SOURCE: Developers Diversified

February 12, 2007 18:51 ET

Developers Diversified Realty Reports an Increase of 10.8% in Diluted FFO per Share for the Quarter Ended December 31, 2006

CLEVELAND, OH -- (MARKET WIRE) -- February 12, 2007 --Developers Diversified Realty Corporation (NYSE: DDR), the nation's leading owner, manager and developer of market-dominant community centers, today reported operating results for the fourth quarter ended December 31, 2006.

--  Funds From Operations ("FFO") per diluted share increased 10.8% to
    $0.82 and net income per diluted share increased 37.5% to $0.44 for the
    three-months ended December 31, 2006 as compared to the prior year
    
--  Executed leases during the fourth quarter totaled approximately 1.3
    million square feet, including 94 new leases and 144 renewals
    
--  Base rents increased 20.0% on new leases, 10.0% on renewals and 12.3%
    on a blended basis
    
--  Core portfolio leased percentage at December 31, 2006 was 96.2%
    
--  Same store net operating income ("NOI") for the year increased 3.0%
    over the prior year
    
Scott Wolstein, Developers Diversified's Chairman and Chief Executive Officer, stated, "I'm pleased to announce this quarter's financial results. Our operating and development portfolios continue to reflect solid performance driven by tenant demand for new store locations in the open air format. We expect this trend to continue through 2007.

"In addition, we are scheduled to close on the acquisition of Inland Retail Real Estate Inc. at the end of February, which will further contribute to the 2007 operating results. Our initial equity raise of approximately $1.15 billion, comprised the $400 million of common shares we will issue directly to the Inland shareholders and the $750 million issued in December through the forward equity sale, completes a significant portion of the Inland financing. This equity, combined with anticipated proceeds from asset sales and joint ventures, provides further assurance that our overall financing plan is proceeding in line with our expectations."

Financial Results:

FFO, a widely accepted measure of a Real Estate Investment Trust's ("REIT") performance, on a diluted and basic per share basis was $0.82 for the three-months ended December 31, 2006, as compared to $0.74 for the same period in the previous year, an increase of 10.8%. FFO available to common shareholders was $90.1 million, as compared to $81.7 million for the three-months ended December 31, 2006 and 2005, respectively, an increase of 10.3%. Net income available to common shareholders was $48.2 million or $0.44 per share (diluted and basic) for the three-months ended December 31, 2006, as compared to $35.1 million, or $0.32 per share (diluted and basic) for the prior comparable period. The increase in net income and FFO for the three-months ended December 31, 2006, primarily is related to an increase in same store net operating income, lease termination income and gain on disposition of real estate offset to a lesser extent by an increase in interest expense as compared to 2005.

FFO per share was $3.41 (diluted and basic) for the year ended December 31, 2006, as compared to $3.21 (diluted) and $3.23 (basic) for the same period in the previous year, an increase of 6.2% (diluted) and 5.6% (basic). FFO available to common shareholders was $377.8 million, as compared to $355.1 million for the year ended December 31, 2006 and 2005, respectively, an increase of 6.4%. Net income available to common shareholders was $198.1 million, or $1.81 per share (diluted) and $1.82 per share (basic) for the year ended December 31, 2006, as compared to $227.5 million, or $2.08 per share (diluted) and $2.10 per share (basic) for the prior comparable period. The decrease in net income for the year ended December 31, 2006 primarily is related to a decrease in gain on disposition of real estate assets as compared to 2005.

FFO is a supplemental non-GAAP financial measurement used as a standard in the real estate industry. 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, 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 dividends, (ii) gains (or losses) from disposition of depreciable real estate property, except for those sold through the Company's merchant building program, (iii) sales of securities, (iv) extraordinary items, (v) cumulative effect of changes in accounting standards and (vi) 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:

Leasing activity continues to be strong throughout the portfolio. During the fourth quarter of 2006, the Company executed 94 new leases aggregating 544,108 square feet and 144 renewals aggregating 804,046 square feet. Rental rates on new leases increased by 20.0% and rental rates on renewals increased by 10.0%. On a blended basis, rental rates for new leases and renewals increased by 12.3%. At December 31, 2006, the average annualized base rent per occupied square foot, including those properties owned through joint ventures and excluding the impact of the Mervyns and Brazil assets, was $11.75, as compared to $11.30 at December 31, 2005.

