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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the year ended December 31, 2008
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-16785

American Spectrum Realty, Inc.

(Exact name of Registrant as specified in its charter)


State of Maryland (State or other jurisdiction of incorporation or organization)		52-2258674 (I.R.S. Employer Identification No.)
2401 Fountain View, Suite 510 Houston, Texas (Address of principal executive offices)		77057 (Zip Code)

(713) 706-6200

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $.01 par value		NYSE Alternext US

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

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K 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 o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of June 30, 2008, the last business day of the Registrant’s most recent completed second quarter, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $29,685,161. The aggregate market value was computed with reference to the price on the American Stock Exchange at which the voting stock was last sold as of such date. For this purpose, 662,507 shares of Common Stock held by officers and directors are deemed to be held by affiliates but exclusion of shares held by any person should not be construed to indicate that such person is an affiliate of the Registrant for any other purpose.

As of February 28, 2009, 1,404,199 shares of Common Stock ($.01 par value) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Portions of the Registrant’s definitive proxy statement to be issued in connection with the Registrant’s annual stockholder’s meeting to be held May 8, 2009, which will be filed on or before April 30, 2009.

PART I


ITEM 1.	*BUSINESS*

General Description of Business

American Spectrum Realty, Inc. (“ASR” or, collectively, as a consolidated entity with its subsidiaries, the “Company”) is a Maryland corporation established on August 8, 2000. The Company is a full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the Company’s assets are held through an operating partnership (the “Operating Partnership”) in which the Company, as of December 31, 2008, held an interest of 87.12% (consisting of the sole general partner interest and a limited partnership interest). As of December 31, 2008, through its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 29 properties, which consisted of 23 office buildings, five industrial properties and one retail property. The 29 properties are located in five states.

During 2008, the Company acquired a 178,000 square foot office property consisting of two adjacent buildings located in Houston, Texas. Also during 2008, the Company sold Columbia, one of the Company’s non-core properties. Columbia is a 58,783 square foot retail center located in Columbia, South Carolina. During 2007, the Company acquired two industrial parks aggregating 448,000 square feet and a 28,000 square foot retail property. All three properties are located in Houston, Texas. No properties were sold during 2007. The property acquisitions are part of the Company’s strategy to acquire value-added real estate in its core markets of Texas, California and Arizona.

American Spectrum Realty Management, Inc., (“ASRM”) a wholly-owned subsidiary of the Company, has started a third party management and leasing program. The program was initiated to generate additional income without the heavy capital cost for acquisitions. Currently, ASRM leases and manages approximately 1.2 million square feet of office, retail and industrial projects for third parties. ASRM plans to aggressively pursue third party management and leasing opportunities in the Company’s core markets of California, Texas and Arizona.

The Company is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, the Company generally has the exclusive power to manage and conduct the business of the Operating Partnership under its partnership agreement. The Company’s interest in the Operating Partnership entitles it to share in any cash distributions from, and in profits and losses of, the Operating Partnership. If the Company receives any distributions from the Operating Partnership, it intends, in turn, if permitted by law, to pay dividends to its common stockholders in a total amount equal to the total amount of distributions received. The properties are owned by the Operating Partnership through subsidiary limited partnerships or limited liability companies.

Holders, other than the Company, of limited partnership interests in the Operating Partnership (“OP Units”) have the option to redeem their units and to receive, at the option of the Company, in exchange for each four OP Units (i) one share of Common Stock of the Company, or (ii) cash equal to the market value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued. (This four-to-one ratio is the result of the Company’s one-for-four reverse stock split in 2004).

The current credit crisis, related turmoil in the global financial system and the recent downturn in the United States economy may have an impact on the Company’s liquidity and capital resources. The continuation of the credit crisis and/or the downturn economy could adversely affect the Company’s business in a number of ways, including effects on its ability to obtain new mortgages, to refinance current debt and to sell properties.

The Company expects to meet its short-term liquidity requirements for normal property operating expenses and general and administrative expenses from cash generated by operations. The Company also received proceeds of $1,600,000 on December 31, 2008 from the issuance of preferred stock, which may be used as working capital. In addition, the Company expects to incur capital costs related to leasing space and making improvements to properties provided the estimated leasing of space is completed. The Company anticipates meeting these obligations with cash currently held, the use of funds held in escrow by lenders, proceeds from the sale of properties and refinancing activities. There can be no assurance, however, that these activities will occur. If these activities do not occur, the Company will not have sufficient cash to meet its obligations if all leasing projections are met.

Business Objectives and Strategy

The Company’s fundamental business objective is to maximize stockholder value. The Company intends to achieve its business objective through opportunistic investments with effective asset management.

The Company’s future growth will be focused on the acquisition of multi-tenant value-added properties in its high growth core-markets of Texas, Arizona and California. The Company also intends to seek additional third party leasing and property management business in its core-markets. Properties in non-core markets are expected to be sold and the net proceeds redeployed into funding future acquisitions in core markets and to pay for capital expenditures and reduce debt.

Opportunities to Acquire Undervalued and Undermanaged Properties. The Company believes it is positioned to invest in properties, either individually or in portfolios, at attractive prices, often at costs lower than replacement cost. This will be accomplished using the Company’s knowledge of its core geographical markets and core property types, as well as its established capability to identify and negotiate with highly-motivated sellers, which include individuals as well as institutions such as banks, insurance companies and pension funds. The Company will not set a maximum target purchase price but rather it will tailor its acquisitions to under performing properties, which the Company believes are attractively priced generally due to relative physical or operating deficiencies. The Company believes that its real estate expertise will allow it to, when necessary, reposition, renovate or redevelop these properties to make them competitive in their local markets.

Competitive Advantages. The Company believes it has competitive advantages that will enable it to be selective with respect to real estate investment opportunities and allow it to successfully pursue its growth strategy. Based on its management’s experience, the Company expects that its presence in geographically diverse markets will increase its exposure to opportunities for attractive acquisitions of various types of properties throughout its operating region and provide it with competitive advantages which enhance its ability to do so, including:


	•	strong local market expertise;

	•	long-standing relationships with tenants, real estate brokers, institutions and other owners of real estate in each local market;

	•	fully integrated real estate operations which allow quick response to acquisition opportunities;

	•	access to capital markets at competitive rates as a public company;

	•	ability to acquire properties in exchange for ASR shares or OP Units which may make it a more attractive purchaser when compared to purchasers who are not similarly structured or are unable to make similar use of equity to purchase properties.

Property Management Strategies. The Company has procedures and expertise which permit it to manage effectively a variety of types of properties throughout the United States. The decentralized structure with strong local management enables it to operate efficiently. In seeking to maximize revenues, minimize costs and increase the value of the properties, the Company follows aggressive property management policies. Among the property management techniques emphasized are regular and comprehensive maintenance programs, regular and comprehensive financial analyses, the use of a master property and casualty insurance program, aggressive restructuring or conversion of tenant spaces and frequent appearances before property tax assessors, planning commissions and other local governmental bodies. The Company believes that its management of the properties will be a substantial factor in its ability to realize its objectives of maximizing earnings.

Managing and Monitoring Investments. The Company has actively managed the property portfolio and administered its investments. The Company will monitor issues including the financial advantages of property sales, minimization of real estate taxes, and insurance costs. Also, the Company will actively analyze diversification, review tenant financial statements to deal with potential problems quickly and will restructure investments in the case of underperforming and non-performing properties.

Competition

The Company competes with other entities both to locate suitable properties for acquisition and to locate purchasers for its properties. While the markets in which it competes are highly fragmented with no dominant competitors, the Company faces substantial competition in both its leasing and property acquisition activities. There are numerous other similar types of properties located in close proximity to each of its properties. The amount of leasable space available in any market could have a material adverse effect on the Company’s ability to rent space and on the rents charged. Competition for acquisition of existing properties from institutional investors and publicly traded REITs has increased substantially in the past several years. In many of the Company’s markets, institutional investors and owners and developers of properties compete vigorously for the acquisition, development and leasing of space. Many of these competitors have greater resources and more experience than the Company.

Employees

As of December 31, 2008, ASR employed 40 individuals, including on-site property management and maintenance personnel.

Environmental Matters

Various federal, state and local laws and regulations subject property owners and operators to liability for reporting, investigating, remediating, and monitoring of regulated hazardous substances released on or from a property. These laws and regulations often impose strict liability without regard to whether the owner or operator knew of, or actually caused, the release. The presence of, or the failure to properly report, investigate, remediate, or monitor hazardous substances could adversely affect the financial condition of the Company or the ability of the Company to operate the properties. In addition, these factors could hinder the Company’s ability to borrow against the properties. The presence of hazardous substances on a property also could result in personal injury or similar claims by private plaintiffs. In addition, there are federal, state and local laws and regulations which impose requirements on the storage, use, management and disposal of regulated hazardous materials or substances. The failure to comply with those requirements could result in the imposition of liability, including penalties or fines, on the owner or operator of the properties. Future laws or regulations could also impose unanticipated material environmental liabilities on the Company in connection with any of the properties.

The Company is aware that one of its properties may contain hazardous substances above reportable levels. The property is located in the State of Indiana. The Company retained an environmental expert that developed a clean up and monitoring plan that has been approved by the State of Indiana. In 2005, the Company accrued $75,000 for the future environmental cleanup and monitoring, of which the majority has been spent. The Company does not anticipate that remaining clean up costs will be material.

The Company may decide to acquire a property with known or suspected environmental contamination after it evaluates that business risk, the potential costs of investigation or remediation, and the potential costs to cure identified non-compliances with environmental laws or regulations. In connection with its acquisition of properties, the Company may seek to have the seller indemnify it against environmental conditions or non-compliances existing as of the date of purchase, and under appropriate circumstances, it may obtain environmental insurance. In some instances, the Company may become the assignee of or successor to the seller’s indemnification rights arising from the seller’s acquisition agreement for the property. Additionally, the Company may try to structure its leases for the property to require the tenant to assume all or some of the responsibility for environmental compliance and remediation, and to provide that material non-compliance with environmental laws or regulations will be deemed a default under the lease. However, there can be no assurances that, despite these efforts, liability will not be imposed on the Company under applicable federal, state, or local environmental laws or regulations relating to the properties.

Insurance

The Company currently carries comprehensive liability, fire, terrorism, extended coverage and rental loss insurance covering all of its properties, with policy specifications and insured limits which the Company believes are adequate and appropriate under the circumstances. There are, however, types of losses that are not generally

insured because they are either uninsurable or not economically feasible to insure. In addition, costs to carry all of the types of insurance above may not always be economically feasible.

Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose its capital invested in the property, as well as the anticipated future revenues from the property and, in the case of debt which is with recourse to the Company, would remain obligated for any mortgage debt or other financial obligations related to the property. Any such loss would adversely affect the Company. Moreover, the Company will generally be liable for any unsatisfied obligations other than non-recourse obligations. The Company believes that its properties are adequately insured. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future.

The Company filed insurance claims in 2008 related to Hurricane Ike, which affected the greater Houston area in September 2008, and related to a fire at one of its Houston areas properties. The Company has incurred $3,200,000 for property damage related to these matters, which includes actual expenditures incurred in 2008 for repairs and its aggregate insurance deductible of $510,000 related to these claims. The Company has recorded a corresponding receivable for its insurance claims. The Company is still assessing damages related to these claims and is in the process of filing additional claims for damages related to Hurricane Ike. Settlements are expected to be reached during the second quarter of 2009. The Company does not anticipate its total out-of- pocket costs will exceed its $510,000 deductible and related consulting fees.

Capital Expenditures

Capital expenditure requirements include both normal recurring capital expenditures, and tenant improvements and lease commissions relating to the leasing of space to new or renewing tenants. The Company has a history of acquiring properties which required renovation, repositioning or management changes to improve their performance and to enable them to compete effectively. The Company plans to continue to invest in these types of properties. These properties may require major capital expenditures or significant tenant improvements in order to maximize their cash flows.

Acquisitions

In April 2008, the Company acquired a 178,000 square foot office property consisting of two adjacent buildings located in Houston, Texas. Acquisition costs for the property were funded with new mortgage debt and proceeds generated from the February 2008 sale of its Columbia property, described below.

Dispositions

In February 2008, the Company sold Columbia, one of the Company’s non-core properties. Columbia is a 58,783 square foot retail center located in Columbia, South Carolina.

Company Website

All of our filings with the Securities and Exchange Commission, including our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available free of charge at our website at www.americanspectrum.com.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. These filings can also be accessed through the Securities and Exchange Commission’s website at www.sec.gov. Alternatively, we will provide paper copies of our filings free of charge upon request.


ITEM 1A.	*RISK FACTORS*

The Company’s high level of debt increases its risk of default and may have a negative impact on the results of operations. This could adversely affect the Company’s ability to make distributions and the market price of its Common Stock.

The Company’s high level of debt increases the Company’s risk of default on its obligations and adversely affects the Company’s funds from operations and its ability to make distributions to its stockholders. Further, due to the high level of debt, the Company may be restricted in its ability to refinance some or all of its indebtedness and the terms of any new or refinanced debt may not be as favorable as those of some of its existing indebtedness. The Company has a higher ratio of indebtedness to assets than many other real estate companies. This could adversely affect the market price for the Company’s Common Stock.

The Company may need to refinance mortgage loans and sell properties to meet its obligations.

