SOURCE: Developers Diversified Realty

February 23, 2009 08:30 ET

Developers Diversified Realty Reports FFO per Diluted Share of $3.29 for the Year Ended December 31, 2008 Before Non-Recurring Gains and Losses

CLEVELAND, OH--(Marketwire - February 23, 2009) - Developers Diversified Realty Corporation (NYSE: DDR), the nation's leading owner, manager and developer of market-dominant shopping centers, today reported operating results for the fourth quarter and year ended December 31, 2008.

--  The Company's fourth quarter operating Funds From Operations ("FFO")
    was $0.74 per share after adjusting for the $216.3 million of charges
    summarized below and eliminating the gain on repurchase of unsecured notes
    of $11.4 million.
    
    FFO and net income for the three-month period ended December 31, 2008,
    reflected $216.3 million, or $1.78 per share, of net charges, primarily
    non cash, summarized as follows (in millions):
    

Consolidated non-cash impairment charges                       $      79.9
Non-cash termination of an equity award plan                          15.8
Abandoned projects, transaction costs and other expenses              20.8
Non-cash impairment charges on equity investments                    107.0
Impairment charges and other expense recorded in equity income
 (loss) from joint ventures                                            8.5
Loss on sale of discontinued operations                                3.0
Effect of above charges allocated to minority interest               (18.7)
                                                               -----------
                                                               $     216.3
                                                               ===========

--  FFO applicable to common shareholders for the three-month period ended
    December 31, 2008 was a loss of $114.9 million or a loss of $0.95 per
    diluted share which compares to FFO income of $100.0 million or $0.82 per
    diluted share for the prior-year comparable period.  Net loss applicable to
    common shareholders for the three-month period ended December 31, 2008 was
    $190.2 million or a loss of $1.57 per diluted share which compares to net
    income of $32.2 million or $0.27 per diluted share for the prior-year
    comparable period.
    
--  The Company's operating FFO for the year was $3.29 per share after
    adjusting for the $225.7 million of charges summarized below and
    eliminating the gain on repurchase of unsecured notes of $11.6 million.
    
    FFO and net income for the year ended December 31, 2008, reflected
    $225.6 million, or $1.86 per share, of net charges, primarily non cash,
    summarized as follows (in millions):
    

Consolidated non-cash impairment charges                       $      79.9
Non-cash termination of an equity award plan                          15.8
Abandoned projects, transaction costs and other expenses              28.3
Non-cash impairment charges on equity investments                    107.0
Impairment charges and other expense recorded in equity income
 (loss) from joint ventures                                            4.6
Loss on sale of discontinued operations                                8.7
Effect of above charges allocated to minority interest               (18.7)
                                                               -----------
                                                               $     225.6
                                                               ===========

--  FFO applicable to common shareholders for the year ended December 31,
    2008 was $183.8 million, or $1.52 per diluted share which compares to
    $465.0 million or $3.79 per diluted share in 2007.  For the year ended
    December 31, 2008, net loss applicable to common shareholders was $100.0
    million or $0.83 per diluted share which compares to net income of $225.1
    million or $1.85 per diluted share in 2007.  The decrease in FFO and net
    income per share for the year ended December 31, 2008, is primarily related
    to the charges described above for the three-month period and a reduction
    in the amount of transactional income recognized in 2008, primarily related
    to gains on disposition of real estate that occurred in 2007, as described
    below.
    
--  Executed leases during the fourth quarter totaled approximately 1.9
    million square feet, including 105 new leases and 204 renewals.
    
--  On a cash basis, base rental rates increased 10.0% on new leases, 2.7%
    on renewals and 4.0% overall.
    
--  Core portfolio leased percentage at December 31, 2008 was 92.2%.
    
--  Same store net operating income ("NOI") for the year increased 1.7%
    over the prior-year comparable period.
    

Scott A. Wolstein, Developers Diversified's Chairman and Chief Executive Officer, stated, "I am pleased to announce this quarter's operating results, which have proven to be relatively resilient despite the severe economic challenges. We continue to see consumers shift their shopping habits to value-oriented retailers, which make up a large percentage of our portfolio. We are very proud of our leasing team's ability to execute leases in this challenging environment, reflected by nearly 2 million square feet of executed leases this quarter.

"While our financial results were lowered by significant impairment charges and certain other non-recurring charges, our core operating results were in line with expectations and continue to display relative stability as we weather these unprecedented economic challenges. We made progress in the fourth quarter, but are extremely focused on further improving our liquidity and lowering leverage."

Financial Results:

Net loss applicable to common shareholders was $190.2 million, or $1.57 per share (diluted and basic), for the three-month period ended December 31, 2008, as compared to net income of $32.2 million, or $0.27 per share (diluted and basic), for the prior year comparable period.

