UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Commission file number 1-11690

DEVELOPERS DIVERSIFIED REALTY CORPORATION

(Exact name of registrant as specified in its charter)

Ohio		34-1723097
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3300 Enterprise Parkway, Beachwood, Ohio 44122

(216) 755-5500

     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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ

     As of August 3, 2009, the registrant had 161,349,653 outstanding common shares, $0.10 par value.

 

 

PART I
FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS — Unaudited
Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008		3
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended June 30, 2009 and 2008		4
Condensed Consolidated Statements of Operations for the Six-Month Periods Ended June 30, 2009 and 2008		5
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2009 and 2008		6
Notes to Condensed Consolidated Financial Statements		7
EX-3.1
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-31.1
EX-31.2
EX-32.1
EX-32.2

DEVELOPERS DIVERSIFIED REALTY CORPORATION

						December 31, 2008
		June 30, 2009				(As Adjusted)
Assets
Real estate rental property:
Land		$	2,013,216			$	2,073,947
Buildings			5,623,674				5,890,332
Fixtures and tenant improvements			270,353				262,809
			7,907,243				8,227,088
Less: Accumulated depreciation			(1,282,375	)			(1,208,903	)
			6,624,868				7,018,185
Construction in progress and land under development			908,121				882,478
Real estate held for sale			51,781				—
			7,584,770				7,900,663
Investments in and advances to joint ventures			560,112				583,767
Cash and cash equivalents			28,745				29,494
Restricted cash			112,802				111,792
Notes receivable			74,691				75,781
Deferred charges, net			23,182				25,579
Other assets, net			267,688				293,146
		$	8,651,990			$	9,020,222
Liabilities and Equity
Unsecured indebtedness:
Senior notes		$	1,821,209			$	2,402,032
Revolving credit facilities			1,169,503				1,027,183
			2,990,712				3,429,215
Secured indebtedness:
Term debt			800,000				800,000
Mortgage and other secured indebtedness			1,773,990				1,637,440
			2,573,990				2,437,440
Total indebtedness			5,564,702				5,866,655
Accounts payable and accrued expenses			143,298				169,014
Dividends payable			37,703				6,967
Other liabilities			137,341				112,165
			5,883,044				6,154,801
Redeemable operating partnership units			627				627
Commitments and contingencies
Developers Diversified Realty Corporation equity:
Class G — 8.0% cumulative redeemable preferred shares, without par value, $250 liquidation value; 750,000 shares authorized; 720,000 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively			180,000				180,000
Class H — 7.375% cumulative redeemable preferred shares, without par value, $500 liquidation value; 750,000 shares authorized; 410,000 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively			205,000				205,000
Class I — 7.5% cumulative redeemable preferred shares, without par value, $500 liquidation value; 750,000 shares authorized; 340,000 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively			170,000				170,000
Common shares, $0.10 par value; 300,000,000 shares authorized; 153,845,024 and 128,642,765 shares issued at June 30, 2009 and December 31, 2008, respectively			15,385				12,864
Paid-in-capital			2,973,140				2,849,364
Accumulated distributions in excess of net income			(852,168	)			(635,239	)
Deferred compensation obligation			15,045				13,882
Accumulated other comprehensive loss			(24,645	)			(49,849	)
Less: Common shares in treasury at cost: 451,092 and 224,063 shares at June 30, 2009 and December 31, 2008, respectively			(9,660	)			(8,731	)
Total DDR shareholders’ equity			2,672,097				2,737,291
Non-controlling interests			96,222				127,503
Total equity			2,768,319				2,864,794
		$	8,651,990			$	9,020,222

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

DEVELOPERS DIVERSIFIED REALTY CORPORATION

						2008
		2009				(As Adjusted)
Revenues from operations:
Minimum rents		$	137,696			$	151,743
Percentage and overage rents			1,038				1,145
Recoveries from tenants			44,829				46,162
Ancillary and other property income			4,974				6,256
Management fees, development fees and other fee income			14,040				15,637
Other			1,732				1,691
			204,309				222,634
Rental operation expenses:
Operating and maintenance			35,292				33,373
Real estate taxes			27,671				26,884
Impairment charges			107,014				—
General and administrative			28,412				21,333
Depreciation and amortization			58,641				55,886
			257,030				137,476
Other income (expense):
Interest income			3,228				547
Interest expense			(59,962	)			(62,362	)
Gain on repurchases of senior notes			45,901				200
Loss on equity derivative instruments			(80,025	)			—
Other expense, net			(6,913	)			(102	)
			(97,771	)			(61,717	)
(Loss) income before equity in net (loss) income of joint ventures, impairment of joint venture investments, tax expense of taxable REIT subsidiaries and state franchise and income taxes, discontinued operations and gain on disposition of real estate, net of tax			(150,492	)			23,441
Equity in net (loss) income of joint ventures			(9,153	)			12,555
Impairment of joint venture investments			(40,266	)			—
(Loss) income before tax expense of taxable REIT subsidiaries and state franchise and income taxes, discontinued operations and gain on disposition of real estate, net of tax			(199,911	)			35,996
Tax expense of taxable REIT subsidiaries and state franchise and income taxes			(920	)			(286	)
(Loss) income from continuing operations			(200,831	)			35,710
Discontinued operations:
(Loss) income from discontinued operations			(24,798	)			992
(Loss) gain on disposition of real estate, net of tax			(36,023	)			1,078
			(60,821	)			2,070
(Loss) income before gain on disposition of real estate, net of tax			(261,652	)			37,780
Gain on disposition of real estate, net of tax			648				908
Net (loss) income		$	(261,004	)		$	38,688
Non-controlling interests:
Loss (income) attributable to non-controlling interests			34,425				(2,005	)
Income attributable to redeemable operating partnership units			(6	)			(20	)
			34,419				(2,025	)
Net (loss) income attributable to DDR		$	(226,585	)		$	36,663
Preferred dividends			10,567				10,567
Net (loss) income applicable to DDR common shareholders		$	(237,152	)		$	26,096
Per share data:
Basic earnings per share data:
(Loss) income from continuing operations attributable to DDR common shareholders		$	(1.22	)		$	0.20
(Loss) income from discontinued operations attributable to DDR common shareholders			(0.42	)			0.02
Net (loss) income attributable to DDR common shareholders		$	(1.64	)		$	0.22
Diluted earnings per share data:
(Loss) income from continuing operations attributable to DDR common shareholders		$	(1.22	)		$	0.20
(Loss) income from discontinued operations attributable to DDR common shareholders			(0.42	)			0.02
Net (loss) income attributable to DDR common shareholders		$	(1.64	)		$	0.22
Dividends declared per common share		$	0.20			$	0.69