The Company expects to require substantial cash to meet its operating requirements, including budgeted capital expenditures if its leasing projections are met. To meet these obligations, the Company may be required to refinance mortgage indebtedness and/or sell certain assets to provide cash. The Company cannot provide assurance that it will be successful in refinancing the mortgage indebtedness and that it will have sufficient cash to meet its obligations. In addition, to fulfill the Company’s growth strategy, the Company may be required to raise additional cash through debt or equity financing.

There are risks inherent in the Company’s acquisition and development strategy. The Company may not make profitable investments.

The Company plans to pursue its growth strategy through the acquisition and development of additional properties. The Company does not know that this strategy will succeed. The Company may have difficulty finding new properties, negotiating with new or existing tenants or securing acceptable financing. In addition, investing in additional properties is subject to many risks. Also, the Company’s acquisition strategy of investing in under-valued assets subjects the Company to increased risks. The Company may not succeed in turning around these properties. The Company may not make a profit on these investments.

The Company has a history of losses. The Company cannot assure the stockholders that it will become profitable in the future.

The Company has incurred losses from continuing operations in each of the three years ended December 31, 2008. The Company cannot assure the stockholders that it will not continue to have losses after depreciation and amortization under generally accepted accounting principles.

Real property investments entail risk. The Company’s properties may not be profitable, may not result in distributions and/or may depreciate.

Properties acquired by the Company: (i) may not operate at a profit; (ii) may not perform to the Company’s expectations; (iii) may not appreciate in value; (iv) may depreciate in value; (v) may not ever be sold at a profit; and/or (vi) may not result in dividends. The marketability and value of any properties will depend upon many factors beyond the Company’s control, including but not limited to general economic conditions, zoning laws, tax laws and the availability of financing.

The Company may not be able to enter into favorable leases upon the expiration of current leases and on current vacant space.

Over the next three years, leases which constitute approximately 63% of the square footage of the Company’s total rentable square footage of properties owned will expire. In addition, 15% of the Company’s total rentable square footage was vacant as of December 31, 2008. The Company may be unable to enter into leases for all or a portion of this space. If the Company enters into leases, the Company may not do so at comparable lease rates, without incurring additional expenses. If the Company is unsuccessful in leasing the space, or cannot re-lease the

space at current rental rates or higher rental rates, it could adversely affect its ability to made distributions and the market price of its Common Stock.

The Company may invest in joint ventures, which adds another layer of risk to its business.

The Company may acquire properties through joint ventures, which could subject the Company to certain risks that may not otherwise be present if investments were made directly by the Company. These risks include: (i) the potential that the Company’s joint venture partner may not perform; (ii) the joint venture partner may have economic or business interests or goals which are inconsistent with or adverse to those of the Company; (iii) the joint venture partner may take actions contrary to the requests or instructions of the Company or contrary to the Company’s objectives or policies; and (iv) the joint venturers may not be able to agree on matters relating to the property they jointly own.

The Company also may participate with other investors, including possibly investment programs or other entities affiliated with management, in investments as tenants-in-common or in some other joint ownership or venture. The risks of such joint ownership may be similar to those mentioned above for joint ventures and, in the case of a tenancy-in-common, each co-tenant normally has the right, if an unresolvable dispute arises, to seek partition of the property, which partition might decrease the value of each portion of the divided property.

The Company could incur unforeseen environmental liabilities.

Various federal, state and local laws and regulations subject property owners and operators to liability for reporting, investigating, remediating, and monitoring regulated hazardous substances released on or from a property. These laws and regulations often impose strict liability without regard to whether the owner or operator knew of, or actually caused, the release. The presence of, or the failure to properly report, investigate, remediate, or monitor hazardous substances could adversely affect the financial condition of the Company or the ability of the Company to operate the properties. In addition, these factors could hinder the Company’s ability to borrow against the properties. The presence of hazardous substances on a property also could result in personal injury or similar claims by private plaintiffs. In addition, there are federal, state and local laws and regulations which impose requirements on the storage, use, management and disposal of regulated hazardous materials or substances. The failure to comply with those requirements could result in the imposition of liability, including penalties or fines, on the owner or operator of the properties. Future laws or regulations could also impose unanticipated material environmental liabilities on the Company in connection with any of the properties. The costs of complying with these environmental laws and regulations for the Company’s properties could adversely affect the Company’s operating costs and, if contamination is present, the value of those properties.

The Company faces intense competition in all of its markets.

Numerous properties compete with the Company’s properties in attracting tenants to lease space. Additional properties may be built in the markets in which the Company’s properties are located. The number and quality of competitive properties in a particular area will have a material effect on the Company’s ability to lease space at existing properties or at newly acquired properties and on the rents charged. Some of these competing properties may be newer or better located than the Company’s properties. There are a significant number of buyers of properties, including institutional investors and publicly traded REITs. Many of these competitors have significantly greater financial resources and experience than the Company. This has resulted in increased competition in acquiring attractive properties. This competition can adversely affect the Company’s ability to acquire properties and make distributions.

The global financial crisis and recent downturn in the United States economy may have an impact on the Company’s business and financial condition.

The current credit crisis, related turmoil in the global financial system and recent downturn in the United States economy may have an impact on the Company’s business, including its liquidity, financial condition and results of operations. The continuation of the credit crisis and/or the economic downturn could adversely affect the Company’s business in a number of ways, including effects on its ability to obtain new mortgages, to refinance

current debt and to sell properties. Further, effect of the crisis and/or the economic downturn on the Company’s tenants may lead to defaults, bankruptcies and/or vacancies at the Company’s properties. Any of these effects could have a material adverse effect on the Company’s financial condition and results of operations.

Delisting could have an adverse effect on the value of the Company’s stock.

As reported in Form 8-K filed September 22, 2008, the Company was notified by the NYSE Alternext US (“the Exchange”) that it has fallen below the continued listing criteria due to not maintaining the level of stockholders’ equity required by Sections 1003(a)(ii) and (iii) of the Exchange Company Guide. The Company was afforded the opportunity to submit a plan of compliance to the Exchange that demonstrated its Company’s ability to regain compliance by February 17, 2010. The Company submitted its plan October 16, 2008. As reported in Form 8-K filed December 8, 2008, the Company was notified by the Exchange that its plan had been accepted by the Exchange Listing Qualifications Department. During the period through February 17, 2010, the Exchange staff periodically will review the Company’s implementation of the strategies described in the plan. Failure by the Company to make progress consistent with the plan or to regain compliance with the Exchange’s continued listing standards by February 17, 2010 could result in the initiation of proceedings to delist the Company’s common stock from the Exchange. A delisting could have an effect on the marketability of the Company’s stock and on its value.


ITEM 1B.	*UNRESOLVED STAFF COMMENTS*

Not applicable.


ITEM 2.	*PROPERTIES*

The Location and Type of the Company’s Properties

At December 31, 2008 the Company owned 29 properties which consisted of 23 office, five industrial and one retail property located in four geographic regions in five states. The following table sets forth the location, type and size of the properties (by rentable square feet and/or units) along with annualized net rent, rented square feet, occupancy, and rent per square foot as of December 31, 2008. All properties listed below are encumbered by debt.


		Total Gross		Percent of
		Leasable		Gross		Rented				Rent per
		Area		Leasable Area		Square		Annualized		Square
Property/State	Type	(Square Feet)		Occupied(1)		Feet		Net Rent(2)		Foot(3)
								(In thousands)

Arizona/California Region
7700 Irvine Center, CA	Office		209,121		96%		200,756	$	6,141	$	30.59
Bristol Bay, CA	Office		50,073		96%		48,241		1,226		25.41
Creekside Office, CA	Office		47,810		59%		28,382		672		23.68
Pacific Spectrum, AZ	Office		71,112		85%		60,675		974		16.06

Arizona/California Region Total			378,116		89%		338,054		9,013		26.66

Upper Midwest Region
Northwest Corporate Center, MO	Office		86,894		65%		56,079		949		16.91
Morenci Professional Park, IN	Industrial		105,600		74%		78,000		481		6.17

Upper Midwest Region Total			192,494		70%		134,079		1,430		10.66

Texas Region
888 Sam Houston Parkway, TX	Office		45,485		98%		44,695		680		15.22
800 Sam Houston Parkway, TX	Office		42,733		96%		41,114		596		14.50
11500 Northwest Freeway, TX	Office		80,899		89%		71,657		1,129		15.76
5450 Northwest Central, TX	Office		56,290		83%		46,575		709		15.23
5850 San Felipe, TX	Office		101,882		87%		88,900		1,557		17.52
8100 Washington, TX	Office		44,060		48%		21,082		280		13.28
8300 Bissonnet, TX	Office		90,962		91%		83,033		1,018		12.26
12000 Westheimer, TX	Office		58,041		96%		55,841		934		16.74
16350 Park Ten Place, TX	Office		73,280		99%		72,170		1,282		17.76
16360 Park Ten Place, TX	Office		68,634		100%		68,634		1,181		17.20
2401 Fountain View, TX	Office		174,223		91%		158,146		3,026		19.13
2470 Gray Falls Drive, TX	Office		41,273		98%		40,414		585		14.49
2855 Mangum, TX	Office		72,029		93%		66,734		980		14.69
14741 Yorktown, TX	Office		93,912		100%		93,912		850		9.05
1501 Mockingbird, TX	Office		70,255		89%		62,811		894		14.24
6420 Richmond Atrium, TX	Office		77,444		85%		65,759		978		14.87
6430 Richmond Atrium, TX	Office		44,198		88%		39,026		563		14.44
Fountain View Place I & II	Office		177,416		93%		165,679		2,546		15.36
Windrose, TX	Retail		28,000		21%		6,000		120		20.00
Beltway Industrial, TX	Industrial		389,720		93%		360,320		1,926		5.35
Northwest Spectrum, TX	Industrial		48,000		78%		37,440		301		8.03
Southwest Pointe, TX	Industrial		101,056		85%		85,587		662		7.73
Technology, TX	Industrial		118,413		17%		19,775		238		12.00

Texas Region Total			2,098,205		86%		1,795,304		23,035		12.83

Total/Weighted Average			2,668,815		85%		2,267,437	$	33,478	$	14.76


(1)		Includes gross leasable area for leases that have been executed and have commenced as of December 31, 2008.

(2)		Represents base rent at December 31, 2008 for occupied square footage.

(3)		Represents Annualized Net Rent divided by Rented Square Feet.

For the year ended December 31, 2008, no tenant contributed 10% or more of the total rental revenue of the Company. A complete listing of properties owned by the Company at December 31, 2008, is included as part of Schedule III in Item 15.

Office Properties

At December 31 2008, the Company owned 23 office properties with total rentable square footage of 1,878,026. The office properties range in size from 41,273 square feet to 209,121 square feet, and have remaining lease terms ranging from less than one to 12 years.

The office leases generally require the tenant to reimburse the Company for increases in building operating costs over a base amount. Certain of the leases provide for rent increases that are either fixed or based on a consumer price index. As of December 31, 2008, the weighted average occupancy of the office properties was 90%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2008, was $17.71 as of such date.

The following table sets forth, for the periods specified, the number of expiring leases, the total rentable area subject to expiring leases, average occupancy represented by expiring leases, and total effective annual base rent represented by expiring leases.

OFFICE PROPERTIES

LEASE EXPIRATIONS


			Rented Square			Annual Base			Percentage of Total
	Number of		Footage Subject			Rent Under			Annual Base Rent
	Expiring		to Expiring			Expiring			Represented by
Expiration Year	Leases		Leases			Leases			Expiring Leases(1)
						(In thousands)

2009(2)		400		460,000		$	9,157			29	%
2010		239		405,991			7,509			24	%
2011		134		289,298			5,648			18	%
2012		35		132,285			2,479			8	%
2013		35		196,823			3,703			11	%
Thereafter		16		243,803			3,114			10	%

Total		859		1,728,200	(3)	$	31,610	(4)		100	%


(1)		Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual increases).

(2)		Includes leases that have initial terms of less than one year.

(3)		This figure is based on square footage actually occupied (which excludes vacant space), which accounts for the difference between this figure and total gross leasable area (which includes vacant space).

(4)		This figure is based on square footage actually occupied and incorporates contractual rent increases arising after 2008, and thus differs from annualized net rent in the preceding table, which is based on 2008 rents.

Industrial Properties

At December 31, 2008, the Company owned five industrial properties aggregating 762,789 square feet. The industrial properties are primarily designed for warehouse, distribution and light manufacturing and range in size from 48,000 square feet to 389,720 square feet. As of December 31, 2008, multiple tenants occupied all four of the industrial properties. As of December 31, 2008, the weighted average occupancy of the industrial properties was 76%. The weighted average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2008, was $6.21 as of such date.

The industrial properties have leases whose remaining terms range from less than one to five years. Most of the leases are industrial gross leases whereby the tenant pays as additional rent its pro rata share of common area maintenance and repair costs and its share of the increase in taxes and insurance over a base amount. Certain of these leases call for fixed or consumer-price-index-based rent increases. Some of the leases are triple net leases whereby the tenants are required to pay their pro rata share of the properties’ operating costs, common area maintenance, property taxes, insurance and non-structural repairs.

The following table sets forth, for the periods specified, the number of expiring leases, the total rentable area subject to expiring leases, average occupancy represented by expiring leases and total effective annual base rent represented by expiring leases.

