UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2006

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

GENERAL GROWTH PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		42-1283895
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

110 N. Wacker Dr., Chicago, IL 60606

(312) 960-5000

N/A

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 (the “Exchange Act”) 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 þ     NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

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

YES o     NO þ

The number of shares of Common Stock, $.01 par value, outstanding on August 4, 2006 was 241,295,270.

 

 

GENERAL GROWTH PROPERTIES, INC.

INDEX

		PAGE
		NUMBER
Part I FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005			3
Consolidated Statements of Income and Comprehensive Income for the Three and Six Months ended June 30, 2006 and 2005			4
Consolidated Statements of Cash Flows for the Six Months ended June 30, 2006 and 2005			5
Notes to Consolidated Financial Statements			7
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			32
Liquidity and Capital Resources			40
Item 3: Quantitative and Qualitative Disclosures about Market Risk			44
Item 4: Controls and Procedures			44
Part II OTHER INFORMATION
Item 1: Legal Proceedings			45
Item 1A: Risk Factors			45
Item 2: Unregistered Sales of Securities and Use of Proceeds			45
Item 3: Defaults Upon Senior Securities			46
Item 4: Submission of Matters to a Vote of Security Holders			46
Item 5: Other Information			47
Item 6: Exhibits			51
SIGNATURE			52
EXHIBIT INDEX			53
2003 Incentive Stock Plan
Form of Employee Restricted Stock Agreement
Form of Non-Employee Director Restricted Stock Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL GROWTH PROPERTIES, INC.

		June 30,				December 31,
		2006				2005
Assets
Investment in real estate:
Land		$	2,931,252			$	2,826,766
Buildings and equipment			19,070,259				18,739,445
Less accumulated depreciation			(2,442,377	)			(2,104,956	)
Developments in progress			518,188				366,262
Net property and equipment			20,077,322				19,827,517
Investment in and loans to/from Unconsolidated Real Estate Affiliates			1,688,312				1,818,097
Investment land and land held for development and sale			1,683,569				1,651,063
Net investment in real estate			23,449,203				23,296,677
Cash and cash equivalents			75,403				102,791
Accounts and notes receivable, net			284,835				293,351
Insurance recovery receivable			52,082				63,382
Goodwill			361,897				420,624
Deferred expenses, net			252,478				209,825
Prepaid expenses and other assets			823,430				920,369
Total assets		$	25,299,328			$	25,307,019
Liabilities and Stockholders’ Equity
Mortgage notes and other property debt payable		$	20,695,136			$	20,418,875
Deferred tax liabilities			1,249,086				1,286,576
Accounts payable and accrued expenses			1,002,980				1,032,414
Total liabilities			22,947,202				22,737,865
Minority interests:
Preferred			202,230				205,944
Common			385,514				430,292
Total minority interests			587,744				636,236
Commitments and contingencies			—				—
Preferred stock: $100 par value; 5,000,000 shares authorized; none issued and outstanding			—				—
Stockholders’ equity:
Common stock: $.01 par value; 875,000,000 shares authorized; 241,273,413 and 239,865,045 shares issued as of June 30, 2006 and December 31, 2005, respectively			2,413				2,399
Additional paid-in capital			2,520,595				2,469,262
Retained earnings (accumulated deficit)			(718,305	)			(518,555	)
Unearned compensation-restricted stock			(2,925	)			(280	)
Accumulated other comprehensive income			15,967				10,454
Less common stock in treasury, 1,216,200 shares at June 30, 2006 and 668,396 shares at December 31, 2005, at cost			(53,363	)			(30,362	)
Total stockholders’ equity			1,764,382				1,932,918
Total liabilities and stockholders’ equity		$	25,299,328			$	25,307,019

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

GENERAL GROWTH PROPERTIES, INC.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenues:
Minimum rents		$	425,052			$	404,663			$	862,784			$	810,497
Tenant recoveries			190,733				183,045				376,176				368,102
Overage rents			8,603				9,706				22,829				23,312
Land sales			33,035				114,157				170,255				175,407
Management and other fees			24,650				22,780				53,362				41,135
Other			27,736				23,879				53,022				46,234
Total revenues			709,809				758,230				1,538,428				1,464,687
Expenses:
Real estate taxes			54,551				52,424				109,515				105,614
Repairs and maintenance			48,762				45,813				95,817				94,249
Marketing			11,639				14,399				23,669				28,350
Other property operating expenses			90,412				93,319				176,860				186,242
Land sales operations			25,102				94,181				123,699				147,991
Provision for doubtful accounts			7,106				4,165				13,319				8,361
Property management and other costs			45,285				42,956				91,945				77,892
General and administrative			3,132				3,635				6,691				6,446
Depreciation and amortization			178,372				171,902				343,718				333,626
Total expenses			464,361				522,794				985,233				988,771
Operating income			245,448				235,436				553,195				475,916
Interest income			1,469				3,403				4,690				4,443
Interest expense			(278,611	)			(244,529	)			(557,404	)			(489,803	)
Income (loss) before income taxes, minority interest and equity in income of unconsolidated affiliates			(31,694	)			(5,690	)			481				(9,444	)
Provision for income taxes			(14,490	)			(15,359	)			(40,894	)			(14,093	)
Minority interest			(638	)			(7,714	)			(11,862	)			(20,378	)
Equity in income of unconsolidated affiliates			21,009				29,647				49,476				56,336
Income (loss) from continuing operations			(25,813	)			884				(2,799	)			12,421
Income from discontinued operations, net of minority interest			—				1,768				—				3,296
Net income (loss)		$	(25,813	)		$	2,652			$	(2,799	)		$	15,717
Basic Earnings Per Share:
Continuing operations		$	(0.11	)		$	—			$	(0.01	)		$	0.05
Discontinued operations			—				0.01				—				0.02
Total basic earnings (loss) per share		$	(0.11	)		$	0.01			$	(0.01	)		$	0.07
Diluted Earnings Per Share:
Continuing operations		$	(0.11	)		$	—			$	(0.01	)		$	0.05
Discontinued operations			—				0.01				—				0.02
Total diluted earnings (loss) per share		$	(0.11	)		$	0.01			$	(0.01	)		$	0.07
Dividends declared per share		$	0.41			$	0.36			$	0.82			$	0.72
Comprehensive Income (Loss), Net:
Net income (loss)		$	(25,813	)		$	2,652			$	(2,799	)		$	15,717
Other comprehensive income, net of minority interest:
Net unrealized gains (losses) on financial instruments			50				(1,355	)			1,336				4,772
Minimum pension liability adjustment			(124	)			(75	)			(183	)			(182	)
Foreign currency translation			1,102				3,481				4,155				3,437
Unrealized gains (losses) on available-for-sale securities			113				(50	)			205				240
Total other comprehensive income, net of minority interest			1,141				2,001				5,513				8,267
Comprehensive income (loss), net		$	(24,672	)		$	4,653			$	2,714			$	23,984

