10-K 1 grt201310-k.htm FORM 10-K GRT 2013 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-12482
GLIMCHER REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland
 
31-1390518
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
180 East Broad Street
 
43215
Columbus, Ohio
 
(Zip Code)
Registrant’s telephone number, including area code: (614) 621-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
 
 
 
Common Shares of Beneficial Interest, par value $0.01 per share
 
New York Stock Exchange
8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share
 
New York Stock Exchange
7.50% Series H Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share
 
New York Stock Exchange
6.875% Series I Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No o
Indicated by check mark if the Registrant is not required to file reports pursuant to Section 12 or Section 15(d) of the Securities Exchange Act of 1934.  Yes o  No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x  No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):  Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company.) Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No x
As of February 24, 2014, there were 145,077,145 Common Shares of Beneficial Interest outstanding, par value $0.01 per share. The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing price of the Registrant's Common Shares of Beneficial Interest as quoted on the New York Stock Exchange as of June 28, 2013, was $1,556,864,913.
Documents Incorporated By Reference
Portions of the Registrant’s Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the year covered by this Form 10-K with respect to the 2014 Annual Meeting of Shareholders to be held on May 7, 2014 are incorporated by reference into Part III of this Report.

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TABLE OF CONTENTS

Item No.
 
Form 10-K
 
 
Report Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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PART 1.

Glimcher Realty Trust ("GRT" or the "Registrant"), Glimcher Properties Limited Partnership (the “Operating Partnership,” “OP” or “GPLP”) and entities in which GRT (or an affiliate) has a material ownership or financial interest, on a consolidated basis, are hereinafter referred to as the “Company,” “we,” “us,” or “our company.”

Special Note Regarding Forward Looking Statements

This Form 10-K, together with other statements and information publicly disseminated by GRT, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.  Statements that do not relate strictly to historical or current facts are forward-looking and are generally identifiable by the use of forward-looking terminology such as “may”, “will”, “should”, “potential”, “intend”, “expect”, “endeavor”, “seek”, “anticipate”, “estimate”, “overestimate”, “underestimate”, “believe”, “plans”, “could”, “project”, “predict”, “continue”, “trend”, “opportunity”, “pipeline”, “comfortable”, “current”, “position”, “assume”, “outlook”, “remain”, “maintain”, “sustain”, “achieve”, “would” or other similar words or expressions.  Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

Forward-looking statements speak only as of the date they are made and are qualified in their entirety by reference to the factors discussed throughout this annual report.  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or the occurrence of unanticipated events except as required by applicable law.  Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.  Risks and other factors that might cause differences, some of which could be material, include, but are not limited to: changes in political, economic or market conditions generally and the real estate and capital markets specifically; impact of increased competition; availability of capital and financing; tenant or joint venture partner(s) bankruptcies; failure to increase mall store occupancy and same-mall operating income; rejection of leases by tenants in bankruptcy; financing and development (including re-development) risks; construction and lease-up delays; cost overruns; the level and volatility of interest rates; the rate of revenue increases as compared to expense increases; the financial stability of tenants within the retail industry; the failure to make additional investments in regional mall properties and to redevelop properties; failure to complete proposed or anticipated acquisitions; the failure to sell properties as anticipated and to obtain estimated sale prices; the failure to upgrade our tenant mix; restrictions in current financing arrangements; inability to exercise available extension options on debt instruments; failure to comply or remain in compliance with the covenants in the Company's debt instruments, including, but not limited to, the covenants under our corporate credit facility; the failure to fully recover tenant obligations for common area maintenance (“CAM”), insurance, taxes and other property expenses; the impact of changes to tax legislation and, generally, our tax position; the failure of GRT to qualify as a real estate investment trust (“REIT”); the failure to refinance debt at favorable terms and conditions; an increase in impairment charges with respect to other properties as well as impairment charges with respect to properties for which there has been a prior impairment charge; loss of key personnel; material changes in GRT’s dividend rates on its securities or the ability to pay its dividend on its common shares or other securities; possible restrictions on our ability to operate or dispose of any partially-owned properties; failure to achieve earnings/funds from operations targets or estimates; conflicts of interest with existing joint venture partners; failure to achieve projected returns on development (including re-development) or investment properties; changes in generally accepted accounting principles or interpretations thereof; terrorist activities and international hostilities which may adversely affect the general economy, as well as domestic and global financial and capital markets, specific industries, and our properties; the unfavorable resolution of legal proceedings; the impact of future acquisitions and divestitures; significant costs related to environmental issues, bankruptcies of lending institutions within GRT’s construction loans and corporate credit facility as well as other risks listed from time to time in its press releases, and in GRT’s other reports and statements filed with the Securities and Exchange Commission (“SEC”).



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Item 1.   Business

(a)
General Development of Business

GRT is a fully-integrated, self-administered and self-managed Maryland REIT which was formed on September 1, 1993 to continue the business of The Glimcher Company 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, open-air centers, and outlet centers in which we hold an ownership position (including joint venture interests) are referred to herein as “Malls” and community shopping centers in which we hold an ownership position (including joint venture interests) are referred to herein 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” or “Common Stock”) 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, 2013, GRT held a 98.2% interest in the Operating Partnership.  GRT has completed several secondary public offerings of Common Shares since the IPO.

The Company does not engage or pay a REIT advisor.  Management, leasing, accounting, legal, design and construction supervision and 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 Malls. At December 31, 2013, we owned material interests in and managed 28 Properties (25 wholly-owned and three partially owned through joint ventures) which are located in 15 states. The Properties contain an aggregate of approximately 19.3 million square feet of gross leasable area (“GLA”) of which approximately 95.6% was occupied at December 31, 2013.

The occupied GLA was leased at 80.0%, 10.6%, and 9.4% 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, 2013, the Properties had annualized minimum rents of $241.8 million.  Approximately 75.8%, 8.1%, and 16.1% of the annualized minimum rents of the Properties as of December 31, 2013 were derived from national, regional, and local retailers, respectively.  No single tenant represented more than 2.4% of the aggregate annualized minimum rents of the Properties as of December 31, 2013.

For purposes of computing occupancy statistics, anchors are defined as occupants 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.  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 and/or the tenant is paying rent are considered occupied, excluding all tenants with leases having an initial term of less than one year.  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 building, but contributes only nominal ancillary charges are excluded from GLA.


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Malls:  The Malls provide a broad range of shopping alternatives to serve the needs of customers in all market segments.  Our Malls are in various formats such as enclosed regional malls, open-air retail centers, and outlet centers. Malls are generally anchored by multiple department stores such as Belk's, The Bon-Ton, Boscov's, Dick's Sporting Goods, Dillard's, Elder-Beerman, Herberger's, JCPenney, Kohl's, Macy's, Saks, Sears, and Von Maur.  Mall stores, most of which are national retailers, include Abercrombie & Fitch, American Eagle Outfitters, Apple, Bath & Body Works, Express, Finish Line, Foot Locker, Forever 21, H&M, Hallmark, Kay Jewelers, The Limited, lululemon athletica, Pacific Sunwear, and Victoria's Secret.  To provide a complete shopping, dining and entertainment experience, the Malls generally have at least one restaurant, a food court which offers a variety of fast food alternatives, and, in certain Malls, multiple screen movie theaters, fitness centers, and other entertainment and leisure activities.  Our largest enclosed Mall has approximately 1.4 million square feet of GLA and 171 stores, while our smallest open-air center has approximately 31,000 square feet of GLA and approximately 17 stores.  The Malls also have additional restaurants and retail businesses, such as Benihana, Bonefish Grill, Cheesecake Factory, and P.F. Chang's, located along the perimeter of the parking areas.

As of December 31, 2013, the Malls accounted for 98.3% of the total GLA, 99.0% 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.  Many of the Community Centers have retail businesses or restaurants located along the perimeter of the parking areas.

As of December 31, 2013, Community Centers accounted for 1.7% of the total GLA, 1.0% of the aggregate annualized minimum rents of the Properties, and had an overall occupancy rate of 94.5%.

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, impairment adjustments associated with depreciable real estate, real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures.  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 loss 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 GRT Board of Trustees (the "Board") determines 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, the disposition of non-strategic assets, and ground-up development in markets with high growth potential.  Our development and acquisition strategy is focused on dominant retail properties within the top 100 metropolitan markets by population that have near-term upside potential or offer advantageous opportunities for the Company.


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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, 2013, the Company had a total debt-to-total-market-capitalization ratio of 52.4% based upon the closing price of the Common Shares on the New York Stock Exchange (“NYSE”) on December 31, 2013.  This ratio does not include our pro-rata share of indebtedness related to unconsolidated joint ventures. The Company also looks at other metrics to assess overall leverage levels including debt to total asset value and total debt-to-earnings before interest, taxes, depreciation and amortization ("EBITDA") ratios.  The Company expects that it may, from time to time, re-evaluate its strategy with respect to leverage in light of the 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, 2013, 92.1% of total Company debt was fixed rate debt.  Shorter term and variable rate debt typically is employed for Properties that we expect to redevelop or expand.

Competition:  All of the Properties are located in areas that have competing 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 at 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 personnel with greater operating or development experience than that of the Company's personnel.  There are numerous shopping facilities that compete with the Company’s Properties in attracting retailers to lease space.  Additionally, retailers at the Properties may face increasing competition from on-line shopping, outlet centers, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks.

Employees:  At December 31, 2013, the Company had 981 employees, of which 306 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.  Additionally, 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, GRT must satisfy certain requirements regarding its organization, ownership and certain other conditions, such as a requirement that its shares be transferable.  Moreover, GRT must meet certain tests regarding its income and assets.  At least 75.0% of GRT’s gross income must be derived from passive income closely connected with real estate activities.  Additionally, 95.0% of GRT’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 a 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, GRT may cease to qualify as a REIT and may be subject to certain tax penalties. If GRT fails to qualify as a REIT in any taxable year, then it 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, GRT is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed income.

Intellectual Property:  GRT, by and through its affiliates, holds service marks registered with the United States Patent and Trademark Office, including the term GLIMCHER® (expiration date January 2019), certain of its Property names such as Scottsdale Quarter® (expiration date November 2019), and Polaris Fashion Place® (expiration date July 2022), as well as other marketing terms, phrases, and materials it uses to promote its business, services, and Properties.


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(c)
Available Information

GRT files this Form 10-K and other periodic reports and statements electronically with the SEC.  The SEC maintains an Internet site that contains reports, statements and proxy and information statements, and other information provided by issuers at www.sec.gov.  GRT’s reports and statements, including amendments, are also available free of charge on its website, www.glimcher.com, as soon as reasonably practicable after such documents are filed with the SEC. The information contained on our website is not incorporated by reference into this report and such information should not be considered a part of this report.

Item 1A. Risk Factors

A number of factors affect our business and the results of our operations, many of which are beyond our control.  The following is a description of the most significant factors that present a risk of adversely impacting our actual results of operations in future periods in a manner that would cause such results to differ materially from those currently expected, desired, or expressed in any forward looking statement made by us or on our behalf.

We are subject to risks inherent in owning real estate investments.

Real property investments are subject to varying degrees of risk.  Our ability to make dividend distributions, debt repayments, the amount or timing of any distribution or dividend, as well as our operating results and strategy implementation, may be adversely affected by the economic climate, business conditions, and certain local conditions including:

oversupply of space or reduced demand for rental space and newly developed properties;
the attractiveness of our properties compared to other retail space;
our ability to provide adequate maintenance to our properties; and
unanticipated fluctuations in real estate taxes, insurance, and other operating costs.

Applicable laws, including tax laws, interest rate levels and the availability of financing, may adversely affect our income and real estate values.  Additionally, real estate investments are relatively illiquid and, therefore, our ability to sell our properties, or interest in such properties, quickly may be limited.  We cannot be sure that we will be able to lease space as tenants move out or charge historically comparable rents to new tenants entering such space.

Some of our potential losses may not be covered by insurance.

