Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical, including statements regarding management's intentions, beliefs, expectations, representations, plans or predictions of the future and are typically identified by words such as "believe," "expect," "anticipate," "intend," "estimate," "may," "will," "should" and "could." We intend for these forward-looking statements be subject to the safe harbors created by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve numerous risks and uncertainties that could cause our actual results to be materially different from those set forth in the forward-looking statements.
Examples of factors which could affect our performance are set forth in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on February 27, 2009 and our Quarterly Report on Form 10-Q for the period ended June 30, 2009, as filed with the Securities and Exchange Commission on August 6, 2009, under the heading "Risk Factors."

All dollar amounts in this section are presented in thousands, except per share data and square footage data.

This section provides the following:

·

an executive summary and our strategies and objectives;

·

the critical accounting policies that impact the treatment, for financial statement purposes, of certain items such as how we value our investment properties, recognize rental income and depreciate our assets;

·

a discussion of our consolidated balance sheets and consolidated statements of cash flows and how the changes in balance sheet and cash flow items from period to period impact our liquidity and capital resources; and

·

a discussion of our results of operations, including changes in Funds From Operations ("FFO") from year to year.

We have qualified as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") for federal income tax purposes commencing with the tax year ended December 31, 1995. So long as we qualify for treatment as a REIT, we generally will not be subject to federal income tax to the extent we meet the requirements of the tests imposed by the Code. If we fail to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, we will be subject to federal and state income taxes on our taxable income at regular corporate income tax rates. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income, property or net worth and federal income and excise taxes on our undistributed income.

To maintain our qualification as a REIT, we engage in certain activities through Inland Venture Corporation ("IVC"), a wholly-owned taxable REIT subsidiary ("TRS"). Additionally, in May 2009, the Company formed another wholly owned TRS, Inland Exchange Venture Corporation ("IEVC"), to be a partner in its new joint venture with Inland Real Estate Exchange Corporation ("IREX"). As such, we are subject to federal and state income and franchise taxes from these activities.

We had no uncertain tax positions as of September 30, 2009. We expect no significant increases or decreases in uncertain tax positions due to changes in tax positions within one year of September 30, 2009. We have no interest or penalties relating to income taxes recognized in the consolidated statements of operations and other comprehensive income for the three and nine months ended September 30, 2009 or in the consolidated balance sheets as of September 30, 2009. As of September 30, 2009, returns for the calendar years 2005 through 2008 remain subject to examination by U.S. and various state and local tax jurisdictions.

Executive Summary

We are an owner/operator of neighborhood, community, power, lifestyle and single tenant retail centers. We are a self-administered REIT incorporated under Maryland law. We also may construct or develop properties or render services in connection with such development or construction. Through our TRS, we also manage properties owned by ventures in which we may or may not be a partner. As of September 30, 2009, we owned interests in 139 investment properties, including those owned through our unconsolidated joint ventures. Properties under development are not included as investment properties until they reach what we believe is a stabilized occupancy rate.

Income generated from our investment properties is the primary source from which we generate cash. Other sources include, but are not limited to, amounts raised from the sale of securities, including shares of common stock under our Dividend Reinvestment Plan ("DRP"), draws on our line of credit facility, proceeds from financings secured by our investment properties and earnings we retain that are not distributed to our stockholders.

In order to mitigate the decline in our revenues we will attempt to re-lease those spaces that are vacant, or may become vacant, at existing properties, at more favorable rental rates and generally will acquire additional investment properties, if circumstances allow. During the nine months ended September 30, 2009, we executed 57 new, 138 renewal and three non-comparable leases (new, previously unleased space), aggregating approximately 1,076,000 square feet on our consolidated portfolio. The 57 new leases comprise approximately 242,000 square feet with an average rental rate of $13.04 per square foot, a 12.0% decrease over the average expiring rate. The 138 renewal leases comprise approximately 814,000 square feet with an average rental rate of $11.44 per square foot, a 2.5% increase over the average expiring rate. The three non-comparable leases comprise approximately 20,000 square feet with an average base rent of $15.37. During the remainder of 2009, 69 leases will be expiring in our consolidated portfolio, which comprise approximately 350,000 square feet and account for approximately 2.5%, of our annualized base rent. We will attempt to renew or re-lease these spaces at more favorable rental rates to increase revenues and cash flow, but there is no assurance we will be successful.

