TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN SPECTRUM REALTY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)

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

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AMERICAN SPECTRUM REALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share amounts)
(Unaudited)

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

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AMERICAN SPECTRUM REALTY, INC.
CONSOLIDATED STATEMENT OF EQUITY
(Dollars in thousands, except share amounts)

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

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AMERICAN SPECTRUM REALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

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

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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

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

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AMERICAN SPECTRUM REALTY, INC.
Notes to Consolidated Financial Statements
(unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

We provide comprehensive integrated real estate solutions for our own property portfolio (properties in which we own a controlling interest or in properties where we are the primary beneficiary of a variable interest entity, (“VIE”)) and the portfolios of our third party clients. We own and manage commercial, industrial, retail, self-storage and multi-family, student housing income properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States. American Spectrum Realty, Inc. was incorporated in Maryland in August of 2000.

Our business is conducted through an Operating Partnership in which we are the sole general partner and a limited partner with a total equity interest of 77% at March 31, 2012. As the sole general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership. In general, except as noted below, the Operating Partnership units that are not held by us (approximately 23% of the outstanding units) are exchangeable for either common stock on a one-to-one basis or cash equal to the value of such stock at our sole discretion.

At March 31, 2012, we consolidated 47 properties (including properties owned by variable interest entities (VIE’s) in which we were deemed the primary beneficiary), which consisted of 15 office properties, 13 self-storage facilities, 10 commercial/industrial properties, 6 multi-family properties, 2 retail properties and a parcel of land. The properties are located in 16 states.

We operate as one segment that encompasses all geographic regions. We provide one group of comprehensive real estate services.

We deliver integrated property, facility, asset, business and engineering management services to a host of third party clients as well as to our own properties. We offer customized programs that focus on tenant retention through cost-efficient operations.

We are committed to expanding the scope of products and services offered. We believe this expansion will help us meet our own portfolio property needs as well as the needs of our third party clients. During 2012, we intend to expand the number of third party properties that we manage. We currently have a management presence in 18 states.

We refer to ourselves throughout this report as the “the Company” or “ASR”.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements and related notes have been prepared in conformity with generally accepted accounting principles in the United States and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for preparation of interim financial statements. The information furnished in this report reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the Company’s results of operations, financial position and cash flows, and such adjustments consist of items of a normal recurring nature. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year or for any other future period. The following unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures made are adequate to make the information not misleading. These consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 30, 2012.

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make judgments, 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 reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we re-evaluate our judgments and estimates. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies.

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The financial statements include the accounts of the Operating Partnership, all subsidiaries of the Company, and Variable Interest Entities (“VIE’s”) where the Company is the primary beneficiary. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

The Company accounts for unconsolidated real estate investments using the equity method of accounting. Accordingly, the Company’s share of earnings of these real estate investments is included in the consolidated results of operations.

Certain prior year balances have been reclassified to conform to the current year presentation.

Summary of Critical and Significant Accounting Policies and Estimates

Reference is made to “Summary of Critical and Significant Accounting Policies and Estimates” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the SEC on March 30, 2012.

Recent Accounting Pronouncements

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 specifies when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets. The requirements of ASU 2011-03 will be effective for the first interim or annual period beginning on or after December 15, 2011. The adoption of this update did not a material effect on our consolidated financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS.” These amendments were issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements. This ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not have a material effect on our consolidated financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” This ASU eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. In December 2011, the FASB issued ASU 2011-12, “ Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ” This ASU defers indefinitely certain requirements from ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. ASU 2011-05 and ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and requires retrospective application for all periods presented. The adoption of this update did not have a material impact on the disclosure requirements for our consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment ” This ASU gives companies the option to perform a qualitative assessment to first assess whether the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this update did not have a material impact on the disclosure requirements for our consolidated financial statements.

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In December 2011, the FASB issued ASU 2011-10, “Property, Plant, and Equipment (Topic 360): De-recognition of in Substance Real Estate—a Scope Clarification.” This ASU requires that a reporting entity that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt would apply FASB ASC Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales , to determine whether to derecognize assets and liabilities of that subsidiary. ASU 2011-10 is effective prospectively for a deconsolidation event that takes place in fiscal years, and interim periods within those years, beginning on or after June 15, 2012. We do not believe the adoption of this update will have a material effect on our consolidated financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210): De-recognition of in Substance Real Estate—a Scope Clarification.” This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, with retrospective application required. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.

