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Article by DailyStocks_admin    (05-05-08 08:23 AM)

Filed with the SEC from Apr 17 to Apr 24:

Feldman Mall Properties (FMP)
Investor James W. Sight plans to present a slate of nominees for the board at the company's 2008 annual meeting. Sight said that the performance of Feldman Mall Properties is "well-documented, and the current board does not appear capable of doing anything to enhance shareholder value." Sight said he has attempted to work out a compromise to put experienced shareholders on the board and also has asked for a shareholder list, which he said was denied based on a "self-serving technicality."
Feldman recently said that a review of the company's strategic alternatives didn't lead to a completion of any strategic transactions. The company said that it remains committed to exploring its options. Sight has 880,500 shares (6.76%).

BUSINESS OVERVIEW

General

Feldman Mall Properties, Inc. is a fully integrated, self-administered and self-managed real estate company formed in July 2004 to continue the business of Feldman Equities of Arizona to acquire, renovate and reposition retail shopping malls. We completed our initial public offering on December 15, 2004, or the Offering Date.

Our investment strategy is to opportunistically acquire underperforming malls and transform them into physically attractive and profitable Class A malls through comprehensive renovation and repositioning efforts aimed at increasing shopper traffic and tenant sales. Through these renovation and repositioning efforts, we expect to raise occupancy levels, rental income and property cash flow. We currently qualify as a real estate investment trust, or REIT, for federal income tax purposes.

At December 31, 2006, our portfolio consisted of (i) four wholly owned malls, including the Stratford Square Mall located in Bloomingdale, Illinois, the Tallahassee Mall located in Tallahassee, Florida, the Northgate Mall located in the northern suburbs of Cincinnati, Ohio and the Golden Triangle Mall, located in the northern suburbs of Dallas, Texas, totaling 4.1 million square feet, (ii) a 25% interest in each of two joint ventures that own the Harrisburg Mall, located in Harrisburg, Pennsylvania (totaling 0.9 million square feet) and the Colonie Center Mall, located in Albany, New York (totaling 1.2 million square feet), and (iii) a 30.8% interest in the Foothills Mall located in Tucson, Arizona (totaling 0.7 million square feet).

Unless the context otherwise requires or indicates, “we,” “our Company,” “our” and “us” refer to Feldman Mall Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Feldman Equities Operating Partnership, LP, a Delaware limited partnership, which we refer to in this Annual Report on Form 10-K as our “operating partnership,” and Feldman Equities of Arizona, LLC, an Arizona limited liability company, together with its subsidiaries and affiliates, which we refer to collectively herein as “Feldman Equities of Arizona,” the “predecessor” or “our predecessor.” We conduct substantially all of our business through our operating partnership in which we held approximately a 90% ownership interest as of December 31, 2006. We control all major decisions regarding the activities and management of our operating partnership. Our operating partnership enables us to complete tax deferred acquisitions of additional malls using its units of limited partnership interests, or OP units, as an alternative acquisition currency.

Corporate Structure

IPO and Formation Transactions

On December 15, 2004, the Offering Date, we sold 10,666,667 shares of our common stock and contributed the net proceeds to our operating partnership. Subsequently, on January 15, 2005, we sold an additional 1,600,000 shares of our common stock upon the underwriters’ full exercise of their over-allotment option.

Prior to the completion of our initial public offering, we conducted our business through (i) our predecessor, which owned a 25% capital interest in the joint venture that owns the Harrisburg Mall and a 67% capital interest in the joint venture that owned the Foothills Mall and (ii) two corporations that owned interests in these joint ventures. Through the formation transactions outlined below, we acquired 100% of the economic and legal interests in the Foothills Mall. We refer to the ownership interest in the contributed entities collectively as the ownership interests and we refer to the holders of these ownership interests who are members of our senior management team and their respective affiliates as the contributors.

At or prior to the closing of our initial public offering we engaged in various transactions, which include the following:


• Pursuant to separate contribution, merger and related agreements, the contributors contributed their direct and indirect ownership interests in the contributed entities to us in exchange for an aggregate of 123,228 shares of our common stock and 1,593,464 OP units. In addition, unaffiliated third party investors exchanged their ownership interests in two of our joint ventures for $5.0 million in cash.

• The contribution, merger and related agreements provide that Larry Feldman, our Chairman and Chief Executive Officer, Jim Bourg, our Chief Operating Officer and one of our directors, and Scott Jensen, our Senior Vice President of Leasing, retained all right, title and interest held by the contributed entities to amounts held in certain cash impound accounts established pursuant to the prior $54.8 million mortgage loan that was due in 2008 that was secured by the Foothills Mall. As of the Offering Date of the Company’s IPO, the balance in these accounts totaled $7.6 million. As of December 31, 2005, these impound accounts had been released to the Company by the lender of Foothills Mall and distributed to Messrs. Feldman, Bourg and Jensen.

• The contribution, merger and related agreements further provide that Feldman Partners, LLC (an entity controlled by Larry Feldman and owned by him and his family), Jim Bourg and Scott Jensen will receive additional OP units relating to the performance of the joint venture that owns the Harrisburg Mall. The aggregate value of the additional OP units that may be issued with respect to the Harrisburg Mall is equal to 50% of the amount, if any, that the internal rate of return achieved by us from the joint venture exceeds 15% on our investment on or prior to December 31, 2009. The fair value of the right to receive these additional OP Units was approximately $5.0 million at the Offering Date.

