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

For the quarterly period ended September 30, 2008

OR

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

For the transition period from                      to                     

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 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 (Do not check if a smaller reporting company)		Smaller reporting company o

     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 November 3, 2008, the registrant had 120,278,988 outstanding common shares, $0.10 par value.

 

 

PART I
FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS — Unaudited
Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007		3
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended September 30, 2008 and 2007		4
Condensed Consolidated Statements of Operations for the Nine-Month Periods Ended September 30, 2008 and 2007		5
Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2008 and 2007		6
Notes to Condensed Consolidated Financial Statements		8
EX-31.1
EX-31.2
EX-32.1
EX-32.2

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		September 30,				December 31,
		2008				2007
Assets
Real estate rental property:
Land		$	2,084,898			$	2,142,942
Buildings			5,898,491				5,933,890
Fixtures and tenant improvements			260,902				237,117
			8,244,291				8,313,949
Less: Accumulated depreciation			(1,167,243	)			(1,024,048	)
			7,077,048				7,289,901
Construction in progress and land under development			939,421				664,926
Real estate held for sale			—				5,796
			8,016,469				7,960,623
Investments in and advances to joint ventures			709,974				638,111
Cash and cash equivalents			30,171				49,547
Restricted cash			106,391				58,958
Notes receivable			65,930				18,557
Deferred charges, net			29,409				31,172
Other assets, net			335,912				332,848
		$	9,294,256			$	9,089,816
Liabilities and Shareholders’ Equity
Unsecured indebtedness:
Senior notes		$	2,519,435			$	2,622,219
Revolving credit facilities			955,912				709,459
			3,475,347				3,331,678
Secured indebtedness:
Term debt			800,000				800,000
Mortgage and other secured indebtedness			1,634,528				1,459,336
			2,434,528				2,259,336
Total indebtedness			5,909,875				5,591,014
Accounts payable and accrued expenses			168,670				141,629
Dividends payable			89,956				85,851
Other liabilities			127,890				143,616
			6,296,391				5,962,110
Minority equity interest			138,565				111,767
Operating partnership minority interests			8,010				17,114
			6,442,966				6,090,991
Commitments and contingencies
Shareholders’ 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 September 30, 2008 and December 31, 2007			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 September 30, 2008 and December 31, 2007			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 September 30, 2008 and December 31, 2007			170,000				170,000
Common shares, $0.10 par value; 300,000,000 shares authorized; 126,798,119 and 126,793,684 shares issued at September 30, 2008 and December 31, 2007, respectively			12,680				12,679
Paid-in-capital			3,021,363				3,029,176
Accumulated distributions in excess of net income			(418,466	)			(260,018	)
Deferred compensation obligation			23,056				22,862
Accumulated other comprehensive (loss) income			(5,202	)			8,965
Less: Common shares in treasury at cost: 6,523,838 and 7,345,304 shares at September 30, 2008 and December 31, 2007, respectively			(337,141	)			(369,839	)
			2,851,290				2,998,825
		$	9,294,256			$	9,089,816

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2008				2007
Revenues from operations:
Minimum rents		$	158,223			$	156,911
Percentage and overage rents			1,062				1,980
Recoveries from tenants			51,644				51,609
Ancillary and other property income			4,950				5,110
Management fees, development fees and other fee income			15,378				13,827
Other			2,656				2,110
			233,913				231,547
Rental operation expenses:
Operating and maintenance			35,992				32,596
Real estate taxes			28,407				26,516
General and administrative			19,560				19,626
Depreciation and amortization			63,297				55,803
			147,256				134,541
Other income (expense):
Interest income			1,663				1,564
Interest expense			(60,651	)			(61,666	)
Other expense, net			(6,859	)			(225	)
			(65,847	)			(60,327	)
Income before equity in net income of joint ventures, minority interests, tax benefit (expense) of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate, net of tax			20,810				36,679
Equity in net income of joint ventures			1,981				6,003
Income before minority interests, tax benefit (expense) of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate, net of tax			22,791				42,682
Minority interests:
Minority equity interests			(1,263	)			(1,635	)
Operating partnership minority interests			(261	)			(569	)
			(1,524	)			(2,204	)
Tax benefit (expense) of taxable REIT subsidiaries and franchise taxes			16,414				(483	)
Income from continuing operations			37,681				39,995
Discontinued operations:
Income (loss) from discontinued operations			458				(93	)
Loss on disposition of real estate, net of tax			(2,717	)			(310	)
			(2,259	)			(403	)
Income before gain on disposition of real estate, net of tax			35,422				39,592
Gain on disposition of real estate, net of tax			3,093				3,691
Net income		$	38,515			$	43,283
Preferred dividends			10,567				10,567
Net income applicable to common shareholders		$	27,948			$	32,716
Per share data:
Basic earnings per share data:
Income from continuing operations		$	0.25			$	0.27
Loss from discontinued operations			(0.02	)			—
Net income applicable to common shareholders		$	0.23			$	0.27
Diluted earnings per share data:
Income from continuing operations		$	0.25			$	0.26
Loss from discontinued operations			(0.02	)			—
Net income applicable to common shareholders		$	0.23			$	0.26
Dividends declared per common share		$	0.69			$	0.66