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

GENERAL GROWTH PROPERTIES, INC.

		Six Months Ended
		June 30,
		2006				2005
Cash flows from operating activities:
Net income (loss)		$	(2,799	)		$	15,717
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Minority interest, including discontinued operations			11,862				21,642
Equity in income of unconsolidated affiliates			(49,476	)			(56,336	)
Provision for doubtful accounts, including discontinued operations			13,319				8,413
Distributions received from unconsolidated affiliates			40,689				56,512
Depreciation, including discontinued operations			331,053				326,715
Amortization, including discontinued operations			20,246				14,125
Amortization of debt market rate adjustment			(16,458	)			(26,399	)
Participation expense pursuant to Contingent Stock Agreement			48,331				51,687
Land development and acquisition expenditures			(95,281	)			(59,610	)
Cost of land sales			61,630				84,287
Debt assumed by purchasers of land			(4,698	)			(4,133	)
Proceeds from the sale of marketable securities			4,307				5,699
Straight-line rent amortization			(24,267	)			(22,975	)
Above and below market tenant lease amortization			(19,846	)			(14,527	)
Other intangible amortization			2,919				5,819
Net changes:
Accounts and notes receivable			18,773				9,254
Prepaid expenses and other assets			26,749				(22,146	)
Deferred expenses			(22,493	)			(2,215	)
Accounts payable, accrued expenses and income taxes			(12,667	)			(39,796	)
Other, net			6,431				5,051
Net cash provided by operating activities			338,324				356,784
Cash flows from investing activities:
Acquisition/development of real estate and property additions/improvements			(269,335	)			(202,632	)
Proceeds from sale of property			6,208				—
Increase in investments in unconsolidated affiliates			(69,181	)			(40,950	)
Decrease in restricted cash			(14,081	)			(18,196	)
Insurance recoveries			13,400				—
Distributions received from unconsolidated affiliates in excess of income			117,548				72,882
Loans from unconsolidated affiliates, net			29,976				89,000
Other, net			4,847				4,505
Net cash used in investing activities			(180,618	)			(95,391	)
Cash flows from financing activities:
Cash distributions paid to common stockholders			(196,949	)			(170,109	)
Cash distributions paid to holders of Common Units			(43,490	)			(39,467	)
Cash distributions paid to holders of perpetual and convertible preferred units			(8,724	)			(18,579	)
Proceeds from issuance of common stock, including from common stock plans			17,901				36,650
Redemption of preferred minority interests			—				(183,000	)
Purchase of treasury stock			(53,363	)			—
Proceeds from issuance of mortgage notes and other property debt payable			6,629,000				2,917,537
Principal payments on mortgage notes and other property debt payable			(6,489,164	)			(2,782,417	)
Deferred financing costs			(39,923	)			(4,493	)
Other, net			(382	)			(6,547	)
Net cash used in financing activities			(185,094	)			(250,425	)
Net change in cash and cash equivalents			(27,388	)			10,968
Cash and cash equivalents at beginning of period			102,791				39,581
Cash and cash equivalents at end of period		$	75,403			$	50,549

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

GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
(UNAUDITED)
(Dollars in thousands)

		Six Months Ended
		June 30,
		2006				2005
Supplemental disclosure of cash flow information:
Interest paid		$	579,044			$	501,973
Interest capitalized			25,521				28,941
Taxes paid			12,572				6,577
Non-cash investing and financing activities:
Common stock issued pursuant to Contingent Stock Agreement		$	35,349			$	18,098
Common stock issued in exchange for Operating Partnership Units			3,088				—
Common stock issued in exchange for convertible preferred units			3,833				18,661
Debt assumed in conjunction with acquisition of property			—				5,210
Acquisition of joint venture partner share of GGP Ivanhoe IV, Inc.:
Total assets			169,415				—
Total liabilities			169,415				—

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

GENERAL GROWTH PROPERTIES, INC.

NOTE 1 ORGANIZATION

Readers of this Quarterly Report should refer to the Company’s (as defined below) audited Consolidated Financial Statements for the year ended December 31, 2005 which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (Commission File No. 1-11656), as certain footnote disclosures which would substantially duplicate those contained in the 2005 annual audited Consolidated Financial Statements have been omitted from this report. Capitalized terms used, but not defined, in this Quarterly Report have the same meanings as in the Company’s 2005 Annual Report on Form 10-K.

General

General Growth Properties, Inc. (“General Growth”), a Delaware corporation, is a self-administered and self-managed real estate investment trust, referred to as a “REIT.” General Growth was organized in 1986 and through its subsidiaries and affiliates owns, operates, manages, leases, acquires, develops, expands and finances operating properties located primarily throughout the United States. General Growth also develops and sells land for residential, commercial and other uses primarily in master planned communities. The operating properties consist of retail centers, office and industrial buildings and mixed-use and other properties. Land development and sales operations are predominantly related to large-scale, long-term community development projects in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas. In these notes, the terms “we,” “us” and “our” refer to General Growth and its subsidiaries (the “Company”).