At December 31, 2006, the portfolio, including those properties owned through joint ventures, was 96.3% leased. Excluding the impact of the Mervyns and Brazil assets, the core portfolio was 96.2% leased, as compared to 96.3% at December 31, 2005. These percentages include tenants for which signed leases have been executed and occupancy has not occurred. Based on tenants in place and responsible for paying rent as of December 31, 2006, the portfolio was 95.2% occupied. Excluding the impact of the Mervyns and Brazil assets, the core portfolio was 95.2% occupied, as compared to 95.1% at December 31, 2005.

Strategic Real Estate Transactions:

Inland Retail Real Estate Trust:

In October 2006, the Company ("DDR") and Inland Retail Real Estate Trust, Inc. ("IRRETI") announced that they entered into a definitive merger agreement. Under the terms of the agreement, DDR will acquire all of the outstanding shares of IRRETI for a total merger consideration of $14.00 per share. DDR has elected to pay IRRETI shareholders a combination of $12.50 in cash and $1.50 in DDR common shares. The actual number of DDR common shares that IRRETI shareholders are entitled to receive for each IRRETI common share held will be determined by dividing $1.50 by the average closing price of DDR common shares for the 10 trading days immediately preceding the two trading days prior to the IRRETI shareholders' meeting, scheduled for February 22, 2007.

The transaction has a total enterprise value of approximately $6.2 billion. This amount includes approximately $2.3 billion of existing debt, a significant portion of which is expected to be extinguished at closing. IRRETI's real estate portfolio aggregates over 300 community shopping centers, neighborhood shopping centers and single tenant/net leased retail properties, comprising approximately 43.6 million square feet of total GLA.

A summary of the initial financing of the IRRETI acquisition is summarized as follows (in millions):

Total purchase price                                               $ 6,200
Assets acquired in joint venture with TIAA
 (see below)                                                        (3,000)
                                                                   -------
Assets acquired directly by DDR                                      3,200
DDR equity contribution to TIAA joint venture                          179
                                                                   -------
Total DDR financing requirements                                     3,379
  Less debt assumed                                                   (489)
                                                                   -------
Total cash required at closing                                     $ 2,890
                                                                   =======
DDR initial cash sources are expected to be provided as follows (in millions):
DDR common shares from forward equity Transaction                  $   750
DDR common shares issued to IRRETI shareholders                        395
Increase in secured term loan                                          150
Temporary bridge financing provided through revolving credit
 facilities, bridge loans and/or preferred operating partnership
 units                                                               1,595*
                                                                   -------
                                                                   $ 2,890
                                                                   =======

*  Amounts are expected to be repaid through asset sales and formation of
   new joint venture(s).
The Company announced the formation of a joint venture with TIAA-CREF to purchase a portfolio of 66 community retail centers from the IRRETI portfolio of assets for approximately $3.0 billion of total asset value. An affiliate of TIAA will contribute 85% of the equity in the joint venture, and an affiliate of DDR will contribute 15% of the equity in the joint venture. In addition to its proportionate share of earnings from the joint venture, DDR will be entitled to certain fees for asset management, leasing, property management, development/tenant coordination and acquisitions. DDR will also earn a promoted interest equal to 20% of the cash flow of the joint venture after the partners have received an internal rate of return equal to 10% on their equity investment. The joint venture agreement is subject to certain closing conditions in accordance with the joint venture agreement.

A summary of the financing for the TIAA Joint Venture is summarized as follows (in millions):

Total purchase price                                           $     3,000
  Less debt assumed                                                   (286)
                                                               -----------
Total joint venture cash required at closing                   $     2,714
                                                               ===========
Joint Venture cash sources are expected to be provided as follows (in millions):
Debt financing – 10 years                                      $       740
Debt financing – 5 years                                               555
Joint Venture revolving credit facility                                230
Equity Contributions:
  DDR                                                                  179
  TIAA–CREF                                                          1,010
                                                               -----------
                                                               $     2,714
                                                               ===========
In addition to the portfolio of operating properties, DDR will acquire a development pipeline of five projects and numerous potential expansion and redevelopment projects. DDR plans to generate additional value by implementing its proactive leasing, development, redevelopment and property management systems. In addition, DDR intends, immediately upon closing, to incorporate the IRRETI assets into its highly successful ancillary income program, which we anticipate will result in additional value creation.