NOTE 3 - DISCONTINUED OPERATIONS

In March 2012, we sold Park Ten Place I and II for $10.7 million and Sierra Southwest Pointe for $3.9 million. These transactions generated a gain on sale before income tax expense of approximately $4.4 million. Net proceeds received from the sales amounted to $3.0 million. The proceeds were used to reduce corporate bank debt by $2.0 million and other debt by $1.0 million.

In March 2012, we sold Foxborough Business Park Center, a VIE, for $4.9 million. The transaction generated a loss on sale of approximately $0.7 million. Our ownership interest in the VIE was less than 1%. Net proceeds received from the sale amounted to $0.9 million, which was distributed to non-controlling interests.

In March 2012, the lender for our Atrium 6420 property foreclosed on the asset. We had elected to discontinue servicing the unpaid balance of the debt, which totaled $6.3 million, due to the balance exceeding the market value of the property. The property securing the debt was held by a consolidated wholly-owned subsidiary that had not guaranteed the debt. The transaction generated a gain of $0.9 million. No proceeds were received as a result of the transaction.

The consolidated statements of operations of discontinued operations for the three months ended March 31, 2012 and 2011 are summarized below:

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Income from discontinued operations for the three months ended March 31, 2012 includes the net gain from the dispositions of Park Ten Place I and II, Sierra Southwest Pointe, Foxborough Business Center Park and 6420 Atrium and the operating the results of these properties through the date of disposition. Loss from discontinued operations for the three months ended March 31, 2011 included the operating results of these properties and the properties disposed of in 2011.

Our total assets and total liabilities decreased by $21.9 million and $23.1 million as a result of the 2012 dispositions.

NOTE 4 - ASSET IMPAIRMENTS

During the three months ended March 31, 2012 and 2011, we had our contractual relationships terminated or modified by the entities that owned some of the third party properties we manage. Based on this triggering event we evaluated the management contracts associated with some of our purchased intangibles for impairment and determined that impairment had occurred. We recorded impairment charges of $0.5 million and $0.2 million for the three months ended March 31, 2012 and 2011, respectively, that reduced the fair value of the impaired contracts to zero.

NOTE 5 - ASSETS HELD FOR SALE

Below is a listing of the consolidated properties we have listed for sale. We can make no guarantees as to our ability to sell any of our consolidated properties. We further cannot assure you that we will achieve a sales price that allows us to receive cash to fund our operations.

For those consolidated properties listed for sale that we do not have an ownership percentage in (VIE properties), we will receive transaction fees if/when a sale is successfully executed.

We have decided to remove the sale listings on 800 & 888 Sam Houston Parkway, Sabo Road Self Storage, Grissom Road Self Storage, Charleston Boulevard Self-Storage, Attic Self Storage-Blanco, and Attic Self Storage-Laredo. We anticipate an improvement in occupancy at the properties in 2012. We may decide to re-list some or all of these properties at a later date.

NOTE 6 - VARIABLE INTEREST ENTITIES

We have identified multiple Variable Interest Entities where we are the primary beneficiary for accounting purposes. As a result, these VIE entities were consolidated in the consolidated financial statements, after eliminating intercompany transactions and presenting the interests that are not owned by us as non-controlling interests in the consolidated balance sheets.

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The entities being consolidated as of March 31, 2012 include twelve self-storage properties, two multifamily properties, four student housing properties and eight commercial properties. The entities are generally self-financed through cash flows from property operations.

We deconsolidated one VIE during the first quarter of 2012. The deconsolidation was due to the sale of a commercial property owned by the VIE during the quarter. We no longer manage or have a continuing involvement with this property. The impact on our year to date Consolidated Financial Statements was a decrease in total assets of $0.5 million, no change in total liabilities and a decrease in non-controlling interest of $0.5 million. During the first quarter of 2012, net loss attributable to non-controlling interests of $1.0 million, which included a loss of $0.7 million attributable to the property’s sale, was recorded from the deconsolidated VIE. The deconsolidation of the entity did not result in a gain or loss in the Consolidated Statement of Operations as the carrying amount of the non-controlling interest in the former subsidiaries at the deconsolidation date was the same as the carrying amount of the former subsidiary’s assets minus liabilities at the date of the deconsolidation.

