GTJ Reit (GTTJ) 10-Q 2012 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, 2012

or

o         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  o

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  x No  o

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 [  ]
(Do not check if smaller reporting company) 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: 13,648,084 shares of common stock as of November 5, 2012.

GTJ REIT, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Condensed Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011	2
Condensed Consolidated Statements of (Loss) Income (Unaudited) for the Three and Nine Months Ended September 30, 2012 and 2011	3
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Nine Months Ended September 30, 2012 and 2011	4
Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2012	5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2012 and 2011	6
Notes to the Consolidated Financial Statements (Unaudited)	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3. Quantitative and Qualitative Disclosures about Market Risk	42
Item 4. Controls and Procedures	42
PART II. OTHER INFORMATION	42
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3. Defaults Upon Senior Securities	43
Item 4. Mine Safety Disclosures	43
Item 5. Other Information	43
Item 6. Exhibits	43
Signatures	44

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,
	2012		2011
	(Unaudited)
ASSETS
Real estate at cost:
Land	$	88,584	$	88,584
Buildings and improvements	28,894		24,874
	117,478		113,458
Less: accumulated depreciation and amortization	(10,887)		(10,194)
Net real estate held for investment	106,591		103,264
Cash and cash equivalents	4,484		7,613
Available-for-sale securities	554		1,896
Restricted cash	478		627
Accounts receivable, net	241		295
Other assets	8,485		7,585
Deferred charges, net	3,986		3,186
Assets of discontinued operations	4,708		6,673
Intangible assets, net	-		478
Machinery and equipment, net	1,074		1,274
Total assets	$	130,601	$	132,891
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured revolving credit facility	$	5,000	$	—
Mortgage note payable	45,500		45,500
Accounts payable and accrued expenses	26		32
Unpaid losses and loss-adjustment expenses	1,591		1,909
Liabilities of discontinued operations	1,820		1,602
Other liabilities, net	4,354		2,403
Total liabilities	58,291		51,446
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; 13,648,084 and 13,587,051 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	1		1
Additional paid-in capital	138,148		137,845
Cumulative distributions in excess of net income	(66,131)		(56,710)
Accumulated other comprehensive income	292		309
Total stockholders’ equity	72,310		81,445
Total liabilities and stockholders’ equity	$	130,601	$	132,891

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

2

GTJ REIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

For the Three and Nine Months Ended September 30, 2012 and 2011

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

	Three Months Ended, September 30,				Nine Months Ended, September 30,
	2012		2011		2012		2011
Revenues:
Property rentals	$	3,355	$	3,431	$	10,279	$	10,079
Tenant reimbursements	47		90		259		317
Other revenue	-		11		17		307
Total revenues	3,402		3,532		10,555		10,703
Operating expenses:
General and administrative expenses	2,184		2,193		7,100		5,994
Property operating expenses	204		198		638		592
Depreciation and amortization expense	322		336		1,002		980
Total operating expenses	2,710		2,727		8,740		7,566
Operating income	692		805		1,815		3,137
Other income (expense):
Interest income	3		20		27		66
Interest expense	(702)		(632)		(2,009)		(1,889)
Change in insurance reserves	(23)		(113)		38		(149)
Pension withdrawal expense	(1,488)		-		(1,488)		-
Other	639		(156)		678		(141)
Total other income (expense):	(1,571)		(881)		(2,754)		(2,113)
(Loss) income from continuing operations before provision for income taxes	(879)		(76)		(939)		1,024
Provision for income taxes	-		23		-		1
(Loss) income from continuing operations, net of income taxes	(879)		(99)		(939)		1,023
Discontinued Operations:
Loss from discontinued operations, net of income taxes	(1,875)		(1,594)		(3,446)		(1,870)
Net loss	$	(2,754)	$	(1,693)	$	(4,385)	$	(847)
(Loss) income per common share - basic and diluted:
(Loss) income from continuing operations	$	(0.06)	$	(0.01)	$	(0.07)	$	0.08
Loss from discontinued operations	$	(0.14)	$	(0.11)	$	(0.25)	$	(0.14)
Net loss	$	(0.20)	$	(0.12)	$	(0.32)	$	(0.06)
Weighted-average common shares outstanding – basic and diluted	13,648,084		13,587,051		13,620,538		13,553,105

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

3

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Nine Months Ended September 30, 2012 and 2011

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

	For the Nine Months Ended September 30,
	2012		2011
Net loss:	$	(4,385)	$	(847)
Other comprehensive loss:
Available-for-sale securities:
Net change in unrealized losses	(17)		(127)
Comprehensive loss	$	(4,402)	$	(974)

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

4

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2012

(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 December 31, 2011	-	$	-	13,587,051	$	1	$	137,845	$	(56,710)	$	309	$	81,445
Distributions - common stock, $0.37 per share	-	-		-	-		-		(5,036)		-		(5,036)
Stock-based compensation	-	-		-	-		303		-		-		303
Issuance of restricted shares	-	-		61,033	-		-		-		-		-
Comprehensive loss:
Net loss	-	-		-	-		-		(4,385)		-		(4,385)
Unrealized loss on available-for-sale securities, net	-	-		-	-		-		-		(17)		(17)
Total comprehensive loss	-	-		-	-		-		-		-		(4,402		)
Balance at September 30, 2012	-	$	-	13,648,084	$	1	$	138,148	$	(66,131)	$	292	$	72,310

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

5

GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2012 and 2011

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

	Nine Months Ended September 30,
	2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,385)	$	(847)
Loss from discontinued operations	3,446		1,870
(Loss) income from continuing operations	(939)		1,023
Adjustments to reconcile net (loss) income from continuing operations to net cash provided by operating activities
Stock-based compensation	303		314
Changes in insurance reserves	(318)		(170)
Depreciation and amortization	894		893
Realized gain on available for sale securities	(29)		-
Amortization of deferred financing costs	238		163
Amortization of deferred charges	109		84
Amortization of intangible assets	477		614
Changes in operating assets and liabilities:
Accounts receivable	54		(91)
Other assets	(900)		(888)
Deferred charges	(1,147)		(276)
Accounts payable and other liabilities	1,945		(14)
Net cash provided by operating activities	687		1,652
Cash flow from investing activities:
Purchases of leasehold improvements	(4,020)		(280)
Purchase of marketable securities	(2)		—
Proceeds from sale of marketable securities	1,356		295
Restricted cash	149		119
Net cash (used in) provided by investing activities	(2,517)		134
Cash Flow from financing activities:
Proceeds from revolving credit facility	5,000		-
Dividends paid	(5,036)		(4,609)
Net cash used in financing activities	(36)		(4,609)
Cash flow provided by discontinued operations:
Operating activities	(1,263)		121
Net decrease in cash and cash equivalents	(3,129)		(2,702)
Cash and cash equivalents at the beginning of period	7,613		11,137
Cash and cash equivalents at the end of period	$	4,484	$	8,435
Supplemental cash flow information:
Cash paid for interest	$	1,726	$	1,723
Cash paid for taxes	$	55	$	7

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

6

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

1.ORGANIZATION AND BASIS OF PRESENTATION:

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 (“Real Estate Operations”). In addition, the Company, through its taxable REIT subsidiaries, provided outdoor maintenance and shelter cleaning services to outdoor advertising companies and government agencies in New York, New Jersey, Arizona, and California, as well as electrical construction services to a broad range of commercial, industrial, institutional, and governmental customers in New York (“Outdoor Maintenance Operations”), and operated and managed a parking garage facility located in New York City (“Parking Operations”).

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, 2012, 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 “Acquisition 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 Reorganization approximately 10,000,000 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.

The Bus Companies, including their subsidiaries, owned a total of six rentable parcels of real property (five of which are 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 is leased to various tenants. There was an additional property of negligible size which is 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.

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.

7

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

1.ORGANIZATION AND BASIS OF PRESENTATION (Continued):

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. 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. The Reorganization was accounted for under the purchase method of accounting as required by Accounting Standards Codification (“ASC”) 805.

Each stockholder elected to receive cash or stock, or a combination of both. The Company distributed approximately $19.9 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 $0.1 million is included in other liabilities in the condensed consolidated balance sheet at September 30, 2012.

On July 25, 2011, the Board of Directors (the “Board”) voted to divest substantially all of the Company’s taxable REIT subsidiaries. Although the parking garage operations were not divested at this time, the Board subsequently voted to divest the operations on November 7, 2011. Following the divestiture, the Company’s plan is to continue focusing on the growth and expansion of its real estate operations.

