UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

For the quarterly period ended September 30, 2007

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

For the transition period from                      to                     

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		(I.R.S. Employer
incorporation or organization)		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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o

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

     As of November 5, 2007, the registrant had 122,859,891 outstanding common shares, without par value.

 

 

PART I
FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS — Unaudited

Condensed Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006.

Condensed Consolidated Statements of Operations for the Three-Month Periods ended September 30, 2007 and 2006.

Condensed Consolidated Statements of Operations for the Nine-Month Periods ended September 30, 2007 and 2006.

Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods ended September 30, 2007 and 2006.

Notes to Condensed Consolidated Financial Statements.

EX-31.1

EX-31.2

EX-32.1

EX-32.2

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		September 30,				December 31,
		2007				2006
Assets
Real estate rental property:
Land		$	2,083,569			$	1,768,702
Buildings			5,899,244				5,023,665
Fixtures and tenant improvements			236,167				196,275
Construction in progress and land under development			583,235				453,493
			8,802,215				7,442,135
Less: Accumulated depreciation			(973,316	)			(861,266	)
Real estate, net			7,828,899				6,580,869
Cash and cash equivalents			49,700				28,378
Notes receivable			16,778				18,161
Investments in and advances to joint ventures			644,318				291,685
Deferred charges, net			31,276				23,708
Other assets			342,296				231,628
Real estate held for sale			—				5,324
		$	8,913,267			$	7,179,753
Liabilities and Shareholders’ Equity
Unsecured indebtedness:
Senior notes		$	2,624,003			$	2,218,020
Revolving credit facilities			625,000				297,500
			3,249,003				2,515,520
Secured indebtedness:
Term debt			550,000				400,000
Mortgage and other secured indebtedness			1,405,143				1,333,292
			1,955,143				1,733,292
Total indebtedness			5,204,146				4,248,812
Accounts payable and accrued expenses			167,682				134,781
Dividends payable			88,052				71,269
Other liabilities			129,407				106,775
			5,589,287				4,561,637
Minority equity interest			98,594				104,596
Operating partnership minority interests			17,114				17,337
			5,704,995				4,683,570
Commitments and contingencies
Shareholders’ equity:
Class F – 8.6% cumulative redeemable preferred shares, without par value, $250 liquidation value; 750,000 shares authorized; 600,000 shares issued and outstanding at December 31, 2006			—				150,000
Class G – 8.0% cumulative redeemable preferred shares, without par value, $250 liquidation value; 750,000 shares authorized; 720,000 shares issued and outstanding at September 30, 2007 and December 31, 2006			180,000				180,000
Class H – 7.375% cumulative redeemable preferred shares, without par value, $500 liquidation value; 410,000 shares authorized; 410,000 shares issued and outstanding at September 30, 2007 and December 31, 2006			205,000				205,000
Class I – 7.5% cumulative redeemable preferred shares, without par value, $500 liquidation value; 340,000 shares authorized; 340,000 shares issued and outstanding at September 30, 2007 and December 31, 2006			170,000				170,000
Common shares, without par value, $.10 stated value; 300,000,000 shares authorized; 126,791,928 and 109,739,262 shares issued at September 30, 2007 and December 31, 2006, respectively			12,679				10,974
Paid-in-capital			3,028,478				1,959,629
Accumulated distributions in excess of net income			(213,358	)			(159,615	)
Deferred obligation			19,123				12,386
Accumulated other comprehensive income			21,403				7,829
Less: Common shares in treasury at cost: 3,934,726 shares at September 30, 2007 and 752,975 shares at December 31, 2006, respectively			(215,053	)			(40,020	)
			3,208,272				2,496,183
		$	8,913,267			$	7,179,753

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2007				2006
Revenues from operations:
Minimum rents		$	158,868			$	134,937
Percentage and overage rents			1,988				1,583
Recoveries from tenants			52,139				43,543
Ancillary and other property income			5,129				4,753
Management, development and other fee income			13,827				8,366
Other			2,110				1,018
			234,061				194,200
Rental operation expenses:
Operating and maintenance			33,270				26,529
Real estate taxes			26,772				23,551
General and administrative			19,626				14,974
Depreciation and amortization			56,565				46,172
			136,233				111,226
Other income (expense):
Interest income			1,569				1,587
Interest expense			(62,524	)			(52,244	)
Other expense			(225	)			(203	)
			(61,180	)			(50,860	)
Income before equity in net income of joint ventures, minority interests, tax (expense) benefit of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate			36,648				32,114
Equity in net income of joint ventures			6,003				12,868
Income before minority interests, tax (expense) benefit of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate			42,651				44,982
Minority interests:
Minority equity interests			(1,405	)			(1,749	)
Operating partnership minority interests			(569	)			(534	)
			(1,974	)			(2,283	)
Tax (expense) benefit of taxable REIT subsidiaries and franchise taxes			(484	)			330
Income from continuing operations			40,193				43,029
Discontinued operations:
(Loss) income from discontinued operations			(291	)			2,652
(Loss) gain on disposition of real estate			(310	)			3,169
			(601	)			5,821
Income before gain on disposition of real estate			39,592				48,850
Gain on disposition of real estate			3,691				13,962
Net income		$	43,283			$	62,812
Preferred dividends			10,567				13,792
Net income applicable to common shareholders		$	32,716			$	49,020
Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders		$	0.27			$	0.40
Income from discontinued operations			—				0.05
Net income applicable to common shareholders		$	0.27			$	0.45
Diluted earnings per share data:
Income from continuing operations applicable to common shareholders		$	0.26			$	0.40
Income from discontinued operations			—				0.05
Net income applicable to common shareholders		$	0.26			$	0.45