                                             As of                As of
      Consolidated Occupancy           September 30, 2009   September 30, 2008

      Leased Occupancy (a)                          93.3%                94.6%
      Financial Occupancy (b)                       92.5%                94.4%
      Same Store Financial Occupancy                92.5%                94.4%



                                          As of                As of
         Unconsolidated Occupancy   September 30, 2009   September 30, 2008

         Leased Occupancy (a)                    96.2%                95.4%
         Financial Occupancy (b)                 95.6%                92.6%



                                         As of                As of
         Total Occupancy           September 30, 2009   September 30, 2008

         Leased Occupancy (a)                   94.1%                94.8%
         Financial Occupancy (b)                93.3%                94.0%

(a)

Leased occupancy is defined as the percentage of gross leasable area for which there is a signed lease, regardless of whether the tenant is currently obligated to pay rent under their lease agreement.

(b)

Financial Occupancy is defined as the percentage of total gross leasable area for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use or occupation by that tenant of the area being leased.

We seek to acquire properties with high quality tenants and attempt to mitigate our risk of tenant defaults by maintaining a diversified tenant base. We focus on acquiring "necessity based" retail centers which we believe will provide us with relatively stable earnings and potential growth opportunities in the future.

Retailers generally have experienced declining sales over the past several months. According to analysts, the outlook for the coming months is that retail sales will continue to decline. Those retailers impacted the greatest appear to be those where people would spend discretionary income, such as furniture, electronics and clothing stores. These declining sales represent a wide range of consumer concerns, even for high income households. On the other hand, it appears that those retailers focused on necessity based items, such as grocers and discount stores, continue to maintain their sales.

The effect of the current economic downturn is having an impact on many retailers in our portfolio. Certain national retail chains filed for bankruptcy in 2008, including Wickes Furniture, Linens N Things and Circuit City that have had a negative impact on our portfolio. Analysts expect that more retailers will file for bankruptcy in 2009. During 2009, bankruptcy filings such as, but not limited to, Ritz Camera, Washington Mutual and Robbins Brothers have had a negative impact on our revenues as certain locations have closed. In addition to those who have filed, or may file, bankruptcy, many retailers have announced store closings and a slow down in their expansion plans which also could have a negative impact on our portfolio.

In 2008, Wickes Furniture, a tenant at five of our investment properties, comprising approximately 204,000 gross leasable square feet, filed for bankruptcy and has since liquidated. Two of these locations are owned through our unconsolidated joint ventures. All leases were rejected and the stores have closed. Wickes Furniture represented approximately one percent of our 2008 annual base rent. We have been able to re-lease four of the five vacated stores within a short period of time. With the four new leases, we have replaced nearly all of the lost rental income from the store closings at average rates above the rejected leases.

Also in 2008, Linens N Things, a tenant at three of our investment properties, comprising approximately 92,000 gross leasable square feet, filed for bankruptcy. All three of the leases were rejected and the stores have closed.
Linens N Things represented less than one percent of our 2008 annual base rent. We have been able to re-lease one of the three vacated stores at a rental rate lower than the rejected lease.

Circuit City, a tenant at two of our investment properties, comprising approximately 55,445 gross leasable square feet, also filed for bankruptcy in 2008. One of these locations is owned through our unconsolidated joint ventures. Both leases were rejected and the stores have closed. Circuit City represented less than one percent of our 2008 annual base rent. Leasing efforts are underway to find replacement tenants for the vacated spaces.

