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Article by DailyStocks_admin    (03-10-08 05:49 AM)

Glimcher Realty Trust. CEO MICHAEL P. GLIMCHER bought 21,300 shares on 03-06-2008 at 14.34

BUSINESS OVERVIEW

a) General Development of Business

GRT, Glimcher Properties Limited Partnership (the “Operating Partnership,” “OP” or “GPLP”) and entities directly or indirectly owned or controlled by GRT, on a consolidated basis, are hereinafter referred to as the “Company,” “we,” “us” or “our.”

GRT is a fully-integrated, self-administered and self-managed Maryland real estate investment trust (“REIT”) which was formed on September 1, 1993 to continue the business of The Glimcher Company (“TGC”) and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of regional and super regional malls and community shopping centers. Enclosed regional and super regional malls in which we hold an ownership position (including joint venture interests) are referred to as “Malls” and community shopping centers in which we hold an ownership position are referred to as “Community Centers.” The Malls and Community Centers may from time to time be individually referred to herein as a “Property” and collectively referred to herein as the “Properties.” On January 26, 1994, GRT consummated an initial public offering (the “IPO”) of 18,198,000 of its common shares of beneficial interest (the “Common Shares”) including 2,373,750 over allotment option shares. The net proceeds of the IPO were used by GRT primarily to acquire (at the time of the IPO) an 86.2% interest in the Operating Partnership, a Delaware limited partnership of which Glimcher Properties Corporation (“GPC”), a Delaware corporation and a wholly owned subsidiary of GRT, is sole general partner. At December 31, 2007, GRT held a 92.1% interest in the Operating Partnership.

The Company does not engage or pay a REIT advisor. Management, leasing, accounting, legal, design and construction supervision expertise is provided through its own personnel, or, where appropriate, through outside professionals.

(b) Narrative Description of Business

General: The Company is a recognized leader in the ownership, management, acquisition and development of regional and super-regional malls. At December 31, 2007, the Properties consisted of 23 Malls (21 wholly-owned and 2 partially owned through a joint venture) containing an aggregate of 20.6 million square feet of gross leasable area (“GLA”) and 4 Community Centers containing an aggregate of 1.0 million square feet of GLA.

For purposes of computing occupancy statistics, anchors are defined as tenants whose space is equal to or greater than 20,000 square feet of GLA. This definition is consistent with the industry’s standard definition determined by the International Council of Shopping Centers (“ICSC”). All tenant spaces less than 20,000 square feet and all outparcels are considered to be non-anchor. The Company computes occupancy on an economic basis, which means only those spaces where the store is open or the tenant is paying rent are considered as occupied. The Company includes GLA in its occupancy statistics for certain anchors and outparcels that are owned by third parties. Mall anchors, which are owned by third parties and are open and/or are obligated to pay the Company charges, are considered occupied when reporting occupancy statistics. Community Center anchors owned by third parties are excluded from the Company’s GLA. These differences in treatment between Malls and Community Centers are consistent with industry practice. Outparcels at both Community Center and Mall Properties are included in GLA if the Company owns the land or building. The outparcels where a third party owns the land and buildings, but contributes nominal ancillary charges are excluded from GLA.

As of December 31, 2007, the occupancy rate for all of the Properties was 95.2% of GLA. The occupied GLA was leased at 83.5%, 9.3% and 7.2% to national, regional and local retailers, respectively. The Company’s focus is to maintain high occupancy rates for the Properties by capitalizing on management’s long-standing relationships with national and regional tenants and its extensive experience in marketing to local retailers.

As of December 31, 2007, the Properties had annualized minimum rents of $222.6 million. Approximately 77.4%, 8.0% and 14.6% of the annualized minimum rents of the Properties as of December 31, 2007 were derived from national, regional, and local retailers, respectively. No single tenant represents more than 3.0% of the aggregate annualized minimum rents of the Properties as of December 31, 2007.

