GTJ Reit (GTTJ) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010 or

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ________

Commission file number:  0001368757

GTJ REIT, INC.

(Exact name of registrant as specified in its charter)

MARYLAND	20-5188065
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

444 Merrick Road

Lynbrook, New York

11563

(Address of principal executive offices)

(Zip Code)

(516) 881-3535

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 [X]No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ ]  No [ ]

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 “small reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [  ]                 Accelerated filer [  ]              Non-accelerated filer [  ]                Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: 13,529,131 shares of common stock as of November 5, 2010.

GTJ REIT, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Consolidated Balance Sheets at September 30, 2010 (Unaudited) and December 31, 2009	2
Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2010 and 2009	3
Consolidated Statement of Stockholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2010	4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2010 and 2009	5
Notes to the Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures about Market Risk	41
Item 4T. Controls and Procedures	41
PART II. OTHER INFORMATION	42
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Reserved	42
Item 5. Other Information	42
Item 6. Exhibits	42
Signatures	43

EX-31.1: CERTIFICATION

EX-31.2: CERTIFICATION

EX-32.1: CERTIFICATION

EX-32.2: CERTIFICATION

1

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

	September 30,			December 31,
	2010			2009
	(Unaudited)
ASSETS
Real estate at cost:
Land	$	88,584		$	88,584
Buildings and improvements		24,532			24,362
		113,116			112,946
Less: accumulated depreciation and amortization		(8,949	)		(8,136	)
Net real estate held for investment		104,167			104,810
Cash and cash equivalents		10,852			12,906
Available for sale securities		2,905			3,199
Restricted cash		978			1,066
Accounts receivable, net		4,550			5,944
Other assets		9,781			7,738
Deferred charges, net		3,459			1,855
Assets of discontinued operation		10			162
Intangible assets, net		2,042			2,736
Machinery and equipment, net		2,428			2,310
Total assets	$	141,172		$	142,726
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgage note payable	$	45,500		$	-
Secured revolving credit facility		-			43,215
Accounts payable and accrued expenses		503			799
Unpaid losses and loss adjustment expenses		2,123			2,236
Other liabilities, net		4,630			6,162
Total liabilities		52,756			52,412
Stockholders’ equity:
Preferred stock, $.0001 par value; 10,000,000 shares authorized  and none issued and outstanding		-			-
Common stock, $.0001 par value; 100,000,000 shares authorized; 13,529,131 and 13,472,281 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		1			1
Additional paid-in capital		137,404			137,033
Cumulative distributions in excess of net income		(49,386	)		(47,087	)
Accumulated other comprehensive income		397			367
Total stockholders’ equity		88,416			90,314
Total liabilities and stockholders' equity	$	141,172		$	142,726

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

2

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three and Nine Months Ended September 30, 2010 and 2009

(Unaudited, amounts in thousands, except share and per share data)

	Three Months Ended,  September 30,						Nine Months Ended,  September 30,
	2010			2009			2010			2009
Revenues:
Property rentals	$	3,357		$	3,305		$	10,012		$	9,842
Outdoor maintenance and cleaning operations		4,648			8,266			13,649			23,150
Total revenues		8,005			11,571			23,661			32,992
Operating expenses:										��
General and administrative expenses		2,500			2,825			7,327			8,430
Equipment maintenance and garage expenses		443			540			1,272			1,606
Transportation expenses		338			521			1,033			1,481
Contract maintenance and station expenses		2,147			3,859			6,236			9,313
Insurance and safety expenses		530			665			1,296			1,876
Operating and highway taxes		297			367			1,049			1,213
Other operating expenses		255			248			749			751
Depreciation and amortization expense		434			548			1,284			1,290
Total operating expenses		6,944			9,573			20,246			25,960
Operating income		1,061			1,998			3,415			7,032
Other income (expense):
Interest income		64			127			243			252
Interest expense		(627	)		(461	)		(1,549	)		(1,406	)
Change in insurance reserves		1			(41	)		(31	)		(228	)
Litigation reserve		-			(1,713	)		-			(1,713	)
Other		(5	)		(80	)		1			(106	)
Total other income (expense):		(567	)		(2,168	)		(1,336	)		(3,201	)
Income (loss) from continuing operations before income from equity affiliates and income taxes		494			(170	)		2,079			3,831
Income from equity affiliates		15			-			15			-
Income (loss) before provision for income taxes		509			(170	)		2,094			3,831
Provision (benefit) for income taxes		25			(20	)		50			1
Income (loss) from continuing operations, net of income taxes		484			(150	)		2,044			3,830
Discontinued Operations:
Loss from discontinued operations, net of income taxes		(8	)		(38	)		(23	)		(4	)
Net income (loss)	$	476		$	(188	)	$	2,021		$	3,826
Income per common share - basic and diluted:
Income (loss) from continuing operations	$	0.04		$	(0.01	)	$	0.15		$	0.28
Income (loss) from discontinued operations	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Net income (loss)	$	0.04		$	(0.01	)	$	0.15		$	0.28
Weighted-average common shares outstanding - basic and diluted		13,529,131			13,472,281			13,494,355			13,472,281

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

3

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2010

(Unaudited, amounts in thousands, except share and per share data)

	Preferred Stock		Common Stock
	Outstanding Shares	Amount	Outstanding Shares	Amount	Additional-Paid-In-Capital	Cumulative Distributions in Excess of Net Income	Accumulated Other Comprehensive Income	Total Stockholders’ Equity
Balance at January 1, 2010	-	$       -	13,472,281	$       1	$     137,033	$     (47,087)	$           367	$     90,314
Distributions - common stock, $0.32 per share	-	-	-	-	-	(4,320)	-	(4,320)
Stock-based compensation	-	-	-	-	371	-	-	371
Issuance of restricted shares	-	-	56,850	-	-	-	-	-
Comprehensive income:
Net income	-	-	-	-	-	2,021	-	2,021
Unrealized gain on available-for-sale securities, net	-	-	-	-	-	-	30	30
Total comprehensive income	-	-	-	-	-	-	-	2,051
Balance at September 30, 2010	-	$       -	13,529,131	$       1	$    137,404	$      (49,386)	$            397	$     88,416

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

4

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2010 and 2009

(Unaudited, amounts in thousands, except share and per share data)

	Nine Months Ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,021		$	3,826
Loss from discontinued operation		23			4
Income from continuing operations		2,044			3,830
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities
Stock-based compensation		371			95
Changes in insurance reserves		(113	)		(161	)
Provision for uncollectible receivables		-			119
Depreciation and amortization		1,129			1,001
Amortization of deferred financing costs		154			152
Amortization of deferred charges		78			76
Amortization of intangible assets		695			776
Income from equity affiliates		(15	)		-
Changes in operating assets and liabilities:
Accounts receivable		1,393			(708	)
Other assets		(2,028	)		(1,940	)
Deferred charges		(1,837	)		(32	)
Accounts payable and other liabilities		(1,739	)		1,529
Net cash provided by operating activities		132			4,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets acquired less liabilities assumed		-			(442	)
Purchases of property and equipment		(605	)		(762	)
Purchase of investments		(278	)		(55	)
Proceeds from sale of investments		603			864
Restricted cash		88			609
Net cash (used in) provided by investing activities		(192	)		214
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage note payable		45,500			-
Repayment of secured revolving credit facility		(43,215	)		-
Dividends paid		(4,319	)		(3,233	)
Earnings and profits distribution		(89	)		-
Net cash used in financing activities		(2,123	)		(3,233	)
Cash flow provided by discontinued operations:
Operating activities		129			560
Net (decrease) increase in cash and cash equivalents		(2,054	)		2,278
Cash and cash equivalents at the beginning of period		12,906			12,082
Cash and cash equivalents at the end of period	$	10,852		$	14,360
Supplemental cash flow information:
Interest paid	$	1,394		$	1,254
Cash paid for taxes	$	64		$	161
Assumption of liabilities from assets acquired	$	-		$	505

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

5

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

1.    ORGANIZATION AND BASIS OF PREPARATION:

Description of Business

GTJ REIT, Inc. (the “Company” or “GTJ REIT”) was incorporated in Maryland on June 23, 2006 to engage in any lawful act or activity including, without limitation, qualifying as a real estate investment trust (“REIT”) under Sections 856 through 860, or any successor sections of the Internal Revenue Code of 1986, as amended (the “Code”), for which corporations may be organized under Maryland General Corporation Law. The Company has focused primarily on the ownership and management of commercial real estate located in New York City and also has one property located in Farmington, Connecticut. In addition, the Company, through its taxable REIT subsidiaries, provides outdoor maintenance and shelter cleaning services to outdoor advertising companies and government agencies in New York, New Jers ey, Arizona and California as well as electrical construction services to a broad range of commercial, industrial, institutional and governmental customers in New York, and beginning October 1, 2010, operates and manages parking garages located in New York City.

On March 29, 2007, the Company commenced operations upon the completion of the Reorganization described below. Effective July 1, 2007, the Company elected to be treated as a REIT under the Code and elected December 31st as its fiscal year end. Additionally, in connection with the Tax Relief Extension Act of 1999 (“RMA”), the Company is permitted to participate in activities outside the normal operations of the REIT so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Code subject to certain limitations.

At September 30, 2010, the Company owned seven properties containing a total of approximately 561,000 square feet of leasable area.

Reorganization

On July 24, 2006, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with Triboro Coach Corp., a New York corporation (“Triboro”); Jamaica Central Railways, Inc., a New York corporation (“Jamaica”); Green Bus Lines, Inc., a New York corporation (“Green” and together with Triboro and Jamaica, collectively referred to as the “Bus Companies” and each referred to as a “Bus Company”); Triboro Acquisition, Inc., a New York corporation (“Triboro Acquisition”); Jamaica Acquisition, Inc., a New York corporation (“Jamaica Acquisition”); and Green Acquisition, Inc., a New York corporation (“Green Acquisition,” and together with Jamaica Acquisition and Triboro Acquisition collectively referred to as the “Acquis ition Subsidiaries” and each referred to as an “Acquisition Subsidiary”). The transactions contemplated under the Agreement closed on March 29, 2007. The effect of the merger transactions was to complete a reorganization (“Reorganization”) of the ownership of the Bus Companies into the Company with the surviving entities of the merger of the Bus Companies with the Acquisition Subsidiaries becoming wholly-owned subsidiaries of the Company and the former shareholders of the Bus Companies becoming stockholders in the Company.

Under the terms of the Agreements, each share of common stock of each Bus Company’s issued and outstanding shares immediately prior to the effective time of the mergers, was converted into the right to receive the following shares of the Company’s common stock:

● Each share of Green common stock was converted into the right to receive 1,117.429975 shares of the Company’s common stock.

● Each share of Triboro common stock was converted into the right to receive 2,997.964137 shares of the Company’s common stock.

● Each share of Jamaica common stock was converted into the right to receive 195.001987 shares of the Company’s common stock.

The Bus Companies, including their subsidiaries, owned a total of six rentable parcels of real property (all on a triple net basis), four of which are leased to the City of New York, one of which is leased to a commercial tenant, and one of which a portion is leased to a commercial tenant and the remainder, which was utilized by the Company’s discontinued paratransit business, and is available for lease. There was an additional property of negligible size which was not rentable. Prior to the Reorganization, the Bus Companies and their subsidiaries, collectively, operated a group of outdoor maintenance businesses and the discontinued paratransit business, which was acquired as part of the Reorganization.

6

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

1.    ORGANIZATION AND BASIS OF PREPARATION (Continued):

Following the completion of the Reorganization, on July 1, 2007, the Company elected to be treated as a REIT under the applicable provisions of the Code. In order to adopt a REIT structure, it was necessary to combine the Bus Companies and their subsidiaries under a single holding company. The Company is the holding company. The Company has formed three wholly-owned New York corporations and each of the Bus Companies merged with one of these subsidiaries to become wholly-owned subsidiaries of the Company. The mergers required the approval of the holders of at least 66 2/3% of the outstanding shares of common stock of each of Green, Triboro and Jamaica, voting separately and not as one class, which was obtained on March 26, 2007.

Based on third-party valuations of the real property, outdoor maintenance businesses, and the paratransit business (which was discontinued as of September 30, 2008), and considering the ownership of the same in whole or part by each of the Bus Companies, the Company was advised by an independent appraisal firm that the relative valuation of each of the Bus Companies (as part of GTJ REIT, Inc.) and in connection with the Reorganization was as follows: Green-42.088%, Triboro-38.287% and Jamaica-19.625%. Accordingly, under the Reorganization, 10,000,361 shares (including 361 fractional shares) of the Company’s common stock were distributed to the former shareholders of Green, Triboro, and Jamaica in exchange for their shares in the Bus Companies. Exclusive of fractional shares, 4,208,800 shares were distributed to the shareholders of Green, 3,828,700 shares to the shareholders of Triboro and 1,962,500 shares to the shareholders of Jamaica, in proportion to the outstanding shares held by such shareholders of each Bus Company, respectively.

