**UNITED      STATES SECURITIES AND EXCHANGE      COMMISSIONWashington, D.C. 20549**

**FORM      10-Q**

| **(Mark                One)**                                                                 |        |
|-----------------------------------------------------------------------------------------------|--------|
| **þ**                                                                                    |   | **QUARTERLY              REPORT              PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF              1934** |
| **For                the quarterly period ended September 30,                2006**           |
|                                                                                          |   |   |
| **OR**                                                                                        |
|                                                                                          |   |   |
| **o**                                                                                         |   | **TRANSITION              REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT              OF              1934** |
| For                the transition period from ______________ to                ______________ |

| Maryland** **                                                                          |   | 20-3164488                                                         |
|---------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|
| (State                or other jurisdiction ofincorporation or                organization) |   | (I.R.S.                Employer Identification                No.) |

| 7                Bulfinch Place, Suite 500, Boston, MA             |   | 02114-9507                    |
|-------------------------------------------------------------------------|--------|-------------------------------|
| (Address                of principal executive offices)                 |   | (Zip                Code)     |
|                                                                    |   |                          |
| Registrant’s                telephone number, including area code |   | (617)                570-4680 |

----

|                                         |                                                                                                                                                                                                                                                                                                                                                                  | Page   |
|----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                         |
| Part                I. FINANCIAL INFORMATION |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Item              1. Financial Statements                                                                                                                                                                                                                                                                                                                             |   |   |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |
|                                         |              Unaudited              Consolidated Balance Sheet at September 30,              2006              and             Consolidated Balance Sheet at December              31, 2005                                         |   | 3 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |
|                                         |              Unaudited              Consolidated Statements of Operations and Comprehensive              Income             for the Three and Nine Months Ended              September 30, 2006 and              September 30, 2005 |   | 4 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |
|                                         |              Unaudited              Consolidated Statement of Stockholders’ Equity for              the             Nine Months Ended September 30, 2006                                                                      |   | 5 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |
|                                         |              Unaudited              Consolidated Statements of Cash Flows for the              Nine             Months Ended September 30, 2006 and              September 30,              2005                                    |   | 6 |   |
|                                         |
|                                         |              Notes              to Unaudited Consolidated Financial Statements                                                                                                                                                                                                                       |   | 7 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Item              2. Management’s Discussion and Analysis of              Financial Condition and Results of Operations                                                                                                                                                                                                                                         |   | 23 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Item              3. Quantitative and Qualitative Disclosures about              Market Risk                                                                                                                                                                                                                                                                          |   | 45 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Item              4. Controls and Procedures                                                                                                                                                                                                                                                                                                                          |   | 45 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |
| Part                II. OTHER INFORMATION    |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Item              6. Exhibits                                                                                                                                                                                                                                                                                                                                         |   | 47 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Signatures                                                                                                                                                                                                                                                                                                                                                            |   | 48 |   |
|                                         |                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |
|                                         | Exhibit              Index                                                                                                                                                                                                                                                                                                                                            |   | 49 |   |

----

**ITEM          1.**
** **
**FINANCIAL          STATEMENTS**

**NEWKIRK            REALTY TRUST, INC.**

**CONSOLIDATED            BALANCE SHEETS **

|                                                                      |   |   | **September                30,****2006****(Unaudited)** |   |   | **December                31, 2005** |   |
|---------------------------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|--------|--------------------------------------|--------|
| ASSETS                                                                    |   |   |                                                    |   |   |                                 |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Real                estate investments:                                   |   |   |                                                    |   |   |                                 |   |
| Land                                                                 |   | $      | 55,316                                                  |   | $      | 36,593                               |   |
| Land                estates                                          |   |   | 45,902                                                  |   |   | 43,997                               |   |
| Buildings                and improvements                            |   |   | 1,343,104                                               |   |   | 1,407,602                            |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Total                real estate investments                              |   |   | 1,444,322                                               |   |   | 1,488,192                            |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Less                accumulated depreciation and amortization        |   |   | (465,793                                                | )      |   | (544,200                             | )      |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Real                estate investments, net                               |   |   | 978,529                                                 |   |   | 943,992                              |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Real                estate held for sale, net of accumulated depreciation |   |   |                                                    |   |   |                                 |   |
| and                amortization of $71,245 and $44,522               |   |   | 50,360                                                  |   |   | 41,685                               |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Cash                and cash equivalents                                  |   |   | 133,859                                                 |   |   | 174,816                              |   |
| Restricted                cash                                            |   |   | 63,972                                                  |   |   | 25,233                               |   |
| Real                estate securities available for sale                  |   |   | 17,369                                                  |   |   | 5,194                                |   |
| Receivables                (including $822 and $6,078 from                |   |   |                                                    |   |   |                                 |   |
| related                parties)                                      |   |   | 25,477                                                  |   |   | 58,727                               |   |
| Deferred                rental income receivable                          |   |   | 36,280                                                  |   |   | 21,246                               |   |
| Loans                receivable                                           |   |   | 14,406                                                  |   |   | 16,058                               |   |
| Equity                investments in limited partnerships                 |   |   | 9,011                                                   |   |   | 13,846                               |   |
| Equity                investment in joint venture                         |   |   | 47,931                                                  |   |   | -                                    |   |
| Deferred                costs, net of accumulated amortization of         |   |   |                                                    |   |   |                                 |   |
| $25,877                and $17,677                                   |   |   | 11,615                                                  |   |   | 8,771                                |   |
| Lease                intangibles, net                                     |   |   | 34,673                                                  |   |   | 7,657                                |   |
| Other                assets (including $1,463 and $1,304 from             |   |   |                                                    |   |   |                                 |   |
| related                parties)                                      |   |   | 25,847                                                  |   |   | 27,314                               |   |
| Other                assets of discontinued operations                    |   |   | 3,109                                                   |   |   | 545                                  |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Total                Assets                                               |   | $      | 1,452,438                                               |   | $      | 1,345,084                            |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| LIABILITIES,                MINORITY INTEREST AND STOCKHOLDERS' EQUITY    |   |   |                                                    |   |   |                                 |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Liabilities:                                                              |   |   |                                                    |   |   |                                 |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Mortgage                notes payable (including $16,233 and              |   |   |                                                    |   |   |                                 |   |
| $15,536                to a related party)                           |   | $      | 271,273                                                 |   | $      | 166,195                              |   |
| Note                payable                                               |   |   | 549,074                                                 |   |   | 593,463                              |   |
| Contract                right mortgage notes payable                      |   |   | 11,949                                                  |   |   | 11,128                               |   |
| Accrued                interest payable (including $197 and $378          |   |   |                                                    |   |   |                                 |   |
| to                a related party)                                   |   |   | 5,307                                                   |   |   | 7,514                                |   |
| Accounts                payable and accrued expenses                      |   |   | 5,079                                                   |   |   | 4,763                                |   |
| Below                market lease intangibles, net                        |   |   | 12,466                                                  |   |   | 893                                  |   |
| Dividend                payable                                           |   |   | 7,750                                                   |   |   | 5,231                                |   |
| Other                liabilities                                          |   |   | 8,485                                                   |   |   | 4,834                                |   |
| Liabilities                of discontinued operations                     |   |   | 150                                                     |   |   | 40,491                               |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Total                Liabilities                                          |   |   | 871,533                                                 |   |   | 834,512                              |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Commitments                and contingencies                              |   |   |                                                    |   |   |                                 |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Minority                interests                                         |   |   | 393,126                                                 |   |   | 334,531                              |   |
| Stockholders'                equity:                                      |   |   |                                                    |   |   |                                 |   |
| Preferred                stock; $.01 par value; 100,000,000 shares   |   |   |                                                    |   |   |                                 |   |
|   authorized;                1 issued and outstanding                |   |   | -                                                       |   |   | -                                    |   |
| Common                stock; $.01 par value; 400,000,000 shares      |   |   |                                                    |   |   |                                 |   |
|   authorized;                19,375,000 issued and outstanding       |   |   | 194                                                     |   |   | 194                                  |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Additional                paid-in capital                            |   |   | 179,871                                                 |   |   | 179,871                              |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Accumulated                net income (deficit)                      |   |   | 7,310                                                   |   |   | (3,882                               | )      |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Accumulated                other comprehensive income (loss)         |   |   | 404                                                     |   |   | (142                                 | )      |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Total                Stockholders' Equity                                 |   |   | 187,779                                                 |   |   | 176,041                              |   |
|                                                                      |   |   |                                                    |   |   |                                 |   |
| Total                Liabilities, Minority Interests and                  |   |   |                                                    |   |   |                                 |   |
| Stockholders'                Equity                                       |   | $      | 1,452,438                                               |   | $      | 1,345,084                            |   |