On December 27, 2011, MetroClean Express Corp. (“MetroClean”) and Shelter Clean Inc. (“ShelterClean”) each entered into an asset purchase agreement with Triangle Services, Inc. (the “Purchaser”) for the sale of substantially all of the assets and business of MetroClean and Shelter Clean to the Purchaser.  On January 12, 2012, the sale was completed. Additionally, on January 12, 2012, Shelter Clean of Arizona, Inc. entered into a certain Bill of Sale and Assignment and Assumption Agreement for the sale of certain assets and the business of Shelter Clean of Arizona, Inc. to a wholly-owned subsidiary of the Purchaser.

On November 15, 2011, in accordance with the lease, Shelter Parking Brevard gave notice to the landlord of the intention to terminate the parking garage lease early, and on February 1, 2012, the Company exited the parking business.

Basis of Presentation and Principles of Consolidation:

The accompanying unaudited condensed 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 condensed 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 intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2012. The accompanying unaudited condensed 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, 2011.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates:

The preparation of the Company’s condensed 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 readily 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 condensed 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, impairment of assets, income taxes, contingencies, environmental matters, insurance liabilities, and stock-based compensation.

8

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(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 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.

9

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(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 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 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 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. Management has determined that there were no indicators of impairment at September 30, 2012.

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. As a result of Management’s assessment, the Company recorded an impairment charge of approximately $0.1 million against accounts receivable and wrote off approximately $0.1 million of notes receivable as of September 30, 2012.

Reportable Segments:

As of September 30, 2012, the Company primarily operated in two reportable segments: (i) Real Estate Operations and (ii) Other Operations.

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

·Other Operations provided various services to customers, including (i) personnel support, consulting, and maintenance services to the Metropolitan Transit Authority Bus Company (“MTABC”) for payroll, human resource, dispatch, procurement, inventory, and shop management systems for certain bus depots and (ii) insurance operations which 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.

Both segment’s operations are conducted within the U.S., with the exception of the insurance operations which is conducted in the Cayman Islands.

As of July 25, 2011, the Board of Directors voted to divest the Company of its outdoor maintenance, shelter cleaning, and electrical contracting businesses. Although the parking garage operations were not divested at this time, the Board subsequently voted to divest the operations on November 7, 2011. These operations are presented as discontinued operations in the consolidated statements of (loss) income.

Revenue Recognition—Real Estate Operations:

The Company recognizes revenue in accordance with ASC 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 nine months ended September 30, 2012, four tenants constituted approximately 63%, 16%, 12%, and 7% of rental revenue, and two tenants each constituted approximately 1% of rental revenue. For the nine months ended September 30, 2011, four tenants constituted approximately 63%, 16%, 12%, and 8% of rental revenue, and two tenants each constituted approximately 1% of rental revenue.

10

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(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 Company’s properties are being leased to tenants under operating leases. The cumulative excess revenue recognized over amounts due pursuant to the underlying leases amounted to approximately $8.0 million and $7.4 million at September 30, 2012 and December 31, 2011, respectively (see Note 5).

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—Electrical Contracting Operations:

The Company recognizes revenues from long-term construction contracts on the percentage-of-completion method in accordance with ASC 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. Revenues are presented as part of discontinued operations in the condensed consolidated statements of (loss) income (see Note 8 for further discussion regarding discontinued operations).

Earnings Per Share Information:

In accordance with ASC 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 common 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. Restricted stock was included in the computation of diluted earnings per share and stock option awards were excluded from the computation of diluted earnings per share because the option awards would have been antidilutive for the periods presented.

Discontinued Operations:

The condensed consolidated financial statements of the Company present the operations of the outdoor maintenance, shelter cleaning, electrical contracting, and parking operations as discontinued operations (Note 8) in accordance with ASC 205-20-55 for the three and nine months ended September 30, 2012 and 2011.

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.

Restricted Cash:

Restricted cash represents funds held by the insurance carrier for the purpose of the payment of insured losses.  At September 30, 2012 and December 31, 2011, the Company had restricted cash in the amount of $0.5 million and $0.6 million, respectively.

11

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

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 collectability based on past credit histories with customers and their current financial conditions. Changes in the estimated collectability 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 its marketable debt and equity securities as available-for-sale securities in accordance with ASC 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 are included in the accompanying condensed consolidated statements of (loss) 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 management’s 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.

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 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.

12

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

ASC 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 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 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, 2012 and December 31, 2011, the Company has determined that no liabilities are required in connection with unrecognized tax positions.

Comprehensive Income (Loss):

The Company follows the provisions of ASC 220-10-45, which sets forth rules for the reporting and display of comprehensive income (loss) and its components. ASC 220-10-45 requires unrealized gains or losses on the Company’s available-for-sale securities to be included in accumulated other comprehensive income (loss), 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 7 and 14).

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 and cash equivalents, which from time-to-time exceed the federal depository insurance coverage. All non-interest bearing transaction accounts are fully insured by the Federal Deposit Insurance Corporation through December 31, 2012.

Investment in Equity Affiliates:

The Company invested in a joint venture that was formed to perform electrical construction services. This investment is recorded under the equity 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 this investment as part of discontinued operations on the consolidated statements of (loss) income.

13

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Variable Interest Entities:

The Company accounts for variable interest entities (“VIEs”) in accordance with ASC 810-10-50. A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (i) has the power to control the activities that impact the VIE’s economic performance and (ii) has the right to receive the majority of expected returns or the obligation to absorb the majority of expected losses that could be material to the VIE.

As of September 30, 2012, the Company has one investment which was made to a VIE with a net carrying amount of $0.5 million, which is included in assets of discontinued operations on the condensed consolidated balance sheet. For the VIE identified, the Company is not the primary beneficiary and as such the VIE is not consolidated in the Company’s condensed consolidated 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 11. The Company accounts for stock-based compensation in accordance with ASC 718-30-30, which establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718-10-35, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is expensed at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods.

Recently Issued Accounting Pronouncements:

There were no recently issued accounting pronouncements that would affect the Company’s financial statements.

3.REAL ESTATE:

Farm Springs Road, LLC Property:

On June 6, 2012, Farm Springs Road, LLC (“Farm Springs”), a wholly-owned subsidiary of the Company, and United Technologies Corporation (“United Technologies”) entered into a lease agreement (the “Lease”) pursuant to which United Technologies will lease approximately 107,654 square feet of office space and the adjacent parking structure located at 8 Farm Springs Road, Farmington, Connecticut (the “Premises”).

The commencement date of the Lease was September 1, 2012 and the initial term will expire 15 years after the commencement date. United Technologies has the option to extend the initial term by either: (i) a one year option and then three successive five year options with base rent increasing by the Consumer Price Index (“CPI”) during the three successive five year options and fixed at the same base rent as the fifteenth year of the Lease during the one year option, or (ii) three successive five year options with base rent increasing by CPI. United Technologies has certain rights to the first offer to purchase the Premises in the event Farm Springs sells the Premises in a “one-off” sale.

The base annual rent for the Premises will begin 12 months from the lease commencement. The base annual rent for the Premises will range from approximately $1.4 million during the first year to $1.8 million for the fifteenth year of the Lease. During the first seven years of the lease, base annual rental income will increase at a fixed rate of 2%. After the seventh year of the Lease, base annual rent will increase based upon CPI with a minimum increase of 1% and a maximum increase of 3%. In addition to the base rent, United Technologies will be responsible for property maintenance and payment of operating expenses, including utilities and real estate taxes subject to limited exceptions, as defined, which will be the Company’s responsibility.

On August 31, 2012, Farm Springs and Hartford Fire Insurance Company (the “Hartford”), former tenant of Farm Springs, entered into a release agreement whereby the Hartford paid Farm Springs $625,000 for certain deferred property maintenance items related to their tenancy.

14

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

3.   REAL ESTATE (Continued):

612 Wortman Ave, LLC Property:

On July 2, 2012, the Company entered into a surrender agreement (“Agreement”) with Varsity Bus Co. Inc. (“Varsity”), a tenant of 612 Wortman Ave, LLC, a wholly-owned subsidiary of the Company, related to early termination of their existing lease. As consideration for terminating their existing lease early, Varsity has agreed to pay the Company a sum of approximately $0.4 million payable in six equal installments with the last payment being on or before December 14, 2012. In addition, on September 30, 2012, the Company entered into a rental agreement with Stanley Brettschneider (“Licensee”), to use certain land consisting of approximately 15,000 square feet at the 612 Wortman Ave property, solely for the purpose of bus parking. Per the terms of the rental agreement, the Licensee is to pay a monthly rental fee of approximately $9,000 due on the first day of each month during the term of the rental agreement, which is to commence October 1, 2012 and terminate on November 30, 2012.  Currently, the Company is actively marketing the property in order to secure a lease with a new tenant.

