XNYS:GRT Glimcher Realty Trust Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q


x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

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 number 001-12482

GLIMCHER REALTY TRUST

(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
(State or Other Jurisdiction of
Incorporation or Organization)
 
31-1390518
(I.R.S. Employer
Identification No.)
 
 
 
180 East Broad Street
Columbus, Ohio
(Address of Principal Executive Offices)
 
43215
(Zip Code)
 
Registrant's telephone number, including area code: (614) 621-9000


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨

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

(Check One):  Large accelerated filer x    Accelerated filer ¨   Non-accelerated filer ¨   (Do not check if a smaller reporting company)   Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

As of July 26, 2012, there were 140,141,943 Common Shares of Beneficial Interest outstanding, par value $0.01 per share.

1


GLIMCHER REALTY TRUST
FORM 10-Q
 
INDEX
PART I:
FINANCIAL INFORMATION
PAGE
 
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011.
3
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended June 30, 2012 and 2011.
4
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2012 and 2011.
5
 
 
 
 
Consolidated Statement of Equity for the six months ended June 30, 2012.
6
 
 
 
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011.
7
 
 
 
 
Notes to Consolidated Financial Statements.
8
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
31
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
51
 
 
 
Item 4.
Controls and Procedures.
52
 
 
 
 
 
 
PART II:
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings.
53
 
 
 
Item 1A.
Risk Factors.
53
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
53
 
 
 
Item 3.
Defaults Upon Senior Securities.
53
 
 
 
Item 4.
Mine Safety Disclosures.
53
 
 
 
Item 5.
Other Information.
53
 
 
 
Item 6.
Exhibits.
53
 
 
 
SIGNATURES
55

2


PART I
FINANCIAL INFORMATION

Item 1.
Financial Statements

GLIMCHER REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and par value amounts)
 
June 30, 2012
 
 
ASSETS
(unaudited)
 
December 31, 2011
Investment in real estate:
 
 
 
Land
$
340,438

 
$
312,496

Buildings, improvements and equipment
2,334,277

 
1,876,048

Developments in progress
58,932

 
46,530

 
2,733,647

 
2,235,074

Less accumulated depreciation
664,142

 
634,279

Property and equipment, net
2,069,505

 
1,600,795

Deferred costs, net
29,002

 
24,505

Real estate assets held-for-sale
9,384

 
4,056

Investment in and advances to unconsolidated real estate entities
101,482

 
124,793

Investment in real estate, net
2,209,373

 
1,754,149

 
 
 
 
Cash and cash equivalents
15,271

 
8,876

Non-real estate assets associated with property held-for-sale
137

 

Restricted cash
12,865

 
18,820

Tenant accounts receivable, net
27,453

 
26,873

Deferred expenses, net
15,303

 
15,780

Prepaid and other assets
33,347

 
36,601

Total assets
$
2,313,749

 
$
1,861,099

LIABILITIES AND EQUITY
 
 
 
Mortgage notes payable
$
1,335,653

 
$
1,175,053

Notes payable
133,000

 
78,000

Other liabilities associated with property held-for-sale
166

 
127

Accounts payable and accrued expenses
83,416

 
45,977

Distributions payable
20,381

 
18,013

Total liabilities
1,572,616

 
1,317,170

Glimcher Realty Trust shareholders’ equity:
 
 
 

Series F Cumulative Preferred Shares of Beneficial Interest, $0.01 par
     value, 2,400,000 shares issued and outstanding
60,000

 
60,000

Series G Cumulative Preferred Shares of Beneficial Interest, $0.01 par
     value, 9,500,000 shares issued and outstanding
222,074

 
222,074

Common Shares of Beneficial Interest, $0.01 par value, 140,123,872 and
     115,975,420 shares issued and outstanding as of June 30, 2012 and
     December 31, 2011, respectively
1,401

 
1,160

Additional paid-in capital
1,236,175

 
1,016,188

Distributions in excess of accumulated earnings
(790,380
)
 
(766,571
)
Accumulated other comprehensive loss
(1,045
)
 
(483
)
Total Glimcher Realty Trust shareholders’ equity
728,225

 
532,368

Noncontrolling interest
12,908

 
11,561

Total equity
741,133

 
543,929

Total liabilities and equity
$
2,313,749

 
$
1,861,099

The accompanying notes are an integral part of these consolidated financial statements.

3


GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(dollars and shares in thousands, except per share and unit amounts)
 
For the Three Months Ended June 30,
 
2012
 
2011
Revenues:
 
 
 
Minimum rents
$
46,926

 
$
40,052

Percentage rents
1,771

 
1,017

Tenant reimbursements
22,653

 
18,855

Other revenues
5,721

 
4,807

Total revenues
77,071

 
64,731

Expenses:
 
 
 
Property operating expenses
16,680

 
13,798

Real estate taxes
9,439

 
8,270

Provision for doubtful accounts
564

 
685

Other operating expenses
6,820

 
2,521

Depreciation and amortization
22,362

 
16,838

General and administrative
6,032

 
5,109

Impairment loss

 
8,995

Total expenses
61,897

 
56,216

 
 
 
 
Operating income
15,174

 
8,515

Interest income
63

 
367

Interest expense
17,377

 
18,092

Gain on remeasurement of equity method investment
25,068

 

Equity in loss of unconsolidated real estate entities, net
(1,111
)
 
(7,901
)
Income (loss) from continuing operations
21,817

 
(17,111
)
Discontinued operations:
 
 
 
Income from operations
97

 
254

Net income (loss)
21,914

 
(16,857
)
Add: allocation to noncontrolling interest
(274
)
 
618

Net income (loss) attributable to Glimcher Realty Trust
21,640

 
(16,239
)
Less:  Preferred share dividends
6,137

 
6,137

Net income (loss) to common shareholders
$
15,503

 
$
(22,376
)
Earnings Per Common Share (“EPS”):
 
 
 
EPS (basic):
 
 
 
Continuing operations
$
0.11

 
$
(0.22
)
Discontinued operations
$
0.00

 
$
0.00

Net income (loss) to common shareholders
$
0.11

 
$
(0.22
)
 
 
 
 
EPS (diluted):
 
 
 
Continuing operations
$
0.11

 
$
(0.22
)
Discontinued operations
$
0.00

 
$
0.00

Net income (loss) to common shareholders
$
0.11

 
$
(0.22
)
Weighted average common shares outstanding
139,832

 
102,406

Weighted average common shares and common share equivalents outstanding
142,833

 
105,351

 
 
 
 
Net income (loss)
$
21,914

 
$
(16,857
)
Other comprehensive (loss) income on derivative instruments, net
(539
)
 
851

Comprehensive income (loss)
21,375

 
(16,006
)
Comprehensive loss (income) attributable to noncontrolling interest
9

 
(64
)
Comprehensive income (loss) attributable to Glimcher Realty Trust
$
21,384

 
$
(16,070
)
The accompanying notes are an integral part of these consolidated financial statements.