Substantially all of our business is conducted through GGP Limited Partnership (the “Operating Partnership” or “GGPLP”). As of June 30, 2006, ownership of the Operating Partnership was as follows:

	82	%		General Growth, as sole general partner
	16			Limited partners that indirectly include family members of the original stockholders of the Company. Represented by common units of limited partnership interest (the “Common Units”)
	2			Limited partners that include subsequent contributors of properties to the Operating Partnership which are also represented by Common Units.
	100	%

The Operating Partnership also has preferred units of limited partnership interest (the “Preferred Units”) outstanding. Under certain circumstances, the Preferred Units are convertible into Common Units which are redeemable for shares of General Growth common stock on a one-for-one basis.

In addition to holding ownership interests in various joint ventures, the Operating Partnership generally conducts its operations through the following subsidiaries:

•		GGPLP L.L.C., a Delaware limited liability company (the “LLC”), has ownership interests in the majority of our properties (other than those acquired in The Rouse Company merger (the “TRC Merger”).
•		The Rouse Company LP (“TRCLP”), successor to The Rouse Company (“TRC”), which includes both REIT and taxable REIT subsidiaries (“TRSs”), has ownership interests in Consolidated Properties and Unconsolidated Properties (each as defined below).

•

General Growth Management, Inc. (“GGMI”), a TRS, manages, leases, and performs various other services for some of our Unconsolidated Real Estate Affiliates (as defined below) and approximately 30 properties owned by unaffiliated third parties. Effective July 1, 2006, GGMI also performs marketing and strategic partnership services for all of our Consolidated Properties.

In this report, we refer to our ownership interests in majority-owned or controlled properties as “Consolidated Properties,” to joint ventures in which we own a non-controlling interest as “Unconsolidated Real Estate Affiliates” and the properties owned by such joint ventures as the “Unconsolidated Properties.” Our “Company Portfolio” includes both our Consolidated Properties and our Unconsolidated Properties.

Basis of Presentation

The accompanying Consolidated Financial Statements include the accounts of General Growth, our subsidiaries and joint ventures in which we have a controlling interest. For consolidated joint ventures, the non-controlling partner’s share of operations (generally computed as the joint venture partner’s ownership percentage) is included in Minority Interest. All significant intercompany balances and transactions have been eliminated.

In the opinion of management, all adjustments (consisting of normal recurring adjustments, unless otherwise noted) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods have been included. The results for the interim periods ended June 30, 2006 are not necessarily indicative of the results to be obtained for the full fiscal year.

Earnings Per Share (“EPS”)

Information related to our EPS calculations is summarized as follows:

		Three Months Ended June 30,
		2006								2005
		Basic				Diluted				Basic				Diluted
						(In thousands)
Numerators:
Income (loss) from continuing operations		$	(25,813	)		$	(25,813	)		$	884			$	884
Discontinued operations, net of minority interests			—				—				1,768				1,768
Net income (loss)		$	(25,813	)		$	(25,813	)		$	2,652			$	2,652
Denominators:
Weighted average number of common shares outstanding — basic			241,330				241,330				237,854				237,854
Effect of dilutive securities — options			—				—				—				1,068
Weighted average number of common shares outstanding — diluted			241,330				241,330				237,854				238,922

		Six Months Ended June 30,
		2006								2005
		Basic				Diluted				Basic				Diluted
						(In thousands)
Numerators:
Income (loss) from continuing operations		$	(2,799	)		$	(2,799	)		$	12,421			$	12,421
Discontinued operations, net of minority interests			—				—				3,296				3,296
Net income (loss)		$	(2,799	)		$	(2,799	)		$	15,717			$	15,717
Denominators:
Weighted average number of common shares outstanding — basic			240,978				240,978				236,838				236,838
Effect of dilutive securities — options			—				—				—				865
Weighted average number of common shares outstanding — diluted			240,978				240,978				236,838				237,703

Diluted EPS excludes options where the exercise price was higher than the average market price of our common stock and, therefore, the effect would be anti-dilutive, and options for which the conditions which must be satisfied prior to the issuance of any such shares were not achieved. In 2006, all outstanding options are anti-dilutive as we reported losses in both the quarter and year-to-date periods. Such excluded options totaled 4.2 million shares for the three months ended June 30, 2006, 4.1 million shares for the six months ended June 30, 2006 and 1.9 million shares for both the three and six months ended June 30, 2005. Outstanding Common Units have also been excluded from the diluted EPS calculation because there would be no effect on EPS as the minority interests’ share of income would also be added back to net income.

Revenue Recognition and Related Matters

Straight-line rents receivable, which represent the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases, of $149.6 million as of June 30, 2006 and $123.5 million as of December 31, 2005 are included in accounts receivable, net in the accompanying Consolidated Balance Sheets. Minimum rent revenues also include amounts collected from tenants to allow the termination of their leases prior to their scheduled termination dates and accretion of above and below-market leases on acquired properties.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands)		2006				2005				2006				2005
Termination income		$	1,515			$	6,702			$	18,755			$	9,229
Accretion of above and below-market leases, net			10,742				6,801				19,846				14,527

Management fees primarily represent management and leasing fees, financing fees and fees for other ancillary services performed for the benefit of certain of the Unconsolidated Real Estate Affiliates and for properties owned by third parties. Fees charged to the Unconsolidated Properties totaled approximately $27.5 million for the three months ended June 30, 2006, $12.4 million for the three months ended June 30, 2005, $49.0 million for the six months ended June 30, 2006 and $29.4 million for the six months ended June 30, 2005. Such fees are recognized as revenue when earned.

Stock-Based Compensation Expense

On January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share–Based Payment,” (“SFAS 123(R)”). SFAS 123(R) requires companies to estimate the fair value of share–based payment awards on the date of grant using an option–pricing model. The value of

the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Consolidated Statements of Income and Comprehensive Income. SFAS 123(R) replaces SFAS No. 123, “Accounting for Stock–Based Compensation” (“SFAS 123”) which we adopted in the second quarter of 2002. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS 123(R).

