UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR [ ] 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.) 150 EAST GAY STREET 43215 COLUMBUS, OHIO (Zip Code) (Address of Principal executive offices) 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 3/4% SERIES F CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICIAL NEW YORK STOCK EXCHANGE INTEREST, PAR VALUE $0.01 PER SHARE 8 1/8% SERIES G CUMULATIVE REDEEMABLE PREFERRED SHARES OF BENEFICAL NEW YORK STOCK EXCHANGE INTEREST, PAR VALUE $0.01 PER SHARE _____________________________________ Securities registered pursuant to Section 12(g) of the Act: NONE 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 [ ] 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 [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES [X] NO [ ] As of March 8, 2004, there were 35,091,075 Common Shares of Beneficial Interest outstanding, par value $0.01 per share and 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 on June 30, 2003, was $765,840,589. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2003 Glimcher Realty Trust Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to the Annual Meeting of Shareholders to be held on May 7, 2004 are incorporated by reference into Part III of this Report. 1 of 81 pages TABLE OF CONTENTS FORM 10-K REPORT ITEM NO. PAGE -------- ---- PART I 1. Business.................................................................................... 3 2. Properties.................................................................................. 6 3. Legal Proceedings........................................................................... 14 4. Submission of Matters to a Vote of Security Holders......................................... 15 PART II 5. Market for Registrant's Common Equity and Related Shareholder Matters....................... 15 6. Selected Financial Data..................................................................... 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 17 7A. Quantitative and Qualitative Disclosures About Market Risk.................................. 36 8. Financial Statements and Supplementary Data................................................. 36 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 36 9A. Controls and Procedures..................................................................... 36 PART III 10. Trustees and Executive Officers of the Registrant........................................... 37 11. Executive Compensation...................................................................... 37 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters................................................................................. 37 13. Certain Relationships and Related Transactions.............................................. 38 14. Principal Accountant Fees and Services...................................................... 38 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 38 SIGNATURES ............................................................................................ 46 2 PART I This Form 10-K, together with other statements and information publicly disseminated by Glimcher Realty Trust ("GRT"), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. 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: the effect of economic and market conditions; tenant bankruptcies; rejection of leases by tenants in bankruptcy, the failure to qualify as a REIT (as herein after defined), failure to consummate financing, including the repayment of debt; development risks, including lack of satisfactory equity and debt financing, construction and lease-up delays and cost overruns; the level and volatility of interest rates; the consummation of asset sales at acceptable prices; the financial stability of tenants within the retail industry; the rate of revenue increases versus expense increases; the failure of the closing of the sale of certain properties to take place; the failure of the Company to use sale proceeds to reduce debt, the failure to attract innovative retailers, the failure to complete planned redevelopments of properties, the failure to close outparcel sales; the failure of the Company to make additional investments in regional mall properties; and the failure to fully recover tenant obligations for common area maintenance ("CAM"), taxes and other property expenses, as well as other risks listed from time to time in this Form 10-K and in GRT's other reports filed with the Securities and Exchange Commission (the "SEC"). ITEM 1. BUSINESS (a) General Development of Business GRT is a fully-integrated, self-administered and self-managed Maryland real estate investment trust ("REIT") which was formed on September 1, 1993 to continue the business of The Glimcher Company ("TGC") and its affiliates, of owning, leasing, acquiring, developing and operating a portfolio of retail properties consisting of enclosed regional and super regional malls (the "Malls") and community shopping centers (including single tenant retail properties) (the "Community Centers"). The Malls and Community Centers are each individually referred to herein as a "Property" and the Malls and Community Centers in which GRT holds an ownership position (including joint venture interests) are collectively referred to herein as the "Properties". On January 26, 1994, GRT consummated an initial public offering (the "IPO") of 18,198,000 of its common shares of beneficial interest (the "Common Shares") including 2,373,750 over allotment option shares. The net proceeds of the IPO were used by GRT primarily to acquire (at the time of the IPO) an 86.2% interest in Glimcher Properties Limited Partnership (the "Operating Partnership" or "GPLP"), 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, 2003, GRT held a 92.2% interest in the Operating Partnership. At December 31, 2003, the Operating Partnership owned (i) a 49.0% interest in Polaris Center, LLC, a Delaware limited liability company, whose managing member, Glimcher PTC, Inc., a Delaware Corporation is a 1.0% member and (ii) a 39.29% interest in Polaris Mall, LLC, a Delaware limited liability company. On January 5, 2004, the Operating Partnership acquired the remaining joint venture interests not previously owned in Polaris Center, LLC and Polaris Mall, LLC. GRT, the Operating Partnership and entities directly or indirectly owned or controlled by GRT, on a consolidated basis, are hereinafter referred to as the "Company." The Company does not engage or pay a REIT advisor. Management, leasing, accounting, design and construction supervision expertise is provided through its own personnel, or, where appropriate, through outside professionals. (b) Narrative Description of Business GENERAL: The Company is a recognized leader in the ownership, management, acquisition and development of enclosed regional and super regional malls and community shopping centers. The Company concentrates its business on two broad types of retail properties, Malls and Community Centers. At December 31, 2003, the Properties consisted of 25 Malls containing an aggregate of 21.8 million square feet of gross leasable area ("GLA") (1.6 million square feet of GLA was owned in joint ventures) and 45 Community Centers (including four single tenant retail properties) containing an aggregate of 5.2 million square feet of GLA (443,000 square feet of GLA was owned in a joint venture). 3 For purposes of computing occupancy statistics, anchors are defined as tenants whose space is equal to or greater than 20,000 square feet of GLA. This definition is consistent with the standard definition determined by the International Council of Shopping Centers ("ICSC") as the industry standard. All tenant spaces less than 20,000 square feet and outlots are considered to be stores. The Company computes occupancy on an economic basis, which means only those spaces where the tenant is open or paying rent are considered as occupied. As of December 31, 2003, the occupancy rate for all of the Properties was 89.8% of GLA, of which 77.0%, 5.3% and 7.5% of GLA was leased 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, 2003, the Properties had annualized minimum rents of $224.0 million. Approximately 77.5%, 9.3% and 13.1% of the annualized minimum rents of the Properties as of December 31, 2003 were derived from national, regional and local retailers, respectively. There are no tenants representing more than 5.0% of the aggregate annualized minimum rents of the Properties as of December 31, 2003 (see Note 17 to the consolidated financial statements for financial information regarding the Company's segments). MALLS: The Malls provide a broad range of shopping alternatives to serve the needs of customers in all market segments. Each Mall is anchored by multiple department stores such as The Bon-Ton, Boscov's, Burdines-Macy's, Dillard's, Elder-Beerman, Foley's, JCPenney, Kaufmann's, Kohl's, Lazarus-Macy's, Lord & Taylor, Meier & Frank Co., Neiman Marcus, Nordstrom, Parisian, Proffitt's, Saks and Sears. Mall stores, most of which are national retailers, include Abercrombie & Fitch, American Eagle Outfitters, Barnes & Noble, Bath & Body Works, The Disney Store, Finish Line, Footlocker, Gap, Hallmark, Kay Jewelers, Lerner New York, The Limited, Limited Express, Old Navy, Pacific Sunwear, Radio Shack, Victoria's Secret, Waldenbooks and Zales Jewelers. To provide a complete shopping, dining and entertainment experience, the Malls generally have at least one theme restaurant, a food court which offers a variety of fast food alternatives, and, in certain of the Malls, multiple screen movie theaters and other entertainment activities. The largest operating Mall has 1.6 million square feet of GLA and approximately 140 stores, while the smallest has 226,000 square feet of GLA and approximately 30 stores. The Malls also have additional restaurants and retail businesses such as Red Lobster, Best Buy and Pier One located along the perimeter of the parking areas. As of December 31, 2003, the Malls accounted for 80.6% of the total GLA, 88.6% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 92.7%. 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, supermarkets or drug stores ("Community Anchors") which attract shoppers to each center's smaller shops. The tenants at the Company's Community Centers typically offer day-to-day necessities and value-oriented merchandise. Community Anchors include nationally recognized retailers such as JCPenney, Kmart and Wal-Mart and supermarkets such as Food Lion, Kroger and Winn-Dixie. Many of the Community Centers have retail businesses including Hobby Lobby and OfficeMax or restaurants including Applebee's, Burger King, Lone Star, McDonald's, Starbucks and Wendy's located along the perimeter of the parking areas. As of December 31, 2003, the Community Centers accounted for 19.4% of the total GLA, 11.4% of the aggregate annualized minimum rents of the Properties and had an overall occupancy rate of 77.5%. GROWTH STRATEGIES AND OPERATING POLICIES: Management of the Company believes per share growth in both net income and funds from operations ("FFO") is an important factor in enhancing shareholder value. The Company believes that the presentation of FFO provides useful information to investors regarding the Company's performance. 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, real estate investment trusts. The National Association of Real Estate Investment Trusts (`NAREIT") defines FFO as net income (loss) (computed in accordance with Generally Accepted Accounting Principles ("GAAP")), excluding gains (or losses) from sales of properties, 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 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. 4 The Company intends to operate in a manner consistent with the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), applicable to REITs and related regulations with respect to the composition of the Company's portfolio and the derivation of income unless, because of circumstances or changes in the Code (or any related regulation), the trustees of the Company determine that it is no longer in the best interests of the Company to qualify as a REIT. The Company's acquisition strategies are to selectively acquire strategically located properties in markets where management generally has extensive operating experience and/or where it can capitalize on its strong working relationships with national, regional and local retailers, to enhance such center's operating performance through a comprehensive program of leasing, merchandising, reconfiguration, proactive management, renovation and expansion. The following factors, among others, are considered by the Company in making acquisitions: (i) the geographic area and type of property; (ii) the location, construction quality, condition and design of the property; (iii) the current FFO generated by the property and the ability to increase FFO through property repositioning and proactive management of the tenant base; (iv) the potential for capital appreciation; (v) the terms of tenant leases; (vi) the existing tenant mix at the property; (vii) the potential for economic growth and the tax and regulatory environment of the communities in which the property is located; (viii) the occupancy rates and demand by tenants for properties of similar type in the vicinity; and (ix) the prospects for financing or refinancing the property. 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, 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 for 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, 2003, the Company had a total-debt-to-total-market-capitalization ratio of 55.5%, based upon the closing price of the Common Shares on the New York Stock Exchange as of December 31, 2003. The Company is working to maintain this ratio in the mid-fifty percent range by managing outstanding debt and increasing the value of its outstanding Common Shares. The Company expects that it may, from time to time, re-evaluate its policy with respect to its ratio of total-debt-to-total-market capitalization in light of then current economic conditions; relative costs of debt and equity capital; market values of its Properties; acquisition, development and expansion opportunities; and other factors, including meeting the taxable income distribution requirement for REITs under the Code in the event the Company has taxable income without receipt of cash sufficient to enable the Company to meet such distribution requirements. The Company's preference is to obtain fixed rate, long-term debt for its Properties. At December 31, 2003, 84.1% of total Company debt was fixed rate. Shorter term and variable rate debt typically is employed for Properties anticipated to be expanded or redeveloped. COMPETITION: All of the Properties are located in areas which have shopping centers and/or malls and other retail facilities. Generally, there are other retail properties within a five-mile radius of a Property. The amount of rentable retail space in the vicinity of the Company's Properties could have a material adverse effect on the amount of rent charged by the Company and on the Company's ability to rent vacant space and/or renew leases of such Properties. There are numerous commercial developers, real estate companies and major retailers that compete with the Company in seeking land for development, properties for acquisition and tenants for properties, some of which may have greater financial resources than the Company and more operating or development experience than that of the Company. There are numerous shopping facilities that compete with the Company's Properties in attracting retailers to lease space. In addition, retailers at the Properties may face increasing competition from e-commerce, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks. EMPLOYEES: At December 31, 2003, the Company and the joint ventures, in which the Company has an interest, had an aggregate of 516 employees, of which 163 were part-time. 5 TAX STATUS: The Company 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, the Company generally will not be subject to federal income tax to the extent it distributes at least 90.0% of its REIT ordinary taxable income to its shareholders. Additionally, the Company must satisfy certain requirements regarding its organization, ownership and certain other requirements, such as a requirement that its shares be transferable. Moreover, the Company must meet certain tests regarding its income and assets. At least 75.0% of the Company's gross income must be derived from passive income closely connected with real estate activities. In addition, 95.0% of the Company's gross income must be derived from these same sources, plus dividends, interest and certain capital gains. To meet the asset test, at the close of each quarter of the taxable year, at least 75.0% of the value of the total assets must be represented by real estate assets, cash and cash equivalent items (including receivables), and government securities. In addition, to qualify as a REIT, there are several rules limiting the amount and type of securities that the Company can own, including the requirement that not more than 25.0% of the value of the total assets can be represented by securities. If the Company fails to meet the requirements to qualify for REIT status, the Company may cease to qualify as a REIT and may be subject to certain penalty taxes. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. As a qualified REIT, the Company is subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income. (c) Available information The Company files this Form 10-K and other GRT reports electronically with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information provided by issuers at http://www.sec.gov. The Company's reports are also available free of charge, on its website, www.glimcher.com, as soon as reasonably practical after such reports are filed with the SEC. Information on this website is not considered part of this filing. The Company's Corporate Governance Guidelines and Code of Business Conduct and Ethics are available on the Company's website and copies of each are available in print to any shareholder who requests them. ITEM 2. PROPERTIES The Company's headquarters are located at 150 East Gay Street, Columbus, Ohio 43215, and its telephone number is (614) 621-9000. In addition, the Company maintains management offices at each of its Malls. At December 31, 2003, the Company managed and leased a total of 70 Properties, 68 of which were wholly-owned and two of which were partially owned in joint ventures, which remaining joint venture interests were acquired by the Company on January 5, 2004. The Properties are located in 22 states as follows: Ohio (17), Tennessee (7), West Virginia (7), Kentucky (6), Indiana (4), North Carolina (4), New York (3), Pennsylvania (3), Alabama (2), Florida (2), Illinois (2), South Carolina (2), Texas (2), California (1), Kansas (1), Michigan (1), Minnesota (1), Nebraska (1), New Jersey (1), Oregon (1), Virginia (1) and Washington (1). (a) Malls Twenty-five of the Properties are Malls and range in size from 226,000 square feet of GLA to 1.6 million square feet of GLA. Seven of the Malls are located in Ohio and 18 are located throughout the country in the states of Florida (2), Texas (2), West Virginia (2), Alabama (1), California (1), Kansas (1), Kentucky (1), Minnesota (1), New Jersey (1), New York (1), North Carolina (1), Oregon (1), Pennsylvania (1), Tennessee (1) and Washington (1). The location, general character and major tenant information are set forth below. 6 SUMMARY OF MALLS AT DECEMBER 31, 2003 STORE % OF % OF SALES PER LEASE ANCHORS STORES TOTAL ANCHORS STORES SQUARE EXPIRATION PROPERTY/LOCATION GLA GLA (1) GLA OCCUPIED OCCUPIED FT.(2) ANCHORS (3) ------------------------------------------------------------------------------------------------------------------------------------ COMPANY OWNED PROPERTIES: Almeda Mall, Houston, TX....................... 586,042 210,601 796,643 100.0 99.3 $261 Foley's (4) JCPenney (4) Old Navy 01/31/05 Palais Royal 12/31/09 Ross Stores 01/31/12 Ashland Town Center Ashland, KY....................... 263,794 177,824 441,618 100.0 98.1 $328 Goody's 03/31/09 JCPenney 10/31/04 Proffitt's 01/31/10 Wal-Mart 11/10/09 Colonial Park Mall Harrisburg, PA.................... 504,446 240,576 745,022 100.0 92.7 $314 The Bon-Ton 01/29/05 Boscov's (4) Sears (4) Dayton Mall, The Dayton, OH ....................... 912,578 394,587 1,307,165 100.0 88.7 $327 DSW Shoe Warehouse 07/31/10 Elder-Beerman (4) JCPenney 03/31/11 Lazarus (4) Linens'N Things 01/31/17 Old Navy 07/31/06 Sears (4) Eastland Mall ("Eastland North Carolina") Charlotte, NC..................... 725,720 338,885 1,064,605 100.0 84.7 $240 Belk (4) Dillard's (4) Ice House 07/31/05 JCPenney (4) Sears (4) Eastland Mall ("Eastland Ohio") Columbus, OH...................... 606,534 333,296 939,830 100.0 77.9 $220 JCPenney 1/31/08 Lazarus (4) Sears (4) Grand Central Mall Parkersburg/Vienna, WV............ 562,394 345,844 908,238 100.0 95.5 $286 Elder-Beerman (5) 01/31/33 Goody's 04/30/03 JCPenney 09/30/07 Proffitt's 03/31/18 Regal Cinemas 01/31/17 Sears 09/25/07 Steve & Berry's 01/31/11 Great Mall of the Great Plains, The Olathe, KS.................... 397,211 413,997 811,208 83.8 73.0 $176 Burlington Coat Factory 01/31/08 Dickinson Theatres 08/13/17 Foozles 01/31/05 Group USA 08/13/07 Jeepers! 12/31/06 Linens'N Things 01/31/08 Marshalls 01/31/13 Off 5th Saks Fifth Ave Oulet 01/24/04 VF Factory Outlet 10/31/06 7 STORE % OF % OF SALES PER LEASE ANCHORS STORES TOTAL ANCHORS STORES SQUARE EXPIRATION PROPERTY/LOCATION GLA GLA (1) GLA OCCUPIED OCCUPIED FT.(2) ANCHORS (3) ------------------------------------------------------------------------------------------------------------------------------------ Indian Mound Mall Newark/Heath, OH.................. 390,400 167,463 557,863 79.3 82.4 $272 Crown Cinema 12/31/07 Elder-Beerman 04/30/09 JCPenney 10/31/06 Lazarus 09/30/06 Sears (5) 09/23/27 Jersey Gardens Elizabeth, NJ..................... 649,465 641,549 1,291,014 100.0 89.1 $371 Bed Bath & Beyond 01/31/10 Burlington Coat Factory 01/31/10 Cohoes Fashions 01/31/05 Daffy's 01/31/10 DSW Shoe Warehouse/ Filene's Basement 10/31/11 Gap Outlet, The 01/31/05 Group USA 12/31/08 Home Living 09/30/04 Jeepers! 01/31/10 Last Call 11/30/04 Loew's Theaters 12/31/20 Marshalls 10/31/09 Nike Factory Store 01/31/06 Off 5th Saks Fifth Ave Outlet 10/31/14 Old Navy 03/31/05 Lloyd Center Portland, OR...................... 737,050 703,687 1,440,737 95.5 95.6 $346 Barnes & Noble 01/31/12 Lloyd Ctr Ice Rink (7) 01/31/11 Lloyd Mall Cinemas 01/31/12 Marshalls 01/31/14 Meier & Frank 01/31/06 Nordstrom (4) Sears (4) Toys "R" Us 1/31/05 Mall at Fairfield Commons, The 684,284 359,945 1,044,229 100.0 97.0 $337 Elder-Beerman 10/31/13 Beavercreek/Dayton, OH............ JCPenney 10/31/08 Lazarus (5) 01/31/15 Parisian 01/31/14 Sears 10/31/08 Mall at Johnson City, The Johnson City, TN.................. 334,605 200,523 535,128 100.0 94.6 $364 Goody's 05/31/06 JCPenney 03/31/05 Proffitt's for Her 10/31/12 Proffitt's for Men, Kids & Home 06/30/06 Sears 03/09/06 Montgomery Mall Montgomery, AL.................... 460,341 265,757 726,098 100.0 90.2 $185 Dillard's 01/31/06 JCPenney 04/30/05 Parisian (4) Morgantown Mall Morgantown, WV.................... 358,745 180,920 539,665 100.0 83.9 $299 Carmike Cinemas 10/31/05 Elder-Beerman 09/30/10 JCPenney 09/30/05 Proffitt's 03/15/11 Sears 09/30/05 New Towne Mall New Philadelphia, OH.............. 339,231 175,533 514,764 56.6 81.5 $244 Elder-Beerman 10/31/08 JCPenney 09/30/08 Regal Cinemas 03/31/05 Sears 10/31/08 8 STORE % OF % OF SALES PER LEASE ANCHORS STORES TOTAL ANCHORS STORES SQUARE EXPIRATION PROPERTY/LOCATION GLA GLA (1) GLA OCCUPIED OCCUPIED FT.(2) ANCHORS (3) ------------------------------------------------------------------------------------------------------------------------------------ Northtown Mall Blaine, MN...................... 465,616 350,502 816,118 67.9 89.7 $360 Best Buy 01/31/10 Kohl's 08/31/08 Mervyn's California 01/31/13 Steve & Barry's 01/31/11 Northwest Mall Houston, TX.................... 582,339 211,787 794,126 64.1 89.4 $207 Foley's (4) OfficeMax 01/31/04 Palais Royal 12/31/09 Phil's Shoes 01/31/04 River Valley Mall Lancaster, OH.................. 316,947 254,902 571,849 100.0 93.0 $260 Elder-Beerman 09/30/07 JCPenney 09/30/07 Lazarus 09/30/07 Regal Cinemas 12/31/04 Sears 10/31/09 Steve & Barry's 01/31/11 Southside Mall Oneonta, NY.................... 142,719 82,896 225,615 41.5 97.1 $295 JCPenney 07/31/06 OfficeMax 12/31/12 SuperMall of the Great Northwest Auburn, WA...................... 541,669 398,995 940,664 100.0 81.9 $235 Ann Taylor Loft 01/31/06 Bed Bath & Beyond 08/31/05 Burlington Coat Factory 08/31/05 Gart Sports 01/31/11 Marshalls 01/31/11 Nordstrom 08/31/05 Old Navy 01/31/06 Sam's Club 05/31/19 Vision Quest 11/30/18 University Mall Tampa, FL....................... 892,308 424,182 1,316,490 100.0 89.8 $305 Burdines - Macy's (4) Burlington Coat Factory (4) Cobb Theater (7) 12/31/11 Dillard's 02/01/09 JCPenney 10/31/09 Sears (4) Weberstown Mall Stockton, CA.................... 602,817 242,606 845,423 100.0 95.1 $363 Barnes & Noble 01/31/09 Dillard's (4) JCPenney 03/31/04 Sears (4) WestShore Plaza Mall Tampa, FL....................... 769,897 289,715 1,059,612 100.0 89.3% $402 AMC Theatres 01/31/21 ---------- --------- ---------- Burdines-Macy's (4) JCPenney 09/30/07 Old Navy 01/31/06 Saks Fifth Avenue 11/30/18 Sears 09/30/17 SUBTOTAL ........................ 12,827,152 7,406,572 20,233,724 ---------- --------- ---------- MALL OWNED IN A JOINT VENTURE:(6) Polaris Fashion Place Columbus, OH.................... 1,088,075 491,479 1,579,554 100.0 95.6 $353 Great Indoors, The (4) ---------- --------- ---------- JCPenney (4) Kaufmann's (4) Lazarus (4) Lord & Taylor (4) Saks Fifth Avenue (4) Sears (4) SUBTOTAL......................... 1,088,075 491,479 1,579,554 ---------- --------- ---------- TOTAL............................ 13,915,227 7,898,051 21,813,278 94.5 89.6 $305 ========== ========= ========== 9 (1) Includes outparcels. (2) Average 2003 store sales per square foot for in-line stores of less than 20,000 square feet. (3) Lease expiration dates do not consider options to renew. (4) The tenant owns the land and the building and operates under an operating agreement. (5) This is a ground lease. The Company owns the land and not the building. (6) The Operating Partnership has an investment in this Mall of 39.29%. The Company is responsible for management and leasing services and receives fees for providing these services. The Operating Partnership acquired the remaining joint venture interests not previously owned on January 5, 2004. (7) Managed by Ohio Entertainment Corporation, a wholly owned subsidiary of Glimcher Development Corporation. (b) Community Centers Forty-five of the Properties are Community Centers (including four single tenant retail properties) ranging in size from 13,000 to 443,000 square feet of GLA. They are located in 14 states as follows: Ohio (10), Tennessee (6), Kentucky (5), West Virginia (5), Indiana (4), North Carolina (3), Illinois (2), New York (2), Pennsylvania (2), South Carolina (2), Alabama (1), Michigan (1), Nebraska (1) and Virginia (1). The location, general character and major tenant information are set forth below. SUMMARY OF COMMUNITY CENTERS AT DECEMBER 31, 2003 % OF % OF ANCHORS STORES TOTAL ANCHORS STORES LEASE PROPERTY/LOCATION GLA GLA(1) GLA OCCUPIED OCCUPIED ANCHORS EXPIRATION (2) ------------------------------------------------------------------------------------------------------------------------- COMPANY OWNED PROPERTIES: Artesian Square Martinsville, IN............... 170,601 25,400 196,001 100.0 81.1 JCPenney (3) 04/30/08 Kroger 11/30/09 Wal-Mart 09/29/09 Ashland Plaza Ashland, KY.................... 90,574 42,126 132,700 0.0 55.5 N/A N/A Audubon Village Henderson, KY.................. 81,922 38,927 120,849 100.0 75.0 Wal-Mart 01/31/08 Ayden Plaza Ayden, NC...................... 21,000 11,800 32,800 100.0 84.7 Food Lion (3) 10/31/07 Bollweevil Shopping Center Enterprise, AL................. 30,625 12,800 43,425 100.0 92.2 Winn-Dixie 05/30/04 Buckhannon Plaza Tennerton, WV.................. 70,951 13,865 84,816 0.0 15.9 N/A N/A Cambridge Plaza Cambridge, OH (4).............. 79,949 15,070 95,019 0.0 100.0 N/A N/A Canal Place Plaza Rome, NY....................... N/A 32,800 32,800 N/A 75.6 N/A N/A Chillicothe Plaza Chillicothe, OH................ 89,596 7,675 97,271 100.0 100.0 Big Lots 01/31/13 Hobby Lobby 12/31/12 Clarksville Plaza Clarksville, IN................ 94,542 18,170 112,712 100.0 49.4 Hobby Lobby 11/30/13 Rhodes Furniture 01/31/05 Corry Plaza Corry, PA...................... 69,698 38,669 108,367 100.0 53.3 Dollar Zone 04/30/07 Tractor Supply 08/31/09 Cumberland Crossing Jacksboro, TN.................. 100,034 44,700 144,734 28.9 2.7 Food City 12/13/10 10 % OF % OF ANCHORS STORES TOTAL ANCHORS STORES LEASE PROPERTY/LOCATION GLA GLA(1) GLA OCCUPIED OCCUPIED ANCHORS EXPIRATION (2) --------------------------------------------------------------------------------------------------------------------------- East Pointe Plaza Columbia, SC.................... 183,340 90,868 274,208 100.0 80.7 Food Lion 11/16/10 SuperPetz (3) 03/31/06 Wal-Mart 01/31/09 Grand Union Plaza South Glens Falls, NY........... 47,797 13,487 61,284 0.0 33.4 N/A N/A Gratiot Center Saginaw, MI..................... 173,160 28,151 201,311 84.7 80.1 Kmart 11/30/13 Kroger 10/31/09 Hocking Valley Mall Lancaster, OH................... 147,817 31,670 179,487 100.0 80.4 Kmart 09/30/08 Kroger 09/30/07 Kmart Alliance, NE (5)................ 40,800 N/A 40,800 100.0 N/A Kmart 03/31/08 Knox Village Square Mount Vernon, OH................ 173,009 34,400 207,409 100.0 93.0 Big Bear 01/29/13 JCPenney 05/31/08 Kmart 11/30/17 Liberty Plaza Morristown, TN.................. 29,000 29,300 58,300 100.0 47.8 Food Lion 05/02/13 Logan Place Russellville, KY................ 89,848 24,900 114,748 100.0 100.0 Houchens 11/30/08 Wal-Mart 03/31/08 Lowe's Marion, OH...................... 72,507 N/A 72,507 100.0 N/A Lowe's (3) 07/31/13 Middletown Plaza Middletown, OH.................. 104,125 26,000 130,125 73.9 69.2 Rooms of Furniture 05/31/09 Monroe Shopping Center Madisonville, TN................ 64,746 28,450 93,196 42.0 70.1 Ingles 11/30/07 Morgantown Commons Morgantown, WV.................. 200,187 30,656 230,843 79.0 73.9 OfficeMax 08/31/11 Super Kmart 02/28/21 Morgantown Plaza Star City, WV (4)............... 74,540 28,824 103,364 0.0 75.2 N/A N/A New Boston Mall Portsmouth, OH.................. 84,180 44,550 128,730 100.0 94.6 Kmart 11/30/08 Newberry Square Shopping Center Newberry, SC.................... 104,588 22,240 126,828 37.0 63.1 Winn-Dixie 12/09/07 North Horner Shopping Center Sanford, NC..................... 22,486 17,570 40,056 0.0 88.6 N/A N/A Ohio River Plaza Gallipolis, OH.................. 105,857 43,136 148,993 41.4 92.6 Kroger 11/18/09 Pea Ridge Shopping Center Huntington, WV.................. 110,192 39,860 150,052 100.0 78.7 Kmart 10/31/04 Kroger (6) 02/28/05 Prestonsburg Village Center Prestonsburg, KY................ 134,057 41,290 175,347 100.0 85.5 Big Lots 12/31/08 Wal-Mart 09/06/05 Winn-Dixie (3) 01/30/06 11 % OF % OF ANCHORS STORES TOTAL ANCHORS STORES LEASE PROPERTY/LOCATION GLA GLA (1) GLA OCCUPIED OCCUPIED ANCHORS EXPIRATION (2) ------------------------------------------------------------------------------------------------------------------------------------ Rend Lake Shopping Center Benton, IL.................... 96,913 24,470 121,383 100.0 100.0 Big John's 10/31/04 Wal-Mart 01/31/07 Rhea County Shopping Dayton, TN.................... 71,952 40,050 112,002 100.0 63.9 Ingles 09/11/04 Wal-Mart (3) 10/08/04 Roane County Plaza Rockwood, TN.................. 124,848 35,350 160,198 25.6 34.8 Ingles (3) 02/28/10 Scott Town Plaza Bloomsburg, PA................ 47,334 30,300 77,634 0.0 89.8 N/A N/A Shady Springs Plaza Beaver, WV.................... 37,232 30,345 67,577 100.0 79.2 Kroger 09/30/08 Stewart Plaza Mansfield, OH................. N/A 15,647 15,647 N/A 100.0 N/A N/A Sycamore Square Ashland City, TN.............. 75,552 27,000 102,552 100.0 88.9 Food Lion 01/20/10 Wal-Mart 11/11/08 Twin County Plaza Galax, VA..................... 122,273 38,440 160,713 100.0 70.7 Ingles (3) 01/31/07 Magic Mart 01/31/05 Vincennes Vincennes, IN (5)............. 108,682 N/A 108,682 100.0 N/A Charter Communications 09/30/09 Kmart 06/30/04 Walgreens Louisville, KY................ 13,000 N/A 13,000 100.0 N/A Walgreens 01/31/05 Walgreens New Albany, IN................ 13,000 N/A 13,000 100.0 N/A Walgreens 09/30/04 Walnut Cove Walnut Cove, NC............... 32,000 26,450 58,450 100.0 90.9 Ingles 03/31/06 Westpark Plaza Carbondale, IL (5)............ 31,170 24,152 55,322 100.0 92.9 Kroger 03/31/08 --------- --------- --------- SUBTOTAL........................ 3,635,684 1,169,558 4,805,242 --------- --------- --------- COMMUNITY CENTER OWNED IN A JOINT VENTURE: (7) Polaris Towne Center Columbus, OH.................. 291,997 150,948 442,945 100.0 92.4 Barnes & Noble 01/31/15 --------- --------- --------- Best Buy 01/31/15 Jo-Ann etc. 01/31/10 Kroger 11/30/18 Linens `N Things 01/31/15 OfficeMax 09/30/14 Old Navy 01/31/10 T.J. Maxx 03/31/09 SUBTOTAL........................ 291,997 150,948 442,945 --------- --------- --------- TOTAL........................... 3,927,681 1,320,506 5,248,187 ========= ========= ========= (1) Includes outparcels. (2) Lease expiration dates do not consider options to renew. (3) Tenant vacated the store but continues to pay rent through lease expiration. (4) Property was held for sale as of December 31, 2003. (5) The Company leases the land from a third party for this Community Center. (6) Kroger sublet the store to The Great Outdoors Marine and Sportshop, Inc. (7) The Operating Partnership has a 50.0% ownership interest in this Community Center. The Company, as the joint venture's managing general partner, and GDC are responsible for management and leasing services, respectively, and receive fees for 12 providing these services. The Operating Partnership acquired the remaining joint venture interests not previously owned by it on January 5, 2004. Three of the Community Centers are subject to long-term ground leases where a third party owns the underlying land and has leased the land to the Company. The expiration dates of the ground leases (assuming the exercise by the Company of all of its options to extend the terms of such leases) range from 2004 to 2032. The Company pays rent, ranging from $14,000 to $28,000 per annum, for the use of the land and generally is responsible for the costs and expenses associated with maintaining the building and improvements thereon. In addition, some of the ground leases provide for sharing of the percentage rents collected, if any. At the end of the lease term, unless extended at the Company's option, the land, together with all improvements thereon, will revert to the land owner without compensation to the lessee. (c) Properties Subject to Indebtedness At December 31, 2003, all of the Malls and 18 of the Community Centers owned 100.0% by the Company were encumbered by mortgages and 26 Community Centers were unencumbered. One Mall and one Community Center owned by joint ventures were also encumbered by mortgages. The 26 unencumbered Properties had a net book value of $71.2 million at December 31, 2003. To facilitate the funding of working capital requirements and to finance the acquisition and development of the Properties, the Company has entered into a revolving line of credit with several financial institutions which is secured by mortgage liens on three Malls and eleven Community Centers. The Credit Facility On October 17, 2003, the Company replaced its existing line of credit that was scheduled to mature on January 31, 2004, with a new $150 million three-year secured bank credit facility maturing on October 16, 2006 (the "Credit Facility"). The new Credit Facility is collateralized with first mortgage liens on three Malls and eleven Community Centers with a net book value of $136.4 million at December 31, 2003. The interest rate on the new Credit Facility ranges from LIBOR plus 1.15% per annum, to LIBOR plus 1.70% per annum, depending on the Company's ratio of debt to asset value. The Credit Facility currently bears interest at a rate of LIBOR plus 1.50% per annum. During 2003, the weighted average interest rate was 6.45% per annum, after giving effect to the swap agreement. At December 31, 2003, the outstanding balance on the Credit Facility was $80.8 million. The Credit Facility contains customary covenants, representations, warranties and events of default, including maintenance of a specified minimum net worth requirement, loan to value ratios, project costs to asset value ratios, total debt to asset value ratios and EBITDA to total debt service, restrictions on the incurrence of additional indebtedness and approval of anchor leases with respect to the Properties which secure the Credit Facility. 