Malls: The Malls provide a broad range of shopping alternatives to serve the needs of customers in all market segments. Each Mall is anchored by multiple department stores such as Belk’s, The Bon-Ton, Boscov’s, Dillard’s, Elder-Beerman, JCPenney, Kohl’s, Macy’s, Nordstrom, Saks, Sears, and Von Maur. Mall stores, most of which are national retailers, include Abercrombie & Fitch, American Eagle Outfitters, Banana Republic, Barnes & Noble, Bath & Body Works, The Disney Store, Finish Line, Foot Locker, Gap, Hallmark, Kay Jewelers, The Limited, Express, New York & Company, Old Navy, Pacific Sunwear, Radio Shack, Victoria’s Secret, Waldenbooks, and Zales Jewelers. To provide a complete shopping, dining and entertainment experience, the Malls generally have at least one theme restaurant, a food court which offers a variety of fast food alternatives, and, in certain Malls, multiple screen movie theaters and other entertainment activities. The largest operating Mall has 1.5 million square feet of GLA and approximately 188 stores, while the smallest has 331,000 square feet of GLA and approximately 67 stores. The Malls also have additional restaurants and retail businesses, such as P.F. Chang’s, The Palm, Pier One and Red Lobster, located along the perimeter of the parking areas.

As of December 31, 2007, the Malls accounted for 95.5% of the total GLA, 96.0% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 95.6%.

Community Centers: The Company’s Community Centers are designed to attract local and regional area customers and are typically anchored by a combination of discount department stores or supermarkets which attract shoppers to each center’s smaller shops. The tenants at the Company’s Community Centers typically offer day-to-day necessities and value-oriented merchandise. Community Center anchors include nationally recognized retailers such as Best Buy, JCPenney and Kmart, and supermarkets such as Kroger. Many of the Community Centers have retail businesses or restaurants located along the perimeter of the parking areas.

As of December 31, 2007, Community Centers accounted for 4.5% of the total GLA, 4.0% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 87.7%.

Growth Strategies and Operating Policies: Management of the Company believes per share growth in both net income and funds from operations (“FFO”) are important factors in enhancing shareholder value. The Company believes that the presentation of FFO provides useful information to investors and a relevant basis for comparison among REITs. Specifically, the Company believes that FFO is a supplemental measure of the Company’s operating performance as it is a recognized standard in the real estate industry, in particular, REITs. The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as net income (loss) available to common shareholders (computed in accordance with Generally Accepted Accounting Principles (“GAAP”)), excluding gains or losses from sales of depreciable property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. FFO does include impairment losses for properties held for use and held-for-sale. The Company’s FFO may not be directly comparable to similarly titled measures reported by other REITs. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company’s financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company’s liquidity, nor is it indicative of funds available to fund the Company’s cash needs, including its ability to make cash distributions. A reconciliation of FFO to net income available to common shareholders is provided in Item 7 of this Form 10-K.

GRT intends to operate in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), applicable to REITs and related regulations with respect to the composition of the Company’s portfolio and the derivation of income unless, because of circumstances or changes in the Code (or any related regulation), the trustees of GRT determine that it is no longer in the best interests of GRT to qualify as a REIT.

The Company’s growth strategy is to upgrade the quality of our portfolio of assets. We focus on selective acquisitions, redevelopment of our core Mall assets and ground-up development in markets with high growth potential. Such strategy is focused on dominant anchored retail properties within the top 100 metropolitan markets by population that have near-term upside potential or offer advantageous opportunities for the Company.

The Company acquires and develops its Properties as long-term investments. Therefore, its focus is to provide for regular maintenance of its Properties and to conduct periodic renovations and refurbishments to preserve and increase Property values while also increasing the retail sales prospects of its tenants. The projects usually include renovating existing facades, installing uniform signage, updating interior decor, replacement of roofs and skylights, resurfacing parking lots and increasing parking lot lighting. To meet the needs of existing or new tenants and changing consumer demands, the Company also reconfigures and expands its Properties, including utilizing land available for expansion and development of outparcels or the addition of new anchors. In addition, the Company works closely with its tenants to renovate their stores and enhance their merchandising capabilities.

Financing Strategies: At December 31, 2007, the Company had a total-debt-to-total-marke t-capitalization ratio of 66.2% based upon the closing price of the Common Shares on the New York Stock Exchange (“NYSE”) as of December 31, 2007. The Company is working to maintain this ratio in the mid-fifty percent range by managing outstanding debt and increasing the value of its outstanding Common Shares. Even though our outstanding debt decreased by $25 million during 2007, a sharp reduction in our Common Stock price during December 2007 resulted in a ratio higher than our targeted level. The Company expects that it may, from time to time, re-evaluate its policy with respect to its ratio of total-debt-to-total-marke t capitalization in light of then current economic conditions; relative costs of debt and equity capital; market values of its Properties; acquisition, development and expansion opportunities; and other factors, including meeting the taxable income distribution requirement for REITs under the Code in the event the Company has taxable income without receipt of cash sufficient to enable the Company to meet such distribution requirements. The Company’s preference is to obtain fixed rate, long-term debt for its Properties. At December 31, 2007, 85.2% of total Company debt was fixed rate. Shorter term and variable rate debt typically is employed for Properties anticipated to be expanded or redeveloped.