We maintain appropriate property, business interruption, and third-party liability insurance on our consolidated real estate assets as well as those held in joint ventures in which we have an investment interest. Regardless of our insurance coverage, insured losses could cause a serious disruption to our business and reduce or delay our operations and receipt of revenue. In addition, certain catastrophic perils are subject to large deductibles that may cause an adverse impact on our operating results. Lastly, some types of losses, including lease and other contractual claims, are not insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital that we have invested in a property. If this happens, we may still remain obligated for any mortgage debt or other financial obligations related to the property or group of impacted properties.

Our insurance policies include coverage for acts of terrorism by foreign or domestic agents. The United States ("U.S.") government provides reinsurance coverage to insurance companies following a declared terrorism event under the Terrorism Risk Insurance Program Reauthorization Act (the “Act”) which extended the effectiveness of the Terrorism Risk Insurance Extension Act of 2005. The Act is designed to reinsure the insurance industry from declared terrorism events that cause or create in excess of $100 million in damages or losses. The U.S. government could terminate its reinsurance of terrorism, thus increasing the risk of uninsured loss by the Company for such acts.


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Some of our Properties depend on anchor stores or major tenants to attract shoppers and could be adversely affected by the closure of one or more of these tenants.

The ability of anchor tenants to attract customers to a property has a significant effect on the ability of the property to attract tenants and, consequently, on the revenue generated by the property. In recent years, the retail industry has experienced consolidation, and retailers that serve as anchor tenants have experienced or are currently experiencing operational changes and other ownership and leadership changes. The closure of an anchor store or a large number of anchor stores might have a negative effect on a property, on our portfolio, and on our results of operations. In addition, for anchors that lease their space, the loss of any rental payments from an anchor, a lease termination by an anchor for any reason, a failure by that anchor to occupy the premises, or any other cessation of operations by an anchor could result in lease terminations or reductions in rent by other tenants of the same property whose leases permit cancellation or rent reduction if an anchor's lease is terminated or the anchor otherwise ceases occupancy or operations. In that event, we might be unable to re-lease the vacated space of the anchor or in-line store in a timely manner, or at all. Additionally, the leases of some anchors might permit the anchor to transfer its lease, including any attendant approval rights, to another retailer. The transfer to a new anchor could cause customer traffic in the property to decrease or to be composed of different types of customers, which could reduce the income generated by that property and adversely impact development or re-development prospects for such property. A transfer of a lease to a new anchor also could allow other tenants to make reduced rental payments or to terminate their leases at the property, which could adversely affect our results of operations. At December 31, 2013, our three largest tenants were Limited Brands, Inc., The Gap, Inc., and Bain Capital, LLC. representing 2.4%, 2.3%, and 2.0% of our annualized minimum rents, respectively.

Our financial position, operating results, ability to make distributions and ability to finance our indebtedness may also be adversely affected by the general downturn in the business of any non-anchor tenant whose influence and impact on a property is analogous or comparable to a traditional anchor tenant. If any such tenants should request significant rent relief or other lease concessions, or elect to close locations at any of our properties before the expiration of their leases, or choose not to renew any such leases at our properties as they expire, our financial results could also be adversely impacted.

Bankruptcy of our tenants or downturns in our tenants' businesses may reduce our cash flow.

Because we derive almost all of our income from rental payments and other tenant charges, our cash available for distribution as well as our operating results would be adversely affected if a significant number of our tenants were unable to meet their obligations to us, or if we were unable to lease vacant space in our properties on economically favorable terms.  A tenant may seek the protection of the bankruptcy laws which could result in the termination of its lease causing a reduction in our cash available for distribution.  A tenant bankruptcy could also cause significant delay in re-leasing the impacted space to a new tenant. Furthermore, certain of our tenants, including anchor tenants, hold the right under their lease(s) to terminate their lease(s) or reduce their rental rate if certain occupancy conditions are not met, if certain anchor tenants close, if certain sales levels or profit margins are not achieved, or if an exclusive use provision is violated, which all could be triggered in the event of one or more tenant bankruptcies.  A significant increase in the number of tenant bankruptcies, particularly amongst anchor tenants, may make it more difficult for us to lease the remainder of the property or properties in which the bankrupt tenant operates and adversely impact our ability to successfully execute our re-leasing strategy.

Prolonged instability or volatility in the U.S. economy, on a regional or national level, may adversely impact consumer spending and therefore our operating results.

A downturn in the U.S. economy, including continued high levels of unemployment, on a regional or national level, and reduced consumer spending could impact our tenants' ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons, and therefore decrease the revenue generated by our properties or the value of our properties. Our ability to lease space, negotiate lease terms, and maintain favorable rents could also be negatively impacted by prolonged periods of high unemployment, extended instability, volatility, or weakness in consumer spending, and the overall U.S. economy.  Moreover, the demand for leasing space in our existing shopping centers as well as our development properties could also significantly decline during additional downturns in the U.S. economy which could result in a decline in our occupancy percentage and reduction in rental revenues.


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We face significant competition that may decrease the occupancy and rental rates of our properties as well as our operating results.

We compete with many commercial developers, real estate companies, and major retailers.  Some of these entities develop or own malls, open-air centers, value-oriented retail properties, and community shopping centers that compete with us for tenants.  We face competition for prime locations and for tenants on a national, regional, and local level.  New regional malls, open-air centers, or other retail shopping centers with more convenient locations or better rents may attract tenants or cause them to seek more favorable lease terms at or prior to renewal.  Retailers at our properties may face increasing competition from other retailers outside of our properties, on-line shopping, outlet centers, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks, all of which could adversely impact their profitability or desire to occupy one or more of our properties.

The failure to fully recover cost reimbursements for CAM, real estate taxes and insurance from tenants could adversely affect our operating results.

The computation of cost reimbursements from tenants for CAM, insurance and real estate taxes is complex and involves numerous judgments including interpretation of lease terms and other tenant lease provisions. Most tenants make monthly fixed payments of estimated CAM, real estate taxes, and other cost reimbursement items.  After the end of the calendar year, we compute each tenant's final cost reimbursements and issue a bill or credit for the full amount, after considering amounts paid by the tenants during the year.  The billed amounts could be disputed by the tenant(s) or become the subject of a tenant audit or even litigation.  Final adjustments for the year ended December 31, 2013 have not yet been determined.  At December 31, 2013, our recorded accounts receivable reflected $3.3 million of 2013 costs that we expect to recover from tenants during the first six months of 2014.  There can be no assurance that we will collect all or substantially all of this amount.

Other tenants have fixed annual CAM obligations, payable in equal monthly installments, based upon our estimated annual CAM expenses. Unforeseen or under-estimated expenses may cause us to collect less than our actual expenses.

The results of operations for our properties depend on the economic conditions of the regions of the U.S. in which they are located.

Our results of operations and distributions to our shareholders will generally be subject to economic conditions in the regions in which our properties are located.  For the year ended December 31, 2013, approximately 25.8% of annualized minimum rents came from our properties located in Ohio, the highest percentage in any one state.

We may be unable to successfully redevelop, develop, or operate our properties.

As a result of economic and other conditions, as well as required approvals from governmental entities, lenders, or our joint venture partners, development projects may not be pursued or may be completed later or at higher costs than anticipated.  In the event of an unsuccessful development project, our loss could exceed our investment in the project.  Development and redevelopment activities involve significant risks, including:

the expenditure of funds on and devotion of time to projects that may not come to fruition;
increased construction costs that may make the project economically unattractive;
an inability to obtain construction financing and permanent financing on favorable terms;
occupancy rates and rents not sufficient to make a project profitable; and
provisions within our corporate financing or other agreements that may prohibit or significantly limit the use of capital proceeds for development or redevelopment projects.

We may acquire or develop new properties (including outlet centers and open-air centers) and these activities are subject to various risks.

We actively pursue development and acquisition activities as opportunities arise, and these activities are subject to the following risks:

the pre-construction phase for a new project often extends over several years, and the time to obtain anchor and tenant commitments, zoning and regulatory approvals, as well as public or private financing can vary significantly from project to project;

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we may not be able to obtain the necessary zoning, governmental approvals, or anchor or tenant commitments for a project, or we may determine that the expected return on a project is not sufficient; if we abandon our development activities with respect to a particular project, we may incur a loss on our investment;
construction and other project costs may exceed our original estimates because of increases in material and labor costs, delays and costs to obtain anchor and tenant commitments;
we may not be able to obtain construction financing, or non-recourse financing of construction loans which financing may have to be recourse to GRT, GPLP, or other significant affiliates of GRT;
occupancy rates and rents, as well as occupancy costs and expenses, at a completed project or an acquired property may not meet our projections, and the costs of development activities that we explore but ultimately abandon will, to some extent, diminish the overall return on our completed development projects and perhaps our financial results; and
we may have difficulty integrating acquired operations, including restructuring and realigning activities, personnel, and technologies.

We face competition for the acquisition and development of real estate properties and other assets in the retail sector, which may impede our ability to grow our operations through acquisition and development or may increase the cost of these activities which may impact our financial results and diminish our overall investment return for such activity.

We compete with many other entities engaged in real estate investment activities for the acquisition of regional shopping malls, other retail properties, and other premier development sites, including institutional pension funds, private institutional investors, other REITs, and other private owner-operators of retail properties. In particular, larger entities may enjoy competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, and enhanced operating efficiencies. Additionally, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. These competitors may increase the market prices we would have to pay in order to acquire properties. If we are unable to acquire properties that meet our criteria at prices we deem reasonable, our ability to grow may be adversely affected, the investment return on the properties we do acquire may be diminished, and our financial results and overall enterprise value may be adversely impacted.

We could incur significant costs related to environmental issues.

Under some environmental laws, a current or previous owner or operator of real property, and parties that generate or transport hazardous substances that are disposed of on real property, may be liable for the costs of investigating and remediating these substances on or under the property.  In connection with the ownership or operation of our properties, we could be liable for such costs, which could be substantial and even exceed the value of such property or the value of our aggregate assets.  We could incur such costs or be liable for such costs during a period after we dispose of or transfer a property.  The failure to remediate toxic substances may adversely affect our ability to sell, rent, or mortgage our properties.  In addition, existing or future environmental laws or regulations may require us to expend substantial sums in order to use our properties or operate our business. Lastly, in connection with certain mortgage loans encumbering our properties, GPLP, singly, or together with certain affiliates has executed environmental indemnification agreements to indemnify the respective lender(s) for those loans against losses or costs to remediate damage to the mortgaged property caused by the presence or release of hazardous materials. The costs of investigating, perhaps litigating, or remediating these substances on or under the property in question could be substantial and even exceed the value of such property, the unpaid balance of the mortgage, or the value of our aggregate assets.

We have established a contingency reserve for one environmental matter as noted in Note 14 - "Commitments and Contingencies" of our consolidated financial statements.


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Our assets may be subject to impairment charges that may materially affect our financial results.

We evaluate our real estate assets and other assets for impairment indicators whenever events or changes in circumstances indicate that recoverability of our investment in the asset is not reasonably assured.  This evaluation is conducted periodically, but no less frequently than quarterly.  Our determination of whether a particular held-for-use asset is impaired is based upon the undiscounted projected cash flows used for the impairment analysis and our determination of the asset's estimated fair value, that in turn are based upon our plans for the respective asset and our views of market and economic conditions.  With respect to assets held-for-sale, our determination of whether such an asset is impaired is based upon market and economic conditions. If we determine that a significant impairment has occurred, then we would be required to make an adjustment to the net carrying value of the asset, which could have a material adverse effect on our results of operations in the accounting period in which the adjustment is made.  Furthermore, changes in estimated future cash flows due to a change in our plans, policies, or views of market and economic conditions could result in the recognition of additional impairment losses for already impaired assets, which, under the applicable accounting guidance, could be substantial.

Our ability to change our portfolio is limited because real estate investments are illiquid.

