**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|---------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31, 2005**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**For the transition period from                to                **

 

**Commission file number 001-32290**

 

**GMHCOMMUNITIES TRUST**

(Exact Name of Registrant as Specified in Its Charter)

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

 

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes ** **ý   No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).** ** Yes ** **o   No  ý

 

On March 31, 2005, 30,374,551of the registrant’s common shares of beneficial interest, $0.001 par value,were outstanding. This amount includes 23,562 restricted common shares that areconsidered outstanding for voting purposes and are eligible to receive dividenddistributions payable to common shareholders, but are not consideredoutstanding under generally accepted accounting principles for purposes of thefinancial statements included in this report.

 

 

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**GMH COMMUNITIES TRUST**

**INDEX TO FORM 10-Q**

 
| Cautionary  Note Regarding Forward-Looking Statements                                                |   |
|------------------------------------------------------------------------------------------------------|--------|
|                                                                                                 |   |
| **Part I — Financial  Information**                                                        |   |
| Item  1. Financial Statements                                                                        |   |
| Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   |
| Item  3. Quantitative and Qualitative Disclosure About Market Risk                                   |   |
| Item 4. Controls and  Procedures                                                                     |   |
|                                                                                                 |   |
| **Part II — Other  Information**                                                           |   |
| Item 1. Legal Proceedings                                                                            |   |
| Item  2. Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |
| Item 3.  Defaults Upon Senior Securities                                                             |   |
| Item  4. Submission of Matters to a Vote of Security Holders                                         |   |
| Item 5. Other Information                                                                            |   |
| Item 6. Exhibits                                                                                     |   |
|                                                                                                 |   |
| Signatures                                                                                           |   |

 

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**CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

 

Ourdisclosure and analysis in this report contain forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. Forward-looking statements provide our current expectations orforecasts of future events and are not statements of historical fact. Theseforward-looking statements include information about possible or assumed futureevents, including, among other things, operating or financial performance,strategic plans and objectives, or regulatory or competitive environments.Statements regarding the following subjects are forward-looking by theirnature:

 

•                  our ability to successfully implement ourbusiness strategy;

 

•                  our projected operating results and financialcondition;

 

•                  our ability to acquire and manage studenthousing properties and to secure and operate military housing privatizationprojects;

 

•                  completion of any of our targetedacquisitions or developments within our expected timeframe or at all;

 

•                  our ability to obtain future financingarrangements on terms acceptable to us, or at all;

 

•                  estimates relating to, and our ability topay, future dividends;

 

•                  our ability to qualify as a real estateinvestment trust (“REIT”) for federal income tax purposes;

 

•                  our understanding of our competition;

 

•                  market opportunities and trends;

 

•                  projected capital expenditures; and

 

•                  the impact of technology on our properties,operations and business.

 

Theforward-looking statements are based on our beliefs, assumptions andexpectations of our future performance, taking into account all 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 to differmaterially from our management’s current expectations include, but are notlimited to:

 

•                  the factors referenced in our most recentAnnual Report on Form 10-K, including those set forth under the sectionsof the annual report titled “Risk Factors,” “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and “Our Business”;

 

•                  changes in our business strategy, includingacquisition activities;

 

•                  availability, terms and deployment ofcapital, including equity and debt financing;

 

•                  availability of qualified personnel;

 

•                  unanticipated costs associated with theacquisition and integration of our student housing property acquisitions andmilitary housing privatization projects;

 

•                  the possibility of military base realignmentand closures;

 

•                  high leverage on the entities that own themilitary housing privatization projects;

 

•                  reductions in government military spending;

 

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•                  changes in student population enrollment atcolleges and universities or adverse trends in the off-campus student housingmarket;

 

•                  changes in the student and military housingindustry, interest rates or the general economy;

 

•                  changes in local real estate conditions(including changes in rental rates and the number of competing properties) andthe degree and nature of our competition;

 

•                  our failure to lease unoccupied space inaccordance with management’s projections;

 

•                  potential liability under environmental orother laws; and

 

•                  the existence of complex regulations relatingto our status as a REIT and the adverse consequences of our failure to qualifyas a REIT.

 

Whenwe use the words “believe,” “expect,” “may,” “potential,” “anticipate,” “estimate,”“plan,” “will,” “could,” “intend” or similar expressions, we intend to identifyforward-looking statements. You should not place undue reliance on theseforward-looking statements. We are not obligated to publicly update or reviseany forward-looking statements, whether as a result of new information, futureevents or otherwise, except to the extent otherwise required by law.

 

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**PART I — FINANCIAL INFORMATION**

 

**Item 1.****    ****Financial Statements**

 

**GMH COMMUNITIES TRUST**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Unaudited and in thousands, except par value and number of shares)

 
| ** **                                                                                                                                                                    | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                    |       |                     |       |                        |       |
| Real estate  investments:                                                                                                                                                     |       |                     |       |                        |       |
| Student  housing properties                                                                                                                                                   |       | $                        | 812,242    |                        | $          | 638,635 |   |
| Accumulated  depreciation                                                                                                                                                     |       | 8,135                    |       | 3,905                       |       |
|                                                                                                                                                                          |       | 804,107                  |       | 634,730                     |       |
| Corporate  assets:                                                                                                                                                            |       |                     |       |                        |       |
| Corporate  assets                                                                                                                                                             |       | 7,568                    |       | 11,625                      |       |
| Accumulated  depreciation                                                                                                                                                     |       | 231                      |       | 241                         |       |
|                                                                                                                                                                          |       | 7,337                    |       | 11,384                      |       |
| Cash and  cash equivalents                                                                                                                                                    |       | 14,681                   |       | 60,926                      |       |
| Restricted  cash                                                                                                                                                              |       | 5,604                    |       | 2,313                       |       |
| Accounts and  other receivables, net:                                                                                                                                         |       |                     |       |                        |       |
| Related  party                                                                                                                                                                |       | 10,997                   |       | 9,309                       |       |
| Third party                                                                                                                                                                   |       | 2,911                    |       | 2,257                       |       |
| Investments  in military housing projects                                                                                                                                     |       | 40,984                   |       | 39,482                      |       |
| Deferred  contracts costs                                                                                                                                                     |       | 744                      |       | 126                         |       |
| Deferred  financing costs, net                                                                                                                                                |       | 3,295                    |       | 2,820                       |       |
| Lease  intangibles, net                                                                                                                                                       |       | 4,031                    |       | 4,994                       |       |
| Deposits                                                                                                                                                                      |       | 561                      |       | 1,848                       |       |
| Other assets                                                                                                                                                                  |       | 2,776                    |       | 2,872                       |       |
| Total assets                                                                                                                                                                  |       | $                        | 898,028    |                        | $          | 773,061 |   |
| **LIABILITIES  AND BENEFICIARIES’ EQUITY**                                                                                                                               |       |                     |       |                        |       |
| Notes  payable                                                                                                                                                                |       | $                        | 433,799    |                        | $          | 370,007 |   |
| Line of  credit                                                                                                                                                               |       | 60,000                   |       | —                      |       |
| Accounts  payable:                                                                                                                                                            |       |                     |       |                        |       |
| Related  party                                                                                                                                                                |       | 16                       |       | 277                         |       |
| Third party                                                                                                                                                                   |       | 751                      |       | 1,160                       |       |
| Accrued  expenses                                                                                                                                                             |       | 13,459                   |       | 9,308                       |       |
| Dividends  and distributions payable                                                                                                                                          |       | 13,634                   |       | 9,583                       |       |
| Other  liabilities                                                                                                                                                            |       | 6,768                    |       | 4,907                       |       |
| Total  liabilities                                                                                                                                                            |       | 528,427                  |       | 395,242                     |       |
| Minority  interest                                                                                                                                                            |       | 178,906                  |       | 182,118                     |       |
| Beneficiaries’  equity:                                                                                                                                                  |       |                     |       |                        |       |
| Common  shares of beneficial interest, $0.001 par value; 500,000,000 shares  authorized, 30,350,989 issued and outstanding at March 31, 2005 and December 31,  2004 |       | 30                       |       | 30                          |       |
| Preferred  shares—100,000,000 shares authorized, no shares issued or outstanding                                                                                         |       | —                   |       | —                      |       |
| Additional  paid-in capital                                                                                                                                                   |       | 200,363                  |       | 200,276                     |       |
| Cumulative  earnings                                                                                                                                                          |       | 2,068                    |       | 251                         |       |
| Cumulative  dividends                                                                                                                                                         |       | (11,766                  | )          | (4,856                      | )          |
| Total  beneficiaries’ equity                                                                                                                                             |       | 190,695                  |       | 195,701                     |       |
| Total  liabilities and beneficiaries’ equity                                                                                                                             |       | $                        | 898,028    |                        | $          | 773,061 |   |

 

*See accompanying notes to condensed consolidated andcombined financial statements.*

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES**

**CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OFOPERATIONS**

(Unaudited and in thousands, except share and per share information)

 
| ** **                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                                               | ** ** | **(Company)**                         | ** ** | **(Predecessor)** | ** ** |
|                                                     |       |                                  |       |   |   |
| **Revenue:**                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Rent and  other property income                          |       | $                                     | 25,841     |   | $ | 134 |   |
| Expense  reimbursements:                                 |       |                                  |       |   |   |
| Related  party                                           |       | 8,740                                 |       | 1,731 |   |
| Third party                                              |       | 1,274                                 |       | 1,341 |   |
| Management  fees:                                        |       |                                  |       |   |   |
| Related  party                                           |       | 1,867                                 |       | 881 |   |
| Third party                                              |       | 640                                   |       | 1,013 |   |
| Other fee  income-related party                          |       | 3,731                                 |       | — |   |
| Other income                                             |       | 111                                   |       | 217 |   |
| Total  revenue                                           |       | 42,204                                |       | 5,317 |   |
| **Operating  Expenses:**                                 | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Property  operating expenses                             |       | 10,693                                |       | 2,472 |   |
| Reimbursed  expenses                                     |       | 10,014                                |       | 3,072 |   |
| Real estate  taxes                                       |       | 2,007                                 |       | 21 |   |
| Administrative  expenses                                 |       | 2,933                                 |       | 225 |   |
| Depreciation  and amortization                           |       | 6,774                                 |       | 205 |   |
| Interest                                                 |       | 5,407                                 |       | 89 |   |
| Total  operating expenses                                |       | 37,828                                |       | 6,084 |   |
| Income (loss)  before minority interest and income taxes |       | 4,376                                 |       | (767 | ) |
| Minority  interest                                       |       | 1,773                                 |       | — |   |
| Income  (loss) before income taxes                       |       | 2,603                                 |       | (767 | ) |
| Income taxes                                             |       | 785                                   |       | — |   |
| Net income  (loss)                                       |       | $                                     | 1,818      |   | $ | (767 | ) |
|                                                     |       |                                  |       |   |   |
| Earnings per  common share—basic                    |       | $                                     | 0.06       |   |   |   |
|                                                     |       |                                  |       |   |   |
| Earnings per  common share—diluted                  |       | $                                     | 0.06       |   |   |   |
| Weighted-average  shares outstanding during the period:  |       |                                  |       |   |   |
| Basic                                                    |       | 30,350,989                            |       |   |   |
| Diluted                                                  |       | 61,642,027                            |       |   |   |
| Common share  dividend declared per share                |       | $                                     | 0.2275     |   |   |   |

 

*See accompanying notes to condensed consolidated andcombined financial statements.*

 

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**GMH COMMUNITIES TRUST AND THE GHM PREDECESSOR ENTITIES**

**CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASHFLOWS**

(Unaudited and in thousands)

 
| ** **                                                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                                                                                     | ** ** | **(Company)**                         | ** ** | **(Predecessor)** | ** ** |
|                                                                                           |       |                                  |       |   |   |
| **Cash  flows from operating activities:**                                                     |       |                                  |       |   |   |
| Net income  (loss)                                                                             |       | $                                     | 1,818      |   | $ | (767 | ) |
| Adjustments  to reconcile net income (loss) to net cash from operating activities:             |       |                                  |       |   |   |
| Depreciation                                                                                   |       | 4,441                                 |       | 205 |   |
| Amortization:                                                                                  |       |                                  |       |   |   |
| Lease  intangibles                                                                             |       | 2,333                                 |       | — |   |
| Notes  payable fair value adjustment                                                           |       | (547                                  | )          | — |   |
| Deferred  loan costs                                                                           |       | 349                                   |       | 5 |   |
| Restricted  shares                                                                             |       | 25                                    |       | — |   |
| Allowance  for doubtful accounts                                                               |       | (47                                   | )          | — |   |
| Income from  investments in military housing projects                                          |       | (462                                  | )          | — |   |
| Minority  interest                                                                             |       | 1,773                                 |       | — |   |
| Changes in  operating assets and liabilities:                                                  |       |                                  |       |   |   |
| Restricted  cash                                                                               |       | (3,290                                | )          | — |   |
| Accounts and  other receivables                                                                |       | (2,757                                | )          | (469 | ) |
| Deferred  contract costs                                                                       |       | (618                                  | )          | (315 | ) |
| Other assets                                                                                   |       | 829                                   |       | (334 | ) |
| Accounts  payable                                                                              |       | (670                                  | )          | — |   |
| Accrued  expenses                                                                              |       | 3,921                                 |       | 1,259 |   |
| Other  liabilities                                                                             |       | 1,861                                 |       | — |   |
| Net cash  from operating activities                                                            |       | 8,959                                 |       | (416 | ) |
| **Cash  flows from investing activities:**                                                     |       |                                  |       |   |   |
| Property  acquisitions                                                                         |       | (123,067                              | )          | — |   |
| Capitalized  expenditures                                                                      |       | (244                                  | )          | — |   |
| Net cash  from investing activities                                                            |       | (123,311                              | )          | — |   |
| **Cash  flows from financing activities:**                                                     |       |                                  |       |   |   |
| Common share  dividends                                                                        |       | (4,858                                | )          | — |   |
| Limited  partnership unit distributions                                                        |       | (4,729                                | )          | — |   |
| Owner distributions                                                                            |       | —                                |       | (1,749 | ) |
| Owner  contributions                                                                           |       | —                                |       | 1,918 |   |
| Proceeds  from line of credit                                                                  |       | 105,000                               |       | — |   |
| Repayment of  line of credit                                                                   |       | (45,000                               | )          | — |   |
| Proceeds  from notes payable                                                                   |       | 40,560                                |       | — |   |
| Repayment of  notes payable                                                                    |       | (22,041                               | )          | (226 | ) |
| Payment of  financing costs                                                                    |       | (825                                  | )          | — |   |
| Net cash  from financing activities                                                            |       | 68,107                                |       | (57 | ) |
| Net decrease  in cash and cash equivalents                                                     |       | (46,245                               | )          | (473 | ) |
| Cash and  cash equivalents, beginning of period                                                |       | 60,926                                |       | 516 |   |
| Cash and  cash equivalents, end of period                                                      |       | $                                     | 14,681     |   | $ | 43 |   |
|                                                                                           |       |                                  |       |   |   |
| **Supplemental  information:**                                                                 |       |                                  |       |   |   |
| Real estate  acquired by assuming debt                                                         |       | $                                     | 47,964     |   | — |   |
| Issuance of  units of limited partnership interest for purchase of student housing  properties |       | $                                     | 1,655      |   | — |   |
| Property  distributed at net book value                                                        |       | $                                     | 4,208      |   | — |   |
| Debt  distributed at net book value                                                            |       | $                                     | 3,854      |   | — |   |
| Cash paid  for interest                                                                        |       | $                                     | 5,279      |   | $ | 89 |   |
| Cash paid  for taxes                                                                           |       | $                                     | 309        |   | — |   |

 

*See accompanying notes to condensed consolidated andcombined financial statements.*

 

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**GMH COMMUNITIES TRUST AND THE GMH PREDECESSOR ENTITIES**

 

Notes to Condensed Consolidated and Combined Financial Statements

March 31, 2005

(Unaudited)

 

**1.Organization and Basis of Presentation**

 

***Organization***

 

Managementof the Trust (defined below) and The GMH Predecessor Entities (defined below) hasprepared these condensed consolidated and combined financial statementspursuant to the rules and regulations of the Securities and ExchangeCommission (the “SEC”). Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with U.S. generallyaccepted accounting principles have been condensed or combined pursuant to suchrules and regulations, although we believe that the disclosures areadequate to make the information presented not to be misleading. The condensedconsolidated and combined financial statements should be read in conjunctionwith the audited financial statements and the notes thereto of the Trust andThe GMH Predecessor Entities included in the Trust's Annual Report on Form 10-Kas filed with the SEC on March 31, 2005. In management’s opinion, alladjustments, consisting solely of normal recurring adjustments, necessary topresent fairly the consolidated financial position of the Trust and theconsolidated and combined results of operations and cash flows of the Trust andThe GMH Predecessor Entities,  areincluded. The results of operations for such interim periods are notnecessarily indicative of the results for the full year.

