The increase is due largely to Malan's sale of nine propertiesduring the quarter and four additional properties subsequent toSept. 30, 2003, at contract prices totaling $71.4 million. Thecompany currently has seven operating properties and one vacantland parcel under contract for $29.3 million and 17 propertiesunder letters of intent for $51.8 million. Certain letters ofintent and options to purchase announced previously were terminatedor expired without proceeding to contract.

For the third quarter of 2003, operating income, includingincome from properties and interest expense on corporate andproperty specific debt, was about $2.5 million. The estimated fairvalue on the remaining properties held for sale increased $1.4million, based on executed contracts for sale. The realized lossfrom the sale of assets was about $720,000, and the reserve forestimated liquidation costs increased about $276,000, primarily dueto increases in actual legal fees over what was previouslyprojected. A distribution of $2.6 million to shareholders was madeSept. 30, 2003.

As a result of the approval of a plan of complete liquidation byits shareholders, the company adopted the liquidation basis ofaccounting for all periods beginning after Sept. 30, 2002. On Sept.30, 2002, in accordance with the liquidation basis of accounting,assets were adjusted to estimated net realizable value andliabilities were adjusted to estimated settlement amounts,including estimated costs associated with carrying out theliquidation. Accordingly, Malan no longer reports net income orfunds from operations.

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