Completion of the transaction, which is expected to occur in the first quarter of 2007, is subject to approval of the merger agreement by IRRETI shareholders and other customary closing conditions described in the merger agreement. The merger was unanimously approved by DDR's Board of Directors. The merger was unanimously approved by IRRETI's Board of Directors, with two related party directors recusing themselves.

Sonae Sierra Brazil BV Sarl:

In late October 2006, the Company acquired a 50% joint venture interest in Sonae Sierra Brazil, a fully integrated retail real estate company based in Sao Paulo, Brazil. Sonae Sierra Brazil is a subsidiary of Sonae Sierra, an international owner, developer and manager of shopping centers based in Portugal. Sonae Sierra Brazil is the managing partner of a partnership that owns direct and indirect interests in nine retail assets aggregating 3.5 million square feet and a property management company in Sao Paulo, Brazil that oversees the leasing and management operations of the portfolio. Sonae Sierra Brazil owns approximately 93% of the partnership and Enplanta Engenharia ("Enplanta") owns approximately 7%. The aggregate investment in Sonae Sierra Brazil was approximately $147.5 million.

Coventry II Joint Venture:

In November 2006, the Coventry II Joint Venture acquired a 50% interest in Marley Creek Square, a 58,000 square foot neighborhood center located in Orland Park, IL at a cost of approximately $12 million. The Company is generally responsible for the day-to-day management of the property. Pursuant to the terms of the joint venture, the Company earns fees for property management plus a promoted interest, along with Coventry, after return of capital to investors. During 2006, the Coventry II Joint Venture acquired six assets for an aggregate cost of approximately $485 million.

Dispositions:

In the fourth quarter of 2006, the Company sold five shopping center properties, including two shopping centers that were classified as held for sale at September 30, 2006, aggregating 0.6 million square feet for approximately $47.1 million and recognized a non-FFO gain of approximately $7.9 million.

Expansions:

During the year ended December 31, 2006, the Company completed eight expansions and redevelopment projects located in Birmingham, Alabama; Lakeland, Florida; Ocala, Florida; Stockbridge, Georgia; Rome, New York; Mooresville, North Carolina; Bayamon, Puerto Rico (Rio Hondo) and Ft. Union, Utah at an aggregate gross cost of $73.4 million. The Company is currently expanding/redeveloping eight shopping centers located in Gadsden, Alabama; Ottumwa, Iowa; Chesterfield, Michigan; Gaylord, Michigan; Hamilton, New Jersey; Olean, New York; Stow, Ohio and Brookfield, Wisconsin at a projected aggregate gross cost of approximately $45.4 million. At December 31, 2006, approximately $12.3 million of costs was incurred in relation to these projects. The Company anticipates commencing construction on twelve additional expansion and redevelopment projects at shopping centers located in Crystal River, Florida; Tallahassee, Florida; Louisville, Kentucky; Gulfport, Mississippi; Huber Heights, Ohio; Amherst, New York; Fayetteville, North Carolina; Allentown, Pennsylvania; Bayamon, Puerto Rico (Plaza Del Sol); Hatillo, Puerto Rico; San Juan, Puerto Rico and McKinney, Texas.

Six of the Company's joint ventures are currently expanding/redeveloping their shopping centers located in Phoenix, Arizona; Buena Park, California; Lancaster, California; Benton Harbor, Michigan; Kansas City, Missouri and Cincinnati, Ohio at a projected gross cost of approximately $554.3 million (which includes the initial acquisition costs for the Coventry II redevelopment projects located in Phoenix, Arizona; Buena Park, California; Benton Harbor, Michigan; Kansas City, Missouri and Cincinnati, Ohio). At December 31, 2006, approximately $432.8 million of costs was incurred in relation to these projects. Three of the Company's joint ventures anticipate commencing expansion/redevelopment projects at their shopping centers located in Deer Park, Illinois; Macedonia, Ohio and Kirkland, Washington.

Development (Wholly Owned and Consolidated Joint Ventures):

As of December 31, 2006, the Company has substantially completed the construction of the Freehold, New Jersey; Apex, North Carolina (Beaver Creek Crossings - Phase I) and Pittsburgh, Pennsylvania shopping centers, at an aggregate gross cost of $156.7 million.

