Developers Diversified Realty Corp - Amended Annual Report (10-K/A)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A

(Amendment No. 2)

(Mark One)


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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006


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

For the transition period from to

Commission file number 1-11690

DEVELOPERS DIVERSIFIED REALTY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


Ohio		34-1723097

(State or Other Jurisdiction		(I.R.S. Employer Identification No.)
of Incorporation or Organization)

3300 Enterprise Parkway, Beachwood, Ohio 44122

(Address of Principal Executive Offices — Zip Code)

(216) 755-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


		Name of Each Exchange on
Title of Each Class		Which Registered
Common Shares, Without Par Value.		New York Stock Exchange
Depositary Shares Representing Class F Cumulative Redeemable Preferred Shares		New York Stock Exchange
Depositary Shares Representing Class G Cumulative Redeemable Preferred Shares		New York Stock Exchange
Depositary Shares Representing Class H Cumulative Redeemable Preferred Shares		New York Stock Exchange
Depositary Shares Representing Class I Cumulative Redeemable Preferred Shares		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2006 was $5.5 billion.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date.

109,452,823 common shares outstanding as of February 5, 2007
DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

This Form 10-K/A (Amendment No. 2) (this “Amendment”) amends the Annual Report on Form 10-K of Developers Diversified Realty Corporation (the “Company”) for the year ended December 31, 2006, which was filed on February 21, 2007 and was amended on March 6, 2007 to incorporate by reference into Part III portions of the Company’s definitive proxy statement for its 2007 Annual Shareholders Meeting (the Form 10-K as previously amended, the “Original Report”).

The Company is amending the Original Report to include as Exhibit 99.2 the financial statements of DDR Macquarie Fund LLC for its fiscal years ended June 30, 2006 and 2005 and the period November 21, 2003 (date of inception) to June 30, 2004. The Company is also including additional footnote disclosure in the Company’s consolidated financial statements related to DDR MDT PS LLC, in addition to the existing footnote disclosure which presents combined financial information about the Company’s joint ventures. The Company has determined that these additional financial statements and disclosures are appropriate based on the application of Rules 3.09 and 4.08(g) of Regulation S-X. These additional financial statements and disclosures do not have any affect on the Company’s previously reported consolidated results of operations, financial condition or cash flows.

This Amendment also includes a signature page, the certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934 which have been reexecuted and refiled, the Exhibit Index which has been amended and restated in its entirety to reflect the inclusion of the certifications, the financial statements of DDR Macquarie LLC and the consents of PricewaterhouseCoopers LLP to the inclusion of the financial statements in subsequent filings under the Securities Act of 1933. Item 9A (Controls and Procedures) is included in this Amendment, but it has not been modified or updated from the Original Report.

All other items of the Original Report remain unchanged, and no attempt has been made to update matters in the Original Report, except to the extent expressly provided above. Refer to the Company’s quarterly reports on Form 10-Q for periods subsequent to December 31, 2006.


Item 9A.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Based on their evaluation as required by Securities Exchange Act Rules 13a-15(b) and 15d-15(b), the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective as of December 31, 2006, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and were effective as of December 31, 2006, to ensure that information required to be disclosed by the Company issuer in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management assessed the effectiveness of its internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on those criteria, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2006.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm, as stated in their report, which is included in Part IV; Item 15 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

During the three-month period ended December 31, 2006, there were no changes in the Company’s internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.


Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


a.) 1.	Financial Statements

The following documents are filed as a part of this report:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets as of December 31, 2006 and 2005.

Consolidated Statements of Operations for the three years ended December 31, 2006.

Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2006.

Consolidated Statements of Cash Flows for the three years ended December 31, 2006.

Notes to the Consolidated Financial Statements.


2.	Financial Statement Schedules

The following financial statement schedules were filed as part of the Annual Report on Form 10-K filed with the SEC on February 21, 2007 and should be read in conjunction with the Consolidated Financial Statements of the registrant:

Schedule

II — Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 2006.


	III — Real Estate and Accumulated Depreciation at December 31, 2006.

Schedules not listed above have been omitted because they are not applicable or because the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.

b.) Exhibits — The following exhibits are filed as part of, or incorporated by reference into, this report:


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	2		2	.1	Agreement and Plan of Merger dated as of October 20, 2006 by and among the Company, Inland Retail Real Estate Trust, Inc., and DDR IRR Acquisition LLC	Current Report on Form 8-K (Filed October 23, 2006)
	2		2	.2	Purchase and Sale Agreement between MPR Del Norte LP, S.E., MPR Vega Baja LP, S.E., MPR Fajarado LP, S.E., MPR Del Oeste LP, S.E. and MPR Guyama LP, S.E. and the Company dated November 2, 2004	Current Report on Form 8-K (Filed with the SEC on November 5, 2004)
	2		2	.3	Purchase and Sale Agreement between CRV Rio Hondo LP, LLLP, CRV Del Atlantico LP, LLLP, CRV Rexville LP, LLLP, CRV Senorial LP, LLLP and CRV Hamilton Land Acquisition LP, LLLP and the Company dated November 2, 2004	Current Report on Form 8-K (Filed with the SEC on November 5, 2004)
	2		2	.4	Purchase and Sale Agreement between CPR Del Sol LP, S.E., CPR Escorial LP, S.E., CPR Cayey LP, S.E., CPR Palma Real LP, S.E., CPR Isabela LP, S.E. and CPR San Germain LP, S.E. and the Company dated November 2, 2004	Current Report on Form 8-K (Filed with the SEC on November 5, 2004)
	3		3	.1	Amended and Restated Articles of Incorporation of the Company, as amended	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	3		3	.2	Second Amendment to the Amended and Restated Articles of Incorporation of the Company	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	3		3	.3	Third Amendment to the Amended and Restated Articles of Incorporation of the Company	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	3		3	.4	Fourth Amendment to the Amended and Restated Articles of Incorporation of the Company	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	3		3	.5	Fifth Amendment to the Amended and Restated Articles of Incorporation of the Company	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	3		3	.6	Sixth Amendment to the Amended and Restated Articles of Incorporation of the Company	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	3		3	.7	Seventh Amendment to the Amended and Restated Articles of Incorporation of the Company	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)
	3		3	.8	Code of Regulations of the Company	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	4		4	.1	Specimen Certificate for Common Shares	Form S-3 Registration No. 33-78778 (Filed with the SEC on May 10, 1994)
	4		4	.2	Specimen Certificate for 8.60% Class F Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on March 21, 2002)
	4		4	.3	Specimen Certificate for Depositary Shares Relating to 8.60% Class F Cumulative Redeemable Preferred Shares	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004)
	4		4	.4	Specimen Certificate for 8.0% Class G Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on March 25, 2003)
	4		4	.5	Specimen Certificate for Depositary Shares Relating to 8.0% Class G Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on March 25, 2003)
	4		4	.6	Specimen Certificate for 7 3 / 8 % Class H Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on July 17, 2003)
	4		4	.7	Specimen Certificate for Depositary Shares Relating to 7 3 / 8 % Class H Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on July 17, 2003)
	4		4	.8	Specimen Certificate for 7.50% Class I Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on May 4, 2004)
	4		4	.9	Specimen Certificate for Depositary Shares Relating to 7.50% Class I Cumulative Redeemable Preferred Shares	Form 8-A Registration Statement (Filed with the SEC on May 4, 2004)
	4		4	.10	Indenture dated as of May 1, 1994 by and between the Company and Chemical Bank, as Trustee	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	4		4	.11	Indenture dated as of May 1, 1994 by and between the Company and National City Bank, as Trustee (the “NCB Indenture”)	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	4		4	.12	First Supplement to NCB Indenture	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	4		4	.13	Second Supplement to NCB Indenture	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	4		4	.14	Third Supplement to NCB Indenture	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	4		4	.15	Fourth Supplement to NCB Indenture	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)
	4		4	.16	Fifth Supplement to NCB Indenture	Annual Report on Form 10-K (Filed with the SEC on February 21, 2007)
	4		4	.17	Sixth Supplement to NCB Indenture	Annual Report on Form 10-K (Filed with the SEC on February 21, 2007)
	4		4	.18	Seventh Supplement to NCB Indenture	Current Report on Form 8-K (Filed with the SEC on September 1, 2006)
	4		4	.19	Form of Fixed Rate Senior Medium-Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)
	4		4	.20	Form of Floating Rate Senior Medium- Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)
	4		4	.21	Form of Fixed Rate Subordinated Medium-Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)
	4		4	.22	Form of Floating Rate Subordinated Medium-Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)
	4		4	.23	Form of 3.875% Note due 2009	Current Report on Form 8-K (Filed with the SEC on January 22, 2004)
	4		4	.24	Form of 5.25% Note due 2011	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)
	4		4	.25	Form of 3.50% Convertible Senior Note due 2011	Current Report on Form 8-K (Filed with the SEC on September 1, 2006)
	4		4	.26	Seventh Amended and Restated Credit Agreement dated as of June 29, 2006 among the Company and JPMorgan Securities, Inc. and Banc of America Securities LLC, and other lenders named therein	Current Report on Form 8-K (Filed with the SEC on July 6, 2006)
	4		4	.27	Credit Agreement dated as of March 13, 2003 among the Company and Banc of America Securities, LLC and Wells Fargo Bank, National Association and other lenders named therein	Quarterly Report on Form 10-Q (Filed with the SEC on June 24, 2003)
	4		4	.28	Term Loan Credit Agreement dated as of May 20, 2004 among the Company and Banc One Capital Markets, Inc. and Wachovia Capital Markets, LLC and other lenders named therein	Current Report on Form 8-K (Filed with the SEC on June 24, 2004)
	4		4	.29	Waiver and First Amendment to Term Loan Credit Agreement dated as of March 10, 2006 between the Company and JPMorgan Chase Bank, N.A.	Quarterly Report on Form 10-Q (Filed with the SEC on May 10, 2006)
	4		4	.30	First Amended and Restated Secured Term Loan Agreement dated as of June 29, 2006 among the Company and Keybanc Capital Markets and Banc of America Securities, LLC and other lenders named therein	Current Report on Form 8-K (Filed with the SEC on July 6, 2006)


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	4		4	.31	Form of Indemnification Agreement	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004)
	4		4	.32	Shareholder Rights Agreement dated as of May 26, 1999 between the Company and National City Bank	Quarterly Report on Form 10-Q (Filed with the SEC on August 16, 1999; File No. 001-11690)
	4		4	.33	Registration Rights Agreement dated as of August 28, 2006 among the Company and the Initial Purchasers named therein.	Current Report on Form 8-K (Filed with the SEC on September 1, 2006)
	4		4	.34	Fourth Amended and Restated Operating Agreement of DDR Down REIT LLC dated as of February 26, 2007	Annual Report on Form 10-K/A (Filed with the SEC on March 6, 2007)
	10		10	.1	Registration Rights Agreement	Form S-11 Registration No. 33-54930 (Filed with the SEC on November 23, 1992)
	10		10	.2	Stock Option Plan*	Form S-8 Registration No. 33-74562 (Filed with the SEC on January 28, 1994)
	10		10	.3	Amended and Restated Directors’ Deferred Compensation Plan*	Annual Report on Form 10-K (filed with the SEC on April 2, 2001)
	10		10	.4	Elective Deferred Compensation Plan*	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004)
	10		10	.5	Developers Diversified Realty Corporation Equity Deferred Compensation Plan*	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)
	10		10	.6	Developers Diversified Realty Corporation Equity-Based Award Plan*	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004)
	10		10	.7	Amended and Restated 1998 Developers Diversified Realty Corporation Equity- Based Award Plan*	Form S-8 Registration No. 333-76537 (Filed with the SEC on April 19, 1999)
	10		10	.8	2002 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on August 14, 2002)
	10		10	.9	2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Form S-8 Registration No. 333-117069 (Filed with the SEC on July 1, 2004)
	10		10	.10	Form of Restricted Share Agreement under the 1996/1998/2002/2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Annual Report on Form 10-K (Filed with the SEC on March 16, 2005)
	10		10	.11	Form of Restricted Share Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.12	Form of Incentive Stock Option Grant Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.13	Form of Incentive Stock Option Grant Agreement for Executive Officers (with accelerated vesting upon retirement) under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	10		10	.14	Form of Non-Qualified Stock Option Grant Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.15	Form of Non-Qualified Stock Option Grant Agreement for Executive Officers (with accelerated vesting upon retirement) under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.16	Form of Directors’ Restricted Shares Agreement, dated January 1, 2000*	Form S-11 Registration No. 333-76278 (Filed with SEC on January 4, 2002; see Exhibit 10(ff) therein)
	10		10	.17	Performance Units Agreement, dated as of March 1, 2000, between the Company and Scott A. Wolstein*	Annual Report on Form 10-K (Filed with the SEC on March 8, 2002)
	10		10	.18	Performance Units Agreement, dated as of January 2, 2002, between the Company and Scott A. Wolstein*	Annual Report on Form 10-K (Filed with the SEC on March 8, 2002)
	10		10	.19	Performance Units Agreement, dated as of January 2, 2002, between the Company and David M. Jacobstein*	Quarterly Report on Form 10-Q (Filed with the SEC on May 15, 2002)
	10		10	.20	Performance Units Agreement, dated as of January 2, 2002, between the Company and Daniel B. Hurwitz*	Quarterly Report on Form 10-Q (Filed with the SEC on May 15, 2002)
	10		10	.21	Incentive Compensation Agreement, effective as of February 11, 1998, between the Company and Scott A. Wolstein*	Quarterly Report on Form 10-Q (Filed with the SEC on May 15, 2002)
	10		10	.22	Amended and Restated Employment Agreement dated as of November 6, 2006 between the Company and Joan U. Allgood*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.23	Amended and Restated Employment Agreement, dated as of November 6, 2006, between the Company and Timothy J. Bruce*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.24	Employment Agreement dated as of May 25, 1999 between the Company and Daniel B. Hurwitz*	Quarterly Report on Form 10-Q (Filed with the SEC on August 16, 1999; File No. 001-11690)
	10		10	.25	Employment Agreement dated as of April 21, 1999 between the Company and David M. Jacobstein*	Quarterly Report on Form 10-Q (Filed with the SEC on August 16, 1999; File No. 001-11690)
	10		10	.26	Amended and Restated Employment Agreement dated as of November 6, 2006 between the Company and William H. Schafer*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.27	Employment Agreement dated as of December 6, 2001, between the Company and Scott A. Wolstein*	Annual Report on Form 10-K (Filed with the SEC on March 8, 2002)


