In May 2007, the Company decided to dispose of Stadium Plaza, located in East Lansing, Michigan. The property, with 78,000 sq. ft. of GLA, was marketed and, in accordance with SFAS No. 144, the carrying value of the property's assets (principally the net book value of the real estate) was classified as "held for sale" in the Company's consolidated financial statements. In May 2008, the Company reconsidered its decision to sell the property and, as a result, the property has been reclassified as "held and used". For all periods presented, the property is no longer included in "properties held for sale" or "discontinued operations".
In April 2008, Value City, the only tenant at the Value City Shopping Center, located in Wyoming, Michigan, vacated its premises at the end of the lease term. In keeping with the Company's redevelopment plans for the property, the vacant building was subsequently razed and, accordingly, the property has now been reclassified as "land under/held for development", and is no longer included as one of the Company's operating properties.
Impact of Recent Overall Real Estate and Financial Market Conditions Recent months have witnessed unprecedented, and largely unpredicted, turmoil in real estate and financial markets in the U.S. and in global economies. The negative impact of such turmoil has been severe in terms of the decline in the value of shares of the Company's stock and the resulting perceived valuation of the Company's real estate portfolio. In this context, the Company's valuations and stock performance have generally been consistent with those of many of its peers and many of the real estate indexes.
Approximately 75% of the Company's properties consist of supermarket-anchored shopping centers and drug-store anchored convenience centers with average remaining lease terms of nearly 11 years. The Company estimates that a significant portion of its rental revenues are derived from retailers of "necessities" which the Company believes are generally perceived to be less exposed to reductions in discretionary consumer spending. Much of the balance of the Company's rental revenues is derived from ancillary service providers. Its properties have significantly fewer stores categorized as full-service department stores, fashion concepts (clothes and/or shoes), luxury product stores (leather goods, jewelry, etc.), furniture, home furnishings, home improvements, electronics, toys and pet foods. The Company believes that the concentration of its tenants in the "necessities" categories of retail will help it resist some of the vacancies occurring currently and expected to further occur in many of the other categories of tenants throughout the retail shopping center sphere.
The Company has continued to report 96% occupancy levels for its stabilized properties and provision for doubtful accounts of approximately 1% of total revenues. While the Company expects certain potential vacancies in its non-credit smaller tenancies, and perhaps in one or two larger tenancies, it does not expect a substantial decline in overall occupancy during the upcoming quarters. Nonetheless, the Company remains highly sensitive to the potential risks and maintains a careful watch on all its tenancies.

The Company has made substantial efforts to mitigate the financing risks inherent in its development projects by arranging a $150.0 million development property credit facility, which together with the $77.7 million property-specific construction financing facility for the Upland Square development property in Pottsgrove, Pennsylvania, have largely addressed the additional funding requirements for the Company's announced development pipeline.
The Company has also made substantial efforts to mitigate the operational risks inherent in its development projects through substantial pre-leasing and fixed-price construction. As of September 30, 2008, the Company has obtained lease commitments on an overall basis in excess of 50% of GLA (with another approximately 20% of GLA subject to letters of intent). In addition, the Company generally builds supermarkets in its development pipeline to a fixed construction cost, where the supermarket tenants contribute towards any excess construction costs, either in a lump sum payment or as additional rent over the lease term.
Summary of Critical Accounting Policies
The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition and the allowance for doubtful accounts receivable, real estate investments and purchase accounting allocations related thereto, asset impairment, and derivatives used to hedge interest-rate risks. Management's estimates are based both on information that is currently available and on various other assumptions management believes to be reasonable under the circumstances. Actual results could differ from those estimates and those estimates could be different under varying assumptions or conditions.
The Company has identified the following critical accounting policies, the application of which requires significant judgments and estimates:
Revenue Recognition
Rental income with scheduled rent increases is recognized using the straight-line method over the respective terms of the leases. The aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in straight-line rents receivable on the consolidated balance sheet. Leases also generally contain provisions under which the tenants reimburse the Company for a portion of property operating expenses and real estate taxes incurred; such income is recognized in the periods earned. In addition, certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent. The Company defers recognition of contingent rental income until those specified targets are met.
The Company must make estimates as to the collectibility of its accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic conditions, and changes in tenants' payment patterns 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, whereas a lower bad debt allowance would result in higher net income. Real Estate Investments
Real estate investments are carried at cost less accumulated depreciation. The provision for depreciation is calculated using the straight-line method based on estimated useful lives. Expenditures for maintenance, repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred. Expenditures for betterments that substantially extend the useful lives of real estate assets are capitalized. Real estate investments include costs of development and redevelopment activities, and construction in progress. Capitalized costs, including interest and other carrying costs during the construction and/or renovation periods, are included in the cost of the related asset and charged to operations through depreciation over the asset's estimated useful life. The Company is required to make subjective estimates as to the useful lives of its real estate assets for purposes of determining the amount of depreciation to reflect on an annual basis. These assessments have a direct impact on net income. A shorter estimate of the useful life of an asset would have the effect of increasing depreciation expense and lowering net income, whereas a longer estimate of the useful life of an asset would have the effect of reducing depreciation expense and increasing net income.
The Company's capitalization policy on its development and redevelopment properties is guided by SFAS No. 34, "Capitalization of Interest Cost" and SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects". A variety of costs are incurred in the acquisition, development and leasing of a property, such as pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs, and other costs incurred during the period of development. After a determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. The Company ceases capitalization on the portions substantially completed and occupied, or held available for occupancy, and capitalizes only those costs associated with the portions under construction. The Company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but not later than one year from cessation of major construction activity. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The effect of a longer capitalization period would be to increase capitalized costs and would result in higher net income, whereas the effect of a shorter capitalization period would be to reduce capitalized costs and would result in lower net income.
The Company applies SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangibles", in valuing real estate acquisitions. In connection therewith, the fair value of real estate acquired is allocated to land, buildings and improvements. In addition, the fair value of in-place leases is allocated to intangible lease assets and liabilities. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management's determination of the relative fair values of such assets. In valuing an acquired property's intangibles, factors considered by management include an estimate of carrying costs

