GBE Grubb & Ellis Company Common Stock

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2008

OR

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

For the transition period from                      to

Commission file number 1-8122

GRUBB & ELLIS COMPANY

(Exact name of registrant as specified in its charter)

Delaware		94-1424307
(State or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)

1551 North Tustin Avenue, Suite 300, Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)

(714) 667-8252
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

     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 such filing requirements for the past 90 days. Yes þ    No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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 þ		Non-accelerated filer o (Do not check if a smaller reporting company)		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 þ

     The number of shares outstanding of the registrant’s common stock as of May 7, 2008 was 65,368,609 shares.

 

 

TABLE OF CONTENTS

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements.

GRUBB & ELLIS COMPANY

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

		March 31,				December 31,
		2008				2007
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	24,847			$	49,072
Restricted cash			16,676				27,325
Investment in marketable securities			8,022				9,052
Current portion of accounts receivable from related parties — net			29,370				27,465
Current portion of advances to related parties — net			8,702				8,328
Notes receivable from related party — net			—				7,600
Service fees receivable — net			14,424				19,522
Current portion of professional service contracts — net			7,129				7,235
Real estate deposits and pre-acquisition costs			9,363				15,296
Properties held for sale			295,784				345,576
Identified intangible assets and other assets held for sale — net			64,727				85,758
Prepaid expenses and other assets			21,143				16,872
Deferred tax assets			8,285				7,854
Total current assets			508,472				626,955
Accounts receivable from related parties — net			10,039				10,360
Advances to related parties — net			4,121				3,751
Professional service contracts — net			12,261				13,088
Investments in unconsolidated entities			18,355				16,884
Properties held for investment — net			3,966				3,922
Property, equipment and leasehold improvements — net			16,233				16,265
Goodwill			171,552				169,317
Identified intangible assets — net			103,631				105,589
Other assets — net			3,190				3,281
Total assets		$	851,820			$	969,412
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	60,724			$	101,147
Due to related parties			2,206				2,953
Current portion of notes payable and capital lease obligations			372				402
Mortgage loans payable secured by properties held for sale			272,972				348,520
Liabilities of properties held for sale — net			11,579				18,711
Other liabilities			3,590				5,308
Total current liabilities			351,443				477,041
Long-term liabilities:
Line of credit			38,000				8,000
Senior notes			16,277				16,277
Notes payable and capital lease obligations			713				799
Other long-term liabilities			6,897				7,088
Deferred tax liabilities			33,300				32,837
Total liabilities			446,630				542,042
Commitment and contingencies (Note 15)			—				—
Minority interest			6,179				18,725
Stockholders’ equity:
Preferred stock: $0.01 par value; 50,000,000 shares authorized as of March 31, 2008 and December 31, 2007; no shares issued and outstanding as of March 31, 2008 and December 31, 2007			—				—
Common stock: $0.01 par value; 100,000,000 shares authorized; 65,364,965 and 64,824,777 shares issued and outstanding as of March 31, 2008 and December 31, 2007, respectively			654				648
Additional paid-in capital			396,422				393,665
Retained earnings			2,812				15,381
Accumulated other comprehensive loss			(877	)			(1,049	)
Total stockholders’ equity			399,011				408,645
Total liabilities and stockholders’ equity		$	851,820			$	969,412

See notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		For the Three Months Ended
		March 31,
		2008				2007
REVENUE
Transaction services		$	59,148			$	—
Investment management			26,092				29,465
Management services			61,756				—
Rental related			13,628				2,283
Total revenue			160,624				31,748
OPERATING EXPENSE
Compensation costs			120,334				13,591
General and administrative			21,625				9,264
Depreciation and amortization			5,057				514
Rental related			9,139				2,398
Interest			5,742				536
Merger related costs			2,869				—
Total operating expense			164,766				26,303
OPERATING (LOSS) INCOME			(4,142	)			5,445
OTHER (EXPENSE) INCOME
Equity in (losses) earnings of unconsolidated entities			(6,014	)			169
Interest income			237				541
Other			(546	)			138
Total other (expense) income			(6,323	)			848
(Loss) income from continuing operations before minority interest and income tax benefit (provision)			(10,465	)			6,293
Minority interest in loss (income) of consolidated entities			502				(7	)
(Loss) income from continuing operations before income tax benefit (provision)			(9,963	)			6,286
Income tax benefit (provision)			4,146				(2,489	)
(Loss) income from continuing operations			(5,817	)			3,797
Discontinued operations
Loss from discontinued operations — net of taxes			(124	)			(220	)
Gain on disposal of discontinued operations — net of taxes			73				60
Total loss from discontinued operations			(51	)			(160	)
NET (LOSS) INCOME		$	(5,868	)		$	3,637
Basic earnings per share
(Loss) income from continuing operations		$	(0.09	)		$	0.10
Loss from discontinued operations			—				—
Net (loss) earnings per share		$	(0.09	)		$	0.10
Diluted earnings per share
(Loss) income from continuing operations		$	(0.09	)		$	0.10
Loss from discontinued operations			—				—
Net (loss) earnings per share		$	(0.09	)		$	0.10
Shares used in computing basic earnings per share			63,521				36,910
Shares used in computing diluted earnings per share			63,521				36,949
Dividends declared per share		$	0.1025			$	0.0450

See notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		For the Three Months Ended
		March, 31,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income		$	(5,868	)		$	3,637
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Equity in losses (earnings) of unconsolidated entities			6,014				(169	)
Depreciation and amortization			5,057				483
Stock-based compensation			2,531				1,443
Amortization/write-off of intangible contractual rights			423				807
Amortization of deferred financing costs			547				76
Deferred income taxes			(34	)			(1,658	)
Allowance for uncollectible accounts			343				248
Minority interest in (loss) income of consolidated entities			(502	)			7
Other operating activities			(617	)			(249	)
Changes in operating assets and liabilities:
Accounts receivable from related parties			(2,365	)			(12,522	)
Prepaid expenses and other assets			2,072				(3,196	)
Accounts payable and accrued expenses			(48,230	)			1,900
Other liabilities			(4,799	)			2,314
Net cash used in operating activities			(45,428	)			(6,879	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of properties held for sale			(25,120	)			(208,343	)
Purchases of identified intangible assets and other assets held for sale			(2,368	)			(39,175	)
Real estate deposits and pre-acquisition costs			(1,612	)			(5,821	)
Proceeds from sale of properties held for sale			—				99,721
Proceeds from collection of real estate deposits and pre-acquisition costs			9,013				7,837
Purchases of property and equipment			(1,472	)			(751	)
Investment in marketable securities			—				(5,338	)
Advances to related parties			(1,577	)			(4,318	)
Repayments of advances to related parties			951				8,230
Repayment of note receivable from related party			7,600				—
Investments in unconsolidated entities, net			5,941				2,364
Restricted cash			(212	)			(13,132	)
Other			(805	)			—
Net cash used in investing activities			(9,661	)			(158,726	)

		For the Three Months Ended
		March, 31,
		2008				2007
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on lines of credit			30,000				—
Repayments of mortgage loans payable secured by properties held for sale			(16,001	)			(93,990	)
Proceeds from issuance of mortgage loans payable secured by properties held for sale			20,370				229,820
Proceeds from issuance of senior notes			—				6,015
Principal payments on notes payable and capital lease obligations			(32	)			(4,430	)
Repayments to related parties			(747	)			(1,997	)
Rate lock deposits			(1,469	)			310
Deferred financing costs			(6	)			(536	)
Dividends paid to common stockholders			(1,733	)			(3,813	)
Contributions from minority interests			833				1,875
Distributions to minority interests			(544	)			—
Other financing activities			193				(37	)
Net cash provided by financing activities			30,864				133,217
NET DECREASE IN CASH AND CASH EQUIVALENTS			(24,225	)			(32,388	)
Cash and cash equivalents — Beginning of period			49,072				102,226
Cash and cash equivalents — End of period		$	24,847			$	69,838
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Dividends accrued		$	6,701			$	1,906

See notes to consolidated financial statements.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

     The accompanying unaudited consolidated financial statements include the accounts of Grubb & Ellis Company and its consolidated subsidiaries (collectively, the “Company”), and are prepared in accordance with U.S. generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods presented have been included in these financial statements and are of a normal and recurring nature.

     Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be achieved in future periods.

Use of Estimates

     The financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

     In September 2006, the FASB issued Statement No. 157 (“SFAS No. 157”), Fair Value Measurements . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value instruments. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (the “FSP”). The FSP amends SFAS No. 157 to delay the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). There was no effect on the Company’s consolidated financial statements as a result of the adoption of SFAS No. 157 as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the FSP defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company will adopt SFAS No. 157 as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009 and does not believe adoption will have a material effect on its consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company will adopt SFAS No. 161 in the first quarter of 2009 and does not believe the adoption will have a material effect on its consolidated financial statements.