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2008				2007
Revenues from operations:
Minimum rents		$	474,885			$	479,576
Percentage and overage rents			5,145				5,511
Recoveries from tenants			152,194				152,640
Ancillary and other property income			15,932				14,048
Management fees, development fees and other fee income			47,302				34,906
Other			7,834				13,536
			703,292				700,217
Rental operation expenses:
Operating and maintenance			106,512				93,990
Real estate taxes			83,719				82,284
General and administrative			61,607				60,304
Depreciation and amortization			177,544				161,274
			429,382				397,852
Other income (expense):
Interest income			2,791				7,726
Interest expense			(182,782	)			(194,581	)
Other expense, net			(7,259	)			(675	)
			(187,250	)			(187,530	)
Income before equity in net income of joint ventures, minority interests, tax benefit of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate, net of tax			86,660				114,835
Equity in net income of joint ventures			21,924				33,887
Income before minority interests, tax benefit of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate, net of tax			108,584				148,722
Minority interests:
Minority equity interests			(4,720	)			(4,808	)
Preferred operating partnership minority interests			—				(9,690	)
Operating partnership minority interests			(1,145	)			(1,706	)
			(5,865	)			(16,204	)
Tax benefit of taxable REIT subsidiaries and franchise taxes			15,070				15,294
Income from continuing operations			117,789				147,812
Discontinued operations:
(Loss) income from discontinued operations			(461	)			8,408
(Loss) gain on disposition of real estate, net of tax			(1,830	)			13,323
			(2,291	)			21,731
Income before gain on disposition of real estate, net of tax			115,498				169,543
Gain on disposition of real estate, net of tax			6,368				63,713
Net income		$	121,866			$	233,256
Preferred dividends			31,702				40,367
Net income applicable to common shareholders		$	90,164			$	192,889
Per share data:
Basic earnings per share data:
Income from continuing operations		$	0.77			$	1.42
(Loss) income from discontinued operations			(0.02	)			0.18
Net income applicable to common shareholders		$	0.75			$	1.60
Diluted earnings per share data:
Income from continuing operations		$	0.77			$	1.41
(Loss) income from discontinued operations			(0.02	)			0.18
Net income applicable to common shareholders		$	0.75			$	1.59
Dividends declared per common share		$	2.07			$	1.98

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2008				2007
Net cash flow provided by operating activities:		$	319,452			$	334,570
Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed			(334,264	)			(2,726,074	)
Equity contributions to joint ventures			(80,471	)			(232,643	)
(Issuance) repayment of joint venture advances, net			(24,376	)			1,839
Proceeds from sale and refinancing of joint venture interests			2,416				38,650
Return on investments in joint ventures			24,653				12,152
(Issuance) repayment of notes receivable, net			(38,273	)			937
Increase in restricted cash			(47,433	)			—
Proceeds from disposition of real estate			95,459				1,978,464
Net cash flow used for investing activities			(402,289	)			(926,675	)
Cash flow from financing activities:
Proceeds from revolving credit facilities, net			252,850				327,500
Repayment of senior notes			—				(85,000	)
Repayment of medium term notes			(103,425	)			(110,000	)
Proceeds from term loans			—				900,000
Repayment of term loans			—				(750,000	)
Proceeds from mortgage and other secured debt			449,423				61,526
Principal payments on mortgage debt			(274,231	)			(383,116	)
Proceeds from issuance of convertible senior notes, net of underwriting commissions and offering expenses of $267 in 2007			—				587,733
Payment of deferred finance costs			(5,353	)			(3,011	)
Proceeds from issuance of common shares, net of underwriting commissions and offering expenses of $208 in 2007			—				746,645
Purchased option arrangement on common shares			—				(32,580	)
Proceeds from issuance of common shares in conjunction with the exercise of stock options, dividend reinvestment plan and restricted stock plan			1,260				7,634
Proceeds from issuance of preferred operating partnership interest, net of expenses			—				484,204
Redemption of preferred operating partnership interest, net of expenses			—				(484,204	)
Redemption of preferred shares			—				(150,000	)
Return of investment—minority equity interest shareholder			(3,657	)			(4,261	)
Contributions from minority interest shareholders			25,239				—
Purchase of operating partnership minority interests			(46	)			(683	)
Distributions to operating partnership minority interests			(1,431	)			(11,330	)
Repurchase of common shares			—				(222,819	)
Dividends paid			(276,209	)			(264,811	)
Net cash flow provided by financing activities			64,420				613,427
Cash and cash equivalents
(Decrease) increase in cash and cash equivalents			(18,417	)			21,322
Effect of exchange rate changes on cash and cash equivalents			(959	)			—
Cash and cash equivalents, beginning of period			49,547				28,378
Cash and cash equivalents, end of period		$	30,171			$	49,700

Supplemental disclosure of non-cash investing and financing activities:

     For the nine-month period ended September 30, 2008, minority 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 issued a note receivable of $9.1 million in connection with the sale of one asset in June 2008. Other liabilities included approximately $17.1 million, which represents the fair value of the Company’s interest rate swaps. At September 30, 2008, dividends payable were $90.0 million. In 2008, in accordance with the terms of the outperformance unit plans and performance unit plans, the Company issued 107,879 and vested

79,332, respectively, of its common shares. The foregoing transactions did not provide for or require the use of cash for the nine-month period ended September 30, 2008.