Competition: All of the Properties are located in areas that have shopping centers and/or malls and other retail facilities. Generally, there are other retail properties within a five-mile radius of a Property. The amount of rentable retail space in the vicinity of the Company’s Properties could have a material adverse effect on the amount of rent charged by the Company and on the Company’s ability to rent vacant space and/or renew leases of such Properties. There are numerous commercial developers, real estate companies and major retailers that compete with the Company in seeking land for development, properties for acquisition and tenants for properties, some of which may have greater financial resources than the Company and more operating or development experience than that of the Company. There are numerous shopping facilities that compete with the Company’s Properties in attracting retailers to lease space. In addition, retailers at the Properties may face increasing competition from e-commerce, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks.

Employees: At December 31, 2007, the Company had an aggregate of 1,042 employees, of which 487 were part-time.

Seasonality: The shopping center industry is seasonal in nature, particularly in the fourth quarter during the holiday season when retailer occupancy and retail sales are typically at their highest levels. In addition, shopping malls achieve a substantial portion of their specialty (temporary retailer) rents during the holiday season.

Tax Status: GRT believes it has been organized and operated in a manner that qualifies for taxation as a REIT and intends to continue to be taxed as a REIT under Sections 856 through 860 of the Code. As such, GRT generally will not be subject to federal income tax to the extent it distributes at least 90.0% of its REIT ordinary taxable income to its shareholders. Additionally, the Company must satisfy certain requirements regarding its organization, ownership and certain other conditions, such as a requirement that its shares be transferable. Moreover, the Company must meet certain tests regarding its income and assets. At least 75.0% of the Company’s gross income must be derived from passive income closely connected with real estate activities. In addition, 95.0% of the Company’s gross income must be derived from these same sources, plus dividends, interest and certain capital gains. To meet the asset test, at the close of each quarter of the taxable year, at least 75.0% of the value of the total assets must be represented by real estate assets, cash and cash equivalent items (including receivables), and government securities. Additionally, to qualify as a REIT, there are several rules limiting the amount and type of securities that GRT can own, including the requirement that not more than 25.0% of the value of its total assets can be represented by securities. If GRT fails to meet the requirements to qualify for REIT status, the Company may cease to qualify as a REIT and may be subject to certain penalty taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. As a qualified REIT, the Company is subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income.


CEO BACKGROUND

eorge A. Schmidt , 59, is currently Executive Vice President and Chief Investment Officer of the Company. Mr. Schmidt has served as Executive Vice President since March 1999 and served as General Counsel and Secretary of the Company from May 1996 to January 31, 2007. He served as Senior Vice President of the Company from September 1996 until his promotion to Executive Vice President of the Company. Mr. Schmidt also served as a Class II Trustee of the Company from May 1999 to May 2005. Mr. Schmidt assumed his current duties on January 1, 2007 in which he oversees all strategic corporate investment activities for the Company, including new development, redevelopment, acquisitions, and divestitures. Mr. Schmidt has over 25 years of experience in the practice of commercial real estate law, including six years as Assistant General Counsel of DeBartolo Realty Corporation, a then listed real estate investment trust on the NYSE (“DeBartolo”), prior to joining the Company in May 1996. Mr. Schmidt has a Bachelor of Arts degree from Cornell University, a Master of Business Administration from Ohio University, and a Juris Doctorate from Case Western Reserve University. Mr. Schmidt is a member of the American, Ohio, Texas, and Columbus (OH) Bar Associations and is a member of ICSC and NAREIT. Mr. Schmidt has been a lecturer on shopping center leasing, legal, development, and corporate governance issues for the American Bar Association, ICSC, and Ohio University. Mr. Schmidt is a member of the Company’s Disclosure Committee.

