Regency Centers (REG)

Results from Operations

Comparison of the three months ended September 30, 2006 to 2005

Our revenues increased by $15.3 million, or 17%, to $105.6 million in 2006. The increase in revenues was related to changes in occupancy in the portfolio of operating and development properties, growth in re-leasing rental rates and new rental revenues from new developments commencing operations in the current year. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect percentage rent based upon tenant sales. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated with operating our shopping centers. During the three months ended September 30, 2006, our minimum rent increased by $5.1 million, or 7%, and our recoveries from tenants increased $3.5 million or 18%. Percentage rent was $1.0 million in 2006, compared with $847,260 in 2005.

We receive fees for asset management, property management, and acquisition and disposition services that we provide to our joint ventures. During the three months ended September 30, 2006 and 2005, we received fees from these joint ventures of $5.2 million and $3.1 million, respectively.

The equity in income of real estate partnerships increased $4.5 million to income of $578,448 in 2006. The increase was a result of higher gains on the sale of operating properties by the joint ventures and lower amortization expense in 2006.

Our operating expenses increased by $4.0 million, or 8%, to $55.6 million in 2006 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $1.2 million, or 5%, for the three months ended September 30, 2006 to $23.7 million. This increase was primarily due to shopping center developments that recently began operating; and therefore, did not incur operating expenses for the comparable period in the previous year.

Our general and administrative expenses increased $1.6 million to $10.8 million during 2006. The increase is related to additional salary costs for new employees hired during 2005 and 2006 to manage the First Washington Portfolio under a property management agreement with MCWR II.

Our depreciation and amortization expense increased $2.3 million to $22.0 million in 2006 primarily related to new development properties placed in service in the current year that had no operations during the comparable prior year period.

Our net interest expense decreased $2.6 million to $20.1 million in 2006 from $22.7 million in 2005. This decrease is attributable to a higher level of interest incurred that is directly related to the construction of new shopping centers and therefore capitalized into properties under development. Average interest rates on our outstanding debt increased to 6.46% at September 30, 2006 compared to 6.32% at September 30, 2005.

46

Table of Contents

Gains from the sale of operating properties and properties in development during the three month period in 2006 include $3.1 million from the sale of four out-parcels for proceeds of $13.5 million, and $12.3 million in gains from four shopping centers sold to joint ventures. In 2005, the gains from the sale of operating and development properties included $449,806 from the sale of five out-parcels for proceeds of $3.1 million and $3.3 million in gains from one shopping center sold to a joint venture. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures and we have continuing involvement through our equity investment.

Income from discontinued operations was $395,750 in 2006 related to one operating property sold to an unrelated party for net proceeds of $10.0 million. Income from discontinued operations was $15.6 million in 2005 related to one development and two operating properties sold to unrelated parties for net proceeds of $45.5 million and to the operations of shopping centers sold or classified as held-for-sale in 2006 as well as 2005. Our income from discontinued operations is shown net of minority interest of exchangeable operating partnership units totaling $33,626 and $307,360, for the three months ended September 30, 2006 and 2005, respectively, and income taxes totaling $557,044 for the three months ended September 30, 2005.

Minority interest of preferred units declined $2.0 million to $931,248 in 2006 as a result of redeeming $54 million of preferred units in 2005. Preferred stock dividends increased $418,699 to $4.9 million in 2006 as a result of the issuance of $75 million of preferred stock in 2005.

Net income for common stockholders increased $11.8 million to $39.4 million in 2006 as compared with $27.6 million in 2005 primarily related to the increase in gains from sales of real estate and rental revenues as discussed above. Diluted earnings per share were $0.57 in 2006, compared with $0.41 in 2005, or 39% higher, a result of the increase in net income for common stockholders.

Comparison of the nine months ended September 30, 2006 to 2005

At September 30, 2006, on a Combined Basis, we were operating or developing 399 shopping centers, as compared to 393 shopping centers at the end of 2005. We identify our shopping centers as either development properties or operating properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At September 30, 2006, on a Combined Basis, we were developing 39 properties, as compared to 31 properties at the end of 2005.

Our revenues increased by $24.3 million, or 8%, to $316.2 million in 2006. The increase in revenues was related to changes in occupancy in the portfolio of operating and development properties, growth in re-leasing rental rates and new rental revenues from new developments commencing operations in the current year. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect percentage rent based upon tenant sales. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated with operating our shopping centers. In 2006, our minimum rent increased by $16.2 million, or 8%, and our recoveries from tenants increased $5.0 million, or 8%. Percentage rent was $1.9 million in 2006, compared with $1.6 million in 2005.

We receive fees for asset management, property management, and acquisition and disposition services that we provide to our joint ventures. During the nine months ended September 30, 2006 and 2005, we received fees from these joint ventures of $24.2 million and $22.8 million, respectively.

The equity in income of real estate partnerships increased $1.6 million to $995,331 in 2006. The increase was a result of higher gains on the sale of operating properties by the joint ventures and lower amortization expense.

47

Table of Contents

Our operating expenses increased by $16.2 million, or 10%, to $171.1 million in 2006 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $3.1 million, or 5%, for the nine months ended September 30, 2006 to $70.0 million. This increase was primarily due to shopping center developments that recently began operating; and therefore, did not incur operating expenses for the comparable nine months ended in the previous year.

Our general and administrative expenses increased $5.2 million to $32.4 million during 2006. The increase is related to additional salary costs for new employees hired during 2005 and 2006 to manage the First Washington Portfolio under a property management agreement with MCWR II.

Our depreciation and amortization expense increased $5.5 million to $64.2 million in 2006 primarily related to new development properties placed in service in the current year that had no operations during the comparable nine months ended in the prior year.

Our net interest expense decreased $5.4 million to $59.2 million in 2006 from $64.6 million in 2005. This decrease is attributable to a higher level of interest incurred that is directly related to the construction of new shopping centers and therefore capitalized into properties under development. Average interest rates on our outstanding debt increased to 6.46% at September 30, 2006 compared to 6.32% at September 30, 2005. Our weighted average outstanding debt at September 30, 2006 and 2005 was $1.6 billion.