• We became subject to approximately $74.2 million of consolidated mortgage and other indebtedness consisting of (i) a $54.8 million mortgage loan secured by the Foothills Mall, (ii) a $5.5 million mezzanine loan relating to the Foothills Mall, (iii) a $5.9 million intercompany loan owed to Feldman Partners, LLC that was used to invest in the Harrisburg Mall and the Foothills Mall and to pay our predecessor’s overhead expenses, (iv) $4.0 million outstanding under a line of credit owed by our predecessor which was incurred to return funds advanced by the contributors in connection with the purchase and renovation of the Harrisburg Mall and the Foothills Mall, and (v) a $4.0 million distribution owed by our predecessor to Messrs. Larry Feldman, James Bourg and Scott Jensen. In addition, the joint venture that owns the Harrisburg Mall remained subject to a construction loan of which the joint venture had borrowed approximately $44.3 million at the Offering Date.

• We applied approximately $17.5 million of the net proceeds from our initial public offering to repay certain of our predecessor’s outstanding indebtedness, including (i) the $5.5 million mezzanine loan relating to the Foothills Mall, (ii) $4.0 million of the $5.9 million intercompany loan owed to Feldman Partners, LLC ($1.9 million of this loan was converted into equity securities), (iii) a $4.0 million distribution owed by our predecessor to Messrs. Larry Feldman, James Bourg and Scott Jensen, and (iv) the $4.0 million outstanding under our predecessor’s line of credit.

Our Industry

Our property acquisitions and redevelopment activities are focused on underperforming regional and super-regional malls.

Malls

Regional malls generally contain in excess of 400,000 square feet of enclosed and climate controlled space and offer a variety of fashion merchandise, hard goods, services, restaurants, entertainment and convenient parking. Regional malls are typically anchored by two or more department stores or large big box retail stores, which are called anchor tenants. These anchor tenants act as the main draw to a typical mall and are normally located within the mall at the ends of the common corridors. Super-regional malls have the same characteristics as regional malls but are generally larger than 800,000 square feet and have three or more anchor tenants. We refer to regional and super-regional malls as malls.

Malls typically contain numerous diversified smaller retail stores, which we refer to as shops or shop tenants. Shop tenants are mostly national or regional retailers, typically located along common corridors, which connect to the anchor tenants. Shop tenants typically account for a substantial majority of the revenues of a mall.

Malls have different strategies with regard to price, merchandise offered and tenant mix, and are generally tailored to meet the needs of their trade areas. Malls draw from their trade areas by providing an array of shops, restaurants and entertainment facilities and often serve as the town center and a preferred gathering place for community, charity, and promotional events. In many communities, the mall is an important engine of economic activity, providing a range of employment opportunities to local residents and sales and property tax revenues to local governments.

We believe that more than half of the approximately 1,100 malls in the United States fall into the Class B and Class C categories. Our strategy is to acquire Class B malls or Class C malls, which we refer to as underperforming or distressed malls. We believe that through our renovation and repositioning strategies, we can substantially increase shopper traffic and tenant sales, which will result in higher occupancy, rents and, ultimately, cash flow. We believe that the successful implementation of our strategy can result in the transformation of a Class B or Class C mall into a Class A or near Class A mall. Currently, Stratford Square Mall, Colonie Center Mall, Northgate Mall, Tallahassee Mall, Golden Triangle Mall and Foothills Mall fall into the Class B category and Harrisburg Mall falls into the Class C category. We expect, however, that upon completion of our renovation and repositioning efforts, each of these malls will fall into the Class A or near Class A mall category.

The Market Opportunity

We believe there are a significant number of malls in the United States that are potential candidates for acquisition, renovation and repositioning by our Company. These malls are typically located in favorable markets that are experiencing positive overall retail sales trends and often have excellent access to transportation but, due to mismanagement or changing retail trends, may lack one or more of the key characteristics of successful malls. These malls tend to have weak or closed anchor tenants, poor shop tenant mixes, non-optimal layouts and outdated designs and appearances.

We also believe that many owners of underperforming malls may prefer to sell such properties because they may be unable to respond to the forces that have eroded the competitive positions of their properties. These owners may lack the experience, expertise, capital or management resources necessary to successfully renovate and reposition their facilities. We believe that these factors may allow us to acquire and redevelop malls at total project costs that are significantly below the cost of new mall construction.

Notwithstanding the increase in national retail sales and the favorable characteristics of malls, the rate of new U.S. mall construction continues to decrease. We believe that the low rate of new mall construction is caused by high barriers to entry, such as:


• the large number of existing malls which adequately serve or, in many cases, over-serve the available mall trade areas in the United States;

• the presence of large stand-alone discount retailers such as Wal-Mart and Target;

• the costs and difficulties associated with acquiring land for sites with sufficient acreage, requisite regional access and suitable development characteristics;

• the time and expense associated with obtaining zoning entitlements and environmental approvals due to growing environmental concerns and objections to new mall development from local governments and citizen groups; and

• the high costs of new construction and a five to 10-year lead time required from project conception to completion of new malls.