Marshall A. Loeb , 44, has been Executive Vice President and Chief Operating Officer since joining the Company in May 2005. Mr. Loeb provides global direction in all operational areas of the Company. Prior to joining the Company, Mr. Loeb served as Chief Financial Officer of Parkway Properties, Inc. (“Parkway”), a self-administered real estate investment trust listed on the NYSE that specializes in owning and operating office properties, from November 2000 to May 2005. Prior to his employment with Parkway, Mr. Loeb was Senior Vice President/Western Regional Director for Eastgroup Properties, Inc., a self-administered real estate investment trust listed on the NYSE that focuses on owning and operating industrial properties, from August 1991 to April 2000. Mr. Loeb holds a Master of Business Administration from the Harvard School of Business Administration. He also holds a Bachelor of Science and Master of Tax Accounting degree from the University of Alabama. Mr. Loeb is a member of ICSC and NAREIT. Mr. Loeb is a member of the Company’s Disclosure Committee.

Mark E. Yale , 41, is currently Executive Vice President, Chief Financial Officer, and Treasurer of the Company. Mr. Yale served as Senior Vice President and Chief Financial Officer from August 2004 to May 2005. Mr. Yale was elected Treasurer of the Company in May 2005 and promoted to Executive Vice President on May 5, 2006. Prior to joining the Company, Mr. Yale served as Senior Vice President - Financial Reporting at Storage USA, Inc. (“Storage”), a self-administered real estate investment trust listed on the NYSE that specialized in owning and operating private storage facilities, from 1998 to May 2002 and as Manager of Finance for Storage from May 2002 to August 2004 when it became a division of the General Electric Company. Prior to joining Storage, he was a senior manager with Coopers & Lybrand L.L.P. (a predecessor firm to PricewaterhouseCoopers LLP) from 1987 to 1998. Mr. Yale has a Bachelor of Science in Business Administration from the University of Richmond and is an inactive Certified Public Accountant. Mr. Yale is a member of the American Institute of Certified Public Accountants, ICSC, and NAREIT. Mr. Yale is a member of the Company’s Disclosure Committee.

Kim A. Rieck , 54, has served as Senior Vice President, General Counsel and Secretary since joining the Company on February 1, 2007. Mr. Rieck oversees all legal, compliance, and governance matters for the Company. Prior to joining the Company, Mr. Rieck was of counsel with the international law firm of Squire, Sanders & Dempsey L.L.P. (“Squire”) from 1999 to 2007 practicing in the area of commercial real estate law and finance. Prior to joining Squire, he served as Senior Vice President, General Counsel and Secretary of DeBartolo from 1993 to 1996. Mr. Rieck received his Bachelor of Arts degree from Case Western Reserve University and his Juris Doctorate from The Ohio State University College of Law. Mr. Rieck is a member of the Company’s Disclosure Committee.

Thomas J. Drought, Jr. , 45, has been Senior Vice President, Director of Leasing since January 1, 2002. For the past nine years, Mr. Drought has served in various leasing positions with the Company, including Regional Leasing Director and Vice President of Leasing. Prior to joining the Company, Mr. Drought spent nine years with L & H Real Estate Group (formerly Landau & Heyman Ltd.) that aligned with Jones Lang LaSalle in 2004. He has more than 20 years of extensive real estate leasing experience. Mr. Drought holds the designation of Certified Leasing Specialist from ICSC. Mr. Drought is responsible for directing and overseeing leasing of the Company’s entire portfolio of properties.

Kenneth D. Cannon , 63, is currently the Company’s Senior Vice President, Development. Mr. Cannon joined the Company in January 2004 as Vice President, Development with overall responsibility for implementing the Company’s development and redevelopment programs for its portfolio of regional and super-regional malls. He was promoted to Senior Vice President, Development on April 1, 2005. Prior to joining the Company, Mr. Cannon was a partner with The Pyramid Companies, a real estate developer specializing in retail properties, from 1986 to 1993, with responsibilities for new project development, and from June 1999 to December 2003, during which time his responsibilities included obtaining new department store commitments. From 1996 to 1999, he was the owner and founder of KLM Developers, LLC, a comprehensive development and construction services firm operating primarily in the mid-Atlantic area. From 1993 to 1996, he held the position of Senior Vice President, Development with Hydra-Co Enterprises, Inc. (“Hydra”), a then subsidiary of the Niagara Mohawk Power Corporation of Syracuse, New York. Prior to serving with Hydra, Mr. Cannon held positions with Tidewater, Inc. and with Texaco, Inc. Mr. Cannon is a member of ICSC. Mr. Cannon holds a Bachelor of Science degree in Business and Juris Doctorate from the University of Kansas.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