13 Various Mortgage Loans The following table sets forth certain information regarding the mortgages which encumber various properties, including those properties owned as of December 31, 2003 by joint ventures in which the Company has less than a 100.0% interest. All of the mortgages are secured by first mortgage liens on the Properties. The information is as of December 31, 2003 (dollars in thousands). AT DECEMBER 31, 2003 -------------------- FIXED/ VARIABLE INTEREST LOAN ANNUAL DEBT BALLOON ENCUMBERED PROPERTY INTEREST RATE RATE BALANCE SERVICE (1) PAYMENT MATURITY EXTENSION ----------------------------------- --------------- -------- ---------- ----------- --------- ---------- ------------ WHOLLY OWNED PROPERTIES: $36.4 million San Mall note Fixed 8.35% $ 34,402 $ 3,322 $ 32,623 10/11/2007 Almeda Mall Northwest Mall $58.4 million Morgantown note Fixed 6.89% 55,005 $ 4,607 $ 50,823 9/11/2008 Morgantown Mall Morgantown Commons Ashland Town Center Fixed 7.25% 26,196 $ 2,342 $ 21,817 11/1/2011 Colonial Park Mall Fixed 7.73% 33,899 $ 3,089 $ 32,033 10/11/2007 Dayton Mall, The Fixed 8.27% 58,171 $ 5,555 $ 49,824 7/11/2012 Eastland Mall (North Carolina) Fixed 7.84% 45,974 $ 4,307 $ 42,323 9/11/2008 Grand Central Mall Fixed 7.18% 49,921 $ 4,268 $ 46,065 2/1/2009 Hocking Valley Mall Fixed 6.78% 4,162 $ 479 $ 3,490 2/1/2007 Jersey Gardens Fixed 5.44% 163,141 $ 9,377 $ 162,986 6/9/2004 three 1-year Knox Village Square Fixed 7.41% 9,062 $ 773 $ 8,624 2/11/2008 Lloyd Center Fixed 5.42% 139,120 $ 9,455 $ 116,922 6/11/2013 Mall at Fairfield Commons, The Fixed 5.45% 113,874 $ 7,724 $ 92,762 11/1/2014 Mall at Johnson City, The Fixed 8.37% 39,957 $ 3,738 $ 36,981 6/1/2010 Montgomery Mall Fixed 6.79% 44,909 $ 3,732 $ 43,843 8/1/2005 Shady Springs Fixed 7.49% 2,925 $ 250 $ 2,814 7/11/2007 SuperMall of the Great Northwest Fixed 7.54% 61,804 $ 5,410 $ 49,969 2/11/2015 University Mall Fixed 7.09% 66,158 $ 5,841 $ 52,524 1/11/2013 Weberstown Mall Fixed 7.43% 19,617 $ 1,708 $ 19,033 5/1/2006 Westpark Plaza Fixed 7.49% 2,487 $ 213 $ 2,245 8/11/2011 WestShore Plaza Fixed 5.09% 99,658 $ 6,508 $ 84,824 9/9/2012 ---------- Total fixed rate notes 1,070,442 ---------- Artesian Square Variable 3.09% 5,000 $ 153 $ 5,000 3/1/2005 one 1-year East Pointe Plaza Variable 3.69% 8,178 $ 534 $ 7,825 8/1/2005 Eastland Mall (Ohio) Variable 3.15% 24,000 $ 766 $ 24,000 1/1/2007 Great Mall of the Great Plains, The Variable 6.72% 42,000 $ 2,862 $ 42,000 7/9/2004 River Valley Mall Variable 5.00% 38,000 $ 1,926 $ 38,000 12/31/2004 Southside Mall Variable 3.12% 7,638 $ 242 $ 7,638 5/1/2004 two 1-year ---------- Total variable rate notes 124,816 ---------- TOTAL WHOLLY OWNED PROPERTIES $1,195,258(2) ========== JOINT VENTURE PROPERTIES: (3) (Pro rata share) Polaris Fashion Place Fixed 5.24% $ 58,420 $ 3,901 $ 48,808 5/11/2013 Polaris Towne Center Fixed 8.20% 20,889 $ 1,929 $ 19,272 6/1/2010 ---------- TOTAL JOINT VENTURE PROPERTIES $ 79,309 ========== (1) Annual debt service for variable rate notes is calculated based on the interest rate at December 31, 2003. (2) This total differs from the amounts reported in the financial statements due to $19.0 million in tax exempt borrowings which are not secured by a mortgage. (3) The Operating Partnership acquired the remaining joint venture interests not previously owned on January 5, 2004. 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 Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for 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. 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of fiscal year 2003. 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 New York Stock Exchange ("NYSE") under the symbol "GRT." On March 8, 2004, the last reported sales price of the Common Shares on the NYSE was $27.09. The following table shows the high and low sales prices for the Common Shares on the NYSE for the 2003 and 2002 quarterly periods indicated as reported by the New York Stock Exchange Composite Tape and the cash distributions per Common Share paid by GRT with respect to each of such periods. DISTRIBUTIONS QUARTER ENDED HIGH LOW PER SHARE ------------------ ------ ------ ------------- March 31, 2002 $19.06 $17.37 $0.4808 June 30, 2002 $20.34 $17.82 $0.4808 September 30, 2002 $19.10 $15.72 $0.4808 December 31, 2002 $18.55 $15.83 $0.4808 March 31, 2003 $20.20 $17.09 $0.4808 June 30, 2003 $23.37 $19.69 $0.4808 September 30, 2003 $23.44 $19.90 $0.4808 December 31, 2003 $23.51 $20.64 $0.4808 (b) Holders The number of holders of record of the Common Shares was 1,041 as of March 8, 2004. (c) Distributions Future distributions paid by GRT on the Common Shares will be at the discretion of the trustees of GRT 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 trustees of GRT deem 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, 2003, 2,100,000 Common Shares were authorized, of which 204,585 Common Shares have been issued. 15 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. SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------ 2003 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ---------- OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): (1) Total revenues........................................... $ 316,877 $ 267,959 $ 248,266 $ 207,711 $ 188,743 Operating income......................................... $ 106,599 $ 99,181 $ 91,057 $ 92,668 $ 86,554 Interest expense......................................... $ 81,355 $ 86,161 $ 85,760 $ 81,668 $ 61,292 Equity in income (loss) of unconsolidated entities....... $ 2,143 $ 3,079 $ 2,040 $ 3,607 $ (4,570) Interest income.......................................... $ 209 $ 634 $ 1,187 $ 2,341 $ 1,530 Gain (loss) gain on sales of properties.................. $ 2,156 - $ (610) $ 4,358 $ (12) Minority interest in operating partnership............... $ 842 $ 2,334 $ 3,519 $ 2,365 $ 2,316 Income from continuing operations........................ $ 26,754 $ 14,399 $ 5,005 $ 15,026 $ 22,111 Income from continuing operations per share common (diluted) ............................................. $ 0.42 $ 0.14 $ 0.47 $ 0.56 $ 0.82 Net income............................................... $ 23,822 $ 36,254 $ 24,700 $ 40,950 $ 41,128 Preferred stock dividends................................ $ 13,688 $ 11,833 $ 15,777 $ 22,469 $ 21,620 Net income available to common shareholders.............. $ 10,134 $ 24,421 $ 31,363 $ 18,481 $ 19,508 Per common share data: Earnings per share (diluted)...... $ 0.29 $ 0.75 $ 1.12 $ 0.78 $ 0.82 Distributions............................................ $ 1.9232 $ 1.9232 $ 1.9232 $ 1.9232 $ 1.9232 BALANCE SHEET DATA (IN THOUSANDS): Net property and equipment............................... $1,699,007 $1,470,083 $1,549,681 $1,358,006 $1,374,965 Investment in unconsolidated real estate entities........ $ 8,827 $ 23,047 $ 48,001 $ 137,691 $ 121,777 Total assets............................................. $1,837,423 $1,632,433 $1,758,519 $1,589,545 $1,585,608 Total long term debt .................................... $1,295,058 $1,095,930 $1,246,741 $1,069,466 $1,032,229 Redeemable preferred shares.............................. $ 127,950 $ 90,000 $ 90,000 Total shareholders' equity............................... $ 441,939 $ 426,492 $ 396,525 $ 339,947 $ 365,660 OTHER DATA: Cash provided by operating activities (in thousands)..... $ 100,597 $ 67,600 $ 101,665 $ 75,168 $ 97,120 Cash (used in) provided by investing activities (in thousands)......................................... $ (200,229) $ 175,697 $ (57,882) $ 3,125 $ (12,621) Cash provided by (used in) financing activities (in thousands)......................................... $ 99,363 $ (240,697) $ (40,488) $ (81,918) $ (84,409) Funds from operations (2) (in thousands)................. $ 81,357 $ 77,728 $ 102,258 $ 76,910 $ 70,720 Number of properties (3) (4) ............................ 70 73 102 111 126 Total GLA (in thousands) (3) (4) ........................ 27,061 25,716 31,121 30,518 31,883 Occupancy rate % (3) (4)................................. 89.6% 8.9% 91.7% 93.6% 94.5% (1) Operating data for the years ended December 31, 2002, 2001, 2000 and 1999 are restated to reflect the impact of Statements of Financial Accounting Standards ("SFAS") No. 144. (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) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties, 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 the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP), as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make cash distributions. A reconciliation of FFO to net income available to common shareholders is provided in Item 7. (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 joint venture interest. The joint venture interests which are included range from 20 - 50 %. Occupancy of the Properties is defined as any space where a tenant is open and/or paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year. (4) The number of Properties owned by joint ventures in which Company has an interest and the GLA of those Properties included in the table are as follows: 2003 includes 2.0 million square feet of GLA (2 Properties), 2002 includes 3.8 million square feet of GLA (4 Properties), 2001 includes 7.6 million square feet of GLA (8 Properties), 2000 includes 8.2 million square feet of GLA (9 Properties) and 1999 includes 8.6 million square feet of GLA (10 Properties). 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Glimcher Realty Trust is a self-administered and self-managed Maryland real estate investment trust, or REIT, which commenced business operations in January 1994 at the time of its initial public offering. We own, lease, manage and develop a portfolio of retail properties consisting of enclosed regional and super regional malls and community shopping centers. As of December 31, 2003, we owned interests in and managed 70 properties, consisting of 25 Mall Properties and 45 Community Centers (including four single tenant retail properties) located in 22 states. The Properties contain an aggregate of approximately 27.1 million square feet of GLA of which approximately 89.8% was occupied at December 31, 2003. Our primary business objective is to achieve growth in net income and funds from operations, or 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 - Utilize our team-oriented management approach to increase productivity and efficiency - Acquire strategically located malls - Hold Properties for long-term investment and emphasize regular maintenance, periodic renovation and capital improvements to preserve and maximize value - Selectively dispose of assets we believe have achieved long-term investment potential and re-deploy the proceeds - Control operating costs by utilizing our employees to perform management, leasing, marketing, finance, accounting, construction supervision, legal and information technology services - Renovate, reconfigure or expand Properties and utilize existing land available for expansion and development of outparcels to meet the needs of existing or new tenants - Utilize our development capabilities to develop quality properties at low costs. Our strategy is to be a leading REIT focusing on enclosed Malls located primarily in the top 100 metropolitan statistical areas by population. We intend to continue investing in our existing Mall Properties and disposing of certain Community Centers as the marketplace creates favorable opportunities to do so. We expect to continue investing in select development opportunities and in strategic acquisitions of mall properties that provide growth potential. Our goal is to have our Mall Properties eventually comprise over 90% of our annualized minimum rents. As of December 31, 2003, the Mall Properties comprise 89% of our annualized minimum rents. We expect to finance acquisition transactions with cash on hand, borrowings under credit facilities, proceeds from asset dispositions, proceeds from secured mortgage financing, proceeds from the issuance of equity or debt securities, or a combination of one or more of the foregoing. CRITICAL ACCOUNTING POLICIES AND ESTIMATES General Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, 17 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. 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 use of estimates. Percentage rents, tenant reimbursements and the component of other revenue associated with outparcel sales include estimates. The tenant reimbursement estimates are discussed in the accounts receivable section below. Percentage Rents The recognition of percentage rents income requires management to make certain estimates with regard to tenants' sales levels. The majority of the Company's tenants report sales on a monthly basis, which provides the Company with a reasonable basis upon which to record this income. The monthly sales amounts, however, are unaudited and subject to change when the tenant reports its final sales after the end of the lease year. In addition, leases sometimes permit the exclusion of certain types of sales or services from the calculation of percentage rent due. Outparcel sales The Company sells outparcels at its various Properties. The estimated cost used to calculate the margin from these sales involves a number of estimates. The estimates made are based either upon assigning a proportionate cost, based upon historical cost paid for the total parcel, to the portion of the parcel that is sold or by incorporating the sales value method. The proportionate share of actual cost is derived through consideration of numerous factors. These factors include items such as ease of access to the parcel, visibility from high traffic areas and other factors that may differentiate the desirability of the particular section of the parcel that is sold. Accounts Receivable and Allowance for Doubtful Accounts Estimates are used to establish cost reimbursements from tenants for common area maintenance, real estate tax and insurance tenant accounts receivable, and for accounts receivable reserves. Leases are not uniform in dealing with such cost reimbursements and variations in computations between Properties and tenants exists. Adjustments are also made throughout the year to these receivables and the related cost recovery income based upon the Company's best estimate of the final amounts to be billed and collected. The Company analyzes the balance of its estimated accounts receivable for real estate taxes, common area maintenance and insurance for each of its Properties by comparing actual recoveries versus actual expenses and any actual write-offs. Based on its analysis, the Company may record an additional amount in its allowance for doubtful accounts related to these items. The allowance for doubtful accounts reflects the Company's estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be realized from cash receipts in subsequent periods. The Company reviews specific tenant balances; if the financial condition of the Company's tenants deteriorates as a result of operating difficulties or tenants operating under bankruptcy protection, additional provisions may be required. Investment in Real Estate The Company maintains a diverse portfolio of real estate assets. The portfolio holdings have increased as a result of both acquisitions and the development of new Properties and have been reduced by selected sales of assets. The amounts to be capitalized as a result of acquisition and developments and the periods over which the assets are depreciated or amortized are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets. The Company allocates the cost of the acquisition based upon the estimated fair value of the net assets acquired. The Company also estimates the fair value of intangibles related to its recent 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 geography in which the Property operates. Differences in the amount attributed to the intangible assets can be 18 significant based upon the assumptions made in calculating these estimates. The Company evaluates the recoverability of its investments in real estate assets to be held and used and records an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows are less than the carrying amount for a particular Property. The estimated cash flows used for the impairment analysis and to determine estimated fair value are based on the Company's plans for the respective assets and the Company's views of market and economic conditions. The estimates consider matters such as current and historical rental rates, occupancies for the respective Properties and comparable properties and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company's plans or views of market and economic conditions could result in recognition of impairment losses which, under the applicable accounting guidance, could be substantial. The sale of real estate assets may also involve the application of judgments in determining whether the risks and rewards of ownership have transferred to the buyer and that a sale has been completed for purposes of recognizing a gain on the sale. Although the Company has, from time to time, entered into negotiations or contracts that cover the sale of individual assets, the asset sales have not been part of a plan to dispose of specific holdings. The determination of whether specific assets are classified as held for sale or maintained as operating assets which continue to be depreciated, reflects management's judgment and future intent with respect to the Properties. Depreciation expense for real estate assets is computed using the straight-line method over the estimated useful lives of the assets: forty years for buildings and improvements and five to ten years for equipment and fixtures. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the term of each lease. Derivatives The Company has used interest rate cap agreements to hedge interest rate exposure and interest rate swap contracts to convert a portion of its variable rate debt to fixed rate debt. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors, and all contracts are intended to be effective as hedges of specific interest rate risk exposures. In connection with the determination of the effectiveness of these hedges and the recognition of any unrealized gain or loss on these contracts, the Company computes the fair value of the contracts at each balance sheet date. To determine the fair values of derivative instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. Standard market conventions and techniques such as discounted cash flow analysis, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. The Company at times employs an external, third party to perform an independent assessment of the fair value of the derivatives portfolio. The aggregate fair value of the Company's derivative instruments was $(1.0) million and $(7.0) million at December 31, 2003 and 2002, respectively. FUNDS FROM OPERATIONS The Company's consolidated financial statements have been prepared in accordance with GAAP. The Company has also indicated that FFO is a key measure of financial performance. FFO is an important and widely used financial measure of operating performance in its industry, which the Company believes provides important information to investors and a relevant basis for comparison among REITs. Management believes that FFO is an appropriate and valuable measure of the Company's operating performance because real estate generally appreciates over time or maintains a residual value to a much greater extent than personal property and, accordingly, reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Properties. FFO, as defined by NAREIT (defined fully in Item 1.) is used by the real estate industry and investment community as a supplemental measure of the performance of real estate companies. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. FFO should not be considered as an alternative to net income as the primary indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. The Company's FFO may not be directly comparable to similarly titled measures reported by other real estate investment trusts. 19 The following table illustrates the calculation of FFO and the reconciliation of FFO to net income available to common shareholders for the years ending December 31, 2003, 2002 and 2001 (in thousands): FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 2003 2002 2001 ---- ---- ---- Net income available to common shareholders ............................. $ 10,134 $ 24,421 $ 31,363 Add back (less): Real estate depreciation and amortization .......................... 64,688 59,547 57,156 Share of joint venture real estate depreciation and amortization ... 3,936 7,182 9,494 Minority interest in operating partnership ......................... 842 2,334 3,519 Discontinued operations: Loss (gain) on sales of properties ........ 3,913 (15,756) (Gain) loss on sales of properties ................................. (2,156) 610 Cumulative effect of accounting change ............................. 116 -------- -------- -------- Funds from operations ................................................... $ 81,357 $ 77,728 $102,258 ======== ======== ======== FFO increased by 4.7% or $3.6 million for the year ended December 31, 2003 from December 31, 2002. This increase can be attributed to an increase in net income from continuing operations. The year ended December 31, 2003 includes Colonial Park Mall, G & G Blaine and Eastland North Carolina as consolidated Properties beginning March 6, 2003, April 24, 2003 and August 14, 2003, respectively. During 2002 these three Properties were unconsolidated joint ventures. Also during 2003 the Company acquired WestShore Plaza and Eastland Ohio on August 27, 2003 and December 22, 2003, respectively. On August 25, 2003 the Company completed a $60 million Series F cumulative preferred offering. The proceeds from this offering were used to fund the WestShore Plaza acquisition and pay down the existing line of credit. As a result, preferred share dividends increased by $1.9 million. The net impact of the above transactions was to increase net income and to increase FFO. RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 Revenues Total revenues increased 18.3%, or $48.9 million, for the year ended December 31, 2003. Of the $48.9 million increase, $48.8 million was the result of increased revenues at the Malls (including a $41.0 million increase resulting from the acquisition of six Malls previously reflected as owned by joint ventures in which the Company was a joint venturer and $7.4 million increase from the WestShore Plaza Mall and Eastland Ohio acquisitions). Revenues from acquisitions for the year ended December 31, 2003 reflect the inclusion in the consolidated financial statements of SuperMall of the Great Northwest effective July 18, 2002, Dayton Mall effective August 5, 2002, Almeda Mall and Northwest Mall effective November 18, 2002, Colonial Park Mall effective March 6, 2003, G & G Blaine, LLC effective April 24, 2003 and Eastland North Carolina effective August 14, 2003, and as a result of the Company's acquisitions of WestShore Plaza Mall effective August 27, 2003 and Eastland Ohio effective December 22, 2003. Minimum rents Minimum rents increased 23.0% or $35.6 million, for the year ended December 31, 2003, of which $31.0 million is the result of acquisitions. The increase in same center minimum rents resulted primarily from increases in termination income. INCREASE (DECREASE) (DOLLARS IN MILLIONS) ------------------------------------------------------ COMMUNITY PERCENT MALLS CENTERS TOTAL TOTAL ----- ------- ----- ----- Same center .......... $ 4.1 $ 0.5 $ 4.6 3.0% Acquisitions ......... 31.0 0.0 31.0 20.0 ------- ------- ------- ---- $ 35.1 $ 0.5 $ 35.6 23.0% ======= ======= ======= ==== Tenant reimbursements Tenant reimbursements reflect an increase of 14.8%, or $11.8 million, for the year ended December 31, 2003. Acquisitions accounted for a $13.9 million increase that was partially offset by reduced recovery rates for CAM, taxes and insurance in 2003. INCREASE (DECREASE) (DOLLARS IN MILLIONS) ---------------------------------------------------- COMMUNITY PERCENT MALLS CENTERS TOTAL TOTAL ----- ------- ----- ----- Same center ............ $ (2.4) $ 0.3 $ (2.1) (2.6)% Acquisitions ........... 13.9 0.0 13.9 17.4 ------- ------- ------- ---- $ 11.5 $ 0.3 $ 11.8 14.8% ======= ======= ======= ==== 20 Other revenues The $400,000 increase in other revenues is a result of a $3.4 million increase in temporary tenant income and a $1.9 million increase in miscellaneous income partially offset by a $3.2 million reduction in management fee income resulting from the Company's acquisition of third party joint venture interests and a $1.8 million decrease in outparcel sales. Expenses Total expenses increased 24.6%, or $41.5 million, for the year ended December 31, 2003. Real estate taxes and property operating expenses increased $19.5 million, depreciation and amortization increased $10.8 million and provision for doubtful accounts increased by $10.9 million. These increases were partially offset by a decrease in general and administrative expenses of $287,000. Real estate taxes and property operating expenses Real estate taxes and property operating expenses increased 22.2%, or $19.5 million, for the year ended December 31, 2003. INCREASE (DECREASE) (DOLLARS IN MILLIONS) ---------------------------------------------- COMMUNITY PERCENT MALLS CENTERS TOTAL TOTAL ----- ------- ----- ----- Same center.................. $ 1.9 $0.6 $ 2.5 2.9% Acquisitions................. 17.0 0.0 17.0 19.3 ----- ---- ----- ---- $18.9 $0.6 $19.5 22.2% ===== ==== ===== ==== Provision for doubtful accounts The provision for doubtful accounts was $17.3 million for the year ended December 31, 2003 and $6.4 million for the corresponding period in 2002. In 2003, the Company increased its provision for doubtful accounts by $10.9 million. The increase includes a provision attributable to prior year estimated tenant recoveries for CAM, real estate taxes and insurance at the Company's Properties of $10.0 million for the year ended December 31, 2003, an increase of $7.5 million. The Company's policy is to record the estimated recovery as an accounts receivable monthly throughout the year and true-up the recorded receivable upon completion of the true-up calculation. In addition, the Company established reserves in the second quarter for past due receivables owed by bankrupt companies and other troubled tenants for an additional $3.3 million. Depreciation and Amortization The $10.8 million increase in depreciation and amortization consists primarily of $8.3 million from the consolidation of six Malls which were previously reflected as joint ventures and a $1.8 million increase from the WestShore Plaza Mall and Eastland Ohio acquisitions. General and Administrative General and administrative expense was $10.0 million and represented 3.2% of total revenues for the year ended December 31, 2003 compared to $10.3 million and 3.8% of total revenues for the corresponding period in 2002. The decrease is primarily due to a reduction in corporate salaries and wages as a result of reductions in the number of Company personnel. Interest expense/capitalized interest Interest expense decreased 5.6%, or $4.8 million, for the year ended December 31, 2003. The summary below identifies the decrease by its various components (dollars in thousands). YEAR ENDED DECEMBER 31, -------------------------------------------- 2003 2002 INC. (DEC.) ---- ---- ----------- Average loan balance ......... $ 1,173,183 $ 1,150,933 $ 22,250 Average rate ................. 6.56% 6.80% (0.24)% Total interest ............... $ 76,961 $ 78,263 $ (1,302) Amortization of loan fees .... 4,805 7,614 (2,809) Capitalized interest and other (1) ................ (411) 284 (695) ----------- ----------- ----------- Interest expense ............. $ 81,355 $ 86,161 $ (4,806) =========== =========== =========== (1) Other consists primarily of interest costs billed to joint venture entities. 21 Equity in income (loss) of unconsolidated entities The $936,000 decrease of equity income in unconsolidated entities results primarily from the acquisition of joint venture interests from our joint venture partners. These Properties were acquired between the third quarter of 2002 and the third quarter of 2003. These acquisitions resulted in a decrease of equity income of unconsolidated entities of $644,000. Also, income decreased by $826,000 due to increased interest expense associated with a change in long-term debt obligations. These decreases were partially offset by increased revenue and decreased operating expenses resulting in increased operating income of $609,000. Discontinued Operations During 2003, the Company sold five Community Centers for $18.6 million and reflected two other Community Centers, Cambridge Plaza and Morgantown Plaza located in Cambridge, Ohio and Morgantown, West Virginia, respectively, as held for sale. These Properties, in accordance with SFAS No. 144, are reported in discontinued operations. The Company recorded a net loss on the sale of discontinued operations of $3,913,000 of which $3,654,000 is associated with current year dispositions and $259,000, which relates to Properties that were disposed of prior to 2003. Total revenues (in thousands) for these assets were $1,426, $3,541, and $3,920 for the years ended December 31, 2003, 2002 and 2001 respectively. For segment reporting purposes, revenues and expenses, including interest expense, would have been reported as part of Community Centers. RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 Revenues Total revenues increased 7.9%, or $19.7 million, for the year ended December 31, 2002. Of the $19.7 million increase, $22.9 million was the result of increased revenues at the Malls (including a $25.2 million increase from acquisitions). The offsetting $3.2 million decrease was primarily related to a $1.8 million decrease in revenues at the Community Centers. Acquisitions for the year ended December 31, 2002, reflect the inclusion in the consolidated financial statements of Jersey Gardens effective April 6, 2001, SuperMall of the Great Northwest effective July 18, 2002, Dayton Mall effective August 5, 2002 and Almeda Mall and Northwest Mall effective November 18, 2002, as a result of the Company's acquisition of the third party interests in the entities owning these Properties. Minimum rents Minimum rents increased 6.7%, or $9.8 million, for the year ended December 31, 2002. INCREASE (DECREASE) (DOLLARS IN MILLIONS) ------------------------------------------------------- COMMUNITY PERCENT MALLS CENTERS TOTAL TOTAL ----- ------- ----- ----- Same center ....... $ (1.9) $ (3.2) $ (5.1) (3.5)% Acquisitions ...... 14.9 0.0 14.9 10.2 ------- ------ ------- ----- $ 13.0 $ (3.2) $ 9.8 6.7% ======= ====== ======= ===== The primary components of the same center Mall decline of $1.9 million are additional rents from in-line stores of $1.9 million, a decline in termination income of $2.0 million and a reduction of $1.6 million as a result of anchor tenant bankruptcies. The Community Centers same center decrease of $3.2 million is primarily related to a $2.2 million reduction as a result of anchor tenant bankruptcies. Tenant reimbursements Tenant reimbursements reflect a net increase of 12.5%, or $8.9 million, for the year ended December 31, 2002. INCREASE (DOLLARS IN MILLIONS) ------------------------------------------------------ COMMUNITY PERCENT MALLS CENTERS TOTAL TOTAL ----- --------- ----- ------- Same center ........ $ 0.4 $ 0.6 $ 1.0 1.4% Acquisitions ....... 7.9 0.0 7.9 11.1 ------ ------ ------- ---- $ 8.3 $ 0.6 $ 8.9 12.5% ====== ====== ======= ==== Other revenues The $582,000 increase in other revenues is primarily the result of a $1.6 million increase due to the formation of Ohio Entertainment Corporation ("OEC") effective June 1, 2001, a $400,000 gain on the disposition of short-term investments relating to the defeasance of debt securities on February 4, 2002; $1.4 million as a result of increased 22 temporary tenant income from the Malls; and $500,000 in other revenue increases, partially offset by a $3.3 million decrease in fee income. Fee income was lower due to the completion of Polaris Fashion Place in 2001, and the subsequent loss of development fee income from said joint venture in 2002. It reflects a reduction in joint venture management fees as a result of the Company's acquisition of third party joint venture interests. OEC operates a theater at one mall and a skating rink at another mall; the revenues and expenses of these operations are included in other revenues and other operating expenses. Expenses Total expenses increased 7.4%, or $11.6 million, for the year ended December 31, 2002 primarily as a result of Mall acquisitions. Real estate taxes and property operating expenses increased $11.3 million, the provision for doubtful accounts and other operating expenses decreased $258,000, depreciation and amortization increased $4.3 million, general and administrative expenses decreased $890,000 and development write-off's decreased $2.8 million, respectively. Real estate taxes and property operating expenses Real estate taxes and property operating expenses increased 14.7%, or $11.3 million, for the year ended December 31, 2002. INCREASE (DOLLARS IN MILLIONS) ---------------------------------------------- COMMUNITY PERCENT MALLS CENTERS TOTAL TOTAL ----- ------- ----- ----- Same center.................. $ 1.2 $0.4 $ 1.6 2.1% Acquisitions................. 9.7 0.0 9.7 12.6 ----- ---- ------ ---- $10.9 $0.4 $11.3 14.7% ===== ==== ====== ==== The same center increase of $1.6 million consists primarily of increased insurance expense of approximately $1.8 million, as a result of increased premiums charged by the insurance carriers. Provision for doubtful accounts The provision for doubtful accounts was $6.4 million for the years ended December 31, 2002 and 2001, respectively. Although the amount of this expense is comparable, the provision for doubtful accounts as a percent of revenues decreased to 2.4% in 2002 from 2.6% in 2001. The provision for doubtful accounts reflects the Company's estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. During 2001 and 2002, various small shop tenants and a number of national tenants which leased anchor space at its Properties filed for bankruptcy protection. Anchor tenants that were operating or liquidating under bankruptcy protection in 2001 included Ames, HomePlace, Lechter's and Phar-Mor. Exposure to tenants currently operating under bankruptcy protection and the continuing operating difficulties being experienced by various retailers resulted in the Company increasing its provision for doubtful accounts in 2002 and 2001 over previous years. The Company considers the experience to be a direct result of, and to be consistent with, the weak U.S. economy during 2002. The Company is entitled to file claims for damages in connection with any leases rejected in bankruptcy filings. The Company does not recognize in accounts receivable or revenue amounts attributable to such claims until the claims for rejected leases are approved by the courts. The Company also does not consider such potential claims in estimating the recoverability of recorded accounts. Development Cost Write-Off Write-off of development costs decreased due to a development write-off of $3.2 million in 2001 related to a development project in the City of Carson, California which was terminated on June 30, 2001. Depreciation and Amortization The $4.3 million increase in depreciation and amortization consists primarily of a $4.8 million increase from Mall acquisitions offset with a $470,000 decrease from dispositions. General and administrative General and administrative expenses were $10.3 million and represented 3.8% of total revenues for the year ended December 31, 2002, compared to $11.2 million and 4.5% of total revenues for the corresponding period in 2001. The 2002 costs are representative of the general and administrative costs related to the Company's current staffing levels. The Company also reduced corporate headcount by approximately 10.0% and recognized approximately $863,000 in severance related costs. The Company did not grant general salary increases or bonuses for 2002 but the 23 Company has experienced higher costs as a result of increasing premiums for insurance costs related to health benefits provided by the Company. Interest expense/capitalized interest Interest expense increased 0.5%, or $401,000 for the year ended December 31, 2002. The summary below identifies the increase by its various components (dollars in thousands). YEAR ENDED DECEMBER 31, -------------------------------------------- 2002 2001 INC. (DEC.) ---- ---- ----------- Average loan balance .......... $ 1,150,933 $ 1,130,999 $ 19,934 Average rate .................. 6.80% 7.37% (0.57)% Total interest ................ $ 78,263 $ 83,355 $ (5,092) Amortization of loan fees ..... 7,614 6,707 907 Capitalized interest and other (1) ............... 284 (4,302) 4,586 ----------- ----------- ----------- Interest expense .............. $ 86,161 $ 85,760 $ 401 =========== =========== =========== (1) Other consists primarily of interest costs billed to joint venture entities. Equity in income (loss) of unconsolidated entities The $1.0 million increase in the equity in income (loss) of unconsolidated entities consists primarily of an increase from Polaris Fashion Place having a full year of operating results in 2002 versus 2001 in which the Mall opened on October 25, 2001. This is partially offset by the elimination of equity income from four joint venture interests acquired by the Company in the third and fourth quarters of 2002. The equity in the income of those joint ventures was included in this item for the full twelve months of 2001. LIQUIDITY AND CAPITAL RESOURCES Liquidity The Company's short-term (less than one year) liquidity requirements include recurring operating costs, capital expenditures, debt service requirements and preferred and common dividend requirements. The Company anticipates that these needs will be met with cash flows provided by operations, the refinancing of maturing debt and proceeds from the sale of assets. The Company's long-term (greater than one year) liquidity requirements include scheduled debt maturities, capital expenditures to maintain, renovate and expand existing assets, property acquisitions and development projects. Management anticipates that net cash provided by operating activities, the funds available under the Credit Facility, construction financing, long-term mortgage debt, issuance of preferred and common shares of beneficial interest and proceeds from the sale of assets will provide sufficient capital resources to carry out the Company's business strategy relative to the acquisitions, renovations, expansions and developments. At December 31, 2003, the Company's total-debt-to-total-market capitalization was 55.5% per annum, compared to 57.9% per annum, at December 31, 2002. The Company is working to maintain this ratio in the mid-fifty percent range. The Company expects to utilize the proceeds from future asset sales to reduce debt and, to the extent that market capitalization remains in the current range, to acquire additional regional mall properties. The total-debt-to-total- market capitalization is calculated below (dollars in thousands). DEC. 31 DEC. 31 2003 2002 ---- ---- Stock Price (end of period) ............................................ $ 22.38 $ 17.75 Market Capitalization Ratio: Common Shares outstanding ......................................... 35,066 34,315 Operating Partnership units outstanding ........................... 2,969 3,279 ---------- ---------- Total Common Shares and units outstanding at end of period ........ 38,035 37,594 ========== ========== Market capitalization - Common Shares outstanding ................. $ 784,777 $ 609,091 Market capitalization - Operating partnership units outstanding ... 66,446 58,202 Market capitalization - Series B Preferred Shares ................. 127,950 127,950 Market capitalization - Series F Preferred Shares ................. 60,000 Total debt (end of period) ........................................ 1,295,058 1,095,930 ---------- ---------- Total market capitalization ....................................... $2,334,231 $1,891,173 ========== ========== Total debt / total market capitalization ............................... 55.5% 57.9% ========== ========== 24 Financing Activity The Company, through the Operating Partnership, at December 31, 2002, was a party to a credit facility with several financial institutions that provided the Company with the ability to borrow up to $170.0 million. The credit facility bore interest at a rate ranging from LIBOR plus 1.60% per annum to 1.90% per annum and was designated to an interest rate swap agreement that fixed LIBOR at 5.39% per annum on $110.0 million until January 31, 2004 (the weighted average interest rate on total outstanding borrowings after giving effect to the swap agreement was 6.29% per annum on the outstanding borrowings at December 31, 2002). This credit facility was paid off and replaced by the new Credit Facility. On October 17, 2003, the Company entered into a new Credit Facility that provides the Company with the ability to borrow up to $150.0 million. This Credit Facility expires October 16, 2006 and replaced the existing line of credit which was scheduled to mature on January 31, 2004. The new Credit Facility is collateralized with first mortgage liens on three Malls and eleven Community Centers. The interest rate on the new Credit Facility ranges from LIBOR plus 1.15% per annum to LIBOR plus 1.70% per annum, depending on the Company's ratio of debt to asset value. During 2003, the weighted average interest rate was 6.45% per annum after giving effect to the swap agreement. At December 31, 2003, the outstanding balance on the Credit Facility was $80.8 million. Additionally, $4.2 million represents a holdback on the available balance of the Credit Facility for letters of credit issued under the Credit Facility. Also, on October 17, 2003, the Company refinanced The Mall at Fairfield Commons with $114.0 million in permanent financing maturing November 1, 2014 and bearing interest at 5.45% per annum. Total debt increased by $199.1 million during 2003. The change in outstanding borrowings is summarized as follows (in thousands): MORTGAGE NOTES TOTAL NOTES PAYABLE DEBT ----- ------- ---- December 31, 2002 .................... $ 956,130 $ 139,800 $ 1,095,930 Acquired mortgage debt: Colonial Park Mall ................. 34,255 34,255 Eastland North Carolina ............ 46,184 46,184 New mortgage debt .................... 383,000 383,000 Repayment of debt .................... (195,791) (195,791) Debt amortization payments in 2003 ... (9,520) (9,520) Net repayments, line of credit ....... (59,000) (59,000) ----------- ----------- ----------- December 31, 2003 .................... $ 1,214,258 $ 80,800 $ 1,295,058 =========== =========== =========== During 2003, the Company incurred additional borrowings secured by first mortgage liens. The new mortgage notes payable totaling $383.0 million consist of (i) a $5.0 million loan secured by a first mortgage lien on Artesian Square, which bears interest at LIBOR plus 1.95% per annum (3.09% at December 31, 2003), (ii) a $140.0 million loan secured by a first mortgage lien on Lloyd Center, which matures in June 2013 and bears interest at 5.42% per annum, (iii) a $100.0 million loan secured by a first mortgage lien on WestShore Plaza, which matures in September 2012 and bears interest at 5.09% per annum, (iv) a $114.0 million loan secured by a first mortgage lien on The Mall at Fairfield Commons, which matures in November 2014 and bears interest at 5.45% per annum and (v) a $24.0 million loan secured by a first mortgage lien on Eastland Ohio, which matures in January 2007 and bears interest at LIBOR plus 2.00% per annum (3.15% at December 31, 2003). At December 31, 2003, the Company's Credit Facility was collateralized with first mortgage liens on fourteen Properties having a net book value of $136.4 million and its mortgage notes payable were collateralized with first mortgage liens on Properties having a net book value of $1,493.5 million. The Company also owned 26 unencumbered Properties having a net book value of $71.2 million at that date. The Credit Facility, San Mall, LP mortgage and Morgantown Mall Associates, LP mortgage are cross-collateralized as part of a group of Properties under a single loan, certain of the loans have cross-default provisions and certain of the loans are subject to guarantees and financial covenants. Under the cross-default provisions, a default under a single mortgage may constitute a default under all of the mortgages in the group and could lead to acceleration of the indebtedness on all Properties under such loan. Properties which are subject to cross-default provisions have a net book value of $220.1 million and represent twelve Community Centers and six Malls. Capital Expenditures The Company plans its capital expenditures by considering various factors such as; return on investment, the Company's five-year capital plan for major facility expenditures such as roof and parking lots, tenant construction allowances based upon the economics of the lease terms and cash available for making such expenditures. The Company categorizes its capital expenditures into two broad categories, first-generation and second-generation 25 expenditures. The first-generation expenditures relate to incremental revenues associated with new developments or creation of new GLA at the Company's existing Properties. Second-generation expenditures are those expenditures associated with maintaining the current income stream and are generally expenditures made to maintain the Properties and to replace tenants for spaces that have been previously occupied. Capital expenditures are generally accumulated into a project and classified as "developments in progress" on the consolidated balance sheet until such time as the project is completed. At the time the project is complete, the dollars are transferred to the appropriate category on the balance sheet and are depreciated on a straight-line basis over the useful life of the asset. Acquisitions and Dispositions The Company is pursuing a strategy of selling single tenant and non-strategic Community Center assets and focusing on the Mall portfolio. The timing and selling prices of future asset sales are dependent upon the Company being able to consummate sales transactions under acceptable terms and at satisfactory pricing. Net proceeds from asset sales are expected to be applied to reduce debt and to fund additional investments in regional mall properties. During 2003, the Company sold five Community Centers for $18.6 million and reflected two other Community Centers as held for sale at December 31, 2003. In accordance with SFAS No. 144, the sold Properties are reported in Discontinued Operations. Net income includes loss on sales of Discontinued Operations of $(0.10) per Common Share diluted compared with a gain of $0.44 per Common Share diluted for the years ended December 31, 2003 and 2002, respectively. On March 6, 2003, the Company completed the acquisition of the joint venture interest not previously owned by the Company in Colonial Park Mall, an enclosed regional mall located in Harrisburg, Pennsylvania, from LB Colonial Park, LLC, a Delaware limited liability company. The Company acquired the remaining 50% interest for $5.5 million in cash. The property had an outstanding mortgage balance of $34.3 million on the acquisition date. The existing mortgage, which originated in 1997, matures on October 11, 2007. The debt bears interest at a fixed rate of 7.73% per annum. On April 24, 2003 the Company completed the acquisition from Greyhawke Net Lease Investors III, LLC, a Delaware limited liability company, of the 50% interest not previously owned by the Company in G & G Blaine, LLC, and a related parcel of land for approximately $2.96 million in cash. With the completion of this transaction, GPLP is the sole owner of a vacant anchor building and underlying land at Northtown Mall in Minneapolis, Minnesota. Northtown Mall is wholly owned by the Company. On August 14, 2003, the Company completed the acquisition of the joint venture interest not previously owned by the Company in Eastland North Carolina, an enclosed regional mall located in Charlotte, North Carolina, from HIG Mall, LLC, a Florida limited liability company. The Company acquired the remaining 80% interest for $4.75 million in cash. The property had an outstanding mortgage balance of $46.2 million on the acquisition date. The existing mortgage, which originated in 1998, matures on September 11, 2008. The debt bears interest at a fixed rate of 7.84% per annum and requires payments of principal and interest based on a 30-year principal amortization schedule. On August 27, 2003, the Company acquired WestShore Plaza Mall, a fully enclosed regional shopping mall located in Tampa, Florida, from American Freeholds, a Nevada general partnership, which is sponsored by Grosvenor USA. Approximately $100 million of the $152 million purchase price was funded with a new nine-year mortgage loan, which bears interest at the fixed rate of 5.09% per annum and requires payments of principal and interest based on a 30-year principal amortization schedule. The additional $52 million was funded using a portion of the net proceeds of the 8.75% Series F Cumulative Redeemable Preferred Share offering that was completed by the Company on August 25, 2003. On December 22, 2003, the Company acquired Eastland Ohio, a 940,000 square foot enclosed regional mall in Columbus, Ohio, from Columbus East Joint Venture, an Ohio general partnership. The purchase price of $29.65 million was paid with the proceeds from a $24 million three-year mortgage bank loan that bears interest at a per annum rate of LIBOR plus 200 basis points (3.15% at December 31, 2003) and approximately $5 million of borrowings on the Company's credit facility. The Company may, subject to the satisfaction of certain conditions, also borrow up to an additional $12 million under the bank loan to fund costs relating to the addition of a new anchor and other improvements to the mall. Preferred Stock Activity On August 25, 2003, the Company completed a $60 million public offering of 2,400,000 shares of 8.75% Series F cumulative preferred shares of beneficial interest, par value of $0.01 per share, (the "Series F Preferred Shares"), at a purchase price of $25.00 per Series F Preferred Share. Aggregate net proceeds of the offering were $58 million. Distributions on the Series F Preferred Shares are payable quarterly in arrears. The Company generally may redeem the Series F Preferred Shares anytime on or after August 25, 2008, at a redemption price of $25.00 per share, 26 plus accrued and unpaid distributions. The Company used approximately $52 million of the net proceeds to pay a portion of the purchase price of the acquisition of WestShore Plaza, a regional mall totaling approximately 1.1 million square feet of GLA located in Tampa, Florida. The Company used the $4.8 million balance of the net proceeds to repay a portion of the balance outstanding on the Company's $170.0 million secured credit facility. On February 23, 2004, the Company completed its offering to the public of 6,000,000 shares of 8.125% Series G cumulative redeemable preferred shares of beneficial interest (the "Series G Preferred Shares") at a purchase price of $25.00 per Series G Preferred Share. Aggregate net proceeds of the offering were $145.3 million. Distributions on the Series G Preferred Shares are payable quarterly in arrears beginning on April 15, 2004. The Company generally may redeem the Series G Preferred Shares anytime on or after February 23, 2009, at a redemption price of $25.00 per share, plus accrued and unpaid distributions. Approximately $128.4 million of the proceeds were used to redeem the Series B Preferred shares on February 27, 2004 and to pay down $16.9 million of the Company's Credit Facility, which was recently drawn upon to pay off $17.0 million in subordinated mortgage debt relating to the Company's Great Mall of the Great Plains in Olathe, Kansas. Cash Activity Net cash provided by operating activities was $100.6 million for the year ended December 31, 2003, an increase of $33.0 million from December 31, 2002. Net income adjusted for non-cash items accounted for a $17.7 million increase. Changes in operating assets and liabilities accounted for a $15.3 million increase. The increase can be attributed to the acquisition of five developments that were not previously wholly owned by the Company. Net cash used by investing activities was $200.2 million for the year ended December 31, 2003. The primary investments were the investments in real estate of $218.9 million for the acquisitions of WestShore Plaza and Eastland Ohio. Also reflected are the purchases of joint venture interests not previously owned in Colonial Park Mall, Eastland North Carolina and G & G Blaine. Additionally, the Company received $18.1 million from the sale of five Community Centers and $8.4 million from the sale of assets. Net cash provided from financing activities was $99.4 million for the year ended December 31, 2003. Proceeds received from the issuance of new mortgages were $383 million. These mortgages primarily relate to acquisitions of WestShore Plaza and Eastland Ohio as well as the proceeds received from the issuance of a mortgage on the Mall at Fairfield Commons and Lloyd Center. Principal payments on mortgages totaled $205.3 million. These payments reflect satisfaction of mortgages at Lloyd Center, which was later refinanced, Northtown Mall and various bridge loans. Also the company received $57.6 million through the issuance of Series F Preferred Shares. The Company also used $85.1 million for the payment of common, preferred and operating partnership dividends. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Contractual Obligations Long-term debt obligations are included in the consolidated balance sheet and the nature of the obligations are disclosed in the notes to the consolidated financial statements. On January 5, 2004, the Company acquired the remaining joint venture interests in Polaris Fashion Place and Polaris Towne Center. The amount of off-balance sheet debt at December 31, 2003 that was assumed on January 5, 2004 is shown on the table below. The revenues and net operating income were $32.1 million and $22.1 million for the year ended December 31, 2003. The debt will be reported on the Company's consolidated balance sheet beginning in January 2004. At December 31, 2003, the Company had the following obligations relating to dividend distributions. In the fourth quarter of 2003, dividends were declared for $0.4808 per share of Common Shares and Operating Partnership units to be paid in the first quarter of 2004. The Series B Preferred Shares dividends of $3.0 million were accrued and paid at such time those shares were redeemed by the Company on February 27, 2004, with no further obligation relating to those shares. The Series F Preferred Shares are not required to be redeemed and therefore, the dividends on those shares may be paid in perpetuity. However, as the Series F Preferred Shares are redeemable at the Company's option on or after August 25, 2008, the obligation for the dividends for the Series F Preferred Shares are included in the contractual obligations through that date. The total dividend obligation included in the table for the Series F Preferred Shares is $24.9 million. Capital lease obligations are for equipment at the various Properties and are included in accounts payable and accrued expenses in the consolidated balance sheet. Operating lease obligations are for office space, ground leases, phone system, office equipment and computer equipment. 27 At December 31, 2003, the Company had executed leases committing to $3.2 million in tenant allowances. The leases will generate gross rents which approximate $19.8 million over the original lease term. Commercial Commitments The line of credit terms are discussed in Note 4 to the consolidated financial statements. The standby letters of credits are for utility deposits ($150,000) and for a mortgage for the Mall at Fairfield Commons ("MFC"), ($4.0 million). The letter of credit associated with the MFC mortgage will be released upon completion of certain requirements for a tenant at the property. Management expects the tenant to meet the requirements and does not anticipate any payment to be required on this letter of credit. The guarantee included in the commercial commitments relates to Polaris Fashion Place and is discussed in Note 11 to the consolidated financial statements. The guarantee relates to certain tenant allowances and the Company does not expect to incur any liability. The following table shows the Company's contractual and commercial obligations as of December 31, 2003 (in thousands): TOTAL 2004 2005-2006 2007-2008 THEREAFTER ----- ---- --------- --------- ---------- CONTRACTUAL OBLIGATIONS Long-term Debt...... $1,214,258 $ 263,113 $ 125,709 $ 198,708 $ 626,728 Long-term Debt - Joint Ventures.... 190,465 2,470 5,411 6,068 176,516 Dividend Obligations....... 46,184 26,496 10,500 9,188 Capital Lease Obligations....... 2,490 958 1,128 294 110 Operating Leases.... 3,392 824 1,339 518 711 Tenant Allowances... 3,215 3,215 ---------- ---------- ---------- ---------- ---------- Total Contractual Obligations....... $1,460,004 $ 297,076 $ 144,087 $ 214,776 $ 804,065 ========== ========== ========== ========== ========== COMMERCIAL OBLIGATIONS Lines of Credit..... $ 80,800 $ 80,800 Standby Letter of Credit... 4,150 $ 4,150 Guarantees.......... 2,941 2,941 ---------- ---------- ---------- Total Commercial Obligations....... $ 87,891 $ 7,091 $ 80,800 ========== ========== ========== EXPANSION, RENOVATION AND DEVELOPMENT ACTIVITY The Company continues to be active in its expansion, renovation and development activities. Its business strategy is to grow the Company's assets, net income and cash flow to, among other things, provide for dividend requirements and to preserve, maintain and expand value for shareholders. Expansions and Renovations The Company maintains a strategy of selective expansions and renovations in order to improve the operating performance and the competitive position of its existing portfolio. The Company also engages in an active redevelopment program with the objective of attracting innovative retailers which management believes will enhance the operating performance of the Properties. Malls Mall store occupancy decreased slightly to 89.6% at December 31, 2003 from 90.1% at December 31, 2002 due to lower store occupancy at the newly acquired Malls, WestShore Plaza Mall and Eastland Ohio. Comparable store occupancy increased to 90.2% from 90.1% at December 31, 2003. Anchor occupancy in the Malls remained unchanged at December 31, 2003 and held at 94.5% during 2003. Comparable mall anchor occupancy dropped from 94.5% to 93.9%, excluding the 100% anchor occupancy at WestShore Plaza Mall and Eastland Ohio. The drop in anchors is related to three new vacancies totaling approximately 297,000 in GLA: Oshman's SuperSports USA at The Great Mall, Montgomery Ward at Northtown (a previously vacated anchor the Company acquired control of in the second quarter 2003) and Kmart at Southside Mall. This reduction in leased anchor GLA was partially offset by four new anchors totaling approximately 222,000 of GLA. The new anchors are three Steve and Barry's stores at Grand Central Mall, Northtown Mall, River Valley Mall and Phil's Shoes at Northwest Mall. In October 2003, a plan was finalized to add approximately 84,000 of GLA to the MFC. The expansion plans to include a new sporting goods retailer, Galyan's. The new anchor is targeted to open in the spring of 2005. 28 In December 2003, the Company acquired Eastland Ohio. The Mall will be redeveloped in 2004 and 2005 by adding approximately 30,000 of retail GLA and a new Kaufmann's anchor approximating 120,000 of GLA. The retail GLA will open in 2005, with Kaufmann's targeted to open in the fall of 2005. Redevelopment of space at the Lloyd Center, a regional Mall in Portland, Oregon, began in 2003. This project, which encompasses ground owned by the Company adjacent to the Mall, will include the addition of new retailing concepts for the center, including the addition of restaurants and additional banking services, most of which are expected to open in 2004. Community Centers During 2003, the Company opened two new anchors aggregating 137,000 square feet. The new Community Center anchors were Hobby Lobby at Clarksville Plaza in Clarksville, Indiana and Rooms of Furniture at Middletown Plaza in Middletown, Ohio. This was offset by 137,000 square feet of new vacancies due to Wal-Mart closings during 2003 in Cumberland Crossing in Jackson, Tennessee and Newberry Square in Newberry, South Carolina. Community Center anchor occupancy improved to 77.3% on December 31, 2003 compared to 72.3% at December 31, 2002 due to the sale of three centers with vacant anchors and the sale of a vacant anchor store to Home Depot resulting in reduced Community Center vacant anchor GLA of 344,000 square feet. The Company continues to work with various prospects to lease the remaining vacant space. Developments One of the Company's objectives is to increase its portfolio by developing new retail properties. The Company's management team has developed over 100 retail properties nationwide and has significant experience in all phases of the development process including: site selection, zoning, design, predevelopment leasing, construction financing and construction management. The Company has land under option contracts and is incurring predevelopment costs in connection with the development of a department store anchored retail project in the Cincinnati, Ohio market. At December 31, 2003, the Company has incurred approximately $1.5 million of costs in connection with this project. PORTFOLIO DATA The table below reflects sales per square foot ("Sales PSF") for those tenants reporting sales for the twelve month period ended December 31, 2003. The percentage change is based on those tenants reporting sales for the twenty-four month period ended December 31, 2003. MALL PROPERTIES COMMUNITY CENTERS --------------------- ------------------- AVERAGE SAME STORE AVERAGE SAME STORE PROPERTY TYPE SALES PSF % CHANGE SALES PSF % CHANGE ------------- --------- -------- --------- -------- Anchors ........................... $160 0.5% $253 1.2% Stores (1)......................... $305 (1.1)% $250 3.0% Total ............................. $225 (0.7)% $253 1.4% (1) Mall stores sales per square foot exclude outparcel sales. Portfolio occupancy statistics by property type are summarized below: OCCUPANCY (1) (2) --------------------------------------------- 12/31/03 9/30/03 6/30/03 3/30/03 12/31/02 -------- ------- ------- ------- -------- Mall Anchors ................... 94.5% 94.0% 92.8% 94.7% 94.5% Mall Stores .................... 89.6% 90.2% 89.9% 89.4% 90.1% Total Mall Portfolio ........... 92.7% 92.6% 91.7% 92.7% 92.9% Community Center Anchors ....... 77.3% 76.0% 74.4% 71.3% 72.3% Community Center Stores ........ 75.7% 78.6% 80.6% 81.8% 82.8% Single Tenant Retail Properties ................... 100.00% 100.0% 100.0% 100.0% 100.0% Total Community Center Portfolio .................... 77.5% 77.2% 76.6% 74.6% 75.5% Comparable Community Center .... Portfolio ................. 77.5% 76.4% (1) Occupancy statistics included in the above table are based on the total Company portfolio which includes Properties owned by the Company and Properties held in joint ventures. (2) Occupied space is defined as any space where a tenant is occupying the space and/or paying rent at the date indicated, excluding all tenants with leases having an initial term of less than one year. 29 ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 45 ("FIN 45") "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of SFAS No. 57 and No. 107 and rescission of FIN 34)". FIN 45 clarifies the requirements of SFAS No. 5 relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees, and requires that upon the issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The disclosure requirements of FIN 45 are effective for financial statements of periods ending after December 15, 2002. The recognition provisions of FIN 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. There was no material impact on the Company's financial position as a result of this new pronouncement at December 31, 2003. Effective January 1, 2003, the Company adopted the fair value recognition provision of SFAS No. 123, "Accounting for Stock-Based Compensation", and as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", prospectively to all awards granted, modified or settled on or after January 1, 2003. Effective January 1, 2003, the Company adopted SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", a standard that addresses the classification of gains or losses from early extinguishment of debt. Prior to the adoption of SFAS No. 145, the Company reported losses from the early extinguishment of debt as extraordinary items. During the year ended December 31, 2002, the Company recorded $2,260 thousand in extraordinary items from operations and $9,067 thousand in extraordinary items from discontinued operations that resulted from the early extinguishment of debt. In 2003, these charges were reclassified to interest expense and income from discontinued operations, respectively, to comply with SFAS No. 145. These reclassifications had no impact on reported net income. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interests Entities - an Interpretation of ARB No. 51." The effective date of the interpretation has been postponed by FASB Staff Position No. FIN 46-6 and will be effective the first interim or annual reporting period ending after March 15, 2004. The interpretation focuses on identifying entities for which a controlling financial interest is achieved through means other than voting rights. The potential impact of FIN 46 has been evaluated regarding potential impact to the Company's joint venture interests. Based upon the analysis, the Company does not anticipate that FIN 46 will have an impact on the Company's financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003. The Company has no immediate impact as a result of this pronouncement. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within the scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. There was no material impact on the Company's financial position as a result of this new pronouncement at December 31, 2003. RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS Set forth below and elsewhere in this report and in other documents the Company files with the Securities and Exchange Commission are risks and uncertainties that could cause its actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements made. Because of the following factors, as well as other variables affecting the Company's operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. RISKS INHERENT IN OWNING REAL ESTATE INVESTMENTS Real property investments are subject to varying degrees of risk. If the Company's Properties do not generate sufficient income to meet operating expenses and other required expenditures, the Company's ability to make dividend 30 distributions will be adversely affected. The Company's income may be adversely affected by the general economic climate, local economic conditions and other local conditions. Examples of other local conditions that could adversely affect income include oversupply of space or reduced demand for rental space and newly developed properties, the attractiveness of the Company's Properties compared to other space, ability to provide adequate maintenance, and fluctuation in real estate taxes, insurance and other operating costs. The Company is covered under its all risk property insurance policies in the amount of $200 million per incident for acts of terrorism on its consolidated real estate assets through January 1, 2005. There can be no assurance that the Company will be able to obtain terrorism insurance on its Properties after that date or, if it can, that the premiums for the insurance will be reasonable. Income and real estate values may also be adversely affected by applicable laws, including tax laws, interest rate levels and the availability of financing. In addition, real estate investments are relatively illiquid and, therefore, the Company's ability to sell its Properties quickly in response to changes in economic or other conditions will be limited. In certain areas of the country there may be an oversupply of retail space. The Company cannot be sure that it will be able to lease space as tenants move out or as to the rents it may be able to charge the new tenants at such space. RELIANCE ON MAJOR TENANTS At December 31, 2003, the three largest tenants were the Limited Brands, Inc., Gap, Inc., and Saks, Inc., representing 3.9%, 3.0% and 2.4% of annualized minimum rents, respectively. No other tenant represented more than 2.0% of the aggregate annualized minimum rents of the Properties as of such date. The Company's financial position and ability to make distributions may be adversely affected by the bankruptcy, insolvency or general downturn in the business of any such tenant, or in the event any such tenant does not renew its lease as it expires. BANKRUPTCY OF TENANTS OR DOWNTURNS IN TENANTS' BUSINESSES MAY REDUCE CASH FLOW Since the Company derives almost all of its income from rental payments, its cash available for distribution would be adversely affected if a significant number of tenants were unable to meet their obligations, or if the Company was unable to lease vacant space in its Properties on economically favorable terms. At any time, a tenant may seek the protection of the bankruptcy laws, which could result in the rejection and termination of that tenant's lease and thereby cause a reduction in the cash available for distribution. If a tenant files for bankruptcy, the Company cannot be sure that it will affirm its lease and continue to make rental payments in a timely manner. Some rents are based on a percentage of the tenant's sales. A downturn in a tenant's business may weaken its financial condition and result in a reduction in the percentage rent paid by that tenant or in the failure to make rent payments when due. Furthermore, certain of its tenants, including anchor tenants, hold the right under their leases to terminate their leases or reduce their rental rate if certain occupancy conditions are not met, if certain anchor tenants are closed, if certain sales levels or profit margins are not achieved or if an exclusive use provision is violated, all of which may adversely affect operating results. RESULTS OF OPERATIONS FOR THE PROPERTIES DEPEND ON THE ECONOMIC CONDITIONS OF THE REGIONS OF THE UNITED STATES IN WHICH THEY ARE LOCATED Results of operations and distributions to shareholders will be subject generally to economic conditions in the regions in which the Company's Properties are located. For the year ended December 31, 2003, approximately 19% of annualized minimum rents came from Properties in Ohio. On January 5, 2004, the Company acquired the remaining interests in Polaris Mall, LLC., the owner of Polaris Fashion Place, and Polaris Center, LLC., the owner of Polaris Towne Center, a community center, both located in Columbus, Ohio. If the two Polaris Properties were included as of December 31, 2003, the percentage of annualized minimum rents from Properties in Ohio would have been 28%. INABILITY TO SUCCESSFULLY DEVELOP PROPERTIES OR OPERATE DEVELOPED PROPERTIES The Company intends to selectively pursue development projects. However, as a result of economic and other conditions, development projects may not be pursued or may be completed later or with higher costs than anticipated. These projects generally require various governmental and other approvals, which the Company cannot be sure it will receive. Development activities involving significant risks include the expenditure of funds on and devotion of time to projects which may not come to fruition; the risk that construction costs of a project may exceed original estimates, possibly making the project uneconomical; the risk that the Company may not be able to obtain construction financing and permanent financing and the risk that such financing terms may not be favorable; and the risk that occupancy rates and rents at a completed project will not be sufficient to make the project profitable. In the event of an unsuccessful development project, the loss could exceed the investment in the project. CERTAIN LIMITATIONS ON PROPERTY SALES AND CONFLICTS OF INTEREST GPLP may not enter into certain transactions, including the sale of all or substantially all of its assets, without consent from the holders of a majority of the units of partnership interest in GPLP (excluding Glimcher Realty Trust). This majority vote requirement effectively means that any such transaction must be approved by Herbert Glimcher and 31 his sons, David Glimcher and Michael Glimcher, because, together with their spouses, they own approximately 4.8% of the units in Glimcher Properties Limited Partnership (which constitutes a majority of the units in GPLP other than those owned by Glimcher Realty Trust) outstanding as of January 5, 2004. This veto right may limit the Company's ability to enter into a liquidating transaction that may be in the shareholders' interest. As a result of Herbert Glimcher's, David Glimcher's and Michael Glimcher's status as holders of both Common Shares and units, they have interests that conflict with shareholders with respect to business decisions affecting Glimcher Realty Trust and Glimcher Properties Limited Partnership. In particular, as holders of units, they may suffer different and/or more adverse tax consequences than Glimcher Realty Trust upon the sale or refinancing of some of the Company's Properties due to unrealized gains attributable to these Properties. Therefore, Glimcher Realty Trust may have objectives different from Herbert Glimcher, David Glimcher and Michael Glimcher regarding the appropriate pricing and timing of any sale or refinancing of certain of the Company's Properties. Although the Company (through a wholly owned subsidiary), as the sole general partner of Glimcher Properties Limited Partnership, has the exclusive authority as to whether and on what terms to sell, refinance or seek to purchase an interest in an individual property, Herbert Glimcher, David Glimcher and Michael Glimcher might seek to influence decisions with respect to these actions, even though those actions might otherwise be financially advantageous or adverse to Glimcher Realty Trust. They also may seek to influence management to refinance a Property with a higher level of debt than would be in Glimcher Realty Trust's best interests. SIGNIFICANT COSTS RELATED TO ENVIRONMENTAL ISSUES MAY BE INCURRED 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. The federal Comprehensive Environmental Response, Compensation & Liability Act, as amended, and similar state laws, impose liability on a joint and several basis, regardless of whether the owner, operator or other responsible party knew of or was at fault for the presence of such hazardous substances. In connection with the ownership or operation of its Properties, the Company could be liable for such costs in the future. The costs of any required remediation and liability therefore as to any Property could be substantial under these enactments and could exceed the value of the Property and or its aggregate assets. The presence of hazardous or toxic substances, or the failure to properly remediate such substances, also may adversely affect the Company's ability to sell or rent a Property or to borrow funds using such Property as collateral. In addition, environmental laws may impose restrictions on the manner in which the Company uses its Properties or operates its business, and these restrictions may require expenditures for compliance. The Company does not believe that it currently is subject to any material environmental remediation obligations. However, it cannot provide assurance that a material environmental claim or compliance obligation will not arise in the future. The costs of defending against any claims of liability, of remediating a contaminated property or of complying with future environmental requirements could be material and affect operating results. SIGNIFICANT COSTS COMPLYING WITH THE AMERICAN WITH DISABILITIES ACT AND SIMILAR LAWS MAY BE INCURRED Under the Americans with Disabilities Act of 1990, all public accommodations must meet federal requirements related to access and use by disabled persons. The Company may incur additional costs of complying with the Americans with Disabilities Act in the future. Additional