4.    AVAILABLE-FOR-SALE SECURITIES:

The Company accounts for debt and equity securities as available-for-sale securities in accordance with ASC 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 (loss) income.

The following is a summary of available-for-sale securities at September 30, 2012 and December 31, 2011 (in thousands):

	Available-for-Sale Securities
September 30, 2012	Face Value		Amortized Cost		Unrealized Gains		Estimated Fair Value
Equity securities	$	-	$	-	$	262	$	262
Money market fund	200		200		-		200
U.S. Treasury/U.S. Government debt securities	113		86		6		92
Total available-for-sale securities	$	313	$	286	$	268	$	554

	Available-for-Sale Securities
December 31, 2011	Face Value		Amortized Cost		Unrealized Gains		Estimated Fair Value
Equity securities	$	-	$	-	$	237	$	237
Money market fund	260		260		-		260
U.S. Treasury/U.S. Government debt securities	1,363		1,351		48		1,399
Total available-for-sale securities	$	1,623	$	1,611	$	285	$	1,896

Accumulated other comprehensive income for the nine months ended September 30, 2012 and year ended December 31, 2011 includes net unrealized holding losses of approximately $17,000 and $109,000, respectively. No amounts were reclassified from other comprehensive income to income for the nine months ended September 30, 2012, or for the year ended December 31, 2011.

15

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

4.    AVAILABLE-FOR-SALE SECURITIES (Continued):

The following is a summary of the contractual maturities of U.S. Government Debt Securities as of September 30, 2012:

	Amortized Cost		Estimated Fair Value
Due in:
2012	$	-	$	-
2013 – 2017		86		92
2018 – 2022		-		-
2023 and later		-		-
Total	$	86	$	92

5.    OTHER ASSETS:

Other assets consist of the following (in thousands):

	September 30,			December 31,
	2012			2011
Prepaid expenses	$		357	$	155
Prepaid and refundable income taxes	30			14
Rental income in excess of amount billed	8,034			7,373
Security deposits	30			30
Other assets	34			13
	$	8,485		$		7,585

6.    UNPAID LOSSES AND LOSS-ADJUSTMENT EXPENSES:

The liability for losses and loss-adjustment expenses in connection with certain previous insurance claims is summarized as follows (in thousands):

	September 30, 2012		December 31, 2011
Reported claims	$	999	$	1,712
Provision for incurred but not reported claims	592		197
	$	1,591	$	1,909

Management is responsible for estimating the provisions for outstanding losses. The Company has recognized in the financial statements a provision for outstanding losses of $1.6 million and $1.9 million at September 30, 2012 and December 31, 2011, respectively. Effective November 3, 2011, losses originating from the 1999 to 2001 years were commuted back to AAIC for an amount totaling approximately $0.2 million. In connection with the transfer of insurance assets to a liquidating trust, an actuarial study was completed by the insurance carrier, which estimated that at December 31, 2011, the total outstanding losses are approximately $1.2 million. In their analysis, the insurance carrier used industry based data which may or may not be representative of the Company’s ultimate liabilities. In addition, the provision includes $0.8 million for outstanding losses which was not a part of the actuarial study.

16

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

6.    UNPAID LOSSES AND LOSS-ADJUSTMENT EXPENSES (Continued):

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. However, 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.

7.    OTHER LIABILITIES:

Other liabilities consist of the following (in thousands):

	September 30,		December 31,
	2012		2011
Accrued dividends	$	1,092	$	1,087
Accrued earnings and profits distribution		99		99
Accrued professional fees		619		97
Accrued vacation		-		30
Accrued environmental costs		94		189
Accrued income taxes		12		31
Deposit liability		447		301
Prepaid rent		-		209
Pension withdrawal liability		1,451		-
Other		540		360
	$	4,354	$	2,403

8.    DISCONTINUED OPERATIONS:

On July 25, 2011, the Board of Directors (the “Board”) voted to divest substantially all of the Company’s taxable REIT subsidiaries (outdoor maintenance, shelter cleaning, and electrical contracting businesses). Although the parking garage operations were not divested at this time, the Board subsequently voted to divest the operations on November 7, 2011. Following the divestiture, the Company’s plan is to continue focusing on the growth and expansion of its real estate operations. The assets and liabilities associated with the outdoor maintenance, shelter cleaning, electrical contracting, and parking (“Outdoor Maintenance”) businesses have been classified as assets and liabilities of discontinued operations for all periods presented. The results of operations of the Outdoor Maintenance businesses are classified as “Loss from discontinued operations, net of taxes” for all periods presented.

The following table sets forth the detail of the Company’s loss from discontinued operations for the nine months ended September 30, 2012 and 2011 (in thousands):

	Three Months Ended, September 30,				Nine Months Ended, September 30,
	2012		2011		2012		2011
Revenues from discontinued operations	$	1,266	$	5,890	$	5,041	$	15,480
Loss from discontinued operations, net income taxes	$	(1,875)	$	(1,594)	$	(3,446)	$	(1,870)

17

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

8.    DISCONTINUED OPERATIONS (Continued):

The carrying amounts of the major classes of assets and liabilities of the Outdoor Maintenance businesses included in discontinued operations are as follows (in thousands):

	September 30,		December 31,
	2012		2011
Assets:
Cash	$	20	$	63
Accounts receivable, net	1,796		2,666
Machinery and equipment, net	65		93
Other assets, net	2,827		3,851
	$	4,708	$	6,673
Liabilities:
Accounts payable and accrued expenses	528		467
Unpaid losses and loss-adjustment expenses	18		25
Other liabilities, net	1,274		1,110
	$	1,820	$	1,602

The following tables present the uncompleted contracts in progress (in thousands):

	September 30, 2012		December 31, 2011
Costs on contracts in progress	$	6,877	$	3,079
Estimated (loss) earnings		(1,062)		146
Accrued loss		1,062		-
		6,877		3,225
Less: billings to date		(4,680)		(2,351)
	$	2,197	$	874

The excess of billings over revenues earned to date and revenues earned to date over billings are included in assets of discontinued operations, respectively, on the accompanying condensed consolidated balance sheets as of (in thousands):

	September 30, 2012		December 31, 2011
Costs and estimated earnings in excess of billings on uncompleted contracts	$	2,197	$	874
Billings in excess of costs and estimated earnings on uncompleted contracts		-		-
	$	2,197	$	874

9.    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

18

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

9.    MORTGAGE NOTE PAYABLE (Continued):

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 Company’s previous loan agreement with ING.

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 bears 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.

10.    SECURED REVOLVING CREDIT FACILITY:

M&T Financing Agreement:

On August 26, 2011, the Company and Manufacturers and Traders Trust Company (“M&T”) entered into a certain credit agreement (the “Credit Agreement”). The Credit Agreement provides for, among other things, a $10 million revolving credit facility (the “Revolver”). The Revolver is available to the Company to be used for Permitted Acquisitions (as defined in the Credit Agreement) and for general working capital and other corporate purposes. The Credit Agreement requires that the Company satisfy certain financial covenants, including: (i) Minimum Net Worth, (ii) Fixed Charge Coverage Ratio, (iii) Leverage Ratio and (iv) Liquidity, all as defined in the Credit Agreement, and other restrictions and covenants that are usual and customary in agreements of this type. As a condition to M&T entering into the Credit Agreement, the Company agreed to indemnify M&T against certain claims pursuant to that certain Environmental Compliance and Indemnification Agreement, dated as of August 26, 2011.

The obligations under the Revolver are guaranteed by Farm Springs Road, LLC, a wholly-owned subsidiary of the Company (“Farm Springs”). The guaranty of Farm Springs is secured by a first priority mortgage lien and security interest on real property owned by Farm Springs and located at 8 Farm Springs Road, Farmington, Connecticut, as more specifically described in that certain Open-End Mortgage Agreement, dated as of August 26, 2011, and that certain General Assignment of Rents, dated as of August 26, 2011, by and between M&T and the Company. The maturity date for the Revolver is August 26, 2014. Borrowings under the Revolver bear interest, at the Borrower’s option, at either: (i) the M&T’s prime rate plus 2.0% or (ii) the London Interbank Offered Rate (“LIBOR”) plus 3.5% which is subject to a minimum rate of 4.0%.