GRT is a self-administered and self-managed Maryland real estate investment trust, or REIT, which commenced business operations in January 1994 at the time of its initial public offering. We own, lease, manage and develop a portfolio of retail properties consisting of regional and super regional malls as well as community shopping centers. As of December 31, 2007, we owned interests in and managed 27 Properties, consisting of 23 Malls (21 wholly-owned and 2 partially owned through a joint venture) and 4 Community Centers located in 14 states. The Properties contain an aggregate of approximately 21.6 million square feet of GLA of which approximately 95.2% was occupied at December 31, 2007.

Our primary business objective is to achieve growth in net income and funds from operations, or FFO, by developing and acquiring retail properties; improving the operating performance and value of our existing portfolio through selective expansion and renovation of our Properties; and by maintaining high occupancy rates, increasing minimum rents per square-foot of GLA and aggressively controlling costs.

Key elements of our growth strategies and operating policies are to:

•

Increase Property values by aggressively marketing available GLA and renewing existing leases;

•

Negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents;

•

Capitalize on management’s long-standing relationships with national and regional retailers and extensive experience in marketing to local retailers, as well as exploit the leverage inherent in a larger portfolio of properties in order to lease available space;

•

Establish and capitalize on strategic joint venture relationships to maximize capital resource availability;

•

Utilize our team-oriented management approach to increase productivity and efficiency;

•

Acquire strategically located malls;

•

Hold Properties for long-term investment and emphasize regular maintenance, periodic renovation and capital improvements to preserve and maximize value;

•

Selectively dispose of assets we believe have achieved long-term investment potential and redeploy the proceeds;

•

Control operating costs by utilizing our employees to perform management, leasing, marketing, finance, accounting, construction supervision, legal and information technology services;

•

Renovate, reconfigure or expand Properties and utilize existing land available for expansion and development of outparcels to meet the needs of existing or new tenants; and

•

Utilize our development capabilities to develop quality properties at low cost.

Our strategy is to be a leading REIT focusing on anchored-retail properties located primarily in the top 100 metropolitan statistical areas by population. We expect to continue investing in select development opportunities and in strategic acquisitions of mall properties that provide growth potential. We expect to finance acquisition, redevelopment and development opportunities with cash on hand, borrowings under credit facilities, proceeds from strategic joint venture partners, asset dispositions, secured mortgage financings, the issuance of equity or debt securities, or a combination of two or more of the foregoing.

Critical Accounting Policies and Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management 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. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the Board and the Company’s independent registered public accounting firm. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that are reasonably likely to occur could materially impact the financial statements. Management believes the critical accounting policies discussed in this section reflect its more significant estimates and assumptions used in preparation of the consolidated financial statements.

Revenue Recognition

The Company’s revenue recognition policy relating to minimum rents does not require the use of significant estimates. Minimum rents are recognized on an accrual basis over the term of the related leases on a straight-line basis. Percentage rents, tenant reimbursements, and components of other revenue associated with the margins related to outparcel sales include estimates.

Percentage Rents

Percentage rents, which are based on tenants’ sales as reported to the Company, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases. The percentage rents are recognized based upon the measurement dates specified in the leases which indicate when the percentage rent is due.

Tenant Reimbursements

Estimates are used to record cost reimbursements from tenants for CAM, real estate tax, utilities and insurance. We recognize revenue based upon the amounts to be reimbursed from our tenants for these items in the same period these reimbursable expenses are incurred. Differences between estimated cost reimbursements and final amounts billed are recognized in the subsequent year. Leases are not uniform in dealing with such cost reimbursements and variations exist in computations between Properties and tenants. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, CAM and insurance for each of its Properties by comparing actual reimbursements versus actual expenses. Adjustments are also made throughout the year to these receivables and the related cost reimbursement income based upon the Company’s best estimate of the final amounts to be billed and collected. If management’s estimate of the percent of recoverable expenses that can be billed to the tenants in 2007 differs from actual amounts billed in 2007 by 1%, the amount of income recorded during 2007 would increase or decrease by $1.1 million.