We own an insignificant interest in most of the VIE’s, and therefore, substantially all operations are included in the net loss attributable to non-controlling interests.

The carrying amounts associated with the VIE’s, after eliminating the effect of intercompany transactions, were as follows (in thousands):

At March 31, 2011, the liabilities in the above table are solely the obligations of the VIE’s and are not guaranteed by us. We do not have the ability to leverage the assets of the above identified VIE’s for the purpose of providing ourselves cash. The debt is solely secured by the property of the respective VIE’s.

During the three months ended March 31, 2012, we did not provide short term advances to any properties that have been consolidated or deconsolidated. A minimal balance is still owed to us as of March 31, 2012 relating to prior advances. We do not believe we have significant exposure to losses related to the VIE’s.

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NOTE 7 - RELATED PARTY TRANSACTIONS

In December 2011, John N. Galardi, a principal stockholder and director, loaned $0.3 million to the Company and pledged $0.4 million in certificates of deposit to additionally secure another loan of the Company.

We pay a guarantee fee to William J. Carden and Mr. Galardi (“the Guarantors”), in consideration for their guarantees of certain obligations of the Company. Mr. Carden is president, a principal shareholder and a director 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 paid for the year ended December 31, 2011 was approximately $0.2 million. The following property notes are being guaranteed: 800/888 Sam Houston Parkway, Beltway Industrial, 2620/2630 Fountain View, 2640/2650 Fountain View. There are also five corporate notes being guaranteed. These guaranteed notes total $24.3 million. See Note 8. Notes Payable.

During 2007, the Company entered into a lease agreement with Galardi Group as a tenant 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 was approximately $0.5 million over the term of the lease. 7700 Irvine Center Drive was sold in June 2011. During the same year, the Company subleased back from the Galardi Group 2,396 square feet of office space. This sublease expires February 28, 2013. The annual base rent on this sublease is $79,000. As of March 31, 2012, $41,000 was due to the Galardi Group.

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NOTE 8 - NOTES PAYABLE

We had the following notes payable outstanding, as of March 31, 2012 and December 31, 2011, secured by the following properties (dollars in thousands):

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We are in default on the notes listed below due to non-payment of scheduled debt service. The balances disclosed on the table below exclude additional fees that may be the result of non-payment.

We have elected not to make payments on debt of $24.3 million due to the unpaid balances of the mortgages exceeding the market value of the properties. We are actively negotiating with the lenders, but there can be no assurance that these negotiations, which may result in loan modifications or discounted pay-offs, will be successful, and the lenders could initiate foreclosure proceedings. The lenders holding the debt on 8300 Bissonnet, Pacific Spectrum, 2855 Magnum, and Morenci Professional Park have placed these properties into receivership and have initiated foreclosure proceedings. We were able to extend the maturity date of the Houston South Mason property and bring the note current. In addition, Bristol Bay was foreclosed upon by the lender in April 2012. See Note 15 – Subsequent Events for additional information regarding Bristol Bay.

All but one of the properties securing the debt in default is held by a consolidated wholly owned subsidiary and the mortgages are not guaranteed by us. One note for $1.7 million secured by Bristol Bay was guaranteed by us. Negotiations are in progress to settle this debt. All of the notes which we have elected not to pay have payment acceleration clauses and payment in full, including additional fees and interest, could be demanded by the lenders holding these notes.

Unamortized financing costs at March 31, 2012 and December 31, 2011 were $1.1 million and $1.2 million, respectively. We have one mortgage loan that is cross-collateralized with a second property.

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NOTE 9 - NON-CONTROLLING INTERESTS AND OPERATING PARTNERSHIP UNITS

The following table summarizes the activity for the operating partnership units (”OP Units”):

The following represents the effects of changes in the Company’s equity related to non-controlling interests:

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NOTE 10 - NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated based on the weighted average number of common shares outstanding. Stock options outstanding, OP Units and preferred shares have not been included in the net income (loss) per share calculation since their effect would be antidilutive. Net income (loss) per share for the three months ended March 31, 2012 and 2011 is as follows (in thousands, except for shares and per share amounts):

The following outstanding preferred shares, employee stock options and OP units that can be converted into common stock on a one for one basis were excluded from the computation of diluted net income per share as they had an anti-dilutive effect:

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NOTE 11 - STOCK-BASED COMPENSATION

Share-based compensation expense is measured at grant date, based on the fair value of the instrument, and is recognized as expense over the requisite service period.

