SITE Centers Corp. - Quarter Report: 2011 June (Form 10-Q)

 

 

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

(Address of principal executive offices - zip code)

(216) 755-5500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

     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 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     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 July 29, 2011, the registrant had 276,402,977 outstanding common shares, $0.10 par value per share.

 

 

PART I
FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS — Unaudited
Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010			2
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended June 30, 2011 and 2010			3
Condensed Consolidated Statements of Operations for the Six-Month Periods Ended June 30, 2011 and 2010			4
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2011 and 2010			5
Notes to Condensed Consolidated Financial Statements			6
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)

		June 30, 2011				December 31, 2010
Assets
Land		$	1,843,033			$	1,837,403
Buildings			5,506,914				5,491,489
Fixtures and tenant improvements			360,196				339,129
			7,710,143				7,668,021
Less: Accumulated depreciation			(1,538,522	)			(1,452,112	)
			6,171,621				6,215,909
Land held for development and construction in progress			708,365				743,218
Real estate held for sale, net			195				—
Total real estate assets, net			6,880,181				6,959,127
Investments in and advances to joint ventures			415,584				417,223
Cash and cash equivalents			15,425				19,416
Restricted cash			4,068				4,285
Notes receivable, net			102,196				120,330
Other assets, net			249,410				247,709
		$	7,666,864			$	7,768,090
Liabilities and Equity
Unsecured indebtedness:
Senior notes		$	2,256,598			$	2,043,582
Revolving credit facilities			170,555				279,865
			2,427,153				2,323,447
Secured indebtedness:
Term loan			500,000				600,000
Mortgage and other secured indebtedness			1,286,998				1,378,553
			1,786,998				1,978,553
Total indebtedness			4,214,151				4,302,000
Accounts payable and accrued expenses			137,532				127,715
Dividends payable			18,034				12,092
Equity derivative liability — affiliate			—				96,237
Other liabilities			83,497				95,359
Total liabilities			4,453,214				4,633,403
Commitments and contingencies (Note 9)
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 December 31, 2010			—				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, 2011 and December 31, 2010			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, 2011 and December 31, 2010			170,000				170,000
Common shares, with par value, $0.10 stated value; 500,000,000 shares authorized; 276,711,707 and 256,267,750 shares issued at June 30, 2011 and December 31, 2010, respectively			27,671				25,627
Paid-in capital			4,140,370				3,868,990
Accumulated distributions in excess of net income			(1,402,858	)			(1,378,341	)
Deferred compensation obligation			12,661				14,318
Accumulated other comprehensive income			34,410				25,646
Less: Common shares in treasury at cost: 652,915 and 712,310 shares at June 30, 2011 and December 31, 2010, respectively			(12,139	)			(14,638	)
Total DDR shareholders’ equity			3,175,115				3,096,602
Non-controlling interests			38,535				38,085
Total equity			3,213,650				3,134,687
		$	7,666,864			$	7,768,090

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)

		2011				2010
Revenues from operations:
Minimum rents		$	133,182			$	131,744
Percentage and overage rents			871				593
Recoveries from tenants			44,362				41,936
Fee and other income			20,080				22,327
			198,495				196,600
Rental operation expenses:
Operating and maintenance			36,746				35,601
Real estate taxes			27,091				25,048
Impairment charges			18,352				74,967
General and administrative			17,979				19,090
Depreciation and amortization			56,750				54,561
			156,918				209,267
Other income (expense):
Interest income			2,417				1,525
Interest expense			(59,579	)			(56,190	)
Loss on debt retirement, net			—				(1,090	)
Gain on equity derivative instruments			—				21,527
Other expense, net			(6,347	)			(11,428	)
			(63,509	)			(45,656	)
Loss before earnings from equity method investments and other items			(21,932	)			(58,323	)
Equity in net income (loss) of joint ventures			16,567				(623	)
Impairment of joint venture investments			(1,636	)			—
Gain on change in control of interests			981				—
Loss before tax (expense) benefit of taxable REIT subsidiaries and state franchise and income taxes			(6,020	)			(58,946	)
Tax (expense)  benefit of taxable REIT subsidiaries and state franchise and income taxes			(435	)			3,616
Loss from continuing operations			(6,455	)			(55,330	)
Loss from discontinued operations			(9,124	)			(66,428	)
Loss before gain on disposition of real estate			(15,579	)			(121,758	)
Gain on disposition of real estate, net of tax			2,310				592
Net loss		$	(13,269	)		$	(121,166	)
Non-controlling interests			(114	)			34,591
Net loss attributable to DDR		$	(13,383	)		$	(86,575	)
Write-off of original preferred share issuance costs			(6,402	)			—
Preferred dividends			(7,085	)			(10,567	)
Net loss attributable to DDR common shareholders		$	(26,870	)		$	(97,142	)
Per share data:
Basic earnings per share data:
Loss from continuing operations attributable to DDR common shareholders		$	(0.07	)		$	(0.21	)
Loss from discontinued operations attributable to DDR common shareholders			(0.03	)			(0.18	)
Net loss attributable to DDR common shareholders		$	(0.10	)		$	(0.39	)
Diluted earnings per share data:
Loss from continuing operations attributable to DDR common shareholders		$	(0.07	)		$	(0.30	)
Loss from discontinued operations attributable to DDR common shareholders			(0.03	)			(0.17	)
Net loss attributable to DDR common shareholders		$	(0.10	)		$	(0.47	)

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)

