UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended from June 30, 2006

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to.

Commission File No. 001-32365

FELDMAN
  MALL PROPERTIES, INC.

(Exact name of registrant as specified in its charter)



| | Maryland(State or other jurisdictionof incorporation or organization) |  | 13-4284187(I.R.S. EmployerIdentification No.) | 
| | --------------------------------------------------------------------- |  | --------------------------------------------- | 

1010 Northern Boulevard  Suite 314, Great Neck, New York 11021

(Address of principal executive offices - zip code)

(516) 684-1239

(Registrants telephone number, including area code)

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.

YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large
  accelerated filerAccelerated FilerNon-accelerated Filer

Indicate by checkmark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

YesNo

The number of shares outstanding of the registrants common stock, $0.01 par value was 13,101,400 at August 9,2006.






---



FELDMAN
  MALL PROPERTIES, INC.

INDEX



PART I.

        

        FINANCIAL INFORMATIONITEM 1.

        

        FINANCIAL STATEMENTS


Feldman Mall Properties, Inc. and SubsidiariesCondensed Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005

        3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005 (unaudited)

        4Condensed Consolidated Statement of Stockholders Equity and Comprehensive Income for the six months ended June 30, 2006 (unaudited)

        5Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited)

        6Notes to Condensed Consolidated Financial Statements (unaudited)

        7


ITEM 2.

        

        MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        24ITEM 3.

        

        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        35ITEM 4.

        

        CONTROLS AND PROCEDURES

        36PART II.

        

        OTHER INFORMATION

        36ITEM 1.

        

        LEGAL PROCEEDINGS

        36ITEM 1A.

        

        RISK FACTORS

        36ITEM 2.

        

        UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

        36ITEM 3.

        

        DEFAULTS UPON SENIOR SECURITIES

        36ITEM 4.

        

        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        36ITEM 5.

        

        OTHER INFORMATION

        37ITEM 6.

        

        EXHIBITS

        37


Signatures

        38




2

---



Back to Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Share Data)



June
          30, 2006
      
      December
          31, 2005(Unaudited)Assets:Investments
          in real estate, net
      
      $
      394,465
      
      $
      396,108Investment
          in unconsolidated real estate partnerships
      
      
      3,050
      
      
      3,153Cash
          and cash equivalents
      
      
      13,117
      
      
      14,331Restricted
          cash
      
      
      9,185
      
      
      7,707Rents,
          deferred rents and other receivables, net
      
      
      5,454
      
      
      5,763Acquired
          below-market ground lease, net
      
      
      7,743
      
      
      7,811Acquired
          lease rights, net
      
      
      13,109
      
      
      14,205Acquired
          in-place lease values, net
      
      
      16,207
      
      
      19,098Deferred
          charges, net
      
      
      4,364
      
      
      2,843Other
          assets, net
      
      
      7,087
      
      
      4,466Total
          Assets
      
      $
      473,781
      
      $
      475,485Liabilities
          and Stockholders Equity:Mortgage
          loans payable
      
      $
      264,791
      
      $
      318,489Junior
          subordinated debt obligation
      
      
      29,380
      
      
      Due
          to affiliates
      
      
      5,303
      
      
      5,303Accounts
          payable, accrued expenses and other liabilities
      
      
      18,368
      
      
      19,672Dividends
          and distributions payable
      
      
      3,343
      
      
      3,331Acquired
          lease obligations, net
      
      
      10,351
      
      
      11,612Negative carrying value of investment in unconsolidated partnership
      
      
      3,822
      
      
      Total
          liabilities
      
      
      335,358
      
      
      358,407Minority
          interest
      
      
      14,187
      
      
      12,117Commitments
          and contingencies (note 11)Stockholders
          EquityCommon
          stock ($0.01 par value, 200,000,000 shares authorized, 13,101,400 and
          13,050,370 issued and outstanding at June 30, 2006 and December 31,
          2005, respectively)
      
      
      131
      
      
      131Additional
          paid-in capital
      
      
      120,067
      
      
      119,643Retained earnings (distributions
          in excess of earnings)
      
      
      1,102
      
      
      (15,912
      )Accumulated
          other comprehensive income
      
      
      2,936
      
      
      1,099Total
          Stockholders Equity
      
      
      124,236
      
      
      104,961Total
          Liabilities and Stockholders Equity
      
      $
      473,781
      
      $
      475,485


See accompanying notes to condensed consolidated financial statements.

3

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Per Share Data)

(Unaudited)



Three
          Months Ended June 30,
      
      Six
          Months Ended June 30,2006
      
      2005
      
      2006
      
      2005Revenue:Rental
      
      $
      11,787
      
      $
      6,630
      
      $
      22,477
      
      $
      12,580Tenant
          reimbursements
      
      
      6,326
      
      
      3,764
      
      
      11,665
      
      
      6,952Management,
          leasing and development services
      
      
      112
      
      
      115
      
      
      257
      
      
      266Interest
          and other income
      
      
      265
      
      
      343
      
      
      769
      
      
      626Total
          Revenue
      
      
      18,490
      
      
      10,852
      
      
      35,168
      
      
      20,424Expenses:Rental
          property operating and maintenance
      
      
      5,701
      
      
      3,336
      
      
      11,225
      
      
      6,384Real
          estate taxes
      
      
      2,518
      
      
      1,351
      
      
      4,570
      
      
      2,516Interest
          (including amortization of deferred financing costs)
      
      
      5,129
      
      
      1,928
      
      
      9,303
      
      
      3,604Loss
          on early extinguishment of debt
      
      
      357
      
      
      
      
      
      357
      
      
      Depreciation
          and amortization
      
      
      5,500
      
      
      2,625
      
      
      9,947
      
      
      4,477General
          and administrative
      
      
      1,800
      
      
      1,349
      
      
      3,681
      
      
      2,718Total
          Expenses
      
      
      21,005
      
      
      10,589
      
      
      39,083
      
      
      19,699Equity
          in loss of unconsolidated real estate partnership
      
      
      (139
      )
      
      (32
      )
      
      (284
      )
      
      (76
      )Gain
          on partial sale of real estate
      
      
      29,968
      
      
      
      
      
      29,968
      
      
      Income
          before minority interest
      
      
      27,314
      
      
      231
      
      
      25,769
      
      
      649Minority
          interest
      
      
      (2,962
      )
      
      (26
      )
      
      (2,795
      )
      
      (74
      )Net
          Income
      
      $
      24,352
      
      $
      205
      
      $
      22,974
      
      $
      575Basic
          earnings per share
      
      $
      1.90
      
      $
      0.02
      
      $
      1.79
      
      $
      0.05Diluted
          earnings per share
      
      $
      1.66
      
      $
      0.01
      
      $
      1.56
      
      $
      0.04Basic
          weighted average common shares outstanding
      
      
      12,802
      
      
      12,409
      
      
      12,800
      
      
      12,268Weighted
          average common stock equivalents outstanding
      
      
      1,891
      
      
      1,739
      
      
      1,884
      
      
      1,666Diluted
          weighted average common shares outstanding
      
      
      14,693
      
      
      14,148
      
      
      14,684
      
      
      13,934


See accompanying notes to condensed consolidated financial statements.

4

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

AND COMPREHENSIVE INCOME

(Amounts in Thousands, Except Share Data)

(Unaudited)

Six months ended June 30, 2006



Number ofCommon Shares


      

        CommonStock


      

        AdditionalPaid-InCapital


      

        Retained Earnings (Distributionsin Excessof Earnings)


      

        AccumulatedOtherComprehensiveIncome


      

        Total


      

        ComprehensiveIncomeBalance at December 31, 2005


      


      13,050,370


      


      $


      131


      


      $


      119,643


      


      $


      (15,912


      )


      $


      1,099


      


      $


      104,961


      


      $


      Net income

        

        

        

        

        

        

        

        

        

        

        22,974

        

        

        

        

        

        22,974

        

        

        22,974Common stock issued to outside directors

        

        3,000

        

        

        

        

        

        35

        

        

        

        

        

        

        

        

        35

        

        

        Unrealized gain on derivative instruments, net of $3 recorded in interest expense

        

        

        

        

        

        

        

        

        

        

        

        

        

        1,837

        

        

        1,837

        

        

        1,837Deferred compensation plan and stock awards

        

        48,030

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        

        Share-based compensation expense

        

        

        

        

        

        

        

        389

        

        

        

        

        

        

        

        

        389

        

        

        Dividends

        

        

        

        

        

        

        

        

        

        

        (5,960

        )

        

        

        

        

        (5,960

        )

        

        Balance at June 30, 2006

        

        13,101,400

        

        $

        131

        

        $

        120,067

        

        $

        1,102

        

        $

        2,936

        

        $

        124,236

        

        $

        24,811


See accompanying notes to condensed consolidated financial statements.

5

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)



Six
          months ended June 30,2006
      
      2005Cash
          Flows From Operating Activities:Net
          income
      
      $
      22,974
      
      $
      575Adjustments
          to reconcile net income to net cash provided by (used in) operating
          activities:Gain
          on partial sale of real estate
      
      
      (29,968)
      
      
      Loss
          from early extinguishment of debt
      
      
      357
      
      
      Depreciation
          and amortization
      
      
      9,947
      
      
      4,477Amortization
          of deferred financing costs
      
      
      408
      
      
      205Provision
          for doubtful accounts receivable
      
      
      449
      
      
      229Non
          cash stock compensation
      
      
      389
      
      
      204Interest
          expense (accretion) amortization, net
      
      
      (1,625)
      
      
      150Amortization
          of ground rent
      
      
      68
      
      
      Minority
          interest
      
      
      2,795
      
      
      74Equity
          in loss of unconsolidated real estate partnership
      
      
      284
      
      
      76Net
          change in revenue related to acquired lease rights/obligations
      
      
      30
      
      
      (410)Changes
          in operating assets and liabilities:Rents,
          deferred rents and other receivables
      
      
      (1,512)
      
      
      (2,482)Restricted
        cash relating to operating activities
      
      
      1,211
      
      
      (598)Other
          deferred costs
      
      
      (1,322)
      
      
      (630)Other
          assets, net
      
      
      (894)
      
      
      677Accounts
          payable, accrued expenses and other liabilities
      
      
      (4,388)
      
      
      1,899Net
          cash (used in) provided by operating activities
      
      
      (797)
      
      
      4,447Cash
          Flows From Investing Activities:Proceeds
          from partial sale of real estate, net
      
      
      38,905
      
      
      Expenditures
          for real estate improvements
      
      
      (12,823)
      
      
      (2,244)Real
          estate acquisitions, net of assumed liabilities
      
      
      (43,235)
      
      
      (105,394)Change
          in restricted cash relating to investing activities
      
      
      310
      
      
      (549)Advances
          to unconsolidated real estate partnership
      
      
      (181)
      
      
      Other
      
      
      (880)
      
      
      Net
          cash used in investing activities
      
      
      (17,904)
      
      
      (108,187)Cash
          Flows From Financing Activities:Proceeds
          from junior subordinated debt obligations
      
      
      29,380
      
      
      Proceeds
          from secured line of credit
      
      
      24,600
      
      
      Repayment
          of secured line of credit
      
      
      (24,600)
      
      
      Proceeds
          from promissory note
      
      
      10,000
      
      
      Repayment
          of promissory note
      
      
      (10,000)
      
      
      Proceeds
          from equity offering (net of underwriters fees)
      
      
      
      
      
      20,800Payment
          of offering costs
      
      
      
      
      
      (3,754)Proceeds
          from mortgage loans payable
      
      
      
      
      
      125,766Repayment
          of mortgage loans payable
      
      
      (825)
      
      
      Restricted cash relating to financing activities
      
      
      (3,028)
      
      
      Payments
          to affiliates
      
      
      
      
      
      (4,020)Payment
          of deferred financing costs
      
      
      (1,367)
      
      
      (1,147)Distributions
          and dividends
      
      
      (6,673)
      
      
      (3,778)Net
          cash provided by financing activities
      
      
      17,487
      
      
      133,867Net
          change in cash and cash equivalents
      
      
      (1,214)
      
      
      30,127Cash
          and cash equivalents, beginning of period
      
      
      14,331
      
      
      15,607Cash
          and cash equivalents, end of period
      
      $
      13,117
      
      $
      45,734Supplemental disclosures of cash flow information:Cash
          paid during the period for interest, net of amounts capitalized
      
      $
      10,757
      
      $
      3,505Supplemental
          disclosures of non cash, investing and financing activities:Accrued
          renovation costs
      
      $
      4,436
      
      $
      Assets
          acquired in connection with real estate acquisition
      
      $
      19
      
      $
      2,653Liabilities
          assumed in connection with real estate acquisition
      
      $
      3,699
      
      $
      47,211Unrealized
          gain on derivative instruments
      
      $
      1,837
      
      $
      246Dividends
          and distributions payable
      
      $
      3,343
      
      $
      3,216Contribution of property to joint ventureInvestments in real estate, net
      
      $
      56,233
      
      $
      Other
        assets
      
      
      6,175
      
      
      Mortgage
        loan
      
      
      (54,750)
      
      
      Liabilities
      
      
      (2,240)
      
      
      $
      5,418
      
      $
      


See accompanying notes to condensed consolidated financial statements

6

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

1. Organization and Description of Business

Feldman Equities of Arizona, LLC (the Predecessor) was organized under the laws of the State of Arizona and commenced operations on April 1, 2002. Feldman Mall Properties, Inc. (the Company), its affiliates and subsidiaries are principally engaged in the acquisition and management of retail malls. Tenants include national and regional retail chains as well as local retailers.