Equity investments in real estate are relatively illiquid and, therefore, our ability to change our portfolio promptly in response to changed or changing conditions is limited. The Board may establish investment criteria or limitations as it deems appropriate, but currently does not limit the number of Properties in which we may seek to invest or on the concentration of investments in any one geographic region. We could change our investment, disposition, and financing policies without a vote of our shareholders.

We may incur significant costs of complying with the Americans with Disabilities Act and similar laws.

We may be required to expend significant sums of money to comply with the Americans with Disabilities Act of 1990, as amended, and other federal, state, and local laws in order for our properties to meet requirements related to access and use by physically challenged persons. Additionally, unanticipated costs and expenses may be incurred in connection with defending lawsuits not covered by our liability insurance.

Our failure to qualify as a REIT would have serious adverse consequences.

GRT believes that it has qualified as a REIT under the Code since 1994, but cannot be sure that it will remain so qualified.  Qualification as a REIT involves the application of highly technical and complex Code provisions, and the determination of various factual matters and circumstances not entirely within GRT's control that may impact GRT's ability to qualify as a REIT under the Code.  In addition, GRT cannot be sure that new laws, regulations and judicial decisions will not significantly change the tax laws relating to REITs, or the federal income tax consequences of REIT qualification.

If GRT fails to qualify as a REIT, it would be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate income tax rates.  Additionally, unless entitled to relief under certain statutory provisions, GRT would also be disqualified from electing to be treated as a REIT for the four taxable years following the year during which the qualification is lost, thereby reducing net earnings available for investment or distribution to our shareholders because of the additional tax liability imposed for the year or years involved.  Lastly, GRT would no longer be required by the Code to make any dividend distributions as a condition to REIT qualification.  To the extent that dividend distributions to our shareholders may have been made in anticipation of qualifying as a REIT, we might be required to borrow funds or to liquidate certain of our investments to pay the applicable tax and as a result defer or eliminate one or more scheduled dividend payments.

Our shareholders dividends may be subject to an additional tax.

An additional tax of 3.8% generally will be imposed on the “net investment income” of U.S. stockholders who meet certain requirements and are individuals, estates or certain trusts for taxable years beginning after January 1, 2013.  Among other items, “net investment income” generally includes gross income from dividends and net gain attributable to the disposition of certain property, such as shares of our common stock.  In the case of individuals, this tax will only apply to the extent such individual’s modified adjusted gross income exceeds $200,000 ($250,000 for married couples filing a joint return and surviving spouses, and $125,000 for married individuals filing a separate return).  U.S. stockholders should consult their tax advisor's regarding the possible applicability of this additional tax in their particular circumstances.

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Our ownership interests in certain partnerships and other ventures are subject to certain tax risks.

Some of our property interests and other investments are made or held through entities in which we have an interest.  The tax risks of this type of ownership include possible challenge by the Internal Revenue Service ("IRS") of allocations of income and expense items which could affect the computation of our taxable income, a challenge to the status of any such entities as partnerships (as opposed to associations taxable as corporations) for federal income tax purposes, and the possibility of action being taken by tax regulators or the entities themselves could adversely affect GRT's qualification as a REIT, for example, by requiring the sale by such entity of a property.  We believe that the entities in which we have an interest have been and will be treated for tax purposes as partnerships (and not treated as associations taxable as corporations).  If our ownership interest in any entity taxable as a corporation exceeded 10% (in terms of vote or value) of such entity's outstanding securities (unless such entity were a “taxable REIT subsidiary,” or a “qualified REIT subsidiary,” as those terms are defined in the Code) or the value of interest in any such entity exceeded 5% of the value of our assets, then GRT would cease to qualify as a REIT; distributions from any of these entities would be treated as dividends, to the extent of earnings and profits, and we would not be able to deduct our share of losses, if any, generated by such entity in computing our taxable income.

We may not have access to other sources of funds necessary to meet our REIT distribution requirements.

In order to qualify to be taxed as a REIT, we must make annual distributions to our shareholders of at least 90% of our taxable income (determined by excluding any net capital gain).  The amount available for distribution will be affected by a number of factors, including the operation of our properties.  As part of our business and operations, we may sell additional selected non-core assets or monetize all or a portion of our investment in our other properties.  The loss of rental income associated with our properties sold will in turn affect net income and FFO.  In order to maintain REIT status, we may be required to make distributions in excess of net income and FFO.  In such a case, it may be necessary to arrange for short or long term borrowings, to sell assets, or to issue common or preferred stock or other securities in order to raise funds, which may not be possible due to unsatisfactory market conditions or other factors beyond our control.

Debt financing could adversely affect our performance.

As of December 31, 2013, we had approximately $1.8 billion of total indebtedness outstanding. A number of our outstanding loans will require lump sum or “balloon” payments for the outstanding principal balance at maturity, and we may finance future investments that may be structured in the same manner.  Our ability to repay indebtedness at maturity, or otherwise, may depend on our ability to either refinance such indebtedness or to sell certain properties.  Additionally, our ability to repay any indebtedness secured by properties the maturity of which is accelerated upon any default may adversely affect our ability to obtain debt financing for such properties or to own such properties.  If we are unable to repay any of our debt at or before maturity, then we may have to borrow from our credit facility, to the extent it has availability thereunder, to make such repayments.  In addition, a lender could foreclose on one or more of our properties to collect its debt.  This could cause us to lose part or all of our investment, which could reduce the value of the Common Shares or preferred shares and the distributions payable to our shareholders. Furthermore, we have agreements with each of our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our consolidated indebtedness, then we could also be declared in default on our derivative obligations and would be required to settle our derivative obligations under the agreements at their termination value.

Volatility, uncertainty, or instability in the credit markets could adversely affect our ability to fund our development projects or acquisitions and cause us to seek financing from alternative sources.

The state of the credit markets and requirements to obtain credit may negatively impact our ability to access capital or to finance our future expansions of existing properties as well as future acquisitions, development activities, and redevelopment projects. A prolonged downturn in the credit markets or overly stringent or restrictive requirements to obtain credit may cause us to seek alternative sources of potentially less attractive financing from non-traditional lending entities that may be subject to greater market risk and may require us to adjust our business plan(s) or financing objectives accordingly. Weakness in the credit markets may also negatively affect the credit ratings of our securities and promote a perceived decline in the value of our properties based on deteriorating general and retail economic conditions which could adversely affect the amount and type of financing available for our properties and operations as well as the terms of such financing.


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Our access to funds under our credit facility is dependent on the ability of the bank participants to meet their funding commitments.

Banks that are a party to our credit facility may have incurred substantial losses or be in danger of incurring substantial losses as a result of previous loans to other borrowers, a decline in the value of certain securities they hold, or their other business dealings and investments.  As a result, these banks may become capital constrained, more restrictive in their lending or funding standards, or become insolvent, in which case these banks might not be able to meet their funding commitments under our credit facility.

If one or more banks do not meet their funding commitments under our credit facility, then we may be unable to draw sufficient funds under our credit facility for capital to operate our business or other needs and will not be able to utilize the full capacity under the credit facility until replacement lenders are located or one or more of the remaining lenders under the credit facility agrees to fund any shortfall, both of which may be difficult.  Accordingly, for all practical purposes under such a scenario, the borrowing capacity under our credit facility may be reduced by the amount of unfunded bank commitments.  Our inability to access funds under our credit facility for these reasons could result in our deferring development and redevelopment projects or other capital expenditures, not being able to satisfy debt maturities as they become due or satisfy loan requirements to reduce the amounts outstanding under certain loans, reducing or eliminating future cash dividend payments, or other discretionary uses of cash, or modifying significant aspects of our business strategy.

Certain of our financing arrangements contain limitations on the amount of debt that we may incur.

Our existing credit facility is the most restrictive of our financing arrangements.  Accordingly, at December 31, 2013, the aggregate amount that, based upon the restrictive covenants in the credit facility, may be borrowed through financing arrangements is $197.7 million.  Additional amounts could be borrowed as long as we maintain a ratio of total debt-to-total-asset value, as defined in the credit agreement, that complies with the restrictive covenants of the credit facility.  We would also be required to maintain certain coverage covenants on a prospective basis which could impact our ability to borrow these additional amounts.  Management believes we are in compliance with all covenants under our financing arrangements at December 31, 2013.

Our ability to borrow and make distributions could be adversely affected by financial covenants.

Our mortgage indebtedness and existing credit facility impose certain financial and operating restrictions on our properties, and on additional financings on properties. These restrictions include restrictions on borrowings, prepayments, and distributions. Additionally, our existing credit facility requires certain financial tests be met, such as the total amount of recourse indebtedness which we are permitted to incur, and some of our mortgage indebtedness provides for prepayment penalties, either of which could restrict our financial flexibility. Our existing credit facility at December 31, 2013 also had payment requirements to reduce the amount that may be outstanding at any one time which could restrict our financial flexibility and liquidity. Moreover, our failure to satisfy certain financial covenants in our financing arrangements may result in a decrease in the market price of our common or preferred stock which could negatively impact our capital raising strategies.

The state of financial markets could affect our financial condition and results of operations, our ability to obtain financing, or have other adverse effects on us or the market or trading price of our outstanding securities.

Extreme volatility and instability in the U.S. and global equity and credit markets could result in significant price volatility and liquidity disruptions causing the market prices of stocks to fluctuate substantially and the credit spreads on prospective debt financings to widen considerably. These circumstances could have a significantly negative impact on liquidity in the financial markets, making terms for certain financings less attractive or unavailable to us. Prolonged uncertainty in the equity and credit markets would negatively impact our ability to access additional financing at reasonable terms or at all. With respect to debt financing, our cost of borrowing in the future could be significantly higher than recent levels. In the case of a common equity financing, the disruptions in the financial markets could have a material adverse effect on the market value of our Common Shares, potentially requiring us to issue more shares than we would otherwise have issued with a higher market value for our Common Shares. These financial market circumstances will negatively affect our ability to make acquisitions, undertake new development projects and refinance our debt. These circumstances could also make it more difficult for us to sell properties (including outparcels) and may adversely affect the price we receive for properties that we do sell, as prospective buyers are experiencing increased costs of financing and difficulties in obtaining financing. There is a risk that government responses to the disruptions in the financial markets will not restore consumer confidence, stabilize the markets or increase liquidity and the availability of equity or credit financing.


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A weakened national and regional economy can also adversely affect many of our tenants and their businesses, including their ability to pay rents when due, or pay rents that are set at levels competitive with the market. Tenants may also involuntarily terminate or stop paying on leases prior to the lease termination date due to bankruptcy. Tenants may decide not to renew leases and we may not be able to re-let the space the tenant vacates. The terms of renewals, including the cost of required improvements or concessions, may be less favorable than current lease terms. As a result, our cash flow could decrease and our ability to make distributions to our shareholders and conduct our operations could be adversely affected.

Our variable rate debt obligations may impede our operating performance and put us at a competitive disadvantage, as well as adversely affect our ability to pay distributions to you.

Required repayments of debt and related interest can adversely affect our operating performance.  As of December 31, 2013, approximately $145.9 million of our indebtedness bears interest at variable rates.  An increase in interest rates on our existing variable rate indebtedness would increase interest expense, which could adversely affect our cash flow and ability to pay distributions as well as the amount of any distributions.  For example, if market rates of interest on our variable rate debt outstanding as of December 31, 2013 increased by 100 basis points, the increase in interest expense on our existing variable rate debt would decrease future earnings and cash flows by approximately $1.1 million annually which could impact our earnings and financial results.

Our corporate structure imposes no limit on the amount of debt we may incur or authority to increase the amount of debt that we may incur.

The Board approves our material financing transactions and the amount of the indebtedness we incur in such transactions. Senior management of the Company may make revisions to our Company's financing objectives at any time without a vote of our shareholders.  Although senior management has no present intention to change these objectives, revisions could result in a more highly leveraged company with an increased risk of default on indebtedness, an increase in debt service charges, and the addition of new financial covenants that restrict our business.

