**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

**FORM 10-Q**

**x****                             ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterlyperiod ended June 30, 2007**

**o****                                ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transitionperiod from                to                **

**Commission filenumber 001-32290**

 

**GMHCOMMUNITIES TRUST**

(ExactName of Registrant as Specified in Its Charter)

| **Maryland**                                                     |   | **201181390**                      |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  Jurisdiction of  Incorporation or Organization) |   | (IRS Employer  Identification No.) |
|                                                             |   |                               |
| **10  Campus Boulevard, Newtown Square, PA**                     |   | **19073**                          |
| (Address of  Principal Executive Offices)                        |   | (Zip Code)                         |

 

Registrant’sTelephone Number, Including Area Code**(610)355-8000**

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  x** **   No  o

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

| Large accelerated filer o |   | Accelerated  filer x |   | Non-accelerated  filer o |
|---------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No x

On August 9, 2007,41,621,594 of the registrant’s common shares of beneficial interest, $0.001 parvalue, were outstanding.

 

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**GMH COMMUNITIES TRUST****INDEX TO FORM 10-Q**
| Cautionary Note Regarding  Forward-Looking Statements                                                |   | ii     |
|------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                 |   |   |
| **Part I —  Financial Information**                                                        |   | 1      |
| Item 1. Financial  Statements                                                                        |   | 1      |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   | 23     |
| Item 3.  Quantitative and Qualitative Disclosure About Market Risk                                   |   | 46     |
| Item 4. Controls and  Procedures                                                                     |   | 46     |
|                                                                                                 |   |   |
| **Part II — Other  Information**                                                           |   | 47     |
| Item 1. Legal Proceedings                                                                            |   | 47     |
| Item  1A. Risk Factors                                                                               |   | 47     |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 |   | 48     |
| Item 3.  Defaults Upon Senior Securities                                                             |   | 48     |
| Item 4.  Submission of Matters to a Vote of Security Holders                                         |   | 48     |
| Item 5. Other Information                                                                            |   | 48     |
| Item  6. Exhibits                                                                                    |   | 48     |
|                                                                                                 |   |   |
| Signatures                                                                                           |   | 50     |

 

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**CAUTIONARY NOTEREGARDING FORWARD-LOOKING STATEMENTS**

Ourdisclosure and analysis in this document and in the documents that are or willbe incorporated by reference into this document contain forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. Forward-looking statements provide our current expectationsor forecasts of future events and are not statements of historical fact. Theseforward-looking statements include information about possible or assumedfuture events, including, among other things, operating or financialperformance, strategic plans and objectives, or regulatory or competitiveenvironments. Statements regarding the following subjects are forward-lookingby their nature:

·       our ability to successfullyimplement our current business strategy, including our ability to acquire andmanage student housing properties and to secure and operate military housingprivatization projects;

·       our projected operatingresults and financial condition;

·       completion of any of ourtargeted acquisitions or development projects, sales of assets, refinancings orjoint venture transactions within our expected timeframe or at all;

·       our ability to obtainfuture financing arrangements on terms acceptable to us, or at all;

·       estimates relating to, andour ability to pay, future dividends;

·       our ability to qualify as aREIT for federal income tax purposes;

·       our understanding of ourcompetition, market opportunities and trends;

·       projected timing andamounts of capital expenditures;

·       the impact of technology onour properties, operations and business.

Theforward-looking statements are based on our beliefs, assumptions andexpectations of our future performance, taking into account the informationcurrently available to us. These beliefs, assumptions and expectations canchange as a result of many possible events or factors, not all of which areknown to us. If a change occurs, our business, financial condition, liquidityand results of operations may vary materially from those expressed in ourforward-looking statements. Factors that could cause actual results todiffer materially from our management’s current expectations include, but arenot limited to:

·       the factors referenced inthe sections of this report titled “Our Business,” “Risk Factors” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”;

·       changes in our businessstrategy, including acquisition, sales, and development activities;

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

·       availability of qualifiedand/or sufficient personnel, including, but not limited, within our accountingstaff;

·       failure to effectivelyremediate any deficiencies in our disclosure controls and procedures andinternal control over financial reporting, or failure to identify additionalmaterial weaknesses and deficiencies in our disclosure controls and proceduresand internal control over financial reporting that could occur in the future;

·       the adverse effects ofpending litigation or any investigation of the Company by the U.S. Securitiesand Exchange Commission, or SEC;

·       unanticipated costsassociated with the acquisition and integration of our student housing propertyacquisitions and development projects, and military housing privatizationprojects;

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·       the effects of militarybase realignment and closures, or deployments, on installations covered by ourmilitary housing privatization projects;

·       high leverage on theentities that own the military housing privatization projects;

·       reductions in governmentmilitary spending;

·       changes in studentpopulation enrollment at colleges and universities or adverse trends in theoff-campus student housing market;

·       changes in the student andmilitary housing industry, interest rates or the general economy;

·       changes in local realestate conditions (including changes in rental rates and the number ofcompeting properties) and the degree and nature of our competition;

·       failure to lease unoccupiedspace in accordance with management’s projections;

·       potential liability underenvironmental or other laws; and

·       the existence of complexregulations relating to our status as a REIT and the adverse consequences of ourfailure to qualify as a REIT.

When we use the words “believe,”“expect,” “may,” “potential,” “anticipate,” “estimate,” “plan,” “will,” “could,”“intend” or similar expressions, we intend to identify forward-lookingstatements. You should not place undue reliance on these forward-lookingstatements. We undertake no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise,except to the extent otherwise required by law.

 

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**PART I —FINANCIAL INFORMATION**

**Item 1.**    FinancialStatements

**GMH COMMUNITIESTRUSTCONSOLIDATED BALANCE SHEETS**(inthousands, except par value and number of shares)
| ** **                                                                                                                                                                                            | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                            | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                                                            | ** ** | ** **              |       |                        |       |
| Real estate investments:                                                                                                                                                                              |       |                    |       |                        |       |
| Student housing  properties                                                                                                                                                                           |       | $                       | 1,435,509  |                        | $          | 1,659,422 |   |
| Accumulated  depreciation                                                                                                                                                                             |       | 76,088                  |       | 66,855                      |       |
|                                                                                                                                                                                                  |       | 1,359,421               |       | 1,592,567                   |       |
| Corporate assets:                                                                                                                                                                                     |       |                    |       |                        |       |
| Corporate assets                                                                                                                                                                                      |       | 9,808                   |       | 9,427                       |       |
| Accumulated  depreciation                                                                                                                                                                             |       | 1,257                   |       | 1,002                       |       |
|                                                                                                                                                                                                  |       | 8,551                   |       | 8,425                       |       |
|                                                                                                                                                                                                  |       |                    |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                            |       | 30,344                  |       | 22,539                      |       |
| Restricted cash                                                                                                                                                                                       |       | 24,956                  |       | 16,955                      |       |
| Accounts and other  receivables, net:                                                                                                                                                                 |       |                    |       |                        |       |
| Related party                                                                                                                                                                                         |       | 16,233                  |       | 17,131                      |       |
| Third party                                                                                                                                                                                           |       | 3,365                   |       | 2,762                       |       |
| Investments in military  housing projects                                                                                                                                                             |       | 51,726                  |       | 37,987                      |       |
| Deferred contract costs                                                                                                                                                                               |       | 1,189                   |       | 2,344                       |       |
| Deferred financing  costs, net                                                                                                                                                                        |       | 5,047                   |       | 5,103                       |       |
| Lease intangibles, net                                                                                                                                                                                |       | 272                     |       | 2,468                       |       |
| Deposits                                                                                                                                                                                              |       | 1,176                   |       | 907                         |       |
| Assets held for sale                                                                                                                                                                                  |       | 39,868                  |       | —                      |       |
| Other assets                                                                                                                                                                                          |       | 5,015                   |       | 4,802                       |       |
| Total assets                                                                                                                                                                                          |       | $                       | 1,547,163  |                        | $          | 1,713,990 |   |
| ** **                                                                                                                                                                                            |       |                    |       |                        |       |
| **LIABILITIES AND BENEFICIARIES’  EQUITY**                                                                                                                                                       |       |                    |       |                        |       |
| Notes payable                                                                                                                                                                                         |       | $                       | 962,451    |                        | $          | 1,028,290 |   |
| Note facility and line  of credit                                                                                                                                                                     |       | 60,205                  |       | 199,435                     |       |
| Accounts payable                                                                                                                                                                                      |       | 3,117                   |       | 3,213                       |       |
| Accrued expenses                                                                                                                                                                                      |       | 27,777                  |       | 27,257                      |       |
| Dividends and  distributions payable                                                                                                                                                                  |       | 12,077                  |       | 12,077                      |       |
| Liabilities related to  assets held for sale                                                                                                                                                          |       | 27,581                  |       | —                      |       |
| Other liabilities                                                                                                                                                                                     |       | 20,022                  |       | 28,446                      |       |
| Total  liabilities                                                                                                                                                                                    |       | 1,113,230               |       | 1,298,718                   |       |
|                                                                                                                                                                                                  |       |                    |       |                        |       |
| Minority interest                                                                                                                                                                                     |       | 165,745                 |       | 157,972                     |       |
| Commitments and  contingencies (Note 9)                                                                                                                                                               |       | —                  |       | —                      |       |
| Beneficiaries’ equity:                                                                                                                                                                           |       |                    |       |                        |       |
| Common shares of  beneficial interest, $0.001 par value; 500,000,000 shares authorized,  41,621,594 and 41,567,146 issued and outstanding at June 30, 2007, and  December 31, 2006, respectively |       | 42                      |       | 42                          |       |
| Preferred  shares—100,000,000 shares authorized, no shares issued or outstanding                                                                                                                 |       | —                  |       | —                      |       |
| Additional paid-in  capital                                                                                                                                                                           |       | 325,746                 |       | 325,347                     |       |
| Cumulative earnings                                                                                                                                                                                   |       | 25,536                  |       | 1,324                       |       |
| Cumulative dividends                                                                                                                                                                                  |       | (83,136                 | )          | (69,413                     | )          |
| Total  beneficiaries’ equity                                                                                                                                                                     |       | 268,188                 |       | 257,300                     |       |
| Total liabilities and  beneficiaries’ equity                                                                                                                                                     |       | $                       | 1,547,163  |                        | $          | 1,713,990 |   |

 

See accompanying notes to consolidated financialstatements.

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**GMH COMMUNITIESTRUSTCONSOLIDATED STATEMENTS OF OPERATIONS**(Unauditedand in thousands, except share and per share information)
| ** **                                                                                                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenue:**                                                                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| Rent and other  property income                                                                                                     |       | $                                                   | 46,917     |                                              | $          | 39,750 |   | $ | 98,382 |   | $ | 79,409 |   |
| Expense  reimbursements:                                                                                                            |       |                                                |       |                                              |       |   |   |   |   |
| Related party                                                                                                                       |       | 16,639                                              |       | 17,675                                            |       | 34,038 |   | 31,055 |   |
| Third party                                                                                                                         |       | 1,357                                               |       | 1,389                                             |       | 2,803 |   | 2,725 |   |
| Management fees:                                                                                                                    |       |                                                |       |                                              |       |   |   |   |   |
| Related party                                                                                                                       |       | 2,617                                               |       | 2,101                                             |       | 5,038 |   | 4,140 |   |
| Third party                                                                                                                         |       | 656                                                 |       | 647                                               |       | 1,334 |   | 1,655 |   |
| Other fee  income-related party                                                                                                     |       | 7,435                                               |       | 5,581                                             |       | 13,573 |   | 10,261 |   |
| Other income                                                                                                                        |       | 196                                                 |       | 51                                                |       | 424 |   | 141 |   |
| Total revenue                                                                                                                       |       | 75,817                                              |       | 67,194                                            |       | 155,592 |   | 129,386 |   |
| **Operating Expenses:**                                                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Property  operating expenses                                                                                                        |       | 21,623                                              |       | 17,713                                            |       | 43,766 |   | 34,171 |   |
| Reimbursed  expenses                                                                                                                |       | 17,996                                              |       | 19,064                                            |       | 36,841 |   | 33,780 |   |
| Real estate  taxes                                                                                                                  |       | 4,492                                               |       | 3,917                                             |       | 9,394 |   | 7,660 |   |
| Administrative  expenses                                                                                                            |       | 4,496                                               |       | 4,931                                             |       | 9,366 |   | 9,011 |   |
| Audit Committee  and Special Committee expenses                                                                                     |       | —                                              |       | 2,301                                             |       | — |   | 4,876 |   |
| Depreciation and  amortization                                                                                                      |       | 11,308                                              |       | 9,826                                             |       | 23,113 |   | 19,298 |   |
| Interest                                                                                                                            |       | 15,746                                              |       | 10,839                                            |       | 33,221 |   | 20,968 |   |
| Total operating  expenses                                                                                                           |       | 75,661                                              |       | 68,591                                            |       | 155,701 |   | 129,764 |   |
| Gain on sale to joint  venture                                                                                                      |       | 21,773                                              |       | —                                            |       | 21,773 |   | — |   |
| Income (loss) from  continuing operations before equity in earnings of unconsolidated entities,  income taxes and minority interest |       | 21,929                                              |       | (1,397                                            | )          | 21,664 |   | (378 | ) |
| Equity in earnings of  unconsolidated entities                                                                                      |       | 1,230                                               |       | 1,174                                             |       | 2,259 |   | 2,390 |   |
| Income (loss) from  continuing operations before income taxes and minority interest                                                 |       | 23,159                                              |       | (223                                              | )          | 23,923 |   | 2,012 |   |
| Income taxes                                                                                                                        |       | 1,327                                               |       | 1,214                                             |       | 2,852 |   | 2,187 |   |
| Income (loss) from  continuing operations before minority interest                                                                  |       | 21,832                                              |       | (1,437                                            | )          | 21,071 |   | (175 | ) |
| Less minority interest  attributable to continuing operations                                                                       |       | 9,431                                               |       | (627                                              | )          | 9,103 |   | (79 | ) |
| Net Income (loss)  income from continuing operations                                                                                |       | 12,401                                              |       | (810                                              | )          | 11,968 |   | (96 | ) |
| **Discontinued Operations:**                                                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| Income from  discontinued operations before minority interest                                                                       |       | 1,175                                               |       | 478                                               |       | 2,164 |   | 1,265 |   |
| Gain on sale of  student housing properties                                                                                         |       | 19,390                                              |       | —                                            |       | 19,390 |   | — |   |
| Less minority  interest attributable to discontinued operations                                                                     |       | 8,883                                               |       | 209                                               |       | 9,311 |   | 570 |   |
| Income from  discontinued operations                                                                                                |       | 11,682                                              |       | 269                                               |       | 12,243 |   | 695 |   |
| Net income (loss)                                                                                                                   |       | $                                                   | 24,083     |                                              | $          | (541 | ) | $ | 24,211 |   | $ | 599 |   |
| Earnings(loss) per  common share-basic                                                                                              |       |                                                |       |                                              |       |   |   |   |   |
| Continuing  operations                                                                                                              |       | $                                                   | 0.30       |                                              | $          | (0.02 | ) | $ | 0.29 |   | $ | 0.00 |   |
| Discontinued  operations                                                                                                            |       | 0.28                                                |       | 0.01                                              |       | 0.29 |   | 0.01 |   |
|                                                                                                                                |       | $                                                   | 0.58       |                                              | $          | (0.01 | ) | $ | 0.58 |   | $ | 0.01 |   |
| Earnings(loss) per  common share-diluted                                                                                            |       |                                                |       |                                              |       |   |   |   |   |
| Continuing  operations                                                                                                              |       | $                                                   | 0.30       |                                              | $          | (0.02 | ) | $ | 0.29 |   | $ | 0.00 |   |
| Discontinued  operations                                                                                                            |       | 0.28                                                |       | 0.01                                              |       | 0.29 |   | 0.01 |   |
|                                                                                                                                |       | $                                                   | 0.58       |                                              | $          | (0.01 | ) | $ | 0.58 |   | $ | 0.01 |   |
| Weighted-average shares  outstanding during the period:                                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                                                                                               |       | 41,503,312                                          |       | 40,872,036                                        |       | 41,498,941 |   | 40,275,829 |   |
| Diluted                                                                                                                             |       | 73,119,138                                          |       | 73,097,859                                        |       | 73,119,138 |   | 73,537,988 |   |
| Common share dividend declared per share                                                                                            |       | $                                                   | 0.165      |                                              | $          | 0.2275 |   | $ | 0.33 |   | $ | 0.455 |   |

 

See accompanying notes to consolidated financialstatements.

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**GMH COMMUNITIESTRUSTCONSOLIDATED STATEMENTS OF CASH FLOWS**(Unauditedand in thousands)
| ** **                                                                                                     | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Cash flows from operating  activities:**                                                                     |       |                                              |       |   |   |
| Net income                                                                                                     |       | $                                                 | 24,211     |   | $ | 599 |   |
| Minority interest                                                                                              |       | 18,414                                            |       | 491 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities from continuing  operations: |       |                                              |       |   |   |
| Gain on sale to  joint venture                                                                                 |       | (21,773                                           | )          | — |   |
| Gain on sale of  student housing properties                                                                    |       | (19,390                                           | )          | — |   |
| Depreciation                                                                                                   |       | 20,868                                            |       | 15,926 |   |
| Amortization:                                                                                                  |       |                                              |       |   |   |
| Lease  intangibles                                                                                             |       | 1,975                                             |       | 3,140 |   |
| Investment in  military housing projects                                                                       |       | 257                                               |       | 233 |   |
| Notes payable  fair value adjustment                                                                           |       | (2,111                                            | )          | (1,251 | ) |
| Deferred loan  costs                                                                                           |       | 2,296                                             |       | 638 |   |
| Restricted  shares                                                                                             |       | 188                                               |       | 75 |   |
| Allowance for  doubtful accounts                                                                               |       | 1,284                                             |       | 957 |   |
| Equity in  earnings of unconsolidated entities in excess of distributions received                             |       | (748                                              | )          | (1,818 | ) |
| Changes in  operating assets and liabilities from continuing operations:                                       |       |                                              |       |   |   |
| Restricted cash                                                                                                |       | (8,001                                            | )          | (1,956 | ) |
| Accounts and  other receivables                                                                                |       | (1,014                                            | )          | (238 | ) |
| Deferred  contract costs                                                                                       |       | 1,155                                             |       | (823 | ) |
| Deposits and  other assets                                                                                     |       | (3,056                                            | )          | (4,958 | ) |
| Accounts payable                                                                                               |       | 56                                                |       | (1,040 | ) |
| Accrued expenses  and other liabilities                                                                        |       | (6,821                                            | )          | 9,370 |   |
| Net cash  provided by discontinued operations                                                                  |       | (239                                              | )          | 1,721 |   |
| Net cash  provided by operating activities                                                                     |       | 7,551                                             |       | 21,066 |   |
| **Cash flows from investing  activities:**                                                                     |       |                                              |       |   |   |
| Property  acquisitions                                                                                         |       | (1,291                                            | )          | (75,429 | ) |
| Property  dispositions                                                                                         |       | 111,452                                           |       | — |   |
| Capitalized  expenditures                                                                                      |       | (4,905                                            | )          | (24,998 | ) |
| Distributions  received in excess of earnings of unconsolidated entities                                       |       | 729                                               |       | — |   |
| Investments in  military housing projects                                                                      |       | (13,850                                           | )          | — |   |
| Discontinued  operations                                                                                       |       | (101                                              | )          | (563 | ) |
| Net cash used in  investing activities                                                                         |       | 92,034                                            |       | (100,990 | ) |
| **Cash flows from financing  activities:**                                                                     |       |                                              |       |   |   |
| Owner  distributions                                                                                           |       | (24,152                                           | )          | (32,454 | ) |
| Redemption of  unitholders                                                                                     |       | —                                            |       | (45 | ) |
| Proceeds from  note facility/line of credit                                                                    |       | 110,705                                           |       | 93,000 |   |
| Repayment of  note facility/line of credit                                                                     |       | (249,935                                          | )          | (36,000 | ) |
| Proceeds from  notes payable                                                                                   |       | 121,600                                           |       | 60,389 |   |
| Repayment of  notes payable                                                                                    |       | (47,018                                           | )          | (1,772 | ) |
| Payment of  financing costs                                                                                    |       | (2,519                                            | )          | (357 | ) |
| Discontinued  operations                                                                                       |       | (461                                              | )          | (409 | ) |
| Net cash  provided by financing activities                                                                     |       | (91,780                                           | )          | 82,352 |   |
| Net increase (decrease)  in cash and cash equivalents                                                          |       | 7,805                                             |       | 2,428 |   |
| Cash and cash equivalents,  beginning of period                                                                |       | 22,539                                            |       | 2,240 |   |
| Cash and cash  equivalents, end of period                                                                      |       | $                                                 | 30,344     |   | $ | 4,668 |   |
|                                                                                                           |       |                                              |       |   |   |
| **Supplemental information:**                                                                                  |       |                                              |       |   |   |
| Real estate  acquired by assuming debt, including debt premium                                                 |       | $                                                 | —     |   | $ | 46,963 |   |
| Cash paid for  interest                                                                                        |       | $                                                 | 34,352     |   | $ | 22,258 |   |
| Cash paid for taxes                                                                                            |       | $                                                 | 2,378      |   | $ | 2,270 |   |

* *

*See accompanying notes to consolidated financialstatements.*

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**GMHCOMMUNITIES TRUST**

Notesto Consolidated Financial StatementsJune 30, 2007(Unaudited)

**1. Organization and Basis ofPresentation**

***Organization***

GMHCommunities Trust (the “Trust,” the “Company,” or sometimes referred toas “we”) conducts substantially all of its operations through its operatingpartnership, GMH Communities, LP, a Delaware limited partnership (the “OperatingPartnership”). As of June 30, 2007, the Operating Partnership had 73,206,211units of partnership interest outstanding, of which the Trust owned 41,040,425units of limited partnership interest; and through a wholly-owned subsidiary,GMH Communities GP Trust, the Trust owned 581,169 units of general partnershipinterest, which represents 100% of the general partnership interest in the OperatingPartnership. As of June 30, 2007, there were 31,584,617 units of limitedpartnership interest outstanding that were not owned by the Company.

We,through the Operating Partnership and its subsidiaries, are a self-advised,self-managed, specialty housing company that focuses on providing housing tocollege and university students residing off-campus and to members of the U.S.military and their families located on or near military bases throughout theUnited States. Through the Operating Partnership, we own and operate ourstudent housing properties and the interests in joint ventures that ownmilitary housing privatization projects (“military housing projects”).

***Basis of Presentation***

Theconsolidated financial statements have been prepared by the Company withoutaudit except as to the balance sheet as of December 31, 2006, which has beenderived from audited data, pursuant to the rules and regulations of the U.S.Securities and Exchange Commission (“SEC”). Certain information and footnotedisclosures normally included in the financial statements prepared inaccordance with accounting principles generally accepted in the United Stateshave been condensed or omitted pursuant to such rules and regulations, althoughthe Company believes that the included disclosures are adequate to make theinformation presented not misleading. In the opinion of management, alladjustments (consisting solely of normal recurring matters) necessary for afair presentation of the financial position of the Company as of June 30, 2007,the results of its operations for the three-month and six-month periods endedJune 30, 2007 and June 30, 2006 and its cash flows for the six-month periodsended June 30, 2007 and June 30, 2006 have been included.  The results of operations for such interimperiods are not necessarily indicative of the results for a full year. Theseconsolidated financial statements should be read in conjunction with theCompany’s consolidated financial statements and notes to the financialstatements included in the Company’s Annual Report on Form 10-K for the yearended December 31, 2006.

**2. Summary of Significant AccountingPolicies**

***Use of Estimates***

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

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

We carry real estateinvestments and corporate assets at cost, net of accumulated depreciation. Costof acquired assets includes the purchase price and related closing costs. Weallocate the cost of real estate investments to net tangible and identifiedintangible assets based on relative fair values in accordance with SFASNo. 141, *Business Combinations*(“SFAS 141”).We estimate fair value based on information obtained from a number of sources,including our due diligence, marketing and leasing activities, independentappraisals that may be obtained in connection with the acquisition or financingof the respective property, and other market data.

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The value of in-placeleases is based on the difference between (i) the property valued withexisting in-place leases and (ii) the property valued as if vacant. Aslease terms typically are 12 months or less, actual rates on in-placeleases generally approximate market rental rates. Factors that we consider inthe valuation of in-place leases include an estimate of incremental carrying costsduring the expected lease-up periods considering current market conditions andnature of the tenancy. Purchase prices of student housing properties to beacquired are not expected to be allocated to tenant relationships consideringthe terms of the leases and the expected levels of renewals. We amortize thevalue of in-place leases to expense over the remaining term of the respectiveleases, which is generally one year or less. Accumulated amortization relatedto intangible lease costs was $4.2 million at June 30, 2007 and  $2.0 million at December 31, 2006.

We expense routine repairand maintenance expenditures that do not improve the value of an asset orextend its useful life, including turnover costs. We capitalize expendituresthat improve the value and extend the useful life of an asset. We computedepreciation using the straight-line method over the estimated useful lives ofthe assets, which is generally 40 years for buildings, including studenthousing properties and the commercial office building, and three to five yearsfor residential furniture and appliances. Commencing towards the end of thesecond quarter and more significantly during the third quarter of each fiscalyear, the Company typically will experience an increase in property operating expensesover other quarters as a result of repair and maintenance expenditures relatingto turnover of units at student housing properties. The Company’s studenthousing lease terms generally commence in August and September tocoincide with the beginning of the academic year for the various institutions.  Accordingly, the Company expects to incur amajority of its repair and maintenance costs in the second and third quartersto prepare for new residents.

