SITE Centers Corp. - Quarter Report: 2011 March (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

(216) 755-5500

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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.

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

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

     As of April 29, 2011, the registrant had 276,623,299 outstanding common shares, $0.10 par value per share.

 

 

PART I
FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS — Unaudited
Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010.		2
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2011 and 2010.		3
Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2011 and 2010.		4
Notes to Condensed Consolidated Financial Statements.		5
EX-4.1
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

		March 31, 2011				December 31, 2010
Assets
Land		$	1,865,716			$	1,837,403
Buildings			5,551,683				5,491,489
Fixtures and tenant improvements			356,104				339,129
			7,773,503				7,668,021
Less: Accumulated depreciation			(1,500,524	)			(1,452,112	)
			6,272,979				6,215,909
Land held for development and construction in progress			714,972				743,218
Real estate held for sale, net			6,427				—
Total real estate assets, net			6,994,378				6,959,127
Investments in and advances to joint ventures			402,875				417,223
Cash and cash equivalents			21,025				19,416
Restricted cash			4,148				4,285
Notes receivable, net			121,335				120,330
Other assets, net			237,769				247,709
		$	7,781,530			$	7,768,090
Liabilities and Equity
Unsecured indebtedness:
Senior notes		$	2,345,533			$	2,043,582
Revolving credit facilities			42,681				279,865
			2,388,214				2,323,447
Secured indebtedness:
Term loan			550,000				600,000
Mortgage and other secured indebtedness			1,331,795				1,378,553
			1,881,795				1,978,553
Total indebtedness			4,270,009				4,302,000
Accounts payable and accrued expenses			119,775				127,715
Dividends payable			18,409				12,092
Equity derivative liability — affiliate			—				96,237
Other liabilities			85,688				95,359
Total liabilities			4,493,881				4,633,403
Commitments and contingencies (Note 8)
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 March 31, 2011 and December 31, 2010			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 March 31, 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 March 31, 2011 and December 31, 2010			170,000				170,000
Common shares, with par value, $0.10 stated value; 500,000,000 shares authorized; 267,133,800 and 256,267,750 shares issued at March 31, 2011 and December 31, 2010, respectively			26,714				25,627
Paid-in capital			4,004,030				3,868,990
Accumulated distributions in excess of net income			(1,365,039	)			(1,378,341	)
Deferred compensation obligation			12,571				14,318
Accumulated other comprehensive income			27,707				25,646
Less: Common shares in treasury at cost: 612,927 and 712,310 shares at March 31, 2011 and December 31, 2010, respectively			(12,320	)			(14,638	)
Total DDR shareholders’ equity			3,248,663				3,096,602
Non-controlling interests			38,986				38,085
Total equity			3,287,649				3,134,687
		$	7,781,530			$	7,768,090

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2011				2010
Revenues from operations:
Minimum rents		$	134,291			$	133,746
Percentage and overage rents			2,038				2,041
Recoveries from tenants			46,614				46,370
Fee and other income			20,041				19,974
			202,984				202,131
Rental operation expenses:
Operating and maintenance			38,104				34,385
Real estate taxes			26,841				27,400
Impairment charges			3,856				817
General and administrative			29,378				23,275
Depreciation and amortization			56,042				55,177
			154,221				141,054
Other income (expense):
Interest income			2,796				1,333
Interest expense			(60,243	)			(56,096	)
Gain on debt retirement, net			—				1,091
Gain (loss) on equity derivative instruments			21,926				(24,868	)
Other income (expense), net			1,341				(3,059	)
			(34,180	)			(81,599	)
Income (loss) before earnings from equity method investments and other items			14,583				(20,522	)
Equity in net income of joint ventures			1,974				1,647
Impairment of joint venture investments			(35	)			—
Gain on change in control of interests			21,729				—
Income (loss) before tax expense of taxable REIT subsidiaries and state franchise and income taxes			38,251				(18,875	)
Tax expense of taxable REIT subsidiaries and state franchise and income taxes			(326	)			(1,002	)
Income (loss) from continuing operations			37,925				(19,877	)
Loss from discontinued operations			(1,685	)			(6,033	)
Income (loss) before loss on disposition of real estate			36,240				(25,910	)
Loss on disposition of real estate, net of tax			(861	)			(675	)
Net income (loss)		$	35,379			$	(26,585	)
Non-controlling interests			(67	)			2,338
Net income (loss) attributable to DDR		$	35,312			$	(24,247	)
Preferred dividends			(10,567	)			(10,567	)
Net income (loss) attributable to DDR common shareholders		$	24,745			$	(34,814	)
Per share data:
Basic earnings per share data:
Income (loss) from continuing operations attributable to DDR common shareholders		$	0.10			$	(0.14	)
Loss from discontinued operations attributable to DDR common shareholders			—				(0.01	)
Net income (loss) attributable to DDR common shareholders		$	0.10			$	(0.15	)
Diluted earnings per share data:
Income (loss) from continuing operations attributable to DDR common shareholders		$	0.02			$	(0.14	)
Loss from discontinued operations attributable to DDR common shareholders			(0.01	)			(0.01	)
Net income (loss) attributable to DDR common shareholders		$	0.01			$	(0.15	)