The Company, a real estate investment trust, or REIT, was incorporated in Maryland on July 14, 2004. The Company closed its initial public offering of its common stock on December 16, 2004 (the Offering). The Companys wholly owned subsidiaries, Feldman Holdings Business Trust I and Feldman Holdings Business Trust II, are the sole general partner and a limited partner, respectively, in and collectively own 89.1% of Feldman Equities Operating Partnership, LP (the Operating Partnership). The Company, through such subsidiaries, has control over major decisions of the Operating Partnership, including decisions related to sale or refinancing of the properties. The Company, the Operating Partnership and Feldman Equities Management LLC (the Service Company) were formed to continue to operate and expand the business of the Predecessor. The Company consolidates
the financial statements of the Operating Partnership. Until the completion of the Offering, the Company, the Operating Partnership and the Service Company had no operations.

In a series of transactions culminating with the closing of the Offering, the Company, the Operating Partnership and the Service Company, together with the partners and members of the partnerships and limited liability companies affiliated with the Predecessor and other parties which hold direct or indirect ownership interests in the properties (collectively, the Participants), engaged in certain formation transactions (the Formation Transactions). The Formation Transactions were designed to (i) continue the operations of the Predecessor, (ii) enable the Company to raise the necessary capital to acquire interests in certain of the properties, repay mortgage debt relating thereto and pay other indebtedness, (iii) fund costs, capital expenditures and working capital, (iv) provide a vehicle for future acquisitions, (v) enable the Company to qualify as a real estate
investment trust and (vi) preserve tax advantages for certain Participants.

Pursuant to contribution agreements among the owners of the Predecessor and the Operating Partnership, which were executed on August 13, 2004, the Operating Partnership received a contribution of interests in the Predecessor, which included the property management, leasing, and real estate development operations in exchange for limited partnership interests in the Operating Partnership.

As part of the Formation Transactions, the owners of the Predecessor contributed their ownership interests in the Predecessor to the Operating Partnership. The exchange of contributed interests was accounted for as a reorganization of entities under common control; accordingly the contributed assets and assumed liabilities were recorded at the Predecessors historical cost basis. Currently, these contributors own 10.9% of the Operating Partnership as limited partners.

The Company has elected the status of and qualifies as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the Code). Pursuant to contribution agreements among the owners of the Predecessor and the Operating Partnership, the Operating Partnership received a contribution of 100% of the interests in the Predecessor, in exchange for units of limited partnership interests in the Operating Partnership (OP Units). The Operating Partnership may acquire additional interests in certain properties from unaffiliated third parties, to be paid in cash. In connection with the Formation Transactions, the Operating Partnership assumed debt and other obligations. This exchange of interests was accounted for as a reorganization of entities under common control.

As
    of June 30, 2006, the Company owned five real estate properties totaling
    approximately 5.4 million square feet, which includes approximately 2.2 million
    square
    feet owned by anchor tenants. The Company also has minority interests in
    partnerships owning the Harrisburg Mall in Harrisburg, Pennsylvania totaling
    approximately 922,000 square feet and the Foothills Mall in Tucson, Arizona
totaling approximately 711,000 square feet.

7

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies

Basis of Quarterly Presentation

The accompanying unaudited condensed consolidated financial statements for interim financial information have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In managements opinion, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. The 2006 operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2006. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the
Companys annual report on Form 10-K/A for the year ended December 31, 2005.

Principles of Consolidation and Equity Method of Accounting

The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries and all partnerships in which they have a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.

The contribution of the Predecessor to the Operating Partnership in the Formation Transactions in exchange for OP Units has been accounted for as a reorganization of entities under common control. Accordingly, the contributed assets and assumed liabilities were recorded at the Predecessors historical cost basis. The minority interest in one of the Predecessors subsidiaries was acquired for cash, and has been accounted for as a purchase, with the excess of the purchase price over the related historical cost basis of the minority interest being allocated to the assets acquired and the liabilities assumed.

The
    Company evaluates its investments in partially owned entities in accordance
    with FASB Interpretation No. 46 (revised December 2003), Consolidation of
    Variable Interest Entities, or FIN 46R. If the partially owned entity is
    a variable interest entity, or a VIE, and the Company
    is the primary beneficiary as defined in FIN 46R, the Company
    accounts for such investment as a consolidated subsidiary. The Company has
    determined that Feldman Lubert Adler Harrisburg, L.P. and FMP Kimco Foothills
    Member LLC are not VIEs.

The
    Company evaluates the consolidation of entities in which the Company is a
    general partner in accordance with EITF Issue 04-05, which provides
    guidance in determining whether a general partner should consolidate a limited
    partnership or a limited liability company with characteristics of a partnership.
    EITF 04-05 states that the general partner in a limited partnership is presumed
    to control
    that
    limited
    partnership.
    The
    presumption
    may be overcome
    if the limited partners have either (1) the substantive ability to dissolve
    the limited partnership or otherwise remove the general partner without cause
    or (2) substantive participating rights, which provide the limited partners
    with the ability to effectively participate in significant decisions that
    would be expected to be made in the ordinary course of the limited partnerships
    business and thereby preclude the general partner from exercising unilateral
    control over the partnership. Based on this  criterion, the Company does
    not consolidate its investments in Feldman Lubert Adler Harrisburg, L.P.
    and FMP Kimco Foothills Member LLC. The Company
    accounts for its investments in the Harrisburg Mall partnership and Foothills
    Mall partnership under the equity method of accounting. This investment is
    recorded initially at cost, and thereafter the carrying amount is increased
    by its share of comprehensive income and any additional capital contributions
    and decreased by its share of comprehensive loss and any capital distributions.

The
    equity in net income or loss and other comprehensive income or loss from
    real estate joint ventures recognized by the Company and the carrying value
    of the Companys investments in real estate joint ventures are based
    on the Companys share of cash that would be distributed to the Company
    under the hypothetical liquidation of the joint venture, at the then book
    value, pursuant to the provisions of their respective operating/partnership
    agreements.

For
    a joint venture investment which is not a VIE or in which the Company is
    not the general partner, the Company considers the accounting set forth
    in AICPA Statement of Position No. 78-9  Accounting for Investments
    in Real Estate Ventures (SOP 78-9) as amended by EITF 04-05.
    In accordance with this pronouncement, investments in joint ventures are
    accounted
    for
    under
    the
    equity method when
    the ownership interest is less than 50% and the Company does not exercise
    direct or indirect control.

Factors the Company considers in determining whether or not it exercises control include important rights of partners in significant business decisions, including dispositions and acquisitions of assets, financing, and operating and capital budgets, board and management representation and authority and other contractual rights of our partners. To the extent that the Company is deemed to control these entities, these entities are consolidated.

8

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

On a periodic basis, management assesses whether there are any indicators that the value of the Companys investment in unconsolidated joint ventures may be impaired. An investments value is impaired only if managements estimate of the fair value of the investment is less than the carrying value of the investment. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.

Gains
        or Losses on Disposition of Real Estate

Gains
    or losses on the disposition of real estate assets are recorded when the
    recognition criteria have been met, generally at the time title is transferred

and the Company no longer has substantial continuing involvement with the real
    estate asset sold.

When the Company contributes
a property to a joint venture in which the Company has retained an ownership interest, the Company does not recognize
a portion of the proceeds in the computation of the gain resulting from the contribution. The amount of proceeds not
recognized is based on the Companys continuing ownership interest in the contributed property that arises due to the ownership
interest in the joint venture acquiring the property.

Critical Accounting Policies and Managements Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. They also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from these amounts.

The Company has identified certain critical accounting policies that affect the more significant judgments and estimates used in the preparation of the condensed consolidated financial statements. On an ongoing basis, the Company evaluates estimates related to critical accounting policies, including those related to revenue recognition and the allowance for doubtful accounts receivable, investments in real estate, and asset impairment. The estimates are based on information that is currently available to the Company and on various other assumptions that management believes are reasonable under the circumstances.

The Company makes estimates related to the collectibility of accounts receivable related to minimum rent, deferred rent, expense reimbursements, lease termination fees and other income. The Company specifically analyzes accounts receivable and historical bad debts, tenant concentrations, tenant creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on the net income, because a higher bad debt allowance would result in lower net income.

The
    Company is required to make subjective assessments as to the useful lives
    of the properties for purposes of determining the amount of depreciation
    to record on an annual basis with respect to the investments in real estate.
    These assessments have a direct impact on net income because if the
    Company were to shorten the expected useful lives of its investments in real
    estate, the Company would depreciate such investments over fewer years, resulting
    in more depreciation expense and lower net income or higher net loss on an
    annual basis.

The
    Company is required to make subjective assessments as to whether there are
    impairments in the values of its investments in real estate, including real
    estate held by any unconsolidated real estate entities accounted for using
    the equity method. These assessments have a direct impact on the Companys
    net income because recording an impairment loss results in an immediate
    negative adjustment to income.

The Company is required to make subjective assessments as to the fair value of assets and liabilities in connection with purchase accounting related to the real estate acquired. These assessments have a direct impact on the Companys net income (loss) subsequent to the acquisitions as a result of depreciation and amortization being recorded on these assets and liabilities over the expected lives of the related assets and liabilities.

Cash and Cash Equivalents

For purposes of the condensed consolidated statements of cash flows, the Company considers short-term investments with maturities of 90 days or less when purchased to be cash equivalents.

9

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Restricted Cash

Restricted cash includes escrowed funds and other restricted deposits in conjunction with the Companys loan agreements and cash restricted for property-level marketing and gift card funds.

Revenue Recognition and Tenant Receivables

Base rental revenues from rental retail properties are recognized on a straight-line basis over the noncancelable terms of the related leases, which are all accounted for as operating leases. As of June 30, 2006 and December 31, 2005, approximately $891 and $1,849, respectively, has been recognized as straight-line rents receivable (representing the current net cumulative rents recognized prior to the date when billed and collectible as provided by the terms of the lease). These amounts are included in deferred rents receivable in the accompanying unaudited condensed consolidated financial statements. Percentage rent, or rental revenue that is based upon a percentage of the sales recorded by the Companys tenants, is recognized in the period such sales are earned by the respective tenants.

Reimbursements
    from tenants related to real estate taxes, insurance and other shopping center
    operating expenses are recognized as revenue, based on a predetermined formula,
    in the period the applicable costs are incurred. Lease termination fees,
    net of deferred rent and related intangibles, which are included in interest
    and other income in the accompanying consolidated statements of operations,
    are recognized when the related leases are cancelled, the tenant surrenders
    the space, and the Company has no continuing obligation to provide services
    to such former tenants. The Company recorded $17 and $107 for the three months
    ended June 30, 2006 and 2005, respectively, and $303 and $303 for the six
    months ended June 30, 2006 and 2005, respectively, of lease termination fees,
    net of deferred rent and related intangibles adjustments.

The Companys other source of revenues comes from the provision of management services to third parties, including property management, brokerage, leasing and development. Management fees generally are a percentage of cash receipts from managed property and are recorded when earned as services are provided. Leasing and brokerage fees are earned and recognized upon the consummation of new leases. Development fees are earned and recognized over the time period of the development activity. These activities are referred to as management, leasing and development services in the condensed consolidated statements of operations.

The Company provides an allowance for doubtful accounts against the portion of tenant receivables which is estimated to be uncollectible. Management of the Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Tenant receivables in the accompanying unaudited condensed consolidated balance sheets are shown net of an allowance for doubtful accounts of $825 and $998 as of June 30, 2006 and December 31, 2005, respectively.

Deferred Charges

Deferred
    leasing commissions and other direct costs associated with the acquisition
    of tenants are capitalized and amortized on a straight-line basis over the
    terms of the related leases. Loan costs are capitalized and amortized to
    interest expense over the terms of the related loans using a method that
    approximates the effective-interest method. Certain of the Companys
    employees provide leasing services to the properties. Its the Companys
     policy to capitalize employee compensation directly allocable to these leasing

	services. A portion
    of their compensation, approximating $388 and $212 for the three months ended
    June 30, 2006 and 2005, respectively, and $679 and $212 for the six months
    ended June 30, 2006 and 2005, respectively, was capitalized and is being
    amortized over an estimated weighted average lease term of approximately
    seven years.
    The
    related amortization expense for the three and six months ended June 30,
2006 and 2005 was $13, $18, $0 and $0, respectively.

10

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Issuance Costs

Costs that represent expenditures related to the issuance of common stock, including underwriting commissions and public offering costs, were charged to equity of the Company upon completion of the issuance, and are reflected as a reduction to additional paid-in capital.

Investments in Real Estate and Depreciation

Investments in real estate are stated at historical cost, less accumulated depreciation. The building and improvements thereon are depreciated on the straight-line basis over their estimated useful lives ranging from 3 to 39 years. Tenant improvements are depreciated on the straight-line basis over the shorter of the lease term or their estimated useful life. Equipment is being depreciated on a straight-line basis over the estimated useful lives of 3 to 7 years.

For redevelopment of existing operating properties, the net carrying value of the existing property under redevelopment plus the cost for the construction and improvements incurred in connection with the redevelopment are capitalized to the extent the capitalization costs of the property do not exceed the estimated fair value of the redeveloped property when complete. Real estate taxes and insurance incurred during construction periods are capitalized and amortized on the same basis as the related assets. Interest costs are capitalized during periods of active construction for qualified expenditures based upon interest rates in place during the construction period until construction is substantially complete. Capitalized interest costs are amortized over lives consistent with constructed assets. The Company capitalized interest in the amount of $176, $232, $0 and $11, insurance of $9, $16, $0
and $0, and real estate taxes of $86, $155, $0 and $0 during the three and six months ended June 30, 2006 and 2005, respectively.