In accordance withSFAS 144, *Accounting for the Impairmentor Disposal of Long-Lived Assets*, long-lived assets, such as realestate investments and purchased intangibles subject to amortization, arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. These circumstances mayinclude, but are not limited to, operational performance, market conditions andcompetition from other off-campus properties and on-campus housing, legal andenvironmental concerns, and results of appraisals or other information obtainedas part of a financing or disposition strategy. When required, we reviewrecoverability of assets to be held and used through a comparison of thecarrying amount of an asset to estimated undiscounted future cash flowsexpected to be generated by the asset. If the carrying amount of an assetexceeds its estimated undiscounted future cash flows, an impairment charge isrecognized in an amount by which the carrying value of the asset exceeds thefair value of the asset determined using customary valuation techniques, suchas the present value of expected future cash flows. Assets to be disposed ofwould be separately presented in the balance sheet as assets held for sale andreported at the lower of the carrying amount or fair value less costs to sell,and no longer would be depreciated.

***Cash Equivalents***

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

***Restricted Cash***

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

***Allowance for Doubtful Accounts***

We estimate thecollectibility of receivables generated by rental and other income as a resultof the operation of our student housing properties. If we believe that thecollectibility of certain amounts is questionable, we record a specific reservefor these amounts to reduce the amount outstanding to an amount we believe willbe collectible and a reserve for all other accounts based on a range ofpercentages applied to aging categories, which is based on historicalcollection and write-off experience.

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

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Accounts receivable arepresented net of the allowance for doubtful accounts of $419,000 and $331,000at June 30, 2007 and December 31, 2006, respectively.

***Deferred Financing Costs***

Costs incurred inconnection with obtaining financing are deferred and amortized on astraight-line basis over the term of the related loan, which is not materiallydifferent than the effective interest method. Amortization of deferredfinancing costs is included in interest expense. Accumulated amortization ofdeferred financing costs was $1.3 million and $2.9 million at June 30,2007 and December 31, 2006, respectively.

***Deferred Contract Costs***

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

***Deposits***

Deposits primarilyconsist of amounts paid to third parties in connection with plannedacquisitions or joint venture transactions, amounts paid to lenders thatprovide related financing or the refinancing of existing loans and depositspaid to utility companies. At June 30, 2007, deposits for planned acquisitionstotaled $371,000 and other deposits totaled $805,000.  At December 31, 2006, deposits forplanned acquisitions totaled $155,000 and other deposits totaled $752,000.

***Fair Value of Financial Instruments***

The carrying amount ofcash and cash equivalents, restricted cash, accounts and other receivables,deposits, other assets, accounts payable, accrued expenses, dividends anddistributions payable and other liabilities approximate fair value because ofthe relatively short-term nature of these instruments.

Debt assumed inconnection with property acquisitions is recorded at fair value at the date ofacquisition and the resulting premium or discount is amortized through interestexpense over the remaining term of the debt, resulting in a non-cash decrease(in the case of a premium) or increase (in the case of a discount) in interestexpense.

The carrying value andfair value of fixed-rate notes payable at June 30, 2007 were approximately $0.9million and $0.9 million, respectively. Fair value was estimated using rates the Company believed were availableto it as of June 30, 2007 for debt with similar terms. The carrying value ofvariable-rate notes payable approximates fair value at June 30, 2007.

***Advertising Costs***

Advertising costs areexpensed as incurred.

***Revenue Recognition***

**Student Housing OwnedProperties Segment**

Rental revenue isrecognized when due over the lease terms, which are generally 12 months orless.

Other property income,including, but not limited to, lease processing fees, move-in fees,  utility reimbursements and activity fees isrecognized as earned throughout the course of the year. The timing of thesefees typically fluctuates in relation to the academic year leasing cycle.

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**Student Housing ManagedProperties Segment**

Standard management feesare based on a percentage of monthly cash receipts or gross monthly rental andother revenues generated by the properties managed for others. We recognizethese fees on a monthly basis as the services are performed.

Incentive management feesare earned as a result of the achievement of certain operating performancecriteria over a specified period by certain managed properties, includingtargeted annual debt service coverage ratios of the properties. We recognizethese fees at the amount that would be due under the contract if the contracthad been terminated on the balance sheet date.

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

**Military Housing Segment**

Standard and incentivemanagement fees, which are based on a percentage of effective gross revenuegenerated by the military housing privatization projects from the basicallowance for housing (BAH) provided by the government to service members arerecognized when the revenue is earned by the military housing projects.Incentive management fees are based upon the satisfaction of certain criteriaincluding, among other things, satisfying designated benchmarks relating toemergency work order response, occupancy rates, home turnover and residentsatisfaction surveys. Incentive management fees are recognized when the variouscriteria stipulated in the management contract have been satisfied. Accrued andunbilled incentive management fees of $1.2 million and $1.0 million are included in accountsreceivable—related party at June 30, 2007 and December 31, 2006,respectively.

Standard and incentive development andconstruction/renovation fees, which are based on a percentage of developmentand construction/renovation costs incurred by the military housing projects,including hard and soft costs and financing costs, are recognized on a monthlybasis as the costs are incurred by the military housing projects. Incentivedevelopment and construction/renovation fees are based upon the satisfaction ofcertain criteria including, among other things, completing a number of housesaccording to schedule, achieving specific safety records and implementing smallbusiness or minority subcontracting plans. Incentive development andconstruction/renovation fees are recognized when the various criteriastipulated in the contract have been satisfied. Accrued and unbilled incentivedevelopment and construction/renovation fees of $3.2 million and $2.3 millionare included in accounts receivable—related party at June 30, 2007 andDecember 31, 2006, respectively.

Revenues on ourrenovation contracts are recorded on the percentage-of-completion method. Whenthe percentage-of-completion method is used, contract revenue is recognized inthe ratio that costs incurred to date bear to estimated costs at completion.Adjustments to cost estimates are made in the period in which the factsrequiring such revisions become known. When the revised estimates indicate aloss, such loss is currently provided for in its entirety.

Business development feesare earned from our business partners that provide architectural and design orconstruction services for the Company’s military housing projects. The feesconsist of (i) an annual base fee, which is a fee paid to the Company inconsideration of the Company’s ongoing pursuit of additional projects and isnot contingent upon the success of those efforts and can be cancelled at anytime, and (ii) an additional fee, which is paid over the course of anawarded project based on a percentage of revenue earned by these businesspartners for providing services to the Company’s military housing projects. Thebase fees are recognized on a straight-line basis over the term of the relatedbusiness development agreement, which is generally one year. The additional feeis recognized and paid to us as the related services are provided to ourmilitary housing projects by our business partners.

In certain instances, theCompany may receive fees relating to the performance ofpre-construction/renovation services. These pre-construction/renovation feesare determined on a project-by-project basis, and are (i) paid inproportion to the amount of pre-construction/renovation costs incurred by usfor the project, and (ii) recognized as revenue upon performance of thepre-construction/renovation services.

The Company earns equityreturns on its investments in military housing projects. During the initialdevelopment period for certain of our projects (“IDP”), the equity returns area fixed percentage of our investment and subsequent to the 

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IDPfor a project, the equity returns are based on a fixed percentage of ourinvestment and on the project’s net operating income, subject to cashdistribution caps, as defined in the operating agreements related to theparticular project. As of June 30, 2007, only the Fort Carson project hadpassed its IDP.

Expense reimbursementsare comprised primarily of renovation expenses and property managementexpenses, the costs of which are reimbursed by the military housing projects towhich they relate. The expenses include payments to third parties forrenovation services, and include salaries and related costs of the Company’semployees that are managing the renovation and property management services.The Company accrues expense reimbursements as the related expenses areincurred.

***Minority Interest***

Minority interest asinitially reported at the date of our initial public offering represented thenet equity of the Operating Partnership, including the proceeds received fromthe sale of a warrant to Vornado Realty LP, multiplied by the ownershippercentage of holders of limited partnership units in the Operating Partnershipother than the Company. The Operating Partnership is obligated to redeem, atthe request of a holder, each unit of limited partnership interest for cash orcommon shares on a one-for-one basis, at the Company’s option, subject toadjustments for share splits, dividends, recapitalizations and similar events;except that Gary M. Holloway, Sr. has the right to require the OperatingPartnership to redeem his and his affiliates’ units of limited partnershipinterest for common shares, subject to his restriction from owning more than20% of the Company’s outstanding common shares. If the minority interestunitholders’ share of a current year loss would cause the minority interestbalance to be less than zero, the minority interest balance will be reported aszero unless there is an obligation of the minority interest holders to fundthose losses. Any losses in excess of the minority interest will be chargedagainst equity. If future earnings materialize, equity will be credited for allearnings up to the amount of those losses previously absorbed. Distributions tolimited partnership unitholders other than the Company are recorded as areduction to minority interest.

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

The Company owns equityinterests in the joint ventures that own our military housing projects with theU.S. military to design, develop, construct/renovate and manage the militaryfamily housing located on or near various bases throughout the United States.The Company evaluates its investments in military housing project joint venturesin which we have a variable interest to determine if the underlying entity is avariable interest entity (“VIE”) as defined under FASB Financial InterpretationNo. 46 (as revised) (“FIN 46(R)”). The Company has concluded thateach of the project joint ventures in which it has a variable interest is a VIEand that the Company is not the primary beneficiary of any of these VIEs. TheCompany records its investments in joint ventures under its military housingprojects in accordance with the equity method of accounting. The Company’sinvestment is initially recorded at cost, and then subsequently adjusted ateach balance sheet date to an amount equal to what the Company would receivefrom the joint venture in the event that the project were liquidated at net bookvalue as of that date, and assuming that the proceeds from the liquidation aredistributed in accordance with the terms of, and priority of returns set forthunder, the joint venture’s operating agreement. The Company has exposure toloss to the extent of its investments, if any, and any receivables due from theproject.

With respect to thestudent housing business, the Company entered into a joint venture in the thirdquarter of 2005 to develop and construct two student housing properties. TheCompany contributed land to the joint venture in exchange for its 10% interestin the joint venture and cash. The Company has the option to purchase theequity interest of its joint venture partner within one year of completion ofthe properties, and the Company provided certain guarantees for a portion ofthe construction loans.  Construction wascompleted in August 2006. As such, the transaction is being accounted for as afinancing arrangement, whereby the Company records the real estate as an asset,depreciates the property, and records a financing obligation. The Company didnot exercise its purchase option which expired in August 2007 and as such thetransaction will no longer be accounted for as a financing transactioncommencing in the third quarter of 2007.

In addition, the Companyentered into a joint venture in April 2007 with Fidelity Real Estate Group,pursuant to which the Company transferred its 100% interest in six studenthousing properties into the joint venture in exchange for cash and a 10% interestin the joint venture entity. The Company records its investment in this jointventure under the equity method of accounting. As part of the transaction, the Company recorded a deferred gain ofapproximately $2.4 million.  As of June30, 2007, our investment was approximately $305,000, which is recorded net ofthe deferred gain and is included in other assets on the consolidated balancesheet.

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***Income Taxes***

The Company elected to betaxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”),commencing with its taxable year ended December 31, 2004. To continue toqualify as a REIT, we must meet a number of organizational and operationalrequirements, including a requirement that we currently distribute at least 90%of our adjusted taxable income to our shareholders. We believe we are organizedand operate in a manner that allows us to qualify for taxation as a REIT underthe Code, and it is our intention to adhere to these requirements and maintainthe Company’s REIT status in the future. Accordingly, no provision has beenmade for federal income taxes in the accompanying consolidated financialstatements, other than with respect to the Company’s taxable REIT subsidiaries.

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

During the first quarterof 2006, the Audit Committee of our Board of Trustees initiated aninvestigation promptly following receipt of a letter from the Company’s formerchief financial officer, alleging, among other things, a “tone-at-the-top”problem within management, and raising concerns regarding various accountingmethodologies that were being considered by management in connection withcertain transactions that occurred in the fourth quarter of 2005. The AuditCommittee conducted the investigation with the assistance of independent legalcounsel, as well as a forensic accounting firm retained by the Audit Committee’scounsel. The investigation was completed during the third quarter of 2006.

During 2006, the Board ofTrustees formed a Special Committee to explore strategic alternatives for theCompany. The Special Committee was disbanded in December 2006.

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

***Adoption of Recent Accounting Pronouncements***

Effective January 1,2007, we adopted the Financial Accounting Standards Board (“FASB”)Interpretation No. 48,*“Accounting forUncertainty in Income Taxes,*” (FIN 48), which prescribesdetailed guidance for the financial statement recognition, measurement anddisclosure of uncertain tax positions recognized in an enterprise’s financialstatements in accordance with SFAS No. 109,*“Accounting for Income Taxes.”* Tax positions must meet amore-likely-than-not recognition threshold at the effective date to berecognized upon the adoption of FIN 48 and in subsequent periods.  Under FIN 48, the Company determined thatthere were no uncertain tax positions recognized in the consolidated financialstatements and therefore there was no impact of the adoption of FIN 48 on itsconsolidated financial statements.

***Recent Accounting Pronouncements***

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (“SFAS 157”). SFAS 157 defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements.SFAS 157 applies where other accounting pronouncements require or permitfair value measurements. This statement is effective for financial statementsissued for fiscal years beginning after November 15, 2007, which for theCompany is January 1, 2008, and interim periods within those fiscal years.The Company has not yet evaluated the impact if any,  this statement will have on its consolidatedfinancial statements.

InFebruary 2007, the FASB issued SFAS No. 159, *The FairValue Option for Financial Assets and Financial Liabilities* (“SFAS159”). SFAS 159 provides entities with an option to measure many financialassets and liabilities and certain other items at fair value as determined on aninstrument-by-instrument basis. The Company has not yet evaluated the impact,if any, this standard might have on the Company’s consolidated financialstatements once it becomes effective on January 1, 2008.

***Reclassifications***

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

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**3. Real Estate Investments**

Included in real estateinvestments as of June 30, 2007, are 63 student housing properties that theCompany owns and two student housing properties that the Company has equityinterests in and accounts for as a deferred financing obligation, located near42 colleges and universities in 24 states. These 65 properties contain anaggregate of 12,283 units and 39,302 beds.  At December 31, 2006, included in real estateinvestments were 77 student housing properties. The Company’s investment in student housing properties at June30, 2007 and December 31, 2006 was as follows (in thousands):

|                                       | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Land                                  |       | $                       | 151,048    |                        | $          | 168,579 |   |
| Building and  improvements            |       | 1,242,318               |       | 1,444,349                   |       |
| Residential furniture  and appliances |       | 39,834                  |       | 44,902                      |       |
| Construction in  progress             |       | 2,309                   |       | 1,592                       |       |
|                                  |       | $                       | 1,435,509  |                        | $          | 1,659,422 |   |

 

**4.  Dispositions**

Duringthe second quarter of 2007, the Company entered into a joint venturetransaction with Fidelity Real Estate Group, a unit of Pyramis Global Advisors,a Fidelity Investments Company, encompassing six student housing properties.Under the joint venture structure, the Company completed the transfer of its100% interest in six student housing properties into the joint venture entityduring the second quarter of 2007, which is now owned 90% by Fidelity and 10%by the Company.  The Company recognized apartial gain of $21.8 million and a deferred gain of $2.4 million in connectionwith this transaction.  As part of thetransaction, the joint venture entity simultaneously placed new mortgageindebtedness on five of the properties in an aggregate amount of approximately$88.0 million, and assumed previously existing mortgage indebtedness on a sixthproperty in the amount of approximately $4.6 million. The new mortgage debt hasa five-year term and requires interest-only payments at a fixed rate ofapproximately 5.52%. After the repayment of previously existing mortgageindebtedness on the properties of approximately $50.9 million, the Companyreceived net proceeds from both the Fidelity equity contribution and the newmortgage debt totaling approximately $61.3 million, and has used these proceedsto repay $56.1 million indebtedness outstanding under the former line of creditand $5.2 million indebtedness outstanding under the Company’s Note Facility(See Note 7).    Under the terms of thejoint venture, the Company will continue to manage the properties and receivemanagement fees.

Alsoduring the second quarter of 2007, the Company completed the sale of fourstudent housing properties to SCI Real Estate Investments LLLC, pursuant to anagreement to sell a total of five student housing properties.  The Company received an aggregate ofapproximately $45.1 million in net proceeds from these initial sales, after therepayment of existing mortgage debt on the properties totaling approximately$57.3 million, and recognized a gain of $19.4 million.  The sales agreement contains certaincontingent purchase price considerations that can be earned based on certainnet rental income targets being met as defined in the agreement.  Total amount of  potential contingent consideration is $1.5million and can be earned through August 2009. A portion of the net proceedswas used to repay indebtedness outstanding under the Company’s NoteFacility.  The fifth property salepursuant to this agreement was completed in early July 2007 in which theCompany received net proceeds of approximately $12.3 million after the buyersassumption of existing mortgage debt on the property of approximately $11.4million (see Note 13).

Also during July 2007,the Company completed the sale of a student housing property to a third partyand received net proceeds of approximately $9.9 million, after the buyer’s assumptionof existing mortgage indebtedness on the property totaling approximately $16.1million. (See Note 13)

The assets held for saleat June 30, 2007 represent the two properties that were sold subsequent to June30, 2007 and the amounts included in the balance sheet are as follows (inthousands):

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** **

|                                       | ** ** | **June 30,** | ** ** |
|---------------------------------------|------------|-------------------|------------|
| ** **                            | ** ** | **2007**          | ** ** |
| Land                                  |       | $                 | 3,782      |   |
| Building and  improvements            |       | 36,114            |       |
| Residential furniture  and appliances |       | 1,121             |       |
|                                  |       | 41,017            |       |
| Less accumulated  depreciation        |       | (1,149            | )          |
| Assets held for sales                 |       | $                 | 39,868     |   |

 

At June 30, 2007, included in liabilities related tothe two assets held for sale, were notes payable totaling $27.6 million whichwere secured by the two student housing properties with a cost basis of $39.9million.  The notes payable had aweighted average interest rate of 5.39%, a weighted average maturity of 8.91years, one matures in July 2015 and the other matures in November 2016 andrequire monthly payments of principal and interest or monthly payments ofinterest only.

**5.  Investments in Military Housing Projects**

We record our investmentsin joint ventures under our military housing projects in accordance with theequity method of accounting.  Ourinvestment is initially recorded at cost, and subsequently adjusted at each balancesheet date to an amount equal to what we would receive from the joint venturein the event that it were liquidated at net book value as of that date,assuming that the proceeds from the liquidation are distributed in accordancewith the terms of, and the priority of returns set forth under, the jointventure’s operating agreement. The terms of the various agreements generallyprovide for the payment to the Company of an agreed upon return on the Company’sinvested capital and a return of the Company’s invested capital prior to thedistribution of any amounts to the government entity that is a member of thejoint venture.

As ofJune 30, 2007, of the 10 joint venture entities in which we had ownershipinterests relating to military housing projects in operation as of that date,we had invested capital in four of the joint ventures as discussed below.

OnFebruary 6, 2007, the Company closed on the Air Education and Training Command(“AETC”) Group I project with the Department of the Air Force.  This military housing privatization projectcovers four bases and 2,875 end-state housing units.  The AETC Group I project represents theCompany’s first military housing project with the Department of the AirForce.  The 50-year term of the projectcommences with a five-year IDP that includes the design, construction and/orrenovation of, as well as the overall management and operationalresponsibilities over the end-state housing units.  The Company invested $8.0 million for its 80%interest in the partnership that owns the rights to the AETC Group Iproject.  The Company has concluded thatthis joint venture is a variable interest entity (VIE) as defined under FIN46(R) and that the Company is not the primary beneficiary.  The primary beneficiary is a non-equity partnerin the joint venture that is more closely associated with the VIE.  The Company earns a preferred return on itsinvestment in AETC Group I.   Thepreferred return will accrue, but not be paid, until the end of the IDP for theproject which is in January 2012.  Thecarrying value of this investment was $8.4 million at June 30, 2007.

InNovember 2004, the Company contributed $9.5 million to GMH/BenhamMilitary Communities LLC in return for a 90% interest and Benham MilitaryCommunities, LLC invested $1.1 million for the remaining 10% interest. TheCompany consolidates GMH/Benham Military Communities LLC as it has a 90%economic interest and controls a majority of the voting interests. BenhamMilitary Communities, LLC’s 10% interest is accounted for as minority interestand is included in other liabilities.  In November 2004, GMH/BenhamMilitary Communities, LLC invested $10.6 million in Northeast Housing LLC,which owns and operates the Navy Northeast Region military housing project.GMH/Benham Military Communities LLC is entitled to a preferred return on itsinvestment in Northeast Housing LLC. The preferred return will accrue, but notbe paid, until the end of the IDP for the project in October 2010. Thecarrying value of this investment was $13.1 million at June 30, 2007 and$12.7 million at December 31, 2006.

Duringthe first quarter of 2007, the Company contributed $5.9 million and BenhamMilitary Communities, LLC contributed $0.6 million, to their joint venture,GMH/Benham Military Communities LLC. The joint venture then used these funds tomake a required $6.5 million equity contribution to FDWR Parent LLC, whichoperates our Fort Detrick/Walter Reed Medical Center military housingproject.  The Company has a 90% interest,and Benham has a 10% interest, in GMH/Benham Military Communities LLC, which isentitled to a preferred return on its investment in FDWR Parent LLC, commencingafter the end of the IDP for the project.

Theacquisition of our ownership interests in the joint venture that owns a 10% interestin Fort Carson Family, LLC

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and has the rightsto exclusively negotiate the Fort Eustis/Fort Story military housing projectwas recorded at the fair value of the consideration paid in the amount of $31.0million.  The underlying book value of theequity on the acquisition date was approximately $11.5 million.  The remaining $19.5 million of thisinvestment is being amortized based on the then current fiscal year revenue asa percentage of the estimated revenue to be earned over the remaining lives ofthe projects, which are 45 years for the Fort Carson project and 50 years forthe Fort Eustis/Story project. Amortization expense was $147,000 and $123,000for the three months ended June 30, 2007 and 2006, respectively, and $257,000and $233,000 during the six months ended June 30, 2007 and June 30, 2006,respectively.  The accumulatedamortization of the excess purchase price was $0.9 million and $0.7 million atJune 30, 2007 and December 31, 2006, respectively. The carrying value of thisinvestment was $24.3 million at June 30, 2007 and $25.3 million atDecember 31, 2006.  The Company isentitled to a preferred return on its investment in Fort Carson Family HousingLLC, plus 50% of the project’s net operating income, which will decrease to 30%and 15% in 2012 and 2016, respectively. After 2016 and through 2025, theCompany’s returns on its investments are subject to an annual maximum amount of$1.75 million. The project began repaying the Company’s initial investment inFort Carson Family Housing LLC in July 2005. The equity is expected to be completely repaid by 2015. During the threemonths ended June 30, 2007 and 2006, the Company received $965,000 and$251,000, respectively and during the six months ended June 30, 2007 and 2006,the Company received $2.3 million and $571,000, respectively of equitydistributions from Fort Carson Family Housing LLC.

Thefollowing is a summary of the financial position of the unconsolidated FortCarson Family Housing LLC (in thousands):

|                                | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Net Property                   |       | $                       | 168,125    |                        | $          | 162,106 |   |
| Other Assets                   |       | $                       | 123,581    |                        | $          | 132,020 |   |
| Notes Payable                  |       | $                       | 259,550    |                        | $          | 260,730 |   |
| Other Liabilities              |       | $                       | 6,245      |                        | $          | 5,160 |   |
| Equity                         |       | $                       | 25,911     |                        | $          | 28,236 |   |
| Company’s Share of Equity |       | $                       | 5,750      |                        | $          | 6,479 |   |

 

The following is a summaryof the results of operations of the unconsolidated Fort Carson Family HousingLLC (in thousands):

|                                | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|--------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenue                        |       | $                                                   | 7,726      |                                              | $          | 7,808 |   | $ | 15,216 |   | $ | 15,847 |   |
| Operating Expenses             |       | $                                                   | 3,894      |                                              | $          | 3,930 |   | $ | 6,046 |   | $ | 6,046 |   |
| Interest Expense, net          |       | $                                                   | 3,005      |                                              | $          | 2,778 |   | $ | 5,629 |   | $ | 5,629 |   |
| Depreciation and  amortization |       | $                                                   | 1,839      |                                              | $          | 1,843 |   | $ | 3,684 |   | $ | 3,684 |   |
| Net Income (loss)              |       | $                                                   | (1,012     | )                                                 | $          | (743 | ) | $ | (441 | ) | $ | 488 |   |

 

**6. Notes Payable**

At June 30, 2007, notes payable totaling $962.5million were secured by 62 student housing properties, including the twoproperties that we have an ownership interest in and account for as a deferredfinancing obligation and our corporate office. The net carrying value of these encumbered properties was $1.292 billionat June 30, 2007.  These notes payablehad a weighted average interest rate of 5.40%, a weighted average maturity of6.91 years, mature at various dates between May 2008 and June 2024 and requiremonthly payments of principal and interest or monthly payments of interestonly.

On May3, 2007, the Company completed the refinancing of three student housingproperties that previously had debt maturity dates during 2007.****Under the refinancing, the Company placed an aggregate of$31.6 million in mortgage indebtedness covering the three propertiespursuant to a LIBOR-based pool. Under this pool arrangement, the loan isinterest-only with a one-year term (with four additional one-year extensionoptions), and bears a variable interest rate of 30-day LIBOR plus 1.9%. TheCompany did not receive any net proceeds from this refinancing.