The following table sets forth the total share-based compensation expense included in our Consolidated Statements of Operations:

As of March 31, 2012, approximately $0.5 million total unrecognized share-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award over the weighted average period of 3.8 years.

Valuation Assumptions

Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.

No options were granted during the three months ended March 31, 2012.

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.

Our issued and outstanding stock options as of March 31, 2012 are fully vested and expensed.

We declared and paid cash dividends to common shareholders in 2003 but do not plan to pay cash dividends to common stock shareholders in the foreseeable future.

The fair value of each restricted stock award (RSA) is estimated on the date of grant based on the closing price of our stock on the grant date. Share-based compensation expense related to RSAs is recognized over the requisite service period.

Equity Incentive Program and Restricted Stock Awards

We grant incentive and nonqualified stock options and RSA’s to employees, consultants and directors under the Omnibus Stock Incentive Plan (“the Plan”). Stock options expire 10 years from the date they are granted and generally vest over service periods that range over three years. New shares are issued for options exercised and RSA’s released. RSA’s give the recipient 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 our shares, with the exception that the recipient may not transfer the shares during the restriction period that lapses over various periods ranging from one to three years.

We have reserved 360,000 shares under the Plan. As of March 31, 2012, we had issued 160,264 shares under the Plan.

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The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

The RSA’s had no intrinsic value as of March 31, 2012. The intrinsic value of exercisable in-the-money options was approximately $0.1 million as of March 31, 2012. The aggregate intrinsic value of the options and restricted stock awards outstanding at March 31, 2012 represents the total pretax intrinsic value, based on our closing stock price of $5.46 per share as of March 31, 2012, which would have been received by the grant holders, had all option holders with in-the-money options exercised their options as of that date and if all restricted stock awards were vested as of March 31, 2012.

Options outstanding, vested and currently exercisable by exercise price at March 31, 2012 are as follows:

Awards to Non-Employees

In January 2012, we issued 41,910 shares of Common Stock to a firm as consideration for legal services. The fair value of the stock was based on the closing market price of our common stock on the date of the grant. The consideration for the shares amounted to $0.2 million.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Some of our notes payable require that we maintain minimum cash and tangible net worth. We believe we are in compliance with these requirements, except as to our loans in default.

On March 2, 2011, we filed an action against Evergreen Realty Group, LLC and certain of its affiliates ("Evergreen") relating to its acquisition of assets from Evergreen in January 2010. The purchase price of the assets was $18.0 million, subject to adjustment as provided in the purchase agreement, and was paid in the form of (a) the assumption of $500,000 of payables, (b) the issuance of a $9.5 million promissory note and (c) the issuance of operating partnership units which would be redeemable by Evergreen after June 30, 2011 for a number of shares of our common stock (or, at our option, the cash equivalent) equal to the quotient obtained by dividing $8.0 million by the greater of our share price or net asset value as of December 31, 2010. (Our share price as of December 31, 2010 was $17.52; our net asset value as of December 31, 2010 has not been definitively determined.) In our action, we are alleging various offsets and adjustments to the purchase price, as well as defaults by Evergreen, and are seeking damages and a declaration that the principal amount of the promissory note should be reduced to zero, that the operating partnership units should be cancelled and that Evergreen should refund to us payments of at least $578,000 which have been made on the promissory note. On March 7, 2011, New West Realty, Inc. (“New West”), an affiliate of Evergreen, filed a complaint for damages in Orange County Superior Court against ASR and other related entities. New West alleges in the complaint that ASR had failed to pay amounts then due under a $9.5 million promissory note held by New West. We have subsequently paid all amounts currently due and payable under the note and therefore dispute the claim and deny that any payment is now due under the note, and we have filed a separate lawsuit against New West and others seeking damages in excess of the amount of New West’s claim.

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Certain other claims and lawsuits have arisen against us in our normal course of business including lawsuits by creditors with respect to past due accounts payable. We believe that such claims and lawsuits will not have a material adverse effect on our financial position, cash flows or results of operations.

Some of our notes payable require that we maintain minimum cash and tangible net worth. We believe we are in compliance with these requirements, except as to our loans in default.