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	10		10	.28	Amended and Restated Employment Agreement dated as of November 6, 2006 between the Company and Richard E. Brown*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.29	Employment Agreement dated as of November 6, 2006 between the Company and Robin R. Walker-Gibbons*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.30	Amended and Restated Change of Control Agreement dated as of November 6, 2006 between the Company and Joan U. Allgood*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.31	Amended and Restated Change of Control Agreement dated as of November 6, 2006 between the Company and Richard E. Brown*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.32	Amended and Restated Change of Control Agreement dated as of November 6, 2006 between the Company and William H. Schafer*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.33	Form of Change of Control Agreement dated as of March 24, 1999 between the Company and each of Scott A. Wolstein*	Quarterly Report on Form 10-Q (Filed with the SEC on May 17, 1999; File No. 001-11690)
	10		10	.34	Amended and Restated Change of Control Agreement, dated as of November 6, 2006, between the Company and Timothy J. Bruce*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.35	Change of Control Agreement dated as of May 25, 1999 between the Company and Daniel B. Hurwitz*	Quarterly Report on Form 10-Q (Filed with the SEC on August 16, 1999; File No. 001-11690)
	10		10	.36	Change of Control Agreement dated as of May 17, 1999 between the Company and David M. Jacobstein*	Quarterly Report on Form 10-Q (Filed with the SEC on August 16, 1999; File No. 001-11690)
	10		10	.37	Amended and Restated Change of Control Agreement dated as of November 6, 2006 between the Company and Robin R. Walker-Gibbons*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.38	Outperformance Long-Term Incentive Plan Agreement dated as of August 18, 2006 between the Company and Scott A. Wolstein*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.39	Outperformance Long-Term Incentive Plan Agreement dated as of August 18, 2006 between the Company and Daniel B. Hurwitz*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.40	Outperformance Long-Term Incentive Plan Agreement dated as of February 23, 2006 between the Company and Joan U. Allgood*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.41	Outperformance Long-Term Incentive Plan Agreement dated as of February 23, 2006 between the Company and Richard E. Brown*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	10		10	.42	Outperformance Long-Term Incentive Plan Agreement dated as of February 23, 2006 between the Company and Timothy J. Bruce*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.43	Outperformance Long-Term Incentive Plan Agreement dated as of February 23, 2006 between the Company and William H. Schafer*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.44	Outperformance Long-Term Incentive Plan Agreement dated as of February 23, 2006 between the Company and Robin R. Walker-Gibbons*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006)
	10		10	.45	Form of Medium-Term Note Distribution Agreement	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)
	10		10	.46	Program Agreement for Retail Value Investment Program, dated as of February 11, 1998, among Retail Value Management, Ltd., the Company and The Prudential Insurance Company of America	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004)
	10		10	.47	Confirmation of Forward Sale Transaction dated as of December 4, 2006 between the Company and Deutsche Bank AG London	Current Report on Form 8-K (Filed with the SEC on December 7, 2006)
	10		10	.48	Confirmation of Forward Sale Transaction dated as of December 4, 2006 between the Company and Merrill Lynch International	Current Report on Form 8-K (Filed with the SEC on December 7, 2006)
	10		10	.49	Confirmation of Forward Sale Transaction dated as of December 4, 2006 between the Company and JPMorgan Chase Bank, National Association	Current Report on Form 8-K (Filed with the SEC on December 7, 2006)
	14		14	.1	Developers Diversified Realty Corporation Code of Ethics for Senior Financial Officers	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004)
	21		21	.1	List of Subsidiaries	Annual Report on Form 10-K (Filed with the SEC on February 21, 2007)
	23		23	.1	Consent of PricewaterhouseCoopers LLP	Filed herewith
	23		23	.2	Consent of PricewaterhouseCoopers LLP	Filed herewith
	31		31	.1	Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	Filed herewith
	31		31	.2	Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	Filed herewith
	32		32	.1	Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350	Filed herewith


Exhibit No.
Under Reg.		Form 10-K				Filed Herewith or
S-K		Exhibit				Incorporated Herein by
Item 601		No.			Description	Reference

	32		32	.2	Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350	Filed herewith
	99		99	.1	Voting Agreement, dated October 4, 2002, between the Company and certain stockholders named therein	Current Report on Form 8-K (Filed with the SEC on October 9, 2002)
	99		99	.2	Consolidated Financial Statements of DDR Macquarie Fund LLC	Filed herewith


*		Management contracts and compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 15(b) of Form 10-K.

DEVELOPERS DIVERSIFIED REALTY CORPORATION

INDEX TO FINANCIAL STATEMENTS


		Page

Financial Statements:
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2006 and 2005		F-4
Consolidated Statements of Operations for the three years ended December 31, 2006		F-5
Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2006		F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 2006		F-7
Notes to Consolidated Financial Statements		F-8
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.2

Financial statements of the Company’s unconsolidated joint venture companies, except for DDR Macquarie Fund LLC, have been omitted because they do not meet the significant subsidiary definition of S-X 210.1-02(w).

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Developers Diversified Realty Corporation:

We have completed integrated audits of Developers Diversified Realty Corporation’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedules

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Developers Diversified Realty Corporation and its subsidiaries (the “Company”) at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 1 and 2 to the consolidated financial statements, the Company, on April 1, 2004, adopted FIN 46R, “Consolidation of Variable Interest Entities — an interpretation of ARB 51,” as interpreted.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included “Management’s Report on Internal Control over Financial Reporting” appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,

F-2

accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Cleveland, Ohio

February 21, 2007

F-3

CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)


	December 31,
	2006			2005

Assets
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 and land under development		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 and cash equivalents		28,378			30,655
Accounts receivable, net		152,161			112,464
Notes receivable		18,161			24,996
Investments in and advances to joint ventures		291,685			275,136
Deferred charges, net		23,708			21,157
Other assets		79,467			62,055
Real estate held for sale		5,324			—

	$	7,179,753		$	6,862,977

Liabilities and Shareholders’ Equity
Unsecured indebtedness:
Senior notes	$	2,218,020		$	1,966,268
Term debt		—			200,000
Revolving credit facility		297,500			150,000

		2,515,520			2,316,268
Secured indebtedness:
Term debt		400,000			220,000
Mortgage and other secured indebtedness		1,333,292			1,354,733

		1,733,292			1,574,733

Total indebtedness		4,248,812			3,891,001
Accounts payable and accrued expenses		134,781			111,186
Dividends payable		71,269			65,799
Other liabilities		106,775			93,261

		4,561,637			4,161,247

Minority equity interests		104,596			99,181
Operating partnership minority interests		17,337			32,268

		4,683,570			4,292,696
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred shares (Note 13)		705,000			705,000
Common shares, without par value, $.10 stated value; 200,000,000 shares authorized; 109,739,262 and 108,947,748 shares issued at December 31, 2006 and 2005, respectively		10,974			10,895
Paid-in-capital		1,959,629			1,945,245
Accumulated distributions in excess of net income		(159,615	)		(99,756	)
Deferred obligation		12,386			11,616
Accumulated other comprehensive income		7,829			10,425
Less: Unearned compensation-restricted stock		—			(13,144	)
Common shares in treasury at cost: 752,975 shares at December 31, 2006		(40,020	)		—

		2,496,183			2,570,281

	$	7,179,753		$	6,862,977

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)


	For the Year Ended December 31,
	2006			2005			2004

Revenues from operations:
Minimum rents	$	563,611		$	506,221		$	402,016
Percentage and overage rents		11,294			9,965			7,193
Recoveries from tenants		177,665			156,793			115,854
Ancillary and other property income		21,048			14,425			7,275
Management, development and other fee income		30,294			22,859			16,937
Other		14,186			9,300			13,081

		818,098			719,563			562,356

Rental operation expenses:
Operating and maintenance		113,468			97,599			63,929
Real estate taxes		95,620			84,756			72,850
General and administrative		60,679			54,048			47,126
Depreciation and amortization		192,219			163,341			122,783

		461,986			399,744			306,688

		356,112			319,819			255,668

Other income (expense):
Interest income		9,113			10,078			4,233
Interest expense		(221,525	)		(181,040	)		(123,527	)
Other expense, net		(446	)		(2,532	)		(1,779	)

		(212,858	)		(173,494	)		(121,073	)

Income before equity in net income of joint ventures, minority interests, tax benefit (expense) of taxable REIT subsidiaries and franchise taxes, discontinued operations, gain on disposition of real estate and cumulative effect of adoption of a new accounting standard		143,254			146,325			134,595
Equity in net income of joint ventures		30,337			34,873			40,895
Income before minority interests, tax benefit (expense) of taxable REIT subsidiaries and franchise taxes, discontinued operations, gain on disposition of real estate and cumulative effect of adoption of a new accounting standard		173,591			181,198			175,490
Minority interests:
Minority equity interests		(6,337	)		(4,965	)		(2,457	)
Operating partnership minority interests		(2,116	)		(2,916	)		(2,607	)

		(8,453	)		(7,881	)		(5,064	)
Tax benefit (expense) of taxable REIT subsidiaries and franchise taxes		2,481			(342	)		(1,469	)

Income from continuing operations		167,619			172,975			168,957

Discontinued operations:
Income from discontinued operations		2,571			4,861			10,603
Gain on disposition of real estate, net of tax		11,051			16,667			8,561

		13,622			21,528			19,164

Income before gain on disposition of real estate and cumulative effect of adoption of a new accounting standard		181,241			194,503			188,121
Gain on disposition of real estate		72,023			88,140			84,642

Income before cumulative effect of adoption of a new accounting standard		253,264			282,643			272,763
Cumulative effect of adoption of a new accounting standard		—			—			(3,001	)

Net income	$	253,264		$	282,643		$	269,762

Preferred dividends		55,169			55,169			50,706

Net income applicable to common shareholders	$	198,095		$	227,474		$	219,056

Per share data:
Basic earnings per share data:
Income from continuing operations	$	1.69		$	1.90		$	2.10
Income from discontinued operations		0.13			0.20			0.20
Cumulative effect of adoption of a new accounting standard		—			—			(0.03	)

Net income applicable to common shareholders	$	1.82		$	2.10		$	2.27

Diluted earnings per share data:
Income from continuing operations	$	1.69		$	1.88		$	2.08
Income from discontinued operations		0.12			0.20			0.19
Cumulative effect of adoption of a new accounting standard		—			—			(0.03	)

Net income applicable to common shareholders	$	1.81		$	2.08		$	2.24

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share amounts)


									Accumulated					Accumulated			Unearned
									Distributions in					Other			Compensation -			Treasury
	Preferred		Common			Paid in			Excess of			Deferred		Comprehensive			Restricted			Stock at
	Shares		Shares			Capital			Net Income			Obligation		Income/(Loss)			Stock			Cost			Total

Balance, December 31, 2003	$	535,000	$	9,379		$	1,301,232		$	(116,737	)	$	8,336	$	(541	)	$	(3,892	)	$	(118,707	)	$	1,614,070
Issuance of 457,378 common shares for cash related to exercise of stock options and dividend reinvestment plan		—		(27	)		(1,390	)		—			—		—			—			6,323			4,906
Issuance of 105,974 common shares related to restricted stock plan		—		—			—			—			—		—			(2,956	)		1,861			(1,095	)
Vesting of restricted stock		—		—			—			—			1,929		—			1,433			—			3,362
Issuance of 20,450,000 common shares for cash — underwritten offerings		—		1,500			637,662			—			—		—			—			97,587			736,749
Redemption of 284,304 operating partnership units in exchange for common shares		—		—			1,716			—			—		—			—			5,084			6,800
Issuance of Class I preferred shares for cash — underwritten offerings		170,000		—			(5,787	)		—			—		—			—			—			164,213
Dividends declared — common shares		—		—			—			(194,078	)		—		—			—			—			(194,078	)
Dividends declared — preferred shares		—		—			—			(51,237	)		—		—			—			—			(51,237	)
Comprehensive income (Note 15):
Net income		—		—			—			269,762			—		—			—			—			269,762
Other comprehensive income:
Change in fair value of interest rate contracts		—		—			—			—			—		867			—			—			867

Comprehensive income		—		—			—			269,762			—		867			—			—			270,629

Balance, December 31, 2004		705,000		10,852			1,933,433			(92,290	)		10,265		326			(5,415	)		(7,852	)		2,554,319
Issuance of 425,985 common shares for cash related to exercise of stock options, dividend reinvestment plan and performance unit plan		—		43			10,857			—			—		—			(6,740	)		6,206			10,366
Issuance of 88,360 common shares related to restricted stock plan		—		—			2,306			—			—		—			(2,905	)		1,646			1,047
Vesting of restricted stock		—		—			(1,351	)		—			1,351		—			1,916			—			1,916
Dividends declared — common shares		—		—			—			(234,940	)		—		—			—			—			(234,940	)
Dividends declared — preferred shares		—		—			—			(55,169	)		—		—			—			—			(55,169	)
Comprehensive income (Note 15):
Net income		—		—			—			282,643			—		—			—			—			282,643
Other comprehensive income:
Change in fair value of interest rate contracts		—		—			—			—			—		10,619			—			—			10,619
Amortization of interest rate contracts		—		—			—			—			—		(520	)		—			—			(520	)

Comprehensive income		—		—			—			282,643			—		10,099			—			—			292,742

Balance, December 31, 2005		705,000		10,895			1,945,245			(99,756	)		11,616		10,425			(13,144	)		—			2,570,281
Issuance of 726,574 common shares for cash related to exercise of stock options, dividend reinvestment plan and director compensation		—		28			(1,819	)		—			—		—			—			10,028			8,237
Redemption of operating partnership units in exchange for common shares		—		45			22,371			—			—		—			—			—			22,416
Repurchase of 909,000 common shares		—		—			—			—			—		—			—			(48,313	)		(48,313	)
Issuance of 64,940 common shares related to restricted stock plan		—		6			653			—			—		—			—			(150	)		509
Vesting of restricted stock		—		—			1,628			—			770		—			—			(1,585	)		813
Purchased option arrangement on common shares		—		—			(10,337	)		—			—		—			—			—			(10,337	)
Adoption of SFAS 123(R)		—		—			(1,558	)		—			—		—			13,144			—			11,586
Stock-based compensation		—		—			3,446			—			—		—			—			—			3,446
Dividends declared — common shares		—		—			—			(257,954	)		—		—			—			—			(257,954	)
Dividends declared — preferred shares		—		—			—			(55,169	)		—		—			—			—			(55,169	)
Comprehensive income (Note 15):
Net income		—		—			—			253,264			—		—			—			—			253,264
Other comprehensive income:
Change in fair value of interest rate contracts		—		—			—			—			—		(2,729	)		—			—			(2,729	)
Amortization of interest rate contracts		—		—			—			—			—		(1,454	)		—			—			(1,454	)
Foreign currency translation		—		—			—			—			—		1,587			—			—			1,587

Comprehensive income		—		—			—			253,264			—		(2,596	)		—			—			250,668

Balance, December 31, 2006	$	705,000	$	10,974		$	1,959,629		$	(159,615	)	$	12,386	$	7,829		$	—		$	(40,020	)	$	2,496,183

The accompanying notes are an integral part of these consolidated financial statements.