Unlike new mall development that may encounter strong opposition from local community and/or local government, our renovation efforts are usually strongly supported by local communities and therefore can be completed in a much shorter time frame. In many communities, the mall is a highly important economic driver and a significant source of employment and local government tax revenue. Therefore, underperforming malls threaten a community with a significant loss of economic activity, jobs and tax revenues. As a result, strong support can generally be found in local communities and from local governments for renovation and repositioning plans, including tax incentives and/or government grants.
COMPENSATION

Executive compensation has been structured to provide short and long-term incentives that promote continuing improvements in our financial results and returns to our stockholders. The elements of our executive compensation are primarily comprised of three elements designed to complement each other. We view the various components of compensation as related but distinct. The Compensation Committee designs total compensation packages that it believes will best create retention incentives, link compensation to performance and align the interests of our executive officers and our stockholders. Each of our named executive officers has an employment agreement with us. Such agreements provide for certain severance or change of control payments under specified circumstances.


• Annual base salaries. Annual base salaries are paid for ongoing performance throughout the year. Our policy is to set salaries at levels we believe will attract, retain and motivate highly competent individuals. In establishing base salary levels for the Company’s key executives, we consider the executive’s position and responsibility, experience, length of service with the Company and overall performance, as well as the compensation practices of other companies in the markets where the Company competes for executive talent. We provide this element of compensation to compensate executive officers for services rendered during the fiscal year.

• Bonuses. We intend to award bonuses in the future to executive officers and other employees based upon: (1) overall Company performance; (2) departmental performance; (3) individual performance; and (4) other factors we determine to be appropriate. Bonuses may consist of a cash component and an equity component. The equity component will likely consist of restricted stock. Restricted stock awards typically vest in equal installments over a period of years. We provide this element of compensation because we believe that it promotes loyalty, hard work and focus, honesty and vision.

• Long-Term Incentives. Our 2004 long-term stock incentive plan provides for long-term incentives through grants of restricted stock, long-term incentive units (“ LTIP units ”), stock appreciation rights, phantom shares, dividend equivalent rights and/or other equity-based awards, the exact form and number of which will vary, depending on the position and salary of the executive officer. These equity based awards will be designed to link executive compensation to our long-term common stock performance. The Compensation Committee has the full authority to administer and interpret our 2004 long-term stock incentive plan, to authorize the granting of awards, to determine the eligibility of employees, directors, executive officers, advisors, consultants and other personnel, our subsidiaries, our affiliates and other persons expected to provide significant services to us or our subsidiaries to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the 2004 long-term stock incentive plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of our 2004 long-term stock incentive plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all determinations that it deems necessary or appropriate in connection with our 2004 long-term stock incentive plan or the administration or interpretation thereof. In connection with this authority, the Compensation Committee establishes performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. We provide this element of compensation because we believe that it provides an incentive for executive officers to remain with us and focus on the long-term growth in our stock price. For more information on our 2004 long-term stock incentive plan, we refer you to our Registration Statement on Form S-11 filed by us on December 14, 2004. There were no long-term incentive awards issued in 2006 and 2005 to our current executive officers.

Other Personal Benefits

Employee compensation also includes various benefits, such as health insurance plans and profit sharing and retirement plans in which substantially all of the Company’s employees are entitled to participate. At the present time, we provide health, life and disability insurance plans and a 401(k) plan, standard paid time off benefits and other standard employee benefits.

How Each Element and Our Decisions Regarding Each Element Fit Into Our Overall Compensation Objectives and Affect Decisions Regarding Other Elements

Our compensation program seeks to reward our executive officers for their superior performance and our Company’s performance, while closely aligning the interests of our executive officers with the interests of our stockholders. In making compensation decisions, the Compensation Committee considers various measures of Company and industry performance, including funds from operations (FFO). Consistent with this approach, the Compensation Committee pays our executive officers annual base salaries in order to provide them with a minimum compensation level that is intended to reflect such executive officer’s value and contributions to our success in light of salary norms of our competitors. The Compensation Committee may elect to pay our executive officers annual incentives to reward them for achievement of financial and other performance of our Company and of such executive officer’s department, with a component of performance based on a subjective evaluation. The Compensation Committee may elect to pay our executive officers long-term incentives to act as a retention tool and to provide continued and additional incentives to maximize our stock price and thereby more closely align the economic interests of our executive officers with those of our stockholders. Through the elements of our compensation program, the Compensation Committee seeks to maintain a competitive total compensation package for each executive officer, while being sensitive to our fiscal year budget, annual accounting costs and the impact of share dilution in making such compensation payments.

Other Matters

Tax and Accounting Treatment. The Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended. Section 162(m) limits the deductibility on our tax return of compensation over $1 million to any of our named executive officers unless, in general, the compensation is paid pursuant to a plan which is performance-related, non-discretionary and has been approved by our stockholders. The Compensation Committee’s policy with respect to Section 162(m) is to make every reasonable effort to ensure that compensation is deductible to the extent permitted while simultaneously providing our executive officers with appropriate compensation for their performance. The Compensation Committee may make compensation payments that are not fully deductible if in its judgment such payments are necessary to achieve the objectives of our compensation program.

We account for stock-based payments through our 2004 long-term stock incentive plan in accordance with the requirements of Statement of Financial Accounting Standards No. 123(R).

Other Policies

Although we do not have any policy in place regarding minimum ownership requirements for either our executive officers or directors, our named executive officers all have significant stakes in us. We do not have any policy in place regarding the ability of our executive officers or directors to engage in hedging activities with respect to our common stock. In addition, we do not have nonqualified deferred compensation plans.