The Company currently has seven shopping center projects under construction. These projects are located in Miami, Florida; Nampa, Idaho; McHenry, Illinois; Seabrook, New Hampshire; Horseheads, New York; Apex, North Carolina (Beaver Creek Crossings - Phase II) and San Antonio, Texas. These projects are scheduled for completion during 2007 through 2008 at a projected aggregate gross cost of approximately $604.3 million and will create an additional 4 million square feet of gross leasable retail space.

The Company anticipates commencing construction in 2007 on two additional shopping centers located in Ukiah, California and Homestead, Florida. These projects have an estimated aggregate gross cost of $186.1 million and will create an additional 1.1 million square feet of gross leasable retail space.

At December 31, 2006, approximately $336.7 million of costs were incurred in relation to the above projects under construction and projects that will be commencing construction.

Development (Joint Ventures):

Four of the Company's joint ventures currently have shopping center projects under construction. These projects are located in Bloomfield Hills, Michigan; Merriam, Kansas; Allen, Texas and San Antonio, Texas. These four projects are being developed through the Coventry II program. A significant portion of the project located in San Antonio, Texas was substantially completed during 2005. The remaining three projects are scheduled for completion during 2007 through 2009. These projects have an aggregate gross projected cost of approximately $496.5 million. At December 31, 2006, approximately $147.7 million of costs was incurred in relation to these development projects.

Financing:

In December 2006, the Company entered into forward sale agreements with three investment banks. Pursuant to the terms of the forward sale agreements, and subject to the Company's right to elect cash settlement, the Company agreed to sell, upon physical settlement of such forward sale agreements, an aggregate of 11,599,134 of its common shares. The Company intends to use the proceeds it expects to receive upon any physical settlement of the forward sale agreements to fund a portion of its previously announced acquisition of IRRETI. The Company will not receive any proceeds from the sale of its common shares until settlement of the forward sale agreements, which is expected to occur on or before September 2007.

In anticipation with a joint venture with TIAA-CREF, an affiliate of the Company purchased two interest rate swaption agreements which limit future interest rates on approximately $1.25 billion of forecasted fixed-rate borrowings.

In October 2006, the Company entered into an aggregate $100 million of interest rate swaps which converted floating-rate debt to a weighted average fixed Libor rate of approximately 5.0%.

Developers Diversified currently owns and manages over 500 retail operating and development properties in 44 states, plus Puerto Rico and Brazil, totaling 118 million square feet. Developers Diversified Realty is a self-administered and self-managed real estate investment trust (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 Michelle M. Dawson, Vice President of Investor Relations, Developers Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, OH 44122 or on our Website 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 21 E 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 a major tenant, constructing properties or expansions that produce a desired yield on investment or inability to enter into definitive agreements with regard to our financing arrangements or our failure to satisfy conditions to the completion of these arrangements. For more details on the risk factors, please refer to the Company's Form on 10-K as of December 31, 2005. In addition, there are risks and uncertainties related to the proposed merger with IRRETI, including approval of the transaction by the shareholders of IRRETI, the satisfaction of closing conditions to the transaction, difficulties encountered in integrating the companies, the marketing and sale of non-core assets and the effects of general and local economic and real estate conditions.

Additional Information and Where to Find It

This press release does not constitute an offer of any securities for sale. In connection with the proposed transaction, Developers Diversified and IRRETI expect to file a proxy statement/prospectus as part of a registration statement regarding the proposed merger with the Securities and Exchange Commission. Investors and security holders are urged to read the proxy statement/prospectus because it will contain important information about Developers Diversified and IRRETI and the proposed merger. Investors and security holders may obtain a free copy of the definitive proxy statement/prospectus and other documents filed by Developers Diversified and IRRETI with the SEC at the SEC's website at www.sec.gov. The definitive proxy statement/prospectus and other relevant documents may also be obtained free of charge from Developers Diversified and IRRETI by directing such request to: Developers Diversified Realty Corporation, Attention: Investor Relations, 3300 Enterprise Parkway, Beachwood, Ohio 44122 or Inland Retail Real Estate Trust, Inc., Attention: Investor Relations, 2901 Butterfield Road, Oak Brook, Illinois 60523. Investors and security holders are urged to read the proxy statement, prospectus and other relevant material when they become available before making any voting or investment decisions with respect to the merger.