F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)


	For the Year Ended December 31,
	2006			2005			2004

Cash flow from operating activities:
Net income	$	253,264		$	282,643		$	269,762
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation and amortization		193,527			170,701			132,647
Stock-based compensation		3,446			—			—
Amortization of deferred finance costs and settled interest rate protection agreements		7,756			7,433			7,300
Net cash received from interest rate hedging contracts		—			10,645			—
Ineffective portion of derivative financing investments		1,157			—			—
Equity in net income of joint ventures		(30,337	)		(34,873	)		(40,895	)
Cash distributions from joint ventures		23,304			39,477			38,724
Operating partnership minority interest expense		2,116			2,916			2,607
Gain on disposition of real estate and impairment charge, net		(83,074	)		(104,165	)		(92,616	)
Cumulative effect of adoption of a new accounting standard		—			—			3,001
Net change in accounts receivable		(38,013	)		(32,207	)		(6,611	)
Net change in accounts payable and accrued expenses		9,875			11,146			(15,048	)
Net change in other operating assets and liabilities		(2,329	)		1,707			(6,645	)

Total adjustments		87,428			72,780			22,464

Net cash flow provided by operating activities		340,692			355,423			292,226

Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed		(454,357	)		(863,795	)		(1,907,683	)
Decrease in restricted cash		—			—			99,340
Equity contributions to joint ventures		(206,645	)		(28,244	)		(11,433	)
Repayment (advances) to joint ventures, net		622			(83,476	)		(7,355	)
Repayment (issuance) of notes receivable, net		6,834			(7,172	)		2,228
Proceeds resulting from contribution of properties to joint ventures and repayments of advances from affiliates		298,059			344,292			635,445
Return of investments in joint ventures		50,862			87,349			39,342
Proceeds from disposition of real estate		101,578			211,603			15,515

Net cash flow used for investing activities		(203,047	)		(339,443	)		(1,134,601	)

Cash flow from financing activities:
Proceeds from (repayment of) revolving credit facilities, net		147,500			90,000			(126,500	)
Proceeds from borrowings from term debt, net		(20,000	)		70,000			50,000
Proceeds from mortgage and other secured debt		11,093			158,218			105,394
Principal payments on rental property debt		(153,732	)		(809,396	)		(203,255	)
Repayment of senior notes		—			(1,000	)		(140,000	)
Proceeds from issuance of convertible senior notes, net of underwriting commissions and offering expenses of $5,550 in 2006		244,450			—			—
Proceeds from issuance of medium term notes, net of underwriting commissions and $1,390 and $421 of offering expenses paid in 2005 and 2004, respectively		—			741,139			520,003
Payment of deferred financing costs (bank borrowings)		(4,047	)		(6,994	)		(4,120	)
Payment of underwriting commissions for forward equity contract		(4,000	)		—			—
Purchased option arrangement on common shares		(10,337	)		—			—
Purchase of operating partnership minority interests		(2,097	)		—			—
Proceeds from the issuance of common shares, net of underwriting commissions and $609 of offering expenses paid in 2004		—			—			736,749
Proceeds from the issuance of preferred shares, net of underwriting commissions and $432 of offering expenses paid in 2004		—			—			164,213
Proceeds from the issuance of common shares in conjunction with exercise of stock options, 401(k) plan and dividend reinvestment plan		9,560			12,139			7,170
Distributions to operating partnership minority interests		(2,347	)		(2,902	)		(2,354	)
Repurchase of common shares		(48,313	)		—			—
Dividends paid		(307,652	)		(286,400	)		(226,747	)

Net cash (used for) provided by financing activities		(139,922	)		(35,196	)		880,553

(Decrease) increase in cash and cash equivalents		(2,277	)		(19,216	)		38,178
Cash and cash equivalents, beginning of year		30,655			49,871			11,693

Cash and cash equivalents, end of year	$	28,378		$	30,655		$	49,871

The accompanying notes are an integral part of these consolidated financial statements.

F-7

1. Summary of Significant Accounting Policies

Nature of Business

Developers Diversified Realty Corporation and its subsidiaries (the “Company” or “DDR”) are primarily engaged in the business of acquiring, expanding, owning, developing, managing and operating shopping centers and enclosed malls. The Company’s shopping centers are typically anchored by two or more national tenant anchors (Wal-Mart and Target), home improvement stores (Home Depot, Lowe’s Home Improvement) and two or more junior tenants (Bed Bath & Beyond, Kohl’s, Circuit City, T.J. Maxx or PETsMART). At December 31, 2006, the Company owned or had interests in 467 shopping centers in 44 states plus Puerto Rico and Brazil and seven business centers in five states. The Company has an interest in 206 of these shopping centers through equity method investments. The tenant base primarily includes national and regional retail chains and local retailers. Consequently, the Company’s credit risk is concentrated in the retail industry.

Consolidated revenues derived from the Company’s largest tenant, Wal-Mart, aggregated 4.7%, 5.1% and 4.0% of total revenues for the years ended December 31, 2006, 2005 and 2004, respectively. The total percentage of Company-owned gross leasable area (“GLA” unaudited) attributed to Wal-Mart was 8.7% at December 31, 2006. The Company’s ten largest tenants comprised 17.7%, 20.0% and 19.4% of total revenues for the years ended December 31, 2006, 2005 and 2004, respectively, including revenues reported within discontinued operations. Management believes the Company’s portfolio is diversified in terms of the location of its shopping centers and its tenant profile. Adverse changes in general or local economic conditions could result in the inability of some existing tenants to meet their lease obligations and could otherwise adversely affect the Company’s ability to attract or retain tenants. During the three-year period ended December 31, 2006, 2005 and 2004, certain national and regional retailers experienced financial difficulties, and several filed for protection under bankruptcy laws. The Company does not believe that these bankruptcies will have a material impact on the Company’s financial position, results of operations or cash flows.

Principles of Consolidation

The Company consolidates certain entities if it is deemed to be the primary beneficiary in a variable interest entity (“VIE”), as defined in FIN No. 46(R), “Consolidation of Variable Interest Entities” (“FIN 46”). For those entities that are not VIEs, the Company also consolidates entities in which it has financial and operating control. All significant inter-company balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures and companies in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these joint ventures and companies is included in consolidated net income.

In 2005, the Company formed a joint venture (the “Mervyns Joint Venture”) with an Australia-based Listed Property Trust, MDT, that acquired the underlying real estate of 36 operating Mervyns stores. The Company holds a 50% economic interest in the Mervyns Joint Venture, which is considered a VIE, and the Company was determined to be the primary beneficiary. The Company earns property management, acquisition and financing fees from this VIE, which are eliminated in consolidation. The VIE has total real estate assets and total non-recourse mortgage debt of approximately $405.8 million and $258.5 million, respectively, at December 31, 2006, and is consolidated in the results of the Company.

In 2003, the Company formed a joint venture (the “MDT Joint Venture”) with Macquarie Bank Limited, that focuses on acquiring community center properties in the United States. The Company maintains an interest in the MDT Joint Venture, a VIE in which the Company has an approximate 12% economic interest. The Company was not determined to be the primary beneficiary. The Company earns asset management and performance fees from a joint venture that serves as the manager of the MDT Joint Venture (“MDT Manager”). The Company has a 50% ownership and serves as the managing member, accounted for under the equity method of accounting. The MDT Joint Venture has total real estate assets and total non-recourse mortgage debt of approximately $1.7 billion and $1.1 billion and $1.7 billion and $1.0 billion, respectively, at December 31, 2006 and 2005, respectively. The Company’s maximum exposure to loss associated with this joint venture is primarily limited to the Company’s aggregate capital investment, which was approximately $63.6 million at December 31, 2006. The financial

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statements of the MDT Joint Venture are included as part of the combined joint ventures financial statements in Note 2.

Statement of Cash Flows and Supplemental Disclosure of Non-Cash Investing and Financing Information

Non-cash investing and financing activities are summarized as follows (in millions):


	For the Year Ended
	December 31,
	2006		2005		2004

Contribution of net assets to joint ventures	$	2.9	$	13.6	$	70.7
Consolidation of the net assets (excluding mortgages as disclosed below) of joint ventures		368.9		—		10.2
Mortgages assumed, shopping center acquisitions and consolidation of joint ventures		132.9		661.5		458.7
Liabilities assumed with the acquisition of shopping centers		—		—		46.9
Consolidation of net assets from adoption of EITF 04-05		43.0		—		—
Mortgages assumed, adoption of EITF 04-05		17.1		—		—
Dividends declared, not paid		71.3		65.8		62.1
Fair value of interest rate swaps		1.1		0.3		2.6
Deferred payment of swaption		2.8		—		—
Share issuance for operating partnership unit redemption		14.9		—		6.8

The transactions above did not provide or use cash in the years presented and, accordingly, are not reflected in the consolidated statements of cash flows.

Real Estate

Real estate assets held for investment are stated at cost less accumulated depreciation, which, in the opinion of management, is not in excess of the individual property’s estimated undiscounted future cash flows, including estimated proceeds from disposition.

Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets as follows:


Buildings		Useful lives, ranging from 30 to 40 years
Furniture/fixtures and tenant improvements		Useful lives, which approximate lease terms, where applicable

Expenditures for maintenance and repairs are charged to operations as incurred. Significant renovations that improve or extend the life of the assets are capitalized. Included in land at December 31, 2006, was undeveloped real estate, generally outlots or expansion pads adjacent to shopping centers owned by the Company (excluding shopping centers owned through joint ventures) and excess land of approximately 1,000 acres.

Construction in progress includes shopping center developments and significant expansions and redevelopments. The Company capitalizes interest on funds used for the construction, expansion or redevelopment of shopping centers, including funds invested in or advanced to joint ventures with qualifying development activities. Capitalization of interest ceases when construction activities are substantially completed and the property is available for occupancy by tenants. In addition, the Company capitalized certain direct and incremental internal construction and software development and implementation costs of $10.0 million, $6.2 million and $5.7 million in 2006, 2005 and 2004, respectively.

Purchase Price Accounting

Upon acquisition of properties, the Company estimates the fair value of acquired tangible assets, consisting of land, building and improvements, and, if determined to be material, identifies intangible assets generally consisting

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of the fair value of (i) above- and below-market leases, (ii) in-place leases and (iii) tenant relationships. The Company allocates the purchase price to assets acquired and liabilities assumed based on their relative fair values at the date of acquisition pursuant to the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” In estimating the fair value of the tangible and intangible assets acquired, the Company considers information obtained about each property as a result of its due diligence, marketing and leasing activities, and utilizes various valuation methods, such as estimated cash flow projections using appropriate discount and capitalization rates, estimates of replacement costs net of depreciation, and available market information. Depending upon the size of the acquisition, the Company may engage an outside appraiser to perform a valuation of the tangible and intangible assets acquired. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

Above- and below-market lease values for acquired properties are recorded based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed-rate renewal options for below-market leases. The capitalized above-market lease values are amortized as a reduction of base rental revenue over the remaining term of the respective leases, and the capitalized below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed-rate renewal options of the respective leases. At December 31, 2006 and 2005, the below-market leases aggregated $22.9 million and $11.5 million, respectively. At December 31, 2006 and 2005, the above-market leases aggregated $2.3 million and $1.4 million, respectively.

The total amount allocated to in-place lease values and tenant relationship values is based upon management’s evaluation of the specific characteristics of the acquired lease portfolio and the Company’s overall relationship with anchor tenants. Factors considered in the allocation of these values include the nature of the existing relationship with the tenant, the expectation of lease renewals, the estimated carrying costs of the property during a hypothetical, expected lease-up period, current market conditions and costs to execute similar leases. Estimated carrying costs include real estate taxes, insurance, other property operating costs and estimates of lost rentals at market rates during the hypothetical, expected lease-up periods, based upon management’s assessment of specific market conditions.

The value of in-place leases including origination costs is amortized to expense over the estimated weighted average remaining initial term of the acquired lease portfolio. The value of tenant relationship intangibles is amortized to expense over the estimated initial and renewal terms of the lease portfolio; however, no amortization period for intangible assets will exceed the remaining depreciable life of the building.

Intangible assets associated with property acquisitions are included in other assets and other liabilities, with respect to the below-market leases, in the Company’s consolidated balance sheets.

Impairment of Long-Lived Assets

The Company follows the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). If an asset is held for sale, it is stated at the lower of its carrying value or fair value, less cost to sell. The determination of undiscounted cash flows requires significant estimates made by management and considers the expected course of action at the balance sheet date. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists.

The Company reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates an impairment in value. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The Company records impairment losses and reduces the carrying amounts of assets held for sale when the carrying amounts exceed the estimated selling proceeds, less the costs to sell.

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Deferred Charges

Costs incurred in obtaining indebtedness are included in deferred charges in the accompanying consolidated balance sheets and are amortized on a straight-line basis over the terms of the related debt agreements, which approximates the effective interest method. Such amortization is reflected as interest expense in the consolidated statements of operations.

Revenue Recognition

Minimum rents from tenants are recognized using the straight-line method over the lease term of the respective leases. Percentage and overage rents are recognized after a tenant’s reported sales have exceeded the applicable sales breakpoint set forth in the applicable lease. Revenues associated with tenant reimbursements are recognized in the period that the expenses are incurred based upon the tenant lease provision. Management fees are recorded in the period earned based on a percentage of collected rent at the properties under management. Ancillary and other property-related income, which includes the leasing of vacant space to temporary tenants, is recognized in the period earned. Lease termination fees are included in other income and recognized upon the effective termination of a tenant’s lease when the Company has no further obligations with the lease. Fee income derived from the Company’s joint venture investments is recognized to the extent attributable to the unaffiliated ownership interest.

Accounts Receivable

The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company’s reported net income is directly affected by management’s estimate of the collectability of accounts receivable.