Compensation Committee Report

Our executive compensation philosophy, policies, plans and programs are under the supervision of the Compensation Committee, which is composed of the non-management directors named above, each of whom has been determined by our Board to be independent under the applicable rules of the SEC and the NYSE listing standards.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a fully integrated, self-administered and self-managed real estate company formed in July 2004 to continue the business of our predecessor to acquire, renovate and reposition retail shopping malls. Our investment strategy is to opportunistically acquire underperforming or distressed malls and transform them into physically attractive and profitable Class A or near Class A malls through comprehensive renovation and repositioning efforts aimed at increasing shopper traffic and tenant sales. Through these renovation and repositioning efforts, we expect to raise occupancy levels, rental income and property cash flow.

We derive revenues primarily from rent and reimbursement payments received by our operating partnership from tenants under existing leases at each of our properties. Our operating results, therefore, will depend materially on the ability of our tenants to make required payments and overall real estate market conditions.

On December 16, 2004, we completed our formation transactions and initial public offering and sold 10,666,667 shares of our common stock and contributed the net proceeds to our operating partnership. Subsequently, on January 15, 2005, we sold an additional 1,600,000 shares of our common stock to underwriters upon their full exercise of their over-allotment option.

Prior to the completion of the offering and formation transactions, our business was conducted by our predecessor, Feldman Equities of Arizona, LLC and its subsidiaries and affiliates. The consolidated financial statements of our Company and the predecessor for the year ended December 31, 2004, include the operating results of our company (for the period December 16, 2004 to December 31, 2004) and our predecessor which, for the period January 1, 2004 through December 15, 2004, was engaged in comprehensive mall renovation and repositioning projects. These projects included the Foothills Mall, which was acquired through a joint venture by our predecessor in April 2002 and the Harrisburg Mall, which was acquired through a joint venture by our predecessor in September 2003. Through December 15, 2004, our predecessor consolidated the financial results of the Foothills Mall and accounted for its investment in the Harrisburg Mall using the equity method of accounting.

A discussion of the results of operations of our Company and predecessor is set forth below. Upon completion of our initial public offering and the formation transactions, we have substantially enhanced our financial flexibility and access to capital compared to our predecessor, which should play an important role in allowing us to implement our growth and business plan over time. For the following reasons, the results of operations of our predecessor and our Company may not be indicative of the results of our future operations:


• In January 2005, we completed a $75.0 million, three-year first mortgage financing collateralized by the Stratford Square Mall. The mortgage bears interest at the London Interbank Offered Rate (“LIBOR”) plus 125 basis points and has two options for one-year extensions. In connection with the Stratford Square Mall financing, during January 2005, we entered into a $75.0 million interest rate swap commencing February 2005 with an all-in rate of 5.0% and a final maturity date in January 2008, which effectively fixed the interest rate on the Stratford Square Mall mortgage loan through that maturity date.

• On February 1, 2005, we acquired Colonie Center Mall located in Albany, New York for an initial purchase price of $82.2 million and funded the purchase price of this acquisition using the net proceeds from a property-level financing of the Stratford Square Mall. We paid additional consideration of $2.4 million in connection with the execution of certain leases. At December 31, 2006, shop occupancy at the Colonie Center Mall, excluding temporary tenants, was 78.0%.

• On June 28, 2005, we acquired the Tallahassee Mall, a 966,000 square-foot mall located in Tallahassee, the state capital of Florida. The purchase price of $61.5 million included the assumption of the existing mortgage loan of approximately $45.8 million plus cash in the amount of approximately $16.2 million. The first mortgage we assumed bears interest at a fixed rate of 8.60% and has a July 2009 anticipated prepayment date. The property is subject to a long-term ground lease that expires in the year 2063 (assuming the exercise of all extension options). The ground lease does not contain a purchase option. At December 31, 2006, shop occupancy, excluding temporary and anchor tenants, was 79.0%.

• On July 12, 2005, we acquired Northgate Mall, a 1.1 million square-foot mall located in the northwest suburbs of Cincinnati, Ohio. The purchase price of $110.0 million included the assumption of the existing mortgage loan in the amount of approximately $79.6 million plus cash in the amount of approximately $30.4 million. The first mortgage we assumed bears interest at a fixed rate of 6.60% and has an anticipated prepayment date in November 2012. At December 31, 2006, shop occupancy, excluding temporary and anchor tenants, was 89.4%.

• During March 2006, we completed the issuance and sale in a private placement of $29.4 million in aggregate principal amount of junior subordinated debt obligations (the “Notes”). The Notes require quarterly interest payments calculated at a fixed interest rate equal to 8.70% per annum through April 2011 and subsequently at a variable interest rate equal to LIBOR plus 3.45% per annum. The Notes mature in April 2036 and may be redeemed, in whole or in part, at par, at our option, beginning after April 2011.

• On April 5, 2006, we acquired the Golden Triangle Mall in the Dallas suburb of Denton, Texas, for approximately $42.3 million (including $2.1 million of additional consideration accrued in accordance with an earn-out provision in the purchase agreement). Including non-owned anchors, the Golden Triangle Mall is a 765,000 square-foot regional mall. At December 31, 2006, excluding temporary tenants, the mall’s occupancy was 66.0%.