INDUSTRIAL PROPERTIES

LEASE EXPIRATIONS


			Rented Square			Annual Base			Percentage of Total
	Number of		Footage Subject			Rent Under			Annual Base Rent
	Expiring		to Expiring			Expiring			Represented by
Expiration Year	Leases		Leases			Leases			Expiring Leases(1)
						(In thousands)

2009(2)		74		265,162		$	2,097			46	%
2010		34		181,538			1,390			31	%
2011		25		84,247			554			12	%
2012		5		25,600			260			6	%
2013		9		26,982			250			5	%
Thereafter		—		—			—			—

Total		147		583,529	(3)	$	4,551	(4)		100	%


(1)		Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual increases).

(2)		Includes leases that have initial terms of less than one year.

(3)		This figure is based on square footage actually occupied (which excludes vacant space), which accounts for the difference between this figure and total gross leasable area (which includes vacant space).

(4)		This figure is based on square footage actually leased and incorporates contractual rent increases arising after 2008, and thus differs from annualized net rent in the table under “The Location and Type of the Company’s Properties”, which is based on 2008 rents.

Retail Property

At December 31, 2008, the Company owned one retail property with rentable square footage of 28,000. The property was acquired in 2007. This property, which was completed in 2008, is located in Houston, Texas. The center’s first lease, which consists of 6,000 square feet leased to a medical clinic, commenced in May 2008. This lease has a five year term. The lease requires the tenant to reimburse the Company for increases in certain building operating costs over a base amount. As of December 31, 2008, the occupancy of the retail property was 21%. The average base rent per square foot, calculated as total annualized base rents divided by gross leasable area actually occupied as of December 31, 2008, was $20.00 as of such date.

The following table sets forth, for the periods specified, the number of expiring leases, the total rentable area subject to expiring leases, average occupancy represented by expiring leases and total effective annual base rent represented by expiring leases.

RETAIL PROPERTIES

LEASE EXPIRATIONS


			Rented Square			Annual Base			Percentage of Total
	Number of		Footage Subject			Rent Under			Annual Base Rent
	Expiring		to Expiring			Expiring			Represented by
Expiration Year	Leases		Leases			Leases			Expiring Leases(1)
						(In thousands)

2009(2)		—		—		$	—			—
2010		—		—			—			—
2011		—		—			—			—
2012		—		—			—			—
2013		1		6,000			150			100	%
Thereafter		—		—			—			—

Total		1		6,000	(3)	$	150	(4)		100	%


(1)		Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual increases).

(2)		Includes leases that have initial terms of less than one year.

(3)		This figure is based on square footage actually occupied (which excludes vacant space), which accounts for the difference between this figure and total gross leasable area (which includes vacant space).

(4)		This figure is based on square footage actually occupied and incorporates contractual rent increases arising after 2008, and thus differs from annualized net rent in the table under “The Location and Type of the Company’s Properties”, which is based on 2008 rents.


ITEM 3.	*LEGAL PROCEEDINGS*

Certain claims and lawsuits have arisen against the Company in its normal course of business. The Company believes that such claims and lawsuits will not have a material adverse effect on the Company’s financial position, cash flow or results of operations.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

No matters were submitted during the fourth quarter of 2008 to a vote of the holders of the Company’s common stock, through the solicitation of proxies or otherwise.

PART II


ITEM 5.	*MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES*

Market Information

The Company’s Common Stock trades on the NYSE Alternext US under the symbol AQQ. The following table sets forth the high and low closing prices per share of the Company’s Common Stock for the periods indicated, as reported by the NYSE Alternext US.


	Common Stock
	High		Low

2008
First Quarter	$	28.49	$	22.01
Second Quarter		47.61		24.50
Third Quarter		44.25		31.20
Fourth Quarter		33.00		24.70
2007
First Quarter	$	28.75	$	23.26
Second Quarter		27.77		20.75
Third Quarter		20.79		17.70
Fourth Quarter		23.75		16.75

Holders

The approximate number of holders of the shares of the Company’s Common Stock was 3,056 as of February 28, 2009.

Distributions

No dividends were declared to holders of the Company’s Common Stock in 2008 or 2007.

The Company’s Board of Directors has a policy of meeting on or about the 45^th day after the end of each calendar quarter to consider the declaration and payment of dividends on Common Stock.

Unregistered Sales of Equity Securities

On December 31, 2008, the Company issued 55,172 shares of non-voting Series A Preferred Stock (“Preferred Stock”). The Preferred Stock was sold for $29 a share, or a total of $1.6 million, and will bear cumulative dividends at a rate of 15% per year payable quarterly. The Preferred Stock was sold to the following individuals: William J. Carden, Chairman of the Board, President and CEO, and John N. Galardi and Timothy R. Brown, Directors. The shares were issued in a private transaction exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended. The Preferred Stock is not required to be redeemed by the Company and the holders will have no right to require redemption. The Preferred Stock is redeemable at the option of the Company at any time after December 31, 2011 at the original issue price, plus any accrued and unpaid dividends. The Preferred Stock is entitled to a liquidation preference equal to the original issue price, plus any accrued and unpaid dividends or, in the case of a liquidation after 12/31/11, the greater of such amount or the amount a share of common stock would hypothetically be entitled to upon liquidation. The proceeds from the sale of the Preferred Stock may be used to pay down debt and/or as working capital by the Company.

During 2008, the Company issued a total of 4,250 restricted shares of Common Stock to its officers and directors. The restrictions on the shares issued lapse in three equal annual installments commencing on the first anniversary date of the issuance.

During 2008, the Company issued 2,500 shares of Common Stock to a former director in connection with the exercise of stock options. The issuance was pursuant to the Company’s Omnibus Stock Option Incentive Plan. Proceeds of approximately $31,000 were received from the issuance.

During 2007, the Company issued a total of 4,750 restricted shares of Common Stock to its officers and directors. The restrictions on the shares issued lapse in three equal annual installments commencing on the first anniversary date of the issuance.

During 2007, the Company issued 3,125 shares of Common Stock to Mr. Carden, in connection with the exercise of stock options. The issuance was pursuant to the Company’s Omnibus Stock Option Incentive Plan. Proceeds of approximately $85,000 were received from the issuance.

The issuances of Common Stock were exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended.

The following table provides information as of December 31, 2008 regarding the compensation plan under which equity securities of the Company are authorized for issuance:


				Number of Securities
				Remaining Available
Number of Securities		Weighted Average		for Future Issuance
to Be Issued		Per Share		Under Equity Compensation
Upon Exercise of		Exercise Price of		Plan (Excluding Securities
Outstanding Options		Outstanding Options		Reflected in First Column)

	29,375	$	23.93		111,314

See Note 13 — Stock Option and Restricted Share Plans — in the Consolidated Financial Statements for information regarding the material features of the above plan.


ITEM 6.	*SELECTED FINANCIAL DATA*

Not applicable.


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*

OVERVIEW

American Spectrum Realty, Inc. (“ASR” or, collectively, as a consolidated entity with its subsidiaries, the “Company”) is a Maryland corporation established on August 8, 2000. The Company is a full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the Company’s assets are held through an operating partnership (the “Operating Partnership”) in which the Company, as of December 31, 2008, held an interest of 87.12% (consisting of the sole general partner interest a limited partnership interest). As of December 31, 2008, through its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 29 properties, which consisted of 23 office buildings, five industrial properties and one retail property. The 29 properties are located in five states.

In the accompanying financial statements, the results of operations for Columbia are shown in the section “Discontinued operations” and Columbia was classified as “Real estate held for sale” at December 31, 2007. The revenues and expenses reported for the periods presented exclude results from properties sold or classified as held for sale. The following discussion and analysis of the financial condition and results of operations of the Company

should be read in conjunction with the selected financial data in Item 6 and the consolidated financial statements of the Company, including the notes thereto, included in Item 15.

The Company’s properties were 85% occupied at December 31, 2008 and December 31, 2007. The weighted average occupancy for 2008 was 86%, compared to 88% for 2007. The Company continues to aggressively pursue prospective tenants to increase its occupancy, which if successful, should have the effect of improving operational results.

The Company intends to continue to seek to acquire additional properties in core markets and further reduce its non-core assets while focusing on an aggressive leasing program during 2009.

CRITICAL ACCOUNTING POLICIES

The major accounting policies followed by the Company are listed in Note 2 — Summary of Significant Accounting Policies — of the Notes to the Consolidated Financial Statements. The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could differ materially from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:

Investment in Real Estate Assets

Rental properties are stated at cost, net of accumulated depreciation, unless circumstances indicate that cost, net of accumulated depreciation, cannot be recovered, in which case the carrying value of the property is reduced to estimated fair value. Estimated fair value (i) is based upon the Company’s plans for the continued operation of each property and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized net operating income based upon the age, construction and use of the building. The fulfillment of the Company’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Company to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, the actual results of operating and disposing of the Company’s properties could be materially different than current expectations.

Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. The useful lives are as follows:


Building and Improvements		5 to 40 years
Tenant Improvements		Term of the related lease
Furniture and Equipment		3 to 5 years

Allocation of Purchase Price of Acquired Assets

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, above and below market leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with SFAS No. 141, Business Combinations), and allocates the purchase price to the acquired assets and assumed liabilities. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases.

The Company evaluates acquired “above and below” market leases at their fair value (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases.

Sales of Real Estate Assets

Gains on property sales are accounted for in accordance with the provisions of SFAS No. 66, Accounting for Sales of Real Estate. Gains are recognized in full when real estate is sold, provided (i) the gain is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and (ii) the earnings process is virtually complete, that is, the Company is not obligated to perform significant activities after the sale to earn the gain. Losses on property sales are recognized immediately.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. The Company has assessed, using all available positive and negative evidence, the likelihood that the deferred tax assets will be recovered from future taxable income.

Under SFAS No. 109, Accounting for Income Taxes, an enterprise must use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (i) the more positive evidence is necessary and (ii) the more difficult it is to support a conclusion that a valuation allowance is not needed for some portion, or all, of the deferred tax asset. Among the more significant types of evidence that the Company considered are: that future anticipated property sales will produce more than enough taxable income to realize the deferred tax asset; taxable income projections in future years; and whether the carryfoward period is so brief that it would limit realization of tax benefits. Based on the Company’s evaluation of the evidence the Company has not provided a valuation allowance against its deferred tax assets for the year ended December 31, 2008.

RESULTS OF OPERATIONS

Comparison of the year ended December 31, 2008 to the year ended December 31, 2007

The following table shows a comparison of rental revenues and certain expenses:


					Variance
	2008		2007		$		%

Rental revenue	$	34,870,000	$	30,300,000		4,570,000		15.1	%
Operating expenses:
Property operating expenses		17,028,000		13,681,000		3,347,000		24.5	%
General and administrative		3,790,000		3,470,000		320,000		9.2	%
Depreciation and amortization		14,308,000		13,204,000		1,104,000		8.4	%
Interest expense		13,464,000		12,087,000		1,377,000		11.4	%

Rental revenue. Rental revenue increased $4,570,000, or 15.1%, for the year ended December 31, 2008 in comparison to the year ended December 31, 2007. This increase was attributable to $2,924,000 in revenue generated from one office property acquired during the second quarter of 2008 and one retail property and two industrial properties acquired during the second quarter of 2007. The increase was also attributable to $1,647,000 in greater revenues from properties owned for the full years ended December 31, 2008 and December 31, 2007. The increase in revenue from properties owned for the full years ended December 31, 2008 and December 31, 2007 was primarily due to increases in rental rates, escalation revenue and lease termination revenue. The increase was partially offset by a decrease in occupancy, which on a weighted average basis decreased from 88% for the year ended December 31, 2007 to 86% for the year ended 2008. As of December 31, 2008 and 2007, the Company’s

properties were 85% occupied. Rental revenue from the four properties acquired in 2007 and 2008 is included in the Company’s results from their respective dates of acquisition.

Property operating expenses. The increase of $3,347,000, or 24.5%, was in large part attributable to additional operating expenses of $1,426,000 related to the four acquired properties mentioned above. Properties owned for the full years ended December 31, 2008 and 2007 accounted for the remaining increase of $1,921,000. In 2008, the Company accrued $500,000 for property damage related to Hurricane Ike. The accrual represents the Company’s aggregate insurance deductible related to this matter. The increase in property operating expenses was also due to higher electricity rates and bad debt expense incurred during the year ended December 31, 2008. Furthermore, real estate taxes rose as a result of an increase in the assessed value of several of the Company’s properties. The Company also experienced an increase in maintenance and repair costs for the year ended December 31, 2008 when compared to the year ended December 31, 2007.

General and administrative. General and administrative costs increased $320,000, or 9.2%, for the year ended December 2008 in comparison to the year ended December 31, 2007. The increase was partially due to professional fees incurred during the year ended December 31, 2008 related to a potential investment opportunity and due to an increase in other professional fees. The increase was also due to the moving of the corporate headquarters during the fourth quarter of 2008. An increase in compensation costs for the year ended December 31, 2008 in comparison to the year ended December 31, 2007 also attributed to the increase.

Depreciation and amortization. Depreciation and amortization expense increased $1,104,000, or 8.4%, for the year ended December 31, 2008 in comparison to the year ended December 31, 2007. The increase was primarily attributable to depreciation and amortization of $1,393,000 related to the four properties acquired in 2007 and 2008. The increase was partially offset by a reduction in depreciation and amortization attributable to fully depreciated tenant improvements and amortized lease costs associated with properties owned for the full year ended December 31, 2008 and 2007.