     For the nine-month period ended September 30, 2007, in conjunction with the merger of Inland Retail Real Estate Trust, Inc. (“IRRETI”), the Company acquired real estate assets of $3.0 billion, investments in joint ventures of approximately $31.7 million and accounts receivable, intangible assets and other assets aggregating approximately $92.3 million. A portion of the consideration used to acquire the $3.0 billion of assets included assumed debt of $446.5 million, accounts payable and other liabilities aggregating approximately $27.1 million, and common shares of approximately $394.2 million. In conjunction with the redemption of the Company’s Class F Cumulative Redeemable Preferred Shares, the Company recorded a non-cash dividend charge to net income available to common shareholders of $5.4 million relating to the write-off of original issuance costs. Other liabilities included approximately $6.6 million, which represents the fair value of the Company’s interest rate swaps. At September 30, 2007, dividends payable were $88.1 million. In January 2007, in accordance with the terms of the performance unit plans, the Company issued 466,666 restricted common shares of which 70,000 vested as of the date of issuance. The remaining 317,334 shares will vest in 2009 through 2011. The foregoing transactions did not provide for or require the use of cash for the nine-month period ended September 30, 2007.

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”) are engaged in the business of acquiring, expanding, owning, developing, redeveloping, leasing, managing and operating shopping centers and enclosed malls.

     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 nine-month periods ended September 30, 2008 and 2007, 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, 2007.

     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 a VIE 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 Income

     Comprehensive income is as follows (in thousands):

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Net income		$	38,515			$	43,283			$	121,866			$	233,256
Other comprehensive (loss) income:
Change in fair value of interest rate contracts			(122	)			(11,155	)			(4,626	)			(4,239	)
Amortization of interest rate contracts			(93	)			(364	)			(550	)			(1,091	)
Foreign currency translation			(27,819	)			6,913				(8,991	)			18,904
Other comprehensive (loss) income			(28,034	)			(4,606	)			(14,167	)			13,574
Total comprehensive income		$	10,481			$	38,677			$	107,699			$	246,830

     New Accounting Standards Implemented

The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 — SFAS 159

     In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes (i.e., unrealized gains and losses) in fair value must be recorded in earnings. Additionally, SFAS No. 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. The Company adopted SFAS No. 159 on January 1, 2008, and did not elect to measure any assets, liabilities or firm commitments at fair value.

Fair Value Measurements — SFAS 157

     In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This statement clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value. SFAS No. 157 also provides for certain disclosure requirements, including, but not limited to, the valuation techniques used to measure fair value and a discussion of changes in valuation techniques, if any, during the period. The Company adopted this statement for its financial assets and liabilities and related disclosure requirements on January 1, 2008.

     For nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis, the statement is effective for fiscal years beginning after November 15,

2008. The Company is currently evaluating the impact that this statement, for nonfinancial assets and liabilities, will have on its financial position and results of operations.

Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active — FSP FAS 157-3

     In October 2008, the FASB issued FSP FAS No. 157-3, “Fair Value Measurements” (“FSP FAS No. 157-3”), which clarifies the application of SFAS No. 157 in an inactive market and provides an example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The adoption of this standard as of September 30, 2008 did not have a material impact on the Company’s financial position and results of operations.

     New Accounting Standards to Be Implemented

Business Combinations — SFAS 141(R)

     In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” (“SFAS No. 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 is not permitted. The Company will adopt SFAS No. 141(R) on January 1, 2009. To the extent that the Company enters into new acquisitions in 2009 and beyond that qualify as businesses, this standard will require that acquisition costs and certain fees, which are currently capitalized and allocated to the basis of the acquisition, 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 is currently assessing the impact, if any, the adoption of SFAS No. 141(R) will have on its financial position and results of operations.

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 No. 160”). A non-controlling interest, sometimes called minority 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 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning on or after December 15, 2008, and is applied on a prospective basis. Early adoption is not permitted. The Company is currently assessing the impact, if any, the adoption of SFAS No. 160 will have on the Company’s financial position and results of operations.

Disclosures about Derivative Instruments and Hedging Activities — SFAS 161

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 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 No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently assessing the impact, if any, that the adoption of SFAS No. 161 will have on its financial statement disclosures.

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 a Staff Position (“FSP”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 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). FSP No. APB 14-1 will require that the debt proceeds from the sale of $600 million 3.0% convertible notes, due in 2012, and $250 million of 3.5% convertible notes, due in 2011, be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt. The difference between the principal amount of the debt and the amount of the proceeds allocated to the liability component should be reported as a debt discount and subsequently amortized to earnings over the instrument’s expected life using the interest method. As a

result, the Company will report a lower net income as interest expense would be increased to include both the current period’s amortization of the debt discount and the instrument’s coupon interest. Based on the Company’s understanding of the application of FSP APB 14-1, this will result in an estimated impact of approximately $0.11 per share (net of capitalized interest on the Company’s qualifying expenditures) of estimated additional non-cash interest expense for 2008. FSP No. APB 14-1 is effective for fiscal years beginning after December 15, 2008, and for interim periods within those fiscal years, with retrospective application required. Early adoption is not permitted.

Accounting for Transfers of Financial Assets and Repurchase Financing Transactions — FSP FAS 140-3

     In February 2008, the FASB issued a FSP “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP FAS No. 140-3”). FSP FAS No. 140-3 addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one “linked” transaction. FSP FAS No. 140-3 includes a “rebuttable presumption” linking the two transactions unless the presumption can be overcome by meeting certain criteria. FSP FAS No. 140-3 is effective for fiscal years beginning after November 15, 2008, and will apply only to original transfers made after that date; early adoption is not permitted. The Company is currently evaluating the impact, if any, the adoption of FSP FAS No. 140-3 will have on its financial position and results of operations.