 

GMHCommunities Trust (the “Trust,” and collectively with its subsidiaries, “we” orthe “Company”) intends to qualify as a real estate investment trust, or REIT,under the Internal Revenue Code of 1986, as amended (the “Code”). We completedour initial public offering on November 2, 2004, pursuant to which we soldan aggregate of 30,350,989 common shares of beneficial interest at an offeringprice of $12.00 per share, and raised an aggregate of $331.7 million innet proceeds, after deducting the underwriters’ discount, and other offering-relatedexpenses. The Trust was formed as a Maryland real estate investment trust in May 2004,and prior to completion of our initial public offering, the Trust had nooperations. We contributed the net proceeds from the offering to our operatingpartnership, GMH Communities, LP, a Delaware limited partnership (the “OperatingPartnership”), in exchange for units of partnership interest. As of March 31,2005, the Operating Partnership had 60,034,498 units of partnership interest outstanding,of which the Trust owned 29,769,820 units of limited partnership interest, andthrough a wholly-owned subsidiary, GMH Communities GP Trust, the Trust owned581,169 units of general partnership interest which represents 100% of thegeneral partnership interest in the Operating Partnership. As of March 31,2005, there were 29,683,509 units of limited partnership interest outstandingthat 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 to college anduniversity students residing off-campus and to members of the U.S. military andtheir families located on or near military bases throughout the United States. Throughour Operating Partnership, we own and operate our student housing propertiesand the interests in joint ventures that own military housing privatizationprojects (“military housing projects”).

 

***Formation Transactions***

 

TheOperating Partnership commenced operations on July 27, 2004, when Gary M.Holloway, Sr., our chairman, president, and chief executive officer,Vornado Realty Trust (“Vornado”), and certain entities affiliated with Mr. Hollowayand Vornado, entered into an agreement to contribute various assets to theOperating Partnership. Under the terms of the contribution agreement, Mr. Hollowaycontributed equity interests relating to student housing properties andmilitary housing projects owned by him and by entities affiliated with him,including College Park Management, Inc., GMH Military Housing, LLC, otherentities owning a 10% interest in four student housing properties, and otherrelated assets in exchange for 66,000 Class A partnership interests in theOperating Partnership. Vornado agreed to contribute up to $159.0 millionto the Operating Partnership in exchange for 34,000 Class B partnershipinterests. In connection with its investment in the Operating Partnership,Vornado also purchased a warrant for $1.0 million to acquire, at itsoption, a number of units of limited partnership interest in the OperatingPartnership, common shares in the Trust, or a combination of both, representinga 38.264% economic interest in the Operating Partnership or the Trust, as thecase may be, immediately prior to completion of our initial public offering.The proceeds from sale of the warrant are included in minority interest on the March 31,2005 consolidated balance sheet. In addition, in connection with the closing ofour initial public offering on November 2, 2004, Mr. Holloway furthercontributed his interests in 353 Associates, L.P. and Corporate FlightServices, LLC, a student housing property and other related assets to theOperating Partnership. We collectively refer to College Park Management, Inc.,GMH Military Housing, LLC, 353 Associates, L.P. and Corporate Flight Services,LLC, together with the Operating Partnership, as The GMH PredecessorEntities.  The exchange of contributedinterests has been accounted for as a reorganization of entities under commoncontrol. Accordingly, the contributed assets and assumed liabilities have beenrecorded at the historical cost of The GMH Predecessor Entities.

 

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

 

•      353 Associates, L.P. owns and operates a 44,721 square foot commercialoffice building located in Newtown Square, Pennsylvania. In connection with thecompletion of our initial public offering on November 2, 2004, Mr. Hollowayand an entity wholly-owned by him contributed 100% of the equity interests in353 Associates, L.P. to the Operating Partnership. The building is currentlyused as the Company’s corporate headquarters. 353 Associates, L.P. historicallyleased the building to certain of The GMH Predecessor Entities and otherentities owned or controlled by Mr. Holloway. We continue to lease aportion of the building to certain other entities owned or controlled by Mr. Hollowaythat were not contributed to the Company in connection with our initial publicoffering.

 

•      College Park Management, Inc. performed property management andasset management services for residential apartment properties leased tostudents at colleges and universities located throughout the United States. Inconnection with the formation of the Operating Partnership on July 27,2004, Mr. Holloway consented to the merger of College Park Management, Inc.with and into College Park Management, LLC, a wholly-owned subsidiary of the OperatingPartnership. College Park Management TRS, Inc., a subsidiary of CollegePark Management, LLC, has made an election to be treated for federal income taxpurposes as a “taxable REIT subsidiary,” as defined in the Code.

 

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

 

•      Corporate Flight Services, LLC (“Corporate Flight LLC”) owns andoperates a corporate aircraft that had been leased to certain of The GMHPredecessor Entities and other entities owned or controlled by Mr. Hollowaythat were not contributed to the Company in connection with our initial publicoffering. In connection with the completion of our initial public offering on November 2,2004, Mr. Holloway contributed 100% of the outstanding equity interests inCorporate Flight LLC to the Operating Partnership. In February 2005, theCompany transferred its interest in Corporate Flight LLC, including thecorporate aircraft and associated debt initially contributed to the OperatingPartnership at the time of the initial public offering, back to Mr. Holloway.  See Note 8.

 

***Redemption of Operating Partnership Interests***

 

Priorto our initial public offering, Vornado and Mr. Holloway were the soleequity holders of the Operating Partnership and each held, through affiliatedentities, general partnership interests in the Operating Partnership.Concurrent with the closing of the Company’s initial public offering on November 2,2004, we became the sole general partner of the Operating Partnership. Inaccordance with the terms of the limited partnership agreement of the OperatingPartnership and concurrent with the completion of our initial public offeringon November 2, 2004, we paid approximately $77.3 million to Vornadorelating to the redemption of all of Vornado’s Class B partnershipinterests in the Operating Partnership based on Vornado’s $113.8 millioncontribution to the Operating Partnership as of the date of the offering, plusa preferential return in the amount of $13.5 million, and after givingeffect to the surrender by Vornado of $50.0 million in value of itspre-offering partnership interest in the Operating Partnership, as payment forthe portion of its warrant required to be exercised upon completion of our initialpublic offering under the terms of the warrant. Upon closing of our initialpublic offering, Vornado exercised the warrant to purchase 6,666,667 units oflimited partnership interest in our Operating Partnership at a price of $7.50per unit, which represented a 20.972% economic interest in the OperatingPartnership immediately prior to our initial public offering. As of March 31,2005, the remaining portion of the warrant was exercisable for up to 5,671,223units of limited partnership interest of the Operating Partnership or commonshares, at an exercise price of $8.82 per unit or common share, at any timeduring the 18 months following the closing of our initial public offering.

 

Inaddition, in connection with the redemption of Vornado’s interests in theOperating Partnership and amendment to the partnership agreement for theOperating Partnership on November 2, 2004, Mr. Holloway’s Class Alimited partnership interest and managing general partnership interest in theOperating Partnership were exchanged for 19,624,294 limited partnership unitsand Mr. Holloway contributed additional assets to our Operating Partnership,including interests in entities that own our corporate headquarters andaircraft and interests in an additional student housing property.

 

***Basis of Presentation***

 

Thefinancial statements of GMH Communities Trust included herein present theconsolidated financial position of the Company and its subsidiaries as of March 31,2005 and December 31, 2004 and the consolidated results of their operationsand cash flows for the three months ended March 31, 2005. All intercompanyitems and transactions have been eliminated.

 

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Thefinancial statements of The GMH Predecessor Entities included herein presentthe combined results of their operations and cash flows for the three monthsended March 31, 2004. All intercompany items and transactions have beeneliminated.

 

**2. Summaryof Significant Accounting Policies**

 

***Use of Estimates***

 

Thepreparation of financial statements in conformity with U.S. generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect various amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates.

 

***Real Estate Investments andCorporate Assets***

 

Wecarry real estate investments and corporate assets at cost, net of accumulateddepreciation. Cost of acquired assets includes the purchase price and closingcosts. We allocate the cost of real estate investments to net tangible andidentified intangible assets based on relative fair values in accordance withStatement of Financial Accounting Standards No. 141 (“SFAS 141”), *Business Combinations*. We base fair valueestimates 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.

 

Thevalue of in-place leases is based on the difference between (i) theproperty valued with existing in-place leases and (ii) the property valuedas if vacant. As lease terms typically are 12 months or less, rates onin-place leases generally approximate market rental rates. Factors that weconsider in the valuation of in-place leases include an estimate of incrementalcarrying costs during the expected lease-up periods considering current marketconditions and nature of the tenancy. We amortize the value of in-place leasesto expense over the remaining term of the respective leases. Accumulatedamortization related to intangible lease costs was $4.6 million at March 31,2005 and $2.3 million at December 31, 2004.

 

Purchaseprices of student housing properties to be acquired are not expected to beallocated to tenant relationships considering the terms of the leases and theexpected levels of renewals.

 

Weexpense routine repair and maintenance expenditures that do not improve thevalue of an asset or extend its useful life, including turnover costs such ascleaning, interior painting and carpeting of units. 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 40 years for buildings including student housingproperties and the commercial office building, 10 years for the corporateaircraft and three to five years for residential furniture and appliances.

 

Inaccordance with Statement 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. We review recoverability of assets to beheld and used through a comparison of the carrying amount of an asset toestimated undiscounted future cash flows expected to be generated by the asset.If the carrying amount of an asset exceeds its estimated undiscounted futurecash flows, an impairment charge is recognized by the amount by which thecarrying value of the asset exceeds the fair value of the asset determinedusing customary valuation techniques, such as the present value of expectedfuture cash flows. Assets to be disposed of would be separately presented inthe balance sheet and reported at the lower of the carrying amount or fairvalue less costs to sell, and no longer would be depreciated.

 

***Cash Equivalents***

 

Allhighly-liquid investments with an original maturity of three months or less areconsidered to be cash equivalents.

 

***Restricted Cash***

 

Restrictedcash consists of security deposits and cash held as collateral for real estatetaxes and capital expenditures as required by the terms of various loanagreements.

 

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***Allowance for Doubtful Accounts***

 

Weestimate the collectibility of receivables generated by rental and other incomeas a result of the operation of our student housing properties. If we believethat the collectibility of certain amounts is questionable, we record aspecific reserve for these amounts to reduce the amount outstanding to anamount we believe will be collectible and a reserve for all other accountsbased on a range of percentages applied to aging categories, which is based onhistorical collection and write-off experience.

 

Wealso evaluate the collectibility of fee income and expense reimbursementsgenerated by the management of student housing properties owned by others andthrough the provision of development, construction, renovation and managementservices to our military housing projects based upon the individual facts andcircumstances, and record a reserve for specific amounts, if necessary.

 

Accountsreceivable are stated net of the allowance for doubtful accounts of $113,000 atMarch 31, 2005 and $159,000 at December 31, 2004.

 

***Deferred Financing Costs***

 

Costsincurred in connection with obtaining financing are capitalized and amortizedon a straight-line basis over the term of the related loan, which is notmaterially different than the effective interest method. Amortization ofdeferred financing costs is included in interest expense. Accumulatedamortization of deferred financing costs was $668,000 at March 31, 2005and $359,000 at December 31, 2004.

 

***Deferred Contract Costs***

 

Deferredcontract costs represent costs attributable to a specific military housingproject incurred in connection with seeking Congressional approval of aCommunity Development and Management Plan, or CDMP, subsequent to the projectbeing awarded by the Department of Defense, or DoD. In addition, deferredcontract costs include transition and closing costs incurred that are expectedto be reimbursed by the military housing project. Such amounts are evaluated asto the probability of recovery and costs that are not considered probable ofrecovery are written off. Revenue is recognized and the related costs areexpensed at the time that the reimbursement for preparing the CDMP is approvedby Congress or at closing of the military housing project.

 

***Deposits***

 

Depositsprimarily consist of amounts paid to third parties in connection with plannedstudent housing acquisitions and amounts paid to lenders that provide relatedfinancing or the refinancing of existing loans. At March 31, 2005, deposits for planned acquisitions totaled$0.5 million and deposits related to financings totaled $0.1 million. At December 31,2004, deposits for planned acquisitions totaled $0.8 million and depositsrelated to financings totaled $1.0 million.

 

***Fair Value of Financial Instruments***

 

Thecarrying amount of cash and cash equivalents, restricted cash, accounts andother receivables, deposits, other assets, accounts payable, accrued expenses,and other liabilities approximate fair value because of the relativelyshort-term nature of these instruments.

 

Thecarrying value of fixed-rate notes payable assumed in connection with theacquisition of student housing properties were adjusted to their estimated fairvalue based on current market rates in effect at the time the properties wereacquired. The adjusted carrying amount approximates fair value at March 31,2005. The carrying value of variable-rate notes payable approximates fair valueat March 31, 2005.

 

***Advertising Costs***

 

Advertisingcosts are expensed as incurred. Advertising expense was $341,000 and $1,000 forthe three months ended March 31, 2005 and 2004, respectively.