**7.  Note Facility**

On May7, 2007, the Company entered into a note facility structured through a NotePurchase Agreement (Note Facility) with Merrill Lynch, Pierce, Fenner and SmithIncorporated, which allows the Company, through the Operating 

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Partnership, toborrow up to a maximum of $100 million on a revolving basis, subject to anincrease to $125 million if certain conditions are met.  The Company initially issued a note toMerrill Lynch representing borrowings equal to approximately $90.7 millionunder the Note Facility, and used these proceeds to pay approximately $1.5million in transaction costs associated with the Note Facility, and to repayall remaining principal and interest under, and to simultaneously terminate,its former $250 million revolving credit facility with Wachovia Bank.

The initial note wasissued with an interest rate of 7.07% and has a term through April 30,2010.   Additional notes are issuable atan annual interest of LIBOR plus 1.75%, will require monthly payments ofinterest only, and are secured solely by the fees and equity returns theCompany receives in connection with the military housing projects in operationas of the effective date of the Note Facility, as well as the Company’s NavySoutheast Region project and Fort Jackson project that were under exclusivenegotiations as of the date of commencement of the Note Facility.  As of June 30, 2007, the Company hadapproximately $60.2 million in principal amount of notes outstanding under theNote Facility.

The notes issued inconnection with the Note Facility are administered under a Trust Indenture,which contains affirmative and negative covenants and also contains financialcovenants which, among other things, require that the Company maintain (i) afixed charge coverage ratio, as defined in the Trust Indenture, of at least1:15 to1:00, (ii) a consolidated tangible net worth, as defined in the TrustIndenture, of at least $375 million (iii) quarterly minimum Adjusted ManagementEBITDA, as defined in the Trust Indenture, of $3.5 million, and (iv) federaltax status as a REIT.

**8.  Transactions with Related Parties**

In the ordinary course ofits operations, the Company has on-going business relationships withGary M. Holloway, Sr., entities affiliated with Mr. Holloway,and entities in which Mr. Holloway or the Company has an equityinvestment. The operating results or financial position of the Company could besignificantly different from those that would have been reported if theentities were autonomous. These relationships and related transactions aresummarized below.

Shared costs for humanresources, information technology, office equipment and furniture, and certainmanagement personnel were allocated to the various entities owned or controlledby Mr. Holloway, using assumptions based on headcount that managementbelieved were reasonable. The allocation of such costs to other entities ownedor controlled by Mr. Holloway during the three months and six months endedJune 30, 2007 totaled $58,000 and $122,000, respectively, and totaled $115,000and $172,000 during the three and six months ended June 30, 2006 and are reflectedas expense reimbursements from related parties in the accompanying consolidatedstatements of operations.

The Company leases spacein its corporate headquarters to entities wholly-owned byMr. Holloway. Rental income from these entities totaled $39,000 duringeach of the three months ended June 30, 2007 and 2006 and $78,000 during eachof the six months ended June 30, 2007. These amounts are included in otherproperty income in the accompanying consolidated statements of operations.

The Company earnedmanagement fees during the second quarter of 2007 from six properties held in ajoint venture in which the Company has a 10% interest.  During both the three and six month periodsended June 30, 2007 such income totaled $117,000, after elimination of our 10%interest**.**

The Company earnedmanagement fees from properties in which Mr. Holloway was an investor untilDecember 2006. During the three months and six months ended June 30, 2006 suchincome totaled $17,000 and $37,000 respectively.

The Company received$800,000 of structuring fees during the second quarter relating to theformation of a joint venture in which the Company has a 10% interest.  The Company has recognized $720,000 of feeincome in other fee income —related party in the accompanying consolidatedstatement of operations, after elimination of its 10% interest.

The Company is reimbursedby the joint ventures relating to certain of its military housing projects, andstudent housing properties, in which the Company has an ownership interest, forthe cost of certain employees engaged in the daily operation of those militaryhousing projects and student housing properties.  In addition, during 2006, the Company alsoreceived reimbursements for similar costs relating to student housing properties under the Company’s management inwhich Mr. Holloway was an investor through December 2006. Thereimbursement of these costs is included in expense reimbursements—relatedparty in the accompanying consolidated and combined statements of operations  Such expense 

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reimbursementsrelating to these military housing projects and student housing propertiestotaled $16.6 million and $33.9 million, respectively, during the threeand six months ended June 30, 2007, and $17.6 million and $30.9 million duringthe three and six months ended June 30, 2006.

Mr. Holloway ownsBryn Mawr Abstract, Inc., an entity that provides title abstract servicesto third party title insurance companies, from which we have purchased titleinsurance with respect to certain student housing properties and militaryhousing projects that we have acquired or refinanced. In connection with thepurchase of title insurance for these student housing properties and militaryhousing projects, premiums were paid to other title insurance companies, whichfees in some cases are fixed according to statute. From these premiums, theother title insurance companies paid to Bryn Mawr Abstract, Inc. $79,000and $162,000 during the three and six months ended June 30, 2007 respectively,and $187,000 during both the three and six months ended June 30, 2006,respectively, for providing title abstract services.

Mr. Holloway ownsCorporate Flight Services, LLC, an entity that provides private aircraftservices.  The Company paid CorporateFlight Services, LLC for use of its aircraft equal to approxmatley $304,000 and$587,000 during the three and six months ended June 30, 2007, respectively, and$266,000 and $500,000, respectively, during the three and six months ended June30, 2006.

**9. Commitments and Contingencies**

As of June 30, 2007, theCompany had agreements to acquire one student housing property and 13 parcels of land for the development of a future studenthousing property for an aggregate purchase price of $17.8 million andhad placed deposits related to such acquisitions totaling approximately$371,000.

With regard to militaryhousing projects at Army bases, depending on the terms of each respectiveagreement, the Company is either required to fund its portion of the equitycommitment to the project’s joint venture (i) after all other sources offunding for the project have been expended or (ii) after the initialdevelopment period is completed. With respect to the Company’s Navy NortheastRegion project and AETC Group I project, however, the Company was required tofund the equity commitments at commencement of the projects.  With respect to the Company’s FortDetrick/Walter Reed Medical Center project, the Company was required to fundits equity commitment during the first quarter of 2007. In connection with finalizingthe agreements with the DoD for the Company’s military housing projects, theCompany has committed to contribute the following aggregate amounts as of June30, 2007 (in thousands):

| 2007  |   | $      | 1,980  |   |
|-------|--------|--------|--------|--------|
| 2010  |   | 6,600  |   |
| 2011  |   | 12,510 |   |
| 2012  |   | 6,300  |   |
| Total |   | $      | 27,390 |   |

 

In connection with thedevelopment, management, construction and renovation agreements for certain ofthe military housing projects, the Company guarantees the completion of itsobligations under the agreements. The guaranties require the Company to fundany costs in excess of the amounts budgeted in the underlying development,management, construction and renovation agreements. The maximum exposure to theCompany on these guaranties cannot be determined at this time. Managementbelieves that these guaranties will not have a material adverse impact on theCompany’s financial position or results of operations.

Under the provisions ofFIN 45, *“Guarantor’s Accounting and DisclosureRequirements for Guarantees, Including Indirect Guarantees of Indebtedness ofOthers an interpretation of FASB Statements No. 5, 57, and 107 andrescission of FASB Interpretation No. 34,”* a guarantor is torecognize, at the inception of a guarantee, a liability for the fair value ofthe obligation undertaken by issuing the guarantee. The Company enters intoindemnification agreements in the ordinary course of business that are subjectto the provisions of FIN 45. Under these agreements, the Company indemnifies,holds harmless, and agrees to reimburse the indemnified party for lossessuffered or incurred by the indemnified party. The maximum potential amount offuture payments the Company could be required to make under theseindemnification agreements is unlimited. The Company believes the estimatedfair value of these agreements is immaterial. Accordingly, there were noliabilities recorded for these agreements as of June 30, 2007.

The Company is currentlyengaged in exclusive negotiations with the Department of the Navy to finalizeagreements and plans for the design, construction/renovation, management andmaintenance of the Navy Southeast Region Project that is expected to commenceoperations during the fourth quarter of 2007. On July 20, 2007, theCompany entered into an agreement with Balfour Beatty Construction, LLC, underwhich the parties have agreed to share costs incurred during the exclusivenegotiations period, and for the Company to share costs incurred by BalfourBeatty for architectural, engineering, and other site services in preparationfor the project’s commencement. In the event that the project fails to achievefinal closing, while not anticipated, the Company estimates that its commitmentto reimburse Balfour Beatty for these costs would be approximately$2.6 million.

Starting on April 5,2006, five putative class actions alleging violations of Sections 11, 12(a)(2)and 15 of the 

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Securities Act of 1933 and Sections 10(b) and 20 theSecurities Exchange Act of 1934 and Rule 10b-5 of the Securities and ExchangeCommission have been filed in the United States District Court for the EasternDistrict of Pennsylvania, naming as defendants GMH Communities Trust, Gary M.Holloway, Sr., and Bradley W. Harris. The complaints purport to bring claims on behalf of a class ofpurchasers of GMH securities during various periods, the longest of which isthe period between October 28, 2004 and March 10, 2006.  By orders filed January 22, 2007, the caseswere consolidated, and, lead plaintiffs and lead counsel were appointed.  A consolidated complaint alleging violationsof Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and20(a) of the Securities Exchange Act of 1934 was filed on March 19, 2007against the same defendants for a class period between May 5, 2005 and March10, 2006 based upon the Company’s restatement of certain financial results. OnJune 1, 2007, motions to dismiss were filed by the defendants. On July 16,2007, the lead plaintiffs filed a response to these motions to dismiss. On August 6, 2007, the defendants filed a motion in support of their motion todismiss. Discovery is stayed pending the disposition of any motion todismiss.  The outcome of this litigationis uncertain, and while the Company believes that it has valid defenses toPlaintiff’s claims and intends to defend the class action lawsuit vigorously,no assurance can be given as to the outcome of this litigation. An adverseoutcome could have a material adverse effect on our financial condition andresults of operations.

On March 12, 2007, StoneGate I LLC, Southview LLC, The Commons LLC, Seminole Ride LLC, LB&JLimited, Bruce Forbes, Lois Forbes and Jeff Forbes filed a complaint in theUnited States District Court for the Eastern District of Pennsylvania againstGMH Communities Trust, GMH Communities, L.P., College Park Investments, LLC,Peach Grove Associates, LLC, Neff Avenue Associates, LLC, Gary M. Holloway,Sr., Bradley W. Harris and John DeRiggi. The complaint alleges violations of Sections 10(b), 18 and 20(a) of theSecurities Exchange Act of 1934, Section 522(a) and 522(c) of the VirginiaSecurities Act and Sections 1-401 and 1-501 of the Pennsylvania Securities Act,as well as common law claims for fraud, fraud in the inducement, negligentmisrepresentation and breach of contract. The claims arise from the Company’s restatement of certain financialresults upon which plaintiffs purportedly relied in selling properties tocertain defendants.  In connection withthe acquisition of the properties, Company entities purchased four studenthousing properties in exchange for a combination of cash, assumption of debtand the issuance of 1,940,282 units of limited partnership interests in ouroperating partnership valued at a total of approximately $76.8 million. Theunits of limited partnership interest were issued for a total value ofapproximately $27.5 million or $14.17 per unit of limited partnership interest.The parties have stipulated to extend the deadline to respond to plaintiffs’complaint pending mediation.  Discoveryis stayed pending the disposition of any motion to dismiss.  The outcome of this litigation is uncertain,and while the Company believes that it has valid defenses to Plaintiff’s claimsand intends to defend the lawsuit vigoursly, no assurance can be given as tothe outcome of this litigation.  Anadverse outcome could have a material adverse effect on our financial conditionand results of operations.

The Company also is subject to routine litigation,claims and administrative proceedings arising in the ordinary course ofbusiness. Other than the matters describedabove, we are not involved in any other material litigation nor, to ourknowledge, is any material litigation pending or threatened against us. Themaximum exposure to the Company relating to these matters cannot be determinedat this time. Management believes that the disposition of these routinelitigation matters will not have a material adverse impact on the Company’sfinancial position or results of operations.

**10.Segment Reporting**

The Company is comprised of fourreportable segments: (1) student housing — owned properties(2) student housing — management, (3) military housing, and (4)corporate.  The operating results of ourstudent housing — owned properties and student housing — management, whichincluded our acquisitions department, had been previously classified as onesegment.  The acquisitions department isnow included in the corporate segment. The segment data for 2006 has beenrestated to conform to the current year’s presentation.  The corporate segment also includes thecorporate overhead and other service departments. The Company’s managementevaluates each segment’s performance based upon net income. The accountingpolicies of the reportable segments are the same as those described in thesummary of significant accounting policies.

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| ** **                                                                                                                           | ** ** | **Three Months Ended June 30, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **Student  Housing-  Owned  Properties**                      | ** ** | **Student  Housing-  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                                                                      |       | $                                                             | 46,878     |   | $ | — |   | $ | — |   | $ | 39 |   | $ | — |   | $ | 46,917 |   |
| Expense reimbursements:                                                                                                              |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                        |       | —                                                        |       | 347 |   | 16,234 |   | 58 |   | — |   | 16,639 |   |
| Third party                                                                                                                          |       | —                                                        |       | 1,357 |   | — |   | — |   | — |   | 1,357 |   |
| Management fees:                                                                                                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                     |       | —                                                        |       | 1,677 |   | — |   | — |   | (1,677 | ) | — |   |
| Related party                                                                                                                        |       | —                                                        |       | 117 |   | 2,500 |   | — |   | — |   | 2,617 |   |
| Third party                                                                                                                          |       | —                                                        |       | 656 |   | — |   | — |   | — |   | 656 |   |
| Other fee income -  related party                                                                                                    |       | —                                                        |       | 720 |   | 6,715 |   | — |   | — |   | 7,435 |   |
| Other income                                                                                                                         |       | 30                                                            |       | 3 |   | 5 |   | 158 |   | — |   | 196 |   |
| Total revenue                                                                                                                        |       | 46,908                                                        |       | 4,877 |   | 25,454 |   | 255 |   | (1,677 | ) | 75,817 |   |
|                                                                                                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Expenses:**                                                                                                              |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Property  operating expense                                                                                                          |       | 17,856                                                        |       | 1,544 |   | 2,223 |   | — |   | — |   | 21,623 |   |
| Intercompany  management fee                                                                                                         |       | 1,677                                                         |       | — |   | — |   | — |   | (1,677 | ) | — |   |
| Reimbursed  expenses                                                                                                                 |       | —                                                        |       | 1,704 |   | 16,234 |   | 58 |   | — |   | 17,996 |   |
| Real estate  taxes                                                                                                                   |       | 4,468                                                         |       | — |   | — |   | 24 |   | — |   | 4,492 |   |
| Administrative  expenses                                                                                                             |       | —                                                        |       | — |   | — |   | 4,496 |   | — |   | 4,496 |   |
| Audit Committee  and Special Committee expenses                                                                                      |       | —                                                        |       | — |   | — |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                                                                       |       | 11,017                                                        |       | — |   | 169 |   | 122 |   |   |   | 11,308 |   |
| Interest                                                                                                                             |       | 14,737                                                        |       | — |   | — |   | 1,009 |   |   |   | 15,746 |   |
| Total operating  expenses                                                                                                            |       | 49,755                                                        |       | 3,248 |   | 18,626 |   | 5,709 |   | (1,677 | ) | 75,661 |   |
| Gain on sales to joint  venture                                                                                                      |       | 21,773                                                        |       | — |   | — |   | — |   | — |   | 21,773 |   |
| Income (loss) from  continuing operations before equity in earnings of unconsolidated entities,  income taxes and miniority interest |       | 18,926                                                        |       | 1,629 |   | 6,828 |   | (5,454 | ) | — |   | 21,929 |   |
| Equity(loss) in  earnings of unconsolidated entities                                                                                 |       | (75                                                           | )          | — |   | 1,305 |   | — |   | — |   | 1,230 |   |
| Income (loss) from  continuing operations before income taxes and minority interest                                                  |       | 18,851                                                        |       | 1,629 |   | 8,133 |   | (5,454 | ) | — |   | 23,159 |   |
| Income tax (benefit)  expense                                                                                                        |       | —                                                        |       | (20 | ) | 1,347 |   | — |   | — |   | 1,327 |   |
| Income (loss) before  minority interest                                                                                              |       | 18,851                                                        |       | 1,649 |   | 6,786 |   | (5,454 | ) | — |   | 21,832 |   |
| Less minority interest  attributable to continuing operations                                                                        |       | —                                                        |       | — |   | — |   | 9,431 |   | — |   | 9,431 |   |
| Net income (loss) from  continuing operations                                                                                        |       | 18,851                                                        |       | 1,649 |   | 6,786 |   | (14,885 | ) | — |   | 12,401 |   |
|                                                                                                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Discontinued Operations:**                                                                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Income from  discontinued operations before minority interest                                                                        |       | 1,059                                                         |       | 116 |   | — |   | — |   | — |   | 1,175 |   |
| Gain on sale of  student housing properties                                                                                          |       | 19,390                                                        |       | — |   | — |   | — |   | — |   | 19,390 |   |
| Less minority  interest                                                                                                              |       | —                                                        |       | — |   | — |   | 8,883 |   | — |   | 8,883 |   |
| Income from  discontinued operations                                                                                                 |       | 20,449                                                        |       | 116 |   | — |   | (8,883 | ) | — |   | 11,682 |   |
|                                                                                                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                    |       | $                                                             | 39,300     |   | $ | 1,765 |   | $ | 6,786 |   | $ | (23,768 | ) | $ | — |   | $ | 24,083 |   |

 

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| ** **                                                                                                                          | ** ** | **Three Months Ended June 30, 2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **Student  Housing-  Owned  Properties**                      | ** ** | **Student  Housing-  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                                                                     |       | $                                                             | 39,711     |   | $ | — |   | $ | — |   | $ | 39 |   | $ | — |   | $ | 39,750 |   |
| Expense reimbursements:                                                                                                             |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                       |       | —                                                        |       | 103 |   | 17,457 |   | 115 |   | — |   | 17,675 |   |
| Third party                                                                                                                         |       | —                                                        |       | 1,389 |   | — |   | — |   | — |   | 1,389 |   |
| Management fees:                                                                                                                    |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                    |       | —                                                        |       | 1,458 |   | — |   | — |   | (1,458 | ) | — |   |
| Related party                                                                                                                       |       | —                                                        |       | 17 |   | 2,084 |   | — |   | — |   | 2,101 |   |
| Third party                                                                                                                         |       | —                                                        |       | 647 |   | — |   | — |   | — |   | 647 |   |
| Other fee income -  related party                                                                                                   |       | —                                                        |       | — |   | 5,581 |   | — |   | — |   | 5,581 |   |
| Other income                                                                                                                        |       | 25                                                            |       | 5 |   | 14 |   | 7 |   | — |   | 51 |   |
| Total revenue                                                                                                                       |       | 39,736                                                        |       | 3,619 |   | 25,136 |   | 161 |   | (1,458 | ) | 67,194 |   |
|                                                                                                                                |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Expenses:**                                                                                                             |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Property  operating expense                                                                                                         |       | 14,524                                                        |       | 1,676 |   | 1,513 |   | — |   | — |   | 17,713 |   |
| Intercompany  management fee                                                                                                        |       | 1,458                                                         |       | — |   | — |   | — |   | (1,458 | ) | — |   |
| Reimbursed  expenses                                                                                                                |       | —                                                        |       | 1,492 |   | 17,457 |   | 115 |   | — |   | 19,064 |   |
| Real estate  taxes                                                                                                                  |       | 3,893                                                         |       | — |   | — |   | 24 |   | — |   | 3,917 |   |
| Administrative  expenses                                                                                                            |       | —                                                        |       | — |   | — |   | 4,931 |   | — |   | 4,931 |   |
| Audit Committee  and Special Committee expenses                                                                                     |       | —                                                        |       | — |   | — |   | 2,301 |   | — |   | 2,301 |   |
| Depreciation and  amortization                                                                                                      |       | 9,619                                                         |       | — |   | 130 |   | 77 |   | — |   | 9,826 |   |
| Interest                                                                                                                            |       | 10,398                                                        |       | — |   | — |   | 441 |   | — |   | 10,839 |   |
| Total operating  expenses                                                                                                           |       | 39,892                                                        |       | 3,168 |   | 19,100 |   | 7,889 |   | (1,458 | ) | 68,591 |   |
| Gain on sales to joint  venture                                                                                                     |       | —                                                        |       | — |   | — |   | — |   | — |   | — |   |
| (Loss) income from  continuing operations before equity in earnings of unconsolidated entities,  income taxes and minority interest |       | (156                                                          | )          | 451 |   | 6,036 |   | (7,728 | ) | — |   | (1,397 | ) |
| Equity in earnings of  unconsolidated entities                                                                                      |       | —                                                        |       | — |   | 1,174 |   | — |   | — |   | 1,174 |   |
| (Loss) income from  continuing operations before income taxes and minority interest                                                 |       | (156                                                          | )          | 451 |   | 7,210 |   | (7,728 | ) | — |   | (223 | ) |
| Income tax  (benefit)expense                                                                                                        |       | —                                                        |       | (232 | ) | 1,446 |   | — |   | — |   | 1,214 |   |
| Income (loss) before  minority interest                                                                                             |       | (156                                                          | )          | 683 |   | 5,764 |   | (7,728 | ) | — |   | (1,437 | ) |
| Less minority interest  attributable to continuing operations                                                                       |       | —                                                        |       | — |   | — |   | (627 | ) | — |   | (627 | ) |
| Net (loss) income from  continuing operations                                                                                       |       | (156                                                          | )          | 683 |   | 5,764 |   | (7,101 | ) | — |   | (810 | ) |
|                                                                                                                                |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Discontinued Operations:**                                                                                                        |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Income from  discontinued operations before minority interest                                                                       |       | 323                                                           |       | 155 |   | — |   | — |   | — |   | 478 |   |
| Gain on sale of  student housing properties                                                                                         |       | —                                                        |       | — |   | — |   | — |   | — |   | — |   |
| Less minority  interest                                                                                                             |       | —                                                        |       | — |   | — |   | 209 |   | — |   | 209 |   |
| Income from  discontinued operations                                                                                                |       | 323                                                           |       | 155 |   | — |   | (209 | ) | — |   | 269 |   |
|                                                                                                                                |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                   |       | $                                                             | 167        |   | $ | 838 |   | $ | 5,764 |   | $ | (7,310 | ) | $ | — |   | $ | (541 | ) |

 

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| ** **                                                                                                                          | ** ** | **Six Months Ended June 30, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **Student  Housing-  Owned  Properties**                    | ** ** | **Student  Housing-  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                                                                     |       | $                                                           | 98,304     |   | $ | — |   | $ | — |   | $ | 78 |   | — |   | $ | 98,382 |   |
| Expense reimbursements:                                                                                                             |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                       |       | —                                                      |       | 347 |   | 33,569 |   | 122 |   | — |   | 34,038 |   |
| Third party                                                                                                                         |       | —                                                      |       | 2,803 |   | — |   | — |   | — |   | 2,803 |   |
| Management fees:                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                    |       | —                                                      |       | 3,591 |   | — |   | — |   | (3,591 | ) | — |   |
| Related party                                                                                                                       |       | —                                                      |       | 117 |   | 4,921 |   | — |   | — |   | 5,038 |   |
| Third party                                                                                                                         |       | —                                                      |       | 1,334 |   | — |   | — |   | — |   | 1,334 |   |
| Other fee income -  related party                                                                                                   |       | —                                                      |       | 720 |   | 12,853 |   | — |   | — |   | 13,573 |   |
| Other income                                                                                                                        |       | 59                                                          |       | 10 |   | 26 |   | 329 |   | — |   | 424 |   |
| Total revenue                                                                                                                       |       | 98,363                                                      |       | 8,922 |   | 51,369 |   | 529 |   | (3,591 | ) | 155,592 |   |
|                                                                                                                                |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses:                                                                                                                 |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Property  operating expense                                                                                                         |       | 35,970                                                      |       | 3,597 |   | 4,199 |   | — |   | — |   | 43,766 |   |
| Intercompany  management fee                                                                                                        |       | 3,591                                                       |       | — |   | — |   | — |   | (3,591 | ) | — |   |
| Reimbursed  expenses                                                                                                                |       | —                                                      |       | 3,150 |   | 33,569 |   | 122 |   | — |   | 36,841 |   |
| Real estate  taxes                                                                                                                  |       | 9,345                                                       |       | — |   | — |   | 49 |   | — |   | 9,394 |   |
| Administrative  expenses                                                                                                            |       | —                                                      |       | — |   | — |   | 9,366 |   | — |   | 9,366 |   |
| Audit Committee  and Special Committee expenses                                                                                     |       | —                                                      |       | — |   | — |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                                                                      |       | 22,588                                                      |       | — |   | 286 |   | 239 |   | — |   | 23,113 |   |
| Interest                                                                                                                            |       | 30,721                                                      |       | — |   | — |   | 2,500 |   | — |   | 33,221 |   |
| Total operating  expenses                                                                                                           |       | 102,215                                                     |       | 6,747 |   | 38,054 |   | 12,276 |   | (3,591 | ) | 155,701 |   |
| Gain on sales to joint  venture                                                                                                     |       | 21,773                                                      |       | — |   | — |   | — |   | — |   | 21,773 |   |
| Income (loss) from  continuing operations before equity in earnings of unconsolidated entities,  income taxes and minority interest |       | 17,921                                                      |       | 2,175 |   | 13,315 |   | (11,747 | ) | — |   | 21,664 |   |
| Equity(loss) in earnings  of unconsolidated entities                                                                                |       | (75                                                         | )          | — |   | 2,334 |   | — |   | — |   | 2,259 |   |
| Income (loss) from  continuing operations before income taxes and minority interest                                                 |       | 17,846                                                      |       | 2,175 |   | 15,649 |   | (11,747 | ) | — |   | 23,923 |   |
| Income tax expense                                                                                                                  |       | —                                                      |       | 47 |   | 2,805 |   | — |   | — |   | 2,852 |   |
| Income (loss) before  minority interest from continuing operations                                                                  |       | 17,846                                                      |       | 2,128 |   | 12,844 |   | (11,747 | ) | — |   | 21,071 |   |
| Less minority interest  attributable to continuing operations                                                                       |       | —                                                      |       | — |   | — |   | 9,103 |   | — |   | 9,103 |   |
| Net income (loss) from  continuing operations                                                                                       |       | 17,846                                                      |       | 2,128 |   | 12,844 |   | (20,850 | ) | — |   | 11,968 |   |
| **Discontinued Operations**                                                                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Income from  discontinued operations before minority interest                                                                       |       | 1,847                                                       |       | 317 |   | — |   | — |   | — |   | 2,164 |   |
| Gain of sale of  student housing properties.                                                                                        |       | 19,390                                                      |       | — |   | — |   | — |   | — |   | 19,390 |   |
| Less minority  interest                                                                                                             |       | —                                                      |       | — |   | — |   | 9,311 |   |   |   | 9,311 |   |
| Income from  discontinued operations                                                                                                |       | 21,237                                                      |       | 317 |   | — |   | (9,311 | ) | — |   | 12,243 |   |
|                                                                                                                                |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                   |       | $                                                           | 39,083     |   | $ | 2,445 |   | $ | 12,844 |   | $ | (30,161 | ) | $ | — |   | $ | 24,211 |   |
|                                                                                                                                     |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