Certain
    of the Companys employees provide construction services to the properties.
	Its the Companys policy to capitalize employee compensation directly
	allocable to these construction services. A
    portion of their compensation, approximately $143, $253, $0 and $0 for the
    three and six months ended June 30, 2006 and 2005, respectively, has been
    capitalized into these construction projects and will be amortized over the
    estimated useful lives of these redevelopment projects.

Pre-development costs, which generally include legal and professional fees and other third-party costs related directly to the acquisition of a property, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are written off as a component of operating expenses.

Improvements and replacements are capitalized when they extend the useful life or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

Accumulated depreciation was $12,598 and $12,421 at June 30, 2006 and December 31, 2005, respectively.

Conditional Asset Retirement Obligations

The Company owns certain properties that contain asbestos and could require the Company to perform future remediation. Although the Company may have a legal obligation to remediate any asbestos contained in any of the Companys investment properties, either in the course of future remodeling, demolition or tenant construction, or as a transferred liability to a buyer, the Company does not believe that the current estimation of that liability, and the related asset and cumulative catch-up of any accretion or depreciation, is material to its consolidated financial statements. The time period for any of this work is indeterminate as there is no obligation to perform any amount of such work that is material to the consolidated financial statements in conjunction with any current renovation or construction project. Accordingly, these amounts are not material to the Companys consolidated
financial statements.

11

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, investment properties are reviewed for impairment on a property-by-property basis or whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Management believes no impairment in the net carrying values of the investments in real estate and investment in unconsolidated real estate partnership has occurred.

Purchase Accounting for Acquisition of Interests in Real Estate Entities

The
    Company allocates the purchase price of properties to tangible and identified
    intangible assets acquired based on their fair value in accordance with the
    provisions of Statement of Financial Accounting Standards No. 141, Business
    Combinations. 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, and the as-if-vacant value
    is then allocated to land, building and related improvements based on managements
    determination of the relative fair values of these assets. Historically,
    management determined the as-if-vacant fair value of a property using methods
    similar to those used by independent appraisers. Factors considered by management
    in performing these analyses include an estimate of carrying costs during
    the expected lease-up periods considering current market conditions and costs
    to execute 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. Since June
    2005, the Company determines the as-if-vacant
    value by
    using
    a replacement cost method, adjusted by both physical condition and possible
    obsolescence of the property acquired. Under this method, the Company obtains
    valuations from a qualified third-party utilizing relevant third-party property
    condition and Phase I environmental reports. The Company believes the replacement
    cost method closely approximates its previous methodology and is a better
determination of the as-if-vacant fair value.

In allocating 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 (included in acquired lease rights in the accompanying unaudited condensed consolidated balance sheets) are amortized as a reduction of rental income over the remaining, non-cancelable, terms of the respective leases. The capitalized below-market lease values (presented as acquired lease obligation in
the accompanying consolidated balance sheets) are amortized as an increase to rental income over the initial term and any fixed rate/bargain renewal periods in the respective leases.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, which is determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on managements evaluation of the specific characteristics of each tenants lease; however, the value of tenant relationships has not been separated from in-place lease value for the additional interests in real estate entities acquired by the Company because such value and its consequence to amortization expense is immaterial for these particular acquisitions. Should future acquisitions of properties result in allocating material amounts to
the value of tenant relationships, an amount would be separately allocated and amortized over the estimated life of the relationship. The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining non-cancelable terms of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

12

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Other acquired intangible assets and liabilities include above-market fixed rate mortgage debt and below-market ground lease. Above-market debt is measured by adjusting the existing fixed rate mortgage to market fixed rate debt and amortizing the acquired liability over the weighted-average term of the acquired mortgage using the interest method. The liability is amortized as a reduction to the Companys interest expense. The below-market ground lease asset is amortized over the estimated length of the ground lease as an increase to ground rent expense.

Purchase
    accounting was applied to the assets and liabilities related to the real
    estate properties when the Company acquired Stratford Square Mall, located
    in suburban Chicago on December 30, 2004, Colonie Center Mall, located in
    Albany, New York on February 1, 2005, Tallahassee Mall located
    in Tallahassee,
    Florida on June 28, 2005, Northgate Mall located in suburban Cincinnati,
    Ohio on July 12, 2005 and Golden Triangle Mall located in suburban Dallas,
    Texas on April 3, 2006. The fair value of the real estate acquired was allocated
    to the acquired tangible assets, consisting of land, building and improvements,
    and identified intangible assets and liabilities, consisting of above-market
    and below-market leases, in-place leases and tenant relationships, if any,
    based in each case on their fair values. The purchase price allocation for Golden Triangle
    mall is preliminary and is subject to adjustment before completion.

Accumulated amortization for acquired lease rights  was $4,091 and $3,248 at June 30, 2006 and December 31, 2005, respectively. Accumulated amortization for in-place lease values was $6,007 and $4,644 at June 30, 2006 and December 31, 2005, respectively. Accumulated amortization of acquired lease obligations were $4,700 and $3,988 at June 30, 2006 and December 31, 2005, respectively.

The following are the amounts assigned to each major asset and liability caption at the acquisition date for:



Stratford Square


      

        Golden Triangle


      

        Northgate


      

        Tallahassee


      

        ColonieLand


      


      $


      11,528


      


      $


      9,198


      


      $


      11,120


      


      $


      


      (A)


      $


      9,045Building and improvements

        

        

        74,547

        

        

        28,721

        

        

        98,223

        

        

        64,775

        

        

        71,507Below-market ground lease

        

        

        

        

        

        

        

        

        

        

        

        7,879

        

        

        Acquired lease rights

        

        

        3,380

        

        

        1,024

        

        

        7,839

        

        

        1,215

        

        

        3,687In-place lease values

        

        

        7,262

        

        

        2,503

        

        

        2,701

        

        

        4,358

        

        

        2,845Acquired lease obligations

        

        

        (3,352

        )

        

        (1,246

        )

        

        (1,306

        )

        

        (10,109

        )

        

        (3,439

        )Assumed above-market mortgages

        

        

        

        

        

        

        

        

        (8,243

        )

        

        (6,533

        )

        

        Total Purchase Price

        

        $

        93,365

        

        $

        40,200

        

        $

        110,334

        

        $

        61,585

        

        $

        83,645


(A)  The Tallahassee Mall is subject to an operating ground lease.

Pro Forma Financial Information

The following table summarizes, on an unaudited pro forma basis, the results of operations for the six months ended June 30, 2006 and 2005 as though the acquisitions of Colonie Center Mall, Tallahassee Mall, Northgate Mall and Golden Triangle Mall had occurred on January 1, 2005:



2006


      

        2005Pro forma revenues


      


      $


      36,995


      


      $


      33,603Pro forma net income

        

        $

        28,197

        

        $

        30Pro forma earnings per common share-basic

        

        $

        2.20

        

        $

        Pro forma earnings per common share and common share equivalents-diluted

        

        $

        1.73

        

        $

        Pro forma common shares-basic

        

        

        12,800,092

        

        

        12,268,271Pro forma common shares and common share equivalents-diluted

        

        

        14,684,395

        

        

        13,934,679


Income Taxes

The Company is taxed as a REIT under Section 856(c) of the Code. As a REIT, the Company is generally not subject to Federal and state income tax. To maintain its qualification as a REIT, the Company must distribute at least 90% of REIT taxable income to its stockholders and meet certain other requirements. If the Company fails to qualify as a REIT in any taxable year, it will be subject to Federal and state income tax on our taxable income at regular corporate rates. The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, Federal income and excise taxes may be due on the Companys undistributed taxable income.

13

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

The Company has elected or may elect to treat certain existing or newly created corporate subsidiaries as taxable REIT subsidiaries, or TRSs. In general, a TRS may perform non-customary services for tenants, hold assets that the Company cannot hold directly and generally may engage in any real estate or non-real estate related business. A TRS is subject to corporate Federal and state income tax. Currently, the TRSs generate no income or are marginally profitable, resulting in minimal or no Federal and state income tax liability for these entities. With the exception of the TRSs, the Company has paid no income taxes for the periods presented, nor incurred any tax liability or expense.

As a REIT, the Company is permitted to deduct dividends paid to its stockholders, eliminating the federal taxation of income represented by such dividends at the Company level. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to Federal and state income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates.

The Predecessor and its subsidiaries were limited liability partnerships or limited liability companies. As such, no Federal or state income tax expense was recorded as items of income or expense by the Predecessor as these amounts are recorded on the members/partners individual tax returns.

Earnings Per Share

The
    Company presents both basic and diluted earnings per share, or EPS. Basic
    EPS excludes potentially dilutive securities and is computed by dividing
    net income available to common stockholders by the weighted average number
    of common shares outstanding during the period. Diluted EPS reflects the
    potential dilution that could occur if securities or other contracts to issue
    common stock were exercised or converted into common stock, where such exercise
    or conversion would result in a lower EPS or greater loss per share amount.
    Based on the Companys earnings for the three months ended June 30,
    2006, the basic and diluted weighted average common shares outstanding were
    12,801,854 and 14,692,853. Based on the Companys earnings for the six
    months ended June 30, 2006, the basic and diluted weighted average common
    shares outstanding were 12,800,092 and 14,684,395, respectively. The
Companys computation for diluted EPS includes dilutive securities for unvested
restricted shares issued to certain employees totaling 333,130 (297,535 and 290,839
on
a
weighted-average basis) for the three and six months ended June 30, 2006. Based
on the Companys net income for the three months ended June 30, 2005, the
basic and diluted weighted average common shares outstanding were 12,408,753
and 14,147,302, respectively. Based on the Companys net income for the
six months ended June 30, 2005, the basic and diluted weighted average common
shares outstanding were 12,268,271 and 13,934,679, respectively. The Companys
computation for EPS includes dilutive securities for unvested restricted shares
issued to certain employees totaling 145,085 and 72,944 shares for the three
and six months ended June 30, 2005. The 1,593,464 of the Companys OP Units
are dilutive for all periods presented.

2006 Comprehensive Income

The
    Companys comprehensive income for the six months ended June 30, 2006
    was $24,811 and was comprised of the Companys net income totaling $22,974
    and unrealized gain on derivative instruments totaling $1,837 for the same
    six month period. Comprehensive income for the six months ended June 30,
    2005 was $762 and was comprised of the Companys net income of $575
    and unrealized gain on derivative instruments totaling $187 for the same
    six months period.

Segment Information

The Company is a REIT engaged in owning, managing, leasing and repositioning Class B regional malls and operates in one reportable segment, retail mall real estate.

14

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

2. Summary of Significant Accounting Policies (Continued)

Share-Based Deferred Compensation

The
    Company adopted SFAS 123R, share-based payments, in 2005, which did not have
    a material effect on the condensed consolidated financial statements. SFAS
    123R requires that the compensation cost relating to share-based payment
    transactions be recognized in the financial statements. The Company is authorized
    to grant up to 469,221 shares of common stock to employees. The Company has
    a deferred compensation plan which has granted 333,130 shares (net of forfeitures)
    of restricted common stock to certain employees. All restricted shares were
    granted within a price range of $9.20 to $13.90 and will vest
    on a pro rata basis over periods ranging from two to five years. The shares
    were
    fair valued
    at $3,762 based on the market price of the shares on the date of grant.

The
    following describes the shares of common stock granted activity for 2005
    and 2006:

In
    2005, 285,100 shares were granted with a weighted average
    price of $12.23 per share. During 2005, 15,616 shares were forfeited
    with a weighted average price of $12.37. At December 31, 2005,
    there were 235,354 shares outstanding with a weighted average price of
    $12.23 per share. There were no stock grants outstanding in the beginning
    of 2005.

As
    of June 30, 2006, there were 48,030 shares granted in 2006, with a
    weighted average price of $11.81 per share. At June 30, 2006, there were
    333,130 shares outstanding with a weighted average price of $12.17  per share.
    There were no shares forfeited from the beginning of
    2006 through June 30, 2006. For the six months ended June 30, 2006, 40,790 shares were vested
    at a weighted average price of $12.23 per share.

As
    of June 30, 2006 and December 31, 2005, there were 292,340 and 235,354 unvested
    shares, respectively. The value of the unamortized compensation expense totaled
    $2,924 and $2,756 and have a weighted-average amortization period of 4.89
    and 4.87 years as of June 30, 2006 and December 31,
    2005, respectively.

Share-based
    compensation expense included in net income for the three and six months
    ended June 30, 2006 and 2005 was $103, $207, $102 and $204, respectively.
    Gross share-based compensation was $199, $389, $102 and $204 for the three
    and six months ended June 30, 2006 and 2005, respectively. Its the
    Company's policy  to capitalize employee compensation, including share-based
    compensation, allocated
	to construction and leasing services, of which $96,
    $182, $0 and $0 were capitalized for the three and six months ended June
    30, 2006
    and 2005, respectively.

The Company has adjusted the presentation of stockholders equity at December 31, 2005 to reflect the accounting for the awards of unvested shares to employees in accordance with SFAS 123R. The effect of the adjustment is to eliminate the unamortized deferred stock compensation, with a corresponding reduction to additional paid-in capital, in the amount of $2,756 as of December 31, 2005. This adjustment had no net effect on total stockholders equity.

Derivatives and Hedges

SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivatives change in fair value will be immediately recognized in earnings. The application of SFAS 133 may increase or decrease our reported net income and stockholders equity prospectively, depending on future levels of LIBOR interest rates and other variables affecting the fair values
of derivative instruments and hedged items, but will have no effect on cash flows.