For the three-month period ended December 31, 2008, FFO per share was a loss of $0.95 (diluted and basic) compared to income of $0.82 (diluted and basic) for the prior-year comparable period. FFO applicable to common shareholders was a loss of $114.9 million for the three-month period ended December 31, 2008, as compared to FFO income of $100.0 million for the three-month period ended December 31, 2007.

Net loss applicable to common shareholders was $100.0 million, or $0.83 per share (diluted and basic), for the year ended December 31, 2008, as compared to net income of $225.1 million, or $1.85 per share (diluted) and $1.86 per share (basic), for the previous year. The decrease in net income for the year ended December 31, 2008, is primarily the result of non-cash impairment charges recorded relating to the Company's consolidated real estate assets as well as its unconsolidated joint venture investments aggregating $169.2 million, net of amounts applicable to minority interests, a non-cash charge of $15.8 million related to the termination of an equity award plan and costs incurred of $28.3 million related to abandoned projects, transaction costs and other non recurring/one time expenses partially offset by a gain on the repurchase of the Company's senior notes of $11.6 million and lower transactional income earned compared to the same period in 2007 (gains on disposition of real estate of approximately $79 million and promoted income from joint venture interests of approximately $14.3 million in 2007) relating to the transfer of 62 assets to unconsolidated joint venture interests and the sale of 67 assets to third parties.

For the years ended December 31, 2008 and 2007, FFO per share was $1.52 (diluted and basic) and $3.79 (diluted) and $3.80 (basic), respectively. FFO applicable to common shareholders was $183.8 million for the year ended December 31, 2008, as compared to $465.0 million for the year ended December 31, 2007. The decrease in FFO for the year ended December 31, 2008, is primarily a result of the same factors impacting net income as described above.

FFO is a supplemental non-GAAP financial measurement used as a standard in the real estate industry and a widely accepted measure of real estate investment trust ("REIT") performance. Management believes that FFO provides an additional indicator of the financial performance of a REIT. The Company also believes that FFO more appropriately measures the core operations of the Company and provides a benchmark to its peer group. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP"), is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income computed in accordance with GAAP as an indicator of the Company's operating performance or as an alternative to cash flow as a measure of liquidity. FFO is defined and calculated by the Company as net income, adjusted to exclude: (i) preferred share dividends, (ii) gains from disposition of depreciable real estate property, except for those sold through the Company's merchant building program, which are presented net of taxes, (iii) extraordinary items and (iv) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income from joint ventures and equity income from minority equity investments and adding the Company's proportionate share of FFO from its unconsolidated joint ventures and minority equity investments, determined on a consistent basis. Other real estate companies may calculate FFO in a different manner. A reconciliation of net income to FFO is presented in the financial highlights section.

Leasing:

The following results from the three-month period ended December 31, 2008 highlight continued strong leasing activity throughout the portfolio:

--  Executed 105 new leases aggregating approximately 0.5 million square
    feet and 204 renewals aggregating approximately 1.4 million square feet.
    
--  On a cash basis, rental rates on new leases increased 10.0% and rental
    rates on renewals increased 2.7%.  Overall, rental rates for new leases and
    renewals increased 4.0%.
    
--  Total portfolio average annualized base rent per occupied square foot,
    excluding Brazil, as of December 31, 2008 was $12.43, as compared to $12.33
    at December 31, 2007.
    
--  Core portfolio leased rate was 92.2% as of December 31, 2008, as
    compared to 96.0% at December 31, 2007.
    

Total annual recurring leasing capital expenditures for the Company and its joint ventures are estimated to be approximately $32 million ($0.27 per square foot of owned GLA) in 2009 calculated based on 100% of the funding.

Dispositions:

The Company sold 11 shopping center properties, aggregating 0.4 million square feet for approximately $35.6 million and recognized a net loss of approximately $3.0 million in the fourth quarter of 2008. An additional seven assets were sold in the first quarter of 2009 for proceeds of approximately $65.8 million of which a portion of the proceeds will be allocable to minority partners.

Wholly-Owned and Consolidated Joint Venture Development:

The Company currently has the following wholly-owned and consolidated joint venture shopping center projects under construction:

                                    Expected    Initial
                                    Net Cost     Anchor
Location                Owned GLA ($ Millions)  Opening *    Description
----------------------- --------- ------------ ---------- -----------------
Ukiah (Mendocino),
 California **            228,943 $       66.9      2H 11         Mixed Use
Guilford, Connecticut     137,527         48.0      2H 10  Lifestyle Center
Miami (Homestead),
 Florida                  272,610         79.7      2H 08  Community Center
Miami, Florida            391,351        148.8      2H 06         Mixed Use
Boise (Nampa), Idaho      431,689        126.7      2H 07  Community Center
Boston (Norwood),
 Massachusetts             56,343         26.7      2H 09  Community Center
Boston, Massachusetts
 (Seabrook, New
 Hampshire)               210,855         54.5      2H 10  Community Center
Elmira (Horseheads),
 New York                 350,987         55.0      1H 07  Community Center
Raleigh (Apex), North
 Carolina (Promenade)      72,830         16.9      2H 09  Community Center
Austin (Kyle), Texas **   443,092         77.2      2H 09  Community Center
                        --------- ------------
      Total             2,596,227 $      700.4
                        ========= ============