		2011				2010
Revenues from operations:
Minimum rents		$	266,125			$	264,232
Percentage and overage rents			2,866				2,612
Recoveries from tenants			90,573				88,003
Fee and other income			40,114				42,284
			399,678				397,131
Rental operation expenses:
Operating and maintenance			74,476				69,669
Real estate taxes			53,698				52,170
Impairment charges			22,208				74,967
General and administrative			47,357				42,366
Depreciation and amortization			112,235				109,128
			309,974				348,300
Other income (expense):
Interest income			5,213				2,858
Interest expense			(119,363	)			(111,797	)
Gain (loss) on equity derivative instruments			21,926				(3,340	)
Other expense, net			(5,006	)			(14,481	)
			(97,230	)			(126,760	)
Loss before earnings from equity method investments and other items			(7,526	)			(77,929	)
Equity in net income of joint ventures			18,541				1,023
Impairment of joint venture investments			(1,671	)			—
Gain on change in control of interests			22,710				—
Income (loss) before tax (expense) benefit of taxable REIT subsidiaries and state franchise and income taxes			32,054				(76,906	)
Tax (expense) benefit of taxable REIT subsidiaries and state franchise and income taxes			(761	)			2,614
Income (loss) from continuing operations			31,293				(74,292	)
Loss from discontinued operations			(10,632	)			(73,375	)
Income (loss) before gain (loss) on disposition of real estate			20,661				(147,667	)
Gain (loss) on disposition of real estate, net of tax			1,449				(83	)
Net income (loss)		$	22,110			$	(147,750	)
Non-controlling interests			(181	)			36,928
Net income (loss) attributable to DDR		$	21,929			$	(110,822	)
Write-off of original preferred share issuance costs			(6,402	)			—
Preferred dividends			(17,653	)			(21,134	)
Net loss attributable to DDR common shareholders		$	(2,126	)		$	(131,956	)
Per share data:
Basic earnings per share data:
Income (loss) from continuing operations attributable to DDR common shareholders		$	0.03			$	(0.35	)
Loss from discontinued operations attributable to DDR common shareholders			(0.04	)			(0.20	)
Net loss attributable to DDR common shareholders		$	(0.01	)		$	(0.55	)
Diluted earnings per share data:
Loss from continuing operations attributable to DDR common shareholders		$	(0.05	)		$	(0.35	)
Loss from discontinued operations attributable to DDR common shareholders			(0.04	)			(0.20	)
Net loss attributable to DDR common shareholders		$	(0.09	)		$	(0.55	)

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands)
(Unaudited)

		2011				2010
Net cash flow provided by operating activities:		$	133,904			$	127,981
Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed			(68,595	)			(75,804	)
Equity contributions to joint ventures			(7,068	)			(18,497	)
Repayments of (advances to) joint venture advances, net			23,130				(108	)
Distributions of proceeds from sale and refinancing of joint venture interests			14,033				3,567
Return on investments in joint ventures			5,541				14,761
Repayment (issuance) of notes receivable, net			13,934				(4,550	)
Decrease in restricted cash			217				60,199
Proceeds from disposition of real estate			70,883				65,682
Net cash flow provided by investing activities:			52,075				45,250
Cash flow from financing activities:
Repayments of revolving credit facilities, net			(115,908	)			(113,007	)
Repayment of senior notes			(93,038	)			(389,924	)
Proceeds from issuance of senior notes, net of underwriting commissions and offering expenses of $350 and $400 in 2011 and 2010, respectively			295,495				296,785
Proceeds from mortgages and other secured debt			121,956				4,327
Repayment of term loans and mortgage debt			(362,904	)			(325,278	)
Payment of debt issuance costs			(9,394	)			(2,309	)
Proceeds from issuance of common shares, net of underwriting commissions and issuance costs of $686 in 2011 and $524 in 2010			129,939				382,755
Proceeds from issuance of common shares related to the exercise of warrants			59,873				—
Redemption of preferred shares			(180,000	)			—
(Purchase of) proceeds from the issuance of common shares in conjunction with equity award plans			(979	)			90
Contributions from non-controlling interests			187				328
Distributions to non-controlling interests and redeemable operating partnership units			(1,269	)			(2,017	)
Dividends paid			(34,102	)			(30,153	)
Net cash flow used for financing activities			(190,144	)			(178,403	)
Cash and cash equivalents
Decrease in cash and cash equivalents			(4,165	)			(5,172	)
Effect of exchange rate changes on cash and cash equivalents			174				(80	)
Cash and cash equivalents, beginning of period			19,416				26,172
Cash and cash equivalents, end of period		$	15,425			$	20,920

Supplemental disclosure of non-cash investing and financing activities:

     At June 30, 2011, dividends payable were approximately $18.0 million. In conjunction with the acquisition of its partners’ interests in two shopping centers (Note 3), the Company reversed its previously held equity interest by increasing Investments in and Advances to Joint Ventures by approximately $7.8 million as the investment basis was negative, increased net real estate assets by approximately $34.8 million for its previously held proportionate share of the assets, and assumed debt of approximately $50.1 million. In addition, in March 2011, warrants were exercised for an aggregate of 10 million common shares. The equity derivative liability — affiliate of $74.3 million was reclassified from liabilities to additional paid-in capital upon exercise. In conjunction with the redemption of the Company’s Class G cumulative redeemable preferred shares, the Company recorded a non-cash charge to net income available to common shareholders of $6.4 million related to the write-off of the original issuance costs. The foregoing transactions did not provide for or require the use of cash for the six-month period ended June 30, 2011.