We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our Common Shares as to distributions and in liquidation, which could negatively affect the value of our Common Shares.

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred shares, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive distributions of our available assets before distributions to the holders of our Common Shares. Because our decision to incur debt and issue securities in future secondary offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future secondary offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

There may be future dilution of our Common Shares and resales of our Common Shares in the public market following any secondary offering we do that may cause the market price for our Common Shares to decline.

Our Second Amended and Restated Declaration of Trust (the “Declaration of Trust”) authorizes the Board to, among other things, issue additional common or preferred shares or securities convertible or exchangeable into equity securities without shareholder approval. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional common or preferred shares or convertible securities could be substantially dilutive to our common shareholders. Moreover, to the extent that we issue restricted share units, share appreciation rights, performance shares, options, or warrants to purchase our Common Shares in the future and those share appreciation rights, options, or warrants are exercised or the restricted share units and performance shares vest, our common shareholders may experience further dilution. Holders of our Common Shares have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our common shareholders. Furthermore, the resale by shareholders of our Common Shares in the public market following any secondary offering could have the effect of depressing the market price for our Common Shares.


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The investments we have made or plan to make in redeveloping older properties and developing new properties might not yield the returns we anticipate, which could adversely impact our financial condition and operating results.
From time to time, we develop commercial real estate or redevelop existing commercial properties that we own or acquire. These projects are subject to a number of risks that could negatively affect our anticipated or projected return on investment, financial condition, and results of operations, including, among others:

delayed ability or inability to reach projected occupancy, rental rates, profitability, and investment return;
timing delays due to tenant decision delays and other factors outside our control, which might make a project less profitable or unprofitable, or delay profitability;
expenditure of money and time on projects that might be significantly delayed before stabilization;
unanticipated delays in financing relating to a particular development or redevelopment project;
new or competing developments; and
the condition of the local and regional economy in which the development or redevelopment project is located.

Some of our retail properties that we target or identify for redevelopment were constructed or last renovated more than ten years ago. Older and un-renovated properties tend to generate lower rent and might require significant expense for maintenance or renovations to maintain competitiveness, which, if incurred, could harm our results of operations. Development and redevelopment plans are subject to then-prevailing economic, capital market and retail industry conditions. For this reason, and others, we might elect not to proceed with certain development or redevelopment projects after the project is commenced. In general, when we elect not to proceed with a project, costs for such a project will be expensed in the then-current period. The accelerated recognition of these expenses could have a material adverse effect on our results of operations for the period in which the expenses are recognized.

Clauses in leases with certain tenants of our development or redevelopment properties frequently include inducements, such as reduced rent and tenant allowance payments, that can reduce our rents and funds from operations. As a result, these development or redevelopment properties are more likely to achieve lower returns during their stabilization periods than our previous development or redevelopment properties.

The leases for a number of the tenants that have opened stores at properties we have developed or redeveloped have reduced rent from co-tenancy clauses that allow those tenants to pay reduced rent until occupancy at the respective property reaches certain thresholds and/or certain named co-tenants open stores at the respective property. Additionally, some tenants may have rent abatement clauses that delay rent commencement for a prolonged period of time after initial occupancy. The effect of these clauses reduces our rents and FFO while they are applicable. We expect to continue to offer co-tenancy and rent abatement clauses in the future to attract tenants to our development and redevelopment properties. As a result, our current and future development and redevelopment properties are more likely to achieve lower returns during their stabilization periods than other projects of this nature historically have, which may adversely impact our investment in such developments, as well as our financial condition and results of operations.

The market value or trading price of our preferred and Common Shares could decrease based upon uncertainty in the marketplace and market perception.

The market price of our common and preferred shares may fluctuate widely as a result of a number of factors, many of which are outside our control or influence. In addition, the stock market is subject to fluctuations in share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations have adversely affected and may continue to adversely affect the market price of our common and preferred shares. Among the factors that could adversely affect the market price of our common and preferred shares are:

actual or anticipated quarterly fluctuations in our operating results and financial condition;
changes in our FFO, revenue, or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
negative speculation or information in the media or investment community;
any changes in our distribution or dividend policy;
any sale or disposal of properties within our portfolio;

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any future issuances of equity securities;
increases in leverage, mortgage debt financing, or outstanding borrowings;
strategic actions by our Company or our competitors, such as acquisitions, joint ventures, or restructurings;
general market conditions and, in particular, developments related to market conditions for the real estate industry;
proposed or adopted regulatory or legislative changes or developments; or
anticipated or pending investigations, proceedings, or litigation that involves or affect us.

We may change the dividend policy for our Common Shares in the future.

IRS revenue procedure allows us to satisfy our REIT distribution requirement with respect to a taxable year ending on or before December 31, 2014 by distributing up to 90% of our dividends in common shares in lieu of paying dividends entirely in cash. Although we reserve the right to utilize this procedure with respect to a taxable year ending on or before December 31, 2014, we have not done so and do not currently have any intention to do so with respect to any of our regular quarterly dividends. The issuance of common shares in lieu of paying dividends in cash could have a dilutive effect on our earnings per share and FFO per share and could result in the resale by shareholders of our Common Shares in the public market following such a distribution, which could have the effect of depressing the market price for our Common Shares.

In the event that we pay a portion of a dividend in Common Shares, taxable U.S. shareholders would be required to pay tax on the entire amount of the dividend, including the portion paid in Common Shares, in which case such shareholders might have to pay the tax using cash from other sources. If a U.S. shareholder sells the Common Shares it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our Common Shares at the time of the sale. Furthermore, with respect to non-U.S. shareholders, we may be required to withhold U.S. tax with respect to such dividend, including with respect to all or a portion of such dividend that is payable in Common Shares. In addition, if a significant number of our shareholders sell our Common Shares in order to pay taxes owed on dividends or for other purposes, such sales may put downward pressure on the market price of our Common Shares.

The decision to declare and pay dividends on our Common Shares in the future, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of the Board and will depend on: (1) our earnings, FFO, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, (2) the distribution requirement necessary for us to both maintain our REIT qualification under the Code, and avoid (and/or minimize) the income and/or excise tax liability that we would otherwise incur under the rules applicable to REITs on our taxable income and gains in the event we do not distribute, state law and (3) such other factors as the Board deems relevant. Any change to our dividend policy for our Common Shares could have a material adverse effect on the market price of our Common Shares.

Our hedging interest rate protection arrangements may not effectively limit our interest rate risk.

We manage our exposure to interest rate risk by a combination of interest rate protection agreements to effectively fix or cap a portion of our variable rate debt. Additionally, we refinance fixed rate debt at times when we believe rates and terms are appropriate. Our efforts to manage these exposures may not be successful. Our use of interest rate hedging arrangements to manage risk associated with interest rate volatility may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Additionally, pending regulatory and legislative initiatives as well as recently imposed requirements on counterparties we transact with may increase the costs and time to negotiate and execute hedging arrangements and therefore negate some or all of the benefits of such transactions. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. The unscheduled termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs.


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Our ability to operate or dispose of any partially-owned properties that we may acquire may be restricted.

Our ownership of properties through partnership or joint venture investments may involve risks not otherwise present for wholly-owned properties. These risks include the possibility that our partners or co-venturers might become bankrupt, might have economic or other business interests or goals which are inconsistent with our business interests or goals and may be in a position to take action contrary to our instructions or make requests contrary to our policies or objectives, including our policy to maintain our qualification as a REIT. We may need the consent of our partners for major decisions affecting properties that are partially-owned. Joint venture agreements may also contain provisions that could cause us to sell all or a portion of our interest in, or buy all or a portion of our partners' interests in, such entity or property. These provisions may be triggered at a time when it is not advantageous for us to either buy our partners' interests or sell our interest. Additionally, if we serve as the managing member of a property-owning joint venture, we may have certain fiduciary responsibilities to the other participants in such entity. There is no limitation under our organizational documents as to the amount of funds that may be invested in partnerships or joint ventures; however, covenants of our credit facility limit the amount of capital that we may invest in joint ventures at any one time.

Our charter, bylaws and the laws of the state of our formation contain provisions that may delay, defer or prevent a change in control or other transactions that could provide shareholders with the opportunity to realize a premium over the then-prevailing market price for our Common Shares.

In order to maintain GRT's qualification as a REIT for federal income tax purposes, not more than 50% in value of the outstanding shares of beneficial interest may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of the taxable year.  Additionally, 100 or more persons must beneficially own the outstanding shares of beneficial interest during the last 335 days of a taxable year of 12 months or during a proportionate part of a shorter tax year.

To ensure that GRT will not fail to qualify as a REIT under this test, GRT's organizational documents authorize the Board to take such action as may be required to preserve GRT's qualification as a REIT and to limit any person, other than entities or persons approved by the Board, to direct or indirect ownership exceeding a certain percentage. Despite these provisions and other safeguards existing in the Declaration of Trust, GRT cannot be sure that there will not be five or fewer individuals who will own more than 50% in value of its outstanding shares of beneficial interest, thereby causing GRT to fail to qualify as a REIT.  The ownership limits may also discourage a change in control in GRT.

The members of the Board are currently divided into three equal classes whose terms expire in 2014, 2015 and 2016, respectively. Typically, each year one class of trustees is elected by GRT's shareholders to hold office for three years.  The staggered terms for Board members may affect the ability of GRT shareholders to change control of GRT even if a change in control were in the interests of the shareholders.

GRT's Declaration of Trust authorizes the Board to establish one or more series of preferred shares, in addition to those currently outstanding, and to determine the preferences, rights and other terms of any series.  The Board could authorize GRT to issue other series of preferred shares that could deter or impede a merger, tender offer or other transaction that some, or a majority, of GRT shareholders might believe to be in their best interest or in which GRT shareholders might receive a premium for their shares over the prevailing market price of such shares.

The Declaration of Trust and our Amended and Restated Bylaws also contain other provisions that may delay or prevent a transaction or a change in control that might involve a premium price for the Common Shares or otherwise be in the best interests of GRT's shareholders. As a Maryland REIT, GRT is subject to the provisions of the Maryland REIT law which imposes restrictions on some business combinations and requires compliance with statutory procedures before some mergers and acquisitions can occur, thus delaying or preventing offers to acquire GRT or increasing the difficulty of completing an acquisition of GRT, even if the acquisition is in the best interests of GRT's shareholders.

Risks associated with information systems may interfere with our operations or ability to maintain adequate records.

We are continuing to implement new information systems and problems with the design as well as the security or implementation of these new systems could interfere with our operations or ability to maintain adequate and secure records.


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Our operations could be affected if we lose any key management personnel.

Our executive officers have substantial experience in owning, operating, managing, acquiring and developing shopping centers.  Success depends in large part upon the efforts of these executives, and we cannot guarantee that they will remain with us.  The loss of key management personnel in leasing, finance, legal, construction, development, or property management could have a negative impact on our operations. Additionally, there are generally no restrictions on the ability of these executives to compete with us after termination of their employment.

Inflation or deflation may adversely affect our financial condition and results of operations.

Increased inflation could impact our operations due to increases in construction costs as well as other costs pertinent to our business, including, but not limited to, the cost of insurance and utilities. These costs could increase at a rate higher than our rents.  Also, inflation may adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending which could impact our tenants' sales and, in turn, our percentage rents, where applicable.

Deflation can result in a decline in general price levels, often caused by a decrease in the supply of money or credit.  The predominant effects of deflation are high unemployment, credit contraction and weakened consumer demand.  Restricted lending practices could impact our ability to obtain financings or re-financings for our properties and our tenants' ability to obtain credit.  Decreases in consumer demand can have a direct impact on our tenants and the rents we receive.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

The Company’s headquarters are located at 180 East Broad Street, Columbus, Ohio 43215, and its telephone number is 614.621.9000.  In addition, the Company maintains management offices at most of its Malls.