Interest expense. Interest expense increased $1,377,000, or 11.4%, for the year ended December 31, 2008 in comparison to the year ended December 31, 2007. The increase was in large part attributable to interest expense associated with the four properties acquired during 2007 and 2008, which accounted for $1,460,000 of the increase. The increase was partially offset by a reduction in interest expense of $83,000 related to debt on other properties, including the payback of a $2,000,000 secured line of credit in the third quarter of 2007.

Income taxes. The Company recognized a deferred income tax benefit from continuing operations of $5,160,000 for the year ended December 31, 2008, compared to $4,318,000 for the year ended December 31, 2007. The increase in deferred income tax benefit for the year ended December 31, 2008 corresponds to the increase in loss from continuing operations for the year ended December 31, 2008, in comparison to the year ended December 31, 2007.

Minority interest. The share of loss from continuing operations for the year ended December 31, 2008 for the holders of OP Units was $1,077,000 compared to $1,073,000 for the year ended December 31, 2007. The 2008 loss represents an average of 12.9% limited partner interest in the Operating Partnership not held by the Company during 2008. The 2007 loss represents an average of 13.0% limited partner interest in the Operating Partnership not held by the Company during 2007.

Loss on extinguishment of debt. During 2007, the Company recorded a loss on extinguishment of debt of $2,413,000 in connection with the loan refinance on 7700 Irvine Center, an office property located in Irvine, California. The loss consisted of a prepayment penalty of $3,536,000, partially offset by the write-off of unamortized loan premium of $1,123,000.

Discontinued operations. The Company recorded income from discontinued operations of $631,000 for the year months ended December 31, 2008, compared to a loss of $16,000 for the year ended December 31, 2007. The income for the year ended December 31, 2007 includes the operating results and gain on sale of Columbia. Columbia, a 58,783 square foot retail center located in Columbia, South Carolina, was sold in March 2008. The loss for the year ended December 31, 2007 represents Columbia’s results of operations for the period.

LIQUIDITY AND CAPITAL RESOURCES

During 2008, the Company derived cash primarily from the collection of rents, proceeds from borrowings, the sale of a property, the release of restricted cash and proceeds from the issuance of preferred stock. Major uses of cash included the acquisition of one property, payments for capital improvements to real estate assets, primarily for tenant improvements, payment of operational expenses, repayment of borrowings and scheduled principal and interest payments on borrowings.

During the years ended December 31, 2008 and 2007, the Company reported net losses of $6,643,000 and $8,774,000, respectively. These results include the following non-cash items:


	Years Ended December 31,
	2008			2007

Non-Cash Items:
Depreciation and amortization	$	14,331		$	13,339
Loss on extinguishment of debt		—			2,413
Stock-based compensation expense		70			49
Minority interest		(979	)		(1,308	)
Deferred income taxes		(4,775	)		(4,330	)
Deferred rental income		(280	)		(65	)
Amortization of loan premiums		(46	)		(273	)

Net cash provided by operating activities amounted to $1,015,000 for the year ended December 31, 2008. The net cash provided by operating activities included $537,000 generated by property operations and net change in operating assets and liabilities of $478,000. Net cash provided by operating activities amounted to $2,236,000 for the year ended December 31, 2007. The net cash provided by operating activities included $1,051,000 generated by property operations and net change in operating assets and liabilities of $1,185,000.

Net cash used in investing activities amounted to $18,150,000 for the year ended December 31, 2008. Cash of $17,250,000 was used to acquire one office property. In addition, cash of $3,914,000 was used for capital expenditures, primarily tenant improvements. This amount was reduced by proceeds of $3,014,000 received from the sale of Columbia during the year. Net cash used in investing activities amounted to $30,589,000 for the year ended December 31, 2007. Cash of $26,140,000 was used to acquire a retail property and two industrial properties. In addition, cash of $4,449,000 was used for capital expenditures, primarily tenant improvements.

Net cash provided by financing activities amounted to $18,380,000 for the year ended December 31, 2008, which included $16,950,000 in new borrowings related to the acquisition of an office property, $1,600,000 from the issuance of preferred stock, $470,000 from other borrowings and $3,565,000 from the release of restricted cash. This amount was reduced by the repayment of borrowings on the sale of Columbia of $2,218,000, scheduled principal payments of $1,707,000 and other principal repayments of $300,000. Net cash provided by financing activities amounted to $28,034,000 for the year ended December 31, 2007. Proceeds from borrowings totaled $53,560,000, which included a new loan on an office property located in Irvine, California and a new loan on an office property located in Houston, Texas. Other borrowings of $23,422,000 were obtained primarily to assist with the acquisition costs associated with three properties acquired during 2007. Repayment of borrowings related to refinances amounted to $44,523,000 and scheduled principal payments amounted to $4,154,000 for the year ended December 31, 2007.

incur capital costs related to leasing space and making improvements to properties provided the estimated leasing of space is completed. The Company anticipates meeting these obligations with cash currently held, the use of funds held in escrow by lenders, proceeds from the sale of properties and refinancing activities. There can be no assurance, however, that these activities will occur. If these activities do not occur, the Company will not have sufficient cash to meet its obligations if all leasing projections are met.

The Company has loans totaling $12,080,000, maturing during 2009. One of the loans, with a balance of $2,500,000, contains an option to extend maturity for two six-month terms. Because of uncertainties with the current credit crisis, the Company’s current debt level and historical losses there can be no assurances as to the Company’s ability to obtain funds necessary for the refinancing of its maturing debts. If refinancing transactions are not consummated, the Company will seek extensions and/or modifications from existing lenders. If these refinancings do not occur, the Company will not have sufficient cash to meet its obligations.

The Company is not in compliance with a debt covenant on a mortgage loan secured by one of its office properties located in Houston, Texas. The debt covenant requires the Company to maintain a minimum tangible book net worth as defined in the debt agreement. In the event the lender elects to take any action with respect to this matter, the Company will attempt to negotiate a revision to the loan covenant. If a refinance of the loan becomes necessary, the Company believes it could obtain a new mortgage loan for an amount in excess of the current debt balance and prepayment costs associated with the current loan.

INFLATION

Substantially all of the leases at the industrial and retail center properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. Leases at the office properties typically provide for rent adjustment and pass-through of increases in operating expenses during the term of the lease. All of these provisions may permit the Company to increase rental rates or other charges to tenants in response to rising prices and therefore, serve to reduce the Company’s exposure to the adverse effects of inflation.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are based on management’s beliefs and expectations, which may not be correct. Important factors that could cause actual results to differ materially from the expectations reflected in these forward-looking statements include the following: the Company’s level of indebtedness and ability to refinance its debt; the fact that the Company’s predecessors have had a history of losses in the past; unforeseen liabilities which could arise as a result of the prior operations of companies or properties acquired in the Company’s 2001 consolidation transaction; risks inherent in the Company’s acquisition and development of properties in the future, including risks associated with the Company’s strategy of investing in under-valued assets; general economic, business and market conditions, including the impact of the current economic downturn; changes in federal and local laws and regulations; increased competitive pressures; and other factors, including the factors set forth below, as well as factors set forth elsewhere in this Report on Form 10-K.


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

The response to this item is submitted as a separate section of this Form 10-K. See Item 15. — Exhibits and Financial Statement Schedules.


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*

None.


ITEM 9A(T).	*CONTROLS AND PROCEDURES*

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective (i) in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control — Integrated Framework, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting during the fourth quarter of 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.	*OTHER INFORMATION*

None.

PART III


ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*

The information required by Item 10 is incorporated by reference from the Company’s definitive proxy statement to be filed on or before April 30, 2009 for its annual stockholder’s meeting to be held May 8, 2009.


ITEM 11.	*EXECUTIVE COMPENSATION*

The information required by Item 11 is incorporated by reference from the Company’s definitive proxy statement to be filed on or before April 30, 2009 for its annual stockholder’s meeting to be held May 8, 2009.


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*

The information required by Item 12 is incorporated by reference from the Company’s definitive proxy statement to be filed on or before April 30, 2009 for its annual stockholder’s meeting to be held May 8, 2009.


ITEM 13.	*CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE*

The information required by Item 13 is incorporated by reference from the Company’s definitive proxy statement to be filed on or before April 30, 2009 for its annual stockholder’s meeting to be held May 8, 2009.


ITEM 14.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES*

The information required by Item 14 is incorporated by reference from the Company’s definitive proxy statement to be filed on or before April 30, 2009 for its annual stockholder’s meeting to be held May 8, 2009.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

American Spectrum Realty, Inc.

Houston, Texas

We have audited the accompanying consolidated balance sheets of American Spectrum Realty, Inc. as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of two years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in Item 15(a). These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Spectrum Realty, Inc. as of December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We were not engaged to examine management’s assertion about the effectiveness of American Spectrum Realty, Inc.’s internal controls over financial reporting as of December 31, 2008 included in the accompanying Management’s Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon.

HEIN & ASSOCIATES LLP

Houston, Texas

March 10, 2009

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,			December 31,
	2008			2007
	(Dollars in thousands,
	except share amounts)

ASSETS
Real estate held for investment	$	257,786		$	238,053
Accumulated depreciation		(61,283	)		(48,757	)

Real estate held for investment, net		196,503			189,296
Real estate held for sale		—			1,996
Cash and cash equivalents		2,092			847
Restricted cash		—			3,565
Tenant and other receivables, net of allowance for doubtful accounts of $371 and $186, respectively		805			561
Deferred rents receivable		1,869			1,589
Deferred tax asset		3,123			—
Insurance claims receivable		2,700			—
Investment in management company		4,000			4,000
Prepaid and other assets, net		13,899			10,932

Total Assets	$	224,991		$	212,786


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Notes payable, including premiums of $19 and $64, respectively	$	202,194		$	186,824
Liabilities related to real estate held for sale		—			2,318
Accounts payable		3,970			2,822
Deferred tax liability		—			1,777
Liabilities related to insurance claims		3,200			—
Accrued and other liabilities		10,970			8,457

Total Liabilities		220,334			202,198

Minority interest		3,542			4,522
Commitments and Contingencies (Note 6 and 14):
Stockholders’ Equity:
Preferred stock, $.01 par value; authorized, 25,000,000 shares; issued and outstanding, 55,172 shares		1			—
Common stock, $.01 par value; authorized, 100,000,000 shares; issued, 1,620,304 and 1,613,554 shares, respectively; outstanding, 1,384,598 and 1,378,214 shares, respectively		16			16
Additional paid-in capital		48,393			46,693
Accumulated deficit		(44,200	)		(37,557	)
Treasury stock, at cost, 235,706 and 235,340 shares, respectively		(3,095	)		(3,086	)

Total Stockholders’ Equity		1,115			6,066

Total Liabilities and Stockholders’ Equity	$	224,991		$	212,786

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years Ended December 31,
	2008			2007
	(Dollars in thousands,
	except per share amounts)

REVENUES:
Rental revenue	$	34,870		$	30,300
Third party management and leasing revenue		73			37
Interest and other income		140			136

Total revenues		35,083			30,473

EXPENSES:
Property operating expense		17,028			13,681
General and administrative		3,790			3,470
Depreciation and amortization		14,308			13,204
Interest expense		13,464			12,087

Total expenses		48,590			42,442

OTHER LOSS:
Loss on extinguishment of debt		—			(2,413	)

Total other loss		—			(2,413	)

Loss from continuing operations before deferred income tax benefit and minority interest		(13,507	)		(14,382	)
Deferred income tax benefit		5,160			4,318

Loss from continuing operations before minority interest		(8,347	)		(10,064	)
Minority interest (share from continuing operations)		1,073			1,306

Loss from continuing operations		(7,274	)		(8,758	)
Discontinued operations:
Gain (loss) from operations		5			(30	)
Gain on sale of discontinued operations		1,141			—
Income tax (expense) benefit		(421	)		12
Minority interest		(94	)		2

Income (loss) from discontinued operations		631			(16	)

Net loss	$	(6,643	)	$	(8,774	)

Basic and diluted per share data:
Loss from continuing operations	$	(5.28	)	$	(6.37	)
Income (loss) from discontinued operations		0.46			(0.01	)

Net loss	$	(4.82	)	$	(6.38	)

Basic and diluted weighted average shares used		1,376,923			1,375,708

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


										Additional
	Preferred		Common			Preferred		Common		Paid-In		Accumulated			Treasury			Total
	Shares		Shares			Stock		Stock		Capital		Deficit			Stock			Equity
	(In thousands, except share amounts)

Balance, December 31, 2006		—		1,606,179		$	—	$	16	$	46,553	$	(28,783	)	$	(2,875	)	$	14,911
Common stock repurchase									—		—		—			(211	)		(211	)
Issuance of common stock to officers and directors				4,750
Restricted stock forfeited				(500	)
Acquisition of minority interest in the operating partnership							—		—		6		—			—			6
Exercise of stock options				3,125			—		—		85		—			—			85
Stock-based compensation							—		—		49		—			—			49
Net loss							—		—		—		(8,774	)		—			(8,774	)