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2011				2010
Net cash flow provided by operating activities:		$	60,373			$	44,304
Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed			(43,062	)			(37,599	)
Equity contributions to joint ventures			(832	)			(729	)
Repayments of (advances to) joint venture advances, net			22,516				(82	)
Distributions of proceeds from sale and refinancing of joint venture interests			1,656				—
Return on investments in joint ventures			2,072				8,129
Issuance of notes receivable, net			(373	)			(2,352	)
Decrease in restricted cash			137				37,891
Proceeds from disposition of real estate			11,659				29,429
Net cash flow (used for) provided by investing activities:			(6,227	)			34,687
Cash flow from financing activities:
Repayments of revolving credit facilities, net			(242,766	)			(426,663	)
Repayment of senior notes			—				(147,706	)
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			121,861				1,416
Repayment of term loans and mortgage debt			(268,012	)			(169,458	)
Payment of debt issuance costs			(1,471	)			(138	)
Proceeds from issuance of common shares, net of underwriting commissions and issuance costs of $1,400 in 2010			—				382,762
Proceeds from issuance of common shares related to the exercise of warrants			59,873				—
Repurchase of common shares in conjunction with the exercise of stock options and dividend reinvestment plan			(1,626	)			(260	)
Contributions from non-controlling interests			94				50
Distributions to non-controlling interests and redeemable operating partnership units			(374	)			(1,622	)
Dividends paid			(15,692	)			(14,585	)
Net cash flow used for financing activities			(52,618	)			(79,419	)
Cash and cash equivalents
Increase (decrease) in cash and cash equivalents			1,528				(428	)
Effect of exchange rate changes on cash and cash equivalents			81				4
Cash and cash equivalents, beginning of period			19,416				26,172
Cash and cash equivalents, end of period		$	21,025			$	25,748

Supplemental disclosure of non-cash investing and financing activities:

     At March 31, 2011, dividends payable were $18.4 million. In conjunction with the acquisition of its partners’ interests in two shopping centers during the three-month period ended March 31, 2011 (Note 3), the Company reversed its previously held equity interest by increasing investments in and advances to joint ventures by approximately $6.8 million as the investment basis was negative, increased net real estate assets by approximately $36.6 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. The foregoing transactions did not provide for or require the use of cash for the three-month period ended March 31, 2011.

     At March 31, 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 collateralized 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 three-month period ended March 31, 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 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 March 31, 2011 and December 31, 2010, the Company’s investments in consolidated real estate joint ventures in which the Company is deemed to be the primary beneficiary have total real estate assets of $383.1 million and $374.2 million, respectively, mortgages of $42.0 million and $42.9 million, respectively, and other liabilities of $13.4 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-month periods ended March 31, 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
		Ended March 31,
		2011				2010
Net income (loss)		$	35,379			$	(26,585	)
Other comprehensive income (loss):
Settlement/change in fair value of interest-rate contracts			(1,785	)			3,468
Amortization of interest-rate contracts			(7	)			(93	)
Foreign currency translation			4,976				(11,902	)
Total other comprehensive income (loss)			3,184				(8,527	)
Comprehensive income (loss)		$	38,563			$	(35,112	)
Comprehensive (income) loss attributable to non-controlling interests			(1,190	)			3,810
Total comprehensive income (loss) attributable to DDR		$	37,373			$	(31,302	)

2. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES

     At March 31, 2011 and December 31, 2010, the Company had ownership interests in various unconsolidated joint ventures that had an investment in 232 and 258 shopping center properties, respectively. Condensed combined financial information of the Company’s unconsolidated joint venture investments is as follows (in thousands):

		March 31, 2011				December 31, 2010
Condensed Combined Balance Sheets
Land		$	1,550,786			$	1,566,682
Buildings			4,745,572				4,783,841
Fixtures and tenant improvements			158,031				154,292
			6,454,389				6,504,815
Less: Accumulated depreciation			(747,737	)			(726,291	)
			5,706,652				5,778,524
Land held for development and construction in progress			197,214				174,237
Real estate, net			5,903,866				5,952,761
Receivables, net			100,090				111,569
Leasehold interests			10,006				10,296
Other assets			517,696				303,826
		$	6,531,658			$	6,378,452
Mortgage debt		$	3,884,329			$	3,950,794
Notes and accrued interest payable to DDR			91,290				87,282
Other liabilities			205,306				186,728
			4,180,925				4,224,804
Accumulated equity			2,350,733				2,153,648
		$	6,531,658			$	6,378,452
Company’s share of accumulated equity		$	474,359			$	480,200

		Three-Month Periods
		Ended March 31,
		2011				2010
Condensed Combined Statements of Operations
Revenues from operations		$	172,398			$	164,093
Operating expenses			63,015				63,547
Depreciation and amortization			47,752				45,968
Interest expense			58,112				58,459
			168,879				167,974
Income (loss) before tax expense and discontinued operations			3,519				(3,881	)
Income tax expense (primarily Sonae Sierra Brasil), net			(6,144	)			(4,799	)
Loss from continuing operations			(2,625	)			(8,680	)
Discontinued operations:
(Loss) income from discontinued operations			(441	)			582
Loss on disposition of real estate, net of tax (A)			(863	)			(8,752	)
Net loss		$	(3,929	)		$	(16,850	)
Company’s share of equity in net income of joint ventures (B)		$	3,899			$	1,660

     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):

		March 31,				December 31,
		2011				2010
Company’s share of accumulated equity		$	474.4			$	480.2
Basis differentials (A)			(159.8	)			(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			91.3				87.3
Investments in and advances to joint ventures		$	402.9			$	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
		Ended March 31,
		2011				2010
Management and other fees		$	7.3			$	9.2
Acquisition, financing and other fees			—				0.2
Development fees and leasing commissions			1.8				1.7
Interest income			0.1				0.1

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. The Company’s share of the loan repayment proceeds, which were received during the three months ended March 31, 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).

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, funded through cash and the 50% proportionate assumption of two mortgage notes payable in the aggregate amount of approximately $25.1 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 the principal amount of $29.2 million in total ($14.6 million assumed) 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 utilizing the purchase method of accounting. Due to the change in control that occurred, the Company recorded an aggregate gain of approximately $21.7 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 of the difference between the contractual amounts to be paid and management’s estimate of the fair market lease rates for each in-place lease, which is amortized over the remaining life of the respective leases (plus fixed-rate renewal periods for below-market leases) as an adjustment to base rental revenue. 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 4):

						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. OTHER ASSETS, NET

     Other assets consist of the following (in thousands):

		March 31, 2011				December 31, 2010
Intangible assets:
In-place leases (including lease origination costs and fair market value of leases), net		$	16,154			$	14,228
Tenant relations, net			12,410				9,035
Total intangible assets (A)			28,564				23,263
Other assets:
Accounts receivable, net (B)			112,982				123,259
Deferred charges, net			45,727				44,988
Prepaids			12,470				11,566
Deposits			34,568				41,160
Other assets			3,458				3,473
Total other assets, net		$	237,769			$	247,709

     The Company capitalizes intangible assets and deferred revenue associated with below-market leases on real estate acquisitions. Intangible assets and deferred revenue are amortized as follows:

		• Above- and below-market leases		Related lease terms
		• In-place leases		Related lease terms
		• Tenant relations		Estimated period of time that tenant will lease space in property

     Amortization of acquired above- and below-market leases is recognized as adjustments to minimum rents on the Company’s condensed consolidated statements of operations. Amortization of other intangible assets on real estate acquisitions are recognized as depreciation and amortization expense on the Company’s condensed consolidated statements of operations.