2. MARKETABLE SECURITIES

     The historical cost and estimated fair value of the available-for-sale marketable securities held by the Company are as follows:

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

		As of March 31, 2008																As of December 31, 2007
		Historical				Gross Unrealized								Market				Historical				Gross Unrealized								Market
		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
(In thousands)
Equity securities		$	4,350			$	—			$	(1,461	)		$	2,889			$	4,440			$	—			$	(1,355	)		$	3,085

     There were no sales of equity securities during the three months ended March 31, 2008. The Company believed that a decline in the value of a marketable equity security was other than temporary and recorded realized losses of $90,000 to reflect the fair value of such security as of March 31, 2008. Sales of equity securities resulted in realized gains of $138,000 for the three months ended March 31, 2007.

      Investments in Limited Partnerships

     The Company, through its subsidiary, Grubb & Ellis Alesco Global Advisors, LLC (Alesco), serves as general partner and investment advisor to five hedge fund limited partnerships, four of which are required to be consolidated, Grubb & Ellis AGA Realty Income Fund, LP (“Income Fund”), AGA Strategic Realty Fund, L.P. (“Strategic Realty”), AGA Global Realty Fund LP (“Global Realty”) and AGA Realty Income Partners LP (“Realty Partners”).

     Alesco allocated the limited partners’ income or loss to minority interest. For the quarter ended March 31, 2008, Alesco had investment losses of approximately $457,000 which were allocated entirely to minority interest. At March 31, 2008, these limited partnerships had assets of approximately $5.1 million consisting primarily of exchange traded marketable securities, including equity securities and foreign currencies.

     The following table reflects trading securities. The original cost, estimated market value and gross unrealized appreciation and depreciation of equity securities are presented in the tables below:

		As of March 31, 2008																As of December 31, 2007
		Historical				Gross Unrealized								Market				Historical				Gross Unrealized								Market
		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
(In thousands)
Equity securities		$	5,439			$	161			$	(467	)		$	5,133			$	7,250			$	134			$	(1,417	)		$	5,967

		For the Three Months Ended March 31, 2008
		Investment				Net Gain (Loss)
		Income				Realized				Unrealized				Total
(In thousands)
Equity securities		$	41			$	(1,391	)		$	961			$	(389	)
Less investment expenses			(68	)			—				—				(68	)
		$	(27	)		$	(1,391	)		$	961			$	(457	)

3. RELATED PARTIES

     Related party balances as of March 31, 2008 and December 31, 2007 are summarized below:

      Accounts Receivable

     Accounts receivable from related parties consisted of the following:

		March 31,				December 31,
		2008				2007
(In thousands)
Accrued property management fees		$	21,388			$	20,428
Accrued lease commissions			9,252				9,994
Accrued asset management fees			1,917				1,206
Accrued real estate acquisition fees			86				103

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

Other receivables			4,672				3,086
Other accrued fees			3,187				4,041
Total			40,502				38,858
Allowance for uncollectible receivables			(1,093	)			(1,033	)
Accounts receivable from related parties — net			39,409				37,825
Less portion classified as current			(29,370	)			(27,465	)
Non-current portion		$	10,039			$	10,360

      Advances to Related Parties

     The Company makes advances to affiliated real estate entities under management in the normal course of business. Such advances are uncollateralized, have payment terms of one year or less, and generally bear interest at 6.0% to 12.0% per annum. The advances consisted of the following:

		March 31,				December 31,
		2008				2007
(In thousands)
Advances to properties of related parties		$	11,456			$	10,166
Advances to sponsored REITs			1,249				1,318
Advances to related parties			2,240				2,434
Total			14,945				13,918
Allowance for uncollectible receivables			(2,122	)			(1,839	)
Advances to related parties — net			12,823				12,079
Less portion classified as current			(8,702	)			(8,328	)
Non-current portion		$	4,121			$	3,751

     As of December 31, 2007, advances with accrued interest included $1.0 million to a program solely managed by the Company’s former Chairman, who subsequently resigned in 2008. As of March 31, 2008, the remaining balance was $678,000.

      Notes Receivable From Related Party

     In December 2007, the Company advanced $10.0 million to Grubb & Ellis Apartment REIT, Inc. (“Apartment REIT”). The unsecured note matures on June 20, 2008 and bears interest at a fixed rate of 7.46% per annum. The unsecured note requires monthly interest only payments beginning on January 1, 2008 and provides for a default interest rate in an event of default equal to 9.46% per annum. This unsecured note was repaid in full in the first quarter of 2008. The balance owed to the Company as of December 31, 2007 consisted of $7.6 million in principal.

4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

     As of March 31, 2008 the Company had investments in two properties totaling $4.1 million and $7.3 million, respectively, which represents approximately 25.3% and 46.8% ownership interest in each property, respectively. As of December 31, 2007 the Company had investments in two properties totaling $1.7 million and $4.1 million, respectively, which represents approximately 32.0% and 41.0% ownership interest in each property, respectively.

     The Company owned approximately 5.7 million shares of common stock of Grubb & Ellis Realty Advisors, Inc. (“GERA”), a special purpose acquisition company, or approximately 19% of the outstanding common stock of GERA. The Company also owned approximately 4.6 million GERA warrants which were exercisable into additional GERA common stock, subject to certain conditions. The Company recorded each of these investments at fair value on December 7, 2007, the date they were acquired, at a total investment of approximately $4.5 million. The market price of the warrants declined slightly to $0.16 per warrant as of December 31, 2007, resulting in an unrealized loss on the investment totaling approximately $223,000 (net of taxes) for the year ended December 31, 2007. This unrealized loss was included in accumulated other comprehensive loss within stockholders’ equity as of December 31, 2007.

     All of the officers of GERA were also officers or directors of the Company, although such persons did not receive any compensation from GERA in their capacity as officers of GERA. Due to the Company’s ownership position and influence over the operating and financial decisions of GERA, the Company’s investment in GERA was accounted

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

for within the Company’s consolidated financial statements under the equity method of accounting. The Company’s combined carrying value of these GERA investments as of December 31, 2007, totaled approximately $4.1 million, net of an unrealized loss, and was included in investments in unconsolidated entities in the Company’s consolidated balance sheet as of that date.

     On February 28, 2008, at a special meeting of the stockholders of GERA held to vote on, among other things, a proposed transaction with the Company. GERA failed to obtain the requisite consents of its stockholders to approve the proposed business transaction and at a subsequent special meeting in April 2008, its stockholders approved the dissolution and plan of liquidation of GERA. The Company did not receive any funds or other assets as a result of GERA’s liquidation.

     As a consequence, the Company wrote off its investment in GERA and other advances to that entity in the first quarter of 2008 and recognized a loss of approximately $5.8 million, comprised of $4.5 million related to stock and warrant purchases and $1.3 million related to operating advances and third party costs, and which included the unrealized loss previously reflected in accumulated other comprehensive loss. The Company is marketing the three commercial properties that were subject to the proposed transaction with GERA so as to affect their sale on or before September 30, 2008, as required under the terms of its credit facility.

5. PROPERTIES HELD FOR INVESTMENT

     A summary of the balance sheet information for properties held for investment is as follows:

				March 31,				December 31,
		Useful Life		2008				2007
(In thousands)
Building and capital improvement		39 years		$	3,067			$	2,962
Tenant Improvement		1-8 years			165				165
Accumulated depreciation					(466	)			(405	)
Total					2,766				2,722
Land					1,200				1,200
Properties held for investment — net				$	3,966			$	3,922

     The Company recognized $61,000 and $42,000 of depreciation expense related to the properties held for investment during the three months ended March 31, 2008 and 2007, respectively.

6. BUSINESS COMBINATIONS AND GOODWILL

Merger of Grubb & Ellis Company with NNN Realty Advisors, Inc.

     On December 7, 2007, the Company effected a stock merger (the “Merger”) with NNN Realty Advisors, Inc. (“NNN”), a real estate asset management company and sponsor of tax deferred tenant in common (“TIC”) 1031 property exchanges as well as a sponsor of two non-traded REITs and other investment programs.

9

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

      Supplemental information

     Unaudited pro forma results, assuming the above mentioned 2007 acquisitions had occurred as of January 1, 2007 for purposes of the 2007 pro forma disclosures, are presented below. The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had all acquisitions occurred on January 1, 2007, and may not be indicative of future operating results.