----

**NEWKIRK      REALTY TRUST, INC. (THE "COMPANY")**

**AND        THE NEWKIRK MASTER LIMITED PARTNERSHIP (THE        "PREDECESSOR")**

**CONSOLIDATED        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

**(Unaudited)**

|                                                                        | ** ** | ** ** | **THE                  COMPANY **                                               | ** ** | ** ** | **THE                  PREDECESSOR **                                           | ** ** | ** ** | **THE                  COMPANY**                                                    |    | ** ** | **THE                  PREDECESSOR **                                          |   |
|-----------------------------------------------------------------------------|------------|------------|--------------------------------------------------------------------------------------|------------|------------|--------------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------------------------------------|---------|------------|-------------------------------------------------------------------------------------|--------|
|                                                                        |       |       | **Three                  Months Ended****September                  30, 2006**  |       |       | **Three                  Months Ended****September                  30, 2005**  |       |       | **Nine                  Months Ended****September                  30, 2006**  |    |       | **Nine                  Months Ended****September                  30, 2005**  |   |
| Revenue:                                                                    |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Rental                  income                                              |       | $          | 48,695                                                                               |       | $          | 46,214                                                                               |       | $          | 147,721                                                                             |    | $          | 139,276                                                                             |   |
| Interest                  income                                            |       |       | 4,393                                                                                |       |       | 844                                                                                  |       |       | 11,371                                                                              |    |       | 2,374                                                                               |   |
| Management                  fees                                            |       |       | 64                                                                                   |       |       | 68                                                                                   |       |       | 188                                                                                 |    |       | 227                                                                                 |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Total                  revenue                                              |       |       | 53,152                                                                               |       |       | 47,126                                                                               |       |       | 159,280                                                                             |    |       | 141,877                                                                             |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Expenses:                                                                   |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Interest                                                                    |       |       | 14,600                                                                               |       |       | 14,227                                                                               |       |       | 40,619                                                                              |    |       | 46,109                                                                              |   |
| Loss                  from early extinguishment of debt                     |       |       | -                                                                                    |       |       | 25,685                                                                               |       |       | -                                                                                   |    |       | 25,685                                                                              |   |
| Depreciation                                                                |       |       | 7,997                                                                                |       |       | 7,171                                                                                |       |       | 23,556                                                                              |    |       | 20,665                                                                              |   |
| Compensation                  expense for exclusivity rights                |       |       | 833                                                                                  |       |       | -                                                                                    |       |       | 2,500                                                                               |    |       | -                                                                                   |   |
| Merger                  costs                                               |       |       | 2,726                                                                                |       |       | -                                                                                    |       |       | 2,726                                                                               |    |       | -                                                                                   |   |
| General                  and administrative                                 |       |       | 2,248                                                                                |       |       | 1,155                                                                                |       |       | 7,264                                                                               |    |       | 2,981                                                                               |   |
| Operating                                                                   |       |       | 1,832                                                                                |       |       | 180                                                                                  |       |       | 4,811                                                                               |    |       | 397                                                                                 |   |
| Impairment                  loss                                            |       |       | -                                                                                    |       |       | 550                                                                                  |       |       | -                                                                                   |    |       | 2,750                                                                               |   |
| Amortization                                                                |       |       | 1,808                                                                                |       |       | 696                                                                                  |       |       | 4,612                                                                               |    |       | 2,009                                                                               |   |
| Ground                  rent                                                |       |       | 603                                                                                  |       |       | 625                                                                                  |       |       | 1,750                                                                               |    |       | 1,649                                                                               |   |
| State                  and local taxes                                      |       |       | 180                                                                                  |       |       | 397                                                                                  |       |       | 1,361                                                                               |    |       | 1,475                                                                               |   |
| Minority                  interest expense of partially-owned entities      |       |       | 5,292                                                                                |       |       | -                                                                                    |       |       | 15,948                                                                              |    |       | -                                                                                   |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
|  Total                  expenses                                       |       |       | 38,119                                                                               |       |       | 50,686                                                                               |       |       | 105,147                                                                             |    |       | 103,720                                                                             |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Income                  (loss) from continuing operations before other      |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| income                  (expense)                                           |       |       | 15,033                                                                               |       |       | (3,560                                                                               | )          |       | 54,133                                                                              |    |       | 38,157                                                                              |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Other                  income (expense):                                    |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Equity                  in (loss) income from investments in                |       |       |                                                                                      |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| limited                  partnerships and joint ventures                    |       |       | (198                                                                                 | )          |       | 796                                                                                  |       |       | 1,511                                                                               |    |       | 2,317                                                                               |   |
| Gain                  on sale of securities                                 |       |       | -                                                                                    |       |       | -                                                                                    |       |       | 88                                                                                  |    |       | -                                                                                   |   |
| Minority                  interest                                          |       |       | (10,858                                                                              | )          |       | (4,697                                                                               | )          |       | (40,457                                                                             | )       |       | (13,971                                                                             | )      |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Income                  (loss) from continuing operations                   |       |       | 3,977                                                                                |       |       | (7,461                                                                               | )          |       | 15,275                                                                              |    |       | 26,503                                                                              |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Discontinued                  operations:                                   |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Income                  (loss) before minority interest                     |       |       | 1,858                                                                                |       |       | (847                                                                                 | )          |       | 13,230                                                                              |    |       | 17,442                                                                              |   |
| Gain                  from disposal of real estate                          |       |       | 63,234                                                                               |       |       | 15,477                                                                               |       |       | 63,234                                                                              |    |       | 16,077                                                                              |   |
| Impairment                  loss                                            |       |       | -                                                                                    |       |       | -                                                                                    |       |       | -                                                                                   |    |       | (26,965                                                                             | )      |
| Minority                  interest                                          |       |       | (49,253                                                                              | )          |       | (9                                                                                   | )          |       | (57,297                                                                             | )       |       | (38                                                                                 | )      |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
|  Income                  from discontinued operations                  |       |       | 15,839                                                                               |       |       | 14,621                                                                               |       |       | 19,167                                                                              |    |       | 6,516                                                                               |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Net                  income                                                 |       | $          | 19,816                                                                               |       | $          | 7,160                                                                                |       | $          | 34,442                                                                              |    | $          | 33,019                                                                              |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Comprehensive                  income:                                      |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Net                  income                                                 |       | $          | 19,816                                                                               |       | $          | 7,160                                                                                |       | $          | 34,442                                                                              |    | $          | 33,019                                                                              |   |
| Unrealized                  gain on real estate securities available        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       | -                                                                                   |   |
| for                  sale arising during this period                        |       |       | 868                                                                                  |       |       | -                                                                                    |       |       | 810                                                                                 |    |       |                                                                                |   |
| Unrealized                  (loss) gain on interest rate derivative arising |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| during                  the period                                          |       |       | (5,660                                                                               | )          |       | (1,461                                                                               | )          |       | 1,040                                                                               |    |       | (1,461                                                                              | )      |
| Less                  reclassification adjustment from gains                |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       | -                                                                                   |   |
| included                  in net income                                     |       |       | -                                                                                    |       |       | -                                                                                    |       |       | (38                                                                                 | )  |       |                                                                                |   |
| Minority                  interest in other comperehensive income           |       |       | 3,351                                                                                |       |       | -                                                                                    |       |       | (1,266                                                                              | )       |       | -                                                                                   |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
|  Comprehensive                  income                                 |       | $          | 18,375                                                                               |       | $          | 5,699                                                                                |       | $          | 34,988                                                                              |    | $          | 31,558                                                                              |   |
| Per                  share data:                                            |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Income                  from continuing operations                          |       | $          | 0.20                                                                                 |       |       |                                                                                 |       | $          | 0.79                                                                                |    |       |                                                                                |   |
| Income                  from discontinued operations                        |       |       | 0.82                                                                                 |       |       |                                                                                 |       |       | 0.99                                                                                |    |       |                                                                                |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
|  Net                  income applicable to Common Stock                |       | $          | 1.02                                                                                 |       |       |                                                                                 |       | $          | 1.78                                                                                |    |       |                                                                                |   |
|                                                                        |       |       |                                                                                 |       |       |                                                                                 |       |       |                                                                                |    |       |                                                                                |   |
| Weighted                  average Common Stock                              |       |       | 19,375                                                                               |       |       |                                                                                 |       |       | 19,375                                                                              |    |       |                                                                                |   |

----

**NEWKIRK        REALTY TRUST, INC.**

**CONSOLIDATED      STATEMENT OF STOCKHOLDERS' EQUITY **

**FOR      THE NINE MONTHS ENDED SEPTEMBER 30, 2006**

|                                               |   |   | **Preferred                  Stock** |   |   | **Common                  Stock ** |   |   | **Additional                  Paid-in** |   |   | **Accumulated****Net                  Income** |   |   | **Accumulated****Other                  Comprehensive ** |   |   |                |   |
|----------------------------------------------------|--------|--------|--------------------------------------|--------|--------|-----------------------------------------|--------|--------|-----------------------------------------|--------|--------|------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|---------------------|--------|
|                                               |   |   | **Shares **                     |   |   | **Amount **                        |   |   | **Shares **                        |   |   | **Amount **                               |   |   | **Capital**                                                   |   |   | **(Deficit) ** |   |   | **Income                  (Loss) ** |   |   | **Total ** |   |
| Balance                  December 31, 2005         |   |   | -                                    |   | $      | -                                       |   |   | 19,375                                  |   | $      | 194                                            |   | $      | 179,871                                                       |   | $      | (3,882              | )      | $ | (142 | ) | $ | 176,041 |   |
|                                               |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| Net                  income                        |   |   | -                                    |   |   | -                                       |   |   | -                                       |   |   | -                                              |   |   | -                                                             |   |   | 34,442              |   |   | - |   |   | 34,442 |   |
|                                               |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| Dividends                  paid or accrued on      |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| Common                  Stock                      |   |   | -                                    |   |   | -                                       |   |   | -                                       |   |   | -                                              |   |   | -                                                             |   |   | (23,250             | )      |   | - |   |   | (23,250 | ) |
|                                               |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| Change                  in unrealized gain on      |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| real                  estate securities available  |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| for                  sale, net of reclassification |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| adjustment                  for amounts            |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| included                  in net income            |   |   | -                                    |   |   | -                                       |   |   | -                                       |   |   | -                                              |   |   | -                                                             |   |   | -                   |   |   | 314 |   |   | 314 |   |
|                                               |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| Change                  in unrealized gain on      |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| interest                  rate derivatives         |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   | -                   |   |   | 232 |   |   | 232 |   |
|                                               |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| Balance                  as of                     |   |   |                                 |   |   |                                    |   |   |                                    |   |   |                                           |   |   |                                                          |   |   |                |   |   |   |   |   |   |   |
| September                  30, 2006                |   |   | -                                    |   | $      | -                                       |   |   | 19,375                                  |   | $      | 194                                            |   | $      | 179,871                                                       |   | $      | 7,310               |   | $ | 404 |   | $ | 187,779 |   |

