Exhibit 99.1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004

                                       Or

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

           For the transition period from                            to

                         Commission File Number 1-12494


                        CBL & ASSOCIATES PROPERTIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)

       Delaware                                           62-1545718
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporate or organization)

 2030 Hamilton Place Blvd, Suite 500                               37421
           Chattanooga, TN                                       (Zip Code)
(Address of principal executive office)

        Registrant's telephone number, including area code:(423) 855-0001

                    Securities registered pursuant to Section
                               12(b) of the Act:


       Title of each Class             Name of each exchange on which registered
- ------------------------------------   -----------------------------------------
Common Stock, $0.01 par value                         New York Stock Exchange
8.75% Series B Cumulative Redeemable
  Preferred Stock, $0.01 par value                    New York Stock Exchange
7.75% Series C Cumulative Redeemable
  Preferred Stock, $0.01 par value                    New York Stock Exchange
7.375% Series D Cumulative Redeemable
   Preferred Stock, $0.01 par value                   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No |_|

The  aggregate  market  value of the  56,746,062  shares of common stock held by
non-affiliates of the registrant as of June 30, 2004 was  $1,560,576,705,  based
on the closing price of $27.50 per share on the New York Stock  Exchange on June
30, 2004. (For this computation, the registrant has excluded the market value of
all shares of its common  stock  reported  as  beneficially  owned by  executive
officers and directors of the registrant;  such exclusion shall not be deemed to
constitute  an  admission  that  any  such  person  is  an  "affiliate"  of  the
registrant.) As of March 7, 2005,  there were 62,798,056  shares of common stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for the annual shareholders meeting
to be held on May 9, 2005, are incorporated by reference into Part III.


                                       6



                                     Part I.
ITEM 1. BUSINESS

Background

     CBL & Associates  Properties,  Inc.  (the "CBL") was  organized on July 13,
1993, as a Delaware corporation, to acquire substantially all of the real estate
properties  owned  by  CBL  &  Associates,  Inc.,  and  its  affiliates  ("CBL's
Predecessor"),  which was formed by Charles B.  Lebovitz in 1978. On November 3,
1993,  CBL completed an initial public  offering (the  "Offering") of 30,800,000
shares of its common stock.  Simultaneous  with the  completion of the Offering,
CBL's  Predecessor  transferred  substantially  all of its interests in its real
estate  properties  to CBL &  Associates  Limited  Partnership  (the  "Operating
Partnership")  in exchange for common units of limited  partnership  interest in
the  Operating  Partnership.  CBL's  Predecessor  also  acquired  an  additional
interest in the Operating  Partnership for a cash payment.  The interests in the
Operating  Partnership  contain  certain  conversion  rights that are more fully
described in Note 9 to the consolidated  financial  statements.  The terms "we",
"us", "our" and the "Company" refer to CBL & Associates Properties, Inc. and its
subsidiaries.

Recent Developments

     On  January  5,  2004,  we closed  the  second  phase of our joint  venture
transaction with Galileo America, Inc. ("Galileo America REIT") when we sold our
interests in six community  centers for $92.4 million,  which consisted of $62.7
million in cash, the retirement of $26.0 million of debt on one of the community
centers,  the joint  venture's  assumption  of $2.8  million of debt and closing
costs of $0.9 million.

     We sold a community  center expansion to the joint venture during September
2004 for $3.4 million in cash.

     In October 2004,  we sold our interests in a community  center to the joint
venture for $17.9  million,  which  consisted of $2.9 million in cash, the joint
venture's assumption of $10.5 million of debt and a limited partnership interest
in Galileo  America REIT. The community  center was  originally  scheduled to be
included in the third phase of the transaction that closed in January 2005.

     We  closed  the  third  and  final  phase  of  the  Galileo  joint  venture
transaction on January 5, 2005,  when we sold our interest in two power centers,
one community center and one community center expansion for $58.6 million, which
consisted of $42.6  million in cash,  the joint  venture's  assumption  of $12.1
million of debt and $3.6 million representing our interest in the joint venture.

     On March 12, 2004,  we acquired  Honey Creek Mall in Terre Haute,  IN for a
purchase price,  including transaction costs, of $83.1 million,  which consisted
of $50.1 million in cash and the  assumption  of $33.0  million of  non-recourse
debt that bears interest at a stated rate of 6.95% and matures in May 2009.

     On March 12,  2004,  we acquired  Volusia Mall in Daytona  Beach,  FL for a
purchase price,  including transaction costs, of $118.5 million, which consisted
of $63.7 million in cash and the  assumption  of $54.8  million of  non-recourse
debt that bears interest at a stated rate of 6.70% and matures in March 2009.

     On April 8, 2004, we acquired Greenbrier Mall in Chesapeake,  VA for a cash
purchase price,  including  transaction  costs, of $107.5 million.  The purchase
price was partially financed with a new recourse term loan of $92.7 million that
bears  interest  at LIBOR plus 100 basis  points,  matures in April 2006 and has
three one-year extension options that are at our election.

     On April 21, 2004, we acquired Fashion Square, a community center in Orange
Park,  FL for a cash  purchase  price,  including  transaction  costs,  of  $4.0
million.

     On May 20, 2004, we acquired  Chapel Hill Mall and its  associated  center,
Chapel Hill Suburban,  in Akron,  OH for a cash purchase price of $78.3 million,
including  transaction  costs. The purchase price was partially  financed with a


                                       7


new recourse  term loan of $66.5  million that bears  interest at LIBOR plus 100
basis points,  matures in May 2006 and has three one-year extension options that
are at our election.

     On June 22,  2004,  we acquired  Park Plaza Mall in Little  Rock,  AR for a
purchase price,  including transaction costs, of $77.5 million,  which consisted
of $36.2 million in cash and the  assumption  of $41.3  million of  non-recourse
debt that bears interest at a stated rate of 8.69% and matures in May 2010.

     On July 28, 2004, we acquired  Monroeville Mall, and its associated center,
the Annex,  in the eastern  Pittsburgh  suburb of  Monroeville,  PA, for a total
purchase price,  including transaction costs, of $231.6 million, which consisted
of $39.5 million in cash, the assumption of $134.0 million of non-recourse  debt
that bears  interest at a stated rate of 5.73% and matures in January  2013,  an
obligation of $12.0  million to pay for the fee interest in the land  underlying
the mall and  associated  center on or before July 28, 2007, and the issuance of
1,560,940 special common units in the Operating Partnership with a fair value of
$46.2 million ($29.605 per special common unit).

     In August  2004,  we entered  into a new $400.0  million  unsecured  credit
facility, which bears interest at LIBOR plus a margin of 100 to 145 basis points
based on our leverage, as defined in the agreement.  The credit facility matures
in  August  2006 and has  three  one-year  extension  options,  which are at our
election.  We drew on the  credit  facility  to  repay  all  $102.4  million  of
outstanding  borrowings  under our  previous  $130.0  million  unsecured  credit
facility,  which had an interest  rate of LIBOR plus 1.30% and was  scheduled to
mature in September 2004.

     On November 22, 2004, we acquired  Mall del Norte in Laredo,  TX for a cash
purchase price,  including  transaction  costs, of $170.4 million.  The purchase
price was partially financed with a new nonrecourse,  interest-only term loan of
$113.4  million  that bears  interest  at a stated  rate of 5.04% and matures in
December 2011.

     On November  22,  2004,  we  acquired  Northpark  Mall in Joplin,  MO for a
purchase price,  including  transaction  costs,  of $79.1 million.  The purchase
price  consisted of $37.6 million in cash and the assumption of $41.5 million of
non-recourse  debt that bears  interest at a stated rate of 5.75% and matures in
March 2014.

     On December 13, 2004,  we issued  7,000,000  depositary  shares in a public
offering,  each representing  one-tenth of a share of 7.375% Series D Cumulative
Redeemable  Preferred Stock (the "Series D Preferred  Stock") with a liquidation
preference of $250.00 per share ($25.00 per depositary  share). The net proceeds
of $169.3  million were used to reduce  outstanding  borrowings on the Company's
credit facilities.

     At our Annual  Meeting of  Shareholders  on May 9, 2005,  our  shareholders
approved  an  increase in the  authorized  shares of the common  stock under our
amended and restated  certificate of  incorporation  to 180,000,000  shares from
95,000,000  shares.  On  May  10,  2005,  our  Board  of  Directors  approved  a
two-for-one stock split of our common stock, which was effected in the form of a
stock  dividend.  The record date for the stock split was June 1, 2005,  and the
distribution  date was June 15, 2005. We retained the current par value of $0.01
per share for all shares of common  stock.  All  references to numbers of common
shares and per share data in this annual  report on Form 10-K have been adjusted
to reflect the stock split on a retroactive basis.

     The Operating  Partnership  currently  has common units and special  common
units of limited  partner  interest  outstanding  that may be exchanged by their
holders,  under  certain  circumstances,   for  shares  of  common  stock  on  a
one-for-one  basis.  These common units and special common units were also split
on a two-for-one basis so that they continue to be exchangeable on a one-for-one
basis into shares of our common stock. All references to numbers of common units
and special common units and related per unit data in this annual report on Form
10-K have also been adjusted to reflect the stock split on a retroactive basis.

The Company's Business

     We are a  self-managed,  self-administered,  fully  integrated  real estate
investment  trust  ("REIT").  We own operate,  market,  manage,  lease,  expand,
develop,  redevelop,  acquire and finance regional malls and community  shopping


                                       8


centers.  Our shopping center  properties are located primarily in the Southeast
and Midwest, as well as in select markets in other regions of the United States.
We have elected to be taxed as a REIT for federal  income tax  purposes.  We are
the fourth largest mall REIT in the United States and the largest owner of malls
and shopping centers in the Southeast based on gross leasable area owned.

     We  conduct  substantially  all  of  our  business  through  the  Operating
Partnership.  We are the 100%  owner of two  qualified  REIT  subsidiaries,  CBL
Holdings I, Inc.  and CBL  Holdings  II, Inc.  CBL  Holdings I, Inc. is the sole
general partner of the Operating Partnership. At December 31, 2004, CBL Holdings
I, Inc.  owned a 1.6%  general  partnership  interest  and CBL Holdings II, Inc.
owned a 53.4% limited partnership interest in the Operating  Partnership,  for a
combined interest held by us of 55.0%.

As of December 31, 2004, we owned:

     |X|  interests in a portfolio of operating properties including 69 enclosed
          regional malls (the "Malls"),  26 associated  centers (the "Associated
          Centers"),  60 community  centers (the  "Community  Centers")  and our
          corporate office building (the "Office Building");

     |X|  interests in one regional  mall, one open-air  center,  two associated
          centers,  one  associated  center  expansion,  one  associated  center
          redevelopment  and three  community  centers that are currently  under
          construction (the  "Construction  Properties"),  as well as options to
          acquire certain shopping center development sites; and

     |X|  mortgages  on ten  properties  that are secured by first  mortgages or
          wrap-around  mortgages  on the  underlying  real  estate  and  related
          improvements (the "Mortgages").

     The Malls, Associated Centers, Community Centers,  Construction Properties,
Mortgages and Office Building are  collectively  referred to as the "Properties"
and individually as a "Property."

     We conduct our property management and development activities through CBL &
Associates  Management,  Inc. (the "Management  Company") to comply with certain
technical requirements of the Internal Revenue Code of 1986, as amended.

     The Management  Company manages all of the Properties except for Governor's
Square and  Governor's  Plaza in  Clarksville,  TN and  Kentucky  Oaks Mall,  in
Paducah, KY. A property manager affiliated with the third party managing general
partner  performs the property  management  services  for these  Properties  and
receives  a fee  for its  services.  The  managing  partner  of  each  of  these
Properties  controls  the cash flow  distributions,  although  our  approval  is
required for certain major decisions.

     The majority of our revenues is derived from leases with retail tenants and
generally  include  minimum  rents,  percentage  rents based on  tenants'  sales
volumes and  reimbursements  from tenants for  expenditures  related to property
operating expenses, real estate taxes, insurance and maintenance and repairs, as
well as certain capital  expenditures.  We also generate  revenues from sales of
peripheral  land at the  properties and from sales of real estate assets when it
is determined that we can realize the maximum value of the assets. Proceeds from
such sales are generally used to reduce borrowings on our credit facilities.

     The  following  terms used in this annual report on Form 10-K will have the
meanings described below:

     |X|  GLA - refers to gross  leasable  area of retail  space in square feet,
          including anchors and mall tenants

     |X|  Anchor - refers to a department store or other large retail store

     |X|  Freestanding - property locations that are not attached to the primary
          complex of buildings that comprise the mall shopping center

     |X|  Outparcel - land used for  freestanding  developments,  such as retail
          stores, banks and restaurants, on the periphery of the Properties

                                       9


Geographic Concentration

     Our properties are located  principally in the  southeastern and midwestern
Unites  States.  Our  properties  located  in  the  southeastern  United  States
accounted for approximately  57.0% of our total revenues from all properties for
the year ended December 31, 2004 and currently  include 37 Malls,  18 Associated
Centers,  35  Community  Centers and one Office  Building  and.  Our  properties
located in the midwestern United States accounted for approximately 24.9% of our
total  revenues  from all  properties  for the year ended  December 31, 2004 and
currently include 18 Malls, three Associated Centers and five Community Centers.
Our results of operations and funds  available for  distribution to shareholders
therefore will be subject  generally to economic  conditions in the southeastern
and midwestern  United  States.  We will continue to look for  opportunities  to
geographically  diversify our  portfolio in order to minimize  dependency on any
particular  region;  however,  the  expansion  of  the  portfolio  through  both
acquisitions and developments is contingent on many factors  including  consumer
demand, competition and economic conditions.

Significant Markets

     The top five  markets,  in terms of  revenues,  where  the  Properties  are
located were as follows for the year ended December 31, 2004:

            Market                 Percentage Total of Revenues
       --------------------        ----------------------------
       Nashville, TN                          7.1%
       Chattanooga, TN                        5.5%
       Madison, WI                            3.5%
       Winston-Salem, NC                      3.3%
       Charleston, SC                         3.1%


Top 25 Tenants

     The top 25  tenants  based on  percentage  of our  total  revenues  were as
follows for the year ended December 31, 2004:





                                                                             Annual         Percentage
                                           Number Of       Square            Gross           Of Total
                 Tenant                     Stores          Feet           Rentals(1)        Revenues
- -----------------------------------------  ---------    ------------   ------------------   ----------
                                                                                     
 1 Limited Brands, Inc.                        213       1,319,862       $42,031,928             5.6%
 2 Foot Locker, Inc.                           178         691,050        25,969,731             3.4%
 3 The Gap, Inc.                                92         937,517        21,787,095             2.9%
 4 Luxottica Group, S.P.A. (2)                 186         332,200        14,906,585             2.0%
 5 Abercrombie & Fitch Co.                      57         389,717        13,692,044             1.8%
 6 Signet Group plc (3)                         96         143,848        12,963,332             1.7%
 7 American Eagle Outfitters, Inc.              64         334,415        12,873,601             1.7%
 8 J.C. Penney Co., Inc. (4)                    64       7,039,243        11,805,362             1.6%
 9 Zale Corporation                            135         131,483        11,775,773             1.6%
10 The Finish Line, Inc.                        56         294,736        10,473,046             1.4%
11 The Regis Corporation                       176         201,876         9,626,228             1.3%
12 Charming Shoppes, Inc. (5)                   54         332,924         9,595,551             1.3%
13 Lerner New York, Inc.                        38         310,877         9,405,871             1.2%
14 Trans World Entertainment (6)                52         268,688         8,846,329             1.2%
15 Hallmark Cards, Inc.                         75         259,241         8,468,088             1.1%
16 Genesco Inc. (7)                            123         156,505         8,447,715             1.1%
17 Pacific Sunwear of California                68         228,070         7,630,131             1.0%


                                       10

                                                                             Annual         Percentage
                                           Number Of       Square            Gross           Of Total
                 Tenant                     Stores          Feet           Rentals(1)        Revenues
- -----------------------------------------  ---------    ------------   ------------------   ----------
18 Borders Group, Inc.                          47         276,554         7,471,343             1.0%
19 The Shoe Show of Rocky Mount, Inc            49         265,199         7,239,772             1.0%
20 Sun Capital Partners, Inc. (8)               57         329,005         6,946,881             0.9%
21 Christopher & Banks, Inc.                    56         194,824         6,615,540             0.9%
22 Barnes & Noble, Inc.                         50         297,562         6,584,027             0.9%
23 The Buckle, Inc.                             39         190,977         6,570,412             0.9%
24 Claire's Stores, Inc.                       105         117,898         6,448,645             0.9%
25 Aeropostale, Inc.                            49         164,360         6,421,776             0.9%
                                             2,179      15,208,631      $294,596,806            39.3%

<FN>
     (1)  Includes  annual  minimum  rent  and  tenant  reimbursements  based on
          amounts in effect at December 31, 2004

     (2)  Luxottica  was  previously  Lenscrafters  &  Sunglass  Hut.  Luxottica
          purchased Cole National  Corporation,  which operates Pearl Vision and
          Things Remembered in October 2004.

     (3)  Signet Group was previously Sterling,  Inc. They operate Kay Jewelers,
          Marks & Morgan,  JB Robinson,  Shaw's Jewelers,  Osterman's  Jewelers,
          LeRoy's Jewelers, Jared Jewelers, Belden Jewelers and Rogers Jewelers.

     (4)  J.C. Penney owns 27 of these stores.

     (5)  Charming  Shoppes,   Inc.   operates  Lane  Bryant,   Fashion  Bug,  &
          Catherine's.

     (6)  Trans World  Entertainment  operates FYE  (formerly  Camelot Music and
          Record Town) & Saturday Matinee.

     (7)  Genesco  Inc.  operates  Journey's,  Jarman,  &  Underground  Station.
          Genesco purchased Hat World, which operates Hat World, Lids, Hat Zone,
          and Cap Factory, as of April 2, 2004.

     (8)  Sun  Capital  Partners,  Inc.  operates  Sam  Goody,  Suncoast  Motion
          Pictures,  Musicland, Life Uniform, Anchor Blue, Mervyn's,  Bruegger's
          Bagels, Wick's Furniture, and the Mattress Firm.
</FN>



Our Growth Strategy

     Our objective is to achieve  growth in funds from  operations by maximizing
cash flows through a variety of methods that are discussed below.

Leasing, Management and Marketing

     Our  objective  is to  maximize  cash  flows from our  existing  Properties
through:

     |X|  aggressive leasing that seeks to increase occupancy,

     |X|  originating  and renewing  leases at higher base rents per square foot
          compared to the  previous  lease,  |X|  merchandising,  marketing  and
          promotional activities and

     |X|  aggressively controlling operating costs and tenant occupancy costs.


                                       11



Expansions and Renovations

     We can create  additional  revenue by  expanding  a  Property  through  the
addition of  department  stores,  mall  stores and large  format  retailers.  An
expansion also protects the Property's  competitive  position within its market.
As shown below,  we completed six  expansions  during 2004 and will expand seven
Properties in 2005:







                Property                              Location                     GLA                Opening Date
- -----------------------------------------    ----------------------------    ----------------    -----------------------
Completed in 2004:

                                                                                            
Arbor Place Mall (Rich's-Macy's)             Douglasville, GA                    140,000             September 2004
East Towne Mall                              Madison, WI                         139,000             November 2004
West Towne Mall                              Madison, WI                          94,000             November 2004
The Lakes Mall (Dick's Sporting Goods)       Muskegon, MI                         45,000             November 2004
Garden City Plaza Expansion                  Garden City, KS                      26,500               March 2004
Coastal Way                                  Spring Hill, FL                      20,500             September 2004
                                                                                 465,000
Scheduled for 2005:
Citadel Mall                                 Charleston, SC                       45,000              August 2005
Stroud Mall                                  Stroudsburg, PA                       4,500              August 2005
Fayette Mall                                 Lexington, KY                       144,000              October 2005
Burnsville Center                            Burnsville, MN                        3,000             November 2005
CoolSprings Crossing                         Nashville, TN                        10,000               March 2005
The District at Monroeville Mall             Monroeville, PA                      75,000               April 2005
Fashion Square                               Orange Park, FL                      18,000               July 2005
                                                                                 299,500


     Renovations usually include renovating  existing facades,  uniform signage,
new entrances and floor coverings,  updating interior decor, resurfacing parking
lots and improving the lighting of interiors and parking lots.  Renovations  can
result in attracting new retailers,  increased rental rates and occupancy levels
and in maintaining the Property's market dominance. As shown below, we renovated
three Properties during 2004 and will renovate two Properties during 2005.

          Property                     Location
          ---------------------------  ---------------------------
          Completed in 2004:
          Northwoods Mall              North Charleston, SC
          Cherryvale Mall              Rockford, IL
          Panama City Mall             Panama City, FL

          Scheduled for 2005:
          CoolSprings Galleria         Nashville, TN
          Fayette Mall                 Lexington, KY




                                       12



 Development of New Retail Properties

         In general, we seek development opportunities in middle-market trade
areas that we believe are under-served by existing retail operations. These
middle-markets must also have sufficient demographic trends to provide the
opportunity to effectively maintain a competitive position. The following shows
the new developments we opened during 2004 and those currently under
construction:


              Property                          Location                 GLA               Opening Date
- --------------------------------------   ------------------------ ------------------  -----------------------
Opened in 2004:
                                                                             
The Shoppes at Panama City               Panama City, FL                    56,000    February 2004
Coastal Grand-Myrtle Beach (50/50 joint
venture)                                 Myrtle Beach, SC                  908,000    March 2004
Wilkes-Barre Township Marketplace        Wilkes-Barre Township,
                                         PA                                281,000    March 2004
Charter Oak Marketplace                  Hartford, CT                      312,000    November 2004
                                                                  -----------------
                                                                         1,557,000
                                                                  =================

Currently under construction:
Imperial Valley Mall (60/40 joint
venture)                               El Centro, CA                       754,000    March 2005
Hamilton Corner                        Chattanooga, TN                      68,000    March 2005
Coastal Grand Crossing                 Myrtle Beach, SC                     15,000    April 2005
Cobblestone Village at Royal Palm BeachRoyal Palm Beach, FL                225,000    June 2005
Chicopee Marketplace                   Chicopee, MA                        156,000    September 2005
Southaven Towne Center                 Southaven, MS                       420,000    October 2005
                                                                  ------------------
                                                                         1,638,000
                                                                  ==================


     Our total  investment  in the  Properties  opened in 2004 was $89.5 and the
total investment in the Properties we currently have under  construction will be
$106.2 million.

Acquisitions

     We believe there is opportunity for growth through acquisitions of regional
malls and other  associated  properties.  We selectively  acquire  regional mall
properties  where we believe we can increase  the value of the property  through
our  development,  leasing and management  expertise.  We acquired the following
Properties during 2004:


               Property                        Location                 GLA             Date Acquired
- --------------------------------------- ------------------------ ------------------ -----------------------
                                                                          
Honey Creek Mall                        Terre Haute, IN                 680,890     March 2004
Volusia Mall                            Daytona Beach, FL             1,064,768     March 2004
Greenbrier Mall                         Chesapeake, VA                  889,683     April 2004
Fashion Square                          Orange Park, FL                  27,286     April 2004
Chapel Hill Mall                        Akron, OH                       861,653     May 2004
Chapel Hill Suburban                    Akron, OH                       117,088     May 2004
Park Plaza Mall                         Little Rock, AR                 546,500     June 2004
Monroeville Mall                        Monroeville, PA               1,128,747     July 2004
Monroeville Annex                       Monroeville, PA                 229,588     July 2004
Northpark Mall                          Joplin, MO                      991,076     November 2004
Mall del Norte                          Laredo, TX                    1,198,199     November 2004
                                                                 ------------------
                                                                      7,735,478
                                                                 ==================



Risks Associated with Our Growth Strategy

     As with any  strategy  there are risks  involved  with our plan for growth.
Such risks include,  but are not limited to: development  opportunities  pursued
may be abandoned;  construction  costs may exceed estimates;  construction loans
with full recourse to us may not be  refinanced;  proforma  objectives,  such as


                                       13


occupancy and rental rates, may not be achieved; and the required approval by an
anchor   tenant,   mortgage   lender  or  joint  venture   partner  for  certain
expansion/development   activities   may  not  be  obtained.   An   unsuccessful
development project could result in a loss greater than our investment.

Insurance

     We carry a comprehensive blanket policy for liability, fire and rental loss
insurance covering all of the Properties, with specifications and insured limits
customarily carried for similar properties. The property and liability insurance
policies on our Properties  currently do not exclude loss resulting from acts of
terrorism, whether foreign or domestic. We believe the Properties are adequately
insured in accordance with industry standards.

Environmental Matters

     Under various federal, state and local laws, ordinances and regulations,  a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of petroleum,  certain  hazardous or toxic  substances
on,  under or in such real estate.  Such laws  typically  impose such  liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of such  substances.  The costs of  remediation  or removal of such
substances may be substantial.  The presence of such substances,  or the failure
to promptly  remediate  such  substances,  may  adversely  affect the owner's or
operator's  ability  to lease or sell such real  estate or to borrow  using such
real estate as collateral.  Persons who arrange for the disposal or treatment of
hazardous  or toxic  substances  may also be liable  for the costs of removal or
remediation of such substances at the disposal or treatment facility, regardless
of whether such facility is owned or operated by such person.  Certain laws also
impose requirements on conditions and activities that may affect the environment
or the impact of the  environment  on human health.  Failure to comply with such
requirements  could result in the imposition of monetary  penalties (in addition
to the costs to achieve compliance) and potential  liabilities to third parties.
Among other  things,  certain laws  require  abatement or removal of friable and
certain non-friable  asbestos-containing materials in the event of demolition or
certain  renovations or remodeling.  Certain laws regarding  asbestos-containing
materials require building owners and lessees, among other things, to notify and
train  certain   employees  working  in  areas  known  or  presumed  to  contain
asbestos-containing materials. Certain laws also impose liability for release of
asbestos-containing  materials  into the air and third parties may seek recovery
from owners or operators  of real  properties  for  personal  injury or property
damage  associated with  asbestos-containing  materials.  In connection with the
ownership and operation of properties, we may be potentially liable for all or a
portion of such costs or claims.