*  1H = First Half, 2H = Second Half; either actual or anticipated
** Consolidated 50% Joint Venture

At December 31, 2008, approximately $472.6 million of costs were incurred in relation to the Company's 10 wholly-owned and consolidated joint venture development projects under construction.

In addition to these current developments, several of which will be phased in, the Company and its joint venture partners intend to commence construction on various other developments only after substantial tenant leasing has occurred and acceptable construction financing is available, including several international projects.

Unconsolidated Joint Venture Development:

The Company's unconsolidated joint ventures have the following shopping center projects under construction. At December 31, 2008, approximately $479.7 million of costs had been incurred in relation to these development projects.

                 DDR's
               Effective               Expected    Initial
               Ownership               Net Cost    Anchor
Location       Percentage  Owned GLA ($ Millions) Opening*    Description
------------   ----------  --------- ------------ -------- ----------------
Kansas City
 (Merriam),
 Kansas              20.0%   158,632 $       43.7      TBD Community Center
Detroit
 (Bloomfield
 Hills),
 Michigan            10.0%   623,782        189.8      TBD Lifestyle Center
Dallas
 (Allen),
 Texas               10.0%   797,665        171.2    1H 08 Lifestyle Center
Manaus, Brazil       47.4%   477,630         98.2    1H 09    Enclosed Mall
                           --------- ------------
   Total                   2,057,709 $      502.9
                           ========= ============

* 1H = First Half, 2H = Second Half; either actual or anticipated;
  TBD = to be determined.

Wholly-Owned and Consolidated Joint Venture Redevelopments and Expansions:

The Company is currently expanding/redeveloping the following wholly-owned and consolidated joint venture shopping centers at a projected aggregate net cost of approximately $106.9 million. At December 31, 2008, approximately $76.6 million of costs had been incurred in relation to these projects.

Property                        Description
----------------------------    -----------
Miami (Plantation), Florida     Redevelop shopping center to include Kohl’s
                                 and additional junior tenants
Chesterfield, Michigan          Construct 25,400 sf of small shop space and
                                 retail space
Fayetteville, North Carolina    Redevelop 18,000 sf of small shop space and
                                 construct an outparcel building

Unconsolidated Joint Venture Redevelopments and Expansions:

The Company's unconsolidated joint ventures are currently expanding/redeveloping the following shopping centers at a projected net cost of $154.2 million, which includes original acquisition costs related to assets acquired for redevelopment. At December 31, 2008, approximately $116.7 million of costs had been incurred in relation to these projects. The following is a summary of these joint venture redevelopment and expansion projects:

                             DDR's
                           Effective
                           Ownership
Property                   Percentage                Description
------------------------   ----------  ------------------------------------
Buena Park, California             20%        Large-scale re-development of
                                           enclosed mall to open-air format
Los Angeles (Lancaster),           21%      Relocate Wal-Mart and redevelop
 California                                           former Wal-Mart space
Benton Harbor, Michigan            20%      Construct 89,000 square feet of
                                              anchor space and retail shops

Dividends:

The Company's board of directors has approved the payment of DDR's first quarter dividend in a combination of cash and shares of the Company's common stock. The Company intends to limit the aggregate amount of cash payable to shareholders in the dividend to 10% of the total dividend paid. This new payout initiative is a part of the Company's strategy to further enhance liquidity and maximize free cash flow and maintain its REIT status.

Financings:

The Company's joint venture in Brazil obtained 8.5% fixed-rate, twelve-year financing of R$112 million for the development in Manaus, Brazil. In addition, during the fourth quarter, the Company refinanced a $19 million development loan for a consolidated joint venture with a new loan of approximately $30 million at an interest rate of LIBOR plus 300 bps, which matures in January 2010.

In the fourth quarter of 2008, the Company purchased approximately $66.9 million face amount of its outstanding senior notes at a discount to par resulting in a gain of approximately $11.4 million. Additionally, during January 2009, the Company purchased an additional $10 million of senior notes. In January 2009, the Company repaid in full approximately $227 million of its senior notes upon maturity primarily with borrowings under its revolving credit facility.

Equity Issuances:

The Company sold approximately 8.6 million of its common shares in December 2008, generating net proceeds of approximately $43 million in the aggregate through its continuous equity program. Substantially, all net proceeds have been used to repay debt.

