UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q  XQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                TO  COMMISSION FILE NUMBER: 000-51609  Inland American Real Estate Trust, Inc. (Exact name of registrant as specified in its charter)  Maryland34-2019608(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)  2901 Butterfield Road, Oak Brook, Illinois60523(Address of principal executive offices)(Zip Code)  630-218-8000 (Registrant's telephone number, including area code) ______________________________________________________    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.  Yes X       No o  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  (See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act).  (Check one)  Large accelerated filer  o          Accelerated filer  o          Non-accelerated filer  X          Smaller reporting company  o  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  X  As of May 12, 2008, there were 635,272,004 shares of the registrant's common stock outstanding.        INLAND AMERICAN REAL ESTATE TRUST, INC.
TABLE OF CONTENTS Part I - Financial InformationPageItem  1.Financial StatementsConsolidated Balance Sheets at March 31, 2008 (unaudited) and December 31, 20071Consolidated Statements of Operations and Other Comprehensive Income for the three months ended March 31, 2008 and 2007 (unaudited)3Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2008 (unaudited)4Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)5Notes to Consolidated Financial Statements7Item  2.Management's Discussion and Analysis of Financial Condition and Results of Operations33Item  3.Quantitative and Qualitative Disclosures About Market Risk61Item  4.Controls and Procedures63Part II - Other InformationItem  1.Legal Proceedings63Item 1A.Risk Factors64Item  2.Unregistered Sales of Equity Securities and Use of Proceeds66Item  3.Defaults upon Senior Securities66Item  4.Submission of Matters to a Vote of Security Holders66Item 5.Other information66Item 6.Exhibits66Signatures67  This Quarterly Report on Form 10-Q includes references to certain trademarks. Courtyard by Marriott®, Marriott®, Marriott Suites®, Residence Inn by Marriott® and SpringHill Suites by Marriott® trademarks are the property of Marriott International, Inc. (Marriott) or one of its affiliates. Doubletree®, Embassy Suites®, Hampton Inn®, Hilton Garden Inn®, Hilton Hotels® and Homewood Suites by Hilton® trademarks are the property of Hilton Hotels Corporation (Hilton) or one or more of its affiliates. Hyatt Place® trademark is the property of Hyatt Corporation (Hyatt).  For convenience, the applicable trademark or service mark symbol has been omitted but will be deemed to be included wherever the above-referenced terms are used.    -i-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Balance Sheets (Dollar amounts in thousands)  Assets  March 31, 2008December 31, 2007(unaudited)(audited)Assets:Investment properties:Land$1,370,093$1,162,281Building and other improvements5,955,1385,004,809Construction in progress288,660204,2187,613,8916,371,308Less accumulated depreciation(215,847)(160,046)Net investment properties7,398,0446,211,262Cash and cash equivalents (including cash held by   management company of $60,929 and $52,377 as of   March 31, 2008 and December 31, 2007, respectively)368,093409,360Restricted cash (Note 2)24,58517,696Restricted escrow (Note 2)46,09024,465Investment in marketable securities (Note 5)344,847248,065Investment in unconsolidated entities (Note 1)591,259482,876Accounts and rents receivable (net of allowance of $1,509   and $1,069 as of March 31, 2008 and December 31, 2007,   respectively)58,08247,527Notes receivable (Note 4)315,366281,221Due from related parties (Note 3)31,026Acquired in-place lease intangibles (net of accumulated   amortization of $79,682 and $63,566 as of March 31,   2008 and December 31, 2007, respectively)335,302339,433Acquired above market lease intangibles (net of   accumulated amortization of $3,592 and $2,930 as of   March 31, 2008 and December 31, 2007, respectively)12,01112,673Loan fees and leasing commissions (net of accumulated   amortization of $4,731 and $2,631 as of March 31, 2008   and December 31, 2007, respectively)40,56032,941Deferred tax asset (Note 9)3,6743,552Other assets (Note 1)60,96699,661Total assets$9,598,882$8,211,758   See accompanying notes to the consolidated financial statements. -1-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Balance Sheets(continued) (Dollar amounts in thousands)  Liabilities and Stockholders' Equity  March 31, 2008December 31, 2007(unaudited)(audited)Liabilities:Mortgages, notes and margins payable (Note 8)$3,981,264$3,028,647Accounts payable43,55052,509Accrued offering costs to related parties4,7343,856Accrued offering costs to non-related parties4071,225Accrued interest payable2,3003,019Tenant improvement payable1,5141,683Accrued real estate taxes25,54924,636Distributions payable30,74328,008Security deposits3,2183,032Prepaid rental and recovery income and other liabilities54,19640,020Acquired below market lease intangibles (net of accumulated   amortization of $4,372 and $3,669 as of March 31, 2008   and December 31, 2007, respectively)39,84040,556Restricted cash liability (Note 2)24,58517,696Other financings (Note 1)50,84261,665Due to related parties (Note 3)2,3331,690Deferred income tax liability (Note 9)1,3851,506Total liabilities4,266,4603,309,748Minority interest (Note 1)286,868287,915Stockholders' equity:Preferred stock, $.001 par value, 40,000,000 shares   authorized, none outstanding--Common stock, $.001 par value, 1,460,000,000 shares   authorized, 603,561,625 and 548,168,989 shares issued and   outstanding as of March 31, 2008 and December 31, 2007,   respectively604548Additional paid in capital (net of offering costs of $611,338   and $557,122 as of March 31, 2008 and December 31, 2007,   of which $581,990 and $530,522 was paid or accrued to   affiliates as of March 31, 2008 and December 31, 2007,   respectively)5,405,1844,905,710Accumulated distributions in excess of net income (loss)(306,119)(227,885)Accumulated other comprehensive income (loss)(54,115)(64,278)Total stockholders' equity5,045,5544,614,095Commitments and contingencies (Note 12)Total liabilities and stockholders' equity$9,598,882$8,211,758  See accompanying notes to the consolidated financial statements. -2-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Operations and Other Comprehensive Income (Dollar amounts in thousands, except per share amounts)  Three months endedThree months endedMarch 31, 2008March 31, 2007(unaudited)(unaudited)Income:Rental income$97,474$50,561Tenant recovery income18,09011,550Other property income3,0651,620Lodging income116,893-Total income235,52263,731Expenses:General and administrative expenses to related parties2,1921,245General and administrative expenses to non-related parties4,4351,864Property and lodging operating expenses to related parties4,9352,697Property operating expenses to non-related parties16,3567,587Lodging operating expenses68,254-Real estate taxes16,4096,637Depreciation and amortization73,07226,570Business manager management fee-1,500Total expenses185,65348,100Operating income$49,869$15,631Interest and dividend income17,62710,430Other income (loss)(585)46Interest expense(49,763)(17,610)Equity in earnings of unconsolidated entities2,13784Impairment of investment in unconsolidated entities(1,419)-Realized gain (loss) and impairment on securities, net(3,912)5,688Income before income taxes and minority interest$13,954$14,269Income tax expense (Note 9)$(518)$(219)Minority interest(2,379)(2,338)Net income applicable to common shares$11,057$11,712Other comprehensive income:Unrealized gain on investment securities14,5671,013Unrealized loss on derivatives(4,404)-Comprehensive income$21,22012,725Net income available to common stockholders  per common share,   basic and diluted$.02.06Weighted average number of common shares outstanding,   basic and diluted575,543,596205,589,116   See accompanying notes to the consolidated financial statements. -3-


INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Statements of Stockholders' Equity  (Dollar amounts in thousands)  For the three month period ended March 31, 2008  Number of SharesCommon
  StockAdditional Paid-in
    CapitalAccumulated
Distributions in excess of Net IncomeAccumulated Other Comprehensive Income (Loss)TotalBalance at December 31, 2007548,168,9895484,905,710(227,885)(64,278)4,614,095Net income applicable to common   shares---11,057-11,057Unrealized gain on investment   securities----14,56714,567Unrealized loss on derivatives----(4,404)(4,404)Distributions declared---(89,291)-(89,291)Proceeds from offering51,100,59451511,853--511,904Offering costs--(54,216)--(54,216)Proceeds from distribution   reinvestment program5,408,790651,375--51,381Shares repurchased(1,116,748)(1)(9,581)--(9,582)Issuance of stock options and   discounts on shares issued to   affiliates--43--43Balance at March 31, 2008603,561,6256045,405,184(306,119)(54,115)5,045,554


See accompanying notes to the consolidated financial statements. -4-


INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Consolidated Statements of Cash Flows (Dollar amounts in thousands)        Three months endedThree months endedMarch 31, 2008March 31, 2007(unaudited)(unaudited)Cash flows from operations:Net income applicable to common shares$11,057$11,712Adjustments to reconcile net income applicable to common shares to   net cash  provided by operating activities:Depreciation55,80118,360Amortization17,2718,083Amortization of loan fees2,011283Amortization on acquired above market leases662453Amortization on acquired below market leases(716)(414)Amortization of mortgage discount371237Straight-line rental income(4,220)(2,541)Straight-line rental expense2117Other expense (income)28096Minority interests2,3792,338Equity in earnings of unconsolidated entities(2,137)(169)Distributions from unconsolidated entities4,717292Impairment of investment in unconsolidated entities1,419-Discount on shares issued to affiliates43461Realized gain on investments in securities, net-(5,688)Impairment of investments in securities3,912-Changes in assets and liabilities:Accounts and rents receivable(6,335)(3,934)Accounts payable(11,441)(892)Other assets(14,987)(1,541)Accrued real estate taxes913867Accrued interest payable(719)3Prepaid rental and recovery income5,3551,973Other liabilities4,115(196)Deferred income tax asset(122)-Deferred income tax liability(121)113Security deposits18645Net cash flows provided by operating activities69,71529,958Cash flows from investing activities:Purchase of RLJ Hotels(503,065)Purchase of investment securities(86,127)(81,101)Sale of investment securities-24,720Restricted escrows(21,625)3,945Rental income under master leases166127Acquired in-place lease intangibles(12,544)(35,890)Tenant improvement payable(185)(408)Purchase of investment properties(232,058)(335,890)Acquired above market leases-(2,487)Acquired below market leases-216Investment in development projects(84,442)(44)Investment in unconsolidated joint ventures(114,699)(2,411)Distributions from unconsolidated entities2,317-Payment of leasing fees(98)(151)Funding of note receivable(34,145)(16,779)Payoff of other financings(10,823)-Other assets54,379(3,544)Net cash flows used in investing activities(1,042,949)(449,697)  See accompanying notes to the consolidated financial statements. -5-    INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Cash Flows (continued) (Dollar amounts in thousands)     Three months endedThree months endedMarch 31, 2008March 31 ,2007(unaudited)(unaudited)Cash flows from financing activities:Proceeds from offering511,9031,106,332Proceeds from the dividend reinvestment program51,38116,291Shares repurchased(9,582)(1,995)Payment of offering costs(54,155)(104,586)Proceeds from mortgage debt and notes payable457,327217,570Payoffs of mortgage debt-(20,194)Principal payments of mortgage debt(586)(232)Proceeds from margin securities debt68,85119,459Payment of loan fees and deposits(4,857)(3,865)Distributions paid(86,556)(27,334)Distributions paid  MB REIT(3,425)(2,413)Due from related parties1,02334Due to related parties643(1,080)Net cash flows provided by financing activities931,9671,197,987Net increase (decrease) in cash and cash equivalents(41,267)778,248Cash and cash equivalents, at beginning of period409,360302,492Cash and cash equivalents, at end of period$368,093$1,080,740Supplemental disclosure of cash flow information:Purchase of investment properties$(232,074)$(341,634)Tenant improvement liabilities assumed at acquisition16640Real estate tax liabilities assumed at acquisition-2,059Security deposit liabilities assumed at acquisition-285Other financings-2,760(232,058)(335,890)Purchase of RLJ Hotels(932,200)-Assumption of mortgage debt at acquisition426,654-Liabilities assumed at acquisition2,481-(503,065)-Cash paid for interest$50,202$16,561Supplemental schedule of non-cash investing and financing activities:Distributions payable$30,743$12,139Accrued offering costs payable$5,141$14,761Write off of in-place lease intangibles$451$127Write off of below market lease intangibles$8$30Write off of loan fees$-$2   See accompanying notes to the consolidated financial statements. -6-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  Readers of this Quarterly Report should refer to the audited consolidated financial statements of Inland American Real Estate Trust, Inc. for the year ended December 31, 2007, which are included in the Company's 2007 Annual Report on Form 10-K, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Report.  In the opinion of management, all adjustments (consisting of normal recurring accruals, except as otherwise noted) necessary for a fair presentation have been included in this Quarterly Report.  (1)  Organization  Inland American Real Estate Trust, Inc. (the "Company") was formed on October 4, 2004 (inception) to acquire and manage a diversified portfolio of commercial real estate, primarily retail properties, multi-family (both conventional and student housing), office, industrial and lodging properties, located in the United States and Canada.  The Business Management Agreement (the "Agreement") provides for Inland American Business Manager & Advisor, Inc. (the "Business Manager"), an affiliate of the Company's sponsor, to be the business manager to the Company.  On August 31, 2005, the Company commenced an initial public offering (the "Initial Offering") of up to 500,000,000 shares of common stock ("Shares") at $10.00 each and the issuance of 40,000,000 shares at $9.50 each which may be distributed pursuant to the Company's distribution reinvestment plan.  On August 1, 2007, the Company commenced a second public offering  (the "Second Offering") of up to 500,000,000 shares of common stock at $10.00 each and up to 40,000,000 shares at $9.50 each pursuant to the distribution reinvestment plan.  The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2005.  Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to stockholders.  A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its REIT taxable income to stockholders (determined without regard to the deduction for dividends paid and by excluding any net capital gain).  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property, or net worth and federal income and excise taxes on its undistributed income.  The Company has elected to treat certain of its consolidated subsidiaries, and may in the future elect to treat newly formed subsidiaries, as taxable REIT subsidiaries pursuant to the Internal Revenue Code. Taxable REIT subsidiaries may participate in non-real estate related activities and/or perform non-customary services for tenants and are subject to federal and state income tax at regular corporate tax rates. The Companys hotels are leased to certain of the Companys taxable REIT subsidiaries. Lease revenue from these taxable REIT subsidiaries and its wholly-owned subsidiaries is eliminated in consolidation.  The accompanying Consolidated Financial Statements include the accounts of the Company, as well as all wholly owned subsidiaries and consolidated joint venture investments.  Wholly owned subsidiaries generally consist of limited liability companies (LLCs) and limited partnerships (LPs).  The effects of all significant intercompany transactions have been eliminated.    -7-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   Consolidated entities  Minto Builders (Florida), Inc.  The Company has an ownership interest in Minto Builders (Florida), Inc. ("MB REIT").  MB REIT is not considered a VIE as defined in FASB Interpretation No. 46R (Revised 2003): Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51 (FIN 46(R)), however the Company has a controlling financial interest in MB REIT, has the direct ability to make major decisions for MB REIT through its voting interests, and holds key management positions in MB REIT.  Therefore this entity is consolidated by the Company and the outside ownership interests are reflected as minority interests in the accompanying Consolidated Financial Statements.  A put/call agreement that was entered into by the Company and MB REIT as a part of the MB REIT transaction on October 11, 2005 grants Minto (Delaware), LLC, referred to herein as MD, certain rights to sell its shares of MB REIT stock back to MB REIT.  The agreement is considered a free standing financial instrument and is accounted for pursuant to Statement of Financial Accounting Standard No. 150 Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("Statement 150") and Statement of Financial Accounting Standards No. 133 Accounting for Derivative Financial Instruments and Hedging Activities (Statement 133).  Derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value.  If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings.  This derivative was not designated as a hedge.  Utley Residential Company L.P.  On May 18, 2007, the Company's wholly-owned subsidiary, Inland American Communities Group, Inc. (Communities), purchased the assets of Utley related to the development of conventional and student housing for approximately $23,100, including rights to its existing development projects.  The company paid $13,100 at closing with $10,000 of the purchase price to be paid upon the presentation of future development projects.  Consolidated Developments  The Company has ownership interests in two development joint ventures. Stonebriar, LLC is a retail shopping center development in Plano, Texas, which the Company contributed $20,000 and receives a 12% preferred distribution. Stone Creek Crossing, L.P. is a retail shopping center development in San Marcos, Texas, which the Company contributed $25,762 and receives an 11% preferred return. Stonebriar LLC and Stone Creek Crossing, L.P. are considered  VIEs  as defined in FIN 46R, and the Company is considered the primary beneficiary for both joint ventures.  Therefore, these entities are consolidated by the Company and the outside interests are reflected as minority interests in the accompanying Consolidated Financial Statements.  On January 24, 2008, the Company entered into a joint venture, Woodbridge Crossing, L.P., to acquire certain land located in Wylie, Texas and develop a 268,210 square foot shopping center for a total cost of approximately $49,400. On February 15, 2008, we contributed approximately $14,100, to the venture and will receive an 11% preferred return. Woodbridge is considered a VIE as defined in FIN 46(R), and the Company is considered the primary beneficiary.  Therefore, this entity is consolidated by the Company and the outside interests are reflected as minority interests in the accompanying Consolidated Financial Statements.  Other  The Company has ownership interests of 67% to 89% in various LLCs which own ten shopping centers.  These entities are considered VIEs as defined in FIN 46(R), and the Company is considered the primary beneficiary of each LLC.  Therefore, these entities are consolidated by the Company.  The LLC agreements contain put/call provisions which grant  -8-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   the right to the outside owners and the Company to require the LLCs to redeem the ownership interests of the outside owners during future periods. These put/call agreements are embedded in each LLC agreement and are accounted for in accordance with EITF 00-04 "Majority Owner's Accounting for a Transaction in the Shares of a Consolidated Subsidiary and a Derivative Indexed to the Minority Interest in that Subsidiary."  Because the outside ownership interests are subject to a put/call arrangement requiring settlement for a fixed amount, the LLCs are treated as 100% owned subsidiaries by the Company with the amount due the outside owners reflected as a financing and included within other financings in the accompanying Consolidated Financial Statements.  Interest expense is recorded on these liabilities in an amount generally equal to the preferred return due to the outside owners as provided in the LLC agreements.  Unconsolidated entities  The entities listed below are owned by us and other unaffiliated parties in joint ventures. Net income, cash flow from operations and capital transactions for these properties are allocated to us and our joint venture partners in accordance with the respective partnership agreements. Except for our Insurance Captive, PDG/Inland Concord Venture LLC and L-Street, these joint ventures are not considered Variable Interest Entities as defined in FIN 46(R) however, the Company does have significant influence over, but does not control the ventures.  The Company's partners manage the day-to-day operations of the properties and hold key management positions.  Therefore, these entities are not consolidated by the Company and the equity method of accounting is used to account for these investments. Under the equity method of accounting, the net equity investment of the Company and the Company's share of net income or loss from the unconsolidated entity are reflected in the consolidated balance sheets and the consolidated statements of operations.  Joint VentureDescriptionOwnership %Investment at March 31, 2008Investment at December 31, 2007Net Lease Strategic Asset   Fund L.P. (a)Diversified portfolio of net lease assets85%195,936$    122,430Cobalt Industrial REIT II (b)Industrial portfolio24%51,71051,215Lauth Investment Properties,   LLC (c)Diversified real estate fund(c)175,563160,375D.R. Stephens Institutional   Fund, LLC (d)Industrial and R&D assets90%68,45557,974New Stanley Associates,   LLP (e)Lodging facility60%8,9859,621Chapel Hill Hotel   Associates, LLC (e)Courtyard by Marriott lodging facility49%10,38610,394Marsh Landing Hotel   Associates, LLC (e)Hampton Inn lodging facility49%4,7174,802Jacksonville Hotel   Associates, LLC (e)Courtyard by Marriott lodging facility48%2,3962,464Inland CCC Homewood   Hotel LLC (f)Lodging development83%2,7721,846  -9-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008    Feldman Mall Properties,   Inc. (g)Publicly traded shopping center REIT(g)51,39553,964Oak Property & Casualty   LLC (h)Insurance Captive22%1,138885L-Street Marketplace, LLC (i)Retail center development20%6,7676,906PDG/Inland Concord Venture   LLC (j)Retail center development(j)11,039-$   591,259$  482,876  (a) On December 20, 2007, Net Lease Strategic Assets Fund L.P. acquired thirty primarily single-tenant net leased assets from Lexington Realty Trust and its subsidiaries for an aggregate purchase price of approximately $408,500, including assumption of debt.  We contributed approximately $121,900 to the venture for the purchase of these properties.  On March 25, 2008, the Company contributed an additional $72,500 to the venture; these funds were used to purchase eleven assets from Lexington Realty Trust for an aggregate purchase price of $270,200.  (b) On June 29, 2007, the Company entered into the venture to invest up to $149,000 in shares of common beneficial interest. The Company's investment gives it the right to a preferred dividend equal to 9% per annum.  (c) On June 8, 2007, the Company entered into the venture for the purpose of funding the development and ownership of real estate projects in the office, distribution, retail, healthcare and mixed-use markets.  Under the joint venture agreement, the Company will invest up to $253,000 in exchange for the Class A Participating Preferred Interests for a 9.5% preferred dividend.  The Company owns 5% of the common stock and 100% of the preferred.  (d) On April 27, 2007, the Company entered into the venture to acquire and redevelop or reposition industrial and research and development oriented properties located initially in the San Francisco Bay and Silicon Valley areas.  Under the joint venture agreement, the Company will invest approximately $90,000 and is entitled to a preferred of 8.5% per annum.  (e) Through the acquisition of Winston on July 1, 2007, the Company acquired joint venture interests in four hotels.  (f) On September 20, 2007, the Company entered into a venture agreement for the purpose of developing a 111 room hotel in Homewood, Alabama.  (g) The Company currently owns 1,283,500 common shares of Feldman Mall Properties, Inc. (Feldman) which represent 9.86% of the total outstanding shares at March 31, 2008.  The Company's common stock investment was valued at $3,324 at March 31, 2008 based on the ending stock price of $2.59 per share.  The Company has purchased 2,000,000 shares of series A preferred stock of Feldman Mall Properties, Inc. at a price of $25.00 per share, for a total investment of $50,000.  The series A preferred stock has no stated maturity and has a liquidation preference of $25.00 per share (the "Liquidation  -10-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   Preference").  Distributions will accumulate at 6.85% of the Liquidation Preference, payable at Feldmans regular distribution payment dates.  