during the expected lease-up periods, such as real estate taxes, insurance, other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand. Management also estimates costs to execute similar leases, including leasing commissions, tenant improvements, legal and other related costs.
The value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates, over (ii) the estimated fair value of the property as if vacant. Above-market and below-market in-place lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be received and management's estimate of market lease rates, measured over the non-cancelable terms of the respective leases. The value of other intangibles is amortized to expense, and the above-market and below-market lease values are amortized to rental income, over the remaining non-cancelable terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be recognized in operations at that time.
Management is required to make subjective assessments in connection with its valuation of real estate acquisitions. These assessments have a direct impact on net income, because (i) above-market and below-market lease intangibles are amortized to rental income, and (ii) the value of other intangibles is amortized to expense. Accordingly, higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense, whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense.
The Company applies SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", to recognize and measure impairment of long-lived assets. Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment's use and eventual disposition. These estimates of cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. A real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value, less the cost of a potential sale. Depreciation and amortization are suspended during the period the property is held for sale. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties. These assessments have a direct impact on net income, because an impairment loss is recognized in the period that the assessment is made.
Stock-Based Compensation
SFAS No. 123R, "Share-Based Payments", establishes financial accounting and reporting standards for stock-based employee compensation plans, including all arrangements by which employees receive shares of stock or other equity instruments of the employer, or the employer

incurs liabilities to employees in amounts based on the price of the employer's stock. The statement also defines a fair value-based method of accounting for an employee stock option or similar equity instrument.
The Company's 2004 Stock Incentive Plan (the "Incentive Plan") provides for the granting of incentive stock options, stock appreciation rights, restricted shares, performance units and performance shares. The maximum number of shares of the Company's common stock that may be issued pursuant to the Incentive Plan, as amended, is 2,750,000, and the maximum number of shares that may be granted to a participant in any calendar year is 250,000. Substantially all grants issued pursuant to the Incentive Plan are "restricted stock grants" which specify vesting (i) upon the third anniversary of the date of grant for time-based grants, or (ii) upon the completion of a designated period of performance for performance-based grants. Time-based grants are valued according to the market price for the Company's common stock at the date of grant. For performance-based grants, the Company engages an independent appraisal company to determine the value of the shares at the date of grant, taking into account the underlying contingency risks associated with the performance criteria. These value estimates have a direct impact on net income, because higher valuations would result in lower net income, whereas lower valuations would result in higher net income. The value of such grants is being amortized on a straight-line basis over the respective vesting periods, as adjusted for fluctuations in the market value of the Company's common stock, in accordance with the provisions of EITF No. 97-14, "Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested". Results of Operations
Differences in results of operations between 2008 and 2007, respectively, were primarily the result of the Company's property acquisition program and continuing development/redevelopment activities. During the period January 1, 2007 through September 30, 2008, the Company acquired 22 shopping and convenience centers aggregating approximately 2.1 million sq. ft. of GLA, purchased the joint venture minority interests in four properties, and acquired approximately 174 acres of land for expansion and/or future development, for a total cost of approximately $382 million. In addition, the Company placed into service one ground-up development having an aggregate cost of approximately $3.6 million. Income before minority and limited partners' interests and preferred distribution requirements was $5.8 million during the three months ended September 30, 2008 as compared with $6.4 million during the three months ended September 30, 2007. Income before minority and limited partners' interests and preferred distribution requirements was $15.5 million during the nine months ended September 30, 2008 as compared with $17.9 million during the nine months ended September 30, 2007.