3. Mortgage Loans Payable

At June 30, 2006 and December 31, 2005, mortgage loans payable consisted of the following:



2006


      

        2005Mortgage loan payable  interest only at 5.09% payable monthly, due November 1, 2008, secured by the Foothills Mall property


      


      $


      


      


      $


      54,750Mortgage
          loan payable  interest only at 125 basis points over LIBOR (6.50%
          at June 30, 2006 and 5.625% at December 31, 2005) payable monthly, due
          January 2008, secured by Stratford Square Mall property

        

        

        75,000

        

        

        75,000 Mortgage
          loan payable  interest only at 140 basis points over LIBOR (6.60%
          at June 30, 2006 and 5.789% at December 31, 2005) payable monthly, due
          October 1, 2006, secured by Colonie Center Mall property
      
      
      50,766
      
      
      50,766Mortgage
          loan payable  interest at 8.60% payable monthly, due July 11,
          2009, secured by the Tallahassee Mall property
      
      
      45,357
      
      
      45,613Mortgage
          loan payable  interest at 6.60% payable monthly, due September
          1, 2012, secured by the Northgate Mall property
      
      
      78,710
      
      
      79,216Mortgage
          loan payable  interest at 5.15% payable monthly, due November
          1, 2013, secured by the JCPenney Parcel
      
      
      3,392
      
      
      Total
          mortgages outstanding
      
      
      253,225
      
      
      305,345


15

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

3. Mortgage Loans Payable (Continued)



2006

        

        2005Assumed above-market mortgage premiums, net


      


      


      11,566


      


      


      13,144Total mortgage loans payable


      


      $


      264,791


      


      $


      318,489


On
    June 29, 2006, in connection with the partial sale of the Foothills Mall,
    the outstanding first mortgage on the property totaling
    $54,750 was repaid. The Company incurred a loss on the early extinguishment of debt
totaling $357.

On
    April 5, 2006, the Company assumed a $3,455 promissory note in connection
    with the acquisition of the JCPenney Parcel. The stated interest on the note
    is 5.15%. The Company determined this rate to be above-market and, in applying
    purchase accounting, determined the fair market value interest rate to be
    4.87%. The above-market premium of $47 is being amortized over the remaining
    term of the acquired loan using the effective interest method. The amortization
    of the above-market premium totaled $3 since the assumption of the loan in
    April 2006.

On July 12, 2005, the Company assumed a $79,605 first mortgage in connection with the acquisition of the Northgate Mall. The stated interest on the mortgage is 6.60%. The Company determined this rate to be above-market and, in applying purchase accounting, determined the fair market value interest rate to be 5.37%. The above premium was initially $8,243 and is being amortized over the remaining term of the acquired loan using the effective interest method. The amortization of the above-market premium totaled $358 and $709 for the three and six months ended June 30, 2006.

On June 28, 2005, the Company assumed a $45,848 first mortgage in connection with the acquisition of the Tallahassee Mall. The stated interest rate on the mortgage is 8.60%. The Company determined this rate to be above-market and, in applying purchase accounting, determined the fair market value interest rate to be 5.16%. The above-market premium was initially $6,533 and is being amortized over the remaining term of the acquired loan using the effective interest method. The amortization of the above-market premium totaled $456 and $913 for the three and six months ended June 30, 2006.

In June 2005, the Company completed a $50,766 first mortgage bridge financing collateralized by the Colonie Center Mall. The initial bridge loan maturity date was December 1, 2005, which has since been extended to October 2006. The bridge loan contains various financial covenants requiring the Company to maintain certain property-level financial debt coverage ratios. The Company plans to replace the bridge loan with a three to five-year first mortgage loan or extend the current mortgage prior to the October 1, 2006 maturity date. In order to comply with certain quarterly financial covenants, during March 2006, the Company made a deposit of $3,000 as collateral to the loan and is recorded as restricted cash on the condensed consolidated balance sheets.

In January 2005, the Company completed a $75,000, 3-year first mortgage financing collateralized by the Stratford Square Mall. The mortgage bears interest at a rate of LIBOR plus 125 basis points and has two one-year extensions. The terms of the mortgage do not permit the Company to prepay the loan during the first 18 months.

In connection with the Stratford Square Mall mortgage financing, during January 2005, the Company entered into a $75,000 swap commencing February 2005 with a final maturity date in January 2008. The effect of the swap is to fix the all-in interest rate of the Stratford Square mortgage loan at 5.0% per annum.

During December 2005, the Company entered into a $75,000 swap which commences February 2008 and has a final maturity date in January 2011. The effect of the swap is to fix the all-in interest rate of the Companys forecasted cash flows on LIBOR-based loans at 4.91% per annum for that period.

Aggregate principal payments of our mortgage loans as of June 30, 2006 are as follows:



2006

        

        $

        51,7222007

        

        

        2,0402008

        

        

        77,1602009


      


      


      45,6182010

        

        

        1,7932011 and thereafter

        

        

        74,892Total principal payments

        

        

        253,225Assumed above-market mortgage premiums, net

        

        

        11,566Total

        

        $

        264,791


16

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

3. Mortgage Loans Payable (Continued)

Certain of these mortgage loans payable contain various financial covenants requiring the Company to maintain certain financial debt coverage ratios, among other requirements. As of and for the six months ended June 30, 2006, the Company was in compliance with these debt covenants.

4. Junior Subordinated Debt Obligation

During March 2006, the Company completed the issuance and sale in a private placement of $28,500 in aggregate principal amount of fixed/floating rate preferred securities issued by its wholly owned subsidiary, Feldman Mall Properties Statutory Trust I (the Trust). The Trust simultaneously issued 880 of its common securities to the operating partnership for a purchase price of $880, which constitutes all of the issued and outstanding common securities of the Trust. The Trust used the proceeds from the sale of the trust preferred securities together with the proceeds from the sale of the common securities to purchase $29,380 in aggregate principal amount of unsecured fixed/floating rate junior subordinated notes due April 2036, issued by the Company. The junior subordinated notes, the common and the trust preferred securities have substantially identical terms, requiring quarterly
interest payments calculated at a fixed interest rate equal to 8.70% per annum through April 2011, and subsequently at a variable interest rate equal to London Interbank Offered Rate (LIBOR) plus 3.45% per annum. The notes mature April 2036, and may be redeemed, in whole or in part, at par, at the Companys option, beginning after April 2011. The preferred securities do not have a stated maturity date; however, the preferred and common securities are subject to mandatory redemption upon the redemption or maturity of the notes.

The principal amount of the junior subordinated notes of $29,380 is reported as an obligation on the Companys condensed consolidated balance sheet at June 30, 2006. However, because the Company is not deemed to be the primary beneficiary of the Trust under FASB Interpretation Number 46, Consolidation of Variable Interest Entities, the Company accounts for its investment under the equity method of accounting and records its investment in the Trusts common shares of $880 as part of other assets on the Companys condensed consolidated balance sheet.

The Company has entered into a parent guarantee agreement for the purpose of guaranteeing the payment, after the expiration of any grace or cure period, of any amounts required to be paid. The obligations of the Company under the parent guarantee agreement constitute unsecured obligations of the Company and rank subordinate and junior to all senior debt of the Company. The parent guarantee agreement will terminate upon the full payment of the redemption price for the trust preferred securities or full payment of the junior subordinated notes upon liquidation of the trust.

5. Secured Line of Credit

On April 5, 2006, in connection with the acquisition of the Golden Triangle Mall, we entered into a $24,600 secured line of credit which bears interest at 140 basis points over LIBOR and matures in April 2008. The secured line of credit was fully drawn on the date the Company acquired the Golden Triangle Mall. The secured line of credit contains certain financial covenants requiring the Company to, among other requirements, maintain certain financial coverage ratios. The secured line of credit has one extension through April 2009. As of June 30, 2006, there was no outstanding balance on the secured line of credit.

6. Related Party Transactions

Since
    September 2003, the Company has provided certain property management, leasing
    and development services to its unconsolidated real estate partnerships for
    an annual management fee of 3.5% of gross receipts, and a construction management
    fee of 3% on the amount of capital improvements, as defined by their agreement.
    In addition, the Company earns brokerage commission fees as a percentage
    of contractual rents on new leases and lease renewals. Total fees earned
    from such partnerships aggregated $112, $257, $95 and $242 for the three
    and six months ended June 30, 2006 and 2005, respectively. These fees are
    recorded
    in management, leasing and development services on the accompanying unaudited
    condensed consolidated statements of operations.

17

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

6. Related Party Transactions  (Continued)

Prior to being employed by the Company on November 15, 2005, an officer provided construction management services to the Company. Fees charged by the officer to the Company for the three and six months ended June 30, 2005 totaled $39 and $78, respectively.

The Company has entered into a consulting contract with Ed Feldman, father of the Companys chairman and CEO, Larry Feldman, to provide professional acquisition services. The agreement pays Mr. Feldman $3 per month commencing July 1, 2005. For the three and six months ended June 30, 2006, Mr. Feldman has received $12 and $18, respectively.

7. Rentals Under Operating Leases

The Company receives rental income from the leasing of retail shopping center space under operating leases. The Company recognizes income from its tenant operating leases on a straight-line basis over the respective lease terms and, accordingly, rental income in a given period will vary from actual contractual rental amounts due as reduced by amortization of capitalized above-market lease values. Amounts included in rental revenue based on recording lease income on the straight-line basis for the three and six months ended June 30, 2006 and 2005 were $254, $441, $163 and $291, respectively.

The minimum future base rentals under non-cancelable operating leases as of June 30, 2006 are as follows:



Year  ending  December  31,2006 (six months)

        

        $

        14,8802007


      


      


      28,4462008


      


      


      25,2322009

        

        

        21,5202010

        

        

        19,6042011 and thereafter

        

        

        72,805Total future minimum base rentals

        

        $

        182,487


Minimum future rentals do not include amounts which are payable by certain tenants based upon certain reimbursable shopping center operating expenses. The tenant base includes national and regional chains and local retailers. For the three and six months ended June 30, 2006 and 2005, no tenant exceeded 10% of rental revenues.

8. Due to Affiliates

At June 30, 2006 and December 31, 2005, amounts due to affiliates primarily reflect obligations to make payments to certain owners of the Predecessor in connection with the Formation Transactions. As part of the Formation Transactions, the owners of the Predecessor are entitled to the following:

Messrs.
    Feldman, Bourg and Jensen have the right to receive additional OP Units for
    ownership interests contributed as part of the Formation Transactions upon
    the achievement of a 15% internal rate of return by the Company from the
    Harrisburg joint venture on or prior to December 31, 2009. The right to receive
    such additional OP Units is a financial instrument which is recorded as an
    obligation of the Company as of the Offering and adjusted to fair value each
    reporting period until the thresholds have been achieved and the OP Units
    have been issued. Based on the expected operating performance of the Harrisburg
    Mall, the fair value is estimated to be $5,303 and is included in due to
    affiliates at each of June 30, 2006 and December 31, 2005.
    The fair value of this obligation is assessed by the Companys management
    on a quarterly basis.

18

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

9. Stockholders Equity

The Companys authorized capital stock consists of 250,000,000 shares, $.01 par value, consisting of up to 200,000,000 shares of common stock, $.01 par value per share and up to 50,000,000 shares of preferred stock, $.01 par value per share. As of June 30, 2006 and December 31, 2005, 13,101,400 and 13,050,370 shares of common stock were issued and outstanding, respectively. The Company has not issued any shares of preferred stock as of June 30, 2006. During 2005 and 2006, the Company issued 2,000 and 1,000, respectively, fully vested shares of its common stock to each of its three outside directors.

In January 2005, the Company sold 1,600,000 shares of its common stock at a gross price of $13.00 per share. The net proceeds from this offering were approximately $19,300.

In December 2005, the Company issued 369,375 shares of our common stock in connection with acquiring a long-term lease located at the Tallahassee Mall.

10. Minority Interest

As
    of June 30, 2006 and December 31, 2005, minority interest relates to the
    interests in the Operating Partnership that are not owned by the Company,
    of approximately 10.9% and 11.3%, respectively. In conjunction with the formation
    of the Company, certain persons and entities contributing ownership interests
    in the Predecessor to the Operating Partnership received OP Units. Limited
    partners who acquired OP Units in the Formation Transactions have the right,
    commencing on or after December 16, 2005, to require the Operating Partnership
    to redeem part or all of their OP Units for cash, or, at the
	Companys option, an equivalent number
    of shares of the Companys common stock at the time of the redemption.
    Alternatively, the Company may elect to acquire those OP Units in exchange
    for shares of our common stock on a one-for-one basis subject to adjustment
    in the event of stock splits, stock dividends, issuance of stock  rights,
    specified extraordinary distributions and similar events.

11. Commitment and Contingencies

In the normal course of business, the Company becomes involved in legal actions relating to the ownership and operations of its properties and the properties it manages for third parties. In managements opinion, the resolutions of these legal actions are not expected to have a material adverse effect on the Companys condensed consolidated financial position or results of operations.

All of the Companys malls that have non-owned parcels sharing common areas are subject to reciprocal easement agreements that address use and maintenance of common areas and often address other issues, including use restrictions and operating covenants. These agreements are recorded against the properties and are long term in nature.

In late 2005, the seller of Colonie Center Mall filed an arbitration claim against the Company alleging entitlement to over $4,000 in additional purchase price as a result of the Seller having presented a lease to the Company for a portion of the mall after the Companys acquisition. That claim was settled in March 2006 for $2,000. The Company has accounted for payment of the additional purchase price as an increase to in-place lease value.