     All of our  properties  (but not  properties for which we hold an option to
purchase  but do not yet  own)  have  been  subject  to  Phase  I  environmental
assessments  or updates of existing  Phase I  environmental  assessments  within
approximately  the last ten years.  Such  assessments  generally  consisted of a
visual inspection of the properties,  review of federal and state  environmental
databases and certain  information  regarding  historic uses of the property and
adjacent areas and the preparation and issuance of written reports.  Some of the
properties  contain,  or contained,  underground  storage tanks used for storing
petroleum  products or wastes  typically  associated with automobile  service or
other operations  conducted at the properties.  Certain properties  contain,  or
contained,  dry-cleaning establishments utilizing solvents. Where believed to be
warranted,  samplings of building  materials or subsurface  investigations  were
undertaken.  At certain properties,  where warranted by the conditions,  we have
developed and implemented an operations and maintenance program that establishes
operating procedures with respect to  asbestos-containing  materials.  The costs
associated  with the development  and  implementation  of such programs were not
material.

     We believe that our properties  are in compliance in all material  respects
with all federal,  state and local  ordinances  and  regulations  regarding  the
handling,  discharge and emission of hazardous or toxic substances.  We have not
been notified by any governmental authority, and are not otherwise aware, of any
material  noncompliance,  liability  or claim  relating  to  hazardous  or toxic
substances in connection with any of our present or former  properties.  We have
not recorded in our financial  statements  any material  liability in connection
with environmental matters.  Nevertheless, it is possible that the environmental
assessments   available  to  us  do  not  reveal  all  potential   environmental
liabilities.  It is also possible that subsequent  investigations  will identify


                                       14


material  contamination,  that  adverse  environmental  conditions  have  arisen
subsequent to the performance of the  environmental  assessments,  or that there
are material environmental liabilities of which management is unaware. Moreover,
no assurances can be given that (i) future laws,  ordinances or regulations will
not  impose  any   material   environmental   liability   or  (ii)  the  current
environmental  condition of the  properties has not been or will not be affected
by tenants and  occupants of the  properties,  by the condition of properties in
the  vicinity  of the  properties  or by  third  parties  unrelated  to us,  the
Operating Partnership or the relevant property's  partnership.  The existence of
any such environmental  liability could have an adverse effect on our results of
operations, cash flow and the funds available to us to pay dividends.

Competition

     The  Properties  compete with various  shopping  facilities  in  attracting
retailers  to  lease  space.  In  addition,  retailers  at our  properties  face
continued  competition from discount shopping centers,  outlet malls,  wholesale
clubs, direct mail, television shopping networks,  the internet and other retail
shopping  developments.  The extent of the retail competition varies from market
to  market.   We  work  aggressively  to  attract  customers  through  marketing
promotions and campaigns.

Seasonality

     Our business is somewhat seasonal in nature with tenant sales achieving the
highest  levels during the fourth  quarter  because of the holiday  season.  The
Malls earn most of their  "temporary"  rents  (rents  from  short-term  tenants)
during the holiday period.  Thus,  occupancy  levels and revenue  production are
generally the highest in the fourth quarter of each year.  Results of operations
realized in any one quarter may not be  indicative  of the results  likely to be
experienced over the course of the entire year.

Qualification as a Real Estate Investment Trust ("REIT")

     We intend to continue to be taxed as a REIT under  Sections 856 through 860
of the Internal Revenue Code, as amended (the "Code").  We generally will not be
subject to federal  income tax to the extent we  distribute  at least 90% of our
REIT ordinary  taxable  income to our  shareholders.  If we fail to qualify as a
REIT in any  taxable  year,  we would be subject  to  federal  income tax on our
taxable income at regular corporate rates.

Financial Information About Segments

     See Note 12 to the consolidated  financial statements for information about
our reportable segments.

Employees

     CBL & Associates  Properties,  Inc. does not have any employees  other than
its statutory officers. Our Management Company currently employees 738 full-time
and 621 part-time employees. None of our employees are represented by a union.

Corporate Offices

     Our principal  executive  offices are located at CBL Center,  2030 Hamilton
Place  Boulevard,  Suite 500,  Chattanooga,  Tennessee,  37421 and our telephone
number is (423) 855-0001.

Available Information

     There   is   additional   information   about   us  on  our  web   site  at
www.cblproperties.com.  Electronic  copies of our  Annual  Report on Form  10-K,
quarterly  reports on Form 10-Q and current  reports on Form 8-K, as well as any
amendments  to those  reports,  are  available  free of charge by  visiting  the
"investor  relations"  section of our web site. These reports are posted as soon
as reasonably  practical after they are electronically  filed with, or furnished
to, the Securities and Exchange  Commission.  The information on the web site is
not, and should not, be considered to be a part of this Form 10-K.

                                       15




                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
          ISSUER PURCHASES OF EQUITY SECURITIES.


(a)      Market Information
         ------------------
         The New York Stock Exchange is the principal United States market in
         which our common stock is traded.

         The high and low sales prices for our common stock for each quarter of
         our two most recent fiscal years were as follows, as adjusted for the
         two-for-one stock split that occurred June 15, 2005:

         Quarter Ended                                  High         Low
         ------------------------------------------- ----------- -------------
         2004:
         March 31                                       $31.050       $27.725
         June 30                                        $31.085       $22.895
         September 30                                   $31.830       $26.405
         December 31                                    $38.565       $30.395

         2003:
         March 31                                       $20.635       $18.750
         June 30                                        $22.570       $20.245
         September 30                                   $25.380       $21.495
         December 31                                    $28.755       $24.825


         Holders
         -------
         There were approximately 555 shareholders of record for our common
         stock as of March 7, 2005.

         Dividends Declared
         ------------------
         The frequency and amounts of dividends declared and paid on the common
         stock for each quarter of our two most recent fiscal years were as
         follows, as adjusted for the two-for-one stock split that occurred June
         15, 2005:

         Quarter Ended                                 2004        2003
         ------------------------------------------ ------------ ----------
         March 31                                    $ 0.3625    $0.3275
         June 30                                     $ 0.3625    $0.3275
         September 30                                $ 0.3625    $0.3275
         December 31                                 $0.40625    $0.3625

         Future dividend distributions are subject to our actual results of
         operations, economic conditions and such other factors as our Board of
         Directors deems relevant. Our actual results of operations will be
         affected by a number of factors, including the revenues received from
         the Properties, our operating expenses, interest expense, the ability
         of the anchors and tenants at the Properties to meet their obligations
         and unanticipated capital expenditures.

         Securities Authorized For Issuance Under Equity Compensation Plans
         ------------------------------------------------------------------
         See Part III, Item 12.

         Recent Sales Of Unregistered Securities' Use Of Proceeds From
         -------------------------------------------------------------
         Registered Securities
         ---------------------
         None

(b)      None

(c)      None


                                       16


Item 6. Selected Financial Data:

The following table sets forth selected financial and operating  information for
CBL & Associates Properties,  Inc. (the "Company") for each of the five years in
the period ended  December  31, 2004,  which has been updated to reflect (i) the
application of the requirements of Statement of Financial  Accounting  Standards
("SFAS")  No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets," to the sale of five  community  centers in March 2005 that requires the
results of operations of these community  centers be retroactively  reclassified
as  discontinued  operations  in all periods  presented  and (ii) the  Company's
two-for-one  stock split  effected in the form of a stock dividend that occurred
on June 15,  2005..  The  reclassification  to  discontinued  operations  of the
results  of  operations  of the five  community  centers  has no  effect  on the
reported net income available to common shareholders in any prior period.  Refer
to Note 1 of the Company's  consolidated  financial statements for a description
of the  two-for-one  stock split and to Note 4 for discussion of the sale of the
five community centers. The following  information should be read in conjunction
with the  Company's  consolidated  financial  statements  and notes  thereto and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations included elsewhere in this report.

                                       17



(In thousands, except per share data)



                                                                                   Year Ended December 31, (2)
                                                              -------------------------------------------------------------------
                                                                  2004           2003        2002          2001           2000
                                                              -----------    -----------  -----------  -----------   ------------
                                                                                                      
 Total revenues                                               $  757,253     $  664,312   $  584,131   $  534,424    $   343,074
 Total expenses                                                  413,619        348,586      302,245      276,745        178,348
                                                              -----------    -----------  -----------  -----------   ------------
 Income from operations                                          344,634        315,726      282,886      257,679        164,726
 Interest income                                                   3,355          2,485        1,853        1,891          2,644
 Interest expense                                               (177,219)      (153,321)    (142,908)    (156,404)       (95,677)
 Loss on extinguishment of debt                                        -           (167)      (3,872)     (13,558)          (367)
 Gain on sales of real estate assets                              29,272         77,765        2,804       10,649         15,978
 Equity in earnings of unconsolidated affiliates                  10,308          4,941        8,215        7,155          3,684
 Minority interest in earnings:
   Operating partnership                                         (85,186)      (106,532)     (64,251)     (49,643)       (28,507)
   Shopping center properties                                     (5,365)        (2,758)      (3,280)      (1,654)        (1,504)
                                                              -----------    -----------  -----------  -----------   ------------
 Income before discontinued operations                           118,799        138,139       81,447       56,115         60,977
 Discontinued operations                                           2,312          6,000        3,459        4,793          4,745
                                                              -----------    -----------  -----------  -----------   ------------
 Net income                                                      121,111        144,139       84,906       60,908         65,722
 Preferred dividends                                             (18,309)       (19,633)     (10,919)      (6,468)        (6,468)
                                                              -----------    -----------  -----------  -----------   ------------
 Net income available to common shareholders                  $  102,802     $  124,506   $   73,987   $   54,440    $    59,254
                                                              ===========    ===========  ===========  ===========   ============
 Basic earnings per common share:
   Income before discontinued operations, net
         of preferred dividends                               $     1.63     $     1.98   $     1.23   $     0.98    $      1.10
                                                              ===========    ===========  ===========  ===========   ============
   Net income available to common shareholders                $     1.67     $     2.08   $     1.29   $     1.07    $      1.19
                                                              ===========    ===========  ===========  ===========   ============
   Weighted average shares outstanding                            61,602         59,872       57,380       50,716         49,762

 Diluted earnings per common share:
   Income before discontinued operations, net
         of preferred dividends                               $     1.57     $     1.90   $     1.19   $     0.96    $      1.09
                                                              ===========    ===========  ===========  ===========   ============
   Net income available to common shareholders                $     1.61     $     2.00   $     1.25   $     1.05    $      1.18
                                                              ===========    ===========  ===========  ===========   ============
   Weighted average shares and potential dilutive
       common shares outstanding                                  64,004         62,386       59,336       51,666         50,042

 Dividends declared per common share                          $  1.49375     $    1.345   $     1.16   $    1.065    $      1.02



                                                                                         December 31, (2)
                                                              -------------------------------------------------------------------
                                                                  2004           2003        2002          2001           2000
                                                              -----------    -----------  -----------  -----------   ------------
 BALANCE SHEET DATA:
                                                                                                      
 Net investment in real estate assets                         $4,894,780     $3,912,220   $3,611,485   $3,201,622    $ 2,040,614
 Total assets                                                  5,204,500      4,264,310    3,795,114    3,372,851      2,115,565
 Total mortgage and other notes payable                        3,371,679      2,738,102    2,402,079    2,315,955      1,424,337
 Minority interests                                              566,606        527,431      500,513      431,101        174,665
 Shareholders' equity                                          1,054,151        837,300      741,190      522,008        434,825

 OTHER DATA:
 Cash flows provided by (used in):
   Operating activities                                       $  339,197     $  274,349   $  273,923   $  213,075    $   139,118
   Investing activities                                         (608,651)      (312,366)    (274,607)    (201,245)      (122,215)
   Financing activities                                          274,888         44,994        3,902       (6,877)       (17,958)
 Funds From Operations (FFO) (1)
   of the Operating Partnership                               $  310,405     $  271,588   $  235,474   $  182,687    $   137,132
 FFO applicable to the Company                                   169,725        146,552      126,127       94,945         92,594
<FN>
(1)      Please refer to Management's Discussion and Analysis of Financial
         Condition and Results of Operations for the definition of FFO. FFO does
         not represent cash flow from operations as defined by accounting
         principles generally accepted in the United States and is not
         necessarily indicative of the cash available to fund all cash
         requirements.
(2)      Please refer to Notes 3 and 5 to the consolidated financial statements
         for a description of acquisitions and joint venture transactions that
         have impacted the comparability of the financial information presented.
</FN>


                                       18




Item 7:  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     The following discussion and analysis of financial condition and results of
operations  should  be read  in  conjunction  with  the  consolidated  financial
statements  and  accompanying  notes that are  included in this  annual  report.
Capitalized  terms used, but not defined,  in this  Management's  Discussion and
Analysis of Financial Condition and Results of Operations have the same meanings
as  defined  in the  notes to the  consolidated  financial  statements.  In this
discussion,  the  terms  "we",  "us",  "our"  and the  "Company"  refer to CBL &
Associates Properties, Inc. and its subsidiaries.

     Certain  statements made in this section or elsewhere in this report may be
deemed "forward looking statements" within the meaning of the federal securities
laws.  Although we believe the  expectations  reflected  in any  forward-looking
statements  are based on reasonable  assumptions,  we can give no assurance that
these expectations will be attained,  and it is possible that actual results may
differ materially from those indicated by these  forward-looking  statements due
to a variety of risks and uncertainties.  Such risks and uncertainties  include,
without limitation, general industry, economic and business conditions, interest
rate fluctuations,  costs of capital and capital  requirements,  availability of
real estate  properties,  inability  to  consummate  acquisition  opportunities,
competition  from other companies and retail  formats,  changes in retail rental
rates in our markets,  shifts in customer demands,  tenant bankruptcies or store
closings,  changes  in vacancy  rates at our  properties,  changes in  operating
expenses,  changes in applicable  laws,  rules and  regulations,  the ability to
obtain suitable  equity and/or debt financing and the continued  availability of
financing  in the  amounts  and on the terms  necessary  to  support  our future
business.  We disclaim any  obligation  to update or revise any  forward-looking
statements  to reflect  actual  results or changes in the factors  affecting the
forward-looking information.

Executive Overview

     We are a  self-managed,  self-administered,  fully  integrated  real estate
investment  trust  ("REIT")  that  is  engaged  in the  ownership,  development,
acquisition,  leasing,  management and operation of regional  shopping malls and
community  centers.  Our shopping center properties are located primarily in the
Southeast  and  Midwest,  as well as in select  markets in other  regions of the
United States.

     As of December  31,  2004,  we owned  controlling  interests in 64 regional
malls,  25 associated  centers (each adjacent to a regional  mall), 12 community
centers,  and our  corporate  office  building.  We  consolidate  the  financial
statements of all entities in which we have a controlling financial interest. As
of December 31, 2004, we owned non-controlling interests in five regional malls,
one associated center and 48 community centers.  Because major decisions such as
the acquisition,  sale or refinancing of principal  partnership or joint venture
assets must be approved by one or more of the other partners,  we do not control
these  partnerships  and joint  ventures  and,  accordingly,  account  for these
investments  using the equity method. We had one mall, which is owned in a joint
venture,  two mall  expansions,  one open-air  shopping  center,  two associated
centers,  one of  which  is  owned in a joint  venture,  one  associated  center
expansion, one associated center redevelopment and three community centers under
construction as of December 31, 2004.

     The majority of our revenues is derived from leases with retail tenants and
generally  include  minimum  rents,  percentage  rents based on  tenants'  sales
volumes and  reimbursements  from tenants for  expenditures  related to property
operating  expenses,  real estate taxes and maintenance and repairs,  as well as
certain capital expenditures. We also generate revenues from sales of peripheral
land  at the  properties  and  from  sales  of  real  estate  assets  when it is
determined  that we can realize the maximum  value of the assets.  Proceeds from
such sales are generally used to reduce borrowings on our credit facilities.

     We expanded our portfolio in 2004 with the acquisition of eight malls,  two
associated  centers and a community  center,  representing a total investment of
$950.0  million.  We opened nine new  developments  totaling 1.9 million  square
feet,  including  the nearly 1.0  million  square  foot  regional  mall  Coastal
Grand-Myrtle Beach in Myrtle Beach, SC, which we own in a joint venture. We have
approximately 2.0 million square feet of new developments,  which represent over
$185.0 million of net investment, that is scheduled to open during 2005. We also


                                       19


added a total of 12 big box  stores  and eight  anchor  retailers  to our malls,
which have made positive  contributions by strengthening the tenant mix of these
properties.

Results of Operations

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2004 TO THE YEAR ENDED  DECEMBER 31,
2003

     The following significant transactions impacted the consolidated results of
operations  for the year ended  December  31,  2004,  compared to the year ended
December 31, 2003:

     |X|  The  acquisition  of  eight  malls,  two  associated  centers  and one
          community center,  and the opening of one new mall (which is accounted
          for using the equity method),  one associated center and one community
          center  during  2004.  Additionally,  2004 was the first  full year of
          operations  for the six malls  and two  associated  centers  that were
          acquired  during 2003 and the one associated  center and two community
          centers that were opened in 2003.  The  properties  opened or acquired
          during  2004 and 2003 are  collectively  referred  to as the "New 2004
          Properties" in this section and are as follows:


Property                            Location                         Date Acquired / Opened
- --------------------------------------------------------------------------------------------------
Acquisitions:
                                                               
Sunrise Mall                        Brownsville, TX                  April 2003
Sunrise Commons                     Brownsville, TX                  April 2003
Cross Creek Mall                    Fayetteville, NC                 September 2003
River Ridge Mall                    Lynchburg, VA                    October 2003
Valley View Mall                    Roanoke, VA                      October 2003
Southpark Mall                      Colonial Heights, VA             December 2003
Harford Mall                        Bel Air, MD                      December 2003
Harford Annex                       Bel Air, MD                      December 2003
Honey Creek Mall                    Terre Haute, IN                  March 2004
                                    Daytona Beach,                   March 2004
Volusia Mall                        FL
Greenbrier Mall                     Chesapeake, VA                   April 2004
Fashion Square                      Orange Park, FL                  April 2004
Chapel Hill Mall                    Akron, OH                        May 2004
Chapel Hill                          kron, OH                        May 2004
Suburban                            A
Park Plaza Mall                     Little Rock, AR                  June 2004
Monroeville Mall                    Monroeville, PA                  July 2004
Monroeville Annex                   Monroeville, PA                  July 2004
Northpark Mall                      Joplin, MO                       November 2004
Mall del Norte                      Laredo, TX                       November 2004

New Developments:
The Shoppes at Hamilton Place       Chattanooga, TN                  May 2003
Cobblestone Village                 St. Augustine, FL                May 2003
Waterford Commons                   Waterford, CT                    September 2003
Wilkes-Barre Township Marketplace   Wilkes-Barre Township, PA        March 2004
Coastal Grand-Myrtle Beach          Myrtle Beach, SC                 March 2004
The Shoppes at Panama City          Panama City, FL                  March 2004


          |X|  In October 2003, we sold 41 community centers to Galileo America.
               We sold six additional  community  centers to Galileo  America in
               January 2004.  Since we have  continuing  involvement  with these
               properties  through our ownership interest in Galileo America and
               our role as manager of the properties,  the results of operations
               of  these  properties  have not been  reflected  in  discontinued
               operations.  Therefore, the year ended December 31, 2003 includes
               results of operations for these properties through the dates they
               were sold.

                                       20


          |X|  Effective January 1, 2004, we began to consolidate the results of
               operations of PPG Venture I Limited  Partnership,  which owns two
               community   centers   and  one   associated   center   (the  "PPG
               Properties"),  as a result of the  adoption  of a new  accounting
               pronouncement.   The  PPG   Properties   were  accounted  for  as
               unconsolidated  affiliates  using the equity method of accounting
               prior to January 1, 2004.

          |X|  Properties  that were in operation  for the entire  period during
               2004 and 2003 are referred to as the "2004 Comparable Properties"
               in this section, except for the five community centers located in
               Michigan  that were sold in March 2005,  which are  reflected  as
               discontinued   operations   as   discussed   in  Note  4  to  our
               consolidated financial statements.

Revenues

     The $92.9  million  increase  in revenues  was  primarily  attributable  to
increases of $113.6 million from the New 2004  Properties,  $7.5 million related
to the PPG  Properties  and $4.1  million from the 2004  Comparable  Properties.
These  increases were offset by a reduction in revenues of $42.5 million related
to the community  centers that were sold to Galileo  America in October 2003 and
January 2004.

     The increase in revenues of the 2004  Comparable  Properties  was driven by
our ability to maintain high occupancy  levels,  while  achieving an increase of
3.3% in rents from both new leases and lease renewals for comparable  small shop
spaces.

     An increase in  management  and leasing fees of $2.8 million  received from
Galileo  America was the primary  contributor  to the $4.3  million  increase in
management,  development and leasing fees. Other revenues increased $5.9 million
due to growth of our taxable REIT subsidiary.

Operating Expenses

     Property operating expenses including real estate taxes and maintenance and
repairs,  increased as a result of increases of $35.7  million from the New 2004
Properties and $2.2 million from the PPG Properties, offset by decreases of $9.4
million  related to the community  centers that were sold to Galileo America and
$5.6 million in operating expenses of the 2004 Comparable Properties.

     The  increase  in  depreciation  and  amortization  expense  resulted  from
increases of $29.0 million from the New 2004 Properties, $1.0 million related to
the PPG Properties and $6.6 million from the 2004 Comparable  Properties.  These
increases  were offset by a decrease of $7.4  million  related to the  community
centers that we sold to Galileo  America in October 2003 and January  2004.  The
increase  attributable  to the  2004  Comparable  Properties  is due to  ongoing
capital expenditures for renovations, expansions, tenant allowances and deferred
maintenance.

     General and administrative  expenses increased $4.9 million during 2004. As
a percentage of revenues, this was only a 0.1% increase over the comparable 2003
amount.  General and administrative  expenses were significantly  impacted by an
additional  $1.1 million of expenses in 2004 related to compliance  with Section
404 of the  Sarbanes-Oxley  Act of 2002.  State tax expenses also increased $1.8
million as a result of our  continued  growth.  The remainder of the increase is
attributable  to  additional  salaries and benefits for the  personnel  added to
manage  the  properties  acquired  during  2004 and 2003  combined  with  annual
compensation increases for existing personnel.

     We identified  ten  community  centers and recorded a loss on impairment of
real  estate  assets of $3.1  million  to  reduce  the  carrying  value of these
properties to their respective  estimated fair values. The ten community centers
include four community  centers that we sold to Galileo America in January 2005,
five  community  centers  that we sold during the first  quarter of 2005 and one
community center that was sold for a loss during the fourth quarter of 2004.

                                       21







Other Income and Expenses

      Interest expense increased $23.9 million primarily due to the debt on the
New 2004 Properties and the PPG Properties, as well as the additional financings
that were obtained on the 2004 Comparable Properties. The increase was offset by
a reduction in interest expense related to the Galileo Transaction as well as
normal principal amortization.

     The gain on sales of real estate  assets of $29.3  million in 2004 included
$26.8  million of gain  related to the Galileo  Transaction  and $2.5 million of
gain on sales of seven outparcels at various properties.

     Equity in earnings of unconsolidated  affiliates  increased by $5.4 million
in 2004 as a result of our  interest  in  Galileo  America  and the  opening  of
Coastal Grand-Myrtle Beach in March 2004.

     We sold  two  community  centers  during  2004  for a gain on  discontinued
operations  of $0.9  million.  We sold one  community  center for a loss of $0.1
million, which was included in loss on impairment of real estate assets. We sold
five community centers in March 2005 for which we recorded an impairment loss of
$0.6 million in 2004. Operating income from discontinued operations decreased in
2004 because the properties were owned for a shorter period of time in 2004 than
in 2003, and because 2003 includes the  operations of properties  that were sold
during 2003.

COMPARISON  OF THE YEAR ENDED  DECEMBER 31, 2003 TO THE YEAR ENDED  DECEMBER 31,
2002

     The following significant transactions impacted the consolidated results of
operations  for the year ended  December  31,  2003,  compared to the year ended
December 31, 2002:

          |X|  The  acquisition of six malls and two associated  centers and the
               opening  of one new  associated  center  and  two  new  community
               centers  during  2003.  Additionally,  there  was a full  year of
               operations in 2003 for three malls and one associated center that
               were  acquired  during  2002 and one  associated  center that was
               opened in 2002. The properties opened or acquired during 2003 and
               2002 are  collectively  referred to as the "New 2003  Properties"
               and are as follows:


Property                       Location                     Date Acquired / Opened
- ----------------------------------------------------------------------------------------
Acquisitions:
                                                      
Richland Mall                  Waco, TX                     May 2002
Panama City Mall               Panama City, FL              May 2002
Westmoreland Mall              Greensburg, PA               December 2002
Westmoreland Crossing          Greensburg, PA               December 2002
Sunrise Mall                   Brownsville, TX              April 2003
Sunrise Commons                Brownsville, TX              April 2003
Cross Creek Mall               Fayetteville, NC             September 2003
River Ridge Mall               Lynchburg, VA                October 2003
Valley View Mall               Roanoke, VA                  October 2003
Southpark Mall                 Colonial Heights, VA         December 2003
Harford Mall                   Bel Air, MD                  December 2003
Harford Annex                  Bel Air, MD                  December 2003

New Developments:
Parkdale Crossing              Beaumont, TX                 November 2002
The Shoppes at Hamilton Place  Chattanooga, TN              May 2003
Cobblestone Village            St. Augustine, FL            May 2003
Waterford Commons              Waterford, CT                September 2003



                                       22



          |X|  The  consolidation  of a full year of  operations  for East Towne
               Mall,  West  Towne  Mall  and West  Towne  Crossing  (the  "Newly
               Consolidated  Properties")  in which we  acquired  the  remaining
               ownership  interest during December 2002. We had previously owned
               a non-controlling  interest in these properties and had accounted
               for them using the equity method of accounting.

          |X|  The sale of interests in 41 community  centers to Galileo America
               in October 2003 ("the Galileo Transaction").

          |X|  Properties  that were in operation  for the entire  period during
               2003 and 2002 are referred to as the "2003 Comparable Properties"
               in this section, except for the five community centers located in
               Michigan  that were sold in March 2005,  which are  reflected  as
               discontinued   operations   as   discussed   in  Note  4  to  our
               consolidated financial statements.

