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 SEPTEMBER 30, 2010oTRANSITION 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  o      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 November 8, 2010, there were 842,241,231 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 September 30, 2010 (unaudited) and December 31, 20091Consolidated Statements of Operations and Other Comprehensive Income for the three months and
nine months ended September 30, 2010 and 2009 (unaudited)2Consolidated Statement of Changes in Equity for the nine months ended September 30, 2010 and
2009 (unaudited)4Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009
(unaudited)6Notes to Consolidated Financial Statements (unaudited)8Item  2.Management's Discussion and Analysis of Financial Condition and Results of Operations30Item  3.Quantitative and Qualitative Disclosures About Market Risk53Item  4.Controls and Procedures55Part II - Other InformationItem  1.Legal Proceedings56Item 1A.Risk Factors56Item  2.Unregistered Sales of Equity Securities and Use of Proceeds57Item  3.Defaults upon Senior Securities58Item  4.Reserved58Item  5.Other information58Item  6.Exhibits58Signatures59  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). Intercontinental Hotels ® trademark is the property of IHG. Wyndham ® and Baymont Inn & Suites ® trademarks are the property of Wyndham Worldwide. Comfort Inn ® trademark is the property of Choice Hotels International. The Aloft service name is the property of Starwood. 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, except per share amounts)  AssetsSeptember 30, 2010 (unaudited)December 31, 2009Assets:Investment properties:Land$1,901,482$1,684,793Building and other improvements8,493,5457,866,633Construction in progress218,447278,096Total10,613,4749,829,522Less accumulated depreciation(967,648)(717,547)Net investment properties9,645,8269,111,975Cash and cash equivalents238,212500,491Restricted cash and escrows93,91071,187Investment in marketable securities249,130217,061Investment in unconsolidated entities476,290453,782Accounts and rents receivable (net of allowance of $7,775 and $7,853)100,29880,145Notes receivable316,786423,478Intangible assets, net404,085389,136Deferred costs and other assets71,26480,956Total assets$11,595,801$11,328,211Liabilities and EquityLiabilities:Mortgages, notes and margins payable, net$5,658,600$5,085,899Accounts payable and accrued expenses38,82745,854Distributions payable35,00734,317Accrued real estate taxes59,33246,805Advance rent and other liabilities86,03194,881Intangible liabilities, net83,34076,379Other financings47,76247,762Total liabilities6,008,8995,431,897Noncontrolling redeemable interests264,132264,132Commitments and contingenciesStockholders' equity:Preferred stock, $.001 par value, 40,000,000 shares authorized, none   outstanding--Common stock, $.001 par value, 1,460,000,000 shares authorized,
840,155,693 and 823,619,190 shares issued and outstanding840824Additional paid in capital (net of offering costs of $828,434, of which
$788,272 was paid to affiliates)7,554,9137,397,831Accumulated distributions in excess of net loss(2,283,348)(1,815,054)Accumulated other comprehensive income32,67129,712Total Company stockholders' equity5,305,0765,613,313Noncontrolling interests17,69418,869Total equity5,322,7705,632,182Total liabilities and equity$11,595,801$11,328,211   See accompanying notes to the consolidated financial statements. -1-  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 endedNine months endedNine months endedSeptember 30, 2010September 30, 2009September 30, 2010September 30, 2009(unaudited)(unaudited)(unaudited)(unaudited)Income:Rental income$164,249$141,820$477,685$405,100Tenant recovery income24,93621,81671,36463,939Other property income5,1924,88913,23213,722Lodging income126,797112,982367,125350,895Total income321,174281,507929,406833,656Expenses:General and administrative expenses8,7187,43530,05335,795Property operating expenses35,16129,262101,30284,047Lodging operating expenses82,11273,443233,527219,190Real estate taxes24,39122,07473,72865,179Depreciation and amortization110,637100,834331,294290,872Business manager management fee10,0009,00026,00027,000Provision for asset impairment22,4121,11726,1911,117Impairment of notes receivable94,6278,72494,62722,949Total expenses388,058251,889916,722746,149Operating income$(66,884)$29,618$12,684$87,507Interest and dividend income9,36910,22825,24447,620Other income (loss)(320)3405691,167Interest expense(77,054)(63,368)(222,233)(182,374)Loss on consolidated investment---(148,887)Equity in (losses) earnings of   unconsolidated entities620(9,936)(5,285)(48,137)Impairment of investment in   unconsolidated entities(11,239)(2,706)(11,239)(2,706)Realized gain (loss) and impairment on   securities, net11,81620,96119,86427,910Loss before income taxes$(133,692)$(14,863)$(180,396)$(217,900)Income tax (expense) benefit$(528)$1,004$(1,076)$(354)Net loss from continuing operations$(134,220)$(13,859)$(181,472)$(218,254)Income (loss) from discontinued   operations, net$14,326$(13,190)$32,517$(13,161)Net loss$(119,894)$(27,049)$(148,955)$(231,415)Less: Net income attributable to   noncontrolling interests(2,586)(2,409)(6,994)(6,790)Net loss attributable to Company$(122,480)$(29,458)$(155,949)$(238,205)   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 endedNine months endedNine months endedSeptember 30, 2010September 30, 2009September 30, 2010September 30, 2009(unaudited)(unaudited)(unaudited)(unaudited)Other comprehensive income (loss):Unrealized gain (loss) on investment     securities21,54549,15422,33950,780Reversal of unrealized (gain) loss to     realized gain (loss) or impairment on     investments securities(11,816)(20,961)(19,864)(27,910)Unrealized gain on derivatives895204843,326Comprehensive income (loss)$(112,662)$(745)$(152,990)$(212,009)Net loss, per common share, from   continuing operations$(.17)$(.02)$(.23)$(.27)Income, per common share, from   discontinued operations$.02$(.02)$.04$(.02)Net loss, per common share, basic and   diluted$(.15)$(.04)$(.19)$(.29)Weighted average number of common   shares outstanding, basic and diluted837,717,745815,129,571832,292,463808,157,928    See accompanying notes to the consolidated financial statements. -3-


INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Changes in Equity (Dollar amounts in thousands)  For the nine months ended September 30, 2010 (unaudited)  Number of SharesCommon
StockAdditional Paid-in
CapitalAccumulated
Distributions in excess of Net LossAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestsTotalNoncontrolling Redeemable InterestsBalance at December 31,   2009823,619,190$824$7,397,831$(1,815,054)$29,712$18,869$5,632,182$264,132Net income  (loss)---(155,949)-61(155,888)6,933Unrealized gain  on   investment securities----22,339-22,339-Reversal of unrealized   gain to realized gain on   investment securities----(19,864)-(19,864)-Unrealized gain on   derivatives----484-484-Distributions declared---(312,345)-(2,091)(314,436)(6,933)Contributions from   noncontrolling interests-----855855-Proceeds from distribution   reinvestment program16,536,50316157,082---157,098-Balance at
September 30, 2010840,155,693$840$7,554,913$(2,283,348)$32,671$17,694$5,322,770$264,132


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


INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Changes in Equity (Dollar amounts in thousands)  For the nine months ended September 30, 2009 (unaudited)  Number of SharesCommon StockAdditional Paid-in CapitalAccumulated Distributions in excess of Net IncomeAccumulated Other Comprehensive Income (Loss)Noncontrolling InterestsTotalNoncontrolling Redeemable InterestsBalance at
December 31, 2008794,574,007$795$7,129,945$(1,011,757)$(6,421)$20,593$6,133,155$264,132Net income (loss)---(238,205)-(143)(238,348)6,933Unrealized gain on   investment securities----50,780-50,780-Reversal of unrealized   (gain) loss to realized   gain (loss) on investment   securities----(27,910)-(27,910)-Unrealized gain on   derivatives----3,326-3,326-Distributions declared---(302,625)-(2,211)(304,836)(6,933)Contributions from   noncontrolling interests-----1,3021,302-Proceeds from offering24,869,35025253,961---253,986-Offering costs--(28,415)---(28,415)-Proceeds from distribution
reinvestment plan18,543,25718176,153---176,171-Shares repurchased(20,171,263)(20)(188,956)---(188,976)-Issuance of stock options   and discounts on shares   issued to affiliates--14---14-Balance at
September 30, 2009817,815,351$818$7,342,702$(1,552,587)$19,775$19,541$5,830,249$264,132


See accompanying notes to the consolidated financial statements. -5-


INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Cash Flows (Dollar amounts in thousands)  Nine months endedNine months endedSeptember 30, 2010September 30, 2009(unaudited)(unaudited)Cash flows from operations:Net loss$(148,955)$(231,415)Adjustments to reconcile net loss to net cash provided by operating   activities:Depreciation and amortization332,741293,724Amortization of above and below market rent, net(155)(1,087)Amortization of debt premiums, discounts and financing costs13,3828,039Amortization of note receivable discount-(8,107)Straight-line rental income(13,267)(13,860)Loss on consolidated investment-148,887Provision for asset and notes receivable impairment121,76337,441Gain on extinguishment of debt(19,227)-Gain on sale of property, net(14,252)-Equity in (earnings) loss of unconsolidated entities5,28548,137Distributions from unconsolidated entities3,8271,779Impairment of investment in unconsolidated entities11,2392,706Realized gain on investments in securities, net(21,720)(31,948)Impairment of investments in securities1,8564,038Other non-cash adjustments472124Changes in assets and liabilities:Accounts and rents receivable(6,981)1,874Other assets7,8237,365Accounts payable and accrued expenses(5,506)(7,346)Advance rent and other liabilities(2,950)4,112Accrued real estate taxes5,76620,016Net cash flows provided by operating activities271,141284,479Cash flows from investing activities:Consolidation of LIP-H-1,757Purchase of investment properties(347,887)(300,358)Acquired in-place and market lease intangibles, net(73,343)(55,286)Capital expenditures and tenant improvements(80,966)(51,277)Investment in development projects(37,104)(110,099)Sale of investment properties89,632-Purchase of investment securities(79,028)(49,216)Sale of investment securities69,298116,032Investment in unconsolidated entities(65,206)(19,617)Distributions from unconsolidated entities22,99629,672Payment of leasing and franchise fees(6,150)(2,880)Purchase of note receivable(34,253)-Payments from note receivable3,491275Restricted escrows(17,223)6,997Other assets4,3125,824Net cash flows used in investing activities(551,431)(428,176)Cash flows from financing activities:Proceeds from offering-253,986Proceeds from the distribution reinvestment plan157,098176,166Shares repurchased-(192,543)Payment of offering costs-(29,616)Distributions paid(311,655)(309,326)Proceeds from mortgage debt and notes payable386,201145,951  See accompanying notes to the consolidated financial statements. -6-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Consolidated Statements of Cash Flows (continued) (Dollar amounts in thousands)  Nine months endedNine months endedSeptember 30, 2010September 30, 2009(unaudited)(unaudited)Payoffs of mortgage debt(223,019)(154,700)Principal payments of mortgage debt(10,681)(4,662)(Payoff) proceeds from margin securities debt35,842(37,884)Payment of loan fees and deposits(7,606)(9,775)Distributions paid to noncontrolling interests(2,091)(2,211)Distributions paid to noncontrolling redeemable interests(6,933)(6,933)Contributions from noncontrolling interest8551,302Due from related parties, net-(168)Net cash flows provided by (used in) financing activities18,011(170,413)Net decrease in cash and cash equivalents(262,279)(314,110)Cash and cash equivalents, at beginning of period500,491945,225Cash and cash equivalents, at end of period$238,212$631,115Supplemental disclosure of cash flow information:Purchase of investment properties$(762,180)$(913,259)Tenant and real estate tax liabilities assumed at acquisition4,48713,099Assumption of mortgage debt at acquisition457,685594,795Non-cash mortgage (discount) premium(47,879)5,007$(347,887)$(300,358)Cash paid for interest$214,395$180,340Supplemental schedule of non-cash investing and financing activities:Consolidation of LIP-H assets$-$135,686Assumption of mortgage debt at consolidation of LIP-H$-$(96,763)Liabilities assumed at consolidation of LIP-H$-$(3,584)Property surrendered in exchange for extinguishment of debt$10,492$-Property acquired through exchange of note receivable$42,827$-     See accompanying notes to the consolidated financial statements. -7-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   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 notes 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, 2009, which are included in the Company's 2009 Annual Report on Form 10-K, as certain note 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 these financial statements.  (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 and 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 per share available to 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 per share and up to 40,000,000 shares at $9.50 per share available to be distributed through the Companys distribution reinvestment plan. On March 31, 2009, the Company filed a registration statement to register 50,000,000 shares to be issued under the distribution reinvestment plan. Effective April 6, 2009, the Company elected to terminate the Second Offering.  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 ended 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 (subject to certain adjustments) to its stockholders. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, the Company will be subject to federal and state 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, state, and local 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. 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.  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.  At September 30, 2010, the Company owned a portfolio of 981 commercial real estate properties. The breakdown by segment is as follows:  SegmentProperty CountSquare Ft/Rooms/UnitsRetail73321,588,775 square feetLodging9915,384 roomsOffice4010,056,553 square feetIndustrial7215,959,342 square feetMulti-Family2910,547 unitsLIP-Holdings, LLC8487,038 square feet   -8-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   (2)  Investment Properties  Acquisitions  The Company records identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination at full fair value. During the nine months ended September 30, 2010 and 2009, the Company incurred $1,603 and $8,293, respectively, of acquisition and transaction costs that were recorded in general and administrative expenses on the consolidated statements of operations and other comprehensive income.  The table below reflects acquisition activity for the nine months ended September 30, 2010.  SegmentPropertyDateGross Acquisition PriceSq Ft/Units/RoomsRetailRetail Portfolio  16 properties3/04/2010$424,3003,557,846 square feetHeritage Crossing3/23/2010$29,500310,922 square feetPrestonwood Shopping Center4/21/2010$48,300238,926 square feetTulsa Hills Shopping Center4/23/2010$54,100317,106 square feetUniversity Oaks4/30/2010$38,100235,906 square feetLodgingLodging Portfolio  4 hotels5/11/2010$80,000598 roomsMarriott  Dallas City9/30/2010$50,000407 roomsIndustrialImagine Charter Schools  7 schools2/11/2010$61,200292,211 square feetMulti-familyFannin Street Station Apartments1/15/2010$57,600678 unitsNantucket Apartments8/05/2010$35,000394 unitsTotal$878,100  Dispositions  For the nine months ended September 30, 2010, the Company has sold six lodging properties for total net proceeds of $89,632. Gains of $14,252 were realized in the sales. In addition, the Company has transferred land previously held by a consolidated joint venture to the lender in satisfaction of the outstanding debt balance. A gain of $19,227 was realized on extinguishment of the debt.  The Company has presented separately as discontinued operations in all periods the results of operations for all disposed assets in both consolidated operations and consolidated joint ventures.  The components of the Companys discontinued operations are presented below and include the results of operations for the respective periods that the Company owned such assets or was involved with the operations of such ventures during the three and nine months ended September 30, 2010 and 2009.  Three months ended September 30, 2010Three months ended September 30, 2009Nine months ended September 30, 2010Nine months ended September 30, 2009Revenues$2,201$5,407$10,772$15,572Expenses (including interest   expense and impairments)2,81718,59711,73428,733Operating loss from   discontinued operations$(616)$(13,190)$(962)$(13,161)Gain on extinguishment of   debt$-$-$19,227$-Gain on sale of properties$14,942$-$14,252$-Income (loss) from   discontinued operations, net$14,326$(13,190)$32,517$(13,161)  -9-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)      Impairments  The Company assesses the carrying values of the respective long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable. Recoverability of the assets is measured by comparison of the carrying amount of the asset to the estimated future undiscounted cash flows. In order to review its assets for recoverability, the Company considers current market conditions, as well as its intent with respect to holding or disposing of the asset. If the Companys analysis indicates that the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, the Company recognizes an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property. Fair value is determined through various valuation techniques; including discounted cash flow models, quoted market values and third party appraisals, where considered necessary.  The use of projected future cash flows is based on assumptions that are consistent with the estimates of future expectations and the strategic plan the Company uses to manage its underlying business. However assumptions and estimates about future cash flows and capitalization rates are complex and subjective. Changes in economic and operating conditions and the Companys ultimate investment intent that occur subsequent to the impairment analyses could impact these assumptions and result in future impairment charges of the real estate properties. As of September 30, 2010, triggering events primarily related to a change in estimated holding period have occurred on certain portfolio properties and an impairment of $26,191 has been recognized for the nine months ended September 30, 2010.  