Gains from the sale of operating properties and properties in development during 2006 include $18.9 million from the sale of 21 out-parcels for proceeds of $48.1 million, $12.3 million from the sale of four shopping centers to joint ventures for proceeds of $58.4 million; and a $9.5 million gain related to the partial sale of our interest in MCWR II discussed previously. In 2005, the gains from the sale of operating and development properties included $6.2 million from the sale of 17 out-parcels and $7.7 million from the sale of shopping centers. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures and we have continuing involvement through our equity investment.

We review our real estate portfolio for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset. We determine whether impairment has occurred by comparing the property’s carrying value to an estimate of fair value based upon methods described in our Critical Accounting Policies. In the event a property is impaired, we write down the asset to fair value for “held-and-used” assets and to fair value less costs to sell for “held-for- sale” assets. During the nine months ended September 30, 2006, we established a provision for loss of $500,000 to adjust an operating property expected to sell in the third quarter to its estimated fair value.

Income from discontinued operations was $34.7 million in 2006 related to five operating properties and one development property sold to unrelated parties for net proceeds of $81.0 million. Income from discontinued operations was $37.0 million in 2005 related to five operating and three development properties sold to unrelated parties for net proceeds of $107.3 million and to the operations of shopping centers sold or classified as held-for-sale in 2006 as well as 2005. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable operating partnership units totaling $565,873 and $775,453, for the nine months ended September 30, 2006 and 2005, respectively, and income taxes totaling $3.4 million for the nine months ended September 30, 2005.

Minority interest of preferred units declined $4.4 million to $2.8 million in 2006 as a result of redeeming $54 million of preferred units in 2005. Preferred stock dividends increased $2.9 million to

48

Table of Contents

$14.8 million in 2006 as a result of the issuance of $75 million of preferred stock in 2005.

Net income for common stockholders increased $34.9 million to $137.4 million in 2006 as compared with $102.5 million in 2005 primarily related to the increase in gains from sales of real estate and rental revenues as discussed above. Diluted earnings per share were $2.00 in 2006, compared with $1.59 in 2005, or 26% higher, a result of the increase in net income for common stockholders.

Results from Operations

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

Our revenues increased by $990,458, or 1%, to $108.8 million in 2006. During the three months ended June 30, 2006, our minimum rent increased by $6.0 million, or 9%, and our recoveries from tenants increased $748,313 or 4%. Percentage rent was $526,824 in 2006, compared with $259,199 in 2005.

We receive fees for asset management, property management, and acquisition and disposition services that we provide to our joint ventures. During the three months ended June 30, 2006 and 2005, we received fees from these joint ventures of $11.8 million and $16.5 million, respectively.

The equity in income of real estate partnerships declined $1.3 million to a loss of $337,621 in 2006. The decrease was a result of depreciation and amortization expense recorded in accordance with Statement 141 by MCWR II since the acquisition of the First Washington Portfolio on June 1, 2005.

44

Table of Contents

Excluding the depreciation and amortization, MCWR II produced positive cash flow from operations during the period.

Our operating expenses increased by $5.8 million, or 11%, to $58.2 million in 2006 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $1.7 million, or 8%, for the three months ended June 30, 2006 to $24.0 million. This increase was primarily due to shopping center developments that recently began operating; and therefore, did not incur operating expenses for the comparable period in the previous year.

Our general and administrative expenses increased $1.4 million to $10.8 million during 2006. The increase is related to additional salary costs for new employees hired during 2005 and 2006 to manage the First Washington Portfolio under a property management agreement with MCWR II.

Our depreciation and amortization expense increased $1.5 million to $21.7 million in 2006 primarily related to new development properties placed in service in the current year that had no operations during the comparable prior year period.

Our net interest expense decreased $1.8 million to $20.1 million in 2006 from $21.9 million in 2005. This decrease is attributable to a lower line of credit balance during the three months ended June 30, 2006 as compared to the prior year period and the $350 debt offering completed in July 2005 with a fixed interest rate of 5.25%. Average interest rates on our outstanding debt increased to 6.48% at June 30, 2006 compared to 5.95% at June 30, 2005. Our weighted average outstanding debt at June 30, 2006 was $1.5 billion compared to $1.6 billion at June 30, 2005.

Gains from the sale of operating properties and properties in development during 2006 include $9.8 million from the sale of six out-parcels for proceeds of $23.6 million. In 2005, the gains from the sale of operating and development properties included $3.6 million from the sale of six out-parcels for proceeds of $7.1 million and $4.4 million in gains from shopping centers sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures and we have continuing involvement through our equity investment.

We review our real estate portfolio for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset. We determine whether impairment has occurred by comparing the property’s carrying value to an estimate of fair value based upon methods described in our Critical Accounting Policies. In the event a property is impaired, we write down the asset to fair value for “held-and-used” assets and to fair value less costs to sell for “held-for- sale” assets. During the three months ended June 30, 2006, we established a provision for loss of $500,000 to adjust an operating property expected to sell in the third quarter to its estimated fair value.

Income from discontinued operations was $2.6 million in 2006 related to one development property sold to unrelated parties for net proceeds of $2.1 million. Income from discontinued operations was $9.8 million in 2005 related to the operations of shopping centers sold or classified as held-for-sale in 2006 as well as 2005. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable operating partnership units totaling $34,751 and $205,421, for the three months ended June 30, 2006 and 2005, respectively, and income taxes totaling $615,933 for the three months ended June 30, 2005.

45

Table of Contents

Minority interest of preferred units declined $1.2 million to $931,248 in 2006 as a result of redeeming $54 million of preferred units in 2005. Preferred stock dividends increased $1.3 million to $4.9 million in 2006 as a result of the issuance of $75 million of preferred stock in 2005.

Net income for common stockholders decreased $8.1 million to $32.1 million in 2006 as compared with $40.2 million in 2005. Diluted earnings per share were $0.47 in 2006, compared with $0.63 in 2005, or 25% lower, a result of the decrease in net income and an increase in weighted average common shares associated with the sale of approximately 4.3 million shares in August 2005.

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

At June 30, 2006, on a Combined Basis, we were operating or developing 390 shopping centers, as compared to 393 shopping centers at the end of 2005. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At June 30, 2006, on a Combined Basis, we were developing 34 properties, as compared to 31 properties at the end of 2005.