Adjacent to the Stratford Square Mall are six anchor tenant spaces, five of which are owned by third parties and one of which is owned by the Company. The Company has entered into an operating agreement with the owners of these non-owned anchor tenant parcels to share certain operating expenses based on allocated amounts per square foot. The agreement terminates in March 2031.

The
    purchase price for the Golden Triangle Mall may be increased up to $2,200
    if the seller is able to
deliver an executed letter with a certain tenant acceptable
to the Company  and that tenant takes occupancy. As of June 30, 2006, a lease
has been signed, however, the
tenant is not scheduled to take occupancy until 2007.

As
    of June 30, 2006, the Company also has commitments to make tenant improvements
    and other capital expenditures in the amount of approximately $1,706. In
    addition, in connection with leases that have been signed through June 30,
    2006 included in the redevelopment expansion plans of the malls and current
    redevelopment activity, the Company is committed to, or expected to, spend
approximately $43,989 and $44,747 for 2006 and 2007, respectively.

19

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

11.
  Commitment and Contingencies  (Continued)

In connection with the Formation Transactions, the Company entered into agreements with Messrs. Feldman, Bourg and Jensen that indemnify them with respect to certain tax liabilities intended to be deferred in the Formation Transactions, if those liabilities are triggered either as a result of a taxable disposition of a property by the Company, or if the Company fails to offer the opportunity for the contributors to guarantee or otherwise bear the risk of loss, with respect to certain amounts of the Companys debt for tax purposes (the contributor-guaranteed debt). With respect to tax liabilities arising out of property sales, the indemnity will cover 100% of any such liability until December 31, 2009, and will be reduced by 20% of the aggregate liability on each of the five following year ends thereafter.

The Company also has agreed to maintain approximately $10,000 of indebtedness, and to offer the contributors the option to guarantee $10,000 of the Operating Partnerships indebtedness, in order to enable them to continue to defer certain tax liabilities. The obligation to maintain such indebtedness extends to 2013, but will be extended by an additional five years for any contributor that holds (together with his affiliates) at that time at least 25% of the initial ownership interest in the Operating Partnership issued to them in the Formation Transactions. As of June 30, 2006, Feldman Partners, LLC, an affiliate of Larry Feldman and Jeffrey Erhart, currently guarantees $8,000 of the loan secured by the Stratford Square Mall.

12. Borrowings and Joint Venture with Kimco Realty Corp.

During
    February 2006, the Company entered into a contribution agreement with a subsidiary
    of Kimco Realty Corp. (Kimco) in connection with the Foothills
    Mall, located in the suburbs of Tucson, Arizona. Under the terms of the contribution
    agreement, the Company contributed the Foothills Mall to a limited liability
    company at an agreed value of $104,000, plus certain closing costs (the Joint
    Venture). The transaction closed on June 29, 2006 (the Closing
    Date).
    The transaction resulted in the Company recognizing a gain totaling $29,968.
    Pursuant to the
    terms of the contribution agreement, the Company received approximately $38,900
in net proceeds from the transaction.

On
    the closing date, the joint venture extinguished the existing first mortgage
    totaling $54,750 and refinanced the property with an $81,000 non-recourse
    first mortgage.
    The $81,000 first mortgage matures in July 2016 and bears interest at 6.08%.
    The loan may not be prepaid until the earlier of three years from the first
    interest payment or two years from date of loan syndication and has no principal
    payments for the first five years and then loan principal amortizes on a
    30-year basis thereafter. Simultaneous with the refinancing, Kimco contributed
    cash in the amount of $14,757 to the Joint Venture. Kimco will receive a
    preferred return on its capital from the Foothills Malls cash flow.
    Upon a sale or refinancing of the Foothills Mall, Kimco is also entitled
    to receive a priority return of its capital together with any unpaid accrued
    preferred return. After certain adjustments, the Company is  next entitled
    to receive an 8% preferred return on and a return of its capital. Thereafter,
    all surplus proceeds will be split 20% to Kimco and 80% to the Company. Additionally,
    the Company agreed to serve as the managing member of the limited liability
    company and will retain primary management, leasing and construction
	oversight, for which it will receive customary fees.
    The Company has determined the Joint Venture is not a VIE and accounts for
    its investment in the Joint Venture under the equity method.

The joint venture agreement includes buy-sell provisions commencing in 24 months for the Company and after 47 months from the date allowing either joint venture partner to acquire the interests of the other. Either partner to the joint venture may initiate a buy-sell proceeding, which may enable it to acquire the interests of the other partner. However, the partner receiving an offer to be bought out will have the right to buy out such offering partner at the same price offered. The joint venture agreement does not limit the Companys ability to enter into real estate ventures or co-investments with other third parties.

During
    February 2006, the Company entered into a promissory note (the Note)
    with Kimco Capital Corp. (the Lender),
    a subsidiary of Kimco, in the amount up to $17,200. The amounts outstanding
    under the loan bore interest at an interest rate of 8% per annum. On June
    29, 2006, the $5,000 outstanding balance was repaid and
the Note was extinguished.

20

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

12. Borrowings and Joint Venture with Kimco Realty Corp.  (Continued)

Summarized initial balance sheet for the Joint Venture is as follows:



June
          30, 2006Investment in real estate

        

        $

        90,840Other assets

        

        

        1,277Total assets

        

        $

        92,117Mortgage loan payable

        

        $

        81,000Other liabilities

        

        

        182Owners equity

        

        

        10,935Total liabilities and owners equity

        

        $

        92,117Companys share of owners equity

        

        $

        (3,822

        )


The
    difference between the Companys
investment in the Joint Venture and its 30.8% of the partnership owners equity
is primarily due to the Company recording its remaining interest at historical
cost reduced by its share of excess loan proceeds. The amounts presented above
are
preliminary
as
of
June
30,
2006.

13. Investment in Unconsolidated Real Estate Partnerships

The Company has a 24% limited partnership interest and a 1% general partnership interest in Feldman Lubert Adler Harrisburg, LP (the Partnership). The Partnership purchased a regional mall in Harrisburg, Pennsylvania on September 29, 2003. Summarized financial information for this investment, which is accounted for by the equity method, is as follows:



June 30, 2006


      

        December 31, 2005Investment in real estate, net


      


      $


      48,994


      


      $


      50,050Receivables including deferred rents

        

        

        1,141

        

        

        1,182Other assets


      


      


      11,287


      


      


      11,886Total assets

        

        $

        61,422

        

        $

        63,118Loan payable

        

        $

        49,750

        

        $

        49,750Other liabilities

        

        

        1,770

        

        

        2,330Owners equity

        

        

        9,902

        

        

        11,038Total liabilities and owners equity

        

        $

        61,422

        

        $

        63,118Companys share of owners equity

        

        $

        2,510

        

        $

        2,794


The difference between the Companys investment in the Partnership and its 25% of the Partnerships owners equity is primarily due to the Companys $500 acquisition of an interest held by a third party in 2004 and unpaid reimbursements of operating costs.



Three Months Ended June 30,

        

        Six Months Ended June 30,2006

        

        2005

        

        2006

        

        2005Revenue

        

        $

        2,617

        

        $

        2,586

        

        $

        5,290

        

        $

        5,286Operating and other expenses


      


      


      1,475


      


      


      1,330


      


      


      3,104


      


      


      2,785Interest expense (including the amortization of deferred financing costs)

        

        

        861

        

        

        589

        

        

        1,653

        

        

        1,234Depreciation and amortization

        

        

        837

        

        

        793

        

        

        1,670

        

        

        1,570Net loss

        

        $

        (556

        )

        $

        (126

        )

        $

        (1,137

        )

        $

        (303

        )Companys share of net loss

        

        $

        (139

        )

        $

        (32

        )

        $

        (284

        )

        $

        (76

        )


21

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

13. Investment in Unconsolidated Real Estate Partnerships (Continued)

The Harrisburg Mall was purchased with (i) the proceeds of a mortgage loan, secured by the mall property and an assignment of rents and leases, and (ii) cash contributions from the Predecessor and its joint venture partner. The construction loan was subsequently amended in October 2004 to increase the lenders commitment to $46,875. The construction loan initially bore interest at LIBOR plus 3.25% per annum, until a certain anchor tenant occupied its space and began paying rent, at which time the spread became 2.5%. During July 2005, the loan was amended and increased to a maximum commitment of $50,000 through a $7,200 second mortgage with no principal payments until the maturity date, which was extended to March 2008. The interest rate was reduced to LIBOR plus 1.625% per annum. During July 2005, the Partnership increased the borrowings to $49,750 and distributed $6,500 to the partners on
a pro rata basis, of which the Company received $1,625. The effective rates on the loan at June 30, 2006 and December 31, 2005 were 6.82% and 5.99%, respectively.

Under certain circumstances the Partnership may extend the maturity of the loan for three, one-year periods. As of June 30, 2006, the Partnership may prepay the loan at any time, without incurring any prepayment penalty. The loan presently has a limited recourse of $5,000 of which our joint venture partner is liable for $3,150 or 63%, and the Company is liable for $1,850 or 37%.

The balance outstanding under the loan was $49,750, as of June 30, 2006 and December 31, 2005, and the Partnership intends to use cash flow from property operations to fund its capital expenditure commitments, which were $550 at June 30, 2006. The Company is required to maintain cash balances with the lender averaging $5,000. If the balances fall below $5,000 in any one month, the interest rate on the loan increases to LIBOR plus 1.875%.

The joint venture agreement includes a buy-sell provision allowing either joint venture partner to acquire the interests of the other. Either partner to the joint venture may initiate a buy-sell proceeding, which may enable it to acquire the interests of the other partner. However, the partner receiving an offer to be bought out will have the right to buy out such offering partner at the same price offered. The joint venture agreement does not limit the Companys ability to enter into real estate ventures or co-investments with other third parties. However, the agreement restricts the Companys ability to enter into transactions relating to the joint venture with the Companys affiliates without the prior approval of its joint venture partner.

The
     joint venture has commitments for tenant improvements and other capital
    expenditures in the
amount of $550 to be incurred in 2006 and intends to fund them from operating
    cash flow.  The joint venture has additional renovation cost commitments
    and anticipates the renovation
costs to be $3,400 in 2006 and the balance totaling $14,400 anticipated to be
    spent thereafter.  The joint venture anticipates funding these renovation
    costs with additional
financing activity or equity contributions.

14. Fair Value of Financial Instruments

As of June 30, 2006 and December 31, 2005, the fair values of the Companys mortgage loans payable and junior subordinated debt, were approximately the carrying values as the terms are similar to those currently available to the Company for debt with similar risk and the same remaining maturities. The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, due to affiliates, and accounts payable and other liabilities, approximate fair value because of the short-term nature of these instruments.

15. Financial Instruments: Derivatives and Hedging

The following summarizes the notional and fair value of the Companys derivative financial instrument at June 30, 2006. The notional value is an indication of the extent of our involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks:



NotionalValue

        

        StrikeRate

        

        EffectiveDate

        

        ExpirationDate

        

        FairValueInterest Rate Swap


      


      $


      75,000


      


      3.75


      %


      2/2005


      


      1/2008


      


      $


      1,920Interest Rate Swap

        

        $

        75,000

        

        4.91

        %

        1/2008

        

        1/2011

        

        $

        1,072


On June 30, 2006, the derivative instruments were reported as an asset at a fair value of approximately $2,992 and is recorded in other assets. Over time, the unrealized gain of $2,936 held in Accumulated Other Comprehensive Income will be reclassified into operations as interest expense in the same periods in which the hedged interest payments affect earnings.

22

---



Back to Contents

FELDMAN MALL PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  UNAUDITED(CONTINUED)

June 30, 2006

(Dollar Amounts in Thousands, Except Share and Per Share Data)

15. Financial Instruments: Derivatives and Hedging  (Continued)

The Company hedges exposure to variability in anticipated future interest payments on existing variable rate debt.

16. Subsequent Events

Joint Venture with Heitman Funds  Colonie Center Mall

On
    August 9, 2006, the Company announced that it has entered into a joint
    venture agreement with an affiliate of Heitman in connection with the Colonie
    Center
    Mall located
    in Albany, New York. Under the terms of the joint venture, a subsidiary of
    the Company will convey the property to the venture at an agreed upon value
    that is
currently $101.5 million, plus closing costs. Heitmans initial contribution
will represent 75% of the joint venture equity. The Company will retain 25% of
the total equity in the property. In connection with the recapitalization of
the mall, the Company plans to recapitalize the current $50.7 million first mortgage
bridge loan with a new construction loan. The current loan matures October 2006
and a condition of closing this transaction is to refinance the property with
a construction loan facility totaling approximately $108.0 million.

The
Company  will be the managing member of the joint venture and will be responsible
for the management, leasing and construction of the property and will charge
customary market fees for such services.

The
    closing of the joint venture is expected to take place at the end of the
    third quarter of 2006 and is subject to certain limited and customary due
    diligence approvals by Heitman,  and there is no assurance the transaction
    will be completed.

23

---



Back to Contents

ITEM
  2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

Overview

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

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

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

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



        On
    June 29, 2006, we contributed the Foothills Mall to a joint venture and retained
    a 30.8% interest. In connection with this transaction, the joint venture
    re-financed the existing $54.8 million first mortgage with an $81.0 million
    first mortgage.
    As a result of these transactions, we received approximately $38.9 million
    and recognized a $30.0 million gain on the partial sale of the property in
    the second quarter 2006 as reported on the condensed statement of operations.
    A portion of the proceeds from the transaction were used to repay $24.6 million
    outstanding on our secured line of credit and $5.0 million outstanding to
    extinguish our credit facility provided by Kimco Realty Corp.