Developers Diversified and IRRETI and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of IRRETI in connection with the merger. Information about Developers Diversified and its directors and executive officers, and their ownership of Developers Diversified securities, is set forth in the proxy statement for the 2006 Annual Meeting of Shareholder of Developers Diversified, which was filed with the SEC on April 3, 2006. Information about IRRETI and its directors and executive officers, and their ownership of IRRETI securities, is set forth in the proxy statement for the 2006 Annual Meeting of Shareholder of IRRETI, which was filed with the SEC on October 14, 2006. Additional information regarding the interests of those persons may be obtained by reading the proxy statement/prospectus when it becomes available. As a result of this transaction, IRRETI does not intend to hold an annual shareholder meeting and instead will hold a special meeting to vote on the proposed merger.

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



                                 Three-Month Period        Year Ended
                                 Ended December 31,       December 31,
Revenues:                          2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
   Minimum rents (A)            $ 141,587  $ 136,327  $ 563,611  $ 506,221
   Percentage and overage rents
    (A)                             5,656      5,278     11,294      9,965
   Recoveries from tenants         46,450     42,887    177,665    156,793
   Ancillary and other property
    income                          6,114      3,854     21,048     14,425
   Management, development and
    other fee income                8,973      6,970     30,294     22,859
   Other (B)                        5,632      1,174     14,186      9,300
                                ---------  ---------  ---------  ---------
                                  214,412    196,490    818,098    719,563
                                ---------  ---------  ---------  ---------
Expenses:
   Operating and maintenance       31,185     28,106    113,468     97,599
   Real estate taxes               24,898     23,080     95,620     84,756
   General and administrative
    (C)                            14,874     13,860     60,679     54,048
   Depreciation and
    amortization                   49,429     47,443    192,219    163,341
                                ---------  ---------  ---------  ---------
                                  120,386    112,489    461,986    399,744
                                ---------  ---------  ---------  ---------
Other income (expense):
   Interest income                  1,526      3,686      9,113     10,078
   Interest expense               (57,266)   (50,535)  (221,525)  (181,040)
   Other expense (D)                 (909)        (7)      (446)    (2,532)
                                ---------  ---------  ---------  ---------
                                  (56,649)   (46,856)  (212,858)  (173,494)
                                ---------  ---------  ---------  ---------
Income before equity in net
 income of joint ventures,
 minority equity interests,
 income tax (expense) benefit
 of taxable REIT subsidiaries
 and franchise taxes,
 discontinued operations and
 gain on disposition of real
 estate                            37,377     37,145    143,254    146,325
Equity in net income of joint
 ventures (E)                       7,381      8,890     30,337     34,873
Minority equity interests (F)      (1,949)    (2,677)    (8,453)    (7,881)
Income tax (expense) benefit of
 taxable REIT subsidiaries
 and franchise taxes (G)             (165)       213      2,481       (342)
                                ---------  ---------  ---------  ---------
Income from continuing
 operations                        42,644     43,571    167,619    172,975
Income from discontinued
 operations (H)                     8,446      3,216     13,622     21,528
                                ---------  ---------  ---------  ---------
Income before gain on
 disposition of real estate        51,090     46,787    181,241    194,503
Gain on disposition of real
 estate, net of tax                10,899      2,075     72,023     88,140
                                ---------  ---------  ---------  ---------
Net income                      $  61,989  $  48,862  $ 253,264  $ 282,643
                                =========  =========  =========  =========
Net income, applicable to
 common shareholders            $  48,197  $  35,070  $ 198,095  $ 227,474
                                =========  =========  =========  =========
Funds From Operations ("FFO"):
   Net income applicable to
    common shareholders         $  48,197  $  35,070  $ 198,095  $ 227,474
   Depreciation and
    amortization of real estate
    investments                    47,377     46,610    185,449    169,117
   Equity in net income of
    joint ventures (E)             (7,381)    (8,890)   (30,337)   (34,873)
   Joint ventures' FFO (E)         11,510     11,864     44,473     49,302
   Minority equity interests
    (OP Units) (F)                    515        729      2,116      2,916
   Gain on disposition of
    depreciable real estate,
    net                           (10,118)    (3,671)   (21,987)   (58,834)
                                ---------  ---------  ---------  ---------
   FFO available to common
    shareholders                   90,100     81,712    377,809    355,102
   Preferred dividends             13,792     13,792     55,169     55,169
                                ---------  ---------  ---------  ---------
   FFO                          $ 103,892  $  95,504  $ 432,978  $ 410,271
                                =========  =========  =========  =========
   Per share data:
     Earnings per common share
       Basic                    $    0.44  $    0.32  $    1.82  $    2.10
                                =========  =========  =========  =========
       Diluted                  $    0.44  $    0.32  $    1.81  $    2.08
                                =========  =========  =========  =========
   Dividends Declared           $    0.59  $    0.54  $    2.36  $    2.16
                                =========  =========  =========  =========
   Funds From Operations -
    Basic (I)                   $    0.82  $    0.74  $    3.43  $    3.23
                                =========  =========  =========  =========
   Funds From Operations -
    Diluted (I)                 $    0.82  $    0.74  $    3.41  $    3.21
                                =========  =========  =========  =========
   Basic - average shares
    outstanding (I)               108,638    108,523    109,002    108,310
                                =========  =========  =========  =========
   Diluted - average shares
    outstanding (I)               109,308    109,168    109,613    109,142
                                =========  =========  =========  =========