• On April 5, 2006, in connection with the acquisition of the Golden Triangle Mall, we entered into a $24.6 million secured line of credit which bears interest at 140 basis points over LIBOR and matures in April 2008. The secured line of credit was fully drawn on the date we acquired the Golden Triangle Mall. The secured line of credit contains certain financial covenants requiring us to, among other requirements, maintain certain financial coverage ratios. The secured line of credit was increased to $30.0 million in April 2007 and the maturity date was extended to April 2009. As of December 31, 2006, there was no outstanding balance on this line of credit.

• On April 7, 2006, we acquired the building occupied by JCPenney and related acreage at Stratford Square Mall for a price of $6.7 million. The purchase price included assumption of a loan secured by the property that had a principal balance of approximately $3.5 million. The loan is self amortizing, bears interest at a 5.15% fixed rate and matures in November 2013.

• On June 29, 2006, we contributed the Foothills Mall to a joint venture and retained a 30.8% interest. In connection with this transaction, the joint venture refinanced the existing $54.8 million first mortgage with an $81.0 million first mortgage. As a result of these transactions, we received a distribution of approximately $38.9 million and recognized a $29.4 million gain on the partial sale of the property as reported on the consolidated statement of operations. A portion of the proceeds from the transaction was used to repay $24.6 million outstanding on our secured line of credit and $5.0 million outstanding to extinguish our credit facility provided by Kimco Realty Corp.

• On September 29, 2006, we contributed the Colonie Center Mall to a joint venture and retained a 25% interest. In connection with this transaction, the joint venture refinanced the existing $50.8 million first mortgage bridge loan with a first mortgage and construction facility with a maximum capacity commitment of $109.8 million. As a result of these transactions, we received a distribution of approximately $41.2 million and recorded a $3.5 million deferred gain. A portion of the proceeds from the transaction were used to repay $4.0 million outstanding on our secured line of credit on October 2, 2006.

• Effective April 10, 2007, we entered into an agreement to issue up to $50 million of convertible preferred stock through the private placement of 2 million shares of 6.85% Series A Cumulative Convertible Preferred Shares to Inland American Real Estate Trust, Inc., a public non-listed REIT sponsored by an affiliate of the Inland Real Estate Group of Companies. We issued $15 million in preferred stock on April 30, 2007. We are required to issue a total of $50 million by the end of the 12-month period following the close of this transaction.

• On April 16, 2007, we announced the execution of a promissory note (the “Note”) providing for loans aggregating up to $25 million from Kimco Capital Corp. (“Kimco”). No amount has yet been borrowed under the Note. Loan draws under the Note are optional and will bear interest at the rate of 7.0% per annum, payable monthly. Any outstanding principal amount will be due and payable on April 10, 2008, provided that the maturity of the Note may be extended to April 10, 2009 if we deliver to Kimco, on or before March 17, 2008, a notice of extension and further provided that we comply with certain performance criteria. We may prepay the outstanding principal amount under the Note in whole or in part at any time. In addition to the interest on the Note, Kimco will be paid a variable fee equal to (i) $500,000, multiplied by (ii) (a) the volume weighted average price of our common stock as of a five-day period chosen by Kimco, minus (b) $13.00 per common share. If Kimco does not select a date for determination of the fee prior to termination of the Note, we will instead pay to Kimco $250,000 in additional interest.

Critical Accounting Policies

A summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements, included elsewhere in this Annual Report on Form 10-K, are set forth below. Certain of the accounting policies used in the preparation of these consolidated financial statements are particularly important for an understanding of our financial position and results of operations. These policies require the application of judgment and assumptions by management and, as a result, are subject to a degree of uncertainty. Actual results could differ from these estimates.

Revenue Recognition

Base rental revenues from rental retail properties are recognized on a straight-line basis over the noncancelable terms of the related leases. Deferred rent represents the aggregate excess of rental revenue recognized on a straight-line basis over cash received under applicable lease provisions. “Percentage rent”, or rental revenue that is based upon a percentage of the sales recorded by tenants, is recognized in the period such sales are earned by the respective tenants.

Reimbursements from tenants related to real estate taxes, insurance and other shopping center operating expenses are recognized as revenue, based on a predetermined formula, in the period the applicable costs are incurred. Lease termination fees, net of deferred rent and related intangibles, which are included in interest and other income in the accompanying consolidated statements of operations, are recognized when the related leases are cancelled, the tenant surrenders the space and we have no continuing obligation to provide services to such former tenants.

Additional revenue is derived from providing management services to third parties, including property management, brokerage, leasing and development. Management fees generally are a percentage of managed property cash receipts. Leasing and brokerage fees are earned and recognized in installments as follows: one-third upon lease execution, one-third upon delivery of the premises and one-third upon the commencement of rent. Development fees are earned and recognized over the time period of the development activity.

We must also make estimates related to the collectibility of our accounts receivable related to minimum rent, deferred rent, tenant reimbursements, lease termination fees, management and development fees and other income. We analyze accounts receivable and historical bad debts, tenant concentrations, tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on net income, because a higher bad debt allowance would result in lower net income.

Principles of Consolidation and Equity Method of Accounting

Property interests contributed to our operating partnership in the formation transactions in exchange for OP Units have been accounted for as a reorganization of entities under common control. Accordingly, the contributed assets and assumed liabilities were recorded at our predecessor’s historical cost basis. The combination did not require any material adjustments to conform the accounting principles of the separate entities. The remaining interests, which were acquired for cash, have been accounted for as a purchase and the excess of the purchase price over the related historical cost basis has been allocated to the assets acquired and the liabilities assumed.