NOTE 13 - PREFERRED STOCK

We are authorized to issue up to 25.0 million shares of one or more classes or series of preferred stock with a par value of $.01 per share.

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

On December 31, 2008, we issued 55,172 shares of the Preferred Stock to Mr. Carden, Mr. Galardi and Timothy R. Brown. 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 us and the holders will have no right to require redemption. The Preferred Stock is redeemable at our option 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.

As of March 31, 2012 there were accrued and unpaid dividends on the outstanding preferred shares of $180,000, or $.05 per share.

NOTE 14 – INCOME TAXES

For the three month ended March 31, 2012 we recorded income tax expense of $0.4 million. Income tax expense is recorded solely on income attributable to the Company. We utilized an effective tax rate of 36.56% on our net income.

NOTE 15 – SUBSEQUENT EVENTS

In April 2012, Bristol Bay was foreclosed upon. We anticipate recording a gain as a result of the foreclosure.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This financial review presents our operating results for the three months ended March 31, 2012 and 2011, as well as our financial condition at March 31, 2012 and December 31, 2011. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2012.

Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Factors that could cause or contribute to these differences include those discussed in “Risk Factors” under Item 1A of Part II as those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and elsewhere. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The cautionary statements made herein should be read as applying to all related forward-looking statements wherever they appear herein.

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Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “ASR” refer to American Spectrum Realty, Inc. and its consolidated subsidiaries.

Business Overview

We provide comprehensive integrated real estate solutions for our own property portfolio and the portfolios of our third party clients. We own and manage; commercial, industrial, retail, self-storage and multi-family, student housing income properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States.

Our business is conducted through an Operating Partnership in which we are the sole general partner and a limited partner with a total equity interest of 77% at March 31, 2012. As the sole general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership. We periodically examine our corporate structure in order to evaluate if we are positioned to take advantage of the most favorable tax treatments for ourselves, our shareholders and our clients. We evaluate the potential tax benefits and consequences of a variety of business models that include but are not limited to; joint ventures, partnerships, limited liability companies (LLC), limited liability partnerships (LLP) and real estate investment trusts (REIT) for ourselves and our investors. It is our objective to consider all applicable tax laws that legally reduce the tax consequences and maximize the tax benefits associated with real estate transactions.

The REIT structure has many specific requirements that must be met and maintained in order to qualify. As of March 31, 2012 the Company’s ownership structure does not allow the company to elect REIT status.

Our primary business objective is to acquire and manage multiple tenant real estate in strategically located areas where our cost effective enhancements combined with effective leasing and management strategies, can improve the long term values and economic returns of those properties. We focus on the following fundamentals to achieve this objective:

-An opportunistic and disciplined disposition strategy that enhances investment performance and takes advantage of realized gains. We typically dispose of properties when the return from selling is higher than the projected return from holding the property,

-Organic (internally developed opportunities) and in-organic (acquisition generated opportunities) growth of our third party property management contracts and transaction service fees coupled with;

-An opportunistic yet disciplined acquisition strategy that focuses on mid-tier multi-tenant real estate in locations that allow us to capitalize on our existing management infrastructure currently servicing our own properties and that of our third party clients;

As of March 31, 2012, the properties that we manage were as follows:

During the three months ended March 31, 2012, we sold four properties, one of which was owned by a VIE. We also strategically defaulted on the non-recourse debt of one of our properties that was returned to the lender.

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CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make judgments, 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 reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we re-evaluate our judgments and estimates. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies.

Reference is made to “Critical Accounting Policies” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the SEC on March 30, 2012.

Financial Operations Overview

Rental Revenues. We derive rental revenues from tenants that occupy space in our portfolio of consolidated properties. There are three key drivers to rental revenue;

We are currently in the process of aggressively marketing all vacated spaces but cannot make any guarantees as to the speed at which we will be able to find quality tenants or what, if any, reduction in rental rates we might experience.

We are currently actively marketing our empty square footage but do not know if, when or at what rent rates we will be able to lease the vacant office spaces.

We continue to aggressively pursue high quality tenants for all of our vacant square footage. We can make no guarantees as to our ability to fill vacant space in a timely manner or at the same or higher rents than historically charged.