LIP-H Consolidation  On June 8, 2007, the Company, through a 100% owned subsidiary, entered into the LIP Holdings, LLC (LIP-H) operating agreement for the purpose of funding the development and ownership of real estate projects in the office, distribution, retail, healthcare and mixed-use markets. As of January 6, 2009, effective control over LIP-H rests with the Companys subsidiary, resulting in the consolidation of LIP-H. The assets of LIP-H consist of eight operating office and retail projects and a mezzanine loan to LIP Development (LIP-D), an entity related to Lauth Investment Properties, LLC (the other venture partner of LIP-H). The mezzanine loan with LIP-D is secured primarily by development projects at various stages of completion, including vacant land. The consolidation resulted in a loss of $148,887 being recognized for the nine months ended September 30, 2009.  In addition, on July 21, 2009, the Company filed an action against Lauth Investment Properties, LLC for their actions with regard to the Companys losses with its investment in LIP-H. On September 14, 2010, the Company approved a settlement agreement relative to this lawsuit. The agreement calls for the transfer of six properties and consideration of $1,000 in settlement of the claims. The closing of the settlement agreement and transfer of assets occurred on October 1, 2010 and will be recorded by the Company in the fourth quarter of 2010 at fair value. At September 30, 2010, the Company had a remaining receivable from LIP-D of approximately $2,500. The Company is currently evaluating the fair value of the consideration received in the settlement agreement.  (3)  Investment in Unconsolidated Entities  The entities listed below are owned by the Company and other unaffiliated parties in joint ventures. Net income, cash flow from operations and capital transactions for these properties are allocated to the Company and its joint venture partners in accordance with the respective partnership agreements. During the three and nine months ended September 30, 2010, the Company recognized $11,239 of impairment for certain of our other unconsolidated entities where it believes the decrease in fair value and resulting losses are other than temporary.  EntityDescriptionOwnership %Investment at September 30, 2010Investment at December 31, 2009Net Lease Strategic Asset Fund L.P.Diversified portfolio of net lease assets85% (a)$164,851$180,304Cobalt Industrial REIT IIIndustrial portfolio36%128,16279,511D.R. Stephens Institutional   Fund, LLCIndustrial and R&D assets90% (b)68,45570,752  -10-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)    EntityDescriptionOwnership %Investment at September 30, 2010Investment at December 31, 2009NRF Healthcare, LLCSenior housing portfolio(c)90,50694,872Other unconsolidated entities   (Note 13)Various investmentsVarious24,31628,343$476,290$453,782  (a) On August 10, 2007, the Company entered a joint venture with The Lexington Master Limited Partnership (LMLP) and LMLP GP LLC (LMLP GP), for the purpose of directly or indirectly acquiring, financing, holding for investment, operating, and leasing real estate assets as acquired by the joint venture. The Companys initial capital contribution was approximately $127,500 and LMLPs initial contribution was approximately $22,500. LMLP GP is the general partner who manages investments and day-to-day affairs of the venture. The Company analyzed the venture and determined that it was not a variable interest entity (VIE). The Company also considered its participating rights under the joint venture agreement and determined that such participating rights also require the agreement of LMLP, which equates to shared decision making ability, and therefore do not give the Company control over the venture. As such, the Company has significant influence but does not control Net Lease Strategic Asset Fund L.P. Therefore, the Company does not consolidate this entity, rather the Company accounts for its investment in the entity under the equity method of accounting.  (b) On April 23, 2007, the Company entered into a joint venture, D.R. Stephens Institutional Fund, LLC, between the Company and Stephens Ventures III, LLC (Stephens Member) for the purpose of acquiring entities engaged in the acquisition, ownership, and development of real property. The Companys initial capital contribution was limited to approximately $90,000 and the Stephens Members initial contribution was limited to approximately $10,000. Stephens & Stephens LLC (Stephens), an affiliate of the Stephens Member, is the managing member of D.R. Stephens Institutional Fund, LLC. The Company analyzed the venture and determined that it was not a variable interest entity (VIE). The Company also considered its participating rights under the joint venture agreement and determined that such participating rights also require the agreement of Stephens Member, which equates to shared decision making ability, and therefore do not give the Company control over the venture. As such, the Company has significant influence but does not control D.R. Stephens Institutional Fund, LLC. Therefore, the Company does not consolidate this entity, rather the Company accounts for its investment in the entity under the equity method of accounting.  (c) On July 9, 2008, the Company invested $100,000 in NRF Healthcare, LLC in exchange for a Series A Convertible Preferred Membership interest and is entitled to a 10.5% preferred dividend. NRF Healthcare owns 96 senior living properties containing 5,971 operating units/beds, one medical office building and a research campus totaling 313,204 square feet. The entity was previously known as Wakefield Capital, LLC.  Combined Financial Information  The Company's carrying value of its investment in unconsolidated entities differs from its share of the equity reported in the combined balance sheets of the unconsolidated entities due to the Company's cost of its investment in excess of the historical net book values of the unconsolidated entities. The Company's additional basis allocated to depreciable assets is recognized on a straight-line basis over 30 years.  September 30, 2010December 31, 2009(Dollars in thousands)(Dollars in thousands)Balance Sheets:Assets:Real estate, net of accumulated depreciation$2,186,113$2,208,528Real estate debt and securities investments530,793599,617Other assets283,586313,381Total Assets3,000,4923,121,526  -11-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)    September 30, 2010December 31, 2009(Dollars in thousands)(Dollars in thousands)Liabilities and Equity:Mortgage debt1,950,4142,014,152Other liabilities111,391113,637Equity938,687993,737Total Liabilities and Equity3,000,4923,121,526Companys share of Equity461,608437,671Net excess of cost of investment over the net book value of underlying net
assets (net of accumulated depreciation of $1,782 and $1,222, respectively)14,68216,111Carrying value of investment in unconsolidated entities$476,290$453,782  Nine months ended
September 30, 2010Nine months ended
September 30, 2009Statements of Operations:Revenues$223,679$212,636Expenses:Interest expense and loan cost amortization76,41176,189Depreciation and amortization75,10685,652Operating expenses, ground rent and general and administrative expenses77,38684,012Impairments and realized losses22,984154,907Total expenses251,887400,760Net loss$(28,208)(188,124)Companys share of:Net loss, net of excess basis depreciation of $420 and $447(5,285)(48,137)Depreciation and amortization (real estate related)30,69738,309  The unconsolidated entities had total third party debt of $1,950,414 at September 30, 2010 that matures as follows:  2010$140,5842011138,1932012411,8542013159,0352014138,876Thereafter961,872$1,950,414  The debt maturities of the unconsolidated entities are not recourse to the Company and the Company has no obligation to fund, except for remaining capital commitments (Note 13).  (4) Noncontrolling Interests  As of September 30, 2010 and December 31, 2009, noncontrolling interests in the Company are comprised of the ownership interests of (1) noncontrolling redeemable interests (Series A Preferred Interest) and other interests in Minto Builders (Florida), Inc. (MB REIT), and (2) noncontrolling interests in various joint ventures controlled by the Company through ownership or contractual  -12-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   arrangements. Balances attributable to these noncontrolling interests are reclassified either as a separate component of equity or outside of permanent equity, as appropriate, as of all dates presented.  The Series A Preferred Interest in MB REIT is subject to redemption features outside of the Company's control that results in presentation outside of permanent equity, reported at greater of carrying value or redemption value. The noncontrolling interest is reported at its redemption value as noncontrolling redeemable interests in the Company's consolidated financial statements with a balance of $264,132 as of September 30, 2010 and December 31, 2009.  (5)  Fair Value of Financial Instruments  The table below represents the fair value of financial instruments as of September 30, 2010 and December 31, 2009.  September 30, 2010December 31, 2009Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueMortgages and notes payable$5,594,457$5,534,303$5,057,597$4,872,189Margins payable$64,143$64,143$28,302$28,302Notes receivable$316,786$314,579$423,478$416,520  The Company estimates the fair value of its mortgages, notes and margins 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 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 or in the case of certain impaired loans, by determining the fair value of the collateral supporting the collateral-dependent loan. At September 30, 2010 and December 31, 2009, the carrying amounts of certain of the Companys other financial instruments were representative of their fair values due to the short-term nature of these instruments.  (6)  Transactions with Related Parties  The following table summarizes the Companys related party transactions for the three and nine months ended September 30, 2010 and 2009.  For the three months endedFor the nine months endedUnpaid amounts as ofSeptember 30, 2010September 30, 2009September 30, 2010September 30, 2009September 30, 2010December 31, 2009General and administrative:General and administrative   reimbursement(a)1,6802,0796,1546,7731,6501,876Loan servicing(b)15315743035052-Affiliate share purchase   discounts(c)---14--Investment advisor fee(d)3633511,073961363118Total general and administrative   expenses to related parties2,1962,5877,6578,0982,0651,994Property management fees(e)7,4026,66421,25819,3796018Business manager fee(f)10,0009,00026,00027,00010,00012,000Loan placement fees(g)2562217081,829--Offering costs(h)---25,660--  (a) 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. Unpaid amounts as of September 30, 2010 and December 31, 2009 are included in accounts payable and accrued expenses on the consolidated balance sheets.  -13-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)    (b) A related party of the Business Manager provides loan servicing to the Company for an annual fee. Effective May 1, 2009, the loan servicing fees were reduced to 200 dollars per month, per loan for the Companys non-lodging properties. The Companys lodging properties will continue to be billed at 225 dollars per month per loan and MB REIT properties at 200 dollars per month, per loan.  (c) The Company established a discount stock purchase policy for related parties and related parties of the Business Manager that enabled the related parties to purchase shares of common stock at either $8.95 or $9.50 a share depending on when the shares were purchased. The Company sold 0 and 18,067 shares to related parties and recognized an expense related to these discounts of $0 and $14 for the nine months ended September 30, 2010 and 2009, respectively.  (d) The Company pays a related party of the Business Manager to purchase and monitor its investment in marketable securities. Unpaid amounts as of September 30, 2010 and December 31, 2009 are included in accounts payable and accrued expenses on the consolidated balance sheets.  (e) The property managers, entities owned principally by individuals who are related parties of the Business Manager, are 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 managers are entitled to receive an oversight fee of 1% of gross operating income (as defined) in operating companies purchased by the Company. Unpaid amounts as of September 30, 2010 and December 31, 2009 are included in advanced rent and other liabilities on the consolidated balance sheets.  (f) After the Company's stockholders have received a non-cumulative, non-compounded return of 5% per annum on their "invested capital," the Company pays 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 the nine months ended September 30, 2010 and 2009, average invested assets were $11,385,166 and $10,259,917 and operating expenses, as defined, were $54,450 and $54,502 or .64%, and .71%, respectively, of average invested assets. The Company incurred fees of $26,000 and $27,000 for the nine months ended September 30, 2010 and 2009, respectively, of which $10,000 and $12,000 remained unpaid as of September 30, 2010 and December 31, 2009 and is included in advance rent and other liabilities on the consolidated balance sheets. The Business Manager has agreed to waive all fees allowed but not taken, except for the $26,000 and $27,000 incurred for the nine months ended September 30, 2010 and 2009, respectively.  (g) 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.  (h) 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 was entitled to receive selling commissions, and the marketing contribution and due diligence expense allowance from the Company in connection with the Companys best efforts offerings. Such costs are offset against the stockholders' equity accounts.  The Company has an investment in an insurance captive entity with certain related parties. The entity is included in the Companys analysis of Investment in Unconsolidated Entities (Note 3). The balance of the Companys investment is $1,824 as of September 30, 2010 and is included in investment in unconsolidated entities on the consolidated balance sheets.  As of September 30, 2010, the Company has $369 on deposit with Inland Bank and Trust, a subsidiary of Inland Bancorp, Inc., an affiliate of The Inland Real Estate Group, Inc.  (7)  Notes Receivable  The Company's notes receivable balance was $316,786 and $423,478 as of September 30, 2010 and December 31, 2009, respectively, and consisted of installment notes from unrelated parties that mature on various dates through July 2012. The notes are secured by mortgages on vacant land, shopping centers and hotel properties and certain loans are guaranteed by the borrowers. Interest is due each month at rates ranging from 5.68% to 9.50% per annum. For the three months ended September 30, 2010 and 2009, the Company recorded interest income from notes receivable of $4,239 and $5,960, including amortized discount of $0 and $2,571. For the nine  -14-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   months ended September 30, 2010 and 2009, the Company recorded interest income from notes receivable of $10,745 and $31,278, including amortized discount of $0 and $8,107. Interest and amortized discount are included in interest and dividend income on the consolidated statements of operations and other comprehensive income.  In the first quarter of 2010, the Company purchased a note receivable in the amount of $34,000, which is collateralized by a shopping center. In the second quarter of 2010, the Company foreclosed on the note and assumed ownership of the underlying collateral for $2,000 in cash plus the amount of the note receivable. The Company has recorded the asset in investment properties.  The table below represents the composition of the Companys notes receivable as of September 30, 2010.  Collateral BaseInterest RateMaturity DatesInitial Carrying ValueCumulative Recognized ImpairmentCarrying Value as of September 30, 2010Stan Thomas Properties (1)9.00-9.25%04/30/10214,62794,627120,000Retail centers (2)LIBOR + 5.40%12/09/10140,800-140,800Other (3)5.68%-9.50%05/09/09-06/01/1295,71139,72555,986451,138134,352316,786 (1) Balance consists of three loans on which impairment of $94,627 was recorded. No interest has been paid on these loans for the nine months ended September 30, 2010. See below for further discussion on these loans. (2) Loan was extended to 12/9/2010 and discussions are ongoing with the borrowers to restructure the loan. The Company believes it will recover the full amount of the loan based on the fair value of the collateral. (3) Balance consists of nine loans, of which five loans with a carrying value of $2,500 are considered impaired.  On October 22, 2010, the Company entered into a restructure agreement with a borrower on three loans, being Stan Thomas Properties. Prior to the restructuring, these loans were considered impaired as the borrower had not made the required interest payments since July of 2009. The Company previously had not recorded any impairment losses on these loans as it believed that the estimated fair value of the underlying collateral was greater than its book value for these loans, based on appraisals of the underlying collateral.  As part of the restructure, the Company will receive title and all rights to two land parcels, located in Florida and California, that secured the note receivables, and in return, the Company released its collateral rights to a third land parcel as well as the personal guarantees of Stan Thomas.  The collateral subject to the restructure and foreclosure will be recorded in investment properties, effective October 22, 2010, at its estimated fair value. As of September 30, 2010, the Company recorded its note receivable at the estimated fair values for the two land sites that will be received as part of the restructure. The changes reduced the estimated fair value of the collateral to $120,000, resulting in impairment of $94,627 for the three and nine months ended September 30, 2010.  Our analysis of the fair value of the collateral includes the review of third party appraisals. These fair value estimates are calculated using significant judgments of future long-term real estate, governmental and economic conditions to develop cash-flowing investments from these land parcels. The primary inputs are conditioned on a long-term recovery of these real estate markets so that development of certain infrastructure relating to the parcels will deliver positive risk-adjusted returns.  The Company evaluates the collectability of the notes, including an evaluation of the fair value of the collateral, which includes the review of third party appraisals. For the impaired loans, the Company determines the amount of impairment to recognize based on a determination of the fair value of the underlying collateral based on appraisals or an estimate of expected discounted cash flows. For the nine months ended September 30, 2010, the Company recorded $94,627 of impairment losses, which consists of the $94,627 Stan Thomas impairment discussed above.  If the Company considers a loan to be non-performing or the collectability is uncertain based on the underlying collateral, it will place the loan on non-accrual status. The Company will recognize interest income on a cash basis, as received. If the fair value of the loan collateral decreases to less than the amortized cost basis of the loan, any interest received will be recorded as a reduction of the loan basis. If the fair value of the collateral subsequently recovers to greater than the cost basis of the loan, and if the loan is not otherwise  -15-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   in default, any interest payment will be recognized as interest income. The impaired loans generated $523 of interest income for the nine months ended September 30, 2010.  (8)  Investment in Marketable Securities  Investment in marketable securities of $249,130 and $217,061 at September 30, 2010 and December 31, 2009, respectively, consists of primarily preferred and common stock investments in other REITs, certain real estate related bonds, and commercial mortgage backed securities 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 as of September 30, 2010, the Company has net accumulated other comprehensive income of $36,021, which includes gross unrealized losses of $7,361. All such gross 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 $58,153 as of September 30, 2010.  Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. 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, which includes determining whether (1) the Company  intends to sell the debt security, and (2) it is more likely than not that the Company will be required to sell the debt security before its anticipated recovery.  During the nine months ended September 30, 2010, the Company recorded impairment of $1,856 compared to an impairment of $4,038 for the nine months ended September 30, 2009 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 statements of operations and other comprehensive income.  Dividend income is recognized when earned. During the nine months ended September 30, 2010 and 2009, dividend income of $13,662 and $14,288 was recognized and is included in interest and dividend income on the consolidated statements of operations and other comprehensive income.  (9)  Mortgages, Notes and Margins Payable  During the nine months ended September 30, 2010, the following debt transactions occurred:  Balance at December 31, 2009$5,085,899New financings422,043Assumed financings, net of discount409,806Paydown of debt(233,700)Extinguishment of debt(29,630)Amortization of discount/premium4,182Balance at September 30, 2010$5,658,600  Mortgage loans outstanding as of September 30, 2010 and December 31, 2009 were $5,636,954 and $5,056,398 and had a weighted average interest rate of 5.1% and 4.9%, respectively. Mortgage premium and discount, net was a discount of $42,498 and a premium of $1,199 as of September 30, 2010 and December 31, 2009. As of September 30, 2010, scheduled maturities for the Company's outstanding mortgage indebtedness had various due dates through December 2047.  As of