Accounts receivable, other than straight-line rents receivable, are expected to be collected within one year and are net of estimated unrecoverable amounts of approximately $14.5 million and $19.0 million at December 31, 2006 and 2005, respectively. At December 31, 2006 and 2005, straight-line rents receivable, net of a provision for uncollectable amounts of $3.5 million and $2.4 million, aggregated $54.7 million and $38.5 million, respectively.

Disposition of Real Estate and Real Estate Investments

Disposition of real estate relates to the sale of outlots and land adjacent to existing shopping centers, shopping center properties and real estate investments. Gains from dispositions are recognized using the full accrual or partial sale methods, as applicable, in accordance with the provisions of SFAS No. 66, “Accounting for Real Estate Sales,” (“SFAS 66”) provided that various criteria relating to the terms of sale and any subsequent involvement by the Company with the properties sold are met.

SFAS 144 retains the basic provisions for presenting discontinued operations in the income statement but broadens the scope to include a component of an entity rather than a segment of a business. Pursuant to the definition of a component of an entity in SFAS 144, assuming no significant continuing involvement, the sale of a retail or industrial operating property is considered discontinued operations. In addition, properties classified as held for sale are also considered a discontinued operation. Accordingly, the results of operations of properties disposed of, or classified as held for sale, for which the Company has no significant continuing involvement, are reflected as discontinued operations. Interest expense, which is specifically identifiable to the property, is used in the computation of interest expense attributable to discontinued operations. Consolidated interest at the corporate level is allocated to discontinued operations pursuant to the methods prescribed under Emerging Issues Task Force (“EITF”) 87-24, “Allocation of Interest to Discontinued Operations,” based on the proportion of net assets disposed.

Real Estate Held for Sale

The Company generally considers assets to be held for sale when the transaction has been approved by the appropriate level of management and there are no known significant contingencies relating to the sale such that the

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property sale within one year is considered probable. The Company evaluates the held for sale classification of its owned real estate each quarter. Assets that are classified as held for sale are recorded at the lower of their carrying amount or fair value less cost to sell. The results of operations of these shopping centers are reflected as discontinued operations in all periods presented.

On occasion, the Company will receive unsolicited offers from third parties to buy individual shopping centers. The Company will generally classify the properties as held for sale when a sales contract is executed with no contingencies and the prospective buyer has significant funds at risk to ensure performance.

General and Administrative Expenses

General and administrative expenses include certain internal leasing and legal salaries and related expenses directly associated with the re-leasing of existing space, which are charged to operations as incurred.

Stock Option and Other Equity-Based Plans

Prior to January 1, 2006, the Company followed Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company did not recognize compensation cost for stock options when the option exercise price equaled or exceeded the market value on the date of the grant. Prior to January 1, 2006, no stock-based employee compensation cost for stock options was reflected in net income, as all options granted under those plans had an exercise price equal to or in excess of the market value of the underlying common stock on the date of grant. The Company recorded compensation expense related to its restricted stock plan and its performance unit awards.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) is an amendment of SFAS 123 and requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements based upon the grant date fair value. The grant date fair value of the portion of the restricted stock and performance unit awards issued prior to the adoption of SFAS 123(R) that is ultimately expected to vest is recognized as expense on a straight-line attribution basis over the requisite service periods in the Company’s consolidated financial statements. SFAS 123(R) requires forfeitures to be estimated at the time of grant in order to estimate the amount of share-based awards that will ultimately vest. The forfeiture rate is based on historical rates.

The Company adopted SFAS 123(R) as required on January 1, 2006, using the modified prospective method. The Company’s consolidated financial statements as of and for the year ended December 31, 2006, reflect the impact of SFAS 123(R). In accordance with the modified prospective method, the Company’s consolidated financial statements for prior periods have not been restated to reflect the impact of SFAS 123(R). Share-based compensation expense recognized in the Company’s consolidated financial statements for the year ended December 31, 2006, includes (i) compensation expense for share-based payment awards granted prior to, but not yet vested, as of December 31, 2005, based on the grant-date fair value and (ii) compensation expense for the share-based payment awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

The adoption of this standard changed the balance sheet and resulted in decreasing other liabilities and increasing shareholders’ equity by $11.6 million. In addition, unearned compensation — restricted stock (included in shareholder’s equity) of $13.1 million was eliminated and reclassed to paid in capital. These balance sheet changes relate to deferred compensation under the performance unit plans and unvested restricted stock awards. Under SFAS 123(R), deferred compensation is no longer recorded at the time unvested shares are issued. Share-based compensation expense is recognized over the requisite service period with an offsetting credit to equity.

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The compensation cost recognized under SFAS 123(R) was $8.3 million for the year ended December 31, 2006. There were no significant capitalized stock-based compensation costs at December 31, 2006. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure an amendment of SFAS No. 123,” for the years ended December 31, 2005 and 2004 (in thousands, except per share amounts):


	Year Ended December 31,
	2005			2004

Net income, as reported	$	282,643		$	269,762
Add: Stock-based employee compensation included in reported net income		5,652			6,308
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(5,319	)		(5,062	)

	$	282,976		$	271,008

Earnings per share:
Basic — as reported	$	2.10		$	2.27

Basic — pro forma	$	2.10		$	2.28

Diluted — as reported	$	2.08		$	2.24

Diluted — pro forma	$	2.09		$	2.25

See Note 18, “Benefit Plans,” for additional information.

Interest and Real Estate Taxes

Interest and real estate taxes incurred during the development and significant expansion of real estate assets are capitalized and depreciated over the estimated useful life of the building. Interest paid during the years ended December 31, 2006, 2005 and 2004, aggregated $239.3 million, $190.0 million and $133.8 million, respectively, of which $20.0 million, $12.7 million and $9.9 million, respectively, was capitalized.

Goodwill

SFAS 142, “Goodwill and Other Intangible Assets,” requires that intangible assets not subject to amortization and goodwill be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. Amortization of goodwill, including such assets associated with joint ventures acquired in past business combinations, ceased upon adoption of SFAS 142. Goodwill is included in the balance sheet caption Investments in and Advances to Joint Ventures in the amount of $5.4 million as of December 31, 2006 and 2005. The Company evaluated the goodwill related to its joint venture investments for impairment and determined that it was not impaired as of December 31, 2006 and 2005.

Intangible Assets

In addition to the intangibles discussed above in purchase price accounting, the Company has finite-lived intangible assets, comprised of management contracts associated with the Company’s acquisition of a joint venture, stated at cost less amortization calculated on a straight-line basis over 15 years. Intangible assets, net, are included in the balance sheet caption Investments in and Advances to Joint Ventures in the amount of $4.3 million and $4.4 million as of December 31, 2006 and 2005, respectively. The 15-year life approximates the expected turnover rate of the original management contracts acquired. The estimated amortization expense associated with this intangible asset for each of the five succeeding fiscal years is approximately $0.3 million per year.

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Investments in and Advances to Joint Ventures

To the extent that the Company contributes assets to a joint venture, the Company’s investment in the joint venture is recorded at the Company’s cost basis in the assets that were contributed to the joint venture. To the extent that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is amortized over the life of the related assets and included in the Company’s share of equity in net income of the joint venture. In accordance with the provisions of SFAS No. 66 and Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures,” paragraph 30, the Company recognizes gains on the contribution of real estate to joint ventures, relating solely to the outside partner’s interest, to the extent the economic substance of the transaction is a sale. The Company continually evaluates its investments in and advances to joint ventures for other than temporary declines in market value. The Company records impairment charges based on these evaluations. The Company has determined that these investments are not impaired as of December 31, 2006.

Foreign Currency Translation

The financial statements of Sonae Sierra Brazil, an equity method investment, are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses, with the Company’s proportionate share of the resulting translation adjustments recorded as Accumulated Other Comprehensive Income (Loss). Foreign currency gains or losses from changes in exchange rates are not material to the consolidated operating results.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash deposits with a major financial institution, which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institution and believes that the risk of loss is minimal. Cash flows associated with items intended as hedges of identifiable transactions or events are classified in the same category as the cash flows from the items being hedged.

Income Taxes

The Company has made an election to qualify, and believes it is operating so as to qualify, as a REIT for federal income tax purposes. Accordingly, the Company generally will not be subject to federal income tax, provided that distributions to its stockholders equal at least the amount of its REIT taxable income as defined under Section 856 through 860 of the Code.

In connection with the REIT Modernization Act, which became effective January 1, 2001, the Company is now permitted to participate in certain activities which it was previously precluded from in order to maintain its qualification as a REIT, so long as these activities are conducted in entities which elect to be treated as taxable subsidiaries under the Code. As such, the Company is subject to federal and state income taxes on the income from these activities.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

Treasury Stock

The Company’s share repurchases are reflected as treasury stock utilizing the cost method of accounting and are presented as a reduction to consolidated shareholders’ equity.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the

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disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

New Accounting Standards

Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights — EITF 04-05

In June 2005, the FASB ratified the consensus reached by the EITF regarding EITF 04-05, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor is the Sole General Partner and the Limited Partners Have Certain Rights.” The conclusion provides a framework for addressing the question of when a sole general partner, as defined in EITF 04-05, should consolidate a limited partnership. The EITF has concluded that the general partner of a limited partnership should consolidate a limited partnership unless the limited partners have the substantive right to remove the general partner, liquidate the limited partnership or substantive participating rights (veto rights decisions made in the ordinary course of business). This EITF is effective for all new limited partnerships formed and, for existing limited partnerships for which the partnership agreements are modified after June 29, 2005 and, as of January 1, 2006, for existing limited partnership agreements. As a result of the adoption of this EITF, the Company consolidated one limited partnership with total assets and liabilities of $24.4 million and $17.7 million, respectively, which were consolidated into the Company’s financial statements at January 1, 2006.

Accounting Changes and Error Corrections — SFAS 154

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”), which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements — An Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, on the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 was effective for the Company in the first quarter of 2006. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.

Accounting for Uncertainty in Income Taxes — FIN 48

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of SFAS No. 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). Under FIN 48, the financial statements will reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. FIN 48 also revises disclosure requirements and introduces a prescriptive, annual, tabular roll-forward of the unrecognized tax benefits. FIN 48 is effective for fiscal years beginning after December 15, 2006 (i.e., fiscal year ending December 31, 2007 for the Company). The Company is currently evaluating the impact that FIN 48 will have on its financial statements.

Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements — SAB 108

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements,” to address the observed diversity in quantification practices with respect to annual financial statements. This bulletin was adopted by the Company in the fourth quarter of 2006. This bulletin did not have a material impact on the Company’s results of operations, cash flows or financial position.

F-15

Fair Value Measurements — SFAS 157

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

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

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2. Investments in and Advances to Joint Ventures

The Company’s substantial unconsolidated joint ventures at December 31, 2006, are as follows:


	Effective
	Ownership
Unconsolidated Real Estate Ventures	Percentage (1)			Assets Owned

Sun Center Limited		79.45	%	A shopping center in Columbus, Ohio
Continental Sawmill LLC		63.4		Land
DDR Aspen Grove Office Parcel LLC		50.0		Land
DDRA Community Centers Five, LP		50.0		Six shopping centers in several states
DOTRS LLC		50.0		A shopping center in Macedonia, Ohio
Jefferson County Plaza LLC		50.0		A shopping center in St. Louis (Arnold), Missouri
Lennox Town Center Limited		50.0		A shopping center in Columbus, Ohio
Sansone Group/DDRC LLC		50.0		A management and development company
Sonae Sierra Brazil BV Sarl		47.0		Nine shopping centers and a management company in Sao Paulo, Brazil
Retail Value Investment Program IIIB LP		25.5		A shopping center in Deer Park, Illinois
Retail Value Investment Program VI LP		25.5		A shopping center in Overland Park, Kansas
Retail Value Investment Program VIII LP		25.5		A shopping center in Austin, Texas
Retail Value Investment Program VII LLC		20.75		Two shopping centers in California
Coventry II DDR Buena Park LLC		20.0		A shopping center in Buena Park, California
Coventry II DDR Fairplain LLC		20.0		A shopping center in Benton Harbor, Michigan
Coventry II DDR Merriam Village LLC		20.0		A shopping center under development in Merriam, Kansas
Coventry II DDR Phoenix Spectrum LLC		20.0		A shopping center in Phoenix, Arizona
Coventry II DDR Totem Lakes LLC		20.0		A shopping center in Kirkland, Washington
Coventry II DDR Ward Parkway LLC		20.0		A shopping center in Kansas City, Missouri
DDR Markaz LLC		20.0		Seven shopping centers in several states
DDR Markaz II LLC		20.0		13 neighborhood grocery-anchored retail properties in several states
Service Holdings LLC		20.0		50 retail sites in several states
Coventry II DDR Tri-County LLC		18.0		A shopping center in Cincinnati, Ohio
DDR Macquarie LLC		14.5		48 shopping centers in several states
Coventry II DDR Bloomfield LLC		10.0		A shopping center under development in Bloomfield Hills, Michigan
Coventry II DDR Marley Creek Square LLC		10.0		A shopping center in Orland Park, Illinois
Coventry II DDR Montgomery Farm LLC		10.0		A shopping center under development in Allen, Texas
Coventry II DDR Westover LLC		10.0		A shopping center under development in San Antonio (Westover), Texas
DPG Realty Holdings LLC		10.0		12 neighborhood grocery-anchored retail properties in several states
DDR MDT PS LLC		0.00	(2)	Seven shopping centers in several states


(1)		Ownership may be held through different investment structures. Percentage ownerships are subject to change as certain investments contain promoted structures.

(2)		See MDT Preferred Joint Venture discussed below.