As part of the Credit agreement, the Company is obligated to comply with certain financial covenants. The Company was in compliance with all financial covenants and restrictions for the periods presented with the exception of the net worth requirement for the nine months ended September 30, 2012. The Company is required to maintain Minimum Net Worth of greater than or equal to $75.0 million measured quarterly and for the trailing four quarters. While the Company’s net worth has been greater than $75.0 million for the trailing four quarters, it was $72.3 million for the quarter ended September 30, 2012. The Company has obtained a waiver for non-compliance with this covenant at September 30, 2012 from M&T and permanently amended this covenant calculation to $70.0 million.

As of September 30, 2012, the Company has $5.0 million outstanding under the Credit Agreement.

19

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

11.    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 a total of 13,472,281 shares has been issued by the Company.  On June 17, 2010, June 9, 2011, April 30, 2012, and June 7, 2012, the Company issued 56,850, 57,920, 55,149, and 5,884 restricted shares of common stock, respectively, under its stock incentive plan. As of September 30, 2012, a total of 13,648,084 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, $.0001 par value per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. No shares have been issued as of September 30, 2012.

Dividend Distributions:

The following table presents dividends declared by the Company on its common stock from January 1, 2012 through September 30, 2012:

Declaration	Year / Quarter	Record	Payment	Dividend
Date	Ended	Date	Date	Per Share
January 23, 2012	December 31, 2011	January 31, 2012	February 15, 2012	$	0.13	(1)
March 26, 2012	March 31, 2012	March 31, 2012	April 15, 2012	$	0.08
June 7, 2012	June 30, 2012	June 30, 2012	July 15, 2012	$	0.08
August 6, 2012	September 30, 2012	September 30, 2012	October 15, 2012	$	0.08

(1)This represents a supplemental dividend.

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, 2012, the Company had 559,197 shares available for future issuance of 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 had 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, 2012

(Unaudited)

11.    STOCKHOLDERS’ EQUITY (Continued):

The fair value of these options granted 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	%

On June 9, 2011, the Company granted 10,000 options to Mr. Joseph F. Barone, a member of the Company’s Board of Directors and Chairman of the Compensation Committee. These options, which vested immediately, were granted in connection with Mr. Barone’s appointment to the Board of Directors on February 12, 2009.

The fair value these options granted is estimated on the date of grant using the Black-Scholes Option Pricing Model. The fair value of options granted on June 9, 2011, was $0.93 per share. The following assumptions were used for the options granted:

Risk free interest rate:	4.00	%
Expected dividend yield:	5.20	%
Expected life of option in years:	10.00
Expected volatility: (1)	30.00	%

The following table presents the activity of options outstanding under the Plan for the nine months ended September 30, 2012:

Options	Number of Options	Weighted- Average and Exercise Price Per Share		Weighted- Average Grant Date Fair Value Per Share
Outstanding at December 31, 2011	265,000(a)	$	11.14	$	1.86
Granted	-	-		-
Exercised	-	-		-
Forfeited /Expired	-	-		-
Outstanding at September 30, 2012 (2)	265,000	$	11.14	$	1.86
Options vested and exercisable at September 30, 2012	265,000	$	11.14	$	1.86

(a)Of these outstanding and exercisable options, 255,000 options have a remaining contractual life of approximately 5.4 years and the remaining 10,000 options have a remaining contractual life of approximately 8.7 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, 2012 and the related exercise price of the underlying options, was $0 for outstanding options and exercisable options as of September 30, 2012.

For the three and nine months ended September 30, 2012, the Company did not recognize any expense related to the stock option grants and for the three and nine months ended September 30, 2011, the Company recognized approximately $9,000 and $20,000, respectively, related to the stock option grants awarded under the Plan.

21

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

11.    STOCKHOLDERS’ EQUITY (Continued):

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 vested on the grant date, one fourth vested on January 1, 2011, one fourth vested on January 1, 2012, and the remaining fourth will vest on 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 with ASC 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, 2012 and 2011 stock compensation expense relating to the restricted stock granted on January 1, 2010, was approximately $6,000, $16,000, $19,000 and $47,000 respectively.

On June 9, 2011, the Company issued an aggregate of 57,920 restricted shares of common stock, with a value of approximately $440,000, under the Plan. A total of 5,280 of these shares, with a value of approximately $40,000, were granted to non-management members of the Board of Directors, and vested immediately. The remaining 52,640 shares, with a value of approximately $400,000, were granted to certain executives of the Company, and vest ratably over a four year period. One fourth of the 52,640 shares granted to each of the executives vested on the grant date, one fourth vested on March 18, 2012, and one fourth will vest each year on the following dates: March 18, 2013, and March 18, 2014. 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 with ASC 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, 2012 and 2011, stock compensation expense relating to the restricted stock granted on March 18, 2011, was approximately $21,000, $46,000, $79,000, and $247,000 respectively.

On April 30, 2012, and June 7, 2012, the Company issued an aggregate of 55,149 and 5,884 restricted shares of common stock, respectively, under the Plan. The shares issued on June 7, 2012 have a value of approximately $40,000, were granted to non-management members of the Board of Directors, and vested immediately. The shares issued on April 30, 2012 have a value of approximately $375,000, were granted to certain executives of the Company, and vest ratably over a four year period. One fourth of the 55,149 shares granted to each of the executives vested on the grant date and one fourth will vest each year on the following dates: April 30, 2013, April 30, 2014, and April 30, 2015. 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 with ASC 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, 2012 and 2011, stock compensation expense relating to the restricted stock granted in 2012, was approximately $43,000, $205,000, $0, and $0 respectively.

For the three and nine months ended September 30, 2012 and 2011, the Company’s total stock compensation expense was approximately $70,000, $71,000, $303,000, and $314,000, respectively. As of September 30, 2012, there was approximately $284,000 of unamortized stock compensation related to restricted stock.

Special Distribution of Earnings and Profits:

On August 20, 2007, the Board of Directors of the Company declared a one time 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. As of September 30, 2012, cash of approximately $19.9 million and 3,775,400 shares of the Company’s common stock have been distributed. The remaining payable balance of approximately $0.1 million is included in other liabilities in the accompanying condensed consolidated balance sheet at September 30, 2012.

22

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

12.    EARNINGS PER SHARE:

In accordance with ASC 260-10-45, basic earnings per common share (“Basic EPS”) is computed by dividing the net (loss) income by the weighted-average number of common shares outstanding. Diluted earnings per common share (“Diluted EPS”) is computed by dividing net (loss) 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 condensed consolidated statements of (loss) 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,
	2012		2011		2012		2011
Numerator:
(Loss) income from continuing operations	$	(879)	$	(99)	$	(939)	$	1,023
Loss from discontinued operations	1,875		1,594		3,446		1,870
Net loss	$	(2,754)	$	(1,693)	$	(4,385)	$	(847)
Denominator:
Weighted average common shares outstanding - basic and diluted	13,648,084		13,587,051		13,620,538		13,553,105
Basic and Diluted Per Share Information:
Net (loss) per share - basic and diluted	$	(0.20)	$	(0.12)	$	(0.32)	$	(0.06)

13.    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 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 for the three and nine months ended September 30, 2012 were $267,000 and $790,000, respectively, and $198,000 and $445,000, respectively, for the three and nine months ended September 30, 2011.

Paul A. Cooper is the Chief Executive Officer, a director of the Company, and the son of Jerome Cooper (Chairman of the Board).  In January 2010, the Company executed an extension option under the lease agreement with 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. The executed extension option includes approximately 6,712 square feet of office space for a term of five years expiring August 31, 2015 at an annual rent of approximately $219,000.