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

     In April 2008, the FASB issued an FSP “Determination of the Useful Life of Intangible Assets” (“FSP No. 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 No. 142, “Goodwill and Other Intangible Assets.” FSP No. 142-3 is intended to improve the consistency between the useful life of an intangible asset determined under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R), Business Combinations, and other US GAAP. 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 No. 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 is not permitted. The Company is currently evaluating the impact, if any, the adoption of FSP No. 142-3 will have on its 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 an FSP “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF No. 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 SFAS No. 128, “Earnings per Share.” Under the guidance

in FSP EITF No. 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 shall be adjusted retrospectively. Early adoption is not permitted. The Company is currently assessing the impact, if any, the adoption of FSP EITF No. 03-6-1 will have on its financial position and results of operations.

2. EQUITY INVESTMENTS IN JOINT VENTURES

     At September 30, 2008 and December 31, 2007, the Company had ownership interests in various unconsolidated joint ventures which, as of the respective dates, owned 329 shopping center properties and 317 shopping center properties. Included in the number of properties above are the shopping center properties owned by TRT DDR Venture I, which acquired three assets in the second quarter of 2007. These assets have been segregated and discussed separately in Note 3. TRT DDR Venture I was considered a significant subsidiary at September 30, 2007, and is excluded from the 2008 and 2007 combined amounts presented below.

     Combined condensed financial information of the Company’s unconsolidated joint venture investments excluding those amounts for TRT DDR Venture I reported in Note 3 is as follows (in thousands):

		September 30,				December 31,
		2008				2007
Combined Balance Sheets:
Land		$	2,356,289			$	2,352,034
Buildings			6,213,613				6,126,564
Fixtures and tenant improvements			125,349				99,917
			8,695,251				8,578,515
Less: Accumulated depreciation			(562,857	)			(409,993	)
			8,132,394				8,168,522
Construction in progress			409,509				207,367
			8,541,903				8,375,889
Receivables, net			153,043				122,729
Leasehold interests			12,905				13,927
Other assets			358,642				361,277
		$	9,066,493			$	8,873,822
Mortgage debt		$	5,642,459			$	5,441,839
Amounts payable to DDR			34,731				8,492
Other liabilities			229,221				200,641
			5,906,411				5,650,972
Accumulated equity			3,160,082				3,222,850
		$	9,066,493			$	8,873,822
Company’s share of accumulated equity (1)		$	669,117			$	609,171

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Combined Statements of Operations:
Revenues from operations		$	236,212			$	227,444			$	703,096			$	572,569
Expenses:
Rental operation			85,471				73,109				242,021				186,367
Depreciation and amortization			58,173				54,312				172,420				133,271
Interest			74,156				79,359				220,320				190,820
			217,800				206,780				634,761				510,458
Income before income tax expense and discontinued operations			18,412				20,664				68,335				62,111
Income tax expense			(4,010	)			(2,958	)			(11,994	)			(7,503	)
(Loss) gain on sale of real estate			—				(103	)			(13	)			92,987
Other (expense) income, net			(36,728	)			—				19,811				—
(Loss) income from continuing operations			(22,326	)			17,603				76,139				147,595
Discontinued operations:
(Loss) income from discontinued operations			(1	)			(323	)			115				(413	)
Gain on disposition of real estate			—				1,790				—				2,529
Net (loss) income		$	(22,327	)		$	19,070			$	76,254			$	149,711
Company’s share of equity in net income of joint ventures (2)		$	2,649			$	6,290			$	22,883			$	34,558

     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’ (including TRT DDR Venture I reported in Note 3) underlying net assets (in millions):

		September 30, 2008				December 31, 2007
Company’s share of accumulated equity		$	674.1			$	614.5
Basis differentials (2)			99.8				114.1
Deferred development fees, net of portion relating to the Company’s interest			(4.9	)			(3.8	)
Basis differential upon transfer of assets (2)			(95.2	)			(97.2	)
Notes receivable from investments			1.4				2.0
Amounts payable to DDR			34.8				8.5
Investments in and advances to joint ventures (1)		$	710.0			$	638.1

     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								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Management and other fees		$	12.4			$	10.5			$	37.9			$	27.4
Acquisition, financing, guarantee and other fees (1)			1.2				0.6				1.3				8.5
Development fees and leasing commissions			2.9				3.0				9.0				6.9
Interest income			0.1				0.3				0.3				0.5

     In February 2008, the Company began purchasing units of Macquarie DDR Trust (ASX: MDT) (“MDT”), an Australian Real Estate Investment Trust which is managed by an affiliate of Macquarie Group Limited (ASX: MQG), an international investment bank, advisor and manager of specialized real estate funds, and the Company. MDT is DDR’s joint venture partner in the DDR Macquarie Fund LLC Joint Venture (the “Fund”). Through September 30, 2008, the Company purchased an aggregate 112.5 million units of MDT at an aggregate purchase price of $42.9 million. Through the combination of its purchase of the units in MDT (9.3% and 6.7% interest in MDT on a weighted-average basis for the three- and nine-month periods ended September 30, 2008, respectively) and its direct and indirect ownership of the Fund, DDR is entitled to an approximate 24.7% economic interest in the Fund as of September 30, 2008. As the Company’s direct and indirect investments in MDT and the Fund gives it the ability to exercise significant influence over operating and financial policies, the Company accounts for both its interest in MDT and the Fund using the equity method of accounting.