4


GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(dollars and shares in thousands, except per share and unit amounts)
 
For the Six Months Ended June 30,
 
2012
 
2011
Revenues:
 
 
 
Minimum rents
$
89,676

 
$
78,650

Percentage rents
3,153

 
2,350

Tenant reimbursements
43,098

 
37,778

Other revenues
10,972

 
9,940

Total revenues
146,899

 
128,718

Expenses:
 
 
 
Property operating expenses
31,141

 
28,244

Real estate taxes
18,281

 
15,613

Provision for doubtful accounts
4,706

 
1,649

Other operating expenses
9,485

 
5,230

Depreciation and amortization
41,918

 
33,064

General and administrative
11,529

 
10,063

Impairment loss

 
8,995

Total expenses
117,060

 
102,858

 
 
 
 
Operating income
29,839

 
25,860

Interest income
65

 
697

Interest expense
34,065

 
36,196

Gain on remeasurement of equity method investment
25,068

 

Equity in loss of unconsolidated real estate entities, net
(4,585
)
 
(7,636
)
Income (loss) from continuing operations
16,322

 
(17,275
)
Discontinued operations:
 
 
 
Income from operations
110

 
396

Net income (loss)
16,432

 
(16,879
)
Add: allocation to noncontrolling interest
(11
)
 
800

Net income (loss) attributable to Glimcher Realty Trust
16,421

 
(16,079
)
Less:  Preferred share dividends
12,274

 
12,274

Net income (loss) to common shareholders
$
4,147

 
$
(28,353
)
Earnings Per Common Share (“EPS”):
 
 
 
EPS (basic):
 
 
 
Continuing operations
$
0.03

 
$
(0.29
)
Discontinued operations
$
0.00

 
$
0.00

Net income (loss) to common shareholders
$
0.03

 
$
(0.28
)
 
 
 
 
EPS (diluted):
 
 
 
Continuing operations
$
0.03

 
$
(0.29
)
Discontinued operations
$
0.00

 
$
0.00

Net income (loss) to common shareholders
$
0.03

 
$
(0.28
)
Weighted average common shares outstanding
128,675

 
100,316

Weighted average common shares and common share equivalents outstanding
131,763

 
103,282

 
 
 
 
Net income (loss)
$
16,432

 
$
(16,879
)
Other comprehensive (loss) income on derivative instruments, net
(572
)
 
3,225

Comprehensive income (loss)
15,860

 
(13,654
)
Comprehensive loss (income) attributable to noncontrolling interest
10

 
(94
)
Comprehensive income (loss) attributable to Glimcher Realty Trust
$
15,870

 
$
(13,748
)
The accompanying notes are an integral part of these consolidated financial statements.

5


GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENT OF EQUITY
For the Six Months Ended June 30, 2012
(unaudited)
(dollars in thousands, except share, par value and unit amounts)

 
Series F
Cumulative Preferred Shares
 
Series G
Cumulative Preferred Shares
 
Common Shares of
Beneficial Interest
 
Additional Paid-In Capital
 
Distributions
In Excess of Accumulated Earnings
 
Accumulated
Other Comprehensive Loss
 
 
 
 
 
 
 
Shares
 
Amount
 
 
 
 
Noncontrolling Interest
 
Total
Balance, December 31, 2011
$
60,000

 
$
222,074

 
115,975,420

 
$
1,160

 
$
1,016,188

 
$
(766,571
)
 
$
(483
)
 
$
11,561

 
$
543,929

Distributions declared, $0.20 per share
 

 
 

 
 

 
 

 
 

 
(27,956
)
 
 

 
(505
)
 
(28,461
)
Distribution reinvestment and share purchase plan
 

 
 

 
5,731

 

 
48

 
 

 
 

 
 

 
48

Exercise of stock options
 

 
 

 
50,632

 

 
144

 
 

 
 

 
 

 
144

Restricted stock grant
 
 
 
 
239,133

 
2

 
(2
)
 
 
 
 
 
 
 

Cancellation of restricted stock grant
 

 
 

 
(35,174
)
 

 

 
 

 
 

 
 

 

OP unit conversion
 

 
 

 
465,930

 
5

 

 
 

 
 

 
 

 
5

Amortization of performance stock
 

 
 

 
 

 
 

 
262

 
 

 
 

 
 

 
262

Amortization of restricted stock
 

 
 

 
 

 
 

 
583

 
 

 
 

 
 

 
583

Preferred stock dividends
 

 
 

 
 

 
 

 
 

 
(12,274
)
 
 

 
 

 
(12,274
)
Net income
 

 
 

 
 

 
 

 
 

 
16,421

 
 

 
11

 
16,432

Other comprehensive loss on derivative instruments
 

 
 

 
 

 
 

 
 

 
 

 
(562
)
 
(10
)
 
(572
)
Stock option expense
 

 
 

 
 

 
 

 
327

 
 

 
 

 
 

 
327

Issuances of common stock
 

 
 

 
23,422,200

 
234

 
231,498

 
 

 
 

 
 

 
231,732

Stock issuance costs
 

 
 

 
 

 
 

 
(11,022
)
 
 

 
 

 
 

 
(11,022
)
Transfer to noncontrolling interest in partnership
 

 
 

 
 

 
 

 
(1,851
)
 
 

 
 

 
1,851

 

Balance, June 30, 2012
$
60,000

 
$
222,074

 
140,123,872

 
$
1,401

 
$
1,236,175

 
$
(790,380
)
 
$
(1,045
)
 
$
12,908

 
$
741,133

 The accompanying notes are an integral part of these consolidated financial statements.

6


GLIMCHER REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)

 
For the Six Months Ended June 30,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
16,432

 
$
(16,879
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Provision for doubtful accounts
4,836

 
1,835

Depreciation and amortization
41,938

 
33,955

Amortization of financing costs
1,883

 
3,522

Equity in loss of unconsolidated real estate entities, net
4,585

 
7,636

Distributions from unconsolidated real estate entities
1,243

 
4,107

Discontinued development expense
3,348

 

Impairment loss

 
8,995

Gain on sale of outparcels
(561
)
 

Gain on remeasurement of equity method investment
(25,068
)
 

Stock compensation expense
1,172

 
699

Net changes in operating assets and liabilities:
 
 
 
Tenant accounts receivable, net
(2,630
)
 
1,051

Prepaid and other assets
511

 
(3,725
)
Accounts payable and accrued expenses
(3,192
)
 
(8,051
)
Net cash provided by operating activities
44,497

 
33,145

Cash flows from investing activities:
 

 
 

Additions to investment in real estate net of cash acquired
(266,283
)
 
(25,174
)
Additions to investment in unconsolidated real estate entities

 
(41
)
Proceeds from sale of outparcels
710

 

Withdrawals from (additions to) restricted cash
7,270

 
(7,995
)
Additions to deferred costs and other
(2,624
)
 
(3,892
)
Distribution from unconsolidated real estate entities
5,200

 

Net cash used in investing activities
(255,727
)
 
(37,102
)
Cash flows from financing activities:
 

 
 

Proceeds from (payments to) revolving line of credit, net
55,000

 
(61,553
)
Payments of deferred financing costs, net
(1,526
)
 
(3,997
)
Proceeds from issuance of mortgages and other notes payable
77,000

 
44,529

Principal payments on mortgages and other notes payable
(95,384
)
 
(129,157
)
Net proceeds from issuances of common shares
220,710

 
182,779

Proceeds received from dividend reinvestment and exercise of stock options
192

 
164

Cash distributions
(38,367
)
 
(31,365
)
Net cash provided by financing activities
217,625

 
1,400

Net change in cash and cash equivalents
6,395

 
(2,557
)
Cash and cash equivalents, at beginning of year
8,876

 
9,245

Cash and cash equivalents, at end of period
$
15,271

 
$
6,688

The accompanying notes are an integral part of these consolidated financial statements.

7


GLIMCHER REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

1.
Organization and Basis of Presentation

Organization

Glimcher Realty Trust (“GRT”) is a fully-integrated, self-administered and self-managed Maryland real estate investment trust (“REIT”), which owns, leases, manages and develops a portfolio of retail properties (the “Property” or “Properties”). The Properties consist of open-air centers, enclosed regional malls, outlet centers, and community shopping centers.  At June 30, 2012, GRT both owned interests in and managed 28 Properties (23 wholly-owned and five partially owned through joint ventures). The "Company" refers to GRT and Glimcher Properties Limited Partnership (the "Operating Partnership," "OP" or "GPLP"), a Delaware limited partnership, as well as entities in which the Company has an ownership or financial interest, collectively.