5. 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-

Average Interest

Carrying Value at

Rate at

March 31, 2011

March 31, 2011

Maturity Date

Unsecured indebtedness:

Unsecured Credit Facility

$

42.7

3.6

%

February 2014

PNC Facility

—

—

February 2014

Secured indebtedness:

Term loan

550.0

1.95

%

February 2012

     Revolving Credit Facilities

     The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, arranged by JP Morgan Chase Bank, N.A. and Wells Fargo Bank, N.A. (the “Unsecured Credit Facility”). The Unsecured Credit Facility provides for borrowings of $950 million, if certain financial covenants are maintained, and an accordion feature for expansion to $1.2 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, currently at 0.50% on the entire facility.

     The Company also maintains a $65 million unsecured revolving credit facility with PNC Bank, N.A. (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 (1.75% at March 31, 2011), as defined in the facility, or (ii) LIBOR, plus a specified spread (2.75% at March 31, 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 is in compliance with these covenants at March 31, 2011. The Revolving Credit Facilities are used to temporarily finance redevelopment, development and acquisition of shopping center properties, to provide working capital and for general corporate purposes.

     Term Loan

     The Company maintains a collateralized term loan with a syndicate of financial institutions, for which KeyBank, NA serves as the administrative agent (the “Term Loan”). The Term Loan had a one-year extension option that was exercised in February 2011. 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 (0.875% at March 31, 2011). The collateral for this Term Loan is assets, or investment interests in certain assets, that are already collateralized 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 in the Revolving Credit Facilities and the Term Loan at March 31, 2011.

6. SENIOR NOTES

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

7. FINANCIAL INSTRUMENTS

     Cash Flow and Fair Value Hedges

     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 Company recorded an immaterial gain on the termination of this financial instrument.

     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 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 March 31, 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 and marketable securities included in the

Company’s elective deferred compensation plan that are both included in other liabilities at March 31, 2011, measured at fair value on a recurring basis as of March 31, 2011, 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
		March 31, 2011
		Level 1				Level 2				Level 3				Total
Derivative financial instruments		$	—			$	4.6			$	—			$	4.6
Marketable securities		$	4.6			$	—			$	—			$	4.6

     The unrealized gain of $0.6 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 March 31, 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 gain of $0.6 million is offset by the $2.2 million payment made to the counterparty related to the treasury locks that were executed and settled during the three months ended March, 31, 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, excluding those that are fully reserved, was approximately $122.9 million and $120.8 million at March 31, 2011 and December 31, 2010, respectively, as compared to the carrying amounts of $123.4 million and $122.6 million, respectively. The carrying value of the tax increment financing bonds, which was $14.0 million and $13.8 million at March 31, 2011 and December 31, 2010, respectively, approximated their fair value at March 31, 2011 and December 31, 2010. The fair value of loans to affiliates is not readily determinable and has been estimated by management based upon its assessment of the interest rate, credit risk and performance risk.

     Debt

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

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

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

		March 31, 2011								December 31, 2010
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
Senior notes		$	2,345,533			$	2,587,652			$	2,043,582			$	2,237,320
Revolving credit facilities and term loan			592,681				589,427				879,865				875,851
Mortgage payable and other indebtedness			1,331,795				1,341,256				1,378,553				1,394,393
		$	4,270,009			$	4,518,335			$	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 entered into consolidated joint ventures that own real estate assets in Canada and Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. As such, the Company 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
$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 $6.1 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 three-month periods ended March 31, 2011 and March 31, 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 March 31, 2011 and December 31, 2010, as follows (in millions):

Liability Derivatives

March 31, 2011

December 31, 2010

Derivatives designated as

Balance Sheet

Fair

Balance Sheet

Fair

hedging Instruments

Location

Value

Location

Value

Interest rate products

Other liabilities

$

4.6

Other liabilities

$

5.2

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

Amount of (Loss) Gain

Amount of (Loss)

Reclassified from

Gain Recognized in

Location of (Loss)

Accumulated OCI into

OCI on Derivative

Gain Reclassified

Income (Loss)