We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006. Our Consolidated Financial Statements as of and for the three and six months ended June 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, our Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Because we had previously adopted SFAS 123, the impact of the adoption of SFAS 123(R) was not significant to our Consolidated Financial Statements. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Under SFAS 123, we did not estimate forfeitures for options issued pursuant to our Incentive Stock Plans. The cumulative effect of estimating forfeitures for these plans decreased compensation expense by approximately $150 thousand and has been reflected in our Consolidated Statements of Income and Comprehensive Income in the current period.

Prior to the adoption of SFAS 123 in the second quarter of 2002, we accounted for stock–based awards using the intrinsic value method in accordance with APB 25 as allowed under SFAS 123. Under the intrinsic value method, compensation cost is recognized for common stock awards or stock options only if the quoted market place of the stock as of the grant date (or other measurement date, if later) is greater than the amount the grantee must pay to acquire the stock. Because the exercise price of stock options and the fair value of restricted stock grants equaled the fair market value of the underlying stock at the date of grant, no compensation expense related to grants issued under the 1993 Stock Incentive Plan was recognized. As a result of the cash settlement option available for threshold–vesting stock options (“TSOs”) issued prior to 2004, compensation expense equal to the change in the market price of our stock at the end of each reporting period continues to be recognized for all such unexercised TSOs.

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. FAS 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share–Based Payment Awards.” The transition methods include procedures to establish the beginning balance of the additional paid–in capital pool (“APIC pool”) related to the tax effects of employee stock–based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock–based compensation awards that are outstanding upon adoption of SFAS 123(R). We must adopt a transition method by January 1, 2007. We currently do not expect to adopt the simplified alternative transition method for calculating the tax effects of stock–based compensation pursuant to SFAS 123(R).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant estimates and assumptions have been made with respect to useful lives of assets, capitalization of development and leasing costs, provision for income taxes, recoverable amounts of receivables and deferred taxes, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions, and cost ratios and completion percentages used for land sales. Actual results could differ from those estimates.

Reclassifications and Corrections

Certain amounts in the 2005 Consolidated Financial Statements, including discontinued operations (Note 6), have been reclassified to conform to the current year presentation. During the first quarter of 2006, we made a correction to the purchase price allocation of TRCLP that was recorded in our 2005 Consolidated Financial Statements. Such correction reduced deferred tax liabilities by approximately $58.7 million with a corresponding reduction to goodwill and had no impact on earnings or cash flows for the year ended December 31, 2005 or the three and six months ended June 30, 2006. Additionally, we reclassified approximately $65 million of below-market ground leases to owned land in the second quarter of 2006. This amount had previously been included in prepaid expenses and other assets in our Consolidated Balance Sheets. This reclassification had no impact on the recorded goodwill in the acquisition. As a result of this change and the corresponding revision of previously recorded amortization, there was a decrease in other property operating costs of $1.9 million and an increase in net income of $1.5 million during the three and six months ended June 30, 2006. During the second quarter of 2006, we also corrected the amortization period used to amortize the tenant-related intangible assets and liabilities at one of the properties acquired in the TRC Merger. This correction increased depreciation and amortization by $2.4 million and decreased net income by $2.0 million. We believe that the effects of these changes are not material to our Consolidated Financial Statements.

NOTE 2 INTANGIBLES

The following table summarizes our intangible assets and liabilities:

						Accumulated
		Gross Asset				(Amortization)/				Net Carrying
(In thousands)		(Liability)				Accretion				Amount
As of June 30, 2006
Tenant leases:
In-place value		$	667,090			$	(248,559	)		$	418,531
Above-market			106,108				(41,052	)			65,056
Below-market			(294,052	)			144,170				(149,882	)
Ground leases:
Above-market			(16,968	)			771				(16,197	)
Below-market			293,435				(9,699	)			283,736
Real estate tax stabilization agreement			91,879				(6,831	)			85,048
As of December 31, 2005
Tenant leases:
In-place value		$	664,444			$	(176,190	)		$	488,254
Above-market			106,117				(29,023	)			77,094
Below-market			(293,967	)			111,697				(182,270	)
Ground leases:
Above-market			(16,968	)			535				(16,433	)
Below-market			358,524				(8,736	)			349,788
Real estate tax stabilization agreement			91,879				(4,691	)			87,188

Changes in gross asset (liability) balances are the result of the GGP Ivanhoe IV, Inc. acquisition (Note 3) and the ground lease reclassification (Note 1).

Amortization/accretion of these intangible assets and liabilities, and similar assets and liabilities from our Unconsolidated Real Estate Affiliates, decreased operating income by approximately $31.0 million for the three months ended June 30, 2006, $40.0 million for the three months ended June 30, 2005, $60.3 million for the six months ended June 30, 2006 and $65.5 million for the six months ended June 30, 2005.

Future amortization/accretion, including our share of such items from Unconsolidated Real Estate Affiliates, is estimated to decrease annual operating income by approximately $120 million in 2006, $100 million in 2007, $70 million in 2008, $40 million in 2009, and $30 million in 2010.

NOTE 3 INVESTMENTS IN AND LOANS TO/FROM UNCONSOLIDATED REAL ESTATE AFFILIATES

The Unconsolidated Real Estate Affiliates constitute our non-controlling investment in real estate joint ventures that own and/or develop shopping centers and other retail and investment property. Generally, we share in the profits and losses, cash flows and other matters relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our respective ownership percentages. We manage most of the properties owned by these joint ventures. Some of the joint ventures have elected to be taxed as REITs. Since we have joint interest and control of the Unconsolidated Properties with our venture partners, we account for these joint ventures using the equity method.

In certain circumstances, we are obligated (or can elect) to fund debt in excess of our pro rata share of the debt of our Unconsolidated Real Estate Affiliates. Such Retained Debt totaled $263.0 million as of June 30, 2006 and $302.7 million as of December 31, 2005, and has been reflected as a reduction of our Investment in Unconsolidated Real Estate Affiliates.

The significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same as ours.

On April 6, 2006, we acquired our joint venture partner’s 49% interest in GGP Ivanhoe IV, Inc., which owns Eastridge Mall, for approximately $115 million, which was paid with a 5.95% fixed-rate note due in September 2006. As of April 6, 2006, Eastridge Mall is consolidated for accounting purposes.

Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates

The following is condensed combined financial information for our Unconsolidated Real Estate Affiliates as of June 30, 2006 and December 31, 2005 and for the three and six months ended June 30, 2006 and 2005.

		June 30,				December 31,
(In thousands)		2006				2005
Condensed Combined Balance Sheets — Unconsolidated Real Estate Affiliates
Assets:
Land		$	921,240			$	919,532
Buildings and equipment			7,668,195				7,658,896
Less accumulated depreciation			(1,472,747	)			(1,304,226	)
Developments in progress			620,050				425,057
Net property and equipment			7,736,738				7,699,259
Investment in unconsolidated joint ventures			72,820				89,430
Investment land and land held for sale and development			284,553				259,386
Net investment in real estate			8,094,111				8,048,075
Cash and cash equivalents			221,621				194,494
Accounts and notes receivable, net			130,415				161,218
Deferred expenses, net			144,657				148,561
Prepaid expenses and other assets			261,464				259,480
Total assets		$	8,852,268			$	8,811,828
Liabilities and Owners’ Equity:
Mortgage notes and other property debt payable		$	6,639,479			$	6,325,118
Accounts payable and accrued expenses			463,632				455,596
Owners’ equity			1,749,157				2,031,114
Total liabilities and owners’ equity		$	8,852,268			$	8,811,828
Investment In and Loans To/From Unconsolidated Real Estate Affiliates
Owners’ equity		$	1,749,157			$	2,031,114
Less joint venture partners’ equity			(996,398	)			(1,188,150	)
Capital or basis differences and loans			935,553				975,133
Investment in and loans to/from Unconsolidated Real Estate Affiliates		$	1,688,312			$	1,818,097

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands)		2006				2005				2006				2005
Condensed Combined Statements of Income — Unconsolidated Real Estate Affiliates
Revenues:
Minimum rents		$	208,138			$	192,927			$	419,116			$	385,372
Tenant recoveries			92,606				88,298				186,382				175,157
Overage rents			2,538				2,257				7,236				5,761
Land sales			38,395				54,581				73,726				70,900
Other			42,280				38,317				84,821				68,166
Total revenues			383,957				376,380				771,281				705,356
Expenses:
Real estate taxes			29,760				27,816				59,847				55,347
Repairs and maintenance			23,259				20,197				44,499				41,628
Marketing			5,795				7,004				12,917				13,830
Other property operating costs			77,062				66,964				150,890				124,992
Land sales operations			31,769				28,551				50,686				35,755
Provision for doubtful accounts			1,697				1,142				1,982				3,351
Property management and other costs			15,490				14,360				31,613				28,387
General and administrative			892				904				2,655				1,221
Depreciation and amortization			63,713				67,871				129,939				126,689
Total expenses			249,437				234,809				485,028				431,200
Operating income			134,520				141,571				286,253				274,156
Interest income			5,832				1,871				11,834				3,403
Interest expense			(87,563	)			(72,388	)			(168,384	)			(141,197	)
Equity in income of unconsolidated joint ventures			1,724				1,184				3,152				2,303
Net income		$	54,513			$	72,238			$	132,855			$	138,665
Equity In Income of Unconsolidated Real Estate Affiliates
Net income of Unconsolidated Real Estate Affiliates		$	54,513			$	72,238			$	132,855			$	138,665
Joint venture partners’ share of income of Unconsolidated Real Estate Affiliates			(29,410	)			(38,320	)			(63,310	)			(71,537	)
Amortization of capital or basis differences			(4,094	)			(4,271	)			(20,069	)			(10,792	)
Equity in income of Unconsolidated Real Estate Affiliates		$	21,009			$	29,647			$	49,476			$	56,336

In addition, the following is summarized financial information for certain individually significant Unconsolidated Real Estate Affiliates for the three and six months ended June 30, 2006 and 2005.

		GGP/Homart
		Three months ended								Six months ended
		June 30,								June 30,
(In thousands)		2006				2005				2006				2005
Revenues:
Minimum rents		$	57,012			$	53,067			$	115,583			$	112,677
Tenant recoveries			23,666				24,039				48,232				46,982
Overage rents			280				572				2,016				1,669
Other			2,369				2,106				4,608				4,101
Total revenues			83,327				79,784				170,439				165,429
Expenses:
Real estate taxes			7,758				7,416				15,656				14,796
Repairs and maintenance			6,108				6,073				12,607				13,209
Marketing			1,728				2,474				4,000				4,924
Other property operating costs			10,724				9,543				21,180				17,418
Provision for doubtful accounts			381				295				187				625
Property management and other costs			5,453				5,010				10,994				10,074
General and administrative			93				71				191				167
Depreciation and amortization			17,967				16,963				35,885				33,982
Total expenses			50,212				47,845				100,700				95,195
Operating income			33,115				31,939				69,739				70,234
Interest income			2,772				670				4,858				1,168
Interest expense			(22,931	)			(20,833	)			(44,580	)			(41,162	)
Equity in income of unconsolidated joint ventures			1,724				1,184				3,152				2,303
Net income		$	14,680			$	12,960			$	33,169			$	32,543

		GGP/Homart II
		Three months ended								Six months ended
		June 30,								June 30,
(In thousands)		2006				2005				2006				2005
Revenues:
Minimum rents		$	48,136			$	47,302			$	100,670			$	93,259
Tenant recoveries			22,642				22,335				46,233				45,425
Overage rents			523				559				1,592				1,594
Other			1,646				2,584				3,648				3,925
Total revenues			72,947				72,780				152,143				144,203
Expenses:
Real estate taxes			7,471				6,436				14,919				13,737
Repairs and maintenance			4,485				4,565				8,968				9,292
Marketing			1,757				2,490				3,796				4,867
Other property operating costs			9,090				6,059				17,702				14,087
Provision for doubtful accounts			258				466				338				1,077
Property management and other costs			4,591				4,282				9,385				8,370
General and administrative			769				773				2,433				967
Depreciation and amortization			16,128				15,151				31,638				30,176
Total expenses			44,549				40,222				89,179				82,573
Operating income			28,398				32,558				62,964				61,630
Interest income			1,971				674				4,843				1,152
Interest expense			(20,721	)			(17,558	)			(40,833	)			(33,870	)
Net income		$	9,648			$	15,674			$	26,974			$	28,912