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Third party management and leasing revenue. We derive these revenues from the fees charged to our third party clients for management services, tenant acquisition fees, leasing fees and loan advisory fees for arranging financing related to properties under management. When and if our third party clients elect to sell a property we manage for them, we will receive transaction fees and commissions relating to the sale of the property. Our same core skill set that influences our rental income also drives our third party client revenue. Many of the fees we charge our third party clients are linked to occupancy, rental rates and customer retention.

Expenses:

Property operating expenses. Property operating expenses consist primarily of property taxes, insurance, repairs and maintenance, personnel costs and building service contracts.

General and administrative expenses. General and administrative expenses consist primarily of personnel expenses for accounting, human resources, information technology and corporate administration, professional fees including audit and legal fees.

Depreciation and amortization expenses. Depreciation and amortization expenses consist primarily of depreciation associated with our real estate held for investment, amortization of purchased intangibles, depreciation of additional capital improvements and the amortization of lease costs associated with consolidated properties.

Interest expenses. Interest expenses consist primarily of the interest owed to creditors for debt associated with our consolidated properties.

RESULTS OF OPERATIONS

Revenues by Period

The following table sets forth revenues for the three months ended March 31, 2012 and 2011, and the change between periods.

The changes in revenues for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was primarily due to the following:

• Rental revenue decreased by approximately $1.7 million. This decrease was primarily due to the deconsolidation of VIE’s during 2011 which accounted for approximately $1.3 million of the decrease. Rental revenue decreased by approximately $0.4 million for properties consolidated for the full three months ended March 31, 2012 and 2011. This decrease was primarily attributable to our owned properties. Rental revenue for our VIE properties consolidated for the fully three months ended March 31, 2012 and 2011 was virtually unchanged. The decrease in rental revenue was primarily due to a decrease in occupancy. Our weighted average occupancy decreased from 89% at March 31, 2011 to 86% at March 31, 2012.
   
• The decrease in third party management and leasing revenue was primarily due to decrease in managed properties between periods.

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Operating Expenses by Period

The following table sets forth expenses for the three months ended March 31, 2012 and 2011, and the percentage and dollar change between periods.

The changes in operating expenses for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was primarily due to the following:

• Property operating expenses decreased by approximately $0.5 million. This decrease was primarily due to the deconsolidation of VIE’s during 2011 which accounted for a decrease of approximately $0.6 million. Property operating expenses for properties consolidated for the fully three months ended March 31, 2012 and 2011 increased by approximately $0.1 million. This increase was primarily due to a higher insurance costs.
   
• General and administrative expenses increased by approximately $0.7 million. The increase was primarily due to higher accounting, consulting, legal and professional fees.
   
• Depreciation and amortization expense decreased by approximately $0.9 million. The decrease was primarily due to the deconsolidation of VIE’s during 2011, which accounted for approximately $0.5 million of this decrease. An increase in fully depreciated assets accounted for the remainder of the decrease.
   
• Interest expense decreased by approximately $1.5 million. This decrease was in large part due to the deconsolidation of VIE’s during 2011 which accounted for a decrease of approximately $0.5 million. Interest expense for properties consolidated for the full three months ended March 31, 2012 and 2011 decreased by approximately $1.0 million. This decrease was principally due to a decrease in debt between periods.
   
• Impairment expense increased by $0.3 million. This increase was attributable to an increase in impairment charges recorded on purchased intangibles related to the loss of third party management contracts.

All of our expenses are significantly influenced by VIE consolidation activity. We expect all our operating expenses to remain relatively the same over the next year for our consolidated properties at March 31, 2012.

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Other Income Statement Items by Period

The following table sets forth our other income statement items for the three months ended March 31, 2012 and 2011, and the dollar and percentage change between periods.

     The changes in other income statement items for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 were primarily due to the following:

• Income from discontinued operations for the three months ended March 31, 2012 includes the net gain from the dispositions of Park Ten Place I and II, Sierra Southwest Pointe, Foxborough Business Center Park and 6420 Atrium and the operating the results of these properties through the date of disposition. Loss from discontinued operations for the three months ended March 31, 2011 included the operating results of these properties and the properties disposed of in 2011.
   
• Non-controlling interests consist of operating partnership unit holders other than us and, the non-controlling interests held in our VIE’s and held by others. The decrease was primarily attributable to the net gain recognized on our 2012 asset dispositions.