Basis of Presentation

The consolidated financial statements include the accounts of GRT, GPLP and Glimcher Development Corporation (“GDC”).  As of June 30, 2012, GRT was a limited partner in GPLP with a 98.2% ownership interest and GRT’s wholly-owned subsidiary, Glimcher Properties Corporation, was GPLP’s sole general partner, with a 0.1% interest in GPLP.  GDC, a wholly-owned subsidiary of GPLP, provides development, construction, leasing and legal services to the Company’s affiliates and is a taxable REIT subsidiary.  The Company consolidates entities in which it owns more than 50% of the voting equity, and control does not rest with other parties, as well as variable interest entities (“VIE”) in which it is deemed to be the primary beneficiary in accordance with Accounting Standards Codification (“ASC”) Topic 810 – “Consolidation.”  The equity method of accounting is applied to entities in which the Company does not have a controlling direct or indirect voting interest, but can exercise influence over the entity with respect to its operations and major decisions.  These entities are reflected on the Company’s consolidated financial statements as “Investment in and advances to unconsolidated real estate entities.”  All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  The information furnished in the accompanying Consolidated Balance Sheets, Statements of Operations and Comprehensive Income (Loss), Statement of Equity, and Statements of Cash Flows reflect all adjustments which are, in the opinion of management, recurring and necessary for a fair statement of the aforementioned financial statements for the interim period.  Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The December 31, 2011 balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP in the United States of America (“U.S.”).  The consolidated financial statements should be read in conjunction with the Notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 2011.

Material subsequent events that have occurred since June 30, 2012 that require disclosure in these financial statements are presented in Note 19 - “Subsequent Events.”

2.
Summary of Significant Accounting Policies

Revenue Recognition

Minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis.  Percentage rents, which are based on tenants’ sales as reported to the Company, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases.  The percentage rents are recognized based upon the measurement dates specified in the leases which indicate when the percentage rent is due.


8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

Recoveries from tenants for real estate taxes, insurance and other shopping center operating expenses are recognized as revenues in the period that the applicable costs are incurred.  The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year.  Other revenues primarily consist of fee income which relates to property management services and other related services and is recognized in the period in which the service is performed, licensing agreement revenues which are recognized as earned, and the proceeds from sales of development land which are generally recognized at the closing date.

Tenant Accounts Receivable

The allowance for doubtful accounts reflects the Company’s estimate of the amount of the recorded accounts receivable at the balance sheet date that will not be recovered from cash receipts in subsequent periods.  The Company’s policy is to record a periodic provision for doubtful accounts based on total revenues.  The Company also periodically reviews specific tenant and other receivable balances and determines whether an additional allowance is necessary.  In recording such a provision, the Company considers a tenant’s or other party's creditworthiness, ability to pay, probability of collections and consideration of the retail sector in which the tenant operates.  The allowance for doubtful accounts is reviewed and adjusted periodically based upon the Company’s historical experience.

Investment in Real Estate – Carrying Value of Assets

The Company maintains a diverse portfolio of real estate assets.  The portfolio holdings have increased as a result of both acquisitions and the development of Properties and have been reduced by selected sales of assets.

The amounts to be capitalized as a result of acquisitions and developments and the periods over which the assets are depreciated or amortized are determined based on the application of accounting standards that may require estimates as to fair value and the allocation of various costs to the individual assets. The Company capitalizes direct and indirect costs that are clearly related to the development, construction, or improvement of Properties including internal costs such as interest, taxes and qualifying payroll related expenditures. Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use.

The Company allocates the cost of the acquisition based upon the estimated fair value of the net assets acquired.  The Company also estimates the fair value of intangibles related to its acquisitions.  The valuation of the fair value of the intangibles involves estimates related to market conditions, probability of lease renewals, and the current market value of in-place leases.  This market value is determined by considering factors such as the tenant’s industry, location within the Property, and competition in the specific market in which the Property operates.  The amount attributed to the fair value estimate for intangible assets can be significant based upon the assumptions made in calculating these estimates.

Depreciation and Amortization

Depreciation expense for real estate assets is computed using a straight-line method over the estimated useful lives for buildings and improvements using a weighted average composite life of forty years and three to ten years for equipment and fixtures.  Expenditures for leasehold improvements and construction allowances paid to tenants are capitalized and amortized over the initial term of each lease.  Cash allowances paid to tenants that are used for purposes other than improvements to the real estate are amortized as a reduction to minimum rents over the initial lease term.  Maintenance and repairs are charged to expense as incurred.  Cash allowances paid in return for operating covenants from retailers who own their real estate are capitalized as contract intangibles.  These intangibles are amortized over the period the retailer is required to operate their store.

Investment in Real Estate – Impairment Evaluation

Management evaluates the recoverability of its investments in real estate assets.  Long-lived assets are tested on a quarterly basis for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.  An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.


9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

The Company records an impairment charge when there is an indicator of impairment and the undiscounted projected cash flows are less than the carrying amount for a particular property.  The estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on the Company’s plans for the respective asset(s) and the Company’s views of market and economic conditions.  The Company evaluates each property that has material reductions in occupancy levels and/or net operating income and conducts a detailed evaluation of the respective property.  The evaluation considers factors such as current and historical rental rates, occupancies for the respective properties and comparable properties, sales contracts for certain land parcels and recent sales data for comparable properties.  Changes in estimated future cash flows due to changes in the Company’s plans or its views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, could be substantial.

Sale of Real Estate Assets

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

Investment in Real Estate – Held-for-Sale

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

On occasion, the Company will receive unsolicited offers from third parties to buy individual Properties.  Under these circumstances, the Company will classify the particular Property as held-for-sale when a sales contract is executed with no contingencies and the prospective buyer has funds at risk to ensure performance.

Accounting for Acquisitions

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

The fair value of the tangible assets of an acquired property (which includes land, buildings and tenant improvements) is determined by valuing the property as if it were vacant, based on management’s determination of the relative fair values of these assets.  Management determines the fair value of an acquired property using a variety of methods to estimate the fair value of the tangible assets.

In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between a) the contractual amounts to be paid pursuant to the in-place leases and b) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term.


10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

The Company considers fixed-rate renewal options in its calculation of the fair value of below-market lease intangibles. The Company compares the contractual lease rates to the projected market lease rates and makes a determination as to whether or not to include the fixed-rate renewal option into the calculation of the fair value of below market leases. The determination of the likelihood that a fixed-rate renewal option will be exercised is approached from both a quantitative and qualitative perspective.

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

The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions, and similar leases.  In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand.  Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs.  The value assigned to this intangible asset is amortized over the remaining lease term plus an assumed renewal period that is reasonably assured.

The aggregate value of other acquired intangible assets includes tenant relationships.  Factors considered by management in assigning a value to these relationships include: assumptions of probability of lease renewals, investment in tenant improvements, leasing commissions, and an approximate time lapse in rental income while a new tenant is located.  The value assigned to this intangible asset is amortized over the average life of the relationship.

Deferred Costs

The Company capitalizes initial direct costs of leases and amortizes these costs over the initial lease term.  The initial direct costs primarily include salaries, commissions and travel of the Company’s leasing and legal personnel.  The costs are capitalized upon the execution of the lease and the amortization period begins the earlier of the store opening date or the date the tenant’s lease obligation begins.

Stock-Based Compensation

The Company expenses the fair value of share awards in accordance with the fair value recognition requirements of ASC Topic 718 - “Compensation-Stock Compensation.”  ASC Topic 718 requires companies to measure the cost of the recipient services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.  The cost of the share award is expensed over the requisite service period (usually the vesting period).

Cash and Cash Equivalents

For purposes of the statements of cash flows, all highly liquid investments purchased with original maturities of three months or less are considered to be cash equivalents.  Cash and cash equivalents primarily consisted of short term securities and overnight purchases of debt securities.  The carrying amounts approximate fair value.