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2007				2006
Revenues from operations:
Minimum rents		$	484,317			$	397,542
Percentage and overage rents			5,564				5,246
Recoveries from tenants			153,873				125,138
Ancillary and other property income			14,096				13,471
Management, development and other fee income			34,906				21,320
Other			13,564				9,226
			706,320				571,943
Rental operation expenses:
Operating and maintenance			95,460				77,941
Real estate taxes			82,944				66,446
General and administrative			60,304				45,805
Depreciation and amortization			163,196				135,194
			401,904				325,386
Other income (expense):
Interest income			7,751				7,543
Interest expense			(196,975	)			(155,312	)
Other (expense) income			(675	)			464
			(189,899	)			(147,305	)
Income before equity in net income of joint ventures, minority interests, tax benefit of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate			114,517				99,252
Equity in net income of joint ventures			33,887				22,956
Income before minority interests, tax benefit of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate			148,404				122,208
Minority interests:
Minority equity interests			(4,293	)			(4,903	)
Preferred operating partnership minority interests			(9,690	)			—
Operating partnership minority interests			(1,706	)			(1,601	)
			(15,689	)			(6,504	)
Tax benefit of taxable REIT subsidiaries and franchise taxes			15,287				2,690
Income from continuing operations			148,002				118,394
Discontinued operations:
Income from discontinued operations			8,218				8,588
Gain on disposition of real estate			13,323				3,169
			21,541				11,757
Income before gain on disposition of real estate			169,543				130,151
Gain on disposition of real estate, net of tax of $4.5 million and $0.8 million in 2007 and 2006, respectively			63,713				61,124
Net income		$	233,256			$	191,275
Preferred dividends			40,367				41,377
Net income applicable to common shareholders		$	192,889			$	149,898
Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders		$	1.42			$	1.26
Income from discontinued operations			0.18				0.11
Net income applicable to common shareholders		$	1.60			$	1.37
Diluted earnings per share data:
Income from continuing operations applicable to common shareholders		$	1.41			$	1.26
Income from discontinued operations			0.18				0.11
Net income applicable to common shareholders		$	1.59			$	1.37

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

		2007				2006
Net cash flow provided by operating activities:		$	334,570			$	285,398
Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed			(2,726,074	)			(350,234	)
Proceeds from sale and refinancing of joint venture interests			38,650				22,086
Equity contributions to joint ventures			(232,643	)			(31,861	)
Proceeds from notes receivable, net			937				746
Proceeds from joint venture advances, net			1,839				340
Return of investments in joint ventures			12,152				—
Proceeds from disposition of real estate			1,978,464				318,794
Net cash flow used for investing activities			(926,675	)			(40,129	)
Cash flow from financing activities:
Proceeds (repayments) from revolving credit facilities, net			327,500				(230,000	)
Proceeds from term loans			900,000				185,000
Repayment of term loans			(750,000	)			—
Repayment of medium term notes			(110,000	)			—
Repayment of senior notes			(85,000	)			—
Proceeds from construction loans and mortgages			61,526				3,347
Principal payments on mortgage debt			(383,116	)			(143,495	)
Payment of deferred finance costs			(3,011	)			(3,767	)
Purchased option arrangement on common shares			(32,580	)			(10,337	)
Proceeds from issuance of convertible senior notes, net of underwriting commissions and offering expenses of $267 and $550 in 2007 and 2006, respectively			587,733				244,450
Proceeds from issuance of common shares in conjunction with the exercise of stock options, dividend reinvestment plan and restricted stock plan			7,634				7,051
Proceeds from issuance of preferred operating partnership interest, net of expenses			484,204				—
Redemption of preferred operating partnership interest			(484,204	)			—
Redemption of preferred shares			(150,000	)			—
Proceeds from issuance of common shares, net of underwriting commissions and offering expenses of $208 in 2007			746,645				—
Distributions to operating partnership minority interests			(11,330	)			(1,813	)
Return of investment-minority interest shareholder			(4,261	)			—
Purchase of operating partnership minority interests			(683	)			—
Repurchase of common shares			(222,819	)			(48,313	)
Dividends paid			(264,811	)			(229,616	)
Net cash flow provided by (used for) financing activities			613,427				(227,493	)
Increase in cash and cash equivalents			21,322				17,776
Cash and cash equivalents, beginning of period			28,378				30,655
Cash and cash equivalents, end of period		$	49,700			$	48,431

Supplemental disclosure of non-cash investing and financing activities:

     For the nine-month period ended September 30, 2007, in conjunction with the merger of IRRETI, the Company acquired real estate assets of $3.0 billion, investments in joint ventures of approximately $31.7 million and accounts receivable, intangible assets and other assets aggregating approximately $92.3 million. A portion of the consideration used to acquire the $3.0 billion of assets included assumed debt of $446.5 million and accounts payable and other liabilities aggregating approximately $27.1 million and common shares of approximately $394.2 million. In conjunction with the redemption of the Company’s Class F Cumulative Redeemable Preferred Shares, the Company recorded a non-cash dividend to net income available to common shareholders of $5.4 million relating to the write-off of original issuance costs. Other liabilities included approximately $6.6 million, which represents the fair value of the Company’s interest rate swap. At September

30, 2007, dividends payable were $88.1 million. In January 2007, in accordance with the terms of the performance unit plans, the Company issued 466,666 restricted shares of which 70,000 vested as of the date of issuance. The remaining 396,666 shares will vest in 2008 through 2011. The foregoing transactions did not provide for or require the use of cash for the nine-month period ended September 30, 2007.