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

DEVELOPERS DIVERSIFIED REALTY CORPORATION

						2008
		2009				(As Adjusted)
Revenues from operations:
Minimum rents		$	278,692			$	303,818
Percentage and overage rents			3,641				3,909
Recoveries from tenants			92,714				97,403
Ancillary and other property income			10,012				10,866
Management fees, development fees and other fee income			28,502				31,924
Other			4,982				4,728
			418,543				452,648
Rental operation expenses:
Operating and maintenance			70,805				68,289
Real estate taxes			56,112				53,205
Impairment charges			117,919				—
General and administrative			47,583				42,047
Depreciation and amortization			119,900				109,669
			412,319				273,210
Other income (expense):
Interest income			6,257				1,115
Interest expense			(119,219	)			(125,612	)
Gain on repurchases of senior notes			118,479				200
Loss on equity derivative instruments			(80,025	)			—
Other expense, net			(10,575	)			(600	)
			(85,083	)			(124,897	)
(Loss) income before equity in net (loss) income of joint ventures, impairment of joint venture investments, tax benefit (expense) of taxable REIT subsidiaries and state franchise and income taxes, discontinued operations and gain on disposition of real estate, net of tax			(78,859	)			54,541
Equity in net (loss) income of joint ventures			(8,801	)			19,943
Impairment of joint venture investments			(41,140	)			—
(Loss) income before tax benefit (expense) of taxable REIT subsidiaries and state franchise and income taxes, discontinued operations and gain on disposition of real estate, net of tax			(128,800	)			74,484
Tax benefit (expense) of taxable REIT subsidiaries and state franchise and income taxes			110				(1,317	)
(Loss) income from continuing operations			(128,690	)			73,167
Discontinued operations:
(Loss) income from discontinued operations			(24,218	)			3,891
(Loss) gain on disposition of real estate, net of tax			(24,416	)			886
			(48,634	)			4,777
(Loss) income before gain on disposition of real estate, net of tax			(177,324	)			77,944
Gain on disposition of real estate, net of tax			1,096				3,275
Net (loss) income		$	(176,228	)		$	81,219
Non-controlling interests:
Loss (income) attributable to non-controlling interests			37,056				(4,356	)
Income attributable to redeemable operating partnership units			(12	)			(40	)
			37,044				(4,396	)
Net (loss) income attributable to DDR		$	(139,184	)		$	76,823
Preferred dividends			21,134				21,134
Net (loss) income applicable to DDR common shareholders		$	(160,318	)		$	55,689
Per share data:
Basic earnings per share data:
(Loss) income from continuing operations attributable to DDR common shareholders		$	(0.82	)		$	0.42
(Loss) income from discontinued operations attributable to DDR common shareholders			(0.36	)			0.04
Net (loss) income attributable to DDR common shareholders		$	(1.18	)		$	0.46
Diluted earnings per share data:
(Loss) income from continuing operations attributable to DDR common shareholders		$	(0.82	)		$	0.42
(Loss) income from discontinued operations attributable to DDR common shareholders			(0.36	)			0.04
Net (loss) income attributable to DDR common shareholders		$	(1.18	)		$	0.46
Dividends declared per common share		$	0.40			$	1.38

DEVELOPERS DIVERSIFIED REALTY CORPORATION

						2008
		2009				(As Adjusted)
Net cash flow provided by operating activities:		$	139,879			$	194,437
Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed			(113,647	)			(220,740	)
Equity contributions to joint ventures			(8,915	)			(43,889	)
(Issuance) repayment of joint venture advances, net			(5,561	)			1,544
Proceeds from sale and refinancing of joint venture interests			158				736
Return of investments in joint ventures			10,207				14,873
Issuance of notes receivable, net			(4,316	)			(12,766	)
(Increase) decrease in restricted cash			(1,011	)			9,779
Proceeds from disposition of real estate			138,167				22,897
Net cash flow provided by (used for) investing activities			15,082				(227,566	)
Cash flow from financing activities:
Proceeds from revolving credit facilities, net			135,952				165,976
Repayment of senior notes			(456,918	)			(103,425	)
Proceeds from mortgage and other secured debt			319,389				408,708
Principal payments on mortgage debt			(182,839	)			(253,992	)
Payment of deferred finance costs			(2,783	)			(4,307	)
Proceeds from issuance of common shares, net of issuance costs of $524			52,966				—
(Payment) proceeds from issuance of common shares in conjunction with the exercise of stock options and dividend reinvestment plan			(1,046	)			994
Redemption of redeemable operating partnership units			—				(46	)
Contributions from non-controlling interests			5,504				4,548
Return of investment non-controlling interest			(850	)			(5,341	)
Distributions to redeemable operating partnership units			(80	)			(1,175	)
Dividends paid			(23,914	)			(182,658	)
Net cash flow (used for) provided by financing activities			(154,619	)			29,282
Cash and cash equivalents
Increase (decrease) in cash and cash equivalents			883				(3,847	)
Effect of exchange rate changes on cash and cash equivalents			(1,091	)			2,147
Cash and cash equivalents, beginning of period			29,494				49,547
Cash and cash equivalents, end of period		$	28,745			$	47,847

Supplemental disclosure of non-cash investing and financing activities:

          At June 30, 2009, other liabilities included approximately $21.5 million, which represents the fair value of the Company’s interest rate swaps. At June 30, 2009, dividends payable were $37.7 million of which $3.1 million will be paid in cash in July 2009. The foregoing transactions did not provide for or require the use of cash for the six-month period ended June 30, 2009.

          For the six-month period ended June 30, 2008, non-controlling interests with a book value of approximately $14.3 million were converted into approximately 0.5 million common shares of the Company. In addition, the Company received a note receivable of $9.1 million in connection with the sale of one asset in June 2008. Other liabilities included approximately $18.3 million, which represented the fair value of the Company’s interest rate swaps. At June 30, 2008, dividends payable were $90.0 million. In 2008, in accordance with the terms of the outperformance unit plans, the Company issued 107,879 of its common shares. The foregoing transactions did not provide for or require the use of cash for the six-month period ended June 30, 2008.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

DEVELOPERS DIVERSIFIED REALTY CORPORATION

Notes to Condensed Consolidated Financial Statements

1. NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION

          Developers Diversified Realty Corporation and its related real estate joint ventures and subsidiaries (collectively, the “Company” or “DDR”) owns, manages and develops an international portfolio of shopping centers.

          Use of Estimates

          The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

          Unaudited Interim Financial Statements

          These financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three- and six-month periods ended June 30, 2009 and 2008, are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2008.

          The Company consolidates certain entities in which it owns less than a 100% equity interest if the entity is a variable interest entity (“VIE”), as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (“FIN 46(R)”), and the Company is deemed to be the primary beneficiary in the VIE. The Company also consolidates certain entities that are not VIEs as defined in FIN 46(R) in which it has effective control. The Company consolidates one entity pursuant to the provisions of Emerging Issues Task Force (“EITF”) 04-05, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights.” The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined by FIN 46(R), or does not have effective control, but can exercise significant influence over the entity with respect to its operations and major decisions.

          Comprehensive (Loss) / Income

          Comprehensive (loss) / income is as follows (in thousands):

		Three-Month Periods								Six-Month Periods
		Ended June 30,								Ended June 30,
						2008								2008
		2009				(As Adjusted)				2009				(As Adjusted)
Net (loss) income		$	(261,004	)		$	38,688			$	(176,228	)		$	81,219
Other comprehensive (loss) income:
Change in fair value of interest-rate contracts			(1,501	)			16,935				3,222				(4,504	)
Amortization of interest-rate contracts			(93	)			(93	)			(186	)			(457	)
Foreign currency translation			16,516				14,724				22,168				18,828
Total other comprehensive income			14,922				31,566				25,204				13,867
Comprehensive (loss) income		$	(246,082	)		$	70,254			$	(151,024	)		$	95,086
Comprehensive (loss) income attributable to non-controlling interests			2,586				1,276				1,268				1,276
Total comprehensive (loss) income		$	(243,496	)		$	71,530			$	(149,756	)		$	96,362

          New Accounting Standards Implemented

Business Combinations — SFAS 141(R)

          In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). The objective of this statement is to improve the relevance, representative faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this statement establishes principles and requirements for how the acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest of the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption was not permitted. The Company adopted SFAS 141(R) on January 1, 2009. To the extent that the Company enters into acquisitions that qualify as businesses, this standard will require that acquisition costs and certain fees, which were previously capitalized and allocated to the basis of the acquired assets, be expensed as these costs are incurred. Because of this change in accounting for costs, the Company expects that the adoption of this standard could have a negative impact on the Company’s results of operations depending on the size of a transaction and the amount of costs incurred. The Company will assess the impact of significant transactions, if any, as they are contemplated.