		Unaudited Pro Forma Results
		Three Months Ended
		March 31, 2007
(In thousands, except per share data)
Revenue		$	150,260
Income from continuing operations		$	283
Net loss		$	(28	)
Basic loss per share			—
Weighted average shares outstanding for basic earnings per share			36,910
Diluted loss per share			—
Weighted average shares outstanding for diluted earnings per share			36,910

7. PROPERTY ACQUISITIONS

     During the three months ended March 31, 2008, the Company completed the acquisition of one office property, which the Company classified as property held for sale upon acquisition. The aggregate purchase price, including closing costs, of this property was $21.8 million, of which $14.7 million was financed with mortgage debt. Pro forma data is not presented as the operations of this property are included in discontinued operations in the Company’s consolidated statement of operations.

8. IDENTIFIED INTANGIBLE ASSETS

     Identified intangible assets consisted of the following:

				March 31,				December 31,
(In thousands)		Useful Life		2008				2007
Contract rights
Contract rights, established for the legal right to future disposition fees of a portfolio of real estate properties under contract		Amortize per disposition transactions		$	20,538			$	20,538
Accumulated amortization — contract rights					(3,944	)			(3,521	)
Contract rights, net					16,594				17,017
Other identified intangible assets
Trade name		Indefinite			64,100				64,100
Affiliate agreement		20 years			10,600				10,600
Customer relationships		5 to 7 years			5,436				5,579
Internally developed software		4 years			6,200				6,200
Customer backlog		1 year			300				300
Other contract rights		5 to 7 years			1,418				1,418
Non-compete and employment agreements		3 to 4 years			97				597
					88,151				88,794
Accumulated amortization					(1,212	)			(338	)
Other identified intangible assets, net					86,939				88,456
Identified intangible assets — properties
In place leases and tenant relationships		35 to 95 months			271				271
Above market leases		35 months			107				107
					378				378
Accumulated amortization — properties					(280	)			(262	)
Identified intangible assets, net— properties					98				116
Total identified intangible assets, net				$	103,631			$	105,589

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

     Amortization expense recorded for the contract rights was $423,000 and $807,000 for the three months ended March 31, 2008 and 2007, respectively. Amortization expense was charged as a reduction to investment management revenue in each respective period. During the period of future real property sales, the amortization of the contract rights for intangible assets will be applied based on the net relative value of disposition fees realized.

     Amortization expense recorded for the other identified intangible assets was $874,000 and $0 for the three months ended March 31, 2008 and 2007, respectively. Amortization expense was included as part of operating expense in the accompanying consolidated statement of operations.

     Amortization expense recorded for the in-place leases and tenant relationships was $12,000 and $14,000 for the three months ended March 31, 2008 and 2007, respectively. Amortization expense was included as part of operating expense in the accompanying consolidated statement of operations.

     Amortization expense recorded for the above-market leases was $6,000 and $8,000 for the three months ended March 31, 2008 and 2007, respectively. Amortization expense was charged as a reduction to rental related revenue in the accompanying consolidated statement of operations.

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consisted of the following:

		March 31,				December 31,
		2008				2007
(In thousands)
Accrued liabilities		$	14,287			$	18,421
Salaries and related costs			10,996				12,575
Accounts payable			8,619				12,702
Broker commissions			6,905				26,517
Dividends			6,709				1,733
Severance			4,385				4,965
Bonuses			3,171				14,933
Property management fees and commissions due to third parties			2,778				4,491
Organizational marketing expense allowance related costs			264				1,219
Other			2,610				3,591
Total		$	60,724			$	101,147

10. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

     Notes payable and capital lease obligations consisted of the following:

		March 31,				December 31,
		2008				2007
(In thousands)
Unsecured notes payable to third-party investors with fixed interest at 6.00% per annum and matures on December 2011. Principal and interest is due quarterly beginning March 31, 2006.		$	380			$	411
Capital leases obligations			705				790
Total			1,085				1,201
Less portion classified as current			(372	)			(402	)
Non-current portion		$	713			$	799

     Grubb & Ellis Realty Investors, LLC (“GERI”) historically had entered into several interest rate lock agreements with commercial banks. All rate locks were cancelled and all deposits in connection with these agreements were refunded to the Company in April 2008.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

11. MORTGAGE LOANS PAYABLE SECURED BY PROPERTIES HELD FOR SALE

     Notes payable secured by properties held for sale consisted of the following:

		March 31,				December 31,
		2008				2007
(In thousands)
Mortgage debt payable to various financial institutions for real estate held for sale. Fixed interest rates range from 5.95% to 6.32% per annum. The notes mature at various dates through November 2018. As of March 31, 2008, all notes require monthly interest-only payments.		$	138,472			$	209,230
Mezzanine debt payable to a financial institution for real estate held for sale with an interest rate of 13.0% per annum. The note matured on April 15, 2008 and was paid in full. As of March 31, 2008, the note requires monthly interest-only payments.			14,000				18,790
Mortgage debt payable to various financial institutions for real estate held for sale, which bear interest at LIBOR plus 250 basis points and include an interest rate cap for LIBOR at 6.00% (approximately 5.20% per annum as of March 31, 2008).			120,500				120,500
Total		$	272,972			$	348,520

12. LINES OF CREDIT

     The Company’s line of credit is secured by substantially all of the Company’s assets and requires the Company to meet certain minimum loan to value, debt service coverage, and performance covenants, including the timely payment of interest. The outstanding balance on the line of credit was $38.0 million as of March 31, 2008 and carried an average weighted interest rate of 6.63%. The Company was in compliance with all debt covenants pertaining to the credit agreement as of March 31, 2008.

13. SEGMENT DISCLOSURE

     In conjunction with the Merger, management re-evaluated its reportable segments and determined that the Company’s reportable segments consist of Transaction Services, Investment Management, and Management Services. The Company’s Investment Management segment includes all of NNN’s historical business units and, therefore, all historical data have been conformed to reflect the reportable segments as a combined company.

      Transaction Services — Transaction Services advise buyers, sellers, landlords and tenants on the sale, leasing and valuation of commercial property and includes the Company’s national accounts group and national affiliate program operations.

      Investment Management — Investment Management includes all of NNN’s historical business units, which includes services for acquisition, financing and disposition with respect to the Company’s programs, asset management services related to the Company’s programs, and dealer-manager services by its securities broker-dealer, which facilitates capital raising transactions for its TIC and REIT programs.

      Management Services — Management Services provide property management and related services for owners of investment properties and facilities management services for corporate owners and occupiers.

     The Company also has certain corporate level activities including interest income from notes and advances, property rental related operations, legal administration, accounting, finance, and management information systems which are not considered separate operating segments.

     The Company evaluates the performance of its segments based upon operating income. Net operating income is defined as operating revenue less compensation and operating and administrative costs and excludes other rental related, rental expense, interest expense, depreciation and amortization, and corporate general and administrative expenses.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - Continued

		Transaction				Investment				Management
Three Months Ended March 31, 2008		Services				Management				Services				Total
(In thousands)
Revenue		$	59,148			$	26,092			$	61,756			$	146,996
Compensation costs			51,477				11,146				57,711				120,334
General and administrative			11,421				7,560				2,644				21,625
Segment operating (loss) income		$	(3,750	)		$	7,386			$	1,401			$	5,037

		Transaction				Investment				Management
Three Months Ended March 31, 2007		Services				Management				Services				Total
(In thousands)
Revenue		$	—			$	29,465			$	—			$	29,465
Compensation costs			—				13,591				—				13,591
General and administrative			—				9,264				—				9,264
Segment operating income		$	—			$	6,610			$	—			$	6,610

      The following is a reconciliation between segment operating income to consolidated net (loss) income:

		Three Months Ended
		March 31,
		2008				2007
(In thousands)
Reconciliation to consolidated net (loss) income:
Total segment operating income		$	5,037			$	6,610
Non-segment:
Rental operations, net			4,489				(115	)
Other operating expenses			(13,668	)			(1,050	)
Other (expense) income			(6,323	)			848
Minority interest in loss (income) of consolidated entities			502				(7	)
Income tax benefit (provision)			4,146				(2,489	)
Loss from discontinued operations			(51	)			(160	)
Net (loss) income		$	(5,868	)		$	3,637

14. PROPERTIES HELD FOR SALE AND DISCONTINUED OPERATIONS

     A summary of the properties held for sale balance sheet information is as follows:

		March 31,				December 31,
		2008				2007
(In thousands)
Operating properties		$	295,784			$	345,576
Identified intangible assets and other assets			64,727				85,758
Total assets		$	360,511			$	431,334
Mortgage loans payable		$	272,972			$	348,520
Liabilities of properties held for sale			11,579				18,711
Total liabilities		$	284,551			$	367,231

     In instances when the Company expects to have significant ongoing cash flows or significant continuing involvement in the component beyond the date of sale, the income (loss) from certain properties held for sale continue to be fully recorded within the continuing operations of the Company through the date of sale.