Balance, December 31, 2007		—		1,613,554		$	—	$	16	$	46,693	$	(37,557	)	$	(3,086	)	$	6,066
Common stock repurchase							—		—		—		—			(9	)		(9	)
Issuance of common stock to officers and directors				4,250			—		—		—		——			—			—
Exercise of stock options				2,500			—		—		31		—			—			31
Stock-based compensation							—		—		70		—			—			70
Issuance of preferred stock		55,172					1		—		1,599		—			—			1,600
Net loss							—		—		—		(6,643	)		—			(6,643	)

Balance, December 31, 2008		55,172		1,620,304		$	1	$	16	$	48,393	$	(44,200	)	$	(3,095	)	$	1,115

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2008			2007
	(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,643	)	$	(8,774	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		14,331			13,339
Gain on sales of real estate asset		(1,141	)		—
Loss on extinguishment of debt		—			2,413
Income tax benefit		(4,775	)		(4,330	)
Deferred rental income		(280	)		(65	)
Minority interest		(979	)		(1,308	)
Stock-based compensation expense		70			49
Amortization of note payable premiums, included in interest expense		(46	)		(273	)
Changes in operating assets and liabilities:
Increase in tenant and other receivables		(107	)		(107	)
Increase in accounts payable		1,136			373
Increase in prepaid and other assets		(3,173	)		(1,936	)
Increase in accrued and other liabilities		2,622			2,855

Net cash provided by operating activities:		1,015			2,236

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements to real estate assets		(3,914	)		(4,449	)
Real estate acquisition		(17,250	)		(26,140	)
Proceeds received from sales of real estate assets		3,014			—

Net cash used in investing activities:		(18,150	)		(30,589	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings		470			53,560
Proceeds from borrowings — property acquisitions		16,950			23,422
Repayment of borrowings — property sales		(2,218	)		—
Repayment of borrowings — refinances		(300	)		(44,523	)
Repayment of borrowings — scheduled payments		(1,707	)		(4,154	)
Repurchase of common stock		(10	)		(211	)
Issuance of preferred stock		1,600			—
Proceeds from exercise of stock options		31			85
Acquisition of minority interest in the operating partnership		(1	)		(145	)
Release of restricted cash		3,565			—

Net cash provided by financing activities:		18,380			28,034

Increase (decrease) in cash and cash equivalents		1,245			(319	)
Cash and cash equivalents, beginning of year		847			1,166

Cash and cash equivalents, end of year	$	2,092		$	847

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	12,940		$	12,081
Cash paid for income taxes		172			348

The accompanying notes are an integral part of these consolidated financial statements

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements


NOTE 1.	DESCRIPTION OF BUSINESS

GENERAL

During 2008, the Company acquired a 178,000 square foot office property consisting of two adjacent buildings located in Houston, Texas. Also during 2008, the Company sold Columbia, one of the Company’s non-core properties. Columbia is a 58,783 square foot retail center located in Columbia, South Carolina. During 2007, the Company acquired two industrial parks aggregating 448,000 square feet and a 28,000 square foot retail property. All three properties acquired in 2007 are located in Houston, Texas. No properties were sold during 2007. The property acquisitions are part of the Company’s strategy to acquire value-added real estate in its core markets of Texas, California and Arizona.


NOTE 2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements include the accounts of the Operating Partnership and all other subsidiaries of the Company. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform with the current year presentation. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, real estate designated as held for sale are accounted for in accordance with the provisions of SFAS No. 144 and the results of operations of these properties are included in income from discontinued operations. Prior periods have been reclassified for comparability, as required.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could materially differ from those estimates.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

NEW ACCOUNTING PRONOUNCEMENTS

In June 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP No. EITF 03-6-1”). FSP No. EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in FASB Statement No. 128, Earnings Per Share. FSP No. EITF 03-6-1 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008; early adoption is not permitted. The adoption of FSP No. EITF 03-6-1 effective January 1, 2009 is not expected to materially affect the Company’s calculation of earnings per common share.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”). SFAS No. 141R replaces FASB Statement No. 141, Business Combinations (“SFAS No. 141”). The statement retains the purchase method of accounting used in business combinations but replaces SFAS No. 141 by establishing principles and requirements for the recognition and measurement of assets, liabilities and goodwill, including the requirement that most transaction and restructuring costs related to the acquisition be expensed. In addition, the statement requires disclosures to enable users to evaluate the nature and financial effects of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will adopt SFAS No. 141R on January 1, 2009 for acquisitions on or after this date. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 141R on its consolidated results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by the Company in the first quarter of fiscal 2009. In accordance with SFAS No. 160, effective January 1, 2009, the Company’s minority interest balance, which at December 31, 2008 was $3,542,000, will be included in Stockholders’ Equity as required.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (“SFAS No. 157”), effective for the Company’s fiscal year beginning January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but simplifies and codifies related guidance within General Accepted Accounting Principles. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. The adoption of this pronouncement did not have a material impact on the Company’s consolidated results of operations and financial condition. As of December 31, 2008, the Company had no financial instruments requiring fair value measurement.

REAL ESTATE

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, actual results could be materially different from current expectations.

Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets. The useful lives are as follows:


Building and Improvements		5 to 40 years
Tenant Improvements		Term of the related lease
Furniture and Equipment		3 to 5 years

CASH EQUIVALENTS

Cash equivalents include all highly liquid investments with a maturity of three months or less at the date of purchase.

RESTRICTED CASH

In July 2007, the Company refinanced a loan on one of its office property located in Irvine, California. In connection with the refinance, the new lender withheld proceeds of $3,559,000. The holdback agreement provides for the release of the funds upon the completion of certain lease-up terms and conditions at the property. The Company earned interest on the restricted cash. The restricted cash in the total amount of $3,565,000 was released in the second quarter of 2008.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, tenant and other receivables, notes payable, accounts payable, accrued expenses and preferred stock. Management believes that the carrying value of the Company’s financial instruments approximate their respective fair market values at December 31, 2008 and December 31, 2007.

DEFERRED FINANCING AND OTHER FEES

Fees paid in connection with the financing and leasing of the Company’s properties are amortized to interest expense over the term of the related note payable or lease and are included in other assets.

STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), using the modified prospective transition method and, therefore, has not restated results for prior periods. Under this transition method, stock-based compensation expense for the first quarter of 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The Company is recognizing these compensation costs on a straight-line basis over the requisite service period of the award, which range from immediate vesting to vesting over a three-year period. Prior to the January 1, 2006 adoption of SFAS 123R, the Company recognized stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R. See Note 13 for a further discussion on stock-based compensation.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

MINORITY INTEREST

Unit holders in the Operating Partnership (other than the Company) held a 12.88% and a 12.93% limited partnership interest in the Operating Partnership at December 31, 2008 and December 31, 2007, respectively. Each of the holders of the interests in the Operating Partnership (other than the Company) has the option (exercisable after the first anniversary of the issuance of the OP Units) to redeem its OP Units and to receive, at the option of the Company, in exchange for each four OP Units, either (i) one share of Common Stock of the Company, or (ii) cash equal to the value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued.

RENTAL REVENUE

Certain leases provide for tenant occupancy during periods for which no rent is due or where minimum rent payments increase during the term of the lease. The Company records rental income for the full term of each lease on a straight-line basis. Accordingly, a receivable is recorded from tenants equal to the excess of the amount that would have been collected on a straight-line basis over the amount collected and currently due (Deferred Rent Receivable). When a property is acquired, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation.

Many of the Company’s leases provide for Common Area Maintenance/Escalations (“CAM/ESC”) as additional tenant revenue. CAM/ESC represents increases in certain property operating expenses (as defined in each respective lease agreement) over the actual operating expense of the property in the base year. The base year is stated in the lease agreement; typically, the year in which the lease commenced. Generally, each tenant is responsible for their prorated share of increases in operating expenses. Tenants are billed an estimated CAM/ESC charge based on the budgeted operating expenses for the year. Within 90 days after the end of each fiscal year, a reconciliation and true up billing of CAM/ESC charges is performed based on actual operating expenses.

The Company’s portfolio of leases turns over continuously, with the number and value of expiring leases varying from year to year. The Company’s ability to re-lease the space to existing or new tenants at rates equal to or greater than those realized historically is impacted by, among other things, the economic conditions of the market in which a property is located, the availability of competing space, and the level of improvements which may be required at the property. No assurance can be given that the rental rates that the Company will obtain in the future will be equal to or greater than those obtained under existing contractual commitments.

For each of the two years ended December 31, 2008 and 2007 no tenants represented 10% or more of rental revenue of the Company.

NET LOSS PER SHARE

Net loss per share is calculated based on the weighted average number of common shares outstanding. The Company incurred net losses for each of the two years ended December 31, 2008 and 2007. In accordance with SFAS No. 128, Earnings Per Share, stock options outstanding of 29,375 and 32,813 and OP Units (other than those held by the Company) outstanding of 823,388 and 823,509 (convertible into approximately 205,847 and 205,877 shares of common stock), at December 31, 2008 and 2007, respectively, have not been included in the Company’s net loss per share calculations for periods presented since their effect would be anti-dilutive.

INCOME TAXES

In preparing the Company’s consolidated financial statements, management estimates the income tax in each of the jurisdictions in which the Company operates. This process includes an assessment of current tax expense, the results of tax examinations, and the effects of temporary differences resulting from the different treatment of transactions for tax and financial accounting purposes. These differences may result in deferred tax assets or liabilities which are included in the consolidated balance sheet. The realization of deferred tax assets as a result of

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

future taxable income must be assessed and to the extent that the realization is doubtful, a valuation allowance is established. The Company’s income tax provision is based on calculations and assumptions that will be subject to examination by the taxing authorities in the jurisdictions in which the Company operates. Should the actual results differ from the Company’s estimates, the Company would have to adjust the income tax provision in the period in which the facts and circumstances that give rise to the revision become known. Tax law and rate changes are reflected in the income tax provision in the period in which such changes are enacted.

In May 2006, the State of Texas enacted a margin tax which became effective in 2008. This margin tax required each of the Company’s limited partnerships and limited liability companies that operate in Texas to pay a tax of 1.0% on their “margin” as defined in the law, beginning in 2008 based on 2007 results. The legislation revised the Texas franchise tax to create a new tax on virtually all Texas businesses. The margin tax has not had a material effect on the Company’s income tax liability.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely — than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. Effective January 1, 2007, the Company adopted the provisions of FIN 48 with was no material effect on its financial statements. As a result, there was no cumulative effect related to adopting FIN 48.

As of December 31, 2008, the Company had unrecognized tax benefits of approximately $127,000, all of which would affect our effective tax rate if recognized. The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months. The Company’s policy is to recognize interest related to any unrecognized tax benefits as interest expense and penalties as operating expenses. There are no significant penalties or interest accrued at December 31, 2008. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. The Company’s federal and state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2005 through 2008.

SEGMENT REPORTING

The Company operates as one business operating and reportable segment.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Company maintains an allowance reserve for accounts receivable which may not be ultimately collected. The allowance balance maintained is based upon historical collection experience, current aging of amounts due and specific evaluations of the collectibility of individual balances. All tenant account balances over 90 days past due are fully reserved. Accounts are written off against the reserve when they are deemed to be uncollectible.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)


NOTE 3.	REAL ESTATE

The cost and accumulated depreciation of rental property held for investment as of December 31, 2008 and 2007 are as follows (dollars in thousands):


			Buildings and				Accumulated		Net Recorded
	Land		Improvements		Total Cost		Depreciation		Value

2008:
Office properties	$	51,052	$	162,247	$	213,299	$	53,366	$	159,933
Industrial properties		8,709		31,773		40,482		7,228		33,254
Retail properties		1,100		2,480		3,580		379		3,201
Other		—		425		425		310		115

Total	$	60,861	$	196,925	$	257,786	$	61,283	$	196,503

2007:
Office properties	$	44,152	$	149,652	$	193,804	$	42,990	$	150,814
Industrial properties		8,709		31,666		40,375		5,356		35,019
Retail properties		1,100		2,456		3,556		130		3,426
Other		—		318		318		281		37

Total	$	53,961	$	184,092	$	238,053	$	48,757	$	189,296

ACQUISITIONS

2008.

On April 30, 2008, the Company purchased Fountain View Place, a 178,000 square foot office property located in Houston, Texas. The project, which consists of two adjacent buildings, is within blocks of the Company’s 2401 Fountain View office building. Acquisition costs for the property were funded with new mortgage debt and proceeds from a tax-deferred exchange.

2007.

In March and April 2007, the Company completed the acquisition of a multi-tenant industrial park located in Houston, Texas. The industrial park consists of approximately 400,000 leasable square feet. The park includes 12 acres of land on which the Company anticipates developing an additional 100,000 square feet of multi-tenant industrial space. The Company also acquired another industrial property and one retail property located in Houston Texas in April 2007. These two properties have an aggregate rentable square footage of 76,000. Acquisition costs for the three properties were primarily funded with mortgage debt, with the remainder in cash.

DISPOSITIONS

2008

During the first quarter of 2008, the Company sold a 58,783 square foot retail property (“Columbia’) located in Columbia, South Carolina for $3,200,000. The sale generated net proceeds of approximately $800,000, of which $300,000 was used to assist with the acquisition of Fountain View Place.

2007.

No properties were sold during 2007.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

In the accompanying consolidated statements of operations for the two years ended December 31, 2008 and 2007, the results of operations for Columbia is shown in the section “Discontinued operations” through its respective sale date.