September 30, 2010Weighted average interest rate2010$195,0063.94%2011$710,2093.54%2012$472,3204.84%2013$965,5344.86%2014$326,2075.08%Thereafter$2,967,6785.68%Total$5,636,9545.10%  -16-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)      The Company is in the process of negotiating refinancing and extinguishing the debt maturing in the remainder of 2010. It is anticipated that the Company will be able to extinguish all 2010 maturing debt timely. The Company has contractual extensions of at least one year on $372,961 of the $710,209 maturing in 2011. It is anticipated that the Company will be able to repay, refinance or extend the maturities of all of the outstanding debt on a timely basis, and the Company believes it has adequate sources of funds to meet short term cash needs related to these refinancings. Of the outstanding debt, approximately $714,571 is recourse to the Company.  Some of the mortgage loans require compliance with certain covenants, such as debt service ratios, investment restrictions and distribution limitations. All of the mortgage loans are current with payments, except for one property with a carrying value of $4,971, for which impairment of $3,779 has been recorded. In addition, four loans in its LIP-H segment, with a carrying value of $43,998 and 2010 maturities, are in default. The carrying value of the underlying assets of these loans is $50,778. None of these defaulted loans are recourse to the Company nor have they triggered cross-defaults of the Companys other debt.  The Company has purchased a portion of its securities through margin accounts. As of September 30, 2010 and December 31, 2009, the Company has recorded a payable of $64,143 and $28,302, respectively, for securities purchased on margin. This debt bears a variable interest rate of the LIBOR plus 50 basis points. At September 30, 2010 and December 31, 2009, this rate was .609% and .585%. Interest expense in the amount of $124 and $325 and $15 and $152 was recognized in interest expense on the consolidated statements of operations and other comprehensive income for the three and  nine months ended September 30, 2010 and 2009, respectively.  (10)  Derivatives  As of September 30, 2010, in connection with seven mortgages payable that have variable interest rates, the Company has entered into interest rate swap and cap agreements, with a notional value of $201,221. The Companys interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium. The interest rate swaps and cap were considered highly effective as of September 30, 2010. The fair value of the Companys swaps decreased $484 during the nine months ended September 30, 2010 and is reflected in other comprehensive income (OCI) on the consolidated statements of operations and other comprehensive income.  The following table summarizes  interest rate swap contracts outstanding as of September 30, 2010:  Date EnteredEffective DateEnd DatePay Fixed RateReceive Floating Rate IndexNotional AmountFair Value of September 30, 2010November 16, 2007November 20, 2007April 1, 20114.45%1 month LIBOR$24,425$(505)March 28, 2008March 28, 2008March 27, 20133.32%1 month LIBOR33,062(2,156)March 28, 2008March 28, 2008March 31, 20112.81%1 month LIBOR50,000(626)December 12, 2008January 1, 2009December 12, 2011(1)(1)20,245-December 23, 2008January 5, 2009December 22, 20111.86%1 month LIBOR16,637(301)January 16, 2009January 13, 2009January 13, 20121.62%1 month LIBOR22,000(348)August 19, 2010August 31, 2010March 27, 2012.63%1 month LIBOR34,852(113)$201,221$(4,049)  (1) Interest rate cap at 4.75%.  Derivative Instruments and Hedging Activities  The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting  -17-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.  Risk Management Objective of Using Derivatives  The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates. The Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash payments principally related to the Companys borrowings.  Cash Flow Hedges of Interest Rate Risk  The Companys objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has elected to designate the interest rate swaps as cash flow hedging relationships.  The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the nine months ended September 30, 2010 and 2009, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the nine months ended September 30, 2010 and 2009, the Company recorded $196 and $196 of ineffectiveness, respectively, which is included in interest expense on the consolidated statements of operations and other comprehensive income.  Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Companys variable-rate debt. During the next twelve months, the Company estimates that an additional $2,062 will be reclassified to interest expense.  The table below presents the fair value of the Companys derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2010 and December 31, 2009.  Liability DerivativesAs of September 30, 2010As of December 31, 2009Balance sheet locationFair valueBalance sheet locationFair valueDerivatives designated as hedging instruments   under ASC 815:Interest rate productsAdvance rent and other liabilities4,049Advance rent and other liabilities$4,533  The derivative instruments were reported at their fair value of $4,049 and $4,533 in advance rent and other liabilities at September 30, 2010 and December 31, 2009, respectively, with a corresponding adjustment to other comprehensive income for the unrealized gains and losses (net of noncontrolling interest participation). Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings. This reclassification will correlate with the recognition of the hedged interest payments in earnings.  -18-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)    The tables below present the effect of the Companys derivative financial instruments on the consolidated statements of operations and other comprehensive income for the three and nine months ended September 30, 2010 and 2009:  ASC 815 Derivative TypeAmount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)Location of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion Excluded from Effectiveness Testing)Three Months Ended September 30,Three Months Ended September 30,Three Months Ended September 30,201020092010200920102009Interest Rate Products$89$520Interest expense$927$(2,239)Interest expense$(66)$(66)  During the three months ended September 30, 2010, the Company recognized additional other comprehensive gain of $89 to adjust the carrying amount of the interest rate swaps to fair values at September 30, 2010. During the three months ended September 30, 2009, the Company recognized additional other comprehensive gain of $520 to adjust the carrying amount of the interest rate swaps to fair values at September 30, 2009. The interest rate swap settlements were offset by a corresponding adjustment in interest expense related to the interest payments being hedged.  ASC 815 Derivative TypeAmount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)Location of Gain or (Loss) Reclassified from AOCI into Income
(Effective Portion)Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion Excluded from Effectiveness Testing)Nine months Ended September 30,Nine months Ended September 30,Nine months Ended September 30,201020092010200920102009Interest Rate Products$484$3,326Interest expense$3,396$(6,439)Interest expense$(196)$(196)  During the nine months ended September 30, 2010, the Company recognized additional other comprehensive gain of $484 to adjust the carrying amount of the interest rate swaps to fair values at September 30, 2010. During the nine months ended September 30, 2009, the Company recognized additional other comprehensive gain of $3,326 to adjust the carrying amount of the interest rate swaps to fair values at September 30, 2009. The interest rate swap settlements were offset by a corresponding adjustment in interest expense related to the interest payments being hedged.  Non-designated Hedges  The Company has 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 as such. The fair value of the put/call agreement is estimated using the Black-Scholes model. The fair value of the option was $1,598 and $1,950 and is included in advance rent and other liabilities on the consolidated balance sheets as of September 30, 2010 and December 31, 2009, respectively, with $352 and $750 included in other income (loss) on the consolidated statements of operations and other comprehensive income for the nine months ended at September 30, 2010 and 2009.  The Company does not use derivatives for trading or speculative purposes.      -19-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   (11)  Segment Reporting  The Company has six business segments: Office, Retail, Industrial, Lodging, Multi-family and LIP-H. 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, noncontrolling interest expense or interest and other investment income from corporate investments. The non-segmented assets include the Companys cash and cash equivalents, investment in marketable securities, construction in progress, investment in unconsolidated entities and notes receivable.  The Company considers LIP-H a reportable segment as of January 6, 2009 as the operating results of LIP-H are reviewed by the Companys chief operating decision maker for performance and strategic decisions. The Company previously accounted for its investment in LIP-H under the equity method and as such has not revised prior period segment disclosures.  For the nine months ended September 30, 2010, approximately 9% of the Companys rental revenue was generated by over 400 retail banking properties leased to SunTrust Banks, Inc  Also, as of September 30, 2010, approximately 7% of the Companys rental revenue was generated by three properties leased to AT&T, Inc. As a result of the concentration of revenue generated from these properties, if SunTrust Bank or AT&T were to cease paying rent or fulfilling its other monetary obligations, the Company could have significantly reduced rental revenues or higher expenses until the defaults were cured or the properties were leased to a new tenant or tenants.    -20-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010  (unaudited)  The following table summarizes net property operations income by segment as of and for the three months ended September 30, 2010. TotalOfficeRetailIndustrialLodgingMulti-FamilyLIP-HProperty rentals$160,064$36,203$75,329$21,293$-$23,999$3,240Straight-line rents4,1671,3161,7421,002-3572Amortization of acquired   above and below market   leases, net18(133)270(72)--(47)Total rental income$164,249$37,386$77,341$22,223$-$24,034$3,265Tenant recovery income24,9367,02017,176445-76219Other property  income5,1921,1171,301279-2,40788Lodging income126,797---126,797--Total income$321,174$45,523$95,818$22,947$126,797$26,517$3,572Operating expenses$141,664$10,953$25,097$1,116$88,322$15,424$752Net property operations$179,510$34,570$70,721$21,831$38,475$11,093$2,820Depreciation and amortization$(110,637)Business manager   management fee$(10,000)General and   administrative expenses$(8,718)Interest and dividend   income$9,369Interest expense$(77,054)Income tax expense$(528)Other loss$(320)Realized gain and   impairment on securities,   net$11,816Equity in earnings of   unconsolidated entities$620Impairment of investment   in unconsolidated entities$(11,239)Provision for asset   impairment$(22,412)Impairment of notes   receivable$(94,627)Net loss from continuing   operations$(134,220)Income from discontinued   operations, net$14,326Net income attributable to   noncontrolling interests$(2,586)Net loss attributable to   Company$(122,480)  -21-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010  (unaudited)   The following table summarizes net property operations income by segment as of and for the three months ended September 30, 2009.  TotalOfficeRetailIndustrialLodgingMulti-FamilyLIP-HProperty rentals$136,892$37,358$60,439$17,935$-$17,805$3,355Straight-line rents4,4711,7071,631857-164112Amortization of acquired   above and below market   leases, net457(121)721(96)--(47)Total rental income$141,820$38,944$62,791$18,696$-$17,969$3,420Tenant recovery income21,8167,14213,657641-74302Other property income4,8891,3891,91711-1,53339Lodging income112,982---112,982--Total income$281,507$47,475$78,365$19,348$112,982$19,576$3,761Operating expenses$124,779$11,486$19,857$1,961$80,028$10,345$1,102Net property operations$156,728$35,989$58,508$17,387$32,954$9,231$2,659Depreciation and   amortization$(100,834)Business manager   management fee$(9,000)General and   administrative expenses$(7,435)Interest and other   investment income$10,228Interest expense$(63,368)Income tax benefit$1,004Other income$340Realized gain and   impairment on securities,   net$20,961Impairment of notes   receivable$(8,724)Equity in loss of   unconsolidated entities$(9,936)Impairment of investment   in unconsolidated entities$(2,706)Provision for asset   impairment$(1,117)Net loss from continuing   operations$(13,859)Loss from discontinued   operations, net$(13,190)Net income attributable to   noncontrolling interests$(2,409)Net loss attributable to    Company$(29,458)   -22-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010  (unaudited)   The following table summarizes net property operations income by segment as of and for the nine months ended September 30, 2010.  TotalOfficeRetailIndustrialLodgingMulti-FamilyLIP-HProperty rentals$464,262$108,742$213,631$63,595$-$68,490$9,804Straight-line rents13,2664,2575,0123,656-151190Amortization of acquired   above and below market   leases, net157(375)2,113(1,439)--(142)Total rental income$477,685$112,624$220,756$65,812$-$68,641$9,852Tenant recovery income71,36422,05746,5481,758-219782Other property  income13,2322,9583,433584-6,16394Lodging income367,125---367,125--Total income$929,406$137,639$270,737$68,154$367,125$75,023$10,728Operating expenses$408,557$34,136$71,424$5,223$253,913$41,487$2,374Net property operations$520,849$103,503$199,313$62,931$113,212$33,536$8,354Depreciation and amortization$(331,294)Business manager   management fee$(26,000)General and administrative   expenses$(30,053)Interest and dividend income$25,244Interest expense$(222,233)Income tax expense$(1,076)Other income$569Realized gain and   impairment on securities,   net$19,864Equity in loss of   unconsolidated entities$(5,285)Impairment of investment in   unconsolidated entities$(11,239)Provision for asset   impairment$(26,191)Impairment of notes   receivable$(94,627)Net loss from continuing   operations$(181,472)Income from discontinued   operations, net$32,517Net income attributable to   noncontrolling interests$(6,994)Net loss attributable to   Company$(155,949)Balance Sheet Data:Real estate assets, net$9,825,481$1,681,814$3,750,074$953,748$2,444,846$876,802$118,197Non-segmented assets1,770,320Total Assets$11,595,801Capital Expenditures$58,826$1,553$8,462$692$44,347$3,630$142   -23-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010  (unaudited)   The following table summarizes net property operations income by segment as of and for the nine months ended September 30, 2009.  TotalOfficeRetailIndustrialLodgingMulti-FamilyLIP-HProperty rentals$390,153$105,999$174,344$53,729$-$46,384$9,697Straight-line rents13,8615,0455,3962,729-324367Amortization of acquired   above and below market   leases, net1,086(326)1,846(292)--(142)Total rental income$405,100$110,718$181,586$56,166$-$46,708$9,922Tenant recovery income63,93920,27539,2313,357-212864Other property income13,7224,1755,167572-3,75157Lodging income350,895---350,895--Total income$833,656$135,168$225,984$60,095$350,895$50,671$10,843Operating expenses$368,416$33,515$59,757$6,600$239,181$25,601$3,762Net property operations$465,240$101,653$166,227$53,495$111,714$25,070$7,081Depreciation and amortization$(290,872)Business manager   management fee$(27,000)General and administrative   expenses$(35,795)Interest and other investment income$47,620Interest expense$(182,374)Loss on consolidated   investment$(148,887)Income tax expense$(354)Other income$1,167Realized gain and impairment   on securities, net$27,910Impairment of notes   receivable$(22,949)Equity in loss of   unconsolidated entities$(48,137)Impairment of investment in   unconsolidated entities$(2,706)Provision for asset   impairment$(1,117)Net loss from continuing   operations$(218,254)Loss from discontinued   operations, net$(13,161)Net income attributable to   noncontrolling interests$(6,790)Net loss attributable to    Company$(238,205)   -24-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   (12)  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 potential common shares issuable upon exercising options or other contracts. There are an immaterial amount of potentially dilutive common shares.  