     The net results of discontinued operations and the net gain on dispositions of properties sold or classified as held for sale as of March 31, 2008, in which the Company has no significant ongoing cash flows or significant continuing involvement, are reflected in the consolidated statement of operations as discontinued operations. The Company will

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

receive certain fee income from these properties on an ongoing basis that is not considered significant when compared to the operating results of such properties.

     The following table summarizes the income and expense components that comprised discontinued operations, net of taxes, for the three months ended March 31, 2008 and 2007:

		Three Months Ended
		March 31,
		2008				2007
(In thousands)
Rental income		$	1,220			$	5,195
Rental expense			(551	)			(2,468	)
Interest expense (including amortization of deferred financing costs)			(883	)			(3,096	)
Tax benefit			90				149
Loss from discontinued operations-net of taxes			(124	)			(220	)
Gain on disposal of discontinued operations-net of taxes			73				60
Total loss from discontinued operations		$	(51	)		$	(160	)

     During the quarter ended March 31, 2008, the Company contributed certain assets and liabilities related to properties held for sale to investments in joint ventures. These non-cash transactions resulted in a reduction of restricted cash of approximately $10.9 million, a reduction of properties held for sale of approximately $73.6 million, a reduction in mortgage loans payable secured by properties held for sale of approximately $74.2 million, a decrease in other assets of approximately $1.5 million and an increase in investments in unconsolidated entities of approximately $11.8 million.

15. COMMITMENTS AND CONTINGENCIES

      Operating Leases — The Company has non-cancelable operating lease obligations for office space and certain equipment ranging from one to ten years, and sublease agreements under which the Company acts as sublessor.

     The office space leases often times provide for annual rent increases, and typically require payment of property taxes, insurance and maintenance costs.

      Rent expense under these operating leases approximated $5.9 million and $807,000 for the three months ended March 31, 2008 and 2007, respectively. Rent expense is included in general and administrative expense in the accompanying consolidated statements of operations.

      Operating Leases — Other — The Company is a master lessee of seven multi-family residential properties in various locations under non-cancelable leases. The leases, which commenced in various months and expire from June 2015 through March 2016, require minimum monthly payments averaging $795,000 over the 10-year period. Rent expense under these operating leases approximated $2.2 million and $1.2 million for three months ended March 31, 2008 and 2007, respectively.

     The Company subleases this residential space to third parties. Rental income from these subleases was $4.2 million and $2.2 million for the three months ended March 31, 2008 and 2007, respectively. As residential leases are executed for no more than one year, the Company is unable to project the future minimum receivable related to these leases.

      Capital Lease Obligations — The Company leases computers, copiers, and postage equipment that are accounted for as capital leases (see Note 10 of Notes to Consolidated Financial Statements for additional information).

      SEC Investigation — On September 16, 2004, Triple Net Properties, which became a subsidiary of Grubb & Ellis as part of the merger with NNN, learned that the SEC Los Angeles Enforcement Division (the “SEC Staff”), is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC Staff requested information from Triple Net Properties relating to disclosure in public and private securities offerings sponsored by Triple Net Properties and its affiliates prior to 2005 ( Triple Net Securities Offerings”). The SEC Staff also requested information from Capital Corp., the dealer-manager for the Triple Net Securities Offerings. Capital Corp. also became a subsidiary of Grubb & Ellis as part of the merger with NNN. The SEC Staff requested financial and other information regarding the Triple Net Securities Offerings and the disclosures included in the related offering documents from each of Triple Net Properties and Capital Corp. Triple Net Properties and Capital Corp. believe they have cooperated fully with the SEC Staff’s investigation.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

     Triple Net Properties and Capital Corp. are engaged in settlement negotiations with the SEC staff regarding this matter. Based on these negotiations, management believes that the conclusion to this matter will not result in a material adverse affect to its results of operations, financial condition or ability to conduct its business. NNN accrued a loss contingency of $600,000 at December 31, 2006 on behalf of Triple Net Properties and Capital Corp. on a consolidated basis. The $600,000 is being held in escrow pending final approval of the settlement agreement.

     To the extent that Triple Net Properties and Capital Corp pay the SEC an amount in excess of $1.0 million in connection with any settlement or other resolution of this matter, Anthony W. Thompson, NNN’s founder and former Chairman of the Board, has agreed to forfeit to NNN up to 1,064,800 shares of the Company’s common stock. In connection with this arrangement, NNN entered into an escrow agreement with Mr. Thompson and an independent escrow agent, pursuant to which the escrow agent holds these 1,064,800 shares of common stock that are otherwise issuable to Mr. Thompson in connection with the NNN formation transactions to secure Mr. Thompson’s obligations to NNN. Mr. Thompson’s liability under this arrangement will not exceed the value of the shares in the escrow.

      General

     The Company is involved in various claims and lawsuits arising out of the ordinary conduct of its business, as well as in connection with its participation in various joint ventures and partnerships, many of which may not be covered by the Company’s insurance policies. In the opinion of management, the eventual outcome of such claims and lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

      Guarantees — From time to time the Company provides guarantees of loans for properties under management. As of March 31, 2008, there were 146 properties under management with loan guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion at March 31, 2008. As of December 31, 2007, there were 143 properties under management with loan guarantees of approximately $3.4 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion at December 31, 2007.

     The Company’s guarantees consisted of the following as of March 31, 2008 and December 31, 2007:

		March 31,				December 31,
		2008				2007
(In thousands)
Non-recourse/carve-out guarantees of debt of properties under management(1)		$	3,290,711			$	3,167,447
Non-recourse/carve-out guarantees of the Company’s debt(1)			138,472				221,430
Guarantees of the Company’s mezzanine debt			14,000				48,790
Recourse guarantees of debt of properties under management			32,275				47,399
Recourse guarantees of the Company’s debt			10,000				10,000

     Management evaluates these guarantees to determine if the guarantee meets the criteria required to record a liability in accordance with FIN No. 45. The liability was insignificant as of March 31, 2008 and December 31, 2007.

      Environmental Obligations — In the Company’s role as property manager, it could incur liabilities for the investigation or remediation of hazardous or toxic substances or wastes at properties the Company currently or formerly managed or at off-site locations where wastes were disposed. Similarly, under debt financing arrangements on properties owned by sponsored programs, the Company has agreed to indemnify the lenders for environmental liabilities and to remediate any environmental problems that may arise. The Company is not aware of any environmental liability or unasserted claim or assessment relating to an environmental liability that the Company believes would require disclosure or the recording of a loss contingency.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

      Real Estate Licensing Issues — Although Realty was required to have real estate licenses in all of the states in which it acted as a broker for NNN’s programs and received real estate commissions prior to 2007, Realty did not hold a license in certain of those states when it earned fees for those services. In addition, almost all of Triple Net Properties’ revenue was based on an arrangement with Realty to share fees from NNN’s programs. Triple Net Properties did not hold a real estate license in any state, although most states in which properties of the NNN’s programs were located may have required Triple Net Properties to hold a license. As a result, Realty and the Company may be subject to penalties, such as fines (which could be a multiple of the amount received), restitution payments and termination of management agreements, and to the suspension or revocation of certain of Realty’s real estate broker licenses. To date there have been no claims, and the Company cannot assess or estimate whether it will incur any losses as a result of the foregoing.

     To the extent that the Company incurs any liability arising from the failure to comply with real estate broker licensing requirements in certain states, Mr. Thompson, Mr. Rogers and Mr. Hanson have agreed to forfeit to the Company up to an aggregate of 4,124,120 shares of the Company’s common stock, and each share will be deemed to have a value of $11.36 per share in satisfying this obligation. Mr. Thompson has agreed to indemnify the Company, to the extent the liability incurred by the Company for such matters exceeds the deemed $46,865,000 value of these shares, up to an additional $9,435,000 in cash. In connection with this arrangement, NNN has entered into an indemnification and escrow agreement with Mr. Thompson, Mr. Rogers, Mr. Hanson, an independent escrow agent and NNN, pursuant to which the escrow agent will hold 4,124,120 shares of the Company’s common stock that are otherwise issuable to Mr. Thompson and Mr. Rogers in connection with the NNN’s formation transactions (2,885,520 shares for Mr. Thompson and 1,238,600 shares for Mr. Rogers) to secure Mr. Thompson’s and Mr. Rogers’ obligations to the Company with respect to these matters. Mr. Thompson’s and Mr. Rogers’ liability under this arrangement will not exceed the sum of the value of their shares in the escrow except to the extent Mr. Thompson may be obliged to indemnify the Company for excess liabilities up to an additional $9,435,000 in cash. Since Mr. Hanson is entitled over time to receive up to 743,160 shares from Messrs. Thompson and Rogers (557,370 from Mr. Thompson and 185,790 from Mr. Rogers) from the shares held in the indemnification and escrow agreement, he is a party to it as well and his liability is limited to those shares. These indemnification agreements remain in place until November 16, 2009. In the event that Mr. Hanson’s right to receive his shares vests prior to the expiration of the indemnification agreements, then to the extent shares attributable to his ownership are available, and not subject to potential claims, under the indemnification and escrow agreement, he will be permitted to remove 88,000 shares on each of January 1, 2008 and 2009 to pay taxes.