Stanley Brettschneider, a former officer of the Company’s taxable REIT subsidiaries, is the father of the majority owner of Varsity Bus Co., Inc. (“Varsity”) which was a tenant at one of the Company’s rental properties until September 2012. Varsity had entered into a lease agreement which terminated in 2009 and was subject to four 5 year options to extend the term of the lease. 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 began on September 1, 2010, was approximately $833,000 and was subject to increase in accordance with the lease agreement for the remaining four years. On July 2, 2012, the Company entered into a surrender agreement (“Agreement”) with Varsity regarding early termination of their existing lease. As consideration for terminating their existing lease early, Varsity has agreed to pay the Company a sum of approximately $0.4 million payable in six equal installments with the last payment being on or before December 14, 2012. On September 30, 2012, the Company entered into a rental agreement with Stanley Brettschneider (“Licensee”), to use certain land consisting of approximately 15,000 square feet at the 612 Wortman Ave property, solely for the purpose of bus parking. Per the terms of the rental agreement, the Licensee is to pay a monthly rental fee of approximately $9,000 due on the first day of each month during the term of the rental agreement, which is to commence October 1, 2012 and terminate on November 30, 2012. Varsity also utilized some of the Company’s computer systems for a monthly fee. In addition, Mr. Brettschneider is also a compensated employee of Varsity. On April 11, 2012, the Company determined that Mr. Brettschneider’s employment as Vice President of the Company’s taxable REIT subsidiaries will terminate effective July 31, 2012.

23

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

14.    COMMITMENTS AND CONTINGENCIES:

Legal Matters:

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 engineering 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.

Included in other liabilities in the accompanying condensed consolidated balance sheets (Note 7) as of September 30, 2012, and December 31, 2011, is the estimated liability for remediation costs of approximately $0.1 million and $0.2 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.

Insurance Operations:

The provisions of the Insurance Law of the Cayman Islands require a minimum net worth of $120,000.  At September 30, 2012 and December 31, 2011, the Company’s insurance operations were not in compliance with the minimum net worth requirements.  A meeting was held with the Cayman Islands Monetary Authority (“CIMA”) on March 23, 2011, at which time the Company informed CIMA of the intention to transfer the insurance balances into a New York based liquidating trust and dissolve the Company’s Cayman Islands based insurance operations once the transfer is complete. As of September 30, 2012, the Company is in the process of transferring the insurance balances into a liquidating trust.

Divestiture:

In connection with the completion of the divestiture of the Company’s taxable REIT subsidiaries, the Company may be subject to certain liabilities including union wages and severance. On January 27, 2012, the Company received a notice from Local Union No. 3’s counsel asserting a severance liability of approximately $0.1 million for those employees terminated in connection with the divestiture. An arbitration hearing was held on May 2, 2012, in which the arbitrator ruled in favor of Local Union No. 3 in the amount of approximately $0.1 million. On July 13, 2012, the Company paid the full amount of the settlement.

On February 16, 2012, the Company received a notice from the Joint Industry Board of the Electrical Industry claiming a pension withdrawal liability in the amount of $1.5 million in connection with the divestiture. During the three months ended September 30, 2012, the Company determined the liability is probable and reasonably estimable and accrued $1.5 million in other liabilities on the condensed consolidated balance sheet. The liability will be paid in installments of approximately $8,000 per month over a twenty year term.  As of September 30, 2012, the Company has made eight installment payments.

24

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

15.    INVESTMENT IN EQUITY AFFILIATES:

Joint Ventures:

The Company invested in a joint venture that was formed to perform electrical construction services. This investment is recorded 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 this investment as part of discontinued operations on the condensed consolidated statements of (loss) income.

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, 2012, the Company recorded its share of losses of approximately $45,000 and $91,000, respectively, for the equity investment. During the nine months ended September 30, 2012, the Company also recognized $65,250 in management fees. As of September 30, 2012 and December 31, 2011, the Company has a net receivable of approximately $0.4 million and $1.1 million, respectively, related to working capital advances to fund construction projects, which is included on the condensed consolidated balance sheets.

Variable Interest Entities:

The Company accounts for variable interest entities (“VIEs”) in accordance with ASC 810-10-50. A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (i) has the power to control the activities that impact the VIE’s economic performance and (ii) has the right to receive the majority of expected returns or the obligation to absorb the majority of expected losses that could be material to the VIE.

As of September 30, 2012, the Company has one investment in a VIE entity with a net carrying amount of $0.5 million, which is included in assets of discontinued operations on the condensed consolidated balance sheet. 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.

16.    FAIR VALUE:

Fair Value of Financial Instruments:

ASC 825-10-50 requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. ASC 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 825-10-50. ASC 825-10-65 applies to all financial instruments within the scope of ASC 825-10-50.

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 (in thousands):

	September 30, 2012				December 31, 2011
	Carrying		Estimated		Carrying		Estimated
Financial assets:	Value		Fair Value		Value		Fair Value
Cash and cash equivalents	$	4,484	$	4,484	$	7,613	$	7,613
Available-for-sale securities	554		554		1,896		1,896
Restricted cash	478		478		627		627
Accounts receivable, net	241		241		295		295
Financial liabilities:
Secured revolving credit facility	$	5,000	$	5,000	$	-	$	-
Mortgage note payable		45,500		50,051		45,500		49,137

25

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

16.    FAIR VALUE (Continued):

Fair Value Measurement:

The Company determines fair value in accordance ASC 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 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.

The Company measures certain financial assets and financial liabilities at fair value on a recurring basis, primarily available-for-sale securities. The fair value of these financial assets and liabilities was determined using the following inputs as of September 30, 2012.

			Fair Value Measurements
	Carrying	Fair	Using Fair Value Hierarchy
	Value	Value	Level 1	Level 2		Level 3
Financial assets:
Available-for-sale securities	$554	$554	$554	$	-	$	-

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

26

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

17.    SEGMENTS:

Segment Information:

In accordance with ASC 280-10, the Company has established that its reportable segments are Real Estate Operations and Other Operations as of September 30, 2012. 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 outside maintenance, shelter cleaning, electrical contracting, parking, and paratransit businesses, the operating results of these businesses are classified as discontinued operations and, as such, are not reflected in the operating segments reported in the table below.

The Company primarily operated in two reportable segments: (i) Real Estate Operations and (ii) Other Operations.

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

Other Operations provided various services to customers, including (i) personnel support, consulting, and maintenance services to the Metropolitan Transit Authority Bus Company (“MTABC”) for payroll, human resource, dispatch, procurement, inventory, and shop management systems for certain bus depots and (ii) insurance operations which 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.

Both segment’s operations are conducted within the U.S., with the exception of the insurance operations which is conducted in the Cayman Islands.

The summarized segment information (excluding discontinued operations), as of and for the three and nine months ended September 30, 2012 and 2011 is as follows (in thousands):

Three Months Ended September 30, 2012

	Real Estate Operations		Other Operations		Eliminations		Total
Operating revenue	$	3,402		$     -	$	-	$   3,402
Operating expenses	1,930		780		-		2,710
Operating income (loss)	1,472		(780)		-		692
Other income (expense)	20		(1,591)		-		(1,571)
Income (loss) from continuing operations before income taxes	1,492		(2,371)		-		(879)
Provision for income taxes	-		-		-		-
Income (loss) from continuing operations	$	1,492	$	(2,371)	$	-	$	(879)
Capital expenditures	$	4,020	$	-	$	-	$	4,020
Depreciation and amortization	$	300	$	22	$	-	$	322
Total assets (1)	$	174,908	$	803	$	(49,818)	$	125,893

(1) Does not include assets of the discontinued operations totaling $4,708.

27

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

17.    SEGMENTS (Continued):

Three Months Ended September 30, 2011

	Real Estate Operations		Other Operations		Eliminations		Total
Operating revenue	$	3,521	$	11	$	-	$   3,532
Operating expenses	2,033		749		(55)		2,727
Operating income (loss)	1,488		(738)		55		805
Other income (expense)	(597)		(229)		(55)		(881)
Income (loss) from continuing operations before income taxes	891		(967)		-		(76)
Provision for income taxes	23		-		-		23
Income (loss) from continuing operations	$	868	$	(967)	$	-	$	(99)
Capital expenditures	$	176	$	-	$	-	$	176
Depreciation and amortization	$	315	$	21	$	-	$	336
Total assets (2)	$	171,354	$	1,644	$	(45,120)	$	127,878

(2)  Does not include assets of the discontinued operations totaling $6,747.