At December 31, 2013, the Company managed and leased a total of 28 Properties in which the Company had a material ownership interest (25 wholly-owned and 3 partially owned through joint ventures).  The Properties are located in 15 states as follows:  Ohio (8), West Virginia (3), California (3), Arizona (2), Florida (2), Hawaii (1), Kansas (1), Kentucky (1), Michigan (1), Minnesota (1), New Jersey (1), Pennsylvania (1), Tennessee (1), Texas (1), and Washington (1).

(a)
Malls

Twenty-five of the Properties are Malls that range in size from 31,403 square feet of GLA to 1.4 million square feet of GLA.  Seven of the Malls are located in Ohio and 18 are located throughout the country in the states of California (3), Florida (2), West Virginia (2), Arizona (1), Hawaii (1), Kansas (1), Kentucky (1), Michigan (1), Minnesota (1), New Jersey (1), Pennsylvania (1), Tennessee (1), Texas (1), and Washington (1).  The location, general character and anchor information are set forth below.


18


Summary of Operating Malls at December 31, 2013

Property/Location
 
Anchors
GLA
 
Stores GLA(1)
 
Total
GLA
 
% of
Anchors
Occupied
(2)
 
% of
Stores
Occupied
(3)
 
Store
Sales Per
Square
Ft. (4)
 
Anchors
 
Lease
Expiration
(5)
Held for Investment - Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arbor Hills (11)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ann Arbor, MI
 

 
87,395

 
87,395

 
N/A
 
83.1

 
(13)

 
N/A
 
 
Ashland Town Center
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ashland, KY
 
226,640

 
207,840

 
434,480

 
100.0

 
98.2

 
$
404

 
Belk
Belk Home Store
JCPenney (7)
TJ Maxx
 
01/31/15
01/31/25
07/31/28
05/31/20
Colonial Park Mall
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Harrisburg, PA
 
504,446

 
234,610

 
739,056

 
100.0

 
97.9

 
$
256

 
The Bon-Ton
Boscov’s
Sears
 
01/31/15
(6)
(6)
Dayton Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Dayton, OH
 
939,906

 
496,419

 
1,436,325

 
100.0

 
96.9

 
$
316

 
Dick's Sporting
  Goods
DSW Shoe
  Warehouse
Elder-Beerman
HH Gregg
JCPenney
Macy’s
Sears
 
01/31/23

01/31/23
(6)
05/31/23
03/31/16
(6)
(6)
Eastland Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Columbus, OH
 
726,534

 
272,515

 
999,049

 
69.4

 
93.6

 
$
331

 
JCPenney (7)
Macy’s
Sears
 
01/31/18
(6)
(6)
Grand Central Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
City of Vienna, WV
 
531,788

 
316,821

 
848,609

 
100.0

 
95.0

 
$
333

 
Belk
Dunham’s Sports
Elder-Beerman (7)
JCPenney
Regal Cinemas
Sears
 
03/31/18
01/31/20
01/31/33
09/30/17
01/31/17
09/25/17
Indian Mound Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Heath, OH
 
389,589

 
167,441

 
557,030

 
79.5

 
91.2

 
$
242

 
Crown Cinema
Dick's Sporting
  Goods
Elder-Beerman
JCPenney
Sears (7)
 
12/31/14

01/31/22
01/31/19
10/31/16
09/23/27
Malibu Lumber Yard
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Malibu, CA
 

 
31,403

 
31,403

 
N/A
 
78.7

 
$
822

 
N/A
 
 
Mall at Fairfield Commons, The
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beavercreek, OH
 
768,284

 
351,498

 
1,119,782

 
100.0

 
97.1

 
$
338

 
Dick’s Sporting
  Goods
Elder-Beerman
Elder-Beerman
  For Her
JCPenney
Macy’s (7)
Sears
 

01/31/21
01/31/15

01/31/14
10/31/18
01/31/25
10/26/18

19


Property/Location
 
Anchors
GLA
 
Stores GLA(1)
 
Total
GLA
 
% of
Anchors
Occupied
(2)
 
% of
Stores
Occupied
(3)
 
Store
Sales Per
Square
Ft. (4)
 
Anchors
 
Lease
Expiration
(5)
Mall at Johnson City, The
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Johnson City, TN
 
395,834

 
175,085

 
570,919

 
100.0

 
97.8

 
$
402

 
Belk for Her
Belk Home Store
Dick’s Sporting
  Goods
Forever 21
JCPenney
Sears (7)
 
10/31/17
06/30/16

01/31/18
08/31/19
09/30/18
03/09/16
Merritt Square Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Merritt Island, FL
 
571,845

 
238,667

 
810,512

 
100.0

 
94.0

 
$
355

 
Cobb Theatres
Dillard’s
JCPenney
Macy’s
Sears
Sports Authority
 
05/31/24
(6)
07/31/20
(6)
(6)
01/31/24
Morgantown Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Morgantown, WV
 
396,361

 
159,128

 
555,489

 
100.0

 
99.5

 
$
358

 
Belk
Carmike Cinemas
Elder-Beerman
JCPenney
Sears
Timeless Traditions
 
03/15/16
10/31/25
01/31/16
09/30/15
09/30/15
08/31/17
New Towne Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
New Philadelphia, OH
 
358,050

 
153,325

 
511,375

 
100.0

 
96.9

 
$
278

 
Elder-Beerman
Elder-Beerman
  Home
JCPenney
JoAnn Fabrics
Kohl’s
Marshalls
Sears
Super Fitness
  Center
 
02/01/19

02/01/19
09/30/18
01/31/22
01/31/27
10/31/23
10/31/16

02/29/24
Northtown Mall
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Blaine, MN
 
346,669

 
243,160

 
589,829

 
100.0

 
90.5

 
$
366

 
Becker Furniture
Best Buy
Burlington Coat
  Factory
Herberger’s
LA Fitness
 
12/31/20
01/31/20

09/30/15
01/31/24
11/30/23
Outlet Collection™ | Jersey Gardens, The
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Elizabeth, NJ
 
667,056

 
640,155

 
1,307,211

 
100.0

 
99.9

 
$
788

 
Bed Bath &
  Beyond
Burlington
  Coat Factory
Century 21
Cohoes Fashions
Forever 21
Gap Outlet, The
Group USA
H&M
Last Call
Loew’s Theaters
Marshalls
Modell’s Sporting
  Goods
Nike Factory Store
Off 5th Saks Fifth
  Ave Outlet
Old Navy
Tommy Hilfiger
VF Outlet
 

01/31/15

01/31/15
01/31/15
01/31/15
01/31/21
01/31/15
12/31/18
01/31/21
11/30/14
12/31/20
01/31/15

01/31/17
01/31/16

11/22/22
05/31/15
01/31/23
08/31/15

20


Property/Location
 
Anchors
GLA
 
Stores GLA(1)
 
Total
GLA
 
% of
Anchors
Occupied
(2)
 
% of
Stores
Occupied
(3)
 
Store
Sales Per
Square
Ft. (4)
 
Anchors
 
Lease
Expiration
(5)
Outlet Collection™ | Seattle, The
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Auburn, WA
 
540,093

 
376,663

 
916,756

 
95.9

 
91.3

 
$
287

 
Bed Bath &
  Beyond
Burlington Coat
  Factory
H&M
Marshalls
Nordstrom
Sam’s Club
Sports Authority
Vision Quest
 

01/31/18

01/31/16
01/31/24
01/31/17
08/31/15
05/31/19
01/31/16
11/30/18
Pearlridge Center
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aiea, HI
 
425,097

 
716,595

 
1,141,692

 
100.0

 
93.0

 
$
507

 
DSI Renal
INspiration
Longs Drug Store
Macy’s
Pearlridge Mall
  Theaters
Sears
 
08/31/18
(6)
02/28/21
02/28/27

12/31/22
06/30/29
Polaris Fashion Place (9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Columbus, OH
 
837,239

 
600,745

 
1,437,984

 
100.0

 
99.5

 
$
515

 
Barnes & Noble
Forever 21
H&M
JCPenney
Macy’s
Saks Fifth Avenue
Sears
Von Maur
 
01/31/19
03/31/19
01/31/23
(6)
(6)
(6)
(6)
(6)
River Valley Mall
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lancaster, OH
 
236,947

 
259,131

 
496,078

 
100.0

 
93.5

 
$
335

 
Dick’s Sporting
  Goods
Elder-Beerman
JCPenney
Regal Cinemas
Sears
 
01/31/21
02/02/18
09/30/17
03/31/14
10/31/16
Scottsdale Quarter
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Scottsdale, AZ
 
147,375

 
395,969

 
543,344

 
100.0

 
90.0

 
$
841

 
H&M
iPic Theaters
Restoration
  Hardware
Starwood Hotels
 
01/31/20
12/31/25

01/31/28
02/28/27
Town Center Plaza (10)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leawood, KS
 
185,108

 
422,957

 
608,065

 
100.0

 
90.4

 
$
539

 
Barnes & Noble
Crate & Barrel
Macy's
 
07/31/16
12/31/16
(6)
University Park Village
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Worth, TX
 
25,521

 
147,837

 
173,358

 
100.0

 
100.0

 
$
821

 
Barnes & Noble (12)
 
01/31/14
Weberstown Mall
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockton, CA
 
602,817

 
252,982

 
855,799

 
100.0

 
99.5

 
$
448

 
Barnes & Noble
Dillard's
JCPenney (7)
Sears (7)
 
01/31/19
(6)
03/31/19
01/31/23

21


Property/Location
 
Anchors
GLA
 
Stores GLA(1)
 
Total
GLA
 
% of
Anchors
Occupied
(2)
 
% of
Stores
Occupied
(3)
 
Store
Sales Per
Square
Ft. (4)
 
Anchors
 
Lease
Expiration
(5)
WestShore Plaza
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tampa, FL
 
785,172

 
291,902

 
1,077,074

 
87.3

 
94.1

 
$
389

 
AMC Theatres
H&M
JC Penney
Macy's
Old Navy
Sears

 
01/31/21
01/31/23
09/30/17
(6)
01/31/16
09/30/17
Subtotal – Malls Held
for Investment –
Consolidated
 
10,608,371

 
7,240,243

 
17,848,614

 
96.0
%
 
95.1
%
 
$
472

 
 
 
 
Mall Held in Unconsolidated Joint Venture
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Puente Hills Mall (8)
 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
City of Industry, CA
 
776,082

 
331,738

 
1,107,820

 
100.0
%
 
84.6
%
 
$
292

 
24 Hour Fitness
AMC 20 Theaters
Burlington Coat
  Factory
Forever 21
H&M
Macy’s
Ross Dress for Less
Round 1
Sears
Toys "R" Us
Warehouse
  Furniture Outlet
 
01/31/19
04/30/17

10/31/23
01/31/19
01/31/23
(6)
01/31/15
08/31/20
(6)
01/31/22

04/30/15

Total Mall Portfolio
 
11,384,453

 
7,571,981

 
18,956,434

 
96.3
%
 
94.7
%
 
$
468

 
 
 
 

(1)
Includes outparcels.
(2)
Occupied space is space where a store is open and/or paying charges at the date indicated, excluding all tenants with leases having an initial term of less than one year.  The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased.  Anchor occupancy is for stores of 20,000 square feet or more.
(3)
Occupied space is space where a store is open and/or a paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year.  The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased.  Store occupancy is for stores of less than 20,000 square feet and outparcels.
(4)
Average 2013 store sales per square foot for in-line stores of less than 10,000 square feet.
(5)
Lease expiration dates do not contemplate or include options to renew unless exercised.
(6)
The land and building are owned by the anchor store or other third party.
(7)
This is a ground lease by the Company to the tenant.  The Company owns the land, but not the building.
(8)
The Operating Partnership has a joint venture investment in this Mall of 52%.  The Company provides management and leasing services and receives fees for providing these services.
(9)
Property consists of both the enclosed regional mall, Polaris Fashion Place, as well as the separate and adjacent open-air center known as Polaris Lifestyle Center.
(10)
Property consists of both Town Center Plaza and the adjacent Town Center Crossing.
(11)
The Operating Partnership has a joint venture investment in this Property of 93%.
(12)
This tenant vacated their location at the end of the lease expiration date.
(13)
Property has been open for less than twelve months, accordingly tenant sales are not available.