     At June 30, 2010, dividends payable were $12.0 million. The Company deconsolidated one entity in connection with the adoption of the consolidation rules effective January 1, 2010. This resulted in a reduction to Real Estate Assets, net of approximately $28.7 million, an increase to Investments in and Advances to Joint Ventures of approximately $8.4 million, a reduction in Non-controlling Interests of approximately $12.4 million and an increase to Accumulated Distributions in Excess of Net Income of approximately $7.8 million. In addition, the Company foreclosed on its interest in a note receivable secured by a development project resulting in an increase to Real Estate Assets and a decrease to Notes Receivable of approximately $19.0 million. The foregoing transactions did not provide for or require the use of cash for the six-month period ended June 30, 2010.

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 primarily engaged in the business of acquiring, expanding, owning, developing, redeveloping, leasing, managing and operating shopping centers. Unless otherwise provided, references herein to the Company or DDR include Developers Diversified Realty Corporation, its wholly-owned and majority-owned subsidiaries and its consolidated and unconsolidated joint ventures.

     Principles of Consolidation

     The Company follows the provisions of Accounting Standards Codification No. 810, Consolidation (“ASC 810”). This standard requires a company to perform an analysis to determine whether its variable interests give it a controlling financial interest in a Variable Interest Entity (“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 affect 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, this standard requires a company to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed.

     At June 30, 2011 and December 31, 2010, the Company’s investments in consolidated real estate joint ventures that are deemed to be VIEs in which the Company is deemed to be the primary beneficiary have total real estate assets of $384.9 million and $374.2 million, respectively, mortgages of $41.8 million and $42.9 million, respectively, and other liabilities of $14.8 million and $13.7 million, respectively.

     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, 2011 and 2010, 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, 2010.

     Comprehensive Loss

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

		Three-Month Periods								Six-Month Periods
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Net (loss) income		$	(13,269	)		$	(121,166	)		$	22,110			$	(147,750	)
Other comprehensive income (loss):
Settlement/change in fair value of interest-rate contracts			(987	)			4,102				(2,772	)			7,570
Amortization of interest-rate contracts			47				(61	)			40				(154	)
Foreign currency translation			7,879				(4,255	)			12,855				(16,157	)
Total other comprehensive income (loss)			6,939				(214	)			10,123				(8,741	)
Comprehensive (loss) income		$	(6,330	)		$	(121,380	)		$	32,233			$	(156,491	)
Comprehensive (income) loss attributable to non-controlling interests			(350	)			37,495				(1,539	)			41,304
Total comprehensive (loss) income attributable to DDR		$	(6,680	)		$	(83,885	)		$	30,694			$	(115,187	)

2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

     At June 30, 2011 and December 31, 2010, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 230 and 236 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):

		June 30, 2011				December 31, 2010
Condensed Combined Balance Sheets
Land		$	1,553,101			$	1,566,682
Buildings			4,747,856				4,783,841
Fixtures and tenant improvements			162,927				154,292
			6,463,884				6,504,815
Less: Accumulated depreciation			(779,377	)			(726,291	)
			5,684,507				5,778,524
Land held for development and construction in progress			242,917				174,237
Real estate, net			5,927,424				5,952,761
Receivables, net			110,332				111,569
Leasehold interests			9,716				10,296
Other assets			572,537				303,826
		$	6,620,009			$	6,378,452
Mortgage debt		$	3,895,393			$	3,940,597
Notes and accrued interest payable to DDR			95,113				87,282
Other liabilities			220,792				186,333
			4,211,298				4,214,212
Accumulated equity			2,408,711				2,164,240
		$	6,620,009			$	6,378,452
Company’s share of accumulated equity		$	496,369			$	480,200

		Three-Month Periods								Six-Month Periods
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Condensed Combined Statements of Operations
Revenues from operations		$	178,337			$	163,010			$	349,251			$	325,587
Operating expenses			65,667				67,988				128,124				130,972
Depreciation and amortization			45,117				46,594				92,549				92,174
Interest expense			56,641				58,878				114,005				116,730
			167,425				173,460				334,678				339,876
Income (loss) before tax expense and discontinued operations			10,912				(10,450	)			14,573				(14,289	)
Income tax expense (primarily Sonae Sierra Brasil), net			(11,386	)			(5,035	)			(17,530	)			(9,833	)
Loss from continuing operations			(474	)			(15,485	)			(2,957	)			(24,122	)
Discontinued operations:
Income (loss) from discontinued operations			110				(12,765	)			(471	)			(12,227	)
Gain on debt forgiveness (A)			2,976				—				2,976				—
Gain (loss) on disposition of real estate, net of tax (B)			22,756				(3,212	)			21,893				(11,963	)
Gain (loss) before gain on disposition of real estate, net			25,368				(31,462	)			21,441				(48,312	)
Gain on disposition of real estate, net			—				17				—				17
Net income (loss)		$	25,368			$	(31,445	)		$	21,441			$	(48,295	)
Company’s share of equity in net income (loss) of joint ventures (C)		$	16,532			$	(1,824	)		$	20,439			$	(164	)

		Three-Month Periods								Six-Month Periods
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Income (expense), net		$	—			$	1.2			$	(1.9	)		$	1.2

     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,				December 31,
		2011				2010
Company’s share of accumulated equity		$	496.4			$	480.2
Basis differentials (A)			(172.9	)			(147.5	)
Deferred development fees, net of portion relating to the Company’s interest			(3.4	)			(3.4	)
Notes receivable from investments			0.4				0.6
Notes and accrued interest payable to DDR (B)			95.1				87.3
Investments in and advances to joint ventures		$	415.6			$	417.2

     Service fees and income 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								Six-Month Periods
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Management and other fees		$	7.3			$	7.7			$	14.7			$	16.9
Financing and other fees			0.3				0.2				0.3				0.2
Development fees and leasing commissions			1.9				2.0				3.7				3.7
Interest income			—				0.1				0.1				0.2

Sonae Sierra Brasil

     In February 2011, the Company’s unconsolidated joint venture, Sonae Sierra Brasil (BM&FBOVESPA: SSBR3), completed an initial public offering of its common shares on the Sao Paulo Stock Exchange. The total proceeds raised of approximately US$280 million from the initial public offering will be used primarily to fund future developments and expansions, as well as repay a loan from its parent company, in which DDR owns a 50% interest. A substantial amount of these proceeds are included in other assets of the condensed combined balance sheet as of June 30, 2011, disclosed above. The Company’s share of the loan repayment proceeds, which were received during the first quarter of 2011, was approximately US$22.4 million. As a result of the initial public offering, the Company’s effective ownership interest in Sonae Sierra Brasil was reduced from 48% to approximately 33%.