Developers Diversified Realty Corporation currently owns and manages over 710 retail operating and development properties in 45 states, plus Puerto Rico, Brazil and Canada, totaling approximately 157 million square feet. Developers Diversified Realty Corporation is a self-administered and self-managed REIT operating as a fully integrated real estate company which acquires, develops, leases and manages shopping centers.

A copy of the Company's Supplemental Financial/Operational package is available to all interested parties upon request at our corporate office to Francine Glandt, Vice President of Capital Markets and Treasurer, Developers Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122 or on our Web site which is located at http://www.ddr.com.

Developers Diversified Realty Corporation considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company's expectation for future periods. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including, among other factors, local conditions such as oversupply of space or a reduction in demand for real estate in the area; competition from other available space; dependence on rental income from real property; the loss of, significant downsizing of or bankruptcy of a major tenant; constructing properties or expansions that produce a desired yield on investment; our ability to sell assets on commercially reasonable terms; our ability to secure equity or debt financing on commercially acceptable terms or at all; our ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements and the finalization of the financial statements for three-month period and year ended December 31, 2008. For additional factors that could cause the results of the Company to differ materially from these indicated in the forward-looking statements, please refer to the Company's Form 10-K as of December 31, 2007. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

               DEVELOPERS DIVERSIFIED REALTY CORPORATION
                        Financial Highlights
                (in thousands - except per share data)

                           Three-Month Period            Year Ended
                           Ended December 31,           December 31,
Revenues:                   2008         2007         2008         2007
                        -----------  -----------  -----------  -----------
  Minimum rents (A)     $   156,158  $   157,870  $   628,664  $   635,415
  Percentage and
   overage rents (A)          4,267        5,066        9,414       10,540
  Recoveries from
   tenants                   47,269       51,009      198,919      203,126
  Ancillary and other
   property income            6,460        5,505       22,294       19,518
  Management,
   development and
   other fee income          15,588       15,934       62,890       50,840
  Other (B)                   1,457          161        9,291       13,697
                        -----------  -----------  -----------  -----------
                            231,199      235,545      931,472      933,136
                        -----------  -----------  -----------  -----------
Expenses:
  Operating and
   maintenance (C)           40,340       37,790      146,346      131,409
  Real estate taxes          27,610       25,617      110,773      107,428
  Impairment charges (D)     79,864            -       79,864            -
  Termination of equity
   award plan (E)            15,837            -       15,837            -
  General and
   administrative (E)        20,275       20,940       81,882       81,244
  Depreciation and
   amortization              65,085       53,358      242,032      214,445
                        -----------  -----------  -----------  -----------
                            249,011      137,705      676,734      534,526
                        -----------  -----------  -----------  -----------
Other income (expense):
  Interest income             2,682        1,045        5,473        8,772
  Interest expense          (61,790)     (63,789)    (244,212)    (258,149)
  Gain on repurchase of
   senior notes              11,351            -       11,552            -
  Abandoned projects
   and transaction
   costs (D)                (11,519)           -      (12,433)           -
  Other expenses (F)         (9,273)      (2,344)     (15,819)      (3,019)
                        -----------  -----------  -----------  -----------
                            (68,549)     (65,088)    (255,439)    (252,396)
                        -----------  -----------  -----------  -----------
(Loss) income before
 equity in net (loss)
 income of joint
 ventures, minority
 interests, income tax
 benefit (expense) of
 taxable REIT
 subsidiaries and
 franchise taxes,
 discontinued
 operations and gain on
 disposition of real
 estate, net of tax         (86,361)      32,752         (701)     146,214
Equity in net (loss)
 income of joint
 ventures (G)                (4,205)       9,343       17,719       43,229
Impairment of joint
 venture investments (D)   (106,957)           -     (106,957)           -
Minority interests (H)       17,053       (2,013)      11,188      (18,218)
Income tax benefit
 (expense) of taxable
 REIT subsidiaries
 And Franchise
 Taxes (I)                    2,351         (633)      17,434       14,669
                        -----------  -----------  -----------  -----------
(Loss) income from
 continuing operations     (178,119)      39,449      (61,317)     185,894
(Loss) income from
 discontinued
 operations (J)              (2,117)      (1,795)      (3,421)      21,302
                        -----------  -----------  -----------  -----------
(Loss) income before
 gain on disposition of
 real estate               (180,236)      37,654      (64,738)     207,196
Gain on disposition of
 real estate, net of
 tax                            594        5,137        6,962       68,851
                        -----------  -----------  -----------  -----------
Net (loss) income       $  (179,642) $    42,791  $   (57,776) $   276,047
                        ===========  ===========  ===========  ===========
Net (loss) income
 applicable to common
 shareholders           $  (190,209) $    32,224  $  (100,045) $   225,113
                        ===========  ===========  ===========  ===========
Funds From Operations
 ("FFO"):
  Net (loss) income
   applicable to
   common
   shareholders         $  (190,209) $    32,224  $  (100,045) $   225,113
  Depreciation and
   amortization of
   real estate
   investments               63,603       53,577      236,344      214,396
  Equity in net loss
   (income) of joint
   ventures (I)               4,205       (9,343)     (17,719)     (43,229)
  Joint ventures' FFO
   (I)                        7,433       21,949       68,355       84,423
  Minority interests
   (OP Units) (J)                 -          569        1,145        2,275
  Loss (gain) on
   disposition of
   depreciable real
   estate                        77        1,057       (4,244)     (17,956)
                        -----------  -----------  -----------  -----------
  FFO applicable to
   common shareholders     (114,891)     100,033      183,836      465,022
  Preferred dividends        10,567       10,567       42,269       50,934
                        -----------  -----------  -----------  -----------
  FFO                   $  (104,324) $   110,600  $   226,105  $   515,956
                        ===========  ===========  ===========  ===========
  Per share data:
  (Loss) earnings per
   common share
    Basic               $     (1.57) $      0.27  $     (0.83) $      1.86
                        ===========  ===========  ===========  ===========
    Diluted             $     (1.57) $      0.27  $     (0.83) $      1.85
                        ===========  ===========  ===========  ===========
  Dividends Declared    $         -  $      0.66  $      2.07  $      2.64
                        ===========  ===========  ===========  ===========
  Funds From Operations
   - Basic (K)          $     (0.95) $      0.82  $      1.52  $      3.80
                        ===========  ===========  ===========  ===========
  Funds From Operations
   - Diluted (K)        $     (0.95) $      0.82  $      1.52  $      3.79
                        ===========  ===========  ===========  ===========
  Basic - average
   shares outstanding       121,019      120,786      119,843      120,879
                        ===========  ===========  ===========  ===========
  Diluted - average
   shares outstanding       121,019      121,103      119,987      121,497
                        ===========  ===========  ===========  ===========