federal, state and local laws also may require modifications to Properties, or restrict the Company's ability to renovate its Properties. The Company cannot predict the ultimate cost of complying with these laws. If substantial costs are incurred to comply with this statute and any other legislation, the financial condition, results of operations, cash flow, the Common Share value and ability to pay distributions could be adversely affected. FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE CONSEQUENCE The Company believes that it qualifies as a REIT under the Federal Internal Revenue 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, of which there are only a limited number of judicial or administrative interpretations, and the determination of various factual matters and circumstances not entirely within the Company's control and may impact the Company's ability to qualify as a REIT under the Code. In addition, the Company cannot be sure that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws relating to REITs, or the federal income tax consequences of REIT qualification. Congress has proposed legislation to modify certain tax rules concerning REITs. It is not known whether these or other laws will be enacted in the future and, if enacted, what impact they will have on its ability to operate as a REIT. 32 If the Company fails to qualify as a REIT, it will be subject to federal income tax (including any applicable alternative minimum tax) on taxable income at regular corporate income tax rates. In addition, unless entitled to relief under certain statutory provisions, it will 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. That would reduce net earnings available for investment or distribution to shareholders because of the additional tax liability imposed for the year or years involved. In addition, the Company 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 shareholders may have been made in anticipation of qualifying as a REIT, the Company might be required to borrow funds or to liquidate certain of its investments to pay the applicable tax. OWNERSHIP INTERESTS IN CERTAIN PARTNERSHIPS AND OTHER VENTURES ARE SUBJECT TO CERTAIN TAX RISKS All of the Company's property interests and other investments are made or held through Glimcher Properties Limited Partnership or partnerships, limited liability companies or other ventures in which Glimcher Properties Limited Partnership has an interest (the "Subsidiary Partnerships"). The ownership of these interests may involve special tax risks for us. These risks include possible challenge by the Internal Revenue Service ("IRS") of allocations of income and expense items which could affect the computation of the Company's taxable income, or a challenge to the status of GPLP or the Subsidiary Partnerships as partnerships (as opposed to associations taxable as corporations) for federal income tax purposes, as well as the possibility of action being taken by, GPLP or the Subsidiary Partnerships that could adversely affect qualification as a REIT, for example, by requiring the sale of a property. The Company believes that GPLP and each of the Subsidiary Partnerships have been and will be treated for tax purposes as partnerships (and not treated as associations taxable as corporations). If the 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 the Company's assets, the Company 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 the Company would not be able to deduct its share of losses, if any, generated by such entity in computing its taxable income. ABILITY TO ACCESS OTHER SOURCES OF FUNDS IN ORDER TO MEET REIT DISTRIBUTION REQUIREMENTS In order to qualify to be taxed as a REIT, the Company must make annual distributions to shareholders of at least 90% of the REIT's taxable income (determined by excluding any net capital gain). The amount available for distribution will be affected by a number of factors, including cash flow generated by its Properties, distributions received from its subsidiaries, operating expenses and capital expenditures. The Company has sold a number of non-core assets and intends in the future to sell additional selected non-core assets. The loss of rental income associated with the Properties sold will in turn affect net income and FFO. In order to maintain REIT status, the Company may be required to make distributions in excess of net income and FFO. In such case, it may be necessary to arrange for short-term (or possibly long-term) borrowings, or to issue preferred or other securities, to raise funds. THERE ARE LIMITS ON THE OWNERSHIP OF COMMON SHARES AND LIMITS ON CHANGES IN CONTROL RESULTING FROM A STAGGERED BOARD AND ABILITY TO ISSUE PREFERRED SHARES In order to maintain the Company's qualification as a REIT for federal income tax purposes, not more than 50% in value of the outstanding Common Shares 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. To ensure that the Company will not fail to qualify as a REIT under this test, the Company's organizational documents authorize the trustees to take such action as may be required to preserve qualification as a REIT and to limit any person, other than Herbert Glimcher, David Glimcher and any of the trustees, employees and other persons approved by the trustees, to direct or indirect ownership of (i) 8.0% of the lesser of the number or value of the outstanding Common Shares and (ii) 9.9% of the lesser of the number or value of the total Series G Preferred Shares outstanding. The trustees may not grant exemptions from these ownership limitations if it would cause the status as a REIT to terminate for federal income tax purposes. Herbert Glimcher and David Glimcher are limited to an aggregate of 25% direct or indirect ownership of the Company's Common Shares. The trustees have also granted an exemption to Cohen & Steers Capital Management, Inc. permitting them to own, directly or indirectly, of record or beneficially (i) up to 600,000 Series F Preferred Shares and (ii) up to 14.9% of the lesser of the number or values of the outstanding shares of any other class of the Company's equity securities. However, in no event, shall they be permitted to own, directly or indirectly, of record or beneficially, more than 14.9% of the lesser of the number or value of all outstanding shares of the Company's equity securities. Despite these provisions, the Company cannot be sure that there will not be five or fewer individuals who will own more that 50% in value of its outstanding Common Shares, thereby causing the Company to fail to qualify as a REIT. The ownership limits may also discourage a change of control of the Company. 33 The Company's Board of Trustees is divided into three classes. The terms of Class I, Class II and Class III trustees currently expire in 2004, 2005 and 2006, respectively. Trustees for each class will be chosen for a three-year term upon the expiration of their current term and each year one class of trustees will be elected by the shareholders. The staggered terms for trustees may affect the ability of the shareholders to change control of the Company even if a change of control were in the interests of the shareholders. CERTAIN FINANCING ARRANGEMENTS CONTAIN LIMITATIONS ON THE AMOUNT OF DEBT THE COMPANY MAY INCUR The Company's Credit Facility is the most restrictive of its financing arrangements, and as of December 31, 2003, the total borrowings outstanding under the Credit Facility were $80.8 million, and the additional amount that may be borrowed from this facility or other sources based upon the restrictive covenants in the Credit Facility is $190.1 million as of December 31, 2003. The ratio of total debt-to-total-market capitalization was 55.5% as of December 31, 2003. As used herein, "total market capitalization" means the sum of the outstanding amount of all indebtedness, the total liquidation preference of all preferred shares and the total market value of Common Shares and units of partnership interest of Glimcher Properties Limited Partnership (based on the closing price of shares as of December 31, 2003). THE VARIABLE RATE OF DEBT OBLIGATIONS MAY IMPEDE THE COMPANY'S OPERATING PERFORMANCE AND CREATE A COMPETITIVE DISADVANTAGE Required repayments of debt and related interest can adversely affect the Company's operating performance. As of December 31, 2003, approximately $205.6 million of its indebtedness bears interest at a variable rate. After taking into account the $4.2 million outstanding letters of credit and the Company has the ability to borrow up to an additional $65.0 million under its existing Credit Facility, which bears interest at a variable rate. An increase in interest rates on existing indebtedness would increase interest expense, which could adversely affect cash flow and ability to pay distributions. For example, if market rates of interest on variable rate debt outstanding as of December 31, 2003, increased by 100 basis points, the increase in interest expense on existing variable rate debt would decrease future earnings and cash flows by approximately $1.7 million annually. FINANCIAL CONDITION AND DISTRIBUTIONS COULD BE ADVERSELY AFFECTED BY FINANCIAL COVENANTS The Company's mortgage indebtedness and Credit Facility impose certain financial and operating restrictions on its Properties and also impose restrictions on subordinated financing secured by such Properties and financings of other assets and Properties. These restrictions include restrictions on borrowings, prepayments and distributions. Additionally, the Credit Facility requires certain financial tests to be met and some of the mortgage indebtedness provides for prepayment penalties, each of which could restrict financial flexibility. RISKS ASSOCIATED WITH INFORMATION SYSTEMS The Company is continuing to implement new information systems and problems with the design or implementation of these new systems could interfere with the Company's operations. The Company has successfully completed the first phase of its enterprise resource planning (ERP) software implementation and is in the process of implementing the second phase of the conversion to ERP to replace the lease administration, recoveries accounting, budgeting and treasury management systems. The Company may not be successful in implementing these new systems and transitioning data. Although the Company believes that it has identified, to a large extent, potential problems that could be associated with the implementation, unexpected problems could arise that have not been foreseen. As the Company continues implementation and enhancing functionality, the operations could be further disrupted. Such disruptions could adversely impact the ability to invoice tenants, process cash receipts and generate key management reports and financial statements. THE FAILURE TO FULLY RECOVER FROM TENANTS COST REIMBURSEMENTS FOR CAM, TAXES AND INSURANCE COULD ADVERSELY AFFECT THE COMPANY'S OPERATING RESULT The computation of cost reimbursements from tenants for CAM, insurance and real estate taxes is complex and involves numerous judgments including interpretation of terms and other tenant lease provisions. Leases are not uniform in dealing with such cost reimbursements and there are variations in computations dealing with such matters as: which costs are includable or not includable for reimbursement, what is the square footage of the overall property space to determine the pro-rata percentages and the applicability of cost limitation provisions, among other things. Most tenants make monthly fixed payments of CAM, real estate taxes and other cost reimbursements items. The Company records these payments as income each month. The Company also makes adjustments, positive or negative, to adjust the recorded amounts to the Company's best estimate of the final amounts to be billed and collected with respect to cost reimbursements. After the end of the calendar year, the Company computes each tenant's final cost reimbursements and issues a bill or credit for the full amount, after considering amounts paid by the tenants during the year. The differences between the amounts billed, less previously received payments and the accrual adjustments, are recorded as increases or decreases to cost recovery income when the final bills are prepared, usually beginning in March and completed by June. 34 Final adjustments for the year ended December 31, 2003 have not yet been determined. At December 31, 2003 the Company had recorded in accounts receivables $3.2 million of costs expected to be recovered from tenants during the first six months of 2004. Any amounts of this outstanding receivable balance written off will be charged to bad debt expense at the end of the first six months of 2004. SIGNIFICANT COMPETITION EXISTS WHICH MAY DECREASE THE OCCUPANCY AND RENTAL RATES OF THE COMPANY'S PROPERTIES The Company competes with many commercial developers, real estate companies and major retailers. Some of these entities develop or own malls, value-oriented retail properties and community shopping centers that compete for tenants. The Company faces competition for prime locations and for tenants. New regional malls 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. In addition, many traditional retailers compete for the same consumers. Furthermore, retailers at the Properties may face increasing competition from e-commerce, outlet malls, discount shopping clubs, catalog companies, direct mail, telemarketing and home shopping networks. OPERATIONS COULD BE AFFECTED IF THE COMPANY LOSES KEY MANAGEMENT PERSONNEL The executive officers of the Company have substantial experience in owning, operating, managing, acquiring and developing shopping centers. Success depends in large part upon the efforts of these executives, and the Company cannot guarantee that they will remain with the Company. The loss of key management personnel in leasing, finance, legal and operations could have a negative impact on operations. In addition, there are no restrictions on the ability of these executives to compete with the Company after termination of their employment. DEBT FINANCING COULD ADVERSELY AFFECT PERFORMANCE The Company had $1.3 billion of combined mortgage indebtedness and Credit Facility borrowings outstanding as of December 31, 2003. Of the outstanding debt, $263.1 million matures during 2004. As of December 31, 2003, the Company has borrowed $80.8 million from its $150 million secured Credit Facility which matures on October 16, 2006. A number of outstanding loans will require lump sum or "balloon" payments for the outstanding principal balance at maturity, and the Company may finance future investments that may be structured in the same manner. The ability to repay indebtedness at maturity or otherwise may depend on its ability either to refinance such indebtedness or to sell its Properties. If the Company is unable to repay any of its debt at or before maturity, it may have to borrow against Properties that are not encumbered or under its Credit Facility, to the extent it has availability thereunder, to make such repayments. In addition, a lender could foreclose on the Property or Properties securing its debt. This could cause the Company to lose part or all of its investment, which could reduce the value of Common Shares and the distributions payable. Fourteen of the Company's Properties are pledged as security for repayment of mortgage indebtedness or indebtedness under its Credit Facility. THE COMPANY'S BOARD OF TRUSTEES HAS UNLIMITED AUTHORITY TO INCREASE THE AMOUNT OF DEBT THE COMPANY MAY INCUR The Board of Trustees determines financing objectives and the amount of the indebtedness the Company may incur and makes revisions at any time without a shareholder's vote. Although the trustees have no present intention to change these objectives, revisions could result in a more highly leveraged Company with an increased risk of default on indebtedness and an increase in debt service charges. The Company may also, without shareholder vote, continue to use leverage through borrowing under its Credit Facility and on its unencumbered Properties to increase the number and size of its investments. INFLATION Inflation has remained relatively low during the past three years and has had a minimal impact on the Company's Properties. Many tenants' leases contain provisions designed to lessen the impact of inflation. Such provisions include clauses enabling the Company to receive percentage rentals based on tenants' gross sales, which generally increase as prices rise, and/or escalation clauses, which generally increase rental rates during the terms of the leases. In addition, many of the leases are for terms of less than 10 years, which may enable the Company to replace existing leases with new leases at higher base and/or percentage rentals if rents in the existing leases are below the then-existing market rate. Substantially all of the leases, other than those for anchors, require the tenants to pay a proportionate share of CAM, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. 35 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure is interest rate risk. The Company uses interest rate protection agreements to manage interest rate risks associated with long-term, floating rate debt. At December 31, 2003 and 2002 approximately 84.1% and 70.9%, respectively, of the Company's debt, after giving effect to interest rate protection agreements, bore interest at fixed rates with weighted-average maturity of 6.4 years and 5.5 years, respectively, and weighted-average interest rates of approximately 6.59% and 7.07%, respectively. The remainder of the Company's debt at December 31, 2003 and 2002, bears interest at variable rates with weighted-average interest rates of approximately 4.09% and 5.21%, respectively. At December 31, 2003 and 2002, the fair value of the Company's debt (excluding its Credit Facility) was $1,255.2 million and $1,010.5 million, respectively, compared to its carrying amounts of $1,214.3 million and $956.1 million, respectively. The Company's combined future earnings, cash flows and fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily LIBOR. Based upon consolidated indebtedness and interest rates at December 31, 2003 and 2002, a 100 basis points increase in the market rates of interest would decrease future earnings and cash flows by $1.7 million and $1.5 million, respectively, and decrease the fair value of debt by approximately $50.1 million and $27.4 million, at the respective balance sheet dates. A 100 basis points decrease in the market rates of interest would increase future earnings and cash flows by $1.7 million and $1.5 million, respectively, and increase the fair value of debt by approximately $54.0 million and $29.6 million, at the respective balance sheet dates. The Company has entered into certain cap and floor agreements, which impact this analysis at certain LIBOR rate levels (see Notes 3 and 7 to the consolidated financial statements). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and financial statement schedules of Glimcher Realty Trust and the Report of Independent Auditors thereon are filed pursuant to this Item 8 and are included in this report in Item 15. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures: The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. The Company's disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis in the Company's periodic reports filed with the Securities and Exchange Commission. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company's periodic reports. Accordingly, as a result of the inquiry into a related party transaction in connection with the Company's City Park development project as discussed below, the Company is in the process of implementing certain process and control improvements which are also set forth below. In February 2004, the Audit Committee of the Board of Trustees of the Company, through the Company's existing processes and controls, became aware that the Company may have engaged in a related party transaction in connection with the City Park development project resulting from Ellen Glimcher, the daughter of Herbert Glimcher and sister of Michael Glimcher, acting through Dell Property Group, Ltd., having a financial relationship with HP Development LLC, one of the third parties involved in this project (for a discussion of this related party transaction, please see Note 10 to the consolidated financial statements of the Company). This situation was brought to the attention of the Audit Committee through the Company's existing process and controls for determining the existence of related party transactions in connection with the preparation of the Company's annual report on Form 10-K and its annual proxy statement. The Audit Committee undertook a review of the facts and circumstances surrounding the City Park development project. Based on this review, the Audit Committee concluded that the non-disclosure to the Company of the Company's involvement in a related party transaction in connection with the City Park development project was not intentional and was based on a misinterpretation of what constitutes a related party transaction. In addition, the Audit Committee approved and ratified in all respects the Company's involvement with and in the City Park development project. 36 In light of the Audit Committee's inquiry, the Company is in the process of implementing the following process and control improvements, among others: - The adoption of enhanced related party transaction guidelines by the Audit Committee. - Improving the process and controls for identifying related party transactions. - The review by the internal audit group of the Company of the process and controls for determining related party transactions on a quarterly basis and to periodically report on such process and controls to the Audit Committee. - The review by the Audit Committee of the procedures and process controls implemented in relation to related party transactions on a periodic basis, at least annually. (b) Internal Control Over Financial Reporting: There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding trustees, audit committee members and executive officers of the Company is incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year-end of the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 7, 2004. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation of the Company is incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year-end of the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 7, 2004. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the Company's equity compensation plans in effect as of December 31, 2003 is as follows: EQUITY COMPENSATION PLAN INFORMATION Number of securities remaining available for Number of Weighted future issuance securities to average under Equity be issued upon exercise compensation exercise of price of plans outstanding outstanding (excluding options, options, securities warrants and warrants and reflected in Plan Category rights rights column(a)) ------------- --------------- ------------- -------------- (a) (b) (c) Equity compensation plans approved by shareholders 2,235,226 $17.601 543,156 Equity compensation plans not approved by shareholders N/A N/A N/A Additional information regarding security ownership of certain beneficial owners and management of the Company is incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year end of the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 7, 2004. 37 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions of the Company is incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year end of the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 7, 2004. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information regarding principal accountant fees and services of the Company is incorporated herein by reference to GRT's definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the year end of the year covered by this Form 10-K with respect to its Annual Meeting of Shareholders to be held on May 7, 2004. ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K Page Number ----------- (a) (1) Financial Statements - Report of Independent Auditors...................... 47 - Glimcher Realty Trust Consolidated Balance Sheets as of December 31, 2003 and 2002........... 48 - Glimcher Realty Trust Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2003, 2002 and 2001 ........... 49 - Glimcher Realty Trust Consolidated Statements of Shareholders' Equity for the years ended December 31, 2003, 2002 and 2001.................. 50 - Glimcher Realty Trust Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001..................................... 51 - Notes to Consolidated Financial Statements.......... 52 (2) Financial Statement Schedules - Schedule II - Valuation and Qualifying Accounts and Reserves...................................... 75 - Schedule III - Real Estate and Accumulated Depreciation...................................... 76 - Notes to Schedule III............................... 81 (3) Exhibits 3.1 Amended and Restated Declaration of Trust of Glimcher Realty Trust. (1) 3.2 Bylaws, as amended. (1) 3.3 Amendment to the Company's Amended and Restated Declaration of Trust. (2) 3.4 Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.5 Amendment to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.6 Amendment No. 1 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.7 Amendment No. 2 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.8 Amendment No. 3 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.9 Amendment No. 4 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.10 Amendment No. 5 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.11 Amendment No. 6 to Limited Partnership Agreement of Glimcher Properties Limited Partnership. (3) 3.12 Amendment No. 7 to Limited Partnership Agreement of Glimcher Properties Limited Partnership dated August 7, 2003. (4) 3.13 Articles Supplementary classifying 2,800,000 Shares of Beneficial Interest as 8.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest of the Registrant. (5) 4.1 Specimen Certificate for Common Shares of Beneficial Interest. (1) 4.4 Specimen Certificate evidencing 9 -1/4% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest. (6) 4.5 Specimen Certificate for evidencing 8.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest (5) 38 10.20 Glimcher Realty Trust 1993 Employee Share Option Plan. (1) 10.21 Glimcher Realty Trust 1993 Trustee Share Option Plan. (1) 10.29 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of twenty seven million six hundred thousand dollars ($27,600,000). (7) 10.30 Exemplar Open-End Mortgage, Security Agreement and Fixture Filing issued by Glimcher Properties Limited Partnership in connection with the Connecticut General Life Insurance Company Loan. (7) 10.31 Exemplar Second Mortgage and Security Agreement dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in connection with the Connecticut General Life Insurance Company Loan. (7) 10.32 Exemplar Assignment of Rents and Leases dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in connection with the Connecticut General Life Insurance Company Loan. (7) 10.33 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of six million two hundred thousand dollars ($6,200,000). (7) 10.34 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of three million six hundred thousand dollars ($3,600,000). (7) 10.35 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of three million three hundred thousand dollars ($3,300,000). (7) 10.36 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of four million two hundred thousand dollars ($4,200,000). (7) 10.37 Promissory Note dated as of October 26, 1995, issued by Glimcher Properties Limited Partnership in the amount of five million one hundred thousand dollars ($5,100,000). (7) 10.48 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Herbert Glimcher. (3) 10.49 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and William G. Cornely. (3) 10.51 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Michael P. Glimcher. (3) 10.52 Severance Benefits Agreement dated June 11, 1997, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and George A. Schmidt. (3) 10.58 Promissory Note dated as of December 17, 1997, issued by Glimcher University Mall Limited Partnership in the amount of sixty four million eight hundred ninety eight thousand five hundred forty six dollars ($64,898,546). (8) 10.59 Mortgage, assignment of rents, security agreement and fixture filing by Glimcher University Mall Limited Partnership to Nomura Asset Capital Corporation dated as of December 17, 1997. (8) 10.60 Glimcher Realty Trust 1997 Incentive Plan. (3) 10.62 Exhibit A to Glimcher Properties Limited Partnership Agreement, as amended, showing new OP Unit holders following the purchase of Polaris Center, LLC. (3) 10.68 Promissory note dated as of July 15, 1998, issued by Montgomery Mall Associates Limited Partnership in the amount of forty seven million seven hundred fifty thousand dollars ($47,750,000). (9) 10.69 Mortgage and security agreement by Montgomery Mall Associates Limited Partnership to Lehman Brothers Holdings, Inc. dated as of July 15, 1998. (9) 10.72 Promissory Note dated as of September 1, 1998, issued by Morgantown Mall Associates Limited Partnership in the amount of fifty eight million three hundred fifty thousand dollars ($58,350,000). (9) 10.73 Deed of trust, assignment of leases and rents and security agreement by Morgantown Mall Associates Limited Partnership to Michael B. Keller (Trustee) for the use and benefit of The Capital Company of America, LLC dated as of September 1, 1998. (9) 10.85 Promissory Note dated as of November 1, 1998, issued by Glimcher Properties Limited Partnership in the amount of nineteen million dollars ($19,000,000). (9) 10.86 Deed of Trust and security agreement by Grand Central Limited Partnership for the benefit of Lehman Brothers Holdings Inc. dated as of January 21, 1999. (10) 10.87 Promissory Note dated as of January 21, 1999, issued by Grand Central Limited Partnership in the amount of fifty two million five hundred thousand dollars ($52,500,000). (10) 10.88 Deed of Trust Security Agreement by Weberstown Mall, LLC for the benefit of Lehman Brothers Holding Inc. dated as of April 26,1999. (11) 10.89 Promissory Note dated as of April 26, 1999, issued by Weberstown Mall, LLC in the amount of twenty million five hundred thousand dollars ($20,500,000). (11) 39 10.90 Term Note dated as of June 17, 1999, issued by Glimcher Properties Limited Partnership in the amount of twenty two million five hundred thousand dollars ($22,500,000). (11) 10.91 Deed of Trust, Assignment of Rents and Security Agreement by Glimcher Properties Limited Partnership for the benefit of KeyBank National Association dated as of June 17, 1999. (11) 10.92 Executed form of Open End Mortgage Assignment of Rents and Security Agreement for each of the two individual mortgages, dated, June 17, 1999 and issued by Glimcher Properties Limited Partnership for the benefit of KeyBank National Association dated as of June 17, 1999. (11) 10.93 A Deed of Trust, Assignment of Rents and Security Agreement by Glimcher Properties Limited Partnership for the benefit of KeyBank National Association dated as of June 17, 1999. (11) 10.94 Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing by Glimcher Properties Limited Partnership for the benefit of KeyBank National Association dated as of June 17, 1999. (11) 10.95 Amended and Restated Term Note as of June 17, 1999, issued by Glimcher Properties Limited Partnership in the amount of twenty four million three hundred seventy five thousand dollars ($24,375,000). (11) 10.107 Security Agreement - Interest Rate Protection Contract dated as of June 17, 1999, executed by Glimcher Properties Limited Partnership in favor of Huntington as Administrative Agent for the lenders. (11) 10.108 Mortgage, Security Agreement and Financing Statement by Glimcher Properties Limited Partnership to Jackson National Life Insurance dated as of June 28, 1999. (12) 10.109 Deed of Trust, Security Agreement, Fixture Filing and Financing Statement by Glimcher Properties Limited Partnership to Jackson National Life Insurance dated as of June 28, 1999. (12) 10.110 Mortgage, Security Agreement Fixture Filing and Financing Statement by Glimcher Properties Limited Partnership to Jackson National Life Insurance dated as of June 28, 1999. (12) 10.111 Deed of Trust, Security Agreement, Fixture Filing and Financing Statement by Glimcher Properties Limited Partnership to Jackson National Life Insurance dated as of June 28, 1999. (12) 10.112 Deed of Trust, Security Agreement, Fixture Filing and Financing Statement by Glimcher Properties Limited Partnership to Jackson National Life Insurance dated as of June 28, 1999. (12) 10.113 Promissory Note dated as of June 28, 1999, issued by Glimcher Properties Limited Partnership in the amount of ninety million dollars ($90,000,000). (12) 10.114 Deed to Secure Debt and Security Agreement by Glimcher Properties Limited Partnership to Jackson National Life Insurance dated as of October 12, 1999. (12) 10.123 Mortgage and Security Agreement by Glimcher Westpark Plaza, LLC to Lehman Brothers Bank, FSB dated as of August 2, 2001. (13) 10.124 Promissory Note dated as of August 2, 2001, issued by Glimcher Westpark Plaza, LLC in the amount of two million five hundred thirty eight thousand dollars ($2,538,000). (13) 10.125 Deed of Trust, Security Agreement, by Shady Springs Plaza, LLC to Lehman Brothers Bank, FSB dated as of August 2, 2001. (13) 10.126 Promissory Note dated as of August 2, 2001, issued by Shady Springs Plaza, LLC in the amount of two million nine hundred eighty five dollars ($2,985,000). (13) 10.127 Open-end Mortgage and Security Agreement by New Boston Mall, LLC to Lehman Brothers Bank, FSB dated as of August 2, 2001. (13) 10.128 Promissory Note dated as of August 2, 2001, issued by New Boston Mall, LLC in the amount of three million eight hundred thousand dollars ($3,800,000). (13) 10.129 Mortgage and Security Agreement by Morningside Plaza, LLC to Lehman Brothers Bank, FSB dated as of August 2, 2001. (13) 10.130 Promissory Note dated as of August 2, 2001, issued by Morningside Plaza, LLC in the amount of two million six hundred fifty dollars ($2,650,000). (13) 10.133 Open-end Mortgage and Security Agreement by Mount Vernon Venture, LLC to Lehman Brothers Bank, FSB dated as of January 16, 2001. (13) 10.134 Promissory Note dated as of January 16, 2001, issued by Mount Vernon Venture, LLC in the amount of nine million three hundred thousand dollars ($9,300,000). (13) 10.141 First Amendment to Third Amended and Restated Loan Agreement among The Huntington National Bank, KeyBank National Association and LaSalle Bank, N.A. dated as of August 1, 2001. (13) 10.142 Substitute Revolving Note dated as of August 1, 2001, issued by The Huntington National Bank in the amount of $30,000,000. (13) 40 10.143 Substitute Revolving Note dated as of August 1, 2001, issued by Bankers Trust Company in the amount of $20,000,000. (13) 10.144 Substitute Revolving Note dated as of August 1, 2001, issued by LaSalle Bank N.A. in the amount of $20,000,000. (13) 10.145 Substitute Revolving Note dated as of August 1, 2001, issued by KeyBank National Association in the amount of $30,000,000. (13) 10.146 Mortgage, Security Agreement, Absolute Assignment of Leases and Rents and Fixture Filing by Glimcher Northtown Venture, LLC to Bankers Trust Company dated as of August 30, 2001. (13) 10.147 Senior Promissory Note dated as of August 30, 2001, issued by Glimcher Northtown Venture, LLC in the amount of thirty one million dollars ($31,000,000). (13) 10.148 Junior Mortgage, Security Agreement, Absolute Assignment of Leases and Rents and Fixture Filing by Glimcher Northtown Venture, LLC to Bankers Trust Company dated as of August 30, 2001. (13) 10.149 Junior Promissory Note dated as of August 30, 2001, issued by Glimcher Northtown Venture, LLC in the amount of nine million dollars ($9,000,000). (13) 10.150 Mortgage and Security Agreement by Barren River Plaza, LLC to Lehman Brothers Bank, FSB dated as of December 20, 2001. (13) 10.151 Promissory Note dated as of December 20, 2001, issued by Barren River Plaza, LLC in the amount of seven million nine hundred thousand dollars ($7,900,000). (13) 10.152 Fee and Leasehold Deed of Trust and Security Agreement by Glimcher Lloyd Center, LLC to Lehman Brothers Bank, FSB dated as of October 12, 2001. (13) 10.153 Promissory Note dated as of October 12, 2001, issued by Glimcher Lloyd Center, LLC in the amount of one hundred thirty million dollars ($130,000,000). (13) 10.154 Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing by Glimcher Ashland Venture, LLC to KeyBank National Association dated as of October 12, 2001. (13) 10.155 Promissory Note dated as of October 12, 2001 issued by Glimcher Ashland Venture, LLC in the amount of twenty seven million dollars ($27,000,000). (13) 10.156 Open-end Mortgage and Security Agreement, by Hocking Valley Mall, LLC to Golden American Life Insurance Company dated January 17, 2002. (14) 10.157 Mortgage Note dated as of January 17, 2002 issued by Hocking Valley Mall, LLC in the amount of four million five hundred thousand ($4,500,000.00). (14) 10.158 Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing Statement by Glimcher Buena Vista, LLC to Fidelity National Title Agency and National City Bank dated March 28, 2002. (14) 10.159 Mortgage Note dated as of March 28, 2002 issued by Glimcher Buena Vista, LLC in the amount of $7,700,000.00. (14) 10.160 Mortgage Note dated as of April 16, 2002, issued by Southside Mall, LLC in the amount of seven million six hundred thirty seven thousand five hundred dollars ($7,637,500.00). (15) 10.161 Mortgage, Assignment of Rents and Security Agreement by Southside Mall, LLC to Bank One, NA dated as of April 16, 2002. (15) 10.162 Combined Fee and Leasehold Mortgage, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits by N.J. MetroMall Urban Renewal, Inc. and Glimcher Jersey