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Combined condensed unconsolidated financial information of the Company’s unconsolidated joint venture investments is summarized as follows (in thousands):


	December 31,
	2006			2005

Combined balance sheets
Land	$	902,486		$	894,477
Buildings		2,703,711			2,480,025
Fixtures and tenant improvements		57,989			58,060
Construction in progress		157,750			37,550

		3,821,936			3,470,112
Less: Accumulated depreciation		(245,674	)		(195,708	)

Real estate, net		3,576,262			3,274,404
Receivables, net		70,903			76,744
Leasehold interests		15,195			23,297
Other assets		129,914			109,490

	$	3,792,274		$	3,483,935

Mortgage debt	$	2,409,080		$	2,173,401
Amounts payable to DDR		4,930			108,020
Other liabilities		92,904			78,406

		2,506,914			2,359,827
Accumulated equity		1,285,360			1,124,108

	$	3,792,274		$	3,483,935

Company’s share of accumulated equity(1)	$	252,937		$	178,908


	For the Year Ended December 31,
	2006			2005			2004

Combined statements of operations
Revenues from operations	$	423,051		$	417,434		$	313,480

Rental operation expenses		143,573			147,983			106,526
Depreciation and amortization expense		79,713			82,753			62,089
Interest expense		125,995			113,466			73,491

		349,281			344,202			242,106

Income before gain on disposition of real estate and discontinued operations		73,770			73,232			71,374
Tax expense		(1,176	)		—			—
Gain on disposition of real estate		398			858			4,787

Income from continuing operations		72,992			74,090			76,161

Discontinued operations:
Income (loss) from discontinued operations, net of tax		139			(486	)		3,006
Gain on disposition of real estate, net of tax		20,343			48,982			39,612

		20,482			48,496			42,618

Net income	$	93,436		$	122,586		$	118,779

Company’s share of net income (2)	$	28,530		$	36,828		$	42,150

F-18

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


	For the Year Ended
	December 31.
	2006			2005

Company’s proportionate share of accumulated equity	$	252.9		$	178.9
Basis differentials (2)		92.3			46.3
Deferred development fees, net of portion relating to the Company’s interest		(3.0	)		(3.0	)
Basis differential upon transfer of assets (2)		(74.3	)		(74.9	)
Notes receivable from investments		18.8			19.8
Amounts payable to DDR (3)		5.0			108.0

Investments in and advances to joint ventures (1)	$	291.7		$	275.1


(1)		The difference between the Company’s share of accumulated equity and the investments in and advances to joint ventures recorded on the Company’s consolidated balance sheets primarily results from the basis differentials, as described below, deferred development fees, net of the portion relating to the Company’s interest, notes and amounts receivable from the joint ventures’ investments.

(2)		Basis differentials occur primarily when the Company has purchased interests in existing joint ventures at fair market values, which differ from their proportionate share of the historical net assets of the joint ventures. In addition, certain acquisition, transaction and other costs, including capitalized interest, may not be reflected in the net assets at the joint venture level. Basis differentials upon transfer of assets are primarily associated with assets previously owned by the Company that have been transferred into a joint venture at fair value. This amount represents the aggregate difference between the Company’s historical cost basis and the basis reflected at the joint venture level. Certain basis differentials indicated above are amortized over the life of the related assets. Differences in income also occur when the Company acquires assets from joint ventures. The difference between the Company’s share of net income, as reported above, and the amounts included in the consolidated statements of operations is attributable to the amortization of such basis differentials, deferred gains and differences in gain (loss) on sale of certain assets due to the basis differentials. The Company’s share of joint venture net income has been increased by $1.6 million and reduced by $2.1 million and $1.3 million for the years ended December 31, 2006, 2005 and 2004, respectively, to reflect additional basis depreciation and basis differences in assets sold.

(3)		In 2005, the Company advanced $101.4 million to the KLA/SM LLC joint venture. This advance was repaid when the Company acquired its partners’ interests in the joint venture and subsequently sold these assets to the Service Holdings LLC joint venture, and the Company did not advance funds to this partnership to fund the acquisition.

The Company has made advances to several partnerships in the form of notes receivable and fixed-rate loans that accrue interest at rates ranging from 6.3% to 12%. Maturity dates range from payment on demand to June 2020. Included in the Company’s accounts receivable is approximately $1.1 million and $1.2 million at December 31, 2006 and 2005, respectively, due from affiliates related to construction receivables.

Service fees earned by the Company through management, leasing, development and financing activities performed related to all of the Company’s joint ventures are as follows (in millions):


	For the Year Ended December 31,
	2006		2005		2004

Management and other fees	$	23.7	$	16.7	$	11.4
Acquisition, financing and guarantee fees		0.5		2.4		3.0
Development fees and leasing commissions		6.1		5.6		3.8
Interest income		5.4		6.8		1.9
Disposition fees		—		0.2		0.2

The Company’s joint venture agreements generally include provisions whereby each partner has the right to trigger a purchase or sale of its interest in the joint venture (Reciprocal Purchase Rights), to initiate a purchase or

F-19

sale of the properties (Property Purchase Rights) after a certain number of years, or if either party is in default of the joint venture agreements. Under these provisions, the Company is not obligated to purchase the interest of its outside joint venture partners.

Joint Venture Interests

Macquarie DDR Trust

The Company owns an interest in Macquarie DDR Trust, an Australia-based Listed Property Trust (“MDT”), with Macquarie Bank Limited (ASX: MBL), an international investment bank, advisor and manager of specialized real estate funds in Australia (“MDT Joint Venture”). MDT focuses on acquiring ownership interests in institutional-quality community center properties in the United States.

At December 31, 2006, MDT, which listed on the Australian Stock Exchange in November 2003, owns an approximate 83% interest in the portfolio of assets. The Company retained an effective 14.5% ownership interest in the assets, with MBL primarily owning the remaining 2.5%. The Company has been engaged to provide day-to-day operations of the properties and will receive fees at prevailing rates for property management, leasing, construction management, acquisitions, due diligence, dispositions (including outparcel sales) and financing. Through their joint venture, the Company and MBL receives base asset management fees and incentive fees based on the performance of MDT. The Company recorded fees aggregating $0.4 million, $2.4 million and $3.0 million in 2006, 2005 and 2004, respectively, in connection with the acquisition, structuring, formation and operation of the MDT Joint Venture.

In 2006, the Company sold four additional expansion areas in Birmingham, Alabama; McDonough, Georgia; Coon Rapids, Minnesota and Monaca, Pennsylvania to the MDT Joint Venture for approximately $24.7 million. These expansion areas are adjacent to shopping centers currently owned by the MDT Joint Venture. The Company recognized an aggregate merchant build gain of $9.2 million, and deferred gains of approximately $1.6 million relating to the Company’s effective 14.5% ownership interest in the venture.

Sonae Sierra Brazil BV Sarl

In 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, for approximately $147.5 million. 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 joint venture and Enplanta Engenharia, a third party, owns approximately 7%.

Coventry II

In 2003, the Company and Coventry Real Estate Advisors (“CREA”) announced the formation of Coventry Real Estate Fund II (the “Fund”). The Fund was formed with several institutional investors and CREA as the investment manager. Neither the Company nor any of its officers owns a common equity interest in this Fund or has any incentive compensation tied to this Fund. The Fund and the Company have agreed to jointly acquire value-added retail properties in the United States. The Fund’s strategy is to invest in a variety of retail properties that present opportunities for value creation, such as retenanting, market repositioning, redevelopment or expansion.

The Company co-invested 20% in each joint venture and is responsible for day-to-day management of the properties. Pursuant to the terms of the joint venture, the Company will earn fees for property management, leasing

F-20

and construction management. The Company also will earn a promoted interest, along with CREA, above a 10% preferred return after return of capital, to fund investors. The retail properties at December 31, 2006, are as follows:


	DDR
	Effective			Owned
	Ownership			Square Feet
Location	Interest(1)			(Thousands)

Phoenix, Arizona		20	%	391
Buena Park, California		20	%	724
Orland Park, Illinois		10	%	58
Merriam, Kansas		20	%	Under Development
Benton Harbor, Michigan		20	%	223
Bloomfield Hills, Michigan		10	%	Under Development
Kansas City, Missouri		20	%	358
Cincinnati, Ohio		18	%	668
Allen, Texas		10	%	Under Development
San Antonio (Westover), Texas		10	%	188
Kirkland, Washington		20	%	228
50 retail sites in several states formerly occupied by Service Merchandise		20	%	2,691


(1)	The Fund invested in certain assets with development partners, as such, the Company’s effective interest may be less than 20%.

Retail Value Fund

In February 1998, the Company and an equity affiliate of the Company entered into an agreement with Prudential Real Estate Investors (“PREI”) and formed the Retail Value Fund (the “PREI Fund”). The PREI Fund’s ownership interests in each of the projects, unless discussed otherwise, are generally structured with the Company owning (directly or through its interest in the management service company) a 24.75% limited partnership interest, PREI owning a 74.25% limited partnership interest and Coventry Real Estate Partners (“Coventry”), which was 75% owned by a consolidated entity of the Company, owning (directly or through its interest in the management service company) (Note 22) a 1% general partnership interest. The PREI Fund invests in retail properties within the United States that are in need of substantial re-tenanting and market repositioning and may also make equity and debt investments in companies owning or managing retail properties as well as in third party development projects that provide significant growth opportunities. The retail property investments may include enclosed malls, neighborhood and community centers or other potential retail commercial development and redevelopment opportunities.

The PREI Fund owned the following shopping center investments at December 31, 2006:


	DDR
	Effective			Company-Owned
	Ownership			Square Feet
Location	Interest			(Thousands)

Deer Park, Illinois		25.5	%		287
Kansas City, Kansas		25.5	%		61
Austin, Texas		25.5	%		283

In 2006, four shopping centers in Kansas City, Kansas, and Kansas City, Missouri, aggregating 0.4 million square feet, were sold for approximately $20.0 million. The joint venture recognized a loss of approximately $1.8 million, of which the Company’s proportionate share was approximately $0.5 million.

In addition, in 2000 the PREI Fund entered into an agreement to acquire ten properties located in western states from Burnham Pacific Properties, Inc. (“Burnham”), with PREI owning a 79% interest, the Company owning a 20% interest and Coventry owning a 1% interest. The Company earns fees for managing and leasing the properties. At

F-21

December 31, 2006, the joint venture owned two of these properties. The properties sold in 2006, 2005 and 2004 are summarized as follows:


				Joint		Company’s
	Number of	Sale		Venture		Proportionate
	Properties	Price		Gain		Share of Gain
Year	Sold	(Millions)		(Millions)		(Millions)

2006	One	$	8.1	$	3.7	$	1.2
2005	Three (1)		73.3		21.1		6.7
2004	One (1)		84.2		18.6		6.0


(1)		One of the properties was sold over a two-year period. A majority of the shopping center was sold in 2004 and the outparcels were sold in 2005.

As discussed above, Coventry generally owns a 1% interest in each of the PREI Fund’s investments. Coventry is entitled to receive an annual asset management fee equal to 0.5% of total assets for the Kansas City properties and the property in Deer Park, Illinois. Except for the PREI Fund’s investment associated with properties acquired from Burnham, Coventry is entitled to one-third of all profits (as defined), after the limited partners have received a 10% preferred return and previously advanced capital. The remaining two-thirds of the profits (as defined) in excess of the 10% preferred return are split proportionately among the limited partners.

With regard to the PREI Fund’s investment associated with the acquisition of shopping centers from Burnham, Coventry has a 1% general partnership interest. Coventry also receives annual asset management fees equal to 0.8% of total revenue collected from these assets, plus a minimum of 25% of all amounts in excess of an 11% annual preferred return to the limited partners, that could increase to 35% if returns to the limited partners exceed 20%.

Management Service Companies

The Company owns a 50% equity ownership interest in a management and development company in St. Louis, Missouri.

KLA/SM Joint Venture

The Company entered into a joint venture in 2002 with Lubert-Adler Real Estate Funds and Klaff Realty, L.P. (Note 17), that was awarded asset designation rights for all of the retail real estate interests of the bankrupt estate of Service Merchandise Corporation for approximately $242 million. The Company had an approximate 25% interest in the joint venture (“KLA/SM”). In addition, the Company earned fees for the management, leasing, development and disposition of the real estate portfolio. The designation rights enabled the joint venture to determine the ultimate disposition of the real estate interests held by the bankrupt estate.

In August 2006, the Company purchased its then partners’ approximately 75% interest in the remaining 52 assets formerly occupied by Service Merchandise owned by the KLA/SM Joint Venture at a gross purchase price of approximately $138 million relating to the partners’ approximate 75% ownership interest, based on a total valuation of approximately $185 million for all remaining assets, including outstanding indebtedness.

In September 2006, the Company sold 51 of these assets to the Service Holdings LLC at a gross purchase price of approximately $185 million and assumed debt of approximately $29 million. The Company has a 20% interest in the newly formed joint venture. The Company recorded a gain of approximately $6.1 million.

F-22

The Service Merchandise site dispositions by the KLA/SM Joint Venture are summarized as follows:


				Joint			Company’s
	Number of	Sales		Venture			Proportionate
	Properties	Price		Gain			Share of Gain
Year	Sold	(Millions)		(Millions)			(Millions)

2006	One	$	3.2	$	0.2	(1)	$	—	(1)
2005	Eight		19.4		7.6			1.9
2004	Ten		20.7		2.0			0.5


(1)		Less than $0.1 million.

The Company also earned disposition, development, management, leasing fees and interest income aggregating $5.7 million, $6.4 million and $2.6 million in 2006, 2005 and 2004, respectively, relating to this investment.

Adoption of FIN 46 (Note 1) and EITF 04-05

In 2006, as a result of the adoption of EITF 04-5, the Company consolidated one limited partnership with total assets and liabilities of $24.4 million and $17.7 million, respectively, which were consolidated into the Company’s financial statements.

In 2004, the Company recorded a charge of $3.0 million as a cumulative effect of adoption of a new accounting standard attributable to the consolidation of a 50% owned shopping center in Martinsville, Virginia. This amount represents the minority partner’s share of cumulative losses in excess of its cost basis in the partnership.

Acquisitions of Joint Venture Interests by the Company

The Company purchased its joint venture partner’s interest in the following shopping centers in 2006, 2005 and 2004:


	•	A 20% interest in a shopping center in Columbus, Ohio, purchased in 2005;

	•	A 20% interest in a shopping center development in Apex, North Carolina, purchased in 2006;

	•	A 50% interest in a shopping center in Phoenix, Arizona, purchased in 2006;

	•	A 50% interest in a shopping center in Littleton, Colorado, purchased in 2004;

	•	A 50% interest in a shopping center in Salisbury, Maryland, purchased in 2006 and

	•	A 75% interest in a shopping center in Pasadena, California, purchased in 2006.

The MDT Joint Venture acquired the interest in one shopping center owned through other joint venture interests in 2004.