Nine Months Ended September 30, 2012

	Real Estate Operations		Other Operations		Eliminations		Total
Operating revenue	$	10,538	$       17		$	-	$   10,555
Operating expenses	6,484		2,256		-		8,740
Operating income (loss)	4,054		(2,239)		-		1,815
Other income (expense)	(1,148)		(1,606)		-		(2,754)
Income (loss) from continuing operations before income taxes	2,906		(3,845)		-		(939)
Provision for income taxes	-		-		-		-
Income (loss) from continuing operations	$	2,906	$	(3,845)	$	-	$	(939)
Capital expenditures	$	4,020	$	-	$	-	$	4,020
Depreciation and amortization	$	938	$	64	$	-	$	1,002
Total assets (1)	$	174,908	$	803	$	(49,818)	$	125,893

(1) Does not include assets of the discontinued operations totaling $4,708.

28

GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

17.    SEGMENTS (Continued):

Nine Months Ended September 30, 2011

	Real Estate Operations		Other Operations		Eliminations		Total
Operating revenue	$	10,396	$	307	$	-	$ 10,703
Operating expenses	4,836		2,910		(180)		7,566
Operating income (loss)	5,560		(2,603)		180		3,137
Other income (expense)	(1,800)		(133)		(180)		(2,113)
Income (loss) from continuing operations before income taxes	3,760		(2,736)		-		1,024
Provision for (benefit from) income taxes	24		(23)		-		1
Income (loss) from continuing operations	$	3,736	$	(2,713)	$	-	$	1,023
Capital expenditures	$	177	$	6	$	-	$	183
Depreciation and amortization	$	916	$	64	$	-	$	980
Total assets (2)	$	171,354	$	1,644	$	(45,120)	$	127,878

(2) Does not include assets of the discontinued operations totaling $6,747.

29

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, 2011 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 guarantee 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 (five on a triple net basis), and one of which a portion is leased to a commercial tenant and the remainder is leased to various tenants. 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 conducted 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 owned a group of outdoor maintenance businesses, and electrical contracting business, and a parking business, which are presented as part of discontinued operations on our statements of (loss) income. On December 27, 2011, we entered into an asset purchase agreement to sell the assets and business of the outdoor maintenance businesses and on January 12, 2012, the sale was completed.  On February 1, 2012, we exited the parking business.

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 geographic areas 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 condensed 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, 2011, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” for a discussion of our critical accounting policies. During the nine months ended September 30, 2012, 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 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. Our properties 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—Electrical Contracting Operations:

We recognize revenues from long-term construction contracts on the percentage-of-completion method in accordance with ASC 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. Revenues are presented as part of discontinued operations in the condensed consolidated statements of (loss) income (see Note 8 for further discussion regarding discontinued operations).

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 collectability based on past credit histories with customers and their current financial conditions. Changes in the estimated collectability 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 generally 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 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 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 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.

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.

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Asset Impairment:

We apply the provisions of ASC 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 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 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. Management has determined that there were no indicators of impairment at September 30, 2012.

When impairment indicators are present, investments in affiliated companies are reviewed for impairment by comparing their fair values to their respective carrying amounts. We make our 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. As a result of our assessment, we recorded an impairment charge of approximately $0.1 million against accounts receivable and wrote off approximately $0.1 million of notes receivable as of September 30, 2012.

Discontinued Operations:

The condensed consolidated financial statements present the operations of our outdoor maintenance, shelter cleaning, electrical contracting, and parking operations as discontinued operations (Note 8) in accordance with ASC 205-20-55 for the three months and nine months ended September 30, 2012 and 2011.

Fair Value Measurements:

We determine fair value in accordance with ASC 820-10-05 for financial assets and liabilities. ASC 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.

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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 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.

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 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 invested in a joint venture that was formed to perform electrical construction services. This investment is recorded under the equity method of accounting. We record our share of the net income and losses from the underlying properties and any other-than-temporary impairment on this investment as part of discontinued operations on the condensed consolidated statements of (loss) income.

Variable Interest Entities:

We account for variable interest entities (“VIEs”) in accordance with ASC 810-10-50. A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (i) has the power to control the activities that impact the VIE’s economic performance and (ii) has the right to receive the majority of expected returns or the obligation to absorb the majority of expected losses that could be material to the VIE.

As of September 30, 2012, we have one investment which was made to a VIE entity with a net carrying amount of $0.5 million, which is included in assets of discontinued operations on the condensed consolidated balance sheet. 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.

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Stock-Based Compensation:

We have a stock-based compensation plan, which is described in Note 11. We account for stock based compensation in accordance with ASC 718-30-30, which establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 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.

Real Estate:

Farm Springs Road, LLC Property:

On June 6, 2012, Farm Springs Road, LLC (“Farm Springs”), our wholly-owned subsidiary, and United Technologies Corporation (“United Technologies”) entered into a lease agreement (the “Lease”) pursuant to which United Technologies will lease approximately 107,654 square feet of office space and the adjacent parking structure located at 8 Farm Springs Road, Farmington, Connecticut (the “Premises”).

The lease commenced on September 1, 2012 and the initial term will expire 15 years after the commencement date. United Technologies has the option to extend the initial term by either: (i) a one year option and then three successive five year options with base rent increasing by the Consumer Price Index (“CPI”) during the three successive five year options and fixed at the same base rent as the fifteenth year of the Lease during the one year option, or (ii) three successive five year options with base rent increasing by CPI. United Technologies has certain rights to the first offer to purchase the Premises in the event Farm Springs sells the Premises in a “one-off” sale.

The base annual rent for the Premises will begin 12 months from the lease commencement. The base annual rent for the Premises will range from approximately $1.4 million during the first year to $1.8 million for the fifteenth year of the Lease. During the first seven years of the lease, base annual rental income will increase at a fixed rate of 2%. After the seventh year of the Lease, base annual rent will increase based upon CPI with a minimum increase of 1% and a maximum increase of 3%. In addition to the base rent, United Technologies will be responsible for property maintenance and payment of operating expenses, including utilities and real estate taxes subject to limited exceptions, as defined, which will be the our responsibility.

On August 31, 2012, Farm Springs and Hartford Fire Insurance Company (the “Hartford”), former tenant of Farm Springs, entered into a release agreement whereby the Hartford paid Farm Springs $625,000 for certain deferred property maintenance items related to their tenancy.

612 Wortman Ave, LLC Property:

On July 2, 2012, we entered into a surrender agreement (“Agreement”) with Varsity Bus Co. Inc. (“Varsity”), a tenant of 612 Wortman Ave, LLC, our wholly-owned subsidiary, related to early termination of their existing lease.  As consideration for terminating their existing lease early, Varsity has agreed to pay us a sum of approximately $0.4 million payable in six equal installments with the last payment being on or before December 14, 2012. In addition, on September 30, 2012, we entered into a rental agreement with Stanley Brettschneider (“Licensee”), to use certain land consisting of approximately 15,000 square feet at our 612 Wortman Ave property, solely for the purpose of bus parking. Per the terms of the rental agreement, the Licensee is to pay a monthly rental fee of approximately $9,000 due on the first day of each month during the term of the rental agreement, which is to commence October 1, 2012 and terminate on November 30, 2012.  Currently, we are actively marketing the property in order to secure a lease with a new tenant.

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Results of Operations:

Three Months Ended September 30, 2012 vs. Three Months Ended September 30, 2011

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

	Three Months Ended September 30,				Increase/(Decrease)
	2012		2011		Amount		Percent
	(Unaudited)
Revenues:
Property rentals	$	3,355	$	3,431	$	(76)	(2%)
Tenant reimbursements	47		90		(43)		(48%)
Other revenue	-		11		(11)		(100%)
Total revenues	3,402		3,532		(130)		(4%)
Operating expenses:
General and administrative expenses	2,184		2,193		(9)		nm
Property operating expenses	204		198		6		3%
Depreciation and amortization expense	322		336		(14)		(4%)
Total operating expenses	2,710		2,727		(17)		(1%)
Operating income	692		805		(113)		(14%)
Other income (expense):
Interest income	3		20		(17)		(85%)
Interest expense	(702)		(632)		(70)		11%
Change in insurance reserves	(23)		(113)		90		(80%)
Pension withdrawal expense	(1,488)		-		(1,488)		nm
Other	639		(156)		795		(510%)
Total other income (expense):	(1,571)		(881)		(690)		78%
Loss from continuing operations before income taxes	(879)		(76)		(803)		nm
Provision for income taxes	-		23		(23)		(100%)
Loss from continuing operations, net of taxes	(879)		(99)		(780)		788%
Discontinued Operations:
Loss from discontinued operations, net of taxes	(1,875)		(1,594)		(281)		18%
Net loss	$	(2,754)	$	(1,693)	$	(1,061)	63%
nm – not meaningful

Property Rental Revenues

Property rental revenue decreased $0.1 million, or 2%, to $3.3 million for the three months ended September 30, 2012 from $3.4 million for the three months ended September 30, 2011. This decrease is primarily attributable to the termination of the Varsity lease partially offset by an increase in tenant revenue which began in the second quarter of 2012.