     For the nine-month period ended September 30, 2006, in connection with the adoption of EITF 04-05 (“Investor’s Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights”), as of January 1, 2006 the Company consolidated real estate assets of $41.4 million and a mortgage payable of $17.1 million. In conjunction with the acquisition of its partners’ interests in four shopping centers during the nine-month period ended September 30, 2006, the Company acquired real estate assets of $212.6 million and assumed debt of $104.1 million. For the nine-month period ended September 30, 2006, in conjunction with the acquisition of its partners’ interests in 52 assets, the Company acquired real estate assets of $156.3 million, other assets of $25.9 million and assumed debt of $28.8 million. For the nine-month period ended September 30, 2006, minority interests with a book value of approximately $14.2 million were converted into approximately 0.4 million common shares of the Company, resulting in an increase of approximately $8.2 million in real estate assets. Other liabilities included approximately $1.4 million, which represents the fair value of the Company’s interest rate swap. At September 30, 2006, dividends payable were $71.2 million. The foregoing transactions did not provide for or require the use of cash for the nine-month period ended September 30, 2006.

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

DEVELOPERS DIVERSIFIED REALTY CORPORATION

Notes to Condensed Consolidated Financial Statements

1. NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION

     Developers Diversified Realty Corporation and its related real estate joint ventures and subsidiaries (collectively, the “Company” or “DDR”) are engaged in the business of acquiring, expanding, owning, developing, redeveloping, leasing and managing shopping centers.

     On February 22, 2007, Inland Retail Real Estate Trust, Inc. (“IRRETI”) shareholders approved a merger with a subsidiary of the Company pursuant to a merger agreement among IRRETI, the Company and the subsidiary. In the merger, the Company acquired all of the outstanding shares of IRRETI for a total merger consideration of $14.00 per share, of which $12.50 per share was funded in cash and $1.50 per share was paid in the form of DDR common shares. As a result, on February 27, 2007, the Company issued 5.7 million DDR common shares to the IRRETI shareholders with an aggregate value of approximately $394.2 million (Note 5).

     Use of Estimates

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

     Unaudited Interim Financial Statements

     These financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three and nine-month periods ended September 30, 2007 and 2006 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 8-K dated June 30, 2007 and filed on November 9, 2007 (which financial statements reflect the impact of property sales as discontinued operations pursuant to the provisions of SFAS 144 - “Accounting for the Impairment or Disposal of Long Lived Assets”) for the year ended December 31, 2006.

     The Company consolidates certain entities in which it owns less than a 100% equity interest if the entity is a variable interest entity (“VIE”), as defined in Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R) “Consolidation of Variable Interest Entities” (“FIN 46(R)”) and the Company is deemed to be the primary beneficiary in the VIE. The Company also consolidates certain

entities that are not a VIE as described in FIN 46(R) in which it has effective control. The Company consolidated one entity as a result of the adoption of the Emerging Issues Task Force (“EITF”) 04-05, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights.” The equity method of accounting is applied to entities in which the Company is not the primary beneficiary as defined by FIN 46(R), or does not have effective control, but can exercise influence over the entity with respect to its operations and major decisions.

     Comprehensive Income

     Comprehensive income is as follows (in thousands):

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Net income		$	43,283			$	62,812			$	233,256			$	191,275
Other comprehensive (loss) income:
Change in fair value of interest rate contracts			(11,155	)			(5,303	)			(4,239	)			(3,130	)
Amortization of interest rate contracts			(364	)			(364	)			(1,091	)			(1,091	)
Foreign currency translation			6,913				—				18,904				—
Other comprehensive (loss) income			(4,606	)			(5,667	)			13,574				( 4,221	)
Total comprehensive income		$	38,677			$	57,145			$	246,830			$	187,054

     New Accounting Standards Implemented

Accounting for Uncertainty in Income Taxes — FIN 48

     In January 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of Statement of Financial Accounting Standard (“SFAS”) No. 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). This statement is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years.

     The Company’s policy for classifying estimated interest and penalties is to include such amounts as “Income Tax of Taxable REIT Subsidiaries and Franchise Taxes” in the Condensed Consolidated Statements of Operations. The amount of interest and penalties at September 30, 2007 and for the three and nine-month periods ended September 30, 2007 and 2006 was not material. The Company does not have any unrecognized tax benefits related to uncertain tax provisions that, if recognized, would impact the effective tax rate and does not expect this position to change within the next twelve months. The Company is no longer subject to income tax audits by taxing authorities for years through 2003. The effect of FIN 48 did not have a material impact on the Company’s financial position, results of operations or cash flows.

     New Accounting Standards to be Implemented

Fair Value Measurements — SFAS 157

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value and establishes a framework for measuring fair value under generally accepted accounting principles. The key changes to current practice are (1) the definition of fair value, which focuses on an exit price rather than an entry price; (2) the methods used to measure fair value, such as emphasis that fair value is a market-based measurement, not an entity-specific measurement, as well as the inclusion of an adjustment for risk, restrictions and credit standing and (3) the expanded disclosures about fair value measurements. This statement applies only to those items under other accounting pronouncements for which the FASB previously concluded that fair value is the relevant measurement attribute and does not require or permit any new fair value measurements.

     This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is required to adopt SFAS 157 in the first quarter of 2008. The Company is currently evaluating the impact that this Statement will have on its financial statements.

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

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This Statement allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item are to be reported in current earnings at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes a company elects for similar types of assets and liabilities.

     This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is required to adopt SFAS 159 in the first quarter of 2008. The Company is currently evaluating the impact that this statement will have on its financial statements.

2. EQUITY INVESTMENTS IN JOINT VENTURES

     At September 30, 2007 and December 31, 2006, the Company had ownership interests in various unconsolidated joint ventures which, as of the respective dates, owned 273 and 117 shopping center properties and 44 and 50 shopping center sites formerly owned by Service Merchandise Company, Inc. Included in these amounts are the shopping center properties owned by Dividend Capital Total Realty Trust Joint Venture, which acquired three assets in the second quarter of 2007, and DDR MDT PS LLC, which acquired six assets in June 2006. These assets have been segregated and discussed separately in Notes 3 and 4. Dividend Capital Total Realty Trust Joint Venture was considered a significant subsidiary at September 30, 2007 and is excluded from the 2007 combined amounts presented below. DDR MDT PS LLC was considered a significant subsidiary at September 30, 2006 and is excluded from the 2006 and 2007 combined amounts presented below.