 

***Revenue Recognition***

 

*StudentHousing Segment*

 

Rentalrevenue is recognized when due over the lease terms, which are generally12 months or less.

 

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Standardmanagement fees are based on a percentage of monthly cash receipts or grossmonthly rental and other revenues generated by the properties managed forothers. We recognize these fees when the cash is received by the property orthe revenue is earned by the managed property, depending upon whether themanagement agreement relating to a student housing property bases the earnedmanagement fee on cash versus accrual basis revenue recognition.

 

Incentivemanagement fees are earned as a result of the achievement of certain operatingperformance criteria over a specified period of time by certain managedproperties, including targeted annual debt service coverage ratios. Revenue isrecognized at the amount that would be due under the contract if the contractwas terminated on the balance sheet date.

 

Assetmanagement fees are based on a percentage of the gross carrying value ofcertain properties managed and are recognized when earned in accordance withthe respective management agreements.

 

Expensereimbursements are comprised primarily of salary and related costs of ouremployees working at certain properties we manage for others, the cost of whichis reimbursed by the owners of the related properties. We accrue operatingexpense reimbursements as the related expenses are incurred.

 

*MilitaryHousing Segment*

 

Standardmanagement fees are based on a percentage of revenue generated by the militaryhousing projects from the basic allowance for housing provided by thegovernment to service members, referred to as BAH, and are recognized when therevenue is earned by the military housing projects. Incentive management feesare based upon the satisfaction of certain criteria including, among otherthings, satisfying designated benchmarks relating to emergency work order response,occupancy rates, home turnover and resident satisfaction surveys. Incentivemanagement fees are recognized when the various criteria stipulated in themanagement contract have been satisfied.

 

Standardand incentive development and construction/renovation fees are based on apercentage of development and construction/renovation costs incurred by themilitary housing projects including hard and soft costs and financing costs,and are recognized on a monthly basis as the costs are incurred by the militaryhousing projects. Incentive development and construction/renovation fees arebased upon the satisfaction of certain criteria including, among other things,completing a number of housing units according to schedule, achieving specificsafety records and implementing small business or minority subcontractingplans. Incentive development and construction/renovation fees are recognizedwhen the various criteria stipulated in the contract have been satisfied.

 

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

 

Businessdevelopment fees are earned from companies with which we have relationships inrecognition of business development efforts and expenses incurred by us inconnection with pursuing military housing projects. The fees consist of (i) abase fee, which is a fee paid to the Company in consideration of the Company’songoing pursuit of additional projects, and paid regardless of whether aproject is awarded, and (ii) an incentive fee, which is paid over thecourse of an awarded project based on a percentage of certain development costsincurred by the project.  The base feesare recognized on a straight-line basis over the term of the related businessdevelopment agreement.  The incentivefees are recognized as the related costs are incurred by the respectivemilitary housing projects.

 

Preferredreturns are earned on our investments in the military housing projects.  The preferred returns are based on a fixedpercentage of our investment in the military housing projects and arerecognized at the rates specified in the agreements, subject to projected availabilityof funds in the underlying project. Accrued preferred returns are periodically evaluated for collectibility.

 

***Reimbursed Expenses***

 

Expensereimbursements primarily include payroll and related expenses, incurred forcertain employees engaged in the operation of certain student housing propertiesand military housing projects under management, and other operating expensesthat are reimbursed to the Company by the owner of the related property.

 

***Minority Interest***

 

Minorityinterest as initially recorded at the date of our initial public offeringrepresented the net equity of the Operating Partnership, including the proceedsreceived from the sale of the warrant to Vornado, 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

 

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request of a holder, eachunit of limited partnership interest for cash or common shares on a one-for-onebasis, subject to adjustments for share splits, dividends, recapitalizations orsimilar events. If the minority interest unit holders’ share of a current yearloss would cause the minority interest balance to be less than zero, theminority interest balance will be reported as zero unless there is anobligation of the minority interest holders to fund those losses. Any losses inexcess of the minority interest will be charged against equity. If futureearnings materialize, equity will be credited for all earnings up to the amountof those losses previously absorbed. Distributions to limited partnership unitholders other than the Company are recorded as a reduction to minorityinterest.

 

OnMarch 15, 2005, the Company declared a quarterly distribution of $0.2275per outstanding unit of limited partnership interest. The distribution of$6.7 million was recorded as a reduction to minority interest at March 31,2005 and was paid in April 2005.

 

***Investments in Military HousingProjects***

 

Weevaluate each of our investments in military housing projects to determine ifthe underlying entity is a variable interest entity (“VIE”) as defined underFASB Financial Interpretation No. 46 (as revised) (“FIN 46”). If an entityis deemed to be a VIE pursuant to FIN 46, the entity that absorbs a majority ofthe expected losses of the VIE is deemed to be the primary beneficiary and mustconsolidate the VIE. If the entity is not a VIE, it is evaluated forconsolidation based on controlling voting interests. If we have the majorityvoting interest with the ability to control operations and where no approval,veto or other important rights have been granted to other holders, the entitywould be consolidated. We are not the primary beneficiary of any VIEs, nor dowe have controlling voting interests in any of our military housing projects.We record investments in military housing projects initially at our cost andsubsequently adjust them to reflect our preferred return, cash contributionsand distributions.

 

***Income Taxes***

 

GMHCommunities Trust will elect to be taxed as a REIT under the Code when it filesits tax return for the year ended December 31, 2004, which it will file inSeptember 2005 pursuant to an extension granted in March 2005. To qualify as aREIT, the Company 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 will allow us to qualify for taxation as a REITunder the Code, and it is our intention to adhere to these requirements andmaintain the Company’s REIT status in the future. Accordingly, no provision hasbeen made for federal income taxes in the accompanying consolidated financialstatements, other than with respect to the Company’s taxable REIT subsidiaries.

 

Inconformity with the Code and applicable state and local tax statutes, taxableincome or loss of The GMH Predecessor Entities was required to be reported inthe tax returns of Gary M. Holloway Sr., and Vornado, as such entitieswere treated as pass-through entities for tax purposes. Accordingly, no incometax provision has been reflected in the accompanying combined statements ofoperations of The GMH Predecessor Entities.

 

***Recent Accounting Pronouncements***

 

InDecember 2004, the Financial Accounting Standards Board issued SFAS No. 123R,as revised, *“Share-Based Payment.”*SFASNo. 123R replaces SFAS No. 123, *“Accountingfor Stock-Based Compensation”* and supersedes APB Opinion No. 25,*“Accounting for Stock Issued to Employees.”*The scope of SFAS No. 123R includes a wide range of share-basedcompensation arrangements including stock options, restricted share plans,performance-based awards, stock appreciation rights, and employee stockpurchase plans. SFAS No. 123R requires companies to recognize in theirfinancial statements the compensation expense relating to share-based paymenttransactions including all stock options that have future vesting provisions,as modified, or as newly granted beginning on the grant date of such options.Prior to the effective date of this revision, SFAS No. 123 permittedentities the option of applying the guidance in APB Opinion No. 25, aslong as the footnotes to the financial statements disclosed what net income(loss) would have been had the company used the preferable fair-value-basedmethod. The Company will be required to implement SFAS No. 123R for theyear beginning January 1, 2006. The Company does not expect the adoptionof SFAS No. 123R to have a material impact on its financial statements.

 

InNovember 2004, the Company established an equity incentive plan (the “Plan”)that provides for the issuance of options, restricted shares, shareappreciation rights, performance units and other equity based awards.  During the three months ended March 31,2005, the Company issued 23,562 restricted common shares under the Plan tonon-employee members of the Company’s Board of Trustees. The restricted commonshares vest over a three year period from the grant date. The restricted commonshares are entitled to the same dividend and voting rights during the vestingperiod as the issued and outstanding common shares. The fair value of theawards was calculated based on the closing market price of the Company’s commonshares on the grant date and is expensed on a straight-line basis over thevesting period.  For the three monthsended March 31, 2005, the Company recognized non-cash stock-basedcompensation expense of $25,000 related to restricted common shares.

 

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***Reclassifications***

 

Certainamounts in the prior period financial statements have been reclassified to beconsistent with the current period presentation.

 

**3.  Real Estate Investments and Acquisitions**

 

Asof March 31, 2005, the Company owned 38 student housing properties locatednear 31 colleges and universities in 23 states. These properties contain anaggregate of 7,136 units and 23,880 beds. The Company’s investment in studenthousing properties at March 31, 2005 and December 31, 2004 was asfollows (in thousands):

 
| ** **                            | ** ** | **March 31,  2005** | ** ** | **December  31, 2004** | ** ** |
|---------------------------------------|------------|--------------------------|------------|------------------------|------------|
| Land                                  |       | $                        | 159,334    |                   | $          | 124,656 |   |
| Building and  improvements            |       | 637,134                  |       | 501,680                |       |
| Residential  furniture and appliances |       | 15,774                   |       | 12,299                 |       |
|                                  |       | $                        | 812,242    |                   | $          | 638,635 |   |

 

Duringthe three months ended March 31, 2005, the Company acquired eight studenthousing properties located near six colleges and universities in six stateswith an aggregate of 1,607 units and 4,795 beds and for an aggregateacquisition cost of approximately $172.7 million. Gary M. Holloway, Sr.,four other employees of the Company, including two executive officers of theCompany, and an employee of an entity owned by Mr. Holloway, held anownership interest in two of these properties that were acquired for a totalpurchase price of $38.2 million. The Company paid $36.6 million of cash to the selling entity notaffiliated with the Company and issued a total of 138,023 units of limitedpartnership interest in the Operating Partnership to Mr. Holloway andthese individuals with an aggregate fair market value of $1.6 million inconnection with the purchase of the two properties.  The fair market value of the limitedpartnership units was based on the closing price of the Company’s common shareson the purchase date. The fair market value of $1.6 million was recorded as anincrease to minority interest on the consolidated balance sheet.

 

**4.  Investments in Military Housing Projects**

 

Investmentsin military housing projects are initially recorded at cost and aresubsequently adjusted for preferred returns earned, additional cashcontributions, and distributions received. Preferred returns earned on ourinvestments in the military housing projects are accrued at the rates specifiedin the agreements, subject to projected availability of funds in the underlyingproject. Accrued preferred returns are periodically evaluated forcollectibility.

 

InNovember 2003, GMH Military Housing, LLC and FW Military Housing LLCformed a joint venture known as GMH Military Housing-Fort Carson LLC, whichacquired the ownership interests of an unrelated bankrupt entity that was amember of Fort Carson Family Housing LLC, the entity that owns the Fort Carsonmilitary housing project. GMH Military Housing, LLC contributed approximately$2.4 million to GMH Military Housing-Fort Carson LLC in return for its 10%interest in the joint venture. The 10% ownership interest in the joint venturewas accounted for using the equity method of accounting from the acquisitiondate in November 2003 through November 1, 2004. In connection withour initial public offering on November 2, 2004, the remaining 90%interest in the joint venture was acquired in exchange for the issuance to FWMilitary Housing LLC of 2,583,334 units of limited partnership interest in theOperating Partnership having a value of $31.0 million. This acquisitionwas recorded at the fair value of the consideration paid. The Company received$3.5 million of distributions from Fort Carson Family Housing LLC during2004. The carrying value of this investment was $30.0 million at March 31,2005 and $29.7 million at December 31, 2004. The Company earns a preferredreturn on its investment in Fort Carson Family Housing LLC, which is paid on amonthly basis.

 

InNovember 2004, the Company and Benham Military Communities, LLC formed ajoint venture known as GMH/Benham Military Communities LLC for the purpose ofinvesting in the Navy Northeast Region military housing project. The Companycontributed $9.5 million to GMH/Benham Military Communities LLC in returnfor a 90% interest and Benham Military Communities, LLC invested$1.1 million for the remaining 10% interest. The Company consolidatesGMH/Benham Military Communities LLC as it has a 90% economic interest andcontrols a majority of the voting interests. Benham Military Communities, LLC’s10% interest is accounted for as minority interest and is included in accruedexpenses on the consolidated balance sheet at March 31, 2005 and December 31,2004.  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 earns a preferred return on its investmentin Northeast Housing LLC. The preferred return will accrue, but not be paid,until the end of the initial development period for the project in October 2010.The carrying value of this investment was $11.0 million at March 31,2005 and $10.8 million at December 31, 2004.

 

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**5.  Income Taxes**

 

Currentincome tax expense of the taxable REIT subsidiaries was $785,000 for the threemonths ended March 31, 2005, which includes $657,000 of federal taxes and$128,000 of state taxes. The federal statutory tax rate is 34% for the taxableREIT subsidiaries. The effective tax rate of the taxable REIT subsidiaries forthe three months ended March 31, 2005 was 32.2%. The Company’s effectivetax rate is lower than the federal statutory rate as a result of the permanentdepreciation differences between income subject to income tax for book and taxpurposes.

 

**6.  Notes Payable**

 

Duringthe three months ended March 31, 2005, fixed-rate notes payable totaling$48.0 million were assumed relating to the acquisition of four studenthousing properties and a fixed-rate note payable totaling $31.4 million wasobtained in connection with the acquisition of a student housing property.These notes require monthly payments of principal and/or interest, bearinterest at fixed rates ranging from 4.92% to 7.09%, and mature at variousdates through 2014. In conjunction with the purchase accounting for theseproperties, the net carrying value of the assumed notes payable was increasedby $2.1 million to record them at their estimated fair value. The fair valueof the notes was calculated as the difference between the present value of thenotes using a current estimated market rate of interest and the outstandingprincipal amount. This amount is being amortized as an adjustment to interestexpense over the term of the related debt.

 

Duringthe three months ended March 31, 2005, a variable-rate note payabletotaling $9.2 million was obtained in connection with the acquisition of astudent housing property. The note requires payments of interest only at LIBOR plus1.90% (LIBOR on this loan was 2.75% at March 31, 2005) and matures in2007.

 

InFebruary 2005, the Company completed the refinancing of variable-ratenotes secured by seven of its student housing properties. In connection withthe refinancing, the Company repaid approximately $20.4 million of thetotal $113.7 million of indebtedness secured by these seven properties,and replaced the remaining $93.3 million of variable-rate debt with anequal amount of fixed-rate debt with interest rates ranging from 4.24% to 4.7%and maturity terms ranging from five to seven years.

 

AtMarch 31, 2005, notes payable totaling $427.9 million were secured by29 student housing properties with a cost and net book value of $597.0 and$590.6 million, respectively. At December 31, 2004, notes payabletotaling $359.8 million were secured by 23 student housing properties witha cost and net book value of $451.9 and $449.1 million, respectively.