----

**NEWKIRK          REALTY TRUST, INC. (THE "COMPANY")**

**AND      THE NEWKIRK MASTER LIMITED PARTNERSHIP (THE "PREDECESSOR")**

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

**(Unaudited)**

|                                                                                                        |       | ** ** | **THE                  COMPANY **                                        | ** ** | ** ** | **THE                  PREDECESSOR**                                          | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | ** ** | **Nine                  Months Ended****September                  30, 2006** | ** ** | ** ** | **Nine                  Months Ended****September                  30, 2005** | ** ** |
| CASH                  FLOWS FROM OPERATING ACTIVITIES:                                                      |       |       |                                                                          |       |       |                                                                          |       |
| Net                  income                                                                                 |       |       |                                                                          |       |       |                                                                          |       |
| Adjustments                  to reconcile net income to net cash                                            |       |       |                                                                               |       |       |                                                                               |       |
| provided                  by operating activities:                                                     |       | $          | 34,442                                                                        |       | $          | 33,019                                                                        |       |
| Amortization                  of deferred costs, land estates, loan discounts                          |       |       |                                                                          |       |       |                                                                          |       |
| and                  in-place lease intangibles                                                             |       |       | 6,837                                                                         |       |       | 5,199                                                                         |       |
| Depreciation                  expense                                                                  |       |       | 34,899                                                                        |       |       | 32,911                                                                        |       |
| Gain                  from disposal of real estate securities available for                  sale      |       |       | (88                                                                           | )          |       | -                                                                             |       |
| Gain                  from disposal of real estate                                                     |       |       | (63,234                                                                       | )          |       | (16,077                                                                       | )          |
| Net                  loss from early extinguishment of debt                                            |       |       | -                                                                             |       |       | 30,698                                                                        |       |
| Compensation                  expense for exclusivity rights                                           |       |       | 2,500                                                                         |       |       | -                                                                             |       |
| Impairment                  loss                                                                       |       |       | -                                                                             |       |       | 29,715                                                                        |       |
| Minority                  interest expense                                                             |       |       | 97,754                                                                        |       |       | 14,009                                                                        |       |
| Straight-lining                  of rental income                                                      |       |       | 4,675                                                                         |       |       | 4,218                                                                         |       |
| Interest                  earned on restricted cash                                                    |       |       | (1,341                                                                        | )          |       | (80                                                                           | )          |
| Equity                  in undistributed earnings of limited partnerships                              |       |       |                                                                          |       |       |                                                                          |       |
| and                  joint venture                                                                          |       |       | (1,099                                                                        | )          |       | (1,941                                                                        | )          |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Changes                  in operating assets and liabilities:                                               |       |       |                                                                          |       |       |                                                                          |       |
| Receivables                                                                                            |       |       | 24,777                                                                        |       |       | 12,324                                                                        |       |
| Loans                  receivable                                                                      |       |       | 1,618                                                                         |       |       | 1,411                                                                         |       |
| Accounts                  payable and accrued expenses                                                 |       |       | 415                                                                           |       |       | (689                                                                          | )          |
| Accrued                  interest-mortages and contract rights                                         |       |       | (1,009                                                                        | )          |       | (36,473                                                                       | )          |
| Other                  assets                                                                          |       |       | (18,711                                                                       | )          |       | (1,854                                                                        | )          |
| Other                  liabilities                                                                     |       |       | 16,002                                                                        |       |       | -                                                                             |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Net                  cash provided by operating activities                                                  |       |       | 138,437                                                                       |       |       | 106,390                                                                       |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| CASH                  FLOWS FROM INVESTING ACTIVITIES:                                                      |       |       |                                                                          |       |       |                                                                          |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Net                  proceeds from disposal of real estate                                             |       |       | 168,810                                                                       |       |       | 31,341                                                                        |       |
| Land                  and building additions and improvements                                          |       |       | (167,725                                                                      | )          |       | (194                                                                          | )          |
| Change                  in restricted cash                                                             |       |       | (37,399                                                                       | )          |       | (14,671                                                                       | )          |
| Deposits                  for future real estate acquisitions                                          |       |       | (4,996                                                                        | )          |       | -                                                                             |       |
| Refund                  of deposits for real estate acquisitions                                       |       |       | 6,315                                                                         |       |       | -                                                                             |       |
| Investments                  in debt securities                                                        |       |       | (53,616                                                                       | )          |       | -                                                                             |       |
| Proceeds                  from disposal of real estate securities available for                  sale  |       |       | 1,379                                                                         |       |       | -                                                                             |       |
| Purchase                  of real estate securities available for sale                                 |       |       | (12,435                                                                       | )          |       | -                                                                             |       |
| Collection                  of loan receivable                                                         |       |       | 52                                                                            |       |       | -                                                                             |       |
| Loan                  origination costs                                                                |       |       | (21                                                                           | )          |       | -                                                                             |       |
| Leasing                  costs incurred                                                                |       |       | (2,494                                                                        | )          |       | -                                                                             |       |
| Cash                  related to previously unconsolidated limited                  partnerships       |       |       | 419                                                                           |       |       | -                                                                             |       |
| Investments                  in limited partnerships                                                   |       |       | (1,095                                                                        | )          |       | (80                                                                           | )          |
| Investment                  in joint venture                                                           |       |       | (36,866                                                                       | )          |       | -                                                                             |       |
| Return                  of capital from investment in joint venture                                    |       |       | 10,874                                                                        |       |       | -                                                                             |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Net                  cash (used in) provided by investing activities                                        |       |       | (128,798                                                                      | )          |       | 16,396                                                                        |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| CASH                  FLOWS FROM FINANCING ACTIVITIES:                                                      |       |       |                                                                          |       |       |                                                                          |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Principal                  payments of mortgage notes                                                  |       |       | (48,316                                                                       | )          |       | (268,683                                                                      | )          |
| Principal                  payments of notes payable                                                   |       |       | (44,388                                                                       | )          |       | (171,865                                                                      | )          |
| Principal                  payments of contract right mortgage notes                                   |       |       | -                                                                             |       |       | (85,142                                                                       | )          |
| Mortgage                  prepayment penalties                                                         |       |       | -                                                                             |       |       | (23,548                                                                       | )          |
| Proceeds                  from mortgage notes                                                          |       |       | 85,555                                                                        |       |       | -                                                                             |       |
| Proceeds                  from note payable                                                            |       |       | -                                                                             |       |       | 477,759                                                                       |       |
| Proceeds                  from line of credit                                                          |       |       | 32,025                                                                        |       |       | -                                                                             |       |
| Dividends                  paid to common stockholders                                                 |       |       | (20,731                                                                       | )          |       | -                                                                             |       |
| Distributions                  to partners                                                             |       |       | -                                                                             |       |       | (37,692                                                                       | )          |
| Limited                  partner buyouts                                                               |       |       | -                                                                             |       |       | (2,042                                                                        | )          |
| Distributions                  to minority interests                                                   |       |       | (53,234                                                                       | )          |       | (4,876                                                                        | )          |
| Deferred                  financing costs                                                              |       |       | (1,507                                                                        | )          |       | (6,959                                                                        | )          |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Net                  cash used in financing activities                                                      |       |       | (50,596                                                                       | )          |       | (123,048                                                                      | )          |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Net                  decrease in cash and cash equivalents                                                  |       |       | (40,957                                                                       | )          |       | (262                                                                          | )          |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Cash                  and Cash Equivalents at Beginning of Period                                           |       |       | 174,816                                                                       |       |       | 21,317                                                                        |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Cash                  and Cash Equivalents at End of Period                                                 |       | $          | 133,859                                                                       |       | $          | 21,055                                                                        |       |
|                                                                                                        |       |       |                                                                          |       |       |                                                                          |       |
| Supplemental                  Disclosure of Cash Flow Information:                                          |       |       |                                                                          |       |       |                                                                          |       |
| Cash                  paid for state and local taxes                                                   |       | $          | 1,623                                                                         |       | $          | 1,695                                                                         |       |
| Cash                  paid for interest                                                                |       | $          | 42,978                                                                        |       | $          | 91,600                                                                        |       |
| Accrued                  dividends                                                                     |       | $          | 7,750                                                                         |       |       | -                                                                             |       |

----

----

*Fair        Value Measurements*

*Accounting        for Uncertainty in Income Taxes-an interpretation of FASB Statement No.        109*
*Accounting        for Income Taxes*

----

|                                                      |   | ** Pre-****Consolidation** | ** ** |  **Consolidated** |   |
|-----------------------------------------------------------|--------|---------------------------------|------------|------------------------|--------|
| Assets:                                                   |   |                            |       |                   |   |   |   |
|                                                      |   |                            |       |                   |   |   |   |
| Cash                                                      |   | $                               | -          |                   | $      | 177 |   |
| Land                                                      |   |                            | -          |                   |   | 1,028 |   |
| Building,                  net                            |   |                            | -          |                   |   | 18,663 |   |
| Equity                  investment in limited partnership |   |                            | 6,538      |                   |   | - |   |
| Deferred                  costs, net                      |   |                            | -          |                   |   | 334 |   |
|                                                      |   | $                               | 6,538      |                   | $      | 20,202 |   |
| Liabilities:                                              |   |                            |       |                   |   |   |   |
|                                                      |   |                            |       |                   |   |   |   |
| Mortgage                  loan                            |   | $                               | -          |                   | $      | 13,664 |   |
|                                                      |   | $                               | -          |                   | $      | 13,664 |   |

*Acquisitions*

----

*Acquisitions        (Continued)*

----

*Acquisitions        (Continued)*

*Dispositions*

----

*Dispositions        (Continued)*

*Financings*

----

*Financings        (Continued)*

*Significant        Leasing Activities*

----

| Balance,                  beginning of year           |   | $      | -       |   |
|-------------------------------------------------------|--------|--------|---------|--------|
| Investment                  in joint venture          |   |   | 58,826  |   |
| Return                  of capital from joint venture |   |   | (10,874 | )      |
| Equity                  in loss of joint venture      |   |   | (21     | )      |
| Balance,                  September 30, 2006          |   | $      | 47,931  |   |