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


(A)  Increases in base and percentage rental revenues for the year ended
     December 31, 2006 as compared to 2005, aggregated $57.0 million
     consisting of $12.5 million related to leasing of core portfolio
     properties which includes  an increase from the assets located in
     Puerto Rico for a comparable eleven months of ownership (an increase
     of 2.7% from 2005), $47.4 million from the acquisition of assets, $3.5
     million related to developments and redevelopments and $4.3 million
     due to the consolidation of a joint venture asset.  These amounts were
     offset by a decrease of $1.4 million primarily related to one business
     center under redevelopment and $9.3 million due to the disposition of
     properties in 2006 and 2005 to joint ventures.  Included in the rental
     revenues for the year ended December 31, 2006 and 2005 is
     approximately $16.0 million and $14.4 million, respectively, of
     revenue resulting from the recognition of straight line rents.

(B)  Other income for the three-month periods and year ended December 31,
     2006 and 2005 was comprised of the following (in millions):

                                  Three-Month Period        Year Ended
                                  Ended December 31,       December 31,
                                   2006       2005       2006       2005
                                ---------- ---------- ---------- ----------
     Lease termination fees     $      5.6 $      0.8 $     13.3 $      5.9
     Financing fees                      -        0.1        0.4        2.4
     Other miscellaneous                 -        0.3        0.5        1.0
                                ---------- ---------- ---------- ----------
                                $      5.6 $      1.2 $     14.2 $      9.3
                                ========== ========== ========== ==========

(C)  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 year
     ended December 31, 2006 and 2005, general and administrative expenses
     were approximately 4.8% and 4.6%, respectively, of total revenues,
     including joint venture revenues, respectively.

(D)  Other expense is comprised of litigation settlements or costs
     and abandoned acquisition and development project costs.

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

                                 Three-Month Period        Year Ended
                                 Ended December 31,       December 31,
                                   2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
Revenues from operations (a)    $ 123,244  $ 109,779  $ 430,877  $ 417,434
                                ---------  ---------  ---------  ---------

Operating expense                  45,308     41,218    146,631    147,983
Depreciation and amortization
 of real estate investments        22,357     21,302     81,618     82,753
Interest expense                   35,697     30,177    129,708    113,466
                                ---------  ---------  ---------  ---------
                                  103,362     92,697    357,957    344,202
                                ---------  ---------  ---------  ---------
Income from operations before
 tax expense, gain on
 disposition of real estate and
 discontinued operations           19,882     17,082     72,920     73,232
Tax expense                        (1,176)         -     (1,176)         -
Gain on disposition of real
 estate                               161         60        398        858
(Loss) income from discontinued
 operations, net of tax              (503)      (660)       139       (486)
Gain on disposition of
 discontinued operations, net
 of tax                               433     13,527     20,343     48,982
                                ---------  ---------  ---------  ---------
Net income                      $  18,797  $  30,009  $  92,624  $ 122,586
                                =========  =========  =========  =========
DDR Ownership interests (b)     $   6,171  $   8,775  $  28,530  $  36,828
                                =========  =========  =========  =========