There continues to be concern surrounding the state of the economy. Not only have we seen an increase in store closings and national tenant bankruptcies, but the local tenants are showing signs of stress as well, at our properties. We are seeing our outstanding receivables rise, which in some cases requires us to record an allowance based on the collectability of these outstanding amounts.
As of September 30, 2009 and December 31, 2008, we had recorded an allowance in the amount of approximately $3,700 and $2,200, respectively, during each period related to these uncollectible amounts which is included in accounts receivable on the accompanying consolidated balance sheets. Evictions are becoming more numerous and requests for rent relief, in the form of reductions or deferrals, are becoming more frequent. However, there are some strong retailers who are seeking to increase their presence. We believe that our properties are well located and offer prime locations for these expansions.

Our largest expenses relate to the operation of our properties as well as the interest expense on our mortgages payable and other debt obligations. Our property operating expenses include, but are not limited to, real estate taxes, regular maintenance, landscaping, snow removal and periodic renovations to meet tenant needs. Pursuant to the lease agreements, most tenants of the property are required to reimburse us for some or all of the particular tenant's pro rata share of the real estate taxes and operating expenses of the property. In light of the current economic conditions, we have lowered our estimates of the amounts that will be recovered from our current tenants due to the stress they appear to be experiencing on their businesses and on their cash flows. Some of the tenants have begun to default on their lease obligations or seek rent relief or deferrals. This loss in recovery income has had a significant affect on our consolidated financial statements. To the extent that we ultimately decide to amend leases to reduce the tenant's reimbursement obligations, our results of operations and financial condition may be adversely affected. We have successfully re-tenanted certain vacancies created by retailer bankruptcies and expect to record revenues from the replacement tenants by the end of 2009 as these businesses begin paying rent and reimbursing their pro rata share of property operating and real estate tax expenses.

We look at several factors to measure our operating performance:

To measure our operating results to those of other retail real estate owners/operators in our area, we compare:

·

occupancy percentage; and

·

our rental rates to the average rents charged by our competitors in similar centers.

To measure our operating results to those of other REITs, we compare:

·

company-wide growth in income or FFO;

·

same store growth in income; and

·

general and administrative expenses as a percentage of investment in properties.

Based on the above measures, we believe we have historically performed comparably with those in our property sector peer group.

There are costs and issues associated with leasing or re-leasing our properties, including:

·

length of time required to fill vacancies;

·

possibly releasing at rental rates lower than current market rates;

·

leasing costs associated with the new lease such as leasing commissions and tenant improvement allowances; and

·

paying operating expenses without tenant reimbursements.

Strategies and Objectives

Our primary business objective is to enhance the performance and value of our investment properties through management strategies that address the needs of an evolving retail marketplace. Our success in operating our centers efficiently and effectively is, we believe, a direct result of our expertise in the acquisition, development/re-development, either directly or through a joint venture, management and leasing of our properties. We focus on the following areas in order to achieve our objectives:

Acquisitions:

·

We seek to selectively acquire well-located open air retail centers.

·

We will, from time to time, acquire properties either without financing contingencies or by assuming existing debt to provide us with a competitive advantage over other potential purchasers requiring financing or financing contingencies.

·

We concentrate our property acquisitions in areas where we have a large market concentration. In doing this, we believe we are able to attract new retailers to the area and possibly lease several locations to them. Additionally, we have been successful in getting existing tenants to lease more space at our current investment properties.

Joint Ventures:

·

We have formed joint ventures to acquire stabilized retail properties as well as properties to be redeveloped and vacant land to be developed. We structure these ventures to earn fees from the joint ventures for providing property management, acquisition and leasing services. We will continue to receive management and leasing fees for those investment properties under management, however acquisition fees may decrease as we acquire fewer investment properties through these ventures.

·

We have formed a joint venture to acquire properties that are ultimately sold through an offering of tenant-in-common ("TIC") interests or Delaware Statutory Trusts ("DST's") in properties to investors. We earn fees from the joint venture for providing property management, acquisition and leasing services. We will continue to receive management and leasing fees for those properties under management, even after all of the TIC or DST interest have been sold.