(A) Base and percentage rental revenues for the year ended December 31,
    2008, as compared to the prior year, decreased $7.9 million, primarily
    due to the disposition of properties in 2008 and 2007 to joint venture
    interests and third parties aggregating $29.0 million. Partially
    offsetting this decrease were the following increases in base and
    percentage rental revenues: an increase of $3.3 million relating to the
    core portfolio properties (an increase of 0.6% over the comparable
    period in 2007), $17.8 million from the acquisition of assets and the
    merger with IRRETI, $3.8 million related to developments and
    redevelopments and $0.4 million from an increase in occupancy at the
    Company's business centers. Included in rental revenues for the years
    ended December 31, 2008 and 2007, is approximately $8.0 million and
    $12.1 million, respectively, of revenue resulting from the recognition
    of straight-line rents.

(B) Other income for the three-month periods and years ended December 31,
    2008 and 2007 was comprised of the following (in millions):

                           Three-Month Period             Year Ended
                               December 31,              December 31,
                            2008         2007         2008         2007
                        ------------ ------------ ------------ ------------
Acquisition fees        $          - $        0.1 $          - $        6.4
Lease termination fees           0.8          0.1          6.3          5.0
Financing fees                   0.1            -          2.0          1.5
Other miscellaneous              0.6            -          1.0          0.8
                        ------------ ------------ ------------ ------------
                        $        1.5 $        0.2 $        9.3 $       13.7
                        ============ ============ ============ ============

(C) Included in operating and maintenance expense is bad debt expense
    aggregating $8.5 million and $2.4 million relating to the three-month
    periods ended December 31, 2008 and 2007, respectively. Fourth quarter
    2008 bad debt expense includes the write off of $4.1 million of
    straight-line rents relating to Mervyns, of which 50% is allocable to
    minority interest. For the years ended December 31, 2008 and 2007, bad
    debt expense was $18.7 million and $9.0 million or 2% and 1% of total
    revenues, respectively.

(D) Due to the continued deterioration of the U.S. capital markets and the
    lack of liquidity and the related impact on the real estate market and
    retail industry, during the fourth quarter of 2008, the Company
    recorded impairment charges on several consolidated real estate
    investments, including both operating shopping centers and land under
    development, to the extent the book basis of the asset was in excess of
    the estimated fair market value.  As discussed below, some of these
    charges are allocable to minority interest thereby providing a partial
    offset. In addition, the Company determined that several of its
    unconsolidated joint venture investments suffered an "Other than
    Temporary Impairment."  The Company recorded approximately $107.0
    million of impairment charges associated with certain of its joint
    venture investments in accordance with Accounting Principles Board
    Opinion No. 18, "The Equity Method of Accounting for Investment in
    Common Stock." The provisions of this opinion require that a loss in
    value of an investment under the equity method of accounting which is
    an other than "temporary" decline must be recognized. The Company also
    wrote off costs related to abandoned development projects as well as
    costs incurred for transactions that are not expected to close.