Critical Accounting Policies

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

Revenue Recognition

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

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

24

---



Back to Contents

Additional revenue is derived from the provision of management services to third parties, including property management, brokerage, leasing and development. Management fees generally are a percentage of managed property cash receipts. Leasing and brokerage fees are earned upon the consummation of new leases. Development fees are earned over the time period of the development activity.

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

Principles of Consolidation and Equity Method of Accounting

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

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

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

and decreased by its share of comprehensive loss and capital distributions.

The
    equity in net income or loss and other comprehensive income or loss from
    real estate joint ventures recognized by us and the carrying value of our
    investments in real estate joint ventures are based on our share of cash
    that would be distributed to us under the hypothetical liquidation of the
    joint venture, at the then book value, pursuant to the provisions of the
    respective operating/partnership agreements.

For
    a joint venture investment which is not a VIE or in which we
    are not the general partner, we follow the accounting set forth in AICPA
    Statement of Position No. 78-9  Accounting for Investments in Real
    Estate Ventures (SOP 78-9)
    as amended by EITF 04-05. In accordance with this pronouncement, investments
    in joint ventures are accounted for under the equity method when our ownership
interest is less than 50% and we do not exercise direct or indirect control.

On a periodic basis, we assess whether there are any indicators that the value of an investment in unconsolidated joint ventures may be impaired. An investments value is impaired if managements estimate of the fair value of the investment is less than the carrying value of the investment. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.

25

---



Back to Contents

Investments in Real Estate and Real Estate Entities

Real estate is stated at historical cost, less accumulated depreciation. Improvements and replacements are capitalized when they extend the useful life or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

The building and improvements thereon are depreciated on the straight-line basis over an estimated useful life of 39 years. Tenant improvements are depreciated on the straight-line basis over the shorter of the lease term or their estimated useful life. Equipment is being depreciated on an accelerated basis over estimated useful lives of five to seven years.

It is our policy to capitalize interest, insurance and real estate taxes related to properties under redevelopment and to depreciate these costs over the life of the related assets. Pre-development costs, which generally include legal and professional fees and other third-party costs related directly to the acquisition of a property, are capitalized as part of the property being developed. In the event a development is no longer deemed to be probable, the costs previously capitalized are written off as a component of operating expenses.

In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, investment properties are reviewed for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. Impairment losses for investment properties are recorded when the undiscounted cash flows estimated to be generated by the investment properties during the expected hold period are less than the carrying amounts of those assets.

Impairment losses are measured as the difference between the carrying value and the fair value of the asset. We are required to assess whether there are impairments in the values of our investments in real estate, including indirect investments in real estate through entities which we do not control and are accounted for using the equity method of accounting.

In connection with the formation transactions, we acquired our predecessor in exchange for the issuance of OP Units in our operating partnership and shares of our common stock. This exchange has been accounted for as a reorganization of entities under common control; accordingly, we recorded the contributed assets and liabilities at our predecessors historical cost.

Gains or Losses on Disposition of Real Estate

Gains
    or losses on the disposition of real estate assets are recorded when the
    recognition criteria have been met, generally at the time title is transferred
    and we no longer have substantial continuing involvement with the real estate
asset sold.

When
    we contribute a property to a joint venture in which we have retained
    an ownership interest, we do not recognize a portion of the proceeds
    in the computation of the gain resulting from the contribution. The amount
of proceeds not recognized is based on our continuing ownership
interest in the contributed property that arises due to the ownership interest
in the joint venture acquiring the property.

Purchase Price Allocation

We allocate the purchase price of properties to tangible and identified intangible assets acquired based on their fair values in accordance with the provisions of SFAS No. 141, Business Combinations. In making estimates of fair values for the purpose of allocating purchase price, management utilized a number of sources. We also consider information about each property obtained as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of tangible and intangible assets acquired.

We
    allocate a portion of the purchase price to tangible assets including the
    fair value of the building on an as-if vacant basis, and to land determined
    either by real estate tax assessments, third party appraisals or other relevant
    data. Since June 2005, we determine the as-if-vacant value by using a replacement
    cost method. Under this method we obtain valuations from a qualified third
    party utilizing relevant
    third party property condition and Phase I environmental reports.  The Company
    believes the replacement cost method closely approximates its previous methodology
    and is a better determination
    of the as-if vacant fair value.

A portion of the purchase price is allocated to above-market and below-market in-place lease values for acquired properties 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 and below-market lease values are amortized as a reduction of or an addition to rental income over the remaining non-cancelable terms of the respective leases. Should a tenant terminate its lease, the unamortized portion of the lease intangibles would be charged or credited to income.

26

---



Back to Contents

A portion of the purchase price is also allocated to the value of leases acquired, and management utilizes independent sources or managements determination of the relative fair values of the respective in-place lease values. Our estimates of value are made using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods, considering current market conditions and costs to execute 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. We also estimate costs to execute similar leases including leasing commissions, legal expenses and other related costs.

Depreciation

The U.S. Federal tax basis for the Foothills and Harrisburg Malls, used to determine depreciation for U.S. Federal income tax purposes, is the carryover basis for such malls. The tax basis for all other properties is our acquisition cost. For U.S. Federal income tax purposes, depreciation with respect to the real property components of our malls (other than land) generally will be computed using the straight-line method over a useful life of 39 years.

Derivative Instruments

In the normal course of business, we are exposed to the effect of interest rate changes and limit these risks by following risk management policies and procedures including the use of derivatives. To address exposure to interest rates, derivatives are used primarily to fix the rate on debt based on floating-rate indices and manage the cost of borrowing obligations.

We may use a variety of derivative instruments to manage, or hedge, interest rate risk. We require that derivative instruments are effective in reducing the interest rate risk exposure that they are designated to hedge. This effectiveness is essential for qualifying for hedge accounting. One of our derivative instruments is associated with forecasted cash flows. In that case, hedge effectiveness criteria also require, among other things, that it be probable that the underlying forecasted cash flows will occur. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract.

To determine the fair values of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, 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.

Derivative instruments that are reported at fair value and presented on the balance sheet could be characterized as either cash flow hedges or fair value hedges. All of our derivatives are designated cash flow hedges. Cash flow hedges address the risk associated with future cash flows of debt transactions. All hedges held by us are deemed to be fully effective in meeting the hedging objectives established by our corporate policy governing interest rate risk management and as such no unrealized gains or losses due to changes in fair value are reported in earnings. The changes in fair value of hedge instruments are reflected in accumulated other comprehensive income. For derivative instruments not designated as hedging instruments, the gain or loss, resulting from the change in the estimated fair value of the derivative instruments, would be recognized in current earnings during the period of change.

Results of Operations

Overview

The
    discussion below relates to the results of operations of our company which,
    throughout the periods discussed below, was engaged in comprehensive mall
    renovation and repositioning projects, including the Foothills Mall, which
    was acquired
    through a joint venture by our predecessor in 2002 and the Harrisburg Mall,
    which was acquired through a joint venture by our predecessor in 2003. Subsequent
    to our initial public offering we acquired the Stratford Square Mall in December
    2004. During 2005 and the first half of 2006, we acquired the Colonie
    Center Mall (February 2005), Northgate Mall (June 2005), and Tallahassee
    Mall (July 2005), and Golden Triangle
    Mall (April 2006), collectively the Acquisition Properties which,
    with the exception of the Golden Triangle Mall for the first quarter 2006,
    are included in our consolidated results for the three and six months ended
    June
    30, 2006,
    and
    not included,
    or partially
    included,
    in our
    results
    for
    the three and six months ended June 30, 2005. During the redevelopment
    and repositioning period, some of our properties may experience decreases
    in occupancy and corresponding net operating income. We believe these lower
    occupancy and operating income trends are temporary and will improve once
    we have completed a significant portion of the redevelopment process. For
    the following reasons, the results of operations of our company for the three
    and six months ended June 30, 2006 may not be comparable to the corresponding
    period in 2005:

27

---



Back to Contents



        On
    February 1, 2005, we acquired Colonie Center Mall, located in Albany, New
    York for an initial purchase price of $82.2 million and funded the purchase
    price of this acquisition using the net proceeds from a property-level financing
    of the Stratford Square Mall. At June 30, 2006, shop occupancy, excluding
    temporary tenants, was 73.7%.




        On
    June 28, 2005, we acquired the Tallahassee Mall, a 963,000 square foot mall
    located in Tallahassee, the state capital of Florida. The purchase price
    of $61.5 million included the assumption of the existing mortgage loan of
    approximately $45.8 million plus cash in the amount of approximately $16.2
    million. The first mortgage assumed by us bears interest at a fixed rate
    of 8.60% and has a July 2009 maturity date. The property is subject to a
    long term ground lease that expires in the year 2063 (assuming the exercise
    of all extension options). The ground lease does not contain a purchase option.
    At June 30, 2006, shop occupancy, excluding temporary and anchor tenants,
    was 78.8%.




        On
    July 12, 2005, we acquired Northgate Mall, a 1.1 million square foot mall
    located in the northwest suburbs of Cincinnati, Ohio. The purchase price
    of $110.0 million included the assumption of the existing mortgage loan in
    the approximate amount of $79.6 million plus cash in the amount of approximately
    $30.4 million. The first mortgage assumed by us bears interest at a fixed
    rate of 6.60% and has a September 2012, maturity date. At June 30, 2006,
    shop occupancy, excluding temporary and anchor tenants, was 76.2%.




        During March 2006, we completed the issuance and sale in a private placement of $28.5 million in aggregate principal amount of fixed/floating rate junior subordinated debt obligation (the Notes). The Notes require quarterly interest payments calculated at a fixed interest rate equal to 8.70% per annum through April 2011, and subsequently at a variable interest rate equal to London Interbank Offered Rate (LIBOR) plus 3.45% per annum. The Notes mature in April 2036, and may be redeemed, in whole or in part, at par, at our option, beginning after April 2011.




        On
    April 5, 2006, we acquired the Golden Triangle Mall in the Northeastern Dallas
    suburb of Denton, Texas, for approximately $40.0 million. The purchase price
    for the Golden Triangle Mall may be increased up to $2.2 million if the seller
    is able to deliver an executed lease with Abercrombie & Fitch (Hollister),
    acceptable to us and the tenant takes occupancy. As of June 30, 2006, the
    lease has been signed, however the tenant is not scheduled to take occupancy
    until 2007. Including non-owned anchors, the Golden Triangle Mall is a 765,000
    square foot regional
    mall.
    At June
    30,
    2006, excluding
    temporary
    tenants, the malls occupancy is 61.2%.




        On
    April 5, 2006, in connection with the acquisition of the Golden Triangle
    Mall, we entered into a $24.6 million secured line of credit which bears
    interest at 140 basis points over LIBOR and matures in April 2008. The secured
    line of credit was fully drawn on the date we acquired the Golden Triangle
    Mall. The secured line of credit contains certain financial covenants requiring
    us to, among other requirements, maintain certain financial coverage ratios.
    The secured line of credit has one extension through April 2009. We repaid
    	the secured line of credit on June 29, 2006 and as of
    June 30, 2006, there was no outstanding balance on the secured line of credit.




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


Comparison of the Three Months Ended June 30, 2006 to the Three Months Ended June 30, 2005

Revenues

Rental
    revenues increased approximately $5.2 million, or 78%, to $11.8 million
    for the three months ended June 30, 2006 compared to $6.6 million for the
    three months ended June 30, 2005. The increase was primarily due to a $5.5
    million increase from the Acquisition Properties and a $0.1 million increase
    at the Foothills Mall primarily due to increased mall occupancy. The increases
    were partially off-set by $0.4 million lower revenue at Stratford Square
    Mall and Colonie Center Mall due to lower rental rates upon tenant renewals
    and lower shop occupancy at Stratford Square Mall.

Revenues from tenant reimbursements increased $2.5 million, or 68%, to $6.3 million for the three months ended June 30, 2006 compared to $3.8 million for the three months ended June 30, 2005. The increase was primarily due to a $2.6 million increase from the Acquisition Properties and a $0.2 million increase at Colonie Center Mall due to higher tenant common area maintenance charges. The increases were partially off-set by $0.3 million lower revenue at Foothills Mall due to lower common area maintenance charges.

28

---



Back to Contents

Revenues from management, leasing and development services did not change significantly for the three months ended June 30, 2006 as compared to the three months ended June 30, 2005 and represent management, leasing and construction services for the Harrisburg Mall.

Interest and other income decreased $78,000 to $265,000 for the three months ended June 30, 2006 compared to $343,000 for the three months ended June 30, 2005. The decrease was primarily due to lower lease termination income.

Expenses

Rental property operating and maintenance expenses increased $2.4 million, or 71%, to $5.7 million for the three months ended June 30, 2006 compared to $3.3 million for the three months ended June 30, 2005. The increase was primarily due to a $2.4 million increase from the Acquisition Properties.

Real estate taxes increased $1.1 million, or 86%, to $2.5 million for the three months ended June 30, 2006 compared to $1.4 million for the three months ended June 30, 2005. The increase was primarily due to a $1.0 million increase from the Acquisition Properties and $0.1 million at the Stratford Square Mall due to an increased assessment.

Interest
    expense increased $3.2 million, or 166%, to $5.1 million for the three months
    ended June 30, 2006 compared to $1.9 million for the three months ended June
    30, 2005. The increase was primarily due to (i) $2.1 million of interest
    from the Acquisition Properties, (ii) $0.8 million due to the issuance of
    the Notes, and (iii) $0.4 million due to the secured line of credit.