Revenues

     The $80.2  million  increase  in revenues  was  primarily  attributable  to
increases of $44.7 million from the New 2003 Properties,  $23.6 million from the
Newly  Consolidated  Properties and $20.2 million from  properties  that were in
operation  for all of 2003 and 2002,  offset by a reduction of $6.7 million from
the Galileo Transaction.

     The increase in revenues at  properties  that were in operation  for all of
2003 and 2002 was  primarily  driven by our ability to maintain  high  occupancy
levels  while  achieving  increases  in rents  from  both new  leases  and lease
renewals on comparable spaces. Additionally, our cost recovery ratio improved to
99.2% in 2003 compared to 91.4% in 2002 due primarily to the partial recovery of
certain capital expenditures  incurred in connection with the significant number
of mall renovations completed during the past three years.

     Management,  leasing and development fees decreased $1.6 million because of
a reduction in fees related to the Newly Consolidated Properties.

Operating Expenses

     Property  operating  expenses  (including real estate taxes and maintenance
and repairs)  increased $19.7 million due to increases of $15.6 million from the
New 2003  Properties  and $7.0 million from the Newly  Consolidated  Properties,
offset by a reduction of $2.9 million from the Galileo Transaction.

     The  $19.4  million  increase  in  depreciation  and  amortization  expense
resulted  from  increases  of $9.2 million  from the New 2003  Properties,  $4.2
million  from  the  Newly  Consolidated  Properties  and $7.0  million  from the
comparable  centers,   which  is  primarily  attributable  to  the  16  property
renovations  and  expansions  that were  completed  during 2003 and 2002.  These
increases  were  offset  by  a  reduction  of  $1.0  million  from  the  Galileo
Transaction.

     General and administrative expenses increased $7.1 million because we had a
lower  level of  development  activity  in 2003 than in 2002.  As a  result,  we
capitalized  less in  salaries  of  leasing  and  development  personnel,  which
resulted in higher compensation expense. There were also additional salaries and
benefits for the personnel  added to manage the properties  acquired during 2003
and 2002 combined with annual compensation increases for existing personnel.

Other Income and Expenses

     Interest  expense  increased  $10.4 million due to the debt on the New 2003
Properties and the Newly  Consolidated  Properties.  We also  refinanced  $196.0
million  of  short-term,   variable-rate  debt  with  fixed-rate,   non-recourse
long-term debt with a higher  interest rate. The increase was offset somewhat by
a reduction  in debt  related to the Galileo  Transaction  and normal  principal
amortization. While converting to fixed-rate debt is dilutive in the short-term,
it is consistent with our strategy of minimizing  exposure to variable-rate debt
when we can obtain  fixed-rate  debt on terms that are deemed  favorable for the
long-term.

                                       23


     The net gain on sales of real  estate  assets of $77.8  million in 2003 was
primarily  attributable  to the $71.9  million  gain  recognized  on the Galileo
Transaction. The remaining $5.9 million of gain was related to gains on sales of
20  outparcels  at various  properties  and sales of two  options  on  potential
development sites.

     Equity in earnings of unconsolidated  affiliates  decreased by $3.3 million
in 2003 as a  result  of the  Newly  Consolidated  Properties  no  longer  being
accounted for using the equity method.

     We sold  six  community  centers  during  2003  for a gain on  discontinued
operations  of $4.0  million.  Operating  income  from  discontinued  operations
decreased in 2003 because the properties were owned for a shorter period of time
in 2003 than in 2002,  and because 2002  includes the  operations  of properties
that were sold during 2002.

Operational Review

     The shopping  center  business is, to some extent,  seasonal in nature with
tenants  achieving the highest levels of sales during the fourth quarter because
of the holiday  season.  Additionally,  the malls earn most of their  short-term
rents during the holiday period.  Thus,  occupancy levels and revenue production
are  generally  the  highest  in the fourth  quarter  of each  year.  Results of
operations  realized  in any one quarter  may not be  indicative  of the results
likely to be experienced over the course of the fiscal year.

     We  classify  our  regional  malls  into two  categories  - malls that have
completed their initial lease-up are referred to as "stabilized malls" and malls
that are in their  initial  lease-up  phase are  referred to as  "non-stabilized
malls". The  non-stabilized  malls currently include The Lakes Mall in Muskegon,
MI, which opened in August 2001;  Parkway Place in Huntsville,  AL, which opened
in October  2002;  and Coastal  Grand-Myrtle  Beach in Myrtle  Beach,  SC, which
opened in March 2004.

     We derive a significant  amount of our revenues  from the mall  properties.
The sources of our revenues by property type were as follows:


                                                  Year Ended December 31,
                                              ---------------------------------
                                                    2004             2003
                                              ----------------- ---------------
                                                              
Malls                                               90.4%           87.3%
Associated centers                                   4.1%            3.8%
Community centers                                    2.0%            7.4%
Mortgages, office building and other                 3.5%            1.5%



Sales and Occupancy Costs

     Mall store sales (for those  tenants who occupy  10,000 square feet or less
and  have  reported  sales)  in the  stabilized  malls  increased  by  2.8% on a
comparable  per square foot basis to $314 per square foot for 2004 compared with
$305 per square foot for 2003.

     Occupancy  costs as a  percentage  of sales for the  stabilized  malls were
12.0% and 12.2% for 2004 and 2003, respectively.

Occupancy

     Total portfolio  occupancy  increased 90 basis points to 94.0%.  Since June
2003, we experienced 118 store closings,  totaling  approximately 457,000 square
feet and representing approximately $8.1 million in annual minimum base rent. As
of December 31, 2004, we had re-leased approximately 217,000 square feet of this
space at rents per square foot that are 3.5% higher than the  previous  rent and
at comparable rents based on total annual base rent. Our portfolio  occupancy is
summarized in the following table:

                                       24




                                                        December 31,
                                              ---------------------------------
                                                    2004             2003
                                              ----------------- ---------------
                                                              
Total portfolio                                  94.0%              93.1%
Total mall portfolio                             94.3%              94.2%
     Stabilized malls                            94.4%              94.4%
     Non-stabilized malls                        92.8%              87.7%
Associated centers                               91.8%              88.4%
Community centers (1)                            94.0%              89.6%
<FN>
     (1)  Excludes  the  community  centers that were sold in Phases I and II of
          the Galileo Transaction
</FN>


Leasing

     Average annual base rents per square foot were as follows for each property
type:


                                                      December 31,
                                           ------------------------------------
                                                 2004              2003
                                           ----------------- ------------------
                                                             
Stabilized malls                                $25.60             $25.03
Non-stabilized malls                             26.33              25.82
Associated centers                                9.77               9.90
Community centers (1)                             8.12               8.29
<FN>
     (1)  Excludes  the  community  centers that were sold in Phases I and II of
          the Galileo Transaction.
</FN>


     During 2004, we achieved  positive  results from new and renewal leasing of
comparable small shop space during 2004 for spaces that were previously occupied
as summarized in the following table:


                                                                                                   New
                                                          Prior           New                   PSF Base
                                          Square           PSF          PSF Base    % Change     Rent -     % Change
                                           Feet         Base Rent    Rent - Initial  Initial     Average     Average
                                        -----------   -------------  ------------------------- ------------ ---------
                                                                                               
Stabilized malls                          1,982,406          $25.13          $25.40       1.1%       $25.95      3.3%
Associated centers                           46,805           13.03           12.98     (0.4)%        13.03     0.00%
Community centers (1)                        53,330           10.16           10.77       6.0%        10.82      6.5%
                                        -----------   -------------  ------------------------- ------------ ---------
TOTAL                                     2,082,541          $24.47          $24.78       1.1%       $25.27      3.3%

<FN>
     (1)  Excludes  the  community  centers that were sold in Phases I and II of
          the Galileo Transaction.
</FN>


Liquidity and Capital Resources

     There was $25.8 million of  unrestricted  cash and cash  equivalents  as of
December 31, 2004,  an increase of $5.4  million  from  December 31, 2003.  Cash
flows from  operations are used to fund  short-term  liquidity and capital needs
such as tenant  construction  allowances,  capital  expenditures and payments of
dividends  and   distributions.   For   longer-term   liquidity  needs  such  as
acquisitions, new developments, renovations and expansions, we typically rely on
property specific mortgages (which are generally non-recourse), construction and
term loans,  revolving lines of credit,  common stock,  preferred  stock,  joint
venture investments and a minority interest in the Operating Partnership.

     Cash  provided by operating  activities  increased  $64.8 million to $339.2
million  for the year ended  December  31,  2004.  The  increase  was  primarily
attributable to the operations of the New 2004  Properties and improved  results
at the 2004 Comparable Properties.

Debt

     The following  tables summarize debt based on our pro rata ownership share,
including our pro rata share of unconsolidated affiliates and excluding minority
investors'  share of consolidated  properties,  because we believe this provides
investors a clearer  understanding  of our total debt  obligations and liquidity
(in thousands):

                                       25



                                                                                                                       Weighted
                                                                                                                       Average
                                                                    Minority       Unconsolidated                      Interest
                                                  Consolidated      Interests        Affiliates         Total          Rate(1)
                                                  -------------- ---------------- ----------------- --------------- ---------------
                                                                                                         
December 31, 2004:
Fixed-rate debt:
     Non-recourse loans on operating properties    $  2,688,186     $(52,914)         $  104,114        $2,739,386      6.35%
                                                  -------------- ---------------- ----------------- --------------- ---------------
Variable-rate debt:
     Recourse term loans on operating properties        207,500           --              29,415           236,915      3.40%
     Construction loans                                  14,593           --              39,493            54,086      4.05%
     Lines of credit                                    461,400           --                  --           461,400      3.37%
                                                  -------------- ---------------- ----------------- --------------- ---------------
     Total variable-rate debt                           683,493           --              68,908           752,401      3.44%
                                                  -------------- ---------------- ----------------- --------------- ---------------
Total                                              $  3,371,679   $  (52,914)         $  173,022        $3,491,787      5.72%
                                                  ============== ================ ================= =============== ===============

December 31, 2003:
Fixed-rate debt:
     Non-recourse loans on operating properties        $2,256,544  $ (19,577)          $  57,985        $2,294,952      6.64%
                                                  -------------- ---------------- ----------------- --------------- ---------------
Variable-rate debt:
     Recourse term loans on operating properties          105,558      --                 30,335           135,893      2.73%
     Construction loans                                        --      --                 46,801            46,801      2.94%
     Lines of credit                                      376,000      --                     --           376,000      2.23%
                                                  -------------- ---------------- ----------------- --------------- ---------------
     Total variable-rate debt                             481,558      --                 77,136           558,694      2.39%
                                                  -------------- ---------------- ----------------- --------------- ---------------
Total                                                  $2,738,102  $ (19,577)          $ 135,121        $2,853,646      5.81%
                                                  ============== ================ ================= =============== ===============
<FN>
     (1)  Weighted  average interest rate including the effect of debt premiums,
          but excluding amortization of deferred financing costs.
</FN>


     In August  2004,  we entered  into a new $400.0  million  unsecured  credit
facility, which bears interest at LIBOR plus a margin of 100 to 145 basis points
based on our leverage, as defined in the agreement.  The credit facility matures
in August 2006 and we have three one-year extension options.  We used borrowings
on the credit  facility  to repay all of the  outstanding  borrowings  under our
previous $130.0 million unsecured credit facility, which had an interest rate of
LIBOR plus 1.30% and was scheduled to mature in September  2004. At December 31,
2004,  total  outstanding  borrowings  of $39.9  million  under  the new  credit
facility had a weighted average interest rate of 3.54%.

     We currently have four secured lines of credit with total  availability  of
$483.0 million that are used for  construction,  acquisition and working capital
purposes.  Each of  these  lines is  secured  by  mortgages  on  certain  of our
operating properties.  There were total borrowings of $421.5 million outstanding
at a weighted average interest rate of 3.36% as of December 31, 2004.

     We also have  secured  lines of credit  with  total  availability  of $27.1
million  that can only be used to issue  letters  of  credit.  There  was  $12.3
million outstanding under these lines at December 31, 2004.

     We obtained a $57.3 million,  nonrecourse  loan secured by Eastgate Mall in
Cincinnati, OH that bears interest at 4.55% and matures in December 2009.

     We assumed $304.6 million of debt and obtained an additional $272.6 million
of debt to fund the  acquisitions  completed during 2004. The assumed loans bear
interest at stated fixed rates ranging from 5.73% to 8.69% and mature at various
dates from March 2009 to December 2014.  Since the stated  interest rates on the
fixed-rate  loans were above market rates for similar debt instruments as of the
respective dates of acquisition, debt premiums of $19.5 million were recorded to
reflect the assumed debt at estimated  fair values.  Including the effect of the
related debt premiums,  the effective  interest rates on the assumed loans range
from 4.75% to 5.50%.  The additional  loans include $159.2 million of loans that
bear  interest  at LIBOR plus 100 basis  points and mature in April 2006 and May
2006, and a fixed-rate,  interest-only,  nonrecourse loan of $113.4 million that
bears interest at 5.04% and matures in December 2014.

     The  secured  and  unsecured  credit   facilities   contain,   among  other
restrictions,  certain financial  covenants including the maintenance of certain
coverage ratios,  minimum net worth  requirements,  and limitations on cash flow
distributions.   We  were  in  compliance  with  all  financial   covenants  and
restrictions  under our credit  facilities  at December 31, 2004.  Additionally,
certain property-specific mortgage notes payable require the maintenance of debt


                                       26


service  coverage ratios on their respective  properties.  At December 31, 2004,
the properties  subject to these mortgage notes payable were in compliance  with
the applicable ratios.

     We expect to refinance  the  majority of mortgage  and other notes  payable
maturing over the next five years with replacement  loans. Based on our pro rata
share of total debt,  there is $67.7 million of debt that is scheduled to mature
in 2005.  There are  extension  options in place to extend the maturity of $30.0
million of this debt to 2006. We repaid $10.6 million of these loans  subsequent
to  December  31,  2004,  and  expect to repay the  remaining  $27.1  million of
maturing loans.

Equity

     On December 13, 2004,  we issued  7,000,000  depositary  shares in a public
offering,  each representing  one-tenth of a share of 7.375% Series D Cumulative
Redeemable  Preferred Stock (the "Series D Preferred  Stock") with a liquidation
preference of $250.00 per share ($25.00 per depositary  share). The dividends on
the Series D Preferred  Stock are  cumulative,  accrue from the date of issuance
and are payable  quarterly in arrears at a rate of $18.4375 per share  ($1.84375
per  depositary  share) per annum.  The Series D  Preferred  Stock has no stated
maturity, is not subject to any sinking fund or mandatory redemption, and is not
redeemable  before  December 13, 2009.  The net proceeds of $169.3  million were
used to reduce outstanding borrowings on our credit facilities.

     We received $15.8 million in proceeds from issuances of common stock during
2004 from exercises of employee stock options,  our dividend  reinvestment  plan
and our employee stock purchase plan.

     During 2004, we paid  dividends of $106.9  million to holders of our common
stock and our preferred  stock, as well as $78.5 million in distributions to the
minority  interest  investors in our Operating  Partnership and certain shopping
center properties.

     As a publicly  traded  company,  we have access to capital through both the
public  equity  and  debt  markets.  We have  an  effective  shelf  registration
statement  authorizing  us to publicly issue shares of preferred  stock,  common
stock and warrants to purchase  shares of common stock with an aggregate  public
offering price up to $562.0  million,  of which $272.0 million remains after the
Series D Preferred Stock offering.

     We anticipate that the combination of equity and debt sources will, for the
foreseeable future,  provide adequate liquidity to continue our capital programs
substantially  as in the past  and make  distributions  to our  shareholders  in
accordance with the requirements applicable to real estate investment trusts.

     Our   policy   is   to   maintain   a   conservative   debt-to-total-market
capitalization  ratio in order to enhance  our access to the  broadest  range of
capital  markets,  both  public  and  private.  Based  on  our  share  of  total
consolidated  and  unconsolidated  debt and the market value of our equity,  our
debt-to-total-market capitalization (debt plus market-value equity) ratio was as
follows at December 31, 2004 (in thousands, except stock prices):


                                                         Shares
                                                       Outstanding      Stock Price (1)          Value
                                                    ------------------  -----------------   -----------------
                                                                                      
Common stock and operating partnership units               113,928           $38.175           $4,349,201
8.75% Series B Cumulative Redeemable Preferred Stock         2,000             50.00              100,000
7.75% Series C Cumulative Redeemable Preferred Stock           460            250.00              115,000
7.375% Series D Cumulative Redeemable Preferred
Stock                                                          700            250.00              175,000
                                                                                            -----------------
Total market equity                                                                             4,739,201
Our share of total debt                                                                         3,491,787
                                                                                            -----------------
Total market capitalization                                                                    $8,230,988
                                                                                            =================
Debt-to-total-market capitalization ratio                                                           42.4%
                                                                                            =================
<FN>
     (1)  The number of shares of common stock and operating  partnership  units
          outstanding  reflects the effect of the  two-for-one  stock split that
          occurred  on  June  15,  2005,  which  is  discussed  in Note 1 to our
          consolidated  financial  statements.  The stock price for common stock
          and operating partnership units equals the closing price of our common
          stock on December 31, 2004 as adjusted for the two-for-one stock split
          that  occurred on June 15,  2005.  The stock  price for the  preferred
          stock represents the liquidation  preference of each respective series
          of preferred stock.
</FN>


                                       27


Contractual Obligations

     The following table summarizes our significant  contractual  obligations as
of December 31, 2004 (dollars in thousands):


                                                                                        Payments Due By Period
                                                                   -----------------------------------------------------------------
                                                                                 Less Than      1 - 3       3 - 5      More Than
                                                                    Total         1 Year        Years       Years       5 Years
                                                                   ------------- ------------ ------------ ----------- -------------
                                                                                                           
Long-term debt:
    Total consolidated debt service (1)                               $4,230,608    $323,641   $1,347,226    $1,039,637   $1,520,104
    Minority investors' share in shopping center properties             (74,803)     (4,886)     (15,194)      (16,198)     (38,525)
    Our share of unconsolidated affiliates debt service (2)              188,465      13,466       64,838        31,960       78,201
                                                                   ------------- ------------ ------------ ----------- -------------
    Our share of total debt service obligations                        4,344,270     332,221    1,396,870     1,055,399    1,559,780
                                                                   ------------- ------------ ------------ ----------- -------------

Operating leases: (3)
    Ground leases on consolidated properties                              40,002       1,320        2,674         2,695       33,313
    Minority investors' share in shopping center properties                (423)        (31)         (65)          (71)        (256)
    Our share of ground leases on unconsolidated affiliates                5,295          64          128           129        4,974
                                                                   ------------- ------------ ------------ ----------- -------------
    Our share of total ground lease obligations                           44,874       1,353        2,737         2,753       38,031
                                                                   ------------- ------------ ------------ ----------- -------------

Purchase obligations: (4)
    Construction contracts on consolidated properties                     34,145      34,145            -             -            -
    Minority investors' share in shopping center properties                 (60)        (60)            -             -            -
    Our share of construction contracts of unconsolidated affiliates       7,631       7,631            -             -            -
                                                                   ------------- ------------ ------------ ----------- -------------
    Our share of total construction contracts                             41,716      41,716            -             -            -
                                                                   ------------- ------------ ------------ ----------- -------------

Other long-term liabilities:
    Master lease obligation to Galileo America (5)                         3,789         883        1,159           778          969
                                                                   ------------- ------------ ------------ ----------- -------------
Total contractual obligations                                         $4,434,649    $376,173   $1,400,766    $1,058,930   $1,598,780
                                                                   ============= ============ ============ =========== =============
<FN>
     (1)  Represents principal and interest payments due under terms of mortgage
          and other notes payable and includes $683,493 of variable-rate debt on
          six  operating  properties,  four secured  credit  facilities  and one
          unsecured  credit  facility.   The  variable-rate  loans  on  the  six
          operating properties call for payments of interest only with the total
          principal  due at  maturity.  The  credit  facilities  do not  require
          scheduled principal payments.  The future contractual  obligations for
          all  variable-rate  indebtedness  reflect  payments of  interest  only
          throughout the term of the debt with the total  outstanding  principal
          at December 31, 2004 due at maturity. The future interest payments are
          projected  based on the interest rates that were in effect at December
          31, 2004.  See Note 6 to the  consolidated  financial  statements  for
          additional information regarding the terms of long-term debt.

     (2)  Includes $68,908 of  variable-rate  indebtedness.  Future  contractual
          obligations  have been projected using the same assumptions as used in
          (1) above.

     (3)  Obligations where we own the buildings and improvements, but lease the
          underlying land under long-term ground leases. The maturities of these
          leases  range  from 2006 to 2091 and  generally  provide  for  renewal
          options.  Renewal  options  have  not  been  included  in  the  future
          contractual obligations.

     (4)  Represents  the remaining  balance to be incurred  under  construction
          contracts that had been entered into as of December 31, 2004, but were
          not complete. The contracts are primarily for development,  renovation
          and expansion of properties.

     (5)  See Note 5 to the consolidated  financial statements for a description
          of  the  master  lease  obligation  to  Galileo  America.  The  future
          contractual   obligations  shown  above  only  include  the  remaining
          obligation  that was  recorded in the  consolidated  balance  sheet at
          December 31, 2004.
</FN>


Capital Expenditures

     We expect to continue to have access to the capital resources  necessary to
expand and develop our business.  Future development and acquisition  activities
will be undertaken as suitable  opportunities  arise. We do not expect to pursue
these  activities  unless adequate sources of financing are available and we can
achieve satisfactory returns on our investments.

     An annual capital expenditures budget is prepared for each property that is
intended  to provide  for all  necessary  recurring  and  non-recurring  capital
expenditures.  We believe that  property  operating  cash flows,  which  include
reimbursements  from tenants for certain  expenses,  will provide the  necessary
funding for these expenditures.

                                       28



Developments and Expansions

      The following is a summary of the projects currently under construction
(dollars in thousands):


                                                                                             Our
                                                                                           Share of
                                                                 Gross         Our        Cost As of      Scheduled
                                                                Leasable     Share of    December 31,      Opening
              Property                       Location             Area      Total Cost       2004           Date
- -----------------------------------------------------------------------------------------------------------------------
                                                                                          
New Mall Developments:
Imperial Valley Mall (60/40 joint
venture)                              El Centro, CA               754,000   $  45,538      $38,536       March 2005

Mall Expansions:

Citadel Mall                          Charleston, SC               45,000       6,389          156       August 2005

Fayette Mall                          Lexington, KY               144,000      25,532        4,793      October 2005

Open Air Center:
Southaven Towne Center                Southaven, MS               420,000      24,655       19,427      October 2005

Associated Centers:

CoolSprings Crossing - Tweeters       Nashville, TN                10,000       1,415           31       March 2005
Hamilton Corner                       Chattanooga, TN              68,000       5,500        2,472       March 2005
The District at Monroeville Mall      Monroeville, PA              75,000      20,588        9,724       April 2005
Coastal Grand Crossing                Myrtle Beach, SC             15,000       1,946           --       April 2005

Community Centers:
Cobblestone Village at Royal Palm     Royal Palm, FL              225,000       8,784        4,194        June 2005
Chicopee Marketplace                  Chicopee, MA                156,000      19,743        5,094       August 2005
Fashion Square                        Orange Park, FL              18,000       2,031          218        July 2005
                                                              -----------------------------------------
                                                                1,930,000   $ 162,121      $84,645
                                                              =========================================


     There  are  construction  loans in place  for the costs of the new mall and
open-air center developments. The costs of the remaining projects will be funded
with operating cash flows and the credit facilities.

     We have entered into a number of option  agreements for the  development of
future regional malls and community  centers.  Except for the projects listed in
the above table, we do not have any other material capital commitments.

Acquisitions

     We acquired  eight malls,  two  associated  centers and a community  center
during  2004 for an  aggregate  purchase  price  of  $950.0  million,  including
transaction  costs.  We paid $587.2  million in cash,  assumed $304.6 million of
debt,  agreed to pay $12.0 million for land at a future date and issued  limited
partnership  interests in our Operating  Partnership  valued at $46.2 million to
fund these  acquisitions.  The cash portions of the purchase  prices were funded
with  borrowings  under our credit  facilities  and the three new loans totaling
$272.6  million.   These  acquisitions  are  expected  to  generate  an  initial
weighted-average, unleveraged return of 7.68%.

Dispositions

     During 2004, we generated aggregate net proceeds of $113.6 million from the
Galileo  Transaction,  the sales of four  community  centers  and one  community
center expansion and the sales of nine outparcels. The net proceeds were used to
reduce  borrowings  under our credit  facilities.  In January  2005, we sold two
power centers,  one community center and a community center expansion to Galileo
America.  The net  proceeds  of $42.5  million  were used to reduce  outstanding
balances under our lines of credit.

     In March 2005, we sold five community  centers for an aggregate sales price
of $12.1  million.  We recognized an aggregate loss on impairment of real estate
assets  of $0.6  million  on  these  community  centers  in  December  2004  and
recognized an additional loss on impairment of less than $0.1 million during the
three months ended March 31, 2005

                                       29


Other Capital Expenditures

     Including our share of unconsolidated affiliates' capital expenditures,  we
spent $37.4  million in 2004 for tenant  allowances,  which  generate  increased
rents  from  tenants  over  the  terms  of their  leases.  Deferred  maintenance
expenditures  were  $17.5  million  for  2004  and  included  $6.0  million  for
resurfacing and improved lighting of parking lots, $5.1 million for roof repairs
and  replacements  and $6.4 million for various other  expenditures.  Renovation
expenditures were $21.1 million in 2004.

     Deferred  maintenance  expenditures  are billed to  tenants as common  area
maintenance  expense,  and  most  are  recovered  over a 5- to  15-year  period.
Renovation  expenditures  are primarily for remodeling and upgrades of malls, of
which approximately 30% is recovered from tenants over a 5- to 15-year period.

