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NEWTOWN SQUARE, PA-As GMH Communities Trust filed its long-delayed second-quarter 2006 financial report, a special committee continues to evaluate alternative strategies for the company.

During a conference call, Gary M. Holloway Sr., president, chairman and CEO, declined to take questions regarding the committee’s progress, but said it “is evaluating indications of interest by several parties regarding a sale of the company or its assets.” As GlobeSt.com previously reported, the special committee was formed in March in response to an audit committee investigation, prompted by an allegation of “tone at the top” problems with management and “material weaknesses” in controls over financial reporting, submitted by the then-CFO Bradley Harris. At the same time, Ernst & Young was hired to conduct an independent audit.

On Sept. 1, E&Y resigned as GMH auditor. No explanation was provided in GMH’s SEC filing, except to say there were no disagreements with E&Y on any matter of accounting principles or practices or scope of the audit that were not “resolved to E&Y’s satisfaction.” A letter from E&Y, included in the SEC document, confirmed that assessment.

GMH’s audit committee currently is identifying an independent accounting firm to replace E&Y. Holloway says the search could, but is not expected to delay its third-quarter filing.

Second-quarter expenses related to the audit committee investigation and special committee were $2.3 million, raising the overall first-half cost of the process to $4.9 million. Associated costs will continue to accrue for the remaining half of the year, Holloway says.

Although revenue for the quarter reached $71.5 million, up from $49.7 million in the same quarter a year ago, the investigation and special committee expense put a dent in second-quarter net income, which was a loss of $541,000 versus a gain of $826,000 in second-quarter 2005. Despite the loss, Holloway says “our underlying operating fundamentals remain strong.”

In August, the student housing division acquired two 100%-leased properties and acquired 26 developable acres near Sam Houston State University in Huntsville, TX. Existing student housing properties are 94% leased for the 2006-2007 academic season. The portfolio’s occupancy is expected to rise in California, where the academic year begins late.

The military housing division plans to submit bids for additional base-housing projects valued at $1.1 billion. It also intends to pursue single-soldier housing in addition to its ongoing military family housing projects.

GCT stock was trading at $12.90 per share at yesterday’s NYSE closing, unchanged from the previous day. The 52-week high of $17.10 per share occurred March 1 before the audit investigation began; its 52-week low of $10.75 per share was April 13.

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