Depreciation and amortization expense increased $2.9 million, or 109%, to $5.5 million for the three months ended June 30, 2006 compared to $2.6 million for the three months ended June 30, 2005. The increase is primarily due to a $3.0 million increase in depreciation from the Acquisition Properties. The increase was partially off-set by $0.1 million of depreciation expense recorded in the second quarter of 2005 related to an intangible asset not depreciated in the previous three months ended March 31, 2005.

General and administrative expenses increased $451,000, or 33%, to $1.8 million for the three months ended June 30, 2006 compared to $1.3 million for the three months ended June 30, 2005. The increase was primarily due to (i) costs associated with increased overhead for our companys office relocation and expansion in Phoenix, Arizona, (ii) increase in personnel costs, and (iii) additional costs associated with being a publicly-traded REIT.

Other

Equity
    in loss of unconsolidated real estate partnership represents our
    share of the equity in the earnings of the joint venture owning the Harrisburg
    Mall. The equity in loss of unconsolidated real estate partnership totaled
    $139,000 for the three months ended June 30, 2006 as compared to $32,000
    for the three months ended June 30, 2005. The 2006 loss at the Harrisburg
    Mall is primarily due to increased depreciation and increased interest expense
    due to increased loan balance
and higher interest rates.

Gain
    on the partial sale of a property totaled $30.0 million for the three months
    ended June 30, 2006. This gain represents the contribution of the Foothills
    Mall into a joint venture on June 29, 2006. We currently have a 30.8% interest
    in the joint venture.

Minority interest for the three months ended June 30, 2006 and 2005 represents the unit holders in our operating partnership which represents 10.9% and 11.4%, respectively, of our companys income.

Comparison of the Six Months Ended June 30, 2006 to the Six Months Ended June 30, 2005

Revenues

Rental revenues increased $9.9 million, or 78%, to $22.5 million for the six months ended June 30, 2006 compared to $12.6 million for the six months ended June 30, 2005. The increase was primarily due to a $10.2 million increase from the Acquisition Properties and $0.3 million increase at the Foothills Mall primarily due to increased mall occupancy. The increases were partially off-set by $0.6 million lower rental revenue at the Stratford Square Mall due to reduced occupancy and lower rental rates upon renewal.

29

---



Back to Contents

Revenues from tenant reimbursements increased $4.7 million, or 68%, to $11.7 million for the six months ended June 30, 2006 compared to $7.0 million for the six months ended June 30, 2005. The increase was primarily due to a $4.8 million increase from the Acquisition Properties. The increase was partially off-set by $0.1 million at the Foothills and Stratford Square Malls due to lower common area maintenance charges.

Revenues from management, leasing and development services decreased $9,000, or 3%, to $257,000 for the six months ended June 30, 2006 compared to $266,000 for the six months ended June 30, 2005. The decrease was primarily due to the first quarter loss of management fees and leasing commissions earned from previously managed third party office properties.

Interest
    and other income increased $143,000, or 23%, to $769,000 for the six months
    ended June 30, 2006 compared to $626,000 for the six months ended June 30,
2005.

Expenses

Rental property operating and maintenance expenses increased $4.8 million, or 76%, to $11.2 million for the six months ended June 30, 2006 compared to $6.4 million for the six months ended June 30, 2005. The increase was due to a $4.9 million increase from the Acquisition Properties partially offset by a $0.1 million decrease in expenses at the Foothills Mall.

Real estate taxes increased $2.1 million, or 82%, to $4.6 million for the six months ended June 30, 2006 compared to $2.5 million for the six months ended June 30, 2005. The increase was primarily due to a $1.9 million increase from the Acquisition Properties and $0.2 million due to increased assessments at Foothills and Stratford Square Malls.

Interest expense increased $5.7 million, or 158%, to $9.3 million for the six months ended June 30, 2006 compared to $3.6 million for the six months ended June 30, 2005. The increase was primarily due to (i) $4.4 million of interest associated with the Acquisition Properties (ii) $0.9 million due to the issuance of the Notes, and (iii) $0.4 million for the secured line of credit.

Depreciation and amortization expense increased $5.4 million, or 122%, to $9.9 million for the six months ended June 30, 2006 compared to $4.5 million for the six months ended June 30, 2005. The increase is primarily due to a $5.4 million increase in depreciation from the Acquisition Properties.

General and administrative expenses increased $1.0 million, or 35%, to $3.7 million for the six months ended June 30, 2006 compared to $2.7 million for the six months ended June 30, 2005. The increase was primarily due to (i) increases in personnel costs, and (ii) additional costs associated with being a publicly-traded REIT, and (iii) office relocation and expansion in Arizona.

Other

Gain
    on the partial sale of a property totaled $30.0 million for the six months
    ended June 30, 2006. This gain represents the contribution of the Foothills
    Mall into a joint venture on June 29, 2006. We currently have a 30.8% interest
    in the joint venture.

Equity in (loss)/earnings of unconsolidated real estate partnership represents our share of the equity in the earnings of the joint venture owning the Harrisburg Mall. The equity in loss of unconsolidated real estate partnership totaled $284,000 for the six months ended June 30, 2006 as compared to $76,000 for the six months ended June 30, 2005. The 2006 loss at the Harrisburg Mall is primarily due to increased depreciation and increased interest expense due to increased loan balance and higher interest rates.

Minority interest for the six months ended June 30, 2006 and 2005 represents the unit holders in our operating partnership which represents 10.9% and 11.4% of our companys income.

30

---



Back to Contents

Cash Flows

Comparison of the Six months ended June 30, 2006 to the Six months ended June 30, 2005

Cash and cash equivalents were $13.1 million and $45.7 million, respectively, at June 30, 2006 and June 30, 2005.

Cash
    used in operating activities totaled $0.8 million for the six months ended
    June 30, 2006, as compared to cash provided by operating activities totaling
    $4.4 million for the six months ended June 30, 2005. The decrease in cash
    flow from operating activities is primarily due to (i) an increase in cash
    paid for interest expense totaling $7.3 million, (ii) an increase in general
    and administrative costs totaling $1.0 million, (iii) increased payments
    to vendors due to timing totaling $4.4 million and (iv) decreased cash operating
    income from the Stratford Square Mall totaling approximately $0.9 million.
    These decreases in operating cash flow were partially off set by higher cash
    operating income totaling $8.2 million from the Acquisition Properties and
$0.1 million increase at the Foothills Mall.

Net
    cash used in investing activities for the six months ended June 30, 2006
    decreased to $17.9 million for the six months ended June 30, 2006 as compared
    to $108.2 million for the six months ended June 30, 2005. The decrease was
    primarily the result of cash required in 2005 for the acquisitions of the
    Colonie Center Mall and Tallahassee Mall totaling $105.4 million and the
    net cash received totaling $38.9 million in connection with the partial sale
    of the Foothills Mall. The decrease was partially offset by $43.2 million
    for the acquisition of the Golden Triangle Mall and Stratford Square Mall
    anchor
    and $10.6 million of higher capital expenditures primarily due to redevelopment
at the Colonie Center and Stratford Square Malls.

Net cash provided by financing activities totaled $17.5 million for the six months ended June 30, 2006 as compared to $133.9 million for the six months ended June 30, 2005. The decrease of $116.4 million is primarily due to (i) net proceeds from the 2005 issuance of 1.6 million shares of common stock totaling $17.0 million, net of offering cost payments received in 2005, (ii) $125.8 million proceeds from our mortgages on Stratford Square and Colonie Center Malls received in 2005 and (iii) repayment of mortgage loans payable totaling $0.8 million in 2006 and (iv) the increase of $3.0 million in restricted cash as a collateral deposit to a loan to comply with certain quarterly financial covenants. The 2005 increases were partially off-set by the $29.4 million proceeds from the Companys issuance of the Notes, and the increase in payment of dividends/distributions in 2006 totaling $2.9 million.

Liquidity and Capital Resources

Overview

As of June 30, 2006, we had approximately $13.1 million in cash and cash equivalents on hand. In addition, our $24.6 million line of credit, secured by the Golden Triangle Mall, had no outstanding borrowings at June 30, 2006. At June 30, 2006, our total consolidated indebtedness outstanding was approximately $294.2 million, or 62% of our total assets.

We intend to maintain a flexible financing position by maintaining a prudent level of leverage consistent with the level of debt typical in the mall industry. We intend to finance our acquisition, renovation and repositioning projects with the most advantageous source of capital available to us at the time of the transaction including traditional floating rate construction financing. We expect that once we have completed our renovation and repositioning of a specific mall asset, we will replace construction financing with medium to long-term fixed rate financing.

Short Term Liquidity Requirements

Our short term liquidity needs include funds to pay dividends to our stockholders required to maintain our REIT status, distributions to unit holders in our operating partnership, funds for capital expenditures and, potentially, acquisitions. Our properties require periodic investments of capital for tenant-related capital expenditures and for general secured line of credit. As of June 30, 2006, we had commitments to make tenant improvements and other expenditures at our properties in the amount of approximately $1.7 million to be incurred during 2006, which we intend to fund from existing cash and cash from operating activities. We expect the cost of recurring capital improvements and tenant improvements for our properties to be approximately $20.7 million for the remainder of 2006. We believe that our net cash provided by operations, our available cash and restricted cash and our secured line of
credit will be adequate to fund short-term operating requirements, pay interest on our borrowings and fund distributions in accordance with the REIT requirements of the Federal income tax laws. In addition, during 2006 we have announced/completed the following capital transactions:

31

---



Back to Contents

On
    June 29, 2006, we contributed the Foothills Mall to a joint venture and retained
    a 30.8% interest. In connection with this transaction, the joint venture
    re-financed the existing $54.8 million first mortgage with an $81.0 million
    first mortgage.
    As a result of these transactions, we received approximately $38.9 million
    and recognized a $30.0 million gain on the partial sale of the property in
    the second quarter 2006 as reported on the condensed consolidated statement
    of operations. A portion of the proceeds from the transaction were used to
    repay
    our $24.6
    million outstanding on our secured line of credit and $5.0 million outstanding
on our Kimco credit facility.

On June 15, 2006, we announced that our Board of Directors declared a dividend of $0.2275 per common share. This distribution reflects the regular dividend for the period April 1, 2006 to June 30, 2006. The dividend was paid on July 15, 2006 to shareholders of record at the close of business on June 30, 2006.

On April 5, 2006, in connection with the acquisition of the Golden Triangle Mall, we entered into a $24.6 million secured line of credit which bears interest at 140 basis points over LIBOR and matures in April 2008. The secured line of credit was fully drawn on the date we acquired the Golden Triangle Mall. The secured line of credit contains certain financial covenants requiring us to, among other requirements, maintain certain financial coverage ratios. The secured line of credit has one extension through April 2009. As of June 30, 2006, there was no outstanding balance on the secured line of credit.

During March 2006, we completed the issuance and sale in a private placement of $28.5 million in aggregate principal amount of fixed/floating rate trust preferred securities issued by one of our wholly owned subsidiaries. The trust preferred securities require quarterly interest payments calculated at a fixed interest rate equal to 8.70% per annum through April 2011, and subsequently at a variable interest rate equal to London Interbank Offered Rate (LIBOR) plus 3.45% per annum. The notes mature April 2036, and may be redeemed, in whole or in part, at par, at our option, beginning after April 2011.

On
    February 22, 2006, we executed a revolving promissory note (the Note)
in the amount of up to  $17.2 million with Kimco Capital Corp. (the Lender),
a subsidiary of Kimco. The amounts outstanding under the loan bore interest
at a rate of 8% per annum.  The $5.0
million outstanding balance on the note
was
repaid and extinguished on June 29, 2006.

In
    addition to the capital requirements for recurring capital expenditures,
    tenant improvements and leasing commissions, we expect to increase our expenditures
    for redevelopment and renovation of our recently purchased properties. Those
    renovation costs will include, among other items, increasing the size of
    the properties by developing additional rentable square feet. As of June
    30, 2006, in connection with signed leases and anticipated leases to be signed
    during 2006, our related redevelopment and renovation plans are estimated
    to be $170.0 million to $180.0 million and will total $70.0 million to $80.0
    million for the year ending December 31, 2006, of which $18.8 million has
    been incurred. We believe that our current cash on hand, the capital transactions
    above and additional financing activity, including property-level construction
    loans, will be adequate to fund operating and capital requirements.

In addition, as of June 30, 2006, the joint venture owning the Harrisburg Mall has commitments for tenant improvements and other capital expenditures in the amount of $550,000 to be incurred in 2006. The joint venture intends to fund these commitments from operating cash flow and cash on hand and approved state and local government grants and other economic incentives (approximately $8.0 million, of which $5.0 million was received). The joint venture intends to begin a second phase to the renovation of the Harrisburg Mall that will have an anticipated cost of approximately $17.8 million. The joint venture anticipates the renovation costs to be $3.4 million during the remainder of 2006. We anticipate funding the renovation with cash on hand, operating cash flows, additional borrowings and equity contributions from the partners; we are responsible for 25% of any necessary equity contributions. We
do not expect that this limitation will have a material impact on our ability to meet our short term liquidity requirements because, once the construction is completed, we expect the joint venture that owns the Harrisburg Mall to refinance this construction loan with alternative mortgage financing.

Long Term Liquidity Requirements

Our long term liquidity requirements consist primarily of funds necessary for acquisition, renovation and repositioning of new properties, non-recurring capital expenditures and payment of indebtedness at maturity. We expect to meet our other long-term liquidity requirements through net cash from operations, existing cash, additional long-term secured and unsecured borrowings and the issuance of additional equity or debt securities, and contributing certain wholly owned properties into joint ventures.