----

|                                                                   |   | **September                  30, 2006** |    |
|------------------------------------------------------------------------|--------|-----------------------------------------|---------|
|                                                                   |   |                                    |    |
| Cash                  and restricted cash                              |   | $                                       | 5,948   |   |
| Investment                  in debt securities and interest receivable |   |                                    | 261,835 |   |
| Other                  assets                                          |   |                                    | 230     |   |
|                                                                   |   |                                    |    |   |
| Total                  assets                                          |   | $                                       | 268,013 |   |
|                                                                   |   |                                    |    |   |
| Accounts                  payable and other liabilities                |   | $                                       | 3,531   |   |
| Line                  of credit payable                                |   |                                    | 168,970 |   |
| Members’                  equity                                 |   |                                    | 95,512  |   |
|                                                                   |   |                                    |    |   |
| Total                  liabilities and members’ equity           |   | $                                       | 268,013 |   |
|                                                                   |   |                                    |    |   |
| On                  the Company’s Consolidated Balance Sheet:    |   |                                    |    |   |
| Equity                  investment in joint venture                    |   | $                                       | 47,931  |   |

|                                                                                                                    |   | **Three                  Months Ended****September                  30, 2006** |   | **Nine                  Months Ended****September                  30, 2006** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
| Revenue                                                                                                                 |   | $                                                                              | 4,629  |                                                                          | $      | 6,278 |   |
| Loss                  from change in fair market value of interest                  rate derivatives                    |   |                                                                           | (3,759 | )                                                                             |   | (2,967 | ) |
| Interest                  expense                                                                                       |   |                                                                           | (2,067 | )                                                                             |   | (2,691 | ) |
| General                  and administrative                                                                             |   |                                                                           | (344   | )                                                                             |   | (662 | ) |
|                                                                                                                    |   |                                                                           |   |                                                                          |   |   |   |
| Net                  loss                                                                                               |   | $                                                                              | (1,541 | )                                                                             | $      | (42 | ) |
|                                                                                                                    |   |                                                                           |   |                                                                          |   |   |   |
| On                  the Company’s Consolidated Statement of Operations                  and Comprehensive Income: |   |                                                                           |   |                                                                          |   |   |   |
| Equity                  in loss from investments in limited partnerships                  and joint ventures            |   | $                                                                              | (770   | )                                                                             | $      | (21 | ) |

----

| Balance,                  beginning of year                                                      |   | $      | 13,846 |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Equity                  in income of limited partnerships                                        |   |   | 1,532  |   |
| Distributions                  from limited partnerships                                         |   |   | (412   | )      |
| Investment                  in limited partnerships                                              |   |   | 729    |   |
| Consolidation                  of previously unconsolidated limited                  partnership |   |   | (6,684 | )      |
|                                                                                             |   |   |   |   |
| Balance,                  September 30, 2006                                                     |   | $      | 9,011  |   |

*Condensed        Combined Statements of Operations:*

|                                                                                                                     |       | **Three                  Months Ended****September                  30,** | ** ** | **Nine                  Months Ended****September                  30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2006**                                                                  | ** ** | **2005**                                                                 | ** ** | **2006** | ** ** | **2005** |   |
| Rental                  revenue and interest income                                                                      |       | $                                                                         | 5,313      |                                                                     | $          | 6,821 |   | $ | 16,056 |   | $ | 20,462 |   |
| Interest                  expense                                                                                        |       |                                                                      | (1,830     | )                                                                        |       | (2,428 | ) |   | (5,724 | ) |   | (7,534 | ) |
| Administrative                  expenses                                                                                 |       |                                                                      | (183       | )                                                                        |       | (190 | ) |   | (557 | ) |   | (570 | ) |
| Depreciation                  expense                                                                                    |       |                                                                      | (730       | )                                                                        |       | (872 | ) |   | (2,178 | ) |   | (2,617 | ) |
| Amortization                  expense                                                                                    |       |                                                                      | (66        | )                                                                        |       | (131 | ) |   | (199 | ) |   | (394 | ) |
| Net                  income                                                                                              |       | $                                                                         | 2,504      |                                                                     | $          | 3,200 |   | $ | 7,398 |   | $ | 9,347 |   |
|                                                                                                                     |       |                                                                      |       |                                                                     |       |   |   |   |   |   |   |   |   |
| On                  the Company’s Consolidated Statements of Operations and Comprehensive                  Income: |       |                                                                      |       |                                                                     |       |   |   |   |   |   |   |   |   |
| Equity                  in income from investments in limited                  partnerships and joint venture            |       | $                                                                         | 572        |                                                                     | $          | 796 |   | $ | 1,532 |   | $ | 2,317 |   |

----

*Condensed        Combined Balance Sheets:*

|                                                                |   | **September****30,                  2006** | ** ** | **December****31,                  2005** |   |
|---------------------------------------------------------------------|--------|--------------------------------------------|------------|-------------------------------------------|--------|
| Cash                                                                |   | $                                          | 784        |                                      | $      | 1,744 |   |
| Real                  estate, net                                   |   |                                       | 64,094     |                                      |   | 81,043 |   |
| Other                  assets                                       |   |                                       | 6,094      |                                      |   | 2,928 |   |
|                                                                |   |                                       |       |                                      |   |   |   |
| Total                  assets                                       |   | $                                          | 70,972     |                                      | $      | 85,715 |   |
|                                                                |   |                                       |       |                                      |   |   |   |
| Accounts                  payable and other liabilities             |   | $                                          | 2,239      |                                      | $      | 1,436 |   |
| Mortgages                  payable                                  |   |                                       | 75,546     |                                      |   | 96,238 |   |
| Partners’                  deficit                            |   |                                       | (6,813     | )                                         |   | (11,959 | ) |
|                                                                |   |                                       |       |                                      |   |   |   |
| Total                  liabilities and partners’ deficit      |   | $                                          | 70,972     |                                      | $      | 85,715 |   |
|                                                                |   |                                       |       |                                      |   |   |   |
| On                  the Company’s Consolidated Balance Sheet: |   |                                       |       |                                      |   |   |   |
| Equity                  investments in limited partnerships         |   | $                                          | 9,011      |                                      | $      | 13,846 |   |

----

*Mortgage        Notes Payable*

*Note        Payable*

*Revolving        Credit Line*

----

*Revolving        Credit Line (Continued)*

*Contract        Right Mortgage Note Payable*

** **

----

----

----

| ·   | The                office property located in Toledo, Ohio is in discontinued operations                as                the Company sold the property on September 29,                2006. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Fifty                retail properties that are leased to Albertson’s Inc. are in discontinued                operations as the Company sold the properties on July 13,                2006. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Three                properties are in discontinued operations, two of which are located                in                Louisville, Kentucky and one located in Columbus, Ohio. These properties                are in discontinued operations as The Kroger Company, the tenant                at such                properties, has notified the Company that it is exercising its option                to                purchase the properties under its lease. The properties will be purchased                at the end of the primary term in December 2006 for a negotiated                fair                market value or appraised value. The real estate investments relating                to                these properties are classified as held for sale and the other assets                and                liabilities of these properties are classified as discontinued operations                in the accompanying consolidated balance sheet at September 30,                2006. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Four                properties that are leased to Honeywell are in discontinued operations                as                the tenant has exercised an option to purchase the properties in                2007. The                real estate investments relating to these properties are classified                as                held for sale and the other assets and liabilities of these properties                are                classified as discontinued operations in the accompanying consolidated                balance sheet at September 30, 2006. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                  |       | **The                  Company**                                                   |    | **The                  Predecessor**                                           | ** ** | **The                  Company**                                              | ** ** | **The                  Predecessor**                                          | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **Three                  Months Ended****S****eptember                  30, 2006** |    | **Three                  Months Ended****September                  30, 2005** |       | **Nine                  Months Ended****September                  30, 2006** |       | **Nine                  Months Ended****September                  30, 2005** |       |
| Revenue                                                               |       | $                                                                                  | 6,225   |                                                                           | $          | 15,643                                                                        |       | $                                                                             | 28,669     |   | $ | 47,966 |   |
| Expenses                                                              |       |                                                                               | (4,367  | )                                                                              |       | (16,490                                                                       | )          |                                                                          | (15,439    | ) |   | (30,524 | ) |
| Impairment                  loss                                      |       |                                                                               | -       |                                                                           |       | -                                                                             |       |                                                                          | -          |   |   | (26,965 | ) |
| Gain                  from disposal of                  real estate   |       |                                                                               | 63,234  |                                                                           |       | 15,477                                                                        |       |                                                                          | 63,234     |   |   | 16,077 |   |
| Minority                  interest                                    |       |                                                                               | (49,253 | )                                                                              |       | (9                                                                            | )          |                                                                          | (57,297    | ) |   | (38 | ) |
|                                                                  |       |                                                                               |    |                                                                           |       |                                                                          |       |                                                                          |       |   |   |   |   |
| Income                  from discontinued                  operations |       | $                                                                                  | 15,839  |                                                                           | $          | 14,621                                                                        |       | $                                                                             | 19,167     |   | $ | 6,.516 |   |

|                        |         | **September                  30,****2006** | ** **             | **December                  31,****2005** |   |
|-----------------------------|--------------|--------------------------------------------|------------------------|-------------------------------------------|--------|
| Receivables                 |         | $                                          | $                3,053 |                                      | $      | 213 |   |
| Other                assets | *** *** |                                       | 56                     |                                      |   | 332 |   |
|                             |         | $                                          | $                3,109 |                                      | $      | 545 |   |

|                                                         |   | **September                  30, 2006** |   | **December                  31, 2005** |   |
|--------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
| Mortgage                  notes and accrued interest payable |   | $                                       | -      |                                   | $      | 40,491 |   |
| Other                  liabilities                           |   |                                    | 150    |                                   |   | - |   |
|                                                              |   | $                                       | 150    |                                   | $      | 40,491 |   |

----

| **ITEM                    2**.  **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF                      OPERATIONS** |
|------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

**.**

**Overview**

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Overview        (Continued)**

| ·   | acquire                individual net leased properties and portfolios of net leased                properties; |
|--------------------|-----------------------------------------------------------------------------------------------------------------|
| ·   | complete                sale/leaseback transactions, through which we acquire properties                and lease                the properties back to the seller or operator under a net                lease; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | acquire                controlling and non-controlling interests in private and public companies                primarily engaged in the business of making net lease                investments; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | acquire                equity and debt interests in entities that own, develop, manage or                advise                third parties with regard to net leased                investments; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | acquire                through our 111 Debt Holdings LLC (“111 Debt Holdings”) joint venture                senior and subordinated loans secured by mortgages on net leased                properties, mezzanine loans secured by ownership interests in entities                that own net leased properties as well as commercial mortgage-backed                securities, B Notes and bridge loans, relating to net leased                properties; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | participate                in development projects relating to net lease                properties; |
|--------------------|-----------------------------------------------------------------------------------------------------|
| ·   | explore                investment opportunities in non-domestic                markets; |
|--------------------|-----------------------------------------------------------------------------------------|
| ·   | where                opportunity arises, enter into strategic alliances with entities                that                historically have been leading sellers of net-lease assets;                and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | refinance                our existing indebtedness to the extent strategically viable at lower                average interest rates or on more attractive terms and increase our                access                to capital to finance property acquisitions and                expansions. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions**