		GGP/Teachers
		Three months ended								Six months ended
		June 30,								June 30,
		2006				2005				2006				2005
(In thousands)
Revenues:
Minimum rents		$	26,652			$	20,048			$	52,303			$	40,908
Tenant recoveries			11,857				9,558				22,705				19,137
Overage rents			533				8				1,127				74
Other			559				547				1,077				1,017
Total revenues			39,601				30,161				77,212				61,136
Expenses:
Real estate taxes			2,945				2,787				5,859				5,536
Repairs and maintenance			1,924				1,498				3,817				3,314
Marketing			843				925				1,881				1,781
Other property operating costs			4,750				3,959				9,454				7,808
Provision for doubtful accounts			336				117				228				179
Property management and other costs			2,178				1,674				4,342				3,324
General and administrative			17				39				16				74
Depreciation and amortization			6,298				5,177				13,758				10,325
Total expenses			19,291				16,176				39,355				32,341
Operating income			20,310				13,985				37,857				28,795
Interest income			243				168				428				304
Interest expense			(10,592	)			(5,332	)			(20,979	)			(10,125	)
Net income		$	9,961			$	8,821			$	17,306			$	18,974

NOTE 4 MORTGAGE NOTES AND OTHER PROPERTY DEBT PAYABLE

Mortgage notes and other property debt payable reflected in the accompanying Consolidated Balance Sheets consisted of the following:

		June 30,				December 31,
(In thousands)		2006				2005
Fixed-rate debt:
Commercial mortgage-backed securities		$	1,216,360			$	1,181,895
Other collateralized mortgage notes and other debt payable			11,597,528				11,092,544
Corporate and other unsecured term loans			2,392,707				1,631,257
Total fixed-rate debt			15,206,595				13,905,696
Variable-rate debt:
Commercial mortgage-backed securities			304,322				306,270
Other collateralized mortgage notes and other debt payable			635,019				888,842
Credit facilities			1,000				180,500
Corporate and other unsecured term loans			4,548,200				5,137,567
Total variable-rate debt			5,488,541				6,513,179
Total		$	20,695,136			$	20,418,875

The weighted-average annual interest rate (including the effects of swaps and excluding the effects of deferred finance costs) on our mortgage notes and other property debt payable was 5.78% at June 30, 2006, 5.64% at December 31, 2005 and 5.45% at June 30, 2005.

Commercial Mortgage-Backed Securities

In December 2001, the Operating Partnership and certain Unconsolidated Real Estate Affiliates completed the placement of non-recourse commercial mortgage pass-through certificates (the “GGP MPTC”). The principal amount of the GGP MPTC is attributed to the Operating Partnership, GGP/Homart, GGP/Homart II, GGP Ivanhoe III and GGP Ivanhoe IV. In addition, in November 1997 (refinanced in November 2004), the Operating Partnership and GGP Ivanhoe I completed the placement of non-recourse commercial mortgage backed securities (the “CMBS 13”). The commercial mortgage-backed securities have cross-default provisions and are cross-collateralized. Under certain cross-default provisions, a default under any mortgage note included in a cross-defaulted package may constitute a default under all such mortgage notes in the package and may lead to acceleration of the indebtedness due on each property within the collateral package. In general, the cross-defaulted properties are under common ownership, however, certain unconsolidated debt is cross-defaulted and cross-collateralized by consolidated debt as follows:

		Outstanding Balance								Number of Collateralized Properties
		Consolidated				Unconsolidated				Consolidated				Unconsolidated
		(Dollars in millions)
GGP MPTC		$	651.9			$	252.1				5				4
CMBS 13			868.8				138.6				11				2

As of June 30, 2006, the weighted-average interest rate on the consolidated fixed-rate commercial mortgage-backed securities was 5.38% (range of 4.15% to 6.71%). The weighted-average interest rate on the consolidated variable-rate commercial mortgage-backed securities, excluding the impact of interest rate swaps, was 6.12% (range of LIBOR plus 80 to 92 basis points).

Other Collateralized Mortgage Notes and Other Property Debt Payable

Collateralized mortgage notes and other property debt payable consist primarily of non-recourse notes collateralized by individual properties and equipment. Substantially all of the mortgage notes are non-recourse to us. Certain mortgage notes payable may be prepaid but are generally subject to a prepayment penalty equal to a yield-maintenance premium or a percentage of the loan balance.

The fixed-rate collateralized mortgage notes and other property debt payable bear interest ranging from 3.13% to 11.40%. The variable-rate collateralized mortgage notes and other property debt payable bear interest at LIBOR plus 80 to 190 basis points.

Corporate and Other Unsecured Term Loans

In February 2006, we entered into several debt agreements. The proceeds of these transactions were used to reduce the approximately $5.3 billion outstanding under the 2004 Credit Facility, which was entered into to fund the cash portion of the TRC Merger consideration and, with other cash and financing sources, fund other costs of the merger transaction.

On February 24, 2006, we amended the 2004 Credit Facility and entered into a Second Amended and Restated Credit Agreement (the “2006 Credit Facility”). The 2006 Credit Facility provides for a $2.85 billion term loan (the “Term Loan”) and a $650 million revolving credit facility. As of June 30, 2006, $649 million is available to be drawn on the revolving credit facility.

The 2006 Credit Facility has a four year term, with a one year extension option. The interest rate ranges from LIBOR plus 1.15% to LIBOR plus 1.5%, depending on our leverage ratio and assuming we maintain our election to have these loans designated as Eurodollar loans. The interest rate, as of June 30,

2006, was LIBOR plus 1.25%. Quarterly principal payments on the Term Loan of $12.5 million begin March 31, 2007, with the balance due at maturity.