22


(b)
Community Centers

Three of the Properties are Community Centers ranging in size from approximately 13,000 to 231,000 square feet of GLA.  They are located in three states as follows: Arizona (1), Ohio (1), and West Virginia (1).  The location, general character and major tenant information are set forth below.

Summary of Community Centers at December 31, 2013

 
 
Property/Location
 
Anchors
GLA
 
Stores
GLA (1)
 
Total
GLA
 
% of
Anchors
Occupied (2)
 
% of
Stores
Occupied (3)
 
Anchors
 
Lease
Expiration  (4)
Morgantown Commons
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Morgantown, WV
 
200,187

 
30,656

 
230,843

 
100.0

 
71.5

 
Gabriel Brothers
Kmart
 
01/31/17
02/28/21
Ohio River Plaza
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Gallipolis, OH
 

 
87,378

 
87,378

 
N/A

 
92.0

 
N/A
 
 
Town Square at Surprise (5)
 
 

 
 

 
 

 
 

 
 

 
 
 
 
Surprise, AZ
 

 
12,771

 
12,771

 
N/A

 
81.3

 
N/A
 
 
Total
 
200,187

 
130,805

 
330,992

 
100.0
%
 
86.1
%
 
 
 
 

(1)
Includes outparcels.
(2)
Occupied space is space where a store is open and/or paying charges at the date indicated, excluding all tenants with leases having an initial term of less than one year.  The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased.  Anchor occupancy is for stores of 20,000 square feet or more.
(3)
Occupied space is space where a store is open and/or a paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year.  The occupancy percentage is calculated by dividing the occupied space into the total available space to be leased.  Store occupancy is for stores of less than 20,000 square feet and outparcels.
(4)
Lease expiration dates do not contemplate options to renew unless exercised.
(5)
The Operating Partnership has a joint venture investment in this Community Center of 50%. This property is currently classified as held-for-sale.

(c)
Lease Expiration and Rent Per Square Foot

Our lease expirations, total number of tenants whose leases will expire (shown by No. of Leases), the total area in square feet covered by such leases, the annual base rental (“Base Rent”), and the percentage of gross annual rents represented by such leases (% of Total Base Rent) for the next ten years for our total portfolio of Properties (including wholly-owned as well as material joint venture Properties) are disclosed in the chart below:

Expiration
Year
 
No. of
Leases
 
Square
Feet
 
Annual
Base Rent
 
% of Total
Base Rent
2014
 
597
 
1,731,907

 
$
35,256,294

 
14.6%
2015
 
418
 
2,105,287

 
$
31,085,448

 
12.9%
2016
 
309
 
1,750,659

 
$
27,046,594

 
11.2%
2017
 
220
 
1,649,345

 
$
22,614,287

 
9.4%
2018
 
186
 
1,535,770

 
$
23,269,043

 
9.6%
2019
 
132
 
1,147,981

 
$
18,849,381

 
7.8%
2020
 
102
 
850,758

 
$
14,967,171

 
6.2%
2021
 
96
 
913,147

 
$
20,804,948

 
8.6%
2022
 
118
 
642,048

 
$
14,437,376

 
6.0%
2023
 
132
 
1,000,181

 
$
17,585,314

 
7.3%


23


The primary reason that the near term expirations are higher than subsequent years relates to our specialty tenants. The specialty tenants have terms of thirteen to thirty-six months and represent approximately 6.9% of annualized base rent in the aggregate as of December 31, 2013. As the specialty tenants typically pay below-market rents, we feel this represents an opportunity to grow the Company's net operating income ("NOI").

The average Base Rent per square foot for tenants at December 31, 2013 for the Company’s portfolio of Properties (including both wholly-owned Properties and material joint venture Properties) is $7.70 per square foot for anchor stores and $28.69 per square foot for non-anchor stores. Average Base Rent for tenants under 10,000 square feet is $34.88 per square foot. Average Base Rent per square foot includes the contractual rental terms currently in effect at the end of the period and includes rent concessions or rent relief. The calculation excludes tenants who pay a percentage of sales in lieu of minimum rent, tenants that own their own buildings, and those on short-term rent abatements.

(d)
Significant Properties

Scottsdale Quarter in Scottsdale, Arizona and Pearlridge Center ("Pearlridge") in Aiea, Hawaii each have a net book value of more than 10% of the Company’s total assets. The Outlet Collection | Jersey Gardens and Pearlridge contribute in excess of 10% of the Company’s consolidated revenue.

(e)
Properties Subject to Indebtedness

At December 31, 2013, 20 of our material Properties, consisting of 19 Malls (17 wholly-owned and 2 partially owned through joint ventures) and one Community Center (owned through a joint venture), were encumbered by mortgage loans.

The total unconsolidated material joint venture Property included in the following table represents our proportionate ownership share of the encumbered Property. Our unencumbered Properties and developments had a net book value of $241.5 million at December 31, 2013.

24


Various Mortgage and Term Loans

The following table sets forth certain information regarding the mortgages and term loans which encumber various consolidated Properties as well as our material unconsolidated joint venture Property. All of the mortgages are first mortgage liens on the Properties. The information is as of December 31, 2013 (dollars in thousands).

Encumbered Property
 
Fixed/
Variable
Interest
Rate
 
Interest
Rate
 
Loan
Balance
 
 
 
Annual
Debt
Service
 
Balloon
Payment
 
Maturity
 
 
Mall at Fairfield Commons, The
 
Fixed
 
5.45%
 
$
94,876

 
 
 
$
7,724

 
$
92,762

 
11/01/14
 
 
The Outlet Collection | Seattle
 
Fixed
 
7.54%
 
51,611

 
 
 
$
5,412

 
$
49,969

 
02/11/15
 
(1)
Merritt Square Mall
 
Fixed
 
5.35%
 
54,359

 
 
 
$
3,820

 
$
52,914

 
09/01/15
 
 
Scottsdale Quarter Fee Interest
 
Fixed
 
4.91%
 
66,663

 
 
 
$
4,464

 
$
64,577

 
10/01/15
 
 
Pearlridge Center
 
Fixed
 
4.60%
 
174,774

 
 
 
$
10,766

 
$
169,551

 
11/01/15
 
 
River Valley Mall
 
Fixed
 
5.65%
 
46,608

 
 
 
$
3,463

 
$
44,931

 
01/11/16
 
 
Weberstown Mall
 
Fixed
 
5.90%
 
60,000

 
 
 
$
3,590

 
$
60,000

 
06/08/16
 
 
Eastland Mall
 
Fixed
 
5.87%
 
40,150

 
 
 
$
3,049

 
$
38,057

 
12/11/16
 
 
Mall at Johnson City, The
 
Fixed
 
6.76%
 
52,940

 
 
 
$
4,287

 
$
47,768

 
05/06/20
 
 
Grand Central Mall
 
Fixed
 
6.05%
 
43,141

 
 
 
$
3,255

 
$
38,307

 
07/06/20
 
 
The Outlet Collection | Jersey Gardens
 
Fixed
 
3.83%
 
350,000

 
 
 
$
13,591

 
$
350,000

 
11/01/20
 
 
Ashland Town Center
 
Fixed
 
4.90%
 
40,577

 
 
 
$
2,680

 
$
34,569

 
07/06/21
 
 
Dayton Mall
 
Fixed
 
4.57%
 
82,000

 
 
 
$
3,800

 
$
75,241

 
09/01/22
 
 
Polaris Fashion Place
 
Fixed
 
3.90%
 
225,000

 
 
 
$
8,775

 
$
203,576

 
03/01/25
 
 
Arbor Hills
 
Fixed
 
4.27%
 
25,500

 
 
 
$
1,090

 
$
20,949

 
01/01/26
 
 
Town Center Plaza
 
Fixed
 
5.00%
 
74,873

 
 
 
$
4,960

 
$
52,465

 
02/01/27
 
 
Town Center Crossing
 
Fixed
 
4.25%
 
37,305

 
 
 
$
2,243

 
$
25,820

 
02/01/27
 
 
University Park Village
 
Fixed
 
3.85%
 
55,000

 
 
 
$
2,117

 
$
45,977

 
05/01/28
 
 
Total fixed rate loans
 
 
 
 
 
1,575,377

 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Town Square at Surprise (3)
 
Variable
 
5.50%
 
1,330

 
 
 
$
134

 
$
1,268

 
12/31/14
 
(4)
Scottsdale Quarter
 
Variable
 
3.27%
 
130,000

 
 
 
$
4,310

 
$
130,000

 
05/22/15
 
 
WestShore Plaza
 
Variable
 
3.65%
 
119,600

 
 
 
$
4,306

 
$
119,600

 
10/01/15
 
(5)
Total variable rate loans
 
 
 
 
 
250,930

 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Consolidated Properties
 
 
 
 
 
$
1,826,307

 
(2)
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unconsolidated Joint Venture Property – Pro Rata Share
 
 
 
 
 
 

 
 
 
 

 
 

 
 
 
 
Puente Hills Mall
 
Fixed
 
4.50%
 
$
31,200

 
 
 
$
1,404

 
$
31,200

 
07/01/17
 
 

(1)
The loan matures in September 2029, with an optional prepayment (without penalty) date on February 11, 2015.
(2)
This total differs from the amounts reported in the financial statements due to $19,000 in tax exempt borrowings which are not secured by a mortgage and fair value adjustments to debt instruments as required by Accounting Standards Codification ("ASC") Topic 805 - "Business Combinations."
(3)
The property is listed as held-for-sale as of December 31, 2013.
(4)
The interest rate is the greater of 5.50% or LIBOR plus 4.00% per annum.
(5)
Interest rate is the greater of 3.65% or LIBOR plus 3.15% per annum. The rate has been capped at 7.15% per annum.


25


Item 3.   Legal Proceedings

The Company is involved in lawsuits, claims and proceedings which arise in the ordinary course of business.  The Company is not presently involved in any material litigation.  In accordance with ASC Topic 450 – “Contingencies,” the Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

Item 4.   Mine Safety Disclosures

None.

PART II.

Item 5.   Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

(a)
Market Information

The Common Shares are currently listed and traded on the NYSE under the symbol “GRT.”  On February 24, 2014, the last reported sales price of the Common Shares on the NYSE was $9.55.  The following table shows the high and low sales prices for the Common Shares on the NYSE for the 2013 and 2012 quarterly periods indicated as reported by the NYSE Composite Tape and the cash distributions per Common Share paid by GRT with respect to such period:

Quarter Ended
 
High
 
Low
 
Distributions
Per Share
March 31, 2013
 
$
11.70

 
$
10.73

 
$0.10
June 30, 2013
 
$
13.34

 
$
10.11

 
$0.10
September 30, 2013
 
$
12.20

 
$
9.70

 
$0.10
December 31, 2013
 
$
10.86

 
$
8.99

 
$0.10
 
 
 
 
 
 
 
March 31, 2012
 
$
10.48

 
$
8.85

 
$0.10
June 30, 2012
 
$
10.26

 
$
8.71

 
$0.10
September 30, 2012
 
$
11.29

 
$
9.65

 
$0.10
December 31, 2012
 
$
11.17

 
$
10.28

 
$0.10

For 2013 and 2012, the Common Share dividends declared in December and paid in January are reported in the 2014 and 2013 tax years, respectively.

(b)
Holders

The number of holders of record of the Common Shares was 703 as of February 24, 2014.

(c)
Distributions

Future distributions paid by GRT on the Common Shares will be at the discretion of the Board and will depend upon the actual cash flow of GRT, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board deems relevant.