     During the nine-month period ended September 30, 2007, the Company formed a joint venture with TIAA-CREF (“TIAA-CREF Joint Venture”), as described below, which owns 66 shopping centers and, as a result of the merger with IRRETI, the Company acquired an investment in an additional unconsolidated joint venture, which owns 29 shopping centers. DDR, on behalf of itself and the TIAA-CREF Joint Venture, has engaged an appraiser to perform valuations of the real estate, assumed liabilities and certain other assets in connection with the acquisition of the shopping centers by the joint venture in February 2007. As a result, the purchase price allocation is preliminary and subject to change.

     Combined condensed financial information of the Company’s unconsolidated joint venture investments, excluding those amounts for Dividend Capital Total Realty Trust Joint Venture and DDR MDT PS LLC reported in Notes 3 and 4 is as follows (in thousands):

		September 30,				December 31,
		2007				2006
Combined Balance Sheets:
Land		$	2,310,502			$	902,486
Buildings			6,023,904				2,703,711
Fixtures and tenant improvements			104,477				57,989
Construction in progress			139,153				157,750
			8,578,036				3,821,936
Less: Accumulated depreciation			(358,256	)			(245,674	)
Real estate, net			8,219,780				3,576,262
Receivables, net			118,462				70,903
Leasehold interests			14,313				15,195
Other assets			378,332				129,914
		$	8,730,887			$	3,792,274
Mortgage debt		$	5,329,724			$	2,409,080
Amounts payable to DDR			8,516				4,930
Other liabilities			196,437				92,904
			5,534,677				2,506,914
Accumulated equity			3,196,210				1,285,360
		$	8,730,887			$	3,792,274
Company’s share of accumulated equity (1)		$	603,062			$	252,937

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Combined Statements of Operations:
Revenues from operations		$	224,185			$	101,447			$	563,663			$	303,437
Expenses:
Rental operation			71,989				34,117				182,965				99,826
Depreciation and amortization			53,645				18,875				131,257				58,195
Interest			78,020				34,546				186,609				92,098
			203,654				87,538				500,831				250,119
Income before income tax expense, (loss) gain on disposition of real estate and discontinued operations			20,531				13,909				62,832				53,318
Income tax expense			(2,958	)			—				(7,503	)			—
(Loss) gain on disposition of real estate			(103	)			193				92,987				237
Income from continuing operations			17,470				14,102				148,316				53,555
Discontinued operations:
(Loss) income from discontinued operations			(323	)			(22	)			(649	)			805
Gain on disposition of real estate			1,790				21,460				2,529				19,910
Net income		$	18,937			$	35,540			$	150,196			$	74,270
Company’s share of equity in net income of joint ventures (2)		$	6,290			$	12,583			$	34,558			$	22,360

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

		September 30, 2007				December 31, 2006
Company’s proportionate share of accumulated equity		$	608.4			$	252.9
Basis differentials (2)			109.7				92.3
Deferred development fees, net of portion relating to the
Company’s interest			(3.6	)			(3.0	)
Basis differential upon transfer of assets (2)			(98.2	)			(74.3	)
Notes receivable from investments			19.2				18.8
Amounts payable to DDR			8.8				5.0
Investments in and advances to joint ventures (1)		$	644.3			$	291.7

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

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Management and other fees		$	10.5			$	6.7			$	27.4			$	16.8
Development fees and leasing commissions			3.0				1.3				6.9				4.1
Interest income			0.3				0.7				0.5				5.0
Acquisition, financing and other fees (1)			0.6				0.1				8.5				0.6

DDR Domestic Retail Fund I

     In the second quarter of 2007, the Company formed DDR Domestic Retail Fund I (the “Fund”), a sponsored, fully-seeded commingled fund. The Fund acquired 63 shopping center assets aggregating 8.3 million square feet (“Portfolio”) from the Company and a joint venture for approximately $1.5 billion. The Portfolio is comprised of 54 assets acquired by the Company through its acquisition of IRRETI, seven assets formerly held in a joint venture with Kuwait Financial Centre (“DDR Markaz LLC Joint Venture”), in which the Company had a 20% ownership interest, and two assets from the Company’s wholly-owned portfolio. The Company recognized a gain of approximately $9.6 million, net of its 20% retained interest, from the sale of the two wholly-owned assets, which is included in gain on disposition of real estate in the Company’s statements of operations. In conjunction with the formation of the Fund and identification of the equity partners, the Company paid a $7.7 million fee to a third party consulting firm and recognized this amount as a reduction to gain on disposition of real estate. The DDR Markaz LLC Joint Venture recorded a gain of approximately $90.1 million. The Company’s proportionate share of approximately $18.0 million of the joint venture gain was deferred as the Company retained an effective 20% ownership interest in these assets. As the Company does not have economic or effective control, the Fund is accounted for using the equity method of accounting. The Company remains responsible for all day-to-day operations of the properties and receives fees for asset management and property management, leasing, construction management and ancillary income in addition to a promoted interest. In addition, upon the sale of the assets from the DDR Markaz LLC Joint Venture to the Fund, the Company recognized promoted income of approximately $13.6 million, which is included in the equity in net income of joint ventures. DDR, on behalf of itself and the DDR Domestic Retail Fund I Joint Venture, has engaged an appraiser to perform valuations of the real estate, assumed liabilities and certain other assets in connection with the acquisition by the joint venture. As a result, the purchase price allocation is preliminary and subject to change.