*Property        Acquisitions and Other Investments*

| ·   | On                January 18, 2006, we acquired an                approximately 116,000 square foot office building in Bridgewater,                New                Jersey for a purchase price of approximately $21,150,000. The property                is                net leased to Biovail Pharmaceuticals, Inc., a company primarily                engaged                in the manufacture and sale of generic pharmaceutical products. The                lease                agreement has a current term scheduled to expire October 31, 2014                with                two, five-year renewal terms. Net rent during the current term is                $1,397,000 per year through October 31, 2009 and then $1,686,000                thereafter. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                January 26, 2006, we acquired an approximately 99,000 square foot                100%                leased office building in Lisle, Illinois for a purchase price of                approximately $15,250,000. Net rent for the property, commencing                January                1, 2007 is projected to be approximately $1,225,000 per year. The                property is 86% leased to National Louis University with the balance                being                leased to two tenants. The National Louis University lease has a                primary                term expiring December 31, 2019 with annual lease rent commencing                at                $943,000 through December 31, 2006 (with a 50% rent concession through                August 31, 2006), increasing by $43,000 on each January 1                thereafter. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 7, 2006, we acquired two warehouse/distribution centers comprising                240,000 square feet for a purchase price of approximately                $10,550,000.                The properties are currently leased on a long-term basis to subsidiaries                of Jacobson Companies, a leading third party warehousing company.                One                lease has a primary term expiring December 31, 2015 with annual base                rent                during the primary term of $450,000. The other lease has a primary                term                expiring December 31, 2014 with an annual base rent of approximately                $331,000 through December 31, 2008 increasing to approximately $404,000                through December 31, 2014. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 29, 2006, we acquired a 639,000 square foot property located                in                Statesville, North Carolina for a purchase price of approximately                $20,500,000.                The property, which serves as a distribution facility, is currently                leased                to La-Z-Boy Greensboro Inc. and guaranteed by La-Z-Boy Incorporated.                The                lease has a primary term expiring April 30, 2010 with annual base                rent                during the primary term of approximately                $1,649,000. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *·  * | On                April 26, 2006, we acquired a 226,000 square foot office building                located                in Rochester, New York for a purchase price of $26,400,000. The property                is currently leased through 2014 to The Frontier Corporation, a                communications company. The annual net rent payable at the property                is                $2,567,000 through December 31, 2007, increasing to $2,624,000 per                annum                through 2014. Upon expiration of the current lease term, the tenant                has                two, five-year renewal options each at an annual rental rate equal                to the                greater of market value or the current rent                amount. |
|----------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                May 5, 2006, we acquired an approximately 96,000 square foot office                building in Rockaway, New Jersey for a purchase price of approximately                $22,000,000. We partially satisfied the purchase price by assuming                the                existing mortgage loan of $14,900,000. The property is leased to                BASF                Corporation, the North American affiliate of BASF AG. The lease agreement                has a current term scheduled to expire September 30, 2014 with the                tenant’s option to enter into either two, five-year renewal terms or one,                ten-year renewal term, in all cases at fair market rent. Net rent                during                the current term is $1,489,000 per                annum. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions**

*Property        Acquisitions and Other Investments (Continued)*

| ·   | On                May 26, 2006, the Operating Partnership concluded tender offers,                pursuant                to which they acquired additional limited partnership units in five                partially-owned partnerships, two of which were consolidated. The                purchase                price of these interests aggregated $1,681,000, $986,000 of which                was paid                in cash, and the remainder of which was paid through the issuance                of                40,239.58 MLP units. The Operating Partnership’s ownership in these                partnerships ranges between 24.50% and 85.38%. As a result of the                tender                offer, an additional partnership’s results of operations are now                consolidated. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                June 30, 2006, we acquired a 458,000 square foot office building                and                distribution center in Glenwillow, Ohio for a purchase price of                $23,300,000. The property is currently leased to Royal Appliance,                a home                cleaning products company. The lease agreement has a current term                scheduled to expire July 31, 2015 with two, five-year renewal terms.                Net                rent during the current term is $1,738,000 through July 31, 2007,                $1,944,000 through July 31, 2012, and $2,040,000 through the end                of the                current term. Renewal term option rents are 95% of fair market value.                Pursuant to the terms of the lease agreement, if requested by the                tenant,                we have the obligation to build up to a 160,000 square foot expansion                property. The costs that would be incurred in connection with such                expansion would be recouped through rent                increases. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                September 21, 2006, we acquired a 202,000 square foot cold storage                warehouse facility located in McDonough, Georgia, a suburb of Atlanta,                for                a purchase price of $24,000,000. The property is currently net leased                through October 31, 2012 to Atlas Cold Storage, a Canadian based                company                that provides temperature controlled storage, transportation and                third                party logistic and management services to food processors, distributors                and retailers of frozen and chilled foods. Rent during the lease                term is                $1,800,000 through October 31, 2006; $1,900,000 from November 1,                2006                through October 31, 2007; $2,000,000 from November 1, 2007 through                October                31, 2008; and $2,100,000 annually from November 1, 2008 through October                31, 2012. Under the terms of the purchase and sale agreement, $1,000,000                was placed in escrow with the title company at closing until the                seller of                the property successfully subdivides a parcel of vacant land. If                the                seller is not successful, within one year, then the $1,000,000 will                be                returned to us. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                September 28, 2006, the Partnership acquired a 744,000 square foot                warehouse facility located in Columbus, Ohio for a purchase price                of                $16,355,000. The property is currently net leased to ODW Logistics                Inc., a                national warehousing and distribution center operating company, through                June 30, 2018 with the tenant’s option for one additional term the length                of which shall be either five, six, seven, eight, nine or ten years.                Rent                during the current term is $1,347,000 annually. If renewed, rent                during                the extended term is at fair market                value. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | At                September 30, 2006, we owned securities in publicly traded net lease                REITs                and partnerships for an aggregate cost of approximately                $16,400,000. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | We                acquired a parcel of land in Baltimore, Maryland, on October 31,                2006                which is adjacent to its existing property leased to Legg Mason,                for                $1,800,000 on which we expect to construct a parking garage. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                September 15, 2006, we entered into a contract to purchase a 308,000                square foot warehouse and distribution facility located in Lumberton,                North Carolina for a purchase price of $15,342,000. The facility                will be                leased to Quickie Manufacturing Corporation. The lease term is for                15                years and commences on the date of closing with two renewal options                for                five years each. Net rent during the lease term is $1,218,593 per                annum,                increasing annually by 1.5% throughout the lease term. The purchase                closed                on November 6, 2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions**

*Property        Acquisitions and Other Investments (Continued)*

| ·   | On                October 19, 2006, we entered into a contract to purchase a 247,000                square                foot office and warehouse facility located in Cincinnati, Ohio. This                transaction is subject to customary due                diligence. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Debt        Placements and Acquisitions*

| ·   | On                February 13, 2006, we acquired a 10 year, BBB rated bond secured                by net                leased properties owned by Kindercare Real Estate LLC with a face                value of                $11,700,000 and a projected unleveraged yield to maturity of 7%. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 13, 2006, we acquired a $3,309,000 participation interest in                a                $18,750,000 mezzanine loan and a $11,691,000 participation interest                in a                $66,500,000 mezzanine loan. The loans underlying both participation                interests are secured by the ownership interests in entities owning                fee                title to retail stores net leased to Toys “R” Us, bear interest at a rate                of LIBOR plus 175 basis points and mature on August 9, 2007, subject                to                three one year extensions. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 20, 2006, we acquired a $30,750,000 B Note secured by a 757,000                square foot office building in Dallas, Texas presently net leased                to JP                Morgan Chase and has an initial interest rate of 8.67% for a purchase                price of $27,732,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 30, 2006, we entered into a $300,000,000 repurchase agreement                with                Column Financial Inc. and effectively leveraged $32,025,000 of our                Toys                “R” Us loans and JP Morgan B Note at that                time. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 31, 2006, we formed 111 Debt Holdings, a joint venture with                a                subsidiary of Winthrop Realty Trust, to originate and acquire loans                secured directly or indirectly by real estate. The foregoing debt                assets                and repurchase agreement were contributed to the joint venture. In                addition, as of October 18, 2006, we have contributed an additional                $32,727,000 to the joint venture. 111 Debt Holdings has made the                following                investments during the period from April 1, 2006 to October 18,                2006: |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*First        Mortgage Loans:*

| ·   | a                $19,000,000 floating rate first mortgage note secured by The Heart                of Palm                Beach Hotel in Palm Beach, Florida. The two-year loan bears an interest                rate of LIBOR plus 2.40% and is subject to three, one-year extensions. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*B-Notes/Junior        Participations in First Mortgage Loans:*

| ·   | a                $13,000,000 B Note secured by a 638,363 square foot Class A office                building in downtown Atlanta, Georgia for a purchase price of $10,473,000.                The B Note has an interest rate of 6.09% and an expected yield of                12.43%. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                $4,500,000 junior participation in a first mortgage loan secured                by an                office portfolio know as Boston Wharf Properties containing a total                of                438,522 square feet located in Boston, Massachusetts. The underlying                loan                has a term of two years with three, one-year extensions. The participation                interest held by the joint venture bears interest at LIBOR plus                2.25% |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                $20,900,000 junior participation in a first mortgage loan secured                by The                James Hotel in Chicago, Illinois, a 297 room, full-service hotel.                The                underlying loan is scheduled to mature on June 9, 2008 with the ability                to                extend for one, three year term. The participation interest held                by the                joint venture bears interest at LIBOR plus                2.35%. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions**