Comparison of the quarter ended September 30, 2008 to the quarter ended

September 30, 2007

                                                                                                                                               Properties
                                      Three months ended Sep 30,                                  Percentage           Acquisitions             held in
                                      2008                  2007               Increase             change            and other (ii)          both periods

Total revenues                   $ 43,322,000          $ 37,845,000          $ 5,477,000                14 %          $   5,494,000           $   (17,000 )
Property operating
expenses                           11,968,000             9,645,000            2,323,000                24 %              1,864,000               459,000
Depreciation and
amortization                       11,996,000            10,140,000            1,856,000                18 %              1,777,000                79,000
General and administrative          2,654,000             1,847,000              807,000                44 %                    n/a                   n/a
Non-operating income and
expense, net (i)                   10,898,000             9,809,000            1,089,000                11 %                    n/a                   n/a

(i) Non-operating income and expense consists principally of interest expense (including amortization of deferred financing costs), and equity in income of an unconsolidated joint venture.

(ii) Includes principally the results of properties acquired after July 1, 2007. Amounts also include
(a) unallocated property and construction management compensation and benefits (including stock-based compensation), and (b) results of a property in Wyoming, Michigan that was demolished in the second quarter of 2008 as part of the redevelopment plans for the property.

Properties held in both periods. The Company held 105 properties throughout the three months ended September 30, 2008 and 2007, respectively. The comparative differences in the operating results for those properties are explained as follows:
Total revenues - Reflects decreases in straight-line rents, base rent relating to the termination of a lease in the fourth quarter of 2007, and expense recoveries. These decreases were substantially offset by scheduled increases in base rents and an increase in other income due to recovery of insurance proceeds ($305,000).
Property operating expenses - Increase due to increased real estate taxes as a result of higher assessments and higher other operating expenses (subject to partial recovery from tenants as additional rent), and a higher provision for doubtful accounts (not subject to recovery from tenants).
General and administrative expenses - Increase due primarily to higher costs in the three months ended September 30, 2008 for stock-based compensation, including mark-to-market expense on the Company's stock-based liability, professional expenses, and bank fees related to the Company's new cash management system.
Non-operating income and expense, net - Increase due primarily to increased interest costs from borrowings related to property acquisitions, partially offset by the lower cost of borrowings under the Company's credit facilities.

Comparison of the nine months ended September 30, 2008 to the nine months ended

September 30, 2007

                                                                                                                                                  Properties
                                       Nine months ended Sep 30,                                     Percentage           Acquisitions             held in
                                      2008                   2007                 Increase             change            and other (ii)          both periods

Total revenues                   $ 129,872,000          $ 110,986,000          $ 18,886,000                17 %         $   19,898,000          $ (1,012,000 )
Property operating
expenses                            36,751,000             29,612,000             7,139,000                24 %              6,154,000               985,000
Depreciation and
amortization                        37,532,000             29,921,000             7,611,000                25 %              7,999,000              (388,000 )
General and administrative           7,168,000              7,065,000               103,000                 1 %                    n/a                   n/a
Non-operating income and
expense, net (i)                    32,954,000             26,480,000             6,474,000                24 %                    n/a                   n/a

(i) Non-operating income and expense consists principally of interest expense (including amortization of deferred financing costs), and equity in income of an unconsolidated joint venture.

(ii) Includes principally the results of properties acquired after January 1, 2007. Amounts also include
(a) unallocated property and construction management compensation and benefits (including stock-based compensation), and (b) results of a property in Wyoming, Michigan that was demolished in the second quarter of 2008 as part of the redevelopment plans for the property, resulting in a one-time depreciation charge of $1.9 million.

Properties held in both periods. The Company held 96 properties throughout the nine months ended September 30, 2008 and 2007. The comparative differences in the operating results for those properties are explained as follows:
Total revenues - The decrease reflects principally reductions in revenues in conjunction with the termination of a lease in the fourth quarter of 2007, a reduction in percentage rent, and reductions due to a number of non-continuing items in the first quarter of 2007 that led to higher revenue in that period, including principally, lease terminations that increased other revenue and amortization of intangible lease liabilities. These decreases were partially offset by scheduled increases in base rents and an increase in other income due to recovery of insurance proceeds ($305,000).
Property operating expenses - Increase due to increased real estate taxes as a result of higher assessments and higher other operating expenses (subject to partial recovery from tenants as additional rent), and a higher provision for doubtful accounts (not subject to recovery from tenants).
Depreciation and amortization - Decrease due to a higher level of lease terminations by tenants in the nine months ended September 30, 2007 that accelerated depreciation and amortization of tenant improvements and deferred lease origination fees applicable to those tenants, offset by an approximate $360,000 depreciation adjustment relating to the East Lansing, Michigan property . . .