     We expect to renovate  two malls during 2005 at a total  estimated  cost of
$28.0 million,  which will be funded from operating cash flows and  availability
under our credit facilities. One of the renovation projects will be completed in
2005 and the other will be completed in 2006.


Off-Balance Sheet Arrangements

Unconsolidated Affiliates

     We have  ownership  interests in nine  unconsolidated  affiliates  that are
described in Note 5 to the consolidated financial statements. The unconsolidated
affiliates  are  accounted  for using the equity  method of  accounting  and are
reflected in the consolidated  balance sheets as "Investments in  Unconsolidated
Affiliates." The following are circumstances  when we may consider entering into
a joint venture with a third party:

     |X|  Third  parties  may  approach  us with  opportunities  where they have
          obtained land and performed some pre-development  activities, but they
          may  not  have  sufficient  access  to the  capital  resources  or the
          development and leasing expertise to bring the project to fruition. We
          enter  into such  arrangements  when we  determine  such a project  is
          viable and we can achieve a satisfactory return on our investment.  We
          typically  earn  development  fees from the joint  venture and provide
          management  and leasing  services to the property once it is placed in
          operation.

     |X|  We determine  that we may have the  opportunity  to  capitalize on the
          value we have  created in a property  by  selling an  interest  in the
          property to a third party.  This provides us with an additional source
          of capital  that can be used to develop  or  acquire  additional  real
          estate  assets that we believe  will  provide  greater  potential  for
          growth.  When we retain an interest in an asset  rather than selling a
          100% interest,  it is typically  because this allows us to continue to
          manage the  property,  which  provides us the ability to earn fees for
          management,  leasing, development,  financing and acquisition services
          provided to the joint venture.

 Guarantees

     We have  guaranteed 100% of the debt to be incurred to develop the property
owned by Imperial  Valley Mall L.P. and 50% of the debt of Parkway Place L.P. We
have issued these guarantees  primarily  because it allows the joint ventures to
obtain funding at a lower cost than could be obtained otherwise. This results in
a higher return for the joint venture on its investment,  and in a higher return
on our  investment  in the joint  venture.  We may  receive a fee from the joint
venture  for  providing  the  guaranty.  Additionally,  when we are  required to
perform under a guaranty,  the terms of the guaranty  typically provide that the
joint venture partners' interests in the joint venture is assigned to us, to the
extent of our guaranty.


                                       30



     We had  guaranteed  the debt incurred to develop the property owned by Mall
of South  Carolina L.P. and had received a fee for the  guaranty.  This debt was
refinanced  during 2004 by Mall of South  Carolina  L.P.  and, as a result,  the
guaranty was terminated. We recognized revenues of $0.5 million and $0.2 million
related to this guaranty during 2004 and 2003, respectively.

     The  Company's  guarantees  and  the  related  accounting  are  more  fully
described in Note 17 to the consolidated financial statements.


Critical Accounting Policies

     Our  significant  accounting  policies  are  disclosed  in  Note  2 to  the
consolidated  financial statements.  The following discussion describes our most
critical  accounting  policies,  which are those that are both  important to the
presentation  of our  financial  condition  and results of  operations  and that
require significant judgment or use of complex estimates.

Revenue Recognition

     Minimum  rental   revenue  from   operating   leases  is  recognized  on  a
straight-line  basis  over the  initial  terms of the  related  leases.  Certain
tenants  are  required to pay  percentage  rent if their  sales  volumes  exceed
thresholds specified in their lease agreements. Percentage rent is recognized as
revenue when the thresholds are achieved and the amounts become determinable.

     We receive  reimbursements  from tenants for real estate taxes,  insurance,
common area maintenance, and other recoverable operating expenses as provided in
the lease  agreements.  Tenant  reimbursements  are recognized as revenue in the
period the  related  operating  expenses  are  incurred.  Tenant  reimbursements
related to certain capital  expenditures are billed to tenants over periods of 5
to 15 years and are recognized as revenue when billed.

     We receive management,  leasing and development fees from third parties and
unconsolidated  affiliates.  Management  fees are  charged  as a  percentage  of
revenues (as defined in the management  agreement) and are recognized as revenue
when earned. Development fees are recognized as revenue on a pro rata basis over
the development  period.  Leasing fees are charged for newly executed leases and
lease  renewals  and are  recognized  as revenue when  earned.  Development  and
leasing fees  received from  unconsolidated  affiliates  during the  development
period are  recognized  as revenue  to the extent of the  third-party  partners'
ownership interest. Fees to the extent of our ownership interest are recorded as
a reduction to our investment in the unconsolidated affiliate.

     Gains on sales of real estate assets are  recognized  when it is determined
that  the  sale  has  been  consummated,  the  buyer's  initial  and  continuing
investment  is  adequate,  our  receivable,  if any,  is not  subject  to future
subordination,  and the  buyer  has  assumed  the usual  risks  and  rewards  of
ownership of the asset. When we have an ownership interest in the buyer, gain is
recognized to the extent of the third party partner's ownership interest and the
portion of the gain attributable to our ownership interest is deferred.

Real Estate Assets

     We  capitalize  predevelopment  project  costs paid to third  parties.  All
previously  capitalized  predevelopment  costs are expensed when it is no longer
probable  that the project  will be  completed.  Once  development  of a project
commences,  all direct  costs  incurred  to  construct  the  project,  including
interest and real estate taxes, are capitalized.  Additionally,  certain general
and administrative  expenses are allocated to the projects and capitalized based
on the amount of time  applicable  personnel  work on the  development  project.
Ordinary  repairs and maintenance are expensed as incurred.  Major  replacements
and  improvements  are capitalized and depreciated  over their estimated  useful
lives.

                                       31


     All acquired real estate assets are accounted for using the purchase method
of accounting  and  accordingly,  the results of operations  are included in the
consolidated  statements of operations from the respective dates of acquisition.
The purchase  price is allocated to (i)  tangible  assets,  consisting  of land,
buildings  and  improvements,  and  tenant  improvements  and (ii)  identifiable
intangible  assets generally  consisting of above- and  below-market  leases and
in-place  leases.  We use estimates of fair value based on estimated cash flows,
using  appropriate  discount rates, and other valuation  methods to allocate the
purchase  price to the acquired  tangible  and  intangible  assets.  Liabilities
assumed  generally  consist of mortgage debt on the real estate assets acquired.
Assumed debt with a stated  interest rate that is  significantly  different from
market  interest  rates is recorded at its fair value based on estimated  market
interest rates at the date of acquisition.

     Depreciation is computed on a  straight-line  basis over estimated lives of
40 years for  buildings,  10 to 20 years for  certain  improvements  and 7 to 10
years for  equipment and  fixtures.  Tenant  improvements  are  capitalized  and
depreciated  on a  straight-line  basis  over  the  term of the  related  lease.
Lease-related  intangibles from acquisitions of real estate assets are amortized
over the remaining terms of the related leases.  The  amortization of above- and
below-market  leases is recorded as an  adjustment  to minimum  rental  revenue,
while the  amortization  of all other  lease-related  intangibles is recorded as
amortization  expense. Any difference between the face value of the debt assumed
and its fair value is amortized to interest  expense over the remaining  term of
the debt using the effective interest method.

Carrying Value of Long-Lived Assets

     We periodically  evaluate  long-lived assets to determine if there has been
any  impairment in their  carrying  values and record  impairment  losses if the
undiscounted  cash flows estimated to be generated by those assets are less than
the assets' carrying amounts or if there are other indicators of impairment.  If
it is  determined  that an impairment  has  occurred,  the excess of the asset's
carrying  value over its  estimated  fair value is  charged  to  operations.  We
recorded losses on the impairment of real estate assets of $3,080 in 2004, which
are discussed in Note 2 to the consolidated financial statements.  There were no
impairment charges in 2003 and 2002.

Recent Accounting Pronouncements

     Effective   January  1,  2004,  we  adopted  the  provisions  of  Financial
Accounting   Standards   Board  ("FASB")   Interpretation   ("FIN")  No.  46(R),
"Consolidation of Variable Interest Entities,  an interpretation of ARB No. 51."
The interpretation requires the consolidation of entities in which an enterprise
absorbs a majority of the entity's  expected losses,  receives a majority of the
entity's  expected  residual  returns,  or  both,  as  a  result  of  ownership,
contractual or other financial  interests in the entity.  We determined that one
unconsolidated  affiliate,  PPG  Venture I  Limited  Partnership  ("PPG"),  is a
variable  interest  entity  and that we are the  primary  beneficiary.  We began
consolidating the assets, liabilities and results of operations of PPG effective
January  1,  2004.   We   initially   measured  the  assets,   liabilities   and
noncontrolling  interest of PPG at the carrying amounts at which they would have
been carried in the consolidated  financial  statements as if FIN 46(R) had been
effective when we first met the conditions to be the primary beneficiary,  which
was  the  inception  of  PPG.  We own a 10%  interest  in PPG,  which  owns  one
associated center and two community centers.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
("SFAS")  No.  150,   "Accounting  for  Certain   Financial   Instruments   with
Characteristics   of  Both   Liabilities   and  Equity,"  which  specifies  that
instruments within its scope are obligations of the issuer and,  therefore,  the
issuer must classify them as liabilities. Financial instruments within the scope
of the  pronouncement  include  mandatorily  redeemable  financial  instruments,
obligations to repurchase the issuer's equity shares by transferring assets, and
certain  obligations  to issue a  variable  number of  shares.  SFAS No.  150 is
effective for all financial  instruments  entered into or modified after May 31,
2003.  However,  on  October  29,  2003,  the  FASB  indefinitely  deferred  the
provisions  of  paragraphs  9 and 10 of SFAS No. 150  related to  noncontrolling
interests  in  limited-life   subsidiaries.   During  2004,  the  joint  venture
agreements with minority  interest  partners were amended so that they no longer
have a limited life.

                                       32


     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets,  an amendment of APB No. 29,  Accounting for Nonmonetary  Transactions."
SFAS No. 153 requires exchanges of productive assets to be accounted for at fair
value, rather than at carryover basis, unless (1) neither the asset received nor
the asset  surrendered has a fair value that is determinable  within  reasonable
limits  or (2) the  transactions  lack  commercial  substance.  SFAS No.  153 is
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15, 2005.  We do not expect the  adoption of this  standard to have a
material effect on our financial position or results of operations.

     In December  2004, the FASB released its final revised  standard,  SFAS No.
123 (Revised  2004),  "Share-Based  Payment."  SFAS No.  123(R)  requires that a
public  entity  measure the cost of equity  based  service  awards  based on the
grant-date fair value of the award. That cost will be recognized over the period
during  which an employee is  required  to provide  service in exchange  for the
award or the vesting  period.  No  compensation  cost is  recognized  for equity
instruments for which employees do not render the requisite service. Adoption of
SFAS No. 123(R) is required for fiscal periods beginning after June 15, 2005. We
previously  adopted the fair value  provisions of SFAS No. 123,  "Accounting for
Stock  Based  Compensation",  as  amended  by  SFAS  No.  148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure - An Amendment of FASB
Statement No. 123"  effective  January 1, 2003. We do not expect the adoption of
this standard to have a material effect on our financial  position or results of
operations.

Impact of Inflation

     In the last three years,  inflation has not had a significant impact on our
operations  because of the  relatively  low inflation  rate.  Substantially  all
tenant leases do, however,  contain  provisions  designed to protect us from the
impact of inflation.  These  provisions  include clauses  enabling us to receive
percentage  rent based on tenants'  gross  sales,  which  generally  increase as
prices rise, and/or escalation  clauses,  which generally  increase rental rates
during the terms of the leases. In addition, many of the leases are for terms of
less than 10 years  which may  provide us the  opportunity  to replace  existing
leases  with new leases at higher base  and/or  percentage  rent if rents of the
existing  leases are below the then  existing  market  rate.  Most of the leases
require the tenants to pay their share of operating  expenses,  including common
area maintenance, real estate taxes and insurance, which reduces our exposure to
increases in costs and operating expenses resulting from inflation.

Funds From Operations

     Funds From  Operations  ("FFO") is a widely used  measure of the  operating
performance of real estate companies that  supplements net income  determined in
accordance with generally accepted accounting principles ("GAAP").  The National
Association  of Real  Estate  Investment  Trusts  ("NAREIT")  defines FFO as net
income  (computed in accordance with GAAP) excluding gains or losses on sales of
operating properties, plus depreciation and amortization,  and after adjustments
for   unconsolidated   partnerships   and  joint   ventures.   Adjustments   for
unconsolidated partnerships and joint ventures are calculated on the same basis.
We compute FFO as defined above by NAREIT less dividends on preferred stock. Our
method of calculating FFO may be different from methods used by other REITs and,
accordingly, may not be comparable to such other REITs.

     We believe  that FFO  provides an  additional  indicator  of the  operating
performance of our properties without giving effect to real estate  depreciation
and  amortization,  which  assumes  the  value of real  estate  assets  declines
predictably over time. Since values of  well-maintained  real estate assets have
historically  risen  with  market  conditions,  we  believe  that  FFO  enhances
investors'  understanding  of our  operating  performance.  The use of FFO as an
indicator of financial  performance  is influenced not only by the operations of
our properties and interest rates, but also by our capital structure.

     FFO does not represent cash flows from  operations as defined by accounting
principles   generally  accepted  in  the  United  States,  is  not  necessarily
indicative  of cash  available  to fund all cash flow  needs and  should  not be
considered  as an  alternative  to net income for  purposes  of  evaluating  our
operating performance or to cash flow as a measure of liquidity.

                                       33


     FFO increased 14.3% in 2004 to $310.4 million compared to $271.6 million in
2003. The New 2004 Properties  generated 69% of the growth in FFO.  Consistently
high portfolio occupancy, increases in rental rates from new and renewal leasing
and  increased  recoveries  of operating  expenses  primarily  accounted for the
remaining 31% growth in FFO.

     The calculation of FFO is as follows (in thousands):


                                                                                    Year Ended December 31,
                                                               ------------------------------------------------------------------
                                                                        2004                  2003                 2002
                                                               ------------------------------------------------------------------

                                                                                                             
 Net income available to common shareholders                              $   102,802            $  124,506           $   73,987
 Add:
 Depreciation and amortization from consolidated properties                   142,043               112,857               93,589
 Depreciation and amortization from unconsolidated affiliates                   6,144                 4,307                4,490
 Depreciation and amortization from discontinued operations                       587                   934                1,370
 Minority interest in earnings of operating partnership                        85,186               106,532               64,251
 Less:
 Gains on sales of operating real estate assets                               (23,696)              (71,886)                   -
 Minority investors' share of depreciation and amortization                    (1,230)               (1,111)              (1,348)
 Gain on discontinued operations                                                 (845)               (4,042)                (372)
 Depreciation and amortization of non-real estate assets                         (586)                 (508)                (493)
                                                                         -------------         -------------        ------------
 Funds from operations                                                    $   310,405           $   271,589          $   235,474
                                                                         =============         =============        ===========
 FFO applicable to our shareholders                                       $   169,725           $   146,552          $   126,127
                                                                         =============         =============        ===========

 SUPPLEMENTAL FFO INFORMATION:

 Lease termination fees                                                    $    3,864            $    4,552           $    5,888
 Straight-line rental income                                               $    2,688            $    3,908           $    4,348
 Gains on outparcel sales                                                  $    3,449            $    6,195           $    2,483
 Amortization of acquired above- and below-market leases                   $    3,656            $      332           $        -
 Amortization of debt premiums                                             $    5,418            $      646           $        -
 Gain on sales of nonoperating properties                                  $    4,285            $        -           $        -
 Loss on impairment of real estate assets                                  $  (3,080)            $        -           $        -



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

          Reference  is made to the Index to Financial  statements  contained in
          Item 15 on page 36.


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K.

     (1)  Financial Statements                                       Page Number

          Report of Management on Internal Control Over Financial
          Reporting                                                     37

          Report Of Independent Registered Public Accounting Firm       39

          CBL & Associates  Properties,  Inc.  Consolidated Balance
          Sheets as of December 31, 2004 and 2003                       40

                                       34


          CBL  &  Associates   Properties,   Inc.  Consolidated
          Statements of Operations for the Years Ended
          December 31, 2004, 2003 and 2002                              41

          CBL  &  Associates   Properties,   Inc.  Consolidated
          Statements of Shareholders' Equity for the Years Ended
          December 31, 2004, 2003 and 2002                              42

          CBL & Associates  Properties,  Inc.  Consolidated
          Statements of Cash Flows for the Years Ended
          December 31, 2004, 2003 and 2002                              43

          Notes to Consolidated Financial Statements                    44


                                       35



                          INDEX TO FINANCIAL STATEMENTS



    Report of Management on Internal Control Over Financial Reporting   37

    Report Of Independent Registered Public Accounting Firm             39

    CBL & Associates Properties, Inc. Consolidated Balance Sheets
         as of December 31, 2004 and 2003                               40

    CBL & Associates Properties, Inc. Consolidated Statements of
         Operations for the Years Ended December 31, 2004, 2003
         and 2002                                                       41

    CBL & Associates Properties, Inc. Consolidated Statements of
         Shareholders' Equity for the Years Ended December 31, 2004,
         2003 and 2002                                                  42

    CBL & Associates Properties, Inc. Consolidated Statements of
         Cash Flows for the Years Ended December 31, 2004, 2003
         and 2002                                                       43

    Notes to Consolidated Financial Statements                          44


                                       36



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of
CBL & Associates Properties, Inc.:

     We  have  audited  management's  assessment,  included  in  the  Report  of
Management on Internal  Control over Financial  Reporting  (that was included in
CBL &  Associates  Properties,  Inc.  Form 10-K for the year ended  December 31,
2004), that CBL & Associates  Properties,  Inc. and subsidiaries (the "Company")
maintained  effective  internal control over financial  reporting as of December
31,  2004,  based  on  criteria  established  in  Internal   Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission.  The Company's  management is responsible for maintaining  effective
internal  control  over  financial  reporting  and  for  its  assessment  of the
effectiveness of internal control over financial  reporting.  Our responsibility
is to  express  an  opinion  on  management's  assessment  and an opinion on the
effectiveness of the Company's  internal control over financial  reporting based
on our audit.

     We  conducted  our audit in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial reporting,  evaluating management's  assessment,  testing
and evaluating the design and operating  effectiveness of internal control,  and
performing   such  other   procedures   as  we   considered   necessary  in  the
circumstances.  We believe that our audit  provides a  reasonable  basis for our
opinions.

     A company's internal control over financial reporting is a process designed
by, or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's  board of  directors,  management,  and  other  personnel  to  provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles.  A company's  internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

     Because of the inherent  limitations  of internal  control  over  financial
reporting,  including  the  possibility  of  collusion  or  improper  management
override of controls,  material  misstatements  due to error or fraud may not be
prevented or detected on a timely basis. Also,  projections of any evaluation of
the  effectiveness  of the internal  control over financial  reporting to future
periods are subject to the risk that the controls may become inadequate  because
of changes in conditions,  or that the degree of compliance with the policies or
procedures may deteriorate.

     In our opinion,  management's  assessment  (not presented  herein) that the
Company  maintained  effective  internal control over financial  reporting as of
December 31, 2004,  is fairly  stated,  in all material  respects,  based on the
criteria  established in Internal  Control--Integrated  Framework  issued by the
Committee of Sponsoring  Organizations of the Treadway  Commission.  Also in our
opinion,  the Company maintained,  in all material respects,  effective internal
control over financial  reporting as of December 31, 2004, based on the criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.



                                       37




     We have also  audited,  in  accordance  with the  standards  of the  Public
Company Accounting Oversight Board (United States),  the consolidated  financial
statements  and  financial  statement  schedules  as of and for the  year  ended
December 31, 2004 of the Company and our report dated March 16, 2005, except for
the  effect of Note 23 as to which the date is January  9,  2006,  expressed  an
unqualified  opinion  on those  financial  statements  and  financial  statement
schedules.


/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
March 16, 2005


                                       38



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of
CBL & Associates Properties, Inc.:

We have audited the accompanying consolidated balance sheets of CBL & Associates
Properties,  Inc. and  subsidiaries  (the "Company") as of December 31, 2004 and
2003,  and the related  consolidated  statements  of  operations,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2004. Our audits also included the financial  statement schedules (that were
included  in CBL &  Associates  Properties,  Inc.  Form 10-K for the year  ended
December 31, 2004). These financial statements and financial statement schedules
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on the financial statements and financial statement schedules
based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of CBL and Associates Properties, Inc.
and  subsidiaries  as of December  31,  2004 and 2003,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting  principles  generally accepted
in the United States of America.  Also, in our opinion, such financial statement
schedules,  when  considered  in  relation to the basic  consolidated  financial
statements  taken as a whole,  present  fairly,  in all material  respects,  the
information set forth therein.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of the Company's
internal control over financial  reporting as of December 31, 2004, based on the
criteria  established in Internal  Control--Integrated  Framework  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission and our report
dated March 16, 2005 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial  reporting
and an  unqualified  opinion  on the  effectiveness  of the  Company's  internal
control over financial reporting.



/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia
March 16, 2005, except for the effect of Note 23 as to which the date is January
9, 2006


                                       39




                                     CBL & Associates Properties, Inc.
                                        Consolidated Balance Sheets
                                     (In thousands, except share data)


                                                                                  December 31,
                                                                     ---------------------------------------
 ASSETS                                                                    2004                2003
                                                                     ---------------------------------------
 Real estate assets:
                                                                                      
   Land                                                                  $   659,782        $   578,310
   Buildings and improvements                                              4,670,462          3,678,074
                                                                     ---------------------------------------
                                                                           5,330,244          4,256,384
   Accumulated depreciation                                                 (575,464)          (467,614)
                                                                     ---------------------------------------
                                                                           4,754,780          3,788,770
   Real estate assets held for sale                                           61,607             64,354
   Developments in progress                                                   78,393             59,096
                                                                     ---------------------------------------
     Net investment in real estate assets                                  4,894,780          3,912,220
 Cash and cash equivalents                                                    25,766             20,332
 Cash in escrow                                                                    -             78,476
 Receivables:
   Tenant, net of allowance for doubtful accounts
        of $3,237 in 2004 and 2003                                            38,409             42,165
   Other                                                                      13,706              3,033
 Mortgage notes receivable                                                    27,804             36,169
 Investments in unconsolidated affiliates                                     84,782             96,450
 Other assets                                                                119,253             75,465
                                                                     ---------------------------------------
                                                                          $5,204,500         $4,264,310
                                                                     =======================================
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Mortgage and other notes payable                                         $3,359,466         $2,709,348
 Mortgage notes payable on real estate assets held for sale                   12,213             28,754
 Accounts payable and accrued liabilities                                    212,064            161,477
                                                                     ---------------------------------------
     Total liabilities                                                     3,583,743          2,899,579
                                                                     ---------------------------------------
 Commitments and contingencies (Notes 3, 5 and 17)
 Minority interests                                                          566,606            527,431
                                                                     ---------------------------------------
 Shareholders' equity:
 Preferred stock, $.01 par value, 15,000,000 shares authorized:
    8.75% Series B Cumulative Redeemable Preferred Stock, 2,000,000
        Shares outstanding in 2004 and 2003                                       20                 20
    7.75% Series C Cumulative Redeemable Preferred Stock, 460,000
        Shares outstanding in 2004 and 2003                                        5                  5
    7.375% Series D Cumulative Redeemable Preferred Stock,
        700,000 shares outstanding in 2004                                         7                  -
 Common stock, $.01 par value, 180,000,000 shares authorized,
         62,667,104 and 60,646,952 shares issued and outstanding
          in 2004 and 2003, respectively                                         627                606
 Additional paid-in capital                                                1,025,478            817,310
 Deferred compensation                                                        (3,081)            (1,607)
 Retained earnings                                                            31,095             20,966
                                                                     ---------------------------------------
 Total shareholders' equity                                                1,054,151            837,300
                                                                     ---------------------------------------
                                                                          $5,204,500         $4,264,310
                                                                     =======================================
<FN>
The accompanying notes are an integral part of these balance sheets.
</FN>


                                       40



                                        CBL & Associates Properties, Inc.
                                      Consolidated Statements of Operations
                                     (In thousands, except per share amounts)



                                                                               Year Ended December 31,
                                                                    ----------------------------------------------
                                                                        2004           2003             2002
                                                                    ----------------------------------------------
 REVENUES:
                                                                                               
   Minimum rents                                                        $ 476,578      $ 426,318        $ 379,243
   Percentage rents                                                        15,948         12,900           13,320
   Other rents                                                             16,102         12,633           11,013
   Tenant reimbursements                                                  218,736        192,760          159,407
   Management, development and leasing fees                                 9,791          5,525            7,146
   Other                                                                   20,098         14,176           14,002
                                                                    ----------------------------------------------
     Total revenues                                                       757,253        664,312          584,131
                                                                    ----------------------------------------------
 EXPENSES:
   Property operating                                                     115,173        102,909           92,454
   Depreciation and amortization                                          142,043        112,857           93,418
   Real estate taxes                                                       58,081         51,340           46,831
   Maintenance and repairs                                                 43,531         39,596           34,903
   General and administrative                                              35,338         30,395           23,332
   Loss on impairment of real estate assets                                 3,080              -                -
   Other                                                                   16,373         11,489           10,307
                                                                    ----------------------------------------------
     Total expenses                                                       413,619        348,586          301,245
                                                                    ----------------------------------------------
 Income from operations                                                   343,634        315,726          282,886
 Interest income                                                            3,355          2,485            1,853
 Interest expense                                                        (177,219)      (153,321)        (142,908)
 Loss on extinguishment of debt                                                 -           (167)          (3,872)
 Gain on sales of real estate assets                                       29,272         77,765            2,804
 Equity in earnings of unconsolidated affiliates                           10,308          4,941            8,215
 Minority interest in earnings:
   Operating Partnership                                                  (85,186)      (106,532)         (64,251)
   Shopping center properties                                              (5,365)        (2,758)          (3,280)
                                                                    ----------------------------------------------
 Income before discontinued operations                                    118,799        138,139           81,447
 Operating income of discontinued operations                                1,467          1,958            3,087
 Gain on discontinued operations                                              845          4,042              372
                                                                    ----------------------------------------------
 Net income                                                               121,111        144,139           84,906
 Preferred dividends                                                      (18,309)       (19,633)         (10,919)
                                                                    ----------------------------------------------
 Net income available to common shareholders                            $ 102,802      $ 124,506        $  73,987
                                                                    ==============================================
 Basic per share data:
   Income before discontinued operations, net of preferred
dividends                                                                $   1.63       $   1.98         $   1.23
   Discontinued operations                                                   0.04           0.10             0.06
                                                                    ----------------------------------------------
   Net income available to common shareholders                           $   1.67       $   2.08         $   1.29
                                                                    ----------------------------------------------
   Weighted average common shares outstanding                              61,602         59,872           57,380
                                                                    ==============================================
 Diluted per share data:
   Income before discontinued operations, net of preferred
dividends                                                                $   1.57       $   1.90         $   1.19
   Discontinued operations                                                   0.04           0.10             0.06
   Net income available to common shareholders                           $   1.61       $   2.00         $   1.25
                                                                    ----------------------------------------------
   Weighted average common and potential dilutive
     common shares outstanding                                             64,004         62,386           59,336
                                                                    ==============================================
<FN>
The accompanying notes are an integral part of these statements.
</FN>