Outparcel Sales

The Company sells outparcels at its various Properties. The estimated cost used to calculate the margin from these sales involves a number of estimates. The estimates made are based either upon assigning a proportionate value based upon historical cost paid for the total parcel to the portion of the parcel that is sold, or by incorporating the sales value method. The proportionate share of actual cost is derived through consideration of numerous factors. These factors include items such as ease of access to the parcel, visibility from high traffic areas and other factors that may differentiate the desirability of the particular section of the parcel that is sold.

Accounts Receivable and Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects the Company’s estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. The Company’s policy is to record a periodic provision for doubtful accounts based on total revenues. The Company also periodically reviews specific tenant balances and determines whether an additional allowance is necessary. In recording such a provision, the Company considers a tenant’s creditworthiness, ability to pay, probability of collections and consideration of the retail sector in which the tenant operates. The allowance for doubtful accounts is reviewed periodically based upon the Company’s historical experience.

Investment in Real Estate

Carrying Value of Assets

The Company maintains a diverse portfolio of real estate assets. The portfolio holdings have increased as a result of both acquisitions and the development of new Properties and have been reduced by selected sales of assets. The amounts to be capitalized as a result of acquisition and developments and the periods over which the assets are depreciated or amortized are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets. The Company allocates the cost of the acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its acquisitions. The valuation of the fair value of the intangibles involves estimates related to market conditions, probability of lease renewals and the current market value of in-place leases. This market value is determined by considering factors such as the tenant’s industry, location within the Property and competition in the specific market in which the Property operates. Differences in the amount attributed to the intangible assets can be significant based upon the assumptions made in calculating these estimates.

Impairment Evaluation

Management evaluates the recoverability of its investment in real estate assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the asset is not assured.

The Company evaluates the recoverability of its investments in real estate assets to be held and used each quarter and records an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows are less than the carrying amount for a particular Property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective assets and the Company’s views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective Properties and comparable properties and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

Investment in Real Estate – Held-for-Sale

The Company evaluates the held-for-sale classification of its owned real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. Assets are generally classified as held-for-sale once management commits to a plan to sell the Properties and has initiated an active program to market them for sale. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported.

On occasion, the Company will receive unsolicited offers from third parties to buy individual Properties. Under these circumstances, the Company will classify the particular Property as held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.

Sale of Real Estate Assets

The sale of real estate assets may also involve the application of judgments in determining whether the risks and rewards of ownership have transferred to the buyer and that a sale has been completed for purposes of recognizing a gain on the sale. The Company recognizes property sales in accordance with SFAS No. 66, “Accounting for Sales of Real Estate.” The Company generally records the sales of operating properties and outparcels using the full accrual method at closing, when the earnings process is deemed to be complete. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.

Accounting for Acquisitions

The fair value of the real estate acquired is allocated to acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases, the value of tenant relationships, and the value of in-place leases, based in each case on their fair values. Purchase accounting is applied to assets and liabilities related to real estate entities acquired based upon the percentage of interest acquired.

The fair value of the tangible assets of an acquired property (which includes land, building and tenant improvements) is determined by valuing the property as if it were vacant, based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods to determine the replacement cost of the tangible assets.

In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term.

The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the remaining lease term plus an assumed renewal period that is reasonably assured.

The aggregate value of other acquired intangible assets include tenant relationships. Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions and an approximate time lapse in rental income while a new tenant is located. The value assigned to this intangible asset is amortized over the average life of the relationship.

Depreciation and Amortization

Depreciation expense for real estate assets is computed using a straight-line method and estimated useful lives for buildings and improvements using a weighted average composite life of forty years and equipment and fixtures of five to ten years. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the initial term of each lease. Cash allowances paid to retailers that are used for purposes other than improvements to the real estate are amortized as a reduction to minimum rents over the initial lease term. Maintenance and repairs are charged to expense as incurred. Cash allowances paid in return for operating covenants from retailers who own their real estate are capitalized as contract intangibles. These intangibles are amortized over the period the retailer is required to operate their store.

Investment in Unconsolidated Real Estate Entities

The Company evaluates all joint venture arrangements for consolidation. The percentage interest in the joint venture, evaluation of control and whether a variable interest entity (“VIE”) exists are all considered in determining if the arrangement qualifies for consolidation.

The Company accounts for its investments in unconsolidated real estate entities using the equity method of accounting, whereby the cost of an investment is adjusted for the Company’s share of equity in net income or loss beginning on the date of acquisition and reduced by distributions received. The income or loss of each investee is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the carrying amount of the Company’s investment in the respective investees and the Company’s share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable.