 

AtMarch 31, 2005, the Company had a note payable in the amount of$5.8 million secured by the corporate headquarters, requiring monthlypayments of principal and interest at LIBOR plus 2.25% (LIBOR on this loan was2.75% at March 31, 2005). The remaining principal balance is due uponmaturity in August 2005. In addition, the corporate office furniture wasfinanced with a note that had a remaining balance of $51,000 at March 31,2005, and requires monthly payments of principal and interest at LIBOR plus2.25% (LIBOR on this loan was 2.75% at March 31, 2005). The remainingprincipal balance is due upon maturity in August 2005.

 

Priorto its contribution to the Company in connection with the completion of ourinitial public offering, Corporate Flight LLC financed the acquisition andsubsequent refurbishments of the corporate aircraft with two notes payable. Oneloan required monthly payments of principal and interest at the commercialpaper rate plus 1.8% through January 2011. The second loan requiredmonthly payments of principal and interest at 9.5% through August 2006. OnFebruary 28, 2005, the Company sold and transferred its ownership of 100%of the outstanding membership interests in Corporate Flight LLC back to Gary M.Holloway, Sr. Corporate Flight LLC’s primary asset was the corporateaircraft which had a net book value of $3.8 million at February 28,2005 and was secured by the two notes payable, which had an aggregateoutstanding balance of $4.2 million at February 28, 2005.   Corporate Flight LLC’s net deficit of$171,000, net of $180,000 tax expense related to the taxable gain upon thetransfer, was recorded as a capital distribution and allocated to additionalpaid-in capital and minority interest on the consolidated balance sheet.

 

Theaggregate annual principal payments as of March 31, 2005 due on our notespayable for the five succeeding years and thereafter are as follows (inthousands):

 
| 2005                 |   | $       | 9,236   |   |
|----------------------|--------|---------|---------|--------|
| 2006                 |   | 5,188   |    |
| 2007                 |   | 87,960  |    |
| 2008                 |   | 4,708   |    |
| 2009                 |   | 34,076  |    |
| 2010 and  thereafter |   | 292,631 |    |
|                 |   | $       | 433,799 |   |

 

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**7.  Line of Credit**

 

InNovember 2004, the Company entered into a $150 million three-yearunsecured revolving credit facility, subject to increase to $250 million(the “Credit Facility”), with a consortium of banks. The Credit Facilityprovides for the issuance of up to $20 million of letters of credit, whichis included in the $150 million available under the Credit Facility. TheCompany’s availability under the Credit Facility is limited to a borrowing baseamount equal to the sum of 60% of the value of an unencumbered asset pool(which as of March 31, 2005 consisted of nine student housing properties,and in no event may contain fewer than five student housing properties) as ofthe end of the previous quarter and 50% percent of the value of the Company’scash flow from the management of military housing projects and student housingproperties in the previous quarter, provided that the total cash flowattributable to annualized management fees does not exceed 35% of the borrowingbase.

 

TheCompany may elect to have amounts outstanding under the Credit Facility bearinterest at a Eurodollar rate based on LIBOR or the prime rate, plus anapplicable rate, ranging from 1.50% to 2.00% for Eurodollar rate loans or0.625% to 1.375% for prime rate loans. The applicable rate is determined by theleverage ratio of total liabilities to total asset value of the Company, asdefined in the Credit Facility. In addition, the Company pays fees for unusedavailability on the Credit Facility.

 

TheCredit Facility contains affirmative and negative covenants and also containsfinancial covenants which, among other things, (i) require the Company tomaintain a total leverage ratio against the unencumbered asset pool equal to orless than 60%, (ii) limit the aggregate amount of outstanding variable-rateindebtedness to 30% of total indebtedness commencing February 8, 2005, (iii) limitthe payment of dividends by the Company to its shareholders to 95% of fundsfrom operations as defined in the Credit Facility, (iv) limit the amountof recourse debt, exclusive of amounts outstanding under the Credit Facility,to $25 million, and in no event greater than $150 million in total,and (v) require the Company to maintain a consolidated tangible net worth,as defined in the Credit Facility, of at least $275 million plus an amountequal to 75% of the net proceeds from any equity issuances subsequent to theclosing date of the Credit Facility in November 2004. The financialcovenants also require the Company to operate in compliance with the followingratios as defined by the terms of the Credit Facility: (i) fixed chargecoverage ratio equal to or greater than 1.75x; (ii) interest coverageratio equal to or greater than 2.00x; and (iii) unsecured interestcoverage ratio equal to or greater than 2.25x.

 

InJanuary 2005, the Company paid a dividend to its shareholders in excess ofthe 95% of funds from operations.  TheCompany received a formal waiver of this instance of noncompliance with thefinancial covenant. The Company and the lenders also agreed to modify thecovenant related to the payment of dividends to shareholders for the year endedDecember 31, 2005. Under the terms of the modification, the Company is nowrestricted from paying dividends to its shareholders in 2005 in excess of 110%of funds from operations. The terms of the Credit Facility will revert to theoriginal terms after 2005.

 

Additionally,the Company did not reduce the aggregate amount of its outstandingvariable-rate indebtedness as a percentage of its total outstandingindebtedness below 30% by February 8, 2005, as required by the terms ofthe Credit Facility. On February 24, 2005, the Company converted certainvariable-rate loans secured by seven student housing properties to fixed-rateloans. As a result of this refinancing, the Company lowered its outstandingvariable-rate indebtedness as a percentage of fixed-rate indebtedness below the30% limit. The Company received a formal waiver of this instance ofnoncompliance with the financial covenant for the period from February 8,2005 through February 23, 2005.

 

Asof March 31, 2005, the Company had $60 million outstanding under theCredit Facility, bearing interest at a Eurodollar rate based on 30-day LIBOR at2.77% and an applicable rate of 1.75%, for a total interest rate of 4.52%.  As of March 31, 2005, there were noletters of credit outstanding under the Credit Facility.

 

**8.  Transactions with Related Parties**

 

Inthe ordinary course of its operations, the Company has on-going businessrelationships with Gary M. Holloway, Sr., entities affiliated with Mr. Holloway,and entities in which Mr. Holloway or the Company has an equityinvestment. These relationships and related transactions are summarized below.The operating results or financial position of the Company and The GMHPredecessor Entities could be significantly different from those that wouldhave been reported if the entities were autonomous.

 

Throughthe completion of the Company’s initial public offering on November 2,2004, common costs for human resources, information technology, officeequipment and furniture, and certain management personnel were allocated to thevarious entities owned or controlled by Mr. Holloway, including The GMHPredecessor Entities, using assumptions based on headcount that managementbelieved were reasonable. During the three months ended March 31, 2004,such costs totaled $0.6 million and are included in administrativeexpenses in the accompanying combined statements of operations.  Subsequent to November 2, 2004, suchcosts were incurred directly by the Operating Partnership. The allocation ofsuch costs to other entities owned or controlled by Mr. Holloway duringthe three months ended March 31, 2005 totaled $88,000 and is reflected asexpense reimbursements from related parties in the accompanying consolidatedstatements of operations.

 

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The Company leases space in its corporateheadquarters to entities wholly-owned by Gary M. Holloway, Sr.  During the three months ended March 31,2005 and 2004, rental income from these entities totaled $61,000 and $134,000,respectively, and is included in Rent and other property income in theaccompanying consolidated and combined statements of operations.

 

The Company provides property managementconsulting services to GMH Capital Partners Asset Services, LP, an entitywholly-owned by Mr. Holloway, in connection with property managementservices that GMH Capital Partners Asset Services, LP performs related to fivestudent housing properties containing a total of 2,172 beds. The Company earnsconsulting fees equal to 80% of the management fees that GMH Capital PartnersAsset Services, LP earns for providing the property management services.  For the three months ended March 31,2005, such fees totaled $70,000. In addition, the Company earned managementfees from properties in which Mr. Holloway is an investor.  During the three months ended March 31,2005 and 2004, such income totaled $197,000, and $264,000, respectively.

 

The Company is reimbursed by the owners ofcertain military projects and student housing properties under management,including some in which Mr. Holloway is an investor, for the cost ofcertain employees engaged in the daily operation of those military housingprojects and student housing properties. The reimbursement of these costs isreflected as expense reimbursements from related parties in the accompanyingconsolidated and combined statements of operations.  During the three months ended March 31,2005 and 2004, such reimbursed costs totaled $8.7 million and$1.7 million, respectively.

 

The GMH Predecessor Entities paid managementfees and reimbursed expenses to entities owned by Mr. Holloway that werenot contributed to the Company in connection with its initial public offering.During the three months ended March 31, 2004, the management fees andreimbursed expenses totaled $8,000.

 

Denis J. Nayden, one of the Company’strustees, is a senior vice president of General Electric Company, which is theparent company of General Electric Capital Corporation. At March 31, 2005,we had $221.0 million of indebtedness to General Electric CapitalCorporation secured by properties or other assets that we own.

 

Mr. Holloway owns Bryn Mawr Abstract, Inc.,an entity that provides title abstract services to third party title insurancecompanies, from which we have purchased title insurance with respect to studenthousing properties and military housing projects that we acquired or refinancedin 2005. In connection with our purchase of title insurance for these studenthousing properties, we paid premiums to other title insurance companies, whichfees in some cases are fixed according to statute. From these premiums, theother title companies paid to Bryn Mawr Abstract $130,000 during the threemonths ended March 31, 2005 for the provision of title abstract services.

 

Mr. Holloway owns GMH Capital PartnersCommercial Realty LP, an entity that provides real estate consulting andbrokerage services for real estate transactions. During the three months ended March 31,2005, GMH Capital Partners Commercial Realty LP received aggregate commissionsof $284,000 from the sellers of two student housing properties that the Companypurchased.

 

In February 2005, the Companytransferred its interest in Corporate Flight LLC, including the corporateaircraft and associated debt initially contributed to the Operating Partnershipat the time of the initial public offering, back to Mr. Holloway.  Corporate Flight LLC had a net deficit of$171,000, net of $180,000 tax expense related to the taxable gain upon thetransfer to Mr. Holloway, on the date it was transferred back to Mr. Holloway.This transfer was accounted for as a capital contribution and recorded as an$87,000 increase to additional paid-in capital and an $84,000 increase tominority interest on the March 31, 2005 consolidated balance sheet.

 

**9. Commitments and Contingencies**

 

As of March 31, 2005, we had agreementsto acquire four student housing properties and an undeveloped parcel of landfor an aggregate purchase price of $88.4 million and had placed depositsrelated to such acquisitions totaling $0.5 million.

 

In connection with finalizing the agreementswith the DoD for the Company’s military housing projects, the Company hascommitted to contribute the following aggregate amounts as of March 31,2005 (in thousands):

 
| 2006                |   | $      | 2,000  |   |
|---------------------|--------|--------|--------|--------|
| 2007                |   | 5,900  |   |
| 2011 and thereafter |   | 11,600 |   |
| Total               |   | $      | 19,500 |   |

 

In connection with the development,management, construction, and renovation agreements for certain of the militaryhousing projects, the Company guarantees the completion of its obligationsunder the agreements. The guarantees require the Company to fund any costs inexcess of the amounts budgeted in the underlying development, management,construction, and renovation agreements.

 

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Management believes that these guarantees will not have a materialadverse impact on the Company’s financial position or results of operations.

 

The Company is subject to routine litigation,claims and administrative proceedings arising in the ordinary course ofbusiness. Management believes that the disposition of these matters will nothave a material adverse impact on the Company’s financial position or resultsof operations.

 

The Company has entered into employmentagreements with three of its executive officers. Each employment agreement isfor an initial three-year term beginning in November 2004 and provides forbase salaries aggregating $975,000 in each of the three years. The basesalaries will be increased annually effective January 1 of each year by aminimum amount equal to at least the percentage increase in the Consumer PriceIndex.

 

Under the provisions of FIN 45, *“Guarantor’s Accounting and Disclosure Requirementsfor Guarantees, Including Indirect Guarantees of Indebtedness of Others aninterpretation of FASB Statements No. 5, 57, and 107 and rescission ofFASB Interpretation No. 34,”* a guarantor is to recognize, atthe inception of a guarantee, a liability for the fair value of the obligationundertaken by issuing the guarantee. The Company enters into indemnificationagreements in the ordinary course of business that are subject to theprovisions of FIN 45. Under these agreements, the Company indemnifies, holdsharmless, and agrees to reimburse the indemnified party for losses suffered orincurred by the indemnified party. The maximum potential amount of futurepayments the Company could be required to make under these indemnificationagreements is unlimited. The Company believes the estimated fair value of theseagreements is immaterial. Accordingly, there were no liabilities recorded forthese agreements as of March 31, 2005 and December 31, 2004.

 

**10. Segment Reporting**

 

The Company is managed as individual entitiesthat comprise two reportable segments: (1) student housing, and (2) militaryhousing. The Company’s management evaluates each segment’s performance basedupon net income. The accounting policies of the reportable segments are thesame as those described in the summary of significant accounting policies.  Corporate includes the activities of certaindepartments from a corporate level, which includes personnel that service GMHCommunities Trust as a whole and support our overall operations.

 
| ** **                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **2005 (Company)**                    | ** ** | **2004 (Predecessor)** | ** ** |
| ** **                                               | ** ** | **Student  Housing**                  | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total** | ** ** | **Student  Housing** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| ** **                                               | ** ** | **(in thousands)**                    | ** ** |
| **Revenue:**                                             |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent and  other property income                          |       | $                                     | 25,780     |   | $ | — |   | $ | 61 |   | $ | 25,841 |   | $ | — |   | $ | — |   | $ | 134 |   | $ | 134 |   |
| Expense  reimbursements:                                 |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related  party                                           |       | 186                                   |       | 8,466 |   | 88 |   | 8,740 |   | 728 |   | 955 |   | 48 |   | 1,731 |   |
| Third party                                              |       | 1,274                                 |       | — |   | — |   | 1,274 |   | 1,341 |   | — |   | — |   | 1,341 |   |
| Management  fees:                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related  party                                           |       | 197                                   |       | 1,670 |   | — |   | 1,867 |   | 373 |   | 508 |   | — |   | 881 |   |
| Third party                                              |       | 640                                   |       | — |   | — |   | 640 |   | 688 |   | 325 |   |   |   | 1,013 |   |
| Other fee  income-related party                          |       | —                                |       | 3,661 |   | 70 |   | 3,731 |   | — |   | — |   | — |   | — |   |
| Other income                                             |       | 53                                    |       | 24 |   | 34 |   | 111 |   | 43 |   | 30 |   | 144 |   | 217 |   |
| Total  revenue                                           |       | 28,130                                |       | 13,821 |   | 253 |   | 42,204 |   | 3,173 |   | 1,818 |   | 326 |   | 5,317 |   |
| **Operating  Expenses:**                                 |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property  operating expenses                             |       | 9,140                                 |       | 1,553 |   | — |   | 10,693 |   | 1,273 |   | 1,199 |   | — |   | 2,472 |   |
| Reimbursed  expenses                                     |       | 1,460                                 |       | 8,466 |   | 88 |   | 10,014 |   | 2,069 |   | 955 |   | 48 |   | 3,072 |   |
| Real estate  taxes                                       |       | 2,007                                 |       | — |   | — |   | 2,007 |   | — |   | — |   | 21 |   | 21 |   |
| Administrative  expenses                                 |       | —                                |       | — |   | 2,933 |   | 2,933 |   | — |   | — |   | 225 |   | 225 |   |
| Depreciation  and amortization                           |       | 6,566                                 |       | — |   | 208 |   | 6,774 |   | 6 |   | — |   | 199 |   | 205 |   |
| Interest                                                 |       | 5,162                                 |       | — |   | 245 |   | 5,407 |   | — |   | — |   | 89 |   | 89 |   |
| Total  operating expenses                                |       | 24,335                                |       | 10,019 |   | 3,474 |   | 37,828 |   | 3,348 |   | 2,154 |   | 582 |   | 6,084 |   |
| Income  (loss) before minority interest and income taxes |       | 3,795                                 |       | 3,802 |   | (3,221 | ) | 4,376 |   | (175 | ) | (336 | ) | (256 | ) | (767 | ) |
| Minority  interest                                       |       | 1,867                                 |       | 1,494 |   | (1,588 | ) | 1,773 |   | — |   | — |   | — |   | — |   |
| Income  (loss) before income taxes                       |       | 1,928                                 |       | 2,308 |   | (1,633 | ) | 2,603 |   | (175 | ) | (336 | ) | (256 | ) | (767 | ) |
| Income taxes                                             |       | 11                                    |       | 774 |   | — |   | 785 |   | — |   | — |   | — |   | — |   |
| **Net  income (loss)**                                   |       | $                                     | 1,917      |   | $ | 1,534 |   | $ | (1,633 | ) | $ | 1,818 |   | $ | (175 | ) | $ | (336 | ) | $ | (256 | ) | $ | (767 | ) |