We evaluate our investments in partially owned entities in accordance with FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities , or FIN 46R. If the investment is a “variable interest entity,” or a “VIE,” and we are the “primary beneficiary,” as defined in FIN 46R, we account for such investment as if it were a consolidated subsidiary. We have determined that Feldman Lubert Adler Harrisburg L.P., FMP Kimco Foothills LLC and FMP191 Colonie Center LLC are not VIE’s.

We evaluate the consolidation of entities in which we are a general partner in accordance with EITF Issue 04-05, which provides guidance in determining whether a general partner should consolidate a limited partnership or a limited liability company with characteristics of a partnership. EITF 04-05 states that the general partner in a limited partnership is presumed to control that limited partnership. The presumption may be overcome if the limited partners have either (1) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (2) substantive participating rights, which provide the limited partners with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnership’s business and thereby preclude the general partner from exercising unilateral control over the partnership. Based on these criteria, we do not consolidate our investments in the Harrisburg, Foothills and Colonie joint ventures. We account for our investment in these joint ventures under the equity method of accounting. These investments were recorded initially at cost and thereafter the carrying amount is increased by our share of comprehensive income and any additional capital contributions and decreased by our share of comprehensive loss and capital distributions.

The equity in net income or loss and other comprehensive income or loss from real estate joint ventures recognized by us and the carrying value of our investments in real estate joint ventures are generally based on our share of cash that would be distributed to us under the hypothetical liquidation of the joint venture, at the then book value, pursuant to the provisions of the respective operating/partnership agreements. In the case of FMP Kimco Foothills Member LLC, the joint venture that owns the Foothills Mall (the “Foothills JV”), we have suspended the recognition of our share of losses because we have a negative carrying value in our investment in this joint venture. In accordance with APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, if and when the Foothills JV reports net income, we will resume applying the equity method of accounting after our share of that net income equals the share of net losses not recognized during the period that the equity method was suspended.

Results of Operations

Overview

The discussion below relates to the results of operations of our Company and our predecessor which, throughout the periods discussed below, were engaged in comprehensive mall renovation and repositioning projects, including the Foothills Mall, which was acquired through a joint venture by our predecessor in 2002 and the Harrisburg Mall, which was acquired through a joint venture by our predecessor in 2003. Subsequent to our initial public offering, we acquired the Stratford Square Mall (December 2004), the Tallahassee Mall (June 2005), the Northgate Mall (July 2005), the Golden Triangle Mall (April 2006) (collectively the “Acquisition Properties”) and the Colonie Center Mall (February 2005), which are each included in our consolidated results for periods subsequent to the acquisition date. In addition, as a result of contributing the Foothills Mall (June 2006) and Colonie Center Mall (September 2006) to joint venture entities, our share of results of those properties are excluded from our consolidated results commencing with the contribution dates and are thereafter included on the equity method of accounting. During the redevelopment and repositioning period, some of our properties may experience decreases in occupancy and corresponding net operating income. We believe these lower occupancy and operating income trends are temporary and will improve once we have completed a significant portion of the redevelopment process.

The results for the year ended December 31, 2004 include the results of our predecessor for the period January 1, 2004 to December 15, 2004 and the results of our Company for the period December 16, 2004 to December 31, 2004.

Comparison of the Year Ended December 31, 2006 to the Year Ended December 31, 2005

Revenue

Rental revenues increased approximately $5.4 million, or 15.0%, to $41.1 million for the year ended December 31, 2006 compared to $35.7 million for the year ended December 31, 2005. The increase was primarily due to a $12.0 million increase from the Acquisition Properties. The increase was partially offset by a $5.9 million decrease in revenues related to the Foothills and Colonie Center Malls, which were not included in our consolidated operating results for the entire 2006 fiscal year, as indicated above and $797,000 lower rental revenue at the Stratford Square Mall due to reduced occupancy and lower rental rates upon renewal.

Revenues from tenant reimbursements increased approximately $2.2 million, or 12.7%, to $19.9 million for the year ended
December 31, 2006 compared to $17.6 million for the year ended December 31, 2005. The increase was primarily due to a $5.6 million increase from the Acquisition Properties. The increase was partially offset by a $3.3 million decrease in revenues related to the Foothills and Colonie Center Malls.

Revenues from management, leasing and development services increased approximately $840,000 to $1.3 million for the year ended December 31, 2006 compared to $470,000 for the year ended December 31, 2005. The increase is due to the $714,000 of fees charged to the Foothills and Colonie Center Malls and increased fees related to the Harrisburg Mall.

Interest and other income increased $1.7 million to $3.0 million for the year ended December 31, 2006 compared to $1.4 million for the year ended December 31, 2005. The increase is due to a $1.4 million decrease in the fair value of our liability to the previous owners of the Harrisburg Mall. The reduction in the liability in 2006 was caused by our reduction of the anticipated return we will receive on the project. The decrease in our anticipated return is due to an increase in the anticipated redevelopment costs and delays in the timing of certain redevelopment plans. The remaining increase in interest and other income is due primarily to a $133,000 increase in lease termination charges and a $168,000 increase in interest income.