3. TRT DDR VENTURE I

     In the second quarter of 2007, Dividend Capital Total Realty Trust and the Company formed a $161.5 million joint venture (“TRT DDR Venture I”). The Company contributed three recently developed assets aggregating 0.7 million of Company-owned square feet to the joint venture and retained an effective ownership interest of 10%. The Company recorded an after-tax gain, net of its retained interest, of approximately $50.3 million, which is included in gain on disposition of real estate. As the Company has the ability to exercise significant influence, but does not have financial or operating control, TRT DDR Venture I is accounted for using the equity method of accounting. The Company receives asset management and property management fees, plus fees on leasing and ancillary income in addition to a promoted interest.

     At September 30, 2007, the Company’s investment in TRT DDR Venture I was considered a significant subsidiary pursuant to the applicable Regulation S-X rules as a result of the recognition of an approximate $54.8 million gain in 2007 from the contribution of assets to the joint venture.

     Condensed financial information of TRT DDR Venture I is as follows (in thousands):

		September 30,				December 31,
		2008				2007
Balance Sheet:
Land		$	32,055			$	32,035
Buildings			126,710				126,603
Fixtures and tenant improvements			1,198				1,198
			159,963				159,836
Less: Accumulated depreciation			(5,957	)			(2,813	)
			154,006				157,023
Construction in progress			5				20
			154,011				157,043
Receivables, net			1,912				1,811
Other assets			4,727				4,648
		$	160,650			$	163,502
Mortgage debt		$	110,000			$	110,000
Other liabilities			596				442
			110,596				110,442
Accumulated equity			50,054				53,060
		$	160,650			$	163,502
Company’s share of accumulated equity		$	5,005			$	5,306

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Statements of Operations:
Revenues from operations		$	3,709			$	3,491			$	11,528			$	5,308
Expenses:
Rental operation			1,505				982				4,208				1,362
Depreciation and amortization			1,101				1,256				3,303				1,936
Interest			1,569				1,525				4,688				2,390
			4,175				3,763				12,199				5,688
Net loss		$	(466	)		$	(272	)		$	(671	)		$	(380	)
Company’s share of equity in net loss of joint venture		$	(46	)		$	(27	)		$	(67	)		$	(38	)

4. ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION

     Acquisitions

     On February 22, 2007, IRRETI shareholders approved a merger with a subsidiary of the Company pursuant to a merger agreement among IRRETI, the Company and the subsidiary. Pursuant to the merger, the Company acquired all of the outstanding shares of IRRETI for a total merger consideration of $14.00 per share, of which $12.50 per share was funded in cash and $1.50 per share was paid in the form of DDR common shares. As a result, on February 27, 2007, the Company issued 5.7 million DDR common shares to the IRRETI shareholders with an aggregate value of approximately $394.2 million valued at $69.54 per share, which was the average closing price of the Company’s common shares for the ten trading days immediately preceding the two trading days prior to the IRRETI shareholders’ meeting.

     The IRRETI merger was initially recorded at a total cost of approximately $6.2 billion. Real estate and related assets of approximately $3.1 billion were recorded by the Company and approximately $3.0 billion was recorded by the TIAA-CREF Joint Venture. The Company assumed debt at a fair market value of approximately $443.0 million. At the time of the merger, the IRRETI real estate portfolio consisted of 315 community shopping centers, neighborhood shopping centers and single tenant/net leased retail properties, totaling approximately 35.2 million square feet of Company-owned Gross Leasable Area (“GLA”), and five development properties. In connection with the merger, the TIAA-CREF Joint Venture acquired 66 of these shopping centers totaling approximately 15.6 million square feet of Company-owned GLA. During 2007, the Company sold or transferred 78 of the assets, valued at approximately $1.2 billion, acquired in the merger with IRRETI, 21 of which were sold to independent buyers and the remaining 57 were contributed to unconsolidated joint ventures.

     Pro Forma Financial Information

     The following supplemental pro forma operating data is presented for the three- and nine-month periods ended September 30, 2007, as if the IRRETI merger, the formation of the joint venture with TIAA-CREF, the contribution of 57 assets to unconsolidated joint ventures and the sale of 21 IRRETI assets to independent buyers were completed as of January 1, 2007. Pro forma amounts include general and administrative expenses that IRRETI reported in its historical results of approximately $48.3 million for the nine-month period ended September 30, 2007, including severance, a substantial portion of which management believes to be non-recurring. The supplemental pro forma operating data does not present the formation of TRT DDR Venture I.

     The merger with IRRETI was accounted for using the purchase method of accounting. The revenues and expenses related to assets and interests acquired are included in the Company’s historical results of operations from the date of purchase.