32

---



Back to Contents

In
    the future, we may seek to increase the amount of our mortgages, negotiate
    credit facilities or issue corporate debt instruments. Any debt incurred
    or issued by us may be secured or unsecured, long-term or short-term, fixed
    or variable interest rate and may be subject to such other terms as we deem
    prudent.

While our charter does not limit the amount of debt we can incur, we intend to maintain a flexible financing position by maintaining a prudent level of leverage consistent with the level of debt typical in the mall industry. We will consider a number of factors in evaluating our actual level of indebtedness, both fixed and variable rate, and in making financial decisions. We intend to finance our acquisition, renovation and repositioning projects with the most advantageous source of capital available to us at the time of the transaction, including traditional floating rate construction financing. We expect that once we have completed our renovation and repositioning of a specific mall asset we will replace construction financing with medium to long-term fixed rate financing. In addition, we may also finance our activities through any combination of sales of common or preferred shares or debt
securities, additional secured or unsecured borrowings.

In addition, we may also finance our acquisition, renovation and repositioning projects through joint ventures with institutional investors. Through these joint ventures, we will seek to enhance our returns by supplementing the cash flow we receive from our properties with additional management, leasing, development and incentive fees from the joint ventures. We may also acquire properties in exchange for our OP Units.

We are currently in preliminary discussions with a number of potential sellers of mall properties. We currently have no binding agreement to invest in any property other than the properties we currently own and have announced to acquire. There can be no assurance that we will make any investments in any other properties that meet our investment criteria.

MortgageLoans

Northgate
        Mall

On
    July 12, 2005, we assumed a $79.6 million first mortgage in connection with
    the acquisition of the Northgate Mall. The stated interest on the mortgage
is 6.60%. We determined this rate to be above-market and, in applying purchase
accounting, determined the fair market value interest rate to be 5.37%. The
above premium was initially $8.2 million and is being amortized over the
remaining term of the acquired loan using the effective interest method. We intend
    to refinance the loan prior to the maturity date.

Tallahassee
Mall

On
    June 28, 2005, we assumed a $45.8 million first mortgage in connection with
    the acquisition of the Tallahassee Mall. The stated interest rate on the
    mortgage is 8.60%. We determined this rate to be above-market and, in applying
    purchase accounting, determined the fair market value interest rate to be
    5.16%. The above-market premium was initially $6.5 million and is being amortized
  over the remaining term of the acquired loan using the effective interest method.
  We intend to refinance the loan prior to the maturity date.

Colonie
Center Mall

In June 2005, we completed a $50.8 million first mortgage bridge
  financing collateralized by the Colonie Center Mall. The initial bridge loan
  maturity date was December 1, 2005, which has since been extended to October
  2006. We plan to replace the bridge loan with a three to five-year first
  mortgage loan or extend the current mortgage prior to the October 1, 2006
  maturity date.

Harrisburg Mall

The Harrisburg Mall was purchased with (i) the proceeds of a mortgage loan, secured by the mall property and an assignment of rents and leases, and (ii) cash contributions from our predecessor and its joint venture partner. The construction loan was amended in October 2004 to increase the lenders commitment to $46.9 million and bore interest at LIBOR plus 2.50% per annum. During July 2005, the loan was amended again and increased to a maximum commitment of $50.0 million through a $7.2 million second mortgage with no principal payments until the maturity date, which was extended to March 2008. The interest rate has been reduced to LIBOR plus 1.625% per annum. During July 2005, our operating partnership increased the borrowings to $49.8 million and distributed $6.5 million to its partners on a pro rata basis, of which our Company received $1.6 million. The effective rates on the loan at
June 30, 2006 and December 31, 2005 were 6.82% and 5.99%, respectively.

Under certain circumstances our operating partnership may extend the maturity of the loan for three, one-year periods. We may prepay the loan at any time, without incurring any prepayment penalty. The loan presently has a limited recourse of $5.0 million of which our joint venture partner is liable for $3.1 million, or 63%, and the company is liable for $1.9 million, or 37%.

The balance outstanding under the loan was $49.8 million, as of June 30, 2006 and December 31, 2005.
    We are required to maintain cash balances with the lender averaging $5.0
    million. If the balances fall below $5.0 million in any one month, the interest
    rate on the loan increases to LIBOR plus 1.875%. We intend to refinance the
loan prior to the maturity date.

StratfordSquareMall

In
    January 2005, we completed a $75.0 million, three-year first mortgage financing
    collateralized by the Stratford Square Mall. The mortgage bears interest
    at a rate of LIBOR plus 125 basis points and has two one-year extensions.
    The initial loan to cost ratio is approximately 80%; however, once the intended
    capital improvements of approximately $30 million have been completed, the
    total leverage is expected to decrease to approximately 65% of total anticipated
    cost.
  We intend to refinance the loan on the maturity date.

33

---



Back to Contents

Capital Expenditures

We are required to maintain each retail property in good repair and condition and in conformity with applicable laws and regulations and in accordance with the tenants standards and the agreed upon requirements in our lease agreements. The cost of all such routine maintenance, repairs and alterations may be paid out of a capital expenditures reserve, which will be funded by cash flow. Routine repairs and maintenance will be administered by our subsidiary management company.

Off-Balance Sheet Arrangements

LoanGuarantees

See loan guarantees described on Harrisburg Mall Loan above.

ForwardInterestRate SwapContracts

In connection with the Stratford Square Mall mortgage financing, during January 2005, we entered into a $75.0 million swap commencing February 2005 with a final maturity date in January 2008. The effect of the swap is to fix the all-in interest rate of the Stratford Square mortgage loan at 5.0% per annum.

During December 2005, we entered into a $75.0 million swap which commences February 2008 and has a final maturity date in January 2011. The effect of the swap is to fix the all-in interest rate of our forecasted cash flows on LIBOR-based loans at 4.91% per annum.

TaxIndemnifications

In connection with the formation transactions, we entered into agreements with Messrs. Feldman, Bourg and Jensen that indemnify them with respect to certain tax liabilities intended to be deferred in the formation transactions, if those liabilities are triggered either as a result of a taxable disposition of a property by our company, or if our company fails to offer the opportunity for the contributors to guarantee or otherwise bear the risk of loss, with respect to certain amounts of our companys debt for tax purposes (the contributor-guaranteed debt). With respect to tax liabilities arising out of property sales, the indemnity will cover 100% of any such liability until December 31, 2009, and will be reduced by 20% of the aggregate liability on each of the five following year ends thereafter.

We
    also agreed to maintain approximately $10.0 million of indebtedness, and
    to offer the contributors the option to guarantee $10.0 million of our operating
    partnerships
    indebtedness, in order to enable them to continue to defer certain tax liabilities.
    Our obligation to maintain such indebtedness extends to 2013, but will be
    extended by an additional five years for any contributor that holds (together
    with his affiliates) at that time at least 25% of the initial ownership interest
    in our operating partnership issued to them in the Formation Transactions.
    As of June 30, 2006, Feldman Partners, LLC, an affiliate of Larry Feldman
    and Jeff Erhart, currently guarantees $8.0 million of the loan secured by
    the
    Stratford
Square Mall.

Funds From Operations

The revised White Paper on Funds From Operations, or FFO, issued by NAREIT in 2002 defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains or losses from the sale of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT because, along with cash flow from operating activities, financing activities and investing activities, it provides investors with an indication of our ability to incur and service debt, to make capital expenditures and to fund other cash needs. We compute FFO in accordance with the current standards established by NAREIT, which may not be comparable to FFO reported by other REITs that interpret the current NAREIT definition differently than us. FFO does not represent cash
generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

FFO for the periods are as follows (in thousands):



|                                                                     |  | Three Months Ended June 30, |         | Six Months Ended June 30, |  
|-------------------------------------------------------------------- |  | --------------------------- | ------- | ------------------------- | -
|                                                                     |  |                             |         |                           |  
|                                                                     |  | 2006                        |         | 2005                      |  
|                                                                     |  |                             |         |                           |  
|Net Income                                                           |  | $                           | 24,352  | (A)                       | $
|Add:                                                                 |  |                             |         |                           |  
|Depreciation and amortization (excluding FF&E)                       |  |                             | 5,454   |                           |  
|FFO contribution from unconsolidated joint venture                   |  |                             | 209     |                           |  
|Minority interest                                                    |  |                             | 2,962   |                           |  
|Less:                                                                |  |                             |         |                           |  
|Gain on partial sale of property                                     |  |                             | (29,968 | )                         |  
|                                                                     |  |                             |         |                           |  
|FFO
            available to common stockholders and OP Unit holders |  | $                           | 3,009   |                           | $
|                                                                     |  |                             |         |                           |  

|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(A) | 2006 net income includes early extinguishment of debt totaling
        $357,000

34

---



Back to Contents

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments depend upon interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.

Market Risk Related to Fixed Rate Debt

We had approximately $282.6 million of outstanding indebtedness as of June 30, 2006, of which $231.8 million bears interest at fixed rates for some portion or all of the terms of the loans ranging from 5.15% to 8.70%, and $50.8 million which bears interest on a floating rate basis of LIBOR plus 1.40%. Upon the maturity of our debt, there is a market rate risk as to the prevailing rates at the time of refinancing. Changes in market rates on our fixed-rate debt affects the fair market value of our debt but it has no impact on interest expense incurred or cash flow. A 100 basis point increase or decrease in interest rates on our floating/fixed rate debt would increase or decrease our annual interest expense by approximately $2.83 million, as the case may be.

We currently have two $75 million swap contracts that run consecutively through January 2011. A 100 basis point increase in interest rates would increase the fair value of these two swaps by approximately $2.8 million, and a 100 basis point decrease in interest rates would decrease the fair value of these swap contracts by approximately $2.9 million.

Aggregate principal payments of our mortgages as of June 30, 2006 are as follows (in 000s):



2006
      
      $
      51,7222007
      
      
      2,0402008
      
      
      77,1602009
      
      
      45,6182010
      
      
      1,7932011
          and thereafter
      
      
      74,892Total
          principal payments
      
      
      253,225Assumed
          above-market mortgage premiums, net
      
      
      11,566Total
      
      $
      264,791


We currently have $29.4 million in aggregate principal amount of fixed/floating rate junior subordinated debt obligation (the Notes). The Notes require quarterly interest payments calculated at a fixed interest rate equal to 8.70% per annum through April 2011, and subsequently at a variable interest rate equal to LIBOR plus 3.45% per annum. The notes mature April 2036, and may be redeemed, in whole or in part, at par, at our option, beginning after April 2011.

Inflation

Most of our leases contain provisions designed to mitigate the adverse impact of inflation by requiring the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance. The leases also include clauses enabling us to receive percentage rents based on gross sales of tenants, which generally increase as prices rise. This reduces our exposure to increases in costs and operating expenses resulting from inflation.

35

---



Back to Contents

PART I.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of disclosure controls and procedures (as defined in Rules 13a  15(c) and 15d  15(e) under the Exchange Act). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entities. As we do not control these entities, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain with respect to our consolidated subsidiaries.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our companys internal controls over financial reporting (as such term is defined in Rule 13a  15(f) and 15d  15(f) under the Exchange Act) identified in connection with the evaluation of such internal controls that occurred during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our companys internal controls over financial reporting.

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 our Company to disclose material information otherwise required to be set forth in our periodic reports.

PART
          II


      OTHER INFORMATION


ITEM
          1.
      LEGAL
          PROCEEDINGS


NoneITEM
          1A.
      RISK
          FACTORS There
          were no material changes from the risk factors previously disclosed
          in Part I, Item 1A. Risk Factors in the Companys annual
          report on Form 10-K/A for the year ended December 31, 2005.


ITEM
          2.

        UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None


ITEM
          3.

        DEFAULTS UPON SENIOR SECURITIES None


ITEM
          4.

        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


We held our annual meeting of stockholders on May 31, 2006 at which the following matters were voted upon:

1.
      To
          elect five directors of the Company to serve until the 2007 Annual Meeting
          of Stockholders and until their successors are duly elected and qualified.


36

---



Back to Contents



| |  | 2. | To
        ratify the selection of KPMG LLP as the independent registered public
        accounting firm of the Company for the fiscal year ending December 31,
        2006.
| |  | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The results of the meeting were as follows:



Proposal 1:


      


      For


      


      Against


      


      AbstainJames Bourg


      


      9,996,199


      


      


      


      1,558,522Lawrence Feldman

        

        9,995,814

        

        

        

        1,558,907Lawrence Kaplan

        

        10,341,418

        

        

        

        1,213,303Paul McDowell

        

        10,341,418

        

        

        

        1,213,303Bruce Moore

        

        10,341,418

        

        

        

        1,213,303




Proposal 2:


      


      For


      


      Against


      


      AbstainKPMG
    LLP


      


      10,357,427


      


      2,500


      


      1,194,794


ITEM
          5.
      OTHER
          INFORMATIONNone


ITEM
          6.
      EXHIBITS31.1
      Certification
        by the Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
        Act of 2002 filed herewith.31.2
      Certification
        by the Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley
        Act of 2002 filed herewith.32.1
      Certification
        pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906
        of the Sarbanes-Oxley Act of 202 filed herewith.


37

---



Back to Contents

SIGNATURES

Pursuant to the requirements 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.

Date:
    August 14, 2006



FELDMAN
          MALL PROPERTIES, INC.By:
      /s/ Thomas WirthName:
      Thomas
          WirthTitle:
      Executive
          Vice President and Chief Financial Officer


38

---