The basic and diluted weighted average number of common shares outstanding was 832,292,463 and 808,157,928 for the nine months ended September 30, 2010 and 2009.  (13)  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, although the Company owns the entire property. 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 limited obligation period to pay any additional monies. If at the end of the time period allowed certain space has not been le ased and occupied, the Company owns that space without any further obligation. Based on pro forma leasing rates, the Company may pay as much as $35,215 in the future as vacant space covered by earnout agreements is occupied and becomes rent producing.  As of September 30, 2010, the Company had outstanding commitments to fund approximately $3,137 into joint ventures and fund $2,218 into various development projects. The Company intends on funding these commitments with cash on hand of $238,212.  As part of the Companys consolidated MB REIT joint venture with Minto Delaware, the Company could be required to redeem Minto Delawares interest in MB REIT beginning on October 11, 2011 subject to the terms and conditions below:  · On or after October 11, 2011 until October 11, 2012, Minto Holdings, an affiliate of Minto Delaware, has the option to require the Company to purchase, in whole, but not in part, 100% of the Minto Delaware's investment in the MB REIT (consisting of the series A preferred stock and common stock) for a price equal to (A) if the shares of the Companys common stock are not listed, on the earlier of (x) the date the Company purchases Minto Delaware's investment or (y) 150 days after the date written notice of the exercise of the initial purchase right is given, the sum of (1) the series A liquidation preference, payable in cash and (2) $29,300 or (B) if the shares of the Companys stock are listed, on the earlier of (x) the date the Company purchases Minto Delaware's investment or (y) 150 days after the date written notice of the exercise of the initial purchase right is given, the sum of (1) the series A liquidation preference, payable in cash and (2) 2,934,800 shares of common stock.  The series A liquidation preference is equal to $1,276 per share for 207,000 shares of series A preferred stock plus accrued and unpaid dividends.  · On or after October 11, 2012, Minto Holdings has an option to require the Company to purchase, in whole, but not in part, 100% of the Minto Delaware investment for a price equal to (A) if the shares of the Companys common stock are not listed, on the earlier of (x) the date the Company purchases the Minto Delaware investment or (y) 150 days after written notice of a subsequent purchase right is given, the sum of (1) the series A liquidation preference, payable in cash and (2) the fair market value (pursuant to a specified formula) of the common stock held by Minto Delaware on the date written notice of the subsequent purchase right is given, payable in cash, or (B) if the shares of the Companys common stock are listed, on the earlier of (x) the date the Company purchases the Minto Delaware equity or (y) 150 days after written notice of the subsequent purchase right is given, the sum of (1) the series A liquidation preference, payable in cash and (2) 2,934,800 shares of common stock.  · On or after October 11, 2015, so long as the MB REIT qualifies as a domestically controlled REIT, MB REIT has the right to purchase, in whole, but not in part, 100% of Minto Delaware's investment for a price equal to (A) if the shares of the Companys common stock are not listed, the sum of (1) the series A liquidation preference, payable in cash and (2) the fair market value (pursuant to a specified formula) of the common stock of MB REIT held by Minto Delaware or (B) if the shares of the Companys common stock are listed, the sum of (1) the series A liquidation preference, payable in cash and (2) 2,934,800 shares of common stock.    -25-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   Contemporaneous with the Companys merger with Winston Hotels, Inc., its 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 amended complaint alleges that the development memorandum reflecting the parties intentions regarding the development hotels was instead an agreement that legally bound the parties. The amended 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 amended 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 amended 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 $20,100. Inland American Winston and WINN deny these claims and, on March 26, 2008, filed a motion to dismiss the amended complaint. On March 13, 2009, the court denied the motion to dismiss. Inland American Winston and WINN have filed answers and affirmative defenses to the amended complaint as well as counter claims against Crockett. Contemporaneously with the close of fact discovery, Crockett sought leave to amend its complaint to add another cause of action and to seek treble damages and attorneys fees, which was granted. Expert discovery has been completed. Based upon an expert report recently received from Crockett, it is believed that Crocketts maximum claim, without the inclusion of treble damages or attorneys fees, is approximately $16,800. The parties have recently filed cross motions for summary judgment, which have been fully briefed and argued before the court. No decision has been rendered on these motions. The outcome of this lawsuit 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.  On August 2, 2008, the Company entered into the Concord Debt Holdings, LLC joint venture (Concord Debt) with Lex-Win Concord LLC (Concord), which originates and acquires real estate securities and real estate related loans. The Company has invested $77,400 in the venture as of September 30, 2010 and has accounted for this investment under the equity method. During 2009, Concord Debt received margin calls on certain of its loan facilities that required the entity to identify certain loans that will be disposed of to provide liquidity to meet the required pay down requirements. As such, the carrying value of this investment is recorded at $(3,137) at September 30, 2010 as a component of investment in unconsolidated entities.  On May 22, 2009, Inland American Concord (Sub), LLC (IA Sub) filed an action against Concord in the Delaware Court of Chancery seeking a declaration in connection with certain of the Companys rights/obligations under the Limited Liability Company Agreement (Agreement) that governs this venture.  On December 22, 2009, Lexington, Winthrop, the Company, and their respective subsidiaries entered into a settlement agreement to resolve and settle the IA Sub v. Concord action. The settlement agreement provided for, among other things, the termination of any partys obligation to contribute capital to Concord Debt, the allocation of distributions equally among the Company, Lexington and Winthrop in Concord Debt, and the formation of a new entity to be owned by subsidiaries of the Company, Lexington and Winthrop. The effectiveness of the settlement agreement was conditioned on certain conditions, including the cancellation of certain CDO bonds held by Concord Debt Funding Trust. A lawsuit has been filed against Bank of American, as Trustee of the CDO (the Trustee) in the Delaware Court of Chancery, by Concord Debt to effect such cancellation. On May 14, 2010, the judge ruled in favor of Concord Debt Funding Trust, and stated that the bonds were cancelled when presented to the Trustee in early 2010. This would have made the settlement agreement effective, but within the time period allowed for appeal of the judges ruling, the Trustee appealed (the Appeal). On August 26, 2010, the parties agreed to modify the settlement agreement such that all matters between Lexington, Winthrop and the Company relating to the IA Sub v. Concord action are settled notwithstanding the existence of the Appeal and the possibility that the CDO bonds at issue in the Appeal were not cancelled. As part of the modified settlement, the Company made a contribution of  $9,500. In addition, the Company has a remaining funding commitment of $3,137 and has no further capital requirements. The carrying value of the investment is recorded at the maximum amount at which the Company approximately believes it is obligated to fund, which is $3,137 at September 30, 2010. In connection with the settlement, the IA Sub vs. Concord action was dismissed and the parties exchanged mutual releases.   -26-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   The Company has also filed a number of eviction actions against tenants and is involved in a number of tenant bankruptcies. The tenants in some of the eviction cases may file counterclaims against the Company in an attempt to gain leverage against the Company in connection with the eviction. In the opinion of the Company, none of these counterclaims is likely to result in any material losses to the Company.  While management does not believe that an adverse outcome in the above lawsuits 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.  (14) Fair Value Disclosures  The Company has estimated the fair value of its financial and non-financial instruments using available market information and valuation methodologies the Company believes to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of amounts that would be realized upon disposition.  The Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:  · Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.  · Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.  · Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.  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 September 30, 2010Using 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 real estate equity   securities$237,369--Commercial mortgage backed   securities$--11,761Total assets$237,369-11,761Put/call agreement in MB REIT$--(1,598)Derivative interest rate instruments$-(4,049)-Total liabilities$-(4,049)(1,598)        -27-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)    Fair Value Measurements at December 31, 2009Using 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 real estate equity   securities$207,510--Commercial mortgage backed   securities$--9,551Total assets$207,510-9,551Put/call agreement in MB REIT$--(1,950)Derivative interest rate instruments$-(4,533)-Total liabilities$-(4,533)(1,950)  At September 30, 2010 and December 31, 2009, the fair value of the available for sale real estate equity securities have been estimated based upon quoted market prices for the same or similar issues when current quoted market prices are available (Level 1). To calculate the fair value of the derivative contracts, the Company primarily uses quoted prices for similar contracts (Level 2). The lack of activity in the commercial mortgage backed securities (CMBS) market has resulted in a lack of observable market inputs to use in determining fair value. The Company incorporated its own assumptions about future cash flows and the appropriate discount rate adjusted for credit and liquidity factors. In developing these assumptions, the Company incorporated the contractual terms of the securities, the type of collateral, any credit enhancements available, and relevant market data, where available (Level 3). The Companys valuation of its put/call agreement in MB REIT is determined using present value estimates of the put liability based on probable dividend yields (Level 3).  The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements.  Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2010, the Company has assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.  The following table summarizes activity for the Companys assets and liabilities measured at fair value on a recurring basis using Level 3 inputs as of September 30, 2010:  Level 3 AssetsLevel 3 LiabilitiesBalance, December 31, 2009$9,551$(1,950)Purchases--Sales--Realized gains-352Unrealized gains2,210-Balance, September 30, 2010$11,761$(1,598)  Unrealized gains are reflected in unrealized gain (loss) on investment securities in other comprehensive income on the consolidated statements of operations and other comprehensive income.   -28-  INLAND AMERICAN REAL ESTATE TRUST, INC. (A Maryland Corporation)  Notes To Consolidated Financial Statements (Dollar amounts in thousands, except per share amounts)  September 30, 2010 (unaudited)   The Company recognized certain non-cash impairment charges to write the investments to their fair values in the nine months ended September 30, 2010. The fair values were determined based on discounted future cash flows, using managements estimates of cash flows, any collateral considerations, the eventual disposition of the investments and appropriate discount and capitalization rates.  The asset groups that were impaired to fair value through this evaluation are:  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Total Impairment LossesInvestment properties$21,174$26,191Notes receivable120,00094,627Investment in unconsolidated entities8,88411,239Total$150,058$132,057  (15) Variable Interest Entities  A VIE is defined as an entity where there is not sufficient equity at risk to support its activities without additional subordinated financial support, or as a group, those with equity at risk in the entity lack any of the following three characteristics: 1) The power, through voting rights or other, to direct the activities that most significantly impact the performance of the entity, 2) The obligation to absorb the expected losses of the legal entity, 3) The right to receive the expected residual returns .  After determining if a legal entity is a VIE, the Company must assess whether it is the primary beneficiary of the VIE, and thus needs to consolidate. The primary beneficiary is the party that has a controlling financial interest in the VIE, which is defined by the entity having both of the following characteristics: 1) The power to direct the activities, when taken together, most significantly impact the VIEs performance, and 2) The obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Company has interests in five VIEs, however is the primary beneficiary of only one VIE. The Company is deemed primary beneficiary as it has the power to direct the activities most significant to the financial results of each entity and has the obligation to absorb any significant loss or the right to receive the benefit of any return for each entity. The VIEs of which the Company is the primary beneficiary is a joint venture for retail center developments. The Company has invested a total of $26,790 in this entity as of September 30, 2010.  For those VIEs where the Company is the primary beneficiary, the Company shall present the liabilities of the consolidated VIE, which are not recourse to the Company, and the assets that can be used only to settle those obligations. These amounts are included in the consolidated balance sheets as presented in the table below.  Net investment properties$35,412Other assets1,052Total assets$36,464Mortgages, notes and margins payable$(10,103)Other liabilities(458)Total liabilities$(10,561)Net assets$25,903  (16)  Subsequent Events  The Company paid distributions to its stockholders of $.50 per share totaling $35,002 and $35,089 in October and November 2010.    -29-    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. Similarly, statements that describe or contain information related to matters such as managements intent, belief or expectation with respect to the Companys financial performance, investment strategy and portfolio, cash flows, growth prospects, legal proceedings, amount and timing of anticipated future cash distributions and other matters are forward-looking statements. These forward-looking statements are not historical facts but are the intent, belief or current expectations of the Companys management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under Risk Factors in this Quarterly Report on Form 10-Q and the Companys Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 16, 2010. These factors include, but are not limited to: market and economic challenges experienced by the U.S. economy or real estate industry as a whole, including in the lodging industry, and the local economic conditions in the markets in which the Companys properties are located; the Companys ability to refinance maturing debt or to obtain new financing on attractive terms; the availability of cash flow from operating activities to fund distributions; future increases in interest rates; and actions or failures by the Companys joint venture partners or borrowers subject under our notes receivable, including development partners.  The Company intends that such forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  The following discussion and analysis relates to the three and nine months ended September 30, 2010 and 2009 and as of September 30, 2010 and December 31, 2009. You should read the following discussion and analysis along with our Consolidated Financial Statements and the related notes included in this report.  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 cash flow from our operations to fund distributions to our stockholders. To achieve these objectives, we selectively acquire and actively manage, through affiliates of our business manager, investments in commercial real estate. Our property managers for our non-lodging properties actively seek to lease 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 to maximize occupancy and daily rates as well as control expenses.  We believe credit market disruptions and lack of liquidity continue to impact the overall economy and real estate sector. The overall economic environment has experienced a significant slow-down, including lower consumer spending, increased unemployment with many business sectors having experienced lower earnings. Although the general economy has shown signs of a recovery, commercial real estate historically lags the general economy in a recovery. Our segments have experienced lower revenues from this slowdown all of which have impacted our business and results of operations as well as the cash available to pay distributions. However, we have experienced a recovery in the second and third quarter of 2010 in our lodging and multi-family segments and believe these segments will continue to improve over the remainder of 2010 and into 2011.  On a consolidated basis, essentially all of our revenues and cash flows from operations for the nine months ended September 30, 2010 were generated by collecting rental payments from our tenants, room revenues from lodging properties, interest income on our notes receivable investments, distributions from unconsolidated entities and dividend 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 repair and maintenance, management fees, utilities and insurance (some of which are recoverable). Our lodging operating expenses include, but are not limited to, rooms, food and beverage, utility, administrative and marketing, payroll, franchise and management fees and repairs and maintenance expenses.   -30-    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 and physical occupancy and rental rates. · Leasing activity and lease rollover. · Average daily room rate, revenue per available room, and average occupancy to measure our lodging properties. · Debt maturities and leverage ratios. · Liquidity levels.  Results of Operations  General  Consolidated Results of Operations  This section describes and compares our results of operations for the three and nine months ended September 30, 2010 and 2009. 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 932 and 904 of our investment properties satisfied the criteria of being owned for the entire three and nine month period ended September 30, 2010 and 2009, respectively, and are referred to herein as "same store" properties. 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. Unless otherwise noted, all dollar amounts are stated in thousands (except per share amounts, revenue per available room and average daily rate).  Comparison of the three and nine months ended September 30, 2010 and September 30, 2009  Three months endedThree months endedSeptember 30, 2010September 30, 2009Net loss applicable to Company$(122,480)$(29,458)Net loss per share(.15)(.04)  Nine months endedNine months endedSeptember 30, 2010September 30, 2009Net loss applicable to Company$(155,949)$(238,205)Net loss per share(.19)(.29)  Net loss per share changed from $(.04) and $(.29) per share for the three and nine months ended September 30, 2009 to $(.15) and $(.19) per share for the three and nine months ended September 30, 2010. The primary reason for the decrease between the three months ended September 30, 2009 and 2010 was impairment of $94,627 recorded on some of our notes receivable. The primary reason for the decrease between the nine months ended September 30, 2009 and 2010 was a non-recurring loss on consolidated investment in the nine months ended September 30, 2009 of $148,887 as a result to the LIP-H consolidation.  Rental Income, Tenant Recovery Income, Lodging Income and Other Property Income. Except for our lodging and multi-family 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 generally reimbursed by the tenant for the tenant's pro rata share of recoverable expenses. Certain other tenants are subject to net leases which require the tenant to be responsible for fixed base 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 and other comprehensive income. Under 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 and other comprehensive income.  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  -31-    daily occupancy achieved but excludes other revenue generated by a hotel property, such as food and beverage, parking, telephone and other guest service revenues.  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 lease termination fees and other miscellaneous property income.  Below is a summary of sources of revenue for the three and nine months ended September 30, 2010 and 2009.  Three months ended
September 30, 2010Three months ended
September 30, 20092010 increase (decrease) from 2009Property rentals$160,064$136,892$23,172Straight-line rents4,1674,471(304)Amortization of acquired above and   below market leases, net18457(439)Total rental income$164,249$141,820$22,429Tenant recovery income24,93621,8163,120Other property income5,1924,889303Lodging income126,797112,98213,815Total property revenues$321,174$281,507$39,667  Nine months ended
September 30, 2010Nine months ended
September 30, 20092010 increase (decrease) from 2009Property rentals$464,262$390,153$74,109Straight-line rents13,26613,861(595)Amortization of acquired above and   below market leases, net1571,086(929)Total rental income$477,685$405,100$72,585Tenant recovery income71,36463,9397,425Other property income13,23213,722(490)Lodging income367,125350,89516,230Total property revenues$929,406$833,656$95,750  Total income increased $39,667 and $95,750 for the three and nine months ended September 30, 2010 over the same period of the prior year. The increase in property revenues in 2010 was due primarily to acquisitions made in 2009 and 2010, as well as an increase in lodging revenues from higher occupancy in the second and third quarter of 2010.  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. 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
September 30, 2010Three months ended
September 30, 20092010 increase (decrease) from 2009Property operating expenses$35,161$29,262$5,899Lodging operating expenses82,11273,4438,669Real estate taxes24,39122,0742,317Total property expenses$141,664$124,779$16,885   -32-     Nine months ended
September 30, 2010Nine months ended
September 30, 20092010 increase (decrease) from 2009Property operating expenses$101,302$84,047$17,255Lodging operating expenses233,527219,19014,337Real estate taxes73,72865,1798,549Total property expenses$408,557$368,416$40,141  Total operating expenses increased $16,885 and $40,141 for the three and nine months ended September 30, 2010 compared to the three and nine months ended September 30, 2009 due primarily to effect of the properties acquired in 2009 and 2010 and higher lodging costs resulting from higher occupancy in 2010 compared to 2009.  Other Operating Income and Expenses  Other operating expenses are summarized as follows:  Three months ended
September 30, 2010Three months ended
September 30, 20092010 increase (decrease) from 2009Depreciation and amortization$110,637$100,834$9,803Interest expense77,05463,36813,686General and administrative (1)8,7187,4351,283Business manager fee10,0009,0001,000$206,409$180,637$25,772  (1)  Includes expenses paid to affiliates of our sponsor as described below.  Nine months ended
September 30, 2010Nine months ended
September 30, 20092010 increase (decrease) from 2009Depreciation and amortization$331,294$290,872$40,422Interest expense222,233182,37439,859General and administrative (1)30,05335,795(5,742)Business manager fee26,00027,000(1,000)$609,580$536,041$73,539  (1)  Includes expenses paid to affiliates of our sponsor as described below.  Depreciation and amortization. The $9,803 and $40,422 increase in depreciation and amortization expense for the three and nine months ended September 30, 2010 relative to the three and nine months ended September 30, 2009 was due substantially to the impact of the properties acquired in 2009 and 2010.  Interest expenseA summary of interest expense for the three and nine months ended September 30, 2010 and 2009 appears below:  Three months ended
September 30, 2010Three months ended
September 30, 20092010 increase (decrease) from 2009Debt TypeMargin and other interest expense$5,925$2,920$3,005Mortgages71,12960,44810,681Total$77,054$63,368$13,686   -33-     Nine months ended
September 30, 2010Nine months ended
September 30, 20092010 increase (decrease) from 2009Debt TypeMargin and other interest expense$15,816$8,303$7,513Mortgages206,417174,07132,346Total$222,233$182,374$39,859  The $13,686 and $39,859 increase in interest expense for the three and nine months ended September 30, 2010 as compared to the three and nine months ended September 30, 2009 was primarily due to mortgage debt financings during 2009 and 2010 which increased to $5,636,954 from $5,083,300. Our weighted average interest rate was 5.1% and 4.8% as of September 30, 2010 and 2009, respectively.  As variable rate debt comprises 29% of our overall outstanding debt, we have experienced a lower overall weighted average interest rate due to a historically low London InterBank Offered Rate (LIBOR). If LIBOR increases, we will experience higher weighted average interest rates, which would impact our financial results.  General and Administrative Expenses. General and administrative expenses primarily consist of legal, audit and other professional fees, acquisition related expenses, insurance, board of director fees, state and local taxes as well as salary, information technology and other administrative cost reimbursements paid to our business manager and affiliates, and investment advisor fees. Our expenses were $8,718 and $30,053 for the three and nine months ended September 30, 2010 and $7,435 and $35,795 for the three and nine months ended September 30, 2009. The decrease is due primarily to a decrease in our acquisition and transaction costs for the three months ended September 30, 2010 and 2009. Acquisition and transaction costs were $1,603 and $8,293 for the nine months ended September 30, 2010 and 2009, respectively.  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 incurred a business management fee of $26,000 for the nine months ended September 30, 2010 or .23% of average invested assets, and the business manager waived  the remaining $59,389 for the nine months ended September 30, 2010. We paid investment advisory fees of approximately $1,073 and $961 for the nine months ended September 30, 2010 and 2009, respectively.  Interest and Dividend Income and Realized Gain (Loss) 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.  Three months ended September 30, 2010Three months ended September 30, 20092010 increase (decrease) from 2009Interest income$4,435$6,667$(2,232)Dividend income4,9343,5611,373Total$9,369$10,228$(859)Realized gains on investment securities12,97620,947(7,971)Other than temporary impairments(1,160)14(1,174)Total11,81620,961(9,145)  Nine months ended September 30, 2010Nine months ended September 30, 20092010 increase (decrease) from 2009Interest income$11,582$33,332$(21,750)Dividend income13,66214,288(626)Total$25,244$47,620$(22,376)Realized gains on investment securities21,72031,948(10,228)Other than temporary impairments(1,856)(4,038)2,182Total19,86427,910(8,046)   -34-    Interest income was $4,435 and $11,582 for the three and nine months ended September 30, 2010 and $6,667 and $33,332 for the three and nine months ended September 30, 2009. Interest income is earned on our cash balances and notes receivable.  Our notes receivable balance of $316,786 as of September 30, 2010 consisted of installment notes from unrelated parties that mature on various dates through July 2012. The notes are secured by mortgages on land, shopping centers and lodging facilities. Interest only is due each month at rates ranging from 5.68% to 9.5% per annum. For the three and nine months ended September 30, 2010 and 2009, we recorded interest income from notes receivable of $4,239 and $10,745 and $5,960 and $31,278 respectively. The decrease in interest income primarily resulted from non-performance and defaults of our notes receivable which are considered impaired. See Notes Receivable section in Liquidity and Capital Resources for more discussion.  Segment Reporting  An analysis of results of operations by segment is below. The tables contained throughout summarize certain key operating performance measures for the nine months ended September 30, 2010 and 2009.  Retail Segment  Total Retail PropertiesAs of September 30,20102009Retail PropertiesPhysical occupancy92%93%Economic occupancy93%94%Base rent per square foot$14.98$15.68Gross investment in properties$4,047,829$3,385,896  The following table represents lease expirations for the retail segment:  Lease Expiration YearNumber of Expiring LeasesGLA of Expiring Leases (Sq. Ft.)Annualized Base Rent of Expiring Leases ($)Percent of Total GLAPercent of Total Annualized Base RentExpiring Rent/Square Foot2010128545,3306,8552.7%2.1%$12.5720112971,027,46915,9405.1%5.0%$15.5120124442,065,74436,80910.2%11.5%$17.8220133181,201,60720,0096.0%6.3%$16.6520142601,766,96825,4448.8%8.0%$14.40Thereafter1,30013,534,011213,92167.2%67.1%$15.812,74720,141,129318,978100%100%$15.84  Our retail business is not highly dependent on specific retailers or specific retail industries which we believe shields the portfolio from significant revenue variances over time. These rates are as of the end of the period and do not represent the average rate during the three months ended September 30, 2010 and 2009. The change in base rent per square foot is a result of our acquisition of 22 retail properties after September 30, 2009.  Our retail business is centered on a core investment profile consisting primarily of multi-tenant properties with fewer than 120,000 square feet of total space, located in what we believe are stable communities, primarily in the southwest and southeast regions of the country. Adding to this core investment profile is a select number of single-tenant properties. Among the single-tenant properties, the largest holdings are comprised of investments in bank branches operated by SunTrust Bank and Citizens Bank, where the tenant-occupant pays rent with contractual increases over time, and bears virtually all expenses associated with operating our property.  Our retail 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. This latter category, we believe, is being impacted the greatest by the internet and existing economic conditions.  We have not experienced bankruptcies or receivable write-offs in our retail portfolio that have materially impacted our result of operations notwithstanding the overall decline in the economy or retail environment. However, we continue to actively monitor our retail tenants. We believe that most economic reports and outlooks suggest a positive turn in the economy and retailing and remain cautiously optimistic with respect to our retail business. We do note that a continued downturn in the economy could have negative impact on our tenants ability to pay rent or our ability to fill space that is currently vacant, or space that becomes vacant in the near future.  -35-     Comparison of Three Months Ended September 30, 2010 to 2009  The table below represents operating information for the retail segment of 733 and 711 properties as of September 30, 2010 and 2009 and for the same store portfolio consisting of 710 properties acquired prior to July 1, 2009. The properties in the same store portfolio were owned for the entire three months ended September 30, 2010 and September 30, 2009.  Total Retail SegmentSame Store Retail SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$77,341$62,791$14,550$62,344$62,576$(232)Tenant recovery income17,17613,6573,51912,84513,389(544)Other property income1,3011,917(616)1,0671,920(853)Total revenues$95,818$78,365$17,453$76,256$77,885$(1,629)Expenses:Property operating expenses$14,938$11,252$3,686$11,372$10,923$449Real estate taxes10,1598,6051,5547,0628,536(1,474)Total operating expenses$25,097$19,857$5,240$18,434$19,459$(1,025)Net operating income70,72158,50812,21357,82258,426(604)Average economic   occupancy for the period93%94%(1%)94%94%-  Retail properties rental revenues increased from $78,365 in the three months ended 2009 to $95,818 in the three months ended 2010 mainly due to the acquisition of 22 retail properties since September 30, 2009. Retail properties and operating expenses also increased from $19,857 in 2009 to $25,097 in 2010 as a result of these acquisitions.  Comparing on a same store basis, the primary reason for the decrease in revenue is a result of lower renewal rates and lease termination income. Lease termination income was $923 higher for the three months ended September 30, 2009 compared to the three months ended September 30, 2010. We believe an increase in our occupancy is primarily dependent on a recovery of employment and consumer spending which, we believe, should increase demand by retailers for space.  Comparison of Nine months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the retail segment of 733 and 711 properties as of September 30, 2010 and 2009 and for the same store portfolio consisting of 687 properties acquired prior to January 1, 2009. The properties in the same store portfolio were owned for the entire nine months ended September 30, 2010 and September 30, 2009.   Total Retail SegmentSame Store Retail SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$220,756$181,586$39,170$158,541$159,578$(1,037)Tenant recovery income46,54839,2317,31730,79833,193(2,395)Other property income3,4335,167(1,734)2,6895,031(2,342)Total revenues$270,737$225,984$44,753$192,028$197,802$(5,774)Expenses:Property operating expenses$42,293$34,863$7,430$27,810$29,604$(1,794)Real estate taxes29,13124,8944,23720,27521,924(1,649)Total operating expenses$71,424$59,757$11,667$48,085$51,528$(3,443)Net operating income199,313166,22733,086143,943146,274(2,331)  -36-     Total Retail SegmentSame Store Retail SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Average economic   occupancy for the period93%94%(1%)93%93%-  Retail properties real estate rental revenues increased from $225,984 in the nine months ended 2009 to $270,737 in the nine months ended 2010 mainly due to the acquisition of 22 retail properties since September 30, 2009. Retail properties real estate and operating expenses also increased from $59,757 in 2009 to $71,424 in 2010 as a result of these acquisitions.  Comparing on a same store basis, the primary reason for the decrease in revenue is a result of lower renewal rates and lease termination income. Lease termination income was $2,557 higher for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2010. The primary reason for the decrease in property operating expenses was a $974 decrease in bad debt expense in 2010 compared to 2009.  Lodging Segment  Total Lodging PropertiesFor the nine months ended September 30,20102009Lodging PropertiesRevenue per available room$79$78Average daily rate$113$118Occupancy70%66%Gross investment in properties$2,804,530$2,649,320  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 daily hotel sales operation whereas other traditional asset classes generate revenue from medium to long-term lease contracts. In this way, net operating income is somewhat more predictable among the properties in the other traditional asset classes, though we believe that opportunities to increase 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 daily or weekly basis but are also subject to immediate decreases in revenue as a result of declines in daily rental rates and/or daily occupancy when demand falls off quickly. Due to seasonality, we expect our lodging 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:  1) association with national franchise organizations and 2) professional management by specialized third-party hotel managers. Our portfolio consists of assets aligned with what we believe are the top franchise enterprises in the lodging industry: Marriott, Hilton, Intercontinental, Hyatt, Starwood, Wyndham, 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. We believe effective TV, radio, print, on-line, and other forms of advertisement are necessary to 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 frequent traveler rewards programs or point awards systems which we believe further bolsters occupancy and overall daily rental rates.  Our lodging facilities are generally classified in the upscale or upper-upscale lodging categories. 