JENKINTOWN, PA-Although American Financial Realty Trust ended its third quarter with an $18.2-million drop in revenues, compared with the previous quarter, Wall Street analysts generally praised the financial specialty REIT’s changes in financial reporting aimed at providing more transparency. The revenue decline is primarily the result of the reclassification of 29 buildings, aggregating nearly 1.5 million sf, from continuing operations to discontinued operations as part of a repositioning plan, announced on Aug. 17 by Harold Pote, the day he took over as CEO.

Included in the reclassified assets is Boston’s State Street Financial Center, a 1.1-million-sf asset the REIT acquired for $750 million in early 2004. Although it later sold a 30% stake, reclassification of the property accounts for a majority of the company’s reduction in revenues. Thus far, the repositioning, including the reclassifications and severance pay to former CEO Nicholas Schorsch, has cost the locally based financial specialty REIT $25.4 million.

In addition to promising increased transparency in accounting on Aug. 17, Pote outlined a five-point repositioning plan. During the Oct. 27 third-quarter conference call, he said all five components of the plan are underway. Chief among them is the disposition of $75.9 million in proceeds from the sale of 45 properties and four leasehold terminations. In addition, AFR has closed and sublet its New York City office and its London office is on the market.

So is the State Street Financial Center under a plan that calls for the ultimate disposition of between $1.5 billion and $2 billion in non-core assets. Of the marketing of the Boston asset, Pote said the building is leased through 2023 to a high quality tenant and the Boston cap rates are low, “so we’re optimistic.”

Regarding any potential sale of AFR, Pote said, “No sale process is taking place.” He reiterated confidence in the company’s core strategy and repositioning process, but added, “We work for the shareholders. If an offer presented itself, we’d be obligated to do the right thing for the shareholders.”

During the conference call one analyst said, “Your frankness is welcome, especially after the past couple of years.” Others praised the new reporting methods. By Monday, Oct. 30, Deutsche Bank upgraded AFR from hold to buy, citing the new management team’s commitment to improving the portfolio and operations.

Bank of America Securities, however, held its neutral rating. In a report, analyst Ross Nussbaum said, “AFR appears to be heading in the right direction, but we believe it is by no means at the finish line yet.” The 3Q conference call “was a breath of fresh air relative to prior calls,” he said, but added that the company’s net asset value “is a bit of a moving target at this juncture given the many disjointed components of the income statement.”

AFR stock closed trading on the NYSE Oct. 27 at $11.24 a share. The 52-week low of $9.52 a share occurred on May 3 this year and the 52-week high of $13.91 a share was reached on Oct. 11, 2005.

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