Tenant Reimbursements

Tenant reimbursements decreased $43,000, or 48%, to $47,000 for the three months ended September 30, 2012 from $90,000 for the three months ended September 30, 2011. This decrease is attributable to the early termination of the Varsity lease in the third quarter of 2012.

Other Revenue

Other revenue decreased $11,000, or 100% for the three months ended September 30, 2012 compared to the three months ended September 30, 2011. This decrease is primarily attributable to the decrease in software services provided to Varsity which terminated in the third quarter of 2012 as a result of the early termination of their lease.

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Operating Expenses

Operating expenses decreased $17,000 or 1%, and remained fairly consistent for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Other Income (Expense)

Other income (expense) increased $0.7 million or 78%, to ($1.6) million for the three months ended September 30, 2012 from ($0.9) million for the three months ended September 30, 2011. This increase is primarily attributable to the pension withdrawal liability partially offset by income received as settlement from the former tenant at our Farm Springs property as a result of incidental property damages during the term of the lease.

Provision For Income Taxes

The provision for income taxes represents federal, state, and local taxes primarily based on the taxable income of the taxable REIT subsidiaries. The Company did not record a provision for income taxes for the three months ended September 30, 2012. The provision for income taxes for the three months ended September 30, 2011 was $23,000.

Loss from Discontinued Operations, Net of Taxes

Loss from discontinued operations, net of taxes reflects the operating results, accruals, allowances, and asset write offs of our taxable REIT subsidiaries (outdoor maintenance, shelter cleaning, electrical contracting, and parking operations), and paratransit businesses.

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Nine Months Ended September 30, 2012 vs. Nine Months Ended September 30, 2011

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

	Nine Months Ended September 30,				Increase/(Decrease)
	2012		2011		Amount		Percent
	(Unaudited)
Revenues:
Property rentals	$	10,279	$	10,079	$	200	2%
Tenant reimbursements	259		317		(58)		(18%)
Other revenue	17		307		(290)		(94%)
Total revenues	10,555		10,703		(148)		(1%)
Operating expenses:
General and administrative expenses	7,100		5,994		1,106		18%
Property operating expenses	638		592		46		8%
Depreciation and amortization expense	1,002		980		22		2%
Total operating expenses	8,740		7,566		1,174		16%
Operating income	1,815		3,137		(1,322)		(42%)
Other income (expense):
Interest income	27		66		(39)		(59%)
Interest expense	(2,009)		(1,889)		(120)		6%
Change in insurance reserves	38		(149)		187		(126%)
Pension withdrawal expense	(1,488)		-		(1,488)		nm
Other	678		(141)		819		(581%)
Total other income (expense):	(2,754)		(2,113)		(641)		30%
(Loss) income from continuing operations before income taxes	(939)		1,024		(1,963)		(192%)
Provision for income taxes	-		1		(1)		(100%)
(Loss) income from continuing operations, net of taxes	(939)		1,023		(1,962)		(192%)
Discontinued Operations:
Loss from discontinued operations, net of taxes	(3,446)		(1,870)		(1,576)		84%
Net loss	$	(4,385)	$	(847)	$	(3,538)	418%
nm – not meaningful

Property Rental Revenues

Property rental revenue increased $0.2 million, or 2%, to $10.3 million for the nine months ended September 30, 2012 from $10.0 million for the nine months ended September 30, 2011. This increase is primarily attributable to new tenants with leases that began in the second and third quarters of 2012 partially offset by a decrease in revenue due to the early termination of the Varsity lease.

Tenant Reimbursements

Tenant reimbursements decreased $58,000, or 18%, to $259,000 for the nine months ended September 30, 2012 from $317,000 for the nine months ended September 30, 2011. This decrease is primarily attributable to the early termination of the Varsity lease in the third quarter of 2012.

Other Revenue

Other revenue decreased $290,000, or (94%), to $17,000 for the nine months ended September 30, 2012 from $307,000 for the nine months ended September 30, 2011. This decrease is primarily attributable to the decrease in revenue from the MTABC contract which terminated in June 2011.

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Operating Expenses

Operating expenses increased $1.2 million, or 16%, to $8.7 million for the nine months ended September 30, 2012 from $7.5 million for the nine months ended September 30, 2011. This increase is primarily attributable to consulting and legal fees relating to the divestiture of our taxable REIT subsidiaries and professional fees and expenses related to potential real estate acquisitions, an increase in stock compensation expense associated with the grant of restricted shares in 2012, and severance costs related to the divestiture.

Other Income (Expense)

Other income (expense) increased $0.6 million or 30%, to ($2.7) million for the nine months ended September 30, 2012 from ($2.1) million for the nine months ended September 30, 2011. This increase is primarily attributable to the pension withdrawal liability offset by income received from the former tenant at our Farm Springs property as a result of incidental property damages the term of the lease.

Benefit From Income Taxes

The provision for income taxes represents federal, state, and local taxes primarily based on the taxable income of the taxable REIT subsidiaries. We did not record a provision for income taxes for the nine months ended September 30, 2012.  The provision for income taxes for the nine months ended September 30, 2011 was $1,000.

Loss from Discontinued Operations, Net of Taxes

Loss from discontinued operations, net of taxes reflects the operating results, accruals, allowances, and asset write offs of our taxable REIT subsidiaries (outdoor maintenance, shelter cleaning, electrical contracting, and parking operations), and paratransit businesses.

Liquidity and Capital Resources

At September 30, 2012, we had unrestricted cash and cash equivalents of approximately $4.5 million compared to $7.6 million at December 31, 2011. We fund operating expenses and other short-term liquidity requirements, including debt service and dividend distributions from operating cash flows. We believe that our net cash provided by operations along with our existing credit facility will be sufficient to fund our short-term liquidity requirements for the next twelve months and to meet our dividend requirements to maintain our REIT status.

Financings:

Hartford Loan Agreement:

On July 1, 2010, two of our indirect subsidiaries, 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 our obligations under our previous loan agreement with ING and to pay related transaction costs and expenses.

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 bears 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.

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Secured Revolving Credit Facility:

On August 26, 2011, we entered into a certain credit agreement (“the Credit Agreement) with Manufacturers and Traders Trust Company (“M&T”). The Credit Agreement provides for, among other things, a $10 million revolving credit facility (the “Revolver”). The Revolver is available to us to be used for Permitted Acquisitions (as defined in the Credit Agreement) and for general working capital and other corporate purposes. The Credit Agreement requires that we satisfy certain financial covenants, including: (i) Minimum Net Worth, (ii) Fixed Charge Coverage Ratio, (iii) Leverage Ratio and (iv) Liquidity all as defined in the Credit Agreement, and other restrictions and covenants that are usual and customary in agreements of this type. As a condition to M&T entering into the Credit Agreement, we agreed to indemnify M&T against certain claims pursuant to that certain Environmental Compliance and Indemnification Agreement, dated as of August 26, 2011.

The obligations under the Revolver are guaranteed by Farm Springs Road, LLC, our wholly-owned subsidiary (“Farm Springs”). The guaranty of Farm Springs is secured by a first priority mortgage lien and security interest on real property owned by Farm Springs and located at 8 Farm Springs Road, Farmington, Connecticut, as more specifically described in that certain Open-End Mortgage Agreement, dated as of August 26, 2011, and that certain General Assignment of Rents, dated as of August 26, 2011, by and between M&T and us. The maturity date for the Revolver is August 26, 2014. Borrowings under the Revolver bear interest, at the Borrower’s option, at either: (i) the M&T’s prime rate plus 2.0% or (ii) the London Interbank Offered Rate (“LIBOR”) plus 3.5% which is subject to a minimum rate of 4.0%.

As part of the Credit agreement, we are obligated to comply with certain financial covenants. We were in compliance with all financial covenants and restrictions for the periods presented with the exception of the Minimum Net Worth requirement for the nine months ended September 30, 2012. We are required to maintain net worth of greater than or equal to $75.0 million measured quarterly and for the trailing four quarters. While our net worth has been greater than $75.0 million for the trailing four quarters, it was $72.3 million for the quarter ended September 30, 2012. We have obtained a waiver for non-compliance with this covenant at September 30, 2012 from M&T and permanently amended this covenant calculation to $70.0 million.