The Company periodically reviews its investment in unconsolidated real estate entities for other than temporary declines in market value. We consider any decline that is not expected to be recovered in the next twelve months is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. No impairment charges were recognized during the year ended December 31, 2007 related to our investment in unconsolidated real estate entities.

Deferred Costs

The Company capitalizes initial direct costs in accordance with SFAS No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases,” and amortizes these costs over the initial lease term. The costs are capitalized upon the execution of the lease and the amortization period begins the earlier of the store opening date or the date the tenant’s lease obligation begins.

Derivatives

The Company recognizes all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments that qualify for hedge accounting are recorded in our financial statements under stockholders’ equity as a component of comprehensive income or as an adjustment to the carrying value of the hedged item. Changes in fair values of derivatives not qualifying for hedge accounting are reported in earnings.

For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified into interest income or interest expense in the same period or periods during which the hedged item affects interest income or interest expense. The remaining gain or loss of the derivative instruments in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is ineffective and is recognized in our financial statements in other income or other expense during the period of the change. Upon termination of a derivative instrument prior to maturity, the aforementioned adjustment to accumulated other comprehensive income is amortized or accreted into interest income or interest expense over the remaining term of the hedge relationship using the effective interest method. Should the hedged item mature, be sold or be extinguished prior to the end of the hedge relationship or a forecasted transaction is probable of not occurring, the aforementioned amounts in accumulated other comprehensive income are reclassified to interest income or interest expense and the derivative instrument’s change in fair value from that point forward will be recorded in other income or other expense.

Funds From Operations

Our consolidated financial statements have been prepared in accordance with GAAP. We have also indicated that FFO is a key measure of our financial performance. FFO is an important and widely used financial measure of operating performance in the REIT industry, which we believe provides important information to investors and a relevant basis for comparison among REITs.

We believe that FFO is an appropriate and valuable measure of our operating performance because real estate generally appreciates over time or maintains a residual value to a much greater extent than personal property and, accordingly, reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Properties.

FFO, as defined by NAREIT (defined fully in Item 1) is used by the real estate industry and investment community as a supplemental measure of the performance of real estate companies. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income as the primary indicator of our operating performance or as an alternative to cash flow as a measure of liquidity. Our FFO may not be directly comparable to similarly titled measures reported by other REITs.

FFO – Comparison of Year Ended December 31, 2007 to December 31, 2006

FFO increased $80.9 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. During 2007, we incurred $30.4 million in impairment charges related to four Malls and one Community Center. During 2006, we incurred $111.9 million of impairment charges primarily related to three Mall Properties, one of which was sold during 2007, and the other two Malls which are currently classified as held-for-sale. Also we incurred $11.5 million less in interest expense. The primary driver of this decrease in interest expense can be attributed to a $9.4 million defeasance charge incurred during 2006 associated with early retirement of the mortgage loan for University Mall, which was sold during 2007. Offsetting these increases to FFO was a $3.7 million decline in lease termination income. We also received $8.5 million less in property operating income from those properties that were sold during the years ended December 31, 2007 or 2006. Excluding the impairment and defeasance charges, FFO would have been $85.8 million for the year ended December 31, 2007 compared to $95.8 million for the year ended December 31, 2006.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations – Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006

Revenues

Total revenues increased $1.1 million or 1.5% for the three months ended September 30, 2007 compared to the same period last year. Minimum rents increased $761,000 and other revenues increased $295,000. Offsetting these increases was a decline in tenant reimbursements of $62,000.

Minimum rents

Minimum rents increased 1.6%, or $761,000, for the three months ended September 30, 2007 compared to the same period last year. Base rental income was $1.5 million higher for the three months ended September 30, 2007 compared to the same period ended September 30, 2006. This increase is attributable to our overall increase in occupancy. Offsetting this growth was a decrease in termination income of $769,000 for the three months ended September 30, 2007 compared to the same period ended September 30, 2006.

Tenant reimbursements

Tenant reimbursements reflect a decrease of 0.3%, or $62,000, for the three months ended September 30, 2007 compared to the same period ended September 30, 2006.