The Company may convert its shares of series A preferred stock, in whole or in part, into Feldmans common stock after September 30, 2009, at an initial conversion ratio of 1:1.77305 (the "Conversion Rate" representing an effective conversion price of $14.10 per share of Feldmans common stock).  Furthermore, the series A preferred stock grants the Company two seats on the Board of Directors of Feldman. This investment is recorded in investment in unconsolidated entities on the Consolidated Balance Sheet and the preferred return is recorded in equity in earnings of unconsolidated entities on the Consolidated Statement of Operations.  Because the Company has the ability to significantly influence Feldman through two seats on the Board of Directors of Feldman, the Companys investment in common stock of Feldman is retrospectively accounted for under the equity method of accounting. Such investment in common stock was previously accounted for as an investment in marketable securities. As a result of the retrospective application of the equity method to the investment in Feldman common shares, the 2007 amounts for the statement of operations and other comprehensive income were adjusted as follows: for the three months ended March 31, 2007, interest and dividend income were decreased by $292 and the equity in earnings of unconsolidated entities was decreased by $85, unrealized gain (loss) on investment securities was increased by $407, and net income applicable to common shares decreased by $377.  Under Accounting Principles Board (APB) Opinion No. 18 (The Equity Method of Accounting for Investments in Common Stock), the Company evaluates its equity method investments for impairment indicators.  The valuation analysis considers the investment positions in relation to the underlying business and activities of the Company's investment.  Based on recent net losses and declines in the common stock price of Feldman, the Company recognized a $1,419 impairment loss on its investment in unconsolidated entities for the three months ended March 31, 2008.  (h) The Company is a member of a limited liability company formed as an insurance association captive (the "Insurance Captive"), which is owned in equal proportions by the Company and two other related REITs sponsored by the Company's sponsor, Inland Real Estate Corporation and Inland Western Retail Real Estate Trust, Inc. and serviced by an affiliate of the Business Manager, Inland Risk and Insurance Management Services Inc.  The Insurance Captive was formed to initially insure/reimburse the members' deductible obligations for the first $100 of property insurance and $100 of general liability insurance.  The Company entered into the Insurance Captive to stabilize its insurance costs, manage its exposures and recoup expenses through the functions of the captive program.  This entity is considered to be a VIE as defined in FIN 46(R) and the Company is not considered the primary beneficiary.  (i) On October 16, 2007, the Company entered into a venture agreement to develop a retail center, known as the L Street Marketplace. The total cost of developing the land is expected to be approximately $55,800. As of December 31, 2007, we had contributed $7,000 to the venture. Operating proceeds will be distributed 80% to 120-L and 20% to the Company. We also will be entitled to receive a preferred return equal to 9.0% of our capital contribution.  This entity is considered to be a VIE as defined in FIN 46(R) and the Company is not considered a primary beneficiary.  (j) On March 10, 2008, the Company entered into a joint venture to acquire four parcels of land known as Christenbury Corners, located in Concord, North Carolina, and to develop a 404,593 square foot retail center on that land.  The total cost is expected to be approximately $77,900.  On March 10, 2008, we contributed $11,000 to the venture. We will receive a preferred return, paid on a quarterly basis, in an amount equal to 11% per annum on our capital contribution through the first twenty-four months after the date of our initial investment; if we maintain our investment in the project for more than twenty-four months, we will receive a preferred return in an amount equal to 12% per annum over the remainder of  -11-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   the term.  The company has contributed 100% of the equity.  This entity is considered to be a VIE as defined in FIN 46(R) and the Company is not considered the primary beneficiary.  Combined Financial Information  The Company's carrying value of its Investment in Unconsolidated Joint Ventures differs from its share of the partnership or members equity reported in the combined balance sheet of the Unconsolidated Joint Ventures due to the Company's cost of its investment in excess of the historical net book values of the Unconsolidated Joint Ventures. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 30 years.  March 31,December 31,20082007(Dollars in thousands)(Dollars in thousands)Balance Sheets:Assets:Real estate, net of accumulated depreciation$1,748,158$1,438,615Other assets498,660455,879Total Assets2,246,8181,894,494Liabilities and Partners' and Shareholders Equity:Mortgage debt1,119,370929,232Other liabilities110,393109,147Partners' and shareholders' equity1,017,055856,115Total Liabilities and Partners' and Shareholders' Equity2,246,8181,894,494Our share of historical partners' and shareholders' equity575,271475,183Net excess of cost of investments over the net book value of   underlying net assets (net of accumulated depreciation of $394 and   $0, respectively)15,9887,693Carrying value of investments in unconsolidated joint ventures$591,259$482,876  Three months ended
March 31, 2008Three months ended
March 31, 2007Statements of Operations:Revenues$49,330$16,238Expenses:Interest expense and loan cost amortization14,0243,111Depreciation and amortization15,4743,405Operating expenses, ground rent and general and administrative   expenses26,8109,874Total expenses56,30816,390  -12-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008    Net loss (1)$(6,978)(152)Our share of:Net income, net of excess basis depreciation of $394 and $02,13784Depreciation and amortization (real estate related)7,436336  (1) For the three months ended March 31, 2008, the Company estimated Feldman Mall Properties to have a $(7,831) loss based on their fourth quarter 2007 results.  This amount is included in the combined statement of operation above, of which the Company has recorded $690 of loss, in addition to an increase of the loss estimated and recorded in the fourth quarter of 2007 of $519.  Significant Acquisitions  RLJ Acquisition  On February 8, 2008, the Company consummated the merger among its wholly-owned subsidiary, Inland American Urban Hotels, Inc., and RLJ Urban Lodging Master, LLC and related entities, referred to herein as "RLJ." RLJ owned twenty-two full and select service lodging properties. This portfolio includes, among others, four Residence Inn® by Marriott hotels, four Courtyard by Marriott® hotels, four Hilton Garden Inn® hotels and two Embassy Suites® hotels, containing an aggregate of 4,059 rooms.  The transaction values RLJ at approximately $932,200 which includes (i) the purchase of 100% of the outstanding membership interests of RLJ or $466,419; (ii) an acquisition fee to the Business Manager of $22,334; (iii) professional fees and other transactional costs of $1,935; (iv) the assumption of $426,654 of mortgages payable; (v) the assumption of $2,482 accounts payable and accrued liabilities; and (vi) interest rate swap breakage and loan fees of $12,376.  The Company also funded $22,723 in working capital and lender escrows.  At December 31, 2007, the Company had deposited $45,000 in earnest money deposits that was included in other assets.  The deposits were used to complete the RLJ merger.  The following condensed pro forma financial information is presented as if the acquisition of RLJ had been consummated as of January 1, 2008, for the pro forma three months ended March 31, 2008 and January 1, 2007, for the pro forma three months ended March 31, 2007. The following condensed pro forma financial information is not necessarily indicative of what actual results of operations of the Company would have been assuming the acquisitions had been consummated at the beginning of January 1, 2008, for the pro forma three months ended March 31, 2008 and January 1, 2007, for the pro forma three months ended March 31, 2007, nor does it purport to represent the results of operations for future periods.  ProformaProformaThree months endedThree months endedMarch 31, 2008March 31, 2007Total income$251,151104,533Net income$8,15310,245Net income available  to common   shareholders per common share$.01.05  -13-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008      (2)  Summary of Significant Accounting Policies  The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.  Revenue Recognition  The Company commences revenue recognition on its leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins.  If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.  If the Company concludes it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease.  In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes.  These factors include:  · whether the lease stipulates how and on what a tenant improvement allowance may be spent;  · whether the tenant or landlord retains legal title to the improvements;  · the uniqueness of the improvements;  · the expected economic life of the tenant improvements relative to the length of the lease; and  · who constructs or directs the construction of the improvements.  The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, the Company considers all of the above factors.  No one factor, however, necessarily establishes its determination.  Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets.  Revenue for our lodging facilities is recognized when the services are provided. Additionally, we collect sales, use, occupancy and similar taxes at our lodging facilities which we present on a net basis (excluded from revenues) on our consolidated statements of operations.  The Company records lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and amounts due are considered collectible.  -14-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008    Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements, determined that a lessor should defer recognition of contingent rental income (i.e. percentage/excess rent) until the specified target (i.e. breakpoint) that triggers the contingent rental income is achieved.  The Company records percentage rental revenue in accordance with SAB 101.  The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents.  The Company maintains its cash and cash equivalents at financial institutions.  The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.  The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions' non-performance.  Consolidation  The Company considers FASB Interpretation No. 46(R) (Revised 2003): Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51 (FIN 46(R)), EITF 04-05: Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, and SOP 78-9: Accounting for Investments in Real Estate Ventures, to determine the method of accounting for each of its partially-owned entities.  In instances where the Company determines that a joint venture is not a VIE, the Company first considers EITF 04-05.  The assessment of whether the rights of the limited partners should overcome the presumption of control by the general partner is a matter of judgment that depends on facts and circumstances. If the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partner without cause or (b) substantive participating rights, the general partner does not control the limited partnership and as such overcome the presumption of control by the general partner and consolidation by the general partner.  Reclassifications  Certain reclassifications have been made to the 2007 financial statements to conform to the 2008 presentations.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except as otherwise noted) necessary for a fair presentation of the financial statements have been made.  Capitalization and Depreciation  Real estate acquisitions are recorded at cost less accumulated depreciation.  Ordinary repairs and maintenance are expensed as incurred.  Depreciation expense is computed using the straight line method.  Building and improvements are depreciated based upon estimated useful lives of 30 years for building and improvements and 5-15 years for site improvements.  Tenant improvements are amortized on a straight line basis over the life of the related lease as a component of amortization expense.  Leasing fees are amortized on a straight-line basis over the life of the related lease as a component of depreciation and amortization.  Loan fees are amortized on a straight-line basis, which approximates the effective interest method, over the life of the related loans as a component of interest expense.   -15-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   Direct and indirect costs that are clearly related to the construction and improvements of investment properties are capitalized under the guidelines of SFAS 67, Accounting for Costs and Initial Rental Operations and Real Estate Projects.  Costs incurred for property taxes and insurance are capitalized during periods in which activities necessary to get the property ready for its intended use are in progress.  Interest costs determined under guidelines of SFAS 34, Capitalization of Interest Costs(SFAS 34), are also capitalized during such periods.  Additionally, pursuant to SFAS 58, Capitalization of Interest Cost in Financial Statements That Include Investments Accounted for by the Equity Method, the Company treats investments accounted for by the equity method as assets qualifying for interest capitalization provided (1) the investee has activities in progress necessary to commence its planned principal operations and (2) the investees activities include the use of such funds to acquire qualifying assets under SFAS 34.  Impairment  In accordance with Statement of Financial Accounting Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company performs an analysis to identify impairment indicators to ensure that the investment property's carrying value does not exceed its fair value.  The valuation analysis performed by the Company is based upon many factors which require difficult, complex or subjective judgments to be made.  Such assumptions, including projecting vacancy rates, rental rates, operating expenses, lease terms, tenant financial strength, economy, demographics, property location, capital expenditures and sales value among other assumptions, are made upon valuing each property.  This valuation is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole.  Based upon the Company's judgment, no impairment was warranted as of March 31, 2008.  Derivative Instruments  In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate risk on debt instruments.  The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained a material loss from those instruments nor does it anticipate any material adverse effect on its net income or financial position in the future from the use of derivatives  The Company accounts for its derivative instruments in accordance with  SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and its amendments (SFAS Nos. 137/138/149), which requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders equity or net income depending on whether the derivative instruments qualify as a hedge for accounting purposes and, if so, the nature of the hedging activity. When the terms of an underlying transaction are modified, or when the underlying transaction is terminated or completed, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria of SFAS No. 133 is marked-to-market each period. The Company does not use derivatives for trading or speculative purposes.  Marketable Securities  The Company classifies its investment in securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity.  All securities not included in trading or held-to-maturity are classified as available-for-sale. Investment in securities at March 31, 2008 and December 31, 2007 consists of common stock investments that are classified as available-for-sale  -16-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   securities and are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of other comprehensive income until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary, results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. In accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities,"  when a security is impaired, the Company considers whether it has the ability and intent to hold the investment for a time sufficient to allow for any anticipated recovery in market value and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to year end and forecasted performance of the investee.  For the three months ended March 31, 2008, the Company recorded $(3,912) in other than temporary impairments.  Notes Receivable  Notes receivable are considered for impairment in accordance with SFAS No. 114: Accounting by Creditors for Impairment of a Loan.  Pursuant to SFAS No. 114, a note is impaired if it is probable that the Company will not collect on all principal and interest contractually due.  The impairment is measured based on the present value of expected future cash flows discounted at the note's effective interest rate.  The Company does not accrue interest when a note is considered impaired.  When ultimate collectibility of the principal balance of the impaired note is in doubt, all cash receipts on the impaired note are applied to reduce the principal amount of the note until the principal has been recovered and are recognized as interest income thereafter.  Based upon the Company's judgment, no notes receivable were impaired as of March 31, 2008 and December 31, 2007.  Acquisition of Real Estate Properties  The Companys application of the Statement of Financial Accounting Standard, No. 141 "Business Combinations," or SFAS No. 141, and Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets," or SFAS No. 142, resulted in the recognition upon acquisition of additional intangible assets and liabilities relating to real estate acquisitions during the three months ended March 31, 2008 and 2007. The portion of the purchase price allocated to acquired above market lease costs and acquired below market lease costs are amortized on a straight line basis over the life of the related lease as an adjustment to rental income and over the respective renewal period for below market lease costs with fixed rate renewals. Amortization pertaining to the above market lease costs of $662 and $453 was applied as a reduction to rental income for the three months ended March 31, 2008 and 2007, respectively.  Amortization pertaining to the below market lease costs of $716 and $414 was applied as an increase to rental income for the three months ended March 31, 2008 and 2007, respectively.  The portion of the purchase price allocated to acquired in-place lease intangibles is amortized on a straight line basis over the life of the related lease. The Company incurred amortization expense pertaining to acquired in-place lease intangibles of $16,225 and $8,073 for the three months ended March 31, 2008 and 2007, respectively.  The portion of the purchase price allocated to customer relationship value is amortized on a straight line basis over the life of the related lease.  As of March 31, 2008, no amount has been allocated to customer relationship value.  The following table presents the amortization during the next five years related to the acquired in-place lease intangibles, acquired above market lease costs and the below market lease costs for properties owned at March 31, 2008.  Amortization of:20082009201020112012ThereafterAcquired abovemarket lease costs$(1,788)(2,020)(1,877)(1,550)(978)(3,798)  -17-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008    Acquired belowmarket lease costs2,0922,6622,5952,5112,35527,625Net rental incomeIncrease$3046427189611,37723,827Acquired in-place leaseIntangibles$41,73350,06545,30839,72236,247122,227  Acquisition of Real Estate Businesses  Acquisitions of businesses are accounted for using purchase accounting as required by Statement of Financial Accounting Standards 141 Business Combinations. The assets and liabilities of the acquired entities are recorded by the Company using the fair value at the date of the transaction and allocated to tangible and intangible assets acquired and liabilities assumed.  Any additional amounts are allocated to goodwill as required, based on the remaining purchase price in excess of the fair value of the tangible and intangible assets acquired and liabilities assumed. The Company amortizes identified intangible assets that are determined to have finite lives over the period which the assets are expected to contribute directly or indirectly to the future cash flows of the business acquired. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized if the carrying amount of an intangible asset, including the related real estate when appropriate, is not recoverable and the carrying amount exceeds the estimated fair value.  Investments in lodging facilities are stated at acquisition cost and allocated to land, property and equipment, identifiable intangible assets and assumed debt and other liabilities at fair value. Any remaining unallocated acquisition costs would be treated as goodwill. Property and equipment are recorded at fair value based on current replacement cost for similar capacity and allocated to buildings, improvements, furniture, fixtures and equipment using appraisals and valuations performed by management and independent third parties.  The purchase price allocation for the RLJ merger, Woodland and Chelsea hotels are substantially complete, but are subject to adjustment within one year of acquisition, which would likely affect the amount of depreciation expense recorded.  The Company could record goodwill on finalization of the purchase price allocation.  The operating results of each of the consolidated acquired hotels are included in our statement of operations from the date acquired.  Cash and Cash Equivalents  The Company considers all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements purchased with a maturity of three months or less, at the date of purchase, to be cash equivalents.  The Company maintains its cash and cash equivalents at financial institutions.  The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.  The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions' non-performance.  Restricted Cash and Escrows  Restricted escrows primarily consist of cash held in escrow comprised of lenders' restricted escrows of $18,464 and $5,228, earnout escrows of $9,043 and $11,020 and lodging furniture, fixtures and equipment reserves of $18,583 and $8,217 as of March 31, 2008 and December 31, 2007, respectively.  Earnout escrows are established upon the acquisition of certain investment properties for which the funds may be released to the seller when certain space has become leased and occupied.  -18-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008    Restricted cash and offsetting liability consist of funds received from investors that have not been executed to purchase shares and funds contributed by sellers held by third party escrow agents pertaining to master leases, tenant improvements and other closing items.  Fair Value of Financial Instruments  The estimated fair value of the Company's mortgage debt was $3,778,565 and $2,895,525 as of March 31, 2008 and December 31, 2007, respectively. The Company estimates the fair value of its mortgages payable by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company's lenders. The estimated fair value of the Companys notes receivable was $315,329 and $280,137 as of March 31, 2008 and December 31, 2007, respectively.  The Company estimates the fair value of its notes receivable by discounting the future cash flows of each instrument at rates currently available to the Company for similar instruments.  The carrying amount of the Company's other financial instruments approximate fair value because of the relatively short maturity of these instruments.  Income Taxes  We account for income taxes in accordance with SFAS 109 Accounting for Income Taxes.  Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.  In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109. FIN 48 increases the relevancy and comparability of financial reporting by clarifying the way companies account for uncertainty in measuring income taxes. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. This Interpretation only allows a favorable tax position to be included in the calculation of tax liabilities and expenses if a company concludes that it is more likely than not that its adopted tax position will prevail if challenged by tax authorities. The Company adopted FIN 48 as required effective January 1, 2007. The adoption of FIN 48 did not have a material impact on its consolidated financial position, results of operations or cash flows.  All of the Companys tax years are subject to examination by tax jurisdictions.  Other  In March 2006, FASB Emerging Issues Task Force issued Issue 06-03 ("EITF 06-03"), "How Sales Taxes Collected From Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement."  A consensus was reached that entities may adopt a policy of presenting sales taxes in the income statement on either a gross or net basis.  If taxes are significant, an entity should disclose its policy of presenting taxes.  The guidance is effective for periods beginning after December 15, 2006.  The Company presents sales net of sales taxes.  Adoption on January 1, 2007 did not have an effect on the Company's policy related to sales taxes and therefore, did not have an effect on the Company's consolidated financial statements.  (3)  Transactions with Related Parties  As of March 31, 2008 and December 31, 2007, the Company had incurred $611,338 and $557,122 of offering costs, respectively, of which $581,990 and $530,522, respectively, was paid or accrued to related parties. In accordance with the terms of the offerings, the Business Manager has guaranteed payment of all public offering expenses (excluding sales commissions and the marketing contribution and the due diligence expense allowance) in excess of 4.5% of the gross  -19-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   offering proceeds or all organization and offering expenses (including selling commissions) which together exceed 15% of gross offering proceeds.  As of March 31, 2008 and December 31, 2007, the offering costs for the initial offering did not exceed the 4.5% and 15% limitations.  The Company anticipates that second offering costs will not exceed these limitations upon completion of the offering. Any excess amounts at the completion of the offering will be reimbursed by the Business Manager.  The Business Manager and its related parties are entitled to reimbursement for salaries and expenses of employees of the Business Manager and its related parties relating to the offerings.  In addition, a related party of the Business Manager is entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from the Company in connection with the offerings.  Such costs are offset against the stockholders' equity accounts. Such costs totaled $51,468 and $115,359 for the three months ended March 31, 2008 and 2007, of which $4,734 and $3,856 was unpaid as of March 31, 2008 and December 31, 2007, respectively, and is included in the offering costs described above.  The Business Manager and its related parties are entitled to reimbursement for general and administrative expenses of the Business Manager and its related parties relating to the Company's administration.  Such costs are included in general and administrative expenses to related parties, professional services to related parties, and acquisition cost expenses to related parties, in addition to costs that were capitalized pertaining to property acquisitions.  For the three months ended March 31, 2008 and 2007, the Company reimbursed $2,465 and $2,043 of these costs, respectively, of which $143 and $1,690 remained unpaid as of March 31, 2008 and December 31, 2007, respectively.  A related party of the Business Manager provides loan servicing to the Company for an annual fee.  Such costs are included in general and administrative expenses to related parties on the Consolidated Statement of Operations.  Effective May 1, 2007, the agreement allows for fees totaling 225 dollars per month, per loan for the Company and 200 dollars per month, per loan for MB REIT.  For the three months ended March 31, 2008 and 2007, fees totaled $68 and $35, respectively, none of which remained unpaid as of March 31, 2008 and December 31, 2007.  The Company pays a related party of the Business Manager 0.2% of the principal amount of each loan placed for the Company.  Such costs are capitalized as loan fees and amortized over the respective loan term.  During the three months ended March 31, 2008 and 2007, the Company paid loan fees totaling $1,054 and $435, respectively, to this related party.  None remained unpaid as of March 31, 2008 and December 31, 2007.  After the Company's stockholders have received a non-cumulative, non-compounded return of 5% per annum on their "invested capital," the Company will pay its Business Manager an annual business management fee of up to 1% of the "average invested assets," payable quarterly in an amount equal to 0.25% of the average invested assets as of the last day of the immediately preceding quarter.  For these purposes, "invested capital" means the original issue price paid for the shares of the common stock reduced by prior distributions from the sale or financing of properties.  For these purposes, "average invested assets" means, for any period, the average of the aggregate book value of assets, including lease intangibles, invested, directly or indirectly, in financial instruments, debt and equity securities and equity interests in and loans secured by real estate assets, including amounts invested in REITs and other real estate operating companies, before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the period.  The Company will pay this fee for services provided or arranged by the Business Manager, such as managing day-to-day business operations, arranging for the ancillary services provided by other related parties and overseeing these services, administering bookkeeping and accounting functions, consulting with the board, overseeing  real estate assets and providing other services as the board deems appropriate.  This fee terminates if the Company acquires the Business Manager.  Separate and distinct from any business management fee, the Company also will reimburse the Business Manager or any related party for all expenses that it, or any related party including the sponsor, pays or incurs on its behalf including the salaries and benefits of persons employed by the Business Manager or its related parties and performing services for the Company except for the salaries and benefits of persons who also serve as one of the executive officers of the Company or as an executive officer of the Business Manager.  For any year in which the Company qualifies as a REIT, its Business Manager must reimburse it for the amounts, if any, by which the  -20-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   total operating expenses paid during the previous fiscal year exceed the greater of: 2% of the average invested assets for that fiscal year; or 25% of net income for that fiscal year, subject to certain adjustments described herein.  For these  purposes, items such as organization and offering expenses, property expenses, interest payments, taxes, non-cash charges, any incentive fees payable to the Business Manager and acquisition fees and expenses are excluded from the definition of total operating expenses.  For the three months ended March 31, 2008 and 2007, our average invested assets were $7,705,379 and $3,880,418 and our operating expenses, as defined, were $6,112 and $4,349 or .32%, and .45%, respectively, of average invested assets.  The Company incurred fees of $0 and $1,500 for the three months ended March 31, 2008 and 2007, respectively, of which none remained unpaid as of March 31, 2008 and December 31, 2007.  The Business Manager has agreed to waive all fees allowed but not taken, except for the $9,000 and $2,400 paid for the years ended December 31, 2007 and 2006.  The Company pays the Business Manager a fee for services performed in connection with acquiring a controlling interest in a REIT or other real estate operating company.  Acquisition fees, however, are not paid for acquisitions solely of a fee interest in property.  The amount of the acquisition fee is equal to 2.5% of the aggregate purchase price paid to acquire the controlling interest and is capitalized as part of the purchase price of the company.  The Company incurred fees of $22,334 for the three months ended March 31, 2008, of which $500 remained unpaid.  No fees were incurred for the three months ended March 31, 2007.  The property manager, an entity owned principally by individuals who are related parties of the Business Manager, is entitled to receive property management fees up to 4.5% of gross operating income (as defined), for management and leasing services.  In addition, the property manager is entitled to receive an oversight fee of 1% of gross operating income (as defined) in operating companies purchased by the Company.  The Company incurred and paid property management fees of $5,135 and $2,697 for the three months ended March 31, 2008 and 2007.  None remained unpaid as of March 31, 2008 and December 31, 2007.  The Company established a discount stock purchase policy for related parties and related parties of the Business Manager that enables the related parties to purchase shares of common stock at either $8.95 or $9.50 a share depending on when the shares are purchased.  The Company sold 41,124 and 787,676 shares to related parties and recognized an expense related to these discounts of $42 and $461 for the three months ended March 31, 2008 and 2007, respectively.  The Company pays a related party of the Business Manager to purchase and monitor its investment in marketable securities.  The Company incurred expenses totaling $618 and $354 during the three months ended March 31, 2008 and 2007, respectively, of which $429 and $340 remained unpaid as of March 31, 2008 and December 31, 2007, respectively.  Such costs are included in general and administrative expenses to related parties on the Consolidated Statement of Operations.  As of March 31, 2008 and December 31, 2007, the Company owed funds to related parties of the Business Manager in the amount of $2,333 and $1,690, respectively, for reimbursement of general and administrative costs, monies paid on the Company's behalf and acquisition fees.  (4)  Notes Receivable  The Company's notes receivable balance was $315,366 and $281,221 as of March 31, 2008 and December 31, 2007, respectively, and consisted of installment notes from unrelated parties that mature on various dates through May 2012 and installment notes assumed in the Winston acquisition.  The notes are secured by mortgages on vacant land, shopping center and hotel properties and guaranteed by the owners.  Interest only is due each month at rates ranging from 7.1864% to 10.64% per annum.  For the three months ended March 31, 2008 and 2007, the Company recorded interest income from notes receivable of $6,074 and $1,374, respectively, which is included in the interest and dividend income on the Consolidated Statement of Operations.   -21-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   (5)  Investment Securities  Investment in securities of $344,847 at March 31, 2008 consists of preferred and common stock investments in other REITs which are classified as available-for-sale securities and recorded at fair value.  Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported as a separate component of comprehensive income until realized.  Of the investment securities held on March 31, 2008, the Company has accumulated other comprehensive income (loss) of $(49,711), which includes gross unrealized losses of $54,946.  All such unrealized losses on investments have been in an unrealized loss position for less than twelve months and such investments have a related fair value of $248,830 as of March 31, 2008.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis.  During the three months ended March 31, 2008 and 2007, the Company realized gains of $0 and $5,688, respectively, on the sale of shares. The Company's policy for assessing recoverability of its available-for-sale securities is to record a charge against net earnings when the Company determines that a decline in the fair value of a security drops below the cost basis and believes that decline to be other-than-temporary.  During the three months ended March 31, 2008, the Company recorded a write-down of $3,912 for other-than-temporary declines on certain available-for-sale securities, which is included as a component of realized gain (loss) and impairment on securities, net on the Consolidated Statement of Operations.  No write-downs were recorded for the three months ended March 31, 2007.  Dividend income is recognized when earned. During the three months ended March 31, 2008 and 2007, dividend income of $7,874 and $2,258, respectively, was recognized and is included in interest and dividend income on the Consolidated Statement of Operations.  The Company has purchased a portion of its investment securities through a margin account. As of March 31, 2008 and December 31, 2007, the Company has recorded a payable of $142,310 and $73,459, respectively, for securities purchased on margin. This debt bears a variable interest rate of the London InterBank Offered Rate ("LIBOR") plus 25 and 50 basis points. At March 31, 2008 and December 31, 2007, this rate was 3.224% to 3.474% and 5.54%. Interest expense in the amount of $1,025 and $630 was recognized in interest expense on the Consolidated Statement of Operations for the three months ended March 31, 2008 and 2007, respectively.  (6)  Stock Option Plan  The Company has adopted an Independent Director Stock Option Plan (the "Plan") which, subject to certain conditions, provides for the grant to each independent director of an option to acquire 3,000 shares following his or her becoming a director and for the grant of additional options to acquire 500 shares on the date of each annual stockholders' meeting. The options for the initial 3,000 shares are exercisable as follows: 1,000 shares on the date of grant and 1,000 shares on each of the first and second anniversaries of the date of grant. The subsequent options will be exercisable on the second anniversary of the date of grant. The initial options will be exercisable at $8.95 per share. The subsequent options will be exercisable at the fair market value of a share on the last business day preceding the annual meeting of stockholders as determined under the Plan. During the three months ended March 31, 2008 and 2007, the Company issued no options to its independent directors.  As of March 31, 2008 and 2007, there were a total of 23,000 and 17,500 options issued, of which none had been exercised or expired. The per share weighted average fair value of options granted was $0.44 on the date of the grant using the Black Scholes option-pricing model.  During the three months ended March 31, 2008 and 2007, the Company recorded $1 and $1, respectively, of expense related to stock options.        -22-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   (7) Leases  Master Lease Agreements  In conjunction with certain acquisitions, the Company received payments under master lease agreements pertaining to certain non-revenue producing spaces at the time of purchase, for periods ranging from three months to three years after the date of purchase or until the spaces are leased.  As these payments are received, they are recorded as a reduction in the purchase price of the respective property rather than as rental income.  The amount of such payments received was $166 and $127 during the three months ended March 31, 2008 and 2007, respectively.  Operating Leases  Minimum lease payments to be received under operating leases, excluding lodging properties and rental income under master lease agreements and assuming no expiring leases are renewed, are as follows:  Minimum LeasePayments2008$357,976*2009357,9702010343,0822011324,5472012298,584Thereafter1,734,223Total$3,416,382  * For the twelve month period from January 1, 2008 through December 31, 2008.  The remaining lease terms range from one year to 37 years.  Pursuant to the lease agreements, certain tenants are required to reimburse the Company for some or their entire pro rata share of the real estate taxes, operating expenses and management fees of the properties.  Such amounts are included in tenant recovery income.  "Net" leases require tenants to pay a share, either prorated or fixed, of all, or a majority, of a particular property's operating expenses, including real estate taxes, special assessments, utilities, insurance, common area maintenance and building repairs, as well as base rent or percentage rent payments.  The majority of the revenue from the Company's properties consists of rents received under long-term operating leases.  Some leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants to the Company for the tenant's pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the landlord and recoverable under the terms of the lease.  Under these leases, the landlord pays all expenses and is reimbursed by the tenant for the tenant's pro rata share of recoverable expenses paid.  Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed based rent as well as all costs and expenses associated with occupancy.  Under net leases where all expenses are paid directly by the tenant rather than the landlord, such expenses are not included in the Consolidated Statements of Operations.  Under net leases where all expenses are paid by the landlord, subject to reimbursement by the tenant, the expenses are included within property operating expenses and reimbursements are included in tenant recovery income on the Consolidated Statements of Operations.  Ground Leases  The Company leases land under noncancelable operating leases at certain of the properties which expire in various years from 2020 to 2084.  Ground lease rent is recorded on a straight-line basis over the term of each lease.  For the three  -23-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   months ended March 31, 2008 and 2007, ground lease rent was $403 and $132, respectively.  Minimum future rental payments to be paid under the ground leases are as follows:  Minimum LeasePayments2008$7342009983201098920119902012992Thereafter40,266Total$44,954  (8) Mortgages, Notes and Margins Payable  Mortgage loans outstanding as of March 31, 2008 were $3,846,350 and had a weighted average interest rate of 5.41%.  As of March 31, 2008, scheduled maturities for the Company's outstanding mortgage indebtedness had various due dates through April 2037.  20082009201020112012ThereafterMaturing debt :Fixed rate debt (mortgage     loans)--183,882103,66794,0272,419,103Variable rate debt (mortgage     loans)340,969242,334341,30016,2977,70997,062Weighted average interest rate on debt:Fixed rate debt (mortgage     loans)--5.05%5.19%5.73%5.73%Variable rate debt (mortgage     loans)5.20%4.55%4.39%4.74%4.81%4.81%  Some of the mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations.  As of March 31, 2008, the Company was in compliance with such covenants.  The debt maturity excludes mortgage discounts associated with debt assumed at acquisition of which $7,396, net of accumulated amortization, was outstanding at March 31, 2008.  As of March 31, 2008, in connection with six mortgages payables that have variable interest rates, we have entered into interest rate swap agreements, with a notional value of $624,105, that converted the variable-rate debt to fixed.   The interest rate swaps were considered effective as of March 31, 2008.  The following table summarizes our interest rate swap contracts outstanding as of March 31, 2008 (dollar amounts stated in thousands):  SWAP EndPayReceive FloatingNotionalFair Value as ofDate EnteredEffective DateDate (1)Fixed RateRate IndexAmountMarch 31, 2008 (2)November 16, 2007November 20, 2007April 1, 20114.45%1 month LIBOR$    24,425(1,284)  -24-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008    December 14, 2007December 18, 2007December 10, 20084.32%1 month LIBOR281,168(4,045)February 6, 2008February 6, 2008January 29, 20104.39%1 month LIBOR200,000(1,264)March 28, 2008March 28, 2008March 27, 20133.32%1 month LIBOR33,062(200)March 28, 2008March 28, 2008March 31, 20112.81%1 month LIBOR50,000(256)March 28, 2008March 28, 2008March 27, 20102.40%1 month LIBOR35,450(63)$  624,105$    (7,112)  (1)  Swap end date represents the outside date of the interest rate swap for the purpose of establishing its fair value.  (2)  The fair value was determined by a discounted cash flow model based on changes in interest rates.  Two interest rate swaps entered into in December 2007 were not considered effective until January 8, 2008 and we recorded a loss and related liability of $1,293 for the three months ended March 31, 2008.  Such loss is included in interest expense on the Consolidated Statement of Operations and the liability is included in other liabilities on the Consolidated Balance Sheet.  The Company has purchased a portion of its securities through margin accounts.  As of March 31, 2008, the Company has recorded a payable of $142,310 for securities purchased on margin.  This debt bears a variable interest rate of LIBOR plus 25 and 50 basis points.  At March 31, 2008, this rate was equal to 3.224% to 3.474%.  (9) Income Taxes  The Company is qualified and has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, for federal income tax purposes commencing with the tax year ending December 31, 2005.  Since the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal income tax on taxable income that is distributed to stockholders.  A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its REIT taxable income to stockholders (determined without regard to the deduction for dividends paid and by excluding any net capital gain).  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on its taxable income at regular corporate tax rates.  Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, property or net worth and federal income and excise taxes on its undistributed income.  In 2007, the Company formed the following wholly-owned taxable REIT subsidiaries in connection with the acquisition of the lodging portfolios and student housing: Barclay Holdings, Inc., Inland American Holding TRS, Inc., and Inland American Communities Third Party, Inc. Taxable income from non-REIT activities managed through these taxable REIT subsidiaries is subject to federal, state, and local income taxes. As such, the Companys taxable REIT subsidiaries are required to pay income taxes at the applicable rates.  Taxable REIT Subsidiaries  The components of income tax expense of the Companys taxable REIT subsidiaries for the three months ended March 31, 2008 consist of the following:  FederalStateTotalCurrent$112$(23)$89Deferred14314157Total expense$255$(9)$246  -25-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008      The components of the deferred tax assets relating to the Companys taxable REIT subsidiaries as of March 31, 2008 were as follows:  Net operating loss - TRS.$4,968Lease acquisition costs - Barclay Holding, Inc.2,981Total deferred tax assets7,949Less:  Valuation allowance(4,275)Net realizable deferred tax asset$3,674  The Company has estimated its income tax expense using a combined federal and state rate of 37.3%.  Texas Margin Tax  In 2006, the state of Texas enacted new tax legislation.  This legislation restructured the state business tax in Texas by replacing the taxable capital and earned surplus components of the current franchise tax with a new margin tax, which for financial reporting purposes is considered an income tax.  As such, the Company has recorded income tax expense of $272 and $113 for the three months ended March 31, 2008 and 2007, respectively and has recorded a net deferred tax liability related to temporary differences of $1,385 and $1,506 for the three months ended March 31, 2008 and 2007, respectively.  Income tax expense for the three months ended March 31, 2008 and 2007 consists of the following:  20082007Current$393$-Deferred(121)113Total expense$272$113  For the three months ended March 31, 2008, income tax expense of $518 is comprised of federal, state and local tax expense on wholly-owned taxable REIT subsidiaries in addition to Texas margin tax from all operations.  (10)  Segment Reporting  The Company has five business segments: Office, Retail, Industrial, Lodging and Multi-family.  The Company evaluates segment performance primarily based on net property operations.  Net property operations of the segments do not include interest expense, depreciation and amortization, general and administrative expenses, minority interest expense or interest and other investment income from corporate investments.  Concentration of credit risk with respect to accounts receivable is limited due to the large number of tenants comprising the Company's rental revenue.  One tenant, AT&T, Inc., accounted for 12% and 20% of consolidated rental revenues for the three months ended March 31, 2008 and 2007, respectively.  This concentration of revenues by one tenant increases the Company's risk associated with nonpayment by this tenant.  In an effort to reduce risk, the Company performs ongoing credit evaluations of its larger tenants.  -26-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   The following table summarizes net property operations income by segment for the three months ended March 31, 2008.  TotalOfficeRetailIndustrialLodgingMulti-FamilyProperty rentals$93,200$26,138$45,664$15,979$-$5,419Straight-line rents4,2201,3301,6621,228--Amortization of acquired above   and below market leases, net54(240)383(89)--Total rentals$97,474$27,228$47,709$17,118$-$5,419Tenant recoveries18,0906,48210,661947--Other income3,0651,75376631-515Lodging operating income116,893---116,893-Total revenues$235,522$35,463$59,136$18,096$116,893$5,934Operating expenses$105,954$11,235$16,665$1,759$73,266$3,029Net property operations$129,568$24,228$42,471$16,337$43,627$2,905Depreciation and amortization$(73,072)General and administrative$(6,627)Interest and other investment   income$17,627Interest expense$(49,763)Income tax benefit$(518)Other income (loss)$(585)Realized loss on securities,   net$(3,912)Equity in earnings (loss) of   unconsolidated entities$2,137Impairment of investment in   unconsolidated entities(1,419)Minority interest$(2,379)Net income applicable to   common shares$11,057Balance Sheet Data:Real estate assets, net$7,424,626$1,254,969$2,736,332$802,344$2,429,170$201,811Capital expenditures32,0714,2842,3673525,35926Non-segmented assets2,142,185Total assets$9,598,882   -27-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   The following table summarizes net property operations income by segment for the three months ended March 31, 2007.  