As part of becoming a REIT, the Company was required, after the Reorganization, to make a distribution of the Bus Companies’ historical undistributed earnings and profits, calculated to be an estimated $62.1 million (see Note 10). The Company agreed to distribute up to $20.0 million in cash, and 3,775,400 shares of the Company’s common stock, valued at $11.14 per share solely for purposes of the distribution, calculated as follows:

Total value of the Bus Companies	$173,431,797
Assumed Earnings and Profits – Cash distribution	20,000,000
Total value after cash distribution	153,431,797
Assumed Earnings and Profits – Stock distribution	42,000,000
Total value after stock distribution	$111,431,797
Reorganization shares	10,000,000
Share Value Post Earnings and Profits distribution	$11.14

The Reorganization was accounted for under the purchase method of accounting as required by ASC No. 805. Because the Company has been formed to issue equity interests to effect a business combination, as required by ASC No. 805, one of the existing combining entities was required to be determined the acquiring entity. Under ASC No. 805, the acquiring entity is the combining entity whose owners as a group retained or received the larger portion of the voting rights in the combined entity. Immediately following the Reorganization, the former Green shareholders had a 42.088% voting and economic interest in the Company, the former Triboro shareholders had a 38.287% voting and economic interest in the Company, and the former Jamaica shareholders had a 19.625% voting and economic interest in the company. Additionally, under ASC No. 805, in determining the acquiring entity, consideration was given to which combining entity initiated the combination and whether the assets, revenues, and earnings of one of the combining entities significantly exceed those of the others.

Each stockholder elected to receive cash or stock, or a combination of both. If more than $20.0 million of cash was elected in the aggregate, cash distributed to each stockholder electing to receive some or all of his or her distribution in cash was to be reduced such that the aggregate cash distribution would total approximately $20.0 million and the balance of the distribution to each such stockholder will be made in the Company’s common stock.  The Company distributed approximately $19.8 million in cash and 3,775,400 shares of common stock (with a value of approximately $42.1 million). The undistributed cash balance of approximately $0.2 million is included in other liabilities in the condensed consolidated balance sheet at September 30, 2010. Green’s assets at December 31, 2006 totaled approximately $23.9 million as compared to Triboro’s assets of approximately $19.4 million, and Jamaica’s assets of approximately $10.2 million, and Green’s revenues on a going forward basis are expected to exceed that of Triboro and Jamaica. As a result of these facts, Green was deemed to be the accounting acquirer and the historical financial statements of the Company are those of Green.

7

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

1.    ORGANIZATION AND BASIS OF PREPARATION (Continued):

Under the purchase method of accounting, Triboro’s and Jamaica’s assets and liabilities were acquired by Green and have been recorded at their estimated fair value. Accordingly, under the Reorganization, 10,000,000 shares of the Company’s common stock were distributed (exclusive of 361 fractional shares), 4,208,800 shares to the shareholders of Green, 3,828,700 shares to the shareholders of Triboro and 1,962,500 shares to the shareholders of Jamaica, in such case in proportion to the outstanding shares held by such shareholders of each Bus Company, respectively.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The fair values are based on third-party valuations. The fair value of the net assets acquired for the remaining interest in GTJ, not previously owned by Green, exceeded the total consideration for the acquisition by approximately $6.0 million (of which an additional adjustment of  approximately $1.1 million was recorded at December 31, 2007 to adjust certain acquired deferred tax liabilities), resulting in negative goodwill. The excess negative goodwill was allocated on a pro rata basis and recorded as a reduction of long-lived assets.

The following table summarizes the allocation of the purchase price in the form of a condensed consolidated balance sheet reflecting the estimated fair values (after the allocation of negative goodwill) of the amounts assigned to each major asset and liability caption of the acquired entities at the date of acquisition (in thousands):

	Triboro		Jamaica		Total
Issuance of stock	$	66,402	$	34,035	$	100,437
Cash and cash equivalents	$	6,126	$	974	$	7,100
Restricted cash		1,275		637		1,912
Accounts receivable		2,627		1,314		3,941
Operating subsidies receivables		1,752		941		2,693
Deferred leasing commissions		782		-		782
Other assets		2,682		1,549		4,231
Securities available for sale		1,668		593		2,261
Real property and equipment		55,038		30,919		85,957
Machinery and equipment		149		75		224
Total assets		72,099		37,002		109,101
Accounts payable and accrued  expenses		741		371		1,112
Revolving credit borrowings		168		84		252
Note payable		666		333		999
Income tax payable		294		157		451
Deferred tax liability		248		124		372
Unpaid losses and loss adjustment expenses		1,736		868		2,604
Other liabilities		1,844		1,030		2,874
Total liabilities		5,697		2,967		8,664
Fair value of net assets acquired	$	66,402	$	34,035	$	100,437

On June 30, 2009, GTJ REIT, Inc. through its wholly-owned subsidiaries, Shelter Electric Maintenance Corp. and Shelter Electric Acquisition Subsidiary LLC, (collectively, “Shelter Electric”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Morales Electrical Contracting, Inc. (“Morales”), a Valley Stream, New York based electrical construction company, pursuant to which Morales sold certain of its assets and assigned certain contracts and employees to Shelter Electric.

8

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

1.    ORGANIZATION AND BASIS OF PREPARATION (Continued):

Pursuant to the Asset Purchase Agreement, Shelter Electric purchased these assets, free and clear of all liens and other encumbrances, in consideration for the payment of approximately $1.0 million, consisting primarily of the satisfaction and payment of certain liabilities of Morales. The $1.0 million purchase price was allocated to identifiable intangible assets with approximately $0.3 million allocated to the contracts assumed, $0.4 million allocated to the non-compete agreement, $0.2 million allocated to customer relationships and $0.1 million allocated to goodwill. Shelter Electric has also provided a line of credit of up to approximately $0.6 million to Morales, through a Credit and Security Agreement to finance the completion of two contracts currently in progress at Morales. In addition, the former Vice President of Morales ha s been employed by Shelter to manage and expand the electrical construction operations. The employment is subject to usual and customary conditions and restrictive covenants.

On March 29, 2010, Shelter Electric invested approximately four hundred dollars in exchange for a 40% interest in a joint venture with Morales, a Minority Women Owned Business Enterprise (“MWBE”). The joint venture was formed to secure MWBE contracts for the purpose of providing electrical construction services.

On August 13, 2010, the Company formed Shelter Parking Corp., a New York corporation, to operate and manage parking facilities in the New York tri-state area. On September 30, 2010, Shelter Parking Corp., through its wholly owned subsidiary, Shelter Parking Brevard, LLC, entered into a fifteen year lease agreement to operate a parking garage facility at 245 East 54th Street.

Basis of Presentation and Principles of Consolidation:

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements, although management believes that the disclosures presented herein are adequate to make the accompanying unaudited consolidated interim financial statements presented not misleading.

The accompanying unaudited consolidated financial statements include the financial statements of the Company, its wholly-owned subsidiaries, and partnerships or other joint ventures. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All significant inter-company transactions and balances have been eliminated in consolidation.

The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2010. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated annual financial statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates:

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readil y apparent from other sources. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements.  If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in impairments of certain assets. Significant estimates include those related to uncollectible receivables, the useful lives of long lived assets including property and equipment and intangible assets, income taxes, contingencies, environmental matters, insurance liabilities and stock-based compensation.

9

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Reclassifications:

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

Real Estate Investments:

Real estate assets are stated at cost, less accumulated depreciation and amortization. All costs related to the improvement or replacement of real estate properties are capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.

Upon the acquisition of real estate properties, the fair values of the real estate purchased are allocated to the acquired tangible assets (consisting of land, buildings, and building improvements) and identified intangible assets and liabilities (consisting of above-market and below-market leases and in-place leases) in accordance with ASC No. 805. The Company utilizes methods similar to those used by independent  appraisers  in  estimating  the  fair  value  of  acquired  assets  and  liabilities. The fair value of the tangible assets of an acquired property considers the value of the property “ as-if-vacant.” The fair value reflects the depreciated replacement cost of the asset. In allocating purchase price to identified intangible assets and liabilities of an acquired property, the values of above-market and below-market leases are estimated based on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to the Company’s history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property “as-if-vacant,” determined as set forth above.

Above and below market leases acquired are recorded at their fair values. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The values of in-place leases are amortized over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of the related intangible asset is expensed.

Depreciation and Amortization:

The Company uses the straight-line method for depreciation and amortization. Properties and property improvements are depreciated over their estimated useful lives, which range from 10 to 25 years. Furniture and fixtures, equipment, and transportation equipment are depreciated over estimated useful lives that range from 5 to 10 years. Tenant improvements are amortized over the shorter of the remaining non-cancellable term of the related leases or their useful lives.

10

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Deferred Charges:

Deferred charges consist principally of leasing commissions (which are amortized ratably over the life of the related tenant leases) and financing costs (which are amortized over the terms of the respective debt agreements).

Asset Impairment:

The Company applies the guidance in ASC No. 360-10-05 to recognize and measure impairment of long-lived assets. Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. Such cash flow analyses includes factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and  other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying v alue exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate holdings. These assessments could have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made.

When impairment indicators are present, investments in affiliated companies are reviewed for impairment by comparing their fair values to their respective carrying amounts. The Company makes its estimate of fair value by considering certain factors including discounted cash flow analyses. If the fair value of the investment has dropped below the carrying amount, management considers several factors when determining whether an other-than-temporary decline in market value has occurred, including the length of the time and the extent to which the fair value has been below cost, the financial condition and near-term prospects of the affiliated company, and other factors influencing the fair market value, such as general market conditions. There were no indicators of impairment at September 30, 2010.

Reportable Segments:

As of September 30, 2010, the Company primarily operated in three reportable segments: (i) Real Estate Operations, (ii) Outside Maintenance Operations (including shelter cleaning and electrical contracting), and (iii) Insurance Operations. Each segment’s operations are conducted throughout the U.S., with the exception of the Insurance Operations which is conducted in the Cayman Islands.

 ● Real Estate Operations rent Company owned real estate located in New York and Connecticut.

 ● Outside Maintenance, Shelter Cleaning Operations, and Electrical Contracting provide outside maintenance and shelter cleaning services to outdoor advertising companies and government agencies in New York, New Jersey, Arizona, and California, and electrical construction services to a broad range of commercial, industrial, institutional, and governmental customers in New York.

 ● Insurance Operations assumes reinsurance of worker’s compensation, vehicle liability, and covenant liability of the Company and its affiliated companies from unrelated insurance companies based in the United States of America.

Revenue Recognition—Real Estate Operations:

The Company recognizes revenue in accordance with ASC No. 840-20-25, which requires that revenue be recognized on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property.For the three and nine months ended September 30, 2010, five tenants constituted approximately 66%, 16%, 12%, 5%, and 1% of rental revenue and for the three and nine months ended September 30, 2009, five tenants constituted approximately 67%, 17%, 12%, 3%, and 1% of rental revenue.

11

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The properties are being leased to tenants under operating leases.The excess revenue recognized over amounts due pursuant to the underlying leases amounted to approximately $6.4 million and $5.3 million at September 30, 2010 and December 31, 20 09, respectively (see Note 4).

Property operating expense recoveries from tenants of common area maintenance, real estate, and other recoverable costs are recognized in the period that the related expenses are incurred.

Revenue Recognition—Outside Maintenance and Shelter Cleaning Operations:

Cleaning and maintenance revenue is recognized upon completion of the related service.

Revenue Recognition—Electrical Contracting Operations:

The Company recognizes revenues from long-term construction contracts on the percentage-of-completion method in accordance with ASC No. 605-35. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. Contract costs include all direct costs related to the performance and completion of the contracts. Estimated losses on the long term construction contracts are recognized in the period in which such losses are determined.

Revenue Recognition—Insurance Operations:

Premiums are recognized as revenue on a pro-rata basis over the policy term. The portion of premiums that will be earned in the future are deferred and reported as unearned premiums.  No premiums were earned for the three and nine months ended September 30, 2010 and 2009.

Earnings Per Share Information:

In accordance with ASC No. 260-10-45, the Company presents both basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower per share amount. The stock option awards were excluded from the computation of diluted earnings per share because the awards would have been antidilutive for the periods presented.

Discontinued Operations:

               The condensed consolidated financial statements of the Company present the operations of the Paratransit Operations as discontinued operations in accordance with ASC No. 205-20-55 for the three and nine months ended September 30, 2010 and 2009.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

12

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Restricted Cash:

The Company has restricted cash held by AIG on behalf of the Company that is restricted by the insurance carrier for the purpose of the payment of insured losses.  At September 30, 2010, and December 31, 2009, the Company had restricted cash in the amount of $1.0 million and $1.1 million, respectively.