16. EARNINGS PER SHARE

     The Company computes earnings per share in accordance with SFAS No. 128, Earnings Per Share (“SFAS No. 128”). Under the provisions of SFAS No. 128, basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period less unvested restricted shares. Diluted net income (loss) per share is computed using the weighted-average number of common and common equivalent shares of stock outstanding during the periods utilizing the treasury stock method for stock options and unvested restricted stock.

     On December 7, 2007, pursuant to the Merger Agreement (i) each issued and outstanding share of common stock of NNN was automatically converted into 0.88 of a share of common stock of the Company, and (ii) each issued and outstanding stock option of NNN, exercisable for common stock of NNN, was automatically converted into the right to receive a stock option exercisable for common stock of the Company based on the same 0.88 share conversion ratio.

     Unless otherwise indicated, all pre-merger NNN share data have been adjusted to reflect the 0.88 conversion as a result of the Merger.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

     The following is a reconciliation between weighted-average shares used in the basic and diluted earnings per share calculations:

		Three Months Ended
		March 31,
		2008				2007
(In thousands, except per share amounts)
Numerator:
(Loss) income from continuing operations, net of tax		$	(5,817	)		$	3,797
Loss from discontinued operations, net of tax			(51	)			(160	)
Net (loss) income		$	(5,868	)		$	3,637
Denominator:
Denominator for basic earnings per share:
Weighted-average number of common shares outstanding			63,521				36,910	(1)
Effect of dilutive securities:
Non-vested restricted stock			—	(2)			39	(1)(2)
Denominator for diluted net income per share:
Weighted-average number of common and common equivalent shares outstanding			63,521				36,949
Basic earnings per share
(Loss) income from continuing operations, net of tax		$	(0.09	)		$	0.10
Loss from discontinued operations, net of tax			—				—
Basic (loss) earnings per share		$	(0.09	)		$	0.10
Diluted earnings per share
(Loss) income from continuing operations, net of tax		$	(0.09	)		$	0.10
Loss from discontinued operations, net of tax			—				—
Diluted (loss) earnings per share		$	(0.09	)		$	0.10

17. COMPREHENSIVE (LOSS) INCOME

     The components of comprehensive income (loss), net of tax, are as follows (in thousands):

		Three Months Ended
		March 31,
		2008				2007
Net (loss) income		$	(5,868	)		$	3,637
Other comprehensive (loss) income:
Net unrealized loss on investments, net of taxes			(51	)			(13	)
Elimination of net unrealized loss on investment in GERA warrants			223				—
Total comprehensive (loss) income		$	(5,696	)		$	3,624

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

18. OTHER RELATED PARTY TRANSACTIONS

      Due to Related Parties — The Company, through its consolidated subsidiaries Grubb & Ellis Apartment REIT Advisor, LLC, and Grubb & Ellis Healthcare REIT Advisor, LLC, bears certain general and administrative expenses in its capacity as advisor of Apartment REIT and Healthcare REIT, and is reimbursed for these expenses. However, Apartment REIT and Healthcare REIT will not reimburse the Company for any operating expenses that, in any four consecutive fiscal quarters, exceed the greater of 2.0% of average invested assets (as defined in their respective advisory agreements) or 25.0% of the respective REIT’s net income for such year, unless the board of directors of the respective REITs approve such excess as justified based on unusual or nonrecurring factors. All unreimbursable amounts are expensed by the Company.

      Management Fees — The Company provides both transaction and management services to parties which are related to a principal stockholder and director of the Company, or Kojaian affiliated entities (collectively, “Kojaian Companies”). In addition, the Company also paid asset management fees to the Kojaian Companies related to properties the Company manages on their behalf. Revenue, including reimbursable expenses related to salaries, wages and benefits, earned by the Company for services rendered to these affiliates, including joint ventures, officers and directors and their affiliates, was $1.8 million for the three months ended March 31, 2008. No such services were rendered in the three months ended March 31, 2007.

      Other Related Party — GERI, which is wholly owned by the Company, owns a 50.0% managing member interest in Grubb & Ellis Apartment REIT Advisor, LLC. Grubb & Ellis Apartment Management, LLC owns a 25.0% equity interest in Grubb & Ellis Apartment REIT Advisor, LLC and each of Scott D. Peters, the Company’s Chief Executive Officer and President, Louis J Rogers, former President of GERI and former director of NNN, and Andrea R. Biller, the Company’s General Counsel, Executive Vice President and Secretary, received an equity interest of 18.0% of Grubb & Ellis Apartment Management, LLC. GERI owns the remaining 64.0% membership interest.

     GERI owns a 75.0% managing member interest in Grubb & Ellis Healthcare REIT Advisor, LLC. Grubb & Ellis Healthcare Management, LLC owns a 25.0% equity interest in Grubb & Ellis Healthcare REIT Advisor, LLC and each of Mr. Peters, Ms. Biller and Jeffery T. Hanson, the Company’s Chief Investment Officer and GERI’s President, received an equity interest of 18.0% of Grubb & Ellis Healthcare Management, LLC. GERI owns the remaining 46.0% membership interest.

     Anthony W. Thompson, former Chairman of the Company and NNN, as a special member, was entitled to receive up to $175,000 annually in compensation from each of Grubb & Ellis Apartment Management, LLC and Grubb & Ellis Healthcare Management, LLC. Effective February 8, 2008 upon his resignation as Chairman, he is no longer a special member. As part of his resignation, the Company has agreed to continue to pay him up to an aggregate of $569,000, which was accrued as of March 31, 2008, through the offering periods related to Grubb & Ellis Apartment REIT, Inc. and Grubb & Ellis Healthcare REIT, Inc.

     The grants of these membership interests in Grubb & Ellis Apartment Management, LLC and Grubb & Ellis Healthcare Management, LLC to certain executives are being accounted for by the Company as a profit sharing arrangement. Compensation expense is recorded by the Company when the likelihood of payment is probable and the amount of such payment is estimable, which generally coincides with Grubb & Ellis Apartment REIT Advisor, LLC and Grubb & Ellis Healthcare REIT Advisor, LLC recording its revenue. Compensation expense related to this profit sharing arrangement associated with Grubb & Ellis Apartment Management, LLC includes distributions based on membership interests of $30,000 earned by each of Mr. Peters and Ms. Biller from Grubb & Ellis Apartment Management, LLC for the three months ended March 31, 2008. Compensation expense related to this profit sharing arrangement associated with Grubb & Ellis Healthcare Management, LLC includes distributions based on membership interests of $44,000 earned by Mr. Thompson for the three months ended March 31, 2007 and $107,000 and $42,000 earned by each of Messrs. Peters and Hanson and Ms. Biller for the three months ended March 31, 2008 and 2007, respectively.

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

     As of March 31, 2008 and December 31, 2007, the remaining 64.0% equity interest in Grubb & Ellis Apartment Management, LLC and the remaining 46.0% equity interest in Grubb & Ellis Healthcare Management, LLC was owned by GERI; however, the operating agreements require that any allocable earnings attributable to GERI’s ownership interests be paid to GERI on a quarterly basis to be used for compensation to its employees or other individuals associated with GERI and its affiliates. As such, Grubb & Ellis Apartment Management, LLC incurred $42,000 for the three months ended March 31, 2008 and Grubb & Ellis Healthcare Management, LLC incurred $158,000 and $107,000 for the three months ended March 31, 2008 and 2007, respectively, to other Company employees, which was included in compensation expense in the consolidated statement of operations.