FFO from joint ventures are
 summarized as follows:
   Net income                   $  18,797  $  30,009  $  92,624  $ 122,586
   Gain on disposition of real
    estate, including
    discontinued operations          (576)    (6,287)   (22,013)   (19,014)
   Depreciation and amortization
    of real estate investments     22,507     22,029     83,017     87,508
                                ---------  ---------  ---------  ---------
                                $  40,728  $  45,751    153,628  $ 191,080
                                =========  =========  =========  =========
   DDR Ownership interests (b)  $  11,510  $  11,864  $  44,473  $  49,302
                                =========  =========  =========  =========
   DDR Partnership distributions
    received, net (c)           $  25,240  $  12,927  $  74,090  $ 126,647
                                =========  =========  =========  =========




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


     (a)  Revenues for the three-month periods ended December 31, 2006 and
          2005 included approximately $1.3 million and $1.1 million,
          respectively, resulting from the recognition of straight line
          rents of which the Company's proportionate share is $0.2 million
          and $0.1 million, respectively.  Revenues for the year ended
          December 31, 2006 and 2005 included approximately $5.1 million
          and $6.6 million, respectively, resulting from the recognition of
          straight line rents of which the Company's proportionate share is
          $0.9 million and $1.1 million, respectively.

     (b)  The Company's share of joint venture net income was increased by
          $1.2 million for the three-month period ended December 31, 2006,
          and $1.6 million for the year ended December 31, 2006 and
          decreased by $2.1 million for the year ended December 31, 2005.
          These adjustments reflect basis differences impacting
          amortization and depreciation and gain on dispositions.

          Included in gain on disposition of discontinued operations for
          the year ended December 31, 2006 is the sale of the joint venture
          asset in Killdeer, Illinois.  DDR received promoted income of
          approximately $5.5 million which is included in FFO as "DDR
          ownership interests."

          At December 31, 2006 and 2005, the Company owned joint venture
          interests, excluding consolidated joint ventures, relating to 117
          and 110 shopping center properties, respectively.  In addition,
          at December 31, 2006, the Company owned, through a Coventry II
          Joint Venture, a 20% interest in 50 shopping center sites
          formerly owned by Service Merchandise.  At December 31, 2005, the
          Company, through the KLA/SM joint venture, owned an approximate
          25% interest in 55 shopping center sites formerly owned by
          Service Merchandise.

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

(F)  Minority equity interests are comprised of the following:

                                  Three-Month Period        Year Ended
                                  Ended December 31,       December 31,
                                   2006       2005       2006       2005
                                ---------- ---------- ---------- ----------
     Minority interests         $    1,434 $    1,948 $    6,337 $    4,965
     Operating partnership units       515        729      2,116      2,916
                                ---------- ---------- ---------- ----------
                                $    1,949 $    2,677 $    8,453 $    7,881
                                ========== ========== ========== ==========

(G)  Interest costs within taxable REIT subsidiaries are subject to certain
     limitations based upon taxable income as required under Internal
     Revenue Code Section 163(j).  The 2006 income tax benefit primarily is
     attributable to the Company's ability to deduct previously incurred
     intercompany interest costs due to the increased gain on dispositions.


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


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

                                           Three-month
                                          Period Ended       Year Ended
                                           December 31,      December 31,
                                          2006     2005     2006     2005
                                        -------- -------- -------- --------
Revenues                                $  1,160 $  2,206 $  6,627 $ 29,008
                                        -------- -------- -------- --------

Expenses:
  Operating                                  269      892    1,406   10,926
  Impairment charge                            -        -        -      642
  Interest, net                              194      349    1,342    5,152
  Depreciation                               133      437    1,308    7,360
  Minority interests                           -        3        -       67
                                        -------- -------- -------- --------
    Total expenses                           596    1,681    4,056   24,147
                                        -------- -------- -------- --------
  Income before gain on disposition of
   real estate                               564      525    2,571    4,861
  Gain on disposition of real estate       7,882    2,691   11,051   16,667
                                        -------- -------- -------- --------
    Net income                          $  8,446 $  3,216 $ 13,622 $ 21,528
                                        ======== ======== ======== ========

 (I)  For purposes of computing FFO per share (basic), the weighted average
      shares outstanding were adjusted to reflect the conversion of
      approximately 0.9 million and 1.3 million of Operating Partnership
      Units (OP Units) outstanding at December 31, 2006 and 2005,
      respectively, into 0.9 million and 1.3 million common shares of the
      Company for the three-month periods ended December 31, 2006 and 2005,
      respectively, and 1.0 million and 1.3 million for the years ended
      December 31, 2006 and 2005, respectively, on a weighted average
      basis. The weighted average diluted shares and OP Units outstanding,
      for purposes of computing FFO, were approximately 110.4 million and
      110.8 million for the three-month periods ended December 31, 2006 and
      2005, respectively, and 110.8 million and 110.7 million for the years
      ended December 31, 2006 and 2005, respectively.