Accounts Receivable:

Accounts receivable consist of trade receivables recorded at the original invoice amounts, less an estimated allowance for uncollectible accounts. Trade credit is generally extended on a short-term basis; thus trade receivables generally do not bear interest. Trade receivables are periodically evaluated for collectibility based on past credit histories with customers and their current financial conditions. Changes in the estimated collectibility of trade receivables are recorded in the results of operations for the periods in which the estimates are revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables.

Available for Sale Securities:

The Company accounts for debt and equity securities as available-for-sale securities in accordance with ASC No. 320-10-35. Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in accumulated other comprehensive income, a component of stockholders’ equity. Interest on securities is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in the accompanying condensed consolidated statements of income. The cost of securities sold is based on the specific identification method. Estimated fair value is determined based on quoted market prices.

Fair Value Measurement:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Income Taxes:

The Company is organized and conducts its operations to qualify as a REIT for federal income tax purposes. Accordingly, the Company is generally not subject to federal income taxation on the portion of its income that qualifies as REIT taxable income, to the extent that it distributes at least 90% of its taxable income to its stockholders and complies with certain other requirements as defined under Section 856 through 860 of the Code.

13

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

The Company also participates in certain activities conducted by entities which elected to be treated as taxable subsidiaries under the Code. As such, the Company is subject to federal, state and local taxes on the income from these activities. The Company accounts for income taxes under the asset and liability method, as required by the provisions of ASC No. 740-10-30. Under this method, deferred tax assets and liabilities are established based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

ASC No. 740-10-65 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC No. 740-10-65, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC No. 740-10-65 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2010 and December 31, 2009, the Company does not have a liability for unrecognized tax positions.

Comprehensive Income:

The Company follows the provisions of ASC No. 220-10-45, which sets forth rules for the reporting and display of comprehensive income and its components. ASC No. 220-10-45 requires unrealized gains or losses on the Company’s available-for-sale securities to be included in accumulated other comprehensive income, net of taxes and as a component of stockholders’ equity.

Environmental Matters:

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information become available.

Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Environmental costs are also capitalized in recognition of legal asset retirement obligations resulting from the acquisition, construction and/or normal operation of a long-lived asset. Costs related to remedial investigation and feasibility studies, environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance, and management costs directly related to remediation are accrued when such costs are probable and estimable (see Notes 6 and 13).

Insurance Liabilities:

The liability for losses and loss-adjustment expenses includes an amount for claims reported and a provision for adverse claims development. The liability for claims reported is based on management’s best estimates, while the liability for adverse claims development is based on independent actuarial reports. While management believes that the estimated liabilities are adequate, the ultimate liabilities may be in excess of or less than the amounts recorded. It is reasonably possible that the expectations associated with these amounts could change in the near-term (within one year). The effect of such changes could be material to the condensed consolidated financial statements. The methods for making such estimates and for establishing the resulting liabilities are continually reviewed, and any adjustments are reported in current earnings.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents, which from time-to-time exceed the Federal depository insurance coverage. Cash balances are insured by the Federal Deposit Insurance Corporation up to $250,000 through December 31, 2013.

14

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Investment in Equity Affiliates:

The Company invests in joint ventures that are formed to perform electrical construction services. These investments are recorded under either the equity or cost method of accounting. Under the equity method of accounting, the Company records its share of the net income and losses from the underlying operations and any other-than-temporary impairment on these investments on a single line item in the Condensed Consolidated Statements of Income as income or losses from equity affiliates.

Variable Interest Entities:

The Company accounts for variable interest entities (“VIEs”) in accordance with ASC No. 810-10-50, which requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns and has a controlling financial interest in the VIE. A company is deemed to have a controlling financial interest in a VIE if it has the power to direct the activities that most significantly affect the VIE’s economic performance and it has the obligation to absorb losses, or right to receive benefits, that could be significant to the VIE.

The Company evaluates its investments in equity affiliates to determine whether they are VIEs. The Company evaluates (1) the sufficiency of the fair value of the entities’ equity investments at risk to absorb losses, (2) that as a group the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entities’ significant activities, (b) the obligation to absorb the expected losses of the entity and their obligations are not protected directly or indirectly, (c) the right to receive the expected residual return of the entity and their rights are not capped, (3) substantially all of the entities’ activities do not involve or are not conducted on behalf of an investor that has disproportionately fewer voting rights in t erms of its obligation to absorb the expected losses or its right to receive expected residual returns of the entity, or both.

As of September 30, 2010, the Company has one investment which was made to a VIE with an aggregate carrying amount of $0.8 million. For the VIE identified, the Company is not the primary beneficiary and as such the VIE is not consolidated in the Company’s financial statements. The Company accounts for this investment under the equity method of accounting.

Stock-Based Compensation:

The Company has a stock-based compensation plan, which is described in Note 10. The Company accounts for stock based compensation in accordance with ASC No. 718-30-30, which establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC No. 718-10-35, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is expensed against earnings at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods.

Recently Issued Accounting Pronouncements:

In February 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-09, “Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements,” which provides updated guidance on subsequent events and removes the requirement to disclose the date through which subsequent events have been evaluated for SEC filers. This guidance became effective upon issuance and its adoption did not have an effect on the Company’s condensed consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements,” which requires disclosure of details of significant asset or liability transfers in and out of Level 1 and Level 2 measurements within the fair value hierarchy and inclusion of gross purchases, sales, issuances, and settlements in the rollforward of assets and liabilities valued using Level 3 inputs within the fair value hierarchy. The guidance also clarifies and expands existing disclosure requirements related to the disaggregation of fair value disclosures and inputs used in arriving at fair values for assets and liabilities using Level 2 and Level 3 inputs within the fair value hierarchy. This guidance became effective for interim and annual reporting periods beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward, which is required for annual reporting periods beginning after December 15, 2010 and for interim periods within those years. The adoption of this guidance did not have an effect on the Company’s condensed consolidated financial statements.

15

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

In January 2010, the FASB issued ASU No. 2010-01, “Equity: Accounting for Distributions to Shareholders with Components of Stock and Cash – a consensus of the FASB Emerging Issues Task Force,” which clarifies the treatment of the stock portion of a distribution to shareholders that allows the election to receive cash or stock. This guidance became effective for interim and annual reporting periods ending after December 15, 2009. The adoption of ASU No. 2010-01 did not have an effect on the Company’s condensed consolidated financial statements.

3.    AVAILABLE FOR SALE SECURITIES:

The Company accounts for debt and equity securities as available-for-sale securities in accordance with ASC No. 320-10-35. Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gainsand losses, net of tax, reported in accumulated other comprehensive income, a component of stockholders��� equity. Interest on securities is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in the accompanying consolidated statement of income.

The following is a summary of available-for-sale securities at September 30, 2010 and December 31, 2009 (in thousands):

	Available-for-Sale Securities
September 30, 2010	Face Value		Amortized Cost		Unrealized Gains		Estimated Fair Value
Equity securities	$	-	$	-	$	292	$	292
Money market fund		801		801		-		801
U.S. Treasury/U.S. Government debt  securities		1,726		1,731		81		1,812
Total available-for-sale securities	$	2,527	$	2,532	$	373	$	2,905

	Available-for-Sale Securities
December 31, 2009	Face Value		Amortized Cost		Unrealized Gains		Estimated Fair Value
Equity securities	$	-	$	-	$	267	$	267
Money market fund		897		897		-		897
U.S. Treasury/U.S. Government debt  securities		1,953		1,960		75		2,035
Total available-for-sale securities	$	2,850	$	2,857	$	342	$	3,199

Accumulated other comprehensive income for the nine months ended September 30, 2010 and year ended December 31, 2009 includes net unrealized holding gains of approximately $30,000 and $75,000, respectively. No amounts were reclassified from other comprehensive income to income for the three and nine months ended September 30, 2010, or for the year ended December 31, 2009.

16

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

3.    AVAILABLE FOR SALE SECURITIES (Continued):

The following is a summary of the contractual maturities of U.S. Government Debt Securities as of September 30, 2010:

	Amortized Cost	Estimated Fair Value
Due in:
2010	$                   125	$                   125
2011 – 2015	1,167	1,223
2016 – 2020	340	359
2021 and later	99	105
Total	$                1,731	$                   1,812

4.    OTHER ASSETS:

Other assets consist of the following (in thousands):

	September 30,		December 31,
	2010		2009
Prepaid expenses	$	800	$	273
Prepaid and refundable income taxes		86		90
Rental income in excess of amount billed		6,388		5,324
Costs in excess of billings		541		1,116
Investment in equity affiliates		15		-
Notes receivable		1,331		594
Other assets		620		341
	$	9,781	$	7,738

5.    UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES:

The liability for losses and loss adjustment expenses in connection with certain previous insurance claims at September 30, 2010 and December 31, 2009 is summarized as follows (in thousands):

	September 30, 2010		December 31, 2009
Reported claims	$	1,976		$	1,973
Provision for incurred but not reported claims		147			263
	$	2,123		$	2,236

Management is responsible for estimating the provisions for outstanding losses. An actuarial study was independently completed and estimated that at December 31, 2009, the total outstanding losses at an expected level, are between approximately $1,135,000 and $1,407,000. In their analysis, the actuaries have used industry based data which may or may not be representative of the Company's ultimate liabilities.

In the opinion of management, the provision for losses and loss-adjustment expenses is adequate to cover the expected ultimate liability under the insurance policies written. However, consistent with most companies with similar operations, the Company’s estimated liability for claims is ultimately based on management's expectations of future events. It is reasonably possible that the expectations associated with these amounts could change in the near term (that is, within one year) and that the effect of such changes could be material to the condensed consolidated financial statements.

17

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

6.    OTHER LIABILITIES:

Other liabilities consist of the following (in thousands):

	September 30,		December 31,
	2010		2009
Accrued dividends	$	1,082	$	1,078
Accrued earnings and profits distribution		163		253
Accrued professional fees		217		245
Accrued wages		133		201
Accrued vacation		156		131
Accrued environmental costs		776		1,082
Accrued litigation settlement costs		-		445
Deposit liability		32		42
Deferred tax liability		23		23
Prepaid rent		381		378
Contract billings in excess of costs		416		927
Liabilities associated with former bus operations		853		853
Other		398		504
	$	4,630	$	6,162

7.    COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:

	September 30, 2010			December 31, 2009
Costs on contracts in progress	$	1,428		$	924
Estimated earnings		341			192
		1,769			1,116
Less: billings to date		(1,644	)		(927	)
	$	125		$	189

The excess of billings over revenues earned to date and revenues earned to date over billings are included in the accompanying condensed consolidated balance sheets as of:

	September 30, 2010			December 31, 2009
Costs and estimated earnings in excess of billings on uncompleted contracts	$	541		$	1,116
Billings in excess of costs and estimated earnings on uncompleted contracts		(416	)		(927	)
	$	125		$	189

18

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

8.    MORTGAGE NOTE PAYABLE:

Hartford Loan Agreement:

On July 1, 2010, two indirect subsidiaries of the Company, 165-25 147th Avenue, LLC and 85-01 24th Avenue, LLC (collectively, the “Borrower”) entered into a Fixed Rate Term Loan Agreement (the “Hartford Loan Agreement”) with Hartford Life Insurance Company, Hartford Life and Accident Insurance Company and Hartford Life and Annuity Insurance Company (collectively, the “Lenders”) pursuant to which the Lenders made a term loan to Borrower in the aggregate principal amount of $45,500,000 (the “Loan”).  The Loan was evidenced by certain promissory notes, executed simultaneously therewith, payable to the order of (i) Hartford Life Insurance Company in the stated amount of $25,000,000; (b) Hartford Life and Accident Insurance Company in the stated principal amount of $10,500,000; and (c) Hartford Life and Annuity Insurance Company in the stated principal amount of $10,000,000 (collectively, the “Notes”).  The proceeds from the Loan were used to satisfy in full the Company’s obligations under the ING Loan Agreement.

The obligations under the Hartford Loan Agreement are secured by, among other things, a first priority mortgage lien and security interest on certain (a) improved real estate commonly known as 165-25 147th Avenue, Laurelton, Queens, New York and 85-01 24th Avenue, East Elmhurst, Queens, New York  (collectively, the “Real Estate”), and (b) personal property and other rights of the Borrower, all as more specifically described in that certain Consolidated, Amended and Restated Mortgage, Security Agreement and Fixture Filing dated as of July 1, 2010 (the “Mortgage”) and that certain Assignment of Leases and Rents dated as of July 1, 2010 among the Lenders and the Borrower, and other ancillary documents. The outstanding principal balance of the Loan shall bear interest at the fixed rate of 5.05% per annum.   The Borrower is required to make monthly payments of interest only in the amount of $191,479. The principal is payable on the maturity date, July 1, 2017.