 

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| ** **                         | ** ** | **Student  Housing** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|------------------------------------|------------|----------------------|------------|-----------------------|------------|---------------|------------|-----------|------------|
| ** **                         | ** ** | **(in thousands)**   | ** ** |
| **As of March 31,  2005:**    |       |                 |       |                  |       |          |       |      |       |
| Total assets                       |       | $                    | 826,006    |                  | $          | 60,497        |       | $         | 11,525     |   | $ | 898,028 |   |
| **As of December 31,  2004:** |       |                 |       |                  |       |          |       |      |       |
| Total assets                       |       | $                    | 663,980    |                  | $          | 57,856        |       | $         | 51,225     |   | $ | 773,061 |   |
|                                    |            |                      |            |                       |            |               |            |           |            |  |  |  |  |  |  |  |  |

 

**11. Earnings Per Common Share**

 

The following table details the number ofshares and net income used to calculate basic and diluted earnings per sharefor the three months ended March 31, 2005 (in thousands, except share andper share amounts):

 
| ** **                                                      | ** ** | **Basic**  | ** ** | **Diluted** | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|-------------|------------|
|                                                            |       |       |       |        |       |
| Net income                                                      |       | $          | 1,818      |        | $          | 1,818 |   |
| Minority  interest                                              |       | —     |       | 1,773       |       |
| Income  available to common shareholders                        |       | $          | 1,818      |        | $          | 3,591 |   |
|                                                            |       |       |       |        |       |
| Weighted-average  common shares outstanding                     |       | 30,350,989 |       | 30,350,989  |       |
| Warrant                                                         |       | —     |       | 1,729,878   |       |
| Units of  limited partnership held by minority interest holders |       | —     |       | 29,560,822  |       |
| Restricted  common shares                                       |       | —     |       | 338         |       |
| Total  weighted-average shares outstanding                      |       | 30,350,989 |       | 61,642,027  |       |
| Earnings per  common share                                      |       | $          | 0.06       |        | $          | 0.06 |   |

 

On March 15, 2005, the Company declareda quarterly dividend of $0.2275 per outstanding common share. The dividend of$6.9 million was paid in April 2005 to common shareholders of recordon March 30, 2005.

 

**12. Acquisition of Real Estate Investments**

 

During the year ended December 31, 2004and the three months ended March 31, 2005, the Company acquired 30 andeight student housing properties, respectively, for an aggregate acquisitioncost of $807.1 million.  The results of operations for each of theacquired properties have been included in our statements of operations from therespective purchase dates.  All pro forma financial information presentedwithin this footnote is not necessarily indicative of the results whichactually would have occurred if the purchases had been consummated on January 1,2004, nor does the pro forma information purport to represent the results ofoperations for future periods.

 

The following unaudited pro forma financialinformation for the three-month periods ended March 31, 2005 and 2004gives effect to the acquisition of the 38 student housing properties as if thetransactions had occurred on January 1, 2004 (in thousands):

 
| ** **            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------|------------|----------------------------------------|------------|
| ** **            | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                  |       |                                   |       |   |   |
| Pro forma  revenue    |       | $                                      | 27,119     |   | $ | 26,120 |   |
| Pro forma  net income |       | 1,942                                  |       | 1,997 |   |
|                       |            |                                        |            |  |  |  |  |

 

**13. Subsequent Events**

 

In April 2005, we acquired one studenthousing property, containing 183 units and 370 beds, for a purchase price of$28.0 million. This acquisition was partially financed with the assumption of a$19.0 million loan secured by the property bearing interest at a fixed rate of5.193%.

 

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**Item 2.****                                   Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

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

 

*In connection withthe formation transactions completed prior to and simultaneously withcompletion of our initial public offering, the interests in the GMH PredecessorEntities were contributed to our operating partnership as described in Note 1to the financial statements included in this report.  We have describedour operations in this report as if the historical operations of ourpredecessor entities were conducted by us. The following discussion andanalysis should be read in conjunction with the financial statements and notesthereto of GMH Communities Trust and the GMH Predecessor Entities appearing in Part I,Item 1of this report.*

 

**Overview**

 

We are a self-advised, self-managed,specialty housing company that focuses on providing housing to college anduniversity students residing off-campus and to members of the U.S. military andtheir families. Through our operating partnership, we own and operate ourstudent housing properties and own interests in joint ventures that own ourmilitary housing privatization projects. Additionally, through our taxable REITsubsidiaries, we provide development, construction, renovation and managementservices to our military housing privatization projects, and propertymanagement services to certain third party owners of student housingproperties, including colleges, universities, and other private owners, as wellas certain non-customary services for our student housing properties. In orderto comply with the applicable requirements under the REIT provisions of theInternal Revenue Code, we must limit the operations of our taxable REITsubsidiaries so that securities issued to us by our taxable REIT subsidiariesdo not represent more than 20% of our total assets as of the close of anyquarter in our taxable year and so that dividends from our taxable REITsubsidiaries, together with our other non-qualifying gross income, do notexceed 25% of our gross income for any taxable year.

 

As a result of the various transactions andacquisitions completed in anticipation of, in connection with and subsequent toour initial public offering in November 2004, we expect our future resultsof operations to include significantly higher revenues and expenses than thosereflected in our predecessor entity financial statements.

 

Currently, our operations are managed withintwo operating segments: (1) student housing and (2) military housing.This structure provides an effective platform for maximizing market penetrationand optimizing operating economies of scale. In addition, we separately reportthe activities of certain departments from a corporate level, which includespersonnel that service GMH Communities Trust as a whole and support our overalloperations.

 

*Student Housing*

 

The student housing segment acquires, ownsand manages premiere off-campus student housing properties strategicallylocated near college or university campuses throughout the United States. SinceJuly 2004, our rental revenue has increased substantially as a result ofour acquisition of a total of 38 properties as of March 31, 2005. While wemanage the properties we own, we do not recognize any fee income from their management.Instead, the rent payments we receive as a result of our ownership of theseproperties are reflected in our revenue. Additionally, operating expenses, realestate taxes and depreciation and amortization have increased as a result ofthese acquisitions. Further, interest expense has increased as a result of debtassumed or new debt obtained.

 

Prior to 2004, revenues generated by ourstudent housing segment related primarily to several types of fee income weearned by managing properties for related parties and third parties. We earnmanagement fees as a percentage of cash receipts or gross rental revenuesgenerated by the managed properties, or as a fixed monthly amount, according tothe management agreements for the properties we manage. We also have theability to earn incentive management fees by achieving specified property-levelperformance criteria for certain properties we manage for third parties. Inaddition, we earn asset management fees, which are a fixed annual amount, forcertain managed properties owned by related 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 feeincome revenue and operating expense reimbursements from the properties that wemanage for others.

 

During the three months ended March 31,2005, we acquired eight student housing properties for an aggregate acquisitioncost of approximately $172.7 million. The properties are located near six colleges and universities in sixstates and contain an aggregate of 1,607 units and 4,795 beds.  More specifically, these propertyacquisitions included the following:

 

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•      two studenthousing properties, WillowTree Apartments and WillowTree Towers, located in AnnArbor, Michigan and serving the University of Michigan. WillowTree Apartmentscontains 312 units/572 beds, and WillowTree Towers contains 163 units and 283beds.  The properties were acquired on January 6,2005 for an aggregate acquisition cost of $33.5 million, including theassumption of $24.2 million of indebtedness;

 

•      a studenthousing property, The Verge (previously known as Jefferson Commons), located inSacramento, California and serving the California State University.  The property contains 288 units and 792 beds,and was acquired on March 14, 2005 for an aggregate acquisition cost of$51.7 million, including the placement of approximately $31.4 million in newfixed-rate debt;

 

•      a portfolio ofthree student housing properties: The View, located in Lincoln, Nebraska andserving the University of Nebraska; The Enclave, located in Bowling Green, Ohioand serving Bowling Green State University; and The Ridge, located inMorgantown, West Virginia and serving West Virginia University.  The properties contain an aggregate of 444units and1,712 beds and were acquired for an aggregate acquisition cost of$49.0 million, including the placement of approximately $9.2 million of newvariable- rate mortgage debt on The View, and the assumption of approximately$26.5 million of existing fixed-rate mortgage debt on The Enclave and TheRidge. The View was acquired on March 4, 2005 and The Enclave and TheRidge were acquired on March 16, 2005; and

 

•      two studenthousing properties, State College Park and Nittany Crossing, both located inState College, Pennsylvania and serving the Pennsylvania State University.  The properties contain an aggregate of 400units and 1,436 beds and were acquired on March 22, 2005 for an aggregateacquisition price of approximately $38.6 million. Gary M. Holloway, Sr.,four other employees of the Company, including two executive officers, and anemployee of an entity owned by Mr. Holloway, held an ownership interestthese properties.  In connection withthese acquisitions, the Company paid $36.6 million of cash, and issued a totalof 138,023 units of limited partnership interest in our operating partnershipto Mr. Holloway and these individuals with an aggregate fair market valueof $1.6 million.

 

In addition tothese student housing property acquisitions, on February 24, 2005, wecompleted the refinancing of a total of $113.7 million of variable-rateindebtedness with respect to seven student housing properties. In connectionwith the refinancing, we repaid approximately $20.4 million of principal of thevariable-rate indebtedness, and converted the remaining $93.3 million ofvariable-rate mortgage debt on the properties to an equal amount of fixed-ratedebt with interest rates ranging from 4.24% to 4.7%, and maturity terms rangingfrom five to seven years.

 

As of March 31, 2005, with regard to ourstudent housing segment, we:

 

•      owned 38student housing properties containing a total of 23,880 beds; and

 

•      managed, orprovided management consulting services for, a total of 23 student housingproperties owned by others, containing a total of 5,187 units and 14,828 beds.Specifically, we provided management consulting services with respect to fiveof these properties to GMH Capital Partners Asset Services, LP, an entitywholly-owned by Gary M. Holloway, Sr.

 

After the end of the first quarter, weacquired an additional student housing property in April 2005, referred toas the GrandMarc at Seven Corners.  Thisproperty is located in Minneapolis, Minnesota, serves the University ofMinnesota, and contains 183 units and 370 beds. During the remainder of 2005,we expect to continue to acquire additional student housing properties that arelocated in the Company’s targeted markets and that meet management’sunderwriting criteria for creating long-term growth potential.  The timing of these acquisitions will bedependent upon various factors, including the ability to complete satisfactorydue diligence, obtain appropriate financing on the properties and theavailability of capital.

 

*Military Housing*

 

Our military housing segment develops,constructs, renovates and manages military housing privatization projects inwhich we acquire interests. Our military housing segment began generatingrevenue in the fourth quarter of 2003 with the initiation of our Fort Carsonand Fort Stewart and Hunter Army Airfield projects. Revenue grew throughout2004 with the addition of various other projects. Revenue from our militaryhousing segment is comprised primarily of fee income for providing development,construction/renovation and management services to our military housingprivatization projects and, to a lesser extent, from returns on the equity weinvest in the projects. In addition, we also

 

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receive expense reimbursements, consisting primarily of payroll andrelated expenses, closing costs and transition costs we incur for the projectin the 30 to 90-day period preceding the initiation of our management of theproject. Typically, at the time we initiate management on a project, theproject reimburses us for these amounts from the proceeds of the debt issued bythe project to finance its operations.

 

As of March 31, 2005, with regard to ourmilitary housing segment:

 

•      the FortEustis/Fort Story military housing privatization project obtained permanentfinancing.  This project covers two Armybases located in Virginia, and has a six-year initial development period withestimated project costs of $167.5 million. The initial development period for this project covers the newconstruction and/or major renovation of more than 1,100 end-state housingunits;

 

•      we earned feesfor providing development, construction/renovation and management services tosix military housing privatization projects currently in operation,encompassing 16 military bases totaling 12,580 end-state housing units; and

 

•      we ownedinterests in the joint ventures that own the six military housing projectscurrently in operation.

 

In addition, as of May 6, 2005, we hadbids outstanding on an additional three military housing privatization projectsthat are pending award.  These threeprojects will cover an estimated 5,800 end-state housing units in the aggregatewhen awarded.  The DoD is expected toannounce the winners of final award for these projects during the secondquarter of 2005.

 

With regard to trends and uncertainties inthe military housing market, management is currently awaiting developmentsrelating to the base realignment and closure (BRAC) regulations under theDefense Base Closure and Realignment Act of 1990, as amended.  Under these regulations, the federalgovernment has previously undertaken four rounds of BRAC beginning in 1988, andagain in 1991, 1993 and 1995. The fifth round of BRAC was initiated in 2004 andhas been targeted for completion in the fourth quarter of 2005, when the finallist of additional bases recommended for realignment or closure is expected tobecome effective.  BRAC law sets out anapproximately six-month process that includes specific dates for governmentaction and the creation of an independent commission, referred to as the BRACcommission. A detailed description of this process follows:

 

•                  theSecretary of Defense issues a list of identified bases that are recommended forclosure or realignment;

•                  theBRAC commission and various congressional defense committees then review theinitial recommendations over the next several months. Upon conclusion of thisreview, the BRAC commission then transmits a report to the President thatcontains its findings and conclusions of the initial recommendations;

•                  thePresident then has approximately one month to transmit back to the BRACcommission and to Congress a report containing the President’s approval ordisapproval of the BRAC commission’s recommendations.   If the President approves therecommendations, then they generally become binding after 45 “legislative”days, unless Congress enacts joint resolution of disapproval. If the Presidentdisapproves the BRAC commission’s initial recommendations, then the commissionhas approximately one month to re-submit a revised set of recommendations tothe President; and

•                  thePresident must approve of the revised recommendations and transmit approval toCongress by a certain date or the process ends. The final recommendations generally become binding after 45 “legislative”days, unless Congress enacts joint resolution of disapproval.