*Debt        Placements and Acquisitions (Continued)*

*B-Notes/Junior        Participations in First Mortgage Loans (Continued):*

| ·   | a                $35,000,000 junior participation in a first mortgage loan secured                by the                JW Marriott Star Pass Resort & Spa, a 575 room, full-service resort                situated on a 380 acre site in Tucson, Arizona. The underlying loan                has a                term of two years with the ability to extend to August 2011. The                participation interest held by the joint venture bears interest at                LIBOR                plus 2.35%. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Mezzanine        Loans:*

| ·   | a                $1,500,000 mezzanine loan secured by the ownership interests in entities                owning fee title to a 130,000 square foot industrial facility that                is net                leased to Rockwell Automation. The loan bears an interest rate of                12% and                matures in April 2016. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                $10,000,000 participation in a mezzanine loan secured by the ownership                interests in entities owning fee title to One Madison Avenue, a 1,100,000                square foot office building located in New York, New York and 95%                leased                to Credit Suisse. The loan was purchased for $8,469,000 and has an                expected unleveraged yield to maturity of                7.58%. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                $20,000,000 mezzanine loan secured by the ownership interests in                entities                owning fee title to One Pepsi Way, a 539,692 square foot Class A                office                building situated on 206 acres in Westchester County, New York. The                two-year loan bears an interest rate of LIBOR plus 4.25% and is subject                to                three, one-year extensions. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                $19,052,187 fully amortizing mezzanine note secured by the ownership                interests in the entities owning fee title to the Computer Associates                headquarters, a 778,367 square foot office building located in Islandia,                New York and 100% leased to Computer Associates. The loan bears an                interest of 8.530% and matures on August 15,                2016. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | a                $1,900,000 mezzanine note secured by the ownership interest in the                entities owning fee title to 99 Founder’s Plaza, a 148,000 square foot                class-B office building in East Hartford, Connecticut and 100% leased                to                Bank of America. The mezzanine note bears a fixed interest rate of                12% and                matures in September 2016. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Preferred        Equity:*

| ·   | a                $30,000,000 participation in a preferred membership interest in an                entity                which indirectly holds an ownership interest in the owner of a 907,142                square foot office building located at 450 Lexington Avenue, New                York, New                York. The participation entitles the joint venture to a preferred                return                of 8.5% and is required to be redeemed prior to August 24,                2007. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions**

*Debt        Placements and Acquisitions (Continued)*

*Remics/Bonds:*

| ·   | $87,345,716                in credit mortgage backed securities and collateral debt obligations                as                follows: |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| **Security**                               | ** ** | **Class** | ** **                  | **Face                  Value at Date****of                  Acquisition** | ** ** | **Margin/Coupon** | ** ** | **Rating****Moody's/S&P/Fitch(1)** |                          |
|--------------------------------------------|------------|-----------|-----------------------------|----------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------------|-------------------------------|
| BSCMS                  04 BA5              |       |      | Class                  K    |                                                                       | $          | 13,000,000        |       |                                   | LIBOR                  + 3.25 | % |   | NR/BB/- |   |
| COMM                  05-FL11              |       |      | Class                  L    |                                                                       | $          | 15,355,763        |       |                                   | LIBOR                  + 2.25 | % |   | NR/BBB-/- |   |
| BACM                  2005-6               |       |      | Class                  KC-E |                                                                       | $          | 11,707,811        |       |                                   | 6.13                          | % |   | NR/BBB/- |   |
| G-Force                                    |       |      | Class                  J    |                                                                       | $          | 11,000,000        |       |                                   | 5.60                          | % |   | NR/BBB-/- |   |
| LBFRC                  2006-LLFA           |       |      | Class                  L    |                                                                       | $          | 10,000,000        |       |                                   | LIBOR                  + 1.70 | % |   | NR/BBB-/BBB- |   |
| MSC                  2006-XLF              |       |      | Class                  M    |                                                                       | $          | 7,745,207         |       |                                   | LIBOR                  + 1.65 | % |   | NR/BBB-/- |   |
| BALL                  04 BBA4              |       |      | Class                  K    |                                                                       | $          | 7,000,000         |       |                                   | LIBOR                  + 3.10 | % |   | -/BB/- |   |
| BSCMS                  06 BBA7             |       |      | Class                  K    |                                                                       | $          | 4,785,666         |       |                                   | LIBOR                  + 1.70 | % |   | NR/BBB-/BBB- |   |
| Ball                  2003 BBA2            |       |      | Class                  L    |                                                                       | $          | 3,000,000         |       |                                   | 7.48                          | % |   | -/BB/- |   |
| Fortress                  Rake Bond (MF) 1 |       |      | FRT1                        |                                                                       | $          | 2,051,269         |       |                                   | LIBOR                  + 0.95 | % |   | -/NR/- |   |
| Fortress                  Rake Bond (MF) 2 |       |      | FRT2                        |                                                                       | $          | 1,700,000         |       |                                   | LIBOR                  + 1.05 | % |   | -/NR/- |   |

*Financings*

| ·   | On                February 10, 2006, we obtained a first mortgage loan from an unaffiliated                third party in the principal amount of $14,800,000, which is secured                by                our property located in Bridgewater, New Jersey. See “Property                Acquisitions and Other Investments” above. The                loan bears interest at 5.732%, requires monthly payments of interest                only                for the first 60 months and then requires monthly payments of principal                and interest of approximately $86,000 and is scheduled to mature                on March                6, 2016, at which time the outstanding principal balance is expected                to be                approximately $13,730,000. We received net proceeds from this loan,                after                satisfying closing costs, of approximately                $14,600,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                March 6, 2006, NK-Marc CAA LLC, a joint venture which is consolidated                with                us, obtained a $3,500,000 loan from an unaffiliated third party.                The loan                bears interest at 6.5%, requires monthly payments of principal and                interest of approximately $24,000 for 60 months and is scheduled                to mature                on March 1, 2011. The loan is secured by a first mortgage loan receivable                owned by NK-Marc CAA LLC. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                April 7, 2006, the Operating Partnership entered into an unsecured                revolving credit agreement with KeyBank National Association providing                for                borrowings of up to $50,000,000, subject to increase up to $100,000,000.                The revolving credit facility matures April 7, 2009 with the option                to                extend the term for an additional year. Amounts borrowed under the                revolving credit line bear interest at rates based on our leverage                ratio                ranging from LIBOR plus 1.35% to LIBOR plus 2.00%. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                May 5, 2006, we obtained a $10,450,000 loan from an unaffiliated                third                party lender, which is secured by our property located at 850-950                Warrenville Road, Lisle, Illinois. The loan bears interest at 6.5%,                requires monthly payments of interest only during the first two years                of                the loan term and thereafter principal (based on a 30-year amortization                schedule) and interest for the balance of the term. The loan is scheduled                to mature on June 1, 2016, at which time the outstanding principal                balance                is expected to be approximately                $9,463,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                      2**. **** | **MANAGEMENT’S                        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                        OF OPERATIONS                        (Continued)** |
|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions**

*Financings        (Continued)*

| ·   | On                July 20, 2006, we obtained first mortgage loans from an unaffiliated                third                party with respect to its Rochester, New York; Statesville, North                Carolina; and Rockford, Illinois properties. The loans, which had                an                initial aggregate principal amount of $39,800,000, are                cross-collateralized and cross-defaulted. The loans bear interest                at                6.21%, require monthly payments of interest only for 24 months and                then                require monthly payments of principal and interest in the aggregate                of                approximately $244,000. The loans are scheduled to mature on August                1,                2016 at which time the outstanding principal balance is expected                to be                $35,438,000. We received net proceeds from these loans, after satisfying                closing costs, of approximately                $39,260,000. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                August 31, 2006, we obtained a $17,000,000 first mortgage loan from                an                unaffiliated third party lender, which is secured by our property                located                in Glenwillow, Ohio. The loan bears interest at 6.13%, requires monthly                payments of interest only for the first two years of the loan term                and                thereafter principal (based on a 30-year amortization schedule) and                interest for the balance of the term. The loan is scheduled to mature                on                September 6, 2016 at which time the outstanding principal balance                is                expected to be approximately $14,988,000. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Property        Sales*

| ·   | On                September 30, 2006, we sold our Toledo, Ohio property currently leased                to                Owens-Illinois for a purchase price of $33,000,000, $1,000,000 in                cash                plus assumption of the $32,000,000 of outstanding debt encumbering                the                property. The purchaser, an unaffiliated third party, RVI Group,                is the                residual value insurer with respect to the property. Owens-Illinois                had                advised us that it would be vacating the property at the expiration                of its                lease term, September 30, 2006.   |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | On                July 13, 2006, we sold 50 of our retail properties to an unaffiliated                third party for a gross purchase price of $160,000,000. The sold                properties were originally leased to Albertson’s, Inc., contain an                aggregate of 2,300,000 square feet and had current lease terms expiring                over the next 4.5 years. After closing costs, we received net proceeds                of                approximately $159,000,000, $22,000,000 of which were used to pay                down our                note payable. The balance of the net proceeds were deposited with                a                Qualified Intermediary for use in tax free exchanges pursuant to                Section                1031 of the Internal Revenue Code including $49,000,000 which were                used                for reverse 1031 exchanges in connection with the previously acquired                property located in Rochester, New York leased to The Frontier Corporation                and the Glenwillow, Ohio property leased to Royal Appliance. We have                identified properties to complete the 1031 tax free exchange, including                the properties acquired on September 21, 2006 and September 28, 2006                which                are leased to Atlas Cold Storage and ODW Logistics, Inc.,                respectively. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | In                June 2006, we received notice from The Kroger Company exercising                their                option to purchase under their leases at three properties. Two properties                are located in Louisville, Kentucky and one property is located in                Columbus, Ohio. The properties will be purchased at the end of the                primary                term in December 2006 for a negotiated fair market value or appraised                value. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | In                June 2005, we entered into an agreement with Honeywell International,                Inc.                (“Honeywell”), the tenant of four office buildings owned by us in Morris                Township, New Jersey to restructure the lease on the properties.                Under the                restructuring, the tenant waived its right to exercise its economic                discontinuance option, and we granted the tenant an option to purchase                the                properties in 2007 for $41,900,000. As a result of this restructuring,                we                recognized a $14,754,000 impairment loss in the second quarter of                2005. On                October 11, 2006, Honeywell exercised its option to purchase the                properties. Pursuant to the terms of the option agreement, the sale                of                these properties is scheduled to close February 1, 2007, subject                to                Honeywell’s right to extend. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**2006        Transactions (Continued)**