We anticipate continuing to offer certain properties for sale. We can make no guarantees as to the timing of the sale of any of our consolidated properties or the cash that we will be able to receive as a result of those sales.

LIQUIDITY AND CAPITAL RESOURCES

We have a need for significant amounts of cash to fund our operations. Not all cash generated by our consolidated business is available to pay all liabilities presented on the balance sheet. We separately disclose on the face of the balance sheet (in parentheses) assets and liabilities relating to our consolidated VIE’s. Those assets and liabilities are the exclusive responsibility of the VIE’s as our actual ownership percentage and the business structure of the VIE’s does not allow the assets and liabilities to be comingled with ASR.

With regards to our wholly owned properties, we experienced a decline rental revenues of approximately $0.4 million and a decline in third party management and leasing revenue of approximately $0.1 million for the three months ended March 31, 2012 in comparison to the three months ended March 31, 2011. With regards to the properties in which we have a variable interest and the cash associated with these properties is only available to service their own debts, we experienced a decrease in rental in rental revenues of $1.3 million for the three months ended March 31, 2012 in comparison to the first quarter of 2011. This decrease was primarily the result of the deconsolidation of VIE’s.

As of March 31, 2012, we had accounts payable over 90 days totaling $5.9 million (all of it relating to ASR properties), which represents a decrease of $1.7 million over the past twelve months. In addition, we have terms with creditors holding payables as of March 31, 2012, these payables are included as notes payable with a total principal of $3.4 million.

As of March 31, 2012, we had six of our consolidated properties listed for sale (four wholly or partially owned by ASR and two VIE properties). In addition to these six properties, another six are in some stage of foreclosure (five wholly owned by ASR and one relating to VIE’s) with the debt holder, and we are strategically defaulting on the related debts totaling $24.3 million on these six properties. We can make no guarantee as to the timing of the sale of any of these properties. In April 2012, one of the owned properties were foreclosed by the debt holder. We cannot guarantee that the lenders on the remaining properties in some stage of foreclosure will not take back the properties before we can sell them or renegotiate the debt.

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All of the notes on which we have strategically defaulted have payment acceleration clauses, and payment in full could be demanded by the lenders holding these notes. The loans not being paid are secured only by the real estate assets with the exception of a $1.7 million note that is guaranteed by the Company.

During the first quarter of 2012, we sold Park Ten Place I and II and Sierra Southwest Pointe. The sale of these properties generated net proceeds of $3.0 million. These proceeds were used to reduce corporate bank debt by $2.0 million and other debt by $1.0 million (See Note 3 – Discontinued Operations).

Our discontinued operations are not stated separately in the Statement of Cash Flow. Our discontinued operations generated cash from operating activities of $0.1 million during the first quarter of 2012. In the future we do not anticipate that the absence of these properties will have a material effect on cash flow.

We have taken the following steps to meet our liquidity needs:

We have one mortgage loan that is cross-collateralized by a second property.

Because of uncertainties caused by the current credit crisis, our current debt level and our historic losses, there can be no assurance as to our ability to obtain the funds necessary for the refinancing of our maturing debts. If refinancing transactions are not consummated, we will seek extensions and/or modifications from existing lenders. If these refinancing or extensions do not occur, we will not have sufficient cash to meet our obligations.

DISCUSSION OF THE CONSOLIDATED STATEMENT OF CASH FLOWS

FROM OPERATIONS:

Historically and currently, our consolidated cash from operations has been provided by rent payments, management fees and transaction fees. Our historic and current uses of consolidated cash from operations have mainly been property operating costs, general and administrative costs and interest on debt service. During the three months ended March 31, 2012, our consolidated operations provided $1.2 million in cash, of which $1.7 million was provided by our VIE’s.

FROM INVESTING ACTIVITIES:

Historically and currently, our consolidated cash from investing activities has been provided by proceeds from the sale of assets. Our historic and current uses of consolidated cash from investing activities have primarily been property improvements. During the three months ended March 31, 2012, our consolidated investing activities provided $18.5 million in cash, of which $4.4 million was provided by our VIE’s. This cash provided by investing activities was driven by the proceeds from the sale of real estate assets.