18

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| ** **                                                                                                                              | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **Student  Housing-  Owned  Properties**                    | ** ** | **Student  Housing-  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                             |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                                                                         |       | $                                                           | 79,331     |   | $ | — |   | $ | — |   | $ | 78 |   | $ | — |   | $ | 79,409 |   |
| Expense reimbursements:                                                                                                                 |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                           |       |                                                        |       | 189 |   | 30,694 |   | 172 |   | — |   | 31,055 |   |
| Third party                                                                                                                             |       | —                                                      |       | 2,725 |   | — |   | — |   | — |   | 2,725 |   |
| Management fees:                                                                                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                        |       | —                                                      |       | 2,961 |   | — |   | — |   | (2,961 | ) | — |   |
| Related party                                                                                                                           |       | —                                                      |       | 37 |   | 4,103 |   | — |   | — |   | 4,140 |   |
| Third party                                                                                                                             |       | —                                                      |       | 1,655 |   | — |   | — |   | — |   | 1,655 |   |
| Other fee income —  related party                                                                                                  |       | —                                                      |       | — |   | 10,261 |   | — |   | — |   | 10,261 |   |
| Other income                                                                                                                            |       | 62                                                          |       | 18 |   | 23 |   | 38 |   | — |   | 141 |   |
| Total revenue                                                                                                                           |       | 79,393                                                      |       | 7,585 |   | 45,081 |   | 288 |   | (2,961 | ) | 129,386 |   |
|                                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses:                                                                                                                     |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Property  operating expense                                                                                                             |       | 27,977                                                      |       | 3,142 |   | 3,052 |   | — |   | — |   | 34,171 |   |
| Intercompany  management fee                                                                                                            |       | 2,961                                                       |       | — |   | — |   | — |   | (2,961 | ) | — |   |
| Reimbursed  expenses                                                                                                                    |       | —                                                      |       | 2,914 |   | 30,694 |   | 172 |   | — |   | 33,780 |   |
| Real estate  taxes                                                                                                                      |       | 7,612                                                       |       | — |   | — |   | 48 |   | — |   | 7,660 |   |
| Administrative  expenses                                                                                                                |       | —                                                      |       | — |   | — |   | 9,011 |   | — |   | 9,011 |   |
| Audit Committee  and Special Committee expenses                                                                                         |       | —                                                      |       | — |   | — |   | 4,876 |   | — |   | 4,876 |   |
| Depreciation and  amortization                                                                                                          |       | 18,893                                                      |       | — |   | 249 |   | 156 |   | — |   | 19,298 |   |
| Interest                                                                                                                                |       | 20,009                                                      |       | — |   | — |   | 959 |   | — |   | 20,968 |   |
| Total operating  expenses                                                                                                               |       | 77,452                                                      |       | 6,056 |   | 33,995 |   | 15,222 |   | (2,961 | ) | 129,764 |   |
| Gain on sales to joint  venture                                                                                                         |       | —                                                      |       | — |   | — |   | — |   | — |   | — |   |
| Income (loss) before  equity in earnings of unconsolidated subsidiaries, income taxes and minority  interest from continuing operations |       | 1,941                                                       |       | 1,529 |   | 11,086 |   | (14,934 | ) | — |   | (378 | ) |
| Equity in earnings of  unconsolidated entities                                                                                          |       | —                                                      |       | — |   | 2,390 |   | — |   | — |   | 2,390 |   |
| Income (loss) from  continuing operations before income taxes and minority interest                                                     |       | 1,941                                                       |       | 1,529 |   | 13,476 |   | (14,934 | ) | — |   | 2,012 |   |
| Income tax(benefit)  expense                                                                                                            |       | —                                                      |       | (232 | ) | 2,419 |   | — |   | — |   | 2,187 |   |
| Income (loss) from continuing  operations before minority interest                                                                      |       | 1,941                                                       |       | 1,761 |   | 11,057 |   | (14,934 | ) | — |   | (175 | ) |
| Less minority interest  attributable to continuing operations                                                                           |       | —                                                      |       | — |   | — |   | (79 | ) | — |   | (79 | ) |
| Income from continuing  operations                                                                                                      |       | 1,941                                                       |       | 1.761 |   | 11,057 |   | (14,855 | ) | — |   | (96 | ) |
| **Discontinued Operations**                                                                                                             |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Income from  discontinued operations                                                                                                    |       | 938                                                         |       | 327 |   | — |   | — |   | — |   | 1,265 |   |
| Gain on sale of  student housing properties                                                                                             |       | —                                                      |       | — |   | — |   | — |   | — |   | — |   |
| Less minority  interest                                                                                                                 |       | —                                                      |       | — |   | — |   | 570 |   | — |   | 570 |   |
| Income from  discontinued operations                                                                                                    |       | 938                                                         |       | 327 |   | — |   | (570 | ) | — |   | 695 |   |
|                                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                       |       | $                                                           | 2,879      |   | $ | 2,088 |   | $ | 11,057 |   | $ | (15,425 | ) | $ |   |   | $ | 599 |   |

 

19

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| ** **                  | ** ** | **Student  Housing  Owned  Properties** | ** ** | **Student  Housing-  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|-----------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|-----------------------|------------|---------------|------------|------------|------------|
| ** **                  | ** ** | **(in thousands)**                 | ** ** |
| ** **                  | ** ** | ** **                              | ** ** | ** **                        | ** ** | ** **            | ** ** | ** **    | ** ** | ** ** | ** ** |
| **As of June 30, 2007:**    |       |                                    |       |                              |       |                  |       |          |       |       |       |
| Total assets                |       | $                                       | 1,431,821  |                              | $          | 4,343                 |       | $             | 70,627     |       | $          | 40,372 |   | $ | 1,547,163 |   |
| Total liabilities           |       | $                                       | 924,803    |                              | $          | (1,093                | )          | $             | (14,648    | )          | $          | 204,168 |   | $ | 1,113,230 |   |
| **As of December 31, 2006** |       |                                    |       |                              |       |                  |       |          |       |       |       |
| Total assets                |       | $                                       | 1,619,776  |                              | $          | 2,560                 |       | $             | 58,714     |       | $          | 32,940 |   | $ | 1,713,990 |   |
| Total liabilities           |       | $                                       | 1,087,819  |                              | $          | 4,435                 |       | $             | (16,551    | )          | $          | 223,015 |   | $ | 1,298,718 |   |

 

**11.  Earnings Per Common Share**

Thefollowing table details the number of shares and net income used to calculatebasic and diluted earnings per share for the three months and six months endedJune 30, 2007 and June 30, 2006 (in thousands, except share and per share amounts):
| ** **                                                      | ** ** | **Three Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                      | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006**      | ** ** |
| ** **                                                      | ** ** | **Basic**                        | ** ** | **Diluted**                      | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
|                                                            |       |                             |       |                             |       |   |   |   |   |
| Net income (loss) from  continuing operation                    |       | $                                | 12,401     |                             | $          | 12,401 |   | $  | (810 | ) | $ | (810 | ) |
| Net income from  discontinued operations                        |       | 11,682                           |       | 11,682                           |       | 269 |   | 269 |   |
| Minority interest in  continuing operations                     |       | —                           |       | 9,431                            |       | — |   | (627 | ) |
| Minority interest in  discontinued operations                   |       | —                           |       | 8,883                            |       | — |   | 209 |   |
| Income available to  common shareholders                        |       | $                                | 24,083     |                             | $          | 42,397 |   | $  | (541 | ) | $ | (959 | ) |
|                                                            |       |                             |       |                             |       |   |   |   |   |
| Weighted-average common  shares outstanding                     |       | 41,503,312                       |       | 41,503,312                       |       | 40,872,036 |   | 40,872,036 |   |
| Resricted shares                                                |       | —                           |       | —                           |       | — |   | — |   |
| Warrant                                                         |       | —                           |       | —                           |       | — |   | 601,206 |   |
| Units of limited  partnership held by minority interest holders |       | —                           |       | 31,615,826                       |       | — |   | 31,624,617 |   |
| Total weighted-average  shares outstanding                      |       | 41,503,312                       |       | 73,119,138                       |       | 40,872,036 |   | 73,097,859 |   |
| Earnings (loss) per  common share                               |       |                             |       |                             |       |   |   |   |   |
| Continuing  operations                                          |       | $                                | 0.30       |                             | $          | 0.30 |   | $  | (0.02 | ) | $ | (0.02 | ) |
| Discontinued  operations                                        |       | $                                | 0.28       |                             | $          | 0.28 |   | $ | 0.01 |   | $ | 0.01 |   |
|                                                            |       | $                                | 0.58       |                             | $          | 0.58 |   | $  | (0.01 | ) | $ | (0.01 | ) |

 

20

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| ** **                                                      | ** ** | **Six Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                      | ** ** | **June 30, 2007**    | ** ** | **June 30, 2006**    | ** ** |
| ** **                                                      | ** ** | **Basic**                      | ** ** | **Diluted**                    | ** ** | **Basic** | ** ** | **Diluted** | ** ** |
|                                                            |       |                           |       |                           |       |   |   |   |   |
| Net income  (loss) from continuing operation                    |       | $                              | 11,968     |                           | $          | 11,968 |   | $  | (96 | ) | $ | (96 | ) |
| Net income from  discontinued operations                        |       | 12,243                         |       | 12,243                         |       | 695 |   | 695 |   |
| Minority  interest in continuing operations                     |       | —                         |       | 9,103                          |       | — |   | (79 | ) |
| Minority  interest in discontinued operations                   |       | —                         |       | 9,311                          |       | — |   | 570 |   |
| Income available  to common shareholders                        |       | $                              | 24,211     |                           | $          | 42,625 |   | $ | 599 |   | $ | 1,090 |   |
|                                                            |       |                           |       |                           |       |   |   |   |   |
| Weighted-average  common shares outstanding                     |       | 41,498,941                     |       | 41,498,941                     |       | 40,275,829 |   | 40,275,829 |   |
| Resricted shares                                                |       | —                         |       | —                         |       | — |   | — |   |
| Warrant                                                         |       | —                         |       | —                         |       | — |   | 1,636,199 |   |
| Units of limited  partnership held by minority interest holders |       | —                         |       | 31,620,197                     |       | — |   | 31,625,960 |   |
| Total  weighted-average shares outstanding                      |       | 41,498,941                     |       | 73,119,138                     |       | 40,275,829 |   | 73,537,988 |   |
| Earnings per  common share                                      |       |                           |       |                           |       |   |   |   |   |
| Continuing operations                                           |       | $                              | 0.29       |                           | $          | 0.29 |   | $ | 0.00 |   | $ | 0.00 |   |
| Discontinued operations                                         |       | $                              | 0.29       |                           | $          | 0.29 |   | $ | 0.01 |   | $ | 0.01 |   |
|                                                            |       | $                              | 0.58       |                           | $          | 0.58 |   | $ | 0.01 |   | $ | 0.01 |   |

 

The computation of diluted earnings per share did notinclude the effect of the Company’s restricted stock as their inclusion had ananti-dilutive effect.

On June 18, 2007, the Company declared a quarterlydividend of $0.165 per outstanding common share to shareholders of record as ofthe close of business on June 28, 2007. The aggregate amount of dividends of approximately $12.1 million waspaid on July 13, 2007, of which approximately $6.9 million and approximately$5.2 million, respectively, was paid to common shareholders and unitholders ofthe Operating Partnership.

**12.Discontinued Operations**

Forthe three month and six month periods June 30, 2007 and 2006, income fromdiscontinued operations relates to six of the 12 properties that the Companyeither sold or held for sale during the second quarter of 2007.  The other six properties have been placedinto a joint venture in which the Company has retained a 10% interest and havenot been presented as discontinued operations because the Company (i) expectsto receive significant continuing cash flows generated by earning managementfees from the Company’s ongoing management of the properties, in addition tothe cash flows resulting from the Company’s 10% equity ownership in the joint venturethat owns and operates the properties, and (ii) continue to have significantinvolvement in the on-going operations through its continuing management of theproperties and its 10% equity ownership in the joint venture that owns theproperties.

The followingtable summarizes the revenue and expense information for discontinuedoperations for the three and six months ended June 30, 2007 and 2006 (inthousands):

21

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| ** **                                                                                                    | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                    | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006**    | ** ** | **June 30, 2007** | ** ** | **June 30, 2006** | ** ** |
| **Revenue:**                                                                                                  |       |                             |       |                           |       |   |   |   |   |
| Rent and other operating income                                                                               |       | $                                | 4,096      |                           | $          | 4,283 |   | $ | 9,367 |   | $ | 8,661 |   |
| Other Income                                                                                                  |       | 5                                |       | 2                              |       | 6 |   | 3 |   |
| Total Revenue                                                                                                 |       | 4,101                            |       | 4,285                          |       | 9,373 |   | 8,664 |   |
|                                                                                                          |       |                             |       |                           |       |   |   |   |   |
| **Expenses:**                                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Property operating expenses                                                                                   |       | 1,505                            |       | 1,621                          |       | 3,233 |   | 3,053 |   |
| Real estate taxes                                                                                             |       | 447                              |       | 460                            |       | 1,042 |   | 918 |   |
| Depreciation and amortization                                                                                 |       | 111                              |       | 889                            |       | 1,009 |   | 1,766 |   |
| Interest expense                                                                                              |       | 863                              |       | 837                            |       | 1,925 |   | 1,662 |   |
| Total operating expenses                                                                                      |       | 2,926                            |       | 3,807                          |       | 7,209 |   | 7,399 |   |
|                                                                                                          |       |                             |       |                           |       |   |   |   |   |
| Income from  discontinued operations before gain on sale of student housing properties and  minority interest |       | 1,175                            |       | 478                            |       | 2,164 |   | 1,265 |   |
| Gain on sale of  student housing properties                                                                   |       | 19,390                           |       | —                         |       | 19,390 |   | — |   |
| Less minority  interest .                                                                                     |       | 8,883                            |       | 209                            |       | 9,311 |   | 570 |   |
| Income from  discontinued operations                                                                          |       | $                                | 11,682     |                           | $          | 269 |   | $ | 12,243 |   | $ | 695 |   |

 

**13.Subsequent Events**

On July 1,2007,  and August 1, 2007 the Companyredeemed a principal amount of notes outstanding under its revolving notefacility with Merrill Lynch of approximately $22.0 million and $25.0 million,respectively.  After repayment of theseprincipal amounts, the Company had approximately $13.2 million in principalamount of notes outstanding under the note facility.

On July 3, 2007,the Company completed the sale of a fifth student housing property to SCI RealEstate Investments, LLC. The sale was made pursuant to a definitive agreementbetween the Company and SCI to sell a total of five properties. The initialfour property sales were previously completed during the second quarter of2007. The Company received aggregate net proceeds of approximately $12.3million from this fifth property sale, after the buyer’s assumption of existingmortgage debt on the property totaling approximately $11.4 million.  The Company used the  net proceeds for repayment of debt under thenote facility or for general working capital purposes.

On July 12, 2007,the Company completed the sale of a student housing property to Horizon RealtyAdvisors of Seattle, WA.  The Companyreceived approximately $9.9 million in net proceeds from the sale, after thebuyer’s assumption of existing mortgage debt on the property totalingapproximately $16.1 million.  The Companyused the remaining net proceeds for repayment of debt under the note facilityand for general working capital purposes.

On August 1, 2007,the Company completed the acquisition of a student housing property for anaggregate purchase price of $11.2 million. This property is located in Valdosta, GA adjacent to one of our existingstudent housing property.  In addition,the Company simultaneously placed new mortgage debt on both propertiesaggregating $29.0 million which has a 10-year term, with interest only paymentsfor the initial five years and a fixed interest rate of 6.335%.  The combined net proceeds of approximately$17.7 million (net of closing costs) from acquisition and mortgage financingwere used to repay outstanding indebtedness under the Company’s note facilityand for general working capital purposes

22

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**Item 2.****           Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**Overview**

We are a self-advised,self-managed, specialty housing company that focuses on providing housing tocollege and university students residing off-campus and to members of the U.S.military and their families.

As of June 30, 2007, weowned, or had ownership interests in, 73 student housing propertiescontaining a total of 13,640 units and 43,802 beds andseven undeveloped or partially developed parcels of land held for developmentas student housing properties. As of the date of this report, we owned or hadownership interests in 72 student housing properties.  As of June 30, 2007, we held a 10% interestin joint ventures that owned eight of these student housing properties,covering a total of 1,140 units and 4,160 beds and providedmanagement services for all of these properties.  In addition, we manageda total of 21 student housing properties owned by others, containing a total of3,619  units and 11,878 beds, including51 units and 279 beds currently under construction. In our military housingsegment, as of June 30, 2007, our operating partnership had an ownershipinterest in, and through various wholly-owned subsidiaries operated, 10military housing privatization projects, comprising an aggregate of 20,364end-state housing units on 25 military bases, to provide development,construction, renovation and management services to our military housingprivatization projects through our taxable REIT subsidiaries, (other than ourAETC Group I project with the U.S. Air Force). In addition, we providemanagement and consulting services with respect to the management of certainstudent housing properties owned by others, including colleges, universities,and other private owners through our taxable REIT subsidiaries. In order tocomply with the applicable requirements under the REIT provisions of the Code,we must limit the operations of taxable REIT subsidiaries so that the fairvalue of securities issued to us by our taxable REIT subsidiaries do notrepresent more than 20% of our total assets as of the close of any quarter inour taxable year and so that dividends from our taxable REIT subsidiaries,together with our other non-qualifying gross income, do not exceed 25% of ourgross income for any taxable year.

Currently, our operationsare managed within three operating segments that are separately reported:(1) student housing-owned properties (2) student-housing managementand (3) military housing. This structure provides an effective platformfor maximizing market penetration and optimizing operating economies of scale.In addition, we separately report the activities of certain departments from acorporate level, which includes personnel that service GMH Communities Trust asa whole and support our overall operations.

**2007 Business StrategyUpdate**

In December 2006, weannounced that our management expected to implement a business strategybeginning in 2007 that would involve the sale, refinancing and/or formation ofjoint ventures covering a number of our currently-owned student housingproperties. Our management developed this plan primarily in an effort to raisecapital proceeds that could be used to repay outstanding indebtedness under ourline of credit with Wachovia Bank. As of the end of the first quarter of 2007,we had completed the refinancing of four student housing properties as part ofthis business strategy for an aggregate of approximately $73.1 million innet proceeds, which funds were used to repay an equal amount of outstandingindebtedness under the Wachovia line of credit.

During the secondquarter, we formed a joint venture with Fidelity Real Estate Group that isowned 90% by Fidelity and 10% by us, and entered into an agreement tocontribute our interests in a total of six student housing properties into thejoint venture. In early April 2007, we completed an initial closing under whichwe transferred our 100% interest in five of the six properties into the jointventure entity.  Fidelity contributedapproximately $19.8 million into the joint venture with respect to these fiveproperties, and the joint venture simultaneously placed new, five-year,interest-only mortgage indebtedness on the properties in an aggregate amount of$88.0 million with a fixed interest rate of approximately 5.52%. The Companyreceived net proceeds from the transfer of the initial five properties into thejoint venture totaling approximately $56.1 million, and used those proceeds torepay indebtedness outstanding under the Wachovia line of credit. In June 2007,we completed the transfer of the sixth property into the joint venture (see thesection titled “*Student Housing Owned Properties”*below).

On May 7, 2007, theCompany entered into a three-year revolving $100.0 million note facility withMerrill Lynch, Pierce, Fenner & Smith Incorporated. At that time, theCompany borrowed approximately $90.7 million from the facility and used thefunds to repay all remaining principal and interest due under, and toterminate, the Wachovia line of credit.

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Also during the secondquarter, on May 24, 2007, we completed of sale of three student housingproperties to SCI Real Estate Investments. The three property sales were madepursuant to a definitive agreement to sell a total of five properties to SCIReal Estate Investments, LLC, and included Campus Club in Gainesville, FL,University Glades in Gainesville, FL, and University Edge in Hattiesburg, MS.The Company received an aggregate of approximately $27.8 million in netproceeds from these three sales, after the repayment of existing mortgage debton the properties totaling approximately $37.0 million. Approximately $23.2million of the net proceeds were used to repay indebtedness under the Company’snote facility with Merrill Lynch, and the remaining $4.6 million in proceeds isbeing held in escrow for up to 180 days pending the Company’s completion of a1031 exchange transaction.

Shortly after the close of the second quarter, inearly July 2007, we completed the sale of the remaining student housingproperty under our sale agreement with SCI Real Estate Investments, UniversityCrossing in Manhattan, KS, and we completed the sale of  Campus Commons, a student housing propertylocated in Eugene, OR, to Horizon Realty Advisors of Seattle, WA.  The property sale to SCI resulted inaggregate net proceeds of approximately $12.3 million, after the buyer’sassumption of existing mortgage debt on the properties totaling approximately$11.4 million. The Company also received approximately $9.9 million in netproceeds from the sale of Campus Commons, after the buyer’s assumption ofexisting mortgage debt on the property totaling approximately $16.1 million.

On August 1, 2007, we completed the acquisition ofBlanton Commons-Phase II, located in Valdosta, GA, for an aggregate purchaseprice of $11.2 million.  In addition, wesimultaneously placed a combined $29.0 million of new mortgage debt on bothBlanton Commons — Phase II and Blanton Commons — Phase I, a property that wealready owned and that was previously unencumbered. The mortgage debt financingresulted in approximately $17.7 million (net of closing costs) in net proceedsto the Company.

With respect to application of the net proceeds fromthe transactions described above, on July 1, 2007, we used $22.0 million of theaggregate net proceeds from the joint venture and sale transactions to repay anequal amount of indebtedness outstanding under the Merrill Lynch note facility.In addition, on August 1, 2007, we used the remaining net proceeds from thesetransactions, together with proceeds from our mortgage financing on the BlantonCommons-Phase I and Phase II properties, to repay $25.0 million in indebtednessunder the Merrill Lynch note facility. Any proceeds remaining from thesetransactions may be used for general working capital purposes or to repayadditional indebtedness outstanding under our note facility, depending on theCompany’s cash needs in the future.

*StudentHousing- Owned Properties*

 The student housingowned properties segment reflects the revenues and expenses of off-campusstudent housing properties acquired and owned through the REIT ownershipstructure which are strategically located near college or university campuses.During the years ended December 31, 2004, 2005 and 2006, our rentalrevenue (including continuing and discontinuing operations) increasedsubstantially as a result of the acquisition of an aggregate of 75 properties(excluding two properties in which we have a 10% interest together with a jointventure partner) over that period. During the year ended December 31,2006, we acquired 21 of these properties. Although our acquisition activity hasslowed during 2007, we continue to experience increases in, operating expenses,real estate taxes and depreciation and amortization as a result of these prioracquisitions. Further, interest expense has increased related to the financingof the properties we have acquired.

Historically, we havefound certain property revenues and operating expenses to be cyclical innature, and therefore not incurred ratably over the course of the year. As ourproperties are leased predominantly on an academic-year basis, certain of ouroperating revenues and expenses will vary from quarter to quarter depending onthe leasing cycle. For example, we experience significant turnover costscommencing towards the end of the second quarter and more significantly duringthe third quarter of our fiscal year, in connection with preparing ourproperties for new residents prior to commencement of the new academic-yearlease period, which typically begins in August or September. In addition,we also typically incur higher lease-up costs during the first two quarters ofour fiscal year, as this is the period during which we heavily target studentsfor leases that will commence for the next academic year. Property revenues andexpenses may differ from expected results in the year of acquisition, dependingon the timing of the acquisition in relation to the leasing cycle.