9.    SECURED REVOLVING CREDIT FACILITY:

ING Loan Agreement:

On July 2, 2007, the Company entered into a three year loan agreement, dated as of June 30, 2007 (the “ING Loan Agreement”), among certain direct and indirect subsidiaries of the Company, namely, Green Acquisition, Inc., Triboro Acquisition, Inc., Jamaica Acquisition, Inc., 165-25 147th Avenue, LLC, 49-19 Rockaway Beach Boulevard, LLC, 85-01 24th Avenue, LLC, 114-15 Guy Brewer Boulevard, LLC, (collectively, the “Borrowers”); and ING USA Annuity and Life Insurance Company; ING Life Insurance and Annuity Company; Reliastar Life Insurance Company; and Security Life of Denver Insurance Company (collectively, the “Lenders”). Pursuant to the terms of the ING Loan Agreement, the Lenders provided multiple loan facilities in the amounts and on the terms and conditions set forth in the ING Loan Agreement. The aggregate of all loan facilities under the ING Loan Agreement could not exceed $72.5 million. On July 2, 2007, the Borrowers made an initial term loan draw down of $17.0 million on the facility. In addition to the initial term loan, in October 2007, the Lenders collectively made a mortgage loan of $1.0 million and advanced an additional $2.0 million to the Borrowers. In February 2008, there was an additional draw under the facility of approximately $23.2 million. Interest on the loans was paid monthly. The interest rate on both the initial draw-down and mortgage loan was fixed at 6.59% per annum and the interest rate on the additional draw floated at a spread over one month LIBOR, 1.75% at June 30, 2010. In addition, there was a one-tenth of one percent non-use fee on the unused portion of the facility.

The loan facilities were collateralized by: (1) an Assignment of Leases and Rents on four bus depot properties (the “Depots”) owned by certain of the Borrowers and leased to the City of New York, namely (a) 49-19 Rockaway Beach Boulevard; (b) 165-25 147th Avenue; (c) 85-01 24th Avenue and (d) 114-15 Guy Brewer Boulevard; (2) Pledge Agreements under which (i) GTJ REIT pledged its 100% stock ownership in each of: (a) Green Acquisition; (b) Triboro Acquisition, and (c) Jamaica Acquisition, (ii) Green Acquisition pledged its 100% membership interest in each of (a) 49-19 Rockaway Beach Boulevard, LLC and (b) 165-25 147th Avenue, LLC, (iii) Triboro Acquisition pledged its 100% membership interest in 85-01 24th Avenue, LLC, and (d) Jamaica Acquisition pledged its 100% membership interest in 114-15 Guy Brewer Boulevard, LLC, and ( 3) a LIBOR Cap Security Agreement under which GTJ Rate Cap LLC, a wholly owned subsidiary of the Company, pledged its interest in an interest rate cap transaction evidenced by the Confirmation and ISDA Master Agreement, dated as of December 13, 2006, with SMBC Derivative Products Limited. The Company had assigned its interest in the interest rate cap to GTJ Rate Cap LLC prior to entering into the ING Loan Agreement. The $1.0 million mortgage loan was secured by a mortgage in the amount of $250,000 on each of the Depots collectively. On July 1, 2010, the outstanding balance of approximately $43.2 million under the ING Loan Agreement was repaid in full.

19

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

10.    STOCKHOLDERS’ EQUITY:

Common Stock:

The Company is authorized to issue 100,000,000 shares of common stock, $.0001 par value per share. The Company has authorized the issuance of up to 15,564,454 shares of the Company’s common stock in connection with the Reorganization and the earnings and profits distribution of which 13,472,281 had been issued as of December 31, 2009. On June 17, 2010, the Company issued 56,850 restricted shares of common stock under its stock incentive plan. As of September 30, 2010, a total of 13,529,131 shares have been issued by the Company (see Note 1).

Preferred Stock:

The Company is authorized to issue 10,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

Dividend Distributions:

The following table presents dividends declared by the Company on its common stock from January 1, 2010 through September 30, 2010:

Declaration	Year / Quarter	Record	Payment	Dividend
Date	Ended	Date	Date	Per Share
January 4, 2010	December 31, 2009	January 15, 2010	January 22, 2010	$      0.08
March 22, 2010	March 31, 2010	March 31, 2010	April 15, 2010	$      0.08
June 17, 2010	June 30, 2010	June 30, 2010	July 15, 2010	$      0.08
August 11, 2010	September 30, 2010	September 30, 2010	October 15, 2010	$      0.08

Stock Based Compensation:

On June 11, 2007, the Board of Directors approved the Company’s 2007 Incentive Award Plan (the “Plan”).  The effective date of the Plan was June 11, 2007, subject to stockholder approval. The stockholders of the Company approved the Plan on February 7, 2008.

The Plan covers directors, officers, key employees and consultants of the Company. The purposes of the Plan are to further the growth, development, and financial success of the Company and to obtain and retain the services of the individuals considered essential to the long term success of the Company.

The Plan may provide for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The aggregate number of shares of common stock which may be awarded under the Plan is 1,000,000 shares. These shares were registered on September 23, 2010. As of September 30, 2010, the Company had 688,150 shares available for future issuance pursuant to awards under the Plan.

On February 7, 2008, 55,000 options were granted to non-employee directors and vested immediately and 200,000 options were granted to key officers of the Company and have a three year vesting period.  All options expire ten years from the date of grant.

20

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

10.    STOCKHOLDERS’ EQUITY (Continued):

The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option Pricing Model. The fair value of options granted on February 7, 2008 was $1.90 per share. The following assumptions were used for the options granted:

Risk free interest rate:	3.39%
Expected dividend yield:	3.59%
Expected life of option in years:	7.94
Expected volatility: (1)	21.00%

The following table presents the activity of options outstanding under the Plan for the nine months ended September 30, 2010:

Options	Number of Options		Weighted-Average and Exercise Price Per Share		Weighted-Average Grant Date Fair Value Per Share
Outstanding at December 31, 2009		255,000	$	11.14	$	1.90
Granted		-		-		-
Exercised		-		-		-
Forfeited /Expired		-		-		-
Outstanding at September 30, 2010 (2)		255,000	$	11.14	$	1.90
Options vested and exercisable at September 30, 2010		255,000	$	11.14	$	1.90

All outstanding and exercisable options have a remaining contractual life of approximately 7.4 years.

(1)

Although the Company is subject to the reporting requirements of the Securities and Exchange Commission, the Company’s stock is not listed on an exchange and there is no readily available market for the stock. Therefore, the Company is not able to determine the historical volatility of its common stock. As a result, the volatility was estimated from the historical volatilities of the common stock of the exchange traded comparable firms of both REITs and operating companies similar to the Company’s taxable REIT subsidiaries.

(2)

The aggregate intrinsic value, which represents the difference between the price of the Company’s common stock at September 30, 2010 and the related exercise price of the underlying options, was $0 for outstanding options and exercisable options as of September 30, 2010.

As of September 30, 2010, there was approximately $42,000 of unamortized stock compensation related to nonvested stock option grants awarded under the Plan.  The remaining unamortized expense is expected to be recognized over the next four months.  For the three and nine months ended September 30, 2010, stock compensation expense relating to these stock option grants was approximately $32,000, $95,000, compared to $32,000, and $94,000, respectively, for the three and nine months ended September 30, 2009.

On June 17, 2010, the Company issued an aggregate of 56,850 restricted shares of common stock, with a value of approximately $398,000, under the Plan. A total of 13,950 of these shares, with a value of approximately $98,000, were granted to non-management members of the Board of Directors, and vested immediately. The remaining 42,900 shares, with a value of approximately $300,000, were granted to certain executives of the Company, and vest ratably over a four year period. One fourth of the 42,900 shares granted to each of the executives were vested as of the grant date and one fourth will vest each year on the following dates: January 1, 2011, January 1, 2012, and January 1, 2013. Dividends paid on restricted shares are recorded as dividends on shares of the Company’s common stock whether or not they are vested. In accordance wi th ASC No. 718-10-35, the Company measures the compensation costs for these shares as of the date of the grant and the expense is recognized in earnings, at the grant date (for the portion that vest immediately) or ratably over the respective vesting periods.For the three and nine months ended September 30, 2010 stock compensation expense relating to therestricted stock granted on January 1, 2010, was approximately $34,000 and $276,000, respectively.  As of September 30, 2010, there was approximately $122,000 of unamortized stock compensation related to restricted stock.

21

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

10.    STOCKHOLDERS’ EQUITY (Continued):

Special Distribution of Earnings and Profits

On August 20, 2007, the Board of Directors of the Company declared a special distribution of accumulated earnings and profits on the Company’s common stock of $6.40 per share of common stock, payable in $20,000,000 of cash and 3,775,400 of the Company’s common stock.  For the purposes of the special distribution, the Company’s common stock was valued at $11.14 per share, as indicated in the proxy statement/prospectus dated February 9, 2007 filed with the Securities and Exchange Commission and disseminated to the stockholders of the Bus Companies in connection with the March 26, 2007 special joint meeting of the stockholders of the Bus Companies at which meeting such stockholders voted on a reorganization of those companies with and into the Company.  The special distribution aggregated approximate ly $62,060,000.  The holders of the Company’s shares, and the holders of shares of the Bus Companies, as of the close of business on August 20, 2007, the record date for the special distribution (the “Holders”), were eligible for the special distribution.  The Holders were required to make an election as to the amount of the Company’s shares and/or cash the Holders wished to receive as their respective portions of the special distribution. Holders were advised, due to the limitation of the aggregate amount of cash available for the special distribution, that their actual distribution might not be in the proportion of cash and the Company’s shares they elected, but could be based on a proration of the available cash after all elections (i.e. not on a first come-first served basis). The Company calculated the proportion of cash and the Company’s shares that were distributed to the Holders based upon the Holder’s election and the amount of cash available for the special distribution.

As of September 30, 2010, cash of approximately $19.8 million and 3,775,400 shares of the Company’s common stock have been distributed to the Holders. The remaining payable balance of approximately $0.2 million is included in other liabilities in the accompanying condensed consolidated balance sheet at September 30, 2010.

11.    EARNINGS PER SHARE:

In accordance with ASC No. 260-10-45, basic earnings per common share (“Basic EPS”) is computed by dividing the net income by the weighted-average number of common shares outstanding. Diluted earnings per common share (“Diluted EPS”) is computed by dividing net income by the weighted-average number of common shares and dilutive common share equivalents and convertible securities then outstanding. There were no common share equivalents for any of the periods presented in the Company’s consolidated statements of income.

The following table sets forth the computation of basic and diluted per share information (in thousands, except share and per share data):

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2010		2009			2010		2009
Numerator:
Net income (loss)	$	476	$	(188	)	$	2,021	$	3,826
Denominator:
Weighted average common shares outstanding - basic and diluted		13,529,131		13,472,281			13,494,355		13,472,281
Basic and Diluted Per Share Information:
Net income per share - basic and diluted	$	0.04	$	(0.01	)	$	0.15	$	0.28

22

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

12.    RELATED PARTY TRANSACTIONS:

Douglas A. Cooper, an officer and director of the Company and the nephew of Jerome Cooper (Chairman of the Board), is a managing partner of Ruskin, Moscou, Faltischek, P.C. (“RMF”), and has acted as counsel to the Company since 1998. Fees incurred by the Company to RMF as of and for the three and nine months ended September 30, 2010, were $88,000, $235,000, respectively, compared to $145,000, and $403,000, for the three and nine months ended September 30, 2009, respectively.

Paul A. Cooper is an officer and director of the Company and is the son of Jerome Cooper (Chairman of the Board). In April, 2005, Lighthouse 444 Limited Partnership (“Lighthouse”), the owner of the building at 444 Merrick Road, Lynbrook, NY, and of which Paul A. Cooper is a general partner, leased 5,667 square feet of office and storage space to the Bus Companies for a term of five years at an annual rent of approximately $160,000 for the first year, increasing to approximately $177,000 for the fifth year. In connection with this lease, there was a $231,000 expenditure (allowance) by the landlord for leasehold improvements. The Company began occupying the space in January 2006. In March 2008, Lighthouse leased an adjoining 3,545 square feet of space to the Company expiring August 31, 2010, at an annual rent of approximatel y $106,000, which replaced 2,500 square feet of space covered by the prior lease having annual rent of $37,000. In January 2010, the Company executed an extension option under the lease agreement for an additional five year term until August 31, 2015.