Other Joint Venture Interests

     In the first quarter of 2011, the Company acquired its partners’ 50% ownership interests in two shopping centers (Note 3).

     In the second quarter of 2011, a 50% owned joint venture sold a shopping center asset to a third party for gross proceeds of $50.3 million. The gain recorded by the joint venture was $22.8 million, of which the Company’s share was $12.6 million, which includes the recognition of a previously recorded deferred gain that was associated with the initial formation of the joint venture.

3. ACQUISITIONS

     In January and March 2011, in two separate transactions, the Company acquired its partners’ 50% ownership interests in two shopping centers for an aggregate purchase price of $40.0 million. The Company acquired these assets pursuant to the terms of the respective underlying joint venture agreements. After closing, the Company repaid one mortgage note payable with a principal amount of $29.2 million in total and refinanced the other mortgage with a new $21.0 million, eleven-year mortgage note payable. As a result of the transactions, the Company owns 100% of the two shopping centers with an aggregate gross value of approximately $80.0 million. The Company accounted for both of these transactions as step acquisitions using the purchase method of accounting. Due to the change in control that occurred, the Company recorded an aggregate gain of approximately $22.7 million associated with the acquisitions related to the difference between the Company’s carrying value and fair value of its previously held equity interest on the respective acquisition date.

     Upon acquisition of properties, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements and intangible assets generally consisting of: (i) above- and below-market leases; (ii) in-place leases; and (iii) tenant relationships. The Company allocates the purchase price to assets acquired and liabilities assumed on a gross basis based on their relative fair values at the date of acquisition. In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence, marketing and leasing activities and uses various valuation methods, such as estimated cash flow projections using appropriate discount and capitalization rates, analysis of recent comparable sales transactions, estimates of replacement costs net of depreciation and other available market information. Above- and below-market lease values are recorded based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the estimated term of any below-market fixed-rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the estimated terms of any below-market fixed-rate renewal options of the respective leases. The purchase price is further allocated to in-place lease values and tenant relationship values based on management’s evaluation of the specific characteristics of the acquired lease portfolio and the Company’s overall relationship with anchor tenants. Such amounts are amortized to depreciation and amortization expense over the weighted average remaining initial term (and expected renewal periods for tenant relationships). The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

     The acquisition of the two shopping centers was allocated as follows (in thousands):

Land		$	18,184
Buildings			50,683
Tenant improvements			752
Intangible assets (1)			10,753
			80,372
Less: Mortgage debt assumed			(50,127	)
Less: Below-market leases			(672	)
Net assets acquired		$	29,573

     Intangible assets recorded in connection with the above acquisitions included the following (in thousands) (Note 5):

						Weighted
						Average
						Amortization
						Period (in Years)
In-place leases (including lease origination costs and fair market value of leases)		$	5,586				4.9
Tenant relations			5,167				9.3
Total intangible assets acquired		$	10,753

     The Company did not incur any significant transaction costs related to the acquisition of these assets as the Company managed the shopping centers in addition to having a partial ownership interest in them.

4. NOTES RECEIVABLE

     The Company has notes receivable, including accrued interest, that are collateralized by certain rights in development projects, partnership interests, sponsor guaranties and real estate assets.

     Notes receivable consist of the following (in millions):

		June 30, 2011				December 31, 2010
Loan receivable (A)		$	93.1			$	103.7
Other notes			2.9				2.8
Tax Increment Financing Bonds (“TIF Bonds”): (B)
Chemung County Industrial Development Agency			2.0				2.0
City of Merriam, Kansas			1.0				2.3
City of St. Louis, Missouri			3.2				3.2
Town of Plainville, Connecticut (C)			—				6.3
			6.2				13.8
		$	102.2			$	120.3

     As of June 30, 2011 and December 31, 2010, the Company had six and seven loans receivable outstanding, with total remaining discretionary commitments of $3.2 million and $4.0 million, respectively. In June 2011, the Company sold a note receivable with a face value, including accrued interest, of $11.8 million for proceeds of $6.8 million, which resulted in the recognition of a $5.0 million reserve that is recorded in other expense in the condensed consolidated statement of operations for the three- and six-month periods ended June 30, 2011.