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 2009, the hotel industry experienced declines in both occupancy levels and rental rates (better known as "Average Daily Rate" or "ADR"). The downturn in performance affected all major segments of the travel industry (e.g. corporate travel, group travel, and leisure travel). For 2010, the industry is predicting improved Revenue per Available Room (Rev/Par) ranging from flat to a positive 3% compared to 2009. We believe revenues will start growing when Gross Domestic Product (GDP) begins a period of consistent growth. For 2010, we believe that our revenue per available room should be consistent with the overall industry trends and have seen positive trends in occupancy which should position us to increase ADR and Rev/Par in the future. In the second and third quarters of 2010, the industry experienced improved demand and increases in occupancy with some decrease in the average daily rates for an overall improved Rev/Par. This improvement occurred more quickly than expected from the beginning of the year. Expectations for the remainder of the year continue to show positive growth against 2009.   -37-    Our third party managers and asset management are continuing to focus on reduction of variable costs and market share gain from competitors in order to continue to improve operating results.  Comparison of Three Months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the lodging segment of 99 and 99 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 92 properties acquired prior to July 1, 2009. The properties in the same store portfolio were owned for the entire three months ended September 30, 2010 and September 30, 2009.  Total Lodging SegmentSame Store Lodging SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Lodging operating     income$126,797$112,982$13,815$119,850$112,280$7,570Total revenues$126,797$112,982$13,815$119,850$112,280$7,570Expenses:Lodging operating     expenses to non-related     parties$82,112$73,443$8,669$77,855$72,816$5,039Real estate taxes6,2106,585(375)5,9456,526(581)Total operating expenses$88,322$80,028$8,294$83,800$79,342$4,458Net operating income38,47532,9545,52136,05032,9383,112  On a same store basis, the lodging segments net operating income reflects an increase from $32,938 to $36,050 or 9%, which primarily is attributable to an increase in same store occupancy to 68% from 72%, and the increase in the Average Daily Rate from $111 to $112 for the three months ended September 30, 2010 compared to the three months ended September 30, 2009. Expenses increased as a result of occupancy increases.  Comparison of Nine months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the lodging segment of 99 and 99 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 92 properties acquired prior to January 1, 2009. The properties in the same store portfolio were owned for the entire nine months ended September 30, 2010 and September 30, 2009.  Total Lodging SegmentSame Store Lodging SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Lodging operating     income$367,125$350,895$16,230$355,251$348,691$6,560Total revenues$367,125$350,895$16,230$355,251$348,691$6,560Expenses:Lodging operating     expenses to non-related     parties$233,527$219,190$14,337$226,178$217,957$8,221Real estate taxes20,38619,99139519,88519,81174Total operating expenses$253,913$239,181$14,732$246,063$237,768$8,295Net operating income113,212111,7141,498109,188110,923(1,735)  For the nine months ended September 30, 2010 compared to 2009, the properties experienced increasing occupancy rates from 66% to 70%, offset by a decrease in the average daily rate from $118 to $113 which resulted in an overall revenue increase of $6,560. The increase in occupancy resulted in operating expense increases of $8,221 resulting in an overall net operating income decrease from $110,923 to $109,188 or 2%.  -38-     Office Segment  Total Office PropertiesAs of September 30,20102009Office PropertiesPhysical occupancy95%97%Economic occupancy95%97%Base rent per square foot$15.16$15.32Gross investment in properties$1,952,265$1,949,573  The following table represents lease expirations for the office segment:  Lease Expiration YearNumber of Expiring LeasesGLA of Expiring Leases (Sq. Ft.)Annualized Base Rent of Expiring Leases ($)Percent of Total GLAPercent of Total Annualized Base RentExpiring Rent/Square Foot20101151,006452.5%.3%$8.86201124190,6085,1382.0%3.2%$26.96201228398,3507,2124.2%4.5%$18.10201324552,98611,2535.8%7.0%$20.35201446318,2416,0173.3%3.7%$18.91Thereafter1008,035,761131,21684.2%81.3%$16.332339,546,952161,288100%100%$16.89  Our investments in office properties largely represent assets leased to and occupied by either a diverse group of businesses across a broad array of industries or to what we believe are high-credit single tenants that fully utilize the space leased. Examples of our multi-tenant properties 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 our high-quality single-tenant properties include three buildings leased and occupied by AT&T 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 SunTrust Bank located across the east and southeast regions of the country.  Our office properties continue to experience high occupancy rates. We believe the Minneapolis, Minnesota and Dulles, Virginia office markets, where a majority of our multi-tenant office properties are located, demonstrate high occupancy rates that are consistent with the strength of the market. The rates shown above are as of the end of the period and do not represent the average rate during the three months ended September 30, 2010 and 2009.  Comparison of Three Months Ended September 30, 2010 to March 31, 2009  The table below represents operating information for the office segment of 40 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 40 properties acquired prior to April 1, 2009. The properties in the same store portfolio were owned for the three months ended September 30, 2010 and September 30, 2009.  Total Office SegmentSame Store Office SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$37,386$38,944$(1,558)$37,386$38,944$(1,558)Tenant recovery income7,0207,142(122)7,0207,142(122)Other property income1,1171,389(272)1,1171,389(272)Total revenues$45,523$47,475$(1,952)$45,523$47,475$(1,952)Expenses:Property operating     expenses$7,329$7,711$(382)$7,329$7,711$(382)Real estate taxes3,6243,775(151)3,6243,775(151)Total operating expenses$10,953$11,486$(533)$10,953$11,486$(533)Net operating income34,57035,989(1,419)34,57035,989(1,419)  -39-     Total Office SegmentSame Store Office SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Average economic   occupancy for the period95%97%(2%)95%97%(2%)  The decrease in revenue and net operating income for the office properties resulted primarily from a decrease in same store occupancy and lower renewal rates in 2010 compared to 2009.  Comparison of Nine months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the office segment of 40 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 36 properties acquired prior to January 1, 2009. The properties in the same store portfolio were owned for the nine months ended September 30, 2010 and September 30, 2009.  Total Office SegmentSame Store Office SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$112,624$110,718$1,906$89,958$93,947$(3,989)Tenant recovery income22,05720,2751,78219,55419,745(191)Other property income2,9584,175(1,217)2,9584,175(1,217)Total revenues$137,639$135,168$2,471$112,470$117,867$(5,397)Expenses:Property operating     expenses$22,859$22,826$33$20,724$21,755$(1,031)Real estate taxes11,27710,68958810,66410,6586Total operating expenses$34,136$33,515$621$31,388$32,413$(1,025)Net operating income103,503101,6531,85081,08285,454(4,372)Average economic   occupancy for the period95%97%(2%)94%96%(2%)  Office properties real estate rental revenues increased from $135,168 in 2009 to $137,639 in 2010 mainly due to acquisitions in 2009. Office properties real estate and operating expenses also increased from $33,515 in 2009 to $34,136.  On a same store basis, the decrease in net operating income for the office same store comparison resulted primarily from a decrease in same store occupancy and lower renewal rates in 2010 compared to 2009.  Industrial Segment  Total Industrial PropertiesAs of September 30,20102009Industrial PropertiesPhysical occupancy93%95%Economic occupancy95%97%Base rent per square foot$5.72$4.79Gross investments in properties$1,071,938$917,627  The following table represents lease expirations for the industrial segment:  Lease Expiration YearNumber of Expiring LeasesGLA of Expiring Leases (Sq. Ft.)Annualized Base Rent of Expiring Leases ($)Percent of Total GLAPercent of Total Annualized Base RentExpiring Rent/Square Foot2010486,790191.5%.2%$2.202011121,804,7356,26411.9%6.5%$3.4720129855,5382,8565.6%3.0%$3.34  -40-     Lease Expiration YearNumber of Expiring LeasesGLA of Expiring Leases (Sq. Ft.)Annualized Base Rent of Expiring Leases ($)Percent of Total GLAPercent of Total Annualized Base RentExpiring Rent/Square Foot2013101,381,7257,7719.1%8.1%$5.622014123,218433.2%.4%$18.65Thereafter4311,037,30778,94472.7%81.8%$7.157915,189,31396,459100%100%$6.35  Although we have shown a decrease in occupancy, during 2010, our industrial holdings continued to experience high economic occupancy rates. The majority of the properties are located in what we believe are active and sought-after industrial markets and primarily represent critical-need facilities, such as the brand new Home Depot rapid deployment centers. The increase in base rent per square foot is primarily a result of acquisitions with higher base rent or square foot.  Comparison of Three Months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the industrial segment of 72 and 64 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 64 properties acquired prior to July 1, 2009.  Total Industrial SegmentSame Store Industrial SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$22,223$18,696$3,527$18,180$18,695$(515)Tenant recovery income445641(196)444641(197)Other property income2791126816115Total revenues$22,947$19,348$3,599$18,640$19,347$(707)Expenses:Property operating expenses$543$1,291$(748)$597$1,292$(695)Real estate taxes573670(97)573670(97)Total operating expenses$1,116$1,961$(845)$1,170$1,962$(792)Net operating income21,83117,3874,44417,47017,38585Average economic   occupancy for the period95%97%(2%)95%97%(2%)  Industrial properties real estate revenues increased from $19,348 for the three months ended September 30, 2009 to $22,947 for the three months ended September 30, 2010 mainly due to the acquisition of eight properties since September 30, 2009.  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 segments.  Our overall increase in net operating income for the industrial same store comparison reflects lower property operating expense due to a $450 decrease in bad debt expense offset by lower revenues from a decrease in occupancy and lower recovery income. Our 2% decline in occupancy is primarily driven, we believe, by an overall decline in demand for industrial space. We believe a future recovery in the overall economy will be needed to increase our occupancy.  Comparison of Nine months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the industrial segment of 72 and 64 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 64 properties acquired prior to January 1, 2009.  Total Industrial SegmentSame Store Industrial SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$65,812$56,166$9,646$54,439$56,803$(2,364)Tenant recovery income1,7583,357(1,599)1,7583,357(1,599)Other property income584572125573(18)  -41-     Total Industrial SegmentSame Store Industrial SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Total revenues$68,154$60,095$8,059$56,252$60,233$(3,981)Expenses:Property operating     expenses$3,215$3,838$(623)$3,072$3,904$(832)Real estate taxes2,0082,762(754)2,0082,762(754)Total operating expenses$5,223$6,600$(1,377)$5,080$6,666$(1,586)Net operating income62,93153,4959,43651,17253,567(2,395)Average economic   occupancy for the period95%97%(2%)95%97%(2%)  Industrial properties real estate revenues increased from $60,095 for the nine months ended September 30, 2009 to $68,154 for the nine months ended September 30, 2010 mainly due to the acquisition of eight properties since September 30, 2009. Industrial properties real estate and operating expenses decreased from $6,600 in 2009 to $5,223 in 2010, primarily as a result of lower real estate tax assessments.  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 segments.  Our overall decrease in net operating income for the industrial same store comparison reflects lower revenues from a decrease in occupancy, a $1,199 write-off of an above market lease intangible and lower recovery income. Our 2% decline in occupancy is primarily driven by an overall decline in demand for industrial space. We believe a future recovery in the overall economy will be needed to increase our occupancy.  Multi-family Segment  Total Multi-family PropertiesFor the nine months ended September 30,20102009Multi-Family PropertiesEconomic occupancy89%88%End of month scheduled base rent per unit per month$867$851Gross investment in properties$917,804$758,220  Our portfolio contains 29 multi-family properties, each reporting stable rental rate levels. These rates are as of the end of the period and do not represent the average rate during the three months ended September 30, 2010 and 2009. We have noted increased demand in our properties during the second and third quarters of 2010. We expect occupancy rates to recover and rental rates to grow modestly. The increase in base rent per unit is primarily a result of acquisitions made since September 30, 2009.  Comparison of Three Months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the multi-family segment of 29 and 24 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 18 properties acquired prior to July 1, 2009. The properties in the same store portfolio were owned for the entire three months ended September 30, 2010 and September 30, 2009.  Total Multi-Family SegmentSame Store Multi-Family SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$24,034$17,969$6,065$14,914$14,468$446Tenant recovery income767427374(1)Other property income2,4071,5338741,3161,26452Total revenues$26,517$19,576$6,941$16,303$15,806$497  -42-     Total Multi-Family SegmentSame Store Multi-Family SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Expenses:Property operating     expenses$11,742$8,067$3,675$7,154$6,778$376Real estate taxes3,6822,2781,4041,9041,85648Total operating expenses$15,424$10,345$5,079$9,058$8,634$424Net operating income11,0939,2311,8627,2457,17273Average economic   occupancy for the period90%89%1%89%88%1%  Multi-family real estate rental revenues increased from $19,576 for the three months ended September 30, 2009 to $26,517 for the three months ended September 30, 2010. The increases are mainly due to the acquisition of five properties as well as the increase in occupancy since September 30, 2009. Multi-family properties real estate and operating expenses also increased from $10,345 in 2009 to $15,424 in 2010 as a result of these acquisitions and increases in occupancy.  Comparison of Nine months Ended September 30, 2010 to September 30, 2009  The table below represents operating information for the multi-family segment of 29 and 24 properties owned as of September 30, 2010 and 2009, respectively, and for the same store portfolio consisting of 17 properties acquired prior to January 1, 2009. The properties in the same store portfolio were owned for the entire nine months ended September 30, 2010 and September 30, 2009.  Total Multi-Family SegmentSame Store Multi-Family SegmentIncrease/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$68,641$46,708$21,933$41,853$40,954$899Tenant recovery income2192127206212(6)Other property income6,1633,7512,4123,3943,136258Total revenues$75,023$50,671$24,352$45,453$44,302$1,151Expenses:Property operating     expenses$30,974$19,119$11,855$18,148$17,188$960Real estate taxes10,5136,4824,0315,1455,596(451)Total operating expenses$41,487$25,601$15,886$23,293$22,784$509Net operating income33,53625,0708,46622,16021,518642Average economic   occupancy for the period89%90%(1%)90%89%1%  Multifamily real estate rental revenues increased from $50,671 for the nine months ended September 30, 2009 to $75,023 for the nine months ended September 30, 2010. The increases are mainly due to the acquisition of five properties since September 30, 2009. Multi-family properties real estate and operating expenses also increased from $25,601 in 2009 to $41,487 in 2010 as a result of these acquisitions.    -43-    LIP-H Segment  Total LIP-H PropertiesAs of September 30,20102009LIP-H PropertiesEconomic occupancy84%83%Base rent per square foot$31.24$31.16Gross investments in properties$128,807$128,647  The following table represents lease expirations for the LIP-H segment:  Lease Expiration YearNumber of Expiring LeasesGLA of Expiring Leases (Sq. Ft.)Annualized Base Rent of Expiring Leases ($)Percent of Total GLAPercent of Total Annualized Base RentExpiring Rent/Square Foot201022,80098.7%.9%$35.002011511,4402252.8%1.7%$19.67201247,240841.8%.6%$11.60201317,4001601.8%1.2%$21.622014319,4744374.8%3.3%$22.44Thereafter14360,34911,98788.1%92.3%$33.2629408,70312,991100%100%$31.79  Comparison of Three Months Ended September 30, 2010 to September 30, 2009 and Nine months Ended September 30, 2010 to Period Beginning January 6, 2009 to September 30, 2010  The table below represents operating information for the LIP-H segment of eight properties for the three and nine months ended September 30, 2010 and the three months and period ended September 30, 2009.  Three Months Ended September 30,Nine months and Period Ended September 30,Increase/Increase/20102009(Decrease)20102009(Decrease)Revenues:Rental income$3,265$3,420$(155)$9,852$9,922$(70)Tenant recovery income219302(83)782864(82)Other property income883949945737Total revenues$3,572$3,761$(189)$10,728$10,843$(115)Expenses:Property operating     expenses$609$941$(332)$1,961$3,400$(1,439)Real estate taxes143161(18)41336251Total operating expenses$752$1,102$(350)$2,374$3,762$(1,388)Net operating income2,8202,6591618,3547,0811,273Average economic   occupancy for the period86%83%3%84%81%3%  Our overall increase in net operating income for LIP-H reflects decreases in operating expenses. The decrease in operating expense from 2009 to 2010 reflects lower administrative and management costs resulting from the Company assuming control of the properties.  Liquidity and Capital Resources  We continually evaluate the economic and credit environment and its impact on our business. Maintaining significant capital reserves has become a priority for all companies. At this juncture we believe we are appropriately positioned to have significant cash to utilize in executing our strategy. Our objectives are to invest in real estate assets that produce attractive current yield 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.  -44-     For the remainder of 2010, we believe that we will acquire fewer properties compared to prior years as our primary capital raise was completed in April 2009.  Our principal demands for funds will be:  · to service or pay-down our debt;  · to pay our expenses and the operating expenses of our properties;  · to make distributions to our stockholders;  · to invest in properties;  · to fund joint ventures and development commitments;  · to fund capital expenditures; and  · to invest in REIT marketable securities.  Generally, our cash needs will be funded from:  · income earned on our investment properties;  · interest income on investments and dividend and gain on sale income earned on our investment in marketable securities;  · proceeds from borrowings on properties;  · distributions from our joint venture investments; and  · issuance of shares under our distribution reinvestment plan.  Acquisitions and Investments  We completed approximately $878.1 million and $943.4 million of real estate and investments in the nine months ended September 30, 2010 and 2009, respectively. These acquisitions and investments were consummated through our subsidiaries and were funded with available cash, mortgage indebtedness, the proceeds from the offerings of our shares of common stock through 2009, and DRP proceeds through the third quarter of 2010.  Investments in Joint Ventures  We have entered into a number of joint ventures that invest in operating properties, developments and real estate loans. The joint ventures that are focused on operating properties continue to generate positive cash flows. The joint ventures have mortgage financing that will mature and could require paydowns or result in increased interest rates. These lenders might not be willing to extend their loans or extend on terms acceptable to us or our partners. Although we have no additional obligation to fund these ventures, other than noted below, our investment could be at risk without the funding of additional capital. It is anticipated that the entities will be able to repay or refinance all of their debt on a timely basis, however, the debt maturities of the entities are not recourse to us and we have no obligation to fund, other than the remaining commitment listed below.  Joint VentureDescriptionInvestment at