Non-Controlling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 — SFAS 160

          In December 2007, the FASB issued Statement No. 160, “Non-Controlling Interest in Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”). A non-controlling interest, sometimes referred to as minority equity interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by other parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; (ii) the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of operations; (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in a subsidiary be accounted for consistently and requires that they be accounted for similarly, as equity transactions; (iv) when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value (the gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investments rather than the carrying amount of that retained investment) and (v) entities provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and the interest of the non-controlling owners. This statement was effective for fiscal years, and interim reporting periods within those fiscal years, beginning on or after December 15, 2008, and applied on a prospective basis, except for the presentation and disclosure requirements, which have been applied on a retrospective basis. Early adoption was not permitted. The Company adopted SFAS 160 on January 1, 2009. As required by SFAS 160, the Company adjusted the presentation of non-controlling interests, as appropriate, in both the condensed consolidated balance sheet as of December 31, 2008 and the condensed consolidated statements of operations for the three-and six-month periods ended June 30, 2008. The Company’s condensed consolidated balance sheets no longer have a line item referred to as Minority Interests. Equity at December 31, 2008 was adjusted to include $127.5 million attributable to non-controlling interests, and the Company reflected approximately $0.6 million as redeemable operating partnership units. In connection with the Company’s adoption of SFAS 160, the Company also adopted the recent revisions to EITF Topic D-98, “Classification and Measurement of Redeemable Securities” (“D-98”). As a result of the Company’s adoption of these standards, amounts previously reported as minority equity interests and operating partnership minority interests on the Company’s condensed consolidated balance sheets are now presented as non-controlling interests within equity. There has been no change in the measurement of these line items from amounts previously reported except due to certain redemption features, certain operating partnership minority interests in the amount of approximately $0.6 million are reflected as redeemable operating partnership units in the temporary equity section (between liabilities and equity). These units are exchangeable, at the election of the operating partnership unit holder, and under certain circumstances at the option of the Company, into an equivalent number of the Company’s common shares or for the equivalent amount of cash. Based on the requirements of D-98, the measurement of the redeemable operating partnership units are now presented at the greater of their carrying amount or redemption value at the end of each reporting period.

Disclosures about Derivative Instruments and Hedging Activities — SFAS 161

          In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instrument and Hedging Activities” (“SFAS 161”), which is intended to help investors better understand how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows through enhanced disclosure requirements. The enhanced disclosures primarily surround disclosing the objectives and strategies for using derivative instruments by their underlying risk as well as a tabular format of the fair values of the derivative instruments and their gains and losses. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted the financial statement disclosures required by SFAS 161 in the Company’s first quarter Form on 10-Q.

Subsequent Events — SFAS 165

          In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS 165”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the Company’s financial position, results of operations or cash flows. The Company has evaluated subsequent events through August 6, 2009, the date that the Company’s condensed consolidated financial statements were available to be issued, for this Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) — FSP APB 14-1

          In May 2008, the FASB issued the FSP, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). The FSP prohibits the classification of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, as debt instruments within the scope of FSP APB 14-1 and requires issuers of such instruments to separately account for the liability and equity components by allocating the proceeds from the issuance of the instrument between the liability component and the embedded conversion option (i.e., the equity component). The liability component of the debt instrument is accreted to par using the effective yield method; accretion is reported as a component of interest expense. The equity component is not subsequently re-valued as long as it continues to qualify for equity treatment. FSP APB 14-1 must be applied retrospectively to issued cash-settleable convertible instruments as well as prospectively to newly issued instruments. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years.

          FSP APB 14-1 was adopted by the Company as of January 1, 2009 with retrospective application to prior periods. As a result of the adoption, the initial debt proceeds from the

$250 million aggregate principal amount of 3.5% convertible notes, due in 2011, and $600 million aggregate principal amount of 3.0% convertible notes, due in 2012, were required to be allocated between a liability component and an equity component. This allocation was based upon what the assumed interest rate would have been if the Company had issued similar nonconvertible debt. Accordingly, the Company’s condensed consolidated balance sheet at December 31, 2008 was adjusted to reflect a decrease in unsecured debt of approximately $50.7 million, reflecting the unamortized discount. In addition, at December 31, 2008, real estate assets increased by $2.9 million relating to the impact of capitalized interest and deferred charges decreased by $1.0 million relating to the reallocation of original issuance costs to reflect such amounts as a reduction of proceeds from the reclassification of the equity component. In connection with, FSP APB 14-1, the guidance under D-98, was also amended whereas the equity component related to the convertible debt would need to be evaluated in accordance with D-98 if the convertible debt were currently redeemable at the balance sheet date. As the Company’s convertible debt is not currently redeemable, no evaluation is required as of June 30, 2009.

          For the three- and six-month periods ended June 30, 2008, the Company adjusted the condensed consolidated statements of operations to reflect additional non-cash interest expense of $3.3 million and $6.5 million, respectively, net of the impact of capitalized interest, pursuant to the provisions of FSP APB 14-1. The condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2009, reflects additional non-cash interest expense of $3.3 million and $7.1 million, respectively. In addition, the Company’s gain on the repurchase of unsecured debt during the three- and six-month periods ended June 30, 2009 was reduced by approximately $7.2 million and $14.7 million, respectively, due to the reduction in the amount allocated to the senior unsecured notes as a result of the adoption of this FSP.

Interim Disclosures about Fair Value of Financial Instruments — FSP SFAS 107-1 and APB Opinion 28-1

          In April 2009, the FASB issued FSP and APB “Interim Disclosures about Fair Value of Financial Instruments” (“FSP SFAS 107-1 and APB Opinion 28-1”), which require fair value disclosures for financial instruments that are not reflected in the Condensed Consolidated Balance Sheets at fair value. Prior to the issuance of FSP SFAS 107-1 and APB Opinion 28-1, the fair values of those assets and liabilities were only disclosed annually. With the issuance of FSP SFAS 107-1 and APB Opinion No. 28-1, the Company will be required to disclose this information on a quarterly basis, providing quantitative and qualitative information about fair value estimates for all financial instruments not measured in the Condensed Consolidated Balance Sheets at fair value. FSP SFAS 107-1 and APB Opinion 28-1 will be effective for interim reporting periods that end after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009. The Company adopted FSP SFAS 107-1 and APB Opinion 28-1 in the second quarter of 2009.

Determination of the Useful Life of Intangible Assets — FSP SFAS 142-3

          In April 2008, the FASB issued the FSP “Determination of the Useful Life of Intangible Assets” (“FSP SFAS 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. FSP SFAS 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other U.S. Generally Accepted Accounting Principles. The guidance for determining the useful life of a recognized intangible asset in this FSP shall be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements in this FSP shall be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption was not permitted. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly — FSP SFAS 157-4

          In April 2009, the FASB issued the FSP “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP SFAS 157-4”), which clarifies the methodology used to determine fair value when there is no active market or where the price inputs being used represent distressed sales. FSP SFAS 157-4 also reaffirms the objective of fair value measurement, as stated in SFAS 157, which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, as well as to determine fair values when markets have become inactive. FSP SFAS 157-4 should be applied prospectively and will be effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP SFAS 157-4 did not have a material impact on the Company’s financial position and results of operations.

Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock — EITF 07-5

          In June 2008, the FASB issued the EITF, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). This EITF provides guidance on determining whether an equity—linked financial instrument (or embedded feature) can be considered indexed to an entity’s own stock, which is a key criterion for determining if the instrument may be classified as equity. There is a provision in this EITF that provides new guidance regarding how to account for certain “anti-dilution” provisions that provide downside price protection to an investor. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. Early adoption was not permitted. Due to certain downward price protection provisions within the Otto Transaction, the

impact of this EITF resulted in a charge to earnings of approximately $80 million, but did not have a material impact on the Company’s financial position or cash flow. Refer to the discussion of the Otto Transaction described further in Note 10.

Equity Method Investment Accounting Considerations — EITF 08-6

          In November 2008, the FASB issued EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”). EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 applies to all investments accounted for under the equity method. EITF 08-6 is effective for fiscal years and interim periods beginning on or after December 15, 2008. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities — FSP EITF 03-6-1

          In June 2008, the FASB issued the FSP “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”), which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method as described in Statement No. 128, “Earnings per Share.” Under the guidance in FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. All prior-period earnings per share data presented was adjusted retrospectively. Early adoption was not permitted. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations.

     New Accounting Standards to be Implemented

The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of SFAS No. 162 — SFAS 168

          In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered nonauthoritative. The Codification is effective for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of the Codification to have a material impact on its financial position, results of operations or cash flows.

Amendments to FASB Interpretation No. 46(R) — SFAS 167

          In June 2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS167”), which is effective for fiscal years beginning after November 15, 2009 and introduces a more qualitative approach to evaluating VIEs for consolidation. SFAS 167 requires a company to perform an analysis to determine whether its variable interests gives it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether it has the power to direct the activities of the VIE that most significantly affect the VIE’s performance, SFAS 167 requires a company to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed. SFAS 167 requires continuous reassessment of primary beneficiary status rather than periodic, event-driven assessments as previously required, and incorporates expanded disclosure requirements. The Company is currently assessing the impact, if any, that the adoption of SFAS 167 will have on its consolidated financial statements.

2. EQUITY INVESTMENTS IN JOINT VENTURES

          At June 30, 2009 and December 31, 2008, the Company had ownership interests in various unconsolidated joint ventures which, as of the respective dates, owned 324 shopping center properties and 329 shopping center properties.

          Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):

		June 30,				December 31,
		2009				2008
Combined Balance Sheets:
Land		$	2,368,888			$	2,378,033
Buildings			6,443,218				6,353,985
Fixtures and tenant improvements			153,654				131,622
			8,965,760				8,863,640
Less: Accumulated depreciation			(706,457	)			(606,530	)
			8,259,303				8,257,110
Construction in progress			309,156				412,357
			8,568,459				8,669,467
Receivables, net			150,797				136,410
Leasehold interests			12,035				12,615
Other assets			358,344				315,591
		$	9,089,635			$	9,134,083
Mortgage debt		$	5,768,969			$	5,776,897
Amounts payable to DDR			73,272				64,967
Other liabilities			252,800				237,363
			6,095,041				6,079,227
Accumulated equity			2,994,594				3,054,856
		$	9,089,635			$	9,134,083
Company’s share of accumulated equity (1)		$	620,519			$	622,569

		Three-Month Periods Ended								Six-Month Periods Ended
		June 30,								June 30,
		2009				2008				2009				2008
Combined Statements of Operations:
Revenues from operations		$	216,639			$	233,416			$	445,205			$	468,476
Expenses:
Rental operation (a)			101,196				78,631				188,274				158,627
Depreciation and amortization			62,402				59,126				125,788				115,008
Interest			83,511				71,360				153,820				148,018
			247,109				209,117				467,882				421,653
(Loss) income before income tax expense, other income, net and discontinued operations			(30,470	)			24,299				(22,677	)			46,823
Income tax expense			(2,562	)			(2,865	)			(4,552	)			(6,645	)
Other (expense) income, net			(2,241	)			50,100				9,437				56,539
(Loss) income from continuing operations			(35,273	)			71,534				(17,792	)			96,717
Discontinued operations:
(Loss) income from discontinued operations (a)			(13,131	)			826				(12,324	)			1,332
(Loss) gain on disposition of real estate, net of tax (b)			(6,048	)			—				(6,077	)			340
Loss on disposition of real estate (2)			—				(11	)			(26,741	)			(13	)
Net (loss) income		$	(54,452	)		$	72,349			$	(62,934	)		$	98,376
Company’s share of equity in net (loss) income of joint ventures (4)		$	(11,876	)		$	12,740			$	(11,073	)		$	20,214

          Investments in and advances to joint ventures include the following items, which represent the difference between the Company’s investment and its share of all of the unconsolidated joint ventures’ underlying net assets (in millions):

		June 30, 2009				December 31, 2008
Company’s share of accumulated equity		$	620.5			$	622.6
Basis differentials (3)			(36.4	)			(4.6	)
Deferred development fees, net of portion relating to the Company’s interest			(5.3	)			(5.2	)
Basis differential upon transfer of assets (3)			(93.3	)			(95.4	)
Notes receivable from investments			1.3				1.4
Amounts payable to DDR			73.3				65.0
Investments in and advances to joint ventures (1)		$	560.1			$	583.8

          Service fees earned by the Company through management, acquisition, financing, leasing and development activities performed related to all of the Company’s unconsolidated joint ventures are as follows (in millions):

		Three-Month Periods Ended								Six-Month Periods Ended
		June 30,								June 30,
		2009				2008				2009				2008
Management and other fees		$	12.1			$	12.6			$	24.3			$	25.5
Acquisition, financing, guarantee and other fees			0.2				0.1				0.6				0.1
Development fees and leasing commissions			1.7				2.9				3.7				6.1
Interest income			2.0				0.1				3.9				0.2

Impairment of Joint Venture Investments

          During the three- and six-month periods ended June 30, 2009, the Company recorded impairment charges of $40.3 million and $41.1 million, respectively, associated with several unconsolidated joint venture investments pursuant to the provisions of APB No. 18, “The Equity Method of Accounting for Investments in Common Stock” (“APB 18”). The provisions of this opinion require that a loss in value of an investment under the equity method of accounting that is an other than “temporary” decline must be recognized. The impairments recognized primarily related to the Company’s joint ventures with the Coventry Real Estate Fund II (“Coventry II Fund”). The estimated fair value of each investment was determined pursuant to the provisions of SFAS 157 (Note 12). In December 2008, the Company recorded $107.0 million of impairment charges associated with seven unconsolidated joint venture investments pursuant to the provisions of APB 18. These impairment charges create a basis difference between the Company’s share of accumulated equity as compared to the investment balance of the respective unconsolidated joint venture. The Company allocates the aggregate impairment charge to each of the respective properties owned by a joint venture on a relative fair value basis and, where appropriate, amortizes this basis differential as an adjustment to the equity in net income recorded by the Company over the estimated remaining useful lives of the underlying assets.