5. OTHER ASSETS, NET

     Other assets consist of the following (in thousands):

		June 30, 2011				December 31, 2010
Intangible assets:
In-place leases (including lease origination costs and fair market value of leases), net		$	16,288			$	14,228
Tenant relations, net			12,828				9,035
Total intangible assets (A)			29,116				23,263
Other assets:
Accounts receivable, net (B)			114,260				123,259
Deferred charges, net			50,088				44,988
Prepaids			12,827				11,566
Deposits			37,559				41,160
Other assets			5,560				3,473
Total other assets, net		$	249,410			$	247,709

6. REVOLVING CREDIT FACILITIES AND TERM LOAN

     The following table discloses certain information regarding the Company’s Revolving Credit Facilities and Term Loan (in millions):

Weighted-

Carrying

Average Interest

Value at

Rate at

June 30, 2011

June 30, 2011

Maturity Date

Unsecured indebtedness:

Unsecured Credit Facility

$

150.6

2.5

%

February 2016

PNC Facility

20.0

1.8

%

February 2016

Secured indebtedness:

Term loan

500.0

3.0

%

September 2014

     Revolving Credit Facilities

     The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, arranged by J.P. Morgan Securities LLC and Wells Fargo Securities, LLC (the “Unsecured Credit Facility”). In June 2011, the Company amended the Unsecured Credit Facility and reduced the availability from $950 million to $750 million. The Unsecured Credit Facility maturity date was extended by two additional years from February 2014 to February 2016 and the current interest rate changed from LIBOR plus 275 basis points to LIBOR plus 165 basis points. The Unsecured Credit Facility provides for borrowings of $750 million, if certain financial covenants are maintained, and an accordion feature for expansion of availability to $1.25 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. The Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to 50% of the facility. The Unsecured Credit Facility also provides for an annual facility fee, that was reduced in June 2011 from 50 basis points to 35 basis points on the entire facility. The Unsecured Credit Facility also allows for foreign currency-denominated borrowings. The Company has borrowings outstanding in Euro and Canadian dollars.

     The Company also maintains a $65 million unsecured revolving credit facility with PNC Bank, National Association, that also was amended in June 2011 (the “PNC Facility” and, together with the Unsecured Credit Facility, the “Revolving Credit Facilities”). The PNC Facility reflects terms consistent with those contained in the Unsecured Credit Facility.

     The Company’s borrowings under the Revolving Credit Facilities bear interest at variable rates at the Company’s election, based on either (i) the prime rate plus a specified spread (0.65% at June 30, 2011), as defined in the facility, or (ii) LIBOR, plus a specified spread (1.65% at June 30, 2011). The specified spreads vary depending on the Company’s long-term senior unsecured debt rating from Standard and Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”). The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets, unencumbered debt yield and fixed charge coverage. The Company was in compliance with these covenants at June 30, 2011.

      Term Loan

     The Company maintains a collateralized term loan with a syndicate of financial institutions, for which KeyBank National Association serves as the administrative agent (the “Term Loan”). The Company amended the Term Loan in June 2011 and reduced the amount outstanding from $550 million to $500 million with an accordion feature of up to $600 million. The amended Term Loan matures in September 2014 with a one-year extension option. Borrowings under the Term Loan bear interest at variable rates based on LIBOR plus a specified spread based on the Company’s long-term senior unsecured debt rating (1.7% at June 30, 2011). The collateral for the Term Loan is real estate assets, or investment interests in certain assets, that are already encumbered by first mortgage loans. The Company is required to comply with covenants similar to those contained in the Revolving Credit Facilities. The Company was in compliance with these covenants at June 30, 2011.

7. SENIOR NOTES

     In March 2011, the Company issued $300 million aggregate principal amount of 4.75% senior unsecured notes, due April 2018. The notes were offered to investors at a discount to par of 99.315%, resulting in an effective interest rate of 4.86%.

8. FINANCIAL INSTRUMENTS

     Cash Flow and Fair Value Hedges

     In June 2011, the Company entered into an interest rate swap with a notional amount of $100.0 million. This swap was executed to hedge a portion of interest rate risk associated with variable-rate borrowings. The swap converts LIBOR into a fixed rate on the Term Loan.

     In March 2011, the Company entered into an interest rate swap with a notional amount of $85.0 million. This swap was executed to hedge a portion of interest rate risk associated with variable-rate borrowings. The swap converts LIBOR into a fixed rate for seven-year mortgage debt entered into in 2011.

     In March 2011, the Company terminated an interest rate swap with a notional amount of $50.0 million. The swap converted LIBOR into a fixed rate on the Company’s Revolving Credit Facilities. The fair value of the interest rate swap as of the termination date was not material.

     In February 2011, the Company entered into treasury locks with an aggregate notional amount of $200.0 million. The treasury locks were terminated in connection with the issuance of the $300.0 million aggregate principal amount of senior notes in March 2011, resulting in a payment of approximately $2.2 million to the counterparty. The treasury locks were executed to hedge the benchmark interest rate associated with forecasted interest payments associated with the then-anticipated issuance of fixed-rate borrowings. The effective portion of these hedging relationships has been deferred in accumulated other comprehensive income and will be reclassified into earnings over the term of the debt as an adjustment to earnings, based on the effective-yield method.

     Measurement of Fair Value

     At June 30, 2011, the Company used pay-fixed interest rate swaps to manage its exposure to changes in benchmark interest rates (the “Swaps”). 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. The Company determined that the significant inputs used to value its derivatives fell within 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 (included in other liabilities) and marketable securities (included in other assets) from investments in the Company’s elective deferred compensation plan at June 30, 2011, measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):

		Fair Value Measurement at
		June 30, 2011
		Level 1				Level 2				Level 3				Total
Derivative financial instruments		$	—			$	5.6			$	—			$	5.6
Marketable securities		$	2.9			$	—			$	—			$	2.9

     The unrealized loss of $0.4 million included in other comprehensive income (loss) (“OCI”) is attributable to the net change in unrealized gains or losses relating to derivative liabilities that remain outstanding at June 30, 2011, none of which were reported in the Company’s condensed consolidated statements of operations because they are documented and qualify as hedging instruments. The unrealized loss of $0.4 million is in addition to the $2.2 million payment made to the counterparty related to the treasury locks that were executed and settled during the six months ended June 30, 2011.

      Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable, Accrued Expenses and Other Liabilities

     The carrying amounts reported in the condensed consolidated balance sheets for these financial instruments, excluding the liability associated with the equity derivative instruments, approximated fair value because of their short-term maturities.

     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 $110.2 million and $120.8 million at June 30, 2011 and December 31, 2010, respectively, as compared to the carrying amounts of $110.7 million and $122.6 million, respectively. The carrying value of the tax increment financing bonds, which was $6.2 million and $13.8 million at June 30, 2011 and December 31, 2010, respectively, approximated their fair value as of both periods. The fair value of loans to affiliates 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.

     Debt instruments at June 30, 2011 and December 31, 2010, with carrying values that are different than estimated fair values, are summarized as follows (in thousands):

		June 30, 2011								December 31, 2010
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Senior notes		$	2,256,598			$	2,510,932			$	2,043,582			$	2,237,320
Revolving credit facilities and term loan			670,555				673,578				879,865				875,851
Mortgage payable and other indebtedness			1,286,998				1,288,906				1,378,553				1,394,393
		$	4,214,151			$	4,473,416			$	4,302,000			$	4,507,564

      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, from time to time, 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 values 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 has an interest in 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 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 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 following table discloses certain information regarding the Swaps:

Aggregate Notional				LIBOR Fixed
Amount (in millions)				Rate				Maturity Date
$	100				4.8	%		February 2012
$	100				1.0	%		June 2014
$	85				2.8	%		September 2017

     All components of the Swaps were included in the assessment of hedge effectiveness. The Company expects that within the next 12 months it will reflect an increase to interest expense (and a corresponding decrease to earnings) of approximately $5.8 million.

     The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2011, such derivatives were used to hedge the forecasted variable cash flows associated with existing obligations. The ineffective portion of the change in the fair value of derivatives is recognized directly in earnings. During the six-month periods ended June 30, 2011 and 2010, the amount of hedge ineffectiveness recorded was not material.

     The table below presents the fair value of the Company’s Swaps as well as their classification on the condensed consolidated balance sheets as of June 30, 2011 and December 31, 2010, as follows (in millions):

Liability Derivatives

June 30, 2011

December 31, 2010

Derivatives Designated as

Balance Sheet

Fair

Balance Sheet

Fair

Hedging Instruments

Location

Value

Location

Value

Interest rate products

Other liabilities

$

5.6

Other liabilities

$

5.2

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

																		Location of
																		Gain or
																		(Loss)
																		Reclassified		Amount of Gain Reclassified from
		Amount of Gain (Loss) Recognized in																from		Accumulated OCI into Loss
		OCI on Derivatives (Effective Portion)																Accumulated		(Effective Portion)
Derivatives		Three-Month								Six-Month								OCI into		Three-Month						Six-Month
in Cash		Periods Ended								Periods Ended								Loss		Periods Ended						Periods Ended
Flow		June 30								June 30								(Effective		June 30						June 30
Hedging		2011				2010				2011				2010				Portion)		2011		2010				2011		2010
Interest rate																		Interest
products		$	(1.0	)		$	4.1			$	(2.6	)		$	7.6			expense		$ —		$	0.1			$ —		$	0.2

     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. 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 Swap counterparties that contain a provision whereby if the Company defaults on certain of its unsecured indebtedness, the Company could also be declared in default on its Swaps resulting in an acceleration of payment.

     Net Investment Hedges

     The Company is exposed to foreign exchange risk from its consolidated and unconsolidated international investments. The Company has foreign currency-denominated debt agreements, which expose the Company to fluctuations in foreign exchange rates. The Company has designated these foreign currency borrowings as a hedge of its 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. Because the notional amount of the non-derivative instrument substantially matches the portion of the net investment designated as being hedged, and the non-derivative 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 instruments on OCI is as follows (in millions):

		Amount of Gain (Loss) Recognized in OCI on
		Derivatives (Effective Portion)
		Three-Month Periods								Six-Month Periods
		Ended June 30								Ended June 30
Derivatives in Net Investment Hedging Relationships		2011				2010				2011				2010
Euro — denominated revolving credit facilities designated as a hedge of the Company’s net investment in its subsidiary		$	(0.9	)		$	6.7			$	(3.5	)		$	12.4
Canadian dollar — denominated revolving credit facilities designated as a hedge of the Company’s net investment in its subsidiaries		$	(0.1	)		$	3.1			$	(3.1	)		$	(0.2	)

     See discussion of equity derivative instruments in Note 10.

9. COMMITMENTS AND CONTINGENCIES

     Accrued Expense

     The Company recorded a charge of $10.7 million in the first quarter of 2011 as a result of the termination without cause of its Executive Chairman, the terms of which were pursuant to his amended and restated employment agreement dated July 2009. This charge included stock-based compensation expense of approximately $1.5 million related to the acceleration of expense associated with the grant date fair value of the unvested stock-based awards partially offset by the forfeiture of previously expensed awards that will no longer be issued. At June 30, 2011, approximately $8.3 million was included in accounts payable and accrued expenses in the Company’s condensed consolidated balance sheet related to this obligation.