September 30, 2010 (000s)Remaining Commitment (000s)Primarily DevelopmentWeber/Inland American Lewisville TC, LPRetail center development$-$-Primarily OperatingD.R. Stephens Institutional Fund, LLCIndustrial and R&D assets$68,455$-Cobalt Industrial REIT IIIndustrial portfolio128,162-Net Lease Strategic Asset Fund L.P.Net lease assets164,851-NRF Healthcare, LLCSenior housing portfolio90,506-Other operating joint venturesVarious entities24,3163,137$476,290$3,137Total$476,290$3,137  -45-       Investments in Developments  We have development projects that are in various stages of pre-development and development. We fund cash needs for these development activities from our working capital and by borrowings secured by the properties. Specifically identifiable direct development and construction costs are capitalized, including, where applicable, salaries and related costs, real estate taxes and interest incurred in developing the property. These developments encompass the retail and multi-family sectors. In addition, we have purchased land and incurred pre-development costs of $124.6 million for an additional five multi-family projects. We will most likely not commence construction on these five projects until construction financing becomes available at rates and terms acceptable to us although we intend to develop these projects.  The overall economic difficulties continue to impact the real estate industry and developments in particular. We believe the current and projected slow-down in consumer spending has negatively impacted the retail environment and is causing many retailers to pull back from new leasing and expansion plans. While the overall retail sector has been negatively impacted, retail development has been particularly impacted. Our retail developments could experience longer lease-up timelines and future leasing could be at leasing rates less than originally underwritten.  The properties under development and all amounts set forth below are as of September 30, 2010. (Dollar amounts stated in thousands)  NameLocation
(City, State)Property TypeSquare FeetCosts Incurred to Date ($)Total Estimated Costs ($) (a)Estimated Placed in Service
Date (b)Note Payable as of September 30, 2010 ($)Percentage Pre-Leased as of September 30, 2010 (d)Cityville CarlisleDallas, TXMulti-family211,51237,69040,775 (e)Q4 201022,42757%Cityville Block 121Birmingham, ALMulti-family272,96034,00737,314Q4 201013,94249%Stone CreekSan Marcos, TXRetail469,74147,45465,952(c)9,75363%WoodbridgeWylie, TXRetail519,74536,90365,806(c)10,65145%156,054209,84756,773  (a) 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.  (b) 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.  (c) Stone Creek and Woodbridge are retail shopping centers where development is planned to be completed in phases. As the construction and lease-up of individual phases are completed, the respective phase will be placed in service resulting in a range of estimated placed in service dates through 2016. The occupancy presented includes anchor tenants for the project who own their respective square feet.  (d) The Percentage Pre-Leased represents the percentage of square feet leased of the total projected square footage of the entire development.  (e) We have a remaining commitment to fund $2.2 million.  Notes Receivable  Our notes receivable balance was $316.8 million and $423.5 million as of September 30, 2010 and December 31, 2009, respectively, and consisted of installment notes from unrelated parties that mature on various dates through July 2012 and installment notes assumed in the Winston acquisition. As of September 30, 2010, investments in notes receivable consisted primarily of an aggregate $120.0 million in loans secured by three parcels of land held for development in Florida and California and a $140.8 million loan participation secured by a portfolio of 25 retail centers located in 13 states. The remaining $56.0 million, of which $2.5 million is considered impaired, represents loans to various third parties secured by operating retail and lodging properties as well as land held for development. Interest only is due each month at rates ranging from 5.68% to 9.50% per annum. For the nine months ended September 30, 2010 and 2009, we recorded interest income from notes receivable of $10.7 million and $31.2 million, respectively, which is included in the interest and dividend income on the consolidated statements of operations and other comprehensive income.  In the nine months ended September 30, 2010, we purchased a note receivable in the amount of $34 million, collateralized by a shopping center. In the second quarter of 2010, we foreclosed on the note and assumed the underlying collateral in the amount of $36.5 million.  The table below represents the composition of our notes receivable as of September 30, 2010 (amounts in thousands).  -46-     Collateral BaseInterest RateMaturity DatesInitial Carrying ValueCumulative Recognized ImpairmentCarrying Value as of September 30, 2010Stan Thomas Properties (1)9.00-9.25%04/30/10214,62794,627120,000Retail centers (2)LIBOR + 5.40%12/09/10140,800-140,800Other (3)5.68%-9.50%05/09/09-06/01/1295,71139,72555,986451,138134,352316,786  (1) Balance consists of three loans on which impairment of $94,627 was recorded. No interest has been paid on these loans for the nine months ended September 30, 2010. See below for further discussion on these loans. (2) Loan was extended to 12/9/2010 and discussions are ongoing with the borrowers to restructure the loan.  We believe we will recover the full amount of the loan based on the fair value of the collateral. (3) Balance consists of nine loans, of which five loans with a carrying value of $2,500 are considered impaired.  On October 22, 2010, we entered into a restructure agreement with the borrower on three loans, being Stan Thomas Properties. Prior to the restructuring, these loans were considered impaired as the borrower had not made the required interest payments since July of 2009. We previously had not recorded any impairment losses on these loans as we believed that the estimated fair value of the underlying collateral was greater than its book value for these loans, based on appraisals of the underlying collateral.  As part of the restructure, we will receive title and all rights to two land parcels, located in Florida and California, that secured the note receivables, and in return, we released our collateral rights to a third land parcel as well as the personal guarantees of Stan Thomas.  The collateral subject to the restructure and foreclosure will be recorded in investment properties, effective October 22, 2010, at fair value. For the three months ended September 30, 2010, we adjusted our fair value estimate to recognize the release of our collateral rights to a third land parcel and personal guarantees as well as current fair values for the two land sites that will be received as part of the restructure. The changes reduced the estimated fair value of the collateral to $120 million, resulting in impairment of $94.6 million for the three and nine months ended September 30, 2010. Our analysis of the fair value of the collateral includes the review of third party appraisals. These fair value estimates are calculated using significant judgments of future long-term real estate, governmental and economic conditions to develop cash-flowing investments from these land parcels. The primary inputs are conditioned on a long-term recovery of these real estate markets so that development of certain infrastructure relating to the parcels will deliver positive risk-adjusted returns.  We have also invested in a $140.8 million loan participation secured by a portfolio of 25 retail centers located in 13 states. Our $140.8 million loan participation is the junior participation in an approximately $424.0 million first mortgage. This loan matures in October of 2010 and our loan pays 5.4% over LIBOR. These loans are current in their payments and the underlying properties are generating sufficient cash flow to service the current debt service.  We evaluate the collectability of the notes, including an evaluation of the fair value of the collateral, which includes a review of third party appraisals. We determine the amount of impairment to recognize based on a determination of the fair value of the underlying collateral or an estimate of expected discounted cash flows. For the nine months ended September 30, 2010, we recorded $94.6 million of impairment losses, which consists of the $94.6 million Stan Thomas impairment discussed above.  If we consider a loan to be non-performing or the collectability is uncertain based on the value of the underlying collateral, we will place the loan on non-accrual status. We recognize interest income on a cash basis, as received. If the fair value of the loan collateral decreases to less than the amortized cost basis of the loan, any interest received will be recorded as a reduction of the loan basis. If the fair value of the collateral subsequently recovers to greater than the cost basis of the loan, and if the loan is not otherwise in default, any interest payment will be recognized as interest income.  Distributions  We declared monthly cash distributions to our stockholders per weighted average number of shares outstanding during the period from January 1, 2010 to September 30, 2010 totaling $312.3 million or $.50 per share on an annualized basis. These cash distributions were paid with $271.1 million from our cash flow from operations, $23.0 million provided by distributions from unconsolidated entities, $14.3 million gain on sales of properties, as well as excess cash flow of $59.7 million from prior years. Our average dividend reinvestment program participation was 50% for the nine months ended September 30, 2010 compared to 58% for the nine months ended September 30, 2009.  The following chart presents a historical view of our common stock distribution coverage (amounts below are stated in thousands).    -47-     For the nine months endedFor the twelve months endedSeptember 30, 201020092008200720062005Cash flow provided by   operations$271,141369,031384,365263,42065,88311,498Distributions from   unconsolidated entities$22,99632,08141,704---Gain on sales of   properties$14,252-----Distributions declared$(312,345)(405,337)(418,694)(242,606)(41,178)(438)Excess (deficiency)$(3,956)(4,225)7,37520,81424,70511,060  We believe the current deficits are temporary and as the economy, and, in particular, our lodging segment, improves we believe there will be excess coverage of our distributions for future years.  Effective as of September 21, 2010, we adopted a Second Amended and Restated Distribution Reinvestment Plan (the Plan). Under the Plan, beginning with reinvestments made after September 21, 2010, and until a new estimated value per share has been established, distributions may be reinvested in shares of our common stock at a price equal to $8.03 per share.  Financing Activities and Contractual Obligations  Borrowings  During the nine months ended 2010, we borrowed $35.8 million against our portfolio of marketable securities. We borrowed approximately $386.2 million secured by mortgages on our properties and assumed $457.7 million of debt at acquisition for the nine months ended September 30, 2010. We repaid $38 million on our margin securities debt for the nine months ended September 30, 2009 and borrowed approximately $146 million secured by mortgages on our properties for the nine months ended September 30, 2009.  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 September 30, 2010 (dollar amounts are stated in thousands).  20102011201220132014ThereafterTotalMaturing debt :Fixed rate debt (mortgage     loans)$34,232114,589150,427548,246285,6352,839,4053,972,534Variable rate debt (mortgage     loans)$160,774595,620321,893417,28840,572128,2731,664,420Weighted average interest rate   on debt:Fixed rate debt (mortgage     loans)6.72%5.11%5.49%5.70%5.51%5.69%5.67%Variable rate debt (mortgage     loans)3.35%3.24%4.53%3.76%2.07%5.38%3.77%  The debt maturity excludes mortgage discounts associated with debt assumed at acquisition of which a discount of $42.5 million, net of accumulated amortization, is outstanding as of September 30, 2010.  We have seven interest rate swap agreements that have converted $201.2 million of our mortgage loans from variable to fixed rates. The pay rates range from .63% to 4.75% with maturity dates from March 31, 2011 to March 27, 2013.  As of September 30, 2010, we had approximately $195.0 million and $710.2 million in mortgage debt maturing in 2010 and 2011, respectively. Of the $195.0 million maturing in 2010, $101.0 million reflects joint venture debt that is consolidated on our balance sheet, including LIP-H, but which is not recourse to us. Of the $710.2 million maturing in 2011, $373.0 million is subject to contractual extensions of at least one year.  We are in the process of negotiating refinancing and extinguishing the debt maturing in the remainder of 2010.  It is anticipated that we will be able to extinguish all remaining 2010 maturities in a timely manner. We will continue to work toward refinancing all  -48-    remaining debt with the existing lenders at terms that will most likely be at higher credit spreads and lower loan to value. 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. Although there is continued volatility, we believe conditions seem to be loosening and lenders are returning to the market, particularly for high quality assets.  Summary of Cash Flows  Nine months ended September 30,20102009(In thousands)Cash provided by operating activities$271,141$284,479Cash used in investing activities(551,431)(428,176)Cash provided by (used in) financing activities18,011(170,413)Decrease in cash and cash equivalents(262,279)(314,110)Cash and cash equivalents, at beginning of period500,491945,225Cash and cash equivalents, at end of period$238,212$631,115  Cash provided by operating activities was $271.1 million and $284.5 million for the nine months ended September 30, 2010 and 2009, respectively, and was generated primarily from operating income from property operations and interest and dividends. The decrease is primarily a result of decreases in our interest income from notes receivable.  Cash used in investing activities was $551.4 million and $428.2 million for nine months ended September 30, 2010 and 2009, respectively. During the nine months ended September 30, 2010, cash was used primarily for purchases of investment properties and investments in marketable securities.  Cash provided by (used in) financing activities was $18.0 million and $(170.4) million for the nine months ended September 30, 2010 and 2009, respectively. During the nine months ended September 30, 2009, we generated proceeds from the sale of shares, net of offering costs paid and share repurchases, of approximately $208.0 million. We generated approximately $35.8 million by borrowing against our portfolio of marketable securities during the nine months ended September 30, 2010. We generated approximately $386.2 million from borrowings secured by mortgages on our properties for the nine months ended September 30, 2010. During the nine months ended September 30, 2009, we generated approximately $146 million from borrowings secured by mortgages on our properties. During the nine months ended September 30, 2010 and 2009, we paid approximately $311.7 and $309 million, respectively, in distributions to our common stockholders.  We also paid off mortgage debt in the amount of $223.0 million and $155.0 million for the nine months ended September 30, 2010 and 2009.  We consider all demand deposits, money market accounts and investments in certificates of deposit and repurchase agreements with a maturity of nine 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.  Contractual Obligations  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 September 30, 2010, we would be obligated to pay as much as $35.2 million in the future as vacant space covered by these earnout agreements is occupied and becomes rent producing.  As of September 30, 2010, we had outstanding commitments to fund approximately $3.1 million into joint ventures and $2.2 million for various development projects. We intend on funding these acquisitions with cash on hand of approximately $238.2 million.  Off Balance Sheet Arrangements  Unconsolidated Real Estate Joint Ventures  Unconsolidated joint ventures are those where 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. For additional discussion of our investments in joint ventures, please refer to the liquidity section of Managements Discussion and Analysis of Financial Condition and Results of Operations and our  -49-    Notes to Consolidated Financial Statements. 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 September 30, 2010Net Lease Strategic Asset Fund L.P.85%$164,851Cobalt Industrial REIT II36%128,162D.R. Stephens Institutional Fund, LLC90%68,455NRF Healthcare, LLC(a)90,506Other Unconsolidated Joint VenturesVarious24,316$476,290  (a) We invested $100,000 in NRF Healthcare, LLC in exchange for a Series A Convertible Preferred Membership interest and are entitled to a 10.5% preferred dividend. The entity was previously known as Wakefield Capital, LLC.  Our unconsolidated joint ventures had total third party debt of $1,950,414 at September 30, 2010 that matures as follows:  2010$140,5842011138,1932012411,8542013159,0352014138,876Thereafter961,872$1,950,414  The debt maturities of the unconsolidated entities are not recourse to us and we have no obligation to fund, except for remaining capital commitments. However, it is anticipated that the ventures will be able to repay or refinance all of their debt on a timely basis.  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. All of our other segments are not seasonal in nature.  Selected Financial Data  The following table shows our consolidated selected financial data relating to our consolidated historical financial condition and results of operations. 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 data.)  As ofAs ofSeptember 30, 2010December 31, 2009Total assets$11,595,80111,328,211Mortgages, notes and margins payable$5,658,6005,085,899  For the nine months ended September 30,20102009Total income$929,406833,656Total interest and dividend income$25,24447,620Net loss attributable to Company$(155,949)(238,205)  -50-     For the nine months ended September 30,20102009Net loss per common share, basic and diluted (a)$(.19)(.29)Distributions declared to common stockholders$312,345302,625Distributions declared per weighted average common share (a)$.37.37Funds From Operations (a)(b)$190,82591,540Cash flows provided by operating activities$271,141284,479Cash flows used in investing activities$(551,431)(428,176)Cash flows provided by (used in) financing activities$18,011(170,413)Weighted average number of common shares outstanding, basic and