Throughout the remainderof 2007, we expect to continue to place less emphasis on the acquisition ofadditional student housing properties relative to prior years, and continue tofocus on the operational performance of our existing student housing propertiesand development projects. To the extent our operational performance meets orexceeds management’s expectations over the next two fiscal quarters, and theCompany has sufficient working capital or financing sources for additionalacquisitions, we may determine that it is appropriate to place greater emphasison acquisitions in the Company’s student housing segment and seek to acquireproperties located in our targeted markets and that meet 

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management’sunderwriting criteria for creating long-term growth potential. If we seek toacquire student housing properties during the remainder of 2007, we willconsider funding the acquisition through joint venture structures similar tothe joint venture terms that we have entered into with respect to our currentjoint venture properties. The timing of any additional acquisitions ordevelopment projects will be dependent upon various factors, including theability to complete satisfactory due diligence, to find suitable joint venturepartners and agree upon mutually acceptable joint venture terms, to obtainappropriate debt financing on the properties, and the availability of capital.We would consider funding our equity portion of any joint ventures by usingfunds from available cash from operations or borrowings. We also may determinethat it is appropriate to purchase additional student housing propertiesoutright, as opposed to with a joint venture partner, depending upon manyfactors which may include, but are not limited to, the applicable purchaseprice, available capital, and projected returns with respect to the property.

During the three monthsended June 30, 2007, we completed the following transactions relating to ourstudent housing owned properties:

·                    On April 13,2007, we entered into a joint venture transaction with Fidelity Real EstateGroup, pursuant to which we formed a joint venture entity that is owned 90% byFidelity and 10% by us, and into which we agreed to transfer our interest in atotal of six student housing properties. Upon the formation of the jointventure, we completed the transfer of our 100% interest in five of the sixstudent housing properties into the joint venture entity. As part of thetransaction, the joint venture simultaneously placed new mortgage indebtednesson the five properties in an aggregate amount of approximately $88.0 million.The new mortgage debt has a five-year term and requires interest-only paymentsat a fixed rate of approximately 5.52%. After the repayment of previouslyexisting mortgage debt on the properties, we received net proceeds from boththe Fidelity equity contribution and the new mortgage debt totalingapproximately $56.1 million.  On June 27,2007, we completed the transfer of our interests in the sixth property, TheEdge — Phase II (Charlotte, NC) ,into the joint venture in exchange for approximately$5.2 million in net proceeds, after the joint venture’s assumption of existingmortgage debt on the property equal to approximately $4.5 million.  The six properties included in the jointventure as of the date of this report include University Uptown (Denton, TX),University Heights (Knoxville, TN), University Walk (Charlotte, NC), The Ridge(Morgantown, WV), Campus Edge - Phase I (Charlotte, NC); and Campus Edge PhaseII (Charlotte, NC);

·                    OnMay 3, 2007, we completed the refinancing of three student housing propertiesthat previously had debt maturity dates during 2007.****Underthe refinancing, we placed an aggregate of $31.6 million in mortgageindebtedness covering the three properties pursuant to a LIBOR-based pool.Under this pool arrangement, the loan is interest-only with a one-year term(with four additional one-year extension options), and bears a variableinterest rate of 30-day LIBOR plus 1.9%. We did not receive any net proceedsfrom this refinancing; and

·                    On May 24,2007, we completed the sale of three student housing properties to SCI RealEstate Investments, LLC, pursuant to an agreement to sell a total of fivestudent housing properties. The Company received an aggregate of approximately$27.8 million in net proceeds from these three sales, after the repayment ofexisting mortgage debt on the properties totaling approximately $37.0 million.The initial three property sales included Campus Club in Gainesville, FL,University Glades in Gainesville, FL, and University Edge in Hattiesburg, MS.The fourth property sale under the agreement with SCI consisted of SeminoleSuites (Tallahassee, FL) and was completed on June 29, 2007.   We received net proceeds of approximately$17.3 million from this fourth property sale, after the buyer’s assumption ofexisting mortgage debt on the property totaling approximately $20.4 million.

Subsequent to the second quarter, on July 3, 2007, we completed thesale of a fifth student housing property, University Crossing in Manhattan, KS,to SCI under the above-referenced agreement. We received aggregate net proceedsof approximately $12.3 million from this fifth property sale, after the buyer’sassumption of existing mortgage debt on the property totaling approximately$11.4 million.  On July 12, 2007, we alsocompleted the sale of a Campus Commons, a student housing property located inEugene, OR, to Horizon Realty Advisors of Seattle, WA. The Company receivedapproximately $9.9 million in net proceeds from the sale, after the buyer’sassumption of existing mortgage debt on the property totaling approximately$16.1 million.  On August 1, 2007, wecompleted the acquisition of a student housing property, Blanton Commons —Phase II  in Valdosta, GA for anaggregate purchase price of $11.2 million. In addition, we simultaneously placed new mortgage debt on both BlantonCommons — Phase II and our currently owned Blanton Commons — Phase I propertyfor an aggregate of  $29.0 million,which  has a 10- year term, with monthlypayments of interest only for the initial five years, and fixed interest rateof 6.335%.  The combined net proceeds ofapproximately $17.7 million from 

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acquisition andmortgage financing were used to repay outstanding indebtedness under theCompany’s note facility and for general working capital purposes

*StudentHousing—Management*

The studenthousing-management segment provides the on-site management function for, andgenerally oversees the management of, all off-campus student housing propertiesfor the Company and for properties we manage that are owned by third parties.Third parties may be related parties or parties unaffiliated with the Company.The properties are strategically located near college or university campuses.Total revenues from management activities, including reimbursement of expenses,increased by approximately 34.8% and 17.6% from the three months and six monthsended June 30, 2006, respectively as compared to the same periods in  2007, including management fees earned fromthe properties managed for the Company.

We earn management feesfrom managing properties for third parties. These fees are typically equal to apercentage of cash receipts or gross rental revenues generated by the managedproperties, or equal to a fixed monthly amount, according to the respectivemanagement agreements. We also have the ability to earn incentive managementfees by achieving specified property-level performance criteria forcertain properties we manage for third parties. Further, certain operatingexpenses incurred related to properties we manage for others are reimbursed bythe owners of the properties managed. We expect to continue generating feerevenue and operating expense reimbursements from the properties that we managefor others, although the amounts are expected to become less significant as apercentage of our overall revenues as rental income increases from theproperties we own and to the extent our managed property portfolio does notcorrespondingly increase. During the remainder of 2007, we expect to continueto pursue new third-party management agreements by utilizingrelationships in the student housing market and providing our significantoperational economies of scale as a savings mechanism for other third-partyowners, including institutional owners and individual student housing owners.  In addition, we will continue to manage theproperties that were transferred into our recently formed joint venture withFidelity Real Estate Group, as well as the properties that were sold to SCIReal Estate Investments, each of which are referenced above under “*Student Housing-Owned Properties*.”

*MilitaryHousing*

Our military housingsegment develops, constructs, renovates and manages military housingprivatization projects in which we acquire equity interests. Revenue from ourmilitary housing segment is comprised primarily of fee income for providingdevelopment, construction/renovation and management services to our militaryhousing privatization projects. We also are entitled to returns on the equitywe invest in the projects. In addition, we earn business development fees fromcertain of our business partners in connection with our military housingprivatization projects, such as our construction and architectural/engineeringpartners. We seek these fees as payment for our business development effortsincurred by us in connection with pursuing and coordinating the completion ofmilitary housing privatization projects that benefit these business partners.We also receive expense reimbursements, consisting primarily of payroll andrelated expenses, closing costs and transition costs we incur for the projectin the periods preceding the initiation of our management of the project.Typically, at the time we initiate management on a project, the projectreimburses us for these amounts from the proceeds of the debt securities issuedby the military housing privatization project.

As of June 30, 2007, weowned equity interests in the joint ventures that owned 10 military housingprivatization projects in operation, encompassing 25 military bases totaling 20,364end-state housing units. During the three months and six months ended June 30,2007, we earned fees for providing development, construction/renovation andmanagement services to these 10 military housing privatization projects. As ofthe date of this report, the number of end-state housing units under ourmilitary housing projects totaled 19,021, representing a decrease of 1,343units resulting from the restructuring of our Navy Northeast Region projectdescribed below.

On May 25, 2007,we announced that we were selected by the Department of the Army to enter intoexclusive negotiations for the family housing privatization project at FortJackson in Columbia, South Carolina. The 50-year project is expected to have asix-year initial development period (IDP), with project costs valued in excessof $180 million and cover an estimated 990 end-state housing units.

On July 26, 2006,the terms and debt financing for our Navy Northeast Region project wererestructured as a result of (i) the anticipated closure of the Naval AirStation in Brunswick, Maine in connection with the Base Realignment and Closure(BRAC) regulations, which represented approximately 723 end-state housingunits, and (ii) changes in housing market conditions that affected occupancy ratesfor the project, which represented an overall decrease of approximately 620end-state housing units. In connection with this restructuring, the originaltaxable bonds that were issued by the project entity to finance the projectupon commencement of the initial commencement of operations were redeemed andthe project entity 

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issued new taxable bonds in an amount commensurate with the financingneeds of the remainder of the initial development period, or IDP, of theproject based on the reduced scope.

On July 30, 2007,we announced that we were selected by the U.S. Air Force as the highest rankedofferor (HRO) for the privatization of family housing at Vandenberg Air ForceBase.  As a result of the HRO selection, theCompany will participate in exclusive negotiations with the U.S. Air Force forthe development, management, construction and renovation of high-quality homesand other ancillary facilities and amenities to meet the needs of theVandenberg community. The 50-year project is expected to have a five-year IDP,with estimated project costs valued in excess of $150 million and cover anestimated 867 end-state housing units.

Our management team alsohad under review, as of August 1, 2007, three potential additional militaryhousing privatization projects, and opportunities to acquire additionalprojects or project rights from our competitors, and will continue to pursueopportunities to acquire projects or project rights from our competitors, aswell as opportunities to participate in pilot housing programs forunaccompanied military personnel.

**Critical Accounting Policies**

Our “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”discusses the Company’s consolidated financial statements which have beenprepared in accordance with U.S. generally accepted accounting principles. Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. While the estimates and judgments associated with theapplication of these accounting principles may be affected by differentassumptions or conditions, we believe the estimates and judgments associatedwith the reported amounts are appropriate under the circumstances in which theywere made. In addition, other companies in similar businesses may utilizedifferent estimation policies and methodologies, which may impact thecomparability of our results of operations and financial condition to thosecompanies.

The following policiesrequire significant judgments and estimates on our part in preparing theCompany’s consolidated financial statements. Changes in these judgments andestimates could have a material effect on these financial statements.

**Revenue Recognition**

***Student Housing-Owned PropertiesSegment***

Rental revenue isrecognized when due over the lease terms, which are generally 12 months orless.

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

***Student Housing ManagedProperties Segment***

Standard management feesare based on a percentage of monthly cash receipts or gross monthly rental andother revenues generated by the properties managed for others. We recognize thesefees on a monthly basis as the services are performed.

Incentive management feesare earned as a result of the achievement of certain operating performancecriteria over a specified period by certain managed properties, includingtargeted annual debt service coverage ratios of the properties. We recognizethese fees at the amount that would be due under the contract if the contractwas terminated on the balance sheet date.

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

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*Military Housing*

We earn military housingrevenues for providing services to our military housing privatization projects,including the following:

·       standardand incentive management fees, which are based on a percentage of revenuegenerated by the military housing privatization projects from the basicallowance for housing provided by the government to service members, referredto as BAH, are recognized when the revenue is earned by the military housingprojects. Incentive management fees are based upon the satisfaction of certain criteriaincluding, among other things, satisfying designated benchmarks relating toemergency work order response, occupancy rates, home turnover and residentsatisfaction surveys. Incentive management fees are recognized when the variouscriteria stipulated in the management contract have been satisfied;

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

·       revenueson our renovation contracts are recorded on the percentage-of-completionmethod. When the percentage-of-completion method is used, contract revenue isrecognized in the ratio that costs incurred to date bear to estimated costs atcompletion. Adjustments to cost estimates are made in the period in which thefacts requiring such revisions become known. When the revised estimatesindicate a loss, such loss is provided for currently in its entirety.

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

·       equityreturns are earned on our investments in military housing projects. During theinitial development period for a project, the equity returns are a fixedpercentage of our investment and subsequent to the initial development periodfor a project, the equity returns are based on a fixed percentage of ourinvestment and on the project’s net operating income, subject to cashdistribution caps, as defined in the operating agreements related to theparticular project. As of June 30, 2007, only the Fort Carson project hadpassed its initial development period.

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

We carry real estateinvestments and corporate assets at cost, net of accumulated depreciation. Costof acquired assets includes the purchase price and related closing costs. Weallocate the cost of real estate investments to net tangible and identifiedintangible assets based on relative fair values in accordance with Statement ofFinancial Accounting Standards No. 141 (“SFAS 141”), *Business Combinations*. We estimate fairvalue based on information obtained from a number of sources, including our duediligence, marketing and leasing activities, independent appraisals that may beobtained in connection with the acquisition or financing of the respectiveproperty, and other market data.

The value of in-placeleases is based on the difference between (i) the property valued withexisting in-place leases 

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and(ii) the property valued as if vacant. As lease terms typically are12 months or less, actual rates on in-place leases generally approximatemarket rental rates. Factors that we consider in the valuation of in-placeleases include an estimate of incremental carrying costs during the expectedlease-up periods considering current market conditions and nature of thetenancy. Purchase prices of student housing properties to be acquired are notexpected to be allocated to tenant relationships considering the terms of theleases and the expected levels of renewals. We amortize the value of in-placeleases to expense over the remaining term of the respective leases, which isgenerally one year or less.

We expense routine repairand maintenance costs that do not improve the value of an asset or extend itsuseful life, including turnover costs. We capitalize expenditures that improvethe value and extend the useful life of an asset. We compute depreciation usingthe straight-line method over the estimated useful lives of the assets, whichis generally 40 years for buildings including student housing propertiesand the commercial office building, and three to five years for residentialfurniture and appliances. Commencing towards the end of the second quarter andmore significantly during the third quarter of each fiscal year, we typicallywill experience an increase in property operating expenses over other quartersas a result of repair and maintenance expenditures relating to turnover ofunits at student housing properties. Our student housing lease terms generallycommence in August or September to coincide with the beginning of theacademic year. Accordingly, we expect to incur a majority of its repair and maintenancecosts during the second and third quarters to prepare for new residents.

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

***Allowance for Doubtful Accounts***

We estimate thecollectibility of receivables generated by rental and other income as a resultof the operation of our student housing properties. If we believe that thecollectibility of certain amounts is questionable, we record a specific reservefor these amounts to reduce the amount outstanding to an amount we believe willbe collectible and a reserve for all other accounts based on a range ofpercentages applied to aging categories, which is based on historicalcollection and write-off experience.

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

***Minority Interest***

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

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Distributionsto limited partnership unit holders other than us are recorded as a reductionto minority interest.

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

We own equity interestsin the joint ventures that own our military housing privatization projects withthe U.S. military to design, develop, construct/renovate and manage themilitary family housing located on or near various bases throughout the UnitedStates. We evaluate our investments in military housing project joint venturesin which we have a variable interest to determine if the underlying entity is avariable interest entity (“VIE”) as defined under FASB Financial InterpretationNo. 46 (as revised) (“FIN 46(R)”). We have concluded that each of themilitary housing project joint ventures in which we have a variable interest isa VIE and we are not the primary beneficiary of any of these VIEs. We recordour investments in joint ventures under our military housing projects inaccordance with the equity method of accounting. Our investment is initiallyrecorded at cost, and then subsequently adjusted at each balance sheet date toan amount equal to what we would receive from the joint venture in the eventthat it were liquidated at net book value as of that date, and assuming thatthe proceeds from the liquidation are distributed in accordance with the termsof, and priority of returns set forth under, the joint venture’s operatingagreement. We have exposure to loss to the extent of our investments, if any,and any receivables due from the project.

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

The Company also owns a10% interest in a joint venture that owns six student housing properties andrecords its investment under the equity method of accounting.

***Income Taxes***

We elected to be taxed asa REIT under the Code commencing with our taxable year ended December 31,2004. To continue to qualify as a REIT, we must meet a number of organizationaland operational requirements, including a requirement that we currentlydistribute at least 90% of our adjusted taxable income to our shareholders. Webelieve we are organized and operate in a manner that allows us to qualify fortaxation as a REIT under the Code, and it is our intention to adhere to theserequirements and maintain our REIT status in the future. Accordingly, noprovision has been made for federal income taxes in the accompanyingconsolidated financial statements, other than with respect to our taxable REITsubsidiaries.

**Results of Operations**

The results of operationsfor the three months and six months ended June 30, 2007 and 2006 presentedbelow reflect the results of operations of the Company. The eliminations columnrepresents the management fees that are charged to our student housing—ownedproperties segment from our student-housing management segment. Such amountshave been eliminated in consolidation.

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***Comparison of the Three Months Ended June 30, 2007 to theThree Months Ended June 30, 2006***
| ** **                                                                                                                           | ** ** | **Three Months Ended June 30, 2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **Student  Housing-  Owned  Properties**                      | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                          |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                                                                      |       | $                                                             | 46,878     |   | $ | — |   | $ | — |   | $ | 39 |   | $ | — |   | $ | 46,917 |   |
| Expense reimbursements:                                                                                                              |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                        |       | —                                                        |       | 347 |   | 16,234 |   | 58 |   | — |   | 16,639 |   |
| Third party                                                                                                                          |       | —                                                        |       | 1,357 |   | — |   | — |   | — |   | 1,357 |   |
| Management fees:                                                                                                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                     |       | —                                                        |       | 1,677 |   | — |   | — |   | (1,677 | ) | — |   |
| Related party                                                                                                                        |       | —                                                        |       | 117 |   | 2,500 |   | — |   | — |   | 2,617 |   |
| Third party                                                                                                                          |       | —                                                        |       | 656 |   | — |   | — |   | — |   | 656 |   |
| Other fee income —  related party                                                                                               |       | —                                                        |       | 720 |   | 6,715 |   | — |   | — |   | 7,435 |   |
| Other income                                                                                                                         |       | 30                                                            |       | 3 |   | 5 |   | 158 |   | — |   | 196 |   |
| Total revenue                                                                                                                        |       | 46,908                                                        |       | 4,877 |   | 25,454 |   | 255 |   | (1,677 | ) | 75,817 |   |
|                                                                                                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating Expenses:**                                                                                                              | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property  operating expense                                                                                                          |       | 17,856                                                        |       | 1,544 |   | 2,223 |   | — |   | — |   | 21,623 |   |
| Intercompany  management fee                                                                                                         |       | 1,677                                                         |       | — |   | — |   | — |   | (1,677 | ) | — |   |
| Reimbursed  expenses                                                                                                                 |       | —                                                        |       | 1,704 |   | 16,234 |   | 58 |   | — |   | 17,996 |   |
| Real estate taxes                                                                                                                    |       | 4,468                                                         |       | — |   | — |   | 24 |   | — |   | 4,492 |   |
| Administrative  expenses                                                                                                             |       | —                                                        |       | — |   | — |   | 4,496 |   | — |   | 4,496 |   |
| Audit Committee  and Special Committee expenses                                                                                      |       | —                                                        |       | — |   | — |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                                                                       |       | 11,017                                                        |       | — |   | 169 |   | 122 |   |   |   | 11,308 |   |
| Interest                                                                                                                             |       | 14,737                                                        |       | — |   | — |   | 1,009 |   |   |   | 15,746 |   |
| Total operating  expenses                                                                                                            |       | 49,755                                                        |       | 3,248 |   | 18,626 |   | 5,709 |   | (1,677 | ) | 75,661 |   |
| Gain on sales to joint venture                                                                                                       |       | 21,773                                                        |       | — |   | — |   | — |   | — |   | 21,773 |   |
| Income (loss) from  continuing operations before equity in earnings of unconsolidated entities,  income taxes and miniority interest |       | 18,926                                                        |       | 1,629 |   | 6,828 |   | (5,454 | ) | — |   | 21,929 |   |
| Equity in (loss)  earnings of unconsolidated entities                                                                                |       | (75                                                           | )          | — |   | 1,305 |   | — |   | — |   | 1,230 |   |
| Income (loss) from  continuing operations before income taxes and minority interest.                                                 |       | 18,851                                                        |       | 1,629 |   | 8,133 |   | (5,454 | ) | — |   | 23,159 |   |
| Income tax (benefit)  expense                                                                                                        |       | —                                                        |       | (20 | ) | 1,347 |   | — |   | — |   | 1,327 |   |
| Income (loss) from  continuing operations before minority interest                                                                   |       | 18,851                                                        |       | 1,649 |   | 6,786 |   | (5,454 | ) | — |   | 21,832 |   |
| Less minority interest  attributable to continuing operations                                                                        |       | —                                                        |       | — |   | — |   | 9,431 |   | — |   | 9,431 |   |
| Net income (loss) from  continuing operations                                                                                        |       | 18,851                                                        |       | 1,649 |   | 6,786 |   | (14,885 | ) | — |   | 12,401 |   |
|                                                                                                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Discontinued Operations:**                                                                                                         | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from  discontinued operations before minority interest                                                                        |       | 1,059                                                         |       | 116 |   | — |   | — |   | — |   | 1,175 |   |
| Gain on sale of  student housing properties                                                                                          |       | 19,390                                                        |       | — |   | — |   | — |   | — |   | 19,390 |   |
| Less minority  interest                                                                                                              |       | —                                                        |       | — |   | — |   | 8,883 |   | — |   | 8,883 |   |
| Income from  discontinued operations                                                                                                 |       | 20,449                                                        |       | 116 |   | — |   | (8,883 | ) | — |   | 11,682 |   |
|                                                                                                                                 |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                    |       | $                                                             | 39,300     |   | $ | 1,765 |   | $ | 6,786 |   | $ | (23,768 | ) | $ | — |   | $ | 24,083 |   |

 

31

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| ** **                                                                                                                          | ** ** | **Three Months Ended June 30, 2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **Student  Housing-  Owned  Properties**                      | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other property income                                                                                                      |       | $                                                             | 39,711     |   | $ | — |   | $ | — |   | $ | 39 |   | $ | — |   | $ | 39,750 |   |
| Expense  reimbursements:                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                       |       | —                                                        |       | 103 |   | 17,457 |   | 115 |   | — |   | 17,675 |   |
| Third party                                                                                                                         |       | —                                                        |       | 1,389 |   | — |   | — |   | — |   | 1,389 |   |
| Management fees:                                                                                                                    |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                    |       | —                                                        |       | 1,458 |   | — |   | — |   | (1,458 | ) | — |   |
| Related party                                                                                                                       |       | —                                                        |       | 17 |   | 2,084 |   | — |   | — |   | 2,101 |   |
| Third party                                                                                                                         |       | —                                                        |       | 647 |   | — |   | — |   | — |   | 647 |   |
| Other fee income  — related party                                                                                              |       | —                                                        |       | — |   | 5,581 |   | — |   | — |   | 5,581 |   |
| Other income                                                                                                                        |       | 25                                                            |       | 5 |   | 14 |   | 7 |   | — |   | 51 |   |
| Total revenue                                                                                                                       |       | 39,736                                                        |       | 3,619 |   | 25,136 |   | 161 |   | (1,458 | ) | 67,194 |   |
|                                                                                                                                |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  Expenses:**                                                                                                            | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property operating expense                                                                                                          |       | 14,524                                                        |       | 1,676 |   | 1,513 |   | — |   | — |   | 17,713 |   |
| Intercompany management fee                                                                                                         |       | 1,458                                                         |       | — |   | — |   | — |   | (1,458 | ) | — |   |
| Reimbursed expenses                                                                                                                 |       | —                                                        |       | 1,492 |   | 17,457 |   | 115 |   | — |   | 19,064 |   |
| Real estate taxes                                                                                                                   |       | 3,893                                                         |       | — |   | — |   | 24 |   | — |   | 3,917 |   |
| Administrative expenses                                                                                                             |       | —                                                        |       | — |   | — |   | 4,931 |   | — |   | 4,931 |   |
| Audit Committee and Special Committee expenses                                                                                      |       | —                                                        |       | — |   | — |   | 2,301 |   | — |   | 2,301 |   |
| Depreciation and amortization                                                                                                       |       | 9,619                                                         |       | — |   | 130 |   | 77 |   | — |   | 9,826 |   |
| Interest                                                                                                                            |       | 10,398                                                        |       | — |   | — |   | 441 |   | — |   | 10,839 |   |
| Total operating expenses                                                                                                            |       | 39,892                                                        |       | 3,168 |   | 19,100 |   | 7,889 |   | (1,458 | ) | 68,591 |   |
| Gain on sale to joint venture                                                                                                       |       | —                                                        |       | — |   | — |   | — |   | — |   | — |   |
| (Loss) income  from continuing operations before equity in earnings of unconsolidated  entities, income taxes and minority interest |       | (156                                                          | )          | 451 |   | 6,036 |   | (7,728 | ) | — |   | (1,397 | ) |
| Equity in earnings  of unconsolidated entities                                                                                      |       | —                                                        |       | — |   | 1,174 |   | — |   | — |   | 1,174 |   |
| (Loss) income  from continuing operations before income taxes and minority interest                                                 |       | (156                                                          | )          | 451 |   | 7,210 |   | (7,728 | ) | — |   | (223 | ) |
| Income tax  (benefit)expense                                                                                                        |       | —                                                        |       | (232 | ) | 1,446 |   | — |   | — |   | 1,214 |   |
| Income (loss)  from continuing operations before minority interest                                                                  |       | (156                                                          | )          | 683 |   | 5,764 |   | (7,728 | ) | — |   | (1,437 | ) |
| Less minority  interest attributable to continuing operations                                                                       |       | —                                                        |       | — |   | — |   | (627 | ) | — |   | (627 | ) |
| Net (loss)  income from continuing operations                                                                                       |       | (156                                                          | )          | 683 |   | 5,764 |   | (7,101 | ) | — |   | (810 | ) |
|                                                                                                                                |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Discontinued  Operations:**                                                                                                       | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income from discontinued operations before minority  interest                                                                       |       | 323                                                           |       | 155 |   | — |   | — |   | — |   | 478 |   |
| Gain on sale of student housing properties                                                                                          |       | —                                                        |       | — |   | — |   | — |   | — |   | — |   |
| Less minority interest                                                                                                              |       | —                                                        |       | — |   | — |   | 209 |   | — |   | 209 |   |
| Income from discontinued operations                                                                                                 |       | 323                                                           |       | 155 |   | — |   | (209 | ) | — |   | 269 |   |
|                                                                                                                                |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                   |       | $                                                             | 167        |   | $ | 838 |   | $ | 5,764 |   | $ | (7,310 | ) | $ | — |   | $ | (541 | ) |

 

***Student Housing***

*StudentHousing—Owned Properties*

*Revenue.*Of the 69 properties owned and included in our results fromcontinuing operations as of June 30, 2007, we acquired 20 of the studenthousing properties during 2006, one of which was acquired during the secondquarter of 2006.  Rent and other propertyincome increased to $46.9 million during the three months ended June 30, 2007from $39.7 million during the three months ended June 30, 2006.  The increase in rent and other propertyincome experienced during the three months ended June 30, 2007 primarily relatesto (i) the acquisition of an additional 13 properties during the remainderof 2006.   In future periods, our netincome will be negatively affected to the extent property operating expensesare higher than those projected by our management for such period prior tolease execution for the applicable academic year, and (ii) thepresentation of a full quarter of operations during 2007 with respect to theone property acquired during the second quarter of 2006.