(Effective Portion)

from Accumulated

(Effective Portion)

Three-Month Periods

OCI into Income

Three-Month Periods

Derivatives in Cash

Ended March 31,

(Loss) (Effective

Ended March 31,

Flow Hedging

2011

2010

Portion)

2011

2010

Interest rate products

$

(1.6

)

$

3.4

Interest expense

$

—

$

0.1

     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 exposes 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 (Loss) Gain
		Recognized in OCI on
		Derivatives (Effective Portion)
		Three-Month Periods Ended
		March 31,
Derivatives in Net Investment Hedging Relationships		2011				2010
Euro — denominated revolving credit facilities designated as a hedge of the Company’s net investment in its subsidiary		$	(2.7	)		$	5.7
Canadian dollar — denominated revolving credit facilities designated as a hedge of the Company’s net investment in its subsidiaries		$	(2.9	)		$	(3.3	)

     See discussion of equity derivative instruments in Note 9.

8. COMMITMENTS AND CONTINGENCIES

     Accrued Expense

The Company recorded a charge of $10.7 million 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 relating 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 March 31, 2011, approximately $8.8 million was included in accounts payable and accrued expenses in the Company’s condensed consolidated balance sheet.

     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 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. The Court has not yet ruled on the Company’s motion for summary judgment. A trial on the Company’s request for a permanent injunction has not yet been scheduled. The temporary restraining order will remain in effect until the trial. Due to the inherent uncertainties of the litigation process, no assurance can be given as to the ultimate outcome of this action.

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

9. 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 dividend reinvestment plan and director compensation			—				—				0.3				—				—				—				—				—				0.3
Issuance of common shares related to exercise of warrants			—				1.0				133.2				—				—				—				—				—				134.2
Contributions from non-controlling interests			—				—				—				—				—				—				—				0.1				0.1
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			—				—				2.1				—				—				—				—				—				2.1
Dividends declared-common shares			—				—				—				(10.7	)			—				—				—				—				(10.7	)
Dividends declared-preferred shares			—				—				—				(11.3	)			—				—				—				—				(11.3	)
Distributions to non-controlling interests			—				—				—				—				—				—				—				(0.4	)			(0.4	)
Comprehensive income:
Net income			—				—				—				35.3				—				—				—				0.1				35.4
Other comprehensive (loss) income:
Settlement/change in fair value of interest rate contracts			—				—				—				—				—				(1.8	)			—				—				(1.8	)
Foreign currency translation			—				—				—				—				—				3.9				—				1.1				5.0
Comprehensive income			—				—				—				35.3				—				2.1				—				1.2				38.6
Balance, March 31, 2011		$	555.0			$	26.7			$	4,004.0			$	(1,365.0	)		$	12.6			$	27.7			$	(12.3	)		$	39.0			$	3,287.7

     Common Shares and Redemption of Preferred Shares

     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 March 2011. 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 (Note 15).

     In April 2011, the net proceeds from the issuance of these common shares were used to redeem all outstanding shares, aggregating $180 million, of the Company’s 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 expects to record a non-cash charge of approximately $6.4 million to net income available to common shareholders in the second quarter of 2011 relating to the write-off of the Class G preferred shares’ original issuance costs (Note 15).

     Dividends

     Common share dividends declared were $0.04 and $0.02 per share, respectively, for the three-month periods ended March 31, 2011 and 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 $1.9 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 (the “Notification Date”). 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 “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.

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

Three-Month Periods Ended

Derivatives not

March 31,

Designated

Income Statement

2011

2010

as Hedging Instruments

Location

Gain (Loss)

Gain (loss) on

equity derivative

Warrants

instruments

$

21.9

$

(24.9

)

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

     The valuation of these instruments is determined using an option pricing model that considers 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 are 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% — 3.2% in the first quarter 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 now shorter term nature of the warrants. The volatility assumptions used were approximately 37% in the first quarter of 2011 and approximately 78% in the first quarter 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 March 31, 2011		$	—

10. FEE AND OTHER INCOME

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

		Three-Month Periods
		Ended March 31,
		2011				2010
Management, development and other fee income		$	11.7			$	14.0
Ancillary and other property income			7.2				4.7
Lease termination fees			0.6				0.6
Financing fees			0.4				0.2
Other miscellaneous			0.1				0.5
		$	20.0			$	20.0

