Companys Form 10-Q for the quarter ended March 31, 200210.36

          

          Employment Agreement dated April 3, 2002 between the Company and Paul E. Perkins is incorporated herein by reference to Exhibit 10.02 to the Companys Form 10-Q for the quarter ended March 31, 200210.37

          

          Employment Agreement dated April 16, 2002 between the Company and Patricia A. Nooney is incorporated herein by reference to Exhibit 10.03 to the Companys Form 10-Q for the quarter ended March 31, 200210.38

          

          Employment Agreement dated September 1, 2002 between the Company and Thomas N. Thurber is incorporated herein by reference to Exhibit 10.04 to the Companys Form 10-Q for the quarter ended June 30, 2002 (Exhibits pursuant to the Agreement have not been filed by the Company, who hereby undertakes to file such exhibits upon the request of the SEC)10.39

          

          Employment Agreement dated October 15, 2001 between the Company and William J. Carden is incorporated herein by reference to Exhibit 10.5 to the Companys Form 10-Q for the quarter ended September 30, 200210.40

          

          Letter Agreement dated February 25, 2003 between the Company and William J. Carden and John N. Galardi is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2002
 69    TABLE OF CONTENTS Exhibit No.

          

          Exhibit Title10.41

          

          Letter Agreement dated February 25, 2003 between the Company and CGS Real Estate Company, Inc. is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200210.42

          

          Letter Agreement dated February 25, 2003 between the Company and William J. Carden and John N. Galardi is incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200210.43

          

          Amendment No. 1 to Employment Agreement dated October 6, 2003 between the Company and Patricia A. Nooney incorporated herein by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 200310.44

          

          Purchase Agreement dated December 15, 2009 between the Company and Evergreen Parties incorporated herein by reference to the Companys Annual Report on Form 10-K/A for the year ended December 31, 200910.45

          

          Letter Agreement to Purchase Agreement dated December 18, 2009 between the Company and Evergreen Parties (First Amendment to Purchase Agreement) incorporated herein by reference to the Companys Annual Report on Form 10-K/A for the year ended December 31, 200910.46

          

          Second Amendment to Purchase Agreement dated January 17, 2010 between the Company and Evergreen Parties incorporated herein by reference to the Companys Annual Report on Form 10-K/A for the year ended December 31, 200921

          

          Significant Subsidiaries of the Company23.1

          

          EEPB, PC Consent  Form 10-K23.2

          

          Hein & Associates, LLP Consent  Form 10-K31.1

          

          Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act31.2

          

          Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32.1

          

          Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

          

          Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  (1)

          Incorporated herein by reference to the Companys Registration Statement on Form S-4 (Registration No. 333-43686), which became effective August 8, 2001.
 70    TABLE OF CONTENTS SUBSIDIARIES OF THE COMPANY  Corporations

          

          State of OrganizationAmerican Spectrum Management Group, Inc.

          

          DelawareLimited PartnershipsAmerican Spectrum Realty Operating Partnership, L.P.

          

          DelawareASR Park Ten 350, L.P.

          

          TexasASR Park Ten 360, L.P.

          

          TexasASR 2401 Fountainview, L.P

          

          DelawareASR 2620-2630 Fountainview, LP

          

          DelawareASR 5450 NW, L.P.

          

          DelawareASR 5850 San Felipe, L.P.

          

          DelawareASR 6677 Gessner, L.P.

          

          DelawareASR 11500 NW, L.P.

          

          DelawareASR Washington, L.P.

          

          TexasASR-8 Centre, L.P.

          

          DelawareASR-1501 Mockingbird, L.P.

          

          DelawareASR-2855 Mangum, L.P.

          

          DelawareASR-6420 Richmond Atrium, L.P.

          

          DelawareASR-6430 Richmond Atrium, L.P.

          

          DelawareASR-Beltway Industrial, L.P.

          

          DelawareASR-Fountain View Place, L.P.

          

          DelawareASR-Parkway One & Two, L.P.

          

          DelawareASR-West Gray, L.P.

          

          DelawareASR-Windrose, L.P.

          

          DelawareNooney Rider Trail, L.P.

          

          DelawareSierra Pacific Development Fund II, L.P.

          

          DelawareSabo Road Acquisitions, LP

          

          DelawareLimited Liability CompaniesAmerican Spectrum Holdings (Washington), LLC

          

          DelawareAmerican Spectrum Investments, LLC

          

          DelawareAmerican Spectrum Realty Advisors, LLC

          

          DelawareAmerican Spectrum Realty Management, LLC

          

          DelawareAmerican Spectrum Realty-1501 Mockingbird, LLC

          

          DelawareAmerican Spectrum Realty-2855 Mangum, LLC

          

          DelawareAmerican Spectrum Realty-6420 Richmond Atrium, LLC

          

          DelawareAmerican Spectrum Realty-6430 Richmond Atrium, LLC

          

          DelawareAmerican Spectrum Realty 5850 San Felipe, LLC

          

          DelawareAmerican Spectrum Realty 5450 NW, LLC

          

          DelawareAmerican Spectrum Realty 11500 NW, LLC

          

          DelawareAmerican Spectrum Realty-8 Centre, LLC

          

          DelawareAmerican Spectrum Realty-1501 Mockingbird, LLC

          

          Delaware
 71    TABLE OF CONTENTS Corporations

          

          State of OrganizationAmerican Spectrum Realty-6420 Richmond, LLC

          

          DelawareAmerican Spectrum Realty-6430 Richmond, LLC

          

          DelawareAmerican Spectrum Realty-Beltway Industrial, LLC

          

          DelawareAmerican Spectrum Realty-Fountain View Place, LLC

          

          DelawareAmerican Spectrum Realty-Parkway One & Two, LLC

          

          DelawareAmerican Spectrum Realty-Windrose, LLC

          

          DelawareASR 2401 Fountainview, LLC

          

          DelawareASR 2620-2630 Fountainview GP, LLC

          

          DelawareASR 6677 Gessner, LLC

          

          DelawareASR Centennial Park, LLC

          

          DelawareASR-Newport, L.L.C.

          

          DelawareASR NRT, LLC

          

          DelawareASR-Risk Management, L.L.C.

          

          DelawareASR-West Gray, LLC

          

          DelawareBack Bay, LLC

          

          DelawareCentennial Park Kansas, LLC

          

          DelawareMcDonnell Associates, LLC

          

          DelawareNooney Income Fund II, LLC

          

          DelawareNooney Real Property Investors Two, LLC

          

          DelawarePacific Spectrum, LLC

          

          ArizonaSabo Road Manager, LLC

          

          DelawareSeventy Seven, LLC

          

          DelawareSierra Creekside, LLC

          

          DelawareSierra Pacific Development Fund II, LLC

          

          DelawareSierra Pacific Development Fund, LLC

          

          DelawareSierra Southwest Pointe, LLC

          

          DelawareTampa Ocala Acquisitions, LLC

          

          DelawarePartnershipsSierra Creekside Partners

          

          CaliforniaSierra Mira Mesa Partners

          

          California
 72