*Leasing        (Continued)*

| ·   | As                of October 18, 2006, our properties were 97%                leased. |
|--------------------|---------------------------------------------------------------------------------------|
| ·   | From                January 1, 2006 through October 18, 2006: |
|--------------------|---------------------------------------------------------------|
| ·   | we                executed a ten-year lease extension with Raytheon Company commencing                on                January 1, 2009 for approximately 345,000 square feet of office space                and                63% of the parking structure relating thereto located in El Segundo,                California. In connection with the lease extension, the tenant is                obligated to pay annual rent of $4,921,000 from January 2009 through                December 2013, increasing to $5,267,000 for the period from January                2014                to December 2018. The property owner, which is 53% owned by the Operating                Partnership, is required to provide the tenant with $21,500,000 in                tenant                improvement allowances and rent concessions over the next 40 months.                Raytheon Company retained its renewal option for the remaining 37%                of the                space pursuant to its original lease. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | on                July 25, 2006, we entered into a modification of the lease with respect                to                a 390,000 square foot office building leased to Cummins Inc., located                in                Columbus, Indiana. The modification extends the lease term for an                additional ten years beyond the current three years remaining. Annual                rental income from the property will be increased by 9.5% effective                August                2006, with further increases of 5% every three years. In connection                with                this, we provided the tenant with an $11,500,000 tenant improvement                allowance on August 1, 2006. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | we                entered into a lease extension with Federal Express Corporation for                its                521,000 square foot office property located in Memphis, Tennessee                which                provides for an extension of the lease term to June 2019. The per                square                footage rental rate was modified to range between $13.00 and $14.11                per                annum. The tenant retained the right to renew the lease at the end                of the                extended term for four, five-year terms as provided in the original                lease. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | we                entered into a lease renewal with Walgreen’s for its 356,000 square foot                facility located in Windsor, Wisconsin which provides for an extension                of                the lease term to February 2012. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | we                also entered into a lease renewal commencing August 1, 2007 with                Entergy                Gulf States for 125,000 square feet at its 426,000 square foot Beaumont,                Texas property. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | excluding                the transactions discussed above, five tenants representing 13 properties                containing 1,208,000 square feet exercised their renewal                option. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | five                tenants representing six properties containing 1,198,000 square feet                notified us that they would not exercise their renewal option. Our                property located in Toledo, Ohio containing 707,000 square feet was                sold                on September 29, 2006. We have re-let one property representing 68,000                square feet and are currently marketing the remaining properties                for                lease. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | of                the properties for which we were notified in 2005 of non-renewal,                we                successfully entered into leases at four properties comprising 138,000                square feet. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Critical        Accounting Policies and Estimates**

**Recently        Issued Accounting Standards **

*Fair        Value Measurements*

*Accounting        for Uncertainty in Income Taxes-an interpretation of FASB Statement No.        109*
*Accounting        for Income Taxes*

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Recently        Issued Accounting Standards (Continued)**

|                                                      |   | **Pre-Consolidation** | ** ** | **Consolidated** |   |
|-----------------------------------------------------------|--------|-----------------------|------------|------------------|--------|
| Assets:                                                   |   |                  |       |             |   |   |   |
|                                                      |   |                  |       |             |   |   |   |
| Cash                                                      |   | $                     | -          |             | $      | 177 |   |
| Land                                                      |   |                  | -          |             |   | 1,028 |   |
| Building,                  net                            |   |                  | -          |             |   | 18,663 |   |
| Equity                  investment in limited partnership |   |                  | 6,538      |             |   | - |   |
| Deferred                  costs, net                      |   |                  | -          |             |   | 334 |   |
|                                                      |   | $                     | 6,538      |             | $      | 20,202 |   |
|                                                      |   |                  |       |             |   |   |   |
| Liabilities:                                              |   |                  |       |             |   |   |   |
|                                                      |   |                  |       |             |   |   |   |
| Mortgage                  loan                            |   | $                     | -          |             | $      | 13,664 |   |
|                                                      |   | $                     | -          |             | $      | 13,664 |   |

**Results        of Operations**

***Comparison        of the nine months ended September 30, 2006 to the nine months ended September        30, 2005***

*Rental        Income*

*Interest        and Other Income*

----

| **ITEM                    2**. **** | **MANAGEMENT’S                      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS                      OF OPERATIONS                      (Continued)** |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Comparison        of the nine months ended September 30, 2006 to the nine months ended September        30, 2005 (Continued)***

*Management        Fee Income*

*Interest        Expense*

*Loss        from Early Extinguishment of Debt*

*Depreciation*

*Compensation        Expense for Exclusivity Rights*

*Merger        Costs*

----

| **ITEM              2**. **** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                (Continued)** |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations (Continued)**

***Comparison      of the nine months ended September 30, 2006 to the nine months ended September      30, 2005 (Continued)***

*General      and Administrative Expense*

*Operating      Expenses*

*Impairment      Loss*

*Amortization      Expense*

*Ground      Rent*

*State      and Local Taxes*

*Minority      Interest Expense of Partially-Owned Entities*

----

| **ITEM              2**. **** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                (Continued)** |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations (Continued)**

***Comparison      of the nine months ended September 30, 2006 to the nine months ended September      30, 2005 (Continued)***

*Equity      in (Loss) Income from Investments in Limited Partnerships and Joint      Ventures*

*Minority      Interest Expense*

*Discontinued      Operations*

----

| **ITEM                  2**. **** | **MANAGEMENT’S                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                    OPERATIONS                    (Continued)** |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations (Continued)**

***Comparison      of the nine months ended September 30, 2006 to the nine months ended September      30, 2005 (Continued)***

*Discontinued      Operations (Continued)*

***Comparison      of the three months ended September 30, 2006 to the three months ended September      30, 2005***

*Rental      Income*

**.      **

*Interest      and Other Income*

*Management      Fee Income*

*Interest      Expense*

----

| **ITEM                  2**. **** | **MANAGEMENT’S                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                    OPERATIONS                    (Continued)** |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations (Continued)**

***Comparison      of the three months ended September 30, 2006 to the three months ended September      30, 2005 (Continued)***

*Loss      from Early Extinguishment of Debt*

*Depreciation*

*Compensation      Expense for Exclusivity Rights*

*Merger      Costs*

*General      and Administrative Expense*

*Operating      Expenses*

----

| **ITEM                  2**. **** | **MANAGEMENT’S                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                    OPERATIONS                    (Continued)** |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations (Continued)**

***Comparison      of the three months ended September 30, 2006 to the three months ended September      30, 2005 (Continued)***

*Impairment      Loss*

*Amortization      Expense*

*Ground      Rent*

**.      **

*State      and Local Taxes*

*Minority      Interest Expense of Partially-Owned Entities*

*Equity      in (Loss) Income from Investments in Limited Partnerships and Joint      Ventures*

----

| **ITEM                  2**. **** | **MANAGEMENT’S                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                    OPERATIONS                    (Continued)** |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Results      of Operations (Continued)**

***Comparison      of the three months ended September 30, 2006 to the three months ended September      30, 2005 (Continued)***

*Minority      Interest Expense*

*Discontinued      Operations*

----

| **ITEM                  2**. **** | **MANAGEMENT’S                    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                    OPERATIONS                    (Continued)** |
|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Liquidity      and Capital Resources**

*General*

*Cash      Flows*

----

| **ITEM              2**. **** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                (Continued)** |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

**Liquidity      and Capital Resources**

*Cash      Flows (Continued)*

*Dividends      *

*Off-Balance      Sheet Arrangements*

*Capital      Expenditures*

| ·   | During                the first quarter of 2006, we entered into an agreement with Raytheon                Company to provide the tenant with $21,500,000 in tenant improvement                allowances over a 40-month period. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | We                entered into contracts relating to demolition, restroom renovation                and                replacement of ceiling systems for the property located in Bedford,                Texas                for an aggregate anticipated cost of $2,000,000. Approximately $2,000                is                remaining to be expended as of October 18,                2006. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **ITEM              2**. **** | **MANAGEMENT’S                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                (Continued)** |
|------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

**Liquidity      and Capital Resources**

*Capital      Expenditures*

| ·   | On                July 25, 2006, we entered into a modification of lease with respect                to an                office building leased to Cummins Inc. In connection with this, we                provided the tenant with an $11,500,000 tenant improvement allowance                paid                on August 1, 2006. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Adjusted      Funds From Operations**

|                                                                                    |   |   |    |
|-----------------------------------------------------------------------------------------|--------|--------|---------|
| Net                income                                                               |   | $      | 34,442  |   |
|                                                                                    |   |   |    |   |
| Real                estate depreciation                                                 |   |   | 10,348  |   |
| Amortization                of capitalized leasing costs                                |   |   | 1,211   |   |
| Real                estate depreciation of unconsolidated interests                     |   |   | 201     |   |
| Gain                from disposal of real estate                                        |   |   | (15,289 | ) |
| Funds                from operations                                                    |   |   | 30,913  |   |
|                                                                                    |   |   |    |   |
| Add:                Compensation expense incurred for exclusivity                rights |   |   | 752     |   |
|                                                                                    |   |   |    |   |
| Adjusted                funds from operations                                           |   | $      | 31,665  |   |

