lining of rents ($2,830,000 as at December 31, 2003). This r eceivable arises from earnings recognized in excess of amounts currently due under the lease agreements. Management exer cises judgment in establishing these allowances and considers payment history and current credit status in developing these estimates. If estimates differ from actual results, this would impact reported results. 

## REVENUE RECOGNITION 

The Company has the following revenue sources and revenue r ecognition policies: 

• Base Rents—income arising from tenant leases. These r ents are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements under the leases. 

• Percentage Rents—income arising from retail tenant leases which are contingent upon the sales of the tenant exceeding a defined threshold. These rents are recognized in accor dance with SAB 104, which states that this income is to be recognized only after the contingency has been removed (i.e., sales thresholds have been achieved). 

• Hotel Revenues—income arising from the operation of the Hotel Pennsylvania which consists of rooms revenue, food and beverage revenue, and banquet revenue. Income is r ecognized when rooms are occupied. Food and beverage and banquet revenue are recognized when the services have been rendered. 

• Trade Show Revenues—income arising from the operation of trade shows, including rentals of booths. This revenue is recognized in accordance with the booth rental contracts when the trade shows have occurred. 

• Expense Reimbursements—revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the r espective property. This revenue is accrued in the same periods as the expenses are incurred. 

Before the Company recognizes revenue, it assesses among other things, its collectibility. If the Company incorrectly deter- mines the collectibility of its revenue, its net income and assets could be misstated. 

## INCOME TAXES 

The Company operates in a manner intended to enable it to continue to qualify as a Real Estate Investment Trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended. Under those sections, a REIT which distributes at least 90% of its REIT taxable income as a dividend to its shar eholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders. The Company intends to distribute to its shareholders 100% of its taxable income. Therefore, no provision for Federal income taxes is required. If the Company fails to distribute the required amount of income to its shar eholders, it would fail to qualify as a REIT and substantial adverse tax consequences may result. 