TotalOfficeRetailIndustrialMulti-FamilyProperty rentals$48,030$20,871$18,570$7,679$910Straight-line rents2,5401,166639735-Amortization of acquired above and below market leases, net(9)(202)239(46)-Total rentals$50,561$21,835$19,448$8,368$910Tenant recoveries11,5505,0036,190357-Other income1,6201,170398745Total revenues$63,731$28,008$26,036$8,732$955Operating expenses$16,921$7,580$8,309$743$289Net property operations$46,810$20,428$17,727$7,989$666Depreciation and   amortization$(26,570)Business manager management fee$(1,500)General and administrative$(3,109)Interest and other investment income$10,430Interest expense$(17,610)Income tax expense$(219)Other income$130Realized gain on securities, net$5,688Minority interest$(2,338)Net income applicable to common shares$11,712Balance Sheet Data:Real estate assets, net$2,772,888$1,159,874$1,075,056$457,136$80,822Capital expenditures1,2981,020278--Non-segmented assets1,518,905Total assets$4,293,091   -28-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   (11)  Earnings (loss) per Share  Basic earnings (loss) per share ("EPS") are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the "common shares").  Diluted EPS is computed by dividing net income (loss) by the common shares plus shares issuable upon exercising options or other contracts. As a result of the net income for the three months ended March 31, 2008 and 2007, the diluted weighted average shares outstanding do not give effect to common stock equivalents as to do so would be anti-dilutive because of a net loss or immaterial because of the immaterial number of common stock equivalents.  The basic and diluted weighted average number of common shares outstanding was 575,543,596 and 205,589,116 for the three months ended March 31, 2008 and 2007.  (12)  Commitments and Contingencies  The Company has closed on several properties which have earnout components, meaning the Company did not pay for portions of these properties that were not rent producing.  The Company is obligated, under certain agreements, to pay for those portions when the tenant moves into its space and begins to pay rent.  The earnout payments are based on a predetermined formula. Each earnout agreement has a time limit regarding the obligation to pay any additional monies.  If at the end of the time period allowed certain space has not been leased and occupied, the Company will own that space without any further obligation. Based on pro forma leasing rates, the Company may pay as much as $33,140 in the future as vacant space covered by earnout agreements is occupied and becomes rent producing.  The Company has entered into interest rate and treasury rate lock agreements with lenders to secure interest rates on mortgage debt on properties the Company owns or will purchase in the future.  The deposits are applied as credits to the mortgage funding as they occur.  As of March 31, 2008, the Company has approximately $5,935 of rate lock deposits outstanding.  The agreements locked interest rates ranging from 4.676% to 5.65% on approximately $66,800 in principal.  As of March 31, 2008, the Company had outstanding commitments to fund approximately $400,000 into joint ventures or mortgage notes.  The Company intends on funding these commitments with cash on hand of approximately $368,000 and anticipated capital raised through our second offering of approximately $540,000 (net of offering costs) through June 30, 2008.  Contemporaneous with our merger with Winston Hotels, Inc., our wholly owned subsidiary, Inland American Winston Hotels, Inc., referred to herein as Inland American Winston, WINN Limited Partnership, or WINN, and Crockett Capital Corporation, or Crockett, memorialized in a development memorandum their intentions to subsequently negotiate and enter into a series of contracts to develop certain hotel properties, including without limitation a Westin Hotel in Durham, North Carolina, a Hampton Inn & Suites/Aloft Hotel in Raleigh, North Carolina, an Aloft Hotel in Chapel Hill, North Carolina and an Aloft Hotel in Cary, North Carolina (collectively referred to herein as the development hotels).  On March 6, 2008, Crockett filed an amended complaint in the General Court of Justice of the State of North Carolina against Inland American Winston and WINN.  The complaint alleges that the development memorandum reflecting the parties intentions regarding the development hotels was instead an agreement that legally bound the parties.  The complaint further claims that Inland American Winston and WINN breached the terms of the alleged agreement by failing to take certain actions to develop the Cary, North Carolina hotel and by refusing to convey their rights in the three other development hotels to Crockett.  The complaint seeks, among other things, monetary damages in an amount not less than $4,800 with respect to the Cary, North Carolina property.  With respect to the remaining three development hotels, the complaint seeks specific performance in the form of an order directing Inland American Winston and WINN to transfer their rights in the hotels to Crockett or, alternatively, monetary damages in an amount not less than $20.1 million.   -29-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   Inland American Winston and WINN deny these claims and, on March 26, 2008, filed a motion to dismiss the amended complaint.  Inland American Winston and WINN contend that the development memorandum was not a binding agreement but rather merely an agreement to negotiate and potentially enter into additional contracts relating to the development hotels, and therefore is unenforceable as a matter of law.  Inland American Winston and WINN have requested that the General Court of Justice of the State of North Carolina dismiss the amended complaint in its entirety, with prejudice.   In a separate matter, on February 20, 2008, Crockett has filed a demand for arbitration with the American Arbitration Association against Inland American Winston and WINN with respect to three construction management services agreements entered into by the parties in August 2007. The demand claims that Inland American Winston and WINN have failed to pay Crockett certain fees in exchange for Crockett providing construction management services for our hotel properties located in Chapel Hill, North Carolina, Jacksonville, Florida and Roanoke, Virginia. Pursuant to this arbitration demand, Crockett is seeking damages in an aggregate amount not less than $281.  On March 17, 2008, Inland American Winston and WINN filed an answer to this demand stating that they had paid Crockett the amounts due under the agreements and that all other damages sought by Crockett are penalty payments unenforceable against them.  The outcome of these actions cannot be predicted with any certainty and management is currently unable to estimate an amount or range of potential loss that could result if an unfavorable outcome occurs. While management does not believe that an adverse outcome in either action would have a material adverse effect on the Companys financial condition, there can be no assurance that an adverse outcome would not have a material effect on the Companys results of operations for any particular period.  (13) Fair Value Disclosures  The Companys valuation of marketable equity securities utilize unadjusted quoted prices determined by active markets for the specific securities the Company has invested in, and therefore fall into Level 1 of the fair value hierarchy.  The Companys valuation of its interest rate derivative instruments fall into Level 2, and are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative.  This analysis reflects the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including forward curves.  The Companys valuation of its put/call agreement in MB REIT is determined using present value estimates of the put liability based on probably dividend yields.  For assets and liabilities measured at fair value on a recurring basis, quantitative disclosure of the fair value for each major category of assets and liabilities is presented below:  Fair Value Measurements at March 31, 2008Using Quoted Prices in Active Markets for Identical AssetsUsing Significant Other Observable InputsUsing Significant Other Unobservable InputsDescription(Level 1)(Level 2)(Level 3)Available-for-sale securities$     344,847Total assets$     344,847Derivative interest rate instruments liabilities$     (7,112)Put/call agreement in MB REIT$     (2,720)Total liabilities$     (7,112)$     (2,720)  -30-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008      (14)  New Accounting Pronouncements  In March 2008, the FASB issued Statement No. 161 Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133.  This Statement amends Statement No. 133 to provide additional information about how derivative and hedging activities affect an entitys financial position, financial performance, and cash flows.  The Statement requires enhanced disclosures about an entitys derivatives and hedging activities.  Statement No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008.  The Company is currently evaluating the application of this Statement and anticipates the Statement will not have an effect on its results of operations or financial position as the Statement only provides for new disclosure requirements.  In December 2007, the FASB issued Statement No. 160 "Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No. 51. This Statement amends Accounting Research Bulletin (ARB) 51 to establish accounting and reporting standards for the noncontrolling interest (previously referred to as a minority interest) in a subsidiary and for the deconsolidation of a subsidiary. The Statement also amends certain of ARB 51s consolidation procedures for consistency with the requirements of FASB Statement No. 141 (Revised) Business Combinations. Statement No. 160 will require noncontrolling interests to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. Statement No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008.  The Company is currently evaluating the application of this Statement and its effect on the Company's financial position and results of operations.  Also in December 2007, the FASB issued Statement No. 141 (Revised) "Business Combinations. This Statement establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and any goodwill acquired in the business combination or a gain from a bargain purchase. This Statement requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at full fair value. Statement No. 141 (Revised) must be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early application is prohibited. The Company is currently evaluating the application of this Statement and its effect on the Company's financial position and results of operations.  In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, ("SFAS 159"), The Fair Value Option for Financial Assets and Financial Liabilities.  SFAS 159 allows entities to voluntarily choose, at specified election dates, to measure many financial assets and financial liabilities (as well as certain non-financial instruments that are similar to financial instruments) at fair value.  The election is made on an instrument-by-instrument basis and is irrevocable.  If the fair value option is elected for an instrument, SFAS 159 specifies that all subsequent changes in fair value for that instrument shall be reported in earnings.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  The Company has elected not to adopt the fair value option for any such financial assets and liabilities.  In September 2006, FASB issued Statement No. 157 Fair Value Measurements.  This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  This Statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments transactions under FASB Statement No. 123 (Revised) Share-Based Payment.  This Statement was effective for financial statements issued for fiscal years beginning after November 15, 2007, except for non-financial assets and liabilities, for which this Statement will be effective for years beginning after November 15, 2008.  The Company is evaluating the effect of implementing the Statement relating to such non-financial assets and liabilities, although the Statement does not require any new fair value measurements or remeasurements of previously reported fair values.    -31-  INLAND AMERICAN REAL ESTATE TRUST, INC.(A Maryland Corporation)Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)
March31, 2008   (15)  Subsequent Events  We paid distributions to our stockholders of $.05167 per share totaling $30,743 and $31,817 in April and May 2008.  The Company is obligated under earnout agreements to pay additional funds after certain tenants move into the applicable vacant space and begin paying rent.  During the period from April 1, 2008 through May 14, 2008, the Company funded earnouts totaling $1,965 at one of the existing properties.  The mortgage debt financings obtained subsequent to March 31, 2008, are detailed in the list below.  PropertyDate of FinancingApproximate Amount of Loan ($)Interest Per AnnumMaturity DatePersis Portfolio04/03/0816,8005.65%05/01/33Atlas Portfolio04/04/0844,4865.87%04/04/13  During the month of April, the Company funded $30,477 to Lauth Investment Properties, LLC   -32-    Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations  We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission ("SEC").  The public may read and copy any of the reports that are filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549-3628.  The public may obtain information on the operation of the Public Reference room by calling the SEC at (800)-SEC-0330.  The SEC maintains an Internet site at (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.  Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995.  Forward-looking statements are statements that are not historical, including statements regarding management's intentions, beliefs, expectations, representations, plans or predictions of the future and are typically identified by words such as "believe," "expect," "anticipate," "intend," "estimate," "may," "will," "should" and "could."  The Company intends that such forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements involve numerous risks and uncertainties that could cause our actual results to be materially different from those set forth in the forward-looking statements.  These forward-looking statements are qualified by the factors which could affect our performance are set forth in our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on March 31, 2007, under the heading "Risk Factors."  The following discussion and analysis relates to the three months ended March 31, 2008 and 2007 and as of March 31, 2008 and December 31, 2007.  You should read the following discussion and analysis along with our Consolidated Financial Statements and the related notes included in this report. (Dollar amounts stated in thousands, except for per share revenue per available room and average daily rate).  Overview  We seek to invest in real estate assets that we believe will produce attractive current yields and long-term risk-adjusted returns to our stockholders and to generate sustainable and predictable cash flow from our operations to distribute to our stockholders.  To achieve these objectives, we selectively acquire and actively manage investments in commercial real estate.  Our property managers for our non-lodging properties actively seek to lease and release space at favorable rates, control expenses, and maintain strong tenant relationships.  We oversee the management of our lodging facilities through active engagement with our third party managers and franchisors.  On a consolidated basis, essentially all of our revenues and operating cash flows for the three months ended March 31, 2008 were generated by collecting rental payments from our tenants, room revenues from lodging properties, interest income on cash investments, and dividend and sale income earned from investments in marketable securities.  Our largest cash expense relates to the operation of our properties as well as the interest expense on our mortgages and notes payable.  Our property operating expenses include, but are not limited to, real estate taxes, regular maintenance, utilities, insurance, landscaping, snow removal and periodic renovations to meet tenant needs.  In evaluating our financial condition and operating performance, management focuses on the following financial and non-financial indicators, discussed in further detail herein:  · Funds from Operations ("FFO"), a supplemental measure to net income determined in accordance with U.S. generally accepted accounting principles ("GAAP"). · Economic occupancy (or "occupancy" - defined as actual rental revenues recognized for the period indicated as a percentage of gross potential rental revenues for that period), lease percentage (the percentage of available net rentable area leased for our commercial segments and percentage of apartment units leased for our residential segment) and rental rates. · Leasing activity - new leases, renewals and expirations. · Average daily room rate, revenue per available room, and average occupancy to measure our lodging properties.      -33-    Properties  General  As of March 31, 2008, we, directly or indirectly, including through joint ventures in which we have a controlling interest, owned fee simple and leasehold interests in 784 properties, excluding our lodging and development properties, located in 33 states.  In addition, we, through our wholly owned subsidiaries, Inland American Winston Hotels, Inc., Inland American Orchard Hotels, Inc., Inland American Urban Hotels, Inc., and Inland American Lodging Corporation, owned 98 lodging properties in 24 states.  We own interests in retail, office, industrial/distribution, multi-family properties, development properties and lodging properties.  The following table sets forth information regarding the 10 individual tenants comprising the greatest 2008 annualized base rent based on the properties owned as of March 31, 2008, excluding our lodging and development properties. (Dollar amounts stated in thousands, except for revenue per available room and average daily rate).  Tenant NameTypeAnnualized Base Rental Income ($)% of Total Portfolio Annualized IncomeSquare Footage% of Total Portfolio Square FootageSunTrust BankRetail/Office52,98913.74%2,270,7016.45%AT&T CentersOffice44,77011.61%3,610,42410.25%Atlas Cold StorageIndustrial/Distribution12,3703.21%1,896,8155.39%C&S WholesalersIndustrial/Distribution10,4962.72%1,720,0004.88%Stop & ShopRetail10,1642.63%601,6521.71%Citizens BankRetail9,1022.36%907,0052.58%Lockhead MartinOffice8,6482.24%340,7720.97%Cornerstone Consolidated Srvs GroupIndustrial/Distribution5,6171.46%970,1682.75%Randall's Food and DrugRetail5,5571.44%650,1371.85%Pearson Education, IncIndustrial/Distribution3,6650.95%1,091,4353.10%  The following tables set forth certain summary information about the properties as of March 31, 2008 and the location and character of the properties that we own.  (Dollar amounts stated in thousands, except for revenue per available room and average daily rate).  Retail Segment  Retail PropertiesLocationGLA Occupied as of 03/31/08% Occupied as of 03/31/08Number of Occupied Tenants as of 03/31/08Mortgage Payable as of 03/31/08 ($)Bradley PortfolioMultiple States114,308100%511,126Citizens PortfolioMultiple States993,926100%160200,000NewQuest PortfolioMultiple States2,046,15892%43537,394Six Pines PortfolioMultiple States1,374,50991%246158,500Stop & Shop PortfolioMultiple States599,830100%985,053SunTrust PortfolioMultiple States1,976,720100%420464,672Paradise Shops of LargoLargo, FL50,44192%57,325Buckhorn PlazaBloomsburg, PA78,15998%149,025Lakewood Shopping Center, Phase 1Margate, FL142,17795%2911,715Monadnock MarketplaceKeene, NH200,791100%1226,785Triangle CenterLongview, WA244,39697%3523,600Canfield PlazaCanfield, OH86,83986%97,575Shakopee Shopping CenterShakopee, MN35,97235%18,800Plaza at Eagles LandingStockbridge, GA29,26588%95,310  -34-     Brooks CornerSan Antonio, TX165,38896%2014,276Lincoln MallLincoln, RI409,72693%3933,835The Market at HilliardHilliard, OH113,62099%1311,220Fabyan RandallBatavia, IL85,53594%1213,405Lincoln VillageChicago, IL163,168100%2922,035Parkway Center North (Stringtown)Grove City, OH128,45797%11-Sherman PlazaEvanston, IL143,94695%1830,275New Forest Crossing IIHouston, TX26,700100%83,438State Street MarketRockford, IL193,657100%610,450Market at Morse/HamiltonGahanna, OH44,742100%127,893Wickes - Lake ZurichLake Zurich, IL42,792100%15,767Parkway Centre North Outlot Building BGrove City, OH10,245100%6-Crossroads at Chesapeake SquareChesapeake, VA117,35196%2011,210Chesapeake CommonsChesapeake, VA79,476100%38,950Gravois Dillon Plaza Phase I and IIHigh Ridge, MO145,11098%2312,630Pavilions at Hartman HeritageIndependence, MO203,19191%2323,450Shallotte CommonsShallotte, NC85,897100%116,078Legacy CrossingMarion, OH128,18495%1610,890Northwest MarketplaceHouston, TX180,52097%2819,965Lakewood Shopping Center, Phase IIMargate, FL87,602100%6-Washington Park PlazaHomewood, IL229,70797%2730,600Lord Salisbury CenterSalisbury, MD113,821100%1112,600Riverstone Shopping CenterMissouri City, TX264,90997%15-Middleburg CrossingMiddleburg, FL60,22094%11-Spring Town Center IIISpring, TX23,78878%6-Lakeport CommonsSioux City, IA259,25192%27-Forest PlazaFond du Lac, WI119,85998%72,235Streets of CranberryCranberry Township, PA85,92380%2224,425McKinney TC OutlotsMcKinney, TX17,600100%5-Penn ParkOklahoma City, OK241,434100%1931,000Total Retail Properties11,945,31095% (1)1,844$     1,403,507  (1) weighted average physical occupancy  The square footage for New Quest Portfolio, Six Pines Portfolio, Northwest Marketplace, Brooks Corner, Crossroads at Chesapeake Square, Lakewood Shopping Center, Lincoln Mall, Lincoln Village, Market at Morse, Gravois Dillon Plaza, Buckhorn Plaza, Forest Plaza, McKinney Town Center, Penn Park, and Washington Park Plaza includes an aggregate of 742,481 square feet leased to tenants under ground lease agreements.  Office Segment  Office PropertiesLocationGLA Occupied as of 03/31/08% Occupied as of 03/31/08Number of Occupied Tenants as of 03/31/08Mortgage Payable as of 03/31/08 ($)Bradley PortfolioMultiple States541,710100%754,415NewQuest PortfolioMultiple States21,61676%3-SunTrust Office I PortfolioMultiple States167,048100%822,560SunTrust Office II GeorgiaAtlanta, GA44,054100%14,402  -35-     SunTrust Office III PortfolioMultiple States82,879100%45,472Lakeview Technology CenterSuffolk, VA110,007100%214,470Bridgeside PointPittsburgh, PA153,110100%117,325SBC CenterHoffman Estates, IL1,690,214100%1200,472Dulles Executive Plaza I and IIHerndon, VA360,49395%668,750IDSMinneapolis, MN1,338,57790%292161,000Washington MutualArlington, TX239,905100%120,115AT&T St.LouisSt. Louis, MO1,461,274100%1112,695AT&T ClevelandCleveland, OH458,936100%129,242Worldgate PlazaHerndon, VA293,03791%659,950Total Office Properties6,962,86097% (1)334770,868  (1) weighted average physical occupancy  Industrial Segment  Industrial/Distribution PropertiesLocationGLA Occupied as of 03/31/08% Occupied as of 03/31/08Number of Occupied Tenants as of 03/31/08Mortgage Payable as of 03/31/08 ($)Bradley Portfolio (2)Multiple States5,076,43986%19206,080C&S PortfolioMultiple States1,720,000100%482,500Persis PortfolioMultiple States583,900100%2-McKesson Distribution CenterConroe, TX162,613100%15,760Thermo Process FacilitySugarland, TX150,000100%18,201Schneider ElectricLoves Park, IL545,000100%111,000Prologis PortfolioMultiple States2,011,15587%3532,450Atlas Cold Storage PortfolioMultiple States1,896,815100%1150,000Total Industrial/Distribution Properties12,145,92291% (1)74395,991  (1) weighted average physical occupancy (2) the portfolio has 100% economic occupancy  Multi-family Segment  Multi-Family PropertiesLocationGLA Occupied as of 03/31/08% Occupied as of 03/31/08Number of Occupied Units as of 03/31/08Mortgage Payable as of 03/31/08 ($)Fields Apartment HomesBloomington, IN301,53393%28818,700Southgate ApartmentsLouisville, KY205,70488%25610,725The Landings at Clear LakesWebster, TX288,42385%36418,590The Villages at Kitty HawkUniversal City, TX214,40287%30811,550Waterford Place at Shadow CreekPearland, TX281,25986%29616,500Encino Canyon ApartmentsSan Antonio, TX222,06488%22812,000Seven PalmsWebster, TX290,43887%36018,750University House at UABBirmingham, AL130,50269%496-Total Multi-Family Properties1,934,32586% (1)2,596$           106,815 (1) weighted average physical occupancy  -36-     Lodging Segment  Lodging PropertiesLocationFranchisor (1)Number of RoomsRevenue Per Available Room for the Period Ended 03/31/08 ($)Average Daily Rate for the Period Ended 03/31/08 ($)Occupancy for the Period Ended 03/31/08Mortgage Payable As of
03/31/08 ($)Inland American Winston Hotels, Inc.Comfort Inn RiverviewCharleston, SCChoice129518560%-Comfort Inn UniversityDurham, NCChoice136407454%-Comfort Inn Cross CreekFayetteville, NCChoice123688481%-Comfort Inn OrlandoOrlando, FLChoice214507071%-Courtyard by MarriottAnn Arbor, MIMarriott1607711368%12,225Courtyard by Marriott   BrookhollowHouston, TXMarriott1977512859%-Courtyard by Marriott   NorthwestHouston, TXMarriott1267812861%7,263Courtyard by Marriott   Roanoke AirportRoanoke, VAMarriott1359113767%14,651Courtyard by Marriott   Chicago- St. CharlesSt. Charles, ILMarriott1215410850%-Courtyard by MarriottWilmington, NCMarriott1286910466%-Courtyard By Marriott   Richmond AirportSandston (Richmond), VAMarriott1428511475%-Fairfield InnAnn Arbor, MIMarriott110499054%-Hampton Inn Suites Duluth-
  GwinnettDuluth, GAHilton1366510462%9,585Hampton Inn Baltimore-Inner
  HarborBaltimore, MDHilton1169115957%14,000Hampton Inn Raleigh-CaryCary, NCHilton129669669%-Hampton Inn University PlaceCharlotte, NCHilton1266510363%-Comfort Inn Medical ParkDurham, NCChoice136397155%-Hampton InnJacksonville, NCHilton122849588%-Hampton Inn Atlanta-  Perimeter CenterAtlanta, GAHilton1317811965%8,450Hampton Inn Crabtree ValleyRaleigh, NCHilton1415910655%-Hampton Inn White Plains-