As of September 30, 2012, we have $5.0 million outstanding under the Credit Agreement.

Earnings and Profit Distribution:

As of September 30, 2012, cash of approximately $19.9 million and 3,775,400 shares of our common stock have been distributed in connection with a one-time special distribution of accumulated earnings and profits. The remaining payable balance of approximately $0.1 million is included in other liabilities in the accompanying condensed consolidated balance sheet at September 30, 2012.

Net Cash Flows:

Nine Months Ended September 30, 2012 vs. Nine Months Ended September 30, 2011

Operating Activities

Net cash provided by operating activities was approximately $0.7 million for the nine months ended September 30, 2012, and approximately $1.7 million for the nine months ended September 30, 2011. For the 2012 period, cash provided by operating activities was primarily related to (i) a loss from continuing operations of approximately $0.9 million (ii) a increase in accounts payable and other liabilities of $1.9 million (iii) depreciation and amortization expense of $1.7 million (iv) an increase in deferred charges of $1.2 million (v) an increase in other assets of $0.9 million (vi) a decrease in insurance reserves of $0.3 million (vii) and stock compensation expense of approximately $0.3 million. For the 2011 period, cash provided by operating activities was primarily related to (i) income from continuing operations of approximately $1.0 million (ii) depreciation and amortization expense of $1.8 million (iii) a decrease in insurance reserves of $0.2 million (iv) stock compensation expense of approximately $0.3 million, and (vii) an increase in other assets of $0.9 million.

Investing Activities

Net cash (used in) provided by investing activities was approximately $2.5 million for the nine months ended September 30, 2012 and approximately $0.1 million for the nine months ended September 30, 2011. For the 2012 period, cash used in investing activities primarily related to (i) purchases of leasehold improvements of $4.0 million (ii) proceeds from the sale of investments of approximately $1.4 million and (iii) restricted cash of $0.1 million. For the 2011 period, cash provided by investing activities primarily related to (i) purchases of machinery and equipment of approximately $0.3 million (ii) proceeds from the sale of investments of approximately $0.3 million and (iii) restricted cash of approximately $0.1 million.

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Financing Activities

Net cash used in financing activities was approximately $0.1 million and $4.6 million, respectively, for the nine months ended September 30, 2012 and 2011. For the 2012 period, cash used in financing activities was primarily related to proceeds from our revolving credit facility of $5.0 million and payment of the Company’s quarterly and supplemental dividends of approximately $5.1 million.  For the 2011 period, cash used in financing activities was related to the payment of the Company’s quarterly and supplemental 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 (loss) 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 (loss) 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, shelter cleaning, electrical, and parking 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 (loss) income in accordance with GAAP to FFO and AFFO for the three and nine months ended September 30, 2012 and 2011 (in thousands, except for per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Net loss	$	(2,754)	$	(1,693)	$	(4,385)	$	(847)
Plus:  Real property depreciation	261		284		830		832
Amortization of intangible assets	68		205		477		614
Amortization of deferred leasing commissions	39		30		108		84
Funds from operations (FFO)	$	(2,386)	$	(1,174)	$	(2,970)		$      683
Loss from taxable-REIT Subsidiaries	2,371		992		3,844		2,736
Loss from discontinued operations	1,875		1,594		3,446		1,870
Discontinued operations - depreciation	6		105		19		298
Adjusted funds from operations (AFFO)	$	1,866	$	1,517	$	4,339	$	5,587
FFO per common share - basic and diluted	$	(0.17)	$	(0.09)	$	(0.22)	$	0.05
AFFO per common share - basic and diluted	$	0.14	$	0.11	$	0.32	$	0.41
Weighted average common shares outstanding - basic and diluted	13,648,084		13,587,051		13,620,538		13,553,105

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Acquisitions, Dispositions, and Investments

On July 25, 2011, our Board of Directors (the “Board”) voted to divest substantially all of our taxable REIT subsidiaries and on November 7, 2011 voted to divest our parking garage operations. Following the divestiture, our plan is to continue focusing on the growth and expansion of our real estate operations.

On December 27, 2011, MetroClean Express Corp. (“MetroClean”) and ShelterClean Inc. (“ShelterClean”) entered into an asset purchase agreement with Triangle Services, Inc. (the “Purchaser”) for the sale of substantially all of the assets and business of MetroClean and ShelterClean to the Purchaser.  On January 12, 2012, the sale was completed. Additionally, on January 12, 2012, Shelter Clean of Arizona, Inc. entered into a certain Bill of Sale and Assignment and Assumption Agreement for the sale of certain assets and the business of Shelter Clean of Arizona, Inc. to a wholly-owned subsidiary of the Purchaser.

On November 15, 2011, in accordance with our lease, we gave notice to our landlord of our intention to terminate our parking garage lease early, and on February 1, 2012, we exited the parking business.

Cash Payments for Financing

Payment of interest under the Hartford Loan Agreement and borrowings under the Secured Revolver will consume a portion of our cash flow, reducing net income and the resulting distributions to be made to our stockholders.

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.

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, 2012 and December 31, 2011, we have recorded a liability for remediation costs of approximately $0.1 million and $0.2 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.

Insurance Regulations

The provisions of the Insurance Law of the Cayman Islands require our insurance operations to maintain a minimum net worth of $120,000.  At September 30, 2012 and December 31, 2011, we were not in compliance with this minimum net worth requirement.  A meeting was held with the Cayman Islands Monetary Authority (“CIMA”) on March 23, 2011, at which time we informed CIMA of our intention to transfer the insurance balances into a New York based liquidating trust and dissolve our Cayman Islands based insurance operations once the transfer is complete.  As of September 30, 2012, we are in the process of transferring the insurance balances into a liquidating trust.

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Divestiture

In connection with the completion of the divestiture of our taxable REIT subsidiaries, we may be subject to certain liabilities including union wages, benefits and severance. On January 27, 2012, we received a notice from Local Union No. 3’s counsel asserting a severance liability of approximately $0.1 million for those employees terminated in connection with the divestiture. An arbitration hearing was held May 2, 2012 in which the arbitrator ruled in favor of Local Union No. 3 in the amount of approximately $0.1 million. On July 13, 2012, we paid the full amount of the settlement.

On February 16, 2012, we received a notice from the Joint Industry Board of the Electrical Industry claiming a pension withdrawal liability in the amount of $1.5 million in connection with the divestiture.  During the three months ended September 30, 2012, we determined the liability is probable and reasonably estimable and accrued $1.5 million in other liabilities on our condensed consolidated balance sheet. The liability will be paid in installments of  approximately $8,000 per month over a twenty year term.  As of September 30, 2012, we have made eight installment payments.

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

As part of our electrical contracting operations, we may put up performance bonds to guarantee completion of services to be performed.  As of September 30, 2012, we have three performance bonds outstanding in the amount of $10.2 million.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

As of September 30, 2012 and December 31, 2011, we did not have any variable rate liabilities.

Item 4.       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 specified 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.

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 I.    Legal Proceedings

See Note 14, “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.

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Item 1A.	Risk Factors
During the nine months ended September 30, 2012, 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, 2011.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	None.
Item 3.	Defaults Upon Senior Securities
	None.
Item 4.	Mine Safety Disclosures
	Not applicable.
Item 5.	Other Information
	None.
Item 6.	Exhibits
Exhibit	Description
10.1	Third Amendment and Waiver to Credit Agreement dated November 8, 2012, among GTJ REIT, Inc., a Maryland corporation, as Borrower, and Manufacturers and Traders Trust Company, a New York banking corporation, as Bank.
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.
101.1	Financial statements from the Quarterly Report on Form 10-Q of GTJ REIT, Inc. for the quarter ended September 30, 2012, filed on November 9, 2012, formatted in XBRL: (i) the Condensed Consolidated Balance Sheet, (ii) the Condensed Consolidated Statement of (Loss) Income, (iii) the Condensed Consolidated Statement of Comprehensive Loss, (iv) the Condensed Consolidated Statement of Stockholders’ Equity, (v) the Condensed Consolidated Statement of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

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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 9, 2012	/s/ Paul A. Cooper
	Paul A. Cooper
	Chief Executive Officer
Dated: November 9, 2012	/s/ David J. Oplanich
	David J. Oplanich
	Chief Financial Officer

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