 

By May 13, 2005, the Secretary ofDefense is expected to issue the DoD’s list of military bases that arerecommended for closure and realignment.  As a result of the review process describedabove, however, the initial list of bases recommended for closure andrealignment may be different than the final list that is ultimately approved bythe President.  Under the currenttimeline published by the DoD, the President is expected to approve the finallist of bases identified for closure or realignment by early November 2005.  Although management anticipates that certainof the Company’s awarded bases or projects may appear on the DoD’s initial listof base closure and realignment recommendations, it cannot predict with anycertainty the potential effects that such announcements may have with regard tothe military housing segment due to changes that may occur to the initial listof bases recommended for closure, and as a result of the positive impact that therecommendations may have on increasing the number of housing units covered byour current military housing projects. Management will continue to monitor the effect of the BRAC announcementthroughout 2005.

 

*Corporate*

 

In February 2005, we sold our interestsin the entity that owned our corporate aircraft to Gary M. Holloway, Sr.,our chairman, president and chief executive officer, which resulted in thetransfer of an aggregate of approximately $4.2 million of indebtedness on thecorporate aircraft back to Mr. Holloway.

 

**Critical Accounting Policies**

 

Management’s Discussion and Analysis ofFinancial Condition and Results of Operations discusses the Company’sconsolidated financial statements and the GMH Predecessor Entities’ combinedfinancial statements, which have been prepared in accordance with U.S.generally accepted accounting principles. The preparation of these financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and the disclosure of contingentliabilities at the date of the financial

 

18

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statements and the reported amounts of revenues and expenses during thereporting period. 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 policies require significantjudgments and estimates on our part in preparing the consolidated financialstatements of the Company and the combined financial statements of the GMHPredecessor Entities. Changes in these judgments and estimates could have amaterial effect on these financial statements.

 

***Revenue Recognition***

 

*Student Housing*.Student housing revenue includes rental revenue and other property income,standard and incentive management fees, asset management fees andreimbursements of certain operating expenses. These sources of revenue aredescribed in more detail below:

 

•      we recognizestudent housing rental revenue when due over the lease terms, which are generally12 months or less;

 

•      standardmanagement fees are based on a percentage of monthly cash receipts or grossmonthly rental and other revenues generated by the properties managed forothers. We recognize these fees when cash is received by the property or whenrevenue is earned by the managed property, depending upon whether themanagement agreement relating to a student housing property calls for cashversus accrual revenue recognition;

 

•      we earnincentive management fees as a result of the achievement of certain operatingperformance criteria over a specified period by certain managed properties,including targeted annual debt service coverage ratios, and recognize thesefees at the amount that would be due under the contract if the contract wasterminated on the balance sheet date;

 

•      assetmanagement fees are based on a percentage of the gross carrying value ofcertain properties managed for related parties, and we recognize these feeswhen earned in accordance with the respective management agreements; and

 

•      expensereimbursements are comprised primarily of salary and related costs of ouremployees working at certain properties we manage for others, the cost of whichis reimbursed by the owners of the related properties. We accrue operatingexpense reimbursements as the related expenses are incurred.

 

*Military Housing*.  We earn military housing revenues byproviding services to our military housing projects which include thefollowing:

 

•      Standardmanagement fees are based on a percentage of revenue generated by the militaryhousing projects from the basic allowance for housing provided by thegovernment to service members, referred to as BAH, are recognized when therevenue is earned by the military housing projects. Incentive management feesare based upon the satisfaction of certain criteria including, among otherthings, satisfying designated benchmarks relating to emergency work orderresponse, occupancy rates, home turnover and resident satisfaction surveys.Incentive management fees are recognized when the various criteria stipulatedin the management contract have been satisfied.

 

•      Standard andincentive development and construction/renovation fees are based on apercentage of development and construction/renovation costs incurred by themilitary housing projects including hard and soft costs and financing costs,are recognized on a monthly basis as the costs are incurred by the militaryhousing projects. Incentive development and construction/renovation fees basedupon the satisfaction of certain criteria including, among other things,completing a number of housing units according to schedule, achieving specificsafety records and implementing small business or minority subcontractingplans. Incentive development and construction/renovation fees are recognizedwhen the various criteria stipulated in the contract have been satisfied.

 

•      Revenues onfixed-price 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 currently provided for in its entirety.

 

•      Businessdevelopment fees are earned from companies with which we have relationships inrecognition of business development efforts and expenses incurred by us inconnection with pursuing military housing projects. The fees consist of (i) abase fee, which is a fee paid to the Company in consideration of the Company’songoing pursuit of additional projects,

 

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and paid regardless of whether a project isawarded, and (ii) an incentive fee, which is paid over the course of anawarded project based on a percentage of certain development costs incurred bythe project.  The base fees arerecognized on a straight-line basis over the term of the related business developmentagreement.  The incentive fees arerecognized as the related costs are incurred by the respective military housingprojects.

 

•      Preferredreturns are earned on our investments in the military housing projects.  The preferred returns are based on a fixedpercentage of our investment in the military housing projects and arerecognized as accrued at the rates specified in the agreements, subject toprojected availability of funds in the underlying project.  Accrued preferred returns are periodically evaluatedfor collectibility.

 

Deferred costs are subject to estimation andjudgment. Management makes determinations as to which costs are eligible forreimbursement and at what level they will be reimbursed. Management considersvarious factors in making these estimates and judgments, including the terms ofthe specific contract and historical experience as to which costs arerecoverable. Costs that are not probable of recovery are expensed.

 

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

 

We carry real estate investments andcorporate assets at cost, net of accumulated depreciation. Cost for acquiredassets includes the purchase price and closing costs. We allocate the cost ofreal estate investments to net tangible and identified intangible assets basedon relative fair values in accordance with Statement of Financial AccountingStandards No. 141 (“SFAS 141”), *BusinessCombinations*. We base fair value estimates on information that weobtain from a number of sources, including our due diligence, marketing andleasing activities, independent appraisals that may be obtained in connectionwith the acquisition or financing of the respective property and other marketdata.

 

The value of in-place leases is based on thedifference between (i) the property valued with existing in-place leasesadjusted, and (ii) the property valued as if vacant. As lease termstypically are 12 months or less, rates on in-place leases generallyapproximate market rental rates. Factors that we consider in the valuation ofin-place leases include an estimate of incremental carrying costs during theexpected lease-up periods considering current market conditions, and the natureof the tenancy. We amortize the value of in-place leases to expense over theremaining term of the respective leases.

 

Purchase prices of student housing propertiesto be acquired are not expected to be allocated to tenant relationshipsconsidering the terms of the leases and the expected levels of renewals.

 

We expense routine repair and maintenanceexpenditures that do not improve the value of an asset or extend its usefullife, including turnover costs such as cleaning, interior painting andcarpeting of units. We capitalize expenditures that improve the value andextend the useful life of an asset. We compute depreciation using thestraight-line method over the estimated useful lives of the assets, which is40 years for buildings including student housing properties and thecommercial office building, 10 years for the corporate aircraft and threeto five years for residential furniture and appliances.

 

In accordance with Statement of FinancialAccounting Standards No. 144 (“SFAS 144”), *Accounting for the Impairment or Disposal of Long-Lived Assets*,we review long-lived assets, such as real estate investments and purchasedintangibles subject to amortization, for impairment whenever events or changesin circumstances indicate that the carrying amount may not be recoverable.These circumstances may include, but are not limited to, operationalperformance, market conditions and competition from other off-campus propertiesand on-campus housing, legal and environmental concerns, and results ofappraisals or other information obtained as part of a financing or dispositionstrategy. We review recoverability of assets to be held and used through acomparison of the carrying amount of an asset to the estimated undiscountedfuture cash flows expected to be generated by the asset. If the carrying amountof an asset exceeds its estimated future cash flows, we recognize an impairmentcharge in the amount by which the carrying value of the asset exceeds the fairvalue of the asset determined using customary valuation techniques, such as thepresent value of expected future cash flows. Assets to be disposed of would beseparately presented in the balance sheet and reported at the lower of thecarrying amount or fair value less costs to sell, and no longer would bedepreciated.

 

***Allowance for Doubtful Accounts***

 

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

 

We also evaluate the collectibility of feeincome and expense reimbursements generated by the management of studenthousing properties owned by others, and through the provision of development,construction, renovation and management services to our military

 

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housing projects, based upon the individual facts and circumstances ofeach situation and record a reserve for specific amounts, if necessary.Accounts receivable are stated net of the allowance for doubtful accounts.

 

***Notes Payable***

 

We record notes payable that we assume in connectionwith the acquisition of student housing properties at their estimated fairvalue, with the corresponding difference between the estimated fair value andassumed carrying value of the notes payable recorded as an adjustment to thepurchase price of the related property. We determine fair value of assumednotes payable based on various assumptions related to market conditions,including the type, age and location of the acquired property and quotedinterest rates for debt with similar terms.

 

***Minority Interest***

 

Minority interest as initially recorded atthe date of our initial public offering represented the net equity of theOperating Partnership, including the proceeds received from the sale of thewarrant to Vornado, multiplied by the ownership percentage of holders oflimited partnership units in the Operating Partnership other than the Company.The Operating Partnership is obligated to redeem, at the request of a holder,each unit of limited partnership interest for common shares on a one-for-one basis,subject to adjustments for share splits, dividends, recapitalizations orsimilar events. If the minority interest unit holders’ share of a current yearloss would cause the minority interest balance to be less than zero, theminority interest balance will be reported as zero unless there is anobligation of the minority interest holders to fund those losses. Any losses inexcess of the minority interest will be charged against equity. If futureearnings materialize, equity will be credited for all earnings up to the amountof those losses previously absorbed. Distributions to limited partnership unitholders other than the Company are recorded as a reduction to minorityinterest.

 

***Investments in Military Housing Projects***

 

We evaluate each of our investments inmilitary housing projects to determine if the underlying entity is a variableinterest entity (“VIE”) as defined under FASB Financial Interpretation No. 46(as revised) (“FIN 46”). If an entity is deemed to be a VIE pursuant to FIN 46,the entity that absorbs a majority of the expected losses of the VIE is deemedto be the primary beneficiary and must consolidate the VIE. If the entity isnot a VIE, it is evaluated for consolidation based on controlling votinginterests. If we have the majority voting interest with the ability to controloperations and where no approval, veto or other important rights have beengranted to other holders, the entity would be consolidated. We are not theprimary beneficiary of any VIEs, nor do we have controlling voting interests inany of our military housing projects. We record investments in military housingprojects initially at our cost and subsequently adjust them to reflect ourpreferred return, cash contributions and distributions.

 

***Income Taxes***

 

We intend to elect to be taxed as a REIT uponfiling of our tax return for the taxable year ending on December 31, 2004.We will file this return in September 2005 per an extension granted by theIRS. We have elected to treat certain subsidiaries of our operating partnershipas taxable REIT subsidiaries, and may make such elections as to othersubsidiaries in the future. In general, a taxable REIT subsidiary may performreal estate and non-real estate-related business, except for the operation ormanagement of health care facilities or lodging facilities or the provision toany person, under a franchise, license or otherwise, of rights to any brandname under which any lodging facility or health care facility is operated.

 

If we fail to qualify as a REIT in anytaxable year, we will be subject to federal income tax, including anyapplicable alternative minimum tax, on our taxable income at regular corporatetax rates.

 

We have elected to treat GMH MilitaryHousing, LLC and College Park Management TRS, Inc. as taxable REIT subsidiaries.College Park Management TRS, Inc. is a wholly-owned subsidiary of CollegePark Management, LLC (which is a successor through merger to College ParkManagement, Inc., one of the GMH Predecessor Entities). See Note 1 tothe financial statements included in this report.

 

**Results of Operations**

 

Our results of operations represent theoperations of our student housing and military housing operating segments. Thefollowing significant factors affected our results of operations for the threemonths ended March 31, 2005 as compared to the three months ended March 31,2004:

 

•      In November 2004,we completed our initial public offering pursuant to which we sold an aggregateof 30,350,989 common shares and raised an aggregate of $331.7 million in netproceeds.

 

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•      In 2004,subsequent to the formation of the Trust in May 2004, we acquired 30student housing properties containing an aggregate of 5,529 units and 19,085beds for an aggregate acquisition cost of $634.4 million.  During the three months ended March 31,2005, we acquired eight student housing properties with an aggregate of 1,607units and 4,795 beds for an aggregate acquisition cost of approximately $172.7million.  These student housing propertiescontributed $25.8 million of rent and other property revenue and $2.1 millionof net income in the three months ended March 31, 2005.

 

•      The FortStewart and Hunter Army Airfield and Fort Carson military housing projects bothcommenced operations in the fourth quarter of 2003; the Fort Hamilton projectcommenced operations in the second quarter of 2004; the Walter Reed ArmyMedical Center and Fort Detrick military housing project commenced operationsin the third quarter of 2004; and the Fort Eustis/Fort Story (pursuant to aninterim agreement) and the Navy Northeast military housing projects bothcommenced operations in the fourth quarter of 2004.  These military housing projects contributed$11.1 million of revenue in the three months ended March 31, 2005.

 

•      In November 2004,we entered into a $150 million three-year unsecured revolving credit facilitywith a consortium of banks. During the first quarter of 2005, the creditfacility has been used to fund student housing acquisitions, dividend anddistribution payments, and general working capital needs of the Company.

 

The results of operations presented belowreflect the results of operations of the GMH Predecessor Entities for the threemonths ended March 31, 2004, and the results of operations for the Companyfor the three months ended March 31, 2005.