     The pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the acquisitions occurred as indicated, nor does it purport to represent the results of the operations for future periods (in thousands, except per share data):

		Three-Month				Nine-Month
		Period Ended				Period Ended
		September 30,				September 30,
		2007				2007
Pro forma revenues		$	230,510			$	693,111
Pro forma income from continuing operations		$	40,121			$	107,475
Pro forma (loss) income from discontinued operations		$	(403	)		$	21,731
Pro forma net income applicable to common shareholders		$	32,842			$	152,685
Per share data:
Basic earnings per share data:
Income from continuing operations		$	0.27			$	1.05
Income from discontinued operations			—				0.17
Net income applicable to common shareholders		$	0.27			$	1.22
Diluted earnings per share data:
Income from continuing operations		$	0.27			$	1.05
Income from discontinued operations			—				0.17
Net income applicable to common shareholders		$	0.27			$	1.22

5. RESTRICTED CASH

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

		September 30,				December 31,
		2008				2007
DDR MDT MV LLC (1)		$	25,000			$	—
DDR MDT MV LLC (2)			33,000				—
Bond fund (3)			48,391				58,958
Total restricted cash		$	106,391			$	58,958

6. OTHER ASSETS, NET

     Other assets consist of the following (in thousands):

		September 30,				December 31,
		2008				2007
Intangible assets:
In-place leases (including lease origination costs and fair market value of leases), net		$	25,161			$	31,201
Tenant relations, net			18,696				22,102
Total intangible assets (1)			43,857				53,303
Other assets:
Accounts receivable, net (2)			201,657				199,354
Prepaids, deposits and other assets			90,398				80,191
Total other assets		$	335,912			$	332,848

7. 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”), which was amended in December 2007. 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 September 30, 2008), as defined in the facility or (ii) LIBOR, plus a specified spread (0.60% at September 30, 2008). 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 September 30, 2008. The facility also provides for an annual facility fee of 0.15% on the entire facility. At September 30, 2008, total borrowings under the Unsecured Credit Facility aggregated $888.2 million with a weighted average interest rate of 3.8%.

     The Company also maintains a $75 million unsecured revolving credit facility, amended in December 2007, 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 September 30, 2008), as defined in the facility or (ii) LIBOR, plus a specified spread (0.60% at September 30, 2008). 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 September 30, 2008. At September 30, 2008, total borrowings under the National City Bank facility aggregated $67.8 million with a weighted average interest rate of 3.8%.

8. FAIR VALUE MEASUREMENTS

     As of September 30, 2008, the aggregate fair value of the Company’s interest rate swaps that have been designated and qualify as cash flow hedges was a liability of $17.1 million, which is included in other liabilities in the condensed consolidated balance sheet. The effective portion of the gain or loss on the interest rate swaps is reported as a component of other comprehensive income and will be reclassified into earnings in the same period or periods during which the hedged interest payments are a charge to earnings. For the three- and nine-month periods ended September 30, 2008, the amount of hedge ineffectiveness was not material.

     The Company adopted the provisions of SFAS No. 157, as amended by FSP FAS No. 157-1, FSP FAS No. 157-2 and FSP FAS No. 157-3, on January 1, 2008.

     Fair Value Hierarchy

     SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with SFAS No. 157, the following summarizes the fair value hierarchy:

•		Level 1 —  Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
•		Level 2 —  Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly such as interest rates and yield curves that are observable at commonly quoted intervals and
•		Level 3 —  Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

     In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

     Measurement of Fair Value

     At September 30, 2008, 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. However, as of September 30, 2008, the Company had assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and had determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 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 consist of interest rate swap agreements that are included in other liabilities at September 30, 2008, measured at fair value on a recurring basis as of September 30, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

		Fair Value Measurements
		at September 30, 2008
		Level 1				Level 2				Level 3				Total
Derivative Financial Instruments		$	—			$	17.1			$	—			$	17.1

9. CONTINGENCIES

     The Company is a party to litigation filed in January 2007 by a tenant in a Company property located in Long Beach, California. The tenant located at this property filed suit against the Company and certain affiliates, claiming the Company and its affiliates failed to provide adequate valet parking 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. The Company strongly disagrees with the verdict and is presently evaluating all of its options, which include filing a motion for a new trial, as well as filing an appeal of the verdict. However, the Company recorded a charge during the three months ended September 30, 2008 which represents management’s best estimate of loss based upon a range of liability pursuant to SFAS No. 5, “Accounting for Contingencies.” The accrual, as well as the related litigation costs incurred to date, were recorded in the Other Income (Expense) line of the condensed consolidated statements of operations. The Company will continue to monitor the status of the litigation and revise the estimate of loss as appropriate. There can be no assurance that a new trial will be granted or that an appeal will be successful.

     In addition to the litigation discussed above, the Company and its subsidiaries are subject to various other 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.

10. SHAREHOLDERS’ EQUITY

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

						Common
						Shares								Accumulated								Accumulated
						($0.10								Distributions								Other				Treasury
		Preferred				Par				Paid-in				in Excess of				Deferred				Comprehensive				Stock
		Shares				Value)				Capital				Net Income				Obligation				Income				at Cost				Total
Balance, December 31, 2007		$	555,000			$	12,679			$	3,029,176			$	(260,018	)		$	22,862			$	8,965			$	(369,839	)		$	2,998,825
Issuance of common shares related to exercise of stock options, dividend reinvestment plan, performance plan and director compensation							1				(2,190	)															8,759				6,570
Issuance of restricted stock											(5,177	)															6,074				897
Vesting of restricted stock											7,436								194								(5,462	)			2,168
Stock-based compensation											6,386																				6,386
Redemption of 463,185 operating partnership units in exchange for common shares											(14,268	)															23,327				9,059
Dividends declared—common shares															(248,612	)															(248,612	)
Dividends declared—preferred shares															(31,702	)															(31,702	)
Comprehensive income:
Net income															121,866																121,866
Other comprehensive income:
Change in fair value of interest rate contracts																							(4,626	)							(4,626	)
Amortization of interest rate contracts																							(550	)							(550	)
Foreign currency translation			—				—				—				—				—				(8,991	)			—				(8,991	)
Comprehensive income			—				—				—				121,866				—				(14,167	)			—				107,699
Balance, September 30, 2008		$	555,000			$	12,680			$	3,021,363			$	(418,466	)		$	23,056			$	(5,202	)		$	(337,141	)		$	2,851,290

     Common share dividends declared, per share, were $0.69 and $0.66 for the three-month periods ended September 30, 2008 and 2007, respectively, and $2.07 and $1.98 for the nine-month periods ended September 30, 2008 and 2007, respectively.