TIAA-CREF Joint Venture

     In February 2007, TIAA-CREF and the Company formed the TIAA-CREF Joint Venture which acquired 66 shopping center assets from IRRETI comprising approximately 23.1 million square feet of total GLA. The TIAA-CREF Joint Venture is owned 85% by TIAA-CREF and 15% by the Company. As the Company does not have economic or effective control, the TIAA-CREF Joint Venture is accounted for using the equity method of accounting. Real estate and related assets of approximately $3.0 billion were acquired by the TIAA-CREF Joint Venture. The TIAA-CREF Joint Venture has debt of approximately $1.8 billion, of which $285.6 million was assumed in connection with the acquisition of the properties. Pursuant to the terms of the joint venture agreement, the Company earned an acquisition fee of $6.3 million and receives ongoing asset management, property management and construction management fees, plus fees on leasing and ancillary income.

Macquarie DDR Trust

     During August and September 2007, the Company contributed three shopping center properties, aggregating 0.5 million square feet, to the Company’s joint venture with Macquarie DDR Trust (ASX: MDT) (“MDT”), an Australian Listed Property Trust sponsored by Macquarie Bank Limited (ASX:MBL), an international investment bank and leading advisor and manager of specialized real estate funds in Australia. The aggregate purchase price for the properties was $49.8 million. The assets were recently acquired by the Company as part of its acquisition of IRRETI, and as a result, the Company did not record a gain on the transaction. As the Company does not have economic or effective control, the joint venture is accounted for using the equity method of accounting. The Company retained a 14.5% ownership interest in the properties, remains responsible for day-to-day operations and receives ongoing fees for property management, leasing and construction management, and base asset management fees in addition to a promoted interest.

Other Unconsolidated Joint Ventures

     In June 2007, the Company’s RVIP VI Joint Venture, in which the Company has an effective 25.75% ownership interest, sold its one remaining property in Overland Park, Kansas for approximately $8.2 million. The joint venture recognized a gain of approximately $1.3 million, of which the Company’s proportionate share was approximately $0.3 million.

     During the first quarter of 2007, the Company’s joint venture in Brazil acquired an additional 73% interest in Shopping Metropole Center and, as such, the joint venture now owns 83% of this shopping center. The Company contributed approximately $24.6 million for its proportionate share of the acquisition of the additional interest.

     Effective January 2007, the Company acquired the remaining 25% minority interest in Coventry I and, as such, the Company now owns 100% of this entity. The aggregate purchase price was approximately $13.8 million. This entity generally serves as the general partner of the Company’s RVIP joint ventures.

3. DIVIDEND CAPITAL TOTAL REALTY TRUST JOINT VENTURE

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

     At September 30, 2007, the Company’s investment in Dividend Capital Total Realty Trust Joint Venture is considered a significant subsidiary pursuant to the applicable Regulation S-X rules, due to

the recognition of a gain in the second quarter of 2007 of approximately $54.8 million relating to the contribution of the assets to the joint venture.

     Condensed financial information of Dividend Capital Total Realty Trust Joint Venture is as follows (in thousands):

		September 30,
		2007
Balance Sheet:
Land		$	31,615
Buildings			125,084
Fixtures and tenant improvements			1,968
			158,667
Less: Accumulated depreciation			(1,772	)
Real estate, net			156,895
Receivables, net			1,681
Other assets			5,064
		$	163,640
Mortgage debt		$	110,000
Other liabilities			402
			110,402
Accumulated equity			53,238
		$	163,640
Company’s share of accumulated equity		$	5,324

		Three-Month				Nine-Month
		Period Ended				Period Ended
		September 30, 2007				September 30, 2007
Statements of Operations:
Revenues from operations		$	3,491			$	5,308
Expenses:
Rental operation			982				1,363
Depreciation and amortization			1,256				1,935
Interest			1,525				2,390
			3,763				5,688
Net loss		$	(272	)		$	(380	)
Company’s share of equity in net loss of joint venture		$	(27	)		$	(38	)

4. DDR MDT PS LLC

     In the second quarter of 2006, the Company contributed six properties, aggregating 0.8 million owned square feet, to a then newly formed joint venture with MDT (“DDR MDT PS LLC”). At September 30, 2006, the Company’s investment in DDR MDT PS LLC was considered a significant subsidiary pursuant to the applicable Regulation S-X rules, due to the recognition of a gain in the second quarter of 2006 of approximately $38.5 million relating to the contribution of the assets to the joint venture.

     Under the terms of the joint venture agreement for DDR MDT PS LLC, MDT receives a 9% preferred return on its preferred equity investment of approximately $12.2 million and then receives a 10% return on its common equity investment of approximately $20.8 million before the Company receives a 10% return on an agreed upon common equity investment of $3.5 million that has not been recognized in the consolidated balance sheet due to the terms of its subordination. The Company is then entitled to a 20% promoted interest in any cash flow achieved above a 10% leveraged internal rate of return on all common equity. The Company recognizes its proportionate share of equity in earnings of DDR MDT PS LLC at an amount equal to increases in its common equity investment, based upon an assumed liquidation, including consideration of cash received, of the joint venture at its depreciated book value as of the end of each reporting period. The Company has not recorded any equity in earnings from DDR MDT PS LLC for the nine-month periods ended September 30, 2007 or 2006.