 

***Comparison of theThree Months Ended March 31, 2005***

***to the Three MonthsEnded March 31, 2004***

 
| ** **                                               | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                                               | ** ** | **Student  Housing**                  | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total** | ** ** | **Student  Housing** | ** ** | **Military  Housing** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
| ** **                                               | ** ** | **(in thousands)**                    | ** ** |
| **Revenue:**                                             |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent and  other property income                          |       | $                                     | 25,780     |   | $ | — |   | $ | 61 |   | $ | 25,841 |   | $ | — |   | $ | — |   | $ | 134 |   | $ | 134 |   |
| Expense  reimbursements:                                 |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related party                                            |       | 186                                   |       | 8,466 |   | 88 |   | 8,740 |   | 728 |   | 955 |   | 48 |   | 1,741 |   |
| Third party                                              |       | 1,274                                 |       | — |   | — |   | 1,274 |   | 1,341 |   | — |   | — |   | 1,341 |   |
| Management  fees:                                        |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Related  party                                           |       | 197                                   |       | 1,670 |   | — |   | 1,867 |   | 373 |   | 508 |   | — |   | 881 |   |
| Third party                                              |       | 640                                   |       | — |   | — |   | 640 |   | 688 |   | 325 |   | — |   | 1,013 |   |
| Other fee  income-related party                          |       | —                                |       | 3,661 |   | 70 |   | 3,731 |   | — |   | — |   | — |   | — |   |
| Other income                                             |       | 53                                    |       | 24 |   | 34 |   | 111 |   | 43 |   | 30 |   | 144 |   | 217 |   |
| Total  revenue                                           |       | 28,130                                |       | 13,821 |   | 253 |   | 42,204 |   | 3,173 |   | 1,818 |   | 326 |   | 5,317 |   |
| **Operating  Expenses:**                                 |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Property  operating expenses                             |       | 9,140                                 |       | 1,553 |   | — |   | 10,693 |   | 1,273 |   | 1,199 |   | — |   | 2,472 |   |
| Reimbursed  expenses                                     |       | 1,460                                 |       | 8,466 |   | 88 |   | 10,014 |   | 2,069 |   | 955 |   | 48 |   | 3,072 |   |
| Real estate  taxes                                       |       | 2,007                                 |       | — |   | — |   | 2,007 |   | — |   | — |   | 21 |   | 21 |   |
| Administrative  expenses                                 |       | —                                |       | — |   | 2,933 |   | 2,933 |   | — |   | — |   | 225 |   | 225 |   |
| Depreciation  and amortization                           |       | 6,566                                 |       | — |   | 208 |   | 6,774 |   | 6 |   | — |   | 199 |   | 205 |   |
| Interest                                                 |       | 5,162                                 |       | — |   | 245 |   | 5,407 |   | — |   | — |   | 89 |   | 89 |   |
| Total  operating expenses                                |       | 24,335                                |       | 10,019 |   | 3,474 |   | 37,828 |   | 3,348 |   | 2,154 |   | 582 |   | 6,084 |   |
| Income  (loss) before minority interest and income taxes |       | 3,795                                 |       | 3,802 |   | (3,221 | ) | 4,376 |   | (175 | ) | (336 | ) | (256 | ) | (767 | ) |
| Minority  interest                                       |       | 1,867                                 |       | 1,494 |   | (1,588 | ) | 1,773 |   | — |   | — |   | — |   | — |   |
| Income  (loss) before income taxes                       |       | 1,928                                 |       | 2,308 |   | (1,633 | ) | 2,603 |   | (175 | ) | (336 | ) | (256 | ) | (767 | ) |
| Income taxes                                             |       | 11                                    |       | 774 |   | — |   | 785 |   | — |   | — |   | — |   | — |   |
| **Net  income (loss)**                                   |       | $                                     | 1,917      |   | $ | 1,534 |   | $ | (1,633 | ) | $ | 1,818 |   | $ | (175 | ) | $ | (336 | ) | $ | (256 | ) | $ | (767 | ) |

 

***Student Housing***

 

*Revenue*.Of the 38 properties owned as of March 31, 2005, we acquired 30 of thestudent housing properties during the six months ended December 31, 2004and the remaining eight properties during the three months ended March 31,2005. Rent from these properties totaled $25.8 million for the three monthsended March 31, 2005.

 

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Expense reimbursements from related partiesdecreased to $0.2 million in 2005 from $0.7 million in 2004, primarily due tothe Company’s acquisition of two student housing properties from relatedparties in March 2005, which were managed by the Company prior topurchase.  In addition, we ceasedmanaging one student housing property in March 2005 as it was sold to athird party.  Expense reimbursements fromthird parties remained unchanged at $1.3 million in 2005 and 2004.  We expect expense reimbursements, whichrelate to properties we manage but do not own, to become less significant asrental revenue earned from the properties that we do own continues to increase.

 

Management fee income from related partiesdecreased to $0.2 million in 2005, consisting of $0.1 million of standardmanagement fees and $0.1 million of asset management fees, as compared to $0.4million in 2004, consisting of $0.3 million of the standard management fees and$0.1 million of asset management fees. The decrease in standard management feesand asset management fees was primarily due to the Company’s acquisition of twostudent housing properties from related parties in March 2005 that weremanaged by the Company prior to purchase. In addition, in March 2005 we ceased providing management servicesrelating to an additional student housing property owned by a third party dueto the sale of the property by the third party. Management fee income from third parties decreased slightly to $0.6million in 2005 from $0.7 million in 2004, primarily due to a decrease inrevenue and cash receipts at the managed properties.

 

For the remainder of 2005, we expectmanagement and asset management fees to contribute less significantly to totalrevenues in the future given the expected growth in rental revenue from theoperations of properties we own.

 

*Expenses*. Property operating expenses increased to $9.1 million in 2005 from $1.3 millionin 2004, primarily due to expenses attributable to the 38 properties acquiredfrom July 2004 through March 2005.

 

Reimbursed expenses decreased to $1.5 millionin 2005 from $2.1 million in 2004, primarily due to the Company’s acquisitionof the two student housing properties from related parties in March 2005that were managed by the Company prior to our purchase.  In addition, in March 2005 we ceasedproviding management services relating to an additional student housingproperty owned by a third party due to the sale of the property by the thirdparty.

 

Real estate taxes amounted to $2.0 million in2005 due to the acquisition of 38 properties from July 2004 through March 2005.

 

Depreciation and amortization increased to$6.6 million in 2005 from less than $0.1 million in 2004 as a result ofacquiring 38 properties for an aggregate acquisition cost of $807.1 millionfrom July 2004 through March 2005. The $6.6 million in 2005 iscomprised of $4.2 million of depreciation and $2.4 million of lease intangibleamortization

 

Interest expense amounted to $5.2 million in2005 as a result of the issuance and assumption of $499.2 million of debt,including borrowing under our line of credit, in connection with theacquisition of 38 properties from July 2004 through March 2005. In2005, the Company borrowed $105.0 million and repaid $45.0 million under theline of credit.  We expect interest expense to increase significantly inthe future as we incur additional debt to fund acquisitions.

 

Income taxes amounted to less than $0.1 millionin 2005 as a result of taxable income in the Company’s taxable REIT subsidiary.

 

***Military Housing***

 

*Revenue*.Expense reimbursements totaled $8.5 million in 2005 compared to$1.0 million in 2004. Of the 2005 amount, $2.1 million related to theFort Stewart and Hunter Army Airfield project and $2.4 million related tothe Fort Carson project, both of which commenced operations in the fourthquarter of 2003; $0.1 million related to the Fort Hamilton project, whichcommenced operations in the second quarter of 2004; $0.3 million relatedto the Walter Reed Army Medical Center and Fort Detrick project, whichcommenced operations in the third quarter of 2004; $0.6 million related tothe Fort Eustis/Fort Story project and $3.0 million related to the NavyNortheast project, both of which commenced operations in the fourth quarter of2004.

 

Management fees from related parties totaled$1.7 million in 2005 compared to $0.5 million in 2004.  Of the 2005amount, $0.2 million related to the Fort Stewart and Hunter Army Airfieldproject and $0.4 million related to the Fort Carson project, both of whichcommenced operations in the fourth quarter of 2003, $0.1 million related to theFort Hamilton project, which commenced operations in the second quarter of2004, $0.1 million related to the Walter Reed Army Medical Center and FortDetrick project which commenced operations in the third quarter of 2004, $0.1million related to the Fort Eustis/Fort Story project and $0.8 millionrelated to the Navy Northeast project, both of which commenced operations inthe fourth quarter of 2004.

 

Other fee income totaled $3.7 million in2005. Of this amount, $2.9 million related to development andconstruction/renovation fees earned from related parties, $0.3 million relatedto business development fees, and $0.5 million related to preferred returns onthe military housing investments. Of the development andconstruction/renovation fees, $1.0 million related to the Fort Stewart andHunter Army Airfield project, which commenced operations in the fourth quarterof 2003, $0.3 million related to the Fort Hamilton project, which commencedoperations in June 2004, $0.2 million related to the Walter Reed ArmyMedical Center and

 

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Fort Detrick project which commenced operations in July 2004, $0.2million related to the Fort Eustis/Fort Story project and $1.2 millionrelated to the Navy Northeast project, both of which commenced operations inthe fourth quarter of 2004.  Of thepreferred returns, $0.2 million related to the Navy Northeast investment and$0.3 million related to the Fort Carson investment.  No other fee income was earned in thecomparable period of 2004.

 

*Expenses*. Property operating expenses include costs related to operating the militaryhousing segment of our business. These costs increased to $1.6 million in 2005from $1.2 million in 2004, primarily due to staffing increases related toexpansion of the planning, execution and management teams to address the needsof the military housing segment.

 

Reimbursed expenses increased to $8.5 millionin 2005 from $1.0 million in 2004 primarily due to payroll expenses for all ofthe six military housing projects in operation as of March 31, 2005;closing costs and transition expenses for the Fort Hamilton, Walter Reed, FortDetrick, Fort Eustis/Fort Story, and Navy Northeast projects; and expensesrelating to the Fort Carson project’s management and renovation contracts.

 

***Corporate***

 

Rental revenue and expense reimbursements,which were recognized with respect to the portions of our corporateheadquarters leased to entities affiliated with Gary M. Holloway, Sr., andpayroll and related expenses reimbursed by entities affiliated with Mr.Holloway for the provision of common services, remained unchanged at $0.2million in 2005 and 2004.

 

Other income, consisting primarily ofinterest income and fees earned from entities affiliated with Gary M. Holloway,Sr. for use of our corporate aircraft, remained consistent at $0.1 million in2005 and 2004.

 

Administrative expenses, primarily relatingto management of our corporate office, accounting, legal, human resources andinformation technology, and corporate aircraft, increased to $2.9 million in2005 from $0.2 million in 2004 primarily due to increased staffing andadditional costs incurred in connection with becoming a public company andgrowth in our operating segments**.**

 

Depreciation, relating primarily to ourcorporate headquarters and corporate aircraft, remained unchanged at $0.2million in 2005 and 2004.

 

Interest expense increased slightly to $0.2million in 2005 compared to $0.1 million in 2004.

 

**Liquidity and Capital Resources**

 

Short-term liquidity requirements consistprimarily of funds necessary to pay operating expenses and other costs. Theseexpenses and costs may include (i) recurring maintenance and capitalexpenditures to maintain and lease our properties, (ii) interest expenseand scheduled principal payments on outstanding indebtedness, (iii) realestate taxes and insurance, (iv) corporate salaries, employee benefits andother corporate overhead and administrative expenses and (v) futuredistributions to shareholders and partners of our Operating Partnership. Ourexisting working capital and cash provided by operations, together with amountsavailable to us under our $150.0 million revolving credit facility are expectedto be sufficient to meet our short-term liquidity requirements.   Availability under the credit facility islimited to a borrowing base amount equal to the sum of 60% of the value of anunencumbered asset pool as of the end of the previous quarter (which in noevent may contain fewer than five student housing properties) and 50% of theannualized value of our cash flow from our management of military housingprojects and student housing properties in the previous quarter. The creditfacility was obtained by our Operating Partnership in November 2004, and theTrust serves as guarantor for the credit facility. Advances under the creditfacility bear interest, at the election of the borrower, at a Eurodollar ratebased on LIBOR or a base rate based on the prime rate announced by Bank ofAmerica, N.A., as the administrative agent of the facility, plus an “ApplicableRate,” ranging from 1.50% to 2.00% for Eurodollar rate loans or 0.625% to1.375% for base rate loans. The Applicable Rate is determined by the ratio ofall liabilities to the total asset value of the Company, as defined in thecredit facility. The credit facility also requires that we maintain certaincorporate level financial covenants.

 

As of March 31, 2005, we had availabilityunder the credit facility equal to $150.0 million, of which $60.0 million inborrowings was outstanding, and bearing interest at a Eurodollar rate based on30-day LIBOR of 2.77% and an Applicable Rate of 1.75%, for a total interestrate of 4.52%.  As of April 30, 2005, theinterest rate was 4.68%.  During April2005, we borrowed an additional $15.0 million under the credit facility tofinance acquisitions and to pay the first quarter dividend distribution withrespect to our outstanding common shares and units of limited partnership interestof our Operating Partnership.  Theinterest rate on the $15.0 million was 4.70% as of April 30, 2005. As of March31, 2005 and April 30, 2005, there were no letters of credit outstanding underthe credit facility.

 

Upon payment of our fourth quarter 2004dividend to common shareholders in January 2005, we were in technicalviolation of a covenant under the credit facility that restricted us fromdistributing greater than 95% of our funds from operations per share to ourshareholders. In addition, we were required under the terms of the creditfacility to reduce the aggregate amount of our variable-rate indebtedness belowa maximum threshold of 30% no later than February 8, 2005. We were unableto meet this requirement until February 24, 2005, when we completed arefinancing that replaced variable-rate indebtedness covering seven of ourstudent housing properties with fixed-rate indebtedness. As a result, we weretechnically in default of this variable-rate debt covenant under the facilityfor the period from February 8, 2005 through February 23, 2005. Wedid not receive notice of default with respect to either of these covenantsfrom the lenders under the credit facility, and were permitted to draw $105.0million under the facility on March 10, 2005. On March 23, 2005, werepaid $45.0 million of this balance. On March, 31, 2005, we obtained a formalwaiver from

 

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our lenders with respect to each of these restrictive covenants. Inaddition, we agreed with our lenders that the maximum level of distributionsfrom our funds from operations per common share with respect to the fiscal year2005 will be increased from 95% to 110%. As a result of these waivers, we werein compliance with all applicable financial covenants under the credit facilityas of the end of the first quarter of 2005.

 

We will elect to be treated as a REIT forfederal income tax purposes when we file our tax return relating to the fiscalyear ended December 31, 2004. The tax return will be filed with the IRS inSeptember 2005 pursuant to an extension granted to us in March 2005.As a REIT, we are required to distribute at least 90% of our REIT taxableincome to our shareholders on an annual basis. Therefore, except as discussedbelow, as a general matter, a substantial portion of cash generated by ouroperations will be used to fund distributions to shareholders and holders oflimited partnership interests in our Operating Partnership, and will not beavailable to satisfy our liquidity needs.

 

Future dividends and distributions will bedeclared at the discretion of our board of trustees and will depend on ouractual cash flow, our financial condition, capital requirements, the annualdistribution requirements under the REIT provisions of the Code and other suchfactors as our board of trustees deems relevant. We expect that during most of2005, our cash flow from operations will be insufficient to fund our anticipateddividend distributions. Therefore, we expect to rely on amounts available underour credit facility or through other third party debt financing in order tofund these distributions and other capital needs.  In addition, our board of trustees may chooseto pay a lower distribution in the event we are unable to obtain suchfinancing. Any indebtedness we incur will increase our leverage and decreaseour ability to borrow money for other needs, such as for the acquisition ordevelopment of additional student housing properties or investments relating toadditional military housing projects.