Gardens, LLC to German American Capital Corporation dated as of May 31, 2002. (15) 10.163 Note dated as of May 31, 2002 issued by Glimcher Jersey Gardens, LLC in the amount of one hundred thirty five million dollars ($135,000,000.00) (15) 10.164 Mezzanine Promissory Note dated as of May 31, 2002, issued by DB Realty Mezzanine Investment Fund II, LLC in the amount of thirty million dollars ($30,000,000.00). (15) 10.165 Severance Benefits Agreement dated June 18, 2002 by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and John P. Hoeller. (15) 10.166 Severance Benefits Agreement dated June 26, 2002, by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Thomas J. Drought, Jr. (15) 10.167 First Amendment to and Amendment and Restatement of Loan Agreements and other Loan Documents among Glimcher Properties Limited Partnership and New Boston Mall, LLC and Lehman Brothers Bank, FSB of certain Loan Documents dated as of July 15, 2002. (16) 10.168 Modification Agreement by Morningside Plaza, LLC and Lehman Brothers Bank, FSB in the amount of two million six hundred fifty thousand dollars ($2,650,000.00) dated as of July 15, 2002. (16) 10.169 Guaranty of payment by Glimcher Properties Limited Partnership, Glimcher Properties Corporation and Glimcher Development Corporation in favor of Lehman Brothers Bank, FSB dated July 15, 2002. (16) 41 10.170 Modification Agreement by Shady Springs Plaza, LLC and Lehman Brothers Bank, FSB of certain Loan Documents in the amount of two million nine hundred eight five thousand dollars ($2,985,000.00) dated as of July 15, 2002. (16) 10.171 Mortgage note dated as of October 30, 2002 issued by Glimcher Properties Limited Partnership in the amount of fifteen million one hundred ninety thousand dollars ($15,190,000.00). (17) 10.172 Mortgage, Assignment of Rents and Security Agreement by Glimcher Properties Limited Partnership to Bank One, NA dated as of October 30, 2002. (17) 10.173 Open-Ended Mortgage, Assignment of Rents and Security Agreement by Glimcher Properties Limited Partnership to Bank One, NA dated as of October 30, 2002. (17) 10.174 Deed of Trust, Assignment of Rents and Security Agreement by Glimcher Properties Limited Partnership to Bank One, NA dated as of October 30, 2002. (17) 10.175 Mortgage, Assignment of Rents and Security Agreement by Glimcher Properties Limited Partnership by Bank One, NA dated as of October 30, 2002. (17) 10.176 Mortgage Note dated as of February 21, 2003 issued by Glimcher Properties Limited Partnership in the amount of five million dollars ($5,000,000.00). (18) 10.177 Mortgage, Assignment of Rents Security Agreement and Fixture filing by Glimcher Properties Limited Partnership to Bank One, NA dated as of February 21, 2003. (18) 10.178 Severance Benefits Agreement dated December 31, 2002 by and among Glimcher Realty Trust, Glimcher Properties Limited Partnership and Melinda A. Janik. (19) 10.179 Note dated June 30,2003 issued by LC Portland, LLC in the amount of seventy million dollars ($70,000,000.00). (19) 10.180 Note dated June 30, 2003 issued by LC Portland, LLC in the amount of seventy million dollars ($70,000,000.00). (19) 10.181 Purchase and Sale Agreement and Escrow Instructions, dated as of June 30, 2003, between American Freeholds, a Nevada general partnership, and Glimcher Properties Limited Partnership, a Delaware limited partnership relating to WestShore Plaza Mall. (20) 10.182 Second Amendment to WestShore Plaza Mall Purchase and Sales Agreement and Escrow Instructions, dated as of August 26, 2003, between American Freeholds, a Nevada general partnership, and Glimcher Properties Limited Partnership, a Delaware limited partnership, relating to WestShore Plaza Mall. (20) 10.183 Membership Interest Purchase Agreement, dated as of June 20, 2003, between HIG Mall, LLC, a Florida limited liability company, and Glimcher Properties Limited Partnership, a Delaware limited partnership, relating to Eastland Mall. (20) 10.184 Promissory Note A1 dated as of August 27, 2003, issued by Glimcher Westshore, LLC in the amount of sixty six million dollars ($66,000,000). (20) 10.185 Promissory Note A2 dated as of August 27, 2003, issued by Glimcher Westshore, LLC in the amount of thirty four million dollars ($34,000,000). (20) 10.186 Mortgage, Assignment of Leases and Rents and Security Agreement by Glimcher Westshore, LLC to Morgan Stanley Mortgage Capital, Inc. dated as of August 27, 2003. (20) 10.187 Guarantee by Glimcher Properties Limited Partnership to Morgan Stanley Mortgage Capital, Inc. dated as of August 27, 2003, relating to WestShore Plaza Mall. (20) 10.188 Note dated as of August 11, 1998 issued by Eastland Mall Limited Partnership to The Capital Company of America, LLC in the amount of forty six million six hundred seventy three thousand two hundred twenty five dollars ($46,673,225). (20) 10.189 Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of August 11, 1998 by Eastland Mall Limited Partnership to M. Jay Devaney, as Trustee, for the benefit of The Capital Company of America, LLC. (20) 10.190 Promissory Note dated as of October 1, 1997, issued by Catalina Partners, L.P. to Nomura Asset Capital Corporation in the amount of thirty six million ($36,000,000), relating to Colonial Park Mall. (20) 10.191 Open-end Fee Mortgage, Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture Filing dated as of October 1, 1997 by Catalina Partners, L.P. to Nomura Asset Capital Corporation, relating to Colonial Park Mall. (20) 10.192 Credit Agreement, dated as of October 17, 2003, by and among GPLP, KeyNank National Association, as administrative agent and lead arranger, and the several lenders thereto. (21) 10.193 Credit Agreement (Acquisition), dated as of October 17, 2003, by and among GPLP, KeyBank National Association, as administrative agent and lead arranger, and the several lenders thereto. (21) 10.194 Guaranty From Parent Entities, dated October 17, 2003, by GRT and GPLP to KeyBank National Association, relating to the Credit Facility. (21) 42 10.195 Subsidiary Guaranty, dated October 17, 2003, by New Boston Mall, LLC and Glimcher Northtown Venture, LLC to KeyBank National Association, relating to the Credit Facility. (21) 10.196 Open End Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the mortgage on Chillicothe, Ohio for the Credit Facility. (21) 10.197 Open End Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the mortgage Indian Mound Mall in Heath, Ohio for the Credit Facility. (21) 10.198 Open End Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to a mortgage on New Towne Mall, in New Philadelphia, Ohio for the Credit Facility. (21) 10.199 Open End Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to a mortgage on New Boston Mall in Portsmouth, Ohio for the Credit Facility. (21) 10.200 Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the mortgage on Clarksville Plaza in Clarksville, Indiana for the Credit Facility. (21) 10.201 Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the mortgage on Logan Place in Russelville, Kentucky for the Credit Facility. (21) 10.202 Mortgage Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the mortgage on Prestonburg Village in Prestonburg, Kentucky for the Credit Facility. (21) 10.203 Mortgage, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the mortgage on Gratiot Center in Saginaw, Michigan for the Credit Facility. (21) 10.204 Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, by GPLP to Chicago Title Insurance Company, as Trustee for the benefit of KeyBank National Association relating to Sycamore Square in Ashland City, Tennessee and Liberty Plaza in Morristown, Tennessee for the Credit Facility. (21) 10.205 Amended and Restated Mortgage, Security Agreement, Absolute Assignment of Leases and Rents and Fixture Filing, dated October 17, 2003, between Glimcher Northtown Venture, LLC and KeyBank National Association for the Credit Facility. (21) 10.206 Future Advance Deed of Trust Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, by GPLP to Chicago Title Insurance Company as Trustee for the benefit of KeyBank National Association, relating to Walnut Cove Shopping Center in Walnut Cove, North Carolina for the Credit Facility. (21) 10.207 Credit Line Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, between GPLP and KeyBank National Association, relating to Twin County Plaza in Galax, Virginia for the Credit Facility. (21) 10.208 Credit Line Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, dated October 17, 2003, made by GPLP to Molly Baber Frick as Trustee for the benefit of KeyBank National Association, relating to Pea Ridge Plaza in Huntington, West Virginia for the Credit Facility. (21) 10.209 Promissory Note A1, dated October 17, 2003, between MFC Beavercreek, LLC and KeyBank National Association, relating to the Mall at Fairfield Commons in Beavercreek, Ohio. (21) 10.210 Promissory Note A2, dated October 17, 2003, between MFC Beavercreek, LLC and KeyBank National Association, relating to the Mall at Fairfield Commons in Beavercreek, Ohio. (21) 10.211 Open End Mortgage, Assignment of Leases and Rents, Security Agreement, and Fixture Filing, dated October 17, 2003, between MFC Beavercreek, LLC and KeyBank National Association, relating to the Mall at Fairfield Commons in Beavercreek, Ohio. (21) 10.212 Key Principal's Guaranty Agreement, dated October 17, 2003, between GPLP and KeyBank National Association, relating to the loan on the Mall at Fairfield Commons in Beavercreek, Ohio. (21) 10.213 Purchase Agreement, dated October 22, 2003, between Columbus East Joint Venture, an Ohio general partnership, and GPLP, relating to Eastland Columbus. (21) 10.214 First Amendment to Purchase Agreement, dated December 15, 2003, between Columbus East Joint Venture, an Ohio general partnership, and GPLP, relating to Eastland Columbus. (21) 43 10.215 Open End Mortgage, Assignment of Rents and Security Agreement, dated December 22, 2003, by EM Columbus, LLC, a Delaware limited liability company, to The Huntington National Bank, relating to Eastland Columbus. (21) 10.216 Note, dated December 22, 2003, issued by EM Columbus, LLC, to The Huntington National Bank in the amount of $36,000,000, relating to the purchase of Eastland Columbus. (21) 10.217 Loan Commitment Letter, dated December 22, 2003, from The Huntington National Bank to EM Columbus, LLC, together with all exhibits thereto, relating to Eastland Columbus. (21) 10.218 Unconditional Guaranty of Payment and Performance, dated December 22, 2003, by Glimcher Properties Corporation to The Huntington National Bank, relating to Eastland Columbus. (21) 10.219 Unconditional Guaranty of Payment and Performance, dated December 22, 2003, by GPLP to The Huntington National Bank, relating to Eastland Columbus. (21) 10.220 Membership Interest Purchase Agreement, dated as of November 26, 2003, between GPLP and NPLP, relating to Polaris Towne Center. (21) 10.221 Membership Interest Purchase Agreement, dated as of November 26, 2003, by and among GPLP, NPLP and the Class A Members, relating to Polaris Fashion Place. (21) 21.1 Subsidiaries of the Registrant 23.1 Consent of Independent Accountants 31.1 Certification of the Company's CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Company's CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Company's CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Company's CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1) Incorporated by reference to GRT's Registration Statement No. 33-69740. (2) Incorporated by reference to GRT's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed with the Securities and Exchange Commission on March 21, 1995. (3) Incorporated by reference to GRT's Annual Report Form 10-K for the fiscal year ended December 31, 1997, filed with the Securities and Exchange Commission on March 31, 1998. (4) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on August 29, 2003. (5) Incorporated by reference to GRT's Form 8-A filed with the Securities and Exchange Commission on August 22, 2003. (6) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on November 14, 1997. (7) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on December 13, 1995. (8) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on December 31, 1997. (9) Incorporated by reference to GRT's Annual Report Form 10-K for the Fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 30, 1999. (10) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended March 31, 1999, filed with the Securities and Exchange Commission on May 14, 1999. (11) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended June 30, 1999, filed with the Securities and Exchange Commission on August 12, 1999. (12) Incorporated by reference to GRT's Annual Report Form 10-K for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission on March 16, 2001. (13) Incorporated by reference to GRT's Annual Report Form 10-K for the fiscal year ended December 31, 2001, filed with the Securities and Exchange Commission on March 16, 2002. (14) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended March 31, 2002, filed with the Securities and Exchange Commission on May 15, 2002. (15) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended June 30, 2002, filed with the Securities Exchange Commission on August 14, 2002. (16) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended September 30, 2002, filed with the Securities Exchange Commission on November 13, 2002. (17) Incorporated by reference to GRT's Annual Report Form 10-K for the period ended December 31, 2002, filed with the Securities Exchange Commission on March 21, 2003. (18) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended March 31, 2003, filed with the Securities Exchange Commission on May 14, 2003. 44 (19) Incorporated by reference to GRT's Quarterly Report Form 10-Q for the period ended June 30, 2003, filed with the Securities Exchange Commission on August 12, 2003. (20) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on September 8, 2003. (21) Incorporated by reference to GRT's Form 8-K filed with the Securities and Exchange Commission on January 20, 2004. (b) Reports on Form 8-K 1. On October 27, 2003, the Company filed a Form 8-K/A under "Item 7, amending the Form 8-K filing which reported Glimcher Properties Limited Partnership's acquisition of WestShore Plaza Mall on August 27, 2003 and filing the required financial statements and pro forma financial information required by Item 7". 2. On October 29, 2003, the Company filed a 8-K under "Items 7 and 12, announcing the issuance of a press release reporting the Company's financial results for the fiscal quarter ended September 30, 2003". 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLIMCHER REALTY TRUST /s/ Herbert Glimcher ---------------------------------------- Herbert Glimcher Chairman of the Board and Chief Executive Officer March 10, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Herbert Glimcher Chairman of the Board, March 10, 2004 --------------------------------- Chief Executive Officer Herbert Glimcher (Principal Executive Officer) and Trustee /s/ Michael P. Glimcher President and Trustee March 10, 2004 --------------------------------- Michael P. Glimcher /s/ William G. Cornely Executive Vice President, March 10, 2004 --------------------------------- Chief Operating Officer, William G. Cornely Treasurer and Trustee /s/ George A. Schmidt Executive Vice President, March 10, 2004 --------------------------------- General Counsel, Secretary George A. Schmidt and Trustee /s/ Melinda A. Janik Senior Vice President and March 10, 2004 --------------------------------- Chief Financial Officer Melinda A. Janik (Principal Financial and Accounting Officer) /s/ Philip G. Barach Member, Board of Trustees March 10, 2004 --------------------------------- Philip G. Barach /s/ Oliver W. Birckhead Member, Board of Trustees March 10, 2004 --------------------------------- Oliver W. Birckhead /s/ Wayne S. Doran Member, Board of Trustees March 10, 2004 --------------------------------- Wayne S. Doran /s/ Janice Page Member, Board of Trustees March 10, 2004 --------------------------------- Janice Page /s/ Alan R. Weiler Member, Board of Trustees March 10, 2004 --------------------------------- Alan R. Weiler /s/ Harvey A. Weinberg Member, Board of Trustees March 10, 2004 --------------------------------- Harvey A. Weinberg 46 REPORT OF INDEPENDENT AUDITORS To the Board of Trustees and Shareholders of Glimcher Realty Trust: In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) (1) present fairly, in all material respects, the financial position of Glimcher Realty Trust and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a) (2), present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 7 to the consolidated financial statements, the Company, on January 1, 2001, adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended and interpreted. Also as discussed in Note 2 to the consolidated financial statements, the Company, on January 1, 2003, adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" as amended by Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" and Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". PricewaterhouseCoopers LLP Columbus, OH February 23, 2004, except for Note 20, as to which the date is February 27, 2004. 47 GLIMCHER REALTY TRUST CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS) DECEMBER 31, --------------------------- 2003 2002 ------------ ------------ ASSETS Investment in real estate: Land ........................................................................ $ 258,151 $ 215,758 Buildings, improvements and equipment ....................................... 1,819,472 1,565,709 Developments in progress .................................................... 18,123 20,740 ----------- ----------- 2,095,746 1,802,207 Less accumulated depreciation ............................................... 396,739 332,124 ----------- ----------- Property and equipment, net .............................................. 1,699,007 1,470,083 Investment in unconsolidated real estate entities ........................... 8,827 23,047 ----------- ----------- Investment in real estate, net ........................................... 1,707,834 1,493,130 ----------- ----------- Cash and cash equivalents ........................................................ 11,040 11,309 Restricted cash .................................................................. 20,476 18,566 Tenant accounts receivable, net .................................................. 51,401 68,576 Deferred expenses, net ........................................................... 30,249 26,161 Prepaid and other assets ......................................................... 16,423 14,691 ----------- ----------- $ 1,837,423 $ 1,632,433 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Mortgage notes payable ........................................................... $ 1,214,258 $ 956,130 Notes payable .................................................................... 80,800 139,800 Accounts payable and accrued expenses ............................................ 55,691 59,934 Distributions payable ............................................................ 22,559 21,057 ----------- ----------- 1,373,308 1,176,921 ----------- ----------- Commitments and contingencies Minority interest in operating partnership ....................................... 22,176 29,020 ----------- ----------- Shareholders' equity: Series B cumulative preferred shares of beneficial interest, $0.01 par value, 5,118,000 shares issued and outstanding ................................... 127,950 127,950 Series F cumulative preferred shares of beneficial interest, $0.01 par value, 2,400,000 shares issued and outstanding ........................ 60,000 Common shares of beneficial interest, $0.01 par value, 35,066,112 and 34,314,646 shares issued and outstanding as of December 31, 2003 and December 31, 2002, respectively ........................................... 350 343 Additional paid-in capital .................................................. 516,694 509,401 Distributions in excess of accumulated earnings ............................. (261,828) (205,040) Accumulated other comprehensive loss ........................................ (1,227) (6,162) ----------- ----------- 441,939 426,492 ----------- ----------- $ 1,837,423 $ 1,632,433 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. 48 GLIMCHER REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 2003 2002 2001 ---------- ---------- ---------- Revenues: Minimum rents ............................................................. $ 190,340 $ 154,736 $ 144,977 Percentage rents .......................................................... 8,148 7,069 6,574 Tenant reimbursements ..................................................... 91,655 79,820 70,963 Other ..................................................................... 26,734 26,334 25,752 --------- --------- --------- Total revenues ......................................................... 316,877 267,959 248,266 --------- --------- --------- Expenses: Real estate taxes ......................................................... 34,131 28,265 25,639 Property operating expenses ............................................... 73,431 59,767 51,139 --------- --------- --------- 107,562 88,032 76,778 Provision for doubtful accounts ........................................... 17,338 6,392 6,449 Other operating expenses .................................................. 7,840 7,779 7,980 Write-off of development cost ............................................. 854 420 3,208 Depreciation and amortization ............................................. 66,686 55,870 51,619 General and administrative ................................................ 9,998 10,285 11,175 --------- --------- --------- Total expenses ......................................................... 210,278 168,778 157,209 --------- --------- --------- Operating income ....................................................... 106,599 99,181 91,057 Interest income ................................................................ 209 634 1,187 Interest expense ............................................................... 81,355 86,161 85,760 Equity in income of unconsolidated entities .................................... 2,143 3,079 2,040 Income before minority interest in operating partnership, discontinued operations, (loss) gain on sales of properties and cumulative effect of accounting change ......................................................... 27,596 16,733 8,524 Minority interest in operating partnership ..................................... 842 2,334 3,519 --------- --------- --------- Income from continuing operations .............................................. 26,754 14,399 5,005 Discontinued operations: (Loss) gain on sales of properties ........................................ (3,913) 15,756 (Loss) income from operations ............................................. (1,175) 6,099 20,421 --------- --------- --------- Income before gain (loss) on sales of properties and cumulative effect of accounting change ............................................. 21,666 36,254 25,426 Gain (loss) on sales of properties ............................................. 2,156 (610) --------- --------- --------- Income before extraordinary item and cumulative effect of accounting change .... 23,822 36,254 24,816 Cumulative effect of accounting change ......................................... (116) --------- --------- --------- Net income ............................................................. 23,822 36,254 24,700 Less: Preferred stock dividends ................................................ 13,688 11,833 15,777 Add: Discount on redemption of preferred stock ................................. 22,440 --------- --------- --------- Net income available to common shareholders ............................ $ 10,134 $ 24,421 $ 31,363 ========= ========= ========= EPS available to common shareholders from continuing operations ................ $ 0.43 $ 0.14 $ 0.47 Discontinued operations, (loss) gain on sale of properties and cumulative effect of accounting change ...................................................... $ (0.13) $ 0.61 $ 0.66 EPS (basic) .................................................................... $ 0.29 $ 0.75 $ 1.14 EPS available to common shareholders from continuing operations ................ $ 0.42 $ 0.14 $ 0.47 Discontinued operations, (loss) gain on sale of properties and cumulative effect of accounting change ...................................................... $ (0.13) $ 0.61 $ 0.65 EPS (diluted) .................................................................. $ 0.29 $ 0.75 $ 1.12 Cash distributions declared per common share of beneficial interest ............ $ 1.9232 $ 1.9232 $ 1.9232 ========= ========= ========= Net income ..................................................................... $ 23,822 $ 36,254 $ 24,700 Other comprehensive income (loss) on derivative instruments, net ............... 4,935 304 (6,466) --------- --------- --------- Comprehensive income ........................................................... $ 28,757 $ 36,558 $ 18,234 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements 49 GLIMCHER REALTY TRUST CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) SERIES A-1 AND D SERIES B SERIES F CONVERTIBLE CUMULATIVE CUMULATIVE PREFERRED SHARES PREFERRED SHARES PREFERRED SHARES ---------------- ---------------- ---------------- Balance, December 31, 2000 ..................................... $ 90,000 $ 127,950 Distributions declared, $1.9232 per share .................... Distribution Reinvestment and Share Purchase Plan ............ Exercise of stock options .................................... 401(k) Shares issued ......................................... OP unit conversion ........................................... Issuance of Shares from public offering ...................... Preferred stock dividends declared, $2.3125 per share ........ Redemption of preferred equity ............................... (90,000) Net income ................................................... Other comprehensive income (loss) on derivative instruments... Transfer from minority interest in partnership ............... ---------- ---------- -------------- Balance, December 31, 2001 127,950 Distributions declared, $1.9232 per share .................... Distribution Reinvestment and Share Purchase Plan ............ Exercise of stock options .................................... OP unit conversion ........................................... Issuance of Shares from public offering ...................... Preferred stock dividends declared, $2.3125 per share ........ Net income ................................................... Other comprehensive income (loss) on derivative instruments... Transfer to minority interest in partnership ................. ---------- ---------- -------------- Balance, December 31, 2002 ..................................... 127,950 Distributions declared, $1.9232 per share .................... Distribution Reinvestment and Share Purchase Plan ............ Exercise of stock options .................................... OP unit conversion ........................................... Issuance of Shares from public offering ...................... $ 60,000 Preferred stock dividends declared At $2.3125 per share ....................................... At $0.7717 per share ....................................... Net income ................................................... Other comprehensive income (loss) on derivative instruments... Other stock offering cost .................................... Transfer to minority interest in partnership ................. ---------- ---------- -------------- Balance, December 31, 2003 ..................................... $ 0 $ 127,950 $ 60,000 ========== ========== ============== COMMON SHARES OF DISTRIBUTIONS BENEFICIAL INTEREST ADDITIONAL IN EXCESS OF ------------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL EARNINGS ---------- ------- ---------- ------------- Balance, December 31, 2000 ................................. 23,821,652 $ 238 $ 355,430 $ (143,671) Distributions declared, $1.9232 per share ................ (54,648) Distribution Reinvestment and Share Purchase Plan ........ 34,201 525 Exercise of stock options ................................ 265,070 3 4,760 401(k) Shares issued ..................................... 11,646 208 OP unit conversion ....................................... 35,662 1 667 Issuance of Shares from public offering .................. 5,925,000 59 83,649 Preferred stock dividends declared, $2.3125 per share .... (15,777) Redemption of preferred equity ........................... 22,440 Net income ............................................... 24,700 Other comprehensive income (loss) on derivative instruments ........................................... Transfer from minority interest in partnership ........... (3,543) ---------- ----- --------- ------------ Balance, December 31, 2001 30,093,231 301 441,696 (166,956) Distributions declared, $1.9232 per share ................ (62,505) Distribution Reinvestment and Share Purchase Plan ........ 29,571 539 Exercise of stock options ................................ 602,467 6 8,749 OP unit conversion ....................................... 139,377 1 2,497 Issuance of Shares from public offering .................. 3,450,000 35 58,198 Preferred stock dividends declared, $2.3125 per share .... (11,833) Net income ............................................... 36,254 Other comprehensive income (loss) on derivative instruments ........................................... Transfer to minority interest in partnership ............. (2,278) ---------- ----- --------- ------------ Balance, December 31, 2002 ................................. 34,314,646 343 509,401 (205,040) Distributions declared, $1.9232 per share ................ (66,923) Distribution Reinvestment and Share Purchase Plan ........ 27,709 560 Exercise of stock options ................................ 413,532 4 6,833 OP unit conversion ....................................... 310,225 3 6,701 Issuance of Shares from public offering .................. (2,451) Preferred stock dividends declared At $2.3125 per share ................................... (11,833) At $0.7717 per share ................................... (1,854) Net income ............................................... 23,822 Other comprehensive income (loss) on derivative instruments ........................................... Other stock offering cost ................................ 62 Transfer to minority interest in partnership ............. (4,412) ---------- ----- --------- ------------ Balance, December 31, 2003 ................................. 35,066,112 $ 350 $ 516,694 $ (261,828) ========== ===== ========= ============ ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) TOTAL ----------------- --------- Balance, December 31, 2000 ................................. $429,947 Distributions declared, $1.9232 per share ................ (54,648) Distribution Reinvestment and Share Purchase Plan ........ 525 Exercise of stock options ................................ 4,763 401(k) Shares issued ..................................... 208 OP unit conversion ....................................... 668 Issuance of Shares from public offering .................. 83,708 Preferred stock dividends declared, $2.3125 per share .... (15,777) Redemption of preferred equity ........................... (67,560) Net income ............................................... 24,700 Other comprehensive income (loss) on derivative instruments ........................................... $ (6,466) (6,466) Transfer from minority interest in partnership ........... (3,543) ------------ -------- Balance, December 31, 2001 (6,466) 396,525 Distributions declared, $1.9232 per share ................ (62,505) Distribution Reinvestment and Share Purchase Plan ........ 539 Exercise of stock options ................................ 8,755 OP unit conversion ....................................... 2,498 Issuance of Shares from public offering .................. 58,233 Preferred stock dividends declared, $2.3125 per share .... (11,833) Net income ............................................... 36,254 Other comprehensive income (loss) on derivative instruments ........................................... 304 304 Transfer to minority interest in partnership ............. (2,278) ------------- -------- Balance, December 31, 2002 ................................. (6,162) 426,492 Distributions declared, $1.9232 per share ................ (66,923) Distribution Reinvestment and Share Purchase Plan ........ 560 Exercise of stock options ................................ 6,837 OP unit conversion ....................................... 6,704 Issuance of Shares from public offering .................. 57,549 Preferred stock dividends declared At $2.3125 per share ................................... (11,833) At $0.7717 per share ................................... (1,854) Net income ............................................... 23,822 Other comprehensive income (loss) on derivative instruments ........................................... 4,935 4,935 Other stock offering cost ................................ 62 Transfer to minority interest in partnership ............. (4,412) ------------ -------- Balance, December 31, 2003 ................................. $ (1,227) $441,939 ============ ======== The accompanying notes are an integral part of these consolidated financial statements. 50 GLIMCHER REALTY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 2003 2002 2001 ---------- ---------- ---------- Cash flows from operating activities: Net income ................................................................... $ 23,822 $ 36,254 $ 24,700 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts .......................................... 18,689 6,601 7,047 Depreciation and amortization ............................................ 66,988 61,570 60,230 Loan fee amortization .................................................... 3,978 5,365 4,784 Equity in income of unconsolidated entities .............................. (2,143) (3,079) (2,044) Capitalized development costs charged to expense ......................... 1,051 2,883 5,670 Minority interest in operating partnership ............................... 842 2,334 3,519 Cumulative effect of accounting change ................................... 116 Loss (gain) on sales of properties from discontinued operations .............................................................. 3,913 (15,756) Loss (gain) on sales of properties ....................................... (3,278) 610 Net changes in operating assets and liabilities: Tenant accounts receivable, net .......................................... (153) (13,313) (15,162) Prepaid and other assets ................................................. (2,562) (4,397) 1,803 Accounts payable and accrued expenses .................................... (10,550) (10,862) 10,392 --------- --------- --------- Net cash provided by operating activities ...................... 100,597 67,600 101,665 --------- --------- --------- Cash flows from investing activities: Acquisitions and additions to investment in real estate ...................... (218,875) (53,129) (37,558) Proceeds from (investment in) unconsolidated entities ........................ 4,382 786 (1,648) Proceeds from sales of properties - operating ................................ 8,377 35,799 Proceeds from sales of properties - discontinued operations .................. 18,093 196,326 (Payments to) withdrawals from restricted cash ............................... (1,256) 43,371 (38,183) Additions to deferred expenses ............................................... (10,950) (11,657) (16,292) --------- --------- --------- Net cash (used in) provided by investing activities ............ (200,229) 175,697 (57,882) --------- --------- --------- Cash flows from financing activities: (Payments to) proceeds from revolving line of credit, net .................... (59,000) (23,200) (400) Proceeds from issuance of mortgages and notes payable ........................ 383,000 216,503 387,362 Principal payments on mortgages and notes payable ............................ (205,309) (426,470) (372,687) Loss on early extinguishment of debt ......................................... 825 3,212 1,099 Proceeds from issuance of common shares of beneficial interest, net of underwriting and other offering costs of $184 and $723 for 2002 and 2001, respectively ........................... 58,233 83,708 Proceeds from issuance of Preferred Stock - Series F, net of underwriting and other offering costs of $2,451 ......................... 57,549 Redemption of preferred shares ............................................... (67,560) Net proceeds from other issuance of shares ................................... 7,397 9,294 4,283 Cash distributions ........................................................... (85,099) (78,269) (76,293) --------- --------- --------- Net cash provided by (used in) financing activities ............ 99,363 (240,697) (40,488) --------- --------- --------- Net change in cash and cash equivalents ........................................ (269) 2,600 3,295 Cash and cash equivalents, at beginning of period .............................. 