diluted832,292,463808,157,928  (a) The net income (loss) per share basic and diluted is based upon the weighted average number of common shares outstanding for the nine months ended September 30, 2010 and 2009, respectively. The distributions per common share are based upon the weighted average number of common shares outstanding for the nine months ended September 30, 2010 and 2009. 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, only to the extent of a shareholder's basis. 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, subject to certain adjustments, such as excluding 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 U.S. generally accepted accounting principles or 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 we hold 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 certain 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. FFO is calculated as follows (in thousands):  For the nine months ended September 30,20102009Net loss applicable to common shares$(155,949)(238,205)Add:Depreciation and amortization:Related to investment properties332,228293,339Related to investment in unconsolidated entities30,69738,309Less:Gain on sale of properties14,252Noncontrolling interests' share:Depreciation and amortization related to investment properties1,8991,903Funds from operations$190,82591,540  Below is additional information related to certain items that significantly impact the comparability of our Funds from Operations and Net Income from the periods presented:     -51-     For the nine months ended September 30,20102009Additions (deductions) that were included in net income and FFOProvision for asset impairment$(27,136)(14,492)Impairment of note receivable$(94,627)(22,949)Loss on consolidated investment$-(148,887)Equity in loss of Concord Debt Holdings, LLC$(3,696)(39,693)Impairment of investment in unconsolidated entities$(11,239)(2,706)Gain on extinguishment of debt$19,227-Realized gain (loss) and impairment on securities, net$19,86427,910  Subsequent Events  We paid distributions to our stockholders of $.50 per share on an annualized basis in October and November, 2010 totaling $70.1 million.    -52-    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 permanently increased by 1%, the increase in interest expense on the floating rate debt would decrease future earnings and cash flows by approximately $16.6million. If market rates of interest on all of the floating rate debt permanently decreased by 1%, the decrease in interest expense on the floating rate debt would increase future earnings and cash flows by approximately $16.6million.  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).  20102011201220132014ThereafterTotalMaturing debt :Fixed rate debt (mortgage     loans)$34,232114,589150,427548,246285,6352,839,4053,972,534Variable rate debt (mortgage     loans)$160,774595,620321,893417,28840,572128,2731,664,420Weighted average interest rate   on debt:Fixed rate debt (mortgage     loans)6.72%5.11%5.49%5.70%5.51%5.69%5.67%Variable rate debt (mortgage     loans)3.35%3.24%4.53%3.76%2.07%5.38%3.77%  The debt maturity excludes mortgage discounts associated with debt assumed at acquisition of which a discount of $42.5 million, net of accumulated amortization, is outstanding as of September 30, 2010.  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 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. If 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.  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.   -53-    Other than temporary impairments were $1.6 and $4 million for the nine months ended September 30, 2010 and 2009, respectively. The overall stock market and REIT stocks, including our REIT stock investments, have declined since mid-2007, 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 during 2010.  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 the total assets and our book value of as of September 30, 2010. (dollar amounts stated in thousands)  Hypothetical 10% Decrease inHypothetical 10% Increase inCostFair ValueMarket ValueMarket ValueMarketable securities$298,999$237,369$213,632$261,106  Derivatives  The following table summarizes our interest rate swap contracts outstanding as of September 30, 2010 (dollar amounts stated in thousands):  Date EnteredEffective DateEnd DatePay Fixed RateReceive Floating Rate IndexNotional AmountFair Value of September 30, 2010November 16,2007November 20, 2007April 1, 20114.45%1 month LIBOR$24,425$(505)March 28, 2008March 28, 2008March 27, 20133.32%1 month LIBOR33,062(2,156)March 28, 2008March 28, 2008March 31, 20112.81%1 month LIBOR50,000(626)December 12, 2008January 1, 2009December 12, 2011(1)(1)20,245-December 23, 2008January 5, 2009December 22, 20111.86%1 month LIBOR16,637(301)January 16, 2009January 13, 2009January 13, 20121.62%1 month LIBOR22,000(348)August 19, 2010August 31, 2010March 27, 2012.63%1 month LIBOR34,852(113)$201,221$(4,049)  (1) Interest rate CAP at 4.75%.  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 ASC 815. 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 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. The fair value of the option was $1,598 and $1,950 and is included in advance rent and other liabilities on the consolidated balance sheets as of September 30, 2010 and December 31, 2009.  -54-     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 September 30, 2010, 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 September 30, 2010, 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 nine months ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  -55-    Part II - Other Information  Item 1.  Legal Proceedings  Except as otherwise described below or in our Form 10-Q filed for the quarters ended March 31, 2010 and June 30, 2010 or below, there were no material developments during the nine months ended September 30, 2010 in the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2009.  With respect to the Inland American Concord (Sub), LLC (IA Sub) v. Lex-Win Concord LLC (Concord) action previously described, on August 26, 2010, the parties agreed to modify the settlement agreement such that all matters between Lexington, Winthrop and the Company relating to the IA Sub v. Concord action are settled notwithstanding the existence of the Appeal and the possibility that the CDO bonds at issue in the Appeal were not cancelled. As part of the modified settlement, we made a contribution of $9.5 million. In connection with the settlement, the IA Sub vs. Concord action was dismissed and the parties exchanged mutual releases.  Item 1A.  Risk Factors                                                                                       Funding distributions from sources other than cash flow from operating activities may negatively impact our ability to sustain or pay distributions.  If our cash flow from operating activities is not sufficient to fully fund the payment of distributions, the level of our distributions may not be sustainable and some or all of our distributions will be paid from other sources. For example, we may generate cash to pay distributions from financing activities, components of which may include borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow. To the extent distributions are paid from financing activities, we will have less money available for other uses, such as cash needed to refinance existing indebtedness, which may negatively impact our ability to achieve our investment objectives.  In the current year, we have a distribution coverage deficit that is being funded by excess cash flow from prior years.  We believe the current deficits are temporary and as the economy, and, in particular, our lodging segment, improves we believe there will be excess coverage of our distributions for future years.  In addition, from time to time, our business manager has determined, in its sole discretion, to either forgo or defer a portion of the business management fee, which has the effect of increasing cash flow from operations for the relevant period because we do not have to use that cash to pay any fee or reimbursement which was foregone or deferred during the relevant period.  We would, however, need to use cash at some point in the future to pay any fee or reimbursement that was deferred.  For the nine months ended September 30, 2010, we paid a business management fee of $26 million, or approximately .23% of our average invested assets on an annual basis, as well as an investment advisory fee of approximately $1.1 million, together which are less than the full 1% fee that the business manager could be paid. There is no assurance that our business manager will forgo or defer any portion of its business management fee in the future, which may affect our ability to pay distributions or result in us having less cash available for other uses.  Two of our tenants generated a significant portion of our revenue, and rental payment defaults by these significant tenants could adversely affect our results of operations.  For the nine months ended September 30, 2010, approximately 9% of our rental revenue was generated by over 400 retail banking properties leased to SunTrust Bank. Also, for the nine months ended September 30, 2010, approximately 7% of our rental revenue was generated by three properties leased to AT&T, Inc. As a result of the concentration of revenue generated from these properties, if either SunTrust or 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 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 or natural disasters in those areas.  In the event that we have a concentration of properties in a particular geographic area, and lack a geographically diversified portfolio, our operating results are likely to be impacted by economic changes affecting the real estate markets in that area. As of September 30, 2010, approximately 3%, 4%, 4%, 7% and 13% of our base rental income of our consolidated portfolio, excluding our lodging facilities, was generated by properties located in the Washington, D.C., Dallas, Minneapolis, Chicago and Houston metropolitan areas, respectively.  Additionally, at September 30, 2010, 34 of our lodging facilities, or approximately 34% of our lodging portfolio, were located in the eight eastern seaboard states ranging from Connecticut to Florida, including 11 hotels located in North Carolina.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,  -56-    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.  Actions of our joint venture partners could negatively impact our performance.  As of September 30, 2010, we had entered into joint venture agreements with seventeen entities to fund the development or acquisition of office, industrial/distribution, retail, lodging, healthcare and mixed use properties. The balance of our investment in these joint ventures, which we do not consolidate for financial reporting purposes, was $476.3million. For the nine months ended September 30, 2010, we recognized losses of $5.3million. Our joint venture investments may involve risks not otherwise present with other methods of investment in real estate, as our co-member, co-venturer or partner may have economic or business interests or goals which are or which become inconsistent with our business interests or goals or may take action contrary to our instructions or requests or contrary to our policies or objectives. We have experienced these events from time to time with our current venture partners, which in some cases has resulted in litigation with these partners.  Specifically, we were involved in litigation in respect of our ventures with Lex-Win Concord LLC and affiliates of The Lauth Group, Inc.; we have entered into settlement agreements in respect of both matters.  There can be no assurance that an adverse outcome in any future lawsuit will not have a material effect on our results of operations for any particular period. In addition, any litigation increases our expenses and prevents our officers and directors from focusing their time and effort on other aspects of our business.  Current economic conditions have also increased the risk that our venture partners may become bankrupt, which would mean that we and any other remaining venture partners would generally remain liable for the joint ventures liabilities, and the risk that that our partners may fail to fund their share of any required capital contributions, which could result in us having to contribute that capital. In addition, our relationships with our venture partners are contractual in nature. These agreements may restrict our ability to sell our interest when we desire or on advantageous terms and, on the other hand, may be terminated or dissolved under the terms of the agreements and, in each event, we may not continue to own or operate the interests or assets underlying the relationship or may need to purchase these interests or assets at an above-market price to continue ownership.  Our investments in equity and debt securities have materially impacted, and may in the future materially, impact our results.  We have invested, and may continue to invest, in real estate related securities of both publicly traded and private real estate companies. Real estate related equity securities are always unsecured and subordinated to other obligations of the issuer. Investments in real estate related equity securities are subject to risks of: (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities; (2) substantial market price volatility resulting from changes in prevailing interest rates in the case of traded equity securities; (3) subordination to the liabilities of the entity; (4) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to redeem the securities; and (5) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations.  In addition, investments in real estate related securities will involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Issuers of real estate related securities generally invest in real estate or real estate related assets and are subject to the inherent risks associated with real estate related investments.  As of September 30, 2010, we had investments valued at $249.1million in real estate related equity and debt securities. Many of the entities that we have invested in have reduced the dividends paid on their stocks. The stock prices for these entities have declined since our initial purchase. There is no assurance that the stock market in general, and the market for REIT stocks, in particular, will improve in the near future.  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  Share Repurchase Program  We adopted a share repurchase program, effective August 31, 2005, to provide limited liquidity for stockholders. Our obligation to repurchase any shares under the program is conditioned upon our having sufficient funds available to complete the repurchase. Subject to funds being available, we limit the number of shares repurchased during any consecutive twelve month period to 5.0% of the number of outstanding shares of common stock at the beginning of that twelve month period. The share repurchase program may be suspended or terminated if: (1) our shares are listed on any national securities exchange, or are subject to bona fide quotes on any inter-dealer quotation system or electronic communications network, or are subject of bona fide quotes in the pink sheets; or (2) our board of directors determines that it is in our best interest to suspend or terminate the share repurchase program.  Effective March 30, 2009, our board of directors voted to suspend the share repurchase program until further notice. Therefore, no shares were repurchased during the months of July, August or September 2010. Written notice of the suspension was provided to each stockholder pursuant to the terms of the share repurchase program.    -57-     Item 3.  Defaults Upon Senior Securities  None.  Item 4.  Reserved  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.     -58-    SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  INLAND AMERICAN REAL ESTATE TRUST, INC.  /s/ Brenda G. Gujral/s/ Lori J. FoustBy:Brenda G. GujralBy:Lori J. FoustPresident and DirectorTreasurer and principal financial officerDate:November 12, 2010Date:November 12, 2010    -59-    Exhibit Index  Exhibit No.Description3.1Sixth 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, as filed by the Registrant with the Securities and Exchange Commission on August 26, 2010)3.2Amended and Restated Bylaws of Inland American Real Estate Trust, Inc., effective as of April 1, 2008 (incorporated by reference to Exhibit 3.2 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on April 1, 2008), as amended by the Amendment to the Amended and Restated Bylaws of Inland American Real Estate Trust, Inc., effective as of January 20, 2009 (incorporated by reference to Exhibit 3.2 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on January 23, 2009)4.1Second Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 4.1 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on September 23, 2010)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 20, 2006 (file number 333-139504))4.3Statement 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))10.1Amended and Restated Independent Director Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K, as filed by the Registrant with the Securities and Exchange Commission on July 26, 2010)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.    -60-