Stanley Brettschneider, an officer of the Company’s taxable REIT subsidiaries, is the father of the majority owner of Varsity Bus Co., Inc. (“Varsity”) a tenant at one of the Company’s rental properties. Varsity entered into a lease which terminates in 2010 and is subject to four 5 year options to extend the term of the lease in each case at a rent equal to 90% of market rental of the leasehold at the time of the extension. In December 2009, Varsity executed one of the extension options under the lease through August 2015. Rent for the first year under the lease extension, which begins on September 1, 2010, will be approximately $833,000 and will be subject to increase in accordance with the lease agreement for the remaining four years. Varsity also utilizes some of the Company’s computer systems for a mo nthly fee. In addition, Mr. Brettschneider is a compensated employee of Varsity Bus Co., Inc.

Michael Kessman, the Chief Accounting Officer of the Company, provides accounting services to Varsity.  In addition, Mr. Kessman is also a member of Varsity’s Board of Directors.

13.    COMMITMENTS AND CONTINGENCIES:

Legal Matters:

Appraisal Proceedings

On March 26, 2007, there was a joint special meeting of the shareholders of the Bus Companies. The business considered at the meeting was the merger of: Green with and into Green Acquisition, Inc.; Triboro with and into Triboro Acquisition, Inc.; and Jamaica with and into Jamaica Acquisition, Inc. Appraisal rights were perfected by shareholders of the Bus Companies who would have received approximately 303,480 shares of the Company’s common stock to be issued following the mergers. The mergers were carried out on March 29, 2007. Consequently, the Company made good faith offers to such shareholders based on the value of the Company’s common share of $7.00 per share, eighty percent (80%) of which was advanced to them. On May 25, 2007, Green Acquisition, Triboro Acquisition and Jamaica Acquisition, commenced appraisal proceed ings in Nassau County Supreme Court, as required by the New York Business Corporation Law. Eight of the shareholders (the “Claimants”) who sought appraisal rights (the others had either settled or withdrawn their demands) have answered the petition filed in connection with the appraisal proceeding and moved for pre-trial discovery. The Claimants would have received approximately 241,272 shares of the Registrant’s common stock following the mergers of the Bus Companies. Collectively, the Claimants have been paid $1,351,120 (80%) pursuant to the Company’s good faith offer and would be entitled to an additional sum of approximately $338,000 if the good faith offer was paid in full. A hearing in this matter, which is the equivalent of a trial, commenced on November 10, 2008. The hearing was completed in January 2009. The Court ordered the parties to submit post-trial memoranda prior to its consideration and ruling on the petition. The claimants were seeking sums substantially in excess of the Company’s good faith offer. On September 29, 2009, a decision in the appraisal proceeding involving certain former shareholders of Green Bus Lines, Inc., Triboro Coach Corporation and Jamaica Central Railways, Inc. (collectively, the “Bus Companies”) was issued by the New York State Supreme Court, Nassau County and on November 7, 2009 a judgment was entered related to the decision.  In the Court’s decision, the Court determined that the equivalent of the fair value of the respondents’ shares in the Bus Companies immediately prior to the consummation of the Reorganization was equal to $11.69 per share of GTJ REIT common stock.  This decision resulted in additional payments due respondents in the aggregate amount of approximately $1.5 million which was paid on November 19, 2009. In addition, the Court awarded respondents 50% of their reasonable professional fees and costs, which amounted to approximately $0.5 million and was paid on January 6, 2010. Respon dents were also awarded interest with respect to the unpaid amount due for the fair value of their shares in the Bus Companies from the valuation date to the payment date. The interest amounted to approximately $0.3 million and was paid on November 19, 2009. In addition to the above, two shareholders have been paid an aggregate of $435,457 pursuant to the good faith offer, and were not involved in the proceeding described above. These shareholders would have received approximately 62,208 shares.

23

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

13.    COMMITMENTS AND CONTINGENCIES (Continued):

The Company is involved in several lawsuits and other disputes which arose in the ordinary course of business; however, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company's financial position or results of operations.

Environmental Matters:

The Company’s real property has had activity regarding removal and replacement of underground storage tanks. Upon removal of the old tanks, any soil found to be unacceptable was thermally treated off site to burn off contaminants. Fresh soil was brought in to replace earth which had been removed. There are still some levels of contamination at the sites, and groundwater monitoring programs have been put into place at certain locations. In July 2006, the Company entered into an informal agreement with the New York State Department of Environmental Conservation (“NYSDEC”) whereby the Company has committed to a three-year remedial investigation and feasibility study (the “Study”) for all site locations. In conjunction with this informal agreement, the Company has retained the services of an environmental eng ineering firm to assess the cost of the Study. The Company’s initial engineering report had an estimated cost range with a low-end of the range of approximately $1.4  million and a high-end range estimate of approximately $2.6 million, which provided a “worst case” scenario whereby the Company would be required to perform full remediation on all site locations. While management believes that the amount of the study and related remediation is likely to fall within the estimated cost range, no amount within that range can be determined to be the better estimate. Therefore, management believes that recognition of the low-range estimate was appropriate.

As of September 30, 2010, and December 31, 2009, included in other liabilities in the accompanying condensed consolidated balance sheet (Note 6) is the estimated liability for remediation costs of approximately $0.8 million and $1.1 million, respectively. The Company is not aware of any claims or remediation requirements from any local, state or federal government agencies. These properties are in a commercial zone and are still used as transit depots, including maintenance of vehicles.

Paratransit Operations:

In February 2008, the Company was notified by the New York City Transit Authority (the “Authority”) that a Request for Proposal to renew the Company’s existing paratransit service contract after September 30, 2008 would not be considered by the Authority. As a result of this action by the Authority, the Company exited the Paratransit Operations business on September 30, 2008, and accordingly, the results have been presented as discontinued operations on the Company’s consolidated financial statements for all periods presented.

14. INVESTMENT IN EQUITY AFFILIATES:

Joint Ventures

The Company invests in joint ventures that are formed to perform electrical construction services. These investments are recorded under either the equity or cost method of accounting as appropriate. The Company records its share of the net income and losses from the underlying operations and any other-than-temporary impairment on these investments on a single line item in the Condensed Consolidated Statements of Income as income or losses from equity affiliates.

24

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

14. INVESTMENT IN EQUITY AFFILIATES (Continued):

In March 2010, the Company invested approximately four hundred dollars in exchange for a 40% interest in a consolidated joint venture with Morales Electrical Contracting, Inc. which is a minority women owned business enterprise that provides electrical construction services.

For the three and nine months ended September 30, 2010, the Company recorded its share of income of approximately $15,000 for this equity investment. During the nine months ended September 30, 2010, the Company also recognized $22,000 in management fees and $21,000 in interest on its working capital advances. As of September 30, 2010, the Company has a receivable of approximately $0.5 million related to working capital advances to fund construction projects.

Variable Interest Entities

The Company accounts for variable interest entities (“VIEs”) in accordance with ASC No. 810-10-50, which requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns and has a controlling interest in the VIE. A company is deemed to have a controlling financial interest in a VIE if it has the power to direct the activities that most significantly affect the VIE’s economic performance and it has the obligation to absorb losses, or right to receive benefits, that could be significant to the VIE.

When evaluating whether the Company is the primary beneficiary of a VIE, and must therefore consolidate the entity, the Company performs a qualitative analysis that considers the design of the VIE, the nature of the Company’s involvement and the variable interests held by other parties. If that evaluation is inconclusive as to which party absorbs a majority of the entity’s expected losses or residual returns or whether or not a controlling interest exists, a quantitative analysis is performed to determine who is the primary beneficiary.

The Company evaluates its investments in equity affiliates to determine whether they are VIEs. The Company evaluates (1) the sufficiency of the fair value of the entities’ equity investments at risk to absorb losses, (2) that as a group the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entities’ significant activities, (b) the obligation to absorb the expected losses of the entity and their obligations are not protected directly or indirectly, (c) the right to receive the expected residual return of the entity and their rights are not capped, (3) substantially all of the entities’ activities do not involve or are not conducted on behalf of an investor that has disproportionately fewer voting rights in t erms of its obligation to absorb the expected losses or its right to receive expected residual returns of the entity, or both.

As of September 30, 2010, the Company has one investment which was made to a VIE entity with an aggregate carrying amount of $0.8 million. For the VIE identified, the Company is not the primary beneficiary and as such the VIE is not consolidated in the Company’s financial statements. The Company accounts for this investment under the equity method.

15.    FAIR VALUE:

Fair Value of Financial Instruments:

ASC No. 825-10-50 requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. ASC No. 825-10-65 requires the Company to disclose in the notes of its interim financial statements as of the second quarter of 2009, as well as its annual financial statements, the fair value of all financial instruments as required ASC No. 825-10-50. ASC No. 825-10-65 applies to all financial instruments within the scope of ASC No. 825-10-50.

25

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

15.    FAIR VALUE (Continued):

Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions.The following table summarizes the carrying values and the estimated fair values of financial instruments as of September 30, 2010, and December 31, 2009, (in thousands):

	September 30, 2010					December 31, 2009
	Carrying		Estimated			Carrying		Estimated
Financial assets:	Value		Fair Value		��	Value		Fair Value
Cash and cash equivalents	$	10,852	$	10,852		$	12,906	$	12,906
Available-for-sale securities		2,905		2,905			3,199		3,199
Restricted cash		978		978			1,066		1,066
Accounts receivable, net		4,550		4,550			5,944		5,944
Financial liabilities:
Secured revolving credit facility	$	45,500	$	45,500		$	43,215	$	43,215

Fair Value Measurement:

The Company determines fair value in accordance ASC No. 820-10-05 for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.

Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.  Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Assets and liabilities disclosed at fair values are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC No. 820-10-35 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

● Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

● Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 2 inputs include quoted market prices in markets that are not active for an identical or similar asset or liability, and quoted market prices in active markets for a similar asset or liability.

● Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. These valuations are based on significant unobservable inputs that require a considerable amount of judgment and assumptions. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Determining which category an asset or liability falls within the hierarchy requires significant judgment and the Company evaluates its hierarchy disclosures each quarter.

26

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

15.    FAIR VALUE (Continued):

The Company measures certain financial assets and financial liabilities at fair value on a recurring basis, including available-for-sale securities and derivative financial instruments. The fair value of these financial assets and liabilities was determined using the following inputs as of September 30, 2010.

			Fair Value Measurements
	Carrying	Fair	Using Fair Value Hierarchy
	Value	Value	Level 1	Level 2	Level 3
Financial assets:
Available-for-sale securities	$2,905	$2,905	$2,905	$         -	$         -

Available-for-sale securities:  Fair values are approximated on current market quotes received from financial sources that trade such securities.

16.    SEGMENTS:

Segment Information

In accordance with ASC No. 280-10, the Company has established that its reportable segments are Real Estate Operations, Outside Maintenance, and Insurance Operations as of September 30, 2010. These operating segments, whose operations are reported in the tables below, are segments of the Company for which separate financial information is available and operating results are evaluated regularly by executive management in determining how to allocate resources and assessing performance. The accounting policies of these segments are the same as those described in the Summary of Significant Accounting Policies (see Note 2). In connection with the discontinued operations of the Paratransit business, the operating results of the Paratransit business are classified as discontinued operations and, as such, are not reflected in the operati ng segments reported in the table below.

The Company primarily operates in three reportable segments: (i) Real Estate Operations, (ii) Outside Maintenance Operations (including shelter cleaning and electrical contracting), and (iii) Insurance Operations. Each segment’s operations are conducted throughout the U.S., with the exception of the Insurance Operations which is conducted in the Cayman Islands.

Real Estate Operations rent Company-owned real estate located in New York and Connecticut.

Outside Maintenance, Shelter Cleaning Operations, and Electrical Contracting provide outside maintenance and cleaning services to outdoor advertising companies and governmental agencies in New York, New Jersey, Arizona, and California and electrical construction services to a broad range of commercial, industrial, institutional, and governmental customers in New York.

Insurance Operations assumes reinsurance of worker's compensation, vehicle liability, and covenant liability of the Company and its affiliated Companies from unrelated insurance companies based in the United States of America.