Condensed financial information of DDR MDT PS LLC is as follows (in thousands):

		September 30,				December 31,
		2007				2006
Balance Sheet:
Land		$	31,643			$	31,430
Buildings			85,508				85,152
Fixtures and tenant improvements			1,208				1,177
Construction in progress			—				12
			118,359				117,771
Less: Accumulated depreciation			(3,074	)			(1,338	)
Real estate, net			115,285				116,433
Receivables, net			3,723				4,121
Other assets			4,634				3,070
		$	123,642			$	123,624
Mortgage debt		$	86,000			$	86,000
Amounts payable to DDR			295				30
Other liabilities			2,372				1,744
			88,667				87,774
Accumulated equity			34,975				35,850
		$	123,642			$	123,624
Company’s share of accumulated equity		$	—			$	—

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Statements of Operations:
Revenues from operations		$	3,259			$	2,840			$	8,906			$	3,557
Expenses:
Rental operation			1,120				957				3,401				1,423
Depreciation and amortization			667				679				2,015				887
Interest			1,339				1,339				3,975				1,689
			3,126				2,975				9,391				3,999
Net income (loss)		$	133			$	(135	)		$	(485	)		$	(442	)
Company’s share of equity in net income (loss) of joint venture		$	—			$	—			$	—			$	—

5. ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION

     Acquisitions

     On February 22, 2007, IRRETI shareholders approved a merger with a subsidiary of the Company pursuant to a merger agreement among IRRETI, the Company and the subsidiary. In the merger, the Company acquired all of the outstanding shares of IRRETI for a total merger consideration of $14.00 per share, of which $12.50 per share was funded in cash and $1.50 per share was paid in the form of DDR common shares. As a result, on February 27, 2007, the Company issued 5.7 million DDR common shares to the IRRETI shareholders with an aggregate value of approximately $394.2 million valued at $69.54 per share, which was the average closing price of the Company’s common shares for the 10 trading days immediately preceding the two trading days prior to the IRRETI shareholders’ meeting. The merger was accounted for utilizing the purchase method of accounting. The Company entered into the merger to acquire a large portfolio of assets, among other reasons.

     The IRRETI merger was initially recorded at a total cost of approximately $6.2 billion. Real estate and related assets of approximately $3.0 billion were recorded by both the Company and the TIAA-CREF Joint Venture (Note 2). The Company assumed debt at a fair market value of approximately $443.0 million. The IRRETI real estate portfolio consists of 316 community shopping centers, neighborhood shopping centers and single tenant/net leased retail properties, comprising approximately 44.2 million square feet of total GLA, and five development properties. The TIAA-CREF Joint Venture consists of 66 shopping centers comprising approximately 23.1 million square feet of total GLA.

     DDR, on behalf of itself and the TIAA-CREF Joint Venture, engaged an appraiser to assist with the valuations of the real estate and certain other assets. As a result, the purchase price allocation recorded as of September 30, 2007 is preliminary and subject to change. As final information regarding the fair value of the assets acquired and liabilities assumed is received and estimates are refined, appropriate adjustments will be made to the purchase price allocation. The allocations are expected to be finalized no later than twelve months from the acquisition date. The revenues and expenses relating to the IRRETI properties are included in DDR’s historical results of operations from

the date of the merger, February 27, 2007. At September 30, 2007, the total aggregate purchase price, which has been reduced by the sale of IRRETI assets in 2007, was allocated as follows (in thousands):

Land		$	432,141
Building			1,121,387
Tenant improvements			16,005
Intangible assets			32,010
		$	1,601,543

     Pro Forma Financial Information

     The following supplemental pro forma operating data is presented for the three and nine-month periods ended September 30, 2007 and 2006, as if the IRRETI merger and the formation of the TIAA-CREF Joint Venture were completed as of the beginning of each period presented. Pro forma amounts include general and administrative expenses that IRRETI reported in its historical results of approximately $48.3 million for the nine-month period ended September 30, 2007, including severance, a substantial portion of which management believes to be non-recurring.

     These acquisitions were accounted for using the purchase method of accounting. The revenues and expenses related to assets and interests acquired are included in the Company’s historical results of operations from the date of purchase. In addition, the following supplemental pro forma operating data does not present sales of assets for the three and nine-month periods ended September 30, 2007 and 2006 or the formation of the DDR Domestic Retail Fund I and the Dividend Capital Total Realty Trust Joint Venture or the contribution of three asset to Macquarie DDR Trust (Notes 2 and 3). The Company sold 78 of the assets acquired in the merger with IRRETI to an independent buyer and through the contribution of assets to joint ventures.

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

		Three-Month Periods Ended								Nine-Month Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Pro forma revenues		$	234,061			$	261,142			$	745,711			$	773,432
Pro forma income from continuing operations		$	40,193			$	41,057			$	95,618			$	117,880
Pro forma (loss) income from discontinued		$	(601	)		$	5,821			$	21,541			$	11,757
Pro forma net income applicable to common shareholders		$	32,716			$	47,048			$	140,638			$	149,384
Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders		$	0.27			$	0.32			$	0.96			$	1.09
Income from discontinued operations			—				0.05				0.17				0.09
Net income applicable to common shareholders		$	0.27			$	0.37			$	1.13			$	1.18
Diluted earnings per share data:
Income from continuing operations applicable to common shareholders		$	0.26			$	0.32			$	0.95			$	1.08
Income from discontinued operations			—				0.05				0.17				0.09
Net income applicable to common shareholders		$	0.26			$	0.37			$	1.12			$	1.17

6. OTHER ASSETS

Other assets consist of the following (in thousands):

		September 30,				December 31,
		2007				2006
Intangible assets:
In-place leases (including lease origination costs and fair market value of leases), net		$	36,178			$	1,485
Tenant relations, net			10,340				12,969
Total intangible assets (1)			46,518				14,454
Other assets:
Accounts receivable, net (2)			204,725				152,161
Prepaids, deposits and other assets (3)			91,053				65,013
Total other assets		$	342,296			$	231,628

7. REVOLVING CREDIT FACILITIES AND TERM LOANS

     The Company maintains an unsecured revolving credit facility with a syndicate of financial institutions, for which JP Morgan serves as the administrative agent (the “Unsecured Credit Facility”). The Unsecured Credit Facility provides for borrowings of $1.2 billion, an accordion feature for a future expansion to $1.4 billion and a maturity date of June 2010, with a one-year extension option. The Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to 50% of

the facility. The Company’s borrowings under the Unsecured Credit Facility bear interest at variable rates at the Company’s election, based on either (i) the prime rate, as defined in the facility or (ii) LIBOR, plus a specified spread (0.60% at September 30, 2007). The specified spread over LIBOR varies depending on the Company’s long-term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these covenants at September 30, 2007. The facility also provides for a facility fee of 0.15% on the entire facility. At September 30, 2007, total borrowings under this facility aggregated $625.0 million with a weighted average interest rate of 5.8%.