We owned 49 propertieswhich are included in our results from continuing operations during both thethree months 

32

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endedJune 30, 2007 and 2006, referred to herein as our same store properties.  Our revenues at the same store propertiesincreased $0.9 million or 2.6% to $36.1 million for the three months ended June30, 2007, as compared to $35.2 million during the three months ended June 30,2006.

Other income remainedrelatively consistent during the three months ended June 30, 2007 and 2006 andconsists primarily of interest income on invested cash.

*Expenses.**  *Property operating expenses fromcontinuing operations increased to $17.9 million for the three months endedJune 30, 2007 from $14.6 million for the three months ended June 30, 2006,primarily due to expenses attributable to the 13 properties acquired during thelast six months of 2006 and our ownership and operation for a full quarterduring 2007 of the one property acquired during the second quarter of 2006. Theincrease of $3.3 million is attributable to the following: a $0.9 millionincrease in utilities expenses; a $0.2 million increase in insurance expense; a$0.6 million increase in payroll expenses at the property level; a $0.3 millionincrease in bad debt expense relating to uncollected rents and other income; a$0.2 million increase in security expenses; a $0.2 million increase in repairsand maintenance expense; and a $0.9 million increase in other propertyexpenses, consisting of marketing, landscaping, office and other similarproperty operating expenses.

With respect to our samestore properties, we experienced an increase in property operating expenses netof utility reimbursements of approximately $0.7 million, or 5.1%, in thethree months ended June 30, 2007, as compared to the three months ended June 30,2006. This increase was primarily attributable to the following: a $0.2 millionincrease in payroll expense at the property level; a $0.2 million increase inbad debt expense relating to uncollected rents and other income; a $0.2 millionincrease in security expense and a $0.1 million net increase in otherproperty expenses.

Real estate taxes fromcontinuing operations increased to $4.5 million for the three months ended June30, 2007 from $3.9 million for the three months ended June 30, 2006,primarily due to the acquisition of 13 properties during the last six months ofthe 2006 and the full quarter of real estate taxes with respect to the oneproperty we acquired during the second quarter of 2006. Of the $0.6 millionincrease we experienced in real estate taxes, approximately $0.1 million isrelated to our same store properties. We expect an overall increase in realestate taxes during 2007 due to a full year of operations for the 21 propertiesacquired during 2006, offset by a decrease as a result of the six propertiesthat we have transferred into our joint venture with Fidelity Real EstateGroup.  We also may see an increase inreal estate taxes to the extent that local authorities continue to aggressivelypursue higher real estate tax assessments on properties that we currently own.

Depreciation andamortization from continuing operations increased to $11.0 million for thethree months ended June 30, 2007, as compared to $9.6 million for thethree months ended June 30, 2006, primarily as a result of acquiring 13properties during the last six months of 2006 for an aggregate purchase priceof $288.5 million, as well as the inclusion of a full quarter of depreciationexpense relating to the one property acquired during the second quarter of2006.  The $11.0 million in 2007 iscomprised of $10.0 million of depreciation and $1.0 million of leaseintangible amortization.  We expect adecrease in amortization expense as lease intangible related to acquisitionsduring 2006 are almost completely amortized.

Interest expense fromcontinuing operations increased to $14.7 million for the three months endedJune 30, 2007 from $10.4 million for the three months ended June 30, 2006,as a result of incurring additional debt, including placement of new mortgagedebt and the assumption of existing mortgage debt, as well as borrowings underour prior line of credit, in connection with the acquisition of  20 properties during 2006.  This increase is offset by repayments andassumptions of mortgage debt in conjunction with the sale to Fidelity as wellas repayments on the line of credit. During the last six months of 2006, we placed $229.8 million of newmortgage debt, net of premiums, and increased borrowings under our line ofcredit in existence throughout that period. We expect interest expense todecrease during the remainder of 2007 as the Company pays down the remainingoutstanding principal balance on its note facility with Merrill Lynch.

*StudentHousing-Management*

*Revenue.*   Expensereimbursements from related parties increased to $347,000 for the three monthsended June 30, 2007 from $103,000 for the three months ended June 30, 2006,primarily due to the commencement of management fees we received during thethree months ended June 30, 2007 relating to the six properties we transferredinto a joint venture in which we have a 10% interest.

33

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Expense reimbursementsfrom third parties remained relatively consistent during the three months endedJune 30, 2007 as compared to the same period in the prior year.  Reimbursed expenses are comprised of payrollexpenses for on-site employees.  Weexpect expense reimbursements to continue to increase during the remainder of2007 as a result of our management agreements to continue to managing the sixproperties that we transferred into our joint venture with Fidelity Real EstateGroup during the second quarter of 2007 and the properties that we sold to SCIReal Estate Investments since the commencement of the second quarter of 2007,and as we continue to pursue new third-party management agreements duringthe remainder of 2007.

Management fees fromrelated parties increased to $117,000 for the three months ended June 30, 2007from $17,000 for the three months ended June 30, 2006, primarily due to themanagement fees we commenced receiving during the three months ended June 30,2007,  from the six properties held in ajoint venture in which we have a 10% interest.

Management fee incomefrom third parties increased to $656,000 during the three months ended June 30,2007 from $647,000 during the three months ended June 30, 2006. This increaseis due to an increase in managed contracts over the comparable prior yearperiod.  We expect management fee incometo increase during the remainder of 2007 as a result of our managementagreements to continue managing the five properties that we recently sold toSCI Real Estate Investments and as we continue to pursue new third-partymanagement agreements throughout the remainder of 2007.

*Expenses.**  *Property operating expenses decreased to $1.5 millionduring the three months ended June 30, 2007 from $1.7 million during the threemonths ended June 30, 2006, primarily due to a $0.4 million decrease in legalfees associated with tenant litigation during the three months ended June 30,2006 offset by the expenses attributable to the Company’s acquisition of sevenproperties during the first six months of 2006 , and  14 properties that were acquired duringthe  last six months of 2006.  These expenses are comprised of payroll andgeneral and administrative expenses directly associated with the operations ofthe Company’s owned and managed portfolios. While those employees who aredirectly responsible for the oversight of specific properties are chargeddirectly to the student housing-owned properties segment, the studenthousing-management department includes those employees responsible forportfolio oversight, which includes regional vice presidents, regional propertymanagers, regional leasing specialists and the associated expenses such astravel directly related to those employees who perform this function.

Reimbursed expenses,which includes related-party and third-party managed properties remainedrelatively consistent during the three months ended June 30, 2007 as comparedto the same period in the prior year. Reimbursed expenses are comprised mostly of payroll expenses for on-siteemployees.

Income taxes for thethree months ended June 30, 2007 amounted to a $20,000 benefit versus a$232,000 benefit for the same period in the prior year. Income taxes consistprimarily of taxes (benefits) associated with the operations of our studenthousing taxable REIT subsidiary, which manages properties for third parties.

*MilitaryHousing*

*Revenue.**  *Expense reimbursements decreased to $16.2 million for the three monthsended June 30, 2007 as compared to $17.5 million for the three months endedJune 30, 2006. The decrease is due primarily to i) delays and or reschedulingof renovation activities at our Navy Northeast Region project, Fort Eustis/FortStory project and Fort Bliss/White Sands Missile Range project and ii) theinclusion of $0.8 million in transition costs related to commencement of theFort Gordon project in the results of operations for the three months endedJune 30, 2006.  These were offset byincreases in renovation activity and operations expenses reimbursed at the AETCGroup I and Carlisle/Picatinny projects.  We expect renovations activities to increase with respect to our NavyNortheast Region project and to resume for our Fort Eustis/Fort Story projectduring the second half of 2007.  Thetable below sets forth certain information regarding the revenue from expensereimbursements for each of our military housing projects for the three monthsended June 30, 2007 and 2006.

34

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|                                                           | ** ** | **Three months ended June 30** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
| **Project**                                               | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(in millions)**                             | ** ** |
| **Expense  Reimbursements**                               |       |                                               |       |   |   |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                                                  | 1.0        |   | $ | 1.2 |   |
| Fort Carson  Project                                      |       | .8                                                 |       | .7 |   |
| Fort Hamilton  Project                                    |       | .6                                                 |       | .6 |   |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | .2                                                 |       | .2 |   |
| Fort Eustis/Fort Story Project                            |       | .8                                                 |       | 1.2 |   |
| Navy Northeast  Region Project                            |       | 3.7                                                |       | 8.8 |   |
| Fort Bliss/White  Sands Missile Range Project             |       | 2.9                                                |       | 3.4 |   |
| Fort Gordon  Project(1)                                   |       | .6                                                 |       | 1.3 |   |
| Carlisle/Picatinny  Project(1).                           |       | 2.2                                                |       | .1 |   |
| AETC Group I  Project(2)                                  |       | 3.4                                                |       | — |   |
| Total expense  reimbursements                             |       | $                                                  | 16.2       |   | $ | 17.5 |   |

----

(1)             TheFort Gordon project commenced operations in the second quarter of 2006 and theCarlisle/Picatinny project commenced operations in the third quarter of2006.  

(2)             TheAETC Group I project commenced operations in the first quarter of 2007.

Management fees from related parties increased to $2.5million for the three months ended June 30, 2007 compared to $2.1 million forthe three months ended June 30, 2006. The amount of management fees fromrelated parties that we receive during a fiscal period is affected by thenumber of housing units that we manage under our military housing projectsduring that period, which may fluctuate based on occupancy rates and the numberof housing units that we construct/renovate or demolish during thatperiod.  Management fees from relatedparties increased during the three months ended June 30, 2007 as compared to thethree months ended June 30, 2006, primarily due to increased occupancy andrental activity at our Fort Stewart/Hunter Army Airfield project, thecommencement of our Fort Gordon and Carlisle/Picatinny projects in the secondquarter of 2006, and the commencement of our AETC Group I project in the firstquarter of 2007.    The table below setsforth certain information regarding the revenue from management fees fromrelated parties for each of our military housing projects for the three monthsended June 30, 2007 and 2006.

|                                                           | ** ** | **Three months ended June 30** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
| **Project**                                               | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(in millions)**                             | ** ** |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                                                  | .4         |   | $ | .3 |   |
| Fort Carson  Project                                      |       | .3                                                 |       | .3 |   |
| Fort Hamilton  Project                                    |       | .1                                                 |       | .1 |   |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | .1                                                 |       | .1 |   |
| Fort Eustis/Fort Story Project                            |       | .2                                                 |       | .1 |   |
| Navy Northeast  Region Project                            |       | .8                                                 |       | .8 |   |
| Fort Bliss/White  Sands Missile Range Project             |       | .3                                                 |       | .3 |   |
| Fort Gordon  Project(1)                                   |       | .1                                                 |       | .1 |   |
| Carlisle/Picatinny  Project(1)                            |       | —                                             |       | — |   |
| AETC Group I  Project (2)                                 |       | .2                                                 |       | — |   |
| Total                                                     |       | $                                                  | 2.5        |   | $ | 2.1 |   |

----

(1)             TheFort Gordon project commenced operations in the second quarter of 2006 and wecommenced management operations for the Carlisle/Picatinny project in thesecond quarter of 2006.

(2)             TheAETC Group I project commenced in the first quarter of 2007.

Other fee income fromrelated parties, which includes development and construction/renovation feesand business development fees, totaled $6.7 million for the three months endedJune 30, 2007, as compared to $5.6 million for the same period in 2006.  Of the 2007 amount, $5.5 million related todevelopment and construction/renovation fees, and $1.2 million related tobusiness development fees.  The amount ofother fee income from related parties that we receive during a fiscal period isaffected by the number of housing units that we construct or renovate under ourmilitary housing projects during that period, which will fluctuate based on thepoint at which we are during the initial development period for the project.  Generally, the majority of new constructionwork is completed during the beginning years of an initial development periodwhile renovation work is completed throughout the initial development period.Other fee income from related parties increased during the three months endedJune 30, 2007 as compared to the three months ended June 30, 2006 primarily dueto increases in construction activities at our Fort Eustis/Fort Story, FortBliss/White Sands Missile Range, Fort Gordon, Carlisle/Picatinny and FortCarson projects, and the commencement of our AETC Group I project in the firstquarter of 2007 

35

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whichwas, offset by decreases due to delays in the renovation and constructionactivity at our Navy Northeast Region project, scheduled decreases indevelopment activity at our Fort Stewart/Hunter project, and a rescheduling ofdevelopment activity at our Fort Hamilton project.  The table below sets forth certaininformation regarding the revenue from other fee income from related partiesfor each of our military housing projects for the three months ended June 30,2007 and 2006.

|                                                           | ** ** | **Three months ended June 30** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------------|------------|
| **Project**                                               | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(in millions)**                             | ** ** |
| **Development  and Construction/Renovation Fees**         |       |                                               |       |   |   |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                                                  | .1         |   | $ | .3 |   |
| Fort Carson  Project                                      |       | .3                                                 |       | .1 |   |
| Fort Hamilton  Project                                    |       | —                                             |       | .2 |   |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | .1                                                 |       | .1 |   |
| Fort Eustis/Fort Story Project                            |       | .7                                                 |       | .4 |   |
| Navy Northeast  Region Project                            |       | 1.0                                                |       | 1.8 |   |
| Fort Bliss/White  Sands Missile Range Project             |       | 1.4                                                |       | 1.0 |   |
| Fort Gordon  Project(1)                                   |       | .7                                                 |       | .6 |   |
| Carlisle/Picatinny  Project(1)                            |       | .4                                                 |       | — |   |
| AETC Group I  Project (2)                                 |       | .8                                                 |       | — |   |
| **Total  Development and Construction/Renovation Fees**   |       | $                                                  | 5.5        |   | $ | 4.5 |   |
| Business  Development Fees                                |       | $                                                  | 1.2        |   | $ | 1.1 |   |
| Total Other Fee Income  — Related Parties            |       | $                                                  | 6.7        |   | $ | 5.6 |   |

----

(1)             TheFort Gordon project commenced operations in the second quarter of 2006 and theCarlisle/Picatinny project commenced operations in the third quarter of 2006.

(2)             TheAETC Group I project commenced operations in the first quarter of 2007.

Equity in earnings ofunconsolidated entities, consisting of equity income and preferred returns fromour military housing project joint ventures, totaled $1.3 million for the threemonths ended June 30, 2007 as compared to $1.2 million for the three monthsended June 30, 2006.   The slightincrease was primarily due to an increase in preferred returns earned on ourAETC Group I project, offset by timing differences in the recognition of thenet operating income cash flows from our Fort Carson Family Housing LLC, uponwhich a portion of our returns are calculated. The table below sets forth certain information regarding equity inearnings of unconsolidated entities for the three months ended June 30, 2007and 2006.

|                                | ** ** | **Three months ended June 30** | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|
| **Project**                    | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **(in millions)**                             | ** ** |
| Fort Carson  Project           |       | $                                                  | .9         |   | $ | 1.0 |   |
| Navy Northeast  Region Project |       | .2                                                 |       | .2 |   |
| AETC Group I  Project (1)      |       | .2                                                 |       | — |   |
| Total                          |       | $                                                  | 1.3        |   | $ | 1.2 |   |

----

(1)             TheAETC Group I project commenced operations in the first quarter of 2007.

*Expenses**  *

Property operatingexpenses include costs related to operating the military housing segment of ourbusiness, such as the compensation expense related to our military housing personnellocated in our corporate headquarters. These costs increased to $2.2 million infor the three months ended June 30, 2007 from $1.5 million in the three monthsended June 30, 2006. The increase was due to increases in (i) ourrenovation company operations and (ii) management and administrative expensesrelated to our overall expansion of our business, with respect to new projectsin operation and new project awards.

Reimbursed expensesdecreased to $16.2 million for the three months ended June 30, 2007 from $17.5million for the three months ended June 30, 2006.   Thedecrease is due primarily to declines in development and renovation at our Navy Northeast Region, FortEustis/Fort Story, and Fort Bliss/White Sands Missile Range projects, andtransition costs related to commencement of the Fort Gordon project in theresults of operations for the three months ended June 30, 2006, offset byincreases in development and renovation at AETC Group I and Carlisle/Picatinnyprojects.

*Income Taxes.**  *The effective tax rate on income taxes resulting fromthe portion of income that is earned in our military housing taxable REITsubsidiary remained relatively consistent at 31.5% in 2007 versus  36.1% in 2006.  The 

36

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decrease isprimarily due to tax return to accrual adjustments.

***Corporate***

Rental revenue andexpense reimbursements, which were recognized with respect to the portion ofour corporate headquarters leased to entities affiliated with Gary M.Holloway, Sr., and payroll and related expenses reimbursed by entitiesaffiliated with Mr. Holloway for the provision of common services,remained relatively consistent during the three months ended June 30, 2007 and2006.

Other income, consistingprimarily of interest income, increased by $151,000 primarily due to increasedovernight cash investments.

Administrative expenses,primarily relating to management of our corporate office, accounting, legal,human resources, information technology and acquisition departments, decreasedto $4.5 million for the three months ended June 30, 2007 from $4.9  million for the three months ended June 30,2006.  The decrease is primarily due toreduced professional fees.

Audit Committee andSpecial Committee expenses consist of legal fees, forensic accounting fees,incremental accounting fees and waiver fees associated with waivers of thecovenants under our former line of credit, incurred in connection with thespecial investigation performed by our Audit Committee and its independentcounsel that commenced in the first quarter of 2006, and legal, financialadvisory and Special Committee fees associated with the formation of theSpecial Committee to explore strategic alternatives for the Company.   During the three months ended June 30, 2006,these fees totaled $2.3 million. The special investigation was completed duringthe third quarter of 2006 and the Special Committee was disbanded in December2006.

Depreciation, relatingprimarily to our corporate assets, remained relatively consistent between thethree months ended June 30, 2007 and 2006.

Interest expenseincreased to $1.0 million for the three months ended June 30, 2007 from$0.6 million for the three months ended June 30, 2006, primarily due to anincrease in amortization of deferred financing costs of approximately $0.4million associated with our line of credit with Wachovia Bank that was enteredinto in October 2006 and terminated in May 2007.

37

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***Comparison of the Six Months Ended June 30, 2007 to the SixMonths Ended June 30, 2006***
| ** **                                                                                                                          | ** ** | **Six Months Ended June 30, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **Student  Housing-  Owned  Properties**                    | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other  property income                                                                                                     |       | $                                                           | 98,304     |   | $ | — |   | $ | — |   | $ | 78 |   | $ | — |   | $ | 98,382 |   |
| Expense reimbursements:                                                                                                             |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                       |       | —                                                      |       | 347 |   | 33,569 |   | 122 |   | — |   | 34,038 |   |
| Third party                                                                                                                         |       | —                                                      |       | 2,803 |   | — |   | — |   | — |   | 2,803 |   |
| Management fees:                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                    |       | —                                                      |       | 3,591 |   | — |   | — |   | (3,591 | ) | — |   |
| Related party                                                                                                                       |       | —                                                      |       | 117 |   | 4,921 |   | — |   | — |   | 5,038 |   |
| Third party                                                                                                                         |       | —                                                      |       | 1,334 |   | — |   | — |   | — |   | 1,334 |   |
| Other fee income —  related party                                                                                              |       | —                                                      |       | 720 |   | 12,853 |   | — |   | — |   | 13,573 |   |
| Other income                                                                                                                        |       | 59                                                          |       | 10 |   | 26 |   | 329 |   | — |   | 424 |   |
| Total revenue                                                                                                                       |       | 98,363                                                      |       | 8,922 |   | 51,369 |   | 529 |   | (3,591 | ) | 155,592 |   |
|                                                                                                                                |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses:                                                                                                                 |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Property  operating expense                                                                                                         |       | 35,970                                                      |       | 3,597 |   | 4,199 |   | — |   | — |   | 43,766 |   |
| Intercompany  management fee                                                                                                        |       | 3,591                                                       |       | — |   | — |   | — |   | (3,591 | ) | — |   |
| Reimbursed  expenses                                                                                                                |       | —                                                      |       | 3,150 |   | 33,569 |   | 122 |   | — |   | 36,841 |   |
| Real estate  taxes                                                                                                                  |       | 9,345                                                       |       | — |   | — |   | 49 |   | — |   | 9,394 |   |
| Administrative  expenses                                                                                                            |       | —                                                      |       | — |   | — |   | 9,366 |   | — |   | 9,366 |   |
| Audit Committee  and Special Committee expenses                                                                                     |       | —                                                      |       | — |   | — |   | — |   | — |   | — |   |
| Depreciation and  amortization                                                                                                      |       | 22,588                                                      |       | — |   | 286 |   | 239 |   | — |   | 23,113 |   |
| Interest                                                                                                                            |       | 30,721                                                      |       | — |   | — |   | 2,500 |   | — |   | 33,221 |   |
| Total operating  expenses                                                                                                           |       | 102,215                                                     |       | 6,747 |   | 38,054 |   | 12,276 |   | (3,591 | ) | 155,701 |   |
| Gain on sale to joint  venture                                                                                                      |       | 21,773                                                      |       | — |   | — |   | — |   | — |   | 21,773 |   |
| Income (loss) from  continuing operations before equity in earnings of unconsolidated entities,  income taxes and minority interest |       | 17,921                                                      |       | 2,175 |   | 13,315 |   | (11,747 | ) | — |   | 21,664 |   |
| Equity in (loss)  earnings of unconsolidated entities                                                                               |       | (75                                                         | )          | — |   | 2,334 |   | — |   | — |   | 2,259 |   |
| Income (loss) from  continuing operations before income taxes and minority interest                                                 |       | 17,846                                                      |       | 2,175 |   | 15,649 |   | (11,747 | ) | — |   | 23,923 |   |
| Income tax expense                                                                                                                  |       | —                                                      |       | 47 |   | 2,805 |   | — |   | — |   | 2,852 |   |
| Income (loss) from  continuing operations before minority interest                                                                  |       | 17,846                                                      |       | 2,128 |   | 12,844 |   | (11,747 | ) | — |   | 21,071 |   |
| Less minority interest  attributable to continuing operations                                                                       |       | —                                                      |       | — |   | — |   | 9,103 |   | — |   | 9,103 |   |
| Net income (loss) from  continuing operations                                                                                       |       | 17,846                                                      |       | 2,128 |   | 12,844 |   | (20,850 | ) | — |   | 11,968 |   |
| **Discontinued Operations**                                                                                                         |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Income from  discontinued operations before minority interest                                                                       |       | 1,847                                                       |       | 317 |   | — |   | — |   | — |   | 2,164 |   |
| Gain of sale of  student housing properties                                                                                         |       | 19,390                                                      |       | — |   | — |   | — |   | — |   | 19,390 |   |
| Less minority  interest                                                                                                             |       | —                                                      |       | — |   | — |   | 9,311 |   | — |   | 9,311 |   |
| Income(loss)  from discontinued operations                                                                                          |       | 21,237                                                      |       | 317 |   | — |   | (9,311 | ) | — |   | 12,243 |   |
|                                                                                                                                |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                   |       | $                                                           | 39,083     |   | $ | 2,445 |   | $ | 12,844 |   | $ | (30,161 | ) | $ | — |   | $ | 24,211 |   |

 