----

| **ITEM                3**.**** | **QUANTITATIVE                  AND QUALITATIVE DISCLOSURES ABOUT****MARKET                  RISK** |
|--------------------------------|-----------------------------------------------------------------------------------------------------|

|                                                                                                                            |   | -3%    |   | -2%    |   | -1%    |   | 1%     |   | 2%     |   | 3%   |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|
| Change                in consolidated interest expense                                                                          |   | $      | (8,028 | )      | $      | (5,037 | )      | $      | (2,047 | )      | $      | 41   |   | $ | 81 |   | $ | 122 |   |
| Pro-rata                share of change in interest expenses                of debt on non-consolidated                entities |   |   | (1,366 | )      |   | (911   | )      |   | (455   | )      |   | 455  |   |   | 911 |   |   | 1,366 |   |
| Minority                interest share                                                                                          |   |   | 6,569  |   |   | 4,159  |   |   | 1,749  |   |   | (347 | )      |   | (694 | ) |   | (1,041 | ) |
| Proforma                (increase) decrease in net income                                                                       |   | $      | (2,825 | )      | $      | (1,789 | )      | $      | (753   | )      | $      | 149  |   | $ | 298 |   | $ | 447 |   |

| **ITEM                    4.** | **CONTROLS                      AND PROCEDURES** |
|--------------------------------|--------------------------------------------------|

----

| **ITEM                    4.** | **CONTROLS                      AND PROCEDURES                      (Continued)** |
|--------------------------------|-----------------------------------------------------------------------------------|

----

**PART      II - OTHER INFORMATION**

| **ITEM                6.** | **EXHIBITS** |
|----------------------------|--------------|

----

**SIGNATURES**

|                                   |                                      |                                 |
|----------------------------------------|-------------------------------------------|--------------------------------------|
|                                   | NEWKIRK                REALTY TRUST, INC. |
|                              |                                 |                            |
| Dated:                November 8, 2006 | By:                             | /s/                Michael L. Ashner |
|                                   | Michael                L. Ashner          |
|                                   | Chief                Executive Officer    |

|                                   |                                   |                                 |
|----------------------------------------|----------------------------------------|--------------------------------------|
| Dated:                November 8, 2006 | By:                          | /s/                Thomas C. Staples |
|                                   | Thomas                C. Staples       |
|                                   | Chief                Financial Officer |

----

**EXHIBIT      INDEX**

| 2.1    | Agreement                and Plan of Merger dated July 23, 2006, by and among the Company                and                Lexington Corporate Properties Trust                                                                                                                                                                                                                                                                             | (h)    |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|   | Amendment                No. 1 to Agreement and Plan of Merger dated September 11, 2006, by                and                among Newkirk Realty Trust and Lexington Corporate Properties                Trust                                                                                                                                                                                                                             | (j)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 2.3    | Amendment                No. 2 to Agreement and Plan of Merger dated October 13, 2006, by                and among                Newkirk Realty Trust and Lexington Corporate Properties                Trust                                                                                                                                                                                                                               | (k)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 3.1    | Amended                and Restated Articles of Incorporation of the Company                                                                                                                                                                                                                                                                                                                                                                 | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 3.2    | Amended                and Restated By-laws of the Company                                                                                                                                                                                                                                                                                                                                                                                   | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 4.1    | Form                of Certificate of Common Stock                                                                                                                                                                                                                                                                                                                                                                                           | (c)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 4.2    | Form                of Special Voting Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                        | (c)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.1   | Advisory                Agreement, dated as of November 7, 2005, by and between the Company,                The                Newkirk Master Limited Partnership and NKT Advisors LLC.                                                                                                                                                                                                                                                      | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.2   | Acquisition                Agreement, dated as of November 7, 2005, between the Company and                First                Union Real Estate Equity and Mortgage Investments ("First Union")                (incorporated by reference to Exhibit 10.4 to First Union's Current                Report                on Form 8-K filed with the Securities and Exchange Commission on                November                10, 2005). | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.3   | Amended                and Restated Agreement of Limited Partnership of The Newkirk Master                Limited Partnership dated as of November 7, 2005.                                                                                                                                                                                                                                                                                  | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.4   | First                Amendment to Amended and Restated Agreement of Limited Partnership                of The                Newkirk Master Limited Partnership dated June 1, 2006                                                                                                                                                                                                                                                           | (i)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.5   | Registration                Rights Agreement, dated as of November 7, 2005, between the Company                and                Vornado Realty Trust                                                                                                                                                                                                                                                                                       | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.6   | Registration                Rights Agreement dated as of November 7, 2005, between the Company                and                Apollo Real Estate Investment Fund III, L.P. ("Apollo")                                                                                                                                                                                                                                                     | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.7   | Registration                Rights Agreement dated as of November 7, 2005, between the Company                and                First Union.                                                                                                                                                                                                                                                                                                | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.8   | Unit                Purchase Agreement between the Company and Apollo.                                                                                                                                                                                                                                                                                                                                                                       | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.9   | Unit                Purchase Agreement between the Company and WEM-Brynmawr Associates                LLC.                                                                                                                                                                                                                                                                                                                                   | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.10  | Securities                Purchase Agreement between the Registrant and First Union                                                                                                                                                                                                                                                                                                                                                          | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.11  | Exclusivity                Services Agreement between the Company and Michael L.                Ashner.                                                                                                                                                                                                                                                                                                                                      | (d)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
| 10.12  | Lock-Up                Agreement dated November 7, 2005 among First Union and the Underwriters                named therein.                                                                                                                                                                                                                                                                                                                 | (d)    |

----

| 10.13  | Registrant's                2005 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                    | (c)    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.14  | Letter                Agreement among the Registrant, Apollo Real Estate Investment Fund                III,                L.P., The Newkirk Master Limited Partnership, NKT Advisors LLC, Vornado                Realty Trust, VNK Corp., Vornado Newkirk LLC, Vornado MLP GP LLC                and WEM                Brynmawr Associates LLC                                        | (c)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.15  | Master                Loan Agreement, dated August 11, 2005, among The Newkirk Master Limited                Partnership and T-Two Partners, L.P., KeyBank National Association,                Bank                of America, N.A., Lasalle Bank, National Association, and KeyBanc                Capital                Markets                                                      | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.16  | Master                Promissory Note, dated as of August 11, 2005, by The Newkirk Master                Limited Partnership in favor of KeyBank National                Association                                                                                                                                                                                                     | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.17  | Form                of Mortgage, dated as of August 11, 2005, from The Newkirk Master                Limited                Partnership in favor of KeyBank National Association                                                                                                                                                                                                         | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.18  | Ownership                Interest Pledge and Security Agreement, dated as of August 11, 2005,                from                The Newkirk Master Limited Partnership to KeyBank National                Association                                                                                                                                                                   | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.19  | Ownership                Interest Pledge and Security Agreement (Subsidiaries), dated as of                August                11, 2005, from The Newkirk Master Limited Partnership to KeyBank                National                Association                                                                                                                                     | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.20  | Ownership                Interest Pledge and Security Agreement (Finco, GP and Capital), dated                as                of August 11, 2005, from The Newkirk Master Limited Partnership to                KeyBank                National Association                                                                                                                            | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.21  | Indemnity                Agreement, dated as of August 11, 2005, from The Newkirk Master Limited                Partnership to KeyBank National Association                                                                                                                                                                                                                              | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.22  | Guaranty,                dated as of August 11, 2005, from The Newkirk Master Limited Partnership                to KeyBank National Association with respect to the T-Two                Loan                                                                                                                                                                                           | (b)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.23  | Amendment                to the Letter Agreement among the Registrant, Apollo Real Estate                Investment Fund III, L.P., The Newkirk Master Limited Partnership,                NKT                Advisors LLC, Vornado Realty Trust, Vornado Realty L.P., VNK Corp.,                Vornado Newkirk LLC, Vornado MLP GP LLC, and WEM-Brynmawr Associates                LLC | (c)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.24  | Limited                Liability Company Agreement of 111 Debt Holdings LLC, dated March                31,                2006, among The Newkirk Master Limited Partnership, WRT Realty, L.P.                and                FUR Holdings LLC                                                                                                                                       | (e)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.25  | Master                Repurchase Agreement, dated March 30, 2006, among Column Financial                Inc.,                111 Debt Acquisition LLC, 111 Debt Acquisition Mezz LLC and Newkirk                Realty                Trust, Inc.                                                                                                                                        | (e)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.26  | Loan                Agreement, dated as of April 7, 2006, between The Newkirk Master                Limited                Partnership and KeyBank, National Association                                                                                                                                                                                                                 | (f)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.27  | Guaranty                from Newkirk Realty Trust, Inc. in favor of KeyBank, National                Association                                                                                                                                                                                                                                                                         | (f)    |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
| 10.28  | Master                Repurchase Agreement, dated May 24, 2006, between Bear, Stearns                International Limited and 111 Debt Acquisition-Two LLC                                                                                                                                                                                                                              | (g)    |

----

| 31.    | Certifications                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | *      |
|--------|-----------------------------------------------------------------------------------------|--------|
|   |                                                                                    |   |
| 32.    | Certifications                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | *      |

| (a) | Incorporated                by reference to the Registrant's Registration Statement on Form S-11                (Registration No. 333-127278), filed on August 8, 2005 |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Incorporated                by reference to Amendment No. 1 to the Registrant's Registration                Statement                on Form S-11 (Registration No. 333-127278), filed on August 8, 2005)                or                Form S-11 (Registration No. 333-127278) filed on September 16, 2005 |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | Incorporated                by reference to Amendment No. 5 to the Registrant's Registration                Statement                on Form S-11 (Registration No. 333-127278) filed on October 28, 2005 |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | Incorporated                by reference to the Company's Current Report on 8K filed November                15, 2005 |
|-----|-----------------------------------------------------------------------------------------------------------------------|

| (e) | Incorporated                by reference to the Company's Current Report on 8K filed April 5,                2006 |
|-----|-------------------------------------------------------------------------------------------------------------------|

| (f) | Incorporated                by reference to the Company's Current Report on 8K filed April 12,                2006 |
|-----|--------------------------------------------------------------------------------------------------------------------|

| (g) | Incorporated                by reference to the Company's Current Report on 8K filed May 30,                2006 |
|-----|------------------------------------------------------------------------------------------------------------------|

| (h) | Incorporated                by reference to the Company's Current Report on 8K filed July 24,                2006 |
|-----|-------------------------------------------------------------------------------------------------------------------|

| (i) | Incorporated                by reference to the Company's Quarterly Report on Form 10Q for the                period                ended June 30, 2006. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| (j) | Incorporated                by reference to the Company's Current Report on 8K filed September                13,                2006 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

| (k) | Incorporated                    by reference to the Company's Current Report on 8K filed October                    13,                    2006. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------|