Restricted Cash

Restricted cash consists primarily of cash held for real estate taxes, insurance, property reserves for maintenance, and expansion or leasehold improvements as required by certain of our loan agreements.

Deferred Expenses

Deferred expenses consist principally of fees associated with obtaining financing.  These costs are amortized as interest expense over the terms of the respective agreements.  Deferred expenses in the accompanying Consolidated Balance Sheets are shown net of accumulated amortization.


11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

Derivative Instruments and Hedging Activities

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

The Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  Also, derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.  Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  The change in fair value of derivative instruments that do not qualify for hedge accounting is recognized in earnings.

Investment in and Advances to Unconsolidated Real Estate Entities

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

The Company has determined that it is the primary beneficiary in one VIE, and has consolidated it as disclosed in Note 4 - “Investment in Joint Ventures - Consolidated.”

The Company accounts for its investments in unconsolidated real estate entities using the equity method of accounting whereby the cost of an investment is adjusted for the Company’s share of equity in net income or loss beginning on the date of acquisition and reduced by distributions received.  The income or loss of each joint venture investor is allocated in accordance with the provisions of the applicable operating agreements.  The allocation provisions in these agreements may differ from the ownership interest held by each investor.  Any differences between the carrying amount of the Company’s investment in the respective joint venture and the Company’s share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable.

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


12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

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

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

Noncontrolling Interest

Noncontrolling interest at June 30, 2012 and December 31, 2011, represents the aggregate partnership interest in the Operating Partnership held by the Operating Partnership limited partner unit holders (the “Unit Holders”).

Income or loss allocated to noncontrolling interest related to the Unit Holders' ownership percentage of the Operating Partnership is determined by dividing the number of Operating Partnership Units (“OP Units”) held by the Unit Holders' by the total number of OP Units outstanding at the time of the determination.  The issuance of additional common shares of beneficial interest of GRT (the “Common Shares,” “Shares,” “Share,” or “Stock”) or OP Units changes the percentage ownership in the OP Units of both the Unit Holders and the Company.  Because an OP Unit is generally redeemable for cash or Shares at the option of GPLP, it is deemed to be equivalent to a Share.  Therefore, such transactions are treated as capital transactions and result in an allocation between shareholders’ equity and noncontrolling interest in the accompanying Consolidated Balance Sheets to account for the change in the ownership of the underlying equity in the Operating Partnership.

Supplemental Disclosure of Non-Cash Operating, Investing, and Financing Activities

The Company's other non-cash activities for the six months ended June 30, 2012 accounted for changes in the following areas:  a) investment in real estate - $237,358, b) cash in escrow - $1,315, c) investment in joint venture - $(12,283), d) accounts receivable - $2,923, e) deferred costs - $5,582, f) prepaid and other assets - $(2,640), g) mortgage notes payable $(178,985), h) accounts payable and accrued liabilities - $(40,666), and i) accumulated other comprehensive loss - $562.

Share distributions of $14,012 and $11,597 were declared, but not paid as of June 30, 2012 and December 31, 2011, respectively.  Operating Partnership distributions of $232 and $279 were declared, but not paid as of June 30, 2012 and December 31, 2011, respectively.  Distributions for GRT's 8.75% Series F Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series F Preferred Shares”) of $1,313 were declared, but not paid as of June 30, 2012 and December 31, 2011.  Distributions for GRT's 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest (“Series G Preferred Shares”) of $4,824 were declared but not paid as of June 30, 2012 and December 31, 2011.

Comprehensive Income

ASC Topic 220 – “Comprehensive Income” establishes guidelines for the reporting and display of comprehensive income and its components in financial statements.  Comprehensive income includes net income and unrealized gains and losses from fair value adjustments on certain derivative instruments, net of allocations to noncontrolling interest.

Use of Estimates

The preparation of financial statements in conformity with GAAP in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Reclassifications

Certain reclassifications of prior period amounts, including the presentation of the Consolidated Statements of Operations and Comprehensive Income (Loss) required by ASC Topic 205 - “Presentation of Financial Statements,” have been made in the financial statements in order to conform to the 2012 presentation.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

3.
Real Estate Assets Held-for-Sale

As required by ASC Topic 360 - “Property, Plant, and Equipment,” long-lived assets to be disposed of by sale are measured at the lower of the carrying amount for such assets or fair value less cost to sell.  During the fourth quarter of 2011, the Company entered into a contract to sell a sixty-nine acre parcel of vacant land located near Cincinnati, Ohio. Accordingly, this land is classified as held-for-sale as of June 30, 2012 and December 31, 2011. During the first quarter of 2012, the Company entered into a contract to sell an outparcel located at Northtown Mall. Accordingly, this outparcel is classified as held-for-sale as of June 30, 2012.  The financial results for these assets are reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss).  The net book value of the assets and liabilities associated with these assets are reflected as held-for-sale in the Consolidated Balance Sheets.  The table below provides information on the held-for-sale assets:

 
June 30,
2012
 
December 31,
2011
Real estate assets held-for-sale
$
9,384

 
$
4,056

Non-real estate assets associated with Property held-for-sale
$
137

 
$


4.
Investment in Joint Ventures – Consolidated

As of June 30, 2012, the Company has an interest in a consolidated joint venture; the VBF Venture (defined below), which qualifies as a VIE under ASC Topic 810. The Company is the primary beneficiary of the joint venture as it has the power to direct activities of the VIE that most significantly impact the VIE’s economic performance, and it has the obligation to absorb losses of the VIE or rights to receive benefits from the VIE that could potentially be significant.

VBF Venture

On October 5, 2007, an affiliate of the Company entered into an agreement with Vero Venture I, LLC to form Vero Beach Fountains, LLC (the “VBF Venture”).  The VBF Venture is evaluating a potential retail development in Vero Beach, Florida.  The Company contributed $5,000 in cash for a 50% interest in the VBF Venture.  The economics of the VBF Venture require the Company to receive a preferred return and 75% of the distributions from the VBF Venture until such time as the capital contributed by the Company is returned.

The Company did not provide any additional financial support to the VBF Venture during the six months ended June 30, 2012.  Furthermore, the Company does not have any contractual commitments or obligations to provide additional financial support to the VBF Venture.

The carrying amounts and classification of the VBF Venture’s total assets and liabilities at June 30, 2012 and December 31, 2011 are as follows:

 
June 30,
2012
 
December 31,
2011
Investment in real estate, net
$
3,658

 
$
3,658

Total assets
$
3,658

 
$
3,658

Total liabilities
$
5

 
$


The VBF Venture is a separate legal entity, and is not liable for the debts of the Company.  All of the assets in the table above are restricted for settlement of the joint venture obligations.  Accordingly, creditors of the Company may not satisfy their debts from the assets of the VBF Venture except as permitted by applicable law or regulation, or by agreement.  Also, creditors of the VBF Venture may not satisfy their debts from the assets of the Company except as permitted by applicable law or regulation, or by agreement.



14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

5.
Investment in and Advances to Unconsolidated Real Estate Entities

Investment in unconsolidated real estate entities during the three months ended June 30, 2012 consisted of investments in four separate joint venture arrangements (the “Ventures”).  A description of each of the Ventures is provided below:

Blackstone Joint Venture

This investment consists of a 40% interest held by a GPLP subsidiary in a joint venture (the “Blackstone Joint Venture”) with an affiliate of The Blackstone Group® ("Blackstone") that owns and operates both Lloyd Center, located in Portland, Oregon, and WestShore Plaza, located in Tampa, Florida. The Blackstone Joint Venture was formed in March 2010.

ORC Venture

This investment consists of a 52% economic interest held by GPLP in a joint venture (the “ORC Venture”) with an affiliate of Oxford Properties Group (“Oxford”), which is the global real estate platform for the Ontario (Canada) Municipal Employees Retirement System, a Canadian pension plan.  The ORC Venture, formed in December 2005, owns and operates two Mall Properties - Puente Hills Mall in City of Industry, California and Tulsa Promenade ("Tulsa") in Tulsa, Oklahoma.