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| ** **                                                                                                                              | ** ** | **Six Months Ended June 30, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **Student  Housing-  Owned  Properties**                    | ** ** | **Student  Housing  Management** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Elimination** | ** ** | **Total** | ** ** |
| **Revenue**                                                                                                                             |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Rent and other property income                                                                                                          |       | $                                                           | 79,331     |   | $ | — |   | $ | — |   | $ | 78 |   | $ | — |   | $ | 79,409 |   |
| Expense  reimbursements:                                                                                                                |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Related party                                                                                                                           |       |                                                        |       | 189 |   | 30,694 |   | 172 |   | — |   | 31,055 |   |
| Third party                                                                                                                             |       | —                                                      |       | 2,725 |   | — |   | — |   | — |   | 2,725 |   |
| Management fees:                                                                                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Owned properties                                                                                                                        |       | —                                                      |       | 2,961 |   | — |   | — |   | (2,961 | ) | — |   |
| Related party                                                                                                                           |       | —                                                      |       | 37 |   | 4,103 |   | — |   | — |   | 4,140 |   |
| Third party                                                                                                                             |       | —                                                      |       | 1,655 |   | — |   | — |   | — |   | 1,655 |   |
| Other fee income  — related party                                                                                                  |       | —                                                      |       | — |   | 10,261 |   | — |   | — |   | 10,261 |   |
| Other income                                                                                                                            |       | 62                                                          |       | 18 |   | 23 |   | 38 |   | — |   | 141 |   |
| Total revenue                                                                                                                           |       | 79,393                                                      |       | 7,585 |   | 45,081 |   | 288 |   | (2,961 | ) | 129,386 |   |
|                                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating  Expenses:                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Property operating expense                                                                                                              |       | 27,977                                                      |       | 3,142 |   | 3,052 |   | — |   | — |   | 34,171 |   |
| Intercompany management fee                                                                                                             |       | 2,961                                                       |       | — |   | — |   | — |   | (2,961 | ) | — |   |
| Reimbursed expenses                                                                                                                     |       | —                                                      |       | 2,914 |   | 30,694 |   | 172 |   | — |   | 33,780 |   |
| Real estate taxes                                                                                                                       |       | 7,612                                                       |       | — |   | — |   | 48 |   | — |   | 7,660 |   |
| Administrative expenses                                                                                                                 |       | —                                                      |       | — |   | — |   | 9,011 |   | — |   | 9,011 |   |
| Audit Committee and Special Committee expenses                                                                                          |       | —                                                      |       | — |   | — |   | 4,876 |   | — |   | 4,876 |   |
| Depreciation and amortization                                                                                                           |       | 18,893                                                      |       | — |   | 249 |   | 156 |   | — |   | 19,298 |   |
| Interest                                                                                                                                |       | 20,009                                                      |       | — |   | — |   | 959 |   | — |   | 20,968 |   |
| Total operating expenses                                                                                                                |       | 77,452                                                      |       | 6,056 |   | 33,995 |   | 15,222 |   | (2,961 | ) | 129,764 |   |
| Gain on sale to  joint venture                                                                                                          |       | —                                                      |       | — |   | — |   | — |   | — |   | — |   |
| Income (loss)  before equity in earnings of unconsolidated subsidiaries, income taxes and  minority interest from continuing operations |       | 1,941                                                       |       | 1,529 |   | 11,086 |   | (14,934 | ) | — |   | (378 | ) |
| Equity in  earnings of unconsolidated entities                                                                                          |       | —                                                      |       | — |   | 2,390 |   | — |   | — |   | 2,390 |   |
| Income (loss)  from continuing operations before income taxes and minority interest                                                     |       | 1,941                                                       |       | 1,529 |   | 13,476 |   | (14,934 | ) | — |   | 2,012 |   |
| Income tax  (benefit)expense                                                                                                            |       | —                                                      |       | (232 | ) | 2,419 |   | — |   | — |   | 2,187 |   |
| Income (loss)  from continuing operations before minority interest                                                                      |       | 1,941                                                       |       | 1,761 |   | 11,057 |   | (14,934 | ) | — |   | (175 | ) |
| Less minority  interest attributable to continuing operations                                                                           |       | —                                                      |       | — |   | — |   | (79 | ) | — |   | (79 | ) |
| Income(loss)  from continuing operations                                                                                                |       | 1,941                                                       |       | 1.761 |   | 11,057 |   | (14,855 | ) | — |   | (96 | ) |
| **Discontinued  Operations**                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Income from discontinued operations                                                                                                     |       | 938                                                         |       | 327 |   | — |   | — |   | — |   | 1,265 |   |
| Gain on sale of student housing properties                                                                                              |       | —                                                      |       | — |   | — |   | — |   | — |   | — |   |
| Less minority interest                                                                                                                  |       | —                                                      |       | — |   | — |   | 570 |   | — |   | 570 |   |
| Income from discontinued operations                                                                                                     |       | 938                                                         |       | 327 |   | — |   | (570 | ) | — |   | 695 |   |
|                                                                                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                                                       |       | $                                                           | 2,879      |   | $ | 2,088 |   | $ | 11,057 |   | $ | (15,425 | ) | $ | — |   | $ | 599 |   |

 

***Student Housing***

*StudentHousing—Owned Properties*

*Revenue.*Of the 69 properties owned and included in our results from continuingoperations as of June 30, 2007, we acquired 20 of the student housingproperties during 2006, seven of which were acquired during the six monthsended June 30, 2006.  Rent and otherproperty income increased to $98.3 million during the six months ended June 30,2007 from $79.3 million during the six months ended June 30, 2006.  The increase in rent and other propertyincome experienced during the six months ended June 30, 2007 primarily relatesto (i) the acquisition of an additional 13 properties during the remainderof 2006, and (ii)  the presentation of a full six months of operationsduring 2007 with respect to the seven properties acquired during the six monthsended June 30, 2006.  In future periods,our net income will be negatively affected to the extent property operatingexpenses are higher than those projected by our management for such periodprior to lease execution for the applicable academic year.

We owned 43 propertieswhich are included in our results from continuing operations during both thesix months ended June 30, 2007 and  for2006, referred to herein as our same store properties.  The decline in same store properties from 49during the three months ended June 30, 2007 was due to the six properties thatwere acquired during the three months ended March 31, 2006.   Our revenues at the same store propertiesincreased approximately $0.3 million, or 0.4%, to $66.6 million for the sixmonths ended June 30,  2007 as comparedto $66.3 million during the six months ended June 30, 2006.

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Other income remainedrelatively consistent during the six months ended June 30, 2007 and 2006 andconsists primarily of interest income on invested cash.

*Expenses.**  *Property operating expenses fromcontinuing operations increased to $36.0 million for the six months ended June30, 2007 from $28.1 million for the six months ended June 30, 2006, primarilydue to expenses attributable to the 13 properties acquired during the last sixmonths of 2006 and our ownership and operation for a full six months during 2007of the seven properties acquired during the six months ended June 30, 2006. Theincrease of $7.9 million is attributable to the following: a $3.1 millionincrease in utilities expenses; a $0.6 million increase in insurance expense; a$1.4 million increase in payroll expenses at the property level; a $0.4 millionincrease in bad debt expense relating to uncollected rents and other income; a$0.2 million increase in security expenses; and a $2.2 million increase inother property expenses, consisting of marketing, landscaping, office and othersimilar property operating expenses.

With respect to our samestore properties, we experienced an increase in property operating expenses netof utility reimbursements of approximately $0.9 million, or 3.8%, in thesix months ended June 30, 2007, as compared to the six months ended June 30,2006. This increase was attributable to the following: a $0.1 million increasein utilities expense; a $0.1 million increase in insurance expense; a $0.1million increase in payroll expense; a $0.1 million increase in bad debtexpense relating to uncollected rents and other income and a $0.3 millionincrease in other security expenses, and $0.2 million net increase inother property expenses.

Real estate taxes fromcontinuing operations increased to $9.3 million for the six months ended June30, 2007 from $7.6 million for the six months ended June 30, 2006,primarily due to the acquisition of 13 properties during the last six months ofthe 2006 and the full six months of real estate taxes with respect to the sevenproperties we acquired during the six months ended June 30, 2006. Of the $1.7million increase we experienced in real estate taxes, approximately $0.2million is related to our same store properties. We expect an overall increasein real estate taxes during 2007 due to a full year of operations for the 20properties acquired during 2006, offset by a decrease as a result of the six propertiesthat we transferred into our joint venture with Fidelity Real EstateGroup.  We also may see an increase inreal estate taxes to the extent that local authorities continue to aggressivelypursue higher real estate tax assessments on properties that we currently own.

Depreciation andamortization from continuing operations increased to $22.6 million for the sixmonths ended June 30, 2007, as compared to $18.9 million for the six monthsended June 30, 2006, primarily as a result of acquiring 13 properties duringthe last six months of 2006 for an aggregate purchase price of $288.5 million,as well as the inclusion of a full six months of depreciation expense relatingto the seven properties acquired during the six months ended June 30, 2006.  The $22.6 million in 2007 is comprised of$20.6 million of depreciation and $2.0 million of lease intangibleamortization.  We expect a decrease inamortization expense as lease intangible related to acquisitions during 2006are almost completely amortized.

Interest expense fromcontinuing operations increased to $30.7 million for the six months ended June30, 2007 from $20.0 million for the six months ended June 30, 2006, as a resultof incurring additional debt, including placement of new mortgage debt and theassumption of existing mortgage debt, as well as borrowings under the line ofcredit, in connection with the acquisition of 20 properties during 2006. Thisincrease is offset by repayments and assumptions of mortgage debt inconjunction with the sale to Fidelity as well as repayments on the line ofcredit.  During the last six months of2006, we placed $229.8 million of new mortgage debt, net of premiums, andincreased borrowings under our credit line in existence during that period. Weexpect interest expense to decrease during the remainder of 2007 as the Companypays down the remaining outstanding principal balance on its note facility withMerrill Lynch.

*StudentHousing—Management*

*Revenue.*  Expense reimbursements from related parties increased to $347,000 for the sixmonths ended June 30, 2007 from $189,000 for the six months ended June 30,2006, primarily due to the commencement of the management of the six propertieswe transferred into a joint venture in which we have a 10% interest.   Prior to January 2007, the Company ceasedmanaging student housing properties for related parties, as the one propertythat we managed for a related party in the second quarter of 2006 was soldduring December 2006.

Expense reimbursementsfrom third parties remained relatively consistent during the six months endedJune 30, 2007 as compared to the same period in the prior year.  Reimbursed expenses are comprised of payrollexpenses for on-site employees.  Weexpect expense reimbursements to continue to increase during the remainder of2007 as a result of our management agreements to continue managing theproperties that we sold to SCI Real Estate Investments since the 

40

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commencementof the second quarter of 2007, and as we continue to pursue new third-partymanagement agreements during the remainder of 2007.

Reimbursed expenses,which includes related-party and third-party managed properties remainedrelatively consistent during the six months ended June 30, 2007 as compared tothe same period in the prior year.  Reimbursedexpenses are comprised mostly of payroll expenses for on-site employees.

Management fees fromrelated parties increased to $117,000 for the six months ended June 30, 2007from $37,000 for the six months ended June 30, 2006, primarily due to the commencementof management fees we received during the three months ended June 30, 2007 fromthe six properties we transferred into a joint venture in which we have a 10% interest.

Management fee incomefrom third parties decreased to $1.3 million during the six months ended June30, 2007 from $ 1.7 million during the six months ended June 30, 2006. Thisdecrease is due to one time fee of $250,000 earned in the first quarter of 2006related to a management fee incentive payment received in connection with the saleof one of our managed properties during 2006. We expect management fee income to increase during the remainder of 2007as a result of our management agreements to continue managing the fiveproperties that we recently sold to SCI Real Estate Investments, and as wecontinue to pursue new third-party management agreements throughout theremainder of 2007.

*Expenses.**  *Property operating expenses increased to $3.6 millionduring the six months ended June 30, 2007 from $3.1 million during the sixmonths ended June 30, 2006, primarily due to expenses attributable to theCompany’s acquisition of seven properties during the first six months of 2006,and 14 properties that were acquired during the last six months of 2006. Theseexpenses are comprised of payroll and general and administrative expensesdirectly associated with the operations of the Company’s owned and managed portfolios.While those employees who are directly responsible for the oversight ofspecific properties are charged directly to the student housing-ownedproperties segment, the student housing-management segment staffs a fulloperations department. This department includes those employees responsible forportfolio oversight, which includes regional vice presidents, regional propertymanagers, regional leasing specialists and the associated expenses such astravel directly related to those employees who perform this function.

Income taxes for the sixmonths ended June 30, 2007 amounted to $47,000 versus a $232,000 tax benefitfor the same period in the prior year. Income taxes consist primarily of taxesassociated with the operations of our student housing taxable REIT subsidiary,which manages properties for third parties.

*MilitaryHousing*

*Revenue.**  *Expense reimbursements increased to $33.6 million for the six monthsended June 30, 2007 as compared to $30.7 million for the six months ended June30, 2006. The increase is due primarily to the reimbursement of closing andtransition expenses at our AETC Group I project, which commenced operations inFebruary 2007, and increases in reimbursement of renovation expenses at ourFort Stewart/Hunter Army Airfield, Fort Carson, Carlisle/Picatinny and AETCGroup I projects, offset by decreases due primarily to: delays and reschedulingof our renovation activities our Navy Northeast Region, Fort Eustis/Fort Storyand Fort Bliss/White Sands Missile Range projects.**  **We expect renovation activitieswill increase with respect to our Navy Northeast Region and to resume for ourFort Eustis/Fort Story project during the second half of 2007.  The table below sets forth certaininformation regarding the revenue from expense reimbursements for each of ourmilitary housing projects for the six months ended June 30, 2007 and 2006.

|                                                           | ** ** | **Six months ended June 30** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
| **Project**                                               | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(in millions)**                           | ** ** |
| **Expense  Reimbursements**                               |       |                                             |       |   |   |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                                                | 3.1        |   | $ | 2.4 |   |
| Fort Carson  Project                                      |       | 1.7                                              |       | 1.3 |   |
| Fort Hamilton  Project                                    |       | .7                                               |       | .7 |   |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | .4                                               |       | .4 |   |
| Fort Eustis/Fort  Story Project                           |       | 1.6                                              |       | 2.4 |   |
| Navy Northeast  Region Project                            |       | 8.5                                              |       | 16.1 |   |
| Fort Bliss/White  Sands Missile Range Project             |       | 4.8                                              |       | 6.0 |   |
| Fort Gordon  Project(1)                                   |       | 1.1                                              |       | 1.3 |   |
| Carlisle/Picatinny  Project(1).                           |       | 3.5                                              |       | .1 |   |
| AETC Group I  Project(2)                                  |       | 8.2                                              |       | — |   |
| Total expense  reimbursements                             |       | $                                                | 33.6       |   | $ | 30.7 |   |

 

41

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Management fees from related parties increased to $4.9million for the six months ended June 30, 2007 compared to $4.1 million for thesix months ended June 30, 2006. The amount of management fees from relatedparties that we receive during a fiscal period is affected by the number ofhousing units that we manage under our military housing projects during thatperiod, which may fluctuate based on the occupancy rates and number of housingunits that we construct/renovate or demolish during that period.  Management fees from related partiesincreased during the six months ended June 30, 2007 as compared to the sixmonths ended June 30, 2006, primarily due to increased occupancy and rentalactivity at our Fort Stewart/Hunter Army Airfield project, the commencement ofour Fort Gordon and Carlisle/Picatinny projects in the second quarter of 2006,and the commencement of our AETC Group I project in the first quarter of2007.  The table below sets forth certaininformation regarding the revenue from management fees from related parties foreach of our military housing projects for the six months ended June 30, 2007and 2006.

|                                                           | ** ** | **Six months ended June 30** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
| **Project**                                               | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(in millions)**                           | ** ** |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                                                | .8         |   | $ | .7 |   |
| Fort Carson  Project                                      |       | .6                                               |       | .7 |   |
| Fort Hamilton  Project                                    |       | .2                                               |       | .1 |   |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | .2                                               |       | .1 |   |
| Fort Eustis/Fort  Story Project                           |       | .3                                               |       | .2 |   |
| Navy Northeast  Region Project                            |       | 1.6                                              |       | 1.6 |   |
| Fort Bliss/White  Sands Missile Range Project             |       | .6                                               |       | .6 |   |
| Fort Gordon  Project(1)                                   |       | .1                                               |       | .1 |   |
| Carlisle/Picatinny  Project(1)                            |       | .1                                               |       | — |   |
| AETC Group I  Project (2)                                 |       | .4                                               |       | — |   |
| Total                                                     |       | $                                                | 4.9        |   | $ | 4.1 |   |

 

Other fee income fromrelated parties, which includes development and construction/renovation feesand business development fees, totaled $12.8 million for the six months endedJune 30, 2007, as compared to $10.3 million for the same period in 2006.  Of the 2007 amount, $10.6 million related todevelopment and construction/renovation fees, and $2.2 million related to businessdevelopment fees.  The amount of otherfee income from related parties that we receive during a fiscal period isaffected by the number of housing units that we construct or renovate under ourmilitary housing projects during that period, which will fluctuate based on thepoint at which we are during the initial development period for theproject.  Generally, the majority of newconstruction work is completed during the beginning years of an initialdevelopment period while construction/renovation work is completed throughoutthe initial development period. Other fee income from related parties increasedduring the six months ended June 30, 2007, as compared to the six months endedJune 30, 2006 primarily due to increases in construction activities at our FortEustis/Fort Story, Fort Bliss/White Sands Missile Range, Fort Gordon,Carlisle/Picatinny and Fort Carson projects and the commencement of our AETCGroup I project in the first quarter of 2007, offset by decreases due to delaysin the renovation and construction activity at our Navy Northeast Regionproject, scheduled decreases in development activity at our Fort Stewart/HunterArmy Airfield project, and a rescheduling of development activity at our FortHamilton project.  The table below setsforth certain information regarding the revenue from other fee income fromrelated parties for each of our military housing projects for the six monthsended June 30, 2007 and 2006.

|                                                           | ** ** | **Six months ended June 30** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------|------------|
| **Project**                                               | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(in millions)**                           | ** ** |
| **Development  and Construction/Renovation Fees**         |       |                                             |       |   |   |
| Fort Stewart and  Hunter Army Airfield Project            |       | $                                                | .3         |   | $ | .9 |   |
| Fort Carson  Project                                      |       | .5                                               |       | .2 |   |
| Fort Hamilton  Project                                    |       | —                                           |       | .4 |   |
| Walter Reed Army  Medical Center and Fort Detrick Project |       | .3                                               |       | .2 |   |
| Fort Eustis/Fort  Story Project                           |       | 1.4                                              |       | .8 |   |
| Navy Northeast  Region Project                            |       | 2.0                                              |       | 3.3 |   |
| Fort Bliss/White  Sands Missile Range Project             |       | 2.4                                              |       | 1.7 |   |
| Fort Gordon  Project(1)                                   |       | 1.2                                              |       | .6 |   |
| Carlisle/Picatinny  Project(1)                            |       | .5                                               |       | — |   |
| AETC I (2)                                                |       | 2.0                                              |       | — |   |
| **Total  Development and Construction/Renovation Fees**   |       | $                                                | 10.6       |   | $ | 8.1 |   |
| Business  Development Fees                                |       | $                                                | 2.2        |   | $ | 2.2 |   |
| Total Other Fee Income  — Related Parties            |       | $                                                | 12.8       |   | $ | 10.3 |   |

 

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Equity in earnings ofunconsolidated entities, consisting of equity income and preferred returns fromour military housing project joint ventures, totaled $2.3 million for the sixmonths ended June 30, 2007 as compared to $2.4 million for the six months endedJune 30, 2006.  The decrease wasprimarily due to timing differences in the recognition of the net operatingincome cash flows from our Fort Carson Family Housing LLC, upon which a portionof our returns are calculated, offset by an increase in preferred returnsearned on our AETC Group I project.  Thetable below sets forth certain information regarding equity in earnings ofunconsolidated entities for the six months ended June 30, 2007 and 2006.

|                                | ** ** | **Six months ended June 30** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| **Project**                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **(in millions)**                           | ** ** |
| Fort Carson  Project           |       | $                                                | 1.6        |   | $ | 2.0 |   |
| Navy Northeast  Region Project |       | .4                                               |       | .4 |   |
| AETC Group I  Project (1)      |       | .3                                               |       | — |   |
| Total                          |       | $                                                | 2.3        |   | $ | 2.4 |   |

 

*Expenses.**  *Propertyoperating expenses include costs related to operating the military housingsegment of our business, such as the compensation expense related to ourmilitary housing personnel located in our corporate headquarters. These costsincreased to $4.2 million for the six months ended June 30, 2007 from $3.1million in the six months ended June 30, 2006. The increase was due toincreases in (i) our renovation company operations and (ii) management and administrative expenses related to our overall expansion of ourbusiness, with respect to new projects in operation and new project awards.

Reimbursed expensesincreased to $33.6 million for the six months ended June 30, 2007 from $30.7million for the six months ended June 30, 2006.   Theincrease is due primarily to the reimbursement of closing and transitionexpenses at our AETC Group I project, which commenced operations in February2007, and increases in reimbursement of renovation expenses at our FortStewart/Hunter Army Airfield, Fort Carson, Carlisle/Picatinny and AETC Group Iprojects, offset by declines in reimbursement of renovation expenses at ourNavy Northeast Region, Fort Eustis/Fort Story, and Fort Bliss/White SandsMissile Range projects.

*Income Taxes.**  *The effective tax rate on income taxes resulting fromthe portion of income that is earned in our military housing taxable REITsubsidiary was 33.62% in 2007 versus 35.4% in 2006.  The decrease isprimarily due to tax return to accrual differences.

***Corporate***

Rental revenue andexpense reimbursements, which were recognized with respect to the portion ofour corporate headquarters leased to entities affiliated with Gary M.Holloway, Sr., and payroll and related expenses reimbursed by entitiesaffiliated with Mr. Holloway for the provision of common services,remained relatively consistent during the six months ended June 30, 2007 and2006.

Other income, consistingprimarily of interest income, increased by $291,000 primarily due to increasedovernight cash investments.

Administrative expenses,primarily relating to management of our corporate office, accounting, legal,human resources, information technology and acquisition departments, increasedto $9.4 million for the six months ended June 30, 2007 from $9.0 million forthe six months ended June 30,2006, primarily due to training costs associatedwith implementation of new leasing software relating to our student housingdivision, as well as other non—recurring software licensing costs, and anincrease in other taxes, which were all incurred during the first quarter of2007.

Audit Committee andSpecial Committee expenses consist of legal fees, forensic accounting fees,incremental accounting fees and waiver fees associated with waivers of thecovenants under our former line of credit, incurred in connection with thespecial investigation performed by our Audit Committee and its independentcounsel that commenced in the first quarter of 2006, and legal, financialadvisory and Special Committee fees associated with the formation of theSpecial Committee to explore strategic alternatives for the Company.   During the six months ended June 30, 2006,these fees totaled $4.9 million. The special investigation was completed duringthe third quarter of 2006, and the Special Committee was disbanded in December2006.

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Depreciation, relatingprimarily to our corporate assets, remained relatively consistent between thesix months ended June 30, 2007 and 2006.

Interest expenseincreased to $2.5 million for the six months ended June 30, 2007 from$1.0 million for the six months ended June 30, 2006, primarily due to anincrease in amortization of deferred financing costs of approximately $1.7million associated with our line of credit with Wachovia Bank that was enteredinto in October 2006 and terminated in May 2007.

**Liquidity and Capital Resources**

Short-term liquidityrequirements consist primarily of funds necessary to pay operating expenses andother costs. These expenses and costs include (i) recurring maintenanceand capital expenditures to maintain and lease our properties,(ii) interest expense and scheduled principal payments on outstandingindebtedness, (iii) real estate taxes and insurance, (iv) corporatesalaries, employee benefits and other corporate overhead and administrativeexpenses, (v) equity contributions to our investments in military housingprojects, and (vi) distributions to shareholders and unitholders of ouroperating partnership. During the first quarter of 2007 and through May 7,2007, our short-term liquidity needs were funded primarily through existingworking capital and cash provided by operations, together with amountsavailable to us under a $250 million revolving line of credit with WachoviaBank. During the second quarter of 2007, we obtained a new three-year $100.0million revolving note facility with Merrill Lynch, Pierce, Fenner & SmithIncorporated, and issued an initial note for $90.7 million. These funds wereused to pay off any and all remaining indebtedness under, and to terminatecompletely, the Wachovia line of credit. In December 2006, our managementalso announced as part of its strategic plan for 2007 that the Company wouldattempt to raise capital proceeds through the identification of variouscurrently-owned student housing properties that could be sold, refinancedand/or contributed into a joint venture. As described in the section abovetitled “*2007 Business Strategy*,” as of the dateof this report, we have completed the refinancing, joint venture and saletransactions outlined under this original management plan.