Expenses

Rental property operating and maintenance expenses increased approximately $2.6 million, or 14.3%, to $21.0 million for the year ended December 31, 2006 compared to $18.4 million for the year ended December 31, 2005. The increase was due to a $6.5 million increase from the Acquisition Properties. The increase was partially offset by a $3.6 million decrease in expenses related to the Foothills and Colonie Center Malls.

Real estate taxes increased approximately $1.1 million, or 17.3%, to $7.6 million for the year ended December 31, 2006 compared to $6.5 million for the year ended December 31, 2005. The increase was primarily due to a $2.1 million increase from the Acquisition Properties. The increase was partially offset by $1.1 million from the Foothills and Colonie Center Malls not included in our consolidated results for the entire 2006 fiscal year.

Interest expense increased approximately $4.5 million, or 38.0%, to $16.4 million for the year ended December 31, 2006 compared to $11.9 million for the year ended December 31, 2005. The increase was primarily due to (i) $3.4 million of interest associated with the Acquisition Properties, (ii) $2.3 million due to the issuance of the Notes and (iii) $538,000 for the secured line of credit. The increase was partially offset by a $980,000 decrease related to the Foothills and Colonie Center Malls.

Depreciation and amortization expense increased $4.0 million, or 30.0%, to $17.4 million for the year ended December 31, 2006 compared to $13.4 million for the year ended December 31, 2005. The increase is primarily due to a $5.4 million increase in depreciation from the Acquisition Properties. The increase was partially offset by a $1.4 million decrease related to the Foothills and Colonie Center Malls.

General and administrative expenses increased approximately $1.2 million, or 15.3%, to $8.7 million for the year ended December 31, 2006 compared to $7.5 million for the year ended December 31, 2005. The increase was primarily due to (i) increases in personnel costs due to increased staff in connection with our redevelopment and joint venture activity, (ii) additional costs associated with being a publicly-traded REIT and (iii) office relocation and expansion in Arizona.

Other

Gain on the partial sale of a property totaled $29.4 million for the year ended December 31, 2006. This gain resulted from the contribution of the Foothills Mall into a joint venture on June 29, 2006. We currently have a 30.8% interest in the joint venture.

Equity in losses of unconsolidated real estate partnerships represents our share of the equity in the losses of the joint venture owning the Harrisburg Mall for 2005 and 2006 and the Colonie Center Mall for 2006. The equity in loss of unconsolidated real estate partnerships totaled $550,000 for the year ended December 31, 2006 compared to $454,000 for the year ended December 31, 2005. The loss at the Harrisburg Mall increased from $454,000 in 2005 to $503,000 in 2006 due primarily to higher depreciation expense, which was offset in part by income from the proceeds of government grants. The equity in loss from the Colonie Center Mall totaled $47,000 for the year ended December 31, 2006. We did not recognize our share of our losses from the Foothills JV because we have a negative carrying value in our investment in this joint venture. See “Critical Accounting Policies — Principles of Consolidation and Equity Method of Accounting.”

The $357,000 early extinguishment of debt for the year ended December 31, 2006 was incurred in connection with the recapitalization of the Foothills Mall on June 29, 2006 and represents fees and the write-off of deferred financing charges.

Minority interest for the years ended December 31, 2006 and 2005 represents the unit holders’ interest in our operating partnership, which represents 9.7% and 11.3%, respectively, of our income or loss.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations
Overview
The discussion below relates to our results of operations which, throughout the periods discussed below, were engaged in comprehensive mall renovation and repositioning projects, including the Foothills Mall (“Foothills”), Harrisburg Mall (“Harrisburg”), Stratford Square Mall (“Stratford”), Colonie Center Mall (“Colonie”), Northgate Mall (“Northgate”), Tallahassee Mall (“Tallahassee”) and Golden Triangle Mall, (“Golden Triangle”). During the redevelopment and repositioning period, some of our properties may experience decreases in occupancy and corresponding net operating income. For the following reasons, the results of operations of our Company for the nine months ended September 30, 2007 may not be comparable to the corresponding periods in 2006:
• During March 2006, we completed the issuance and sale in a private placement of $29.4 million in aggregate principal amount of junior subordinated debt obligations (the “Notes”). The Notes require quarterly interest payments calculated at a fixed interest rate equal to 8.70% per annum through April 2011 and subsequent to April 2011 at a variable interest rate equal to LIBOR plus 3.45% per annum.
• On April 5, 2006, we acquired Golden Triangle in the Dallas suburb of Denton, Texas, for approximately $41.2 million (including $1.0 million of additional consideration paid in accordance with an earn-out provision in the purchase agreement). • On April 5, 2006, in connection with the acquisition of Golden Triangle, we entered into a $24.6 million secured line of credit which bears interest at 140 basis points over LIBOR. On April 20, 2007, we increased the line to $30.0 million. As of September 30, 2007, the outstanding balance was $17,000.
• On April, 7, 2006, we acquired the building occupied by JCPenney and related acreage at Stratford Square for a price of $6.7 million. The purchase price included assumption of a loan secured by the property and had a principal balance of approximately $3.5 million. On May 8, 2007, we repaid this loan in connection with the Stratford Square mortgage refinancing described below.
• On June 29, 2006, we contributed Foothills to a joint venture and retained a 30.8% interest. In connection with this transaction, the joint venture refinanced the existing $54.8 million first mortgage with an $81.0 million first mortgage. As a result of these transactions, we received approximately $38.9 million and recognized a $29.4 million gain on the partial sale of the property. A portion of the proceeds from the transaction was used to repay $24.6 million outstanding on our secured line of credit and $5.0 million outstanding on our credit facility provided by Kimco Realty Corp.
• On September 29, 2006, we contributed Colonie to a joint venture and retained a 25.0% interest. In connection with this transaction, the joint venture refinanced the existing $50.8 million first mortgage bridge loan with a first mortgage and construction facility with a maximum capacity commitment of $109.8 million. As a result of these transactions, we received approximately $41.2 million and recorded a $3.5 million deferred gain. A portion of the proceeds from the transaction were used to repay $4.0 million outstanding on our secured line of credit on October 2, 2006.