Operations:

·

We actively manage costs to minimize operating expenses by centralizing all management, leasing, marketing, financing, accounting and data processing activities.

·

We seek to improve rental income and cash flow by aggressively marketing rentable space.

·

We emphasize regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns.

·

We maintain a diversified tenant base consisting primarily of retail tenants providing consumer goods and services.

·

We proactively review our existing portfolio for potential re-development opportunities.

Acquisitions and Dispositions

During the nine months ended September 30, 2009 and the year ended December 31, 2008, we completed the following acquisitions and dispositions:

The table below presents investment property acquisitions during the year ended December 31, 2008. No investment property acquisitions were made during the nine months ended September 30, 2009.

                                                                               Financial
                                                                               Occupancy
                                                          GLA      Purchase   at time of
    Date         Property           City       State    Sq.Ft.      Price     Acquisition

             Bank of America
  07/14/08   (a)                Moosic            PA     300,000 $   42,608          100%
             Bank of America
  07/14/08   (a)                Las Vegas         NV      85,708     25,022          100%
             Bank of America
  07/14/08   (a)                Hunt Valley       MD     377,332     72,739          100%
             Bank of America
  07/14/08   (a)                Rio Rancho        NM      76,768     12,228          100%
             University of
  05/01/08   Phoenix (a)        Merrillville      IN      18,018      5,613          100%
             Fox Run Square
  01/16/08   (b)                Naperville        IL     143,512     23,150           97%

                                                       1,001,338 $  181,360

(a)

These properties were acquired through our joint venture with Inland Real Estate Exchange Corporation ("IREX")

(b)

This property was contributed to our joint venture with IREX on May 15, 2008.

The table below presents investment property dispositions during the nine months ended September 30, 2009 and the year ended December 31, 2008

                                                                                               Gain/Loss
  Date             Property                  City          State   GLA Sq. Ft.   Sale  Price    on Sale

07/15/09   University of Phoenix (a)   Merrillville           IN        18,018 $       6,680 $         -
04/30/09   Lake Park Plaza (partial)   Michigan City          IN       114,557         1,706           8
04/08/09   Montgomery Plaza            Montgomery             IL        12,903           720           -
02/10/09   Western-Howard Plaza        Chicago                IL        11,974         1,845         117
01/30/09   Wisner-Milwaukee Plaza      Chicago                IL        14,426         4,000       1,883
01/21/09   Fox Run Square (a)(c)       Naperville             IL       143,512        26,710         341
09/03/08   High Point Center           Madison                WI        86,004         7,400        (16)
07/22/08   Greenfield Commons (a)      Aurora                 IL        32,258         7,276           -
07/07/08   AT&T (a)(b)                 Davenport              IA        75,000        49,515           -
07/07/08   AT&T (a)(b)                 Evansville             IN       102,530             -           -
07/07/08   AT&T (a)(b)                 Joplin                 MO        75,000             -           -
04/17/08   Wilson Plaza                Batavia                IL        11,160         1,735         606
03/31/08   Rainbow Foods (a)           West St. Paul          MN        61,712         8,075           -
03/27/08   Delavan Crossing (a)        Delavan                WI        60,930        11,070           -
03/21/08   FMC Technologies (a)        Houston                TX       462,717        71,900           -
02/28/08   Terramere Plaza             Arlington Heights      IL        40,965         5,300         876
02/13/08   Walgreens - Decatur         Decatur                IL        13,500           400        (46)
01/23/08   Apria Healthcare (a)        Schaumburg             IL        40,906         9,950           -

                                                                     1,378,072 $     214,282 $     3,769

(a)

This property is included as a disposition as all of the interest has been sold through our joint venture with IREX.

(b)

The interests in the three AT&T properties were sold together as a package. The sale price of $49,515 was for all three properties.

This property was contributed to our joint venture with IREX and the gain shown relates to our contribution of the property to the joint venture. The gain is included in gain on sale of investment property on the accompanying consolidated statements of operations and other comprehensive income.