During the fourth quarter of 2011, the ORC Venture entered into a contingent contract to sell Tulsa. In connection with entering into this contract, the ORC Venture reduced Tulsa's carrying value at December 31, 2011 to an amount consistent with the sales price per the contract. In February of 2012, the contract was terminated during the contingency period. In connection with the first quarter of 2012 quarterly impairment evaluation, as described above in Note 2 - “Summary of Significant Accounting Policies,” the ORC Venture determined a further reduction in the value of Tulsa was warranted due to the uncertainty associated with the terminated sales contract. The Company's proportionate share of this additional impairment loss amounted to $3,932 for the quarter ended March 31, 2012, and is reflected in the 2012 Consolidated Statements of Operations and Comprehensive Income (Loss) within "Equity in loss of unconsolidated real estate entities, net." The Company also reduced the carrying value of a note receivable it made to an affiliate of the ORC Venture. The recorded value of this note was reduced by $3,322 to its estimated net recoverable amount, which is reflected in the Consolidated Statement of Operations and Comprehensive Income (Loss) within "Provision for doubtful accounts." As of June 30, 2012, the ORC Venture continues to market the property for sale.

Surprise Venture

This investment consists of a 50% interest held by a GPLP subsidiary in a joint venture (the “Surprise Venture”) with the former landowner of the real property. The Surprise Venture, formed in 2006, owns and operates Town Square at Surprise (“Surprise”), a 25,000 square foot community shopping center located in Surprise, Arizona.

During the second quarter of 2012, in connection with the quarterly impairment evaluation described above in Note 2 - “Summary of Significant Accounting Policies,” the Surprise Venture determined that it was more likely than not, that the Surprise Venture will market Surprise for sale. In accordance with ASC Topic 360 - “Property, Plant, and Equipment,” the Surprise Venture reduced the carrying value of this Property to its estimated net realizable value and recorded a $3,100 impairment loss. The Company's proportionate share of this impairment loss amounts to $1,550 and is reflected in the 2012 Consolidated Statements of Operations and Comprehensive Income (Loss) within "Equity in loss of unconsolidated real estate entities, net."

Pearlridge Venture - through May 8, 2012

This investment consisted of a 20% interest held by a GPLP subsidiary in a joint venture (the “Pearlridge Venture”) formed in November 2010 with Blackstone.  The Pearlridge Venture owned and operated Pearlridge Center which is located in Aiea, Hawaii.

On May 9, 2012, a GRT affiliate purchased the remaining 80% ownership interest in Pearlridge Venture from affiliates of Blackstone. The details of this transaction are further discussed in Note 18 - "Acquisition of Properties." After the purchase, the Pearlridge Venture was dissolved.


15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

Individual agreements specify which services the Company is to provide to each Venture. The Company, through its affiliates GDC and GPLP, provides management, development, construction, leasing, legal, housekeeping, and security services for a fee to the Ventures described above.  The Company recognized fee and service income of $2,075 and $2,008 for the three months ended June 30, 2012 and 2011, respectively, and fee income of $4,252 and $4,073 for the six months ended June 30, 2012 and 2011, respectively.

With the purchase of Blackstone's interest in Pearlridge Center by the Company on May 9, 2012, the assets, liabilities and equity for this Property are no longer included in the combined joint venture Balance Sheet as of June 30, 2012 and are now reported within the Consolidated Balance Sheet.  The Pearlridge Venture is included in the December 31, 2011 joint venture Balance Sheet.  The joint venture Statements of Operations noted below for the three months and the six months ended June 30, 2012 and 2011 includes the results of operations for the Pearlridge Venture for the period from January 1, 2011 through May 8, 2012.

The following Balance Sheets and Statements of Operations, for each period reported, include the Blackstone Joint Venture, ORC Venture, and the Surprise Venture.

The net income or loss generated by the Ventures is allocated in accordance with the provisions of the applicable operating agreements.  The summary financial information for the Ventures accounted for using the equity method is presented below:

Balance Sheets
June 30,
2012
 
December 31,
2011
Assets:
 

 
 

Investment properties at cost, net
$
490,028

 
$
726,390

Construction in progress
3,672

 
10,485

Intangible assets (1)
8,045

 
29,919

Other assets
33,133

 
46,802

Total assets
$
534,878

 
$
813,596

Liabilities and members’ equity:
 
 
 

Mortgage notes payable
$
296,110

 
$
458,937

Notes payable (2)
5,000

 
5,000

Intangibles (3)
4,058

 
26,496

Other liabilities
9,245

 
17,615

 
314,413

 
508,048

Members’ equity
220,465

 
305,548

Total liabilities and members’ equity
$
534,878

 
$
813,596

GPLP’s share of members’ equity
$
100,774

 
$
124,229


(1)
Includes value of acquired in-place leases.
(2)
Amount represents a note payable to GPLP.
(3)
Includes the net value of $1,126 and $4,432 for above-market acquired leases as of June 30, 2012 and December 31, 2011, respectively, and $5,184 and $30,928 for below-market acquired leases as of June 30, 2012 and December 31, 2011, respectively.

 
June 30,
2012
 
December 31,
2011
GPLP's share of members’ equity
$
100,774

 
$
124,229

Advances and additional costs
708

 
564

Investment in and advances to unconsolidated real estate entities
$
101,482

 
$
124,793



16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

 
For the Three Months Ended
June 30,
Statements of Operations
2012
 
2011
Total revenues
$
23,625

 
$
30,906

Operating expenses
11,838

 
15,121

Depreciation and amortization
6,326

 
9,797

Impairment loss
3,100

 
15,149

Operating income (loss)
2,361

 
(9,161
)
Other expenses, net
70

 
104

Interest expense, net
4,463

 
6,055

Net loss
(2,172
)
 
(15,320
)
Preferred dividend
8

 
8

Net loss from the Company’s unconsolidated real estate entities
$
(2,180
)
 
$
(15,328
)
GPLP’s share of loss from unconsolidated real estate entities
$
(1,111
)
 
$
(7,901
)

 
For the Six Months Ended
June 30,
Statements of Operations
2012
 
2011
Total revenues
$
54,196

 
$
61,808

Operating expenses
26,998

 
30,094

Depreciation and amortization
15,586

 
19,247

Impairment loss
10,662

 
15,149

Operating income (loss)
950

 
(2,682
)
Other expenses, net
230

 
203

Interest expense, net
10,156

 
12,204

Net loss
(9,436
)
 
(15,089
)
Preferred dividend
16

 
16

Net loss from the Company’s unconsolidated real estate entities
$
(9,452
)
 
$
(15,105
)
GPLP’s share of loss from unconsolidated real estate entities
$
(4,585
)
 
$
(7,636
)



17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

6.
Tenant Accounts Receivable, net

The Company’s accounts receivable is comprised of the following components:

Accounts Receivable, net – Assets Held-for-Investment:
June 30,
2012
 
December 31,
2011
Billed receivables
$
5,530

 
$
6,071

Straight-line receivables
18,551

 
17,287

Unbilled receivables
8,305

 
7,249

Less:  allowance for doubtful accounts
(4,933
)
 
(3,734
)
Tenant accounts receivable, net
$
27,453

 
$
26,873


Accounts Receivable, net – Assets Held-for-Sale (1):
June 30,
2012
 
December 31,
2011
Billed receivables
$

 
$

Straight-line receivables
137

 

Unbilled receivables

 

Less:  allowance for doubtful accounts

 

Tenant accounts receivable, net
$
137

 
$


(1)Included in non-real estate assets associated with Property held-for-sale.