• On April 30, 2007, we issued $15.0 million in preferred stock.

• On May 8, 2007, we closed on a $104.5 million first mortgage loan secured by Stratford. On the closing date, $75.0 million of the proceeds were used to retire Stratford’s outstanding $75.0 million first mortgage.
Comparison of the Three Months Ended September 30, 2007 to the Three Months Ended September 30,
2006
Revenues
Rental revenues decreased approximately $1.7 million, or 18.1%, to $7.9 million for the three months ended September 30, 2007 compared to $9.6 million for the prior year period. The decrease resulted from $2.2 million due to the partial sale of Colonie, offset by a net aggregate increase in rental revenues from our wholly owned malls.
We believe that Dillard’s, one of our anchor tenants at Tallahassee, will vacate its leased space (totaling approximately 204,000 square feet) on or before their lease expiration date. The Dillard’s lease expires on January 31, 2008 and currently pays annual rent totaling approximately $311,000. Currently, we are in discussion with one or more replacement anchors to replace Dillard’s. In addition, certain tenants at Tallahassee have provisions in their leases that could result in rental revenue reductions if Dillard’s is not replaced within certain time periods.
Revenues from tenant reimbursements decreased $434,000, or 10.8%, to $3.6 million for the three months ended September 30, 2007 compared to $4.0 million for the prior year period. The decrease was primarily due to the partial sale of Colonie ($1.0 million), offset by a net aggregate increase at our other malls.
Revenues from management, leasing and development services increased $911,000 to $1.1 million for the three months ended September 30, 2007 compared to $183,000 for the prior year period. The increase is primarily due to fees charged to the Colonie and Foothills joint ventures.
Interest and other income increased $753,000 to $2.3 million for the three months ended September 30, 2007 compared to $1.5 million for the prior year period. Interest and other income in the 2007 period included $1.7 million resulting from a reduction in the estimated fair value of our obligation to the OP unit holders related to the Harrisburg partnership. In the prior year period, we recorded a $1.2 million reduction in this same obligation. Other income items that increased from the 2006 third quarter to the current period include lease termination fees ($294,000) and income representing a return on preferred capital contributions to the Colonie joint venture ($98,000).

Expenses
Rental property operating and maintenance expenses decreased $428,000, or 8.5%, to $4.6 million for the 2007 third quarter compared to $5.0 million for the prior year period . The decrease is due primarily to the partial sale of Colonie, which accounted for $1.2 million of 2006 third quarter expense. Expenses that increased over the prior year period include bad debt expense ($310,000), salaries and wages ($165,000), professional fees ($135,000) and various other rental property operating and maintenance expenses ($145,000).
Real estate taxes decreased $145,000, or 8.7%, to $1.5 million for the three months ended September 30, 2007 compared to $1.7 million for the prior year period. The decrease in real estate taxes was primarily due to $481,000 recorded by Colonie in the prior year offset in part by increases at our other malls.
Interest expense increased $234,000, or 6.0%, to $4.1 million for the three months ended September 30, 2007 compared to $3.9 million for the prior year period. The increase was due to primarily to an increase in borrowings related to the Stratford mortgage ($446,000) and our secured line of credit ($219,000) and a decrease in capitalized interest ($73,000), offset by the partial sale of Colonie, which accounted for $618,000 of mortgage interest expense in the prior year period.
Depreciation and amortization expense decreased $66,000, or 1.7%, to $3.8 million for the 2007 third quarter compared to $3.9 million for the prior year period. Colonie accounted for $658,000 of expense in the 2006 third quarter and amortization of in-place lease intangibles decreased by $178,000. These decreases were offset by increased depreciation expense resulting from completion of construction projects at the malls.
General and administrative expenses increased approximately $1.8 million, or 90.3%, to $3.8 million for the three months ended September 30, 2007 compared to $2.0 million for the 2006 third quarter. The increase was primarily due to an increase in personnel costs due to growth in staff and contract personnel in connection with our increased redevelopment and joint venture activity ($233,000) and increases in construction management, consulting, Sarbanes-Oxley related and other professional fees, ($1.5 million).
Other
Equity in loss of unconsolidated real estate partnerships represents our share of the equity in the losses of the joint ventures owning Harrisburg and, in the current year period, Colonie. The equity in loss of unconsolidated real estate partnerships totaled $508,000 for the three months ended September 30, 2007 as compared to $370,000 for the prior year period; most of the increase was related to Colonie.
Minority interest for the three months ended September 30, 2007 and 2006 represents the unit holders in our operating partnership which represents 9.8% and 10.8%, respectively, of our loss.

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