  TarrytownElmsford, NYHilton1568315953%15,643Hilton Garden Inn Albany   AirportAlbany, NYHilton1557913161%-Hilton Garden Inn Atlanta   WinwardAlpharetta, GAHilton1647413455%10,503Hilton Garden InnEvanston, ILHilton1788313661%19,928Hilton Garden Inn RDU   AirportMorrisville, NCHilton1559613770%-Hilton Garden Inn ChelseaNew York, NYHilton16913321661%-Hilton Garden Inn Hartford   North Bradley InternationalWindsor, CTHilton1577413355%10,384Holiday Inn Express   Clearwater GatewayClearwater, FLIHG1267511466%-Holiday Inn Harmon Meadow-
   SecaucusSecaucus, NJIHG1619114463%-Homewood SuitesCary, NCHilton1508912372%12,747Homewood SuitesDurham, NCHilton967810575%7,950Homewood Suites Houston-
   ClearlakeHouston, TXHilton929611782%7,222Homewood SuitesLake Mary, FLHilton1129111976%9,900  -37-     Homewood Suites Metro   CenterPhoenix, AZHilton12610214172%6,330Homewood SuitesPrinceton, NJHilton1427512759%-Homewood Suites Crabtree   ValleyRaleigh, NCHilton1377412261%12,868Quality SuitesCharleston, SCChoice168699573%10,350Residence InnPhoenix, AZMarriott1688515355%-Residence Inn Roanoke AirportRoanoke, VAMarriott797012556%5,762Towneplace Suites NorthwestAustin, TXMarriott127689571%-Towneplace Suites Birmingham-HomewoodBirmingham, ALMarriott128448452%-Towneplace SuitesCollege Station,   TXMarriott94618473%-Towneplace Suites NorthwestHouston, TXMarriott1286411059%-Towneplace SuitesHouston, TX   (Clearlake)Marriott94739974%-Courtyard by Marriott Country   Club PlazaKansas City, MOMarriott1238814561%10,535Hilton Garden InnNorth Canton,   OHHilton1218113958%7,709Hilton Garden InnWilmington, NCHilton1196411457%-Inland American Orchard Hotels, Inc.Courtyard by Marriott   Williams CenterTucson, AZMarriott1539813572%16,030Courtyard by MarriottLebanon, NJMarriott1257512659%10,320Courtyard by Marriott QuorumAddison, TXMarriott1768512668%18,860Courtyard by MarriottHarlingen, TXMarriott1146710167%6,790Courtyard by Marriott WestchaseHouston, TXMarriott1539914469%16,680Courtyard by Marriott West   UniversityHouston, TXMarriott10010313874%10,980Courtyard by Marriott West   Lands EndFort Worth, TXMarriott927811469%7,550Courtyard by Marriott Dunn   Loring-FairfaxVienna, VAMarriott2069015060%30,810Courtyard by Marriott Seattle-
  Federal WayFederal Way,   WAMarriott16010313477%22,830Hilton Garden Inn Tampa   YborTampa, FLHilton9514317184%9,460Hilton Garden InnWestbury, NYHilton14012115877%21,680Homewood Suites Colorado   Springs NorthColorado   Springs, COHilton127469051%7,830Homewood SuitesBaton Rouge,   LAHilton11510713182%12,930Homewood SuitesAlbuquerque, NMHilton151749975%10,160Homewood Suites Cleveland-SolonSolon, OHHilton867411266%5,490Residence Inn Williams CentreTucson, AZMarriott12011414877%12,770Residence Inn Cypress- Los   AlamitosCypress, CAMarriott15510313477.%20,650  -38-     Residence Inn South   Brunswick-CranburyCranbury, NJMarriott1087011859%10,000Residence Inn Somerset-  FranklinFranklin, NJMarriott1088310878%9,890Residence InnHauppauge, NYMarriott10010413578%10,810Residence Inn Nashville   AirportNashville, TNMarriott168809684%12,120Residence Inn West UniversityHouston, TXMarriott12010513577%13,100Residence InnBrownsville, TXMarriott1028010874%6,900Residence Inn DFW Airport   NorthDallas-Fort   Worth, TXMarriott1009112076%9,560Residence Inn WestchaseHouston   Westchase, TXMarriott1209512178%12,550Residence Inn Park CentralDallas, TXMarriott1397010169%8,970SpringHill SuitesDanbury, CTMarriott1067411067%9,130Inland American Urban Hotels, Inc. (2)Courtyard by MarriottAnnapolis-Ft Meade, MDMarriott1409113368%14,400Marriott Atlanta Century CenterAtlanta, GAMarriott2878512866%16,704Courtyard by MarriottBirmingham, ALMarriott12211214080%10,500Marriott Residence InnCambridge, MAMarriott22114817385%44,000Courtyard by MarriottElizabeth, NJMarriott2039010883%16,030Marriott Residence InnElizabeth, NJMarriott1988911478%17,700Courtyard by MarriottFt Worth, TXMarriott20311615475%15,570Marriott Residence InnPoughkeepsie, NYMarriott12810514274%13,350Embassy SuitesBeachwood/
Cleveland, OHHilton2168712769%15,288MarriottChicago, ILMarriott11313616981%13,000DoubletreeWashington, DCHilton22014717285%26,398Residence InnBaltimore, MDMarriott18813916385%40,040Hilton Garden InnBurlington, MAHilton1797712562%15,529Hilton Garden InnWashington, DCHilton30019421391%61,000Hampton Inn SuitesDenver, COHilton1489213469%11,880Embassy SuitesHunt Valley, MDHilton2237911966%13,943Hilton SuitesPhoenix, AZHilton22614719874%22,882Hilton Garden InnColorado Springs, COHilton154389739%8,839Homewood SuitesHouston, TXHilton16212414188%15,500Hilton Garden InnSan Antonio, TXHilton1179012473%10,420Hyatt PlaceMedford/Boston, MAHyatt1577710871%13,404DoubletreeAtlanta, GAHilton1548111173%10,085Inland American Lodging CorporationHilton University of Florida Hotel & Convention CenterGainesville, FLHilton24810514672%27,775The Woodlands Waterway®
Marriott Hotel & Convention
CenterThe Woodlands,   TXMarriott34114920573%75,400Total Lodging Properties:14,4709112969%1,088,492   -39-    (1) Our hotels generally are operated under franchise agreements with franchisors including Marriott International, Inc. (Marriott), Hilton Hotels Corporation (Hilton), Intercontinental Hotels Group PLC (IHG) and Choice Hotels International (Choice). (2) The information presented reflects the period from February 8, 2008 to March 31, 2008.  Results of Operations  General  Consolidated Results of Operations  This section describes and compares our results of operations for the three months ended March 31, 2008 and 2007.  We generate most of our net operating income from property operations.  In order to evaluate our overall portfolio, management analyzes the operating performance of all properties from period to period and properties we have owned and operated for the same period during each year.  A total of 94 of our investment properties satisfied the criteria of being owned for the entire three month period ended March 31, 2007 and 2008, respectively, and are referred to herein as "same store" properties.  These properties comprise approximately 14.7 million square feet.  The "same store" properties represent approximately 42% of the square footage of our portfolio, excluding lodging properties, at March 31, 2008.  This analysis allows management to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio. Additionally, we are able to determine the effects of our new acquisitions on net income.  A majority of our "same store" properties are in the office, retail and industrial segments.  Therefore, "same store" analysis is only presented in the office, retail and industrial segment results. All dollar amounts are stated in thousands (except per share amounts, revenue per available room and average daily rate).  Comparison of the three months ended March 31, 2008 and March 31, 2007  Three months ended
March 31, 2008Three months ended
March 31, 2007Net Income$11,057$11,712Net Income per share.02.06  Net Income per share decreased from $.06 per share to $.02 per share for the three months ended March 31, 2008, compared to the three months ended March 31, 2007.  The primary reason for the decrease was a $5,688 realized gain on investment securities for the three months ended March 31, 2007, which increased net income per share by $.03/share.  For the three months ended March 31, 2008, we realized a $(3,912) loss on other than temporary impairments on investment securities which decreased net income per share by $.01.  Rental Income, Tenant Recovery Income, Lodging Income and Other Property Income.  Rental income consists of basic monthly rent, straight-line rent adjustments, amortization of acquired above and below market leases, fee income, and percentage rental income recorded pursuant to tenant leases.  Tenant recovery income consists of reimbursements for real estate taxes, common area maintenance costs, management fees, and insurance costs.  Lodging income consists of room revenues, food and beverage revenues, telephone revenues and miscellaneous revenues.  Other property income consists of other miscellaneous property income.  Total property revenues were $235,522 and $63,731 for the three months ended March 31, 2008 and 2007, respectively.  Except for our lodging properties, the majority of the revenue from the properties consists of rents received under long-term operating leases.  Some leases provide for the payment of fixed base rent paid monthly in advance, and for the reimbursement by tenants of the tenant's pro rata share of certain operating expenses including real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees, and certain building repairs paid by the landlord and recoverable under the terms of the lease.  Under these leases, we pay all expenses and are reimbursed by the tenant for the tenant's pro rata share of recoverable expenses.  Certain other tenants are subject to net leases which provide that the tenant is responsible for fixed based rent as well as all costs and expenses associated with occupancy.  Under net leases, where all expenses are paid directly by the tenant, expenses are not included in the consolidated statements of operations.  Under net leases where all expenses are paid by us, subject to reimbursement by the tenant, the expenses are included within property operating expenses, and reimbursements are included in tenant recovery income on the consolidated statements of operations.  -40-     Our lodging properties generate revenue through sales of rooms and associated food and beverage services.  We measure our financial performance by revenue generated per available room known as RevPAR, which is an operational measure commonly used in the hotel industry to evaluate hotel performance.  RevPAR represents the product of the average daily room rate charged and the average daily occupancy achieved but excludes other revenue generated by a hotel property, such as food and beverage, parking, telephone and other guest service revenues.  Three months ended March 31, 2008Three months ended March 31, 20072008 increase (decrease) from 2007Property rentals$93,200$48,030$45,170Straight-line rents4,2202,5401,680Amortization of acquired above and   below market leases, net54(9)63Total rental income$97,474$50,561$46,913Tenant recoveries18,09011,5506,540Other income3,0651,6201,445Lodging operating income116,893-116,893Total property revenues$235,522$63,731$171,791  Total property revenues increased $171,791 for the three months ended March 31, 2008 over the same period of the prior year.  The increase in property revenues in 2008 was due primarily to acquisitions of 675 properties since March 31, 2007.  Property Operating Expenses and Real Estate Taxes.  Property operating expenses for properties other than lodging consist of property management fees paid to property managers including affiliates of our sponsor and operating expenses, including costs of owning and maintaining investment properties, real estate taxes, insurance, utilities, maintenance to the exterior of the buildings and the parking lots.  Total expenses were $105,954 for the three months ended March 31, 2008 and $16,921 for the three months ended March 31, 2007, respectively.  Lodging operating expenses include the payroll, utilities, management fees paid to our third party operators, insurance, marketing, and other expenses required to maintain and operate our lodging facilities.  Three months ended March 31, 2008Three months ended March 31, 20072008 increase (decrease) from 2007Property operating expenses$21,291$10,284$11,007Lodging operating expenses68,254-68,254Real estate taxes16,4096,6379,772Total property expenses$105,954$16,921$89,033  Total operating expenses increased $89,033 for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 due primarily to effect of the properties acquired in 2007, including lodging facilities.  Other Operating Income and Expenses  Other operating expenses are summarized as follows:  Three months ended March 31, 2008Three months ended March 31, 20072008 increase (decrease) from 2007Depreciation and amortization$73,072$26,570$46,502Interest expense49,76317,61032,153General and administrative (1)6,6273,1093,518Business manager fee-1,500(1,500)  -41-     $129,462$48,789$80,673  (1)  Includes expenses paid to affiliates of our sponsor as described below.  Depreciation and amortization.  The $46,502 increase in depreciation and amortization expense for the three months ended March 31, 2008 relative to the three months ended March 31, 2007 was due substantially to the impact of the properties acquired in 2007 and the first quarter of 2008.  Interest expenseThe $32,153 increase in interest expense for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 was primarily due to mortgage debt financings during 2007 and first quarter 2008 which increased to $3,846,350 from $1,259,475.  A summary of interest expense for the three months ended March 31, 2008 and 2007 appears below:  Three months ended March 31, 2008Three months ended March 31, 20072008 increase (decrease) from 2007Debt TypeMargin and other interest expense$3,430$2,252$1,178Mortgages46,33315,35830,975Total$49,763$17,610$32,153  General and Administrative Expenses. General and administrative expenses consist of investment advisor fees, professional services, salaries and computerized information services costs reimbursed to affiliates or related parties of the business manager for, among other things, maintaining our accounting and investor records, directors' and officers' insurance, postage, board of directors fees, printer costs and state tax based on property or net worth.  Our expenses were $6,627 for the three months ended March 31, 2008 and $3,109 for the three months ended March 31, 2007, respectively.  The increase is due primarily to the growth of our asset and stockholder base during 2007 and 2008.  Business Manager Fee.  After our stockholders have received a non-cumulative, non-compounded return of 5% per annum on their "invested capital," we pay our business manager an annual business management fee of up to 1% of the "average invested assets," payable quarterly in an amount equal to 0.25% of the average invested assets as of the last day of the immediately preceding quarter.  We did not pay our business manager a business management fee for the three months ended March 31, 2008, we paid an investment advisory fees of approximately $618, which is less than the full 1% fee that the business manager is entitled to receive.  The $618 investment advisor fee is included in general and administrative expenses.  We paid our business manager $1,500 for the three months ended March 31, 2007.  The business manager has waived any further fees that may have been permitted under the agreement for the three months ended March 31, 2008 and 2007, respectively.  Once we have satisfied the minimum return on invested capital described above, the amount of the actual fee paid to the business manager is determined by the business manager up to the amount permitted by the agreement.  Interest and Dividend Income and Realized Gain on Securities.  Interest income consists of interest earned on short term investments and notes receivable.  Dividends are earned from investments in our portfolio of marketable securities.  We invest in marketable securities issued by other REIT entities, including those we may have an interest in acquiring, where we believe the yields and returns will exceed those of other short-term investments.  These investments have historically generated both current dividend income and gains on sale, offset by impairments on securities where we believe the decline in stock price are other than temporary.  Our interest and dividend income was $17,627 and $10,430 for the three months ended March 31, 2008 and 2007, respectively.  We realized a gain on sale of securities, of $5,688 for the three months ended March 31, 2007.  For the three months ended March 31, 2008, we realized a $(3,912) impairment loss on securities.   -42-     Three months ended March 31, 2008Three months ended March 31, 2007Interest Income$9,753$8,172Dividend Income7,8742,258Total$17,627$10,430Realized Gains on investment securities-5,688Other than temporary impairments(3,912)-Total13,71516,118  Interest income was $9,753 and $8,172 for the three months ended March 31, 2008 and 2007, respectively, resulting primarily from interest earned on cash investments and notes receivable which were greater during the three months ended March 31, 2008 due to an increase in notes receivable compared to the three months ended March 31, 2007.  Mortgage receivables increased from $69,221 at March 31, 2007 to $315,366 at March 31, 2008.  Our  notes receivable balance of $315,366 as of March 31, 2008 consisted of installment notes from unrelated parties that mature on various dates through May 2012 and installment notes assumed in the Winston acquisition.  The notes are secured by mortgages on vacant land and shopping center and lodging facilities.  Interest only is due each month at rates ranging from 7.1864% to 10.64% per annum.  For the three months ended March 31, 2008 and 2007, the Company recorded interest income from notes receivable of $6,074 and $1,374, respectively.  Dividend income increased by $5,324 for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 as a result of increasing our investments in marketable securities during 2007 and 2008.  Although the value of our investments declined during 2007, the securities we invested in maintained consistent dividend distributions during the three months ended March 31, 2008.  There is no assurance that we will be able to generate the same level of dividend income in the future.  The following analysis outlines our dividend performance.  March 31, 2008March 31, 2007Dividend income7,8742,258Margin interest expense(1,024)(630)Investment advisor fee(618)(354)6,2321,274Average investment in marketable securities (1)391,649151,273Average margin payable balance(108,781)(48,930)Net investment282,868102,343Leveraged yield (annualized)8.8%5.2%  (1) The average investment in marketable securities represents our cost basis of these securities.  Unrealized gains and losses, including impairments, are not reflected.  Our realized gains decreased by $9,600 for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 because we did not sell stock investments and recognized impairments during the three months ended March 31, 2008.  Other than temporary impairments were $3,912 for the three months ended March 31, 2008.  These impairments are recorded where we believe the individual securities have a larger decline and duration relative to the overall market and are not expected to recover in the near term based on the financial condition and near term prospects of the issuers.  Depending on market conditions, we may be required to further reduce the carrying value of our portfolio in future periods.  A discussion of our other than temporary impairment policy is included in the discussion of our Critical Accounting Policies and Estimates, below.  Equity in Earnings of Unconsolidated Entities.Our equity in earnings of unconsolidated entities increased to $2,137 from $84 as a result of our investment in unconsolidated entities increasing $573,584 from $17,675 at March 31, 2007 to $591,259 at March 31, 2008.  -43-     Impairment of Investment in Unconsolidated Entities.For the three months ended March 31, 2008, we recorded a $(1,419) loss on our investment in Feldman Mall Properties, Inc.  Based on recent operating losses, cash flow deficits and uncertain outlook for the company, we have recognized an impairment on our investment.  We may be required to further reduce the carrying value of our investment, which could have a material impact on our results of operating and funds from operations.  Other Income and Expense.Under the Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150") and the Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Financial Instruments and Hedging Activities" ("SFAS 133"), the put/call arrangements we entered into in connection with the MB REIT transaction discussed below are considered derivative instruments.  The asset and liabilities associated with these puts and calls are marked to market every quarter with changes in the value recorded as other income and expense in the consolidated statement of operations.  The value associated with the put/call arrangements was a liability of $2,720 and $2,349 as of March 31, 2008 and December 31, 2007, respectively.  Other income (expense) of $(371) and $46 was recognized for the three months ended March 31, 2008 and 2007, respectively. The liability associated with the put/call arrangements increased from December 31, 2007 to March 31, 2008 due to the life of the put/call being reduced and decrease in interest rates.  An analysis of results of operations by segment follows:  The following table summarizes certain key operating performance measures for the three months ended March 31, 2008 and 2007.  Office Segment  Total Office PropertiesAs of March 31,20082007Office PropertiesPhysical occupancy97%98%Economic occupancy97%98%Base rent per square foot$14.80$13.39  Our investments in office properties largely represent assets leased and occupied to either a diverse group of tenants or to single tenants that fully occupy the space leased.  Examples of the former include the IDS Center located in the central business district of Minneapolis, and Dulles Executive Plaza and Worldgate Plaza, both located in metropolitan Washington D.C. and catering to medium to high-technology companies.  Examples of the latter include three buildings leased and occupied by AT&T and located in three distinct US office markets - Chicago, St. Louis, and Cleveland.  In addition, our office portfolio includes properties leased on a net basis to AT&T, with the leased locations located in the east and southeast regions of the country.  We continue to see positive trends in our portfolio including high occupancy and increasing rental rates for newly acquired properties.  For example, we believe the Minneapolis, Minnesota and Dulles, Virginia office markets, where a majority of our multi-tenant office properties are located, our high occupancy rate is consistent with the strength of the market.  Office property yields on new acquisitions remain competitive at rates slightly above our other segments.  The increase in our base rent per square foot from $13.39 to $14.80 was primarily a result of acquisitions during 2007.  These rates are as of the end of the period and do not represent the average rate during the three months ended March 31, 2008 and 2007.  Comparison of Three Months Ended March 31, 2008 to March 31, 2007  The table below represents operating information for the office segment of 30 properties and for the same store portfolio consisting of 13 properties acquired prior to January 1, 2007.  The properties in the same store portfolio were owned for the three months ended March 31, 2008 and March 31, 2007.    -44-     Total Office SegmentSame Store Office SegmentIncrease/Increase/20082007(Decrease)20082007(Decrease)Revenues:Rental income$27,228$21,835$5,393$21,590$21,303$287Tenant recovery incomes6,4825,0031,4795,3524,991361Other property income1,7531,1705831,5621,170392Total revenues$35,463$28,008$7,455$28,504$27,464$1,040Expenses:Property operating expenses$7,925$5,097$2,828$6,549$5,938$611Real estate taxes3,3102,4838272,6332,475158Total operating expenses$11,235$7,580$3,655$9,182$8,413$769Net property operations24,22820,4283,80019,32219,051271  Comparison of Three Months Ended March 31, 2008 to 2007.  Office properties real estate rental revenues increased from $28,008 in 2007 to $35,463 in 2008 mainly due to the acquisition of 14 properties since March 31, 2007.  Office properties real estate and operating expenses also increased from $7,580 in 2007 to $11,235 in 2008 as a result of these acquisitions.  Straight-line rent adjustments are included in rental income are higher for the office segment compared to other segments because the office portfolio has tenants that have base rent increases every year at higher rates than the other segments. In addition, office segment properties had above market leases in place at the time of acquisition as compared to retail segment properties which had below market leases in place at the time of acquisition; both of which are adjusted through rental income.  Tenant recoveries for the office segment are lower than the retail segment because the office tenant leases allow for a lower percentage of their operating expenses and real estate taxes to be passed on to the tenants.  On a same store office basis, property net operating income increased to $19,322 from $19,051 for a total increase of $271 or 1%.  Same store office property operating revenues for the three months ended March 31, 2008 and  2007 were $28,504 and $27,464, respectively, resulting in an increase of $1,040 or 4%.  The primary reason for the increase was an increase in rental income due to new tenants at these properties that filled vacancies that existed at the time of purchase.  Same store office property operating expenses for the three months ended March 31, 2008 and 2007 were $9,182 and $8,413, respectively, resulting in an increase of $769 or 9%.  The increase in property operating expense was primarily caused by an increase in real estate tax expense and common area maintenance costs, including utility costs (gas and electric) in 2008.  Retail Segment  Total Retail PropertiesAs of March 31,20082007Retail PropertiesPhysical occupancy95%93%Economic occupancy96%96%Base rent per square foot$16.55$13.84  Retail operations remain solid with consistent and rising rental revenue, stable occupancy results, and continued positive return on investment.  Our retail business is not highly dependant on specific retailers or specific retail industries which we believe shields the portfolio from significant revenue variances over time.  The increase in our base rent per square foot from $13.84 to $16.55 was primarily a result of acquisitions during 2007 and 2008.  These rates are as of the end of the period and do not represent the average rate during the three months ended March 31, 2008 and 2007.  -45-     Our retail business is centered on multi-tenant properties with fewer than 120,000 square feet of total space, located in thriving communities, primarily in the Southwest and Southeast regions of the country.  Adding to this core investment profile is a select number of traditional mall properties and single-tenant properties.  Among the single-tenant properties, the largest holdings are comprised of investments in bank branches, SunTrust and Citizens, where the tenant-occupant pays rent with contractual increases over time, and bears virtually all expenses associated with operating the facility.  Our tenants largely consist of basic-need retailers such as grocery, pharmacy, moderate-fashion shoes and clothing, and services.  We have only limited exposure to retail categories such as books/music/video, big-box electronics, fast-food restaurants, new-concept, and other goods-providers for which we believe the Internet or economic conditions represents a major risk to continued profitability.  Our retail portfolio had a limited number of tenant issues related to retailer bankruptcy.  Only eight retailers, renting approximately 198,000 square feet, had filed for some level of bankruptcy protection.  All associated stores in our portfolio continued paying as-agreed rent except for one 42,792 square feet of tenant.  We do not believe these bankruptcies will have a material adverse effect on our results of operations, financial condition and ability to pay distributions.  Comparison of Three Months Ended March 31, 2008 to 2007  The table below represents operating information for the retail segment of 685 properties and for the same store portfolio consisting of 64 properties acquired prior to January 1, 2007.  The properties in the same store portfolio were owned for the entire three months ended March 31, 2008 and March 31, 2007.  Total Retail SegmentSame Store Retail SegmentIncrease/Increase/20082007(Decrease)20082007(Decrease)Revenues:Rental income$47,709$19,448$28,261$19,639$19,114$525Tenant recovery incomes10,6616,1904,4715,9795,94237Other property income766398368356393(37)Total revenues$59,136$26,036$33,100$25,974$25,449$525Expenses:Property operating expenses$10,171$4,451$5,720$5,557$4,215$1,342Real estate taxes6,4943,8582,6363,4113,820(409)Total operating expenses$16,665$8,309$8,356$8,968$8,035$933Net property operations42,47117,72724,74417,00617,414(408)  Retail properties real estate rental revenues increased from $26,036 in the three months ended 2007 to $59,136 in the three months ended 2008 mainly due to the acquisition of 618 retail properties since March 31, 2007.  Retail properties real estate and operating expenses also increased from $8,309 in 2007 to $16,665 in 2008 as a result of these acquisitions.  Retail segment property rental revenues are greater than the office segment primarily as a result of having more gross leasable square feet than the office properties.  Straight-line rents, which are adjusted through rental income, for our retail segment are less than the office segment because the rent increases are less frequent and in lower increments.  In addition, the retail segment had below market leases in place at the time of acquisition as compared to office segment properties, which had above market leases in place at the time of acquisition both of which are also adjusted through rental income.  Tenant recoveries for our retail segment are greater than the office segment because the retail tenant leases allow for a greater percentage of their operating expenses and real estate taxes to be recovered from the tenants. Retail segment operating expenses are greater than the other segments because the retail tenant leases require the owner to pay for  -46-    common area maintenance costs, real estate taxes and insurance and receive reimbursement from the tenant for the tenant's share of recoverable expenses.  On a same store retail basis, property net operating income decreased from $17,414 to $17,006 for a total decrease of $408 or 2%.  The primary reason for the decrease is an increase of $550 in bad debt expense, $271 in snow removal and $54 in marketing and legal costs that are not reimbursed.  Same store retail property operating revenues for the three months ended March 31, 2008 and 2007 were $25,974 and $25,449, respectively, resulting in an increase of $525 or 2%.  Same store retail property operating expenses for the three months ended March 31, 2008 and 2007 were $8,968 and $8,035, respectively, resulting in an increase of $933 or 12%.  Industrial Segment  Total Industrial PropertiesAs of March 31,20082007Industrial PropertiesPhysical occupancy91%100%Economic occupancy98%100%Base rent per square foot$5.26$5.27  Our industrial holdings continue to experience high economic occupancy rates.  The majority of the properties are located in what we believe are active and sought-after industrial markets including the Memphis Airport market of Memphis, Tennessee and the OHare Airport market of Chicago, Illinois, the latter being one of the largest industrial markets in the world.  Comparison of Three Months Ended March 31, 2008 to March 31, 2007  The table below represents operating information for the industrial segment of 61 properties and for the same store portfolio consisting of 16 properties acquired prior to January 1, 2007.  Total Industrial SegmentSame Store Industrial SegmentIncrease/Increase/20082007(Decrease)20082007(Decrease)Revenues:Rental income$17,118$8,368$8,750$5,496$5,675$(179)Tenant recovery incomes947357590384274110Other property income3172415312Total revenues$18,096$8,732$9,364$5,895$5,952$(57)Expenses:Property operating expenses$1,114$552$562$353$376$(23)Real estate taxes6451914541981917Total operating expenses$1,759$743$1,016$551$567$(16)Net property operations16,3377,9898,3485,3445,385(41)  Industrial properties real estate revenues increased from $8,732 for the three months ended March 31, 2007 to $18,096 for the three months ended March 31, 2008 mainly due to the acquisition of 14 properties since March 31, 2007.  Industrial properties real estate and operating expenses also increased from $743 in 2007 to $1,759 in 2008 as a result of these acquisitions.   -47-    A majority of the tenants have net leases and they are directly responsible for operating costs and reimburse us for real estate taxes and insurance.  Therefore, industrial segment operating expenses are lower than the other.  On a same store industrial basis, property net operating income decreased to $5,344 from $5,385 for a total decrease of $41 or 1%.  Same store industrial property operating revenues for the three months ended March 31, 2008 and 2007 were $5,895 and $5,952, respectively, resulting in a decrease of $57 or 1%.  The primary reason for the decrease was a decrease in occupancy from 2007.  Same store industrial property operating expenses for the three months ended March 31, 2008 and 2007 were $551 and $567, respectively, resulting in a decrease of $16 or 3%.  Multi-family Segment  Total Multi-family PropertiesAs of March 31,20082007Multi-Family PropertiesPhysical occupancy86%95%Economic occupancy86%95%End of month scheduled base rent per unit per month$852.00$916.00  Multi-family represents the smallest amount of investment in the overall portfolio due to what we believe is the highly competitive nature for acquisitions of this property type, and the relatively small number of quality opportunities we saw during 2007.  We remain interested in multi-family acquisitions and continue to monitor market activity.  Our portfolio contains eight multi-family properties, each reporting stable occupancies and rental rate levels.  We believe that recent changes in the housing market have made rentals a more attractive option and we expect the portfolio to continue its stable occupancy and rental rate levels.  The decrease in monthly base rent from $916 per month to $852 per month was a result of 2007 acquisitions.  These rates are as of the end of the period and do not represent the average rate during the three months ended March 31, 2008 and 2007.  Comparison of Three Months Ended March 31, 2008 to March 31, 2007  The table below represents operating information for the multi-family segment of eight properties.   A same store analysis is not presented for the multi-family segment because only one property was owned for the entire year ended December 31, 2007 and December 31, 2006.  Total Multi-Family Segment20082007IncreaseRevenues:Rental income$5,419$910$4,509Other property income51545470Total revenues$5,934$955$4,979Expenses:Property operating expenses$2,081$183$1,898Real estate taxes948106842Total operating expenses$3,029$289$2,740Net property operations2,9056662,239  Multifamily real estate rental revenues increased from $955 for the three months ended March 31, 2007 to $5,934 for the three months ended March 31, 2008.  The increases are mainly due to the acquisition of five properties since March 31, 2007.  Multi-family properties real estate and operating expenses also increased from $289 in 2007 to $3,029 in 2008 as a result of these acquisitions.     -48-    Lodging Segment  Total Lodging PropertiesMarch 31,For the period of ownership (1)20082007Lodging PropertiesRevenue per available room$91$79Average daily rate$129$117Occupancy69%67% (1) We acquired our first group of hotels on July 1, 2007.  Lodging facilities have characteristics different from those found in office, retail, industrial, and multi-family properties (also known as "traditional asset classes").  Revenue, operating expenses, and net income are directly tied to the hotel operation whereas office, retail, industrial, and multi-family properties generate revenue from medium to long-term lease contracts.  In this way, net operating income is somewhat more predictable among the properties in the traditional asset classes, though we believe that opportunities to grow revenue are in many cases limited because of the duration of the existing lease contracts.  We believe lodging facilities have the benefit of capturing increased revenue opportunities on a monthly or weekly basis but are also subject to immediate decreases in revenue as a result of declines in daily rental rates.  We expect our revenues to be greater during the second and third quarters with lower revenues in the first and fourth quarters.  Two practices are common in the lodging industry:  association with national franchise organizations; and professional management by specialized third-party managers.  Our portfolio consists of assets aligned with what we believe are the top franchise enterprises in the lodging industry: Marriott, Hilton, Intercontinental, and Choice Hotels.  By doing so, we believe our lodging operations benefit from enhanced advertising, marketing, and sales programs through a franchise arrangement while the franchisee (in this case us) pays only a fraction of the overall cost for these programs.  Effective TV, radio, print, on-line, and other forms of advertisement help draw customers to our lodging facilities creating higher occupancy and rental rates, and increased revenue.  Additionally, by using the franchise system we are also able to benefit from the travel rewards or point awards systems which we believe further bolsters occupancy and rental rate.  All of our lodging facilities are managed by third-party managers with extensive experience and skill in hospitality operations.  These third-party managers report to a dedicated, specialized group within our business manager that has, in our view, extensive expertise in lodging ownership and operation within a REIT environment.  This group has daily interaction with all third-party managers, and closely monitors all aspects of our lodging interests.  Additionally, this group also maintains close relationships with the franchisors to assure that each property maintains high levels of customer satisfaction, franchise conformity, and revenue-management.  During 2007, the hotel industry experienced high growth in both occupancy levels and rental rates (better known as "Average Daily Rate" or "ADR") due mainly to continued rebounds across virtually all segments of the travel industry (e.g., corporate travel, group travel, and leisure travel).  Supply of new hotel product was moderate.  For 2008, industry analysts see continued growth in the national lodging industry but at a much slower rate of growth than experienced during 2007.  More specifically, occupancy rates are projected to hold, or decline modestly as compared with 2007, while ADR is expected to grow modestly, resulting in overall modest growth in total lodging revenue.  Our lodging facilities are generally classified in the middle to upper-middle lodging categories; as such, we project that our facilities will experience operating levels in-step with industry trends during the coming year with no significant weaknesses expected across the portfolio.  Operations of the three months ended March 31, 2008  Total Lodging SegmentThree months endedMarch 31, 2008Revenues:Lodging operating income$116,893  -49-     Total revenues$116,893Expenses:Lodging  operating expenses to non-    related parties$68,254Real estate taxes5,012Total operating expenses$73,266Net lodging operations43,627  Developments  We own several properties, which are consolidated, that are in various stages of development.  These developments activities are funded from our working capital and by construction loans secured by the properties.  Specifically identifiable direct acquisition, development and construction costs are capitalized, including, where applicable, salaries and related costs, real estate taxes and interest incurred in developing the property.  The properties under development and all amounts set forth below are as of March 31, 2008.  (Dollar amounts stated in thousands)  NameLocation
(City, State)Property TypeSquare FeetCosts Incurred to Date ($)Total Estimated Costs ($) (b)Estimated Placed in Service
Date (a)Note Payable as of March 31, 2008 ($)Cityville PerimeterAtlanta, GAMulti-family220,5901,46845,572Q4 2009-Block 121Birmingham, ALMulti-family213,1055,73032,758Q3 20092,754HaskellDallas, TXMulti-family588,50026,390100,000Q2 2010-Oak ParkDallas, TXMulti-family557,50440,66092,1782009/20108,738Cityville CarlisleDallas, TXMulti-family221,5124,60232,109Q3 2009-PennPhiladelphia, PAMulti-family212,58551,30778,547Q3 200823,368GainesvilleGainesville, FLMulti-family198,36123,68839,170Q3 20089,403HuntsvilleHuntsville, TXMulti-family240,26414,25427,920Q3 20086,393UH @ LafayetteLafayette, LAMulti-family138,9157,99816,418Q3 20084,273StonebriarPlano, TXRetail329,96844,901121,000Q4 200825,748Stone CreekSan Marcus, TXRetail506,16928,00476,100Q2 2009-WoodbridgeWylie, TXRetail268,21013,69649,4152011-3,695,683262,698711,18780,677  (a) The Estimated Placed in Service Date represents the date the certificate of occupancy is currently anticipated to be obtained.  Subsequent to obtaining the certificate of occupancy, each property will go through a lease-up period.  (b) The Total Estimated Costs represent 100% of the development's estimated costs, including the acquisition cost of the land and building, if any.  The Total Estimated Costs are subject to change upon, or prior to, the completion of the development and include amounts required to lease the property.   -50-    Critical Accounting Policies and Estimates  General The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes.  This section discusses those critical accounting policies and estimates.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with GAAP.  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  This discussion addresses our judgment pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies.  Acquisition of Investment Property We allocate the purchase price of each acquired investment property between land, building and improvements, acquired above market and below market leases, in-place lease value, and any assumed financing that is determined to be above or below market terms. In addition, we allocate a portion of the purchase price to the value of customer relationships, if any. The allocation of the purchase price is an area that requires judgment and significant estimates.  We use the information contained in the independent appraisal obtained at acquisition as the primary basis for the allocation to land and building and improvements. We determine whether any financing assumed is above or below market by comparing financing terms for similar investment properties.  We allocate a portion of the purchase price to the estimated acquired in-place lease costs based on estimated lease execution costs for similar leases as well as lost rent payments during assumed lease up period when calculating as if vacant fair values.  We also evaluate each acquired lease based upon current market rates at the acquisition date and we consider various factors including geographical location, size and location of leased space within the investment property, tenant profile, and the credit risk of the tenant in determining whether the acquired lease is above or below market lease costs.  After an acquired lease is determined to be above or below market, we allocate a portion of the purchase price to such above or below acquired lease costs based upon the present value of the difference between the contractual lease rate and the estimated market rate. For below market leases with fixed rate renewals, renewal periods are included in the calculation of below market in-place lease values. The determination of the discount rate used in the present value calculation is based upon the "risk free rate" and current interest rates.  This discount rate is a significant factor in determining the market valuation which requires our judgment of subjective factors such as market knowledge, economics, demographics, location, visibility, age and physical condition of the property.  Acquisition of Businesses  Acquisitions of businesses are accounted for using purchase accounting as required by Statement of Financial Accounting Standards 141 (SFAS 141) Business Combinations. The assets and liabilities of the acquired entities are recorded using the fair value at the date of the transaction and allocated to tangible and identifiable intangible assets.  Any additional amounts are allocated to goodwill as required, based on the remaining purchase price in excess of the fair value of the tangible and intangible assets acquired and liabilities assumed.  We amortize identified intangible assets that are determined to have finite lives which are based on the period over which the assets are expected to contribute directly or indirectly to the future cash flows of the business acquired.  Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  An impairment loss is recognized if the carrying amount of an intangible asset, including the related real estate when appropriate.  Impairment of Long-Lived AssetsIn accordance with Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144), we conduct an analysis on a quarterly basis to determine if indicators of impairment exist to ensure that the property's carrying value does not exceed its fair value.  If this were to occur, we are required to record an impairment loss.  The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on our continuous process of analyzing each property and reviewing assumptions about uncertain leasing and expense factors, as well as the economic condition of the property at a particular point in time.  Under Accounting Principles Board (APB) Opinion No. 18 (The Equity Method of Accounting for Investments in Common Stock), the Company evaluates its equity method investments for impairment indicators.  The valuation  -51-    analysis considers the investment positions in relation to the underlying business and activities of the Company's investment.  Cost Capitalization and Depreciation PoliciesOur policy is to review all expenses paid and capitalize any items exceeding $5 which are deemed to be an upgrade or a tenant improvement.  These costs are capitalized and included in the investment properties classification as an addition to buildings and improvements. Buildings and improvements are depreciated on a straight-line basis based upon estimated useful lives of 30 years for buildings and improvements, and five to 15 years for site improvements.  Furniture, fixtures and equipment are depreciated on a straight-line basis over five to ten years.  Tenant improvements are depreciated on a straight-line basis over the life of the related lease as a component of depreciation and amortization expense. The portion of the purchase price allocated to acquired above market costs and acquired below market costs is amortized on a straight-line basis over the life of the related lease as an adjustment to net rental income.  Acquired in-place lease costs, customer relationship value, other leasing costs, and tenant improvements are amortized on a straight-line basis over the life of the related lease as a component of amortization expense. Cost capitalization and the estimate of useful lives requires our judgment and includes significant estimates that can and do change based on our process which periodically analyzes each property and on our assumptions about uncertain inherent factors.  Investment in Marketable Securities  In accordance with FASB 115 "Accounting for Certain Investments in Debt and Equity Securities", a decline in the market value of any available-for-sale or held-to-maturity security that is below cost and deemed to be other-than-temporary results in an impairment which reduces the carrying amount to fair value.  The impairment is charged to earnings and a new cost basis for the security is established.  To determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary.  Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to the reporting period, the forecasted performance of the entity, and the general market condition in the geographic area or industry the entity operates in.  We consider the following factor in evaluating our securities for impairments that are other than temporary:  (i) declines in the REIT and overall stock market relative to our security positions; (ii) the estimated net asset value (NAV) of the companies we invest in relative to their current market prices; and (iii) future growth prospects and outlook for companies using analyst reports and company guidance, including dividend coverage, NAV estimates and FFO growth.  Revenue Recognition  We commence revenue recognition on our leases based on a number of factors.  In most cases, revenue recognition under a lease begins when the lessee takes possession of, or controls, the physical use of the leased asset.  Generally, this occurs on the lease commencement date.  The determination of who is the owner, for accounting purposes, of the tenant improvements determines the nature of the leased asset and when revenue recognition under a lease begins.  If we are the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete.  If we conclude we are not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any tenant improvement allowances funded under the lease are treated as lease incentives which reduces revenue recognized over the term of the lease.  In these circumstances, we begin revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct their own improvements.  We consider a number of different factors to evaluate whether we or the lessee are the owner of the tenant improvements for accounting purposes.  These factors include:  · whether the lease stipulates how and on what a tenant improvement allowance may be spent;  -52-     · whether the tenant or landlord retains legal title to the improvements;  · the uniqueness of the improvements;  · the expected economic life of the tenant improvements relative to the length of the lease; and  · who constructs or directs the construction of the improvements.  The determination of who owns the tenant improvements, for accounting purposes, is subject to significant judgment.  In making that determination, we consider all of the above factors.  No one factor, however, necessarily establishes its determination.  We recognize rental income on a straight-line basis over the term of each lease. The difference between rental income earned on a straight-line basis and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable and is included as a component of accounts and rents receivable in the accompanying consolidated balance sheets.  Due to the impact of the straight-line basis, rental income generally is greater than the cash collected in the early years and decreases in the later years of a lease.  We periodically review the collectability of outstanding receivables.  Allowances are taken for those balances that we deem to be uncollectible, including any amounts relating to straight-line rent receivables.  Reimbursements from tenants for recoverable real estate taxes and operating expenses are accrued as revenue in the period the applicable expenses are incurred.  We make certain assumptions and judgments in estimating the reimbursements at the end of each reporting period. We do not expect the actual results to differ from the estimated reimbursement. In conjunction with certain acquisitions, we may receive payments under master lease agreements pertaining to certain non-revenue producing spaces either at the time of or subsequent to the purchase of some of our properties.  Upon receipt of the payments, the receipts will be recorded as a reduction in the purchase price of the related properties rather than as rental income.  These master leases may be established at the time of purchase in order to mitigate the potential negative effects of loss of rent and expense reimbursements.  Master lease payments are received through a draw of funds escrowed at the time of purchase and may cover a period from six months to three years.  These funds may be released to either us or the seller when certain leasing conditions are met.  