Under the terms of the 2006 Credit Facility, we are subject to customary affirmative and negative covenants as we were under the 2004 Credit Facility. If a default occurs, the lenders will have the option of declaring all outstanding amounts immediately due and payable. Events of default include a failure to maintain our REIT status under the Internal Revenue Code, a failure to remain listed on the New York Stock Exchange and such customary events as nonpayment of principal, interest, fees or other amounts, breach of representations and warranties, breach of covenant, cross-default to other indebtedness and certain bankruptcy events.

Concurrently with the 2006 Credit Facility transaction and as described below, we also entered into a $1.4 billion term loan (the “Short Term Loan”) and issued $200 million of trust preferred securities (the “TRUPS”) through GGP Capital Trust I and TRCLP entered into a $500 million term loan (the “Bridge Loan”). All of these arrangements are subject to customary affirmative and negative covenants and events of default.

The interest rate on the Short Term Loan is the same as on the 2006 Credit Facility (currently LIBOR plus 1.25%). An $800 million principal payment is due under the Short Term Loan on August 14, 2006, with the remaining balance due on December 31, 2006. We are required to apply the net proceeds of the refinancing of Ala Moana Center, which is expected in August 2006, toward repayment of the Short Term Loan.

The Bridge Loan bore interest at LIBOR plus 1.3% until May 24, 2006 and at LIBOR plus 1.55% thereafter and was scheduled to be due August 24, 2006. However, on May 5, 2006 we fully repaid the Bridge Loan with a portion of the proceeds obtained from the sale of bonds issued by TRCLP. A total of $800 million of senior unsecured notes were issued, providing for semi-annual payments (commencing November 1, 2006) of interest only at a rate per annum of 6.75% and payment of the principal in full on May 1, 2013.

In August 2006, we expect to close various refinancing transactions on our Consolidated and Unconsolidated Properties. The proceeds of these expected transactions will be used to fully repay the GGP MPTC (which includes Ala Moana) and approximately $1 billion on the Short Term Loan, as described above. The proposed financing (including our share of the Unconsolidated Properties), substantially all of which is expected to be individual non-recourse secured property level mortgage debt, is expected to have a weighted average interest rate of approximately 5.7%, which is approximately 50 basis points lower than the weighted average rate on the currently outstanding debt that will be repaid as a result of these transactions. The proposed refinancing will also convert approximately $1.5 billion of Consolidated and $100 million of Unconsolidated (at our share) variable rate debt to fixed rate debt. Following the anticipated refinancing, our consolidated debt portfolio, after giving effect to interest rate swaps, is expected to include $17.3 billion of fixed rate debt and $3.4 billion of variable rate debt.

As mentioned above, GGP Capital Trust I (the “Trust”), a Delaware statutory trust (the “Trust”), completed a private placement of $200 million of TRUPS. The Trust also issued $6.2 million of Common Securities to GGPLP. The Trust used the proceeds from the sale of the Preferred and Common Securities to purchase $206.2 million of floating rate Junior Subordinated Notes of GGPLP due 2036. The TRUPS require distributions equal to LIBOR plus 1.45%. Distributions are cumulative and accrue from the date of original issuance. The Preferred Securities mature on April 30, 2036, but may be redeemed beginning on April 30, 2011 if the Trust exercises its right to redeem a like amount of the Junior Subordinated Notes. The Junior Subordinated Notes bear interest at LIBOR plus 1.45%. Though the Trust is a wholly-owned subsidiary of GGPLP, we are not the primary beneficiary of the Trust and, accordingly, it is not consolidated for accounting purposes under FASB Interpretation No. 46, “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (FIN 46R). As a result,

we have recorded the Junior Subordinated Notes as “Mortgage Notes and Other Property Debt Payable” and our common equity interest in the Trust as “Prepaid Expenses and Other Assets” in our Consolidated Balance Sheet as of June 30, 2006.

Unsecured Term Loans

In conjunction with the TRC Merger, we assumed certain publicly-traded unsecured debt which included 8.78% and 8.44% Notes due 2007, 3.625% Notes and 8% Notes due 2009, 7.2% Notes due 2012 and 5.375% Notes due 2013. Such debt totaled $1.5 billion at both June 30, 2006 and December 31, 2005. Under the terms of the Indenture dated as of February 24, 1995, as long as these notes are outstanding, TRCLP is required to file with the SEC the annual and quarterly reports and other documents which TRCLP would be required to file if it was subject to Section 13(a) or 15(d) of the Exchange Act, regardless of whether TRCLP was subject to such requirements. TRCLP is no longer required to file reports or other documents with the SEC under Section 13(a) or 15(d). Accordingly, in lieu of such filing, certain financial and other information related to TRCLP has been included in Item 5 of this Quarterly Report on Form 10-Q. We believe that such TRCLP information is responsive to the terms of the Indenture and that any additional information needed or actions required can be supplied or addressed.

In conjunction with our acquisition of JP Realty in 2002, we assumed $100 million of ten-year senior unsecured notes which bear interest at a fixed rate of 7.29% and were issued in March 1998. The notes require semi-annual interest payments. Annual principal payments of $25 million began in March 2005 and continue until the loan is fully repaid in March 2008.

Interest Rate Swaps

To achieve a more desirable balance between fixed and variable-rate debt, we have also entered into certain swap agreements as follows:

		GGP				2006 Credit				Property
		MPTC				Agreement				Specific
Total notional amount (in millions)		$	25.0			$	350.0			$	195.0
Average fixed pay rate			4.59	%			3.43	%			4.78	%
Average variable receive rate		LIBOR				LIBOR				LIBOR

Such swap agreements have been designated as cash flow hedges and are intended to hedge our exposure to future interest charges on the related variable-rate debt.

Letters of Credit and Surety Bonds

We had outstanding letters of credit and surety bonds of approximately $220 million as of June 30, 2006 and approximately $210 million as of December 31, 2005. These letters of credit and bonds were issued primarily in connection with insurance requirements, special real estate assessments and construction obligations.