11,309 8,709 5,414 --------- --------- --------- Cash and cash equivalents, at end of period .................................... $ 11,040 $ 11,309 $ 8,709 ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 51 GLIMCHER REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. ORGANIZATION AND BASIS OF PRESENTATION Organization Glimcher Realty Trust (the "Company" or "GRT") is a fully-integrated, self-administered and self-managed Maryland real estate investment trust ("REIT"), which owns, leases, manages and develops a portfolio of retail properties (the "Property" or "Properties") consisting of regional malls ("Malls") and community shopping centers (including single tenant retail properties) ("Community Centers"). At December 31, 2003, the Company managed and leased a total of 70 Properties, of which 68 were wholly owned and two of which were partially owned in joint ventures, consisting of 25 Malls and 45 Community Centers. Basis of Presentation The accompanying consolidated financial statements include the accounts of: (a) Glimcher Realty Trust (the "Company" or "GRT"); (b) Glimcher Properties Limited Partnership (the "Operating Partnership" or "GPLP") (92.2% and 91.3% owned by GRT at December 31, 2003 and December 31, 2002, respectively), of which Glimcher Properties Corporation ("GPC"), a Delaware corporation and a wholly owned subsidiary of GRT, is the sole general partner; (c) eight Delaware limited partnerships (Colonial Park Mall Limited Partnership, Grand Central Limited Partnership, Glimcher University Mall Limited Partnership, Montgomery Mall Associates Limited Partnership, Catalina Partners Limited Partnership (wholly owned by Colonial Park Mall Limited Partnership), Loyal Plaza Venture Limited Partnership, Glimcher Loyal Plaza Tenant Limited Partnership, and San Mall Limited Partnership); (d) twenty-seven Delaware limited liability companies (Glimcher Northtown Venture, LLC, Weberstown Mall, LLC, LC Portland, LLC, Johnson City Venture, LLC, Mount Vernon Venture, LLC, JG Mezzanine, LLC, Glimcher Westpark Plaza, LLC, Morningside Plaza, LLC, New Boston Mall, LLC, Shady Springs Plaza, LLC, Southside Mall, LLC, Glimcher Linden Corners, LLC, Glimcher Ashland Venture, LLC, Glimcher River Valley Mall, LLC, Hocking Valley Mall, LLC, Glimcher SuperMall Venture, LLC, Dayton Mall Venture, LLC, Glimcher Columbia, LLC, Fairfield Village, LLC, Great Plains MetroMall, LLC (owned 54% by Olathe Mall, LLC), GB Northtown, LLC, Charlotte Eastland Mall, LLC, Glimcher WestShore, LLC, Jersey Gardens Center, LLC, Glimcher Jersey Gardens, LLC (wholly owned by JG Mezzanine, LLC), MFC Beavercreek, LLC and EM Ohio, LLC); (e) one Colorado limited liability company (Olathe Mall, LLC); (f) one Ohio limited partnership (Morgantown Mall Associates Limited Partnership); (g) seventeen Delaware corporations, (Glimcher Grand Central, Inc., Glimcher Morgantown Mall, Inc., Glimcher Tampa, Inc., Glimcher Weberstown, Inc., Glimcher Blaine, Inc., Glimcher Montgomery, Inc., GP Olathe, Inc., GP Metromall, Inc., Glimcher Johnson City, Inc., Glimcher Mount Vernon, Inc., Glimcher Auburn, Inc., Glimcher Dayton Mall, Inc., Glimcher Colonial Park Mall, Inc., Glimcher Loyal Plaza, Inc., Glimcher Loyal Plaza Tenant, Inc., San Mall Corporation and Glimcher Eastland, Inc); (h) two New Jersey Corporations, (Glimcher JG Urban Renewal, Inc. and N.J. Metromall Urban Renewal, Inc. (wholly owned by JG Mezzanine, LLC)), and (i) two Delaware business trusts (Glimcher Colonial Trust and Colonial Park Trust (wholly owned by Colonial Park Mall Limited Partnership)) . All of the above entities, except as otherwise noted, are wholly owned by GRT, GPLP and/or GPC. In 2003, the Company held percentage ownership interests in the consolidated entities ranging from 92.2% to 100.0%. GRT and the Operating Partnership have investments in two joint ventures which are accounted for under the equity method. The Operating Partnership is (i) a 49.0% member in Polaris Center, LLC, a Delaware limited liability company, whose managing member, Glimcher PTC, Inc., a Delaware corporation that is wholly owned by GRT, is a 1.0% member and (ii) a 39.29% member in Polaris Mall, LLC, which owns 100% of PFP Columbus, LLC, both Delaware limited liability companies. Glimcher Development Corporation ("GDC") and its 100% owned subsidiaries, Ohio Entertainment Corporation ("OEC") and Trans State Development, Inc., all Delaware corporations, are 100.0% owned by the Operating Partnership. GDC is a 99% member in Trans State Development, LLC, a Delaware limited liability company, whose managing member is Trans State Development, Inc., a 1% member. GDC provides development, construction, leasing and legal services to the Company, ventures in which the Company has an ownership interest and to third parties. The consolidated financial statements of the Company include the accounts of the Company and the operating partnership for the entities in the method described in the preceding paragraph. The equity method of accounting is applied to entities in which the Company does not have controlling direct or indirect voting interest, but can exercise influence over the entity with respect to its operations and major decisions. These entities are reflected on the Company's consolidated financial statements as "Investments in unconsolidated real estate entities". All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis. Straight-line receivables were $22,901 and $21,938 at December 31, 2003 and 2002, respectively. Percentage rents, which are based on tenants' sales, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants' leases. Recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period the applicable costs are incurred. Other revenues primarily consist of fee income which relates to property management services and is recognized in the period in which the service is performed, temporary tenant revenues which are recognized as earned and the proceeds from sales of development land which are generally recognized at the closing date. Tenant Accounts Receivable The allowance for doubtful accounts reflects the Company's estimate of the amounts of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods. The Company's policy is to record a periodic provision for doubtful accounts based on total revenues. The Company also periodically reviews specific tenant balances and determines whether an additional allowance is necessary. In recording such provision, the Company considers a tenant's creditworthiness, ability to pay, probability of collection and consideration of the retail sector in which the tenant operates. The allowance for doubtful accounts is reviewed periodically based upon the Company's historical experience. The Company also analyzes the balance of its accounts receivable based on estimates for real estate taxes, common area maintenance and insurance for each of its Properties by comparing actual recoveries versus actual expenses and any actual write-offs. Based on this analysis, the Company may record an additional amount in its allowance for doubtful accounts related to these items. Tenant accounts receivable in the accompanying balance sheets are shown net of an allowance for doubtful accounts of $7,972 and $6,253 as of December 31, 2003 and 2002, respectively. Investment in Real Estate Real estate assets, including acquired assets, are stated at cost. Costs incurred for the development, construction and improvement of Properties are capitalized, including direct costs incurred by GRT for these activities. Interest and real estate taxes incurred during construction periods are capitalized and amortized on the same basis as the related assets. Depreciation expense is computed using the straight-line method and estimated useful lives for buildings and improvements of forty years and equipment and fixtures of five to ten years. Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the term of each lease. Maintenance and repairs are charged to expense as incurred. Effective January 1, 2002, management evaluates the recoverability of its investment in real estate assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that recoverability of the asset is not assured. Management's assessment of recoverability of its real estate assets under this statement includes, but is not limited to, recent operating results, expected net operating cash flow and management's plans for future operations. The Company recognizes property sales in accordance with SFAS No. 66, "Accounting for Sales of Real Estate." The Company generally records the sales of operating properties and outparcels using the full accrual method at closing when the earnings process is deemed to be complete. Sales not qualifying for full recognition at the time of sale are accounted for under other appropriate deferral methods. Accounting for Acquisitions For purchases consummated subsequent to June 30, 2001, the effective date of the SFAS No. 141, "Business Combinations", the fair value of the real estate acquired is allocated to acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting was applied, on a pro-rata basis, to assets and liabilities related to real estate entities acquired based upon the percentage of interest acquired. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The fair value of the tangible assets of an acquired property (which includes land, building and tenant improvements) is determined by valuing the property as if it were vacant based on management's determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values of $5,931 and the capitalized below-market lease values of $13,189 are presented in accounts payable and accrued expenses as a net liability of $7,258 for the acquisitions through December 31, 2003 in the accompanying consolidated balance sheet and are amortized as a net increase to rental income over the initial term. The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is determined by evaluating the following factors. Factors considered by management in performing these analyses include 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. No such amount has been recorded. Stock-Based Compensation Effective January 1, 2003, the Company adopted the fair value recognition provision of SFAS No. 123, "Accounting for Stock-Based Compensation", and as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", prospectively to all awards granted, modified or settled on or after January 1, 2003. Accordingly, the Company recognizes as compensation expense the fair value of all awards granted after January 1, 2003. Prior to January 1, 2003, the Company applied Accounting Principles Board Opinion No. 25 ("APB 25") and related interpretations in accounting for its plans. Under the provisions of APB 25, the Company was not required to recognize compensation expense related to options, as the options were granted at a price equal to the market price on the day of grant. Had compensation cost for the plans been determined based on the fair value at the grant dates for grants under these plans consistent with SFAS No. 123, the Company's net income available to common shareholders would have been decreased to the pro forma amounts indicated below: 2003 2002 2001 ---------- ---------- ---------- Net income available to common shareholders: As reported ........................... $ 10,134 $ 24,421 $ 31,363 Pro forma ............................. $ 10,076 $ 24,346 $ 31,245 Stock Compensation Expense: Recorded in reported net income for awards after January 1, 2003 ......... $ 47 $ 0 $ 0 Included in Pro forma for awards before January 1, 2003 ............. $ 58 $ 75 $ 118 Earnings per share (basic): As reported .......................... $ 0.29 $ 0.75 $ 1.14 Pro forma ............................ $ 0.29 $ 0.75 $ 1.13 Earnings per share (diluted): As reported .......................... $ 0.29 $ 0.75 $ 1.12 Pro forma ............................ $ 0.29 $ 0.75 $ 1.12 Cash and Cash Equivalents For purposes of the statements of cash flows, all highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents. At December 31, 2003 and 2002, cash and cash equivalents primarily consisted of overnight purchases of debt securities. The carrying amounts approximate fair value. 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires the disclosures of the fair value of GRT's financial instruments for which it is practicable to estimate that value, whether or not such instruments are recognized in the consolidated balance sheets. SFAS No. 107 does not apply to all balance sheet items and the Company has utilized market information as available or present value techniques to estimate the SFAS No. 107 values required to be disclosed. Since such values are estimates, there can be no assurance that the SFAS No. 107 value of any financial instrument could be realized by immediate settlement of the instrument. Restricted Cash Restricted cash consists primarily of cash held for real estate taxes, insurance and property reserves for maintenance and expansion or leasehold improvements as required by certain of the loan agreements. Deferred Expenses Deferred expenses consist principally of financing fees, leasing commissions paid to third parties and direct costs related to leasing activities. These costs are amortized over the terms of the respective agreements. Deferred expenses in the accompanying consolidated balance sheets are shown net of accumulated amortization of $21,127 and $16,577 as of December 31, 2003 and 2002, respectively. During 2003, 2002 and 2001, the Company expensed $826, $2,260 and $1,299, respectively, of unamortized financing fees in connection with the early retirement of debt. Such amounts have been reported as interest expense in the accompanying financial statements. In addition, in 2002 the Company expensed $952 of unamortized financing fees in connection with the early retirement of debt from discontinued operations and recorded a $8,115 prepayment penalty as interest expense in discontinued operations. Derivative Instruments and Hedging Activities The Company recognizes all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Changes in the fair value of derivative financial instruments that qualify for hedge accounting are recorded in stockholders' equity as a component of comprehensive income or as an adjustment to the carrying value of the hedged item. Changes in fair values of derivatives not qualifying for hedge accounting are reported in earnings. For derivative instruments that are designated and qualify as a cash flow hedge (i.e. hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified into interest income or interest expense in the same period or periods during which the hedged item affects interest income or interest expense. The remaining gain or loss of the derivative instruments in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is ineffectiveness and is recognized in other income/other expense during the period of change. Upon termination of a derivative instrument prior to maturity, the aforementioned adjustment to accumulated other comprehensive income is amortized/accreted into interest income or interest expense over the remaining term of the hedge relationship using the effective interest method. Should the hedged item be sold, mature or extinguished prior to the end of the hedge relationship or a forecasted transaction is probable of not occurring, the aforementioned amounts in accumulated other comprehensive income are reclassified to interest income or interest expense and the derivative instrument's change in fair value from that point forward will be recorded in other income or other expense. Interest Costs YEAR ENDED DECEMBER 31, --------------------------- 2003 2002 2001 ------- ------- ------- Interest capitalized .......... $ 698 $ 900 $ 4,128 Interest expense .............. 76,550 78,547 79,053 Amortization of loan fees...... 4,805 7,614 6,707 ------- ------- ------- Total interest costs .......... $82,053 $87,061 $89,888 ======= ======= ======= Investment in Unconsolidated Real Estate Entities The Company accounts for its investments in unconsolidated real estate entities using the equity method of accounting whereby the cost of an investment is adjusted for the Company's share of equity in net income or loss from the date of acquisition and reduced by distributions received. The income or loss of each investee is allocated in accordance with the provisions of the applicable operating agreements. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the carrying amount of the Company's investment in the respective investees and the Company's share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable. 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Advertising Costs The Company promotes its Properties on behalf of its tenants through various media. Advertising is expensed as incurred and the majority of the advertising expense is recovered from the tenants through lease obligations. Net advertising expense was $2,106, $1,164 and $1,807 for the years ended December 31, 2003, 2002 and 2001, respectively. Income Taxes GRT files as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to qualify as a REIT, GRT is required to distribute at least 90.0% of its ordinary taxable income to shareholders and to meet certain asset and income tests as well as certain other requirements. GRT will generally not be liable for federal income taxes, provided it satisfies the necessary distribution requirements and maintain its REIT status. Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property. Effective January 1, 2001, the Company's subsidiary, GDC, elected taxable REIT subsidiary status under Section 856(l) of the Code. The Company wholly owns GDC. For federal income tax purposes, GDC is treated as a separate entity and taxed as a regular C-Corporation. In accordance with SFAS No. 109 "Accounting for Income Taxes", deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carryforwards of GDC. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Minority Interest Minority interest represents the aggregate partnership interest in the Operating Partnership held by the Operating Partnership limited partner unit holders (the "Unit Holders"). Income allocated to minority interest is based on the Unit Holders ownership percentage of the Operating Partnership. The ownership percentage is determined by dividing the numbers of Operating Partnership Units held by the Unit Holders by the total Operating Partnership Units outstanding. The issuance of additional shares of beneficial interest (the Common "Shares" or "Share") or Operating Partnership Units changes the percentage ownership of both the Unit Holders and the Company. Since a unit is generally redeemable for cash or Shares at the option of the Company, it is deemed to be equivalent to a Share. Therefore, such transactions are treated as capital transactions and result in an allocation between shareholders' equity and minority interest in the accompanying balance sheets to account for the change in the ownership of the underlying equity in the Operating Partnership. Supplemental Disclosure of Non-Cash Financing and Investing Activities Accounts payable of $3,020, $3,615 and $3,527 were accrued for real estate improvements and other assets as of December 31, 2003, 2002 and 2001, respectively. During the fourth quarter of 2002, the Company issued 195,149 new Operating Partnership units with a value of $3,176 in connection with the San Mall, LLC transaction. Also, during the third quarter of 2001, the Company issued 260,583 new Operating Partnership units with a value of $4,000 in connection with the Polaris Mall, LLC transaction. Share distributions of $16,860, $16,498 and $14,469 and Operating Partnership distributions of $1,427, $1,577 and $1,534 had been declared but not paid as of December 31, 2003, 2002 and 2001, respectively. Series B cumulative preferred share distributions of $2,959, $2,959 and $2,959 had been declared but not paid as of December 31, 2003, 2002 and 2001, respectively. Series F cumulative preferred share distributions of $1,313 had been declared but not paid as of December 31, 2003. Amounts paid for interest, exclusive of capitalized interest, were $76,520, $83,746 and $88,479 in 2003, 2002 and 2001, respectively. Amounts paid for state and local taxes were $765, $660 and $640 in 2003, 2002 and 2001, respectively. As a result of the Company's acquisitions of joint venture interest not previously owned, $80,439, $156,682 and $162,990 of debt was assumed for the years ending December 31, 2003, 2002 and 2001, respectively. Accounts receivable balances have been written off against the allowance for doubtful accounts for $15,619, $3,555 and $4,378 for the years ending December 31, 2003, 2002 and 2001, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. For example, estimates are used to establish common area maintenance, real estate tax and insurance tenant accounts receivable, and accounts receivable reserves. The Company bases its estimates on changes in Property occupancy, mix of tenants and industry trends of tenant credit risk. Actual results could differ from those estimates. 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) New Accounting Pronouncements In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45") "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an interpretation of SFAS No. 57 and No. 107 and rescission FIN 34)". FIN 45 clarifies the requirements of SFAS No. 5 relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees, and requires that upon the issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. The disclosure requirements of FIN 45 are effective for financial statements of periods ending after December 15, 2002. The recognition provisions of FIN 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. There was no material impact on the Company's financial position as a result of this new pronouncement at December 31, 2003. Effective January 1, 2003, the Company adopted the fair value recognition provision of SFAS No. 123, "Accounting for Stock-Based Compensation", and as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", prospectively to all awards granted, modified or settled on or after January 1, 2003. Effective January 1, 2003, the Company adopted SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", a standard that addresses the classification of gains or losses from early extinguishment of debt. Prior to the adoption of SFAS No. 145, the Company reported losses from the early extinguishment of debt as extraordinary items. During the twelve months ended December 31, 2002, the Company recorded $2,260 in extraordinary items from operations and $9,067 in extraordinary items from discontinued operations that resulted from the early extinguishment of debt. In 2003, these charges were reclassified to interest expense and income from discontinued operations, respectively, to comply with SFAS No. 145. These reclassifications had no impact on reported net income. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interests Entities - an Interpretation of ARB No. 51." The effective date of the interpretation has been postponed by FASB Staff Position No. FIN 46-6 and will be effective the first interim or annual reporting period ending after March 15, 2004. The interpretation focuses on identifying entities for which a controlling financial interest is achieved through means other than voting rights. The potential impact of FIN 46 has been evaluated regarding potential impact to the Company's joint venture interests. Based upon the analysis, the Company does not anticipate that FIN 46 will have an impact on the Company's financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003. The Company has no immediate impact as a result of this pronouncement. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within the scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. There was no material impact on the Company's financial position as a result of this new pronouncement at December 31, 2003. Reclassifications Certain reclassifications of prior period amounts, including the presentation of the statements of operations required by SFAS No. 144, have been made in the financial statements to conform to the 2003 presentation. 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 3. MORTGAGE NOTES PAYABLE PAYMENT TERMS/ CARRYING AMOUNT OF INTEREST INTEREST PREPAYMENT PAYMENT AT MATURITY DESCRIPTION MORTGAGE NOTES PAYABLE RATE TERMS DATE MATURITY DATE ----------- ---------------------- ------------ -------- ---------- ---------- ------------- 2003 2002 2003 2002 ----------- --------- ----- ----- FIXED RATE Glimcher Jersey Gardens, LLC $ 135,000 $ 135,000 4.31% 4.31% (a) $ 135,000 June 9, 2004 JG Mezzanine, LLC 28,141 29,517 10.53% 10.53% (b) $ 27,986 June 9, 2004 Montgomery Mall Associates, LP 44,909 45,526 6.79% 6.79% (b) $ 43,843 (d) Weberstown Mall, LLC 19,617 19,839 7.43% 7.43% (b) $ 19,033 May 1, 2006 San Mall, LP 34,402 34,793 8.35% 8.35% (b) $ 32,623 (e) Colonial Park Mall, LP 33,899 7.73% (b) $ 32,033 (e) Charlotte Eastland Mall, LLC 45,974 7.84% (b) $ 42,323 (f) Morgantown Mall Associates, LP 55,005 55,742 6.89% 6.89% (b) $ 50,823 (f) Grand Central, LP 49,921 50,530 7.18% 7.18% (b) $ 46,065 Feb. 1, 2009 Johnson City Venture, LLC 39,957 40,288 8.37% 8.37% (b) $ 36,981 June 1, 2010 Ashland Venture, LLC 26,196 26,596 7.25% 7.25% (b) $ 21,817 Nov. 1, 2011 Dayton Mall Venture, LLC 58,171 58,819 8.27% 8.27% (b) $ 49,824 (g) Glimcher WestShore, LLC 99,658 5.09% (b) $ 84,824 Sep. 9, 2012 University Mall, LP 66,158 67,203 7.09% 7.09% (b) $ 52,524 (h) LC Portland, LLC 139,120 5.42% (b) $ 116,922 (i) MFC Beavercreek, LLC 113,874 5.45% (b) $ 92,762 (j) Glimcher SuperMall Venture, LLC 61,804 62,462 7.54% 7.54% (b) $ 49,969 (k) Other Fixed Rate Debt 18,636 18,965 (l) (l) (b) $ 17,173 (m) Tax Exempt Bonds 19,000 19,000 6.00% 6.00% (c) $ 19,000 Nov. 1, 2028 ----------- --------- 1,089,442 664,280 ----------- --------- VARIABLE RATE Great Plains Metro Mall, LLC 25,000 25,000 5.05% 3.30% (n) (b) $ 25,000 July 9, 2004 Olathe Mall, LLC 17,000 17,000 9.17% 7.42% (o) (a) $ 17,000 (p) Glimcher River Valley Mall , LLC 38,000 38,000 5.00% 5.00% (q) (a) $ 38,000 Dec. 31, 2004 EM Ohio, LLC 24,000 3.15% (r) (a) $ 24,000 Jan. 1, 2007 Other Variable Rate Debt 20,816 16,039 (s) (s) (s) (a)(b) $ 20,463 (t) ----------- --------- 124,816 96,039 ----------- --------- EXTINGUISHED DEBT 195,811 (u) ----------- --------- TOTAL MORTGAGE NOTES PAYABLE $ 1,214,258 $ 956,130 =========== ========= (a) The loan requires monthly payments of interest only. (b) The loan requires monthly payments of principal and interest. (c) The loan requires semi-annual payments of interest. (d) The loan matures in August 2028, with an optional prepayment date in 2005. (e) The loan matures in October 2027, with an optional prepayment date in 2007. (f) The loan matures in September 2028, with an optional prepayment date in 2008. (g) The loan matures in July 2027, with an optional prepayment date in 2012. (h) The loan matures in January 2028, with an optional prepayment date in 2013. (i) The loan matures in June 2033, with an optional prepayment date in 2013. (j) The loan matures in November 2033, with an optional prepayment date in 2014. (k) The loan matures in February 2028, with an optional prepayment date in 2015. (l) Interest rates ranging from 6.78% to 7.49% at December 31, 2003 and at December 31, 2002. (m) Final maturity dates ranging from February 2007 to August 2011. (n) Interest rate of LIBOR (capped by a derivative at 4.00%) plus 388 basis points until maturity. (o) Interest rate of LIBOR (capped by a derivative at 4.00%) plus 800 basis points until maturity. (p) On February 9, 2004, $17,000 of the principal balance was repaid. (q) Interest rate equal to the greater of 5.00% or LIBOR plus 235 basis points. (r) Interest rate of LIBOR plus 200 basis points. (s) Interest rates ranging from LIBOR plus 195 to 250 basis points (3.09% to 3.69% at December 31, 2003 and 3.38% to 4.00% at December 31, 2002). (t) Final maturity dates ranging from May 2004 to August 2005. (u) Interest rates ranging from 3.33% to 7.49% at December 31, 2002. All mortgage notes payable are collateralized by certain Properties owned by the respective entities with an aggregate net book value of $1,493,456 and $1,202,975 at December 31, 2003 and December 31, 2002, respectively. Certain of the loans contain financial covenants regarding minimum net operating income and coverage ratios. Additionally, certain of the loans have cross-default provisions and are cross-collateralized as part of a group of Properties. Under such cross-default provisions, a default under any mortgage included in a cross-defaulted package may constitute a default under all such mortgages and may lead to acceleration of the indebtedness due on each Property within the collateral package. In general, the cross-defaulted Properties are under common ownership. Additionally, $30,000 of mortgage notes payable relating to a Property has been guaranteed by the Company. 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Principal maturities (excluding extension options) on mortgage notes payable during the five years subsequent to December 31, 2003, are as follows: 2004 $263,113; 2005 $69,603; 2006 $136,906; 2007 $84,459; 2008 $114,249; thereafter $626,728. 4. NOTES PAYABLE On October 17, 2003, the Company entered into a new Credit Facility that provides the Company with the ability to borrow up to $150.0 million. This Credit Facility expires October 16, 2006 and replaced the former line of credit, which was scheduled to mature on January 31, 2004. The new Credit Facility is collateralized with first mortgage liens on three Malls and eleven Community Centers with a net book value of $136,368 at December 31, 2003. The interest rate on the new Credit Facility ranges from LIBOR plus 1.15% per annum to LIBOR plus 1.70% per annum, depending on the Company's ratio of debt to asset value. The Credit Facility currently bears interest at a rate of LIBOR plus 1.50% per annum. Payments due under the Credit Facility are guaranteed by the Company. The Credit Facility contains customary covenants, representations, warranties and events of default, including maintenance of a specified minimum net worth requirement, loan to value ratios, project costs to asset value ratios, total debt to asset value ratios and EBITDA to total debt service, restrictions on the incurrence of additional indebtedness and approval of anchor leases with respect to the Properties which secure the Credit Facility. The Company's most restrictive covenant is the total debt to asset value leverage ratio which limits the Company's outstanding debt to 65% of its total asset value. At December 31, 2003, the outstanding balance on the Credit Facility was $80.8 million. Additionally, $4.2 million represents a holdback on the available balance of the Credit Facility for letters of credit issued under the Credit Facility. As of December 31, 2003, the unused balance of the Credit Facility available to the Company was $65.0 million. 5. INCOME TAXES The following table reconciles the Company's net income to taxable income for the years ended December 31, 2003, 2002 and 2001: 2003 2002 2001 --------- --------- --------- Net income ................................ $ 23,822 $ 36,254 $ 24,700 Add: Net loss of taxable REIT subsidiaries ....................... 1,738 2,211 3,296 -------- -------- -------- Net income from REIT operations (1) ....... 25,560 38,465 27,996 Add: Book depreciation and amortization . 61,189 60,926 54,116 Less: Tax depreciation and amortization . (51,454) (49,976) (43,256) Book loss/(gain) from capital transactions .......................... 1,612 (6,154) (827) Tax (loss)/gain from capital transactions .......................... (1,602) 2,483 (1,445) Other book/tax differences, net ......... (8,096) (2,535) 16,129 -------- -------- -------- Taxable income before adjustments ......... 27,209 43,209 52,713 Less: Capital gains ..................... - (21,400) (3,685) -------- -------- -------- Adjusted taxable income subject to 90% dividend requirement .................... $ 27,209 $ 21,809 $ 49,028 ======== ======== ======== (1) All adjustments to "Net income from REIT operations" are net of amounts attributable to minority interest and taxable REIT subsidiaries. Reconciliation between cash dividends paid and dividends paid deduction: The following table reconciles cash dividends paid with the dividends paid deduction for the years ended December 31, 2003, 2002 and 2001: 2003 2002 2001 --------- --------- --------- Cash dividends paid ........................ $ 78,937 $ 72,309 $ 70,610 Less: Dividends designated to prior year . (19,457) (17,428) (14,410) Plus: Dividends designated from following year................................ 21,131 19,457 17,428 Less: Portion designated return of capital ............................ (53,402) (31,129) (20,915) -------- -------- -------- Dividends paid deduction ................... $ 27,209 $ 43,209 $ 52,713 ======== ======== ======== 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Characterization of distributions: The following table characterizes distributions paid per common share for the years ended December 31, 2003, 2002 and 2001: 2003 2002 2001 ------------------ ------------------- ------------------- AMOUNT % AMOUNT % AMOUNT % --------- ------- --------- ------- --------- ------- Ordinary income ................... $ 0.3888 20.22% $ 0.4870 25.32% $ 1.0985 57.12% Return of Capital ................. 1.5344 79.78 0.9583 49.83 0.7412 38.54 Capital gains ..................... 0.0000 00.00 0.0839 4.36 0.0370 1.92 Unrecaptured Section 1250 gain .... 0.0000 00.00 0.3940 20.49 0.0465 2.42 --------- ------ --------- ------ --------- ------ $ 1.9232 100.00% $ 1.9232 100.00% $ 1.9232 100.00% ========= ====== ========= ====== ========= ====== The following table characterizes distributions paid per preferred share Series B for the years ended December 31, 2003, 2002 and 2001: 2003 2002 2001 ------------------ ------------------- ------------------- AMOUNT % AMOUNT % AMOUNT % --------- ------- --------- ------- --------- ------- Ordinary income ................... $ 2.3125 100.00% $ 1.1672 50.47% $ 2.1495 92.95% Return of Capital ................. 0.0000 0.00 0.0000 0.00 0.0000 0.00 Capital gains ..................... 0.0000 0.00 0.2011 8.70 0.0722 3.12 Unrecaptured Section 1250 gain .... 0.0000 0.00 0.9442 40.83 0.0908 3.93 --------- ------ --------- ------ --------- ------ $ 2.3125 100.00% $ 2.3125 100.00% $ 2.3125 100.00% ========= ====== ========= ====== ========= ====== The following table characterizes distributions paid per preferred share Series F for the year ended December 31, 2003: 2003 ------------------- AMOUNT % --------- ------- Ordinary income.................... $ 0.7717 100.00% Return of Capital ................. 0.0000 0.00 Capital gains...................... 0.0000 0.00 Unrecaptured Section 1250 gain..... 0.0000 0.00 --------- ----- $ 0.7717 100.00% ========= ====== Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities of GDC. Deferred tax assets (liabilities) include the following: 2003 2002 2001 -------- -------- -------- Deferred tax assets (liabilities): Investment in partnership..................... $ 0 $ (27) $ 0 Capitalized development costs................. (158) (367) (2,025) Depreciation and amortization................. 6 0 (69) Allowance for doubtful accounts............... 40 40 40 Charitable contributions...................... 9 0 0 Other ........................................ 2 0 0 Tax loss carryforwards, net................... 2,384 2,673 3,101 ------- ------- ------- Net asset deferred tax asset (liability)...... 2,283 2,319 1,047 Valuation allowance........................... (2,283) (2,319) (1,047) ------- ------- ------- Net deferred tax asset (liability)............ $ 0 $ 0 $ 0 ======= ======= ======= The gross tax loss carryforwards total $5,959 and expire $1,096, $4,508 and $355 in 2012, 2018 and 2020, respectively. The income tax provision consisted of $49, $48 and $39 in 2003, 2002 and 2001, respectively, related to current state and local taxes. Net deferred tax expense for each of the years was $0. The income tax expense reflected in consolidated statements of operations differs from the amount determined by applying the federal statutory rate of 34% to the income before taxes of the Company's taxable REIT subsidiaries as a result of state income taxes and the utilization of tax loss carryforwards of $929, $969 and $1,644 in 2003, 2002 and 2001, respectively. A full valuation allowance had previously been provided against the tax loss carryforwards utilized. 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) In 2003, the Company continued to maintain a valuation allowance for the Company's net deferred tax assets, which consisted primarily of tax loss carryforwards. The valuation allowance was determined in accordance with the provisions of SFAS No. 109 "Accounting for Income Taxes" which requires the recording of a valuation allowance when it is more likely than not that any or all of the deferred tax assets will not be realized. In absence of favorable factors, application of SFAS No. 109 requires a 100% valuation allowance for any net deferred tax assets when a company has cumulative financial accounting losses, excluding unusual items, over several years. The Company's cumulative loss represented negative evidence sufficient to require a full valuation allowance under the provisions of SFAS No. 109. The Company intends to maintain a full valuation allowance for its net deferred tax asset until sufficient positive evidence exists to support reversal of the reserve. Until such time, except for minor state and local tax provisions, the Company will have no reported tax provision, net of valuation allowance adjustments. 6. PREFERRED SHARES The Company's Declaration of Trust authorizes the Company to issue up to an aggregate 100,000,000 shares of the Company, consisting of common shares and/or one or more series of preferred shares of beneficial interest. On November 17, 1997, the Company completed a $120,000 public offering of 4,800,000 shares of 9-1/4% Series B cumulative preferred shares of beneficial interest (the "B Preferred Shares"). On November 25, 1997, the Company sold an additional 318,000 B Preferred Shares as a result of the underwriters exercising the over-allotment option granted to them. Aggregate net proceeds of the offering were $123,072. Distributions on the B Preferred Shares are payable quarterly in arrears. The Company generally may redeem the B Preferred Shares anytime on or after November 15, 2003, at a redemption price of $25.00 per share, plus accrued and unpaid distributions. The proceeds from a new preferred offering in January 2004 were used to redeem these shares. The new offering transaction is disclosed in Note 20. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of the Company, which may include other series of preferred shares. The Company contributed the proceeds to the Operating Partnership in exchange for preferred units. The Operating Partnership pays a preferred distribution to the Company equal to the dividends paid on the B Preferred Shares. On March 9, 1999, the Board of Trustees adopted a Preferred Share Purchase Plan (the "Plan") pursuant to which a distribution will be made of one preferred share purchase right (a "Right") for each outstanding common share. The distribution was made on March 22, 1999, to the shareholders of record at the close of business on that date. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a Series E Junior Participating Preferred Share of the Company, par value $0.01 per share (the "Preferred Shares"), at a price of $55.00 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment. The Rights will become exercisable in the event that any person or group acquires or announces its intention to acquire beneficial ownership of 15.0% or more of the outstanding common shares of the Company (an "Acquiring Person"). Alternatively, each Right holder, except the Acquiring Person, will have the right to receive upon exercise that number of common shares having a market value of two times the Purchase Price of the Right. At any time before any person or group becomes an Acquiring Person, the Board of Trustees may redeem the Rights at a price of $0.01 per Right at which time the right to exercise the Rights will terminate. At any time after a person or group becomes an Acquiring Person, the Board of Trustees may exchange the Rights at an exchange ratio of one common share or one Preferred Share per Right. The Plan expires on March 9, 2009. On August 25, 2003, the Company completed a $60,000 public offering of 2,400,000 shares of 8.75% Series F cumulative preferred shares of beneficial interest , par value $0.01 per share, (the "Series F Preferred Shares"), at a purchase price of $25.00 per Series F Preferred Share. Aggregate net proceeds of the offering were $58,110. Distributions on the Series F Preferred Shares are payable quarterly in arrears. The Company generally may redeem the Series F Preferred Shares anytime on or after August 25, 2008, at a redemption price of $25.00 per share, plus accrued and unpaid distributions. 7. DERIVATIVE FINANCIAL INSTRUMENTS On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and interpreted by Derivatives Implementation Group Issues. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the financial statements and to measure those instruments at fair value. 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The adoption of the new standard resulted in a cumulative effect transition loss adjustment of $195 to other comprehensive income to recognize the fair values of the interest rate swap agreements as of January 1, 2001. The Company also recognized a cumulative effect transition loss adjustment of $116 in earnings as of January 1, 2001, to recognize the fair values of the interest rate caps. During the year ended December 31, 2001, the Company recognized additional other comprehensive loss of $6,271 to adjust the carrying amount of the interest rate swaps and caps to their fair values at December 31, 2001, which includes $4,966 in reclassifications to earnings for interest rate swap settlements and interest rate cap amortization during the period and $822 in minority interest participation. During the year ended December 31, 2002, the Company recognized additional other comprehensive income of $304 to adjust the carrying amount of the interest rate swaps and caps to fair values at December 31, 2002, which includes $7,189 in reclassifications to earnings for interest rate swap settlements during the period and $121 in minority interest participation. During the year ended December 31, 2003, the Company recognized additional other comprehensive income of $4,935 to adjust the carrying amount of the interest rate swaps and caps to their fair values at December 31, 2003, which includes $6,688 in reclassifications to earnings for interest rate swap settlements and interest rate cap amortization during the period and $552 in minority interest participation. The interest rate swap settlements were offset by a corresponding reduction in interest expense related to the interest payments being hedged. The Company may be exposed to the risk that variability in cash flows might impact the results of operations of the Company. Our hedging strategy, therefore, is to eliminate or reduce, to the extent possible, the volatility of cash flows. The following table summarizes the notional values and fair values of the Company's derivative financial instruments as of December 31, 2003. The notional values provide an indication of the extent of the Company's involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks. INTEREST HEDGE TYPE NOTIONAL VALUE RATE MATURITY FAIR VALUE --------------------------------------- -------------- -------- -------------- ---------- Swap - Cash Flow...................... $162,000 2.34% June 15, 2004 $ (991) Sold Cap - Cash Flow................... $162,000 7.00% June 15, 2004 - Cap - Cash Flow........................ $165,000 7.00% June 15, 2004 - Cap - Cash Flow........................ $ 42,000 4.00% July 15, 2004 - On December 31, 2003, the derivative instruments were reported at their aggregate fair value of $(991) in accounts payable and accrued expenses in the accompanying balance sheet, with a corresponding adjustment to other comprehensive income for the unrealized gains and losses (net of minority interest participation). The unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings in future periods, of which $1,227 is expected to be reclassified in 2004. This reclassification will correlate with the recognition of the hedged interest payments in earnings. There was no hedge ineffectiveness during the twelve months ended December 31, 2003. To determine the fair values of derivative instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. Standard market conventions and techniques such as undiscounted cash flow analysis, replacement cost and termination cost are used to determine fair value. 8. RENTALS UNDER OPERATING LEASES The Company receives rental income from the leasing of retail shopping center space under operating leases with expiration dates through the year 2027. The minimum future base rentals under non-cancelable operating leases as of December 31, 2003 are as follows: 2004................................. $206,850 2005................................. 182,069 2006................................. 159,671 2007................................. 138,772 2008................................. 119,560 Thereafter........................... 111,012 -------- $917,934 ======== Minimum future base rentals do not include amounts which may be received from certain tenants based upon a percentage of their gross sales or as reimbursement of real estate taxes and property operating expenses. Minimum rents contain straight-line adjustments for rental revenue increases which aggregated $2,065, $2,214 and $2,233 for the years ended December 31, 2003, 2002 and 2001, respectively. In 2003, 2002 and 2001, no tenant collectively accounted for more than 10.0% of rental income. The tenant base includes national, regional and local retailers, and consequently the credit risk is concentrated in the retail industry. 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 9. INVESTMENT IN UNCONSOLIDATED ENTITIES At December 31, 2003, investment in unconsolidated real estate entities consists of a 50.00% interest in Polaris Center, LLC, and a 39.29% interest in Polaris Mall, LLC. At December 31, 2002, investment in unconsolidated real estate entities consists of a 50.00% interest in Colonial Park Mall Limited Partnership, a 50.00% interest in Polaris Center, LLC, a 20.00% interest in Charlotte Eastland Mall, LLC, a 39.29% interest in Polaris Mall, LLC and a 50.00% interest in G & G Blaine, LLC. The share of net income for the period January 1, 2001 through March 31, 2001, includes the Company's 30.00% interest in Elizabeth MetroMall, LLC and Jersey Gardens Center, LLC. Effective April 6, 2001, the Company acquired an additional 30.00% interest in each entity and subsequently, in May 2001 acquired the remaining 40.00% interest in each entity. The share of net income for the period January 1, 2001 through July 17, 2002, includes the Company's 37.85% interest in Glimcher SuperMall Venture, LLC. Effective July 18, 2002, the Company acquired the remaining third party interests in Glimcher SuperMall Venture, LLC. The share of net income from January 1, 2001 through August 4, 2002, includes the Company's 50.00% interest in Dayton Mall Venture, LLC. Effective August 5, 2002, the Company acquired the remaining third party interest in Dayton Mall Venture, LLC. Additionally, the share of net income for the period January 1, 2001 through November 17, 2002 includes the Company's 20.00% interest in San Mall, LLC. Effective November 18, 2002, the Company acquired the remaining 80.00% interest in this entity. The share of net income for the nine months ended September 30, 2002, includes the Company's 20.00% joint venture interest in San Mall, LLC. Also, the share of net income for the period January 1, 2002 through March 5, 2003 includes the Company's 50.00% joint venture interest in Colonial Park Mall Limited Partnership. Effective March 6, 2003, the Company acquired the remaining 50.00% third party interest in this entity. Additionally, the share of net income for the period January 1, 2002 through April 23, 2003 includes the Company's 50% joint venture interest in G & G Blaine, LLC. Effective April 24, 2003, the Company acquired the remaining 50% third party interest in this entity. Furthermore, the share of net income for the period January 1, 2002 through August 13, 2003 included the Company's 20% interest in Charlotte Eastland Mall, LLC. Effective August 14, 2003, the Company acquired the remaining 80% third party interest in this entity. As a result, the entities mentioned above are fully consolidated as of July 18, 2002, August 5, 2002, November 18, 2002, March 6, 2003, April 24, 2003 and August 14, 2003, respectively. GDC provides development, construction, leasing and legal services for a fee, to joint ventures in which the Company has an ownership interest. GDC recognized fee income of $235, $1,776, and $2,447 for services provided to the joint ventures for the year ended December 31, 2003, 2002 and 2001, respectively. The summary financial information of the Company's unconsolidated real estate entities and a summary of the Operating Partnership's investment in and share of net income (loss) from such unconsolidated entities are presented below: BALANCE SHEETS DECEMBER 31, ---------------------- 2003 2002 ---------- --------- Assets: Investment properties at cost, net .............. $ 184,497 $ 285,299 Other assets .................................... 13,238 20,578 --------- --------- $ 197,735 $ 305,877 ========= ========= Liabilities and Members' Equity: Mortgage note payable ........................... $ 190,465 $ 242,486 Other liabilities ............................... 8,326 16,550 --------- --------- 198,791 259,036 Members' equity ................................. (1,056) 46,841 --------- --------- $ 197,735 $ 305,877 ========= ========= Operating Partnership's Share of Members' equity.. $ 961 $ 16,997 ========= ========= RECONCILIATION OF MEMBERS' EQUITY TO COMPANY INVESTMENT IN UNCONSOLIDATED ENTITIES: Members' equity ................................. $ 961 $ 16,997 Advances to (from) and additional costs ......... 7,866 6,050 --------- --------- Investment in unconsolidated entities ........... $ 8,827 $ 23,047 ========= ========= 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2003 2002 2001 -------- -------- -------- Total revenues ..................... $ 40,890 $ 81,928 $ 92,626 Operating expenses ................. 14,689 35,056 40,819 -------- -------- -------- Net operating income ............... 26,201 46,872 51,807 Depreciation and amortization ...... 8,702 15,976 18,140 Other expenses ..................... 132 714 1,809 Interest expense, net .............. 13,163 22,323 26,335 -------- -------- -------- Net income ......................... $ 4,204 $ 7,859 $ 5,523 ======== ======== ======== Company's share of net income ...... $ 2,284 $ 3,126 $ 2,040 ======== ======== ======== 10. RELATED PARTY TRANSACTIONS In connection with its initial public offering in 1994, the Company and its affiliates acquired several properties (the "Glimcher Properties" or singularly, a "Glimcher Property") from Herbert Glimcher, David J. Glimcher and entities, or the beneficial owners of such entities, affiliated with Herbert Glimcher and David J. Glimcher (collectively, the "Glimcher Entities"). Herbert Glimcher is the Chairman of the Board and the Chief Executive Officer of the Company. David J. Glimcher is a former executive officer and trustee of the Company, a son of Herbert Glimcher, and a brother of Michael Glimcher, the Company's President. In addition, at the time, the Company was granted options ("Purchase Options") to purchase, at the lower cost of ninety percent (90%) of its fair market value (as determined by a third party independent appraiser selected by the independent trustee), the interest of certain of the Glimcher Entities in such parcels. As of December 31, 2003, the Company had Purchase Options in connection with the following parcels: (i) three undeveloped outparcels contiguous to four of the Glimcher Properties aggregating approximately 95.43 acres, (ii) an approximately 58.7 acre parcel of undeveloped land in Delaware County, Ohio, which is not contiguous to any of the Glimcher Properties; and (iii) various other parcels of undeveloped land which are not contiguous to any of the Glimcher Properties, ranging in size from less than one acre to approximately 12.7 acres. Each Purchase Option is exercisable only if the respective parcel is developed as a retail property. During 1999, the Company exercised its option to purchase 28.695 acres of land located adjacent to The Mall at Fairfield Commons for approximately $5,000 from an Ohio Limited partnership in which Herbert Glimcher, Michael P. Glimcher, other immediate Glimcher family members and William R. Husted, former Senior Vice President of the Company and Douglas W. Campbell, Vice President Construction Services of the Company have an ownership interest (the "Beavercreek Partnership"). In connection with such purchase, GPLP issued to the Beavercreek Partnership a promissory note for the entire purchase price in the amount of $5,000, which bears interest at a rate equal to 30 days LIBOR, calculated on the first day of each month, plus 160 basis points. The maturity date of the note had been extended to January 2004, but was paid in full on April 2, 2003. Approximately $0, $4,909 and $4,924 is included in accounts payable at December 31, 2003, 2002 and 2001, respectively, relating to this transaction. Interest paid was $100, $286 and $300 for the years ended December 31, 2003, 2002 and 2001, respectively. The Company paid The Glimcher Company ("TGC") and Corporate Flight, Inc. ("CFI"), which are both wholly owned by Herbert Glimcher, $7 and $305 for the year ended December 31, 2003, $26 and $499 for the year ended December 31, 2002 and $5 and $324 for the year ended December 31, 2001, respectively, for the use in connection with Company related matters, of a coach owned by TGC and an airplane owned by CFI. The Company's joint ventures made no payments for the year ended December 31, 2003, $1 and $63 for the year ended December 31, 2002 and $8 and $85 for the year ended December 31, 2001, respectively. Additionally, the Company paid Triad CM ("Triad"), fifty percent (50%) of which was owned by TGC, which is wholly owned by Herbert Glimcher, $137, $1,409 and $630 for the years ended December 31, 2003, 2002 and 2001, respectively, in connection with subcontracting work at the Company's Properties. TGC disposed of its entire interest in Triad effective in September 2003, and therefore transactions subsequent to October 1, 2003 are not disclosed. The joint ventures controlled by the Company or in which the Company has a minority interest and is a passive investor paid Triad approximately $1,869, $1,500 and $4,200 for the years ended December 31, 2003, 2002 and 2001, respectively. Glimcher Development Corporation ("GDC"), an entity owned by GRT, provided services to TGC for predevelopment work on two projects in 2003 and was paid $59 for those services. 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) With respect to the development of Polaris Fashion Place in Columbus, Ohio, pursuant to the requirements of the Construction Loan Agreement, dated October 13, 2000, with The Huntington National Bank, Key Bank National Association, National City Bank and The Provident Bank (the "Construction Loan Agreement"), Herbert Glimcher provided the Bank Group with a $4,000 letter of credit ("Letter of Credit") to guarantee certain obligations of the Company under the Construction Loan Agreement. The Letter of Credit was terminated on May 29, 2002. At December 31, 2002 the Company accrued $40 as consideration to Herbert Glimcher for providing the Letter of Credit to the banks. Such consideration was regarded as the equivalent of the amount a bank would charge to issue such Letter of Credit. That fee was paid to Herbert Glimcher in March 2003. The Company has engaged Archer-Meek-Weiler Agency, Inc., ("AMW"), a company of which Alan R. Weiler (a trustee of GRT serving a three-year term which expires in 2005) is Chairman and Chief Executive Officer, as its agent for the purpose of obtaining property, liability and employee practices liability insurance coverage. In connection with securing such insurance coverage, AMW received net commissions of $253, $224 and $186 for the years ended December 31, 2003, 2002 and 2001, respectively. On January 5, 2004, GPLP completed the acquisition of the joint venture interests not previously owned by the Company in Polaris Mall, LLC, the indirect owner of Polaris Fashion Place, an enclosed approximately 1.6 million square foot super regional mall located in Columbus, Ohio, from NPLP and other parties. The Company acquired the remaining 60.7% interest in Polaris Mall, LLC for approximately $46,500, which was paid with approximately $33,000 in cash and the balance by the issuance of 594,342 Operating Units in GPLP valued at approximately $13,500. On January 5, 2004, GPLP also completed the acquisition of the joint venture interests not previously owned by the Company in Polaris Center, LLC, the owner of Polaris Town Center, a 443,165 square foot town center located in Columbus, Ohio, from NPLP. The Company acquired the remaining 50% interest in Polaris Center, LLC for approximately $10,000, which was paid in cash. Mr. Weiler, his spouse and children own, in its entirety, WSS Limited Partnership, an Ohio limited partnership ("WSS"). WSS directly owns units of limited partnership in GPLP ("Units"). WSS also indirectly owns Units in GPLP by virtue of its ownership interest in NP Limited Partnership, an Ohio limited partnership ("NPLP"). WSS also owns an interest in Star-Weiler Limited Partnership, an Ohio limited partnership ("Star-Weiler"). Star Weiler owns an interest in NPLP. Mr. Weiler's children, nieces and nephews also indirectly own an interest in NPLP. In addition, Mr. Weiler's sister-in-law previously owned an interest in Polaris Mall, LLC, which interest was acquired by GPLP on January 5, 2004. Following the acquisition of the joint venture interests not previously owned by the Company in Polaris Mall, LLC and Polaris Center, LLC, NPLP and WSS continue to directly own Units. On March 31, 1999 the Company acquired a 20.0% interest in San Mall LLC ("San Mall"), which owns Almeda Mall and Northwest Mall in Houston, Texas. The Company accounted for its investment in San Mall under the equity method of accounting. On February 22, 2001, Fifth Avenue, LLC ("Fifth Avenue") acquired the 80.0% ownership interest previously held by an unaffiliated third party. Fifth Avenue is wholly owned by the daughter of Herbert Glimcher, the Chairman of the Company's Board of Trustees and the Company's Chief Executive Officer, and the sister of Michael Glimcher, the President of the Company. On November 18, 2002, the Company acquired the remaining 80.0% interest in San Mall L.P. from Fifth Avenue for $5,500, which was paid $2,324 in cash and $3,176 in the form of 195,149 Operating Partnership units. The Company provides management and leasing services to San Mall, LLC under an operating agreement entered into in 1999. For the periods January 1, 2002 through November 18, 2002 and February 22, 2001 through December 31, 2001, the Company recognized fee income of $202 and $167, respectively, under such agreement. After the acquisition of the remaining interest, management fees were no longer charged to the consolidated Properties. Total revenues and net income of San Mall, LLC were $12,203 and $1,277, respectively, for the period January 1, 2002 through November 18, 2002 and $12,441 and $2,602, respectively, for the period February 22, 2001 through December 31, 2001. On May 10, 2002, the Company sold Plaza Vista Mall, a 214,000 square foot community center to a group of private investors, which included David Glimcher. The sale price was $9,937, including cash of $2,237 and the assumption of a $7,700 mortgage note payable. The Company recognized a gain of $1,194 on the sale. An estimated receivable for CAM, tax and insurance related to 2002 recoveries for Plaza Vista Mall is included in accounts receivable for approximately $75 at December 31, 2003 and December 31, 2002. 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) A brother of Herbert Glimcher owns a company that leases seven store locations in the Company's Properties. Minimum Rents were $268, $266 and $117 for the years ended December 31, 2003, 2002, and 2001, respectively, and prepaid amounts from these tenants were $0, $0, and $32 at December 31, 2003, 2002, and 2001, respectively. Herbert Glimcher has provided a loan guarantee to a private company unaffiliated with the Company that leases space commencing November 16, 2002 in a Mall in which the Company has a joint venture interest. Minimum rent was $21 for the year ended December 31, 2003. The Glimcher Group, owned by Robert Glimcher, a son of Herbert Glimcher, the Chairman of the Company's Board of Trustees and the Company's Chief Executive Officer, and a brother of Michael Glimcher, the President of the Company, owes the Company $10 for reimbursement of expenses for shared space at a convention in May 2003. The David J Glimcher Co., owned by David Glimcher, reimbursed the Company $10 related to expenses for shared space at a convention in May 2003. In the second and third quarters of 2002, Trans State Development, LLC, a wholly-owned subsidiary of the Company, entered into certain options with an unrelated third party to purchase land in Mason, Ohio for a proposed development of a regional mall and community center. At the December 19, 2002 Board of Trustees meeting, the Company informed the Board it did not intend to proceed with the development of the proposed project. Trans State Development, LLC assigned its land options to HP Development LLC ("HP") on January 31, 2003 pursuant to the terms of an Assignment Agreement. The Assignment Agreement provided for reimbursement by HP to Trans State Development, LLC of all costs it had incurred to the date of the assignment in conjunction with the options. In addition, on January 31, 2003, the Company entered into a Master Leasing Agreement with HP for the Company to provide leasing, legal and pre-development services. Beginning in February 2003, advances were made from Ellen Glimcher, doing business as Dell Property Group, Ltd, to HP. The Board of Trustees was unaware of these fund transfers or the involvement with HP of Ellen Glimcher through Dell Property Group, Ltd. During the year ended December 31, 2003, HP received $471 from Dell Property Group, Ltd., of which $350 was used to make payments to the Company for the land options and services provided under the Master Leasing Agreement during the year ended December 31, 2003. Ellen Glimcher is the daughter of Herbert Glimcher, the Chairman of the Board and Chief Executive Officer of the Company, and the sister of Michael Glimcher, the President of the Company. On December 11, 2003, the Company cancelled the Master Leasing Agreement between HP and Trans State Development, LLC and HP assigned the land options to Trans State Development. In consideration for the assignment of the options, Trans State Development agreed to reimburse HP Development for costs incurred related to the project plus a $25 service fee, for a total of $696. The Board of Trustees was unaware of the transfer of funds from Dell Property Group, Ltd. or the involvement of Ellen Glimcher through Dell Property Group Ltd. with HP at the time the land options were assigned to HP on January 31, 2003 or assigned to the Company on December 11, 2003. At December 31, 2003, the Company had a payable of $696 to HP which was paid by the Company on January 15, 2004. In February 2004, the Board of Trustees became aware of the involvement of and funds transferred by Ellen Glimcher through Dell Property Group Ltd. to HP. In February 2004, the Audit Committee of the Board of Trustees considered and approved each of the past transactions as part of its determination for the Company to proceed with the project. 11. COMMITMENTS AND CONTINGENCIES The Operating Partnership leases office space under an operating lease that had an initial term of four years commencing on July 2004. Additionally, three of GRT's Properties are subject to long-term ground leases where a third party owns the underlying land and has leased the land to GRT. GRT pays rent, ranging from $14 to $28 per annum, for the use of the land and generally is responsible for the costs and expenses associated with maintaining the building and improvements thereto. Future minimum rental payments as of December 31, 2003 are as follows: OFFICE LEASE GROUND LEASES ------------ ------------- 2004................... $ 415 $ 50 2005................... 415 43 2006................... 432 43 2007................... 432 43 2008................... 43 Thereafter............. 711 ------- ------ $ 1,694 $ 933 ======= ====== 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Office rental expenses (including miscellaneous month-to-month lease rentals) for the years ended December 31, 2003, 2002 and 2001 were $572, $593 and $651, respectively. Ground lease expenses for the years ended December 31, 2003, 2002 and 2001 were $59, $59 and $59, respectively. The Company has provided guarantees in connection with the outstanding debt of Polaris Fashion Place in which the Company is an equity member. In connection with the development of Polaris Fashion Place, the Operating Partnership provided the lender with a completion guarantee and an unconditional guarantee of payment of $60,000 (50.0% of the outstanding obligation on the indebtedness on the property). Upon refinancing of the construction loan on April 1, 2003, these guarantees were released. In connection with the new mortgage loan the Operating Partnership provided the lender with a guarantee until certain tenant allowances are paid. The guarantee was $2,941 at December 31, 2003. As of December 31, 2003, no reserves for losses have been provided in connection with this guarantee, as the Company does not expect to incur any liability. In addition, in July 1998, the New Jersey Economic Development Authority issued approximately $140,500 of Economic Development Bonds. On May 29, 2002, the New Jersey Economic Development Authority refunded certain of the Economic Development Bonds issued in 1998 and issued approximately $108,940 of replacement Economic Development Bonds. The Company began making quarterly Payment In Lieu of Taxes ("PILOT") payments commencing May 2001 and terminating on the date of the final payment of the bonds. Such PILOT payments are treated as real estate tax expense in the statements of operations. The amount of the annual PILOT payments beginning with the bond year ended 2001 was $8,925 and increases 10.0% every five years until the final payment is made. The Company has provided a limited guarantee of franchise tax payments to be received by the city until franchise tax payments achieve $5,600 annually; any such payments made by the Company are subject to refund from future franchise tax payments. The Company has reserved $232 in relation to a contingency associated with the sale of Loyal Plaza, a community center sold in 2002, relating to environmental assessment and monitoring matters. 12. SHARE OPTION PLANS GRT has established the Employee Share Option Plan (the "Employee Plan"), the Trustee Share Option Plan (the "Trustee Plan") and the 1997 Incentive Plan (the "Incentive Plan") for the purpose of attracting and retaining the Company's trustees, executive and other employees. A maximum of 400,000 shares have been reserved for issuance under the Employee Plan, a maximum of 700,000 shares have been reserved for issuance under the Trustee Plan and a maximum of 3,000,000 shares have been reserved for issuance under the Incentive Plan. A summary of the status of the Company's three option plans at December 31, 2003, 2002 and 2001 and changes during the years ending on those dates is presented below. Options issued under the Incentive Plan are included under the Trustee Plan and Employee Plan. 2001 2002 2003 WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------- --------- ---------- ---------- ---------- --------- TRUSTEE PLAN: Outstanding at beginning of year......... 1,193,500 $17.458 1,222,500 $17.360 1,256,500 $17.541 Granted.................................. 96,000 $14.750 121,000 $17.610 121,000 $18.930 Exercised................................ (52,000) $14.819 (87,000) $15.087 (206,500) $18.259 Forfeited................................ (15,000) $16.181 --------- --------- --------- Outstanding at end of year............... 1,222,500 $17.360 1,256,500 $17.541 1,171,000 $17.558 ========= ========= ========= EMPLOYEE PLAN: Outstanding at beginning of year......... 1,241,014 $15.738 1,371,023 $15.717 1,018,767 $16.925 Granted.................................. 411,500 $14.750 278,250 $17.662 325,000 $18.930 Exercised................................ (213,070) $15.475 (515,467) $14.439 (207,032) $14.811 Forfeited................................ (68,421) $14.044 (115,039) $15.456 (72,509) $17.293 --------- --------- --------- Outstanding at end of year............... 1,371,023 $15.717 1,018,767 $16.925 1,064,226 $17.958 ========= ========= ========= Options exercisable at year-end under the Trustee Plan....................... 967,167 1,081,500 979,330 Options exercisable at year-end under the Employee Plan...................... 686,087 545,307 540,007 Weighted-average fair value of options granted during the year................ $ 0.1204 $ 0.3341 $ 0.4560 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The fair value of each option grant was estimated on the date of the grant using the Black-Scholes options pricing model with the following assumptions: weighted average risk free interest rates used in 2003, 2002 and 2001 were 6.2%, 6.3% and 5.6%, respectively. Expected average lives of five years, annual dividend rates of $1.9232 and weighted average volatility of 11.8%, 12.0% and 12.6% in 2003, 2002 and 2001, respectively. The following table summarizes information regarding the options outstanding at December 31, 2003 under the Company's plans: OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------- --------------------------------------------- WEIGHTED- WEIGHTED- NUMBER AVERAGE AVERAGE NUMBER WEIGHTED- RANGE OF OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT AVERAGE EXERCISE PRICES DECEMBER 31, 2003 CONTRACTUAL LIFE PRICE DECEMBER 31, 2003 EXERCISE PRICE --------------- ----------------- ---------------- ---------- ----------------- -------------- Trustee Plan: $20.250 51,500 0.1 $20.250 51,500 $20.250 $20.250 1,500 1.2 $20.250 1,500 $20.250 $17.000 51,000 2.2 $17.000 51,000 $17.000 $18.750 - $20.750 293,000 3.4 $20.115 293,000 $20.115 $20.500 110,000 4.4 $20.500 110,000 $20.500 $15.000 273,000 5.2 $15.000 273,000 $15.000 $12.280 81,000 6.2 $12.280 81,000 $12.280 $14.750 81,000 7.2 $14.750 56,000 $14.750 $17.610 112,000 8.2 $17.610 45,330 $17.610 $18.930 - $22.360 117,000 9.2 $18.930 17,000 $18.930 --------- ------- $12.280 - $22.360 1,171,000 5.2 $17.558 979,330 $17.486 ========= ======= Employee Plan: $20.250 29,850 0.1 $20.250 29,850 $20.250 $17.000 15,750 2.2 $17.000 15,750 $17.000 $18.750 - $21.875 61,300 3.4 $19.604 61,300 $19.604 $20.500 172,000 4.4 $20.500 172,000 $20.500 $15.000 25,000 5.2 $15.000 25,000 $15.000 $12.280 29,373 6.2 $12.280 29,373 $12.280 $14.750 191,023 7.2 $14.750 127,349 $14.750 $17.610 - $18.330 238,180 8.2 $17.670 79,385 $17.670 $18.930 - $22.360 301,750 9.2 $19.052 --------- ------- $12.280 - $22.360 1,064,226 7.0 $17.958 540,007 $17.809 ========= ======= All but 21,000 options granted under the plans in 2003, 2002 and 2001 will be exercisable at the rate of 33.3% per annum over a three-year period beginning with the first anniversary of the date of grant and will remain exercisable through the tenth anniversary of such date. Options for 21,000 Shares were exercisable immediately, and will remain exercisable through the tenth anniversary of such date. 13. EMPLOYEE BENEFIT PLAN - 401(k) PLAN In January 1996, the Company established a qualified retirement savings plan under Code 401(k) for eligible employees which contains a cash or deferred arrangement which permits participants to defer up to a maximum of 15.0% of their compensation, subject to certain limitations. Employees 21 years old or above who have been employed by the Company for at least six months are eligible to participate. Participant's salary deferrals up to a maximum of 4.0% of qualified compensation will be matched at 50.0%. The Company contributed $190, $262 and $208 to the plan in 2003, 2002 and 2001, respectively. 14. DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN The Company has a Distribution Reinvestment and Share Purchase Plan under which its shareholders or Operating Partnership unit holders may elect to purchase additional common shares of beneficial interest and/or automatically reinvest their distributions in Shares. In order to fulfill its obligations under the plan, the Company may purchase Shares in the open market or issue Shares that have been registered and authorized specifically for the plan. As of December 31, 2003, 2,100,000 Shares were authorized of which 204,585 Shares have been issued. 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 15. EARNINGS PER SHARE The presentation of primary EPS and diluted EPS is summarized in the table below: FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------------------- 2003 2002 2001 --------------------------- --------------------------- -------------------------- PER PER PER INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE ------ ------ ----- ------ ------ ----- ------ ------ ----- BASIC EPS Income from continuing operations....... $ 26,754 $ 14,399 $ 5,005 Less: Preferred stock dividends....... (13,688) (11,833) (15,777) Add: Discount on redemption of preferred stock..................... 22,440 Gain (loss) on sale................... 2,156 (610) Add: Minority interest adjustments.... (429) 1,963 1,958 -------- -------- -------- 14,793 34,704 $0.43 4,529 32,366 $0.14 13,016 27,604 $0.47 EFFECT OF DILUTIVE SECURITIES Operating Partnership units............. 1,271 3,151 371 3,122 1,561 3,224 Options................................. 366 260 220 DILUTED EPS -------- ------ -------- ------ -------- ------ Income from continuing operations....... $ 16,064 38,221 $0.42 $ 4,900 35,748 $0.14 $ 14,577 31,048 $0.47 ======== ====== ======== ====== ======== ====== Options with exercise prices greater than the average share prices for the periods presented were excluded from the respective computations of diluted EPS because to do so would have been antidilutive. The number of such options was 225, 904 and 1,058 for the years ended December 31, 2003, 2002 and 2001, respectively. The impact of discontinued operations, gain (loss) on sales of properties, extraordinary item and cumulative effect of accounting change, net of minority interest, on basic and diluted EPS is summarized in the table below: FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 2003 2002 2001 ------------------------------------------------------------------- BASIC DILUTED BASIC DILUTED BASIC DILUTED ----- ------- ----- ------- ----- ------- Discontinued operations.................... $(0.13) $(0.13) $ 0.61 $ 0.61 $ 0.67 $ 0.66 Cumulative effect of accounting change..... - - - - $(0.00) $(0.01) 16. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, restricted cash, tenant accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values because of the short maturity of these financial instruments. The carrying value of the Credit Facility is also a reasonable estimate of its fair value because it bears variable rate interest at current market rates. Based on the discounted amount of future cash flows using rates currently available to GRT for similar liabilities (ranging from 3.12% to 6.76% per annum at December 31, 2003 and 3.33% to 7.58% per annum at December 31, 2002), the fair value of GRT's mortgage notes payable is estimated at $1,255,181 and $1,010,512 at December 31, 2003 and 2002, respectively. The fair value of the debt instruments considers in part the credit of GRT as an entity, and not just the individual entities and Properties owned by GRT. The fair value of interest rate protection agreements are estimated based on amounts that GRT would expect to receive or pay to terminate such agreements (see Note 7). Both the fair values and carrying amounts of the interest rate protection agreements were $(991) at December 31, 2003 and $(7,009) at December 31, 2002, respectively. 