     Legal Matters

     The Company is a party to various joint ventures with the Coventry II Fund, through which 11 existing or proposed retail properties, along with a portfolio of former Service Merchandise locations, were acquired at various times from 2003 through 2006. The properties were acquired by the joint ventures as value-add investments, with major renovation and/or ground-up development contemplated for many of the properties. The Company is generally responsible for day-to-day management of the properties. On November 4, 2009, Coventry Real Estate Advisors L.L.C., Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund, L.L.C. (collectively, “Coventry”) filed suit against the Company and certain of its affiliates and officers in the Supreme Court of the State of New York, County of New York. The complaint alleges that the Company: (i) breached contractual obligations under a co-investment agreement and various joint venture limited liability company agreements, project development agreements and management and leasing agreements; (ii) breached its fiduciary duties as a member of various limited liability companies; (iii) fraudulently induced the plaintiffs to enter into certain agreements; and (iv) made certain material misrepresentations. The complaint also requests that a general release made by Coventry in favor of the Company in connection with one of the joint venture properties be voided on the grounds of economic duress. The complaint seeks compensatory and consequential damages in an amount not less than $500 million, as well as punitive damages. In response, the Company filed a motion to dismiss the complaint or, in the alternative, to sever the plaintiffs’ claims. In June 2010, the court granted in part (regarding Coventry’s claim that the Company breached a fiduciary duty owed to Coventry) and denied in part (all other claims) the Company’s motion. Coventry has filed a notice of appeal regarding that portion of the motion granted by the court. The appeals court affirmed the trial court’s ruling regarding the dismissal of Coventry’s claim for breach of fiduciary duty. The Company filed an answer to the complaint, and has asserted various counterclaims against Coventry.

     The Company believes that the allegations in the lawsuit are without merit and that it has strong defenses against this lawsuit. The Company will vigorously defend itself against the allegations contained in the complaint. This lawsuit is subject to the uncertainties inherent in the litigation process and, therefore, no assurance can be given as to its ultimate outcome and no loss provision has been recorded in the accompanying financial statements because a loss contingency is not deemed probable or estimable. However, based on the information presently available to the Company, the Company

does not expect that the ultimate resolution of this lawsuit will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

     On November 18, 2009, the Company filed a complaint against Coventry in the Court of Common Pleas, Cuyahoga County, Ohio, seeking, among other things, a temporary restraining order enjoining Coventry from terminating “for cause” the management agreements between the Company and the various joint ventures because the Company believes that the requisite conduct in a “for-cause” termination (i.e., fraud or willful misconduct committed by an executive of the Company at the level of at least senior vice president) did not occur. The court heard testimony in support of the Company’s motion (and Coventry’s opposition) and on December 4, 2009, issued a ruling in the Company’s favor. Specifically, the court issued a temporary restraining order enjoining Coventry from terminating the Company as property manager “for cause.” The court found that the Company was likely to succeed on the merits, that immediate and irreparable injury, loss or damage would result to the Company in the absence of such restraint, and that the balance of equities favored injunctive relief in the Company’s favor. The Company has filed a motion for summary judgment seeking a ruling by the Court that there was no basis for Coventry’s “for cause” termination as a matter of law. On August 2, 2011, the court entered an order granting the Company’s motion for summary judgment in all respects, finding that as a matter of law and fact, that Coventry did not have the right to terminate the management agreements for cause.

     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.

10. EQUITY

     The following table summarizes the changes in equity since December 31, 2010 (in millions):

		Developers Diversified Realty Corporation Equity
														Accumulated
														Distributions								Accumulated
														in Excess of				Deferred				Other				Treasury				Non-
		Preferred				Common				Paid-in				Net Income				Compensation				Comprehensive				Stock at				Controlling
		Shares				Shares				Capital				(Loss)				Obligation				Income (Loss)				Cost				Interests				Total
Balance, December 31, 2010		$	555.0			$	25.6			$	3,869.0			$	(1,378.3	)		$	14.3			$	25.6			$	(14.6	)		$	38.1			$	3,134.7
Issuance of common shares related to the exercise of stock options, dividend reinvestment plan and director compensation											0.7																0.2								0.9
Issuance of common shares related to exercise of warrants							1.0				133.3																								134.3
Issuance of common shares for cash offering							1.0				128.9																								129.9
Contributions from non-controlling interests																															0.2				0.2
Issuance of restricted stock							0.1				(2.3	)							0.2								2.2								0.2
Vesting of restricted stock											1.7								(1.9	)							0.1								(0.1	)
Stock-based compensation expense											2.7																								2.7
Redemption of preferred shares			(180.0	)							6.4				(6.4	)																			(180.0	)
Dividends declared-common shares															(21.7	)																			(21.7	)
Dividends declared-preferred shares															(18.3	)																			(18.3	)
Distributions to non-controlling interests																															(1.3	)			(1.3	)
Comprehensive income:
Net income															21.9																0.2				22.1
Other comprehensive (loss) income:
Settlement/change in fair value of interest rate contracts																							(2.8	)											(2.8	)
Foreign currency translation																							11.6								1.3				12.9
Comprehensive income			—				—				—				21.9				—				8.8				—				1.5				32.2
Balance, June 30, 2011		$	375.0			$	27.7			$	4,140.4			$	(1,402.8	)		$	12.6			$	34.4			$	(12.1	)		$	38.5			$	3,213.7

     Common Shares and Redemption of Preferred Shares

     In March 2011, Mr. Alexander Otto and certain members of his family (the “Otto Family”) exercised their warrants for 10 million common shares for cash proceeds of $60 million. In addition, in March 2011, the Company entered into a forward sale agreement to sell an aggregate of 9.5 million of its common shares for net proceeds aggregating $130.2 million, or $13.71 per share, which settled in April 2011.

     In April 2011, the Company redeemed all of its outstanding shares of 8.0% Class G cumulative redeemable preferred shares at a redemption price of $25.105556 per Class G depositary share (the sum of $25.00 per share and dividends per share of $0.105556 prorated to the redemption date). The Company recorded a charge of approximately $6.4 million to net loss available to common shareholders in the second quarter of 2011 related to the write-off of the Class G preferred shares’ original issuance costs.