3. RESTRICTED CASH

Restricted Cash is comprised of the following (in thousands):

		June 30, 2009				December 31, 2008
DDR MDT MV LLC (1)		$	31,167			$	31,806
DDR MDT MV LLC (2)			33,000				33,000
Bond fund (3)			46,006				46,986
Other			2,629				—
Total restricted cash		$	112,802			$	111,792

4. OTHER ASSETS, NET

Other assets consist of the following (in thousands):

		June 30, 2009				December 31, 2008
Intangible assets:
In-place leases (including lease origination costs and fair market value of leases), net		$	17,586			$	21,721
Tenant relations, net			12,350				15,299
Total intangible assets (1)			29,936				37,020
Other assets:
Accounts receivable, net (2)			149,452				164,356
Prepaids, deposits and other assets			88,300				91,770
Total other assets		$	267,688			$	293,146

5. REVOLVING CREDIT FACILITIES

          The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, for which JP Morgan serves as the administrative agent (the “Unsecured Credit Facility”). The Unsecured Credit Facility provides for borrowings of $1.25 billion, if certain financial covenants are maintained, and an accordion feature for a future expansion to $1.4 billion upon the Company’s request, provided that new or existing lenders agree to the existing terms of the facility and increase their commitment level, and a maturity date of June 2010, with a one-year extension option at the option of the Company subject to certain customary closing conditions. The Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to 50% of the facility. The Company’s borrowings under the Unsecured Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the prime rate less a specified spread (-0.125% at June 30, 2009), as defined in the facility or (ii) LIBOR, plus a specified spread (0.75% at June 30, 2009). The specified spreads vary depending on the Company’s long-term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The Unsecured Credit Facility is used to

finance the acquisition, development and expansion of shopping center properties, to provide working capital and for general corporate purposes. The Company was in compliance with these covenants at June 30, 2009. The facility also provides for an annual facility fee of 0.175% on the entire facility. At June 30, 2009, total borrowings under the Unsecured Credit Facility aggregated $1,169.5 million with a weighted average interest rate of 1.5%.

The Company also maintains a $75 million unsecured revolving credit facility with National City Bank (together with the Unsecured Credit Facility, the “Revolving Credit Facilities”). This facility has a maturity date of June 2010, with a one-year extension option at the option of the Company subject to certain customary closing conditions, and reflects terms consistent with those contained in the Unsecured Credit Facility. Borrowings under this facility bear interest at variable rates based on (i) the prime rate less a specified spread (-0.125% at June 30, 2009), as defined in the facility or (ii) LIBOR, plus a specified spread (0.75% at June 30, 2009). The specified spreads are dependent on the Company’s long-term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these covenants at June 30, 2009. At June 30, 2009, there were no amounts outstanding under the National City Bank facility.

6. FIXED-RATE NOTES

          In March 2007, the Company issued $600 million aggregate principal amount of 3.0% senior convertible notes due in 2012 (the “2007 Senior Convertible Notes”). In August 2006, the Company issued $250 million aggregate principal amount of 3.5% senior convertible notes due in 2011 (the “2006 Senior Convertible Notes” and, together with the 2007 Senior Convertible Notes, the “Senior Convertible Notes”). The Senior Convertible Notes are senior unsecured obligations and rank equally with all other senior unsecured indebtedness. For further description of the Company’s Senior Convertible Notes see Note 8, “Fixed-Rate Debt” in the Company’s 2008 Annual Report. [Effective January 1, 2009, the Company retrospectively adopted the provisions of FSP APB 14-1 (Note 1).] Concurrent with the issuance of the Senior Convertible Notes, the Company purchased an option on its common shares in a private transaction in order to effectively increase the conversion price of the notes to a specified option price (“Option Price”). This purchase option allows the Company to receive a number of the Company’s common shares (“Maximum Common Shares”) from counterparties equal to the amounts of common shares and/or cash related to the excess conversion value that it would pay to the holders of the Senior Convertible Notes upon conversion. The option cost was recorded as a reduction of shareholders’ equity at issuance.

          The following table summarizes the information related to the Senior Convertible Notes (shares and dollars in millions):

										Maximum
		Conversion Price (1)				Option Price				Common Shares				Option Cost
2007 Senior Convertible Notes		$	74.56			$	82.71				1.1			$	32.6
2006 Senior Convertible Notes		$	64.23			$	65.17				0.5			$	10.3

          The following tables reflects the Company’s previously reported amounts, along with the adjusted amounts as required by FSP APB 14-1 as adjusted to reflect the impact of discontinued operations in accordance with SFAS 144 (Note 13) (in thousands, except per share).

		Three-Month Periods Ended June 30, 2008												Six-Month Periods Ended June 30, 2008
		As Previously				As				Effect of				As Previously				As				Effect of
		Reported				Adjusted				Change				Reported				Adjusted				Change
Condensed Consolidated Statements of Operations (Unaudited)
Income from continuing operations		$	38,140	(1)		$	35,710			$	2,430			$	79,459	(1)		$	73,167			$	6,292
Net income attributable to DDR			39,927				36,663				3,264				83,351				76,823				6,528
Net income attributable to DDR per share, basic and diluted		$	0.25			$	0.22			$	0.03			$	0.52			$	0.46			$	0.06

		December 31, 2008
		As Previously				As				Effect of
		Reported				Adjusted				Change
Condensed Consolidated Balance Sheets (Unaudited)
Construction in progress and land under development		$	879,547			$	882,478			$	2,931
Deferred charges, net			26,613				25,579				(1,034	)
Senior unsecured notes			2,452,741				2,402,032				50,709
Paid-in-capital			2,770,194				2,849,364				(79,170	)
Accumulated distributions in excess of net income			(608,675	)			(635,239	)			26,564

          The effect of this accounting change on the carrying amounts of the Company’s debt and equity balances, are as follows (in thousands):

		June 30, 2009				December 31, 2008
Carrying value of equity component		$	53,689			$	79,170
Stated principal amount of convertible debt		$	564,903			$	833,000
Remaining unamortized debt discount			(28,884	)			(50,709	)
Net carrying value of convertible debt		$	536,019			$	782,291

          As of June 30, 2009, the remaining amortization period for the debt discount was approximately 26 and 33 months for the 2006 Senior Convertible Notes and the 2007 Senior Convertible Notes, respectively.

          The adjusted effective interest rates for the liability components of the 2006 Senior Convertible Notes and the 2007 Senior Convertible Notes were 5.7% and 5.2%, respectively. The impact of this accounting change required the Company to adjust its interest expense and record a non-cash interest-related charge of $3.3 million and $6.5 million, net of capitalized interest, for the three- and six-month periods ended June 30, 2008, respectively. The Company recorded non-cash interest expense of approximately $3.3 million and $7.1 million for the three- and six-month periods ended June 30, 2009, respectively. The Company recorded contractual interest expense of approximately $5.1 million and

$11.6 million for the three- and six-month periods ended June 30, 2009, respectively, and $6.7 million and $13.4 million for the three- and six-month periods ended June 30, 2008, respectively.

          During the six months ended June 30, 2009, the Company purchased approximately $376.2 million aggregate principal amount of its outstanding senior unsecured notes (of which $268.1 million related to convertible notes) at a discount to par resulting in a net GAAP gain of approximately $118.5 million. As required by FSP APB 14-1, the Company allocated the consideration paid between the liability component and equity component based on the fair value of those components immediately prior to the purchases.