                                       41





                        CBL & Associates Properties, Inc.
                 Consolidated Statement Of Shareholders' Equity
                        (In thousands, except share data)


                                                                                   Accumulated                 Retained
                                                                       Additional     Other                    Earnings
                                                    Preferred  Common   Paid-in   Comprehensive    Deferred   (Accumulated
                                                      Stock     Stock   Capital       Loss       Compensation    Deficit)    Total
                                                    ---------  ------  ---------- -------------  -----------  ------------ ---------
                                                                                                      
Balance, December 31, 2001                              $ 29   $  513  $  556,126    $ (6,784)        $    -    $(27,796) $ 522,088
    Net income                                             -        -           -           -              -      84,906     84,906
    Gain on current period cash flow hedges                -        -           -       4,387              -           -      4,387
                                                                                                                           ---------
        Total comprehensive income                                                                                           89,293
    Dividends declared - common stock                      -        -           -           -              -     (68,635)   (68,635)
    Dividends declared - preferred stock                   -        -           -           -              -     (10,919)   (10,919)
    Issuance of 2,000,000 shares of Series B
      preferred stock                                     20        -      96,350           -              -           -     96,370
    Purchase of 200,000 shares of Series A preferred
      stock                                               (2)       -      (5,091)          -              -           -     (5,093)
    Issuance of 7,048,598 shares of common stock           -       70     120,555           -              -           -    120,625
    Exercise of stock options                              -        4       5,003           -              -           -      5,007
    Accrual under deferred compensation arrangements       -        -       2,194           -              -           -      2,194
    Conversion of Operating Partnership units into
        893,304 shares of common stock                     -        9       7,154           -              -           -      7,163
    Adjustment for minority interest in Operating
        Partnership                                        -        -     (16,903)          -              -           -    (16,903)
                                                    ---------  ------  ---------- -------------  -----------  ------------ ---------
Balance, December 31, 2002                                47      596     765,388      (2,397)             -     (22,444)   741,190
    Net income                                             -        -           -           -              -     144,139    144,139
    Gain on current period cash flow hedges                -        -           -       2,397              -           -      2,397
                                                                                                                           ---------
        Total comprehensive income                                                                                          146,536
    Dividends declared - common stock                      -        -           -           -              -     (81,096)   (81,096)
    Dividends declared - preferred stock                   -        -           -           -              -     (17,453)   (17,453)
    Issuance of 460,000 shares of Series C preferred
        stock                                              5        -     111,222           -              -           -    111,227
    Redemption of 2,675,000 shares of Series A                                                             -
        preferred stock                                  (27)       -     (64,668)          -              -      (2,180)   (66,875)
    Issuance of 405,676 shares of common stock             -        4       8,753           -         (1,855)          -      6,902
    Exercise of stock options                              -        6       7,756           -              -           -      7,762
    Accrual under deferred compensation arrangements       -        -         618           -              -           -        618
    Amortization of deferred compensation                  -        -           -           -            248           -        248
    Adjustment for minority interest in Operating
       Partnership                                         -        -     (11,759)          -              -           -    (11,759)
                                                    ---------  ------  ---------- -------------  -----------  ------------ ---------
Balance, December 31, 2003                                25      606     817,310           -         (1,607)     20,966    837,300
    Net income and total comprehensive income              -        -           -           -              -     121,111    121,111
    Dividends declared - common stock                      -        -           -           -              -     (92,678)   (92,678)
    Dividends declared - preferred stock                   -        -           -           -              -     (18,304)   (18,304)
    Issuance of 700,000 shares of Series D preferred                                                       -
       stock                                               7        -     169,326           -                          -    169,333
    Issuance of 169,962 shares of common stock             -        2       4,526           -         (2,129)          -      2,399
    Exercise of stock options                              -       14      15,254           -              -           -     15,268
    Accrual under deferred compensation arrangements       -        -         776           -              -           -        776
    Amortization of deferred compensation                  -        -           -           -            655           -        655
    Conversion of Operating Partnership units into
        525,636 shares of common stock                     -        5       5,625           -              -           -      5,630
    Adjustment for minority interest in Operating
         Partnership                                       -        -      12,661           -              -           -     12,661
                                                    ---------  ------  ---------- -------------  -----------  ------------ ---------
Balance, December 31, 2004                               $32     $627  $1,025,478      $    -      $  (3,081)    $31,095 $1,054,151
                                                    ================================================================================
<FN>
The accompanying notes are an integral part of theses statements.
</FN>



                                       42




                                 CBL & Associates Properties, Inc.
                                Consolidated Statements of Cash Flows
                                           (In thousands)


                                                                  Year Ended December 31,
                                                          --------------------------------------------
                                                             2004           2003           2002
                                                          --------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                                    
  Net income                                                  $121,111       $144,139        $84,906
  Adjustments to reconcile net income to net cash
provided
   by operating activities:
     Minority interest in earnings                              90,551        109,331         67,554
     Depreciation                                              100,667         85,584         74,501
     Amortization                                               49,162         34,301         25,242
     Amortization of debt premiums                              (5,262)          (646)             -
     Loss on extinguishment of debt                                  -            167          3,930
     Gain on sales of real estate assets                       (29,583)       (77,775)        (2,804)
     Gain on discontinued operations                              (845)        (4,042)          (372)
     Issuance of stock under incentive plan                      1,870          1,876          2,578
     Accrual of deferred compensation                              776            618          2,194
     Amortization of deferred compensation                         655            248              -
     Write-off of development projects                           3,714          2,056            236
     Loss on impairment of real estate assets                    3,080              -              -
     Net amortization of above and below market leases          (3,515)          (311)             -
     Changes in assets and liabilities:
       Tenant and other receivables                             (1,678)        (9,773)        (1,110)
       Other assets                                             (3,413)       (12,770)        (6,089)
       Accounts payable and accrued liabilities                 11,907          1,346         23,157
                                                          --------------------------------------------
         Net cash provided by operating activities             339,197        274,349        273,923
                                                          --------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to real estate assets                              (219,383)      (227,362)      (176,799)
 Acquisitions of real estate assets and other assets          (587,163)      (273,265)      (166,489)
 Proceeds from sales of real estate assets                     113,565        284,322         84,885
 Cash in escrow                                                 78,476        (78,476)             -
 Additions to mortgage notes receivable                         (9,225)       (10,000)        (5,965)
 Payments received on mortgage notes receivable                 17,590          1,840          2,135
 Distributions in excess of equity in earnings of
   unconsolidated affiliates                                    28,908          9,740          5,751
 Additional investments in and advances to
    unconsolidated affiliates                                  (27,112)       (15,855)       (15,394)
 Additions to other assets                                      (4,307)        (3,310)        (2,731)
                                                          --------------------------------------------
         Net cash used in investing activities                (608,651)      (312,366)      (274,607)
                                                          --------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from mortgage and other notes payable                642,743        572,080        751,881
 Principal payments on mortgage and other notes
    payable                                                  (355,651)      (390,115)      (815,444)
 Additions to deferred financing costs                         (6,029)        (4,830)        (5,589)
 Proceeds from issuance of common stock                            529          5,026        118,047
 Proceeds from exercise of stock options                        15,268          7,762          5,007
 Proceeds from issuance of preferred stock                     169,333        111,227         96,370
 Redemption of preferred stock                                       -       (64,695)              -
 Purchase of preferred stock                                         -              -        (5,093)
 Purchase of minority interest in the Operating
    Partnership                                                (5,949)       (21,013)              -
 Prepayment penalties on extinguishment of debt                      -              -        (2,290)
 Distributions to minority interests                          (78,493)       (72,186)       (65,310)
 Dividends paid                                              (106,863)       (98,262)       (73,677)
                                                          --------------------------------------------
         Net cash provided by financing activities             274,888         44,994          3,902
                                                          --------------------------------------------
Net change in cash and cash equivalents                          5,434          6,977          3,218
Cash and cash equivalents, beginning of period                  20,332         13,355         10,137
                                                          --------------------------------------------
Cash and cash equivalents, end of period                       $25,766        $20,332        $13,335
                                                          ============================================
<FN>
The accompanying notes are an integral part of these statements.
</FN>


                                       43


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)

NOTE 1.  ORGANIZATION

     CBL & Associates  Properties,  Inc. ("CBL"), a Delaware  corporation,  is a
self-managed,  self-administered,  fully integrated real estate investment trust
("REIT") that is engaged in the ownership,  development,  acquisition,  leasing,
management  and  operation of regional  shopping  malls and  community  shopping
centers. CBL's shopping center properties are located primarily in the Southeast
and Midwest, as well as in select markets in other regions of the United States.

     CBL conducts  substantially  all of its  business  through CBL & Associates
Limited  Partnership  (the  "Operating  PartnershAs  of December 31,  2004,  the
Operating  Partnership  owned  controlling  interests in 64 regional  malls,  25
associated  centers (each  located  adjacent to a regional  mall),  12 community
centers  and  CBL's  corporate  office  building.   The  Operating   Partnership
consolidates  the  financial  statements  of  all  entities  in  which  it has a
controlling financial interest.  The Operating Partnership owned non-controlling
interests  in five  regional  malls,  one  associated  center  and 48  community
centers. Because major decisions such as the acquisition, sale or refinancing of
principal partnership or joint venture assets must be approved by one or more of
the  other  partners,   the  Operating   Partnership   does  not  control  these
partnerships and joint ventures and, accordingly, accounts for these investments
using the equity method. The Operating  Partnership had one mall, which is owned
in a joint venture,  two mall  expansions,  one open-air  shopping  center,  two
associated  centers,  one of which is owned in a joint  venture,  one associated
center  expansion,  one  associated  center  redevelopment  and three  community
centers under construction at December 31, 2004. The Operating  Partnership also
holds options to acquire certain development properties owned by third parties.

     CBL is the 100% owner of two qualified REIT  subsidiaries,  CBL Holdings I,
Inc. and CBL Holdings II, Inc. At December 31, 2004,  CBL Holdings I, Inc.,  the
sole  general  partner  of the  Operating  Partnership,  owned  a  1.6%  general
partnership  interest in the  Operating  Partnership  and CBL  Holdings II, Inc.
owned a 53.4% limited  partnership  interest for a combined interest held by CBL
of 55.0%.

     The minority interest in the Operating Partnership is held primarily by CBL
& Associates,  Inc. and its affiliates (collectively "CBL's Predecessor") and by
affiliates of The Richard E. Jacobs Group,  Inc.  ("Jacobs").  CBL's Predecessor
contributed their interests in certain real estate properties and joint ventures
to the Operating Partnership in exchange for a limited partnership interest when
the Operating  Partnership was formed in November 1993. Jacobs contributed their
interests in certain real estate  properties and joint ventures to the Operating
Partnership  in exchange for a limited  partnership  interest when the Operating
Partnership  acquired the  majority of Jacobs'  interests  in 23  properties  in
January 2001 and the balance of such interests in February 2002. At December 31,
2004, CBL's Predecessor owned a 15.4% limited partnership interest, Jacobs owned
a 20.9%  limited  partnership  interest and third  parties owned an 8.7% limited
partnership interest in the Operating Partnership.  CBL's Predecessor also owned
2.7 million  shares of CBL's common  stock at December 31, 2004,  for a combined
total interest of 20.0% in the Operating Partnership.

     The  Operating   Partnership   conducts  CBL's   property   management  and
development   activities  through  CBL  &  Associates   Management,   Inc.  (the
"Management  Company")  to comply  with  certain  requirements  of the  Internal
Revenue Code of 1986, as amended (the "Code").  During March 2004, the Operating
Partnership  acquired the 94% of the Management  Company's common stock that was
owned by individuals who are directors and/or officers of CBL,  resulting in the
Operating  Partnership owning 100% of the Management Company's common stock. The
Operating  Partnership paid $75 for the 94% of common stock acquired,  which was
equal to the initial  capital  contribution  of the  individuals  that owned the
interest.  The  Operating  Partnership  continues to own 100% of the  Management
Company's preferred stock. As a result, the Operating  Partnership  continues to
consolidate the Management Company.

                                       44


     CBL, the Operating  Partnership and the Management Company are collectively
referred to herein as "the Company." All significant  intercompany  balances and
transactions have been eliminated in the consolidated presentation.


NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Real Estate Assets

     The Company capitalizes predevelopment project costs paid to third parties.
All  previously  capitalized  predevelopment  costs are  expensed  when it is no
longer  probable  that the project  will be  completed.  Once  development  of a
project commences, all direct costs incurred to construct the project, including
interest and real estate taxes, are capitalized.  Additionally,  certain general
and administrative  expenses are allocated to the projects and capitalized based
on the amount of time  applicable  personnel  work on the  development  project.
Ordinary  repairs and maintenance are expensed as incurred.  Major  replacements
and  improvements  are capitalized and depreciated  over their estimated  useful
lives.

     All acquired real estate assets have been  accounted for using the purchase
method of accounting and accordingly,  the results of operations are included in
the  consolidated   statements  of  operations  from  the  respective  dates  of
acquisition.  The Company  allocates the purchase price to (i) tangible  assets,
consisting of land,  buildings and improvements,  and tenant  improvements,  and
(ii)  identifiable  intangible  assets,   generally  consisting  of  above-  and
below-market  leases and in-place leases,  which are included in other assets in
the  consolidated  balance sheet. The Company uses estimates of fair value based
on estimated cash flows,  using appropriate  discount rates, and other valuation
techniques  to  allocate  the  purchase  price  to  the  acquired  tangible  and
intangible assets. Liabilities assumed generally consist of mortgage debt on the
real estate assets  acquired.  Assumed debt with a stated  interest rate that is
significantly  different from market interest rates for similar debt instruments
is recorded at its fair value based on estimated  market  interest  rates at the
date of acquisition.

     Depreciation is computed on a  straight-line  basis over estimated lives of
40 years for  buildings,  10 to 20 years for  certain  improvements  and 7 to 10
years for  equipment and  fixtures.  Tenant  improvements  are  capitalized  and
depreciated  on a  straight-line  basis  over  the  term of the  related  lease.
Lease-related  intangibles from acquisitions of real estate assets are amortized
over the remaining terms of the related leases.  The  amortization of above- and
below-market  leases is recorded as an  adjustment  to minimum  rental  revenue,
while the  amortization  of all other  lease-related  intangibles is recorded as
amortization  expense. Any difference between the face value of the debt assumed
and its fair value is amortized to interest  expense over the remaining  term of
the debt using the effective interest method.

     The Company's acquired intangibles and their balance sheet  classifications
as of December 31, 2004 and 2003, are summarized as follows:


                                                          December 31, 2004                   December 31, 2003
                                                     -------------------------------     ------------------------------
                                                                       Accumulated                        Accumulated
                                                       Cost            Amortization        Cost           Amortization
                                                     ---------------   -------------     --------------   -------------
      Other assets:
                                                                                                 
          Above-market leases                         $ 12,250           $(1,335)          $5,635            $ (270)
          In-place leases                               53,850            (5,810)          19,945              (686)
      Accounts payable and accrued liabilities:
          Below-market leases                           38,967            (4,870)          12,975              (539)


     The total net  amortization  expense of the above acquired  intangibles for
the next five succeeding years will be $1,691 in 2005, $2,645 in 2006, $2,999 in
2007, $3,030 in 2008 and $2,371 in 2009.

     Total interest expense  capitalized was $4,517,  $5,974 and $5,109 in 2004,
2003 and 2002, respectively.

                                       45


Carrying Value of Long-Lived Assets

     The Company  evaluates the carrying  value of long-lived  assets to be held
and used when  events or changes in  circumstances  warrant  such a review.  The
carrying value of a long-lived  asset is considered  impaired when its estimated
future  undiscounted  cash  flows are less  than its  carrying  value.  If it is
determined that an impairment has occurred,  the excess of the asset's  carrying
value over its estimated fair value is charged to operations.

     During  2004,  the  Company  recognized  a loss of $114 on the  sale of one
community center as a loss on impairment of real estate assets.

     During 2004,  the Company  determined  that the carrying  value of a vacant
community center exceeded the community  center's  estimated fair value by $402.
The Company  recorded the  reduction  in the carrying  value of the related real
estate  assets to their  estimated  fair value as a loss on  impairment  of real
estate assets.

     Subsequent to December 31, 2004,  the Company  completed the third phase of
the Galileo America joint venture  transaction  discussed in Note 5. The Company
recognized a loss of $1,947 on this  transaction as an impairment of real estate
assets in 2004 and reduced the carrying value of the related  assets,  which are
classified  as real estate  assets held for sale as of December  31, 2004 in the
accompanying consolidated balance sheet.

     Subsequent to December 31, 2004, the Company reached a tentative  agreement
to sell five of its community centers.  As a result, the Company recorded a loss
on  impairment  of real  estate  assets of $617 in 2004 to reduce  the  carrying
values of the five community  centers to their respective  estimated fair values
based on the  expected  selling  price.  Since the Company  determined  that the
properties  were held for sale  subsequent to December 31, 2004, the real estate
assets related to these five community centers are reflected as held and used in
the accompanying consolidated balance sheet.

     There were no impairment charges in 2003 and 2002.

Cash and Cash Equivalents

     The  Company   considers  all  highly  liquid   investments  with  original
maturities of three months or less as cash equivalents.

Deferred Financing Costs

     Net deferred  financing costs of $13,509 and $10,808 were included in other
assets at December 31, 2004 and 2003,  respectively.  Deferred  financing  costs
include  fees and  costs  incurred  to obtain  financing  and are  amortized  to
interest  expense  over the terms of the  related  notes  payable.  Amortization
expense was $4,390,  $3,268,  and $4,114 in 2004,  2003 and 2002,  respectively.
Accumulated amortization was $7,815 and $5,030 as of December 31, 2004 and 2003,
respectively.

Revenue Recognition

     Minimum  rental   revenue  from   operating   leases  is  recognized  on  a
straight-line  basis  over the  initial  terms of the  related  leases.  Certain
tenants  are  required to pay  percentage  rent if their  sales  volumes  exceed
thresholds specified in their lease agreements. Percentage rent is recognized as
revenue when the thresholds are achieved and the amounts become determinable.

     The Company  receives  reimbursements  from tenants for real estate  taxes,
insurance, common area maintenance,  and other recoverable operating expenses as
provided  in the lease  agreements.  Tenant  reimbursements  are  recognized  as


                                       46


revenue  in the period the  related  operating  expenses  are  incurred.  Tenant
reimbursements  related to certain  capital  expenditures  are billed to tenants
over periods of 5 to 15 years and are recognized as revenue when billed.

     The Company  receives  management,  leasing and development fees from third
parties  and  unconsolidated  affiliates.  Management  fees  are  charged  as  a
percentage  of  revenues  (as  defined  in the  management  agreement)  and  are
recognized as revenue when earned. Development fees are recognized as revenue on
a pro rata basis over the development period. Leasing fees are charged for newly
executed  leases and lease  renewals and are  recognized as revenue when earned.
Development and leasing fees received from unconsolidated  affiliates during the
development  period  are  recognized  as  revenue  only  to  the  extent  of the
third-party  partners' ownership  interest.  Development and leasing fees during
the  development  period to the extent of the Company's  ownership  interest are
recorded  as a  reduction  to the  Company's  investment  in the  unconsolidated
affiliate.

Gain on Sales of Real Estate Assets

     Gains on sales of real estate assets are  recognized  when it is determined
that  the  sale  has  been  consummated,  the  buyer's  initial  and  continuing
investment  is adequate,  the  Company's  receivable,  if any, is not subject to
future  subordination,  and the buyer has assumed the usual risks and rewards of
ownership of the asset. When the Company has an ownership interest in the buyer,
gain is recognized to the extent of the third party partner's ownership interest
and the portion of the gain attributable to the Company's  ownership interest is
deferred.

Income Taxes

     The Company is qualified  as a REIT under the  provisions  of the Code.  To
maintain qualification as a REIT, the Company is required to distribute at least
90% of its taxable income to shareholders and meet certain other requirements.

     As a REIT, the Company is generally not liable for federal corporate income
taxes.  If the  Company  fails to qualify  as a REIT in any  taxable  year,  the
Company will be subject to federal and state income taxes on its taxable  income
at regular  corporate tax rates. Even if the Company maintains its qualification
as a REIT,  the Company  may be subject to certain  state and local taxes on its
income and property, and to federal income and excise taxes on its undistributed
income. State income taxes were not material in 2004, 2003 and 2002.

     The Company has also elected taxable REIT subsidiary status for some of its
subsidiaries.  This enables the Company to receive  income and provide  services
that would otherwise be impermissible  for REITs.  For these entities,  deferred
tax assets and liabilities are established for temporary differences between the
financial  reporting  basis and the tax basis of assets and  liabilities  at the
enacted  tax rates  expected  to be in  effect  when the  temporary  differences
reverse.  A  valuation  allowance  for  deferred  tax assets is  provided if the
Company  believes  all or some  portion  of the  deferred  tax  asset may not be
realized.  An increase or decrease in the valuation  allowance that results from
the  change in  circumstances  that  causes a change in our  judgment  about the
realizability  of the related  deferred  tax asset is  included  in income.  The
Company had a net  deferred tax asset of $16,636 and $8,018 at December 31, 2004
and  2003,  respectively,  which  consisted  primarily  of  net  operating  loss
carryforwards,  that was  reduced to zero by a  valuation  allowance  because of
uncertainty  about the realization of the net deferred tax asset considering all
available evidence.

Derivative Financial Instruments

     The Company records derivative financial  instruments as either an asset or
liability  measured at the instrument's  fair value. Any fair value  adjustments
affect  either  shareholders'  equity or net income  depending  on  whether  the
derivative  instrument  qualifies as a hedge for accounting purposes and, if so,
the nature of the hedging activity. See Note 15 for more information.

Concentration of Credit Risk

                                       47


     The  Company's  tenants  include  national,  regional and local  retailers.
Financial  instruments that subject the Company to concentrations of credit risk
consist primarily of tenant  receivables.  The Company generally does not obtain
collateral or other security to support financial  instruments subject to credit
risk, but monitors the credit standing of tenants.

     The Company derives a substantial portion of its rental income from various
national and regional retail companies;  however,  no single tenant collectively
accounted for more than 10.0% of the Company's  total revenues in 2004, 2003 and
2002.

Earnings Per Share

     Basic  earnings  per share  ("EPS")  is  computed  by  dividing  net income
available to common  shareholders by the weighted average number of unrestricted
common shares  outstanding  for the period.  Diluted EPS assumes the issuance of
common stock for all potential dilutive common shares  outstanding.  The limited
partners' rights to convert their minority interest in the Operating Partnership
into shares of common stock are not dilutive (Note 9). The following  summarizes
the  impact of  potential  dilutive  common  shares on the  denominator  used to
compute earnings per share:


                                                                        Year Ended December 31,
                                                           --------------------------------------------------
                                                                2004              2003             2002
                                                           ---------------- ----------------- ---------------
                                                                                        
Weighted average shares                                        61,878            60,108          57,586
Effect of nonvested stock awards                                (276)             (236)           (206)
                                                           ---------------- ----------------- ---------------
Denominator - basic earnings per share                         61,602            59,872          57,380
Dilutive effect of stock options, nonvested stock awards
and
   deemed shares related to deferred compensation
arrangements                                                    2,402             2,514           1,956
                                                           ---------------- ----------------- ---------------
Denominator - diluted earnings per share                       64,004            62,386          59,336
                                                           ================ ================= ===============



Stock-Based Compensation

     Historically, the Company accounted for its stock-based compensation plans,
which are described in Note 19, under the recognition and measurement principles
of Accounting  Principles  Board Opinion No. 25 "Accounting  for Stock Issued to
Employees"  ("APB No. 25") and  related  interpretations.  Effective  January 1,
2003, the Company elected to begin  recording the expense  associated with stock
options granted after January 1, 2003, on a prospective basis in accordance with
the fair value and transition  provisions of SFAS No. 123, "Accounting for Stock
Based  Compensation",  as amended by SFAS No. 148,  "Accounting  for Stock-Based
Compensation  - Transition  and  Disclosure - An Amendment of FASB Statement No.
123." There were no stock options  granted  during the years ended  December 31,
2004 and 2003.