     G REIT, Inc. had agreed to pay Mr. Peters and Ms. Biller, retention bonuses in connection with its stockholder approved liquidation of $50,000 and $25,000, respectively, upon the filing of each of G REIT’s annual and quarterly reports with the SEC during the period of the liquidation process, beginning with the annual report for the year ending December 31, 2005. These retention bonuses were agreed to by the independent directors of G REIT and approved by the stockholders of G REIT in connection with G REIT’s stockholder approved liquidation. As of March 31, 2008, Mr. Peters and Ms. Biller have received retention bonuses of $200,000 and $100,000 from G REIT, respectively. On January 28, 2008, G REIT’s remaining assets and liabilities were transferred to G REIT Liquidating Trust. Effective January 30, 2008, and March 4, 2008, respectively, Mr. Peters and Ms. Biller irrevocably waived their rights to receive all future retention bonuses from G REIT Liquidating Trust. Additionally, Mr. Peters and Ms. Biller, each received a performance-based bonus of $100,000 upon the receipt by GERI of net commissions aggregating $5,000,000 or more from the sale of G REIT properties in March 2007.

     The Company’s directors and officers, as well as officers, managers and employees have purchased, and may continue to purchase, interests in offerings made by the Company’s programs at a discount. The purchase price for these interests reflects the fact that selling commissions and marketing allowances will not be paid in connection with these sales. The net proceeds to the Company from these sales made net of commissions will be substantially the same as the net proceeds received from other sales.

     The Company has outstanding advances totaling $678,000 and $1.0 million as of March 31, 2008 and December 31, 2007, respectively, to Colony Canyon, a property 30.0% owned by Mr. Thompson. The advances bear interest at 10.0% per annum and are required to be repaid within one year (although the repayments can and have been extended from time to time).

19. INCOME TAXES

     The components of income tax expense (benefit) from continuing operations for the three months ended March 31, 2008 and 2007 consisted of the following:

		Three Months Ended
		March 31,
(In thousands)		2008				2007
Current:
Federal		$	(3,978	)		$	3,238
State			(134	)			773
			(4,112	)			4,011
Deferred:
Federal			73				(1,283	)
State			(107	)			(239	)
			(34	)			(1,522	)
		$	(4,146	)		$	2,489

     The Company recorded prepaid taxes totaling approximately $7.1 million as of March 31, 2008, comprised primarily of prepaid tax estimates.

     Grubb & Ellis Company generated a federal net operating loss (NOL) of approximately $8.2 million for the taxable period of the acquired entity ending on the merger date. This NOL carryforward is subject to an annual limitation under IRC section 382 because the merger caused a change of ownership of the Company of greater than

GRUBB & ELLIS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) — Continued

50.0%. The annual limitation is approximately $7.3 million. At March 31, 2008, federal net operating loss carryforwards were available to the Company in the amount of approximately $9.1 million which expire from 2008 to 2027.

     In evaluating the need for a valuation allowance at March 31, 2008, the Company evaluated both positive and negative evidence in accordance with the requirements of SFAS No. 109, “Accounting for Income Taxes”. Given the historical earnings of the Company, management believes that it is more likely than not that the entire federal net operating loss of $9.1 million will be used in the foreseeable near future, and therefore has recorded no valuation allowance against the related deferred tax asset. As of the date of the merger, Grubb & Ellis Company also had state net operating loss carryforwards, although a substantial portion of these deferred assets were offset by a valuation allowance, totaling $3.0 million as the future utilization of these state NOLs is uncertain.

     The differences between the total income tax provision or (benefit) of the Company for financial statement purposes and the income taxes computed using the applicable federal income tax rate of 35.0% for the three months ended March 31, 2008 and 2007 were as follows (in thousands):

		Three Months Ended
		March 31,
(In thousands)		2008				2007
Federal income taxes at the statutory rate		$	(3,487	)		$	2,138
State income taxes net of federal benefit			(506	)			333
Credits			38				—
Non-deductible expenses			(220	)			18
Other			29				—
		$	(4,146	)		$	2,489

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

Forward-Looking Statements

     This Interim Report contains statements that are not historical facts and constitute projections, forecasts or forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements are not guarantees of performance. They involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company in future periods to be materially different from any future results, performance or achievements expressed or suggested by these statements. You can identify such statements by the fact that they do not relate strictly to historical or current facts. These statements use words such as “believe,” “expect,” “should,” “strive,” “plan,” “intend,” “estimate” and “anticipate” or similar expressions. When we discuss strategy or plans, we are making projections, forecasts or forward-looking statements. Actual results and stockholder’s value will be affected by a variety of risks and factors, including, without limitation, international, national and local economic conditions and real estate risks and financing risks and acts of terror or war. Many of the risks and factors that will determine these results and values are beyond the Company’s ability to control or predict. These statements are necessarily based upon various assumptions involving judgment with respect to the future. All such forward-looking statements speak only as of the date of this Report. The Company expressly disclaims any obligation or undertaking to release publicly any updates of revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Factors that could adversely affect the Company’s ability to obtain these results and value include, among other things: (i) the volume of transactions and prices for real estate in the real estate markets generally, (ii) a general or regional economic downturn that could create a recession in the real estate markets, (iii) the Company’s debt level and its ability to make interest and principal payments, (iv) an increase in expenses related to new initiatives, investments in people, technology, and service improvements, (v) the Company’s ability to implement, and the success of, new initiatives and investments, including expansion into new specialty areas and integration of the Company’s business units, (vi) the ability of the Company to consummate acquisitions and integrate acquired companies and assets, and (vii) other factors described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed on March 17, 2008.

Overview and Background

     In certain instances throughout this Interim Report phrases such as “legacy Grubb & Ellis” or similar descriptions are used to reference, when appropriate, the Company prior to the Merger. Similarly, in certain instances throughout this Interim Report the term NNN, “legacy NNN”, or similar phrases are used to reference, when appropriate, NNN Realty Advisors, Inc. prior to the Merger.

     Grubb & Ellis Company (the “Company”), is a commercial real estate services and investment management firm. On December 7, 2007, NNN Realty Advisors, Inc. (“NNN”) effected a stock merger (the “Merger”) with the legacy Grubb & Ellis Company, a 50 year old commercial real estate services firm. Upon the closing of the Merger, a change of control of the Company occurred, as the former stockholders of legacy NNN acquired approximately 60% of the Company’s issued and outstanding common stock. Pursuant to the Merger, each issued and outstanding share of legacy NNN automatically converted into a 0.88 of a share of common stock of the Company. Based on accounting principles generally accepted in the United States of America (“GAAP”), the Merger was accounted for using the purchase method of accounting, and although structured as a reverse merger, legacy NNN is considered the accounting acquirer of legacy Grubb & Ellis. As a consequence, the operating results for the three months ended March 31, 2008 reflect the consolidated results of the newly merged company while the three months ended March 31, 2007 include solely the operating results of legacy NNN.

     Unless otherwise indicated, all pre-merger NNN share data have been adjusted to reflect the conversion as a result of the Merger.

     NNN is a real estate investment management company and sponsor of tax deferred tenant in common (“TIC”) 1031 property exchanges as well as a sponsor of public non-traded real estate investment trusts (“REITs”) and other investment programs. Pursuant to the merger, the Company now sponsors real estate investment programs under the Grubb & Ellis brand, Grubb & Ellis Realty Investors, LLC (“GERI”) (formerly Triple Net Properties, LLC), to provide investors with the opportunity to engage in tax-deferred exchanges of real property and to invest in other

real estate investment vehicles, and continues to offer full-service real estate asset management services. GERI raises capital for these programs through an extensive network of broker-dealer relationships. GERI structures, acquires, manages and disposes of real estate for these programs, earning fees for each of these services.

     Legacy Grubb & Ellis business units provide a full range of real estate services, including transaction services, which comprises its brokerage operations, and management and consulting services for both local and multi-location clients, which includes third-party property management, corporate facilities management, project management, client accounting, business services and engineering services.

Critical Accounting Policies

     A discussion of the Company’s critical accounting policies, which include principles of consolidation, revenue recognition, impairment of goodwill, deferred taxes and insurance and claims reserves, can be found in the Annual Report on Form 10-K for the year ended December 31, 2007. There have been no material changes to these policies in 2008.

Recently Issued Accounting Pronouncement

     In September 2006, the FASB issued Statement No. 157 (“SFAS No. 157”), Fair Value Measurements . SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value instruments. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (the “FSP”). The FSP amends SFAS No. 157 to delay the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually). There was no affect on the Company’s consolidated financial statements as a result of the adoption of SFAS No. 157 as of January 1, 2008 as it relates to financial assets and financial liabilities. For items within its scope, the FSP defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company will adopt SFAS No. 157 as it relates to non-financial assets and non-financial liabilities in the first quarter of 2009 and does not believe adoption will have a material effect on its consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company will adopt SFAS No. 161 in the first quarter of 2009 and does not believe the adoption will have a material effect on its consolidated financial statements.