7. FINANCIAL INSTRUMENTS

Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accruals and other liabilities

          The carrying amounts reported in the balance sheet for these financial instruments approximated fair value because of their short-term maturities. The carrying amount of straight-line rents receivable does not materially differ from its fair market value.

Notes receivable and advances to affiliates

          The fair value is estimated by discounting the current rates at which management believes similar loans would be made. The fair value of these notes was approximately $139.8 million and $134.0 million at June 30, 2009 and December 31, 2008, respectively, as compared to the carrying amounts of $139.8 million and $134.0 million, respectively. The carrying value of the TIF Bonds (Note 4) approximated its fair value at June 30, 2009 and December 31, 2008. The fair value of loans to affiliates is not readily determinable and has been estimated by management based upon its assessment of the interest rate, credit risk and performance risk.

Debt

          The fair market value of debt is determined using the trading price of public debt, or a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile including the Company’s non-performance risk.

          Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments.

          Financial instruments at June 30, 2009 and December 31, 2008, with carrying values that are different than estimated fair values, based on the valuation method of SFAS 157 at June 30, 2009 and December 31, 2008 are summarized as follows (in thousands):

		June 30, 2009								December 31, 2008
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Senior notes		$	1,821,209			$	1,455,480			$	2,402,032			$	1,442,264
Revolving Credit Facilities and Term Debt			1,969,503				1,934,582				1,827,183				1,752,260
Mortgages payable and other indebtedness			1,773,990				1,668,204				1,637,440				1,570,877
		$	5,564,702			$	5,058,266			$	5,866,655			$	4,765,401

Measurement of Fair Value

          At June 30, 2009, the Company used pay-fixed interest rate swaps to manage its exposure to changes in benchmark interest rates. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.

          Although the Company has determined that the significant inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As of June 30, 2009, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are significant to the overall valuation of all of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy.

Items Measured at Fair Value on a Recurring Basis

          The following table presents information about the Company’s financial assets and liabilities (in millions), which consists of interest rate swap agreements that are included in other liabilities at June 30, 2009, measured at fair value on a recurring basis as of June 30, 2009, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

		Fair Value Measurement at
		June 30, 2009
		Level 1				Level 2				Level 3				Total
Derivative Financial Instruments		$	—			$	—			$	21.5			$	21.5

          The table presented below presents a reconciliation of the beginning and ending balances of interest rate swap agreements that are included in other liabilities having fair value measurements based on significant unobservable inputs (Level 3).

		Derivative
		Financial
		Instruments
Balance of Level 3 at December 31, 2008		$	(21.7	)
Total unrealized gain included in other comprehensive (loss) income			0.2
Balance of Level 3 at June 30, 2009		$	(21.5	)

          The unrealized gain of $0.2 million above included in other comprehensive (loss) income is attributable to the change in unrealized gains or losses relating to derivative liabilities that are still held at June 30, 2009, none of which were reported in the Company’s condensed consolidated statements of operations as they are documented and qualify as hedging instruments pursuant to FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”).

Accounting Policy for Derivative Instruments and Hedging Activities

          SFAS 161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative instruments.

          As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under SFAS 133.

Risk Management Objective of Using Derivatives

          The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

          The Company entered into consolidated joint ventures that own real estate assets in Canada and Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. As such, the Company effectively uses non-derivative financial instruments to economically hedge a portion of this exposure. The Company manages currency exposure related to the net assets of its Canadian and European subsidiaries primarily through foreign currency-denominated debt agreements.

Cash Flow Hedges of Interest Rate Risk

          The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. To accomplish this objective, the Company generally uses interest rate swaps (“Swaps”) as part of its interest rate risk management strategy. Swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has six Swaps with notional amounts aggregating $600 million ($200 million of which expires in 2009, $300 million of which expires in 2010 and $100 million of which expires in 2012). Swaps aggregating $500 million effectively convert term loan floating rate debt into a fixed rate of approximately 5.7%. Swaps aggregating $100 million effectively convert Revolving Credit Facilities floating rate debt into a fixed rate of approximately 5.5%.

          The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2009, such derivatives were used to hedge the variable cash flows associated with existing obligations. The ineffective portion of the change in fair value of derivatives is recognized directly in earnings. All components of the interest rate swaps were included in the assessment of hedge effectiveness. During the six months ended June 30, 2009 and June 30, 2008, the amount of hedge ineffectiveness recorded was not material.

          Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company expects that within the next 12 months, it will reflect as an increase to interest expense (and a corresponding decrease to earnings) approximately $19.8 million. As of June 30, 2009, the

Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

		Number of		Notional
Interest Rate Derivative		Instruments		(in Millions)
Interest rate swaps		Six		$600.0

          The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of June 30, 2009 and December 31, 2008 (in millions):

Liability Derivatives

Derivatives designated as

June 30, 2009

December 31, 2008

hedging instruments under

Balance Sheet

Fair

Balance Sheet

SFAS 133

Location

Value

Location

Fair Value

Interest rate products

Other liabilities

$

21.5

Other liabilities

$

21.7

          The effect of the Company’s derivative instruments on net (loss) and income is as follows (in millions):

																		Location of
																		Gain (Loss)				Amount of Gain (Loss) Reclassified
		Amount of Gain (Loss) Recognized in																Reclassified				from Accumulated OCI into Income
		OCI on Derivative (Effective Portion)																from				(Effective Portion)
Derivatives		Three-Month								Six-Month								Accumulated				Three-Month								Six-Month
in SFAS 133		Periods Ended								Periods Ended								OCI into Income				Periods Ended								Periods Ended
Cash Flow		June 30								June 30								(Effective				June 30								June 30
Hedging		2009				2008				2009				2008				Portion)				2009				2008				2009				2008
Interest rate products		$	(4.3	)		$	14.4			$	0.2			$	(0.5	)		Interest expense				$	0.1			$	0.1			$	0.2			$	0.5

          The Company is exposed to credit risk in the event of non-performance by the counterparties to the Swaps. The Company believes it mitigates its credit risk by entering into Swaps with major financial institutions. The Company continually monitors and actively manages interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap positions or other derivative interest rate instruments based on market conditions. In addition, the Company continually assesses its ability to obtain funds through additional equity and/or debt offerings, including the issuance of medium term notes and joint venture capital. Accordingly, the cost of obtaining interest rate protection agreements in relation to the Company’s access to capital markets will continue to be evaluated. The Company has not, and does not plan to, enter into any derivative financial instruments for trading or speculative purposes.

Credit-risk-related Contingent Features

          The Company has agreements with each of its derivative counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, then the

Company could also be declared in default on its derivative obligations resulting in an acceleration of payment.

          The Company is exposed to foreign exchange risk from its consolidated and unconsolidated international investments. The Company has foreign currency-denominated debt agreements, which exposes the Company to fluctuations in foreign exchange rates. The Company has designated these foreign currency borrowings as a hedge to the net investment in its Canadian and European subsidiaries. Changes in the spot rate value are recorded as adjustments to the debt balance with offsetting unrealized gains and losses recorded in OCI. As the notional amount of the nonderivative instrument substantially matches the portion of the net investment designated as being hedged and the nonderivative instrument is denominated in the functional currency of the hedged net investment, the hedge ineffectiveness recognized in earnings was not material.