INTANGIBLE ASSETS PURCHASED

Acquired lease intangible assets (in-place leases and above-market leases) are amortized over the leases’ remaining terms, which range from 1 month to 7 years. Amortization of above-market leases is recorded as a reduction of rental income and the amortization of in-place leases is recorded to amortization expense. The Company had an intangible lease cost balance of $2,298,000, net of accumulated amortization, related to in-place leases December 31, 2008. Amortization expense related to in-place leases was $398,000 during 2008. The Company currently has no intangible lease costs related to above-market leases.

Acquired lease intangible liabilities (below-market leases) are accreted over the leases’ remaining terms, which range from 1 month to 7 years. Accretion of below-market leases was $398,000 during 2008. Such accretion is recorded as an increase to rental income.

The estimated aggregate amortization amounts from acquired lease intangibles for each of the next five years are as follows (in thousands):


	Amortization		Rental Income
	Expense (in-Place		(Below-Market
Year Ending December 31,	Lease Value)		Leases)

2009	$	490	$	490
2010		421		421
2011		374		374
2012		343		343
2013		314		314
Thereafter		356		356

	$	2,298	$	2,298

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

FUTURE MINIMUM RENTS

The Company leases its office, industrial and retail center properties under non-cancelable operating lease agreements. Future minimum rents to be received as of December 31, 2008, are as follows (dollars in thousands):


	Future Minimum
Year Ending December 31,	Rents

2009	$	29,295
2010		21,534
2011		14,606
2012		9,345
2013		6,193
Thereafter		4,368

	$	85,341


NOTE 4.	DISCONTINUED OPERATIONS

Real estate assets held for sale.

As of December 31, 2007 Columbia Northeast (“Columbia”) was classified as “Real estate held for sale”. Columbia, a 58,783 square foot retail property located in South Carolina, was sold on February 28, 2008. No real estate assets were classified as held for sale by the Company at December 31, 2008.

The carrying amount of Columbia at December 31, 2007 is summarized below (dollars in thousands):


	December 31,
Condensed Consolidated Balance Sheet	2007

Real estate	$	1,808
Other		188

Real estate assets held for sale	$	1,996

Notes payable, net	$	2,222
Accounts payable		12
Accrued and other liabilities		84

Liabilities related to real estate held for sale	$	2,318

Net (loss) income from discontinued operations.

Income from discontinued operations of $631,000 and a loss from discontinued operations of $16,000 for the years ended December 31, 2008 and 2007, respectively, represent the operations of Columbia.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

The condensed consolidated statements of operations of discontinued operations are summarized below (dollars in thousands):


	Years Ended December 31,
Condensed Consolidate Statements of Operations	2008			2007

Rental revenue	$	73		$	360
Total expenses(1)		(68	)		(390	)

Income (loss) from discontinued operations before gain on sale and income tax (expense) benefit		5			(30	)
Gain on sale of discontinued operations		1,141			—
Income tax (expense) benefit		(421	)		12
Minority interest from discontinued operations		(94	)		2

Income (loss) from discontinued operations	$	631		$	(16	)


(1)		Includes interest expense of $26 and $162 for the years ended December 31, 2008 and 2007, respectively. Mortgage debt related to the property included in discontinued operations was individually secured. As such, interest expense was based on the property’s respective loan.


NOTE 5.	INVESTMENT IN MANAGEMENT COMPANY

Pursuant to the Company’s 2001 consolidation transaction, the Company acquired a portion of the property management business of CGS Real Estate Company, Inc. The Company recorded a $4,000,000 investment in the property management business as determined by an exchange value computation.

SFAS No. 142 — “Goodwill and Other Intangible Assets” — requires intangible assets that are not subject to amortization be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited.

At December 31, 2008, the Company evaluated its investment in the management company in accordance with SFAS No. 142 and determined that the fair value had not decreased below carrying value and that no impairment was necessary.


NOTE 6.	RELATED PARTY TRANSACTIONS

On December 31, 2008, the Company issued a total of 55,172 shares of Series A Preferred Stock (“Preferred Stock”) to the following individuals: William J. Carden, Chief Executive Officer, Chairman of the Board, and principal stockholder; John N. Galardi, director and principal stockholder, and Timothy R. Brown, director. Each share of Preferred Stock was sold for $29.00 and is entitled to annual dividends, payable quarterly, at an annual rate of 15%, and to a preference on liquidation equal to the following: (a) if on or prior to December 31, 2011, the sum of $29.00 and any accrued and unpaid dividends or (b) if after December 31, 2011, the greater of (x) the sum of $29.00 and any accrued and unpaid dividends or (y) the amount which would be paid on account of each share of common stock upon liquidation if each share of Preferred Stock had hypothetically been converted into one share of common stock. The Preferred Stock is not required to be redeemed by the Company and the holders will have no right to require redemption. The Preferred Stock is redeemable at the option of the Company at any time after December 31,

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

2011. The shares were issued in a private transaction exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended.

As disclosed in the Company’s proxy statement for its 2008 annual meeting, Messrs. Carden, Galardi and Brown adopted a 10b5-1 trading plan in December 2007 to jointly purchase up to 300,000 shares of ASR common stock, commencing December 26, 2007; through February 28, 2009, they have jointly purchased 90,105 shares of ASR common stock.

The Company pays a guarantee fee to Mr. Carden, Mr. Galardi and CGS Real Estate Company, Inc., a company owned indirectly by Messrs. Carden and Galardi (“the Guarantors”), in consideration for their guarantees of certain obligations of the Company. The Guarantors are paid an annual guarantee fee equal to between .25% and .75% (depending on the nature of the guarantee) of the outstanding balance as of December 31 of the guaranteed obligations (“Guarantee Fee”). The Guarantee Fee is paid for a maximum of three years on any particular obligation. Guarantee Fees for each of the two years ended December 31, 2008 and 2007 amounted to $96,712 and $14,813, respectively.

During 2007, the Company entered into a lease agreement with Galardi Group for 15,297 square feet of office space at the Company’s 7700 Irvine Center property. Mr. Galardi is a principal stockholder, director and officer of Galardi Group. The lease commenced March 1, 2008 and has a five year term. The annual base rent due to the Company pursuant to the lease is $504,081 over the term of the lease.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)


NOTE 7.	NOTES PAYABLE

The Company had the following notes payable outstanding as of December 31, 2008 and 2007 (dollars in thousands):


			2008					2007
	Maturity		Principal		Interest			Principal		Interest
Property (Unless Otherwise Noted)	Date		Balance		Rate			Balance		Rate

Fixed Rate
Fountain View Place		4/29/2009		1,700		10.00	%		—		—
Fountain View Place(1)		4/29/2009		2,500		18.00	%		—		—
Pacific Spectrum		6/10/2009		5,341		8.02	%		5,422		8.02	%
1501 Mockingbird		6/30/2009		300		6.00	%		304		6.00	%
6430 Richmond Atrium		6/30/2009		715		5.50	%		726		5.50	%
Morenci		12/01/2009		1,524		6.60	%		1,617		6.60	%
Corporate — Secured(2)		2/7/2010		1,950		7.50	%		1,951		8.07	%
Bristol Bay		8/1/2011		7,005		7.58	%		7,101		7.58	%
Technology		8/1/2011		7,243		7.44	%		7,346		7.44	%
Creekside		12/1/2011		5,907		7.17	%		5,993		7.17	%
16350 Park Ten Place		5/11/2012		4,526		7.45	%		4,586		7.45	%
16360 Park Ten Place		5/11/2012		3,546		7.45	%		3,593		7.45	%
2855 Mangum		5/11/2012		2,613		7.45	%		2,647		7.45	%
2855 Mangum		5/11/2012		1,472		6.00	%		1,531		6.00	%
6430 Richmond Atrium		5/11/2012		2,193		7.45	%		2,222		7.45	%
16350 Park Ten Place		5/11/2012		500		7.45	%		506		7.45	%
Southwest Pointe		6/1/2012		2,751		7.33	%		2,787		7.33	%
16360 Park Ten Place		8/11/2012		391		7.45	%		397		7.45	%
11500 Northwest Freeway		6/1/2014		4,145		5.93	%		4,208		5.93	%
11500 Northwest Freeway		6/1/2014		300		5.93	%		304		5.93	%
5850 San Felipe		8/1/2014		5,177		5.65	%		5,258		5.65	%
Northwest Corporate Center		8/1/2014		5,451		6.26	%		5,527		6.26	%
14741 Yorktown		9/1/2014		8,600		5.32	%		8,600		5.32	%
8100 Washington		2/22/2015		2,232		5.59	%		2,266		5.59	%
8300 Bissonnet		5/1/2015		4,597		5.51	%		4,662		5.51	%
1501 Mockingbird		7/1/2015		3,287		5.28	%		3,332		5.28	%
5450 Northwest Central		9/1/2015		2,674		5.38	%		2,715		5.38	%
800 Sam Houston Parkway		12/29/2015		2,372		6.25	%		2,420		6.25	%
888 Sam Houston Parkway		12/29/2015		2,372		6.25	%		2,420		6.25	%
2401 Fountain View		3/1/2016		12,316		5.82	%		12,482		5.82	%
12000 Westheimer		1/1/2017		4,250		5.70	%		4,250		5.70	%
Gray Falls		1/1/2017		3,100		5.70	%		3,100		5.70	%
6420 Richmond Atrium		6/5/2017		6,400		5.87	%		6,400		5.87	%
7700 Building		8/1/2017		45,000		5.99	%		45,000		5.99	%
Fountain View Place		4/29/2018		12,670		6.50	%		—		—

		Subtotal	$	177,120				$	161,673
Variable Rate
Corporate — Unsecured(3)		1/12/2010		1,200		6.00	%		1,500		8.25	%
Beltway Industrial(4)		5/9/2010		17,170		7.00	%		17,000		7.64	%
Corporate — Unsecured(5)		5/31/2010		500		6.00	%		200		8.25	%
NW Spectrum		4/19/2012		3,210		6.71	%		3,315		7.64	%
Windrose		4/19/2012		2,975		6.71	%		3,072		7.64	%

		Subtotal	$	25,055				$	25,087
Loan Premiums				19					64

		Total	$	202,194				$	186,824


(1)		Note contains an option to extend maturity for two six-month terms.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)


(2)		In August 2008, the lender extended the maturity date of the note from October 1, 2008 to February 7, 2010. The interest rate changed from a variable rate to a 7.50% fixed rate.

(3)		In May 2008, the Company made a principal payment of $150,000 on the note, which reduced the principal balance to $1,350,000 and the lender extended the maturity date of the note from June 12, 2008 to January 12, 2009. In October 2008, the Company made a principal payment of $150,000 on the note which reduced the principal balance to $1,200,000 and the lender extended the maturity date of the note from January 12, 2009 to January 12, 2010.

(4)		In August 2008, the lender funded the Company $170,000 for capital expenditures incurred at the property. An additional $205,000 in unfunded principal is currently available for future capital expenditures.

(5)		In March 2008, the lender extended the maturity date of the note from May 31, 2008 to May 31, 2010 and funded the Company an additional $300,000, which increased the principal balance to $500,000.

In April 2008, in connection with the acquisition of Fountain View Place, an office property in Houston, Texas, the Company obtained new mortgage debt of $16,940,000. The debt is comprised of three loans; i) a $12,740,000 ten-year bank loan which bears interest at a fixed rate of 6.5% per annum, ii) a $1,700,000 one-year junior loan from the same bank which bears interest at a fixed rate of 10% per annum, and iii) a $2,500,000 one-year junior loan from a private firm, which bears interest at a rate of 18% per annum. The $2,500,000 loan contains an option to extend maturity for two six-month terms.

The required principal payments on the Company’s debt for the next five years and thereafter, as of December 31, 2008, are as follows (dollars in thousands):


Year Ending December 31,

2009	$	13,997
2010		23,510
2011		22,193
2012		25,413
2013		2,233
Thereafter		114,829

Subtotal		202,175
Loan premium, net		19

Total	$	202,194


NOTE 8.	LOSS ON EXTINGUISHMENT OF DEBT

During 2007, the Company recorded a loss on extinguishment of debt of $2,413,000 in connection with the loan refinance on 7700 Irvine Center, an office property located in Irvine, California. The loss consisted of a prepayment penalty of $3,536,000, partially offset by the write-off of unamortized loan premium of $1,123,000. The net loss on extinguishment of debt is included in other loss in the consolidated statement of operations for the year ended December 31, 2007.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)


NOTE 9.	MINORITY INTEREST

In accordance with SFAS No. 160, effective January 1, 2009 and more fully described in Note 2, the Company’s minority interest balance, which at December 31, 2008 was $3,542,000, will be included in Stockholders’ Equity.

OP Units (other than those held by the Company) of 823,388 (convertible into approximately 205,847 shares of common stock) were outstanding as of December 31, 2008.

During the year ended December 31, 2008, 121 OP Units were redeemed for cash of approximately $1,000. No OP Units were exchanged for stock during 2008.

OP Units (other than those held by the Company) of 823,509 (convertible into approximately 205,877 shares of common stock) were outstanding as of December 31, 2007.

During the year ended December 31, 2007 a total of 21,998 OP Units were redeemed for cash of approximately $145,000. No OP Units were exchanged for stock during 2007.