Our revenues increased by $9.0 million, or 4%, to $212.5 million in 2006. The increase in revenues was related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates and revenues from new developments commencing operations in the current year. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect percentage rent based upon tenant sales. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated with operating our shopping centers. In 2006, our minimum rent increased by $11.0 million, or 8%, and our recoveries from tenants increased $1.5 million, or 4%. Percentage rent was $966,464 in 2006, compared with $787,532 in 2005.

We receive fees for asset management, property management, and acquisition and disposition services that we provide to our joint ventures. During the six months ended June 30, 2006 and 2005, we received fees from these joint ventures of $19.0 million and $19.7 million, respectively.

The equity in income of real estate partnerships declined $2.9 million to $416,883 in 2006. The decrease was a result of depreciation and amortization expense recorded in accordance with Statement 141 by MCWR II since the acquisition of the First Washington Portfolio on June 1, 2005. Excluding the depreciation and amortization, MCWR II produced positive cash flow from operations during the period.

Our operating expenses increased by $12.3 million, or 12%, to $116.7 million in 2006 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $2.1 million, or 5%, for the six months ended June 30, 2006 to $46.9 million. This increase was primarily due to shopping center developments that recently began operating; and therefore, did not incur operating expenses for the comparable six months ended in the previous year.

Our general and administrative expenses increased $3.6 million to $21.6 million during 2006. The increase is related to additional salary costs for new employees hired during 2005 and 2006 to manage the First Washington Portfolio under a property management agreement with MCWR II.

Our depreciation and amortization expense increased $3.2 million to $42.7 million in 2006 primarily related to new development properties placed in service in the current year that had no operations during the comparable six months ended in the prior year.

46

Table of Contents

Our net interest expense decreased $2.8 million to $39.6 million in 2006 from $42.3 million in 2005. This decrease is attributable to a lower line of credit balance during the six months ended June 30, 2006 as compared to the balance during the six months ended in the prior year and the $350 debt offering completed in July 2005 with a fixed interest rate of 5.25%. Average interest rates on our outstanding debt increased to 6.48% at June 30, 2006 compared to 5.95% at June 30, 2005. Our weighted average outstanding debt at June 30, 2006 and 2005 was $1.6 billion.

Gains from the sale of operating properties and properties in development during 2006 include $15.8 million from the sale of 17 out-parcels for proceeds of $38.1 million; as well as a $9.5 million gain related to the partial sale of our interest in MCWR II discussed previously. In 2005, the gains from the sale of operating and development properties included $5.7 million from the sale of 12 out-parcels for proceeds of $11.7 million and $4.4 million in gains from shopping centers sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures and we have continuing involvement through our equity investment.

We review our real estate portfolio for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset. We determine whether impairment has occurred by comparing the property’s carrying value to an estimate of fair value based upon methods described in our Critical Accounting Policies. In the event a property is impaired, we write down the asset to fair value for “held-and-used” assets and to fair value less costs to sell for “held-for- sale” assets. During the six months ended June 30, 2006, we established a provision for loss of $500,000 to adjust an operating property expected to sell in the third quarter to its estimated fair value.

Income from discontinued operations was $34.0 million in 2006 related to four operating properties and one development property sold to unrelated parties for net proceeds of $71.0 million. Income from discontinued operations was $21.0 million in 2005 related to the operations of shopping centers sold or classified as held-for-sale in 2006 as well as 2005. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable operating partnership units totaling $558,250 and $458,607, for the six months ended June 30, 2006 and 2005, respectively, and income taxes totaling $2.9 million for the six months ended June 30, 2005.

Minority interest of preferred units declined $2.4 million to $1.9 million in 2006 as a result of redeeming $54 million of preferred units in 2005. Preferred stock dividends increased $2.5 million to $9.8 million in 2006 as a result of the issuance of $75 million of preferred stock in 2005.

Net income for common stockholders increased $23.1 million to $98.0 million in 2006 as compared with $74.9 million in 2005. Diluted earnings per share were $1.43 in 2006, compared with $1.18 in 2005, or 21% higher, a result of the increase in net income, partially offset by an increase in weighted average common shares associated with the sale of approximately 4.3 million shares in August 2005.

Results from Operations

Comparison of the three months ended March 31, 2006 to 2005

At March 31, 2006, on a Combined Basis, we were operating or developing 386 shopping centers, as compared to 393 shopping centers at the end of 2005. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At March 31, 2006 and 2005, on a Combined Basis, we were developing 31 properties.

Our revenues increased by $8.1 million, or 8%, to $104.1 million in 2006. The increase in revenues was related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates and revenues from new developments commencing operations in the current year. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect percentage rent based upon tenant sales. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated with operating our shopping centers. In 2006, our minimum rent increased by $5.1 million, or 7%, and our recoveries from tenants increased $840,698, or 4%. Percentage rent was $437,456 in 2006, compared with $528,333 in 2005.

44

Table of Contents

We receive fees for asset management, property management, and acquisition and disposition services that we provide to our joint ventures. During the three months ended March 31, 2006 and 2005, we received fees from these joint ventures of $7.2 million and $3.2 million, respectively.

The equity in income of real estate partnerships declined $1.6 million to $754,504 in 2006. The decrease was a result of depreciation and amortization expense recorded in accordance with Statement 141 by MCWR II since the acquisition of the First Washington Portfolio on June 1, 2005. Excluding the depreciation and amortization, MCWR II produced positive cash flow from operations during the period.

Our operating expenses increased by $6.4 million, or 12%, to $58.7 million in 2006 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $515,372, or 2%, for the three months ended March 31, 2006 to $23.1 million. This increase was primarily due to shopping center developments that recently began operating; and therefore, did not incur operating expenses for the comparable quarter in the previous year.

Our general and administrative expenses increased $2.2 million to $10.8 million during 2006. The increase is related to additional salary costs for new employees hired during 2005 and 2006 to manage the First Washington Portfolio under a property management agreement with MCWR II.

Our depreciation and amortization expense increased $1.5 million to $21.1 million in 2006 primarily related to new development properties placed in service in the current year that had no operations during the comparable prior year period.

Our net interest expense decreased $923,421 to $19.5 million in 2006 from $20.4 million in 2005. This decrease is attributable to a lower line of credit balance at March 31, 2006 of $108 million compared to $175 million at March 31, 2005 and the $350 debt offering completed in July 2005 with a fixed interest rate of 5.25%. Average interest rates on our outstanding debt decreased to 6.34% at March 31, 2006 compared to 6.41% at March 31, 2005. Our weighted average outstanding debt at March 31, 2006 was $1.6 billion compared to $1.5 billion at March 31, 2005.