Expenses

Total expenses decreased by $19,000 for the three months ended September 30, 2007 compared to the three months ended September 30, 2006. Real estate taxes and property operating expenses decreased $19,000, and other operating expenses decreased $555,000. Offsetting these decreases to expenses was an increase in the provision for doubtful accounts of $15,000, an increase in depreciation and amortization of $237,000 and an increase in general and administrative expenses of $303,000.

Real estate taxes and property operating expenses

Real estate taxes and property operating expenses decreased 0.1%, or $19,000, for the three months ended September 30, 2007 compared to the same period last year. Real estate taxes decreased $465,000, or 5.4%. These decreases can be attributed to successful real estate tax appeals. Property operating expenses increased $446,000, or 2.8% for the three months ended September 30, 2007, compared to the same period last year. This increase is primarily related to property insurance costs.

Provision for doubtful accounts

The provision for doubtful accounts increased 1.4%, or $15,000, for the three months ended September 30, 2007 compared to the same period in the previous year. The provision represented 1.5% of our revenues in 2007 and 2006. We have recorded a total provision for doubtful accounts (including discontinued operations) of $1.7 million for the three months ended September 30, 2007 and 2006.

Other operating expenses

Other operating expenses were $1.4 million for the three months ended September 30, 2007 compared to $2.0 million for the corresponding period in 2006. The decrease is primarily due to reduced consulting and professional fees at our Properties.

General and administrative

General and administrative expense was $3.8 million and represented 5.1% of total revenues for the three months ended September 30, 2007 compared to $3.5 million and 4.7% of total revenues for the corresponding period in 2006. The increase primarily relates to the salary merit increases for employees and the compensation expense associated with the new performance share plan for senior management implemented in March 2007.


The increase in the “Average loan balance” category was primarily a result of the funding of capital improvements and the Company’s redevelopment program. The variance in “Capitalized interest and other, net” was primarily due to a higher level of construction and redevelopment activity compared to the corresponding period in the prior year.

Equity in income of unconsolidated entities, net

Net income available from joint ventures was $316,000 and $475,000 for the three months ended September 30, 2007 and 2006, respectively. The net income available from joint ventures results primarily from our investment in Puente Hills Mall (“Puente”) and Tulsa Promenade (“Tulsa”). These Properties are held through a joint venture (the “ORC Venture”), with OMERS Realty Corporation (“ORC”), an affiliate of Oxford Properties Group (“Oxford”), which is the global real estate platform for the Ontario (Canada) Municipal Employees Retirement System, a Canadian pension plan.

Discontinued Operations

Status of Planned Sale of Non-Strategic Assets

In the second quarter of 2006, we announced our plan to sell five non-strategic mall assets as part of our capital recycling program. In the first nine months of 2007, we sold three of these malls and sold the fourth Mall on October 1, 2007. In the second quarter of 2007, we listed two of our Community Center Properties for sale. Below is a discussion of each of these seven assets.



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Montgomery Mall (Montgomery, Alabama) – the Company sold this Property for approximately $4.5 million in May 2007.



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University Mall (Tampa, Florida) – the Company sold this asset for approximately $144.7 million on July 20, 2007.



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Almeda Mall (Houston, Texas) – the Company sold this asset for approximately $40.0 million on July 27, 2007.



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Northwest Mall (Houston, Texas) – the Company sold this asset for approximately $19.0 million on October 1, 2007.


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Eastland Mall (Charlotte, North Carolina) – the Company remains committed to sell this Property.



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Knox Village Square (Mount Vernon, Ohio) – the Company commenced marketing this Community Center Property for sale in the second quarter of 2007.



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Ohio River Plaza (Gallipolis, Ohio) – the Company commenced marketing this Community Center Property for sale in the second quarter of 2007.

Discussion of Income from Discontinued Operations

During the third quarter ended September 30, 2007, we sold two Mall properties for a net gain of $48.8 million. At September 30, 2007, we had four Properties classified as held-for-sale, one of which was sold in October 2007. These four Properties consisted of the two remaining Mall Properties we listed for sale during 2006 and two Community Centers. During the third quarter ended September 30, 2006, we sold two Community Centers for no gain or loss.

Income from discontinued operations, exclusive of the gain on the sale of assets, for the three months ended September 30, 2007 was $1.0 million as compared to $2.2 million for the same period ended September 30, 2006. Revenues for the discontinued operations were $5.4 million and $11.1 million for the three months ended September 30, 2007 and 2006, respectively.

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