GRT has implemented a Distribution Reinvestment and Share Purchase Plan under which its shareholders or Operating Partnership unit holders may elect to purchase additional Common Shares at fair value and/or automatically reinvest their distributions in Common Shares at fair value.  In order to fulfill its obligations under the plan, GRT may purchase Common Shares in the open market or issue Common Shares that have been registered and authorized specifically for the plan.  As of December 31, 2013, 2,100,000 Common Shares were authorized, of which 449,544 Common Shares have been issued.


26


Item 6.   Selected Financial Data

The following table sets forth Selected Financial Data for the Company.  This information should be read in conjunction with the consolidated financial statements of the Company and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.

 
For the Years Ended December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
Operating Data (in thousands, except per share amounts): (1)
 
 
 
 
 
 
 
 
 
Total revenues
$
381,815

 
$
325,834

 
$
267,447

 
$
267,016

 
$
301,038

Operating income
$
87,694

 
$
51,923

 
$
65,134

 
$
74,112

 
$
83,679

Interest expense
$
80,331

 
$
70,567

 
$
70,115

 
$
75,776

 
$
77,201

(Loss) income from continuing operations
$
(5,187
)
 
$
(3,632
)
 
$
(9,920
)
 
$
(443
)
 
$
4,421

Gain (loss) on disposition of properties, net
$

 
$

 
$
27,800

 
$
(215
)
 
$
(288
)
Net (loss) income attributable to Glimcher Realty Trust
$
(4,150
)
 
$
(2,081
)
 
$
19,557

 
$
5,853

 
$
4,581

Preferred stock dividends
$
24,415

 
$
24,969

 
$
24,548

 
$
22,236

 
$
17,437

Net loss to common shareholders
$
(37,991
)
 
$
(30,496
)
 
$
(4,991
)
 
$
(16,383
)
 
$
(12,856
)
Loss from continuing operations per share common (diluted)
$
(0.27
)
 
$
(0.23
)
 
$
(0.32
)
 
$
(0.23
)
 
$
(0.26
)
Net loss to common shareholders per common share (diluted)
$
(0.26
)
 
$
(0.23
)
 
$
(0.05
)
 
$
(0.22
)
 
$
(0.28
)
Distributions (per common share)
$
0.40

 
$
0.40

 
$
0.40

 
$
0.40

 
$
0.40

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data (in thousands):
 

 
 

 
 

 
 

 
 

Investment in real estate, net
$
2,454,921

 
$
2,187,028

 
$
1,754,149

 
$
1,688,199

 
$
1,669,761

Total assets
$
2,658,009

 
$
2,329,407

 
$
1,865,426

 
$
1,794,007

 
$
1,853,621

Total long-term debt
$
1,847,903

 
$
1,484,774

 
$
1,253,053

 
$
1,397,312

 
$
1,571,897

Total equity
$
651,380

 
$
711,557

 
$
543,929

 
$
331,767

 
$
207,414

 
 
 
 
 
 
 
 
 
 
Other Data:
 

 
 

 
 

 
 

 
 

Cash provided by operating activities (in thousands)
$
118,747

 
$
115,185

 
$
79,000

 
$
70,751

 
$
96,047

Cash used in investing activities (in thousands)
$
(254,146
)
 
$
(318,937
)
 
$
(162,987
)
 
$
(162,910
)
 
$
(42,651
)
Cash provided by financing activities (in thousands)
$
177,524

 
$
212,365

 
$
83,618

 
$
16,397

 
$
13,877

Funds from operations (2) (in thousands)
$
99,663

 
$
80,064

 
$
56,402

 
$
58,105

 
$
69,801

Number of Properties (3) (4)
28

 
28

 
27

 
27

 
25

Total GLA (in thousands) (3) (4)
19,287

 
21,461

 
21,502

 
21,275

 
19,863

Occupancy rate % (3)
95.6
%
 
95.2
%
 
94.8
%
 
94.6
%
 
93.3
%

(1)
Operating data for the years ended December 31, 2012, 2011, 2010 and 2009 have been reclassified to reflect Properties held-for-sale and discontinued operations as required.

27


(2)
FFO as defined by NAREIT is used by the real estate industry and investment community as a supplemental measure of the performance of real estate companies. NAREIT defines FFO as net income (loss) available to common shareholders (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, impairment adjustments associated with depreciable real estate, real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. 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 loss to common shareholders is provided in Item 7 of this Form 10-K.
(3)
Number of Properties and GLA include Properties which are both wholly-owned by the Company or by a joint venture in which the Company has a material joint venture interest.  Occupancy of the Properties is defined as any space where a store is open or a tenant is paying rent at the date.
(4)
The number of Properties owned by joint ventures in which the Company has a material interest and the GLA of those Properties included in the table are as follows: 2013 includes 1.2 million square feet of GLA (3 Properties); 2012 includes 4.6 million square feet of GLA (5 Properties); 2011 includes 5.7 million square feet of GLA (6 Properties); 2010 includes 5.7 million square feet of GLA (6 Properties); and 2009 includes 2.0 million square feet of GLA (3 Properties).

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

GRT is a fully-integrated, self-administered and self-managed REIT which commenced business operations in January 1994 at the time of its initial public offering. The “Company,” “we,” “us” and “our” are references to GRT, Glimcher Properties Limited Partnership (“GPLP” or “Operating Partnership”), as well as entities directly or indirectly owned or controlled by GRT. We own, lease, manage and develop a portfolio of retail properties (“Properties” or "Property"). The Properties consist of open-air centers, enclosed regional malls, outlet centers and community shopping centers. As of December 31, 2013, we owned material interests in and managed 28 Properties (25 wholly-owned and three partially owned through joint ventures) which are located in 15 states. The Properties contain an aggregate of approximately 19.3 million square feet of gross leasable area (“GLA”) of which approximately 95.6% was occupied at December 31, 2013.

Our primary business objective is to achieve growth in net income and funds from operations (“FFO”) by developing and acquiring retail properties, by 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;
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;
Strategic acquisitions of high quality retail properties subject to market conditions and availability of capital;
Capitalize on opportunities to raise additional capital on terms consistent with the Company’s long-term objectives as market conditions may warrant;

28


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 retail properties such as open-air centers, enclosed regional malls, and outlet centers 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 quality retail properties that provide growth potential while disposing of non-strategic assets.

Critical Accounting Policies and Estimates

General

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles (“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 of Trustees 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 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 common area maintenance ("CAM"), real estate taxes, 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.  Final billings to tenants for CAM, real estate taxes, utilities and insurance in 2012 and 2011, which were billed in 2013 and 2012, respectively, did not vary significantly as compared to the estimated receivable balances.  If management’s estimate of the percentage of recoverable expenses that can be billed to the tenants in 2013 differs from actual amounts billed by 1%, the amount of revenues recorded during 2013 would increase or decrease by approximately $1.3 million.


29


Outparcel Sales

The Company may sell 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 relative 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, acreage of the parcel as well as other factors that may differentiate the desirability of the particular section of the parcel that is sold.

Tenant Accounts Receivable and Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects the Company’s estimate of the amount 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 and adjusted 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 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 capitalizes direct and indirect costs that are clearly related to the development, construction, or improvement of Properties including internal costs such as interest, taxes and qualifying payroll related expenditures. Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use.

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 fair value estimate for 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 as required by applicable accounting standards.  Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the investment in the asset is not reasonably assured.
The Company evaluates the recoverability of its investments in real estate assets to be held and used each quarter. The evaluation considers the undiscounted projected cash flows from the use and eventual disposition of the property in relation to 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 asset(s) and the Company’s views of market and economic conditions.  The Company also conducts a detailed evaluation of each Property that has a material reduction in occupancy levels and/or net operating income performance.  The evaluations consider matters such as current and historical rental rates, occupancies for the respective Properties and comparable properties as well as recent sales data for comparable properties in comparable markets.  At the conclusion of such evaluation, if management determines that the carrying value is not recoverable, an impairment charge is indicated. The amount of the impairment charge recorded is the difference between the carrying value of the asset and the Company’s estimate of the fair market value of the asset.


30


Investment in Real Estate – Held-for-Sale

The Company evaluates the held-for-sale classification of its 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.  Management evaluates the fair value less cost to sell each quarter and records impairment charges as required.  An asset is generally classified as held-for-sale once management commits to a plan to sell its entire interest in a particular Property which results in no continuing involvement in the asset, as well as initiates an active program to market the asset for sale.  In instances where the Company may sell either a partial or entire interest in a Property, and has commenced marketing of the Property, the Company evaluates the facts and circumstances of the potential sale to determine the appropriate classification for the reporting period.  Based upon management’s evaluation, if it is expected that the sale will be for a partial interest, the asset remains classified as held for investment. If during the marketing process it is determined the asset will be sold in its entirety, the period of that determination is the period the asset would be reclassified as held-for-sale.

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 Company records sales of operating properties and outparcels using the full accrual method at closing when both of the following conditions are met: (a) the profit is determinable, meaning that, the collectability of the sales price is reasonably assured or the amount that will not be collectible can be estimated; and (b) the earnings process is virtually complete, meaning that, the seller is not obligated to perform significant activities after the sale to earn the profit.  Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods.

Accounting for Acquisitions

The value of the real estate acquired is allocated to acquired tangible assets, consisting of land, buildings and tenant improvements, and identified intangible assets and liabilities, consisting of such items as the value of above-market and below-market leases, acquired in-place leases and the value of tenant relationships, based in each case on their fair values.

The fair value of the tangible assets of an acquired property 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 fair value of an acquired property using a variety of methods to estimate the fair value 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 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 a) the contractual amounts to be paid pursuant to the in-place leases and b) 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 Company considers fixed-rate renewal options in its calculation of the fair value of below-market lease intangibles. The Company compares the contractual lease rates to the projected market lease rates and makes a determination as to whether or not to include the fixed-rate renewal option into the calculation of the fair value of below-market leases. The determination of the likelihood that a fixed-rate renewal option will be exercised is approached from both a quantitative and qualitative perspective.

From a quantitative perspective, the Company determines if the fixed-rate renewal option is economically compelling to the tenant. The Company also considers qualitative factors such as: overall tenant sales performance, the industry the tenant operates in, the tenant's commitment to the concept, and other information the Company may have knowledge of relating to the particular tenant. This quantitative and qualitative information is then used, on a case-by-case basis, to determine if the fixed-rate renewal option should be included in the fair value calculation.

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.

31


The aggregate value of other acquired intangible assets includes 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 three to ten years for equipment and fixtures.  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 tenants 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 and Advances to Unconsolidated Real Estate Entities

The Company continuously evaluates its joint venture arrangements for consolidation.  The percentage interest in the joint venture, evaluation of control and whether an entity is a variable interest entity (“VIE”) are all considered in determining if the arrangement qualifies for consolidation. We evaluate our investments in joint ventures to determine whether such entities may be a VIE, and, if a VIE, whether we are the primary beneficiary. Generally, an entity is determined to be a VIE when either (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The primary beneficiary is the entity that has both (1) the power to direct matters that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE's economic performance including, but not limited to; the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we consider the rights of other investors to participate in policy making decisions, to replace or remove the manager of the entity and to liquidate or sell the entity. The obligation to absorb losses and the right to receive benefits when a reporting entity is affiliated with a VIE must be based on ownership, contractual, and/or other pecuniary interests in that VIE.

We have determined that we are the primary beneficiary in two VIE's, and have consolidated them as disclosed in Note 12 - “Investment in Joint Ventures - Consolidated” of our consolidated financial statements.

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 the entity's net income or loss, beginning on the date of acquisition and reduced by distributions received.  The income or loss of each joint venture investor 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 joint venture 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 treats distributions from joint ventures as operating activities if they meet all three of the following conditions: the amount represents the cash effect of transactions or events; the amounts result from a company’s normal operations; and the amounts are derived from activities that enter into the determination of net income.  The Company treats distributions from joint ventures as investing activities if they relate to the following activities: lending money and collecting on loans; acquiring and selling or disposing of available-for-sale or held-to-maturity securities (trading securities are classified based on the nature and purpose for which the securities were acquired); acquiring and selling or disposing of productive assets that are expected to generate revenue over a long period of time.