     In June 2007, the Company’s Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company may purchase up to a maximum value of $500 million of its common shares over a two-year period. As of September 30, 2008, the Company had repurchased under this program 5.6 million of its common shares for an aggregate cost of $261.9 million at a weighted average cost of $46.66 per share. The Company has not repurchased any of its shares pursuant to this program in 2008.

     During the nine-month period ended September 30, 2008, the vesting of restricted stock grants to certain officers and directors of the Company, approximating 0.2 million common shares of the Company, was deferred through the Company’s non-qualified deferred compensation plans and, accordingly, the Company recorded approximately $4.3 million in deferred obligations. Also, in the first quarter of 2008, in accordance with the transition rules under Section 409A of the Internal Revenue Code, an officer elected to have his deferrals distributed to him, which resulted in a reduction of the deferred obligation and a corresponding increase in paid in capital of approximately $4.7 million.

Operating Partnership Units

     In 2008, 0.5 million of operating partnership minority interests were converted into an equivalent number of common shares of the Company.

11. OTHER INCOME

     Other income for the three- and nine-month periods ended September 30, 2008 and 2007, was composed of the following (in millions):

		Three-Month Periods								Nine-Month
		Ended								Periods Ended
		September 30,								September 30,
		2008				2007				2008				2007
Acquisition and financing fees (1)		$	1.9			$	0.2			$	1.9			$	7.9
Lease termination fees			0.8				1.4				5.5				4.9
Other			—				0.5				0.4				0.7
		$	2.7			$	2.1			$	7.8			$	13.5

12. DISCONTINUED OPERATIONS

     Pursuant to the definition of a component of an entity in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), all earnings of discontinued operations sold or held for sale, assuming no significant continuing involvement, have been reclassified in the condensed consolidated statements of earnings for the three- and nine-month periods ended September 30, 2008 and 2007. The Company considers assets held for sale when the transaction has been approved and there are no significant contingencies related to the sale that may prevent the transaction from closing. Included in discontinued operations for the three- and nine-month periods ended September 30, 2008 and 2007, are 11 properties sold in 2008 (including one business center and one property held for sale at December 31, 2007) aggregating 0.9 million square feet, and 67 shopping centers sold in 2007 (including one property held for sale at December 31, 2006 and 22 properties acquired through the IRRETI merger in 2007), aggregating 6.3 million square feet. The operating results relating to assets sold are as follows (in thousands):

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Revenues		$	2,179			$	3,860			$	7,875			$	34,163
Expenses:
Operating			650				2,033				2,962				10,075
Interest, net			371				1,178				1,730				9,170
Depreciation and amortization			646				972				3,534				7,025
Minority interest			54				(230	)			110				(515	)
Total expense			1,721				3,953				8,336				25,755
Income (loss) before (loss) gain on disposition of real estate			458				(93	)			(461	)			8,408
(Loss) gain on disposition of real estate			(2,717	)			(310	)			(1,830	)			13,323
Net income		$	(2,259	)		$	(403	)		$	(2,291	)		$	21,731

     In September 2008, the Company sold its approximate 56% interest in one of its business centers to its partner for $20.7 million and recorded an aggregate loss of $5.8 million. The Company’s partner exercised its buy-sell rights provided under the joint venture agreement in July 2008 and the Company elected to sell its interest pursuant to the terms of the buy-sell right in mid-August 2008.

13. TRANSACTIONS WITH RELATED PARTIES

     In July 2008, the Company purchased a 25.2525% membership interest (the “Membership Interest”) in RO & SW Realty LLC, a Delaware limited liability company (“ROSW”), from Wolstein Business Enterprises, L.P. (“WBE”), a limited partnership established for the benefit of the children of Scott A. Wolstein, the Chairman of the Board and Chief Executive Officer of the Company, for $10.0 million. ROSW is a real estate company that owns 11 properties (the “Properties”). The Company accounts for its interest in ROSW under the equity method of accounting and has recorded the $10.0 million acquisition of the Membership Interest as Investments in and Advances to Joint Ventures in the Company’s condensed consolidated balance sheet at September 30, 2008. The Company had identified a number of Company development projects located near the Properties as well as several value-add opportunities relating to the Properties, including a project in Solon, Ohio being pre-developed by Mr. Wolstein and a 50% partner (the “Project”). In addition to the purchase of the Membership Interest, on October 3, 2008, the Company also acquired Mr. Wolstein’s 50% interest in the Project in exchange for the assumption of Mr. Wolstein’s obligation under a promissory note that funded the pre-development expenses of the Project. Mr. Wolstein and his 50% partner, who also holds the remaining membership interest, in ROSW were jointly and severally liable for the obligations under the promissory note, and they each agreed to indemnify the other for 50% of such obligations. As of October 3, 2008, there was approximately $3.6 million outstanding under the promissory note, of which the Company is responsible for 50%.