NOTE 5 COMMITMENTS AND CONTINGENCIES

In the normal course of business, from time to time, we are involved in legal actions relating to the ownership and operations of our properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.

We lease land or buildings at certain properties from third parties. Consolidated rental expense, including participation rent and excluding amortization of above and below market ground leases and straight-line

rents, related to these leases was $2.3 million for the three months ended June 30, 2006, $2.5 million for the three months ended June 30, 2005 and $4.8 million for both the six months ended June 30, 2006 and 2005. The leases generally provide for a right of first refusal in our favor in the event of a proposed sale of the property by the landlord.

We periodically enter into contingent agreements for the acquisition of properties. Each acquisition is subject to satisfactory completion of due diligence and, in the case of property acquired under development, completion of the project.

TRC acquired various assets, including Summerlin, a master-planned community in suburban Las Vegas, Nevada, in the acquisition of The Hughes Corporation (“Hughes”) in 1996. In connection with the acquisition of Hughes, TRC entered into a Contingent Stock Agreement (“CSA”) for the benefit of the former Hughes owners or their successors (“beneficiaries”). Under the terms of the CSA, shares of TRC common stock were issuable to the beneficiaries based on the appraised values of defined asset groups, including Summerlin, at specified termination dates through 2009 and/or cash flows from the development and/or sale of those assets prior to the termination dates.

We assumed TRC’s obligation under the CSA to issue shares of common stock twice a year to beneficiaries under the CSA. The amount of shares is based upon a formula set forth under the CSA and upon our stock price. Such issuances could be dilutive to our existing stockholders if the delivery option is satisfied by the issuance of new shares rather than from treasury stock or shares purchased on the open market. In addition, under the assumption agreement, we agreed that following the effective time of the TRC Merger there would not be a prejudicial effect on the beneficiaries under the CSA with respect to their receipt of securities pursuant to the CSA as a result of the TRC Merger. We further agreed to indemnify and hold harmless the beneficiaries against losses arising out of any breach by us of the foregoing covenants.

We account for the beneficiaries’ share of earnings from the assets as an operating expense. We will account for any distributions to the beneficiaries in 2009, which are likely to be significant, in connection with a valuation related to assets that we own as of such date as additional investments in the related assets (that is, contingent consideration). A total of 755,828 shares (including 668,333 treasury shares) of our common stock were delivered to the beneficiaries in February 2006 pursuant to the CSA.

Two of our operating retail properties (Oakwood Center in Gretna, Louisiana and Riverwalk Marketplace, located near the convention center in downtown New Orleans) continue to have unrepaired damage and tenant vacancies which arose concurrently with hurricane damage in the New Orleans area in September 2005. Riverwalk Marketplace partially reopened in November 2005 and Oakwood Center is not scheduled to substantially reopen until October 2007. We have comprehensive insurance coverage for both property damage and business interruption. The net book value of the property damage is currently estimated to be approximately $57 million; however, we are still assessing the damage estimates and the actual net book value write-off could vary from this estimate. Changes to these estimates will be recorded in the periods in which they are determined. During 2005, we recorded a net fixed asset write-off and a corresponding insurance claim recovery receivable for this net book value amount because we believe that it is probable that the insurance recovery, net of deductibles on a replacement cost basis, will exceed these amounts. While we expect the insurance proceeds will be sufficient to cover most of the replacement cost of the restoration of the properties and certain business interruption amounts, certain deductibles, limitations and exclusions are expected to apply with respect to both current and future matters. No determination has been made as to the total amount or timing of those insurance payments. As of June 30, 2006, an aggregate of $17.5 million in insurance proceeds related to the properties have been received, which has been applied against this insurance recovery receivable. As only a portion of the repairs have taken place as of June 30, 2006, substantially all of the remaining $52.1 million receivable recorded represents the recovery of the net book value of fixed assets written off.

NOTE 6 DISCONTINUED OPERATIONS AND GAINS ON DISPOSITIONS OF INTERESTS IN OPERATING PROPERTIES

On December 21, 2005, as approved in December 2005 by our Board of Directors, we sold seven buildings totaling approximately 705,000 square feet located in the Hunt Valley Business Community in Hunt Valley, Maryland and 14 office buildings totaling approximately 402,000 square feet in the Rutherford Business Center, Woodlawn, Maryland. These 21 properties in Baltimore County were sold at an aggregate sale price of approximately $124.5 million, which was paid in cash at closing. We recognized approximately $4.9 million in gain, before minority interest, on the disposition of these office properties.

On December 23, 2005, as approved in December 2005 by our Board of Directors, we sold a sixteen building, 952,000 square foot portfolio of industrial buildings for approximately $57 million, which was paid in cash at closing. The portfolio is comprised of 10 buildings totaling 582,000 square feet in the Hunt Valley Business Community and six buildings totaling 370,000 square feet in the Rutherford Business Center in suburban Baltimore. The portfolio also included three land parcels totaling more than 18 acres. We recognized gain of approximately $1.4 million, before minority interest, on the disposition of these industrial properties.

Pursuant to SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” the operations of these properties (net of minority interests) have been reported as discontinued operations in the accompanying Consolidated Financial Statements. For the three and six months ended June 30, 2005, revenues and income before minority interest of such properties were as follows:

		Three Months				Six Months
		Ended				Ended
		June 30,				June 30,
(In thousands)		2005				2005
Revenues		$	5,863			$	11,685
Income before minority interest			2,173				4059

NOTE 7 OTHER ASSETS & LIABILITIES

The following table summarizes the significant components of “Prepaid Expenses and Other Assets.”

		June 30,				December 31,
(In thousands)		2006				2005
Below-market ground leases		$	283,736			$	349,788
Receivables-finance leases and bonds			114,154				136,410
Security and escrow deposits			104,213				87,126
Real estate tax stabilization agreement			85,048				87,188
Special Improvement District receivable			70,365				66,206
Above-market tenant leases			65,056				77,094
Prepaid expenses			23,541				29,884
Funded defined contribution plan assets			16,387				20,062
Other			60,930				66,611
		$	823,430			$	920,369