     No stock-based  compensation expense related to stock options granted prior
to January 1, 2003, has been  reflected in net income since all options  granted
had an exercise  price equal to the fair value of the Company's  common stock on
the date of grant. Therefore,  stock-based  compensation expense included in net
income available to common shareholders in 2004, 2003 and 2002 is less than that
which would have been  recognized  if the fair value  method had been applied to
all  stock-based  awards since the effective date of SFAS No. 123. The following
table illustrates the effect on net income and earnings per share if the Company
had  applied  the fair  value  recognition  provisions  of SFAS  No.  123 to all
outstanding and unvested awards in each period:


                                                                        Year Ended December 31,
                                                            -------------------------------------------------
                                                                 2004             2003             2002
                                                            ---------------- ---------------- ---------------
                                                                                         
Net income available to common shareholders, as reported       $102,802           $124,506        $73,987
Add:  Stock-based employee  compensation expense included
      in reported net income available to common
      shareholders                                                2,890              2,742          4,772
Less: Total stock-based compensation expense determined
      under fair value method                                    (3,398)            (3,344)        (5,423)
                                                            ---------------- ---------------- ---------------
Pro forma net income available to common shareholders          $102,294           $123,904        $73,336
                                                            ================ ================ ===============
Earnings per share:
    Basic, as reported                                          $  1.67            $  2.08        $  1.29
                                                            ================ ================ ===============
    Basic, pro forma                                            $  1.66            $  2.07        $  1.28
                                                            ================ ================ ===============
    Diluted, as reported                                        $  1.61            $  2.00        $  1.25
                                                            ================ ================ ===============
    Diluted, pro forma                                          $  1.60            $  1.99        $  1.17
                                                            ================ ================ ===============


                                       48


     The  fair  value  of each  employee  stock  option  grant  during  2002 was
estimated as of the date of grant using the  Black-Scholes  option pricing model
and the following weighted average assumptions:


                                          Year Ended December 31,
                                        ----------------------------
                                                 2002
                                              ------------
                                              
Risk-free interest rate                          4.84%
Dividend yield                                   6.83%
Expected volatility                              19.7%
Expected life                                7.0 years


     The per share weighted  average fair value of stock options  granted during
2002 was $1.75.

Comprehensive Income

     Comprehensive  income includes all changes in  shareholders'  equity during
the  period,  except  those  resulting  from  investments  by  shareholders  and
distributions to shareholders.

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 that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reported  period.  Actual  results  could differ from those
estimates.

Recent Accounting Pronouncements

     Effective  January 1, 2004, the Company adopted the provisions of Financial
Accounting   Standards   Board  ("FASB")   Interpretation   No.  ("FIN")  46(R),
"Consolidation of Variable Interest Entities,  an interpretation of ARB No. 51."
The interpretation requires the consolidation of entities in which an enterprise
absorbs a majority of the entity's  expected losses,  receives a majority of the
entity's  expected  residual  returns,  or  both,  as  a  result  of  ownership,
contractual or other  financial  interests in the entity.  Previously,  entities
were generally consolidated by an enterprise when it had a controlling financial
interest  through  ownership of a majority  voting  interest in the entity.  The
Company  determined  that one  unconsolidated  affiliate,  PPG Venture I Limited
Partnership  ("PPG"),  is a variable interest entity and that the Company is the
primary beneficiary. The Company began consolidating the assets, liabilities and
results of operations of PPG effective  January 1, 2004.  The Company  initially
measured  the  assets,  liabilities  and  noncontrolling  interest of PPG at the
carrying  amounts  at which they  would  have been  carried in the  consolidated
financial  statements as if FIN 46(R) had been  effective when the Company first
met the  conditions  to be the primary  beneficiary,  which was the inception of
PPG. The Company owns a 10% interest in PPG,  which owns one  associated  center
and  two  community  centers.  At  December  31,  2004,  PPG  had  non-recourse,
fixed-rate  debt of $37,795 that was secured by the real estate  assets it owns,
which had a net carrying value of $50,265.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
("SFAS")  No.  150,   "Accounting  for  Certain   Financial   Instruments   with
Characteristics   of  Both   Liabilities   and  Equity,"  which  specifies  that
instruments within its scope are obligations of the issuer and,  therefore,  the
issuer must classify them as liabilities. Financial instruments within the scope
of the  pronouncement  include  mandatorily  redeemable  financial  instruments,
obligations to repurchase the issuer's equity shares by transferring assets, and
certain  obligations  to issue a  variable  number of  shares.  SFAS No.  150 is
effective for all financial  instruments  entered into or modified after May 31,
2003.  However,  on  October  29,  2003,  the  FASB  indefinitely  deferred  the
provisions  of  paragraphs  9 and 10 of SFAS No. 150  related to  noncontrolling
interests  in  limited-life   subsidiaries.   During  2004,  the  joint  venture
agreements with minority  interest  partners were amended so that they no longer
have a limited life.

                                       49


     In December 2004,  the FASB issued SFAS No. 153,  "Exchanges of Nonmonetary
Assets,  an amendment of APB No. 29,  Accounting for Nonmonetary  Transactions."
SFAS No. 153 requires exchanges of productive assets to be accounted for at fair
value, rather than at carryover basis, unless (1) neither the asset received nor
the asset  surrendered has a fair value that is determinable  within  reasonable
limits  or (2) the  transactions  lack  commercial  substance.  SFAS No.  153 is
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15, 2005.  The Company does not expect the adoption of this  standard
to have a material effect on its financial position or results of operations.

     In December  2004, the FASB released its final revised  standard,  SFAS No.
123 (Revised  2004),  "Share-Based  Payment."  SFAS No.  123(R)  requires that a
public  entity  measure the cost of equity  based  service  awards  based on the
grant-date fair value of the award. That cost will be recognized over the period
during  which an employee is  required  to provide  service in exchange  for the
award or the vesting  period.  No  compensation  cost is  recognized  for equity
instruments for which employees do not render the requisite service. Adoption of
SFAS No. 123(R) is required for fiscal  periods  beginning  after June 15, 2005.
The  Company  previously  adopted  the fair value  provisions  of SFAS No.  123,
"Accounting  for  Stock  Based  Compensation",  as  amended  by  SFAS  No.  148,
"Accounting  for  Stock-Based  Compensation  -  Transition  and  Disclosure - An
Amendment of FASB Statement No. 123" effective January 1, 2003. The Company does
not expect  the  adoption  of this  standard  to have a  material  effect on its
financial position or results of operations.

NOTE 3.  ACQUISITIONS

     The Company  includes  the  results of  operations  of real  estate  assets
acquired  in the  consolidated  statement  of  operations  from  the date of the
related acquisition.

2004 Acquisitions

     On March 12, 2004, the Company acquired Honey Creek Mall in Terre Haute, IN
for a purchase price,  including transaction costs, of $83,114,  which consisted
of $50,114 in cash and the assumption of $33,000 of non-recourse debt that bears
interest at a stated rate of 6.95% and matures in May 2009. The Company recorded
a debt premium of $3,146,  computed using an estimated  market  interest rate of
4.75%,  since the debt assumed was at an above-market  interest rate compared to
similar debt instruments at the date of acquisition.

     On March 12, 2004, the Company  acquired  Volusia Mall in Daytona Beach, FL
for a purchase price, including transaction costs, of $118,493,  which consisted
of $63,686 in cash and the assumption of $54,807 of non-recourse debt that bears
interest  at a stated  rate of 6.70% and  matures  in March  2009.  The  Company
recorded a debt premium of $4,615,  computed using an estimated  market interest
rate of 4.75%,  since the debt  assumed  was at an  above-market  interest  rate
compared to similar debt instruments at the date of acquisition.

     On April 8, 2004, the Company  acquired  Greenbrier Mall in Chesapeake,  VA
for a cash  purchase  price,  including  transaction  costs,  of  $107,450.  The
purchase  price was partially  financed with a new recourse term loan of $92,650
that bears  interest at LIBOR plus 100 basis  points,  matures in April 2006 and
has three one-year extension options that are at the Company's election.

     On April 21, 2004, the Company  acquired Fashion Square, a community center
in Orange Park, FL for a cash purchase price,  including  transaction  costs, of
$3,961.

     On May 20, 2004, the Company  acquired  Chapel Hill Mall and its associated
center, Chapel Hill Suburban, in Akron, OH for a cash purchase price,  including
transaction costs, of $78,252.  The purchase price was partially financed with a
new recourse  term loan of $66,500  that bears  interest at LIBOR plus 100 basis
points, matures in May 2006 and has three one-year extension options that are at
the Company's election.

                                       50


     On June 22, 2004,  the Company  acquired Park Plaza Mall in Little Rock, AR
for a purchase price,  including transaction costs, of $77,526,  which consisted
of $36,213 in cash and the assumption of $41,313 of non-recourse debt that bears
interest at a stated rate of 8.69% and matures in May 2010. The Company recorded
a debt premium of $7,737,  computed using an estimated  market  interest rate of
4.90%,  since the debt assumed was at an above-market  interest rate compared to
similar debt instruments at the date of acquisition.

     On July 28, 2004, the Company acquired Monroeville Mall, and its associated
center,  the Annex, in the eastern  Pittsburgh suburb of Monroeville,  PA, for a
total purchase price, including transaction costs, of $231,621,  which consisted
of $39,455 in cash, the assumption of $134,004 of  non-recourse  debt that bears
interest at a stated rate of 5.73% and matures in January 2013, an obligation of
$11,950  to pay for  the fee  interest  in the  land  underlying  the  mall  and
associated  center on or before July 28,  2007,  and the  issuance of  1,560,940
special common units in the Operating  Partnership  with a fair value of $46,212
($29.605  per  special  common  unit).  The Company  recorded a debt  premium of
$3,270,  computed using an estimated  market  interest rate of 5.30%,  since the
debt  assumed was at an  above-market  interest  rate  compared to similar  debt
instruments at the date of acquisition.

     On November 22, 2004, the Company acquired Mall del Norte in Laredo, TX for
a cash purchase price,  including  transaction costs, of $170,413.  The purchase
price was partially  financed  with a new  non-recourse,  interest-only  loan of
$113,400 that bears interest at 5.04% and matures in December 2014.

     On November 22, 2004, the Company acquired Northpark Mall in Joplin, MO for
a purchase price,  including  transaction costs, of $79,141.  The purchase price
consisted of $37,619 in cash and the assumption of $41,522 of non-recourse  debt
that bears  interest at a stated  rate of 5.75% and  matures in March 2014.  The
Company  recorded a debt premium of $687,  computed  using an  estimated  market
interest rate of 5.50%,  since the debt assumed was at an above-market  interest
rate compared to similar debt instruments at the date of acquisition.

     The results of operations of the acquired  properties have been included in
the   consolidated   financial   statements  since  their  respective  dates  of
acquisition.  The following  table  summarizes  the estimated fair values of the
assets acquired and liabilities  assumed as of the respective  acquisition dates
during the year ended December 31, 2004:


                                                         
      Land                                                  $  81,673
      Buildings and improvements                              872,855
      Above-market leases                                       8,329
      In-place leases                                          33,921
                                                           --------------
         Total assets                                         996,778
      Mortgage note payables assumed                         (304,646)
      Premiums on mortgage note payables assumed              (19,455)
      Below-market leases                                     (27,352)
      Land purchase obligation                                (11,950)
                                                           --------------
      Net assets acquired                                   $ 633,375
                                                           ==============


     The following  unaudited pro forma  financial  information is for the years
ended  December 31, 2004 and 2003.  It presents the results of the Company as if
each of the 2004  acquisitions  had  occurred on January 1, 2003.  However,  the
unaudited  pro  forma  financial   information   does  not  represent  what  the
consolidated  results of operations or financial  condition  actually would have
been if the  acquisitions  had  occurred  on  January  1,  2003.  The pro  forma
financial  information  also  does  not  project  the  consolidated  results  of
operations for any future period. The pro forma results for 2004 and 2003 are as
follows:

                                       51



                                                                              2004            2003
                                                                          -------------- ----------------
                                                                                          
Total revenues                                                                $ 812,782         $780,324
Total expenses                                                                (446,784)        (415,189)
                                                                          -------------- ----------------
Income from operations                                                        $ 365,998        $ 365,135
                                                                          ============== ================
Income before discontinued operations                                         $ 121,040        $ 145,196
                                                                          ============== ================
Net income available to common shareholders                                   $ 105,043        $ 131,563
                                                                          ============== ================
Basic per share data:
    Income before discontinued operations, net of preferred dividends           $  1.67          $  2.10
    Net income available to common shareholders                                 $  1.71          $  2.20
Diluted per share data:
    Income before discontinued operations, net of preferred dividends           $  1.61          $  2.01
    Net income available to common shareholders                                 $  1.64          $  2.11



2003 Acquisitions

     On April 30, 2003,  the Company  acquired  Sunrise Mall and its  associated
center,  Sunrise  Commons,  which are  located  in  Brownsville,  TX.  The total
purchase price,  including transaction costs, of $80,686 consisted of $40,686 in
cash and the  assumption  of $40,000 of  variable-rate  debt that matures in May
2004.

     On  September  10,  2003,   the  Company   acquired  Cross  Creek  Mall  in
Fayetteville, NC for a purchase price, including transaction costs, of $116,729,
which consisted of $52,484 in cash and the assumption of $64,245 of non-recourse
debt that bears interest at a stated rate of 7.4% and matures in April 2012. The
Company  recorded a debt premium of $10,209,  computed using an estimated market
interest rate of 5.00%,  since the debt assumed was at an above-market  interest
rate compared to similar debt instruments at the date of acquisition.

     On October 1, 2003, the Company acquired River Ridge Mall in Lynchburg,  VA
for a purchase price,  including transaction costs, of $61,933,  which consisted
of $38,622 in cash, a  short-term  note  payable of $793 and the  assumption  of
$22,518 of  non-recourse  debt that bears interest at a stated rate of 8.05% and
matures in January  2007.  The Company  also  recorded a debt premium of $2,724,
computed  using an  estimated  market  interest  rate of  4.00%,  since the debt
assumed  was  at  an  above-market   interest  rate  compared  to  similar  debt
instruments at the date of acquisition.

     On October 1, 2003, the Company  acquired  Valley View Mall in Roanoke,  VA
for a purchase price,  including transaction costs, of $86,094,  which consisted
of $35,351 in cash, a short-term  note payable of $5,708 and the  assumption  of
$45,035 of non-recourse  debt that bears interest at a  weighted-average  stated
rate of 8.61% and matures in September  2010.  The Company also  recorded a debt
premium of $8,813,  computed using an estimated  market  interest rate of 5.10%,
since the debt assumed was at an above-market  interest rate compared to similar
debt instruments at the date of acquisition.

     On December  15,  2003,  the Company  acquired  Southpark  Mall in Colonial
Heights, VA for a purchase price, including transaction costs, of $78,031, which
consisted  of  $34,879  in cash,  a  short-term  note  payable of $5,116 and the
assumption of $38,036 of non-recourse  debt that bears interest at a stated rate
of 7.00% and matures in May 2012.  The Company  also  recorded a debt premium of
$4,544,  computed using an estimated  market  interest rate of 5.10%,  since the
debt  assumed was at an  above-market  interest  rate  compared to similar  debt
instruments at the date of acquisition.

     On December 30, 2003, the Company  acquired  Harford Mall Business Trust, a
Maryland  business  trust  that owns  Harford  Mall and its  associated  center,
Harford Annex, in Bel Air, MD for a cash purchase price,  including  transaction
costs, of $71,110.

                                       52



     The  following  summarizes  the  allocation  of the purchase  prices to the
assets acquired and liabilities assumed for the 2003 acquisitions:


                                                        
      Land                                                 $   72,620
      Buildings and improvements                              434,318
      Above-market leases                                       5,709
      In-place leases                                          19,542
                                                          --------------
         Total assets                                         532,189
      Mortgage note payables assumed                         (209,834)
      Short-term notes payable                                (11,617)
      Premiums on mortgage note payables assumed              (26,290)
      Below-market leases                                     (11,384)
                                                          --------------
      Net assets acquired                                  $  273,064
                                                          ==============


     The following  unaudited pro forma  financial  information is for the years
ended  December 31, 2003 and 2002.  It presents the results of the Company as if
each of the 2003  acquisitions  had  occurred on January 1, 2002.  However,  the
unaudited  pro  forma  financial   information   does  not  represent  what  the
consolidated  results of operations or financial  condition  actually would have
been if the  acquisitions  had  occurred  on  January  1,  2002.  The pro  forma
financial  information  also  does  not  project  the  consolidated  results  of
operations for any future period. The pro forma results for 2003 and 2002 are as
follows:



                                                                              2003             2002
                                                                          -------------- ------------------
                                                                                           
Total revenues                                                                $ 713,740          $ 651,623
Total expenses                                                                (383,450)          (346,862)
                                                                          -------------- ------------------
Income from operations                                                        $ 330,290          $ 304,761
                                                                          ============== ==================
Income before discontinued operations                                         $ 139,776           $ 83,580
                                                                          ============== ==================
Net income available to common shareholders                                   $ 125,568           $ 75,752
                                                                          ============== ==================
Basic per share data:
    Income before discontinued operations, net of preferred dividends           $  2.01            $  1.27
    Net income available to common shareholders                                 $  2.10            $  1.32
Diluted per share data:
    Income before discontinued operations, net of preferred dividends           $  1.93            $  1.22
    Net income available to common shareholders                                 $  2.01       $       1.28


2002 Acquisitions

     In March  2002,  the  Company  closed on the second and final  stage of its
acquisition of interests in 21 malls and two  associated  centers from Jacobs by
acquiring  additional  interests in the joint  ventures  that own the  following
properties:

     o    West Towne Mall,  East Towne Mall and West Towne  Crossing in Madison,
          WI (17% interest)

     o    Columbia Place in Columbia, SC (31% interest)

     o    Kentucky Oaks Mall in Paducah, KY (2% interest)

     The purchase  price of $42,519 for the  additional  interests  consisted of
$422 in cash,  the  assumption  of $24,487 of debt and the  issuance  of 999,460
special  common units with a fair value of $17,610  (weighted  average of $17.62
per unit).

     The Company acquired Richland Mall, located in Waco, TX, in May 2002, for a
cash purchase price of $43,250.  The Company acquired Panama City Mall,  located
in Panama City,  FL, for a purchase  price of $45,645 in May 2002.  The purchase
price of Panama City Mall consisted of the assumption of $40,700 of non-recourse


                                       53


mortgage  debt with an interest  rate of 7.30%,  the issuance of 237,390  common
units of the Operating Partnership with a fair value of $4,487 ($18.90 per unit)
and $458 in cash closing costs.

     The Company also entered into a ground lease in May 2002, for land adjacent
to Panama  City Mall.  The terms of the ground  lease  provided  that the lessor
could  require  the Company to purchase  the land for $4,148  between  August 1,
2003, and February 1, 2004. The Company purchased the land in August 2003.

     The Company acquired the remaining 21% ownership interest in Columbia Place
in Columbia,  SC in August 2002. The total  consideration of $9,875 consisted of
the issuance of 123,324  common  units with a fair value of $2,280  ($18.485 per
unit) and the assumption of $7,595 of debt.

     In December 2002,  the Company  acquired the remaining 35% interest in East
Towne Mall,  West Towne Mall and West Towne  Crossing,  which are all located in
Madison,  WI. The purchase price $62,029  consisted of the issuance of 1,865,338
common units with a fair value of $36,411  ($19.52 per unit) and the  assumption
of $25,618 of debt.

     In December 2002, the Company acquired Westmoreland Mall and its associated
center,  Westmoreland Crossing,  located in Greensburg,  PA, for a cash purchase
price of $112,416.

NOTE 4.  DISCONTINUED OPERATIONS

     During  2004,  the Company sold three  community  centers for a total sales
price $7,250 and recognized a total gain of $845 on two of the community centers
that is recorded as gain on discontinued  operations.  The Company  recognized a
loss of $114 in December 2004 on one of the community centers, which is included
in loss on  impairment of real estate  assets in the  consolidated  statement of
operations.  Total revenues from these community  centers were $782,  $1,168 and
$1,134 in 2004, 2003 and 2002, respectively.

     During 2003, the Company sold six community centers for a total sales price
$17,280 and recognized a net gain on  discontinued  operations of $4,042.  Total
revenues from these  community  centers were $1,528 and $2,093 in 2003 and 2002,
respectively.

     During 2002, the Company sold five community centers and an office building
for a total  sales price of $36,800 and  recognized  a net gain on  discontinued
operations of $372. Total revenues for these properties were $2,331 in 2002.

     Certain  amounts  in  the  consolidated   financial  statements  have  been
reclassified  to reflect the results of  operations  of the above  properties as
discontinued operations in all periods presented.

NOTE 5.  UNCONSOLIDATED AFFILIATES

     At December 31, 2004,  the Company had  investments  in the following  nine
partnerships and joint ventures, which are accounted for using the equity method
of accounting:


                                                                                     Company's
Joint Venture                               Property Name                             Interest
- ------------------------------------------------------------------------------------------------
                                                                                  
Governor's Square IB                        Governor's Square Plaza                     50.0%
Governor's Square Company                   Governor's Square                           47.5%
Imperial Valley Mall L.P.                   Imperial Valley Mall                        60.0%
Kentucky Oaks Mall Company                  Kentucky Oaks Mall                          50.0%
Mall of South Carolina L.P.                 Coastal Grand-Myrtle Beach                  50.0%
Mall of South Carolina Outparcel L.P.       Coastal Grand-Myrtle Beach                  50.0%
Mall Shopping Center Company                Plaza del Sol                               50.6%
Parkway Place L.P.                          Parkway Place                               45.0%
Galileo America LLC                         Portfolio of community centers               7.2%


                                       54


     Condensed  combined financial  statement  information of the unconsolidated
affiliates is presented as follows:


                                                   December 31,
                                             ------------------------------
                                               2004             2003
                                             ------------------------------
ASSETS:
                                                            
Net investment in real estate assets           $1,013,475         $759,073
Other assets                                       63,903           65,253
                                             ------------------------------
   Total assets                                $1,077,378         $824,326
                                             ==============================
LIABILITIES :
Mortgage notes payable                          $ 603,664         $465,602
Other liabilities                                  41,995           36,167
                                             ------------------------------
   Total liabilities                              645,659          501,769

OWNERS' EQUITY:
The Company                                       103,512           96,961
Other investors                                   328,207          225,596
                                             ------------------------------
   Total owners' equity                           431,719          322,557
                                             ------------------------------
Total liabilities and owners' equity           $1,077,378         $824,326
                                             ==============================



                                                       Year Ended December 31,
                                             ------------------------------------------------
                                               2004             2003             2002
                                             ------------------------------------------------

                                                                            
Revenues                                         $ 109,696        $ 49,855           $57,084
Depreciation and amortization                     (24,994)         (9,338)           (7,603)
Other operating expenses                          (27,479)        (14,067)          (17,634)
                                             ------------------------------------------------
Income from operations                              57,223          26,450            31,847
Interest income                                        138              --                --
Interest expense                                  (27,353)        (13,981)          (14,827)
Gain on sales of real estate assets                  4,555             892                --
Discontinued operations                              1,945             207                --
                                             ------------------------------------------------
Net income                                       $  36,508        $ 13,568           $17,020
                                             ================================================
Company's share of net income                    $  10,308         $ 4,941           $ 8,215
                                             ================================================


     Initial  investments  in joint  ventures  that are in economic  substance a
capital contribution to the joint venture are recorded in an amount equal to the
Company's  historical  carryover basis in the real estate  contributed.  Initial
investments  in joint  ventures  that are in  economic  substance  the sale of a
portion of the  Company's  interest  in the real estate are  accounted  for as a
contribution  of real  estate  recorded  in an  amount  equal  to the  Company's
historical carryover basis in the ownership percentage retained and as a sale of
real estate with profit  recognized to the extent of the other joint  venturers'
interests in the joint venture.  Profit  recognition  assumes the Company has no
commitment  to reinvest  with respect to the  percentage of the real estate sold
and the accounting requirements of the full accrual method under SFAS No. 66 are
met. In general,  contributions  and  distributions of capital or cash flows and
allocations  of income and expense are made on a pro rata basis in proportion to
the equity interest held by each general or limited  partner.  All debt on these
properties  is  non-recourse.  See Note 17 for a description  of guarantees  the
Company has issued related to certain unconsolidated affiliates.

Galileo America Joint Venture

     On September 24, 2003,  the Company  formed  Galileo  America LLC ("Galileo
America"),  a joint venture with Galileo  America,  Inc., the U.S.  affiliate of
Australia-based  Galileo America Shopping Trust, to invest in community  centers
throughout the United States. The arrangement  provides for the Company to sell,
in three  phases,  its  interests in 51  community  centers for a total price of
$516,000 plus a 10% interest in Galileo America.

                                       55


     The first phase of the  transaction  closed on October 23,  2003,  when the
Company  sold its  interests  in 41  community  centers to Galileo  America  for
$393,925, which consisted of $250,705 in cash, the retirement of $24,922 of debt
on one of the community centers, a note receivable of $4,813,  Galileo America's
assumption  of  $93,037  in debt and  $20,448  representing  the  Company's  10%
interest in Galileo  America.  The Company  used the net proceeds to fund escrow
amounts to be used in like-kind  exchanges and to reduce outstanding  borrowings
under the Company's credit facilities.  The Company recognized a gain of $71,886
from the first  phase and  recorded  its  investment  in Galileo  America at the
carryover basis of the real estate assets contributed for its 10% interest.  The
note receivable was paid subsequent to December 31, 2003.

     The second phase of the Galileo  America  transaction  closed on January 5,
2004,  when the Company sold its interest in six community  centers for $92,375,
which  consisted of $62,687 in cash, the retirement of $25,953 of debt on one of
the  community  centers,  the joint  venture's  assumption of $2,816 of debt and
closing costs of $919. The real estate assets and related mortgage notes payable
of the  properties  in the  second  phase were  reflected  as held for sale from
October 23, 2003, the date that it was determined  these assets met the criteria
to be reflected as held for sale. There was no depreciation  expense recorded on
these assets subsequent to October 23, 2003.

     The Company sold a community  center  expansion to Galileo  America  during
September 2004 for $3,447 in cash. The Company  recognized gain of $1,316 to the
extent  of  the  third  party  partner's  ownership  interest  and  recorded  an
investment of $147 in Galileo  America at the carryover basis of the real estate
assets contributed for its 10% interest.

     In October 2004, the Company sold its interests in one community  center to
Galileo  America for a purchase price of $17,900,  which  consisted of $2,900 in
cash, Galileo America's  assumption of $10,500 of debt and a limited partnership
interest in Galileo America,  Inc. The community center was originally scheduled
to be  included  in the third  phase of the  transaction  that closed in January
2005.  The Company  recognized a gain of $2,840 on the sale of this property and
recorded an  investment of $3,820 in Galileo  America at the carryover  basis of
the real estate assets contributed for its 10% interest in this property.