11. IMPAIRMENT CHARGES

          The Company recorded impairment charges during the three-month periods ended March 31, 2011 and 2010, on the following consolidated assets because the carrying value of the assets was in excess of the estimated fair market value (in millions):

		Three-Month Periods
		Ended March 31,
		2011				2010
Undeveloped land		$	3.8			$	—
Assets marketed for sale			—				0.8
Total continuing operations (A)		$	3.8			$	0.8
Sold assets or assets held for sale			2.0				2.3
Total impairment charges		$	5.8			$	3.1

          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 three months ended March 31, 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 March 31, 2011
		Level 1				Level 2				Level 3				Total				Total Losses
Long-lived assets — held and used and held for sale		$	—			$	—			$	26.1			$	26.1			$	5.8

12. DISCONTINUED OPERATIONS

          All revenues and expenses of discontinued operations sold have been reclassified in the condensed consolidated statements of operations for the three-month periods ended March 31, 2011 and 2010. The Company has one asset considered held for sale at March 31, 2011. The Company considers assets held for sale when the transaction has been approved by the appropriate levels of management and there are no known significant contingencies relating to the sale such that the sale of the property within one year is considered probable. Included in discontinued operations for the three-month periods ended March 31, 2011 and 2010, are two properties sold in 2011 and one property held for sale at March 31, 2011 aggregating 0.2 million square feet, and 31 properties sold in 2010, (including two held for sale at December 31, 2009) aggregating 2.9 million square feet, respectively. In addition, included in discontinued operations are 25 other properties that were deconsolidated for accounting purposes in 2010, aggregating 1.9 million square feet, which represents the activity associated with a joint venture that owns the underlying real estate of certain assets formerly occupied by Mervyns. These assets were classified as discontinued operations for the three months ended March 31, 2010 as the Company has no significant continuing involvement. The balance sheet relating to the asset held for sale and the operating results relating to assets sold, designated as held for sale or deconsolidated as of March 31, 2011, are as follows (in thousands):

		March 31, 2011
Land		$	1,724
Building			6,544
			8,268
Less: Accumulated depreciation			(1,841	)
Total assets held for sale		$	6,427

		Three-Month Periods Ended
		March 31,
		2011				2010
Revenues		$	327			$	5,227
Operating expenses			83				3,671
Impairment charges			1,983				2,255
Interest, net			92				3,906
Depreciation and amortization			98				1,994
			2,256				11,826
Loss from discontinued operations			(1,929	)			(6,599	)
Gain on disposition of real estate			244				566
Net loss		$	(1,685	)		$	(6,033	)

13. EARNINGS PER SHARE

          The Company’s unvested restricted share units contain rights to receive nonforfeitable dividends, and thus are participating securities requiring the two-class method of computing earnings per share (“EPS”). Under the two-class method, EPS is computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period. The following table provides a reconciliation of net income (loss) from continuing operations and the number of common shares used in the computations of “basic” EPS, which uses 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
		Ended March 31,
		2011				2010
Basic Earnings:
Continuing Operations:
Income (loss) from continuing operations		$	37,925			$	(19,877	)
Plus: Loss on disposition of real estate			(861	)			(675	)
Plus: Income attributable to non-controlling interests			(67	)			(101	)
Income (loss) from continuing operations attributable to DDR			36,997				(20,653	)
Less: Preferred dividends			(10,567	)			(10,567	)
Basic— Income (loss) from continuing operations attributable to DDR common shareholders			26,430				(31,220	)
Less: Earnings attributable to unvested shares and operating partnership units			(224	)			(31	)
Basic— Income (loss) from continuing operations		$	26,206			$	(31,251	)
Discontinued Operations:
Loss from discontinued operations			(1,685	)			(6,033	)
Plus: Loss attributable to non-controlling interests			—				2,439
Basic— Loss from discontinued operations			(1,685	)			(3,594	)
Basic— Net income (loss) attributable to DDR common shareholders after allocation to participating securities		$	24,521			$	(34,845	)
Diluted Earnings:
Continuing Operations:
Basic—Net income (loss) attributable to DDR common shareholders after allocation to participating securities		$	26,206			$	(31,251	)
Less: Fair value adjustment for Otto Family warrants			(21,926	)			—
Diluted— Income (loss) from continuing operations			4,280				(31,251	)
Discontinued Operations:
Basic— Loss from discontinued operations			(1,685	)			(3,594	)
Diluted— Net income (loss) attributable to DDR common shareholders after allocation to participating securities		$	2,595			$	(34,845	)
Number of Shares:
Basic— Average shares outstanding			255,966				227,133
Effect of dilutive securities:
Warrants			4,840				—
Stock options			558				—
Value sharing equity program			1,198				—
Forward equity agreement			19				—
Diluted — Average shares outstanding			262,581				227,133
Basic Earnings Per Share:
Income (loss) from continuing operations attributable to DDR common shareholders		$	0.10			$	(0.14	)
Loss from discontinued operations attributable to DDR common shareholders			—				(0.01	)
Net income (loss) attributable to DDR common shareholders		$	0.10			$	(0.15	)
Dilutive Earnings Per Share:
Income (loss) from continuing operations attributable to DDR common shareholders		$	0.02			$	(0.14	)
Loss from discontinued operations attributable to DDR common shareholders			(0.01	)			(0.01	)
Net income (loss) attributable to DDR common shareholders		$	0.01			$	(0.15	)