Discontinued Operations

Included in discontinued operations in the combined statements of operations for the joint ventures are the following properties sold subsequent to December 31, 2003:


	•	A 10% interest in a shopping center in Kildeer, Illinois, sold in 2006;

	•	A 20.75% interest in five properties held in the PREI Fund originally acquired from Burnham. The shopping center in Everett, Washington, was sold in 2006. The shopping centers in City of Industry, California; Richmond, California and San Ysidro, California, were sold in 2005. The shopping center Mission Viejo, California, was sold in 2004;

	•	A 24.75% interest in a property held in the PREI Fund in Long Beach, California, sold in 2005;

	•	A 24.75% interest in four properties held in the PREI Fund in Kansas City, Kansas and Kansas City, Missouri, sold in 2006;

F-23


	•	An approximate 25% interest in one, eight and ten Service Merchandise sites sold in 2006, 2005 and 2004, respectively;

	•	A 20% interest in a Service Merchandise site sold in 2006;

	•	A 35% interest in a shopping center in San Antonio, Texas, sold in 2004 and

	•	A 50% interest in a property held in Community Centers Five in Fort Worth, Texas, sold in 2006.


3.	DDR MDT PS LLC

During the second quarter of 2006, the Company sold six properties, aggregating 0.8 million owned square feet, to a newly formed joint venture with MDT (“MDT Preferred Joint Venture” or “DDR MDT PS LLC”), for approximately $122.7 million and recognized gains of approximately $38.9 million.

Under the terms of the new MDT Preferred Joint Venture, MDT receives a 9% preferred return on its preferred equity investment of approximately $12.2 million and then receives a 10% return on its common equity investment of approximately $20.8 million before the Company receives a 10% return on an agreed upon common equity investment of $3.5 million that has not been recognized in the consolidated balance sheet due to the terms of its subordination. The Company is then entitled to a 20% promoted interest in any cash flow achieved above a 10% leveraged internal rate of return on all common equity. The Company recognizes its proportionate share of equity in earnings of the MDT Preferred Joint Venture at an amount equal to increases in its common equity investment, based upon an assumed liquidation, including consideration of cash received, of the joint venture at its depreciated book value as of the end of each reporting period. The Company has not recorded any equity in earnings from the MDT Preferred Joint Venture as of December 31, 2006.

The Company has been engaged to perform all day-to-day operations of the properties and earns and/or may be entitled to receive ongoing fees for property management, leasing and construction management, in addition to a promoted interest, along with other periodic fees such as financing fees.

F-24

At December 31, 2006, the Company’s investment in DDR MDT PS LLC was considered a significant subsidiary pursuant to the applicable Regulation S-X rules. During the year ended December 31, 2006, the Company recognized a gain, net of tax, of approximately $38.9 million relating to the contribution of the assets to the joint venture. Condensed financial information of DDR MDT PS LLC is as follows (in thousands):


	December 31,
	2006

Balance sheet
Land	$	31,430
Buildings		85,152
Fixtures and tenant improvements		1,177
Construction in progress		12

		117,771
Less: Accumulated depreciation		(1,338	)

Real estate, net		116,433
Receivables, net		4,121
Other assets		3,070

	$	123,624

Mortgage debt	$	86,000
Amounts payable to DDR		30
Other liabilities		1,744

		87,774
Accumulated equity		35,850

	$	123,624

Company’s share of accumulated equity	$	—


	For the Year Ended
	December 31, 2006

Statements of operations
Revenues from operations	$	6,255

Rental operation expenses		2,481
Depreciation and amortization expense		1,556
Interest expense		3,030

		7,067

Net loss	$	(812	)

Company’s share of equity in net loss of joint ventures	$	—

4. Acquisitions and Pro Forma Financial Information

Acquisitions

In 2005, the Mervyns Joint Venture acquired the underlying real estate of 36 operating Mervyns stores for approximately $396.2 million. The assets were acquired from several funds, one of which was managed by Lubert-Adler Real Estate Funds (Note 16). The Mervyns Joint Venture, owned approximately 50% by the Company and 50% by MDT, obtained approximately $258.5 million of debt, of which $212.6 million is a five-year secured non-recourse financing at a fixed rate of approximately 5.2%, and $45.9 million is at LIBOR plus 72 basis points for two

F-25

years. In 2006, the Mervyns Joint Venture purchased one additional site for approximately $11.0 million and the Company purchased one additional site for approximately $12.4 million. The Company is responsible for the day-to-day management of the assets and receives fees in accordance with the same fee schedule as the MDT Joint Venture for property management services.

During 2005, the Company received approximately $2.5 million of acquisition and financing fees in connection with the acquisition of the Mervyns assets. Pursuant to FIN 46(R), the Company is required to consolidate the Mervyns Joint Venture and, therefore, the $2.5 million of fees has been eliminated in consolidation and has been reflected as an adjustment in basis and is not reflected in net income.

In 2005, the Company completed the acquisition of 15 retail real estate assets located in Puerto Rico from Caribbean Property Group, LLC and related entities (“CPG”) for approximately $1.2 billion (“CPG Properties”). The financing for the transaction was provided by the assumption of approximately $660 million of existing debt and line of credit borrowings on the Company’s senior unsecured credit facility and the application of a $30 million deposit funded in 2004. Included in the assets acquired are the land, building and tenant improvements associated with the underlying real estate. The other assets allocation of $12.6 million relates primarily to in-place leases, leasing commissions, tenant relationships and tenant improvements of the properties (Note 7). There was a separate allocation in the purchase price of $8.1 million for above-market leases and $1.4 million for below-market leases. The Company entered into this transaction to obtain a shopping center portfolio in Puerto Rico, a market where the Company previously did not have any assets.

In 2004, the Company entered into an agreement to purchase interests in 110 retail real estate assets, with approximately 18.8 million square feet of GLA, from Benderson Development Company and related entities (“Benderson”). The purchase price of the assets, including associated expenses, was approximately $2.3 billion, less assumed debt and the value of a 2% equity interest in certain assets valued at approximately $16.2 million at December 31, 2005, that Benderson converted its interest into the Company’s common shares in 2006 (Note 13). Benderson transferred a 100% ownership in certain assets or entities owning certain assets. The remaining assets were held by a joint venture in which the Company held a 98.0% interest and Benderson held a 2.0% interest. Benderson’s minority interest was classified as operating partnership minority interests on the Company’s consolidated balance sheet at December 31, 2005.

The Company completed the purchase of 107 properties from Benderson, including 14 purchased directly by the MDT Joint Venture (Note 2) and 52 held by a consolidated joint venture with Benderson at various dates commencing May 14, 2004, through December 21, 2004. The remaining three properties were not acquired.

The Company funded the transaction through a combination of new debt financing of approximately $450 million, net proceeds of approximately $164.2 million from the issuance of 6.8 million cumulative preferred shares, net proceeds of approximately $491 million from the issuance of 15.0 million common shares, asset transfers to the MDT Joint Venture that generated net proceeds of approximately $194.3 million (Note 2), line of credit borrowings and assumed debt. With respect to the assumed debt, the fair value was approximately $400 million, which included an adjustment of approximately $30 million to increase its stated principal balance, based on rates for debt with similar terms and remaining maturities as of May 2004. Included in the assets acquired were the land, building and tenant improvements associated with the underlying real estate. The other assets allocation of $30.9 million relates primarily to in-place leases, leasing commissions, tenant relationships and tenant improvements of the properties (Note 7). There was a separate allocation in the purchase price of $4.7 million for certain below-market leases. The Company entered into this transaction to acquire the largest privately owned retail shopping center portfolio in markets where the Company previously did not have a strong presence.

Pro Forma Financial Information

The following unaudited supplemental pro forma operating data is presented for the year ended December 31, 2005, as if the acquisition of the CPG Properties were completed on January 1, 2005. The following unaudited supplemental pro forma operating data is presented for the year ended December 31, 2004, as if the acquisition of the CPG Properties, the common share offering completed in December 2004 and the acquisition of the properties from Benderson and related financing activity, including the sale of eight wholly-owned assets to the MDT Joint Venture, were completed on January 1, 2004.

F-26

These acquisitions were accounted for using the purchase method of accounting. The revenues and expenses related to assets and interests acquired are included in the Company’s historical results of operations from the date of purchase.

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


	For the Year Ended
	December 31,
	(Unaudited)
	2005		2004

Pro forma revenues	$	727,508	$	739,458

Pro forma income from continuing operations	$	174,526	$	211,230

Pro forma income from discontinued operations	$	21,528	$	15,918

Pro forma income before cumulative effect of adoption of a new accounting standard	$	284,194	$	311,790

Pro forma net income applicable to common shareholders	$	229,025	$	253,620

Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders	$	1.92	$	2.24
Income from discontinued operations		0.20		0.15
Cumulative effect of adoption of a new accounting standard		—		(0.03	)

Net income applicable to common shareholders	$	2.12	$	2.36

Diluted earning per share data:
Income from continuing operations applicable to common shareholders	$	1.90	$	2.22
Income from discontinued operations		0.20		0.15
Cumulative effect of adoption of a new accounting standard		—		(0.03	)

Net income applicable to common shareholders	$	2.10	$	2.34

The supplemental pro forma financial information does not present the acquisitions described below or the disposition of real estate assets.

During the year ended December 31, 2006, the Company acquired its partners’ interests, at an initial aggregate investment of approximately $94.1 million, net of mortgages assumed, in the following joint venture properties:


			Company-
			Owned
	Interest		Square Feet
	Acquired		(Thousands)_

Phoenix, Arizona		50%		197
Pasadena, California		75%		557
Salisbury, Maryland		50%		126
Apex, North Carolina		80%/20%		324
San Antonio, Texas		50%		Under Development

				1,204

Additionally, the Company acquired one Mervyns site for approximately $12.4 million (Note 17).

During the year ended December 31, 2005, the Company acquired its partner’s 20% interest in one joint venture. This property aggregates approximately 0.4 million square feet of Company-owned GLA at an initial

F-27

aggregate investment of approximately $3.2 million. Additionally, the Company acquired one Mervyns site for approximately $14.4 million (Note 17).

During the year ended December 31, 2004, the Company acquired a 20% interest in two shopping centers and an effective 10% interest in a shopping center and its partner’s 50% interest in a joint venture. These four properties aggregate approximately 2.4 million square feet of Company-owned GLA at an initial aggregate investment of approximately $180 million.

5. Notes Receivable

The Company owns notes receivables aggregating $18.2 million and $25.0 million, including accrued interest, at December 31, 2006 and 2005, respectively, which are classified as held to maturity. The notes are secured by certain rights in future development projects and partnership interests. The notes bear interest ranging from 6.9% to 12.0% with maturity dates ranging from payment on demand through July 2026.

Included in notes receivable are $16.5 million and $23.2 million of tax incremental financing bonds or notes (“TIF Bonds”), plus accrued interest at December 31, 2006 and 2005, respectively, from the Town of Plainville, Connecticut (the “Plainville Bonds”), the City of Merriam, Kansas (the “Merriam Bonds”), and the City of St. Louis, Missouri (the “Southtown Notes”). The Plainville Bonds, with a principal balance of $7.1 million and $7.2 million at December 31, 2006 and 2005, respectively, mature in April 2021 and bear interest at 7.125%. The Merriam Bonds, with a principal balance of $7.1 million and $8.0 million at December 31, 2006 and 2005, respectively, mature in February 2016 and bear interest at 6.9%. The Southtown Notes, with a principal balance of $2.3 million and $8.0 million at December 31, 2006 and 2005, respectively, mature in July 2026 and bear interest ranging from 7.13% to 8.50%. Interest and principal are payable solely from the incremental real estate taxes, if any, generated by the respective shopping center and development project pursuant to the terms of the financing agreement.

6. Deferred Charges

Deferred charges consist of the following (in thousands):


	December 31,
	2006			2005

Deferred financing costs	$	39,748		$	31,681
Less: Accumulated amortization		(16,040	)		(10,524	)

	$	23,708		$	21,157

The Company incurred deferred financing costs aggregating $9.6 million and $13.1 million in 2006 and 2005, respectively. Deferred financing costs paid in 2006 primarily relate to the modification of the Company’s unsecured credit agreements and expansion of term loans (Note 8) and issuance of convertible notes (Note 9). Deferred financing costs paid in 2005 primarily relate to the modification of the Company’s unsecured revolving credit agreements and term loan (Note 8), issuance of medium term notes (Note 9) and mortgages payable (Note 10) obtained in connection with the Mervyns Joint Venture. Amortization of deferred charges was $7.1 million, $6.1 million and $5.6 million for the years ended December 2006, 2005 and 2004, respectively.

F-28

7. Other Assets

Other assets consist of the following (in thousands):


	December 31,
	2006		2005

Intangible assets:
In-place leases (including lease origination costs and fair market value of leases), net	$	1,485	$	2,568
Tenant relations, net		12,969		14,538

Total intangible assets		14,454		17,106
Other assets:
Fair value hedge		—		292
Prepaids, deposits and other assets		65,013		44,657

Total other assets	$	79,467	$	62,055

The amortization period of the in-place leases and tenant relations is approximately two to 31 years and ten years, respectively. The Company recorded amortization expense of approximately $5.5 million, $6.1 million and $4.0 million for the years ended December 31, 2006, 2005 and 2004, respectively. The estimated amortization expense associated with the Company’s intangible assets is $3.0 million, $2.9 million, $2.9 million, $2.9 million and $2.0 million for the years ending December 31, 2007, 2008, 2009, 2010 and 2011, respectively. Other assets consist primarily of deposits, land options and other prepaid expenses.

8. Revolving Credit Facilities and Term Loans

The Company maintains its primary unsecured revolving credit facility with a syndicate of financial institutions, for which JP Morgan serves as the administrative agent (the “Unsecured Credit Facility”). The Unsecured Credit Facility was amended in June 2006. As a result of the amendment, the borrowing capacity on the Unsecured Credit Facility increased from $1.0 billion to $1.2 billion, provided for an accordion feature of a future expansion to $1.4 billion, extended the maturity date to June 2010, with a one-year extension option, and amended the pricing. The Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to 50% of the facility. The Company’s borrowings under the Unsecured Credit Facility bear interest at variable rates at the Company’s election, based on the prime rate as defined in the facility or LIBOR, plus a specified spread (0.60% at December 31, 2006). The specified spread over LIBOR varies depending on the Company’s long-term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The Unsecured Credit Facility is used to finance the acquisition, development and expansion of shopping center properties, to provide working capital and for general corporate purposes. At December 31, 2006 and 2005, total borrowings under the Unsecured Credit Facility aggregated $297.5 million and $150.0 million, respectively, with a weighted average interest rate of 5.6% and 4.6%, respectively.

The Company also maintains a $60 million unsecured revolving credit facility with National City Bank (together with the $1.2 billion Unsecured Credit Facility, the “Revolving Credit Facilities”). This facility was also amended in June 2006 to extend the maturity date to June 2010 and to reflect terms consistent with those contained in the Unsecured Credit Facility. Borrowings under the facility bear interest at variable rates based on the prime rate as defined in the facility or LIBOR plus a specified spread (0.60% at December 31, 2006). The specified spread over LIBOR is dependent on the Company’s long-term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. The Company is required to comply with certain covenants relating to total outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. At December 31, 2006 and 2005, there were no borrowings outstanding.

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The Company also maintains term loan facilities (collectively the “Term Loans”) with various lenders. These loans are summarized as follows:


						Borrowings				Weighted
	Spread					Outstanding				Average
	Over					(Millions)				Interest Rate
	LIBOR			Maturity		December 31				December 31
Financial Institution	12/31/06			Date		2006		2005		2006			2005

Key Bank Capital Markets and Banc of America Securities LLC (1)		0.85	%		June 2008	$	400.0	$	220.0		5.9	%		5.1	%
JP Morgan and several other lenders (2)		0.75	%		May 2007		—	$	200.0		—			5.1	%


(1)		Facility allows for two one-year extension options. In 2006, the facility was amended to add an accordion feature to increase the loan, at the Company’s option, up to $500 million and covenant modifications. The Term Loan is secured by the equity in certain assets that are already encumbered by first mortgages. The weighted average interest rate at December 31, 2006 reflects the effect of $400 million of interest rate swaps (Note 11).

(2)		This facility was repaid in 2006.

For each of the Term Loans, the spread is dependent on the Company’s corporate credit ratings from Standard & Poor’s and Moody’s Investors Service. The Term Loans are subject to the same covenants associated with the Unsecured Credit Facility.

Total fees paid by the Company on its Revolving Credit Facilities and Term Loans in 2006, 2005 and 2004 aggregated approximately $1.7 million, $2.0 million and $1.7 million, respectively. At December 31, 2006 and 2005, the Company was in compliance with all of the financial and other covenant requirements.

9. Fixed-Rate Notes

The Company had outstanding unsecured notes of approximately $2.2 billion and $2.0 billion at December 31, 2006 and 2005, respectively. Several of the notes were issued at a discount aggregating $3.9 million and $6.0 million at December 31, 2006 and 2005, respectively. The effective interest rates of the unsecured notes range from 3.9% to 8.4% per annum.

In August 2006, the Company issued $250 million of Senior Convertible Notes due 2011 (the “Senior Convertible Notes”). The Senior Convertible Notes have an initial conversion price of $65.11 per share into the Company’s common shares or cash, at the option of the Company. In connection with the issuance of these notes, the Company entered into a registration rights agreement for the common shares that may be issuable upon conversion of the Senior Convertible Notes.

Concurrent with the issuance of the Senior Convertible Notes, the Company purchased an option on its common stock in a private transaction, effectively increasing the conversion price of the notes to $74.41 per common share. This option allows the Company to receive shares of the Company’s common stock (up to a maximum of approximately 480,000 shares) from counterparties equal to the amounts of common stock and/or cash related to the excess conversion value that the Company would pay to the holders of the Senior Convertible Notes upon conversion. The option will terminate upon the earlier of the maturity dates of the related Senior Convertible Notes or the first day all of the related Senior Convertible Notes are no longer outstanding due to conversion or otherwise. The option, which cost $10.3 million, was recorded as a reduction of shareholders’ equity.

The fixed-rate notes have maturities ranging from March 2007 to July 2018. Interest coupon rates ranged from approximately 3.5% to 7.5% (averaging 5.1% and 5.3% at December 31, 2006 and 2005, respectively). Notes issued prior to December 31, 2001, aggregating $212.0 million, may not be redeemed by the Company prior to maturity and will not be subject to any sinking fund requirements. Notes issued subsequent to 2001 and the notes assumed with the JDN merger, aggregating $1.4 billion at December 31, 2006, may be redeemed based upon a yield maintenance calculation. The notes issued in October 2005 (aggregating $348.6 million) are redeemable prior to maturity at par value plus a make-whole premium. If the notes issued in October 2005 are redeemed within 90 days of the maturity date, no make-whole premium will be paid. The Senior Convertible Notes aggregating $250 million may be converted prior to maturity into cash equal to the lesser of the principal amount of the note or the conversion value and, to the extent the conversion value exceeds the principal amount of the note, shares of the Company’s

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common stock. The fixed-rate senior notes and Senior Convertible Notes were issued pursuant to an indenture dated May 1, 1994, as amended, which contains certain covenants including limitation on incurrence of debt, maintenance of unencumbered real estate assets and debt service coverage. Interest is paid semi-annually in arrears.

10. Mortgages Payable and Scheduled Principal Repayments

At December 31, 2006, mortgages payable, collateralized by investments and real estate with a net book value of approximately $2.5 billion and related tenant leases, are generally due in monthly installments of principal and/or interest and mature at various dates through 2028. Fixed-rate debt obligations included in mortgages payable at December 31, 2006 and 2005, aggregated approximately $1,140.9 million and $1,173.3 million, respectively. Fixed interest rates ranged from approximately 4.4% to 10.2% (averaging 6.6% at both December 31, 2006 and 2005). Variable- rate debt obligations totaled approximately $192.4 million and $181.4 million at December 31, 2006 and 2005, respectively. Interest rates on the variable-rate debt averaged 6.2% and 5.3% at December 31, 2006 and 2005, respectively.

Included in mortgage debt are $14.1 million and $15.1 million of tax-exempt certificates with a weighted average fixed interest rate of 7.0% at December 31, 2006 and 2005, respectively. As of December 31, 2006, the scheduled principal payments of the Revolving Credit Facilities, Term Loans, fixed-rate senior notes and mortgages payable for the next five years and thereafter are as follows (in thousands):


Year	Amount

2007	$	428,609
2008		664,517
2009		391,870
2010		1,059,147
2011		704,340
Thereafter		1,000,329

	$	4,248,812

Included in principal payments are $400 million in the year 2008 and $297.5 million in the year 2010, associated with the maturing of the Term Loans and the Revolving Credit Facilities, respectively.

11. Financial Instruments

The following methods and assumptions were used by the Company in estimating fair value disclosures of financial instruments:

Cash and cash equivalents, accounts receivable, accounts payable, accruals and other liabilities

The carrying amounts reported in the balance sheet for these financial instruments approximated fair value because of their short-term maturities. The carrying amount of straight-line rents receivable does not materially differ from its fair market value.

Notes receivable and advances to affiliates

The fair value is estimated by discounting the current rates at which management believes similar loans would be made. The fair value of these notes was approximately $29.0 million and $129.9 million at December 31, 2006 and 2005, respectively, as compared to the carrying amounts of $28.4 million and $127.7 million, respectively. The carrying value of the TIF Bonds (Note 5) approximated its fair value at December 31, 2006 and 2005. The fair value of loans to affiliates is not readily determinable and has been estimated by management based upon its assessment of the interest rate and credit risk.

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Debt

The carrying amounts of the Company’s borrowings under its Revolving Credit Facilities and Term Loans approximate fair value because such borrowings are at variable rates and the spreads are typically adjusted to reflect changes in the Company’s credit rating. The fair value of the fixed-rate senior notes is based on borrowings with a similar remaining maturity based on the Company’s estimated interest rate spread over the applicable treasury rate or quoted market price. Fair value of the mortgages payable is estimated using a discounted cash flow analysis, based on the Company’s incremental borrowing rates for similar types of borrowing arrangements with the same remaining maturities.

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

Financial instruments at December 31, 2006 and 2005, with carrying values that are different than estimated fair values, are summarized as follows (in thousands):


	2006				2005
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

Senior notes	$	2,218,020	$	2,221,553	$	1,966,268	$	1,960,210
Term Loans		400,000		400,000		420,000		420,000
Mortgages payable		1,333,292		1,347,501		1,354,733		1,387,136

	$	3,951,312	$	3,969,054	$	3,741,001	$	3,767,346

Accounting Policy for Derivative and Hedging Activities

All derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative, it designates the derivative as a hedge against the variability of cash flows that are to be paid in connection with a recognized liability or forecasted transaction. Subsequent changes in the fair value of a derivative designated as a cash flow hedge that is determined to be highly effective are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectiveness is reported in current earnings.

From time to time, the Company enters into interest rate swaps to convert certain fixed-rate debt obligations to a floating rate (a “fair value hedge”). This is consistent with the Company’s overall interest rate risk management strategy to maintain an appropriate balance of fixed-rate and variable-rate borrowings. Changes in the fair value of derivatives that are highly effective and that are designated and qualify as a fair value hedge, along with changes in the fair value of the hedged liability that are attributable to the hedged risk, are recorded in current-period earnings. If hedge accounting is discontinued due to the Company’s determination that the relationship no longer qualified as an effective fair value hedge, the Company will continue to carry the derivative on the balance sheet at its fair value but cease to adjust the hedged liability for changes in fair value.

The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of the hedged items and whether those derivatives may be expected to remain highly effective in future periods. Should it be determined that a derivative is not (or has ceased to be) highly effective as a hedge, the Company will discontinue hedge accounting on a prospective basis.

Risk Management

The Company enters into derivative contracts to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility or in the case of a fair value hedge to minimize the impacts of changes in the fair value of the debt. The Company does not typically utilize these arrangements for trading or speculative purposes.

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The principal risk to the Company through its interest rate hedging strategy is the potential inability of the financial institutions, from which the interest rate swaps were purchased, to cover all of their obligations. To mitigate this exposure, the Company purchases its interest rate swaps from major financial institutions.

Cash Flow Hedges

In 2006, the Company entered into five interest rate swaps with notional amounts aggregating $500 million ($200 million for a three-year term and $300 million for a four-year term). Interest rate swaps aggregating $400 million effectively convert Term Loan floating rate debt into a fixed rate of approximately 5.9%. Interest rate swaps aggregating $100 million effectively convert Revolving Credit Facilities floating rate debt into a fixed rate of approximately 5.25%. As of December 31, 2006, the aggregate fair value of the Company’s interest rate swaps was a liability of $1.1 million, which is included in other liabilities in the consolidated balance sheets. For the year ended December 31, 2006, the amount of hedge ineffectiveness was not material.

All components of the interest rate swaps were included in the assessment of hedge effectiveness. The Company expects that within the next 12 months it will reflect as an increase to earnings $0.9 million of the amount recorded in accumulated other comprehensive income. The fair value of the interest rate swaps is based upon the estimated amounts the Company would receive or pay to terminate the contracts at the reporting date and is determined using interest rate market pricing models.

In March 2002, the Company entered into an interest rate swap agreement, with a notional amount of $60 million for a five-year term, effectively converting a portion of the outstanding fixed-rate debt under a fixed-rate senior note to a variable rate of six-month LIBOR.

Swaptions

In anticipation of the joint venture with TIAA-CREF (Note 22), an affiliate of the Company purchased two interest rate swaption agreements during 2006 that economically limits the benchmark interest rate component of future interest rates on $500 million of forecasted five-year borrowings at 5.72% and $750 million of forecasted ten-year borrowings at 5.78%. These swaptions were not designated for hedge accounting, and accordingly, gains or losses are reported in earnings as a component of interest expense, which approximated $1.2 million of additional expense for the year ended December 31, 2006. The fair value was calculated based upon expected changes in forward interest rates. TIAA-CREF will be obligated to fund its proportionate share of the cost and be entitled to the economic benefits, if any, of the swaptions upon formation of the joint venture.

Joint Venture Derivative Instruments

At December 31, 2006 and 2005, certain of the Company’s joint ventures had interest rate swaps with notional amounts aggregating $557 million and $150 million, respectively, converting LIBOR to a weighted average fixed rate of approximately 5.28% and 4.36%, respectively. The aggregate fair value of these instruments at December 31, 2006 and 2005, was a liability of $5.0 million and an asset of $1.0 million, respectively.

12. Commitments and Contingencies

Leases

The Company is engaged in the operation of shopping centers, which are either owned or, with respect to certain shopping centers, operated under long-term ground leases that expire at various dates through 2070, with renewal options. Space in the shopping centers is leased to tenants pursuant to agreements that provide for terms ranging generally from one month to 30 years and, in some cases, for annual rentals subject to upward adjustments based on operating expense levels, sales volume, or contractual increases as defined in the lease agreements.

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The scheduled future minimum revenues from rental properties under the terms of all non-cancelable tenant leases, assuming no new or renegotiated leases or option extensions for such premises for the subsequent five years ending December 31, are as follows for continuing operations (in thousands):


2007	$	529,293
2008		494,445
2009		450,326
2010		404,942
2011		349,553
Thereafter		1,829,388

	$	4,057,947

Scheduled minimum rental payments under the terms of all capital and non-cancelable operating leases in which the Company is the lessee, principally for office space and ground leases, for the subsequent five years ending December 31, are as follows for continuing operations (in thousands):


	Operating		Capital
	Leases		Leases

2007	$	5,320	$	305
2008		5,232		315
2009		4,970		315
2010		4,882		315
2011		4,879		315
Thereafter		204,465		12,283

	$	229,748	$	13,848

Commitments and Guarantees

In conjunction with the development and expansion of various shopping centers, the Company has entered into agreements with general contractors for the construction of shopping centers aggregating approximately $63.7 million as of December 31, 2006.

At December 31, 2006, the Company had letters of credit outstanding of approximately $20.6 million. The Company has not recorded any obligation associated with these letters of credit. The majority of letters of credit are collateral for existing indebtedness and other obligations of the Company.

As discussed in Note 2, the Company and certain equity affiliates entered into several joint ventures with various third-party developers. In conjunction with certain joint venture agreements, the Company and/or its equity affiliate has agreed to fund the required capital associated with approved development projects, comprised principally of outstanding construction contracts, aggregating approximately $6.8 million as of December 31, 2006. The Company and/or its equity affiliate are entitled to receive a priority return on these capital advances at rates ranging from 10.0% to 11.0%.

In connection with certain of the Company’s joint ventures, the Company agreed to fund any amounts due the joint venture’s lender if such amounts are not paid by the joint venture based on the Company’s pro rata share of such amount, aggregating $61.1 million at December 31, 2006. The Company and its joint venture partner provided a $33.0 million payment and performance guarantee on behalf of the Mervyns Joint Venture to the joint venture’s lender in certain events such as the bankruptcy of Mervyns. The Company’s maximum obligation is equal to its effective 50% ownership percentage, or $16.5 million.

In 2003, the Company entered into an agreement with DRA Advisors, one of its joint venture partners, to pay a $0.8 million annual consulting fee for ten years for ongoing services relating to the assessment of financing and strategic investment alternatives.