Gains from the sale of operating properties and properties in development during 2006 includes $6.2 million in gains from the sale of 11 out-parcels for proceeds of $11.5 million; as well as a $9.5 million gain related to the partial sale of our interest in MCWR II discussed previously. In 2005, the gains from the sale of operating and development properties included $2.1 million from the sale of six out-parcels for proceeds of $4.2 million and $4.4 million in gains from shopping centers sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures and we have continuing involvement through our equity investment.

We review our real estate portfolio for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset. We determine whether impairment has occurred by comparing the property’s carrying value to an estimate of fair value based upon methods described in our Critical Accounting Policies. In the event a property is impaired, we write down the asset to fair value for “held-and-used” assets and to fair value less costs to sell for “held-for- sale” assets.

Income from discontinued operations was $31.3 million in 2006 related to four properties sold to unrelated parties for net proceeds of $69.0 million. Income from discontinued operations was $11.3 million in 2005 related to the operations of shopping centers sold or classified as held-for-sale in 2006 as well as 2005. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership

45

Table of Contents

units totaling $521,755 and $254,831, for the three months ended March 31, 2006 and 2005, respectively, and income taxes totaling $2.2 million for the three months ended March 31, 2005.

Minority interest of preferred units declined $1.2 million to $931,248 in 2006 as a result of redeeming $54 million of preferred units in 2005. Preferred stock dividends increased $1.3 million to $4.9 million in 2006 as a result of the issuance of $75 million of preferred stock in 2005.

Net income for common stockholders increased $31.2 million to $65.9 million in 2006 as compared with $34.7 million in 2005. Diluted earnings per share were $.97 in 2006, compared with $.55 in 2005, or 76% higher, a result of the increase in net income and an increase in weighted average common shares associated with the sale of approximately 4.3 million shares in August 2005.

Results from Operations

Comparison of the years ended December 31, 2005 to 2004

At December 31, 2005, on a Combined Basis, we were operating or developing 393 shopping centers, as compared to 291 shopping centers at the end of 2004. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At December 31, 2005, on a Combined Basis, we were developing 31 properties, as compared to 34 properties at the end of 2004.

45

Table of Contents

Index to Financial Statements

Our revenues increased by $23.1 million, or 6%, to $394.0 million in 2005. As a result of MCWR II acquiring the First Washington Portfolio on June 1, 2005, we recorded $13.8 million in fees related to acquisition, due diligence and capital restructuring services that we provided to MCWR II. MCWR II paid us approximately $21.2 million for these services, however, as previously discussed, the amount recognized as fee income includes only that portion of fees paid by the venture not owned by us.

The increase in revenues was also related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates and revenues from new developments commencing operations in the current year. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect percentage rent based upon tenant sales. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated with operating our shopping centers. In 2005, our minimum rent increased by $14.1 million, or 5%, and our recoveries from tenants increased $4.3 million, or 6%. Percentage rent was $4.4 million in 2005, compared with $3.8 million in 2004.

The equity in income of real estate partnerships declined $13.1 million to a loss of $2.9 million in 2005. The loss was a result of the significant amount of depreciation and amortization expense being recorded by MCWR II since the acquisition of the First Washington Portfolio on June 1, 2005. Excluding the depreciation and amortization, MCWR II produced positive cash flow from operations during the period.

Our operating expenses increased by $10.3 million, or 5%, to $213.5 million in 2005 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $3.7 million, or 4%, for the year ended December 31, 2005 to $92.3 million. This increase was primarily due to shopping center developments that recently began operating; and therefore, did not incur operating expenses for a full comparable 12 months in the previous year. During the 2005 hurricane season, we did not incur any significant damages to our shopping centers.

Our general and administrative expenses increased $7.5 million to $37.8 million during 2005. The increase is related to additional salary costs for new employees necessary to manage the First Washington Portfolio under a property management agreement with MCWR II and higher stock based compensation expenses associated with the early adoption of Statement 123(R), which requires the expensing of stock options. During 2005, we recorded compensation expense associated with stock options of $1.4 million.

Our depreciation and amortization expense increased $4.3 million to $80.7 million in 2005 primarily related to new development properties placed in service in the current year that had no operations during the comparable prior year period.

Our net interest expense increased $7.7 million to $87.4 million in 2005 from $79.7 million in 2004 primarily related to the financing of our investment in MCWR II. On June 1, 2005 we borrowed $275 million on the Bridge Loan and $122 million on the Line to fund our investment. During July and August, we repaid the Bridge Loan and reduced the Line using a portion of the proceeds from the $200 million Forward Sale Agreement, a $75 million preferred stock offering and the issuance of $350 million of 5.48% fixed rate debt. Average interest rates on our outstanding debt increased to 6.34% at December 31, 2005 compared to 6.24% at December 31, 2004. Our weighted average outstanding debt at December 31, 2005 was $1.6 billion compared to $1.5 billion at December 31, 2004.

Gains from the sale of operating properties and properties in development during 2005 includes $8.7 million in gains from the sale of 26 out-parcels for proceeds of $29.0 million and $10.3 million in

46

Table of Contents

Index to Financial Statements

gains related to the sale of three development properties and one operating property. In 2004, the gains from the sale of operating and development properties included $18.9 million from the sale of 41 out-parcels for proceeds of $60.4 million and $20.5 million in gains from shopping centers sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures where we have continuing involvement through our equity investment.

We review our real estate portfolio for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset. We determine whether impairment has occurred by comparing the property’s carrying value to an estimate of fair value based upon methods described in our Critical Accounting Policies. In the event a property is impaired, we write down the asset to fair value for “held-and-used” assets and to fair value less costs to sell for “held-for- sale” assets. During 2005 and 2004 we established provisions for loss of $550,000 and $810,000 respectively, to adjust operating properties to their estimated fair values.

Income from discontinued operations was $61.6 million in 2005 related to 14 properties sold to unrelated parties for net proceeds of $175.2 million and four properties classified as held-for-sale. Income from discontinued operations was $31.9 million in 2004 related to the operations of shopping centers sold or classified as held-for-sale in 2005 as well as 2004. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units totaling $1.2 million and $603,727, and income taxes totaling $3.6 million and $2.3 million for the years ended December 31, 2005 and 2004, respectively.