     The Company also maintains a $60 million unsecured revolving credit facility with National City Bank which has a maturity date of June 2010. The terms are consistent with those contained in the Unsecured Credit Facility. Borrowings under the facility bear interest at variable rates, at the Company’s election, based on the (i) prime rate, as defined in the facility or (ii) LIBOR plus a specified spread (0.60% at September 30, 2007). The specified spread over LIBOR is dependent on the Company’s long-term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The Company was in compliance with these covenants at September 30, 2007. At September 30, 2007, there were no borrowings under this facility.

     The Company also maintains a collateralized term loan agreement with a syndicate of financial institutions, for which KeyBank Capital Markets serves as the administrative agent. This term loan was amended in February 2007 to increase the loan to $550 million, add an accordion feature for a future expansion to $800 million, extend the maturity date to February 2011 and reduce the interest rate to LIBOR plus 0.70% based on the Company’s current credit rating. The collateral for this loan are assets, or investment interests in certain assets, that are already collateralized by first mortgage loans. At September 30, 2007, total borrowings under this facility aggregated $550.0 million with a weighted average interest rate of 5.7%.

     In February 2007, the Company entered into a $750 million unsecured bridge facility (“Bridge Facility”) with Bank of America, N.A. in connection with the financing of the IRRETI merger. The Bridge Facility had a maturity date of August 2007 and bore interest at LIBOR plus 0.75%. This Bridge Facility was repaid in June 2007. Following the repayment, the Company did not have the right to draw on this facility.

8. CONVERTIBLE NOTES

     In March 2007, the Company issued $600 million of Senior Convertible Notes due 2012 (the “Senior Convertible Notes”). The Senior Convertible Notes were issued at par and pay interest in cash semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2007. The Senior Convertible Notes are senior unsecured obligations and rank equally with all other senior unsecured indebtedness. The Senior Convertible Notes are subject to net settlement and have an initial conversion price of approximately $74.75 per common share. If certain conditions are met, the incremental value can be settled in cash or the Company’s common shares, at the Company’s option. The Senior Convertible Notes may only be converted prior to maturity based on certain provisions in

the governing note documents. A total of $117.0 million of the net proceeds from the Senior Convertible Notes was used to repurchase the Company’s common stock.

     Concurrent with the issuance of the Senior Convertible Notes, the Company purchased an option on its common stock in a private transaction, in order to effectively increase the conversion premium from 20% to 40% or a conversion price of $87.21 per share at September 30, 2007. This purchase option allows the Company to receive a number of the Company’s common shares, up to a maximum of approximately 1.1 million shares, from counterparties equal to the amounts of common shares and/or cash related to the excess conversion value that it would pay to the holders of the Senior Convertible Notes upon conversion. The option, which cost $32.6 million, was recorded as a reduction of shareholders’ equity.

9. DERIVATIVE FINANCIAL INSTRUMENTS

     In August 2007, the Company entered into an interest rate swap with a notional amount of $100 million for a 4.5 year term. This swap was executed to hedge a portion of interest rate risk associated with variable-rate borrowings. The swap was effective at August 2007, and converts LIBOR into a fixed rate of approximately 4.8% for $100 million of term loan debt.

     In February 2007, a consolidated affiliate of the Company entered into an aggregate notional amount of $600 million of forward starting interest rate swaps. The swaps were executed to hedge the benchmark interest rate and swap spread associated with forecasted interest payments related to the anticipated issuance of fixed-rate borrowings. The swaps were terminated in connection with the issuance of the forecasted fixed-rate borrowing formation and financing of the DDR Domestic Retail Fund I Joint Venture (Note 2) in the second quarter of 2007.

     As of September 30, 2007, the aggregate fair value of the Company’s interest rate swaps was a liability of $6.6 million, which is included in other liabilities in the condensed consolidated balance sheets. For the nine-month period ended September 30, 2007, the amount of hedge ineffectiveness was not material.

10. CONTINGENCIES

     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.

11. SHAREHOLDERS’ EQUITY AND OPERATING PARTNERSHIP UNITS

     The following table summarizes the changes in shareholders’ equity since December 31, 2006 (in thousands):

						Common
						Shares								Accumulated								Accumulated
						($.10								Distributions								Other				Treasury
		Preferred				Stated				Paid-in				In Excess of				Deferred				Comprehensive				Stock
		Shares				Value)				Capital				Net Income				Obligation				Income				at Cost				Total
Balance December 31, 2006		$	705,000			$	10,974			$	1,959,629			$	(159,615	)		$	12,386			$	7,829			$	(40,020	)		$	2,496,183
Issuance of common shares related to exercise of stock options, dividend reinvestment plan, performance plan and director compensation											(27,613	)															31,722				4,109
Issuance of common shares for cash—underwritten offering							1,160				745,485																				746,645
Repurchase of common shares																											(222,819	)			(222,819	)
Issuance of restricted stock							6				(674	)							487								1,459				1,278
Vesting of restricted stock											(3,567	)							6,250								(436	)			2,247
Purchased option arrangement on common shares											(32,580	)																			(32,580	)
Stock-based compensation											3,813																				3,813
Merger with IRRETI							539				378,580																15,041				394,160
Redemption of preferred shares			(150,000	)							5,405				(5,405	)															(150,000	)
Dividends declared—common shares															(246,023	)															(246,023	)
Dividends declared— preferred shares															(35,571	)															(35,571	)
Comprehensive income:
Net income															233,256																233,256
Other comprehensive income:
Change in fair value of interest rate swaps																							(4,239	)							(4,239	)
Amortization of interest rate contracts																							(1,091	)							(1,091	)
Foreign currency translation			—				—				—				—				—				18,904				—				18,904
Comprehensive income			—				—				—				233,256				—				13,574				—				246,830
Balance September 30, 2007		$	555,000			$	12,679			$	3,028,478			$	(213,358	)		$	19,123			$	21,403			$	(215,053	)		$	3,208,272

     Common share dividends declared, per share, were $0.66 and $0.59 for the three-month periods ended September 30, 2007 and 2006, respectively, and were $1.98 and $1.77 for the nine-month periods ended September 30, 2007 and 2006, respectively.