RESULTS OF OPERATIONS

Overview

     The Company reported revenue of $160.6 million for the three months ended March 31, 2008, compared with revenue of $31.7 million for the same period of 2007. Approximately $126.3 million of the increase was attributed to revenue from legacy Grubb & Ellis’ Transaction Services and Management Services businesses and the operations of the assets warehoused for GERA. The remaining $2.6 million of the increase was attributed to legacy NNN’s Investment Management business, including $6.0 million from increased rental related revenue, offset primarily by a decrease of $3.2 million in disposition fees resulting from the liquidation of G REIT and the sale of its properties for the three months ended March 31, 2007. The Company completed a total of 20 acquisitions and two dispositions on behalf of the investment programs it sponsors at values of $348.9 million and $36.1 million, respectively, during the three months ended March 31, 2008. The net acquisitions from the Investment Management business allowed the Company to grow its captive assets under management by more than 6.1% during 2008. At

March 31, 2008, the value of the Company’s assets under management was in excess of $6.1 billion, compared to $5.8 billion at December 31, 2007.

     The Company reported an operating loss of $4.1 million for the three months ended March 31, 2008, which was attributable to a number of expense factors, most of which were directly related to the assets held for sale. These expenses included $2.9 million of merger related costs, $5.0 million of interest expense for the assets held for sale, and $1.5 million of amortization expense associated with the assets held for sale and merger related intangible assets. These expenses were partially offset by the operating results of the real estate held for sale.

     The Company’s net loss of $5.9 million included a $5.8 million net write-off of its investment in GERA.

     As a result of the Merger in December 2007, the newly combined Company’s operating segments were evaluated for reportable segments. As a result, the legacy NNN reportable segments were realigned into a single operating and reportable segment called Investment Management. This realignment had no impact on the Company’s consolidated balance sheet, results of operations or cash flows.

     The Company reports its revenue by three business segments in accordance with the provisions of Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”). Transaction Services, which comprises its real estate brokerage operations; Investment Management which includes providing acquisition, financing and disposition services with respect to its programs, asset management services related to its programs, and dealer-manager services by its securities broker-dealer, which facilitates capital raising transactions for its TIC, REIT and other investment programs; and Management Services, which includes property management, corporate facilities management, project management, client accounting, business services and engineering services for unrelated third parties and the properties owned by the programs it sponsors. Additional information on these business segments can be found in Note 13 of Notes to Consolidated Financial Statements in Item 1 of this Report.

      Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007

     The following summarizes comparative results of operations for the periods indicated.

		Three Months Ended
		March 31,								Change
(In thousands)		2008				2007(1)				$				%
Revenue
Transaction services		$	59,148			$	—			$	59,148				—	%
Investment management			26,092				29,465				(3,373	)			(11.5	)
Management services			61,756				—				61,756				—
Rental related			13,628				2,283				11,345				496.9
Total revenue			160,624				31,748				128,876				405.9
Operating Expense
Compensation costs			120,334				13,591				106,743				785.3
General and administrative			21,625				9,264				12,361				133.5
Depreciation and amortization			5,057				514				4,543				883.9
Rental related			9,139				2,398				6,741				281.1
Interest			5,742				536				5,206				971.3
Merger related costs			2,869				—				2,869				—
Total operating expense			164,766				26,303				138,463				526.4
Operating (Loss) Income			(4,142	)			5,445				(9,587	)			(176.1	)
Other (Expense) Income
Equity in (losses) earnings of unconsolidated entities			(6,014	)			169				(6,183	)			(3,658.6	)
Interest income			237				541				(304	)			(56.2	)
Other			(546	)			138				(684	)			(495.7	)
Total other (expense) income			(6,323	)			848				(7,171	)			(845.6	)
(Loss) income from continuing operations before minority interest and income tax benefit (provision)			(10,465	)			6,293				(16,758	)			(266.3	)

		Three Months Ended
		March 31,								Change
(In thousands)		2008				2007(1)				$				%
Minority interest in loss (income) of consolidated entities			502				(7	)			509				7271.4
(Loss) income from continuing operations before income tax benefit (provision)			(9,963	)			6,286				(16,249	)			(258.5	)
Income tax benefit (provision)			4,146				(2,489	)			6,635				266.6
(Loss) income from continuing operations			(5,817	)			3,797				(9,614	)			(253.2	)
Discontinued Operations
Loss from discontinued operations — net of taxes			(124	)			(220	)			96				43.6
Gain on disposal of discontinued operations — net of taxes			73				60				13				21.7
Total loss from discontinued operations			(51	)			(160	)			109				68.1
Net (Loss) Income		$	(5,868	)		$	3,637			$	(9,505	)			(261.3	)

Revenue

Transaction and Management Services Revenue

     The Company earns revenue from the delivery of transaction and management services to the commercial real estate industry. Transaction fees include commissions from leasing, acquisition and disposition, and agency leasing assignments as well as fees from appraisal and consulting services. Management fees, which include reimbursed salaries, wages and benefits, comprise the remainder of the Company’s services revenue, and include fees related to both property and facilities management outsourcing as well as project management and business services. Following the close of the merger, Grubb & Ellis Management Services assumed management of nearly 25.7 million square feet of NNN’s 42.9 million-square-foot captive investment management portfolio. At March 31, 2008, the Company managed approximately 218 million square feet of property.

Investment Management Revenue

     Investment management revenue of $26.1 million for the three months ended March 31, 2008 reflected the revenue generated through the fee structure of the various investment products, which included transaction related fees of $13.1 million, captive management fees of $10.3 million and dealer-manager fees of $2.7 million. These fees include acquisition, disposition, financing, asset management, placement, broker-dealer and other fees. Key drivers of this business are the dollar value of equity raised, the amount of transactions that are generated in the investment product platforms and the amount of square footage of assets under management.

     In total, $263.7 million in equity was raised for the Company’s investment programs for the three months ended March 31, 2008, compared with $144.4 million in the same period in 2007. The increase was driven by the Company’s new Wealth Management platform, with $137.4 million raised for high quality real estate investments on behalf of investors, as well as an increase in equity raised by the Company’s non-traded public REITs. During the three months ended March 31, 2008, the Company’s non-traded public REIT programs raised $74.2 million, nearly double the equity raised in the same period in 2007. The Company’s tenant-in-common 1031 exchange programs raised $52.1 million in equity during the first quarter of 2008, compared with $103.8 million in the same period in 2007. The equity raised for the three months ended March 31, 2008 reflects current market conditions.

     Acquisition fees increased approximately $2.9 million, or 36.3%, to approximately $10.8 million for the three months ended March 31, 2008, compared to approximately $7.9 million for the same period in 2007. Net fees as a percentage of aggregate acquisition price increased to 3.1% for the three months ended March 31, 2008, compared to 2.0% for the same period in 2007. The year-over-year increase in the net acquisition fee percentage was primarily attributed to a $2.8 million net change in deferred fees which positively impacted the first three months of 2008. During the three months ended March 31, 2008, the Company acquired 20 properties on behalf of its sponsored programs for an approximate aggregate total of $348.9 million, compared to 17 properties (including two which were consolidated) for an approximate aggregate total of $397.5 million during the same period in 2007.

     Disposition fees decreased approximately $3.2 million, or 90.9%, to approximately $320,000 for the three months ended March 31, 2008, compared to approximately $3.5 million for the same period in 2007. The decrease reflects lower sales volume with approximately $743,000 in net fees realized at a rate of 3.4% of aggregate sales price of $36.1 million for the three months ended March 31, 2008. This compares to $3.5 million in fees realized at a rate of 1.7% of aggregate sales price of $254.2 million from the disposition of six properties for the same period in 2007, with an average sales price of $42.4 million per property, which includes $3.2 million of fees from properties sold in connection with the liquidation of G REIT, Inc. in 2007. Further reducing the disposition fees during the three months ended March 31, 2008 and 2007 was $422,000 and $807,000, respectively, of amortization of identified intangible contract rights associated with the acquisition of Realty as they represent the right to future disposition fees of a portfolio of real properties under contract.

     Organization & marketing (OMEA) fees decreased approximately $1.1 million, or 48.5%, to $1.1 million for the three months ended March 31, 2008, compared to $2.2 million for the same period in 2007. OMEA fees as a percentage of equity raised for the three months ended March 31, 2008 was 2.2%, compared to 2.1% for the same period in 2007. The decrease in OMEA fees earned was primarily due to lower TIC equity raised in 2008 of $52.1 million, compared to $103.8 million in TIC equity raised for the same period in 2007.

     Captive management fees were relatively flat year-over-year after a shift of approximately $4.0 million of revenue to the Company’s management services segment.