          The effect of the Company’s net investment hedge derivative instrument on OCI is as follows (in millions):

		Amount of Gain (Loss) Recognized in OCI on
		Derivatives (Effective Portion)
		Three-Month Periods								Six-Month Periods
Derivatives in SFAS 133 Net Investment Hedging		Ended June 30								Ended June 30
Relationships		2009				2008				2009				2008
Euro denominated revolving credit facilities designated as hedge of the Company’s net investment in its subsidiary		$	(5.3	)		$	—			$	(0.7	)		$	(4.0	)
Canadian denominated revolving credit facilities designated as hedge of the Company’s net investment in its subsidiaries		$	(7.8	)		$	(1.2	)		$	(5.7	)		$	(1.4	)

          See discussion of equity derivative instruments in Note 10.

          The retail and real estate markets have been significantly impacted by the continued deterioration of the global credit markets and other macro economic factors including, among others, rising unemployment and a decline in consumer confidence leading to a decline in consumer spending. Although a majority of the Company’s tenants (especially the anchor tenants) remain in relatively strong financial standing, the current has resulted in tenant bankruptcies affecting the Company’s real estate portfolio, including Mervyns, Linens ‘N Things, Steve and Barry’s, Goody’s and Circuit City, which occurred primarily in the second half of 2008. In addition, certain other tenants may be experiencing financial difficulties. The decrease in occupancy and the projected timing associated with re-leasing these vacated spaces has resulted in downward pressure on the Company’s 2009 projected operating results. The reduced occupancy will likely have a negative impact on the Company’s consolidated cash flows, results of operations, financial position and financial ratios that are integral to

the continued compliance with the covenants on the Company’s revolving credit facilities as further described below. Offsetting some of the current challenges within the retail environment, the Company has a low occupancy cost relative to other retail formats and historical averages, as well as a diversified tenant base with only one tenant exceeding 2.5% of total consolidated revenues, Walmart at 5.5%. Other significant tenants include Target, Lowe’s Home Improvement, Home Depot, Kohl’s, T.J. Maxx/Marshalls, Publix Supermarkets, PetSmart and Bed Bath & Beyond, all of which have relatively strong credit ratings. Management believes these tenants should continue providing the Company with a stable revenue base for the foreseeable future given the long-term nature of these leases. Moreover, the majority of the tenants in the Company’s shopping centers provide day-to-day consumer necessities with a focus toward value and convenience versus high-priced discretionary luxury items, which should enable many tenants to continue operating within this challenging economic environment.

          The Company’s Revolving Credit Facilities and the indentures under which the Company’s senior and subordinated unsecured indebtedness is, or may be, issued contain certain financial and operating covenants, including, among other things, leverage ratios, debt service coverage and fixed charge coverage ratios, as well as limitations on the Company’s ability to incur secured and unsecured indebtedness, sell all or substantially all of the Company’s assets and engage in mergers and certain acquisitions. These Revolving Credit Facilities and indentures also contain customary default provisions including the failure to timely pay principal and interest issued thereunder, the failure to comply with the Company’s financial and operating covenants, the occurrence of a material adverse effect on the Company, and the failure to pay when due any other Company consolidated indebtedness (including non-recourse obligations) in excess of certain specified levels. In the event the Company’s lenders declare a default, as defined in the applicable loan documentation, this could result in the inability to obtain further funding and/or an acceleration of any outstanding borrowings.

          As of June 30, 2009, the Company was in compliance with all of its financial covenants. However, due to the economic environment, the Company has less financial flexibility than desired given the current market dislocation. The Company’s current business plans indicate that it will be able to operate in compliance with these covenants in 2009 and beyond; however, the current economic downturn along with the dislocation in the global credit markets has significantly impacted the projected cash flows, financial position and effective leverage of the Company. If there is a continued decline in the retail and real estate industries and/or the Company is unable to successfully execute its plans as further described below, the Company could violate these covenants, and as a result may be subject to higher finance costs and fees and/or accelerated maturities. In addition, certain of the Company’s credit facilities and indentures permit the acceleration of the maturity of debt issued thereunder in the event certain other debt of the Company has been accelerated. Furthermore, a default under a loan to the Company or its affiliates, a foreclosure on a mortgaged property owned by the Company or its affiliates or the inability to refinance existing indebtedness would have a negative impact on the Company’s financial condition, cash flows and results of operations. These facts and an inability to predict future economic conditions have encouraged the Company to adopt a strict focus on lowering leverage and increasing its financial flexibility.

          The Company is committed to prudently managing and minimizing discretionary operating and capital expenditures and raising the necessary equity and debt capital to maximize its liquidity, repay its outstanding borrowings as they mature and comply with its financial covenants in 2009 and

beyond. As discussed below, the Company has already implemented several steps integral to the successful execution of its plans to raise additional equity and debt capital through a combination of retained capital, the issuance of common shares, debt financing and refinancing and asset sales. In addition, the Company will continue to strategically utilize proceeds from the above sources to repay outstanding borrowings on its credit facilities and strategically repurchase publicly traded debt at a discount to par to further improve its leverage ratios.

•

Retained Equity — With regard to retained capital, the Company has adjusted its dividend policy to the minimum required to maintain its REIT status. The Company did not pay a dividend in January 2009 as it had already distributed sufficient funds to comply with its 2008 tax requirements. Moreover, the Company funded its first and second quarter 2009 dividends in a combination of 90% DDR common shares and 10% cash. Dividend distributions are expected to be determined on a quarterly basis. The changes to the Company’s 2009 dividends policy to date have resulted in additional free cash flow, which has been applied primarily to reduce leverage. This change in the Company’s quarterly dividend payments, including the elimination of a quarterly payment of a dividend in January 2009, is expected to save approximately $300 million of retained capital in 2009 relative to the Company’s 2008 dividend policy.

•

Issuance of Common Shares — The Company has several alternatives to raise equity through the sale of its common shares. In May 2009, the Company issued common shares as part of the transaction with Mr. Alexander Otto (the “Investor”) and certain members of the Otto family (collectively with the Investor, the “Otto Family”), resulting in gross equity proceeds of approximately $52.5 million (Note 10). The Company expects to close on the sale of the remaining common shares no later than the fourth quarter of 2009 for estimated gross proceeds of approximately $60 million, subject to certain closing conditions. The Company intends to use the total estimated $112.5 million in gross proceeds received from this strategic investment in 2009 to reduce leverage. The Company also intends to evaluate other alternatives to raise equity, including its ability to issue additional shares in 2009 under the continuous equity program.

•

Debt Financing and Refinancing — As of June 30, 2009, the Company had approximately $88.1 million of consolidated debt maturing during the remainder of 2009, including regular principal amortization, excluding obligations where the Company has an extension option. These maturities are related to various loans secured by certain shopping centers. The Company repaid approximately $45.7 million of this indebtedness in July 2009. The remaining $42.4 million is expected to be repaid through the use of retained cash flows from operations, the Company’s Revolving Credit Facilities, financings discussed below and/or extensions currently under negotiation with certain existing lenders.

In May 2009, the Company closed on two secured loans for aggregate proceeds of approximately $125 million. In addition, a $60 million six-month bridge loan funded by the Otto Family in March 2009 was converted in May 2009 into a five-year fixed-rate term loan with a 9% interest rate. In July 2009, the Company obtained $17 million of mortgage debt from a life insurance company on two shopping centers at a 6% interest rate and maturing in 2017.

•

Asset Sales — For the six months ended June 2009, the Company and both its consolidated and unconsolidated joint ventures sold numerous assets generating nearly $180 million in estimated total proceeds. In July 2009, an additional $55.2 million in estimated gross proceeds were generated. The Company and its joint ventures are also in various stages of discussions with third parties for the sale of additional assets.