The summarized segment information (excluding discontinued operations), as of and for the three and nine months ended September 30, 2010 and 2009 are as follows (in thousands):

27

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

16.    SEGMENTS (Continued):

Three Months Ended September 30, 2010
	Real Estate Operations			Outside Maintenance Operations			Insurance Operations			Eliminations			Total
Operating revenue	$	3,357		$	4,750		$	-		$	(102	)	$	8,005
Operating expenses		1,114			5,796			34			-			6,944
Operating income (loss)		2,243			(1,046	)		(34	)		(102	)		1,061
Other income (expense)		(699	)		28			2			102			(567	)
Income (loss) from continuing operations before income from equity affiliates and income taxes		1,544			(1,018	)		(32	)		-			494
Income from equity affiliates		-			15			-			-			15
Income (loss) before provision for income taxes		1,544			(1,003	)		-			-			509
Provision for income taxes		6			19			-			-			25
Income (loss) from continuing operations	$	1,538		$	(1,022	)	$	(32	)	$	-		$	484
Capital expenditures	$	11		$	96		$	-		$	-		$	107
Depreciation and amortization	$	326		$	108		$	-		$	-		$	434
Total assets (1)	$	172,241		$	10,417		$	1,714		$	(43,210	)	$	141,162
Three Months Ended September 30, 2009
	Real Estate Operations			Outside Maintenance Operations			Insurance Operations			Eliminations			Total
Operating revenue	$	3,305		$	8,368		$	-		$	(102	)	$	11,571
Operating expenses		1,053			8,486			34			-			9,573
Operating income (loss)		2,252			(118	)		(34	)		(102	)		1,998
Other income (expense)		(2,245	)		11			(36	)		102			(2,168	)
Income (loss) from continuing operations before income from equity affiliates and income taxes		7			(107	)		(70	)		-			(170	)
Income from equity affiliates		-			-			-			-			-
Income (loss)  before provision for income taxes		7			(107	)		(70	)		-			(170	)
(Benefit) for income taxes		-			(20	)		-			-			(20	)
Income (loss) from continuing operations	$	7		$	(87	)	$	(70	)	$	-		$	(150	)
Capital expenditures	$	234		$	118		$	-		$	-		$	352
Depreciation and amortization	$	346		$	202		$	-		$	-		$	548
Total assets (2)	$	170,554		$	14,472		$	2,754		$	(42,653	)	$	145,127

28

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(Unaudited)

16.    SEGMENTS (Continued):

Nine Months Ended September 30, 2010
	Real Estate Operations			Outside Maintenance Operations			Insurance Operations			Eliminations			Total
Operating revenue	$	10,012		$	13,955		$	-		$	(306	)	$	23,661
Operating expenses		3,483			16,663			100			-			20,246
Operating income (loss)		6,529			(2,708	)		(100	)		(306	)		3,415
Other income (expense)		(1,765	)		146			(23	)		306			(1,336	)
Income (loss) from continuing operations before income from equity affiliates and  income taxes		4,764			(2,562	)		(123	)		-			2,079
Income from equity affiliates		-			15			-						15
Income (loss) before provision for income taxes		4,764			(2,547	)		(123	)		-			2,094
Provision for income taxes		17			33			-			-			50
Income (loss) from continuing operations	$	4,747		$	(2,580	)	$	(123	)	$	-		$	2,044
Capital expenditures	$	222		$	382		$	-		$	-		$	604
Depreciation and amortization	$	973		$	311		$	-		$	-		$	1,284
Total assets (1)	$	172,241		$	10,417		$	1,714		$	(43,210	)	$	141,162
Nine Months Ended September 30, 2009
	Real Estate Operations			Outside Maintenance Operations			Insurance Operations			Eliminations			Total
Operating revenue	$	9,842		$	23,456		$	-		$	(306	)	$	32,992
Operating expenses		3,430			22,412			118			-			25,960
Operating income (loss)		6,412			1, 044			(118	)		(306	)		7,032
Other income (expense)		(3,296	)		1			(212	)		306			(3,201	)
Income (loss) from continuing operations before income from equity affiliates and income taxes		3,116			1,045			(330	)		-			3,831
Income from equity affiliates		-			-			-			-			-
Income (loss) before provision for income taxes		3,116			1,045			(330	)		-			3,831
Provision for income taxes		1			-			-			-			1
Income (loss) from continuing operations	$	3,115		$	1,045		$	(330	)	$	-		$	3,830
Capital expenditures	$	545		$	217		$	-		$	-		$	762
Depreciation and amortization	$	968		$	322		$	-		$	-		$	1,290
Total assets (2)	$	170,554		$	14,472		$	2,754		$	(42,653	)	$	145,127

(1) Does not include assets of the discontinued Paratransit operation totaling $10

(2) Does not include assets of the discontinued Paratransit operation totaling $166

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Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements give our current expectations or forecasts of future events.  Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or similar words or the negative thereof.  From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public.  Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.  They can be affected by assumptions we might make or by known or unknown risks or uncertainties.  Consequently, we cannot guarantee any forward-looking statements.  Investors are cautioned not to place undue reliance on any forward-looking statements.  Investors should also understand that it is not possible to predict or identify all such factors and should not consider the potential risks and uncertainties set forth herein and in our Report on Form 10-K for the year ended December 31, 2009 as being exhaustive, and new factors may emerge that could affect our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report. Past performance is no guaranty of future results. You should read the following discussion in conjunction with the condensed consolidated financial statements and notes appearing elsewhere in this filing.

Executive Summary:

We are a fully integrated, self-administered and self-managed Real Estate Investment Trust (“REIT”), engaged in the acquisition, ownership, and management of real properties. We currently own seven rentable parcels of real property, four of which are leased to the City of New York, two of which are leased to commercial tenants (all six on a triple net basis), and one of which a portion is leased to a commercial tenant and the remainder, which was utilized by the Company’s discontinued paratransit business, is available for lease. There is an additional property of negligible size which is not rentable. Additionally, in connection with the Tax Relief Extension Act of 1999 (“RMA”), we are permitted to participate in activities outside the normal operations of the REIT so long as these activities are conduct ed in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code, as amended (the “Code”), subject to certain limitations. In addition, we own a group of outdoor maintenance businesses. We will consider other investments through taxable REIT subsidiaries should suitable opportunities arise.

We continue to seek opportunities to acquire stabilized properties. To the extent it is in the interests of our stockholders, we will seek to invest in a diversified portfolio of real properties within our geographic area that will satisfy our primary investment objectives of providing our stockholders with stable cash flow, preservation of capital and growth of income and principal without taking undue risk. Because a significant factor in the valuation of income-producing property is the potential for future income, we anticipate that the majority of properties that we will acquire will have both the potential for growth in value and provide for cash distributions to stockholders.

Accounting Pronouncements:

               See Note 2, “Recently Issued Accounting Pronouncements,” in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1. “Financial Statements” of this Form 10-Q for a detailed discussion regarding recently issued accounting pronouncements.

Critical Accounting Policies:

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our consolidated financial statements. Actual results could differ from these estimates. Please refer to the section of our Annual Report on Form 10-K for the year ended December 31, 2009, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Significant Accounting Estimates and Critical Accounting Policies” for a discussion of our cri tical accounting policies. During the nine months ended September 30, 2010, there were no material changes to these policies. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this report.

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Revenue Recognition-Real Estate Operations:

We recognize revenue in accordance with ASC No. 840-20-25, which requires that revenue be recognized on a straight-line basis over the term of the lease unless another systematic and rational basis is more representative of the time pattern in which the use benefit is derived from the leased property. In those instances in which we fund tenant improvements and the improvements are deemed to be owned by us, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When we determine that the tenant allowances are lease incentives, we commence revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. The p roperties are being leased to tenants under operating leases. Minimum rental income is recognized on a straight-line basis over the term of the lease.

Property operating expense recoveries from tenants of common area maintenance, real estate and other recoverable costs are recognized in the period the related expenses are incurred.

Revenue Recognition--Outside Maintenance and Shelter Cleaning Operations:

Cleaning and maintenance revenue is recognized upon completion of the related service.

Revenue Recognition—Electrical Contracting Operations:

We recognize revenues from long-term construction contracts on the percentage-of-completion method in accordance with ASC No. 605-35. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. Contract costs include all direct costs related to the performance and completion of the contracts. Estimated losses on the long term construction contracts are recognized in the period in which such losses are determined.

Accounts Receivable:

Accounts receivable consist of trade receivables recorded at the original invoice amounts, less an estimated allowance for uncollectible accounts. Trade credit is generally extended on a short-term basis; thus trade receivables generally do not bear interest. Trade receivables are periodically evaluated for collectibility based on past credit histories with customers and their current financial conditions. Changes in the estimated collectibility of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. We g enerally do not require collateral for trade receivables.

Real Estate Investments:

Real estate assets are stated at cost, less accumulated depreciation and amortization. All costs related to the improvement or replacements of real estate properties are capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.

Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (consisting of land, buildings and building improvements) and identified intangible assets and liabilities (consisting of above-market and below-market leases and in-place leases) in accordance with ASC No. 805. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property “as-if-vacant.” The fair value reflects the depreciated replacement cost of the asset. In allocating purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases is estimated bas ed on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to our history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property “as-if-vacant,” determined as set forth above.

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Above and below market leases acquired are recorded at their fair value. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The value of in-place leases are amortized over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of the related intangible asset is expensed.

Asset Impairment:

We apply the provisions of ASC No. 360-10-05 to recognize and measure impairment of long-lived assets. Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating inco me, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties. These assessments have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made.

Fair Value Measurements:

We determine fair value in accordance with ASC No. 820-10-05 for financial assets and liabilities. ASC No. 820-10-05 defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.

Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Assets and liabilities disclosed at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC No. 820-10-35 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

● Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

● Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. Level 2 inputs include quoted market prices in markets that are not active for an identical or similar asset or liability, and quoted market prices in active markets for a similar asset or liability.

● Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. These valuations are based on significant unobservable inputs that require a considerable amount of judgment and assumptions. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Determining which category an asset or liability falls within the hierarchy requires significant judgment and we evaluate its hierarchy disclosures each quarter.

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Income Taxes:

We are organized and conduct our operations to qualify as a REIT for federal income tax purposes.  Accordingly, we will generally not be subject to federal income taxation on that portion of our income that qualifies as REIT taxable income, to the extent that we distribute at least 90% of our taxable income to our stockholders and comply with certain other requirements as defined under Section 856 through 860 of the Code.

We also participate in certain activities conducted by entities which elected to be treated as taxable subsidiaries under the Code. As such we are subject to federal, state and local taxes on the income from these activities. We account for income taxes under the asset and liability method, as required by the provisions of ASC No. 740-10-30. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance for deferred tax assets for which we do not consider realization of such assets to be more likely than not.

Investment in Equity Affiliates:

We invest in joint ventures that are formed to perform electrical construction services. These investments are recorded under either the equity or cost method of accounting as appropriate. We record our share of the net income and losses from the underlying properties and any other-than-temporary impairment on these investments on a single line item in the Condensed Consolidated Statements of Income as income or losses from equity affiliates.

Variable Interest Entities:

We account for variable interest entities (“VIEs”) in accordance with ASC No. 810-10-50, which requires a VIE to be consolidated by its primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns and has a controlling financial interest in the VIE. A company is deemed to have a controlling financial interest in a VIE if it has the power to direct the activities that most significantly affect the VIE’s economic performance and it has the obligation to absorb losses, or right to receive benefits, that could be significant to the VIE.

We evaluate our investments in equity affiliates to determine whether they are VIEs. We evaluate (1) the sufficiency of the fair value of the entities’ equity investments at risk to absorb losses, (2) that as a group the holders of the equity investments at risk have (a) the direct or indirect ability through voting rights to make decisions about the entities’ significant activities, (b) the obligation to absorb the expected losses of the entity and their obligations are not protected directly or indirectly, (c) the right to receive the expected residual return of the entity and their rights are not capped, (3) substantially all of the entities’ activities do not involve or are not conducted on behalf of an investor that has disproportionately fewer voting rights in terms of its obligati on to absorb the expected losses or its right to receive expected residual returns of the entity, or both.

As of September 30, 2010, we have one investment which was made to a VIE entity with an aggregate carrying amount of $0.8 million. For the VIE identified, we are not the primary beneficiary and as such, the VIE is not consolidated in our financial statements. We account for this investment under the equity method.

Stock-Based Compensation:

We have a stock-based compensation plan, which is described in Note 10. We account for stock based compensation in accordance with ASC No. 718-30-30, which establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC No. 718-10-35, share-based compensation cost is measured at the grant date, based on the fair value of the award, and the expense is recognized in earnings at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods.