 

As of March 31, 2005, 29 of our studenthousing properties, our corporate headquarters, and other assets wereencumbered by notes payable aggregating $433.8 million and secured by firstliens on the individual assets with an aggregate cost basis of approximately$601.9 million before accumulated depreciation. Our notes payable have a weighted-average interest rate of 4.81% and matureat various dates between August 2005 and August 2014 and require monthlypayments of principal and interest or monthly payments of interest only. Thetable below sets forth for the five succeeding years and thereafter theaggregate annual principal payments of our notes payable and credit facility (inthousands):

 
| 2005                 |   | $       | 9,236   |   |
|----------------------|--------|---------|---------|--------|
| 2006                 |   | 5,188   |    |
| 2007                 |   | 147,960 |    |
| 2008                 |   | 4,708   |    |
| 2009                 |   | 34,076  |    |
| 2010 and  thereafter |   | 292,631 |    |
|                 |   | $       | 493,799 |   |

 

With regard to our military housing projects,we made a $10.6 million equity contribution in November 2004 relating toour Navy Northeast project and have contractually committed to contribute anaggregate of $2.0 million in 2006 to our Fort Hamilton project, $5.9 million in2007 to our Walter Reed Army Medical Center/Fort Detrick project, $8.0 millionin 2011 for our Fort Stewart and Hunter Army Airfield project, and $3.6 millionin 2011 for our Fort Eustis/Fort Story project; and we expect to commit $6.3million in 2011 for our Fort Bliss/White Sands project. These equitycontributions help to fund the development, construction and renovation ofhousing units at these bases during their respective initial developmentperiods. Typically, we are reimbursed for certain payroll expenses relating tothe student housing properties we manage for third parties, for certain costswe incur after we are awarded a military housing project until we enter intoagreements 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, Army and Navy projects require approximately $1.0 million to $7.0million in costs associated with transition and exclusive negotiations,depending on the size of the project. The expenditures typically begin 12months prior to closing the military housing project. Accordingly, these timingdifferences add to our short-term liquidity needs.

 

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If cash flows from any of our military housingprojects are insufficient to meet the coverage ratios or benchmarks entitlingus to receive fee payments, any unpaid fees will accumulate and be subsequentlypaid from operations or upon dissolution of the projects to the extent thatfunds are available and the applicable thresholds are met. If these thresholdsare not met, we will not have access to 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. If cash flow is insufficient, any unpaid equity returns willaccumulate as specified in the applicable project agreement and subsequently bepaid from operations or upon dissolution of the projects to the extent thefunds are available. Based on our current expectations regarding the terms ofthe debt funding for our military projects, we expect that the projects willgenerate sufficient cash flows to fund the reinvestment account and payanticipated equity returns.

 

With regard to our currently owned studenthousing properties, we do not have any short-term capital commitments; however,we will require funds in connection with our anticipated acquisitions ofadditional student housing properties. We intend to fund the equity portion ofthe purchase price for these additional student housing properties by usingfunds from our credit facility or from available cash from operations. Inaddition, we may leverage our existing student housing properties in order tohave cash available to fund the purchase price of additional student housingproperties. Depending upon the size of the Company’s student housingacquisition pipeline and the timing of closings on our properties undercontract and non-binding letter of intent, the amount of cash required to fundplanned student housing acquisitions during 2005 may exceed the maximumcapacity available under our existing credit facility. To date, management hasevaluated various capital raising strategies, including debt and preferredequity.  Capitalizing on our currententerprise value, we are currently pursuing a debt strategy, including arestructuring of our credit facility.

 

Long-term liquidity requirements with respectto our student housing and military housing segments consist primarily ofamounts necessary to fund scheduled debt maturities, renovations and othernon-recurring capital expenditures that need to be made periodically at ourproperties, and the costs associated with acquisitions of student housingproperties and awards or acquisitions of military housing projects that wepursue. Historically, we have satisfied our long-term liquidity requirementsthrough various sources of capital, including existing working capital, cashprovided by operations, long-term mortgage indebtedness, and ownercontributions.  We now expect ourlong-term liquidity requirements to be satisfied primarily through cashgenerated by operations that is not used to fund distributions and theadditional external financing sources discussed above.

 

*Inflation*

 

As a majority of the Company’s studenthousing leases are 12 months or less, rates on in-place leases generallyapproximate market rental rates.  TheCompany believes that inflationary increases in expenses will be significantlyoffset by rent increases upon renewal.  Amajority of the Company’s military housing management fees,construction/renovation fees and business development fees are based on apercentage of revenue or expenses generated by the Company or the militaryhousing projects.  The Company believesthat inflationary increases in expenses will be significantly offset byincreases in revenue.

 

**Item 3.****                                   Quantitativeand Qualitative Disclosure About Market Risk**

 

Given current market conditions, our strategyfavors fixed rate, secured debt over variable rate debt to minimize ourexposure to increases in interest rates. As of March 31, 2005, 73% of theoutstanding principal amount of our notes payable on properties we owned as ofsuch date have fixed interest rates with a weighted-average rate of 4.84%. Theremaining 27% of outstanding principal amount of our notes payable and line ofcredit, as of March 31, 2005, had variable interest rates primarily equalto LIBOR plus 1.75% to 2.25%.

 

Based on our variable rate debt balance as ofMarch 31, 2005, if interest rates were to increase by 1.0%, our interestexpense would increase by approximately $.7 million on an annual basis.

 

As of March 31, 2005, we had$60.0 million in funds drawn from our credit facility, bearing an interestrate at a Eurodollar rate based on a 30-day LIBOR at 2.77% and an applicablerate of 1.75%, for a total interest rate of 4.52%.

 

**Item4.****                              Controls and Procedures**

 

*(a)**                               Evaluationof Disclosure Controls and Procedures. *Ourmanagement, with the participation of our Chief Executive Officer and ChiefFinancial Officer, evaluated the effectiveness of our disclosure controls andprocedures as of the end of the period covered by this report. Based on thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures as of the end of the period coveredby this report have been designed and are functioning effectively to providereasonable assurance that the information required to be disclosed by us inreports filed under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms. We believe that a controls system, no matter how well designed andoperated, cannot provide absolute assurance that the objectives of the controlssystem are met, and no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any,

 

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within a company have been detected.

 

*(b)**                               Changein Internal Control over Financial Reporting. *There have been no changes in our internal control over financialreporting during our most recent fiscal quarter that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

**PART II — OTHER INFORMATION**

 

**Item 1.****                                   LegalProceedings**

 

None.

 

**Item 2.****                                   UnregisteredSales of Equity Securities and Use of Proceeds**

 

None.

 

**Item 3.****                                   DefaultsUpon Senior Securities**

 

None.

 

**Item 4.****                                   Submissionof Matters to a Vote of Security Holders**

 

None.

 

**Item 5.****                                   OtherInformation**

 

None.

 

**Item 6.****                                   Exhibits**

 
| **Exhibit** | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1        |       | Membership Interests Purchase Agreement,  effective as of February 28, 2005, by and between GMH Military Housing,  LLC and Gary M. Holloway, Sr. (Incorporated by reference to the  Registrant’s Current Report on Form 8-K as filed with the Securities and  Exchange Commission on March 1, 2005)                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2        |       | Agreement for Sale of Membership Interests, dated  as of March 22, 2005, by and among, GMH Communities, LP, State College  Intermediate, LLC, Whitehall V-S Real Estate Limited Partnership, Bridge  Street Real Estate Fund 1996, L.P., Stone Street GMH-S Corp., Stone Street  Real Estate Fund 1996, L.P., GH College Park, Inc., Gary M. Holloway, Sr.,  Bruce F. Robinson, Frank Tropea, Joseph M. Coyle, Michael Mayock, Louis  Battagliese, Robert DiGiuseppe, Denise Hubley, David Forrest, Michael Maher,  and Cathy Coyle. (Incorporated by reference to the Registrant’s Current  Report on Form 8-K as filed with the Securities and Exchange Commission  on March 28, 2005) |
| 10.3        |       | Agreement for Sale of Partnership Interests, dated  as of March 22, 2005, by and among, GMH Communities, LP, Nittany  Crossing Intermediate, LLC, Whitehall Street Real Estate Limited Partnership  IX, Bridge Street Real Estate Fund 1998, L.P., W9/JP-M Gen-Par, Inc.,  Stone Street W9/JP-M Corp., Gary M. Holloway, Sr.,  Bruce F. Robinson, Frank Tropea, Joseph M. Coyle, Michael  Mayock, Louis Battagliese, Robert DiGiuseppe, Denise Hubley, David Forrest,  Michael Maher, and Cathy Coyle. (Incorporated by reference to the Registrant’s  Current Report on Form 8-K as filed with the Securities and Exchange  Commission on March 28, 2005)                |
| 10.4        |       | Contribution Agreement, dated as of March 22,  2005, by and among, GMH Communities, LP, Gary M. Holloway, Sr.,  Bruce F. Robinson, Joseph M. Coyle, Robert DiGiuseppe and Denise Hubley,  relating to the interests in WHGMH Realty, L.L.C. (Incorporated by reference  to the Registrant’s Current Report on Form 8-K as filed with the  Securities and Exchange Commission on March 28, 2005)                                                                                                                                                                                                                                                                                     |
| 10.5        |       | Contribution Agreement, dated as of March 22,  2005, by and among, GMH Communities, LP, Gary M. Holloway, Sr.,  Bruce F. Robinson, Joseph M. Coyle, Robert DiGiuseppe and Denise Hubley,  relating to the interests in W9/JP-M Real Estate Limited Partnership.  (Incorporated by reference to the Registrant’s Current Report on Form 8-K  as filed with the Securities and Exchange Commission on March 28, 2005)                                                                                                                                                                                                                                                                 |
| 10.6        |       | Executive Officer Cash Bonus Award Policy.  (Incorporated by reference to the Registrant’s Annual Report on Form 10-K  for the year ended December 31, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 31.1        |       | Certifications of Chief Executive Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended.(furnished herewith)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2        |       | Certifications of Chief Financial Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended. (furnished herewith)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.1        |       | Certifications of Chief Executive Officer  Required by Rule 13a-14(b) of the Securities Exchange Act of 1934,  as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18  of the Securities Exchange Act of 1934, as amended, or otherwise subject to  the liability of that section. Further, this exhibit shall not be deemed to  be incorporated by reference into any filing under the Securities Act of  1933, as amended, or the Securities Exchange Act of 1934, as amended.)                                                                                                                                                                                   |
| 32.2        |       | Certifications of Chief 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,                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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|   |   | 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 the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                    | GMH COMMUNITIES TRUST                 |
|-------------------------|---------------------------------------|
|                    |                                  |
|                    |                                  |
| Date: May 10, 2005 | /s/ Gary M. Holloway, Sr.        |
|                    | Gary M. Holloway, Sr.            |
|                    | President and Chief Executive Officer |
|                    |                                  |
|                    |                                  |
|                    | /s/ Bradley W. Harris                 |
|                    | Bradley W. Harris                     |
|                    | Senior Vice President                 |
|                    | and Chief Financial Officer           |

 

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EXHIBIT INDEX

 
| **Exhibit** | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1        |       | Membership Interests Purchase Agreement,  effective as of February 28, 2005, by and between GMH Military Housing,  LLC and Gary M. Holloway, Sr. (Incorporated by reference to the  Registrant’s Current Report on Form 8-K as filed with the Securities and  Exchange Commission on March 1, 2005)                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.2        |       | Agreement for Sale of Membership Interests, dated  as of March 22, 2005, by and among, GMH Communities, LP, State College  Intermediate, LLC, Whitehall V-S Real Estate Limited Partnership, Bridge  Street Real Estate Fund 1996, L.P., Stone Street GMH-S Corp., Stone Street  Real Estate Fund 1996, L.P., GH College Park, Inc., Gary M. Holloway, Sr.,  Bruce F. Robinson, Frank Tropea, Joseph M. Coyle, Michael Mayock, Louis  Battagliese, Robert DiGiuseppe, Denise Hubley, David Forrest, Michael Maher,  and Cathy Coyle. (Incorporated by reference to the Registrant’s Current  Report on Form 8-K as filed with the Securities and Exchange Commission  on March 28, 2005) |
| 10.3        |       | Agreement for Sale of Partnership Interests, dated  as of March 22, 2005, by and among, GMH Communities, LP, Nittany  Crossing Intermediate, LLC, Whitehall Street Real Estate Limited Partnership  IX, Bridge Street Real Estate Fund 1998, L.P., W9/JP-M Gen-Par, Inc.,  Stone Street W9/JP-M Corp., Gary M. Holloway, Sr.,  Bruce F. Robinson, Frank Tropea, Joseph M. Coyle, Michael  Mayock, Louis Battagliese, Robert DiGiuseppe, Denise Hubley, David Forrest,  Michael Maher, and Cathy Coyle. (Incorporated by reference to the Registrant’s  Current Report on Form 8-K as filed with the Securities and Exchange  Commission on March 28, 2005)                |
| 10.4        |       | Contribution Agreement, dated as of March 22,  2005, by and among, GMH Communities, LP, Gary M. Holloway, Sr.,  Bruce F. Robinson, Joseph M. Coyle, Robert DiGiuseppe and Denise Hubley,  relating to the interests in WHGMH Realty, L.L.C. (Incorporated by reference  to the Registrant’s Current Report on Form 8-K as filed with the  Securities and Exchange Commission on March 28, 2005)                                                                                                                                                                                                                                                                                     |
| 10.5        |       | Contribution Agreement, dated as of March 22,  2005, by and among, GMH Communities, LP, Gary M. Holloway, Sr.,  Bruce F. Robinson, Joseph M. Coyle, Robert DiGiuseppe and Denise Hubley,  relating to the interests in W9/JP-M Real Estate Limited Partnership.  (Incorporated by reference to the Registrant’s Current Report on Form 8-K  as filed with the Securities and Exchange Commission on March 28, 2005)                                                                                                                                                                                                                                                                 |
| 10.6        |       | Executive Officer Cash Bonus Award Policy.  (Incorporated by reference to the Registrant’s Annual Report on Form 10-K  for the year ended December 31, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 31.1        |       | Certifications of Chief Executive Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended.(furnished herewith)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 31.2        |       | Certifications of Chief Financial Officer  Required by Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended. (furnished herewith)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 32.1        |       | Certifications of Chief Executive Officer  Required by Rule 13a-14(b) of the Securities Exchange Act of 1934,  as amended. (This exhibit shall not be deemed “filed” for purposes of Section 18  of the Securities Exchange Act of 1934, as amended, or otherwise subject to  the liability of that section. Further, this exhibit shall not be deemed to  be incorporated by reference into any filing under the Securities Act of  1933, as amended, or the Securities Exchange Act of 1934, as amended.)                                                                                                                                                                                   |
| 32.2        |       | Certifications of Chief 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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