•

Debt Repurchases — Because of the current economic environment, the Company’s publicly traded debt securities have been trading at discounts to par. During the first and second quarters of 2009, the Company repurchased approximately $376.2 million aggregate principal amount of its outstanding senior unsecured notes at a cash discount to par aggregating $135.5 million. Although the Company will evaluate all of its alternatives to optimize its use of cash generated from the sources above to achieve the strategic goal of de-leveraging, the Company expects that it will continue to opportunistically repurchase its debt securities at a discount to par to further improve its leverage ratios.

          As further described above, although the Company believes it has made considerable progress in implementing the steps to address its objectives of reducing leverage and continuing to comply with its covenants and repay obligations as they become due, certain transactions may not close as anticipated, or at all, and therefore, there can be no assurances that the Company will be able to execute these plans, which could adversely impact the Company’s operations including its ability to remain compliant with its covenants and repay the Company’s obligations as they become due.

Legal Matters

          The Company is a party to litigation filed in November 2006 by a tenant in a Company property located in Long Beach, California. The tenant filed suit against the Company and certain affiliates, claiming the Company and its affiliates failed to provide adequate valet parking at the property pursuant to the terms of the lease with the tenant. After a six-week trial, the jury returned a verdict in October 2008, finding the Company liable for compensatory damages in the amount of approximately $7.8 million. In addition, the trial court awarded the tenant attorney’s fees and expenses in the amount of approximately $1.5 million. The Company filed motions for a new trial and for judgment notwithstanding the verdict, both of which were denied. The Company strongly disagrees with the verdict, as well as the denial of the post-trial motions. As a result, the Company plans to pursue an appeal of the verdict. Included in other liabilities on the condensed consolidated balance sheet is a provision which represents management’s best estimate of loss based upon a range of liability pursuant to SFAS 5, “Accounting for Contingencies.” The Company will continue to monitor the status of the litigation and revise the estimate of loss as appropriate. Although the Company believes it has a meritorious basis for reversing the trial court verdict, there can be no assurance that the Company will be successful in appealing the verdict.

          In addition to the litigation discussed above, the Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by insurance. While the resolution of all matters cannot be predicted with certainty, management believes that the final

outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.

9. REDEEMABLE OPERATING PARTNERSHIP UNITS

          At June 30, 2009 and December 31, 2008, the Company had 29,524 operating partnership units (“OP Units”) outstanding, which are classified as redeemable operating partnership units on the condensed consolidated balance sheets. These OP Units, issued to different partnerships, are exchangeable, at the election of the OP Unit holder, and under certain circumstances at the option of the Company, into an equivalent number of the Company’s common shares or for the equivalent amount of cash. The OP Unit holders are entitled to receive distributions, per OP Unit, generally equal to the per share distributions on the Company’s common shares. Redeemable OP Units are accounted for in accordance with D-98 and are presented at the greater of their carrying amount (June 30, 2009) or redemption value (June 30, 2008) at the end of each reporting period. Changes in the value from period to period are charged to paid in capital in the Company’s condensed consolidated balance sheets. Below is a table reflecting the activity of the redeemable OP units (in thousands):

		June 30, 2008
Balance at December 31, 2007		$	1,163
Net income			40
Distributions			(40	)
Adjustment to redeemable operating partnership units			(91	)
Balance at June 30, 2008		$	1,072

		June 30, 2009
Balance at December 31, 2008		$	627
Net income			12
Distributions			(12	)
Balance at June 30, 2009		$	627

10. EQUITY

          The following table summarizes the changes in equity since December 31, 2007 as adjusted (in thousands):

		Developers Diversified Realty Corporation Equity
						Common								Accumulated
						Shares								Distributions								Accumulated				Treasury
		Preferred				($0.10				Paid-in				in Excess of				Deferred				Other				Stock				Non-Controlling
		Shares				Par Value)				Capital				Net Income				Obligation				Comprehensive Income				at Cost				Interests				Total
Balance, December 31, 2007		$	555,000			$	12,679			$	3,107,809			$	(272,428	)		$	22,862			$	8,965			$	(369,839	)		$	128,254			$	3,193,302
Issuance of common shares related to exercise of stock options, dividend reinvestment plan, performance plan and director compensation							1				(2,138	)															8,378								6,241
Contributions from non-controlling interests																															30,710				30,710
Issuance of restricted stock											(5,177	)															6,074								897
Vesting of restricted stock											7,436								2								(5,270	)							2,168
Stock-based compensation											4,375																								4,375
Redemption of 463,185 operating partnership units in exchange for common shares											(14,268	)															23,327				(9,104	)			(45	)
Dividends declared—common shares															(165,623	)																			(165,623	)
Dividends declared—preferred shares															(21,134	)																			(21,134	)
Distributions to non-controlling interests																															(7,461	)			(7,461	)
Adjustment to redeemable partnership units											91																								91
Comprehensive income:
Net income															76,823																4,356				81,179
Other comprehensive income:
Change in fair value of interest rate contracts																							(4,504	)											(4,504	)
Amortization of interest rate contracts																							(457	)											(457	)
Foreign currency translation																							18,828								1,276				20,104
Comprehensive income			—				—				—				76,823				—				13,867				—				5,632				96,322
Balance, June 30, 2008		$	555,000			$	12,680			$	3,098,128			$	(382,362	)		$	22,864			$	22,832			$	(337,330	)		$	148,031			$	3,139,843

The following table summarizes the changes in equity since December 31, 2008 as adjusted (in thousands):

		Developers Diversified Realty Corporation Equity
						Common								Accumulated								Accumulated
						Shares								Distributions								Other				Treasury				Non-
		Preferred				($0.10 Par				Paid-in				in Excess of				Deferred				Comprehensive				Stock at				Controlling
		Shares				Value)				Capital				Net Income				Obligation				Income				Cost				Interests				Total
Balance, December 31, 2008		$	555,000			$	12,864			$	2,849,364			$	(635,239	)		$	13,882			$	(49,849	)		$	(8,731	)		$	127,503			$	2,864,794
Issuance of common shares related to dividend reinvestment plan and director compensation											(76	)															121								45
Issuance of common shares for cash offering							25				964																								989
Otto Transaction							1,607				50,369																								51,976
Equity derivative instruments											38,865																								38,865
Contributions from non-controlling interests																															5,504				5,504
Issuance of restricted stock							59				1,962								98								(629	)							1,490
Vesting of restricted stock											2,126								1,065								(421	)							2,770
Stock-based compensation											7,301																								7,301
Dividends declared—common shares							830				22,265				(56,611	)																			(33,516	)
Dividends declared—preferred shares															(21,134	)																			(21,134	)
Distributions to non-controlling interests																															(997	)			(997	)
Comprehensive income:
Net loss															(139,184	)															(37,056	)			(176,240	)
Other comprehensive income:
Change in fair value of interest rate contracts																							3,222												3,222
Amortization of interest rate contracts																							(186	)											(186	)
Foreign currency translation			—				—				—				—				—				22,168				—				1,268				23,436
Comprehensive income			—				—				—				(139,184	)			—				25,204				—				(35,788	)			(149,768	)
Balance, June 30, 2009		$	555,000			$	15,385			$	2,973,140			$	(852,168	)		$	15,045			$	(24,645	)		$	(9,660	)		$	96,222				2,768,319