33

Results of Operations:

Three Months Ended September 30, 2010 vs. Three Months Ended September 30, 2009

The following table sets forth our results of operations for the periods indicated (in thousands):

	Three Months Ended September 30,						Increase/(Decrease)
	2010			2009			Amount			Percent
	(Unaudited)
Revenues:
Property rentals	$	3,357		$	3,305		$	52			2%
Outdoor maintenance and cleaning operations		4,648			8,266			(3,618	)		(44%)
Total revenues		8,005			11,571			(3,566	)		(31%)
Operating expenses:
General and administrative expenses		2,500			2,825			(325	)		(12%)
Equipment maintenance and garage expenses		443			540			(97	)		(18%)
Transportation expenses		338			521			(183	)		(35%)
Contract maintenance and station expenses		2,147			3,859			(1,712	)		(44%)
Insurance and safety expenses		530			665			(135	)		(20%)
Operating and highway taxes		297			367			(70	)		(19%)
Other operating expenses		255			248			7			3%
Depreciation and amortization expense		434			548			(114	)		(21%)
Total operating expenses		6,944			9,573			(2,629	)		(27%)
Operating income		1,061			1,998			(937	)		(47%)
Other income (expense):
Interest income		64			127			(63	)		(50%)
Interest expense		(627	)		(461	)		(166	)		36%
Change in insurance reserves		1			(41	)		42			(102%)
Litigation reserve		-			(1,713	)		1,713			(100%)
Other		(5	)		(80	)		75			(94%)
Total other income (expense):		(567	)		(2,168	)		1,601			(74%)
Income (loss) from continuing operations before income from equity affiliates and income taxes		494			(170	)		664			(391%)
Income from equity affiliates		15			-			15		nm
Income (loss) before provision for income taxes		509			(170	)		679			(399%)
Provision (benefit) for income taxes		25			(20	)		45			(225%)
Income (loss) from continuing operations, net of taxes		484			(150	)		634			(423%)
Discontinued Operations:
Loss from discontinued operations, net of taxes		(8	)		(38	)		30			(79%)
Net income (loss)	$	476		$	(188	)	$	664			(353%)
nm – not meaningful

Property Rental Revenues

Property rental revenue increased $52,000, or 2%, to $3,357,000 for the three months ended September 30, 2010 from $3,305,000 for the three months ended September 30, 2009. This increase was primarily due to an increase in rent from a lease extension on one of our properties over the same period in 2009.

Outside Maintenance, Shelter Cleaning Operations, and Electrical Contracting Revenues

Outside maintenance, shelter cleaning operations, and electrical contracting revenue decreased $3.6 million, or 44%, to $4.7 million for the three months ended September 30, 2010 from $8.3 million for the three months ended September 30, 2009. This decrease is primarily attributable to the decrease in revenue from the termination of the CEMUSA, Inc. contract on December 31, 2009 and a decrease in shelter installation revenue as a result of the completion of a contract in October 2009, a decrease in revenue from our traffic control services due to the current economic environment, partially offset by an increase in electrical contracting revenue related to new contracts and contracts acquired as part of the June 2009 transaction with Morales.

34

Operating Expenses

Operating expenses decreased $2.6 million, or 27%, to $7.0 million for the three months ended September 30, 2010 from $9.6 million for the three months ended September 30, 2009. This decrease is primarily due to a decrease in the costs associated with the CEMUSA contract which was terminated on December 31, 2009 and a contract which was completed in October 2009, partially offset by increases in labor and materials related to new electrical contracting contracts and contracts acquired as part of the June 2009 transaction with Morales.

Other Income (Expense)

Other income (expense) decreased $1.6 million or 74%, to ($0.6) million for the three months ended September 30, 2010 from ($2.2) million for the three months ended September 30, 2009. This decrease was primarily due to settlement of the shareholder litigation matter in 2009, offset by an increase in interest expense as a result of the refinancing on July 1, 2010.

Provision for Income Taxes

We are organized and conduct our operations to qualify as a REIT for Federal income tax purposes. As a REIT, we are generally not subject to Federal income tax on our REIT taxable income that we distribute to our stockholders, provided that we distribute at least 90% of our REIT taxable income and meet certain other requirements. As of September 30, 2010 and 2009, we were in compliance with all REIT requirements and, therefore, have not provided for Federal income tax expense on our REIT taxable income for the three months ended September 30, 2010 and 2009. The REIT is subject to certain state and local income taxes and we have provided a $5,600 income tax expense on our REIT taxable income for the three months ended September 30, 2010.

Certain of our assets that produce non-qualifying income are owned by our taxable REIT subsidiaries, the income of which is subject to federal and state income taxes. During the three months ended September 30, 2010, we recorded a $19,200 provision for income taxes from these taxable REIT subsidiaries. We did not record a tax provision for the three months ended September 30, 2009 for the taxable REIT subsidiaries.

Loss from Discontinued Operations, Net of Taxes

Loss from discontinued operations, net of taxes reflects the operating results of the Paratransit business. The Paratransit business was discontinued as of September 30, 2008, and reflects no operations for the three months ended September 30, 2010 and 2009.

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 Nine Months Ended September 30, 2010 vs. Nine Months Ended September 30, 2009

 The following table sets forth our results of operations for the periods indicated (in thousands):

	Nine Months Ended September 30,						Increase/(Decrease)
	2010			2009			Amount			Percent
	(Unaudited)
Revenues:
Property rentals	$	10,012		$	9,842		$	170			2%
Outdoor maintenance and cleaning operations		13,649			23,150			(9,501	)		(41%)
Total revenues		23,661			32,992			(9,331	)		(28%)
Operating expenses:
General and administrative expenses		7,327			8,430			(1,103	)		(13%)
Equipment maintenance and garage expenses		1,272			1,606			(334	)		(21%)
Transportation expenses		1,033			1,481			(448	)		(30%)
Contract maintenance and station expenses		6,236			9,313			(3,077	)		(33%)
Insurance and safety expenses		1,296			1,876			(580	)		(31%)
Operating and highway taxes		1,049			1,213			(164	)		(14%)
Other operating expenses		749			751			(2	)	nm
Depreciation and amortization expense		1,284			1,290			(6	)	nm
Total operating expenses		20,246			25,960			(5,714	)		(22%)
Operating income		3,415			7,032			(3,617	)		(51%)
Other income (expense):
Interest income		243			252			(9	)		(4%)
Interest expense		(1,549	)		(1,406	)		(143	)		10%
Change in insurance reserves		(31	)		(228	)		197			(86%)
Litigation reserve		-			(1,713	)		1,713			(100%)
Other		1			(106	)		107			(101%)
Total other income (expense):		(1,336	)		(3,201	)		1,865			(58%)
Income from continuing operations before income from equity affiliates and income taxes		2,079			3,831			(1,752	)		(46%)
Income from equity affiliates		15			-			15		nm
Income before provision for income taxes		2,094			3,831			(1,737	)		(45%)
Provision for income taxes		50			1			49			4900%)
Income from continuing operations, net of taxes		2,044			3,830			(1,786	)		(47%)
Discontinued Operations:
Loss from discontinued operations, net of taxes		(23	)		(4	)		(19	)		475%)
Net income	$	2,021		$	3,826		$	(1,805	)		(47%)
nm – not meaningful

Property Rental Revenues

Property rental revenue increased $0.2 million, or 2%, to $10.0 million for the nine months ended September 30, 2010 from $9.8 million for the nine months ended September 30, 2009. This increase was primarily due to an increase in rent from a lease extension on one of our properties, a full nine months of rental revenue from a new tenant as compared to five months of rental revenue over the same period, and an increase in tenant reimbursements.

Outside Maintenance, Shelter Cleaning Operations, and Electrical Contracting Revenues

Outside maintenance, shelter cleaning operations, and electrical contracting revenue decreased $9.5 million, or 41%, to $13.6 million for the nine months ended September 30, 2010 from $23.1 million for the nine months ended September 30, 2009. This decrease is primarily attributable to the decrease in revenue from the termination of the CEMUSA, Inc. contract on December 31, 2009 and a decrease in shelter installation revenue as a result of the completion of a contract in October 2009, a decrease in revenue from our traffic control services due to the current economic environment, partially offset by an increase in electrical contracting revenue related to new contracts and contracts acquired as part of the June 2009 transaction with Morales.

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Operating Expenses

Operating expenses decreased $5.7 million, or 22%, to $20.3 million for the nine months ended September 30, 2010 from $26.0 million for the nine months ended September 30, 2009. This decrease is primarily due to a decrease in the costs associated with the CEMUSA contract which was terminated on December 31, 2009 and a contract which was completed in October 2009, as well as a decrease in professional fees and insurance, partially offset by increases in labor and materials related to new electrical contracting contracts and contracts acquired as part of the June 2009 transaction with Morales.

Other Income (Expense)

Other income (expense) decreased $1.9 million or 58%, to ($1.3) million for the nine months ended September 30, 2010 from ($3.2) million for the nine months ended September 30, 2009. This decrease was primarily due to the settlement of the shareholder litigation matter in 2009, as well as a decrease in our insurance reserves, offset by an increase in interest expense as a result of the refinancing on July 1, 2010.

Provision for Income Taxes

We are organized and conduct our operations to qualify as a REIT for Federal income tax purposes. As a REIT, we are generally not subject to Federal income tax on our REIT taxable income that we distribute to our stockholders, provided that we distribute at least 90% of our REIT taxable income and meet certain other requirements. As of September 30, 2010 and 2009, we were in compliance with all REIT requirements and, therefore, have not provided for Federal income tax expense on our REIT taxable income for the nine months ended September 30, 2010 and 2009. The REIT is subject to certain state and local income taxes and we have provided a $12,100 income tax expense on our REIT taxable income for the nine months ended September 30, 2010.

Certain of our assets that produce non-qualifying income are owned by our taxable REIT subsidiaries, the income of which is subject to federal and state income taxes. During the nine months ended September 30, 2010, we recorded a $25,000 provision for income taxes from these taxable REIT subsidiaries. We did not record a tax provision for the nine months ended September 30, 2009 for the taxable REIT subsidiaries.

Loss from Discontinued Operations, Net of Taxes

Loss from discontinued operations, net of taxes reflects the operating results of the Paratransit business. The Paratransit business was discontinued as of September 30, 2008, and reflects no operations for the nine months ended September 30, 2010 and 2009.

Liquidity and Capital Resources

At September 30, 2010, the Company had unrestricted cash and cash equivalents of approximately $10.9 million compared to $12.9 million at December 31, 2009. The Company funds operating expenses and other short-term liquidity requirements, including debt service and dividend distributions from operating cash flows. The Company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity requirements for the next twelve months and to meet its dividend requirements to maintain its REIT status.

Financings:

Hartford Loan Agreement:

On July 1, 2010, two indirect subsidiaries of the Company, 165-25 147th Avenue, LLC and 85-01 24th Avenue, LLC (collectively, the “Borrower”) entered into a Fixed Rate Term Loan Agreement (the “Hartford Loan Agreement”) with Hartford Life Insurance Company, Hartford Life and Accident Insurance Company and Hartford Life and Annuity Insurance Company (collectively, the “Lenders”) pursuant to which the Lenders made a term loan to Borrower in the aggregate principal amount of $45,500,000 (the “Loan”).  The Loan was evidenced by certain promissory notes, executed simultaneously therewith, payable to the order of (i) Hartford Life Insurance Company in the stated amount of $25,000,000; (b) Hartford Life and Accident Insurance Company in the stated principal amount of $10,500,000; and (c) Hartford Life and Annuity Insurance Company in the stated principal amount of $10,000,000 (collectively, the “Notes”).  The proceeds from the Loan were used to satisfy in full the Company’s obligations under the ING Loan Agreement discussed below.

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The obligations under the Hartford Loan Agreement are secured by, among other things, a first priority mortgage lien and security interest on certain (a) improved real estate commonly known as 165-25 147th Avenue, Laurelton, Queens, New York and 85-01 24th Avenue, East Elmhurst, Queens, New York  (collectively, the “Real Estate”), and (b) personal property and other rights of the Borrower, all as more specifically described in that certain Consolidated, Amended and Restated Mortgage, Security Agreement and Fixture Filing dated as of July 1, 2010 (the “Mortgage”) and that certain Assignment of Leases and Rents dated as of July 1, 2010 among the Lenders and the Borrower, and other ancillary documents. The outstanding principal balance of the Loan shall bear interest at the fixed rate of 5.05% per annum.   The Borrower is required to make monthly payments of interest only in the amount of $191,479.  The principal is payable on the maturity date July 1, 2017.

ING Loan Agreement:

On July 2, 2007, the Company entered into a three year loan agreement, dated as of June 30, 2007 (the “ING Loan Agreement”), among certain direct and indirect subsidiaries of the Company, namely, Green Acquisition, Inc., Triboro Acquisition, Inc., Jamaica Acquisition, Inc., 165-25 147th Avenue, LLC, 49-19 Rockaway Beach Boulevard, LLC, 85-01 24th Avenue, LLC, 114-15 Guy Brewer Boulevard, LLC, (collectively, the “Borrowers”); and ING USA Annuity and Life Insurance Company; ING Life Insurance and Annuity Company; Reliastar Life Insurance Company; and Security Life of Denver Insurance Company (collectively, the “Lenders”). Pursuant to the terms of the ING Loan Agreement, the Lenders provided multiple loan facilities in the amounts and on the terms and conditions set forth in the ING Loan Agreement. The aggregate of all loan facilities under the ING Loan Agreement could not exceed $72.5 million. On July 2, 2007, the Borrowers made an initial term loan draw down of $17.0 million on the facility. In addition to the initial term loan, in October 2007, the Lenders collectively made a mortgage loan of $1.0 million and advanced an additional $2.0 million to the Borrowers. In February 2008, there was an additional draw under the facility of approximately $23.2 million. Interest on the loans was paid monthly. The interest rate on both the initial draw-down and mortgage loan was fixed at 6.59% per annum and the interest rate on the additional draw floated at a spread over one month LIBOR, 1.75% at June 30, 2010. In addition, there was a one-tenth of one percent non-use fee on the unused portion of the facility.