18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

7.
Mortgage Notes Payable

Mortgage notes payable as of June 30, 2012 and December 31, 2011 consist of the following:
Description/Borrower
 
Carrying Amount of Mortgage Notes Payable
 
Interest Rate
 
Interest Terms
 
Payment
Terms
 
Payment at Maturity
 
Maturity Date
 
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Fixed Rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dayton Mall Venture, LLC
 
$
49,864

 
$
50,529

 
8.27
%
 
8.27
%
 
 
 
(a)
 
$
49,864

 
(d)
PFP Columbus, LLC
 
127,013

 
128,570

 
5.24
%
 
5.24
%
 
 
 
(a)
 
$
124,572

 
April 11, 2013
JG Elizabeth, LLC
 
142,148

 
143,846

 
4.83
%
 
4.83
%
 
 
 
(a)
 
$
135,194

 
June 8, 2014
MFC Beavercreek, LLC
 
98,434

 
99,551

 
5.45
%
 
5.45
%
 
 
 
(a)
 
$
92,762

 
November 1, 2014
Glimcher Supermall Venture, LLC
 
53,676

 
54,309

 
7.54
%
 
7.54
%
 
(i)
 
(a)
 
$
49,969

 
(e)
Glimcher Merritt Square, LLC
 
55,599

 
55,999

 
5.35
%
 
5.35
%
 
 
 
(a)
 
$
52,914

 
September 1, 2015
SDQ Fee, LLC
 
68,310

 
68,829

 
4.91
%
 
4.91
%
 
 
 
(a)
 
$
64,577

 
October 1, 2015
BRE/Pearlridge, LLC
 
175,000

 

 
4.60
%
 

 
 
 
(m)
 
$
169,999

 
November 1, 2015
RVM Glimcher, LLC
 
47,742

 
48,097

 
5.65
%
 
5.65
%
 
 
 
(a)
 
$
44,931

 
January 11, 2016
WTM Glimcher, LLC
 
60,000

 
60,000

 
5.90
%
 
5.90
%
 
 
 
(b)
 
$
60,000

 
June 8, 2016
EM Columbus II, LLC
 
41,094

 
41,388

 
5.87
%
 
5.87
%
 
 
 
(a)
 
$
38,057

 
December 11, 2016
Glimcher MJC, LLC
 
53,868

 
54,153

 
6.76
%
 
6.76
%
 
 
 
(a)
 
$
47,768

 
May 6, 2020
Grand Central Parkersburg, LLC
 
44,008

 
44,277

 
6.05
%
 
6.05
%
 
 
 
(a)
 
$
38,307

 
July 6, 2020
ATC Glimcher, LLC
 
41,532

 
41,833

 
4.90
%
 
4.90
%
 
 
 
(a)
 
$
34,569

 
July 6, 2021
Leawood TCP, LLC
 
76,627

 

 
5.00
%
 

 
 
 
(a)
 
$
52,465

 
(j)
Tax Exempt Bonds (k)
 
19,000

 
19,000

 
6.00
%
 
6.00
%
 
 
 
(c)
 
$
19,000

 
November 1, 2028
 
 
1,153,915

 
910,381

 
 

 
 

 
 
 
 
 
 

 
 
Variable Rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SDQ III Fee, LLC
 
15,000

 
15,000

 
3.15
%
 
3.20
%
 
(l)
 
(b)
 
$
15,000

 
December 1, 2012
Catalina Partners, LP (f)
 
33,714

 
40,000

 
3.75
%
 
3.41
%
 
(g)
 
(a)
 
$
33,283

 
April 23, 2013
Kierland Crossing, LLC
 
130,000

 
140,633

 
3.29
%
 
2.86
%
 
(h)
 
(b)
 
$
130,000

 
(n)
 
 
178,714

 
195,633

 
 
 
 
 
 
 
 
 
 
 
 
Other:
 
 

 
 

 
 

 
 

 
 
 
 
 
 

 
 
Fair value adjustments
 
3,024

 
(961
)
 
 

 
 

 
 
 
 
 
 

 
 
Extinguished debt
 

 
70,000

 
 
 
3.30
%
 
 
 
 
 
 
 
 
Mortgage Notes Payable
 
$
1,335,653

 
$
1,175,053

 
 

 
 

 
 
 
 
 
 

 
 

(a)
The loan requires monthly payments of principal and interest.
(b)
The loan requires monthly payments of interest only.
(c)
The loan requires semi-annual payments of interest only.
(d)
The loan matures in July 2027, however it was repaid at the optional prepayment date (July 11, 2012). See Note 19 - "Subsequent Events" for further details on repayment of the loan. The Company has executed a term sheet to refinance this debt with a new loan maturing in 2022.
(e)
The loan matures in September 2029, with an optional prepayment (without penalty) date on February 11, 2015.
(f)
In April 2012, the Company reduced the loan amount by $6,200 to a balance of $33,800.
(g)
Interest rate of LIBOR plus 3.50%.
(h)
$105,000 was fixed through a swap agreement at a rate of 3.14% at June 30, 2012 and the remaining $25,000 incurs interest at an average rate of LIBOR plus 3.65%. $125,000 was fixed through a swap agreement at a rate of 2.86% at December 31, 2011.
(i)
Interest rate escalates after optional prepayment date.
(j)
The loan has a 15 year term based on a call date of February 1, 2027.
(k)
The bonds were issued by the New Jersey Economic Development Authority as part of the financing for the development of The Outlet Collection™ - Jersey Gardens site. Although not secured by the Property, the loan is fully guaranteed by GRT.
(l)
Interest rate of LIBOR plus 2.90%.
(m)
The loan requires monthly payments of interest only until November 2013. Thereafter, monthly payments of principal and interest are required.
(n)
The loan matures May 22, 2015, however, a portion of the loan ($107,000) may be extended for one year subject to certain loan extension fees and conditions.

All mortgage notes payable are collateralized by the respective Properties having net book values of $1,760,734 and $1,384,982 at June 30, 2012 and December 31, 2011, respectively. Certain loans listed above contain financial covenants regarding minimum net operating income and coverage ratios. Management believes the Company's affiliate borrowers are in compliance with all covenants at June 30, 2012. Additionally, $175,800 of mortgage notes payable relating to certain Properties, including $19,000 of tax exempt bonds issued as part of the financing for the development of The Outlet Collection - Jersey Gardens remain guaranteed by GRT as of June 30, 2012.

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

8.
Note Payable

GPLP's secured credit facility (the “Credit Facility”) has a total borrowing availability of $250,000. GPLP may increase the total borrowing availability to $400,000 by providing additional collateral and adding new financial institutions as facility lenders or obtaining the agreement from the existing lenders to increase their lending commitment.  The Credit Facility matures on October 12, 2014 and contains an option to extend the maturity date an additional year to October 12, 2015. The interest rate ranges from LIBOR plus 2.00% to LIBOR plus 2.75% based upon the quarterly measurement of our consolidated debt outstanding as a percentage of total asset value. The applicable interest rate as of June 30, 2012 is LIBOR plus 2.25%. The Credit Facility is secured by perfected first mortgage liens with respect to four of the Company's Mall Properties, two Community Center Properties, and certain other assets. The Credit Facility contains customary covenants, representations, warranties and events of default, including maintenance of a specified net worth requirement; a consolidated debt outstanding as a percentage of total asset value ratio; an interest coverage ratio; a fixed charge ratio; and a total recourse debt outstanding as a percentage of total asset value ratio.  The Credit Facility also includes borrowing availability limits based upon collateral valuation and debt service coverage. No limitation on availability exists as of June 30, 2012. Management believes GPLP is in compliance with all covenants of the Credit Facility as of June 30, 2012.

At June 30, 2012, the commitment level on the Credit Facility was $250,000 and the outstanding balance was $133,000.  Additionally, $517 represents a holdback on the available balance for letters of credit issued under the Credit Facility.  As of June 30, 2012, the unused balance of the Credit Facility available to the Company was $116,483 and the average interest rate on the outstanding balance was 2.53% per annum.