We currently expect thatany of our short-term and long-term liquidity needs may be met through ourworking capital on hand and/or through additional borrowings under our new notefacility with Merrill Lynch . Under the note facility with Merrill Lynch, ouroperating partnership may borrow, on a revolving basis through April 30, 2010,up to an aggregate principal amount of $100.0 million, and subject to certainconditions, up to an additional $25.0 million for an aggregate of $125.0million.  As of the date of this report,the current principal amount of notes outstanding under the note facility was13.2 million with an interest rate of 7.07%. Additional notes may be issued at any time upon notice by our operatingpartnership, and we will have the ability to repay amounts under outstandingnotes and to re-borrow amounts through the issuance of new notes, provided thatthe maximum amount of notes outstanding at any time during the term of the notefacility does not exceed an aggregate principal amount of $100.0 million, or $125.0million to the extent the note facility may be increased. The notes will beissued to Merrill Lynch as the initial purchaser, and may thereafter betransferred to “qualified institutional buyers” in accordance with Rule 144A ofthe Securities Act of 1933, as amended. The notes will be administered underthe terms of a Trust Indenture with U.S. Bank Trust National Association,serving as trustee of the notes. Any additional notes will be issuable at anannual interest of LIBOR plus 1.75%, will require monthly payments of interestonly, and are secured solely by the fees and equity preferred returns wereceive in connection with our military housing projects currently inoperation, as well as those to be received, if any, under the Navy Southeastproject and West Point project for which we are currently under exclusivenegotiations.

The Trust Indenturepursuant to which the notes referenced above are and may be issued goingforward contain a number of affirmative and negative covenants and alsocontains financial covenants which, among other things, require that wemaintain (i) a fixed charge coverage ratio, as defined in the TrustIndenture, of at least 1.15 to 1.00, calculated on a quarterly basis,(ii) a consolidated tangible net worth, as defined by in the TrustIndenture, of at least $375 million, (iii) quarterly minimum AdjustedManagement EBITDA, as defined in the Trust Indenture, of $3.5 million, and(iv) our federal tax status as a REIT.

We elected to be treatedas a REIT for federal income tax purposes commencing with our taxable yearended December 31, 2004. As a REIT, we are required to distribute at least90% of our REIT taxable income to our shareholders on an annual basis.Therefore, except as discussed below, as a general matter, a substantialportion of cash generated by our operations will be used to fund distributionsto shareholders and holders of limited partnership interests in our operatingpartnership, and will not be available to satisfy our liquidity needs. Futuredividends will be declared at the discretion of our Board of Trustees and willdepend on our actual cash flow, our financial condition, capital requirements,the annual distribution requirements under the REIT provisions of the Code andother such factors as our Board of Trustees deems 

44

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relevant.For the second quarter of 2007, we declareda quarterly dividend distribution of $0.165 per common share, payable toshareholders of record on June 28, 2007. We distributed this dividend onJuly 13, 2007, and at the same time, our operating partnership paid adistribution of $0.165 per unit to holders of limited partnership interest inour operating partnership. We cannot assure you that we will continue to havecash available for distributions at historical levels or at all. Any distributionswe pay in the future will depend upon our actual results of operations,economic conditions and other factors that could differ materially from ourcurrent expectations. To the extent that our cash flow from operationsis insufficient to fund our anticipated dividend distributions, we may seek toborrow funds under our note facility or through other third-party debtfinancing or we may lower our dividend distribution. Our available cash for distributions will be affected by a number offactors, including: the revenue we receive from our student housing properties;revenues from management fees in connection with management services that wewill provide for student housing properties owned by others; revenues from ourmilitary housing projects; our operating expenses; interest expense; costsrelated to our pending class action lawsuits; and any unanticipatedexpenditures. For more information regarding risk factors that could materiallyadversely affect our actual results of operations, please see the sectiontitled “Risk Factors” presented in our Annual Report on Form 10-K forthe year ended December 31, 2006, and the 424(b) prospectus filed with the SEC on June 8, 2007.

With regard to ourmilitary housing privatization projects, we are typically required to fund ourportion of the equity commitment to the project’s joint venture after all othersources of funding for the project have been expended. With respect to our NavyNortheast Region project and our AETC Group I project, however, we were requiredto fund the equity commitment at commencement of the project. We made a$9.5 million equity contribution in November 2004 relating to ourNavy Northeast Region project, an $8.0 million equity contribution inFebruary 2007 relating to our AETC Group I project, and, as of June 30,2007, had contractually committed to contribute the following additionalamounts: an aggregate of $2.0 million in 2007 to our Fort Hamiltonproject; $5.9 million in 2007 to our Walter Reed Army Medical Center/FortDetrick project, all of which had been funded through March 2007;$3.6 million in 2010 for our Fort Eustis/Fort Story project;  $3.0 million in 2010 or 2011 for ourCarlisle/Picatinny project; $8.0 million in 2011 for our Fort Stewart and Hunter Army Airfieldproject;  an aggregate of $4.5 million toour Fort Gordon project in several phases that commence in 2011 and end in2012, and $6.3 million in 2012 for our Fort Bliss/White Sands project.These equity contributions help to fund the development, construction and renovationof housing units at these bases during their respective initial developmentperiods.****During the second half of 2007, weexpect to complete negotiations for our pending military housing project awardswhich will result in additional equity commitments, as follows: $6.8 millionfor our Navy Southeast Region project; $7.6 million for our Vandenberg project;$1.5 million for the unaccompanied personnel housing (UPH) pilot program atFort Stewart; and $1.5 million for the UPH pilot program at Fort Bliss. Weexpect to close on, and to fund the equity commitments for, our Navy SoutheastRegion and Vandenberg projects prior to 2007 year-end; and we expect to fundthe equity commitments for the Fort Bliss and Fort Stewart UPH projects duringthe second half of 2008.

Typically, we arereimbursed for certain costs we incur after we are awarded the right toexclusively negotiate agreements for a military housing project until we enterinto agreements for the project and for transition costs we incur shortly beforeinitiation of our management of a military housing project. However, we arerequired to fund these costs prior to the time we receive the reimbursements.Typically, our military projects require approximately $1.0 million to$7.0 million in costs associated with transition and exclusivenegotiations, depending on the size of the project. The expenditures typicallybegin 12 months prior to executing an agreement for the military housingproject. Accordingly, the timing between our payments and reimbursements forprojects may add to our short-term liquidity needs.

If cash flows from any ofour military housing privatization projects are insufficient to meet thecoverage ratios or benchmarks entitling us to receive fee payments, any unpaidfees will accumulate and be subsequently paid from operations or upondissolution of the projects to the extent that funds are available and theapplicable thresholds are met. If these thresholds are not met, we will nothave access to or receive certain of the fees we have earned. Theunavailability of these funds would materially impact our ability to meet ourshort-term and long-term liquidity needs. We will be required to make equitycontributions at the beginning of the initial development period for typicalNavy transactions and at the end of the initial development period for typicalArmy transactions. We also were required to make our equity contribution at thebeginning of the initial development period for our AETC Group I project withthe Air Force during the first quarter of 2007. Based on our currentexpectations regarding the terms of the debt funding for our military housingprojects, we expect that the projects will generate sufficient cash flows tofund the reinvestment account and pay anticipated equity returns.

With regard to ourcurrently owned student housing properties, we do not have any materialshort-term capital commitments, other than with respect to our short-termcapital needs relating to the general expenses and costs associated withoperating and managing these properties, including anticipated third quarterturnover costs. We will require, however, funds in connection with ouranticipated acquisitions of student housing properties. During at least theremainder of 2007, we 

45

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currentlyexpect to place less emphasis on the acquisition of additional student housingproperties, and to continue to focus on the operational performance of ourexisting student housing properties and development projects.  To the extent the Company has sufficientworking capital or financing sources for such acquisitions and projects, we maydetermine that it is appropriate to place greater emphasis on acquisitions inthe Company’s student housing segment in the future and seek to acquireproperties located in our targeted markets and that meet management’sunderwriting criteria for creating long-term growth potential. If we seek toacquire student housing properties during at least the first six to nine monthsof 2007, we will consider funding the acquisition through joint venturestructures similar to the joint venture terms that we currently have withrespect to a total of seven properties as of the date of this report. Thetiming of any acquisitions or development projects will be dependent uponvarious factors, including the ability to complete satisfactory due diligence,to find suitable joint venture partners and agree upon mutually acceptablejoint venture terms, to obtain appropriate debt financing on the properties,and the availability of capital. We would also consider funding our equityportion of any joint ventures by using funds from available cash fromoperations or borrowings. We may also determine that it is appropriate topurchase student housing properties outright, as opposed to with a jointventure partner, depending upon factors which may include, but are not limitedto, the applicable purchase price, available capital, and projected returnswith respect to the property.

Long-term liquidityrequirements with respect to our student housing and military housing segmentsconsist primarily of amounts necessary to fund scheduled debt maturities,renovations and other non-recurring capital expenditures that need to be madeperiodically at our properties, and the costs associated with acquisitions ofstudent housing properties and awards or acquisitions of military housingprivatization projects that we pursue. Historically, we have satisfied ourlong-term liquidity requirements through various sources of capital, includingexisting working capital, cash provided by operations, and long-term mortgageindebtedness. We now expect our long-term liquidity requirements to besatisfied primarily through cash generated by operations that is not used tofund distributions and the additional external financing sources discussedabove.

**Item 3.****            Quantitative and Qualitative Disclosure AboutMarket Risk**

Given current market conditions, our strategy favorsfixed-rate, secured debt over variable-rate debt to minimize our exposure toincreases in interest rates. As of June 30, 2007, 94% of the outstandingprincipal amount of our notes payable secured by properties we owned had fixedinterest rates with a weighted-average rate of 5.29%. The remaining 6% ofoutstanding principal amount of our notes payable has variable interest ratesequal to LIBOR plus 1.9%.  Our notefacility with Merrill Lynch at June 30, 2007, had variable interest rates equalto LIBOR plus 1.75%.

As of June 30, 2007, wehad $60.2 million in funds drawn from our note facility with  Merrill Lynch, bearing a variable weightedaverage interest rate of 7.07%.

As of June 30, 2007,based on our variable rate debt balances described above, if interest rateswere to increase by 1%, our interest expense would have increased byapproximately $1.2 million on an annual basis.

**Item 4.****            Controls and Procedures**

*(a)**          Evaluation of Disclosure Controls and Procedures.*

We maintain disclosure controls and procedures thatare designed to provide reasonable assurance that information required to bedisclosed in our reports under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time period specified in theSecurities and Exchange Commission’s rules and regulations and that suchinformation is accumulated and communicated to management, including ourprincipal executive officer and principal financial officer, as appropriate, toallow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) promulgated under theExchange Act, our management, with the participation of our chief executiveofficer and chief financial officer, evaluated the design and operatingeffectiveness as of June 30, 2007 of our disclosure controls and procedures, asdefined in Rule 13a-15(e) promulgated under the Exchange Act.  Based on this evaluation, our chief executiveofficer and chief financial officer concluded that our disclosure controls andprocedures were effective as of June 30, 2007. We believe that a controls system, no matter how well designedand operated, cannot provide absolute assurance that the objectives of thecontrols system are met, and no evaluation of controls can provide absoluteassurance that all control issues and instances of fraud, if any, within acompany have been detected.

*(b)**          Change in Internal Control over Financial Reporting.*

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Therehave been no changes in our internal control over financial reporting duringour most recent fiscal quarter that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

**PART II — OTHER INFORMATION**

**Item 1.****            Legal Proceedings**

Starting on April5, 2006, five putative class actions alleging violations of Sections 11,12(a)(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20 theSecurities Exchange Act of 1934 and Rule 10b-5 of the Securities and ExchangeCommission have been filed in the United States District Court for the EasternDistrict of Pennsylvania, naming as defendants GMH Communities Trust, Gary M.Holloway, Sr., and Bradley W. Harris.  The complaints purport to bring claimson behalf of a class of purchasers of GMH securities during various periods,the longest of which is the period between October 28, 2004 and March 10,2006.  By Orders filed January 22, 2007, the cases were consolidated, andlead plaintiffs and lead counsel were appointed.  A consolidated complaintalleging violations of Sections 11 and 15 of the Securities Act of 1933 andSections 10(b) and 20(a) of the Securities Exchange Act of 1934 was filed onMarch 19, 2007 against the same defendants for a class period between May 5,2005 and March 10, 2006 based upon the Company’s restatement of certainfinancial results. In the January 22, 2007 Order, the Court ordered that theparties shall not file any dispositive motions before attending a settlementconference with the Magistrate Judge.  On June 1, 2007, motions todismiss were filed by the defendants. On July 16, 2007, the lead plaintiffsfiled a response to these motions to dismiss.  On August 6, 2007, thedefendants filed a motion in support of their motion to dismiss. Discovery isstayed pending the disposition of any motion to dismiss.  The outcome ofthis litigation is uncertain, and while the Company believes that it has validdefenses to Plaintiff’s claims and intends to defend the class action lawsuitvigorously, no assurance can be given as to the outcome of this litigation. Anadverse outcome could have a material adverse effect on our financial conditionand results of operations.

On March 12, 2007,Stone Gate I LLC, Southview LLC, The Commons LLC, Seminole Ride LLC, LB&JLimited, Bruce Forbes, Lois Forbes and Jeff Forbes filed a complaint in theUnited States District Court for the Eastern District of Pennsylvania againstGMH Communities Trust, GMH Communities, L.P., College Park Investments, LLC,Peach Grove Associates, LLC, Neff Avenue Associates, LLC, Gary M. Holloway,Sr., Bradley W. Harris and John DeRiggi.  The complaint alleges violationsof Sections 10(b), 18 and 20(a) of the Securities Exchange Act of 1934, Section522(a) and 522(c) of the Virginia Securities Act and Sections 1-401 and 1-501of the Pennsylvania Securities Act, as well as common law claims for fraud,fraud in the inducement, negligent misrepresentation and breach ofcontract.  The claims arise from the Company’s restatement of certainfinancial results upon which plaintiffs purportedly relied in sellingproperties to certain defendants.  In connection with the acquisition ofthe properties, Company entities purchased four student housing properties inexchange for a combination of cash, assumption of debt and the issuance of1,940,282 units of limited partnership interests in our operating partnershipvalued at a total of approximately $76.8 million. The units of limitedpartnership interest were issued for a total value of approximately $27.5million or $14.17 per unit of limited partnership interest. The defendantsintend to file a response to this complaint in June 2007. On May 25, 2007,Stone Gate I, LLC and Southview LLC each filed a Memorandum of Lis Pendensin the Commonwealth of Virginia, Circuit Court of Rockingham County against thedefendants (excluding the individual defendants, Messrs. Holloway, Harris andDeRiggi, who were not named in either Memorandum).  Discovery is stayedpending the disposition of any motion to dismiss. The parties have stipulatedto extend the deadline for defendants’ response to the complaint pendingmediation. The outcome of the litigation is uncertain, and while the Companybelieves that it has valid defenses to plaintiffs’ claims, and intends todefend the lawsuit vigorously, no assurance can be given as to the outcome ofthis litigation. An adverse outcome could have a material adverse effect on ourfinancial condition and results of operations.

The Company alsois subject to routine litigation, claims and administrative proceedings arisingin the ordinary course of business. Otherthan the matters described above, we are not involved in any other materiallitigation nor, to our knowledge, is any material litigation pending orthreatened against us.

**Item 1A.Risk Factors**

There have been nomaterial changes in our risk factors from those disclosed in our Annual Reporton Form 10-K for the fiscal year ended December 31, 2006.

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**Item 2.****            Unregistered Sales of Equity Securities and Use ofProceeds**

None.

**Item 3.****            Defaults Upon Senior Securities**

None.

**Item 4.****            Submission of Matters to a Vote of SecurityHolders**

The Company heldits Annual Meeting of Shareholders on June 14, 2007. The number of votesrepresented at the annual meeting, in person or by proxy, was 38,283,205. Atthe meeting, our shareholders voted on the election of trustees.

*Electionof Trustees*. The results of the vote on the election of ninetrustees are set forth as follows, opposite their respective names:
| **Name**                      | ** ** | **For**    | ** ** | **Withheld** | ** ** | **Broker  Non-votes** | ** ** |
|-------------------------------|------------|------------|------------|--------------|------------|-----------------------|------------|
| Gary M.  Holloway, Sr.   |       | 34,102,515 |       | 4,180,690    |       | 0                     |       |
| Bruce F.  Robinson            |       | 36,681,190 |       | 1,602,015    |       | 0                     |       |
| Frederick F.  Buchholz        |       | 36,792,182 |       | 1,491,023    |       | 0                     |       |
| RADM James W.  Eastwood (Ret) |       | 36,829,344 |       | 1,453,861    |       | 0                     |       |
| Michael D.  Fascitelli        |       | 36,744,050 |       | 1,539,155    |       | 0                     |       |
| Steven J.  Kessler            |       | 34,035,595 |       | 4,247,610    |       | 0                     |       |
| Denis J. Nayden               |       | 36,834,831 |       | 1,448,374    |       | 0                     |       |
| Dennis J.  O’Leary       |       | 31,974,008 |       | 6,309,197    |       | 0                     |       |
| Richard A. Silfen             |       | 33,981,618 |       | 4,301,587    |       | 0                     |       |

** **

**Item5.****            Other Information**

None.

**Item 6.****    Exhibits**
| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                           |
|---------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1    |       | Third Amendment to Loan Agreement, dated as of April  13, 2007, between GMH Communities, LP and Wachovia Bank, National Association.  (Incorporated by reference to the Registrant’s Registration Statement on Form  S-11 (333-142395), as filed with the Securities and Exchange Commission on  April 25, 2007).                |
|    |       |                                                                                                                                                                                                                                                                                                                                  |
| 10.2    |       | Note Purchase Agreement, dated May 7, 2007, between  GMH Communities, LP and Merrill Lynch, Pierce, Fenner & Smith  Incorporated. (Incorporated by reference from the Registrant’s Registration  Statement on Form S-11/A (File No. 333-142395, as filed with the  Securities and Exchange Commission on June 5, 2007). |
|    |       |                                                                                                                                                                                                                                                                                                                                  |
| 10.3    |       | Series 2007 Taxable Note, dated May 7, 2007, issued  by GMH Communities, LP. (Incorporated by reference from the Registrant’s  Registration Statement on Form S-11/A (File No. 333-142395, as filed  with the Securities and Exchange Commission on June 5, 2007).                                                          |
|    |       |                                                                                                                                                                                                                                                                                                                                  |
| 10.4    |       | Trust Indenture, dated May 7, 2007, between GMH  Communities, LP, as Issuer, and U.S. Bank Trust National Association, as  Trustee. (Incorporated by reference from the Registrant’s Registration  Statement on Form S-11/A (File No. 333-142395, as filed with the  Securities and Exchange Commission on June 5, 2007).   |

 

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|        |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5   |   | Guaranty Agreement, dated May 7, 2007, by GMH  Communities Trust, GMH Military Housing, LLC, GMH Military Housing  Investments, LLC and the other entities listed as signatories thereto, in  favor of U.S. Bank Trust National Association. (Incorporated by reference  from the Registrant’s Registration Statement on Form S-11/A (File No.  333-142395, as filed with the Securities and Exchange Commission on June 5, 2007).                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.6   |   | Pledge and Security Agreement, dated May 7, 2007, by  and among GMH Military Housing, LLC, GMH Military Housing Development, LLC,  GMH Military Housing Management, LLC, GMH Military Housing Investments, LLC,  GMH Communities, LP and the other entities listed as signatories thereto, and  U.S. Bank Trust National Association. (Incorporated by reference from the  Registrant’s Registration Statement on Form S-11/A (File No. 333-142395,  as filed with the Securities and Exchange Commission on June 5, 2007).    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.7   |   | Account Control Agreement and Security Agreement,  dated May 7, 2007, between GMH Communities, LP, and the entities listed as  signatories thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated,  and U.S. Bank Trust National Association. (Incorporated by reference from the  Registrant’s Registration Statement on Form S-11/A (File No. 333-142395,  as filed with the Securities and Exchange Commission on June 5, 2007).                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.8   |   | GMH Communities Trust Non-qualified Deferred  Compensation Plan (incorporated by reference to the Registrant’s Registration  Statement on Form S-8 (File No. 333-145075) as filed with the Securities and  Exchange Commission on August 2, 2007).                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.1   |   | Certification of Principal Executive Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended. (furnished herewith).                                                                                                                                                                                                                                                                                                                                                                            |
| 31.2   |   | Certification of Principal Financial Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended. (furnished herewith).                                                                                                                                                                                                                                                                                                                                                                            |
| 32.1   |   | Certification of Principal Executive Officer  Required by Rule 13a-14(b) of the Securities Exchange Act of 1934,  as amended. (This exhibit shall not be deemed “filed” for purposes of  Section 18 of the Securities Exchange Act of 1934, as amended, or  otherwise subject to the liability of that section. Further, this exhibit  shall not be deemed to be incorporated by reference into any filing under the  Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,  as amended). |
| 32.2   |   | Certification of Principal Financial Officer  Required by Rule 13a-14(b) of the Securities Exchange Act of 1934,  as amended. (This exhibit shall not be deemed “filed” for purposes of  Section 18 of the Securities Exchange Act of 1934, as amended, or  otherwise subject to the liability of that section. Further, this exhibit  shall not be deemed to be incorporated by reference into any filing under the  Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,  as amended). |

 

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                       | GMH COMMUNITIES TRUST                                                               |
|-----------------------|-------------------------------------------------------------------------------------|
|                  |                                                                                |
|                  |                                                                                |
| Date: August 9,  2007 | /s/ Gary M. Holloway, Sr.                                                      |
|                  | Gary M. Holloway, Sr.                                                          |
|                  | Chairman, President and Chief Executive Officer                                     |
|                  |                                                                                |
|                  |                                                                                |
|                  | /s/ J. Patrick O’Grady                                                         |
|                  | J. Patrick O’Grady                                                             |
|                  | Executive Vice President and Chief Financial Officer  (Principal Financial Officer) |

 

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EXHIBIT INDEX
| Exhibit | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1    |       | Third Amendment to Loan Agreement, dated as of April  13, 2007, between GMH Communities, LP and Wachovia Bank, National  Association. (Incorporated by reference to the Registrant’s Registration  Statement on Form S-11 (333-142395), as filed with the Securities and  Exchange Commission on April 25, 2007).                                                                                                                                                                                                                   |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2    |       | Note Purchase Agreement, dated May 7, 2007, between  GMH Communities, LP and Merrill Lynch, Pierce, Fenner & Smith Incorporated.  (Incorporated by reference from the Registrant’s Registration Statement on  Form S-11/A (File No. 333-142395, as filed with the Securities and  Exchange Commission on June 5, 2007).                                                                                                                                                                                                    |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3    |       | Series 2007 Taxable Note, dated May 7, 2007, issued  by GMH Communities, LP. (Incorporated by reference from the Registrant’s  Registration Statement on Form S-11/A (File No. 333-142395, as filed  with the Securities and Exchange Commission on June 5, 2007).                                                                                                                                                                                                                                                             |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.4    |       | Trust Indenture, dated May 7, 2007, between GMH  Communities, LP, as Issuer, and U.S. Bank Trust National Association, as  Trustee. (Incorporated by reference from the Registrant’s Registration  Statement on Form S-11/A (File No. 333-142395, as filed with the  Securities and Exchange Commission on June 5, 2007).                                                                                                                                                                                                      |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.5    |       | Guaranty Agreement, dated May 7, 2007, by GMH  Communities Trust, GMH Military Housing, LLC, GMH Military Housing  Investments, LLC and the other entities listed as signatories thereto, in  favor of U.S. Bank Trust National Association. (Incorporated by reference  from the Registrant’s Registration Statement on Form S-11/A (File No.  333-142395, as filed with the Securities and Exchange Commission on June 5,  2007).                                                                                            |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.6    |       | Pledge and Security Agreement, dated May 7, 2007, by  and among GMH Military Housing, LLC, GMH Military Housing Development, LLC,  GMH Military Housing Management, LLC, GMH Military Housing Investments, LLC,  GMH Communities, LP and the other entities listed as signatories thereto, and  U.S. Bank Trust National Association. (Incorporated by reference from the  Registrant’s Registration Statement on Form S-11/A (File No. 333-142395,  as filed with the Securities and Exchange Commission on June 5, 2007).    |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.7    |       | Account Control Agreement and Security Agreement,  dated May 7, 2007, between GMH Communities, LP, and the entities listed as  signatories thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated,  and U.S. Bank Trust National Association. (Incorporated by reference from the  Registrant’s Registration Statement on Form S-11/A (File No. 333-142395,  as filed with the Securities and Exchange Commission on June 5, 2007).                                                                                   |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.8    |       | GMH Communities Trust Non-qualified Deferred  Compensation Plan (incorporated by reference to the Registrant’s Registration  Statement on Form S-8 (File No. 333-145075) as filed with the Securities and  Exchange Commission on August 2, 2007).                                                                                                                                                                                                                                                                                  |
|    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.1    |       | Certification of Principal Executive Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended. (furnished herewith).                                                                                                                                                                                                                                                                                                                                                                            |
| 31.2    |       | Certification of Principal Financial Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended. (furnished herewith).                                                                                                                                                                                                                                                                                                                                                                            |
| 32.1    |       | Certification of Principal Executive Officer  Required by Rule 13a-14(b) of the Securities Exchange Act of 1934,  as amended. (This exhibit shall not be deemed “filed” for purposes of  Section 18 of the Securities Exchange Act of 1934, as amended, or  otherwise subject to the liability of that section. Further, this exhibit  shall not be deemed to be incorporated by reference into any filing under the  Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,  as amended). |
| 32.2    |       | Certification of Principal Financial Officer  Required by Rule 13a-14(b) of the Securities Exchange Act of 1934,  as amended. (This exhibit shall not be deemed “filed” for purposes of  Section 18 of the Securities Exchange Act of 1934, as amended, or  otherwise subject to the liability of that section. Further, this exhibit  shall not be deemed to be incorporated by reference into any filing under the  Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,  as amended). |

 

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