The loan facilities were collateralized by: (1) an Assignment of Leases and Rents on four bus depot properties (the “Depots”) owned by certain of the Borrowers and leased to the City of New York, namely (a) 49-19 Rockaway Beach Boulevard; (b) 165-25 147th Avenue; (c) 85-01 24th Avenue and (d) 114-15 Guy Brewer Boulevard; (2) Pledge Agreements under which (i) GTJ REIT pledged its 100% stock ownership in each of: (a) Green Acquisition; (b) Triboro Acquisition, and (c) Jamaica Acquisition, (ii) Green Acquisition pledged its 100% membership interest in each of (a) 49-19 Rockaway Beach Boulevard, LLC and (b) 165-25 147th Avenue, LLC, (iii) Triboro Acquisition pledged its 100% membership interest in 85-01 24th Avenue, LLC, and (d) Jamaica Acquisition pledged its 100% membership interest in 114-15 Guy Brewer Boulevard, LLC, and ( 3) a LIBOR Cap Security Agreement under which GTJ Rate Cap LLC, a wholly owned subsidiary of the Company, pledged its interest in an interest rate cap transaction evidenced by the Confirmation and ISDA Master Agreement, dated as of December 13, 2006, with SMBC Derivative Products Limited. The Company had assigned its interest in the interest rate cap to GTJ Rate Cap LLC prior to entering into the ING Loan Agreement. The $1.0 million mortgage loan was secured by a mortgage in the amount of $250,000 on each of the Depots collectively. On July 1, 2010, the outstanding balance of approximately $43.2 million under the ING Loan Agreement was repaid in full.

Earnings and Profit Distribution

As of September 30, 2010, cash of approximately $19.8 million and 3,775,400 shares of our common stock have been distributed to the Holders in connection with a one-time special distribution of accumulated earnings and profits. The remaining payable balance of approximately $0.2 million is included in other liabilities in the accompanying consolidated balance sheet at September 30, 2010. Cash payments were funded from borrowings under our credit facility.

Net Cash Flows

Nine Months Ended September 30, 2010 vs. Nine Months Ended September 30, 2009

Operating Activities

Net cash provided by operating activities was approximately $0.1 million for the nine months ended September 30, 2010, and approximately $4.7 million for the nine months ended September 30, 2009. For the 2010 period, cash provided by operating activities was primarily related to (i) income from continuing operations of approximately $2.0 million (ii) a decrease in accounts payable and other liabilities of $1.7 million (iii) a decrease in accounts receivable of $1.4 million (iv) depreciation and amortization expense of $2.1 million (v) a decrease in insurance reserves of $0.1 million (vi) stock compensation expense of approximately $0.4 million, (vii) an increase in other assets of $2.0 million, and (viii) an increase in deferred charges of $1.8 million. For the 2009 period, cash provided by operating activities was primarily related t o (i) income from continuing operations of approximately $3.8 million (ii) an increase in accounts payable and other liabilities of approximately $1.5 million, (iii) an increase in accounts receivable of $0.7 million (iv) depreciation and amortization expense of approximately $2.0 million, and (v) a decrease in insurance reserves of approximately $0.2 million (vi) stock compensation expense of approximately $0.1 million and (vii) an increase in other assets of approximately $2.0 million.

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Investing Activities

Net cash used in investing activities was approximately $0.2 million for the nine months ended September 30, 2010, and net cash provided of approximately $0.2 million for the nine months ended September 30, 2009. For the 2010 period, cash used in investing activities primarily related to purchases of property, equipment, and investments of approximately $0.9 million, proceeds from the sale of investments of approximately $0.6 million, and restricted cash of approximately $0.1 million. For the 2009 period, cash provided by investing activities primarily related to purchases of property, equipment and investment of approximately $0.8 million, proceeds from the sale of investments of approximately $0.9 million, restricted cash of approximately $0.6 million, and purchases of intangible assets of approximately $0.4 million.

Financing Activities

Cash used in financing activities was approximately $2.1 million for the nine months ended September 30, 2010 and was related to the payment of the Company’s quarterly and supplemental dividends of approximately $4.3 million and net proceeds from debt refinancing of approximately $2.3 million. Net cash used in financing activities for the nine months ended September 30, 2009 was approximately $3.2 million and was related to the payment of dividends.

Funds from Operations and Adjusted Funds from Operations

We consider Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”), each of which are non-GAAP measures, to be additional measures of an equity REIT’s operating performance.  We report FFO in addition to our net income and net cash provided by operating activities.  Management has adopted the definition suggested by the National Association of Real Estate Investment Trusts (“NAREIT”) and defines FFO to mean net income computed in accordance with GAAP excluding gains or losses from sales of property, plus real estate-related depreciation and amortization and after adjustments for unconsolidated joint ventures.

Management considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of our real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure.  FFO is presented to assist investors in analyzing our performance.  It is helpful as it excludes various items included in net income that are not indicative of our operating performance, such as gains or losses from sales of property and depreciation and amortization.

However, FFO:

● does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); and

● should not be considered an alternative to net income as an indication of our performance.

In determining AFFO we do not consider the operations of our taxable REIT subsidiaries (outside maintenance and shelter cleaning operations) as part of our real estate operations and therefore exclude the net income or net loss when arriving at AFFO. This is the one difference between our definition of AFFO and the NAREIT definition of FFO, which includes net income or net loss from taxable REIT subsidiaries.

FFO and AFFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs.  The following table provides a reconciliation of net income in accordance with GAAP to FFO and AFFO for each of the three and nine months ended September 30, 2010 and 2009 (in thousands, except for per share data):

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	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net Income (loss)	$	476		$	(188	)	$	2,021		$	3,826
Plus:  Real property depreciation		299			276			894			841
Amortization of intangible assets		232			367			694			776
Amortization of deferred leasing commissions		25			25			78			75
Funds from operations (FFO)	$	1,032		$	480		$	3,687		$	5,518
Loss (income) from Taxable-REIT Subsidiaries		1,061			196			2,726			(710	)
Amortization of intangible assets of Taxable-REIT Subsidiaries		(27	)		(162	)		(81	)		(162	)
Adjusted funds from operations (AFFO)	$	2,066		$	514		$	6,332		$	4,646
FFO per common share - basic and diluted	$	0.08		$	0.04		$	0.27		$	0.41
AFFO per common share - basic and diluted	$	0.15		$	0.04		$	0.47		$	0.34
Weighted average common shares outstanding - basic and diluted		13,529,131			13,472,281			13,494,355			13,472,281

Acquisitions and Investments

On June 30, 2009, we through our wholly-owned subsidiaries, Shelter Electric Maintenance Corp. and Shelter Electric Acquisition Subsidiary LLC, (collectively, “Shelter Electric”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Morales Electrical Contracting, Inc. (“Morales”), a Valley Stream, New York based electrical construction company, pursuant to which Morales sold certain of its assets and assigned certain contracts and employees to Shelter Electric for approximately $1.0 million. The acquisition was funded using our cash.

Pursuant to the Asset Purchase Agreement, Shelter Electric purchased these assets, free and clear of all liens and other encumbrances, in consideration for the payment of approximately $1.0 million, consisting primarily of the satisfaction and payment of certain liabilities of Morales. The $1.0 million purchase price was allocated to identifiable intangible assets with approximately $0.3 million allocated to the contracts assumed, $0.4 million allocated to the non-compete agreement, $0.2 million allocated to customer relationships and $0.1 million allocated to goodwill. Shelter Electric will also provide a line of credit of up to approximately $0.6 million, through a Credit and Security Agreement to finance the completion of two contracts currently in progress. In addition, the former Vice President of Morales has been employed by She lter to manage and expand the electrical construction operations. The employment is subject to usual and customary conditions and restrictive covenants.

On March 29, 2010, we invested approximately four hundred dollars in exchange for a 40% interest in a joint venture with Morales, a Minority Women Owned Business Enterprise (“MWBE”).The joint venture was formed to secure MWBE contracts for the purpose of providing electrical construction services.

 On August 13, 2010, we formed Shelter Parking Corp., a New York corporation, to operate and manage parking facilities in the New York tri-state area. On September 30, 2010, Shelter Parking Corp., through its wholly owned subsidiary, Shelter Parking Brevard, LLC, entered into a fifteen year lease agreement to operate a garage facility at 245 East 54th Street.

Cash Payments for Financing

Payment of interest under the $45.5 million Fixed Rate Term Loan Agreement will consume a portion of our cash flow, reducing net income and the resulting distributions to be made to the stockholders of GTJ REIT.

Trend in Financial Resources

We expect to receive additional rent payments over time due to scheduled increases in rent set forth in the leases on our real properties. It should be noted, however, that the additional rent payments are expected to result in an approximately equal obligation to make additional distributions to stockholders, and will therefore not result in a material increase in working capital.

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Environmental Matters

Our real property has had activity regarding removal and replacement of underground storage tanks. Upon removal of the old tanks, any soil found to be unacceptable was thermally treated off site to burn off contaminants. Fresh soil was brought in to replace earth which had been removed. There are still some levels of contamination at the sites, and groundwater monitoring programs have been put into place at certain locations. In July 2006, we entered into an informal agreement with the New York State Department of Environmental Conservation (“NYSDEC”) whereby we have committed to a three-year remedial investigation and feasibility study (the “Study”) for all site locations.

In conjunction with this informal agreement, we have retained the services of an environmental engineering firm to assess the cost of the Study. Our initial engineering report had an estimated cost range with a low-end of the range of approximately $1.4 million and a high-end range estimate of approximately $2.6 million, which provided a “worst case” scenario whereby we would be required to perform full remediation on all site locations. While management believes that the amount of the Study and related remediation is likely to fall within the estimated cost range, no amount within that range can be determined to be the better estimate. Therefore, management believes that recognition of the low-range estimate is appropriate. While additional costs associated with environmental remediation and monitoring are probable, it is not possible at this time to reasonably estimate the amount of any future obligation until the Study has been completed. In May 2008, we received an updated draft of the remedial and investigation feasibility study and recorded an additional accrual of approximately $0.8 million for additional remediation costs. As of September 30, 2010 and December 31, 2009, we have recorded a liability for remediation costs of approximately $0.9 million and $1.1 million, respectively. Presently, we are not aware of any claims or remediation requirements from any local, state or federal government agencies. Each of the properties is in a commercial zone and is still used as transit depots, including maintenance of vehicles.

Inflation

Low to moderate levels of inflation during the past several years have favorably impacted our operations by stabilizing operating expenses. At the same time, low inflation has had the indirect effect of reducing our ability to increase tenant rents. However, our properties have tenants whose leases include expense reimbursements and other provisions to minimize the effect of inflation.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements as of September 30, 2010.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

As of September 30, 2010, we did not have any variable rate liabilities.

At December 31, 2009, a 1.0% increase in our borrowing rate index would have decreased our net income and cash flows by approximately $0.3 million. At December 31, 2009, a 1.0% decrease in our borrowing rate index would have increased our net income and cash flows by approximately $0.1 million.

Item 4T.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).  As required by Rule 13a-15(b) under the Exchange Act, management, under the direction of our Company’s Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. During our review we determined that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods speci fied in the SEC’s rules and forms, and (ii) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

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Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15-d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company continues, however, to implement suggestions from its independent accounting consultant on ways to strengthen existing controls.

PART  II – OTHER INFORMATION

Item 1.     Legal Proceedings

See Note 13, “Commitments and Contingencies,” in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1. “Financial Statements” of this Form 10-Q for information regarding legal proceedings.

Item 1A.  Risk Factors

During the nine months ended September 30, 2010, there were no material changes to the risk factors that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Reserved

Item 5.   Other Information

None.

Item 6.	Exhibits
Exhibit	Description
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GTJ REIT, INC.
Dated: November 12, 2010	/s/ Jerome Cooper
	Jerome Cooper President, Chief Executive Officer and Chairman of the Board of Directors
Dated: November 12, 2010	___ /s/ David J. Oplanich
	David J. Oplanich Chief Financial Officer