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 17. SEGMENT REPORTING The Company concentrates its business on two broad types of retail Properties, Malls and Community Centers. Regional Malls are generally enclosed Properties that serve a large population base and feature department store anchors and a broad range of national retailers. Community Center Properties are smaller retail properties, serving a neighborhood with discount and grocery store anchors and a limited number of other retail concepts. Selected information about operating segments of the Company is summarized in the table below: FOR THE YEAR ENDED DECEMBER 31, 2003 ------------------------------------ COMMUNITY MALLS CENTERS CORPORATE TOTAL ------------ --------- --------- ---------- Total revenues......................... $ 283,962 $ 30,748 $ 2,167 $ 316,877 Total operating expenses............... 184,552 14,512 11,214 210,278 ------------ --------- --------- ---------- Operating income (loss)................ $ 99,410 $ 16,236 $ (9,047) $ 106,599 ============ ========= ========= ========== Equity in income of unconsolidated entities.............. $ 1,145 $ 998 $ 0 $ 2,143 ============ ========= ========= ========== Net property and equipment............. $ 1,526,514 $ 169,510 $ 2,983 $1,699,007 ============ ========= ========= ========== Total assets........................... $ 1,627,222 $ 184,323 $ 25,878 $1,837,423 ============ ========= ========= ========== Investment in unconsolidated entities.. $ 5,995 $ 2,832 $ 0 $ 8,827 ============ ========= ========= ========== FOR THE YEAR ENDED DECEMBER 31, 2002 ------------------------------------ COMMUNITY MALLS CENTERS CORPORATE TOTAL ------------ --------- --------- ---------- Total revenues......................... $ 235,136 $ 31,540 $ 1,283 $ 267,959 Total operating expenses............... 142,980 13,703 12,095 168,778 ------------ --------- --------- ---------- Operating income (loss)................ $ 92,156 $ 17,837 $ (10,812) $ 99,181 ============ ========= ========= ========== Equity in income of unconsolidated entities.............. $ 2,612 $ 467 $ 0 $ 3,079 ============ ========= ========= ========== Net property and equipment............. $ 1,265,110 $ 195,665 $ 9,308 $1,470,083 ============ ========= ========= ========== Total assets........................... $ 1,365,182 $ 210,165 $ 57,086 $1,632,433 ============ ========= ========= ========== Investment in unconsolidated entities.. $ 19,757 $ 3,290 $ 0 $ 23,047 ============ ========= ========= ========== FOR THE YEAR ENDED DECEMBER 31, 2001 ------------------------------------ COMMUNITY MALLS CENTERS CORPORATE TOTAL ------------ --------- --------- ---------- Total revenues......................... $ 212,194 $ 33,332 $ 2,740 $ 248,266 Total operating expenses............... 127,357 13,829 16,023 157,209 ------------ --------- --------- ---------- Operating income (loss)................ $ 84,837 $ 19,503 $ (13,283) $ 91,057 ============ ========= ========= ========== Equity in income of unconsolidated entities.............. $ 1,130 $ 910 $ 0 $ 2,040 ============ ========= ========= ========== Net property and equipment............. $ 1,087,243 $ 447,868 $ 14,570 $1,549,681 ============ ========= ========= ========== Total assets........................... $ 1,167,093 $ 507,987 $ 83,439 $1,758,519 ============ ========= ========= ========== Investment in unconsolidated entities.. $ 43,171 $ 4,830 $ 0 $ 48,001 ============ ========= ========= ========== 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 18. ACQUISITIONS The Company accounts for acquisitions under the purchase method of accounting in accordance with SFAS No. 141, "Business Combinations". The purchase allocation is based on the information available at this time. Subsequent adjustments and refinements to the allocation may be made, based on additional information. The Company believes any subsequent adjustments will be immaterial. On December 22, 2003, GPLP acquired Eastland Mall ("Eastland Ohio"), a 940,000 (unaudited) square foot enclosed regional mall in Columbus, Ohio, from Columbus East Joint Venture, an Ohio general partnership. The purchase price of $29.65 million was paid with (i) the proceeds from a $24 million three-year mortgage loan from The Huntington National Bank that bears interest at a per annum rate of LIBOR plus 200 basis points and (ii) approximately $5 million of borrowings on the Company's line of credit. The Company may, subject to the satisfaction of certain conditions, also borrow up to an additional $12 million under the bank loan to fund costs relating to the addition of a new anchor and other improvements to the Mall. The repayment of the loan has been guaranteed by each of GPLP and Glimcher Properties Corporation, the general partner of GPLP. On August 27, 2003, the Company, through its operating partnership, GPLP, acquired WestShore Plaza Mall, a fully enclosed regional shopping mall located in Tampa, Florida, from American Freeholds, a Nevada general partnership, which is sponsored by Grosvenor USA. Approximately $100 million of the $152 million purchase price was funded with a new nine-year mortgage loan, which bears interest at the fixed rate of 5.09% per annum and requires payments of principal based on a 30-year principal amortization schedule. The additional $52 million was funded using a portion of the net proceeds of the 8.75% Series F Cumulative Redeemable Preferred Share offering that was completed by the Company on August 25, 2003. On August 14, 2003, GPLP completed the acquisition of the joint venture interest not previously owned by the Company in Eastland North Carolina, an enclosed regional mall located in Charlotte, North Carolina, from HIG Mall, LLC, a Florida limited liability company. The Company acquired the remaining 80% interest for $4.75 million in cash. The property had an outstanding mortgage balance of $46.2 million on the acquisition date. The existing mortgage, which originated in 1998, matures on September 11, 2008. The debt bears interest at a fixed rate of 7.84% per annum and requires payments of principal based on a 30-year principal amortization schedule. On April 24, 2003, GPLP completed the acquisition from Greyhawke Net Lease Investors III, LLC, a Delaware limited liability company, of the 50% interest not previously owned by the Company in G & G Blaine, LLC, and a related parcel of land for approximately $2.96 million in cash. With the completion of this transaction, GPLP is the sole owner of a vacant anchor building and underlying land at Northtown Mall in Minneapolis, Minnesota. Northtown Mall is wholly owned by the Company. On March 6, 2003, the Company completed the acquisition of the joint venture interest not previously owned by the Company in Colonial Park Mall, an enclosed regional mall located in Harrisburg, Pennsylvania, from LB Colonial Park, LLC, a Delaware limited liability company. The Company acquired the remaining 50% interest for $5.5 million in cash. The property had an outstanding mortgage balance of $34.3 million on the acquisition date. The existing mortgage, which originated in 1997, matures in 2027, with an optional prepayment dated in 2007. The debt bears interest at a fixed rate of 7.73% per annum. For the five acquisitions listed above and the three acquisitions made during 2002, the Company calculated the proforma results of operations as if the acquisitions occurred on January 1, 2002 (unaudited): 2003 2002 ---- ---- Pro forma revenues................................... $345,327 $313,824 Pro forma net income................................. $ 13,519 $ 31,750 Pro forma earnings per share-diluted................. $ 0.35 $ 0.89 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Intangibles associated with acquisitions of WestShore Plaza Mall and Eastland Ohio account for a net liability of $7,258 for below market leases. These intangibles are being amortized as a net increase to minimum rents on a straight-line basis over the lives of the leases with a weighted average amortization period of 12.2 years. Amortization in 2003 was $158, resulting in a net book value of $7,100 for the intangible at December 31, 2003. Estimated amortization of this intangible will be as follows: For the year ending December 31, 2004............... $ 537 For the year ending December 31, 2005............... 428 For the year ending December 31, 2006............... 395 For the year ending December 31, 2007............... 507 For the year ending December 31, 2008............... 623 ------- $ 2,490 ======= In 2003, the Company acquired from its joint venture partners the remaining interest in Eastland North Carolina, G & G Blaine and Colonial Park malls. In addition, the Company also acquired WestShore Plaza and Eastland Ohio. A condensed balance sheet disclosing the amount assigned to each major asset and liability caption of these acquired entities at the date each one was acquired: ASSETS Investment in real estate: Land....................................................... $ 43,490 Buildings, improvements and equipment...................... 240,400 Developments in progress................................... 80 -------- 283,970 Investment in unconsolidated real estate entities.......... (11,981) -------- Investment in real estate, net.......................... 271,989 -------- Restricted cash................................................ 654 Tenant accounts receivable, net................................ 3,074 Deferred expenses, net......................................... 1,061 Prepaid and other assets....................................... 468 -------- $277,246 ======== LIABILITIES Mortgage notes payable......................................... $204,439 Accounts payable and accrued expenses.......................... 15,488 -------- $219,927 ======== The acquisition of Polaris Fashion Place and Polaris Towne Center, completed on January 5, 2004, will result in the additions to the Company's consolidated balance sheet in the following major categories in January 2004: Net investment in real estate............................. $220,932 Mortgage notes payable.................................... $234,071 The Company has not completed its allocation of fair value for the acquisition of Polaris Fashion Place and Polaris Towne Center as required under SFAS No. 141 and the amounts above are preliminary. The Company expects to complete this analysis prior to the filing of their Form 10-Q for the quarter ended March 31, 2004. 19. DISCONTINUED OPERATIONS During 2003, the Company sold five Community Centers for $18.6 million and reflected two other Community Centers as held for sale. The company recorded a net loss on the sale of the centers of $3,913, which, in accordance with SFAS No. 144, is reported in Discontinued Operations. Total revenues for these assets were $1,426, $3,539, and $3,921 for the years ended December 31, 2003, 2002 and 2001, respectively. For segment reporting purposes, revenues and expenses, including interest expense, would have been reported as part of Community Centers. 72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 20. SUBSEQUENT EVENTS On January 5, 2004, the Company acquired from the joint venture partners the remaining 60.7% interest in Polaris Mall, LLC, the owner of Polaris Fashion Place, an approximately 1.6 million (unaudited) square foot upscale regional mall located in Columbus, Ohio, for approximately $46.5 million, consisting of $32.9 million in cash and the balance by the issuance of 594,342 operating units in GPLP. Polaris Fashion Place is subject to an approximately $148.7 million mortgage which matures in 2013, bears interest at a fixed rate of 5.24% per annum and is being repaid based on a 30-year principal amortization schedule. On January 5, 2004, the Company acquired from the joint venture partner the remaining 50% interest in Polaris Center, LLC, owner of the Polaris Towne Center, a 443,165 (unaudited) square foot community center located in Columbus, Ohio, for approximately $10.0 million, which was paid for all in cash. The Polaris Towne Center is subject to an approximately $41.8 million mortgage which matures in 2010, bears interest at a fixed rate of 8.20% per annum and is being repaid based on a 30 year principal amortization schedule. After completing the acquisition of the joint venture partners' remaining interests in Polaris Fashion Place and Polaris Towne Center, the Company no longer owns any Properties through joint ventures. The cash portion of the purchase price for Polaris Mall, LLC was paid in part with the proceeds of a new $36.5 million loan from Bank One. The repayment of this loan has been guaranteed by Polaris Mall, LLC. In addition, as security for repayment of the loan, GPLP has pledged to Bank One 100% of its limited liability company interest in Polaris Mall, LLC and has entered into a negative pledge agreement with Bank One, whereby it has agreed not to grant a lien on twenty-five of GPLP's Properties. In addition, the cash portion of the purchase price for Polaris Mall, LLC was paid in part with approximately $6.6 million in additional borrowings on the Company's secured line of credit from Key Bank National Association and a consortium of Banks. The $36.5 million loan matures in one year and bears interest at a rate equal to LIBOR plus 3.00% per annum. The Company intends to repay this loan during 2004 using Community Center asset sale proceeds, the issuance of additional preferred or common equity, or a combination of the foregoing. On February 17, 2004, the Company sold Morgantown Plaza, a 103,364 square foot community center in Star City, WV, for $1.9 million. The cash proceeds were used to pay down the Company's outstanding variable rate debt. Morgantown Plaza was classified as held for sale at December 31, 2003 and the operating results of the property were included in discontinued operations. On February 20, 2004, the Company sold Cambridge Plaza, a 95,019 square foot community center in Cambridge, OH, for $1.375 million. The cash proceeds were used to pay down the Company's outstanding variable rate debt. Cambridge Plaza was classified as held for sale at December 31, 2003 and the operating results of the property were included in discontinued operations. On February 23, 2004, the Company completed its offering to the public of 6,000,000 shares of 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest. (the "Series G Preferred Shares"). Aggregate net proceeds of the offering were $145.3 million. Distributions on the Series G Preferred Shares are payable quarterly in arrears beginning on April 15, 2004. The Company generally may redeem the Series G Preferred Shares anytime on or after February 23, 2009, at a redemption price of $25.00 per share, plus accrued and unpaid distributions. The proceeds were used to redeem the Series B Preferred shares on February 27, 2004 and to pay down $16.9 million of the Company's Credit Facility, which was recently drawn upon to pay off $17.0 million of subordinated mortgage debt relating to the Company's Great Mall of the Great Plains in Olathe, Kansas on February 9, 2004. On February 27, 2004, the Company redeemed 5,118,000 shares of 9.25% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest ("the Series B Preferred Shares"). Shareholders of record at the close of business on February 27, 2004 received a redemption price of $25.00 per share plus an amount equal to the dividends accrued and unpaid. The total cost to redeem the shares was $129,824. The Company estimates that its redemption of the Series B Preferred Shares will result in a non-cash charge of approximately $4.8 million as required under Emerging Issues Task Force Topic Number D-42, "The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock". This one time non-cash charge represents costs that were incurred and recorded in Additional Paid In Capital at the time of the initial issuance of the Series B Preferred Shares in 1997. 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 21. INTERIM FINANCIAL INFORMATION (UNAUDITED) FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 2003 QUARTER QUARTER QUARTER QUARTER ---------------------------- ------- ------- ------- ------- Total revenues............................................................... $77,467 $70,569 $75,778 $93,063 Total revenues as previously reported........................................ $77,732 $70,820 $75,853 $93,118 Operating income............................................................. $25,984 $16,750 $26,907 $36,958 Operating income as previously reported...................................... $26,009 $16,563 $26,886 $36,862 Income before extraordinary item and cumulative effect of accounting change.. $ 5,564 $ (968) $ 6,450 $12,776 Net income................................................................... $ 5,564 $ (968) $ 6,450 $12,776 Net income available to common shareholders.................................. $ 2,606 $(3,927) $ 2,953 $ 8,502 Earnings per share (diluted)................................................. $ 0.08 $ (0.11) $ 0.08 $ 0.24 FIRST SECOND THIRD FOURTH YEAR ENDED DECEMBER 31, 2002 QUARTER QUARTER QUARTER QUARTER ---------------------------- ------- ------- ------- ------- Total revenues............................................................... $60,384 $60,572 $66,839 $80,164 Total revenues as previously reported........................................ $70,184 $69,211 $70,794 $80,666 Operating income............................................................. $22,975 $22,804 $23,866 $29,536 Operating income as previously reported...................................... $29,183 $28,048 $26,090 $29,499 Income before extraordinary item and cumulative effect of accounting change.. $ 8,525 $ 6,104 $ 7,658 $13,967 Net income................................................................... $ 8,525 $ 6,104 $ 7,658 $13,967 Net income available to common shareholders.................................. $ 5,566 $ 3,146 $ 4,700 $11,009 Earnings per share (diluted)................................................. $ 0.19 $ 0.10 $ 0.14 $ 0.32 Total revenues and operating income for 2003 and 2002 are restated to reflect SFAS 144. Net income available to shareholders reflects the net gains and losses associated with the sale of discontinued operations. It also reflects the income and loss from discontinued operations. The effect of these amounts to earnings per share - diluted was $(0.13) and $0.61 for 2003 and 2002, respectively. 74 GLIMCHER REALTY TRUST SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (DOLLARS IN THOUSANDS) BALANCE AT (1) BEGINNING OF CHARGED BALANCE AT YEAR TO EXPENSE DEDUCTIONS END OF YEAR ------------ ---------- ---------- ----------- Year ended December 31, 2003- Allowance for doubtful accounts................... $ 6,253 $ 17,338 $ 15,619 $ 7,972 Year ended December 31, 2002- Allowance for doubtful accounts................... $ 3,416 $ 6,392 $ 3,555 $ 6,253 Year ended December 31, 2001- Allowance for doubtful accounts................... $ 1,345 $ 6,449 $ 4,378 $ 3,416 (1) Amounts charged to expense and deductions for 2002 and 2001 are restated to reflect the impact of SFAS No. 144. GLIMCHER REALTY TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------- ----------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS OF PROPERTY ENCUMBRANCES [d] LAND [a] IMPROVEMENTS ------------------------------------------------------------------------------------------------------ MALL PROPERTIES Almeda Mall (f) Houston, TX $ 22,958 Ashland Town Center Ashland, KY $26,196 $ 3,866 $ 21,454 8,426 Dayton Mall Dayton, OH 58,171 97,848 Grand Central Mall Parkersburg/Vienna, WV 49,921 3,960 41,136 31,456 Great Mall of the Great Plains Olathe, KS 42,000 129,228 Indian Mound Mall Newark/Heath, OH (g) 892 19,497 11,606 Jersey Gardens Mall Elizabeth, NJ 163,141 260,609 Lloyd Center Mall Portland, OR 139,120 173,073 The Mall at Fairfield Commons Beavercreek, OH 113,874 5,438 102,914 12,218 The Mall at Johnson City Johnson City, TN 39,957 46,876 Montgomery Mall Montgomery, AL 44,909 72,866 Morgantown Mall Morgantown, WV (h) 1,273 40,484 5,192 New Towne Mall New Philadelphia, OH (g) 1,190 23,475 7,117 Northtown Mall Blaine, MN (g) 65,808 Northwest Mall Houston, TX (f) 22,893 River Valley Mall Lancaster, OH 38,000 875 26,910 18,939 Southside Mall Oneonta, NY 7,638 1,194 10,643 2,878 Supermall of Great NW Auburn, WA 61,804 104,475 University Mall Tampa, FL 66,158 13,314 108,230 4,605 Weberstown Mall Stockton, CA 19,617 34,439 GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD -------------------------------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS TOTAL OF PROPERTY LAND [b] [c] [b] [c] ---------------------------------------------------------------------------- MALL PROPERTIES Almeda Mall Houston, TX $ 7,617 $ 15,341 $ 22,958 Ashland Town Center Ashland, KY 4,144 29,602 33,746 Dayton Mall Dayton, OH 8,710 89,138 97,848 Grand Central Mall Parkersburg/Vienna, WV 3,961 72,591 76,552 Great Mall of the Great Plains Olathe, KS 14,660 114,568 129,228 Indian Mound Mall Newark/Heath, OH 773 31,222 31,995 Jersey Gardens Mall Elizabeth, NJ 33,706 226,903 260,609 Lloyd Center Mall Portland, OR 47,737 125,336 173,073 The Mall at Fairfield Commons Beavercreek, OH 7,695 112,875 120,570 The Mall at Johnson City Johnson City, TN 4,462 42,414 46,876 Montgomery Mall Montgomery, AL 10,382 62,484 72,866 Morgantown Mall Morgantown, WV 1,556 45,393 46,949 New Towne Mall New Philadelphia, OH 1,248 30,534 31,782 Northtown Mall Blaine, MN 13,723 52,085 65,808 Northwest Mall Houston, TX 9,918 12,975 22,893 River Valley Mall Lancaster, OH 1,001 45,723 46,724 Southside Mall Oneonta, NY 1,139 13,576 14,715 Supermall of Great NW Auburn, WA 7,183 97,292 104,475 University Mall Tampa, FL 13,314 112,835 126,149 Weberstown Mall Stockton, CA 3,298 31,141 34,439 LIFE UPON WHICH DATE DEPRECIATION IN CONSTRUCTION LATE STATEMENT DESCRIPTION AND LOCATION ACCUMULATED WAS DATE OF OPERATIONS OF PROPERTY DEPRECIATION COMPLETED ACQUIRED IS COMPUTED ------------------------------------------------------------------------------------------- MALL PROPERTIES Almeda Mall Houston, TX $ 3,942 2002 [e] Ashland Town Center Ashland, KY 11,108 1989 [e] Dayton Mall Dayton, OH 16,438 2002 [e] Grand Central Mall Parkersburg/Vienna, WV 19,078 1993 [e] Great Mall of the Great Plains Olathe, KS 34,135 1999 [e] Indian Mound Mall Newark/Heath, OH 14,147 1986 [e] Jersey Gardens Mall Elizabeth, NJ 43,142 2000 [e] Lloyd Center Mall Portland, OR 18,455 1998 [e] The Mall at Fairfield Commons Beavercreek, OH 36,010 1993 [e] The Mall at Johnson City Johnson City, TN 8,126 1996 [e] Montgomery Mall Montgomery, AL 10,298 1998 [e] Morgantown Mall Morgantown, WV 18,423 1990 [e] New Towne Mall New Philadelphia, OH 13,114 1988 [e] Northtown Mall Blaine, MN 7,561 1998 [e] Northwest Mall Houston, TX 3,272 2002 [e] River Valley Mall Lancaster, OH 18,707 1987 [e] Southside Mall Oneonta, NY 3,506 1994 [e] Supermall of Great NW Auburn, WA 23,244 2002 [e] University Mall Tampa, FL 20,128 1997 [e] Weberstown Mall Stockton, CA 7,860 1998 [e] 76 GLIMCHER REALTY TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------- ----------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS OF PROPERTY ENCUMBRANCES [d] LAND [a] IMPROVEMENTS ------------------------------------------------------------------------------------------------------- Colonial Park Mall Harrisburg, PA $33,899 $ 54,020 Eastland Charlotte, NC 45,974 53,217 Westshore Plaza Tampa, FL 99,658 160,811 Eastland Mall, OH Columbus, OH 24,000 30,364 COMMUNITY CENTERS Artesian Square Martinsville, IN 5,000 $ 760 $ 6,791 271 Ashland Plaza Ashland, KY 312 1,633 548 Audubon Village Henderson, KY 606 5,453 (20) Ayden Plaza Ayden, NC 138 1,243 13 Bollweevil Shopping Center Enterprise, AL 215 1,916 36 Buckhannon Plaza Tennerton, WV 269 2,464 46 Cambridge Plaza Cambridge, OH (i) 195 691 428 Canal Place Plaza Rome, NY 420 6,264 (4,608) Chillicothe Plaza Chillicothe, OH (g) 78 410 2,273 Clarksville Plaza Clarksville, IN (g) 127 621 559 Corry Plaza Corry, PA 265 2,472 198 Cumberland Crossing Jacksboro, TN 729 6,562 (19) East Pointe Plaza Columbia, SC 8,178 1,255 11,294 99 Grand Union Plaza South Glens Falls, NY 507 4,566 7 Gratiot Center Saginaw, MI (g) 1,196 10,778 63 GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD -------------------------------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS TOTAL OF PROPERTY LAND [b] [c] [b] [c] ------------------------------------------------------------------------ Colonial Park Mall Harrisburg, PA $ 9,765 $ 44,255 $ 54,020 Eastland Charlotte, NC 5,357 47,860 53,217 Westshore Plaza Tampa, FL 15,653 145,158 160,811 Eastland Mall, OH Columbus, OH 12,570 17,794 30,364 COMMUNITY CENTERS Artesian Square Martinsville, IN 944 6,878 7,822 Ashland Plaza Ashland, KY 312 2,181 2,493 Audubon Village Henderson, KY 606 5,433 6,039 Ayden Plaza Ayden, NC 138 1,256 1,394 Bollweevil Shopping Center Enterprise, AL 215 1,952 2,167 Buckhannon Plaza Tennerton, WV 269 2,510 2,779 Cambridge Plaza Cambridge, OH 195 1,119 1,314 Canal Place Plaza Rome, NY 195 1,881 2,076 Chillicothe Plaza Chillicothe, OH 78 2,683 2,761 Clarksville Plaza Clarksville, IN 117 1,190 1,307 Corry Plaza Corry, PA 265 2,670 2,935 Cumberland Crossing Jacksboro, TN 729 6,543 7,272 East Pointe Plaza Columbia, SC 1,255 11,393 12,648 Grand Union Plaza South Glens Falls, NY 507 4,573 5,080 Gratiot Center Saginaw, MI 1,196 10,841 12,037 LIFE UPON WHICH DATE DEPRECIATION IN CONSTRUCTION LATE STATEMENT DESCRIPTION AND LOCATION ACCUMULATED WAS DATE OF OPERATIONS OF PROPERTY DEPRECIATION COMPLETED ACQUIRED IS COMPUTED ------------------------------------------------------------------------------------------- Colonial Park Mall Harrisburg, PA $ 9,866 2003 [e] Eastland Charlotte, NC 2,938 2003 [e] Westshore Plaza Tampa, FL 1,775 2003 [e] Eastland Mall, OH Columbus, OH 10 2003 [e] COMMUNITY CENTERS Artesian Square Martinsville, IN 1,211 1996 [e] Ashland Plaza Ashland, KY 1,307 1968 [e] Audubon Village Henderson, KY 988 1996 [e] Ayden Plaza Ayden, NC 309 1994 [e] Bollweevil Shopping Center Enterprise, AL 490 1994 [e] Buckhannon Plaza Tennerton, WV 614 1994 [e] Cambridge Plaza Cambridge, OH 818 1965 [e] Canal Place Plaza Rome, NY 618 1994 [e] Chillicothe Plaza Chillicothe, OH 374 1964 [e] Clarksville Plaza Clarksville, IN 435 1968 [e] Corry Plaza Corry, PA 664 1994 [e] Cumberland Crossing Jacksboro, TN 1,168 1996 [e] East Pointe Plaza Columbia, SC 2,016 1996 [e] Grand Union Plaza South Glens Falls, NY 1,028 1994 [e] Gratiot Center Saginaw, MI 2,589 1994 [e] 77 GLIMCHER REALTY TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------- ----------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS OF PROPERTY ENCUMBRANCES [d] LAND [a] IMPROVEMENTS ------------------------------------------------------------------------------------------------------ Hills Plaza East Erie, PA $ 241 $ 2,240 $ (2,481) Hocking Valley Mall Lancaster, OH $4,162 606 5,550 633 Jersey Gardens Center Elizabeth, NJ 379 Kmart Alliance, NE 175 1,567 6 Knox Village Square Mount Vernon, OH 9,062 865 8,479 277 Liberty Plaza Morristown, TN (g) 369 3,312 10 Linden Corners Buffalo, NY 414 3,726 (4,140) Logan Place Russellville, KY (g) 367 3,307 73 Lowe's Marion, OH 626 2,454 - Middletown Plaza Middletown, OH 127 1,159 307 Monroe Shopping Center Madisonville, TN 375 3,522 81 Morgantown Commons Morgantown, WV (h) 175 7,549 12,360 Morgantown Plaza Star City, WV (i) 305 1,137 770 Morningside Plaza Dade City, FL 487 4,300 (4,787) New Boston Mall Portsmouth, OH (g) 537 4,906 205 Newberry Square Shopping Center Newberry, SC 594 5,355 36 North Horner Shopping Center Sanford, NC 206 1,875 128 Ohio River Gallipolis, OH 502 6,373 168 Pea Ridge Shopping Center Huntington, WV (g) 687 6,160 671 Prestonsburg Village Center Prestonsburg, KY (g) 663 6,002 207 GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD -------------------------------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS TOTAL OF PROPERTY LAND [b] [c] [b] [c] ------------------------------------------------------------------------ Hills Plaza East Erie, PA $ - $ - $ - Hocking Valley Mall Lancaster, OH 606 6,183 6,789 Jersey Gardens Center Elizabeth, NJ 379 379 Kmart Alliance, NE 175 1,573 1,748 Knox Village Square Mount Vernon, OH 868 8,753 9,621 Liberty Plaza Morristown, TN 369 3,322 3,691 Linden Corners Buffalo, NY - Logan Place Russellville, KY 368 3,379 3,747 Lowe's Marion, OH 625 2,455 3,080 Middletown Plaza Middletown, OH 127 1,466 1,593 Monroe Shopping Center Madisonville, TN 375 3,603 3,978 Morgantown Commons Morgantown, WV - 20,084 20,084 Morgantown Plaza Star City, WV 305 1,907 2,212 Morningside Plaza Dade City, FL - - New Boston Mall Portsmouth, OH 537 5,111 5,648 Newberry Square Shopping Center Newberry, SC 594 5,391 5,985 North Horner Shopping Center Sanford, NC 206 2,003 2,209 Ohio River Gallipolis, OH 461 6,582 7,043 Pea Ridge Shopping Center Huntington, WV 687 6,831 7,518 Prestonsburg Village Center Prestonsburg, KY 663 6,209 6,872 LIFE UPON WHICH DATE DEPRECIATION IN CONSTRUCTION LATE STATEMENT DESCRIPTION AND LOCATION ACCUMULATED WAS DATE OF OPERATIONS OF PROPERTY DEPRECIATION COMPLETED ACQUIRED IS COMPUTED ------------------------------------------------------------------------------------------- Hills Plaza East Erie, PA $ - 1994 [e] Hocking Valley Mall Lancaster, OH 1,514 1994 [e] Jersey Gardens Center Elizabeth, NJ Kmart Alliance, NE 389 1994 [e] Knox Village Square Mount Vernon, OH 2,552 1992 [e] Liberty Plaza Morristown, TN 823 1994 [e] Linden Corners Buffalo, NY - 1994 [e] Logan Place Russellville, KY 596 1996 [e] Lowe's Marion, OH 642 1993 [e] Middletown Plaza Middletown, OH 488 1972 [e] Monroe Shopping Center Madisonville, TN 885 1994 [e] Morgantown Commons Morgantown, WV 4,967 1991 [e] Morgantown Plaza Star City, WV 1,051 1967 [e] Morningside Plaza Dade City, FL 1994 [e] New Boston Mall Portsmouth, OH 1,328 1994 [e] Newberry Square Shopping Center Newberry, SC 1,249 1994 [e] North Horner Shopping Center Sanford, NC 436 1994 [e] Ohio River Gallipolis, OH 2,295 1989 [e] Pea Ridge Shopping Center Huntington, WV 1,739 1994 [e] Prestonsburg Village Center Prestonsburg, KY 1,461 1994 [e] 78 GLIMCHER REALTY TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------- ----------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS OF PROPERTY ENCUMBRANCES [d] LAND [a] IMPROVEMENTS ------------------------------------------------------------------------------------------------------ Rend Lake Shopping Center Benton, IL $ 462 $ 4,175 $ 89 Rhea County Shopping Center Dayton, TN 395 3,524 163 Roane County Plaza Rockwood, TN 630 5,669 (49) Scott Town Plaza Bloomsburg, PA 188 1,730 304 Shady Springs Plaza Beaver, WV $2,925 455 4,094 131 Southside Plaza Sanford, NC 960 8,644 (9,604) Stewart Plaza Mansfield, OH 563 1,867 (675) Sunbury Plaza Sunbury, PA 448 4,074 (4,522) Sycamore Square Ashland City, TN (g) 334 3,010 113 Twin County Plaza Galax, VA (g) 575 5,199 87 Vincennes Vincennes, IN 208 1,875 146 Walgreens Louisville, KY 128 1,141 31 Walgreens New Albany, IN 123 1,093 29 Walnut Cove Walnut Cove, NC (g) 209 1,855 104 Westpark Plaza Carbondale, IL 2,487 432 3,881 75 PARTNERSHIPS Glimcher Properties Limited Partnership - $ 1,780 $ 9,956 Lloyd Ice Rink OEC 58 University Mall Theater OEC - - 478 ------- ------------- ----------------- $53,505 $ 590,485 $ 1,433,633 ------- ------------- ----------------- GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD -------------------------------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS TOTAL OF PROPERTY LAND [b] [c] [b] [c] ---------------------------------------------------------------------------- Rend Lake Shopping Center Benton, IL $ 462 $ 4,264 $ 4,726 Rhea County Shopping Center Dayton, TN 395 3,687 4,082 Roane County Plaza Rockwood, TN 630 5,620 6,250 Scott Town Plaza Bloomsburg, PA 188 2,034 2,222 Shady Springs Plaza Beaver, WV 455 4,225 4,680 Southside Plaza Sanford, NC - - - Stewart Plaza Mansfield, OH 74 1,681 1,755 Sunbury Plaza Sunbury, PA - - Sycamore Square Ashland City, TN 334 3,123 3,457 Twin County Plaza Galax, VA 575 5,286 5,861 Vincennes Vincennes, IN 208 2,021 2,229 Walgreens Louisville, KY 128 1,172 1,300 Walgreens New Albany, IN 123 1,122 1,245 Walnut Cove Walnut Cove, NC 209 1,959 2,168 Westpark Plaza Carbondale, IL 432 3,956 4,388 PARTNERSHIPS Glimcher Properties Limited Partnership $ 11,736 $ 11,736 Lloyd Ice Rink OEC - 58 58 University Mall Theater OEC - 478 478 ---------- ------------- ---------- $ 258,151 $ 1,819,472 $2,077,623 ---------- ------------- ---------- LIFE UPON WHICH DATE DEPRECIATION IN CONSTRUCTION LATE STATEMENT DESCRIPTION AND LOCATION ACCUMULATED WAS DATE OF OPERATIONS OF PROPERTY DEPRECIATION COMPLETED ACQUIRED IS COMPUTED ------------------------------------------------------------------------------------------ Rend Lake Shopping Center Benton, IL $ 1,044 1994 [e] Rhea County Shopping Center Dayton, TN 881 1994 [e] Roane County Plaza Rockwood, TN 998 1996 [e] Scott Town Plaza Bloomsburg, PA 544 1994 [e] Shady Springs Plaza Beaver, WV 1,063 1994 [e] Southside Plaza Sanford, NC 1996 [e] Stewart Plaza Mansfield, OH 130 1979 [e] Sunbury Plaza Sunbury, PA 1994 [e] Sycamore Square Ashland City, TN 538 1996 [e] Twin County Plaza Galax, VA 1,099 1995 [e] Vincennes Vincennes, IN 488 1994 [e] Walgreens Louisville, KY 288 1994 [e] Walgreens New Albany, IN 276 1994 [e] Walnut Cove Walnut Cove, NC 499 1994 [e] Westpark Plaza Carbondale, IL 1,022 1994 [e] PARTNERSHIPS Glimcher Properties Limited Partnership $ 5,234 [e] Lloyd Ice Rink OEC 14 [e] University Mall Theater OEC 294 [e] ------------ $ 396,739 ------------ 79 GLIMCHER REALTY TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003 (DOLLARS IN THOUSANDS) COSTS CAPITALIZED SUBSEQUENT INITIAL COST TO ACQUISITION -------------------------- ----------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS OF PROPERTY ENCUMBRANCES [d] LAND [a] IMPROVEMENTS ------------------------------------------------------------------------------------------------------ DEVELOPMENTS IN PROGRESS Georgesville Square Columbus, OH $ 1,437 Jersey Gardens Center Elizabeth, NJ 5,249 Meadowview Square Kent, OH 1,657 Other Developments - - 9,780 ------- ------------- ----------------- - - 18,123 ------- ------------- ----------------- Total $53,505 $ 590,485 $ 1,451,756 ======= ============= ================= GROSS AMOUNTS AT WHICH CARRIED AT CLOSE OF PERIOD -------------------------------------- BUILDINGS AND DESCRIPTION AND LOCATION IMPROVEMENTS TOTAL OF PROPERTY LAND [b] [c] [b] [c] ------------------------------------------------------------------------- DEVELOPMENTS IN PROGRESS Georgesville Square Columbus, OH $ 493 $ 944 $ 1,437 Jersey Gardens Center Elizabeth, NJ 1,540 3,709 5,249 Meadowview Square Kent, OH 1,623 34 1,657 Other Developments - 9,780 9,780 ---------- ------------- ---------- 3,656 14,467 18,123 ---------- ------------- ---------- Total $ 261,807 $ 1,833,939 $2,095,746 ========== ============= ========== LIFE UPON WHICH DATE DEPRECIATION IN CONSTRUCTION LATE STATEMENT DESCRIPTION AND LOCATION ACCUMULATED WAS DATE OF OPERATIONS OF PROPERTY DEPRECIATION COMPLETED ACQUIRED IS COMPUTED ------------------------------------------------------------------------------------------- DEVELOPMENTS IN PROGRESS Georgesville Square Columbus, OH Jersey Gardens Center Elizabeth, NJ Meadowview Square Kent, OH Other Developments - ------------ - ------------ Total $ 396,739 ============ 80 GLIMCHER REALTY TRUST NOTES TO SCHEDULE III (DOLLARS IN THOUSANDS) (a) Initial cost for constructed and acquired property is cost at end of first complete calendar year subsequent to opening or acquisition. (b) The aggregate gross cost of land and buildings, improvements and equipment for federal income tax purposes is approximately $2,342,981. (c) RECONCILIATION OF REAL ESTATE YEAR ENDED DECEMBER 31, ---------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Balance at beginning of year...................................... $1,802,207 $1,838,166 $1,583,488 Additions: Improvements................................................ 29,507 59,376 37,558 Acquisitions................................................ 297,398 203,160 266,420 Deductions........................................................ (33,366) (298,495) (49,300) ---------- ---------- ---------- Balance at close of year.......................................... $2,095,746 $1,802,207 $1,838,166 ========== ========== ========== RECONCILIATION OF ACCUMULATED DEPRECIATION YEAR ENDED DECEMBER 31, ---------------------------------------- 2003 2002 2001 ---------- ---------- ---------- Balance at beginning of year...................................... $332,124 $288,485 $225,482 Depreciation expense and other.................................. 73,107 91,910 70,989 Deductions...................................................... (8,492) (48,271) (7,986) -------- -------- -------- Balance at close of year.......................................... $396,739 $332,124 $288,485 ======== ======== ======== (d) See description of debt in Notes 3 and 4 of Notes to consolidated financial statements. (e) Depreciation is computed based upon the following estimated lives: Buildings and improvements-40 years; equipment and fixtures-five to ten years. (f) Properties cross-collateralize the following loan: San Mall, L.P.......................................... $34,402 (g) Properties cross-collateralize the Credit Facility with a consortium of banks of up to $150,000. (h) Properties cross-collateralize the following loan: Morgantown Mall Associates Limited Partnership......... $55,005 (i) Properties were held for sale at December 31, 2003. 81