(E) General and administrative expenses include internal leasing salaries,
    legal salaries and related expenses associated with the releasing of
    space, which are charged to operations as incurred. For the years ended
    December 31, 2008 and 2007, general and administrative expenses were
    approximately 5.2% and 4.5%, respectively, of total revenues, including
    joint venture revenues. For the year ended December 31, 2008, the
    Company recorded a non-cash charge of approximately $15.8 million
    related to the termination of a supplemental equity award plan.
    Excluding this charge, general and administrative expenses were 4.3%
    of total revenues for the year ended December 31, 2008. For the year
    ended December 31, 2007, the Company recorded a charge of approximately
    $4.1 million to general and administrative expense in connection with
    the Company's former president's resignation as an executive officer.
    Excluding this charge, general and administrative expenses were 4.3%
    of total revenues for the year ended December 31, 2007.

(F) Other expense primarily relates to a reserve associated with a
    mezzanine notes receivable as well as litigation costs related to a
    potential liability associated with a legal verdict. The accrual for
    the legal verdict was established in the third quarter of 2008.

(G) The following is a summary of the combined operating results of the
    Company's joint ventures:

                                 Three-Month Period       Year Ended
                                 Ended December 31,       December 31,
                                  2008       2007       2008       2007
                                ---------  ---------  ---------  ---------
Revenues from operations (a)    $ 231,716  $ 237,654  $ 946,340  $ 812,630
                                ---------  ---------  ---------  ---------

Operating expense                  82,682     84,547    328,875    272,277
Impairment charges (b)              3,887          -      3,887          -
Depreciation and amortization
 of real estate investments        65,929     57,825    241,652    193,032
Interest expense                   82,572     79,543    307,580    269,405
                                ---------  ---------  ---------  ---------
                                  235,070    221,915    881,994    734,714
                                ---------  ---------  ---------  ---------
Income (loss) from operations
 before tax benefit (expense)
 and discontinued operations       (3,354)    15,739     64,346     77,916
Income tax (expense) benefit       (3,485)     2,664    (15,479)    (4,839)
(Loss) gain on disposition of
 real estate                          (18)     1,399        (67)    94,386
(Loss) income from discontinued
 operations, net of tax               (10)        75        105       (784)
Income (loss) on disposition of
 discontinued operations, net
 of tax                             7,364        (12)     7,364      2,516
Other expense, net (c)            (47,791)         -    (31,318)         -
                                ---------  ---------  ---------  ---------
Net (loss) income               $ (47,294) $  19,865  $  24,951  $ 169,195
                                =========  =========  =========  =========
DDR ownership interests (d)     $  (5,482) $  10,017  $  17,335  $  44,537
                                =========  =========  =========  =========

       FFO from joint ventures are summarized as follows:

Net income                      $ (47,294) $   19,865 $  24,951  $ 169,195
Loss (gain) on disposition of
 real estate, including
 discontinued operations           (7,364)        228    (7,350)   (91,111)
Depreciation and amortization
 of real estate investments        65,928      57,919   241,651    193,437
                                ---------  ---------- ---------  ---------
                                $  11,270  $   78,012 $ 259,252  $ 271,521
                                =========  ========== =========  =========
DDR ownership interests (d)     $   7,433  $   21,949 $  68,355  $  84,423
                                =========  ========== =========  =========
DDR joint venture distributions
 received, net (e)              $  24,467  $   17,323 $  65,957  $  97,104
                                =========  ========== =========  =========

  (a) Revenues for the three-month periods ended December 31, 2008 and 2007
      included approximately $0.7 million and $2.7 million, respectively,
      resulting from the recognition of straight-line rents, of which the
      Company's proportionate share was not material and $0.4 million,
      respectively. Revenues for the years ended December 31, 2008 and 2007
      included approximately $6.3 million and $9.3 million, respectively,
      resulting from the recognition of straight-line rents, of which the
      Company's proportionate share was $0.8 million and $1.4 million,
      respectively.

  (b) Impairment charges aggregating $3.9 million were recorded at two
      joint ventures related to assets under contract expected to be sold
      in the first half of 2009 of which the Company's share was $0.5
      million.

  (c) Includes non-cash impairment charges and loss on sale of assets of
      which the Company's share aggregated $2.4 million. Also includes the
      effects of certain derivative instruments that are marked to market
      through earnings from the Company's equity investment in Macquarie
      DDR Trust aggregating approximately $45.9 million and $29.4 million
      of loss for the three-month period and year ended December 31, 2008,
      respectively, of which the Company's share was approximately $5.6
      million and $1.7 million of loss, respectively.