     Dividends

     Common share dividends declared were $0.04 and $0.08 per share, respectively, for the three- and six-month periods ended June 30, 2011, which were paid in cash. Common share dividends

declared were $0.02 and $0.04 per share, respectively, for the three- and six-month periods ended June 30, 2010, which were paid in cash.

     Deferred Obligations

     Certain officers elected to have their deferred compensation distributed in 2011, which resulted in a reduction of the deferred obligation and corresponding increase to paid-in capital of approximately $2.2 million.

     Equity Derivative Instruments — Otto Transaction

     In February 2009, the Company entered into a stock purchase agreement with the Otto Family that provided for the issuance of warrants to purchase up to 10.0 million common shares with an exercise price of $6.00 per share to members of the Otto Family. In March 2011, the Otto Family notified the Company regarding its intent to exercise the warrants. As discussed above, all of the warrants were exercised in March 2011 for cash at $6.00 per common share. The exercise price of the warrants was subject to downward adjustment if the weighted average purchase price of all additional common shares sold, as defined, from the date of issuance of the applicable warrant was less than $6.00 per share (herein referred to as the “Downward Price Protection Provisions”).

     The Downward Price Protection Provisions described above resulted in the warrants being required to be recorded at fair value as of the shareholder approval date of the Stock Purchase Agreement of April 9, 2009, and marked-to-market through earnings as of each balance sheet date thereafter until the exercise date of March 18, 2011. These equity instruments were issued as part of the Company’s overall deleveraging strategy and were not issued in connection with any speculative trading activity or to mitigate any market risks.

     The fair value of the Company’s equity derivative instruments (warrants) were classified on the Company’s balance sheet as equity derivative liability-affiliate and had a fair value of $74.3 million at March 18, 2011, the exercise date, which was reclassified to paid-in capital and aggregated with the cash proceeds in the presentation above.

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

						Three-Month Periods								Six-Month Periods
Derivatives not						Ended June 30,								Ended June 30,
Designated				Income Statement		2011				2010				2011				2010
as Hedging Instruments				Location		Gain (Loss)								Gain (Loss)
Warrants				Gain (loss) on equity derivative instruments		$	—			$	21.5			$	21.9			$	(3.3	)

     Measurement of Fair Value — Equity Derivative Instruments Valued on a Recurring Basis

     The valuation of these instruments was determined using an option pricing model that considered all relevant assumptions including the Downward Price Protection Provisions. The two key unobservable input assumptions included in the valuation of the warrants were the volatility and

dividend yield. Both measures were susceptible to change over time given the impact of movements in the Company’s common share price on each. The dividend yield assumptions used ranged from 3.0% - 3.2% in the first quarter of 2011 and 3.1% — 4.2% in the first six months of 2010. Since the initial valuation date, the Company used historical volatility assumptions to determine the estimate of fair value of the five-year warrants. The Company believed that the long-term historic volatility better represented the long-term future volatility and was more consistent with how an investor would view the value of these securities. The Company continually reassessed these assumptions and reviewed the assumptions again in March 2011 upon notification from the Otto Family regarding their intent to exercise the warrants. The Company determined that an implied volatility assumption was more representative of how a market participant would value the instruments given the shorter term nature of the warrants. The volatility assumptions used were 36.6% in the first quarter of 2011 and 78.3% in the first six months of 2010. The Company determined that the warrants fell within Level 3 of the fair value hierarchy due to the volatility and dividend yield assumptions used in the overall valuation.

     The table below presents a reconciliation of the beginning and ending balances of the equity derivative instruments that were included in other liabilities at December 31, 2010 and having fair value measurements based on significant unobservable inputs (Level 3) (in millions):

		Equity
		Derivative
		Instruments —
		Liability
Balance of Level 3 at December 31, 2010		$	96.2
Unrealized gain			(21.9	)
Transfer out of liability to paid-in capital			(74.3	)
Balance of Level 3 at June 30, 2011		$	—

11. FEE AND OTHER INCOME

     Fee and other income from continuing operations were comprised of the following (in millions):

		Three-Month Periods								Six-Month Periods
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Management, development and other fee income		$	11.9			$	13.2			$	23.6			$	27.2
Ancillary and other property income			7.1				4.6				14.3				9.3
Lease termination fees			0.8				3.0				1.3				3.6
Financing fees			0.2				0.2				0.6				0.4
Other miscellaneous			0.1				1.3				0.3				1.8
		$	20.1			$	22.3			$	40.1			$	42.3

12. IMPAIRMENT CHARGES

     The Company recorded impairment charges during the three- and six-month periods ended June 30, 2011 and 2010, on the following consolidated assets based on the difference of the carrying value of the assets and the estimated fair market value (in millions):

		Three-Month Periods								Six-Month Periods
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
Land held for development (A)		$	—			$	54.3			$	—			$	54.3
Undeveloped land (B)			—				4.9				3.8				4.9
Assets marketed for sale (B)			18.4				15.8				18.4				15.8
Total continuing operations		$	18.4			$	75.0			$	22.2			$	75.0
Sold assets or assets held for sale			1.9				22.6				3.9				25.7
Assets formerly occupied by Mervyns (C)			—				35.3				—				35.3
Total impairment charges		$	20.3			$	132.9			$	26.1			$	136.0

     Items Measured at Fair Value on a Non-Recurring Basis

     The following table presents information about the Company’s impairment charges that were measured on a fair value basis for the six-month period ended June 30, 2011. The table indicates the fair value hierarchy of the valuation techniques used by the Company to determine such fair value (in millions):

		Fair Value Measurement at June 30, 2011
																		Total
		Level 1				Level 2				Level 3				Total				Losses
Long-lived assets — held and used and held for sale		$	—			$	—			$	51.9			$	51.9			$	26.1