Minority interest of preferred units declined $11.7 million to $8.1 million in 2005 as a result of redeeming $54 million of preferred units in 2005 and redeeming $125 million of preferred units in 2004. Preferred stock dividends increased $8.1 million to $16.7 million in 2005 as a result of the issuance of $75 million of preferred stock in 2005 and $125 million preferred stock in 2004.

Net income for common stockholders increased $18.2 million to $145.9 million in 2005 as compared with $127.7 million in 2004. Diluted earnings per share were $2.23 in 2005, compared with $2.08 in 2004, or 7% higher, a result of the increase in net income and an increase in weighted average common shares associated with the Forward Sale Agreement discussed above.

Comparison of the years ended December 31, 2004 to 2003

At December 31, 2004, on a Combined Basis, we were operating or developing 291 shopping centers, as compared to 265 shopping centers at the end of 2003, and we were developing 34 properties at the end of 2004, as compared to 36 properties at the end of 2003.

Our revenues increased by $25.0 million, or 7%, to $370.9 million in 2004. This increase was related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates, shopping centers acquired during 2004, and revenues from new developments commencing operations in 2004. In 2004, our minimum rent increased by $18.2 million, or 7%, and our recoveries from tenants increased $4.2 million, or 6%. Percentage rent was $3.8 million in 2004, compared with $4.3 million in 2003. The reduction was primarily related to renewing anchor tenant leases with minimum rent increases, which had a corresponding reduction to percentage rent.

Our operating expenses increased by $21.9 million, or 12%, to $203.2 million in 2004 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $5.0 million, or 6%, during 2004 to $88.6 million. This increase was primarily due to shopping centers acquired in 2004, new

47

Table of Contents

Index to Financial Statements

developments that only recently began operating and therefore incurred operating expenses for only a portion of the previous year, normal increases in operating expenses on the stabilized properties and the cost to repair our shopping centers impacted by hurricanes during 2004. During 2004, three hurricanes affected 42 of our shopping centers in Florida and our repair costs related to the hurricanes were approximately $1 million.

Our general and administrative expenses were $30.3 million during 2004, compared with $24.2 million in 2003, or 25% higher, related to an increase in the total number of employees necessary to properly manage our real estate portfolio and costs related to implementing new regulations for public companies imposed by the Sarbanes-Oxley Act.

Our depreciation and amortization expense increased $7.8 million during 2004 primarily related to shopping centers acquired during the year and new development properties placed in service during 2004.

Our net interest expense decreased to $79.7 million in 2004 from $82.3 million in 2003. Average interest rates on our outstanding debt declined to 6.24% at December 31, 2004, compared with 6.49% at December 31, 2003. The reduction was primarily related to reducing the interest rate spread on the Line and issuing $150 million of 4.95% Notes in April 2004, the proceeds of which were used to repay maturing Notes that had fixed rates of 7.4%. Our weighted average outstanding debt during 2004 was $1.5 billion, compared with $1.4 billion in 2003.

Gains from the sale of operating and development properties includes $18.9 million in gains from the sale of 41 out-parcels for proceeds of $60.4 million and $20.5 million for properties sold to joint ventures. During 2003, the gains from the sale of operating and development properties included $11.6 million from the sale of 45 out-parcels for proceeds of $53.0 million and $37.1 million for properties sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures where we have continuing involvement through our minority investment.

During 2004 and 2003 we established provisions for loss of $810,000 and $2.0 million respectively, to adjust operating properties to their estimated fair values. Provisions for loss on properties subsequently sold are reclassified to discontinued operations; therefore the $2.0 million recorded in 2003 has been reclassified.

Income from discontinued operations was $31.9 million in 2004 as compared to $32.4 million in 2003. Discontinued operations pertain to properties either held-for-sale or properties sold to third parties that had operations during the period. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units totaling $603,727 and $727,117, and income taxes totaling $2.3 million and $560,402 for the years ended December 31, 2004 and 2003, respectively.

Minority interest of preferred units declined $10 million to $19.8 million in 2004 as a result of redeeming $125 million of preferred units during 2004. Preferred stock dividends increased $4.5 million to $8.6 million in 2004 as a result of the issuance of $125 million of preferred stock, the proceeds of which were used to redeem the preferred units.

Net income for common stockholders was $127.7 million in 2004, compared with $126.6 million in 2003 or a 1% increase for the reasons described above. Diluted earnings per share were $2.08 in 2004, compared with $2.12 in 2003, or 2% lower. Although net income for common stockholders increased $1.1 million during 2004, the increase was diluted as a result of an increase in weighted average common shares associated with the $67 million common stock offering completed in August 2004.

Results from Operations

Comparison of the nine months ended September 30, 2005 to 2004

At September 30, 2005, on a Combined Basis, we were operating or developing 389 shopping centers, as compared to 291 shopping centers at the end of 2004. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At September 30, 2005, on a Combined Basis, we were developing 29 properties, as compared to 34 properties at the end of 2004.

Our revenues increased by $26.5 million, or 10%, to $301.9 million in 2005. As a result of MCWR II acquiring the First Washington Portfolio on June 1, 2005, we recorded $13.8 million in fees related to acquisition, due diligence and capital restructuring services that we provided to MCWR II. MCWR II paid us approximately $21.2 million for these services, however, as previously discussed, the amount recognized as fee income includes only that portion of fees paid by the venture not owned by us.

The increase in revenues was also related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates, operating properties acquired subsequent to September 30, 2004 that had no revenues during the comparable prior year period, and revenues from new developments commencing operations in the current year. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect contingent rent based upon tenant sales, which we refer to as percentage rent. Tenants are also responsible for reimbursing us for their

50

Table of Contents

pro-rata share of the expenses associated with operating our shopping centers. In 2005, our minimum rent increased by $12.3 million, or 6%, and our recoveries from tenants increased $3.2 million, or 6%. Percentage rent was $1.7 million in 2005, compared with $1.5 million in 2004.

The equity in income of real estate partnerships declined $7.5 million to a loss of $616,186 in 2005. The loss was a result of the significant amount of depreciation and amortization expense being recorded by MCWR II since the acquisition of the First Washington Portfolio on June 1, 2005. Excluding the depreciation and amortization, MCWR II produced positive operating cash flow during the period.