  (d) The Company's share of joint venture net income was increased by
      $1.2 million and decreased by $0.6 million for the three-month
      periods ended December 31, 2008 and 2007, respectively. The Company's
      share of joint venture net income was increased by $0.4 million and
      decreased by $1.2 million for the years ended December 31, 2008 and
      2007, respectively. These adjustments relate to basis differences
      impacting amortization and depreciation and gain on dispositions.
      During the year ended December 31, 2007, the Company received $13.6
      million of promoted income relating to the sale of assets from the
      DDR Markaz Joint Venture which is included in the Company's
      proportionate share of net income and FFO.

      At December 31, 2008 and 2007, the Company owned joint venture
      interests, excluding consolidated joint ventures, in 329 and 317
      shopping center properties, respectively.

  (e) Distributions may include funds received from asset sales and
      refinancings in addition to ongoing operating distributions.

(H) Minority interests are comprised of the following:

                                 Three-Month Period       Year Ended
                                 Ended December 31,       Decmeber 31,
                                  2008       2007       2008       2007
                                ---------- ---------  ---------  ---------
Minority equity interests       $   17,053 $  (1,444) $  12,333  $  (6,253)
Operating partnership units              -      (569)    (1,145)    (2,275)
Preferred operating partnership
 units                                   -         -          -     (9,690)
                                ---------- ---------  ---------  ---------
                                $   17,053 $  (2,013) $  11,188  $ (18,218)
                                ========== =========  =========  =========

  The $17.1 million and $12.3 million of income from minority interests for
  the three-month period and year ended December 31, 2008, respectively, is
  primarily related to asset impairment charges and the write off of
  straight-line rent relating to the DDR MDT MV LLC (Mervyns), a
  consolidated joint venture, of which the Company has a 50% interest.

  The preferred operating partnership units were redeemed in June 2007. In
  June 2008, 0.5 million operating partnership units were converted into an
  equivalent number of common shares of the Company.

(I) During the third quarter of 2008 and the first quarter of 2007, the
    Company released to income approximately $16.0 million and $15.0
    million, respectively, of previously established valuation allowances
    against certain deferred tax assets as management had determined, due
    to several factors, that it is more likely than not that the deferred
    tax asset will be realized. The release of this reserve in 2008 was
    primarily due to the Company's increased use of its taxable REIT
    subsidiaries relating to the recognition of fees, primarily from joint
    ventures, and other miscellaneous non-real estate related income.

(J) The operating results relating to assets classified as discontinued
    operations are summarized as follows:

                                    Three-Month Period      Year Ended
                                    Ended December 31,      December 31,
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------
Revenues                            $  1,334  $  3,765  $ 12,182  $ 40,554
                                    --------  --------  --------  --------

Expenses:
  Operating                                -       780     3,990    11,708
  Interest, net                          241       918     2,331    10,308
  Depreciation                           210     2,718     4,342     9,929
  Minority interest                        -        80       110      (434)
                                    --------  --------  --------  --------
    Total expenses                       451     4,496    10,773    31,511
                                    --------  --------  --------  --------
  Income (loss) before (loss) gain
   on disposition of real estate         883      (731)    1,409     9,043
  (Loss) gain on disposition of
   real estate, net                   (3,000)   (1,064)   (4,830)   12,259
                                    --------  --------  --------  --------
  Net (loss) income                 $ (2,117) $ (1,795) $ (3,421) $ 21,302
                                    ========  ========  ========  ========

(K) For purposes of computing FFO per share (basic), the weighted average
    shares outstanding were adjusted to reflect the assumed conversion of
    approximately 0.4 million and 0.9 million Operating Partnership Units
    ("OP Units") outstanding at December 31, 2008 and 2007, respectively,
    0.9 million common shares of the Company for the three-month period
    ended December 31, 2007 (antidilutive at December 31, 2008) and 0.6
    million and 0.9 million common shares for the years ended December 31,
    2008 and 2007, respectively, on a weighted average basis. The weighted
    average diluted shares and OP Units outstanding, for purposes of
    computing FFO, were approximately 121.5 million and 122.5 million for
    the three-month periods ended December 31, 2008 and 2007,
    respectively, and 121.0 million and 122.7 million for the years ended
    December 31, 2008 and 2007, respectively.