          The following potentially dilutive securities are considered in the calculation of EPS as described below:

          Dilutive Securities

	•		Options to purchase 3.4 million common shares were outstanding at both March 31, 2011 and 2010. A portion of these options are considered in the computation of diluted EPS using the treasury stock method for the three-month period ended March 31, 2011. Options aggregating 2.2 million and 3.4 million were anti-dilutive in the calculations at March 31, 2011 and 2010, respectively. Accordingly, the anti-dilutive options were excluded from the computations.
	•		The forward equity agreement entered into in March 2011 for 9.5 million common shares was included in the computation of diluted EPS utilizing the treasury stock method for the three-month period ended March 31, 2011. This agreement was not outstanding in 2010.
	•		Shares subject to issuance under the Company’s value sharing equity program (“VSEP”) are considered in the computation of diluted EPS for the three-month period ended March 31, 2011. The shares subject to issuance under the VSEP are not considered in the computation of diluted EPS for the three-month period ended March 31, 2010, as the shares were considered anti-dilutive due to the Company’s loss from continuing operations.
	•		Warrants to purchase 10.0 million common shares issued in 2009 are considered in the computation of diluted EPS for the period outstanding (January 1, 2011 to March 18, 2011). The warrants were not considered for the three-month period ended March 31, 2010, as the warrants were considered anti-dilutive due to the Company’s loss from continuing operations.

Anti-dilutive Securities:

•

The Company’s three series of senior convertible notes, which are convertible into common shares of the Company with conversion prices of approximately $74.56, $64.23 and $16.38, respectively, at March 31, 2011, were not included in the computation of diluted EPS for the three-month periods ended March 31, 2011 and 2010 because the Company’s common share price did not exceed the conversion prices of the conversion features in these periods and would therefore be anti-dilutive. The senior convertible notes with a conversion price of $16.38 were not outstanding at March 31, 2010. In addition, the purchased option related to two of the senior convertible notes issuances is not included in the computation of diluted EPS as the purchase option is anti-dilutive.

14. SEGMENT INFORMATION

          The Company has three reportable operating segments, shopping centers, Brazil equity investment and other investments. Each consolidated shopping center is considered a separate operating segment; however, each shopping center on a stand-alone basis represents 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 the applicable standard. The following table summarizes the Company’s shopping and office properties, including those located in Brazil:

		March 31,
		2011				2010
Shopping centers owned			476				552
Unconsolidated joint ventures			191				213
Consolidated joint ventures			3				33
States (A)			41				44
Office properties			5				6
States			3				4

          The tables below present information about the Company’s reportable segments (in thousands).