Our operating expenses increased by $12.7 million, or 9%, to $160.4 million in 2005 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $2.5 million, or 4%, for the nine months ended September 30, 2005 to $69.8 million. This increase was primarily due to shopping centers acquired during 2004 and new developments that only recently began operating and therefore did not incur operating expenses during the nine month period ending on September 30, 2004.

Our general and administrative expenses increased $6.9 million to $27.2 million. The increase is related to additional salary costs for new employees necessary to manage the First Washington Portfolio under a property management agreement with MCWR II and higher stock based compensation expenses associated with the early adoption of Statement 123(R), which includes the expensing of stock options.

Our depreciation and amortization expense increased $3.8 million to $61.2 million in 2005 primarily related to new development properties placed in service in the current year and operating properties acquired that had no operations during the comparable prior year period.

Our net interest expense increased $6.1 million to $65.3 million in 2005 from $59.2 million in 2004 primarily related to the financing of our investment in MCWR II during the period. During the period we borrowed $275 million on the Bridge Loan and $122 million on the Line to fund our investment. During July and August, we repaid the Bridge Loan and reduced the Line using a portion of the proceeds from a $200 million common stock offering, a $75 million preferred stock offering and the issuance of $350 million of 5.48% fixed rate debt. Average interest rates on our outstanding debt increased to 6.32% at September 30, 2005 compared to 5.92% at September 30, 2004 primarily the result of reducing the percentage of variable rate debt to 12% in 2005 as compared with 18% in 2004, the rates of which are significantly lower than fixed rate debt. Our nine month weighted average outstanding debt at September 30, 2005 was $1.6 billion compared to $1.5 billion at September 30, 2004.

We account for profit recognition on sales of real estate in accordance with SFAS Statement No. 66, “Accounting for Sales of Real Estate.” Profits from sales of real estate will not be recognized by us unless (i) a sale has been consummated; (ii) the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; (iii) we have transferred to the buyer the usual risks and rewards of ownership; and (iv) we do not have substantial continuing involvement with the property. Gains from the sale of operating and development properties includes $6.2 million in gains from the sale of 17 out-parcels for proceeds of $13.8 million and $7.7 million in gains related to the sale of two development properties and one operating property. For the period ended September 30, 2004, the gains from the sale of operating and development properties included $10.9 million from the sale of 25 out-parcels for proceeds of $22.5 million and $5.7 million in gains for properties sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures where we have continuing involvement through our equity investment.

51

Table of Contents

Income from discontinued operations was $33.3 million in 2005 related to eight properties sold to unrelated parties for net proceeds of $107.3 million and four properties classified as held-for-sale. Income from discontinued operations was $20.8 million in 2004 related to the operations of shopping centers sold or classified as held-for-sale in 2005 as well as 2004. In compliance with Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units and income taxes.

Minority interest of preferred units declined $10.4 million to $7.2 million in 2005 as a result of redeeming $54 million of preferred units in 2005 and redeeming $125 million of preferred units in 2004. Preferred stock dividends increased $6.9 million to $11.8 million in 2005 as a result of the issuance of $75 million of preferred stock in 2005 and $125 million preferred stock in August 2004 the proceeds of which were primarily used to redeem preferred units.

Net income for common stockholders increased $20.4 million to $102.5 million in 2005 as compared with $82.0 million in 2004. Diluted earnings per share were $1.59 in 2005, compared with $1.35 in 2004, or 18% higher, a result of the increase in net income and an increase in weighted average common shares of 3.5 million associated with the common stock offering discussed above.

Comparison of the three months ended September 30, 2005 to 2004

Our revenues decreased $1.1 million, or 1%, to $93.6 million in 2005 as a result of the equity in net loss of real estate partnerships. The equity in net loss of $4.0 million was a result of the significant amount of depreciation and amortization expense being recorded by MCWR II related to the acquisition of the First Washington Portfolio, although MCWR II produced positive operating cash flow during the period. Excluding this loss, revenues increased $5.1 million, or 5% related to higher rental revenues and management fee income. Increases in rental revenues relate to higher occupancy in our shopping centers, growth in re-leasing rental rates, acquiring operating properties that had no revenues during the comparable prior year period, and revenues from new developments commencing operations in the current year. Minimum rent increased $4.0 million to $73.2 million, or 6% for these reasons. Management fees increased $1.4 million to $3.3 million related to an agreement with MCWR II to manage the First Washington Portfolio.

Our operating expenses increased by $2.0 million, or 4%, to $53.3 million in 2005 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased $138,109, or 1% to $23.5 million. These increases resulted from new developments that recently began operating and therefore did not incur operating expenses during the three month period ending on September 30, 2004.

Our general and administrative expenses increased $1.9 million to $9.1 million. The increase is related to additional salary costs for new employees necessary to manage the First Washington Portfolio under a property management agreement with MCWR II and higher stock based compensation expenses associated with the early adoption of Statement 123(R), which includes the expensing of stock options.

Gains from the sale of operating properties decreased $5.2 million during the period due to a higher volume of operating property sales during the three month period ending in 2004.

Our depreciation and amortization expense increased $1.2 million to $20.4 million primarily related to new development properties placed in service in the current year that had no operations during the comparable prior year period.

52

Table of Contents

Our net interest expense increased $3.2 million to $23.0 million as compared to $19.8 million in 2004. Average interest rates on outstanding debt increased to 6.32% at September 30, 2005 compared to 5.92% at September 30, 2004 primarily the result of reducing the percentage of variable rate debt to 12% in 2005 as compared with 18% in 2004, the rates of which are significantly lower than fixed rate debt. Our weighted average outstanding debt at September 30, 2005 was $1.7 billion compared to $1.5 billion at September 30, 2004 primarily related to the financing of our investment in MCWR II.

Income from discontinued operations increased $1.1 million to $14.3 million for the three months ended September 30, 2005 related to three properties sold to unrelated parties for net proceeds of $45.5 million and four properties classified as held-for-sale. Income from discontinued operations was $13.2 million in 2004 related to the operations of shopping centers sold or classified as held-for-sale in 2005 as well as 2004. In compliance with the adoption of Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods being reported. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units and income taxes.

Minority interest of preferred units declined $4.5 million to $2.9 million in 2005 as a result of redeeming $54 million of preferred units in 2005 and redeeming $125 million of preferred units in 2004. Preferred stock dividends increased $2.3 million to $4.5 million in 2005 as a result of the issuance of $75 million of preferred stock in 2005 and $125 million preferred stock in August 2004 the proceeds of which were primarily used to redeem preferred units.

Net income for common stockholders decreased $8.0 million to $27.6 million in 2005 as compared with $35.6 million in 2004, or 22%, primarily related to the decrease in gains from the sale of operating properties and the other reasons described above. Diluted earnings per share were $0.41 in 2005, compared with $0.58 in 2004, or 29% lower, a result of the decline in net income and an increase in weighted average common shares of 4.8 million associated with the common stock offering discussed above.

Results from Operations

Comparison of the three months ended June 30, 2005 to 2004

Our revenues increased by $19.9 million, or 22%, to $111.5 million in 2005. As a result of MCWR II acquiring the First Washington Portfolio on June 1, 2005, we earned and recorded $13.8 million in fees related to acquisition, due diligence and debt placement services that we provided to MCWR II. MCWR II paid us approximately $21.2 million for these services, however, as previously discussed, the amount recognized as fee income includes only that portion of fees paid by the venture not owned by us. The increase in revenues was also related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates, operating properties acquired subsequent to June 30, 2004 that had no revenues during the comparable prior year period, and revenues from new developments commencing operations subsequent to June 30, 2004. During the three months ended June 30, 2005, our minimum rent increased by $4.2 million, or 6%, and our recoveries from tenants increased $1.7 million, or 9%. Percentage rent was $269,603 in 2005, compared with $336,689 in 2004.

Our operating expenses increased by $5.3 million, or 11%, to $54.5 million in 2005 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $1.5 million, or 7%, for the three months ended June 30, 2005 to $23.4 million. This increase was primarily due to shopping centers acquired during 2004 and new developments that only recently began operating and therefore did not incur operating expenses during the three month period ending on June 30, 2004.

Our general and administrative expenses were $9.4 million for the three months ended June 30,

49

Table of Contents

2005, compared with $7.2 million in 2004, or 30% higher, related to an increase in the total number of employees in preparation for management of the acquisition of the First Washington Portfolio by MCWR II and higher costs associated with incentive compensation related to the Company’s decision to implement FAS 123R early resulting in the expensing of stock options and new grants of restricted stock as part of our long-term compensation plan.

Our depreciation and amortization expense increased $1.8 million for the three months ended June 30, 2005 primarily related to new development properties placed in service and operating properties acquired subsequent to June 30, 2004 that had no operations during the comparable prior year period.

Our net interest expense increased to $22.3 million for the three months ended June 30, 2005 from $18.6 million in 2004. Average interest rates on our outstanding debt were 5.95% at June 30, 2005 and 2004. Our weighted average outstanding debt at June 30, 2005 was $1.6 billion compared to $1.5 billion at June 30, 2004 primarily related to the financing associated with our $397 million equity investment in MCWR II.

Income from discontinued operations was $8.6 million for the three months ended June 30, 2005 related to three properties sold to unrelated parties for net proceeds of $27.1 million and three properties classified as held-for-sale. Income from discontinued operations was $4.5 million in 2004 related to the operations of shopping centers sold or classified as held-for-sale in 2005 as well as 2004. In compliance with the adoption of Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units and income taxes.

Net income for common stockholders was $40.2 million in 2005, compared with $25.1 million in 2004 or a 60% increase for the reasons described above. Diluted earnings per share were $0.63 in 2005, compared with $0.41 in 2004, or 54% higher.

Comparison of the six months ended June 30, 2005 to 2004

At June 30, 2005, on a Combined Basis, we were operating or developing 383 shopping centers, as compared to 291 shopping centers at the end of 2004. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At June 30, 2005, on a Combined Basis, we were developing 26 properties, as compared to 34 properties at the end of 2004.

Our revenues increased by $27.7 million, or 15%, to $210.8 million in 2005. As a result of MCWR II acquiring the First Washington Portfolio on June 1, 2005, we recorded $13.8 million in fees related to acquisition, due diligence and debt placement services that we provided to MCWR II. MCWR II paid us approximately $21.2 million for these services, however, as previously discussed, the amount recognized as fee income includes only that portion of fees paid by the venture not owned by us. The increase in revenues was also related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates, operating properties acquired subsequent to June 30, 2004 that had no revenues during the comparable prior year period, and revenues from new developments commencing operations subsequent to June 30, 2004. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect contingent rent based upon tenant sales, which we refer to as percentage rent. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated with operating our shopping centers. In 2005, our minimum rent increased by $8.5 million, or 6%, and our recoveries from tenants increased $3.8 million, or 10%. Percentage rent was $818,649 in 2005, compared with $787,996 in 2004.

Our operating expenses increased by $10.9 million, or 11%, to $108.4 million in 2005 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

50

Table of Contents

Our combined operating, maintenance, and real estate taxes increased by $2.4 million, or 5%, for the six months ended June 30, 2005 to $46.9 million. This increase was primarily due to shopping centers acquired during 2004 and new developments that only recently began operating and therefore did not incur operating expenses during the six month period ending on June 30, 2004.

Our general and administrative expenses were $18.1 million for the six months ended June 30, 2005, compared with $13.1 million in 2004, or 38% higher, related to an increase in the total number of employees in preparation for management of the acquisition of the First Washington Portfolio by MCWR II and higher costs associated with incentive compensation related to the Company’s decision to implement FAS 123R early resulting in the expensing of stock options and new grants of restricted stock as part of our long-term compensation plan.

Our depreciation and amortization expense increased $2.7 million for the six months ended June 30, 2005 primarily related to new development properties placed in service and operating properties acquired subsequent to June 30, 2004 that had no operations during the comparable prior year period.

Our net interest expense increased to $42.6 in 2005 from $39.7 million in 2004. Average interest rates on our outstanding debt were 5.95% at June 30, 2005 and 2004. Our weighted average outstanding debt at June 30, 2005 was $1.6 billion compared to $1.5 billion at June 30, 2004 primarily related to the financing associated with our $397 million equity investment in MCWR II.