     In June 2007, the Company’s Board of Directors authorized a common share repurchase program. Under the terms of the program, the Company may purchase up to a maximum value of $500 million of its common shares over a two-year period. As of September 30, 2007, the Company had repurchased under this program 2.2 million of its common shares at a weighted average cost of $48.42 per share.

     In April 2007, the Company redeemed all outstanding shares of its 8.6% Class F Cumulative Redeemable Preferred Shares, aggregating $150 million, at a redemption price of $25.10750 per Class F Preferred Share (the sum of $25.00 per share and a dividend per share of $0.10750 prorated to the redemption date). The Company recorded a non-cash dividend to net income available to common shareholders of $5.4 million relating to the write-off of original issuance costs.

     In March 2007, the Company’s Board of Directors authorized the Company to repurchase 1,878,311 common shares at a cost of $62.29 per share in connection with the issuance of the Company’s Senior Convertible Notes (Note 8).

     Stock-based compensation for the nine-month period ended September 30, 2007 included $0.9 million of stock-based compensation expense that was recorded in accordance with the provisions of SFAS 123(R), “Share-Based Payment,” related to the departure of the Company’s former President, effective May 2007.

     In 2007, the vesting of restricted stock grants to certain officers and directors of the Company, approximating 0.1 million common shares of the Company, was deferred through the Company’s non-qualified deferred compensation plans and, accordingly, the Company recorded $6.7 million in deferred obligations.

Operating Partnership Units

     For the nine-month period ended September 30, 2007, the Company purchased 10,480 operating partnership units for cash of $0.7 million. This transaction was treated as a purchase of a minority interest.

Preferred Operating Partnership Units

     In February 2007, a consolidated subsidiary of the Company issued to a designee of Wachovia Bank, N.A. (“Wachovia”), 20,000,000 preferred units (the “Preferred Units”), with a liquidation preference of $25 per unit, aggregating $500 million of the net assets of the Company’s consolidated subsidiary. In accordance with terms of the agreement, the Preferred Units were redeemed at 97.0% of par in the second quarter of 2007.

12. OTHER INCOME

     Other income for the three and nine-month periods ended September 30, 2007 and 2006 was comprised of the following (in millions):

		Three-Month								Nine-Month
		Periods Ended								Periods Ended
		September 30,								September 30,
		2007				2006				2007				2006
Acquisition fees (1)		$	0.1			$	—			$	6.4			$	—
Financings fees (2)			0.1				—				1.5				0.4
Lease termination fees (3)			1.4				0.9				4.9				7.2
Other miscellaneous			0.5				0.1				0.8				1.6
		$	2.1			$	1.0			$	13.6			$	9.2

13. DISCONTINUED OPERATIONS

     Included in discontinued operations for the three and nine-month periods ended September 30, 2007 and 2006, are 66 properties sold in 2007 (including one property held for sale at December 31, 2006 and 21 properties acquired in 2007), aggregating 6.3 million square feet, and six shopping centers sold in 2006, aggregating 0.8 million square feet. This reporting has resulted in certain reclassification of 2006 financial statement amounts. The operating results relating to assets sold are as follows (in thousands):

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Revenues		$	1,345			$	12,306			$	28,060			$	37,211
Expenses:
Operating			1,101				3,453				7,938				9,800
Interest, net			325				3,319				6,801				10,051
Depreciation			210				2,882				5,103				8,772
Total expense			1,636				9,654				19,842				28,623
(Loss) income before (loss) gain on disposition of real estate			(291	)			2,652				8,218				8,588
(Loss) gain on disposition of real estate			(310	)			3,169				13,323				3,169
Net (loss) income		$	(601	)		$	5,821			$	21,541			$	11,757

14. EARNINGS PER SHARE

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

		Three-Month Periods								Nine-Month Periods
		Ended September 30,								Ended September 30,
		2007				2006				2007				2006
Income from continuing operations		$	40,193			$	43,029			$	148,002			$	118,394
Add: Gain on disposition of real estate			3,691				13,962				63,713				61,124
Less: Preferred stock dividends			(10,567	)			(13,792	)			(40,367	)			(41,377	)
Basic and Diluted — Income from continuing operations applicable to common shareholders		$	33,317			$	43,199			$	171,348				$138,141
Number of Shares:
Basic — average shares outstanding			123,329				109,120				120,910				109,124
Effect of dilutive securities:
Stock options			371				488				507				535
Restricted stock			27				62				177				55
Diluted — average shares outstanding			123,727				109,670				121,594				109,714
Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders		$	0.27			$	0.40				$1.42			$	1.26
Income from discontinued operations			—				0.05				0.18				0.11
Net income applicable to common shareholders		$	0.27			$	0.45				$1.60				$1.37
Diluted earnings per share data:
Income from continuing operations applicable to common shareholders		$	0.26			$	0.40				$1.41				$1.26
Income from discontinued operations			—				0.05				0.18				0.11
Net income applicable to common shareholders		$	0.26			$	0.45			$	1.59			$	1.37