               DEVELOPERS DIVERSIFIED REALTY CORPORATION
                        Financial Highlights
                           (in thousands)

Selected Balance Sheet Data:
                                                December 31,  December 31,
                                                  2008 (A)      2007 (A)
                                                ------------  ------------
Assets:
Real estate and rental property:
   Land                                         $  2,073,947  $  2,142,942
   Buildings                                       5,890,332     5,933,890
   Fixtures and tenant improvements                  262,809       237,117
                                                ------------  ------------
                                                   8,227,088     8,313,949
Less: Accumulated depreciation                    (1,208,903)   (1,024,048)
                                                ------------  ------------
                                                   7,018,185     7,289,901
   Construction in progress                          879,547       664,926
Assets held for sale                                       -         5,796
                                                ------------  ------------
Real estate, net                                   7,897,732     7,960,623

Investments in and advances to joint ventures        583,767       638,111
Cash                                                  29,494        49,547
Restricted cash (B)                                  111,792        58,958
Notes receivable                                      75,781        18,557
Receivables, including straight-line rent, net       164,356       199,354
Other assets, net                                    155,403       164,666
                                                ------------  ------------
                                                $  9,018,325  $  9,089,816
                                                ============  ============

Liabilities:
Indebtedness:
   Revolving credit facilities                  $  1,027,183  $    709,459
   Unsecured debt                                  2,452,741     2,622,219
   Mortgage and other secured debt                 2,437,440     2,259,336
                                                ------------  ------------
                                                   5,917,364     5,591,014
   Dividends payable                                   6,967        85,851
   Other liabilities                                 281,179       285,245
                                                ------------  ------------
                                                   6,205,510     5,962,110
Minority interests                                   128,130       128,881
Shareholders’ equity                               2,684,685     2,998,825
                                                ------------  ------------
                                                $  9,018,325  $  9,089,816
                                                ============  ============

(A) Amounts include the consolidation of a 50% owned joint venture, DDR
    MDT MV LLC ("MV LLC"), that owns 37 sites formerly occupied by Mervyns,
    which includes $348.5 and $405.8 million of real estate assets at
    December 31, 2008 and 2007, respectively, $258.5 million of mortgage
    debt at December 31, 2008 and 2007, and $70.2 million and $74.6 million
    of minority equity interest at December 31, 2008 and 2007,
    respectively.  The decrease in real estate assets at MV LLC in 2008 is
    primarily due to the application of $25.0 million in cash proceeds
    received under a purchase price rebate letter of credit from the seller
    of the Mervyns portfolio due to the retailer's bankruptcy filing during
    the third quarter and approximately $35.3 million of non-cash
    impairment charges recorded on these assets in the fourth quarter.

(B) Restricted cash includes $64.8 million at MV LLC at December 31, 2008.
    The MV LLC restricted cash is comprised of $23.9 million received from
    the seller of the Mervyns portfolio relating to Mervyns bankruptcy
    filing in the third quarter, a $33.0 million net capital contribution
    by the members of MV LLC, and $7.9 million related to a security
    deposit letter of credit, all of which are required to be held in
    escrow by the lender.  Also included in restricted cash is $47.0
    million and $59.0 million at December 31, 2008 and 2007, respectively,
    relating to the terms of a bond issue for one of the Company's projects
    in Mississippi.




               DEVELOPERS DIVERSIFIED REALTY CORPORATION
                        Financial Highlights
                           (in thousands)

Selected Balance Sheet Data (Continued):

Combined condensed balance sheets relating to the Company's joint ventures
 are as follows:

                                                December 31,  December 31,
                                                    2008          2007
                                                ------------  ------------

Land                                            $  2,378,033  $  2,384,069
Buildings                                          6,353,985     6,253,167
Fixtures and tenant improvements                     131,622       101,115
                                                ------------  ------------
                                                   8,863,640     8,738,351
Less: Accumulated depreciation                      (606,530)     (412,806)
                                                ------------  ------------
                                                   8,257,110     8,325,545
Construction in progress                             412,357       207,387
                                                ------------  ------------
Real estate, net                                   8,669,467     8,532,932
Receivables, including straight-line rent, net       136,410       124,540
Leasehold interests                                   12,615        13,927
Other assets                                         315,591       365,925
                                                ------------  ------------
                                                $  9,134,083  $  9,037,324
                                                ============  ============

Mortgage debt (a)                               $  5,776,897  $  5,551,839
Notes and accrued interest payable to DDR             64,967         8,492
Other liabilities                                    237,363       201,083
                                                ------------  ------------
                                                   6,079,227     5,761,414
Accumulated equity                                 3,054,856     3,275,910
                                                ------------  ------------
                                                $  9,134,083  $  9,037,324
                                                ============  ============

(a) The Company's proportionate share of joint venture debt aggregated
    approximately $1,216.1 million and $1,034.1 million at December 31,
    2008 and 2007, respectively.

Contact Information

  • Contact:
    Scott A. Wolstein
    Chairman and Chief Executive Officer
    216-755-5500

    Francine Glandt
    Vice President of Capital Markets
    Treasurer
    216-755-5500
    Email Contact