We account for profit recognition on sales of real estate in accordance with SFAS Statement No. 66, “Accounting for Sales of Real Estate.” Profits from sales of real estate will not be recognized by us unless (i) a sale has been consummated; (ii) the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; (iii) we have transferred to the buyer the usual risks and rewards of ownership; and (iv) we do not have substantial continuing involvement with the property. Gains from the sale of operating and development properties includes $5.7 million in gains from the sale of 12 out-parcels for proceeds of $10.9 million and $4.4 million in gains related to the sale of two development properties. For the period ended June 30, 2004, the gains from the sale of operating and development properties included $6.9 million from the sale of 13 out-parcels for proceeds of $14.9 million and $739,473 in gains for properties sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures where we have continuing involvement through our minority investment.

Income from discontinued operations was $18.1 million in 2005 related to five properties sold to unrelated parties for net proceeds of $61.8 million and three properties classified as held-for-sale. Income from discontinued operations was $6.7 million in 2004 related to the operations of shopping centers sold or classified as held-for-sale in 2005 as well as 2004. In compliance with the adoption of Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units and income taxes.

Minority interest of preferred units declined $5.9 million to $4.2 million in 2005 as a result of redeeming $125 million of preferred units during 2004 in combination with negotiating a lower rate on $50 million of preferred units. Preferred stock dividends increased $4.5 million to $7.3 million in 2005 as a result of the issuance of $125 million of Series 4 preferred stock in August 2004, of which a portion of the proceeds were used to redeem the preferred units.

Net income for common stockholders was $74.9 million in 2005, compared with $46.5 million in 2004 or a 61% increase for the reasons described above. Diluted earnings per share were $1.18 in 2005, compared with $0.77 in 2004, or 53% higher.

51

Table of Contents

Results from Operations

Comparison of the three months ended March 31, 2005 to 2004

At March 31, 2005, on a Combined Basis, we were operating or developing 288 shopping centers, as compared to 291 shopping centers at the end of 2004. We identify our shopping centers as either development properties or stabilized properties. Development properties are defined as properties that are in the construction or initial lease-up process and have not reached their initial full occupancy (reaching full occupancy generally means achieving at least 93% leased and rent paying on newly constructed or renovated GLA). At March 31, 2005, on a Combined Basis, we were developing 29 properties, as compared to 34 properties at the end of 2004.

Our revenues increased by $9.2 million, or 10%, to $101.7 million in 2005. This increase was related to changes in occupancy in the portfolio of stabilized and development properties, growth in re-leasing rental rates, operating properties acquired subsequent to March 31, 2004 that had no revenues during the comparable prior year period, revenues from new developments commencing operations subsequent to March 31, 2004, less a reduction in revenues from properties sold not classified as discontinued operations. In addition to collecting minimum rent from our tenants for the GLA that they lease from us, we also collect contingent rent based upon tenant sales, which we refer to as percentage rent. Tenants are also responsible for reimbursing us for their pro-rata share of the expenses associated

36

Table of Contents

with operating our shopping centers. In 2005, our minimum rent increased by $5.5 million, or 8%, and our recoveries from tenants increased $2.3 million, or 12%. Percentage rent was $551,539 in 2005, compared with $452,485 million in 2004.

Our operating expenses increased by $6.4 million, or 13%, to $55.2 million in 2005 related to increased operating and maintenance costs, general and administrative costs and depreciation expense, as further described below.

Our combined operating, maintenance, and real estate taxes increased by $1.2 million, or 5%, for the three months ended March 31, 2005 to $24.1 million. This increase was primarily due to shopping centers acquired during 2004 and new developments that only recently began operating and therefore did not incur operating expenses during the three month period ending on March 31, 2004.

Our general and administrative expenses were $8.7 million for the three months ended March 31, 2005, compared with $5.9 million in 2004, or 47% higher, related to an increase in the total number of employees, higher costs associated with incentive compensation and costs related to implementing new regulations for public companies imposed by the Sarbanes-Oxley Act.

Our depreciation and amortization expense increased $1.4 million for the three months ended March 31, 2005 primarily related to new development properties placed in service and operating properties acquired subsequent to March 31, 2004 that had no operations during the comparable prior year period.

Our net interest expense was $21.1 million for the three months ended March 31, 2005 and 2004. Average interest rates on our outstanding debt decreased to 6.41% at March 31, 2005, compared with 6.45% at March 31, 2004. Our weighted average outstanding debt at March 31, 2005 and 2004 was $1.5 billion.

We account for profit recognition on sales of real estate in accordance with SFAS Statement No. 66, “Accounting for Sales of Real Estate.” Profits from sales of real estate will not be recognized by us unless (i) a sale has been consummated; (ii) the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property; (iii) we have transferred to the buyer the usual risks and rewards of ownership; and (iv) we do not have substantial continuing involvement with the property. Gains from the sale of operating and development properties includes $2.1 million in gains from the sale of six out-parcels for proceeds of $4.2 million and $4.4 million in gains related to the sale of two development properties. For the period ended March 31, 2004, the gains from the sale of operating and development properties included $3.4 million from the sale of seven out-parcels for proceeds of $9.5 million and $629,905 in gains for properties sold. These gains are included in continuing operations rather than discontinued operations because they were either properties that had no operating income, or they were properties sold to joint ventures where we have continuing involvement through our minority investment.

Income from discontinued operations was $9.2 million in 2005 related to two properties sold to unrelated parties for net proceeds of $34.7 million and two properties classified as held-for-sale. Income from discontinued operations was $1.8 million in 2004 related to the operations of shopping centers sold or classified as held-for-sale in 2005 as well as 2004. In compliance with the adoption of Statement 144, if we sell an asset in the current year, we are required to reclassify its operating income into discontinued operations for all prior periods. This practice results in a reclassification of amounts previously reported as continuing operations into discontinued operations. Our income from discontinued operations is shown net of minority interest of exchangeable partnership units and income taxes.

37

Table of Contents

Minority interest of preferred units declined $3.0 million to $2.1 million in 2005 as a result of redeeming $125 million of preferred units during 2004 in combination with negotiating a lower rate on $50 million of preferred units. Preferred stock dividends increased $2.3 million to $3.7 million in 2005 as a result of issuing $125 million of Series 4 preferred stock during 2004, a portion of the proceeds of which were used to redeem the preferred units.

Net income for common stockholders was $34.7 million in 2005, compared with $21.4 million in 2004 or a 62% increase for the reasons described above. Diluted earnings per share were $0.55 in 2005, compared with $0.35 in 2004, or 57% higher.