     The third phase of the  Galileo  America  transaction  closed on January 5,
2005,  when the Company sold its interest in two power  centers,  one  community
center and one  community  center  expansion  for  $58,600,  which  consisted of
$42,529 in cash,  the joint  venture's  assumption  of  $12,141 of debt,  $3,596
representing  the  Company's  interest in Galileo  America and closing  costs of
$334.  The  real  estate  assets  and  related  mortgage  notes  payable  of the
properties in the third phase were reflected as held for sale from January 2004,
the date that it was determined these assets met the criteria to be reflected as
held for sale. There was no depreciation expense recorded on these assets during
2004.

     The Company,  as tenant, has entered,  or will enter into,  separate master
lease agreements with Galileo America,  as landlord,  covering certain spaces in
certain of the properties sold or, to be sold, to the joint venture.  Under each
master  lease  agreement,  the Company is  obligated  to pay Galileo  America an
agreed-upon  minimum  annual  rent,  plus  a  pro  rata  share  of  common  area
maintenance expenses and real estate taxes, for each designated space for a term
of five years from the  applicable  property's  closing  date. If the Company is
able to lease a designated space to a third party,  then the amounts owed by the
Company under the master lease will be reduced by the amounts received under the
third party  lease.  If the amounts  under the third party lease are equal to or
greater  than the  Company's  obligation  for the full term of the master  lease
agreement,  then the Company's  obligation is zero.  When a third party lease is
executed that releases the Company from its obligation,  Galileo America assumes
the credit risk related to the third party lease.  This arrangement is in effect
until the end of the five-year term of the master lease.  Therefore,  if a third
party lease expires  before the  expiration  of the master lease term,  then the
Company  is  obligated  under  the  remaining  term  of the  master  lease.  Two
properties  in the first phase and one in the second phase are subject to master
lease  agreements.  The Company had a liability of $3,789 and $2,184 at December
31, 2004 and 2003,  respectively,  for the amounts to be paid over the remaining
terms of the master  lease  obligations.  The Company  reduces the  liability as
payments are made under the  obligations or as it is relieved of its obligations
under the terms of the master lease arrangements. The reduction in the liability
is  recognized  as gain to the  extent  that  the  Company  is  relieved  of its
obligation  under the master lease  arrangements by obtaining third party leases
that are sufficient to satisfy the related master lease obligation.  During 2004
and 2003,  the  Company  recognized  gain of $7,206 and $0,  respectively,  as a
result of being relieved of its obligation under the master lease arrangements.

                                       56


     The  Company  may  also  receive  up to  $8,000  of  additional  contingent
consideration  if, as the  exclusive  manager  of the  properties,  it  achieves
certain leasing  objectives  related to spaces that were vacant, or projected to
soon be vacant, at the time the first phase closed. The Company earned $4,167 in
2004 for  leasing  objectives  that were met during  2004,  of which  $3,750 was
recognized  as gain on sales of real estate  assets and $417,  representing  the
portion  attributable  to the Company's  ownership  interest,  was recorded as a
reduction of the Company's  investment in Galileo America.  In 2003, the Company
earned $3,833 for leasing  objectives  that were met as of December 31, 2003, of
which  $3,450 was  recognized  as gain on sales of real estate  assets and $383,
representing the portion  attributable to the Company's 10% ownership  interest,
was recorded as a reduction of the Company's investment in Galileo America.

     Pursuant to a long-term agreement, the Company is the exclusive manager for
all of the joint venture's properties in the United States, and will be entitled
to management, leasing, acquisition, disposition, asset management and financing
fees.

     In December 2004, Galileo America acquired interests in six properties from
a third party.  The Company  elected not to contribute its pro rata share of the
equity  contribution  necessary  to maintain a 10%  interest in Galileo  America
after the completion of this acquisition.  As a result, the Company's  ownership
interest in Galileo America was reduced to 7.2% as of December 31, 2004.

Other Unconsolidated Affiliates

     In February  2002, the Company  contributed  its interests in two community
centers and one associated center to PPG Venture I Limited Partnership,  a joint
venture with a third party, and retained a 10% interest. The total consideration
of $63,030 consisted of cash of $46,000 and the Company's retained interest.  As
discussed  in Note 2, the  Company  began to  consolidate  PPG Venture I Limited
Partnership effective January 1, 2004, as a result of the adoption of FIN 46(R).

     In March 2002,  the Company  acquired an additional 2% interest in Kentucky
Oaks Mall Company,  an  additional  17% interest in Madison Joint Venture and an
additional  31% interest in Columbia  Mall Company as discussed in Note 3. Since
the additional  interest in Columbia Mall Company resulted in the Company having
a 79%  controlling  interest in that joint  venture,  the  Company  discontinued
accounting for it using the equity method and began  consolidating  it as of the
date the additional 31% interest was acquired.

         During 2002, the Company entered into three joint ventures with third
parties to develop two malls, Imperial Valley Mall and Coastal Grand.

     In  September  2004,  Mall of South  Carolina  L.P.  obtained a  long-term,
non-recourse,  fixed-rate mortgage loan totaling $118,000. The loan is comprised
of a $100,000  A-note to a financial  institution  that bears interest at 5.09%,
which  matures in September  2014,  and two 10-year  B-notes of $9,000 each that
bear interest at 7.75% and mature in September  2014.  The Company and its third
party partner in Mall of South  Carolina L.P. each hold one of the B-notes.  The
total net proceeds from these loans were used to retire  $80,493 of  outstanding
borrowings under the construction  loan that partially  financed the development
of Coastal Grand-Myrtle Beach.

                                       57


NOTE 6.  MORTGAGE AND OTHER NOTES PAYABLE

         Mortgage and other notes payable consisted of the following:


                                                              December 31, 2004                  December 31, 2003
                                                        --------------------------------   --------------------------------
                                                                       Weighted Average                   Weighted Average
                                                          Amount       Interest Rate(1)      Amount       Interest Rate(1)
                                                        -------------  -----------------   -------------  -----------------
Fixed-rate debt:
                                                                                                   
     Non-recourse loans on operating properties            $2,688,186       6.38%             $2,256,544       6.63%
                                                        -------------                      -------------
Variable-rate debt:
     Recourse term loans on operating properties              207,500       3.45%                105,558       2.67%
     Lines of credit                                          461,400       3.37%                376,000       2.23%
     Construction loans                                        14,593       3.94%                     --         --
                                                        -------------                      -------------
     Total variable-rate debt                                 683,493       3.41%                481,558       2.33%
                                                        -------------                      -------------
Total                                                      $3,371,679       5.78%             $2,738,102       5.87%
                                                        =============                      =============
<FN>
     (1)  Weighted  average interest rate including the effect of debt premiums,
          but excluding the amortization of deferred financing costs.
</FN>


     Non-recourse   and  recourse  loans  include  loans  that  are  secured  by
properties  owned by the Company that have a net carrying value of $4,130,922 at
December 31, 2004.  At December 31,  2004,  the Company had $950  available  and
unfunded under a recourse term loan commitment on one property.

Fixed-Rate Debt

     At December  31,  2004,  fixed-rate  loans bear  interest  at stated  rates
ranging  from 4.52% to 10.4%.  Outstanding  borrowings  under  fixed-rate  loans
include unamortized debt premiums of $39,837 that were recorded when the Company
assumed debt to acquire real estate assets that was at an above-market  interest
rate compared to similar debt instruments at the date of acquisition. Fixed-rate
loans generally  provide for monthly  payments of principal  and/or interest and
mature at various  dates from March 2006  through  April  2016,  with a weighted
average maturity of 5.6 years.

Variable-Rate Debt

     Recourse term loans bear interest at variable interest rates indexed to the
prime lending rate or London Interbank  Offered Rate ("LIBOR").  At December 31,
2004,  interest rates on recourse loans varied from 3.35% to 3.94%.  These loans
mature at various  dates from  January  2005 to December  2006,  with a weighted
average maturity of 1.3 years.

Unsecured Line of Credit

     In August 2004, the Company  entered into a new $400,000  unsecured  credit
facility, which bears interest at LIBOR plus a margin of 100 to 145 basis points
based on the  Company's  leverage,  as  defined  in the  agreement.  The  credit
facility matures in August 2006 and has three one-year extension options,  which
are at the Company's election.  The Company drew on the credit facility to repay
all $102,400 of outstanding  borrowings  under the Company's  previous  $130,000
unsecured  credit  facility,  which had an interest rate of LIBOR plus 1.30% and
was scheduled to mature in September 2004. At December 31, 2004, the outstanding
borrowings of $39,900 under the $400,000 credit facility had a weighted  average
interest rate of 3.54%.

                                       58



Secured Lines of Credit

     The  Company  has  four   secured   lines  of  credit  that  are  used  for
construction,  acquisition, and working capital purposes. Each of these lines is
secured by  mortgages  on certain of the  Company's  operating  properties.  The
following summarizes certain information about the secured lines of credit as of
December 31, 2004:


      Total             Total          Maturity
    Available        Outstanding         Date
- ----------------------------------------------------
                               
   $  373,000         $  368,150     February 2006
       80,000             23,350       June 2006
       20,000             20,000      March 2007
       10,000             10,000      April 2006
- -----------------------------------
   $  483,000         $  421,500
===================================


     The secured lines of credit are secured by 21 of the Company's  properties,
which had an  aggregate  net  carrying  value of $475,831 at December  31, 2004.
Borrowings  under the secured  lines of credit had a weighted  average  interest
rate of 3.36% at December 31, 2004.

Letters of Credit

     At December 31, 2004,  the Company had  additional  secured lines of credit
with a total  commitment of $27,123 that can only be used for issuing letters of
credit.  The total  outstanding  under  these  lines of credit  was  $12,267  at
December 31, 2004.

Covenants and Restrictions

     The secured and unsecured line of credit  agreements  contain,  among other
restrictions,  certain financial  covenants including the maintenance of certain
financial coverage ratios,  minimum net worth  requirements,  and limitations on
cash flow distributions.  Additionally, certain property-specific mortgage notes
payable  require  the  maintenance  of debt  service  coverage  ratios  on their
respective  properties.  The Company was in  compliance  with all  covenants and
restrictions at December 31, 2004.

     Nineteen malls,  five  associated  centers,  two community  centers and the
office building are owned by special  purpose  entities that are included in the
Company's  consolidated  financial statements.  The sole business purpose of the
special purpose entities is to own and operate these  properties,  each of which
is encumbered by a  commercial-mortgage-backed-securities  loan. The real estate
and other assets owned by these special  purpose  entities are restricted  under
the loan  agreements in that they are not available to settle other debts of the
Company.  However,  so long as the loans are not under an event of  default,  as
defined in the loan  agreements,  the cash flows  from these  properties,  after
payments of debt service,  operating  expenses and  reserves,  are available for
distribution to the Company.

Debt Maturities

     As of December 31, 2004, the scheduled  principal  payments on all mortgage
and other notes payable,  including  construction loans and lines of credit, are
as follows:


                                            
2005                                           $   92,444
2006                                              827,594
2007                                              242,979
2008                                              422,209
2009                                              351,335
Thereafter                                      1,395,281
                                             -------------
                                                3,331,842
Net unamortized premiums                           39,837
                                             -------------
                                               $3,371,679
                                             =============


                                       59


     Of the $92,444 of scheduled  principal payments in 2005, $40,187 is related
to three loans that are  scheduled to mature in 2005.  The Company has extension
options in place for $30,000 on one loan that will extend its scheduled maturity
to 2006.  Galileo  America assumed one loan in the amount of $9,800 in the third
phase that closed in January 2005 (see Note 5). The Company intends to repay the
remaining loan of $387.

NOTE 7. LOSS ON EXTINGUISHMENT OF DEBT

     The losses on extinguishment of debt resulted from prepayment penalties and
the write-off of unamortized  deferred  financing  costs when notes payable were
retired before their scheduled maturity dates as follows:


                                                      Year Ended December 31,
                                                ------------------------------------
                                                   2004        2003        2002
                                                ------------------------------------

                                                                
Prepayment penalties                             $     --     $    --    $  2,232
Prepayment penalties on discontinued operations        --          --          58
Unamortized deferred financing costs                   --         167       1,640
                                                ------------------------------------
                                                     $
                                                       --       $ 167    $  3,930
                                                ====================================


NOTE 8.  SHAREHOLDERS' EQUITY

Common Stock

     In March 2002, the Company completed an offering of 6,705,540 shares of its
$0.01 par value common stock at $17.275 per share.  The net proceeds of $114,705
were used to repay outstanding  borrowings under the Company's credit facilities
and to retire debt on certain operating properties.

Preferred Stock

     In June  1998,  the  Company  issued  2,875,000  shares  of 9.0%  Series  A
Cumulative  Redeemable  Preferred Stock (the "Series A Preferred  Stock") with a
liquidation  preference of $25.00 per share in a public offering.  In June 2002,
the Company purchased 200,000 shares of the Series A Preferred Stock for $5,093.
On November 28, 2003, the Company redeemed the remaining  2,675,000  outstanding
shares of the Series A Preferred Stock at its  liquidation  preference of $25.00
per share plus accrued and unpaid  dividends.  In connection with the redemption
of the Series A  Preferred  Stock,  the  Company  recorded a charge of $2,181 to
write-off  direct issuance costs that were recorded as a reduction of additional
paid-in  capital  when the Series A Preferred  Stock was  issued.  The charge is
included in preferred  dividends in the accompanying  consolidated  statement of
operations.

     In June 2002,  the Company  completed  an offering of  2,000,000  shares of
8.75% Series B Cumulative  Redeemable  Preferred  Stock (the "Series B Preferred
Stock"),  having a par value of $.01 per share, at its liquidation preference of
$50.00 per share.  The net proceeds of $96,370  were used to reduce  outstanding
balances  under the  Company's  credit  facilities  and to retire  term loans on
several properties. The dividends on the Series B Preferred Stock are cumulative
and accrue from the date of issue and are payable quarterly in arrears at a rate
of $4.375  per share  per  annum.  The  Series B  Preferred  Stock has no stated
maturity, is not subject to any sinking fund or mandatory redemption, and is not
convertible  into any other  securities  of the Company.  The Series B Preferred
Stock cannot be redeemed by the Company prior to June 14, 2007. After that date,
the  Company  may  redeem  shares,  in whole or in part,  at any time for a cash
redemption price of $50.00 per share plus accrued and unpaid dividends.

     On August 22, 2003, the Company  issued  4,600,000  depositary  shares in a
public  offering,  each  representing  one-tenth  of a share of  7.75%  Series C
Cumulative  Redeemable  Preferred Stock (the "Series C Preferred  Stock") with a


                                       60


par value of $0.01 per share.  The Series C  Preferred  Stock has a  liquidation
preference of $250.00 per share ($25.00 per depositary  share). The dividends on
the Series C Preferred  Stock are  cumulative,  accrue from the date of issuance
and are payable quarterly in arrears at a rate of $19.375 per share ($1.9375 per
depositary  share)  per  annum.  The  Series C  Preferred  Stock  has no  stated
maturity, is not subject to any sinking fund or mandatory redemption, and is not
convertible  into any other  securities  of the Company.  The Series C Preferred
Stock  cannot be redeemed by the Company  prior to August 22,  2008.  After that
date, the Company may redeem shares, in whole or in part, at any time for a cash
redemption price of $250.00 per share ($25.00 per depositary share) plus accrued
and unpaid  dividends.  The net proceeds of $111,227 were used to partially fund
certain acquisitions discussed in Note 3 and to reduce outstanding borrowings on
the Company's credit facilities.

     On December 13, 2004, the Company issued 7,000,000  depositary  shares in a
public  offering,  each  representing  one-tenth  of a share of 7.375%  Series D
Cumulative  Redeemable  Preferred Stock (the "Series D Preferred  Stock") with a
par value of $0.01 per share.  The Series D  Preferred  Stock has a  liquidation
preference of $250.00 per share ($25.00 per depositary  share). The dividends on
the Series D Preferred  Stock are  cumulative,  accrue from the date of issuance
and are payable  quarterly in arrears at a rate of $18.4375 per share  ($1.84375
per  depositary  share) per annum.  The Series D  Preferred  Stock has no stated
maturity, is not subject to any sinking fund or mandatory redemption, and is not
convertible  into any other  securities  of the Company.  The Series D Preferred
Stock cannot be redeemed by the Company  prior to December 13, 2009.  After that
date, the Company may redeem shares, in whole or in part, at any time for a cash
redemption price of $250.00 per share ($25.00 per depositary share) plus accrued
and  unpaid  dividends.  The net  proceeds  of  $169,333  were  used  to  reduce
outstanding borrowings on the Company's credit facilities.

     Holders of each series of preferred  stock will have limited  voting rights
if dividends are not paid for six or more quarterly periods and in certain other
events.

NOTE 9.  MINORITY INTERESTS

     Minority interests represent (i) the aggregate  partnership interest in the
Operating  Partnership  that is not owned by the Company and (ii) the  aggregate
ownership  interest in 13 of the Company's  shopping  center  properties that is
held by third parties.

Minority Interest in Operating Partnership

     The minority interest in the Operating Partnership is represented by common
units and special common units of limited partnership  interest in the Operating
Partnership (the "Operating Partnership Units") that the Company does not own.

     The  assets  and  liabilities  allocated  to  the  Operating  Partnership's
minority  interests  are based on their  ownership  percentage  of the Operating
Partnership  at  December  31,  2004  and  2003.  The  ownership  percentage  is
determined  by dividing  the number of Operating  Partnership  Units held by the
minority  interests  at  December  31,  2004  and  2003 by the  total  Operating
Partnership Units outstanding at December 31, 2004 and 2003,  respectively.  The
minority  interest  ownership  percentage  in  assets  and  liabilities  of  the
Operating  Partnership  was  45.0%  and  45.4% at  December  31,  2004 and 2003,
respectively.

     Income is allocated to the Operating Partnership's minority interests based
on their weighted average ownership during the year. The ownership percentage is
determined  by dividing the  weighted  average  number of Operating  Partnership
Units held by the minority  interests by the total  weighted  average  number of
Operating Partnership Units outstanding during the year.

     A change in the number of shares of common stock or  Operating  Partnership
Units  changes  the  percentage  ownership  of all  partners  of  the  Operating
Partnership.  An Operating  Partnership Unit is considered to be equivalent to a
share of common stock since it generally is redeemable for cash or shares of the
Company's common stock. As a result, an allocation is made between shareholders'
equity and minority  interest in the Operating  Partnership in the  accompanying


                                       61


balance sheet to reflect the change in ownership of the Operating  Partnership's
underlying  equity  when  there is a  change  in the  number  of  shares  and/or
Operating Partnership Units outstanding.

     The total minority  interest in the Operating  Partnership was $554,629 and
$523,779 at December 31, 2004 and 2003, respectively.


Minority Interest in Operating Partnership-Conversion Rights

     Under  the  terms  of  the  Operating   Partnership's  limited  partnership
agreement,  each of the  limited  partners  has the right to  exchange  all or a
portion of its  partnership  interests  for shares of CBL's  common stock or, at
CBL's election, their cash equivalent.  When an exchange occurs, CBL assumes the
limited partner's ownership interests in the Operating  Partnership.  The number
of  shares of common  stock  received  by a  limited  partner  of the  Operating
Partnership  upon exercise of its exchange rights will be equal on a one-for-one
basis to the number of partnership  units exchanged by the limited partner.  The
amount of cash received by the limited partner,  if CBL elects to pay cash, will
be based on the five-day  trailing  average of the trading  price at the time of
exercise of the shares of common stock that would  otherwise  have been received
by the  limited  partner  in  the  exchange.  Neither  the  limited  partnership
interests in the Operating Partnership nor the shares of common stock of CBL are
subject to any right of mandatory redemption.

     As of January 31,  2004,  holders of  26,318,804  special  common units may
exchange  them for shares of common  stock or cash.  The  special  common  units
receive  a  minimum  distribution  of  $1.45125  per  unit  per  year.  When the
distribution on the common units exceeds $1.45125 per unit per year, the special
common units will receive a distribution equal to that paid on the common units.
The distribution on the common units exceeded $1.45125 per unit during 2004.

     In July  2004,  the  Company  issued  1,560,940  special  common  units  in
connection with the acquisition of Monroeville  Mall, which is discussed in Note
3. These  special  common units receive a minimum  distribution  of $2.53825 per
unit per year for the first three years, and a minimum  distribution of $2.92875
per unit per year thereafter.

     The  Operating  Partnership  issued  2,226,052  common  units  in  2002  in
connection  with  acquisitions  discussed  in Notes 3 and 5. The 237,390  common
units issued in connection  with the  acquisition of Panama City Mall,  which is
discussed in Note 3, receive a minimum annual dividend of $1.6875 per unit until
May 2012.  When the  distribution  on the common units exceeds $1.6875 per unit,
these common units will receive a distribution  equal to that paid on the common
units. Additionally,  if the annual distribution on the common units should ever
be less than $1.11 per unit,  the $1.6875 per unit  dividend  will be reduced by
the amount the per unit distribution is less than $1.11 per unit.

     During 2004,  holders  elected to exchange  62,392 special common units and
683,250 common units. The Company elected to exchange $5,949 of cash and 525,636
shares of common stock for these units.  The Company  purchased  920,166  common
units from a former  executive  of the  Company  who retired in 1997 for $21,013
during 2003. During 2002, third parties converted 893,304 common units to shares
of the Company's common stock.

     Outstanding   rights  to  convert  minority   interests  in  the  Operating
Partnership  to common stock were held by the following  parties at December 31,
2004 and 2003:


                                                   December 31,
                                          --------------------------------
                                               2004            2003
                                          --------------- ----------------
                                                       
 Common shares outstanding                  62,667,104       60,646,952
 Outstanding rights:
   Jacobs                                   23,845,414       23,907,806
   CBL's Predecessor                        17,511,224       17,511,224
   Third parties                             9,904,486        9,026,794
                                          --------------- ----------------
 Total Operating Partnership Units         113,928,228      111,092,776
                                          =============== ================


                                       62


Minority Interest in Shopping Center Properties

     The  Company's   consolidated  financial  statements  include  the  assets,
liabilities and results of operations of 13 properties that the Company does not
wholly own. The minority interests in shopping center properties  represents the
aggregate  ownership  interest of third parties in these  properties.  The total
minority  interests  in  shopping  center  properties  was $11,977 and $3,652 at
December 31, 2004 and 2003, respectively.

     The assets and liabilities  allocated to the minority interests in shopping
center properties are based on the third parties' ownership  percentages in each
shopping center  property at December 31, 2004 and 2003.  Income is allocated to
the minority interests in shopping center properties based on the third parties'
weighted average ownership in each shopping center property during the year.

NOTE 10.  MINIMUM RENTS

     The Company  receives rental income by leasing retail shopping center space
under operating leases.  Future minimum rents are scheduled to be received under
noncancellable tenant leases at December 31, 2004, as follows:


                                                
   2005                                            $452,324
   2006                                             386,423
   2007                                             335,734
   2008                                             287,209
   2009                                             241,567
   Thereafter                                       769,526


     Future   minimum   rents  do  not  include   percentage   rents  or  tenant
reimbursements that may become due.

NOTE 11.  MORTGAGE NOTES RECEIVABLE

     Mortgage  notes   receivable  are   collateralized   by  first   mortgages,
wrap-around  mortgages on the underlying real estate and related improvements or
by  assignment  of 100% of the  partnership  interests  that own the real estate
assets. Interest rates on notes receivable range from 3.63% to 9.50% at December
31, 2004. Maturities of notes receivable range from 2005 to 2019.

NOTE 12.  SEGMENT INFORMATION

     The Company  measures  performance  and  allocates  resources  according to
property  type,  which is  determined  based on  differences  such as  nature of
tenants,  capital requirements,  economic risks and leasing terms. Rental income
and tenant  reimbursements  from tenant leases  provide the majority of revenues
from all segments.  The accounting  policies of the reportable  segments are the
same as those  described  in Note 2.  Information  on the  Company's  reportable
segments is presented as follows:


                                                                Associated    Community
Year Ended December 31, 2004                        Malls        Centers       Centers     All Other(2)    Total
- ----------------------------------------------------------------------------------------------------------------------
                                                                                            
 Revenues                                          $   684,756    $  30,921      $ 15,222     $ 26,354     $  757,253
 Property operating expenses (1)                      (219,096)      (6,536)       (4,771)      13,618       (216,785)
 Interest expense                                     (159,998)      (5,063)       (3,154)      (9,004)      (177,219)
 Other expense                                               -            -             -      (16,373)       (16,373)
 Gain on sales of real estate assets                       847          322        24,945        3,158         29,272
                                                  -------------------------------------------------------------------
 Segment profit and loss                           $   306,509    $  19,644      $ 32,242     $ 17,753        376,148
                                                  =======================================================
 Depreciation and amortization expense                                                                       (142,043)
 General and administrative expense                                                                           (35,338)
 Interest income                                                                                                3,355
 Loss on impairment of real estate assets                                                                      (3,080)
 Equity in earnings and minority interest                                                                     (80,243)
                                                                                                          ------------
 Income before discontinued operations                                                                     $  118,799
                                                                                                          ============
 Total assets (2)                                  $ 4,653,707    $ 273,166      $155,042     $122,585     $5,205,400
 Capital expenditures (2)                          $ 1,081,529    $  56,109      $ 18,631     $ 20,541     $1,176,810


                                       63





                                                                Associated    Community
Year Ended December 31, 2003                        Malls        Centers       Centers     All Other(2)    Total
- ----------------------------------------------------------------------------------------------------------------------
                                                                                            
 Revenues                                          $   580,117    $  24,961      $ 49,239     $  9,995     $  664,312
 Property operating expenses (1)                      (194,301)      (5,614)      (11,290)      17,360       (193,845)
 Interest expense                                     (139,900)      (5,381)       (6,746)      (1,294)      (153,321)
 Other expense                                               -            -             -      (11,489)       (11,489)
 Gain(loss) on sales of real estate assets               2,214            -        75,559           (8)        77,765
                                                  -------------------------------------------------------------------
 Segment profit and loss                           $   248,130    $  13,966      $106,762     $ 14,564        383,422
                                                  =======================================================
 Depreciation and amortization expense                                                                       (112,857)
 General and administrative expense                                                                           (30,395)
 Interest income                                                                                                2,485
 Loss on extinguishment of debt                                                                                  (167)
 Equity in earnings and minority interest                                                                    (104,349)
                                                                                                          ------------
 Income before discontinued operations                                                                       $138,139
                                                                                                          ============
 Total assets (2)                                  $ 3,682,158    $ 199,356      $265,467     $117,329     $4,264,310
 Capital expenditures (2)                          $   651,567    $  28,901      $ 32,063     $ 31,274     $  743,805






                                                                Associated    Community
Year Ended December 31, 2002                        Malls        Centers       Centers     All Other(2)    Total
- ----------------------------------------------------------------------------------------------------------------------
                                                                                            
 Revenues                                          $   498,834    $  19,511      $ 56,457     $  9,329     $  584,131
 Property operating expenses (1)                      (171,951)      (4,268)      (14,440)      16,471       (174,188)
 Interest expense                                     (123,977)      (3,968)       (9,137)      (5,826)      (142,908)
 Other expense                                               -            -             -      (10,307)       (10,307)
 Gain (loss) on sales of real estate assets               (251)           -           925        2,130          2,804
                                                  -------------------------------------------------------------------
 Segment profit and loss                           $   202,655    $  11,275      $ 33,805     $ 11,797        259,532
                                                  =======================================================
 Depreciation and amortization expense                                                                        (93,418)
 General and administrative expense                                                                           (23,332)
 Interest income                                                                                                1,853
 Loss on extinguishment of debt                                                                                (3,872)
 Equity in earnings and minority interest                                                                     (59,316)
                                                                                                          ------------
 Income before discontinued operations                                                                     $   81,447
                                                                                                          ============
 Total assets (2)                                  $ 3,067,611    $ 151,606      $418,856     $157,041     $3,795,114
 Capital expenditures (2)                          $   454,727    $  29,164      $ 25,930     $ 49,903     $  559,718
<FN>
     (1)  Property  operating expenses include property  operating,  real estate
          taxes and maintenance and repairs.