Funds received by third party escrow agents, from sellers, pertaining to master lease agreements are included in restricted cash.  We record such escrows as both an asset and a corresponding liability, until certain leasing conditions are met.  As of March 31, 2008, there were no material adjustments for master lease agreements. We will recognize lease termination income if there is a signed termination letter agreement, all of the conditions of the agreement have been met, collectability is reasonably assured and the tenant is no longer occupying the property. Upon early lease termination, we will provide for losses related to unrecovered intangibles and other assets.  We recognize lodging operating revenue on an accrual basis consistent with operations.  Partially-Owned Entities:  We consider FASB Interpretation No. 46R (Revised 2003): Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51 (FIN 46(R)), EITF 04-05: Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, and SOP 78-9: Accounting for Investments in Real Estate Ventures, to determine the method of accounting for each of our partially-owned entities.  In instances where we determine that a joint venture is not a VIE, we first consider EITF 04-05.  The assessment of whether the rights of the limited partners should overcome the presumption of control by the general partner is a matter of judgment that depends on facts and circumstances. If the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partner without cause or (b) substantive participating rights, then the general partner does not control the limited partnership and, as such overcomes the presumption of control and consolidation by the general partner.    -53-    Income Taxes  We and MB REIT operate in a manner intended to enable each entity to qualify as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended.  Under those sections, a REIT that distributes at least 90% of its "REIT taxable income" determined without regard to the deduction for dividends paid and by excluding any net capital gain to its stockholders each year and that meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its stockholders.  If we or MB REIT fail to distribute the required amount of income to our stockholders or fail to meet the various REIT requirements, we or MB REIT may fail to qualify as a REIT and substantial adverse tax consequences will result.  Even if we or MB REIT qualify for taxation as a REIT, we or MB REIT may be subject to certain state and local taxes on our income, property, or net worth and to federal income and excise taxes on our undistributed taxable income.  In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to federal, state and local income taxes.  In 2007, we formed the following wholly-owned taxable REIT subsidiaries in connection with the acquisition of the lodging portfolios and student housing: Barclay Holdings, Inc., Inland American Holding TRS, Inc., and Inland American Communities Third Party, Inc. Taxable income from non-REIT activities managed through these taxable REIT subsidiaries is subject to federal, state, and local income taxes. As such, our taxable REIT subsidiaries are required to pay income taxes at the applicable rates.  Liquidity and Capital Resources  Our principal demand for funds has been:  · to invest in  properties;  · to invest in joint ventures;  · to fund notes receivable;  · to invest in REIT marketable securities;  · to pay our operating expenses and the operating expenses of our properties;  · to pay expenses associated with our public offerings; and  · to make distributions to our stockholders.  Generally, our cash needs have been funded from:  · the net proceeds from the public offerings of our shares of common stock;  · interest income on investments and dividend and gain on sale income earned on our investment in marketable securities;  · income earned on our investment properties;  · proceeds from borrowings on properties; and  · distributions from our joint venture investments.  Acquisitions and Investments  We completed approximately $1.2 billion of real estate and real estate company acquisitions and investments in the first three months of 2008.  In addition, we made approximately $25 million of loans during the first three months of 2008.  These acquisitions and investments were consummated through wholly-owned subsidiaries and were funded with available cash, mortgage indebtedness, and the proceeds from the offering of our shares of common stock.  Details of our 2008 acquisitions and investments are summarized below.  -54-     Real Estate and Real Estate Company Acquisitions  During the three months of March 31, 2008, we purchased 139 retail properties containing approximately 630 thousand square feet for approximately $221 million and four office properties containing approximately 180 thousand square feet for $9 million.  We also purchased a vacant parcel of land for $26.4 million to develop a multi-family/retail project for approximately $92.3 million.  On February 8, 2008, we consummated the merger among our wholly-owned subsidiary, Inland American Urban Hotels, Inc., and RLJ Urban Lodging Master, LLC and related entities, referred to herein as "RLJ," a real estate investment trust that owns upscale, full service and select-service lodging properties and other limited-service lodging properties.  At the time of the merger RLJ owned 22 hotels with 4,059 rooms. The total cost of the merger was approximately $932.2 million, including $22.3 million paid to our Business Manager.  Investments in Joint Ventures  Details of our investment in joint ventures for 2008 are summarized below.  · On January 24, 2008, we entered into a joint venture agreement to form Woodbridge Crossing GP, L.L.C.  The purpose of the venture is to acquire certain land located in Wylie, Texas and then to develop and construct a 268,210 square foot shopping center on that land. The venture has a term of ten years.  The total cost of acquiring and developing the land is expected to be approximately $49.4 million. On February 15, 2008, we contributed approximately $14.1 million to the venture. We are entitled to receive an 11% preferred return on our capital contribution.  · On February 20, 2008, we and our partner agreed to revise certain terms of the joint venture known as Net Lease Strategic Assets Fund L.P.  Under the revised terms, ten properties have been excluded from the ventures initial target portfolio.  Consequently, the initial portfolio of properties now consists of forty-three primarily single-tenant net leased assets, referred to herein as the Initial Properties, with an aggregate purchase price of $747.5 million (including the assumption of approximately $330.3 million of non-recourse first mortgage financing and $4 million in closing costs). The Initial Properties contain an aggregate of more than six million net rentable square feet.  Under the revised terms of the venture, we are required to contribute approximately $210 million to the venture toward the purchase of the Initial Properties. We have already contributed approximately $121.9 million to the venture.  These funds were used by the venture to purchase thirty of the Initial Properties from Lexington and its subsidiaries for an aggregate purchase price of approximately $408.5 million.  On March 25, 2008, we contributed $72.5 million to the venture.  These funds were used by the venture to purchase eleven additional Initial Properties from Lexington for an aggregate purchase price of $270.2 million. If the venture does not complete the acquisition of the remaining two Initial Properties by June 30, 2008, the venture may not purchase those properties.  The terms of the joint venture also have been modified to revise the sequence of distributions that will be paid on any future capital contributions by us and our venture partner.  More specifically, we and our venture partner intend to invest an additional $127.5 million and $22.5 million, respectively, in the venture to acquire additional specialty single-tenant triple-net leased assets, in addition to the Initial Properties.  With respect to these contributions, after the preferred returns and the preferred equity redemption amounts have been paid, we and our venture partner will be entitled to receive distributions until the point at which we have received distributions equal to the amount of capital we have invested, on a pro rata basis.  · On March 10, 2008, we entered into a joint venture to acquire four parcels of land known as Christenbury Corners, located in Concord, North Carolina, and to develop a 404,593 square foot retail center on that land.  We are entitiled to receive a preferred return, paid on a quarterly basis, in an amount equal to 11% per annum on our capital contribution through the first twenty-four months after the date of our initial investment.  If we maintain our investment in the project for more than twenty-four months, we are entitled to receive a preferred return in an amount equal to 12% per annum over the remainder of the term. On March 10, 2008, we contributed $11 million to the venture.    -55-     Investments in Marketable Securities  As part of our overall strategy, we may acquire REITs and other real estate operating companies and we may also invest in the marketable securities of other REIT entities.  During 2008 we invested approximately $92.5 million in the marketable securities of other REIT entities.  As of March 31, 2008, we had an unrealized loss of $(49.7) million on our marketable securities compared to an unrealized loss of $(64.3) million at December 31, 2007.  Distributions  We paid cash distributions to our stockholders during the period from January 1, 2008 to March 31, 2008 totaling $86.6 million.  We expect to continue paying monthly cash distributions at a per share rate of $.05167 through the remainder of 2008. These cash distributions were paid from our cash flow from operations and financing activities which was $1.0 billion for the period ended March 31, 2008.  Our funds from operations were $90.9 million for the three months ended March 31, 2008 compared to distributions paid of $86.6 million.  Financing Activities and Contractual Obligations  Stock Offering  Our initial offering of shares of common stock terminated as of the close of business on July 31, 2007.  We had sold a total of 469,598,762 shares in the primary offering and approximately 9,720,991 shares pursuant to the offering of shares through the dividend reinvestment plan.  A follow-on  registration statement for an offering of up to 500,000,000 shares of common stock at $10.00 each and up to 40,000,000 shares at $9.50 each pursuant to our distribution reinvestment plan was declared effective by the SEC on August 1, 2007.  Through March 31, 2008, we had sold a total of 112,475,162 shares in the follow-on offering and 11,766,710 shares pursuant to the offering of shares through the dividend reinvestment plan.  As a result of these sales, we have raised a total of approximately $6.1 billion of gross offering proceeds as of March 31, 2008.  Our total offering costs for both our initial and follow on-offering as of March 31, 2008 were approximately $611.3 million.  Borrowings  During the three months ended March 31, 2008 and 2007, we borrowed approximately $68.9 and $19.5 million, respectively, against our portfolio of marketable securities.  We borrowed approximately $883.9 million secured by mortgages on our properties and paid approximately $4.9 million for loan fees to procure these mortgages for the three months ended March 31, 2008.  We borrowed approximately $217.6 million secured by mortgages on our properties and paid approximately $3.9 million for loan fees to procure these mortgages for the three months ended March 31, 2007.  We have entered into interest rate lock agreements with lenders designed to fix interest rates on mortgage debt on identified properties we own or expect to purchase in the future.  These agreements require us to deposit certain amounts with the lenders.  The deposits are applied as credits as the loans are funded.  As of March 31, 2008, we had approximately $5.9 million of rate lock deposits outstanding.  The agreements fixed interest rates ranging from 4.68% to 5.65% on approximately $66.8 million in principal.  There is no assurance, however, that the lenders will honor their commitments.  As of March 31, 2008, we had in $50 million in rate lock agreements with Bear Stearns.  Given the recent developments, there can be no assurance Bear Stearns will honor these agreements.  Our interest rate risk is monitored using a variety of techniques, including periodically evaluating fixed interest rate quotes on all variable rate debt and the costs associated with converting the debt to fixed rate debt.  Also, existing fixed and variable rate loans that are scheduled to mature in the next year or two are evaluated for possible early refinancing and or extension due to consideration given to current interest rates.  The table below presents, on a consolidated basis, the principal amount, weighted average interest rates and maturity date (by year) on our mortgage debt as of March 31, 2008 (dollar amounts are stated in thousands).  20082009201020112012ThereafterMaturing debt :Fixed rate debt (mortgage     loans)--183,882103,66794,0272,419,103  -56-     Variable rate debt (mortgage     loans)340,969242,334341,30016,2977,70997,062Weighted average interest rate on debt:Fixed rate debt (mortgage     loans)--5.05%5.19%5.73%5.73%Variable rate debt (mortgage     loans)5.20%4.55%4.39%4.74%4.81%4.81%  The debt maturity excludes mortgage discounts and premiums associated with debt assumed at acquisition of which $7.4 million, net of accumulated amortization, is outstanding as of March 31, 2008.  We have entered into six interest rate swap agreements that have converted $624,105 of our mortgage loans from variable to fixed rates.  The pay rates range from 2.40% to 4.45% with maturity dates from December 10, 2008 to March 27, 2013.  As of March 31, 2008, we have approximately $341 million and $242 million in mortgage debt maturing in 2008 and 2009, respectively. We are currently negotiating refinancing this debt with the existing lenders at what we believe are similar or better terms than we currently have on the existing debt. We currently anticipate that we will be able to repay or refinance all of our debt on a timely basis, and believe we have adequate sources of funds to meet our short term cash needs. However, there can be no assurance that we can obtain such refinancing on satisfactory terms.  Continued volatility in the capital markets could expose us to the risk of not being able to borrow on terms and conditions acceptable to us for future acquisitions or refinancings.  Statement of Cash Flows 2008 compared to 2007  Cash provided by operating activities was $69.7 million for the three months ended March 31, 2008 and $30.0 million for the three months ended March 31, 2007, respectively, and was generated primarily from operating income from property operations and interest and dividends.  The increase in cash flows from the three months ended March 31, 2008 to the three months ended March 31, 2007 was due primarily to the acquisition of 675 properties since March 31, 2007.  Cash used in investing activities was $1.0 billion for the three months ended March 31, 2008 and $449.7 million for the three months ended March 31, 2007, respectively.  During the three months ended March 31, 2008, cash was used primarily for the acquisition of RLJ, the acquisition of 143 properties, the purchase of marketable securities, the funding of one note receivable, and funding into our joint ventures.  Cash provided by financing activities was $932.0 million for the three months ended March 31, 2008 and $1.2 billion for the three months ended March 31, 2007.  During the three months ended March 31, 2008 and 2007, we generated proceeds from the sale of shares, net of offering costs paid and share repurchases, of approximately $499.5 million and $1.0 billion, respectively.  We generated approximately $68.9 million and $19.5 million by borrowing against our portfolio of marketable securities for the three months ended March 31, 2008 and 2007, respectively.  We generated approximately $883.9 million from borrowings secured by mortgages on our properties and paid approximately $4.9 million for loan fees to procure these mortgages for the three months ended March 31, 2008.  We generated approximately $217.6 million from borrowings secured by mortgages on our properties and paid approximately $3.9 million for loan fees to procure these mortgages for the three months ended March 31, 2007.  During the three months ended March 31, 2008 and 2007, we paid approximately $86.6 and $27.3 million in distributions to our common stockholders.  We also paid off mortgage debt in the amount of $20.2 million in three months ended 2007.  We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements with a maturity of six months or less, at the date of purchase, to be cash equivalents.  We maintain our cash and cash equivalents at financial institutions.  The combined account balances at one or more institutions periodically exceed the Federal Depository Insurance Corporation ("FDIC") insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.  We believe that the risk is not significant, as we do not anticipate that any financial institution will be unable to perform.     -57-    Contractual Obligations  The table below presents, on a consolidated basis, obligations and commitments to make future payments under debt obligations (including interest), and lease agreements as of March 31, 2008 (dollar amounts are stated in thousands).  Payments due by periodLess thanMore thanTotal1 year1-3 years3-5 years5 yearsLong-Term Debt Obligations$5,627,454496,8411,372,953985,4762,772,184Ground Lease Payments$44,9547342,9622,98438,274  We have acquired several properties subject to the obligation to pay the seller additional monies depending on the future leasing and occupancy of the property.  These earnout payments are based on a predetermined formula. Each earnout agreement has a time limit regarding the obligation to pay any additional monies.  If at the end of the time period, certain space has not been leased and occupied, we will not have any further obligation. Assuming all the conditions are satisfied, as of March 31, 2008, we would be obligated to pay as much as $33.1 million in the future as vacant space covered by these earnout agreements is occupied and becomes rent producing.  The information in the above table does not reflect these contractual obligations.  We have entered into six interest rate swap agreements that have converted $624,105 of our mortgage loans from variable to fixed rates.  The pay rates range from 2.40% to 4.45% with maturity dates from December 10, 2008 to March 27, 2013.  As of March 31, 2008 we had outstanding commitments to fund approximately $400 million into joint ventures.  We intend on funding these acquisitions with cash on hand of approximately $368 million, anticipated capital raised through our second offering of approximately $540 million (net of offering costs) through June 30, 2008.  There can be no assurance that we will raise the capital from our second offering.  Off Balance Sheet Arrangements  Unconsolidated Real Estate Joint Ventures  Unconsolidated joint ventures are those where we are not the primary beneficiary of a VIE and we have substantial influence over but do not control the entity.  We account for our interest in these ventures using the equity method of accounting.  Our ownership percentage and related investment in each joint venture is summarized in the following table.  (Dollar amounts stated in thousands).  Joint VentureOwnership %Investment at March 31, 2008Net Lease Strategic Asset Fund L.P.85%195,936Cobalt Industrial REIT II24%51,710Lauth Investment Properties, LLC(a)175,563D.R. Stephens Institutional Fund, LLC90%68,455New Stanley Associates, LLP60%8,985Chapel Hill Hotel Associates, LLC49%10,386Marsh Landing Hotel Associates, LLC49%4,717Jacksonville Hotel Associates, LLC48%2,396Inland CCC Homewood Hotel, LLC83%2,772  -58-     Feldman Mall Properties, Inc.(b)51,395Insurance Captive22%1,138L-Street20%6,767PDG/Inland Concord Venture(c)11,039591,259  (a) We own 5% of the common stock and 100% of the preferred.  (b) We own 9.86% of the common stock as of March 31, 2008.  (c) We contributed 100% of the capital with a preferred preference.  Seasonality  The lodging segment is seasonal in nature, reflecting higher revenue and operating income during the second and third quarters. This seasonality can be expected to cause fluctuations in our net property operations for the lodging segment.  Selected Financial Data  The following table shows our consolidated selected financial data relating to our consolidated historical financial condition and results of operations for the three months ended March 31, 2008 and 2007.  Such selected data should be read in conjunction with the Consolidated Financial Statements and related notes appearing elsewhere in this report (dollar amounts are stated in thousands, except per share amounts.)  For the three months endedFor the three months endedMarch 31, 2008March 31, 2007Total income$235,52263,731Total interest and dividend income$17,62710,430Net income (loss) applicable to common shares$11,05711,712Net income (loss) per common share, basic and diluted (a)$.02.06Distributions declared to common stockholders$89,29131,374Distributions per weighted average common share (a)$.16.15Funds From Operations (a)(b)$90,93038,010Funds From Operations per weighted average share (c)$.16.19Cash flows provided by operating activities$69,71529,958Cash flows used in investing activities$(1,042,949)(449,697)Cash flows provided by financing activities$931,9671,197,987Weighted average number of common shares   outstanding, basic and diluted575,543,596205,589,116  -59-       (a) The net income (loss) per share basic and diluted is based upon the weighted average number of common shares outstanding for the three months ended March 31, 2008 and 2007, respectively. The distributions per common share are based upon the weighted average number of common shares outstanding for the three months ended March 31, 2008 and 2007.  See Footnote (b) below for information regarding our calculation of FFO.  Our distributions of our current and accumulated earnings and profits for federal income tax purposes are taxable to stockholders as ordinary income.  Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the stockholder's basis in the shares to the extent thereof, and thereafter as taxable gain for tax purposes. Distributions in excess of earnings and profits have the effect of deferring taxation of the amount of the distributions until the sale of the stockholder's shares.  In order to maintain our qualification as a REIT, we must make annual distributions to stockholders of at least 90% of our REIT taxable income. REIT taxable income does not include net capital gains.  Under certain circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet the REIT distribution requirements.  (b) One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. Cash generated from operations is not equivalent to our net income from continuing operations as determined under GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts or NAREIT, an industry trade group, has promulgated a standard known as "Funds from Operations" or "FFO" for short, which it believes more accurately reflects the operating performance of a REIT such as us.   As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization on real property and after adjustments for unconsolidated partnerships and joint ventures in which the Company holds an interest.  FFO is not intended to be an alternative to  "Net Income" as an indicator of our performance nor to  "Cash Flows from Operating Activities" as determined by GAAP as a measure of our capacity to pay distributions. We believe that FFO is a better measure of our operating performance because FFO excludes non-cash items from GAAP net income.  This allows us to compare our property performance to our investment objectives.  Management uses the calculation of FFO for several reasons. We use FFO to compare our performance to that of other REITs.  Additionally, we use FFO in conjunction with our acquisition policy to determine investment capitalization strategy.  FFO is calculated as follows:  Three Months Ended
March 31,20082007Net income (loss) applicable to common shares$11,05711,712Add:Depreciation and amortization:Related to investment properties73,07226,570Related to income (loss) from investment in     unconsolidated entities7,436307Less:Minority interests' shareDepreciation and amortization related to     investment properties635579Funds from operations$90,93038,010  c) The decline in funds from operations resulted from declines in realized gains on investment securities.  See discussion of consolidated results of operation regarding net income per share for more information.  Subsequent Events  We paid distributions to our stockholders of $.05167 per share totaling $30.7 and $31.8 million in April and May 2008.  We are obligated under earnout agreements to pay additional funds after certain tenants move into the applicable vacant space and begin paying rent.  During the period from April 1, 2008 through May 14, 2008, we funded an earnout totaling $1.965 million at one existing property.  The mortgage debt financings obtained subsequent to March 31, 2008, are detailed in the list below.  -60-     PropertyDate of FinancingApproximate Amount of Loan ($)Interest Per AnnumMaturity DatePersis Portfolio04/03/0816,800,0005.65%05/01.33Atlas Portfolio04/04/0844,485,5905.87%04/04/13  During the month of April, we funded $30.5 million to Lauth Investment Properties, LLC.  Item 3. Quantitative and Qualitative Disclosures About Market Risk  We are subject to market risk associated with changes in interest rates both in terms of variable-rate debt and the price of new fixed-rate debt upon maturity of existing debt and for acquisitions.  We are also subject to market risk associated with our marketable securities investments.  Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs.  If market rates of interest on all of the floating rate debt as of March 31, 2008 permanently increased by 1%, the increase in interest expense on the floating rate debt would decrease future earnings and cash flows by approximately $4.0 million.  If market rates of interest on all of the floating rate debt as of March 31, 2008 permanently decreased by 1%, the decrease in interest expense on the floating rate debt would increase future earnings and cash flows by approximately $4.0 million.  With regard to variable rate financing, we assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.  We maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions.  The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.  We monitor interest rate risk using a variety of techniques, including periodically evaluating fixed interest rate quotes on all variable rate debt and the costs associated with converting the debt to fixed rate debt.  Also, existing fixed and variable rate loans that are scheduled to mature in the next year or two are evaluated for possible early refinancing and or extension due to consideration given to current interest rates.  The table below presents mortgage debt principal amounts and weighted average interest rates by year and expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (dollar amounts are stated in thousands).  20082009201020112012ThereafterMaturing debt :Fixed rate debt (mortgage     loans)--183,882103,66794,0272,419,103Variable rate debt (mortgage     loans)340,969242,334341,30016,2977,70997,062Weighted average interest rate on debt:Fixed rate debt (mortgage     loans)--5.05%5.19%5.73%5.73%Variable rate debt (mortgage     loans)5.20%4.55%4.39%4.74%4.81%4.81%  The debt maturity excludes mortgage discounts associated with debt assumed at acquisition of which $7.4 million, net of accumulated amortization, is outstanding as of March 31, 2008.  We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our properties.  To the extent we do, we are exposed to credit risk and market risk.  Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.  When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us.  When the fair value of a derivative contract is negative, we owe  -61-    the counterparty and, therefore, it does not possess credit risk.  It is our policy to enter into these transactions with the same party providing the financing.  In the alternative, we will seek to minimize the credit risk in derivative instruments by entering into transactions with what we believe are high-quality counterparties.  Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates.  The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.  We have, and may in the future enter into, derivative positions that do not qualify for hedge accounting treatment. Because these derivatives do not qualify for hedge accounting treatment, the gains or losses resulting from their mark-to-market at the end of each reporting period are recognized as an increase or decrease in interest expense on our consolidated statements of income. In addition, we are, and may in the future be, subject to additional expense based on the notional amount of the derivative positions and a specified spread over LIBOR. During the three months ended March 31, 2008, we recognized losses of approximately $1.29 million from these positions.  Equity Price Risk  We are exposed to equity price risk as a result of our investments in marketable equity securities. Equity price risk changes as the volatility of equity prices changes or the values of corresponding equity indices change.  Other than temporary impairments were $3.9 million for the three months ended March 31, 2008. The overall stock market and REIT stocks have declined since mid-2007, including our REIT stock investments, which have resulted in our recognizing impairments. We believe that our investments will continue to generate dividend income and, if the REIT market recovers, we could continue to recognize gains on sale. However, due to general economic and credit market uncertainties it is difficult to project where the REIT market and our portfolio value will be in 2008.  If our stock positions do not recover in 2008, we could take additional impairment losses, which could be material to our operations.  While it is difficult to project what factors may affect the prices of equity sectors and how much the effect might be, the table below illustrates the impact of a ten percent increase and a ten percent decrease in the price of the equities held by us would have on the value of our total assets and the book value as of March 31, 2008.  (Dollar amounts stated in thousands)  Hypothetical 10% Decrease inHypothetical 10% Increase inCostFair ValueMarket ValueMarket ValueMarketable equity securities394,558344,847(34,485)34,485  Derivatives  The following table summarizes our interest rate swap contracts outstanding as of March 31, 2008 (dollar amounts stated in thousands):  SWAP EndPayReceive FloatingNotionalFair Value as ofDate EnteredEffective DateDate (1)Fixed RateRate IndexAmountMarch 31, 2008 (2)November 16, 2007November 20, 2007April 1, 20114.45%1 month LIBOR$    24,425(1,284)December 14, 2007December 18, 2007December 10, 20084.32%1 month LIBOR281,168(4,045)February 6, 2008February 6, 2008January 29, 20104.39%1 month LIBOR200,000(1,264)March 28, 2008March 28, 2008March 27, 20133.32%1 month LIBOR33,062(200)March 28, 2008March 28, 2008March 31, 20112.81%1 month LIBOR50,000(256)March 28, 2008March 28, 2008March 27, 20102.40%1 month LIBOR35,450(63)$  624,105$    (7,112)  (1)  Swap end date represents the outside date of the interest rate swap for the purpose of establishing its fair value.  (2)  The fair value was determined by a discounted cash flow model based on changes in interest rates.  We and MB REIT entered into a put/call agreement as a part of the MB REIT transaction.  This agreement is considered a derivative instrument and is accounted for pursuant to SFAS No. 133.  Derivatives are required to be  recorded on the balance sheet at fair value.  If the derivative is designated as a fair value hedge, the changes in the fair value of the  -62-    derivative and of the hedged item attributable to the hedged risk are recognized in earnings. The fair value of the put/call agreement is estimated using the Black-Scholes model.  Item 4. Controls and Procedures  Controls and Procedures  As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), our management, including our principal executive officer and our principal financial officer, evaluated as of March 31, 2008, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures, as of March 31, 2008, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosures.  Changes in Internal Control over Financial Reporting  There were no significant changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Part II - Other Information  Item 1.  Legal Proceedings  Contemporaneous with our merger with Winston Hotels, Inc., our wholly owned subsidiary, Inland American Winston Hotels, Inc., referred to herein as Inland American Winston, WINN Limited Partnership, or WINN, and Crockett Capital Corporation, or Crockett, memorialized in a development memorandum their intentions to subsequently negotiate and enter into a series of contracts to develop certain hotel properties, including without limitation a Westin Hotel in Durham, North Carolina, a Hampton Inn & Suites/Aloft Hotel in Raleigh, North Carolina, an Aloft Hotel in Chapel Hill, North Carolina and an Aloft Hotel in Cary, North Carolina (collectively referred to herein as the development hotels).  On March 6, 2008, Crockett filed an amended complaint in the General Court of Justice of the State of North Carolina against Inland American Winston and WINN.  The complaint alleges that the development memorandum reflecting the parties intentions regarding the development hotels was instead an agreement that legally bound the parties.  The complaint further claims that Inland American Winston and WINN breached the terms of the alleged agreement by failing to take certain actions to develop the Cary, North Carolina hotel and by refusing to convey their rights in the three other development hotels to Crockett.  The complaint seeks, among other things, monetary damages in an amount not less than $4.8 million with respect to the Cary, North Carolina property.  With respect to the remaining three development hotels, the complaint seeks specific performance in the form of an order directing Inland American Winston and WINN to transfer their rights in the hotels to Crockett or, alternatively, monetary damages in an amount not less than $20.1 million.  Inland American Winston and WINN deny these claims and, on March 26, 2008, filed a motion to dismiss the amended complaint.  Inland American Winston and WINN contend that the development memorandum was not a binding agreement but rather merely an agreement to negotiate and potentially enter into additional contracts relating to the development hotels, and therefore is unenforceable as a matter of law.  Inland American Winston and WINN have requested that the General Court of Justice of the State of North Carolina dismiss the amended complaint in its entirety, with prejudice.  In a separate matter, on February 20, 2008, Crockett filed a demand for arbitration with the American Arbitration Association against Inland American Winston and WINN with respect to three construction management services agreements entered into by the parties in August 2007. The demand claims that Inland American Winston and WINN have failed to pay Crockett certain fees in exchange for Crockett providing construction management services for our hotel properties located in Chapel Hill, North Carolina, Jacksonville, Florida and Roanoke, Virginia. Pursuant to this arbitration demand, Crockett is seeking damages in an aggregate amount not less than $281,400.  On March 17, 2008,  -63-    Inland American Winston and WINN filed an answer to this demand stating that they had paid Crockett the amounts due under the agreements and that all other damages sought by Crockett are penalty payments unenforceable against them.  Item 1A.  Risk Factors    One tenant generated a significant portion of our revenue, and rental payment defaults by this significant tenant could adversely affect our results of operations.  As of March 31, 2008, approximately 12% of our rental revenue was generated by properties leased to AT&T, Inc., the SBC Center in Hoffman Estates, Illinois, One AT&T Center in St. Louis, Missouri and AT&T Center in Cleveland, Ohio.  One tenant, AT&T, Inc., leases 100% of the total gross leasable area of these three properties. As a result of the concentration of revenue generated from these properties, if AT&T were to cease paying rent or fulfilling its other monetary obligations, we could have significantly reduced rental revenues or higher expenses until the defaults were cured or the three properties were leased to a new tenant or tenants.      Geographic concentration of our portfolio may make us particularly susceptible to adverse economic developments in the real estate markets of those areas.  In the event that we have a concentration of properties in a particular geographic area, our operating results and ability to make distributions are likely to be impacted by economic changes affecting the real estate markets in that area. A stockholders investment will be subject to greater risk to the extent that we lack a geographically diversified portfolio of properties. For example, as of March 31, 2008, approximately 6%, 6%, 8%, 15% and 15% of our base rental income of our consolidated portfolio, excluding our lodging facilities, was generated by properties located in the Dallas, Washington, D.C., Minneapolis, Chicago and Houston metropolitan areas, respectively.  Consequently, our financial condition and ability to make distributions could be materially and adversely affected by any significant adverse developments in those markets.  Additionally, at March 31, 2008, forty-two of our lodging facilities, or approximately 43% of our lodging portfolio, were located in the eight eastern seaboard states ranging from Connecticut to Florida, including thirteen hotels located in North Carolina.  Thus, adverse events in these areas, such as recessions, hurricanes or other natural disasters, could cause a loss of revenues from these hotels. Further, several of the hotels are located near the Atlantic Ocean and are exposed to more severe weather than hotels located inland. Elements such as salt water and humidity can increase or accelerate wear on the hotels weatherproofing and mechanical, electrical and other systems, and cause mold issues. As a result, we may incur additional operating costs and expenditures for capital improvements at these hotels.  This geographic concentration also exposes us to risks of oversupply and competition in these markets. Significant increases in the supply of certain property types, including hotels, without corresponding increases in demand could have a material adverse effect on our financial condition, results of operations and our ability to pay distributions.  Conditions of franchise agreements could adversely affect us.  As of March 31, 2008, all of our wholly owned or partially owned properties were operated under franchises with nationally recognized franchisors including Marriott International, Inc., Hilton Hotels Corporation, Intercontinental Hotels Group PLC and Choice Hotels International. These agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel in order to maintain uniformity within the franchisors system. These standards are subject to change over time, in some cases at the discretion of the franchisor, and may restrict our ability to make improvements or modifications to a hotel without the consent of the franchisor. Conversely, these standards may require us to make certain improvements or modifications to a hotel, even if we do not believe the capital improvements are necessary or desirable or will result in an acceptable return on our investment. Compliance with these standards could require us to incur significant expenses or capital expenditures, all of which could have a material adverse effect on our financial condition, results of operations and ability to pay distributions.  These agreements also permit the franchisor to terminate the agreement in certain cases such as a failure to pay royalties and fees or perform our other covenants under the franchise agreement, bankruptcy, abandonment of the franchise, commission of a felony, assignment of the franchise without the consent of the franchisor or failure to comply with applicable law or maintain applicable standards in the operation and condition of the relevant hotel. If a franchise license terminates due to our failure to make required improvements or to otherwise comply with its terms, we may be liable to the franchisor for a termination payment. These payments vary. Also, these franchise agreements do not renew automatically. We received notice from a franchisor that the franchise license agreements for two hotels, aggregating 319  -64-    rooms, which expire in March 2009 and November 2010, will not be renewed. There can be no assurance that other licenses will be renewed upon the expiration thereof. The loss of a number of franchise licenses and the related termination payments could have a material adverse effect on our financial condition, results of operations and ability to pay distributions.  Actions of our joint venture partners could negatively impact our performance.  As of March 31, 2008, we had entered into joint venture agreements with 12 entities to fund the development or acquisition of office, industrial/distribution, retail, lodging, healthcare and mixed use properties. We have invested a total of approximately $500 million in cash in these joint ventures, which we do not consolidate for financial reporting purposes.  Our organizational documents do not limit the amount of available funds that we may invest in these joint ventures, and we intend to continue to develop and acquire properties through joint ventures with other persons or entities when warranted by the circumstances. The venture partners may share certain approval rights over major decisions and these investments may involve risks not otherwise present with other methods of investment in real estate, including, but not limited to:  · that our co-member, co-venturer or partner in an investment might become bankrupt, which would mean that we and any other remaining general partners, members or co-venturers would generally remain liable for the partnerships, limited liability companys or joint ventures liabilities;  · that our co-member, co-venturer or partner may at any time have economic or business interests or goals which are or which become inconsistent with our business interests or goals;  · that our co-member, co-venturer or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our current policy with respect to maintaining our qualification as a REIT;  · that, if our partners fail to fund their share of any required capital contributions, we may be required to contribute that capital;  · that joint venture, limited liability company and partnership agreements often restrict the transfer of a co-venturers, members or partners interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;  · that our relationships with our partners, co-members or co-venturers are contractual in nature and may be terminated or dissolved under the terms of the agreements and, in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at an above-market price to continue ownership;  · that disputes between us and our partners, co-members or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable partnership, limited liability company or joint venture to additional risk; and  · that we may in certain circumstances be liable for the actions of our partners, co-members or co-venturers.  We generally seek to maintain sufficient control of our ventures to permit us to achieve our business objectives; however, we may not be able to do so, and the occurrence of one or more of the events described above could adversely affect our financial condition, results of operations and ability to pay distributions.  Although our sponsor or its affiliates previously have agreed to forgo or defer advisor fees in an effort to maximize cash available for distribution by the other REITs sponsored by our sponsor, our business manager is under no obligation, and may not agree, to continue to forgo or defer its business management fee.  From time to time, our sponsor or its affiliates have agreed to either forgo or defer a portion of the business management fee due them from the other REITs sponsored by our sponsor to ensure that each REIT generated sufficient cash from operating, investing and financing activities to pay distributions while continuing to raise capital and acquire properties.  -65-    For the three months ended March 31, 2008, we incurred no business management fees and an investment advisory fee of approximately $681 thousand, together which are less than the full 1% fee that the business manager is entitled to receive.  In each case, our sponsor or its affiliates, including our business manager, determined the amounts that would be forgone or deferred in their sole discretion and, in some cases, were paid the deferred amounts in later periods. In the case of Inland Western Retail Real Estate Trust, Inc., or Inland Western, our sponsor also advanced monies to Inland Western to pay distributions. There is no assurance that our business manager will continue to forgo or defer all or a portion of its business management fee during the periods that we are raising capital, which may affect our ability to pay distributions or have less cash available to acquire real estate assets.  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  Share Repurchase Program  The table below outlines the shares we repurchased pursuant to our share repurchase program during the quarter ended March 31, 2008.  Total Number of Shares RepurchasedAverage Price Paid per ShareTotal Number of Shares Repurchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares That May Yet Be Purchased UnderJanuary 2008276,396$9.27276,396(1)February 2008391,209$9.26391,209(1)March 2008449,144$9.27449,144(1)Total1,116,7491,116,749  (1) Subject to funds being available, we will limit the number of shares repurchased pursuant to our share repurchase program during any consecutive twelve month period to 5% of the number of outstanding shares of common stock at the beginning of that twelve month period.  Item 3.  Defaults Upon Senior Securities  None.  Item 4.  Submission of Matter to a Vote of Security Holders  None.  Item 5.  Other Information  Not Applicable.  Item 6.  Exhibits  The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you.  Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.  The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.   -66-    SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  INLAND AMERICAN REAL ESTATE TRUST, INC.  /s/ Brenda G. GujralBy:Brenda G. GujralPresident and DirectorDate:May 15, 2008  Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  SignatureTitleDateBy:/s/ Robert D. ParksName:Robert D. ParksDirector and chairman of the boardMay 15, 2008By:/s/ Brenda G. GujralName:Brenda G. GujralDirector and president (principal executive officer)May 15, 2008By:/s/ Lori J. FoustName:Lori J. FoustTreasurer (principal financial officer)May 15, 2008By:/s/ Jack PottsName:Jack PottsPrincipal accounting officerMay 15, 2008By:/s/ J. Michael BordenName:J. Michael BordenDirectorMay 15, 2008By:/s/ David MahonName:David MahonDirectorMay 15, 2008By:/s/ Thomas F. MeagherName:Thomas F. MeagherDirectorMay 15, 2008By:/s/ Paula SabanName:Paula SabanDirectorMay 15, 2008By:/s/ William J. WierzbickiName:William J. WierzbickiDirectorMay 15, 2008By:/s/ Thomas F. GlavinName:Thomas F. GlavinDirectorMay 15, 2008   -67-    Exhibit Index  EXHIBIT NO.DESCRIPTION2.1Agreement and Plan of Merger, dated as of August 12, 2007, by and among Inland American Real Estate Trust, Inc., RLJ Urban Lodging Master, LLC, RLJ Urban Lodging REIT, LLC and RLJ Urban Lodging REIT (PF#1), LLC, as amended (incorporated by reference to Exhibit 2.3 to the Registrants Form 8-K dated January 25, 2008, as filed by the Registrant with the Securities and Exchange Commission on January 25, 2008)3.1Fifth Articles of Amendment and Restatement of Inland American Real Estate Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K dated June 14, 2007, as filed by the Registrant with the Securities and Exchange Commission on June 19, 2007)3.2Amended and Restated Bylaws of Inland American Real Estate Trust, Inc., effective as of December 4, 2007 (incorporated by reference to Exhibit 3.2 to the Registrants Form 8-K dated December 4, 2007, as filed by the Registrant with the Securities and Exchange Commission on December 4, 2007)4.1Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to the Registrants Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on December 19, 2006 (file number 333-139504))4.2Share Repurchase Program (incorporated by reference to Exhibit 4.2 to the Registrants Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on December 19, 2006 (file number 333-139504))4.3Independent Director Stock Option Plan (incorporated by reference to Exhibit 4.3 to the Registrants Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on February 11, 2005 (file number 333-122743))4.4Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to Exhibit 4.4 to the Registrants Amendment No. 1 to Form S-11 Registration Statement, as filed by the Registrant with the Securities and Exchange Commission on July 31, 2007 (file number 333-139504))10.169Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American Real Estate Trust, Inc. (incorporated by reference to Exhibit 10.169 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)10.170Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American ST Portfolio III, L.L.C. (incorporated by reference to Exhibit 10.170 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)10.171Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American ST Portfolio IV, L.L.C. (incorporated by reference to Exhibit 10.171 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)10.172Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American ST Portfolio V, L.L.C. (incorporated by reference to Exhibit 10.172 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)10.173Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and IA Branch Portfolio, L.L.C. (incorporated by reference to Exhibit 10.173 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)10.174Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American Real Estate Trust, Inc. (incorporated by reference to Exhibit 10.174 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)  -68-     10.175Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American Real Estate Trust, Inc. (incorporated by reference to Exhibit 10.175 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)10.176Assignment and Assumption of Purchase and Sale Agreement, dated March 17, 2008, by and between Inland Real Estate Acquisitions, Inc. and Inland American Real Estate Trust, Inc. (incorporated by reference to Exhibit 10.176 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 3, 2008)31.1Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1Certification by Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2Certification by Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**Filed as part of this Quarterly Report on Form 10-Q.     -69-