NOTE 10.	REPURCHASE OF COMMON STOCK

In January 2006, the Company’s Board of Directors authorized the repurchase of up to an additional 100,000 shares of its common stock, which increased the authorized amount to 200,000 shares. The stock repurchases were made from time to time in open market transactions. In May 2008, the authorization to repurchase shares in open market transactions was withdrawn by the Board of Directors.

In April 2008, 366 shares were repurchased in a private transaction for $9,143, or $24.98 per share.

During 2007, a total of 8,590 shares were repurchased in open market transactions, increasing the total number of shares repurchased under the program to 122,206 as of December 31, 2007. The total cost of the 8,590 shares repurchased amounted to $211,000 at an average price of $24.60 per share inclusive of transaction fees.


NOTE 11.	INCOME TAXES

The provision for income taxes from continuing operations on income consists of the following for the years ended December 31, 2008 and 2007 (thousands of dollars):


	2008			2007

Current expense (benefit):
Federal	$	—		$	—
State		218		$	—

	$	218			—

Deferred expense (benefit):
Federal	$	(4,782	)	$	(3,864	)
State		(596	)		(454	)

	$	(5,378	)	$	(4,318	)

The provision for income taxes from discontinued operations amounted to a deferred tax expense of $421,000 for the year ended December 31, 2008 and a deferred tax benefit of $12,000 for the year ended December 31, 2007.

The Company has federal and state net operating loss carryforwards of approximately $18,453,000 and $5,953,000, respectively, as of December 31, 2008.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

The Company is a loss corporation as defined in Section 382 of the Internal Revenue Code. Therefore, if certain changes in the Company’s ownership should occur, there could be a significant annual limitation on the amount of loss carryforwards and future recognized losses that can be utilized and ultimately some amount of loss carryforwards may not be available. Such changes could result in additional tax provision. The net operating loss carryforwards expire in 2022 through 2025.

For the two years ended December 31, 2008, the reported income tax benefit differs from the amount of benefit determined by applying the federal statutory rate of 34% before income taxes as a result of the following:


	December 31,			December 31,
	2008			2007

Expected income tax benefit at statutory federal rate	$	(4,593	)	$	(4,890	)
Permanent differences:
Note premium		(15	)		(93	)
Minority interest		156			395
Meals and entertainment		13			14
Stock-based compensation		(2	)		16
Return to provision		(499	)		16
State income tax (benefit) expense		(220	)		240

Income tax benefit	$	(5,160	)	$	(4,318	)

The components of deferred tax assets and liabilities consist of the following as of December 31, 2008 and December 31, 2007, respectively (thousands of dollars):


	December 31, 2008			December 31, 2007

Deferred tax assets:
Net operating losses	$	6,762		$	5,035
Allowance for bad debts		120			69

Total deferred tax asset		6,882			5,104
Deferred tax liabilities:
Built-in gains		(3,059	)		(6,277	)
Straight-line rents receivable		(685	)		(586	)
Stock compensation		(15	)		(18	)

Total deferred tax liabilities		(3,759	)		(6,881	)

Net deferred tax asset (liability)	$	3,123		$	(1,777	)

Based on the current strategic plans of the Company, management has determined that it was more likely than not that future taxable income, primarily from the gain on the sale of real estate assets, would be sufficient to enable the Company to realize all of its deferred tax assets. Therefore, for each of the two years ended December 31, 2008, no valuation allowance has been recorded.


NOTE 12.	NET LOSS PER SHARE

Net loss per share is calculated based on the weighted average number of common shares outstanding. Stock options outstanding and OP Units have not been included in the net loss per share calculation since their effect on

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

the losses would be antidilutive. Net loss per share for each of the two years ended December 31, 2008 and 2007 is as follows (in thousands, except for shares and per share amounts):


	Years Ended December 31,
	2008			2007

Loss from continuing operations	$	(7,274	)	$	(8,758	)
Discontinued operations:
Income (loss) from discontinued operations		5			(30	)
Gain on sale of discontinued operations		1,141			—
Income tax benefit (expense)		(421	)		12
Minority interest		(94	)		2

Income (loss) from discontinued operations		631			(16	)

Net loss	$	(6,643	)	$	(8,774	)

Basic and diluted per share data:
Loss from continuing operations	$	(5.28	)	$	(6.37	)
Income (loss) from discontinued operations		0.46			(0.01	)

Net loss	$	(4.82	)	$	(6.38	)

Basic weighted average shares used		1,376,923			1,375,708


NOTE 13.	STOCK OPTION AND RESTRICTED SHARE PLANS

The Company has in effect its Omnibus Stock Incentive Plan (the “Plan”), which is administered by the Board of Directors, and provides for the granting of incentive and non-qualified stock options, stock appreciation rights, restricted stock, performance units and performance shares. The Board has reserved a total of 180,000 shares under the Plan. As of December 31, 2008, 111,314 ASR shares were available for issuance to executive officers, directors or other key employees of the Company.

In accordance with SFAS No. 123R, stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated on the grant date using the Black-Scholes option-pricing model. The Company recognizes these compensation costs net of a forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award.

Total stock-based compensation expense recognized for the two years ended December 31, 2008 and 2007 amounted to $70,000, or $.05 per share, and $49,000, or $.04 per share, respectively. Compensation expense is included in general and administrative expense in the Company’s consolidated statement of operations for all periods presented.

Stock Options

No stock options have been granted since 2006. The Company has a policy of issuing new shares upon the exercise of stock options. During 2008, 2,500 options were exercised. Cash of $31,000 was received from the exercise of these options. During 2007, 3,125 options were exercised. Cash of $85,000 was received from the exercise of these options.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

The following table summarizes activity and outstanding stock options under the plan:


	Shares			Weighted
	Under			Average		Aggregate Intrinsic
	Option			Exercise Price		Value

Outstanding on January 1, 2008		32,813		$	24.07
Granted		—			—
Forfeited		(938	)	$	14.86
Exercised		(2,500	)	$	12.43	$	30,181

Outstanding on December 31, 2008		29,375		$	23.93	$	227,288

Exercisable as of December 31, 2008		27,813		$	24.25	$	217,209

The following table summarizes certain information for stock options outstanding on December 31, 2008:


			Weighted Average		Weighted
			Remaining		Average
	Number		Contractual		Exercise
Range of Exercise Price	Outstanding		Life		Price

$ 8.10 - $12.20		12,500		5.2 years	$	10.66
$18.25 - $27.16		11,250		5.7 years	$	20.65
$60.00 - $60.00		5,625		2.8 years	$	60.00

The following table summarizes certain information for stock options exercisable on December 31, 2008:


			Weighted Average		Weighted
			Remaining		Average
	Number		Contractual		Exercise
Range of Exercise Price	Exercisable		Life		Price

$ 8.10 - $12.20		12,500		5.2 years	$	10.66
$18.25 - $27.16		9,688		5.4 years	$	21.03
$60.00 - $60.00		5,625		2.8 years	$	60.00

A summary of the status of the Company’s nonvested stock options as of January 1, 2008 and changes during the year ended December 31, 2008 is presented below:


				Weighted
				Average
				Grant Date
Nonvested Stock Options	Number			Fair Value

Nonvested at January 1, 2008		5,000		$	9.00
Granted		—			—
Vested		(2,500	)	$	8.50
Forfeited		(938	)	$	8.67

Nonvested at December 31, 2008		1,562		$	10.00

The aggregate fair value of the 2,500 shares vested during 2008 was $61,750, based on the Company’s stock price at December 31, 2008.

As of December 31, 2008, there was $5,000 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a remaining vesting period of approximately five months.

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)

Restricted Stock

In May 2008 Company issued 4,250 restricted shares of Common Stock to its officers and directors under the Plan. The restrictions on the shares issued lapse in three equal annual installments commencing on the first anniversary date of the issuance. Compensation expense is recognized on a straight-line basis over the vesting period.

During the years ended December 31, 2008 and 2007, compensation expense of $54,000 and $21,000, respectively, was recognized for restricted shares. Recipients of restricted stock have the right to vote all shares, to receive and retain all cash dividends payable to holders of shares of record on or after the date of issuance and to exercise all other rights, powers and privileges of a holder of Company shares, with the exception that the recipient may not transfer the shares during the restriction period.

A summary of the status of the Company’s restricted stock awards as of January 1, 2008 and changes during the year ended December 31, 2008 is presented below:


				Weighted
				Average
	Number of			Grant Date
Restricted Stock Awards	Shares			Fair Value

Nonvested at January 1, 2008		4,250		$	22.75
Granted		4,250		$	25.00
Vested		(1,413	)	$	22.75
Forfeited		—			—

Nonvested at December 31, 2008		7,087		$	24.10

As of December 31, 2008, there was $127,000 of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average restriction period of 2.0 years.


NOTE 14.	COMMITMENTS AND CONTINGENCIES

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Financial Statements — (Continued)


NOTE 15.	PREFERRED STOCK

The Company is authorized to issue up to 25,000,000 shares of one or more classes or series of preferred stock with a par value of $.01 per share.

On December 30, 2008, the Company filed Articles Supplementary to its Articles of Incorporation, which authorized the issuance of 68,965 of Series A Preferred Stock (“Preferred Stock”).

On December 31, 2008, Company issued 55,172 shares of the Preferred Stock to Messrs. Carden, Galardi, and Brown (Also see Note 6 — Related Party Transactions). Each share of Preferred Stock was sold for $29.00 and is entitled to annual dividends, payable quarterly, at an annual rate of 15%, and to a preference on liquidation equal to the following: (a) if on or prior to December 31, 2011, the sum of $29.00 and any accrued and unpaid dividends or (b) if after December 31, 2011, the greater of (x) the sum of $29.00 and any accrued and unpaid dividends or (y) the amount which would be paid on account of each share of common stock upon liquidation if each share of Preferred Stock had hypothetically been converted into one share of common stock. The Preferred Stock is not required to be redeemed by the Company and the holders will have no right to require redemption. The Preferred Stock is redeemable at the option of the Company at any time after December 31, 2011. The shares were issued in a private transaction exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended.

AMERICAN SPECTRUM REALTY, INC.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS


Column A	Column B		Column C		Column D		Column E
			Additions
	Balance at		Charged to				Balance
	Beginning of		Costs and				at End
Description	Year		Expenses		Deductions		of Year
	(Dollars in thousands)

Year Ended December 31, 2008
Allowance for loss on real estate held for investment(1)	$	472	$	—	$	472	$	—
Year Ended December 31, 2007
Allowance for loss on real estate held for investment	$	472	$	—	$	—	$	472
Year Ended December 31, 2008
Allowance for doubtful accounts	$	186	$	841	$	656	$	371
Year Ended December 31, 2007
Allowance for doubtful accounts	$	228	$	204	$	246	$	186


(1)		Valuation allowance of $472 on Columbia Northeast, a retail center property in South Carolina, established in 2002 as the estimated fair market value declined below book value. The property, which was classified as “Real estate held for sale” as of December 31, 2007, was sold on February 28, 2008.

AMERICAN SPECTRUM REALTY, INC.

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2008


Column A	Column B		Column C				Column D		Column E
							Cost Capitalized		Gross amount carried at
			Initial Cost to Company(1)				Subsequent to		December 31, 2008 (3)
					Buildings and		Acquisition (2)				Buildings and
Description	Encumbrances		Land		Improvements		Improvements		Land		Improvements		Total
	(Dollars in thousands)

Office Properties:
San Felipe, TX	$	5,177	$	2,290	$	4,290	$	1,333	$	2,290	$	5,623	$	7,913
Creekside, CA		5,907		2,790		6,460		495		2,790		6,955		9,745
Bristol Bay, CA		7,005		1,620		7,880		1,530		1,620		9,410		11,030
7700 Irvine Center, CA		45,000		9,150		40,390		4,354		9,150		44,744		53,894
Northwest Corporate Center, MO		5,451		1,550		5,230		1,419		1,550		6,649		8,199
16350 Park Ten, TX		5,026		1,174		5,324		630		1,174		5,954		7,128
16360 Park Ten, TX		3,937		900		4,192		744		900		4,936		5,836
800 Sam Houston Parkway, TX		2,372		1,000		1,121		694		1,000		1,815		2,815
888 Sam Houston Parkway, TX		2,372		500		892		403		500		1,295		1,795
5450 Northwest Central, TX		2,674		854		2,622		645		854		3,267		4,121
12000 Westheimer, TX		4,250		1,878		2,432		1,379		1,878		3,811		5,689
8100 Washington, TX		2,232		600		2,317		153		600		2,470		3,070
8300 Bissonnet, TX		4,597		1,400		3,990		306		1,400		4,296		5,696
Pacific Spectrum, AZ		5,341		1,460		6,880		1,692		1,460		8,572		10,032
11500 NW Freeway, TX		4,445		2,278		3,621		513		2,278		4,134		6,412
14741 Yorktown, TX		8,600		2,375		9,504		3		2,375		9,507		11,882
2855 Mangum, TX		4,085		2,134		3,300		208		2,134		3,508		5,642
2470 Gray Falls Drive, TX		3,100		670		1,956		354		670		2,310		2,980
2401 Fountain View, TX		12,316		3,500		13,451		733		3,500		14,184		17,684
1501 Mockingbird, TX		3,587		1,000		3,583		37		1,000		3,620		4,620
6420 Richmond Atrium, TX		6,400		3,384		3,039		164		3,384		3,203		6,587
6430 Richmond Atrium, TX		2,908		1,645		2,116		62		1,645		2,178		3,823
Fountain View Place, TX		16,870		6,900		9,612		194		6,900		9,806		16,706

Office Total	$	163,652	$	51,052	$	144,202	$	18,045	$	51,052	$	162,247	$	213,299

Industrial Properties:
Southwest Point, TX		2,751		1,800		1,530		494		1,800		2,024		3,824
Morenci Professional Park, IN		1,524		790		2,680		141		790		2,831		3,621
Technology, TX		7,243		580		9,360		101		580		9,461		10,041
Beltway Industrial, TX		17,170		3,829		14,764		305		3,829		15,069		18,898
Northwest Spectrum, TX		3,210		1,710		2,297		91		1,710		2,388		4,098

Industrial Total	$	31,898	$	8,709	$	30,631	$	1,132	$	8,709	$	31,773	$	40,482

Retail Properties:
Windrose, TX		2,975		1,100		2,440		40		1,100		2,480		3,580

Retail Total	$	2,975	$	1,100	$	2,440	$	40	$	1,100	$	2,480	$	3,580

Other:
American Spectrum Realty				—		138		287		—		425		425

Other Total	$	—	$	—	$	138	$	287	$	—	$	425	$	425

Combined Total	$	198,525	$	60,861	$	177,411	$	19,504	$	60,861	$	196,925	$	257,786

AMERICAN SPECTRUM REALTY, INC.

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2008


Column A	Column F		Column G		Column H		Column I
							Life on Which
							Depreciation in
							Latest Income
	Accumulated		Date of		Date		Statements
Description	Depreciation		Construction		Acquired		is Computed
	(Dollars in
	thousands)

Office Properties:
San Felipe, TX		2,123		1977		2001		5-40
Creekside, CA		2,917		1984		2001		5-40
Bristol Bay, CA		3,793		1988		2001		5-40
7700 Irvine Center, CA		19,593		1989		2001		5-40
Northwest Corporate Center, MO		2,785		1983-1987		2001		5-40
16350 Park Ten, TX		2,366		1979		2002		5-40
16360 Park Ten, TX		1,997		1981		2002		5-40
800 Sam Houston Parkway, TX		621		1980		2004		5-40
888 Sam Houston Parkway, TX		574		1979		2002		5-40
5450 Northwest Central, TX		1,096		1979		2003		5-40
12000 Westheimer, TX		1,251		1981		2003		5-40
8100 Washington, TX		805		1980		2003		5-40
8300 Bissonnet, TX		1,345		1981		2003		5-40
Pacific Spectrum, AZ		3,945		1986		2001		5-40
11500 NW Freeway, TX		1,132		1983		2004		5-40
14741 Yorktown, TX		1,549		1996		2006		5-40
2855 Mangum, TX		646		1979		2006		5-40
2470 Gray Falls Drive, TX		526		1983		2006		5-40
2401 Fountain View, TX		2,502		1980		2006		5-40
1501 Mockingbird, TX		534		1981		2006		5-40
6420 Richmond Atrium, TX		495		1979		2006		5-40
6430 Richmond Atrium, TX		360		1974		2006		5-40
Fountain View Place, TX		411		1974		2006		5-40

Office Total	$	53,366

Industrial Properties:
Southwest Point, TX		812		1972		2001		5-40
Morenci, Professional Park, IN		1,126		1975-1979		2001		5-40
Technology, TX		3,458		1986		2001		5-40
Beltway Industrial, TX		1,506		1999		2007		5-40
Northwest Spectrum, TX		326		2004		2007		5-25

Industrial Total	$	7,228

Retail Properties:
Windrose, TX		379		2005		2007		5-25

Retail Total	$	379

Other:
American Spectrum Realty-FF&E		310		—		—		3-5

Other Total	$	310

Combined Total	$	61,283


(1)		Initial cost and date acquired, where applicable.

(2)		Costs capitalized are offset by retirements and write-offs.

(3)		The aggregate cost for federal income tax purposes is $150,632.

SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN SPECTRUM REALTY INC

By: American Spectrum Realty Inc.,



Date: March 16, 2009		/s/ William J. Carden William J. Carden Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

Date: March 16, 2009		/s/ G. Anthony Eppolito G. Anthony Eppolito Vice President, Chief Financial Officer (Principal Financial and Accounting Officer), Treasurer and Secretary

Date: March 16, 2009		/s/ Timothy R. Brown Timothy R. Brown Director

Date: March 16, 2009		/s/ William W. Geary, Jr. William W. Geary, Jr. Director

Date: March 16, 2009		/s/ Presley E. Werlein, III Presley E. Werlein, III Director

Date: March 16, 2009		/s/ John N. Galardi John N. Galardi Director

EXHIBIT INDEX


Exhibit
No.			Exhibit Title

	3	.1	Form of Amended and Restated Articles of Incorporation of the Company(1)
	3	.2	Bylaws of the Company(1)
	3	.3	Amended and Restated Bylaws of the Company are incorporated herein by reference to Exhibit 3.01 to the Company’s Form 10-Q for the quarter ended June 30, 2002
	3	.4	Articles of Amendment of the Company are incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003
	3	.5	Articles of Amendment of the Company are incorporated herein by reference to the Company’s Form 10-Q for the quarter ended March 31, 2006
	3	.6	Articles Supplementary for 15% Cumulative Preferred Stock, Series A of the Company dated December 30, 2008 are incorporated herein by reference to the Company’s Form 8-K filed January 8, 2009
	4	.1	Form of Stock Certificate(1)
	10	.1	Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund(1)
	10	.2	Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund II(1)
	10	.3	Form of Agreement and Plan of Merger of Sierra-Pacific Development Fund III(1)
	10	.4	Form of Agreement and Plan of Merger of Sierra Pacific Pension Investors ‘84(1)
	10	.5	Form of Agreement and Plan of Merger of Sierra Pacific Institutional Properties V(1)
	10	.6	Form of Agreement and Plan of Merger of Nooney Income Fund Ltd., L.P.(1)
	10	.7	Form of Agreement and Plan of Merger of Nooney Income Fund Ltd., L.P.(1)
	10	.8	Form of Agreement and Plan of Merger of Nooney Real Property Investors — Two, L.P.(1)
	10	.9	Omnibus Stock Incentive Plan(1)
	10	.10	Agreement of Limited Partnership of American Spectrum Realty Operating Partnership, L.P.(1)
	10	.11	Agreement and Plan of Merger, dated August 6, 2000, between the Company and CGS Properties (Mkt./Col.), L.P.(1)
	10	.12	Agreement and Plan of Merger, dated August 6, 2000, between the Company and Creekside/Riverside, L.L.C.(1)
	10	.13	Agreement and Plan of Merger, dated August 6, 2000, between the Company and McDonnell Associates, L.L.C.(1)
	10	.14	Agreement and Plan of Merger, dated August 6, 2000, between the Company and Pacific Spectrum, L.L.C.(1)
	10	.15	Agreement and Plan of Merger, dated August 6, 2000, between the Company and Pasadena Autumn Ridge L.P.(1)
	10	.16	Agreement and Plan of Merger, dated August 6, 2000, between the Company and Seventy Seven, L.L.C.(1)
	10	.17	Agreement and Plan of Merger, dated August 6, 2000, between the Company and Villa Redondo L.L.C.(1)
	10	.18	Agreement and Plan of Merger, dated August 6, 2000, between the Company and Third Coast L.L.C.(1)
	10	.19	Agreement and Plan of Contribution, dated August 6, 2000, between the Company and No.-So., Inc.(1)
	10	.20	Form of Restricted Stock Agreement(1)
	10	.21	Form of Stock Option Agreement (Incentive Stock Options)(1)
	10	.22	Form of Stock Option Agreement (Directors)(1)
	10	.23	Form of Stock Option Agreement (Non-Qualified Options)(1)
	10	.24	Form of Indenture Relating to Notes(1)
	10	.25	Contribution Agreement, dated May 31, 2000, between the Company and CGS Real Estate Company, Inc.(1)


Exhibit
No.			Exhibit Title

	10	.26	Contribution Agreement, dated May 31, 2000, between the Company and American Spectrum Real Estate Services, Inc.(1)
	10	.27	Agreement and Plan of Merger, dated May 31, 2001, between the Company and Lindbergh Boulevard Partners (Lindbergh), L.P.(1)
	10	.28	Agreement and Plan of Merger, dated May 31, 2001, between the Company and Nooney Rider Trail L.L.C.(1)
	10	.29	Agreement and Plan of Merger, dated May 31, 2001, between the Company and Back Bay L.L.C.(1)
	10	.30	Contribution Agreement, dated May 31, 2001, between American Spectrum Realty Management, Inc. and CGS Real Estate Company, Inc., American Spectrum — Midwest, American Spectrum — Arizona, American Spectrum — California and American Spectrum — Texas, Inc.(1)
	10	.31	Amendment of Agreement Plan of Merger between the Company and Villa Redondo L.L.C. is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001
	10	.32	Amendment of Agreement Plan of Merger between the Company and Pasadena Autumn Ridge, L.P. is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001
	10	.33	Amendment of Agreement Plan of Merger between the Company and Third Coast L.L.C. is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001
	10	.34	Registration Right’s Agreement between the Company, the Operating Partnership, and other parties is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001
	10	.35	Employment Agreement dated October 15, 2001 between the Company and Harry A. Mizrahi is incorporated herein by reference to Exhibit 10.01 to the Company’s Form 10-Q for the quarter ended March 31, 2002
	10	.36	Employment Agreement dated April 3, 2002 between the Company and Paul E. Perkins is incorporated herein by reference to Exhibit 10.02 to the Company’s Form 10-Q for the quarter ended March 31, 2002
	10	.37	Employment Agreement dated April 16, 2002 between the Company and Patricia A. Nooney is incorporated herein by reference to Exhibit 10.03 to the Company’s Form 10-Q for the quarter ended March 31, 2002
	10	.38	Employment Agreement dated September 1, 2002 between the Company and Thomas N. Thurber is incorporated herein by reference to Exhibit 10.04 to the Company’s Form 1-Q for the quarter ended June 30, 2002 (Exhibits pursuant to the Agreement have not been filed by the Company, who hereby undertakes to file such exhibits upon the request of the SEC)
	10	.39	Employment Agreement dated October 15, 2001 between the Company and William J. Carden is incorporated herein by reference to Exhibit 10.5 to the Company’s Form 10-Q for the quarter ended September 30, 2002
	10	.40	Letter Agreement dated February 25, 2003 between the Company and William J. Carden and John N. Galardi is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002
	10	.41	Letter Agreement dated February 25, 2003 between the Company and CGS Real Estate Company, Inc. is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002
	10	.42	Letter Agreement dated February 25, 2003 between the Company and William J. Carden and John N. Galardi is incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002


Exhibit
No.			Exhibit Title

	10	.43	Amendment No. 1 to Employment Agreement dated October 6, 2003 between the Company and Patricia A. Nooney incorporated herein by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003
	21		Significant Subsidiaries of the Company
	23	.1	Hein & Associates, LLP Consent — Form 10-K
	31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
	31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
	32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)		Incorporated herein by reference to the Company’s Registration Statement on Form S-4 (Registration No. 333-43686), which became effective August 8, 2001.


	2008			2007
	(Dollars in thousands)

Rental Property:
Balance at beginning of year	$	238,053		$	208,599
Additions during year:
Property acquisitions and additions		20,405			30,481
Retirements		(672	)		(1,027	)

Balance at end of year	$	257,786		$	238,053

Accumulated Depreciation:
Balance at beginning of year	$	48,757		$	37,592
Additions during year:
Depreciation		13,198			12,192
Retirements		(672	)		(1,027	)

Balance at end of year	$	61,283		$	48,757


			Page
			No.

PART I
	Item 1	Business		3
	Item 1A	Risk Factors		7
	Item 1B	Unresolved Staff Comments		9
	Item 2	Properties		10
	Item 3	Legal Proceedings		13
	Item 4	Submission of Matters to a Vote of Security Holders		13

PART II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		14
	Item 6	Selected Financial Data		15
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
	Item 8	Financial Statements and Supplementary Data		20
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		20
	Item 9A(T)	Controls and Procedures		21
	Item 9B	Other Information		21

PART III
	Item 10	Directors, Executive Officers and Corporate Governance		22
	Item 11	Executive Compensation		22
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		22
	Item 13	Certain Relationships and Related Transactions, and Director Independence		22
	Item 14	Principal Accountant Fees and Services		22

PART IV
	Item 15	Exhibits and Financial Statement Schedules		23
EX-21
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2


ITEM 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES*


			Page No.

(a)	(1)	Financial Statements
		Report of Independent Registered Public Accounting Firm		24
		Consolidated Balance Sheets at December 31, 2008 and 2007		25
		Consolidated Statements of Operations for the years ended December 31, 2008 and 2007		26
		Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007		27
		Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007		28
		Notes to Consolidated Financial Statements		29
	(2)	Financial Statement Schedules
		Schedule II — Valuation and Qualifying Accounts		47
		Schedule III — Real Estate and Accumulated Depreciation		48
	(3)	Exhibits to Financial Statements
		The Exhibit Index attached hereto is hereby incorporated by reference to this Item.		52
		On November 18, 2008, a report on Form 8-K was filed with respect to Item 2.02.
		On December 8, 2008, a report on Form 8-K was filed with respect to Item 8.01.
(b)		Exhibits