At December 31, 2011, the commitment level on the Credit Facility was $250,000 and the outstanding balance was $78,000.  Additionally, $327 represents a holdback on the available balance for letters of credit issued under the Credit Facility.  As of December 31, 2011, the unused balance of the Credit Facility available to the Company was $171,673 and the average interest rate on the outstanding balance was 2.71% per annum.

9.
Equity Offerings

On March 27, 2012, GRT completed a secondary public offering of 23,000,000 Common Shares at a price of $9.90 per share, which included 3,000,000 Common Shares issued and sold upon the full exercise of the underwriters' option to purchase additional Common Shares. The net proceeds to GRT from the offering, after deducting underwriting commissions, discounts, and offering expenses, were $216,823.

During the six months ended June 30, 2012, GRT issued 422,200 Common Shares under an at-the-market equity offering program (the "GRT ATM Program") at a weighted average issue price of $9.55 per Common Share, generating net proceeds of $3,887 after deducting $145 of offering related costs and commissions. GRT used the proceeds from the GRT ATM Program to reduce the outstanding balance under the Credit Facility. As of June 30, 2012, GRT had $53,238 available for issuance under the GRT ATM Program.

10.
Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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


20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

Cash Flow Hedges of Interest Rate Risk

The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has elected to designate all interest rate swaps as cash flow hedging relationships.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated other comprehensive loss” (“OCL”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the six months ended June 30, 2012 and 2011, such derivatives were used to hedge the variable cash flows associated with our existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company had $0 and $28 of hedge ineffectiveness in earnings during the three months ended June 30, 2012 and 2011, respectively. During the six months ended June 30, 2012 and 2011, the Company had $0 and $(60) of hedge ineffectiveness included in earnings, respectively.

Amounts reported in OCL related to derivatives that will be reclassified to interest expense as interest payments are made on the Company's variable-rate debt. During the next twelve months, the Company estimates that an additional $360 will be reclassified as an increase to interest expense.

As of June 30, 2012, the Company had one outstanding interest rate derivative that was designated as a cash flow hedge of interest rate risk with a notional value of $105,000. The derivative instrument was an interest rate swap.

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011:

 
Liability Derivatives
 
As of June 30, 2012
 
As of December 31, 2011
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest Rate Products
Accounts Payable &
Accrued Expenses
 
$
570

 
Accounts Payable &
Accrued Expenses
 
$
(2
)

The derivative instruments were reported at their fair value of $570 and $(2) in accounts payable and accrued expenses at June 30, 2012 and December 31, 2011, respectively, with a corresponding adjustment to OCL for the unrealized gains and losses (net of noncontrolling interest allocation). Over time, the unrealized gains and losses held in OCL will be reclassified to earnings. This reclassification will correlate with the recognition of the hedged interest payments in earnings.

The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended June 30, 2012 and 2011:

Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain or (Loss) Recognized in OCL on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
 
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
 
June 30,
 
 
 
June 30,
 
 
 
June 30,
 
 
2012
 
2011
 
 
 
2012
 
2011
 
 
 
2012
 
2011
Interest Rate Products
 
$
(569
)
 
$
(146
)
 
Interest expense
 
$
(30
)
 
$
(997
)
 
Interest expense
 
$

 
$
28



21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

During the three months ended June 30, 2012, the Company recognized additional other comprehensive income of $(539), to adjust the carrying amount of the interest rate swaps to their fair values at June 30, 2012, net of $30 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $(9) of OCL to the noncontrolling interest during the three months ended June 30, 2012.

During the three months ended June 30, 2011, the Company recognized additional other comprehensive income of $851, to adjust the carrying amount of the interest rate swaps to their fair values at June 30, 2011, net of $997 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $64 of other comprehensive income to the noncontrolling interest during the three months ended June 30, 2011.

The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2012 and 2011:

Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain or (Loss) Recognized in OCL on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from Accumulated OCL into Income (Effective Portion)
 
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
 
June 30,
 
 
 
June 30,
 
 
 
June 30,
 
 
2012
 
2011
 
 
 
2012
 
2011
 
 
 
2012
 
2011
Interest Rate Products
 
$
(645
)
 
$
529

 
Interest expense
 
$
(73
)
 
$
(2,697
)
 
Interest expense
 
$

 
$
60


During the six months ended June 30, 2012, the Company recognized additional other comprehensive income of $(572) to adjust the carrying amount of the interest rate swaps to fair values at June 30, 2012, net of $73 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $(10) of other comprehensive income to noncontrolling interest participation during the six months ended June 30, 2012.

During the six months ended June 30, 2011, the Company recognized additional other comprehensive income of $3,225 to adjust the carrying amount of the interest rate swaps to fair values at June 30, 2011, net of $2,697 in reclassifications to earnings for interest rate swap settlements during the period. The Company allocated $94 of other comprehensive income to noncontrolling interest participation during the six months ended June 30, 2011. The interest rate swap settlements were offset by a corresponding adjustment in interest expense related to the interest payments being hedged.

Non-designated Hedges

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

Credit risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its consolidated indebtedness, then the Company could also be declared in default on its derivative obligations.

The Company has agreements with its derivative counterparties that incorporate the loan covenant provisions of the Company's indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

The Company has agreements with its derivative counterparties that incorporate provisions from its indebtedness with a lender affiliate of the derivative counterparty requiring it to maintain certain minimum financial covenant ratios on its indebtedness. Failure to comply with the covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.


22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

As of June 30, 2012, the fair value of derivative in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was $635. As of June 30, 2012, the Company has not posted any collateral related to this agreement. The Company is not in default with any of these provisions. If the Company had breached any of these provisions at June 30, 2012, it would have been required to settle its obligations under the agreements at their termination value of $635.

11.
Fair Value Measurements

The Company measures and discloses its fair value measurements in accordance with ASC Topic 820 - “Fair Value Measurements and Disclosure” (“Topic 820”). Topic 820 guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).  The fair value hierarchy, as defined by Topic 820, contains three levels of inputs that may be used to measure fair value as follows:

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly such as interest rates, foreign exchange rates, and yield curves, that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or liability which are typically based on an entity's own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company has derivatives that must be measured under the fair value standard. The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis.

Derivative financial instruments

Currently, the Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. Based on these inputs the Company has determined that its interest rate swap valuations are classified within Level 2 of the fair value hierarchy.

To comply with the provisions of Topic 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.


23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

Recurring Valuations

The Company values its derivative instruments, net using significant other observable inputs (Level 2).

Nonrecurring Valuations

As of June 30, 2012, the Company has identified one fair value measurement using significant unobservable inputs (Level 3). In June 2011, the Company's management determined that it was more likely than not that a planned retail project on a sixty-nine acre parcel located near Cincinnati, Ohio would not be developed as previously planned. In accordance with ASC Topic 360 - “Property, Plant, and Equipment” the Company reduced the carrying value of the asset to its estimated net realizable value and recorded an $8,995 impairment loss. The Company valued the parcel based upon an independent review of comparable land sales.