     (2)  The  All  Other  category  includes  mortgage  notes  receivable,  the
          Company's office building and the Management Company.
</FN>


NOTE 13.  OPERATING PARTNERSHIP

     Condensed  consolidated  financial statement  information for the Operating
Partnership is presented as follows:


                                                              December 31,
                                                   ----------------------------------
                                                        2004               2003
                                                   ----------------------------------
 ASSETS:
                                                                  
 Net investment in real estate assets                $4,894,780         $3,912,220
 Investment in unconsolidated affiliates                 84,782             96,989
 Other assets                                           224,476            253,985
                                                   ----------------------------------
 Total assets                                        $5,204,038         $4,263,194
                                                   ==================================
 LIABILITIES:
 Mortgage and other notes payable                    $3,371,679         $2,738,102
 Other liabilities                                      185,839            138,210
                                                   ----------------------------------
 Total liabilities                                    3,557,518          2,876,312

Minority interests                                       11,977              3,652

OWNERS' EQUITY                                        1,634,543          1,383,230
                                                   ----------------------------------
 Total liabilities and owners' equity                $5,204,038         $4,263,194
                                                   ==================================


                                       64



                                                             Year Ended December 31,
                                             ---------------------------------------------------------
                                                    2004               2003               2002
                                             ---------------------------------------------------------
                                                                               
 Total revenues                                  $ 757,253          $ 664,312           $584,131
 Depreciation and amortization                    (142,043)          (112,857)           (93,418)
 Other operating expenses                         (270,185)          (234,246)          (206,631)
                                             ---------------------------------------------------------
 Income from operations                            345,025            317,209            284,082
 Interest income                                     3,355              2,485              1,850
 Interest expense                                 (177,191)          (153,314)          (142,910)
 Loss on extinguishment of debt                         --               (167)            (3,872)
 Gain on sales of real estate assets                29,272             77,765              2,804
 Equity in earnings of unconsolidated
   affiliates                                       10,308              4,941              8,215
 Minority interest in shopping center
   properties                                       (5,365)            (2,758)            (3,280)
                                             ---------------------------------------------------------
 Income before discontinued operations             205,404            246,161            146,889
 Operating income of discontinued operations         1,467              1,958              3,087
 Gain on discontinued operations                       845              4,042                372
                                             ---------------------------------------------------------
 Net income                                       $207,716           $252,161           $150,348
                                             =========================================================



NOTE 14.  NONCASH INVESTING AND FINANCING ACTIVITIES

         The Company's noncash investing and financing activities were as
follows for 2004, 2003 and 2002:


                                                          2004            2003            2002
                                                     --------------- --------------------------------
                                                                               
Cash paid during the year for interest, net of
   amounts capitalized                                 $ 174,496       $ 151,012        $ 141,425
Debt assumed to acquire property interests               304,646         209,834          149,687
Premiums related to debt assumed to acquire property
   interests                                              19,455          26,290               --
Issuance of minority interest to acquire property
   interests                                              46,212              --           60,788
Debt consolidated from application of FIN 46(R)           38,147              --               --
Land purchase obligation related to acquired property     11,950              --               --
Conversion of Operating Partnership units into
   common stock                                            5,630              --            7,163
Short-term notes payable issued to acquire property
   interests                                                  --          11,617               --
Note receivable from sale of real estate assets               --           4,813               --


NOTE 15.  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company uses derivative financial instruments to manage its exposure to
changes  in  interest  rates.  The  Company  does not use  derivative  financial
instruments  for  speculative   purposes.   The  Company's  interest  rate  risk
management  policy  requires  that  derivative  instruments  be used for hedging
purposes  only  and  that  they  be  entered  into  only  with  major  financial
institutions based upon their credit ratings and other factors.

     The Company's  objective in using  derivatives is to manage its exposure to
changes in interest rates. To accomplish this objective,  the Company  primarily
uses  interest  rate swap and cap  agreements  as part of its cash flow  hedging
strategy.

     At December 31, 2003,  the Company had one interest rate cap agreement that
was  already  in place on  $40,000  of  variable-rate  debt that was  assumed in
connection  with the  acquisition  of  Sunrise  Mall in 2003 (see  Note 3).  The
interest rate cap matured in May 2004. The interest rate cap's fair value was $0
at both the acquisition date and December 31, 2004.

     Interest rate swap  agreements  designated as cash flow hedges  involve the
receipt of  variable-rate  amounts in exchange for fixed-rate  payments over the
life of the agreements without the exchange of the underlying  principal amount.
During  2002,  such  derivatives  were used to hedge  the  variable  cash  flows
associated with  variable-rate  debt.  Under an interest rate swap in place, the
Company received interest payments at a rate equal to LIBOR and paid interest at
a fixed rate of 5.83%.  The interest rate swap had a notional  amount of $80,000


                                       65


and expired  August 30, 2003.  The change in net  unrealized  gains on cash flow
hedges in 2003 and 2002 reflects a reclassification of net unrealized gains from
accumulated  other  comprehensive  loss to  interest  expense in the  amounts of
$2,397 and $4,387, respectively, related to this interest rate swap agreement.

NOTE 16.  RELATED PARTY TRANSACTIONS

     CBL's  Predecessor  and certain  officers of the Company have a significant
minority interest in the construction  company that the Company engaged to build
substantially  all of the  Company's  development  properties.  The Company paid
approximately $81,153, $163,617 and $96,185 to the construction company in 2004,
2003, and 2002, respectively,  for construction and development activities.  The
Company had accounts payable to the construction company of $7,774 and $8,082 at
December 31, 2004 and 2003, respectively.

     The  Management  Company  provides  management,   development  and  leasing
services  to  the  Company's  unconsolidated  affiliates  and  other  affiliated
partnerships.  Revenues recognized for these services amounted to $5,970, $3,030
and $3,493 in 2004, 2003 and 2002, respectively.

NOTE 17.  CONTINGENCIES

     The Company is currently  involved in certain litigation that arises in the
ordinary  course  of  business.  It is  management's  opinion  that the  pending
litigation  will not  materially  affect the  financial  position  or results of
operations of the Company.  Additionally,  management  believes  that,  based on
environmental  studies completed to date, any exposure to environmental  cleanup
will not materially  affect the financial  position and results of operations of
the Company.

     The  Company  has  guaranteed  50% of the debt of Parkway  Place  L.P.,  an
unconsolidated  affiliate  in which the Company owns a 45%  interest.  The total
amount  outstanding at December 31, 2004, was $53,323,  of which the Company has
guaranteed $26,662. The Company did not receive a fee for this guaranty.

     Under  the terms of the  partnership  agreement  of Mall of South  Carolina
L.P., an unconsolidated  affiliate in which the Company owns a 50% interest, the
Company had guaranteed 100% of the construction debt incurred to develop Coastal
Grand - Myrtle Beach in Myrtle Beach,  SC. The Company  received a fee of $1,572
for this guaranty when it was issued  during 2003.  The Company was  recognizing
one-half of this fee as revenue pro rata over the term of the guaranty until its
expiration in May 2006,  which represents the portion of the fee attributable to
the third-party  partner's ownership  interest.  As discussed in Note 5, Mall of
South Carolina L.P.  refinanced the construction loan with new mortgage loans in
September 2004. As a result, the Company recognized  one-half of the unamortized
balance of the guaranty fee, or $328, as revenue when the construction  loan was
retired. The remaining $328 attributable to the Company's ownership interest was
recorded as a reduction to the  Company's  investment  in the  partnership.  The
Company  recognized  total  revenue of $568 and $218  related  to this  guaranty
during 2004 and 2003, respectively.

     The Company has guaranteed  100% of the debt of Imperial  Valley Mall L.P.,
an unconsolidated  affiliate in which the Company owns a 60% interest. The total
amount outstanding at December 31, 2004 was $39,943.

     The Company has issued  various  bonds that it would have to satisfy in the
event of  non-performance.  The  total  amount  outstanding  on these  bonds was
$11,789 at December 31, 2004.

NOTE 18.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying  values of cash and cash  equivalents,  receivables,  accounts
payable and accrued  liabilities  are reasonable  estimates of their fair values
because  of the short  maturity  of these  financial  instruments.  Based on the
interest rates for similar financial instruments, the carrying value of mortgage
notes  receivable  is a  reasonable  estimate of fair  value.  The fair value of
mortgage and other notes payable was  $3,667,151  and $3,094,285 at December 31,
2004 and 2003, respectively. The fair value was calculated by discounting future
cash flows for the notes  payable using  estimated  rates at which similar loans
would be made currently.

                                       66



NOTE 19.  STOCK INCENTIVE PLAN

     The Company  maintains the CBL & Associates  Properties,  Inc.  Amended and
Restated Stock  Incentive  Plan, as amended,  which permits the Company to issue
stock options and common stock to selected officers,  employees and directors of
the Company.  The shares  available under the plan were increased from 8,000,000
to 10,400,000 during 2002. The Compensation  Committee of the Board of Directors
(the "Committee") administers the plan.

Stock Options

     Stock options  issued under the plan allow for the purchase of common stock
at the fair  market  value of the  stock on the  date of  grant.  Stock  options
granted to officers and employees vest and become exercisable in installments on
each of the first  five  anniversaries  of the date of grant and expire 10 years
after the date of grant.  Stock  options  granted to  independent  directors are
fully vested upon grant. However, the independent directors may not sell, pledge
or otherwise  transfer  their stock  options  during their board term or for one
year thereafter.

     The Company's  stock option  activity for 2004, 2003 and 2002 is summarized
as follows:


                                                2004                         2003                         2002
                                     --------------------------------------------------------------------------------------
                                                     Weighted                     Weighted                     Weighted
                                                      Average                      Average                      Average
                                                     Exercise                     Exercise                     Exercise
                                         Shares        Price        Shares          Price         Shares         Price
                                     ------------------------------------------ -------------------------------------------
                                                                                              
Outstanding, beginning of year       4,368,216       $12.84         5,066,834      $12.76        4,703,934      $11.70
Granted                                      -            -                 -           -          859,500       18.28
Exercised                            (1,324,374)      11.53          (646,518)      12.00         (419,200)      11.95
Canceled                             (10,300)         15.76           (52,100)      15.46          (77,400)      14.14
                                     -------------               --------------               ---------------
Outstanding, end of year             3,033,542        13.39         4,368,216       12.84        5,066,834       12.76
                                     =============               ==============               ===============
Options exercisable at end of
year                                 2,150,242        12.35         2,923,316       11.60        2,851,634       11.13
                                     =============               ==============               ===============
Weighted average fair value of
  options granted during
  the year                                   -                              -                    $    1.75
                                     =============               ==============               ===============



     The following is a summary of the stock options outstanding at December 31,
2004:


                                            Weighted          Weighted                          Weighted
                                            Average           Average                           Average
                                           Remaining       Exercise Price                    Exercise Price
                            Options       Contractual        of Options        Options         of Options
 Exercise Price Range     Outstanding    Life in Years      Outstanding      Exercisable      Exercisable
- ------------------------ -------------- ----------------- ----------------- --------------- -----------------
                                                                                
  $9.78125 - $10.8125        105,000          0.4              $9.82            105,000           $9.82
  $11.8125 - $12.8125      1,749,538          3.3              11.59          1,617,638           11.57
  $13.8375 - $19.9000      1,179,004          6.9              16.39            427,604           15.91
                         -------------- ----------------- ----------------- --------------- -----------------
        Totals             3,033,542          4.6             $13.39          2,150,242          $12.34
                         ============== ================= ================= =============== =================


Stock Awards

     Under the plan,  common stock may be awarded either alone,  in addition to,
or in tandem with other stock awards  granted under the plan.  The Committee has
the  authority  to  determine  eligible  persons  to whom  common  stock will be
awarded,  the number of shares to be  awarded,  and the  duration of the vesting
period,  as defined.  The  Committee may also provide for the issuance of common
stock  under the plan on a deferred  basis  pursuant  to  deferred  compensation
arrangements, as described in Note 20.

                                       67


     The Company  granted  awards for 93,600 and 86,450  shares of the Company's
common stock to employees in May 2004 and May 2003,  respectively.  The terms of
the awards allow for a recipient  to vest and receive  shares of common stock in
equal installments on each of the first five anniversaries of the date of grant.
Under  the  terms of the  awards,  the  Company  pays the  recipient  additional
compensation,  in an amount equal to the dividends paid on the Company's  common
stock,  on the  unvested  portion  of the  award as if the  recipient  owned the
unvested shares.

     The Company  recorded  deferred  compensation of $2,206 and $1,870 when the
awards  were  granted  in May 2004 and 2003,  respectively,  based on the market
value of the  Company's  common stock on the grant  dates,  which was $23.57 and
$21.53 per share, respectively.  The deferred compensation is being amortized on
a straight-line basis as compensation expense over the five-year vesting period.
The Company  recognized $664 and $248 of compensation  expense in 2004 and 2003,
respectively,  related to the amortization of deferred compensation. The Company
also  recorded a reduction  to deferred  compensation  of $68 and $15 for grants
that were canceled during 2004 and 2003, respectively.

     During 2004, the Company issued an additional 63,314 shares of common stock
to employees and nonemployee  directors with a weighted-average  grant date fair
value of $30.56. The shares vested immediately.

     During 2003, the Company issued an additional 87,212 shares of common stock
to employees and nonemployee  directors with a weighted-average  grant date fair
value of $21.51. The shares vested immediately.

     During 2002, the Company issued 146,456 shares of common stock to employees
with a weighted  average  grant-date fair value of $17.61 per share.  There were
83,032  shares that vested  immediately.  The  remaining  63,424  shares vest at
various dates from 2003 to 2007.

NOTE 20.  EMPLOYEE BENEFIT PLANS

401(k) Plan

     The Management  Company  maintains a 401(k) profit  sharing plan,  which is
qualified under Section 401(a) and Section 401(k) of the Code to cover employees
of the  Management  Company.  All  employees who have attained the age of 21 and
have  completed at least one year of service are eligible to  participate in the
plan. The plan provides for employer  matching  contributions  on behalf of each
participant equal to 50% of the portion of such participant's  contribution that
does not  exceed  2.5% of such  participant's  compensation  for the plan  year.
Additionally,  the  Management  Company has the  discretion  to make  additional
profit-sharing-type   contributions   not   related  to   participant   elective
contributions. Total contributions by the Management Company were $657, $518 and
$439 in 2004, 2003 and 2002, respectively.

Employee Stock Purchase Plan

     The Company  maintains an employee stock purchase plan that allows eligible
employees  to acquire  shares of the  Company's  common stock in the open market
without  incurring  brokerage  or  transaction  fees.  Under the plan,  eligible
employees  make  payroll  deductions  that are used to  purchase  shares  of the
Company's  common stock.  The shares are purchased by the fifth  business day of
the month following the month when the deductions were withheld.  The shares are
purchased at the prevailing market price of the stock at the time of purchase.

Deferred Compensation Arrangements

     The Company has entered into  agreements  with certain of its officers that
allow the officers to defer receipt of selected  salary  increases  and/or bonus
compensation for periods ranging from 5 to 10 years.

     For certain officers,  the deferred compensation  arrangements provide that
when the salary increase or bonus compensation is earned and deferred, shares of
the  Company's  common  stock  issuable  under the  Amended and  Restated  Stock


                                       68


Incentive  Plan are  deemed  set aside for the  amount  deferred.  The number of
shares  deemed set aside is  determined  by dividing the amount of  compensation
deferred by the fair value of the Company's  common stock on the deferral  date,
as  defined  in the  arrangements.  The  shares  set aside are deemed to receive
dividends equivalent to those paid on the Company's common stock, which are then
deemed to be  reinvested in the  Company's  common stock in accordance  with the
Company's  dividend  reinvestment  plan.  When an  arrangement  terminates,  the
Company  will  issue  shares  of the  Company's  common  stock  to  the  officer
equivalent  to the  number  of  shares  deemed  to have  accumulated  under  the
officer's arrangement.  At December 31, 2004 and 2003, respectively,  there were
214,196 and 187,592  shares that were deemed set aside in accordance  with these
arrangements.

     For other officers,  the deferred  compensation  arrangements  provide that
their  bonus  compensation  is  deferred  in the form of a note  payable  to the
officer.  Interest  accumulates  on these  notes at  7.0%.  When an  arrangement
terminates,  the note payable  plus  accrued  interest is paid to the officer in
cash.  At  December  31,  2004 and 2003,  respectively,  the  Company  had notes
payable,   including  accrued  interest,  of  $52  and  $296  related  to  these
arrangements.

NOTE 21.  DIVIDENDS

     On November 4, 2004,  the Company  declared a cash dividend of $0.40625 per
share of common stock for the quarter ended  December 31, 2004. The dividend was
paid on January 14, 2005, to shareholders of record as of December 31, 2004. The
total  dividend  of  $25,459  is  included  in  accounts   payable  and  accrued
liabilities at December 31, 2004.

     On November 4, 2004, the Operating  Partnership  declared a distribution of
$21,185 to the Operating  Partnership's  limited partners.  The distribution was
paid on January 14,  2005.  This  distribution  represented  a  distribution  of
$0.40625  per unit for each common unit and  $0.40625 to $0.648 per unit for the
special common units in the Operating  Partnership.  The total  distribution  is
included in accounts payable and accrued liabilities at December 31, 2004.

     On October 29, 2003,  the Company  declared a cash  dividend of $0.3625 per
share of common stock for the quarter ended  December 31, 2003. The dividend was
paid on January 16, 2004, to shareholders of record as of December 31, 2003. The
total  dividend  of  $21,985  is  included  in  accounts   payable  and  accrued
liabilities at December 31, 2003.

     On October 29, 2003, the Operating  Partnership  declared a distribution of
$18,309 to the Operating  Partnership's  limited partners.  The distribution was
paid on January 16,  2004.  This  distribution  represented  a  distribution  of
$0.3625  per unit for each  common  unit and  $0.363 to $0.422  per unit for the
special common units in the Operating  Partnership.  The total  distribution  is
included in accounts payable and accrued liabilities at December 31, 2003.

     The allocations of dividends  declared and paid for income tax purposes are
as follows:


                                                  Year Ended December 31,
                                        2004               2003               2002
                                   ---------------  ------------------- -----------------
Dividends declared:
                                                                      
     Common stock                        $1.49375            $   1.345         $    1.16
     Series A preferred stock                  --            $    2.05         $    2.25
     Series B preferred stock             4.37505            $  4.3752         $  2.3942
     Series C preferred stock             19.3750            $ 6.99653(1)      $      --
     Series D preferred stock                  --            $      --         $      --

Allocations: (2)
     Ordinary income                       87.41%               98.83%            95.63%
     Capital gains 15% rate                11.27%                0.00%             0.00%
     Capital gains 20% rate                 0.00%                0.00%             0.13%
     Capital gains 25% rate                 1.32%                1.17%(3)          4.24%
     Return of capital                      0.00%                0.00%             0.00%
                                   ---------------  ------------------- -----------------
Total                                     100.00%              100.00%           100.00%


                                       69


                                   ===============  =================== =================
<FN>
     (1)  Represents a dividend of $1.9375 and $0.699653 per depositary share in
          2004 and 2003, respectively.

     (2)  The  allocations  for income tax  purposes are the same for the common
          stock and each series of preferred stock for each period presented.

     (3)  All of the 2003 capital gains represent pre-May 6, 2003 capital gains.
</FN>



NOTE 22.  QUARTERLY INFORMATION (UNAUDITED)

     The  following  quarterly  information  differs  from  previously  reported
results  since the  results of  operations  of  long-lived  assets  disposed  of
subsequent to each quarter end in 2004 have been  reclassified  to  discontinued
operations for all periods presented.  Additionally, total revenues differs from
previously  reported  amounts due to a  reclassification  made to conform to the
fourth quarter and year-end presentations.


2004                                         First         Second         Third         Fourth      Total (1)
                                            Quarter        Quarter       Quarter       Quarter
                                           -------------  ------------  ------------  ------------  ------------
                                                                                        
Total revenues                                $172,158       $175,502      $193,637      $215,956      $757,253
Income from operations                          77,418         79,092        83,442       103,682       343,634
Income before discontinued operations           34,282         24,977        23,566        35,974       118,799
Discontinued operations                            324          1,147           613           228         2,312
Net income available to common
shareholders                                    30,189         21,708        19,764        31,141       102,802
Basic per share data:
    Income before discontinued
         operations,
         net of preferred dividends             $ 0.49         $ 0.34        $ 0.31        $ 0.50        $ 1.64
    Net income available to common
         shareholders                           $ 0.50         $ 0.36        $ 0.32        $ 0.50        $ 1.68
Diluted per share data:
    Income before discontinued
         operations, net of preferred
         dividends                              $ 0.47         $ 0.32        $ 0.30        $ 0.48        $ 1.57
    Net income available to common
         shareholders                           $ 0.48         $ 0.34        $ 0.31        $ 0.48        $ 1.61





                                             First         Second         Third         Fourth
2003                                        Quarter        Quarter       Quarter       Quarter      Total (1)
                                           -------------  ------------  ------------  ------------  ------------
                                                                                        
Total revenues                                $162,931       $161,748      $162,293      $177,340      $664,312
Income from operations                          77,744         77,357        77,342        83,283       315,726
Income before discontinued operations           23,064         24,293        23,871        66,909       138,139
Discontinued operations                          3,408            414         1,038         1,140         6,000
Net income available to common
shareholders                                    22,776         21,022        20,225        60,483       124,506
Basic per share data:
    Income before discontinued
         operations,
         net of preferred dividends             $ 0.33         $ 0.34        $ 0.32        $ 0.99        $ 1.98
    Net income available to common
         Shareholders                           $ 0.38         $ 0.35        $ 0.34        $ 1.01        $ 2.08
Diluted per share data:
    Income before discontinued
         operations, net of preferred
         dividends                              $ 0.31         $ 0.33        $ 0.31        $ 0.94        $ 1.89
    Net income available to common
         shareholders                           $ 0.37         $ 0.34        $ 0.33        $ 0.96        $ 2.00
<FN>
(1) The sum of quarterly earnings per share may differ from annual earnings per
share due to rounding.
</FN>



NOTE 23.  SUBSEQUENT EVENTS

Discontinued Operations

     In March 2005,  the Company  sold five  community  centers for an aggregate
sales price of $12,100.  The Company  recognized an aggregate loss on impairment
of real estate  assets of $617 on these  community  centers in December 2004 and


                                       70


recognized an additional loss on impairment of $32 during the three months ended
March 31, 2005. Total revenues for these community  centers were $1,911,  $1,684
and  $1,706  in 2004,  2003  and  2002,  respectively.  Certain  amounts  in the
consolidated  financial statements have been reclassified to reflect the results
of operations  of these  properties  as  discontinued  operations in all periods
presented.

Common Stock-Split

     At the  Company's  Annual  Meeting  of  Shareholders  on May 9,  2005,  the
Company's  shareholders  approved an increase  in the  authorized  shares of the
common  stock  under  the  Company's   amended  and  restated   certificate   of
incorporation to 180,000,000 shares from 95,000,000 shares. On May 10, 2005, the
Company's Board of Directors approved a two-for-one stock split of the Company's
common  stock,  which was effected in the form of a stock  dividend.  The record
date for the stock split was June 1, 2005,  and the  distribution  date was June
15, 2005. The Company  retained the current par value of $0.01 per share for all
shares of common stock. All references to numbers of common shares and per share
data in the  accompanying  consolidated  financial  statements and notes thereto
have  been  adjusted  to  reflect  the  stock  split  on  a  retroactive  basis.
Shareholders' equity reflects the stock split through a reclassification of $313
from Additional  Paid-In Capital to Common Stock, which represents the par value
of the additional shares resulting from the stock split.

     The Operating  Partnership  currently  has common units and special  common
units of limited  partner  interest  outstanding  that may be exchanged by their
holders,  under  certain  circumstances,   for  shares  of  common  stock  on  a
one-for-one  basis.  These common units and special common units were also split
on a two-for-one basis so that they continue to be exchangeable on a one-for-one
basis into shares of the Company's common stock.