Rental Revenue

     Rental revenue includes revenue from the warehousing of properties held for sale primarily to the Company’s Investment Management programs. These line items also include pass-through revenue for the master lease accommodations related to the Company’s TIC programs.

Operating Expense Overview

     Included in the Company’s operating expense of $164.8 million for the three months ended March 31, 2008 was $2.9 million of merger related costs, $4.8 million of interest expense for five assets held for sale, and $1.5 million of amortization expense associated with two of the assets held for sale and merger related intangible assets.

     The total increase in operating expense of $138.5 million, or 526.4%, for the three months ended March 31, 2008, compared to the same period in 2007, included $130.0 million due to the legacy Grubb & Ellis business and $2.9 million was due to additional merger related costs. The remaining $5.6 million of the increase was attributed to legacy NNN’s Investment Management business, including $3.6 million in rental related expense, $1.1 million in non-cash stock based compensation, $929,000 in depreciation and amortization and $3.1 million in interest expense activity primarily related to two properties held for sale.

Compensation Costs

     Compensation costs increased $106.7 million, or 785.3%, to $120.3 million for the three months ended March 31, 2008, compared to $13.6 million for the same period in 2007 due to approximately $107.0 million of compensation costs attributed to legacy Grubb & Ellis’ operations. Compensation costs related to the investment management business decreased 1.8% to $13.3 million, for the three months ended March 31, 2008, compared to $13.6 million for the same period in 2007 primarily as a result of the transfer of certain on-site property management professionals to the Grubb & Ellis Management business subsequent to the merger. Non-cash stock compensation expense

increased by $1.1 million to $2.5 million for the three months ended March 31, 2008 compared to $1.4 million for the same period in 2007.

General and Administrative

     General and administrative expense increased $12.4 million, or 133.5%, to $21.6 million for the three months ended March 31, 2008, compared to $9.3 million for the same period in 2007 due to approximately $14.0 million of general and administration expenses attributed to legacy Grubb & Ellis operations, partially offset by a $1.7 million decrease related to the investment management business, primarily due to a $1.0 million decrease in legal fees.

     General and administrative expense was 13.4% of total revenue for the three months ended March 31, 2008, compared with 29.2% for the same period in 2007.

Depreciation and Amortization

     Depreciation and amortization increased $4.5 million, or 883.9%, to $5.1 million for the three months ended March 31, 2008, compared to $514,000 for the same period in 2007. Approximately $3.6 million was attributed to depreciation and amortization expense from the legacy Grubb & Ellis operations. The remaining $929,000 of the increase was related to the investment management business, which increased to $1.4 million for the three months ended March 31, 2008, compared to $514,000 for the same period in 2007, primarily related to two properties held for sale that were previously held for investment on the balance sheet.

Rental Expense

     Rental expense includes the related expense from the warehousing of properties held for sale primarily to the Company’s Investment Management programs. These line items also include pass-through expenses for master lease accommodations related to the Company’s TIC programs.

Interest Expense

     Interest expense increased $5.2 million, or 971.3%, to $5.7 million for the three months ended March 31, 2008, compared to $536,000 for the same period in 2007. Approximately $2.1 million was attributed to interest expense from the legacy Grubb & Ellis operations, which included $1.7 million primarily related to three assets held for sale. The remaining $3.1 million of the increase was related to the investment management business which increased to $3.6 million for the three months ended March 31, 2008, compared to $536,000 for the same period in 2007. The increase in activity was primarily related to two properties held for sale on the balance sheet.

Equity in Earnings (Losses) of Unconsolidated Entities

     In the first quarter of 2008, the Company wrote off its investment in GERA, which resulted in a net impact of $5.8 million, including $4.5 million related to stock and warrant purchases and $1.3 million related to operating advances and third party costs.

Income Tax

     The Company recognized a tax benefit of $4.1 million for the three months ended March 31, 2008, compared to a tax provision of $2.5 million for the same period in 2007. The net $6.6 million decrease in tax expense was primarily a result of the nonrecurring tax benefit primarily due to the write-off of the GERA investment. In addition, the Company is subject to the highest federal income tax rate of 35% for the three months ended 2008, compared to a 34% statutory tax rate for the three months ended March 31, 2007. (See Note 19 of Notes to Consolidated Financial Statements in Item 1 of this Report for additional information.)

Net (Loss) Income

     As a result of the above items, the Company recognized a net loss of $5.9 million, or $0.09 per fully diluted share, which included a $5.8 million net write-off of the GERA investment, $2.9 million of merger related costs,

$4.8 million of interest expense for five assets held for sale, and $1.5 million of amortization expense associated with two of the assets held for sale and merger related intangible assets, for the three months ended March 31, 2008, compared to net income of $3.6 million, or $0.10 per fully diluted share, for the same period in 2007.

Liquidity and Capital Resources

     As of March 31, 2008, cash and cash equivalents decreased by $24.2 million, from a cash balance of $49.1 million as of December 31, 2007. The Company’s operating activities used net cash of $45.4 million, as the Company repaid net liabilities totaling $53.0 million related primarily to incentive compensation and deferred commission payable balances which attained peak levels during the quarter ended December 31, 2007. Other operating activities included cash totaling $7.9 million generated from the Company’s net income, excluding non-cash items. The Company used $9.7 million for net investing activities, primarily due to the Company’s real estate investment activities which used net cash of $14.1 million. The Company also spent $1.5 million on purchases of property and equipment and received $7.0 million of net collections on note and advance receivables. Net financing activities provided cash of $30.9 million, primarily due to borrowings totaling $30.0 million under the Company’s line of credit. Financing activities for the three months ended March 31, 2008 also included net proceeds totaling $4.4 million on mortgage loans related to its real estate investment activities and dividend payments of $1.7 million related to the dividend declared by the Company in December 2007.

     The Company believes that it will have sufficient capital resources to satisfy its liquidity needs over the next twelve-month period. The Company expects to meet its short-term liquidity needs, which may include principal repayments of debt obligations, capital expenditures and dividends to stockholders, through current and retained earnings, borrowings under its $75.0 million line of credit with Deutsche Bank Trust Company and the sale of real estate held for sale. As of March 31, 2008, the Company had $38.0 million outstanding under the credit facility.

     The Company expects to meet its long-term liquidity requirements, which may include investments in various real estate investor programs and institutional funds, through retained cash flow, borrowings under its line of credit, additional long-term secured and unsecured borrowings and proceeds from the potential issuance of debt or equity securities.

     As part of the Company’s strategic plan, management has targeted approximately $16.5 million of expense synergies, of which $12.5 million are expected to be realized during the twelve months of 2008.

     In connection with its recent merger, the Company has announced its intention to pay a $0.41 per share dividend per annum, which equates to approximately $26.5 million on an annual basis. The Company declared and paid such dividends for holders of records at the end of each of the fourth calendar quarter of 2007 and the first calendar quarter of 2008. These dividend payments as well as any future dividend payments are subject to quarterly review by the Board of Directors and are limited to 50% of the Company’s trailing twelve months’ Consolidated Net Income plus certain non-cash and other expense items, as defined in the Company’s current line of credit agreement.

     The Company owns properties held for sale totaling approximately $295.8 million at March 31, 2008 in which the Company has in excess of $83.0 million of its equity invested. The assets consist of five properties that were originally purchased for re-sale to an investment company or institutional fund sponsored by the Company. Upon the sale of these assets to a joint venture, third party or other sponsored investment program, the Company expects to recoup a significant amount of this equity and as a result replenish the Company’s cash and cash equivalents.

Commitments, Contingencies and Other Contractual Obligations

Contractual Obligations

     The Company leases office space throughout the country through non-cancelable operating leases, which expire at various dates through February 28, 2017.

     There have been no significant changes in the Company’s contractual obligations since December 31, 2007.

      Off-Balance Sheet Arrangements. From time to time the Company provides guarantees of loans for properties under management. As of March 31, 2008, there were 146 properties under management with loan guarantees of approximately $3.5 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion at March 31, 2008. As of December 31, 2007, there were 143 properties under management with loan guarantees of approximately $3.4 billion in total principal outstanding with terms ranging from one to 10 years, secured by properties with a total aggregate purchase price of approximately $4.6 billion at December 31, 2007.

     The Company’s guarantees consisted of the following as of March 31, 2008 and December 31, 2007:

		March 31,				December 31,
(In thousands)		2008				2007
Non-recourse/carve-out guarantees of debt of properties under management(1)		$	3,290,711			$	3,167,447
Non-recourse/carve-out guarantees of the Company’s debt(1)			138,472				221,430
Guarantees of the Company’s mezzanine debt			14,000				48,790
Recourse guarantees of debt of properties under management			32,275				47,399
Recourse guarantees of the Company’s debt			10,000				10,000