In the instance where the Company receives a distribution made from a joint venture that has the characteristics of both an operating and investing activity, management identifies where the predominant source of cash was derived in order to determine its classification in the Consolidated Statement of Cash Flows.  When a distribution is made from operations, it is compared to the available retained earnings within the Property.  Cash distributed that does not exceed the retained earnings of the Property is classified in the Company’s Consolidated Statement of Cash Flows as cash received from operating activities.  Cash distributed in excess of the retained earnings of the Property is classified in the Company’s Consolidated Statement of Cash Flows as cash received from an investing activity.

32


The Company periodically reviews its investment in unconsolidated real estate entities for other than temporary declines in market value. Any decline that is not considered temporary will result in the recording of an impairment charge to the investment.

Deferred Costs

The Company capitalizes 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.

Derivative Instruments and Hedging Activities

The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future uncertain cash amounts, the value of which are determined by interest rates.  The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.  To accomplish these objectives, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy.

The Company accounts for derivative instruments and hedging activities by following ASC Topic 815 - “Derivatives and Hedging.”  The objective of the guidance is to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under this guidance; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  It also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments, and disclosures about credit risk-related contingent features in derivative instruments.

The Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative; whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  Also, derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.  Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Funds From Operations

Our consolidated financial statements have been prepared in accordance with GAAP.  We have indicated that FFO is a key measure of financial performance.  FFO is an important and widely used financial measure of operating performance in our 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 non-GAAP 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.


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FFO is defined by the National Association of Real Estate Investment Trusts, or “NAREIT,” as net income (or loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of depreciable property, impairment adjustments associated with depreciable real estate, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company's FFO may not be directly comparable to similarly titled measures reported by other real estate investment trusts. 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 our financial performance, or to cash flow from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

The following table illustrates the calculation of FFO and the reconciliation of FFO to net loss to common shareholders for the years ended December 31, 2013, 2012, and 2011 (in thousands):

 
 
For the Years Ended December 31,
 
 
2013
 
2012
 
2011
Net loss to common shareholders
 
$
(37,991
)
 
$
(30,496
)
 
$
(4,991
)
Add back (less):
 
 

 
 

 
 

Real estate depreciation and amortization
 
112,541

 
95,426

 
67,767

Impairment loss/(gain on sale of assets)
 

 
18,477

 
(27,800
)
Pro-rata share of unconsolidated entities' impairment losses
 
45,064

 
12,197

 
8,968

Share of unconsolidated entities gain on sale of assets
 
(5,565
)
 

 

Pro-rata share of unconsolidated joint venture depreciation
 
5,560

 
10,119

 
12,670

Pro-rata share of consolidated joint venture depreciation
 
(100
)
 
(37
)
 

Noncontrolling interest in operating partnership
 
(619
)
 
(554
)
 
(212
)
Gain on remeasurement of equity method investments
 
(19,227
)
 
(25,068
)
 

Funds from operations
 
$
99,663

 
$
80,064

 
$
56,402


FFO – Comparison of Years Ended December 31, 2013 to December 31, 2012

FFO increased by $19.6 million, or 24.5%, for the year ended December 31, 2013, as compared to the year ended December 31, 2012. We experienced an increase in operating income, as adjusted, for real estate depreciation and general and administrative expenses ("Property Operating Income"), as well as a reduction in the provision for doubtful accounts. Acquisitions we made during 2012 and 2013, which include Pearlridge Center ("Pearlridge"), a regional mall located in Aiea, Hawaii, of which we acquired the 80% joint venture interest from our partner in May 2012 (the "Pearlridge Acquisition"), Town Center Crossing, an open-air center located in Leawood, Kansas, that we purchased during May 2012, Malibu Lumber Yard (“Malibu”), an open-air center located in Malibu, California, that we purchased in June 2012, University Park Village ("University Park"), an open-air center located in Fort Worth, Texas, that we purchased in January 2013, WestShore Plaza ("WestShore"), an enclosed regional mall located in Tampa, Florida, of which we acquired the remaining 60% joint venture interest from our partner in June 2013 (the "WestShore Acquisition") and Arbor Hills, an open-air center in Ann Arbor, Michigan, that we purchased in December 2013 (the "Arbor Hills Acquisition"), (collectively the "Acquisitions"), contributed an additional $25.5 million in Property Operating Income when comparing the year ended December 31, 2013 to the same period ending in 2012. Also, we experienced an increase in minimum rents of $8.0 million from our comparable mall Properties. During the year ended December 31, 2012, we reduced the carrying amount of a note receivable from Tulsa Promenade REIT, LLC (“Tulsa REIT”), an affiliate of the joint venture (the "ORC Venture") that owned Tulsa Promenade (“Tulsa”), located in Tulsa, Oklahoma, by $3.3 million that was recorded as a provision for doubtful accounts after we determined that the estimated proceeds from the sale of Tulsa would not be sufficient to pay the Tulsa REIT note receivable.


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Offsetting these increases to FFO, we incurred $6.0 million more in costs associated with previously issued preferred share issuances. During the year ended December 31, 2013, we redeemed 3.6 million shares of our 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series G Preferred Shares"). In connection with this redemption, we wrote off the issuance costs and related discount of the Series G Preferred Shares, resulting in a charge of $9.4 million. During the year ended December 31, 2012, we expensed $3.4 million in previously incurred issuance costs associated with the redemption of our 8.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series F Preferred Shares") and the partial redemption of our Series G Preferred Shares. Also, we incurred $9.8 million of additional interest expense during the year ended December 31, 2013 as compared to the year ended December 31, 2012. This increase in interest expense can be primarily attributed to the Pearlridge, University Park, and WestShore acquisitions. Also contributing to the increase in interest expense, the Company incurred a $2.4 million defeasance charge associated with the payoff of a mortgage that encumbered The Outlet CollectionTM | Jersey Gardens ("Jersey Gardens"), an outlet center located in Elizabeth, New Jersey. General and administrative expenses were $4.6 million higher for the year ended December 31, 2013 as compared to the same period in 2012. The increase in general and administrative expenses can be attributed to increased costs relating to stock-based executive compensation, salaries and wages, increased travel, and information technology related expenses.

FFO – Comparison of Years Ended December 31, 2012 to December 31, 2011

FFO increased by $23.7 million, or 42.0%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011.  During the year ended December 31, 2012, we experienced a $36.0 million increase in minimum rents. This increase in minimum rents can be associated primarily with acquisition activity. During December 2011, we acquired Town Center Plaza located in Leawood, Kansas. During May 2012, we completed the Pearlridge Acquisition. Also, during May 2012, we purchased Town Center Crossing (collectively, with Town Center Plaza, referred to herein as “Town Center”). Lastly, during June 2012, we purchased Malibu. These acquisitions contributed $31.5 million in additional minimum rents. Also, Scottsdale Quarter®, located in Scottsdale, Arizona, experienced a $5.0 million increase in minimum rents which was attributable to an increase in the number of tenants open, operating, and paying rent. During the year ended December 31, 2011, we recorded a $9.0 million impairment charge associated with approximately sixty-nine acres of undeveloped land located near Cincinnati, Ohio.  We determined that it was more likely than not that the land would not be developed as previously planned and accordingly reduced the carrying value of the land to its estimated net realizable value.

Offsetting these increases to FFO, we reduced the carrying amount of a note receivable during the year ended December 31, 2012 from Tulsa REIT from the ORC Venture that owned Tulsa by $3.3 million. We recorded this amount as a provision for doubtful accounts after we determined that the estimated proceeds from the sale of Tulsa would not be sufficient to pay the Tulsa REIT note receivable. Also, during the year ended December 31, 2012, we incurred $3.2 million in discontinued development costs associated with a potential development in Panama City, Florida that we no longer intend to pursue. We also incurred $5.4 million in ground lease expense associated with Pearlridge and Malibu. General and administrative expenses were $3.4 million higher for the year ended December 31, 2012 as compared to the same period ending in 2011. This increase relates primarily to an increase in share-based executive compensation as well as an increase in professional fees. The increase in professional fees can primarily be attributed to the acquisitions of Pearlridge, Town Center Crossing and Malibu. Finally, we wrote-off $3.4 million in previously incurred issuance costs associated with the redemption of our Series F Preferred Shares and the partial redemption of our Series G Preferred Shares.

Comparable Net Operating Income (NOI)

Management considers comparable NOI to be a relevant indicator of property performance, and NOI is also used by industry analysts and investors. A core Property is considered comparable if held in each period being compared. A Property may be included whether or not it is reported in discontinued operations if it is owned by the Company during the entire reporting periods that are being compared, and when the Company files the financial reports. For the year ended December 31, 2013, there were no discontinued operations that were comparable. Any comparable property NOI reported in discontinued operations would be reflected as a separate line item within the comparable NOI reconciliation below similar to the unconsolidated joint venture NOI. NOI represents total property revenues less property operating and maintenance expenses. Accordingly, NOI excludes certain expenses included in the determination of net income such as corporate general and administrative expenses and other indirect operating expenses, interest expense, impairment charges, depreciation, and amortization expense. These items are excluded from NOI in order to provide results that are more closely related to a Property's results of operations. In addition, the Company's computation of same mall NOI excludes property straight-line adjustments of minimum rents and ground lease payments, amortization of above/below-market intangibles, termination income, and net income from outparcel sales. The Company also adjusts for other miscellaneous items in order to enhance the comparability of results from one period to another.


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Comparable NOI Growth - Years Ended December 31, 2013 to December 31, 2012

The reconciliation of the Company's NOI to GAAP operating income is provided in the table below (in thousands):

Net Operating Income Growth for Comparable Properties
(including pro-rata share of unconsolidated joint venture properties)
 
 
For the Years Ended
December 31,
 
 
2013
 
2012
Operating income
 
$
87,694

 
$
51,923

 
 
 
 
 
Depreciation and amortization
 
114,945

 
96,924

General and administrative
 
28,310

 
23,688

Proportionate share of unconsolidated joint venture comparable NOI
 
7,404

 
19,440

Non-comparable properties (1)
 
(16,209
)
 
(6,400
)
Termination and outparcel net income
 
(3,364
)
 
(1,267
)
Straight-line rents
 
(3,617
)
 
(2,802
)
Non-cash ground lease adjustments
 
5,920

 
4,131

Non-recurring, non-cash items (2)
 

 
21,799

Above/below market lese amortization
 
(6,384
)
 
(4,160
)
Fee income
 
(2,398
)
 
(4,179
)
Other (3)
 
920

 
5,015

Comparable NOI
 
$
213,221

 
$
204,112

 
 
 
 
 
Comparable NOI percentage change
 
 
 
4.5
%

(1)
Amounts include Community Centers and non-comparable mall properties.
(2)
Amounts include impairments and write-down of the Tulsa REIT note receivable.
(3)
Other adjustments include discontinued development costs, non-property income and expenses, and other non-recurring income or expenses.

The growth in NOI for the year ended December 31, 2013 primarily relates to growth in Base Rent and percentage rent due to improvements in occupancy and re-leasing spreads. These increases were partially offset by increases in operating costs at the Properties.


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Comparable NOI Growth - Years Ended December 31, 2012 to December 31, 2011

The reconciliation of the Company's NOI to GAAP operating income is provided in the table below (in thousands):

<
Net Operating Income Growth for Comparable Properties
(including pro-rata share of unconsolidated joint venture properties)
 
 
For the Years Ended
December 31,
 
 
2012
 
2011
Operating income
 
$
51,923

 
$
65,134

 
 
 
 
 
Depreciation and amortization
 
96,924

 
68,658

General and administrative
 
23,688

 
20,281

Proportionate share of unconsolidated joint venture comparable NOI
 
21,775

 
22,401

Non-comparable properties (1)
 
(31,946
)
 
(6,743
)
Termination and outparcel net income
 
(1,267
)
 
(1,664
)
Straight-line rents
 
(2,802
)
 
(3,028