FROM FINANCING ACTIVITIES:

Historically and currently, our consolidated cash from financing activities has been provided by proceeds from borrowing money and proceeds from equity placements. Our historic and current uses of consolidated cash from financing activities have primarily been principal payments on borrowings and cash used to acquire assets. During the three months ended March 31, 2012, we received proceeds from borrowings of $4.2 million and repaid borrowings of $21.2 million, primarily related to property sales. We also made distributions to non-controlling interests of $1.5 million.

FUNDS FROM OPERATIONS

We believe that Funds From Operations (“FFO”) is a useful supplemental measure of our operating performance. We computed FFO in accordance with standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in April 2002. The White Paper defines FFO as net income or loss computed in accordance with Generally Accepted Accounting Principles (“GAAP”), excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We believe that FFO is helpful to investors as a measure of our performance because, along with cash flow from operating activities, FFO provides investors with an indication of our ability to incur and service debt, to make capital expenditures and to fund other cash needs. FFO is a non-GAAP financial measure. FFO does not represent net income or cash flows from operations, as defined by GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our operating performance or as an alternative to cash flows from operating, investing and financing activities (determined in accordance with GAAP) as a measure of liquidity. FFO does not necessarily indicate that cash flows will be sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. Further, FFO as disclosed by other companies may not be comparable to our calculation of FFO.

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The following table sets forth our calculation of FFO for the three months March 31, 2012 and 2011:

INFLATION

Inflation has not had a significant impact on our results because of the relatively low inflation rate in our geographic areas of operation. Additionally, most of our leases require the customers to pay their pro rata share of operating expenses, including common area maintenance, real estate taxes, utilities and insurance, thereby reducing our exposure to increases in operating expenses resulting from inflation.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q 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; 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 global recession; changes in federal and local laws, and regulations; increased competitive pressures; and other factors, as well as factors set forth elsewhere in this Report on Form 10-Q.

ITEM 4 - CONTROLS AND PROCEDURES

Management, including the Company’s Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on, and as of the date of, that evaluation, the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

There were no changes made in the Company’s internal controls over financial reporting during the first quarter of 2012 that materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On March 2, 2011, we filed an action against Evergreen Realty Group, LLC and certain of its affiliates ("Evergreen") relating to its acquisition of assets from Evergreen in January 2010. The purchase price of the assets was $18.0 million, subject to adjustment as provided in the purchase agreement, and was paid in the form of (a) the assumption of $500,000 of payables, (b) the issuance of a $9.5 million promissory note and (c) the issuance of operating partnership units which would be redeemable by Evergreen after June 30, 2011 for a number of shares of our common stock (or, at our option, the cash equivalent) equal to the quotient obtained by dividing $8.0 million by the greater of our share price or net asset value as of December 31, 2010. (Our share price as of December 31, 2010 was $17.52; our net asset value as of December 31, 2010 has not been definitively determined.) In our action, we are alleging various offsets and adjustments to the purchase price, as well as defaults by Evergreen, and are seeking damages and a declaration that the principal amount of the promissory note should be reduced to zero, that the operating partnership units should be cancelled and that Evergreen should refund to us payments of at least $578,000 which have been made on the promissory note. On March 7, 2011, New West Realty, Inc. (“New West”), an affiliate of Evergreen, filed a complaint for damages in Orange County Superior Court against ASR and other related entities. New West alleges in the complaint that ASR had failed to pay amounts then due under a $9.5 million promissory note held by New West. We have subsequently paid all amounts currently due and payable under the note and therefore dispute the claim and deny that any payment is now due under the note, and we have filed a separate lawsuit against New West and others seeking damages in excess of the amount of New West’s claim.

The litigation is ongoing and we cannot give any assurances that we will obtain the declaration or the damages that it seeks.

Certain other claims and lawsuits have arisen against us in our normal course of business, including lawsuits by creditors with respect to past due accounts payable. We believe that such claims and lawsuits will not have a material adverse effect on our financial position, cash flows or results of operations.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF FUNDS

In January 2012, the Company issued 41,910 shares of common stock to a law firm as consideration for legal services. The consideration for the shares amounted to $0.2 million. The issuance of common stock was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to section 4(2) and Rule 506 of Regulation D promulgated thereafter.

ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

The Exhibit Index attached hereto is hereby incorporated by reference this item.

(b) Reports on Form 8-K:

On March 30, 2012, a report on Form 8-K was filed with respect to Item 2.02

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