     The purchase of the Membership Interest by the Company and the acquisition of the 50% interest in the Project in exchange for the

assumption of the promissory note obligations were approved by a special committee of disinterested directors who were appointed and authorized by the Nominating and Corporate Governance Committee of the Company’s Board of Directors to review and approve the terms of the acquisition and assumption.

14. EARNINGS PER SHARE

     Earnings Per Share (“EPS”) has been computed pursuant to the provisions of SFAS No. 128, “Earnings Per Share.” The following table provides a reconciliation of net income from continuing operations and the number of common shares used in the computations of “basic” EPS, which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares (in thousands, except per share amounts):

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Income from continuing operations		$	37,681			$	39,995			$	117,789			$	147,812
Add: Gain on disposition of real estate			3,093				3,691				6,368				63,713
Less: Preferred stock dividends			(10,567	)			(10,567	)			(31,702	)			(40,367	)
Basic and Diluted — Income from continuing operations applicable to common shareholders		$	30,207			$	33,119			$	92,455			$	171,158
Number of Shares:
Basic — Average shares outstanding			119,795				123,329				119,447				120,910
Effect of dilutive securities:
Stock options			87				371				136				507
Restricted stock			—				27				48				177
Diluted — Average shares outstanding			119,882				123,727				119,631				121,594
Per share data:
Basic earnings per share data:
Income from continuing operations		$	0.25			$	0.27			$	0.77			$	1.42
(Loss) income from discontinued operations			(0.02	)			—				(0.02	)			0.18
Net income applicable to common shareholders		$	0.23			$	0.27			$	0.75			$	1.60
Diluted earnings per share data:
Income from continuing operations		$	0.25			$	0.26			$	0.77			$	1.41
(Loss) income from discontinued operations			(0.02	)			—				(0.02	)			0.18
Net income applicable to common shareholders		$	0.23			$	0.26			$	0.75			$	1.59

     The exchange of the minority interest associated with operating partnership units into common shares was not included in the computation of diluted EPS for the three- and nine-month periods ended September 30, 2008 and 2007, because the effect of assuming conversion was anti-dilutive.

     The Company’s two issuances of senior convertible notes, which are convertible into common shares of the Company with an initial conversion price of approximately $74.75 and $65.11, respectively, were not included in the computation of diluted EPS for the three- and nine-month periods ended September 30, 2008 and 2007 as the Company’s stock price did not exceed the strike price of the conversion feature of the senior convertible notes in these periods. At September 30, 2008, the conversion price on the Company’s 3.5% senior convertible notes due 2011 was adjusted in accordance with the terms of the notes as a result of the increase in the Company’s quarterly dividend through

September 30, 2008 to a conversion price of $64.23 per share into the Company’s common shares or cash, at the Company’s option.

15. FEDERAL INCOME TAXES

     In the third quarter of 2008, the Company recognized a $16.7 million income tax benefit. Approximately $15.6 million of this amount related to the release of valuation allowances associated with deferred tax assets that were established in prior years. These valuation allowances were previously established due to the uncertainty that the deferred tax assets would be utilizable.

     In order to maintain its REIT status, the Company must meet certain income tests to ensure that its gross income consists of passive income and not income from the active conduct of a trade or business. The Company utilizes its Taxable REIT Subsidiary (“TRS”) to the extent certain fee and other miscellaneous non-real estate related income cannot be earned by the REIT. During the third quarter of 2008, the Company began recognizing certain fee and miscellaneous other non-real estate related income within its TRS.

     Therefore, based on the Company’s evaluation of the current facts and circumstances the Company determined during the third quarter of 2008 that the valuation allowance should be released as it was more-likely-than-not that the deferred tax assets would be utilized in future years. This determination was based upon the increase in fee and miscellaneous other non-real estate related income which is projected to be recognized within the Company’s TRS.

16. SEGMENT INFORMATION

     The Company has two reportable segments, shopping centers and other investments, determined in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”). Each shopping center is considered a separate operating segment; however, each shopping center on a stand-alone basis is less than 10% of the revenues, profit or loss, and assets of the combined reported operating segment and meets the majority of the aggregation criteria under SFAS No. 131.

     At September 30, 2008, the shopping center segment consisted of 713 shopping centers (including 329 owned through unconsolidated joint ventures and 40 that are otherwise consolidated by the Company) in 45 states, Puerto Rico and Brazil. At September 30, 2007, the shopping center segment consisted of 708 shopping centers (including 317 owned through unconsolidated joint ventures and 39 that are otherwise consolidated by the Company) in 45 states, Puerto Rico and Brazil. At September 30, 2008 the Company also owned six business centers in four states and at September 30, 2007, the Company owned seven business centers in five states.

     The table below presents information about the Company’s reportable segments for the three- and nine-month periods ended September 30, 2008 and 2007 (in thousands).

		Three-Month Period Ended September 30, 2008
		Other				Shopping
		Investments				Centers				Other				Total
Total revenues		$	2,028			$	231,885							$	233,913
Operating expenses			(692	)			(63,707	)							(64,399	)
Net operating income			1,336				168,178								169,514
Unallocated expenses (1)										$	(132,290	)			(132,290	)
Equity in net income of joint ventures							1,981								1,981
Minority interests											(1,524	)			(1,524	)
Income from continuing operations														$	37,681