Development property dispositions during the nine months ended September 30, 2009 and the year ended December 31, 2008

                                     Joint Venture                              Approx.    Sales
  Date           Property               Partner              City       State    Acres     Price

09/29/09   Savannah Crossing      TMK Development, Inc   Aurora            IL         2 $   4,700
           North Aurora Outlots   North American Real
08/11/08   Phase I                Estate                 North Aurora      IL         2     5,300
                                  Pine Tree
                                  Institutional
07/18/08   Orchard Crossing       Realty, LLC            Ft. Wayne         IN         1     1,200
           North Aurora Outlots   North American Real
06/18/08   Phase II               Estate                 North Aurora      IL         5     2,443
01/10/08   Savannah Crossing      TMK Development, Inc   Aurora            IL         1     1,523

                                                                                     11 $  15,166

Proceeds from these sales were used to pay down the outstanding balances on the respective loans, with the exception of the proceeds from the Savannah Crossing sales which were a return of equity to us.

Critical Accounting Policies

General

A critical accounting policy is one that, we believe, would materially affect our operating results or financial condition, and requires management to make estimates or judgments in certain circumstances. We believe that our most critical accounting policies relate to the valuation and allocation of investment properties, determining whether assets are held for sale, recognition of rental income and lease termination income, our cost capitalization and depreciation policies and consolidation/equity accounting policies. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. U.S. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. The following disclosure discusses judgments known to management pertaining to trends, events or uncertainties that were taken into consideration upon the application of critical accounting policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.

Impairment of investment properties. The Company assesses the carrying values of its investment properties, whenever events or changes in circumstances indicate that the carrying amounts of these investment properties may not be fully recoverable. Recoverability of the investment properties is measured by comparison of the carrying amount of the investment property to the estimated future undiscounted cash flows. In order to review the Company's investment properties for recoverability, the Company considers current market conditions, as well as its intent with respect to holding or disposing of the asset. Fair value is determined through various valuation techniques; including discounted cash flow models, quoted market values and third party appraisals, where considered necessary. If the Company's analysis indicates that the carrying value of the investment property is not recoverable on an undiscounted cash flow basis, the Company recognizes an impairment charge for the amount by which the carrying value exceeds the current estimated fair value of the real estate property.

The Company estimates the future undiscounted cash flows based on management's intent as follows: (i) for real estate properties that the Company intends to hold long-term, including land held for development, properties currently under development and operating buildings, recoverability is assessed based on the estimated future net rental income from operating the property; (ii) for real estate properties that the Company intends to sell, including land parcels, properties currently under development and operating buildings, recoverability is assessed based on estimated proceeds from disposition that are estimated based on future net rental income of the property and expected market capitalization rates; and (iii) for costs incurred related to the potential acquisition or development of a real estate property, recoverability is assessed based on the probability that the acquisition or development is likely to occur as of the measurement date.

The use of projected future cash flows is based on assumptions that are consistent with the Company's estimates of future expectations and the strategic plan it uses to manage its underlying business. However assumptions and estimates about future cash flows, discount rates and capitalization rates are complex and subjective. Changes in economic and operating conditions and the Company's ultimate investment intent that occur subsequent to our impairment analyses could impact these assumptions and result in future impairment charges of our real estate properties.

Impairment of investments in unconsolidated entities. The Company also reviews its investments in unconsolidated entities. When circumstances indicate there may have been a loss in value of an equity method investment, the Company evaluates the investment for impairment by estimating its ability to recover its investments from future expected cash flows. If the Company determines the loss in value is other than temporary, the Company will recognize an impairment charge to reflect the investment at fair value. The use of projected future cash flows and other estimates of fair value, the determination of when a loss is other than temporary, and the calculation of the amount of the loss, is complex and subjective. Use of other estimates and assumptions may result in different conclusions. Changes in economic and operating conditions that occur subsequent . . .