		Three-Month Period Ended March 31, 2011
										Brazil Equity
		Other Investments				Shopping Centers				Investment				Other				Total
Total revenues		$	1,422			$	201,562											$	202,984
Operating expenses			(480	)			(68,321	) (A)											(68,801	)
Net operating income			942				133,241												134,183
Unallocated expenses (B)														$	(98,197	)			(98,197	)
Equity in net income of joint ventures and impairment of joint ventures							(3,013	)		$	4,952								1,939
Income from continuing operations																		$	37,925
Total gross real estate assets		$	47,762			$	8,448,981											$	8,496,743

		Three-Month Period Ended March 31, 2010
										Brazil Equity
		Other Investments				Shopping Centers				Investment				Other				Total
Total revenues		$	1,419			$	200,712											$	202,131
Operating expenses			(748	)			(61,854	) (A)											(62,602	)
Net operating income			671				138,858												139,529
Unallocated expenses (B)														$	(161,053	)			(161,053	)
Equity in net income of joint ventures							105			$	1,542								1,647
Loss from continuing operations																		$	(19,877	)
Total gross real estate assets		$	49,727			$	8,736,082											$	8,785,809

15. SUBSEQUENT EVENTS

          The Company’s 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, was settled in April 2011 (Note 9).

          In April 2011, the Company redeemed all outstanding shares of its 8.0% Class G preferred shares, aggregating $180 million, 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 expects to record a non-cash charge of approximately $6.4 million to net income available to common shareholders in the second quarter of 2011 relating to the write-off of the Class G preferred shares’ original issuance costs.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides readers with a perspective from management on the Company’s financial condition, results of operations, liquidity and other factors that may affect the Company’s future results. The Company believes it is important to read the MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2010 as well as other publicly available information.

Executive Summary

          The Company is a self-administered and self-managed real estate investment trust (“REIT”) in the business of owning, managing and developing a portfolio of shopping centers. As of March 31, 2011, the Company’s portfolio consisted of 476 shopping centers and five office properties (including 191 shopping centers owned through unconsolidated joint ventures and three shopping centers that are otherwise consolidated by the Company). These properties consist of shopping centers, lifestyle centers and enclosed malls owned in the United States, Puerto Rico and Brazil. At March 31, 2011, the Company owned and/or managed approximately 124.3 million total square feet of gross leasable area (“GLA”), which includes all of the aforementioned properties and 41 properties owned by a third party. The Company also owns land in Canada and Russia at which active development was deferred. At March 31, 2011, the aggregate occupancy of the Company’s shopping center portfolio was 88.1%, as compared to 86.4% at March 31, 2010. The Company owned 552 shopping centers and six office properties at March 31, 2010. The average annualized base rent per occupied square foot was $13.16 at March 31, 2011, as compared to $12.79 at March 31, 2010.

          Net income applicable to DDR common shareholders for the three-month period ended March 31, 2011, was $24.7 million, or $0.01 per share diluted and $0.10 per share basic, compared to net loss applicable to DDR common shareholders of $34.8 million, or $0.15 per share (diluted and basic), for the prior-year comparable period. Funds from operations (“FFO”) applicable to DDR common shareholders for the three-month period ended March 31, 2011, was $89.1 million compared to $28.4 million for the three-month period ended March 31, 2010. The increase in net income applicable to DDR common shareholders and FFO applicable to DDR common shareholders for the three-month period ended March 31, 2011, was primarily the result of the gain on change in control of interests relating to the Company’s acquisition of two assets from unconsolidated joint ventures and the effect of the valuation adjustments associated with the warrants that were exercised in full for cash in the first quarter of 2011, partially offset by an executive separation charge.

First Quarter 2011 Operating Results

          The Company maintained strong operating performance in the first quarter of 2011 as evidenced by the number of leases executed during the quarter and continued upward trending in average rental rates. The Company executed 428 total leases for over 2.6 million square feet during the first quarter. First-year rents on new deals provide a solid indicator of leasing trends. The average first-year rent for all new deals executed in the first quarter of 2011 was $14.17 per square foot, an increase from $12.80 per square foot in the first quarter of 2010. This growth was achieved without

increasing the Company’s historically low tenant capital expenditures. The weighted average cost of tenant improvements and lease commissions estimated to be incurred for leases executed during the quarter was only $2.44 per square foot.

          The Company continued to execute on its long-term plan to reduce leverage, extend debt maturities and overall improve the Company’s liquidity. The achievements in the first quarter of 2011 included the following: