CEO 2005 Letter to Shareholders

Fellow Shareholders:

I am pleased to report that in 2005 we continued successfully with the implementation of our business plan for the Company's future growth, both with respect to our approach to opportunistic real estate investing and to improve the Company's capitalization. These efforts are apparent in the key metrics of operating results, growth in total assets, increases to shareholder equity and increases to total shareholder return. A comparison of the Company's performance in 2005, 2004 and 2003, is as follows:

  2005 2004 2003
Net Cash Flow from Operations $20,025,000 $3,987,000 -$3,747,000
Total Assets(1) $653,666,000 $289,968,000 $146,838,000
Total Shareholder Equity(1) $254,424,000 $120,142,000 $96,770,000
Shareholder Equity(1) per Common Share $3.85 $3.12 $2.37
Dividends Applicable to Common Shares $3,913,000 $0.00 $0.00
Dividends per Common Share $0.11 $0.00 $0.00

(1) Under Generally Accepted Accounting Principles

Total return to common shareholders, inclusive of dividends paid, was 53.7% for 2005 compared to the Morgan Stanley REIT ("RMS") Index return of 12.13%. Since management assumed responsibility for the Company on January 1, 2004, our total return has been 168.2% through December 31, 2005, compared to 47.44% for the RMS.

With the Company's prior issues resolved, we were able to focus on our opportunistic approach to investment - one in which we invest capital only in those situations which we perceive to be either significantly undervalued from a risk-adjusted standpoint or otherwise underperforming and thus capable of generating superior investment returns through improved management and additional capital infusion. In so doing, we invest in any portion of an asset's capital structure and in a multitude of different formats, including, direct ownership of an asset, purchase of a controlling equity interest in an asset, lending to or acquiring the debt of a particular asset and acquiring the equity or debt securities of a publicly traded company which owns real estate assets. Our investment strategy also provides that the Company retain the ability to exit the investment at the time and manner of its choosing. This approach to investing by its nature results in broader asset diversification rather than a singular focus on a particular asset class or geographic region.

While we consummated a number of single asset purchases in 2005 and will continue to do so in the foreseeable future, we have favored platform investment opportunities - large portfolio investments in which we can diversify our investments among a pool of assets, leverage our capital and, possibly utilize the specialized market expertise of a joint venture partner. Clearly, our $80,000,000 investment in the Marc Realty office portfolio as well as our $50,000,000 investment in Newkirk Realty Trust ("NKT") are prime examples of this approach. Currently under consideration is the formation of one or more collateral debt obligation pools which would be further representative of this approach. To some extent, our activist investments in the securities of other small cap real estate investment trusts is also reflective of this approach-although in these situations, one should not read into these investments an endorsement of management of these companies.

Allocation and deployment of capital, however, is only a portion of the equation. Successfully accessing efficient capital that enables us to meet and exceed our shareholders' return expectations is also critical. In this regard, the Company faced a number of challenges in 2005. First and foremost was the need to access capital at a non-prohibitive cost in the absence of significant recurring income. We addressed this challenge through a variety of means. The Company issued and sold $100,000,000 of Class B 6.5% convertible preferred shares to a group of institutional investors. We privately placed 4,522,000 shares of common shares for net proceeds of $17,940,000 with Kimco Realty Trust and Vornado Realty Trust. Having increased the Company's equity base by approximately $117,000,000, we were able to procure a $50,000,000 line of credit, a debt facility which would otherwise have been unavailable but for this increase in our equity base. The proceeds of these transactions have been invested in, among other things, the Marc Realty transaction and the NKT investment creating a stabilized stream of recurring income at a positive spread to our cost of borrowing. We anticipate that this resulting income stream will permit future accretive debt and equity financings. The overall impact of these transactions has been to strengthen our balance sheet, increase our liquidity and reduce our ongoing cost of capital. We are, and will continue to be, as mindful of the manner in which we access capital as we are of the manner in which we deploy it.

Looking ahead, I am more confident than ever about our Company's future prospects for success. We have aggressively initiated our program of opportunistic real estate investing. We have reconfigured our balance sheet to provide the Company with cost-effective capital to fund this strategy. Through our capital raising efforts, we have aligned our Company with an extremely sophisticated group of institutional investors with whom we will be able to partner to access additional capital. Most importantly, we continue to benefit from the efforts and expertise of our superb management team and the astute leadership of our Board of Trustees.

I look forward to meeting with you at our annual meeting and addressing any questions which you may have.

Michael L. Ashner
Chairman and Chief Executive Officer