                DEVELOPERS DIVERSIFIED REALTY CORPORATION
                           Financial Highlights
                              (In thousands)


Selected Balance Sheet Data:
                                                December 31,  December 31,
                                                  2006 (A)      2005 (A)
                                                ------------  ------------
Assets:
Real estate and rental property:
  Land                                          $  1,768,702  $  1,721,321
  Buildings                                        5,023,665     4,806,373
  Fixtures and tenant improvements                   196,275       152,958
  Construction in progress                           453,493       348,685
                                                ------------  ------------
                                                   7,442,135     7,029,337
Less accumulated depreciation                       (861,266)     (692,823)
                                                ------------  ------------
Real estate, net                                   6,580,869     6,336,514

Cash                                                  28,378        30,655
Investments in and advances to joint ventures
 (B)                                                 291,685       275,136
Notes receivable                                      18,161        24,996
Receivables, including straight line rent, net       152,161       112,464
Assets held for sale                                   5,324             -
Other assets, net                                    103,175        83,212
                                                ------------  ------------
                                                $  7,179,753  $  6,862,977
                                                ============  ============

Liabilities:
Indebtedness:
  Revolving credit facilities                   $    297,500  $    150,000
  Variable rate unsecured term debt                        -       200,000
  Unsecured debt                                   2,218,020     1,966,268
  Mortgage and other secured debt                  1,733,292     1,574,733
                                                ------------  ------------
                                                   4,248,812     3,891,001
  Dividends payable                                   71,269        65,799
  Other liabilities                                  241,556       204,447
                                                ------------  ------------
                                                   4,561,637     4,161,247
Minority interests                                   121,933       131,449
Shareholders’ equity                               2,496,183     2,570,281
                                                ------------  ------------
                                                $  7,179,753  $  6,862,977
                                                ============  ============

    (A) Amounts include the consolidation of Mervyns, a 50% owned
        joint venture, formed in September 2005, which includes $405.8
        million and $394.7 million of real estate assets at December 31,
        2006 and 2005, respectively, $258.5 million of mortgage debt at
        December 31, 2006 and 2005, and $77.6 million and $75.1 million
        of minority interests at December 31, 2006 and 2005, respectively.

    (B) Includes $91.6 million of advances to the Service Merchandise
        Joint Venture at December 31, 2005 that was repaid in connection
        with the acquisition of our partners’ interest in August 2006.




                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,
                                                   2006           2005
                                              -------------  -------------

Land                                          $     933,916  $     894,477
Buildings                                         2,788,863      2,480,025
Fixtures and tenant improvements                     59,166         58,060
Construction in progress                            157,762         37,550
                                              -------------  -------------
                                                  3,939,707      3,470,112
Accumulated depreciation                           (247,012)      (195,708)
                                              -------------  -------------
Real estate, net                                  3,692,695      3,274,404
Receivables, including straight line rent, net       75,024         76,744
Leasehold interests                                  15,195         23,297
Other assets                                        132,984        109,490
                                              -------------  -------------
                                              $   3,915,898  $   3,483,935
                                              =============  =============

Mortgage debt (a)                             $   2,495,080  $   2,173,401
Notes and accrued interest payable to DDR             4,960        108,020
Other liabilities                                    94,648         78,406
                                              -------------  -------------
                                                  2,594,688      2,359,827
   Accumulated equity                             1,321,210      1,124,108
                                              -------------  -------------
                                              $   3,915,898  $   3,483,935
                                              -------------  =============

(a)  The Company's proportionate share of joint venture debt aggregated
     approximately $525.6 million and $510.5 million at December 31, 2006
     and 2005, respectively.

Contact Information

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

    Michelle M. Dawson
    Vice President of Investor Relations
    216-755-5455