The table below presents the Company's assets and liabilities measured at fair value as of June 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall:

 
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Balance at
June 30, 2012
Liabilities:
 

 
 

 
 

 
 

Derivative instruments, net
$

 
$
570

 
$

 
$
570


 
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Balance at December 31,
2011
Assets:
 
 
 
 
 
 
 
Developments in progress
$

 
$

 
$
4,056

 
$
4,056

Liabilities:
 
 
 
 
 
 
 
Derivative instruments, net
$

 
$
(2
)
 
$

 
$
(2
)

12.
Stock-Based Compensation

Restricted Common Shares

Outstanding shares of restricted Common Stock have been granted pursuant to GRT’s 2004 Amended and Restated Incentive Compensation Plan (the “2004 Plan”) and, commencing during the three month period ending June 30, 2012, the GRT 2012 Incentive Compensation Plan (the "2012 Plan"). Restricted Common Shares issued to GRT's senior executive officers primarily vest in one-third installments over a period of five (5) years beginning on the third anniversary of the grant date. Restricted Common Shares issued for the year ended December 31, 2011 to non-employee members of GRT's Board of Trustees vest in one-third installments over a period of three (3) years beginning on the one year anniversary of the grant date. The restricted Common Stock value is determined by the Company’s closing market share price on the grant date. As restricted Common Stock represents an incentive for future periods, the Company recognizes the related compensation expense ratably over the applicable vesting periods. During the six months ended June 30, 2012, the Company granted 239,133 restricted Common Shares. Of this amount, 193,629 restricted Common Shares vest in one-third installments over a period of five years beginning on the third anniversary of the grant date and 45,504 restricted Common Shares vest in one-third installments over a period of three years beginning on the first anniversary of the grant date. During the six months ended June 30, 2011, the Company granted 255,886 restricted Common Shares.


24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

The compensation expense for all restricted Common Shares was $319 and $274 for the three months ended June 30, 2012 and 2011, respectively and $583 and $505 for the six months ended June 30, 2012 and 2011, respectively. The amount of compensation expense related to unvested restricted shares that the Company expects to expense in future periods, over a weighted average period of 3.8 years, is $4,588 as of June 30, 2012.

Share Option Plans

Options granted under the Company’s share option plans generally vest over a three-year period, with options exercisable at a rate of 33.3% per annum beginning with the first anniversary of the grant date.  The options generally expire on the tenth anniversary of the grant date.  The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options pricing model and is amortized over the requisite vesting period.  During the six months ended June 30, 2012 and 2011, the Company issued 297,000 and 246,500 options, respectively. The fair value of each option granted in 2012 was calculated on the date of the grant with the following assumptions: weighted average risk free interest rate of 1.03%, expected life of six years, annual dividend rates of $0.40, and weighted average volatility of 79.4%. The weighted average fair value of options issued during the six months ended June 30, 2012 was $4.99 per share. Compensation expense recorded for the Company’s share option plans was $194 and $95 for the three months ended June 30, 2012 and 2011, respectively, and $327 and $140 for the six months ended June 30, 2012 and 2011, respectively.

Performance Shares

During the three months ended June 30, 2012, GRT allocated 193,629 performance shares to certain of its executive officers under the 2012 Plan.  Under the terms of the 2012 Plan, a 2012 Plan participant’s allocation of performance shares are convertible into Common Shares as determined by the outcome of GRT’s relative total shareholder return (“TSR”) for its Common Shares during the period of January 1, 2012 to December 31, 2014 (the “Performance Period”), as compared to the TSR for the common shares of a selected group of twenty-four retail oriented real estate investment trusts.

The compensation expense recorded for performance shares was calculated in accordance with ASC Topic 718 - “Compensation-Stock Compensation.”  The fair value of the unearned portion of the performance share awards was determined utilizing the Monte Carlo simulation technique and will be amortized to compensation expense over the Performance Period.  The fair value of the performance shares allocated under the 2012 Plan was determined to be $8.54 per share for a total compensation amount of $1,654 to be recognized over the Performance Period.  The amount of compensation expense related to all outstanding performance shares was $183 and $54 for the three months ended June 30, 2012 and 2011, respectively, and $262 and $54 for the six months ended June 30, 2012 and 2011, respectively.

13.
Commitments and Contingencies

At June 30, 2012, there were 2.3 million OP Units outstanding.  These OP Units are redeemable, at the option of the holders, beginning on the first anniversary of their issuance.  The redemption price for an OP Unit shall be, at the option of GPLP, payable in the following form and amount: a) cash at a price equal to the fair market value of one Common Share of GRT or b) one Common Share for each OP Unit.  The fair value of the OP Units outstanding at June 30, 2012 is $22,629 based upon a per unit value of $9.74 at June 30, 2012 (based upon a five-day average closing price of the Common Stock from June 22, 2012 to June 28, 2012).



25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and unit amounts)

14.
Earnings Per Common Share (shares in thousands)

The presentation of basic EPS and diluted EPS is summarized in the tables below:

 
For the Three Months Ended June 30,
 
2012
 
2011
Basic EPS:
Income
 
Shares
 
Per Share
 
Income
 
Shares
 
Per Share
Income (loss) from continuing operations
$
21,817

 
 
 
 
 
$
(17,111
)
 
 
 
 
Less:  preferred stock dividends
(6,137
)
 
 
 
 
 
(6,137
)
 
 
 
 
Noncontrolling interest adjustments (1)
(272
)
 
 
 
 
 
625

 
 
 
 
Income (loss) from continuing operations
$
15,408

 
139,832

 
$
0.11

 
$
(22,623
)
 
102,406

 
$
(0.22
)
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
$
97

 
 

 
 

 
$
254

 
 

 
 

Noncontrolling interest adjustments (1)
(2
)
 
 

 
 

 
(7
)
 
 

 
 

Income from discontinued operations
$
95

 
139,832

 
$
0.00

 
$
247

 
102,406

 
$
0.00

Net income (loss) to common shareholders
$
15,503

 
139,832

 
$
0.11

 
$
(22,376
)
 
102,406

 
$
(0.22
)
Diluted EPS:
 

 
 

 
 

 
 

 
 

 
 

Income (loss) from continuing operations
$
21,817

 
139,832

 
 

 
$
(17,111
)
 
102,406

 
 

Less:  preferred stock dividends
(6,137
)
 
 

 
 

 
(6,137
)
 
 

 
 

Operating Partnership Units
 
 
2,492

 
 
 
 
 
2,945

 
 
Options/Performance Shares
 

 
509

 
 

 
 

 

 
 

Income (loss) from continuing operations
$
15,680

 
142,833

 
$
0.11

 
$
(23,248
)
 
105,351

 
$
(0.22
)
Income from discontinued operations
$
97

 
142,833

 
$
0.00

 
$
254

 
105,351

 
$
0.00

Net income (loss) to common shareholders before noncontrolling interest
$
15,777

 
142,833

 
$
0.11

 
$
(22,994
)
 
105,351

 
$
(0.22
)

 
For the Six Months Ended June 30,
 
2012
 
2011
Basic EPS:
Income
 
Shares
 
Per Share
 
Income
 
Shares
 
Per Share
Income (loss) from continuing operations
$
16,322

 
 
 
 
 
$
(17,275
)
 
 
 
 
Less:  preferred stock dividends
(12,274
)
 
 
 
 
 
(12,274
)
 
 
 
 
Noncontrolling interest adjustments (1)
(9
)
 
 
 
 
 
811

 
 
 
 
Income (loss) from continuing operations
$
4,039

 
128,675

 
$
0.03

 
$
(28,738
)
 
100,316

 
$
(0.29
)
 
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations
$
110

 
 
 
 
 
$
396

 
 
 
 
Noncontrolling interest adjustments (1)
(2
)
 
 
 
 
 
(11
)
 
 
 
 
Income from discontinued operations
$
108

 
128,675

 
$
0.00

 
$
385

 
100,316

 
$
0.00

Net income (loss) to common shareholders
$
4,147

 
128,675

 
$
0.03

 
$
(28,353
)
 
100,316

 
$
(0.28
)
Diluted EPS:
 

 
 
 
 
 
 

 
 
 
 
Income (loss) from continuing operations
$
16,322

 
128,675

 
 
 
$
(17,275
)
 
100,316

 
 
Less:  preferred stock dividends
(12,274
)
 
 
 
 
 
(12,274
)
 
 
 
 
Operating Partnership Units
 
 
2,623

 
 
 
 
 
2,966

 
 
Options/Performance Shares
 

 
465

 
 
</