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In connection with the transfer of one of the properties to the MDT Joint Venture, the Company deferred the recognition of approximately $2.8 million and $2.9 million at December 31, 2006 and 2005, respectively, of the gain on sale of real estate related to a shortfall agreement guarantee maintained by the Company. The MDT Joint Venture is obligated to fund any shortfall amount caused by the failure of the landlord or tenant to pay taxes on the shopping center when due and payable. The Company is obligated to pay any shortfall to the extent that the shortfall is not caused by the failure of the landlord or tenant to pay taxes on the shopping center when due and payable. No shortfall payments have been made on this property since the completion of construction in 1997.

The Company entered into master lease agreements during 2003 through 2006 with the transfer of properties to certain joint ventures, which are recorded as a liability and reduction of its related gain. The Company is responsible for the monthly base rent, all operating and maintenance expenses and certain tenant improvements and leasing commissions for units not yet leased at closing for a three-year period. At December 31, 2006, the Company’s material master lease obligations, included in accounts payable and other expenses, in the following amounts, were incurred with the properties transferred to the following joint ventures (in millions):


	December 31
	2006		2005

MDT Joint Venture	$	2.1	$	4.9
MDT Preferred Joint Venture		3.3		—
DDR Markaz II		0.6		2.5

	$	6.0	$	7.4

In connection with the Service Holdings LLC joint venture, the Company guaranteed the base rental income from one to three years for various affiliates of the Service Holdings LLC joint venture in the aggregate amount of $2.8 million. The Company has not recorded a liability for the guarantee, as the subtenants of the Service Holdings LLC affiliates are paying rent as due. The Company has recourse against the other parties in the partnership in the event of default. No assets of the Company are currently held as collateral to pay this guarantee.

In the event of any loss or the reduction in the historic tax credit allocated or to be allocated to a joint venture partner in connection with a historic commercial parcel acquired in 2002, the Company guaranteed payment in the maximum amount of $0.7 million to the other joint venture partner. The Company has a liability recorded as of December 31, 2006, related to this guarantee. The Company does not have recourse against any other party in the event of default. No assets of the Company are currently held as collateral to pay this guarantee.

Related to one of the Company’s developments in Long Beach, California, the Company guaranteed the payment of any special taxes levied on the property within the City of Long Beach Community Facilities District No. 6 and attributable to the payment of debt service on the bonds for periods prior to the completion of certain improvements related to this project. In addition, an affiliate of the Company has agreed to make an annual payment of approximately $0.6 million to defray a portion of the operating expenses of a parking garage through the earlier of October 2032 or until the City’s parking garage bonds are repaid. There are no assets held as collateral or liabilities recorded related to these obligations.

Related to the development of a shopping center in San Antonio, Texas, the Company guaranteed the payment of certain road improvements expected to be funded by the City of San Antonio, Texas, of approximately $1.5 million. These road improvements are expected to be completed in 2007. There are no assets held as collateral or liabilities recorded related to this guarantee.

The Company continually monitors obligations and commitments entered into on its behalf. There have been no other material items entered into by the Company since December 31, 2003, through December 31, 2006, other than as described above.

Legal Matters

The Company and its subsidiaries are subject to various legal proceedings, which, taken together, are not expected to have a material adverse effect on the Company. The Company is also subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by

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insurance. While the resolution of all matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s liquidity, financial position or results of operations.


13.	Minority Equity Interests, Operating Partnership Minority Interests, Preferred Shares, Common Shares and Common Shares in Treasury and Deferred Obligations

Minority Equity Interests

Minority equity interests consist of the following (in millions):


	December 31
	2006		2005

Mervyns Joint Venture	$	77.6	$	75.1
Shopping centers and development parcels in Arizona, Missouri, New York, Texas and Utah		8.2		6.8
Business center in Massachusetts		16.5		14.3
Coventry		2.3		3.0

	$	104.6	$	99.2

Operating Partnership Minority Interests

At December 31, 2006 and 2005, the Company had 872,373 and 1,349,822 OP Units outstanding, respectively. These OP Units, issued to different partnerships, are exchangeable, by the election of the OP Unit holder, and under certain circumstances at the option of the Company, into an equivalent number of the Company’s common shares or for the equivalent amount of cash. Most of these OP Units have registration rights agreements equivalent to the amount of OP Units held by the holder if the Company elects to settle in its common shares. The liability for the OP Units is classified on the Company’s balance sheet as operating partnership minority interests.

The OP Unit holders are entitled to receive distributions, per OP Unit, generally equal to the per share distributions on the Company’s common shares.

In 2004, the Company issued 0.5 million OP Units in conjunction with the purchase of assets from Benderson. In December 2005, Benderson exercised its option to convert its remaining 0.4 million OP Units (Note 4), effective February 2006. The Company agreed to issue an equivalent number of common shares of the Company. In 2004 the Company exchanged 284,304 OP Units for common shares of the Company including 60,260 OP Units issued to Benderson. Also in 2006, the Company purchased 32,274 OP Units for cash of $2.1 million. These transactions were treated as a purchase of minority interest.

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Preferred Shares

The Company’s preferred shares outstanding at December 31 are as follows (in thousands):


	2006		2005

Class F — 8.60% cumulative redeemable preferred shares, without par value, $250 liquidation value; 750,000 shares authorized; 600,000 shares issued and outstanding at December 31, 2006 and 2005	$	150,000	$	150,000
Class G — 8.0% cumulative redeemable preferred shares, without par value, $250 liquidation value; 750,000 shares authorized; 720,000 shares issued and outstanding at December 31, 2006 and 2005		180,000		180,000
Class H — 7.375% cumulative redeemable preferred shares, without par value, $500 liquidation value; 410,000 shares authorized; 410,000 shares issued and outstanding at December 31, 2006 and 2005		205,000		205,000
Class I — 7.5% cumulative redeemable preferred shares, without par value, $500 liquidation value; 360,000 shares authorized; 360,000 shares issued and outstanding at December 31, 2006 and 2005		170,000		170,000

	$	705,000	$	705,000

In May 2004, the Company issued $170.0 million, 7.5% Preferred I Depositary shares and received net proceeds of approximately $164.2 million.

The Class F and G depositary shares represent 1/10 of a share of their respective preferred class of shares and have a stated value of $250 per share. The Class H and I depositary shares represent 1/20 of a share of a preferred share and have a stated value of $500 per share. The Class F, Class G, Class H and Class I depositary shares are not redeemable by the Company prior to March 27, 2007, March 28, 2008, July 28, 2008, and May 7, 2009, respectively, except in certain circumstances relating to the preservation of the Company’s status as a REIT.

The Company’s authorized preferred shares consist of the following:


	•	750,000 Class A Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class B Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class C Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class D Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class E Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class F Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class G Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class H Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class I Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class J Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Class K Cumulative Redeemable Preferred Shares, without par value

	•	750,000 Non Cumulative preferred shares, without par value

Common Shares

The Company’s common shares have a $0.10 per share stated value.

In December 2006, the Company entered into forward sale agreements in anticipation of a merger (Note 22). 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 for approximately $750 million. The forward sale contract expires September 2007 and will

F-37

be reflected in shareholders equity as the contract does not include any provision that could require the Company to net cash settle the contract. 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.

Common share issuances over the three-year period ended December 31, 2006, are as follows (in millions):


Issuance Date	Shares		Net Proceeds

December 2004		5.45	$	248
May 2004		15.0	$	491

Common Shares in Treasury and Deferred Obligations

In August 2006, the Company’s Board of Directors authorized the Company to repurchase 909,000 common shares of the Company’s common stock at a cost of $53.15 per share in connection with the convertible debt financing (Note 8).

In 2006, 2005 and 2004, certain officers and a director of the Company completed a stock for stock option exercise and received approximately 0.3 million, 0.1 million and 1.0 million common shares, respectively, in exchange for 0.2 million, 0.1 million and 0.6 million common shares of the Company. In addition, vesting of restricted stock grants approximating less than 0.1 million, 0.1 million and 0.1 million shares in 2006, 2005 and 2004, respectively, of common stock of the Company was deferred. The Company recorded $0.8 million, $1.4 million and $1.9 million in 2006, 2005 and 2004, respectively, in shareholders’ equity as deferred obligations for the vested restricted stock deferred into the Company’s non-qualified deferred compensation plans.

14. Other Income

Other income from continuing operations was comprised of the following (in thousands):


	For the Year Ended December 31
	2006		2005		2004

Lease terminations and bankruptcy settlements	$	13,313	$	5,912	$	9,827
Acquisitions and financing fees		414		2,424		2,997
Other, net		459		964		257

Total other income	$	14,186	$	9,300	$	13,081

15. Comprehensive Income

Comprehensive income is as follows (in thousands):


	For the Year Ended December 31
	2006			2005			2004

Net income	$	253,264		$	282,643		$	269,762
Other comprehensive income:
Change in fair value of interest rate contracts		(2,729	)		10,619			867
Amortization of interest rate contracts		(1,454	)		(520	)		—
Foreign currency translation		1,587			—			—

Other comprehensive income		(2,596	)		10,099			867

Total comprehensive income	$	250,668		$	292,742		$	270,629

16. Discontinued Operations and Disposition of Real Estate and Real Estate Investments

Discontinued Operations

During the year ended December 31, 2006, the Company sold six properties and one property was classified as held for sale at December 31, 2006, which were classified as discontinued operations for the years ended

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December 31, 2006, 2005 and 2004, aggregating 1.0 million square feet. The Company did not have any properties considered as held for sale at December 31, 2005 or 2004. Included in discontinued operations for the three years ending December 31, 2006, are 57 properties aggregating 5.6 million square feet. Of these properties, 30 previously had been included in the shopping center segment and 27 of these properties previously had been included in the business center segment (Note 21). The operations of these properties have been reflected on a comparative basis as discontinued operations in the consolidated financial statements for the three years ended December 31, included herein.

The balance sheet relating to the assets held for sale and the operating results relating to assets sold or designated as assets held for sale after December 31, 2003, are as follows (in thousands):


	December 31
	2006

Land	$	685
Building		7,679
Other real estate assets		194

		8,558
Less: Accumulated depreciation		(3,326	)

		5,232
Other assets		92

Total assets held for sale	$	5,324


	For the Year Ended December 31,
	2006		2005		2004

Revenues	$	6,627	$	29,008	$	42,890

Expenses:
Operating		1,406		10,926		14,967
Impairment charge		—		642		586
Interest, net		1,342		5,152		6,917
Depreciation		1,308		7,360		9,864
Minority interests		—		67		(47	)

		4,056		24,147		32,287

Income from discontinued operations		2,571		4,861		10,603
Gain on dispostion of real estate		11,051		16,667		8,561

	$	13,622	$	21,528	$	19,164

The Company sold properties and recorded gains on disposition as described below, for the three years ended December 31, 2006 (in millions):


	Number
	of		Gain on
	Properties		Dispostion of
	Sold		Real Estate

2006		6	$	11.1
2005		35		16.7
2004		15		8.6

In the second quarter of 2005, the Company recorded an impairment charge of $0.6 million relating to one remaining former Best Products site sold in the third quarter of 2005. In the third quarter of 2004, the Company recorded an impairment charge of $0.6 million relating to the sale of a business center in the fourth quarter of 2004.

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These impairment charges were reclassified into discontinued operations (see table above) due to the sale of the property.

Disposition of Real Estate and Real Estate Investments

The Company recorded gains on disposition of real estate and real estate investments for the three years ended December 31, 2006, as follows (in millions):


	For the Year Ended December 31
	2006		2005		2004

Transfer of assets to the Service Holdings LLC Joint Venture (1)	$	6.1	$	—	$	—
Transfer of assets to the DPG Realty Holdings Joint Venture (2)		0.6		—		4.2
Transfer of assets to the Markaz II Joint Venture (3)		—		—		2.5
Transfer of assets to the MDT Joint Venture (4)		9.2		81.2		65.4
Transfer of assets to the MDT Preferred Joint Venture (5)		38.9		—		—
Land sales (6)		14.8		6.0		14.3
Previously deferred gains (7)		1.3		0.9		0.8
Gain (loss) on disposition of non-core assets (8)		1.1		—		(2.6	)

	$	72.0	$	88.1	$	84.6


(1)		The Company transferred 51 retail sites previously occupied by Service Merchandise. This disposition is not classified as discontinued operations because of the Company’s continuing involvement due to its retained ownership interest and management agreements.

(2)		The Company transferred a newly developed expansion area adjacent to a shopping center owned by the joint venture in 2006. The Company transferred 12 assets in 2004. These dispositions are not classified as discontinued operations because of the Company’s continuing involvement due to its retained ownership interest and management agreements.

(3)		The Company transferred 13 assets in 2004. These dispositions are not classified as discontinued operations because of the Company’s continuing involvement due to its retained ownership interest and management agreements.

(4)		The Company transferred newly developed expansion areas adjacent to four shopping centers owned by the joint venture in 2006. The Company transferred 12 and 11 assets in 2005 and 2004, respectively. These dispositions are not classified as discontinued operations because of the Company’s continuing involvement due to its retained ownership interest and management agreements.

(5)		The Company transferred six assets in 2006. These dispositions are not classified as discontinued operations because of the Company’s continuing involvement due to its retained ownership interest and management agreements.

(6)		These dispositions do not qualify for discontinued operations presentation.

(7)		These were primarily attributable to the recognition of additional gains from the leasing of units associated with master lease obligations and other obligations on disposed assets.

(8)		The loss recorded in 2004 may be recovered through an earnout arrangement with the buyer over the next several years.

17. Transactions With Related Parties

The Company sold a 4% interest in Coventry to certain Coventry employees in 2005. At December 31, 2006, the Company owns a 75% interest in Coventry.

As discussed in Note 2, the Company entered into the KLA/SM joint venture in March 2002 with Lubert-Adler Real Estate Funds, which is owned in part by a director of the Company. In August 2006, the Company purchased its then partners’ approximate 75% interest in the remaining 52 assets at a gross purchase price of approximately $138 million relating to the partners’ ownership, based on a total valuation of approximately $185 million. The Company sold 51 of the assets to the Service Holding LLC in September 2006.

In 1999, the Company entered into a joint venture owned 75% by Lubert-Adler Real Estate Funds, which is owned in part by a director of the Company and 25% by the Company. The asset, a shopping center in Coon Rapids, Minnesota, was sold to the MDT Joint Venture in November 2003. The Company had a management agreement and

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performed certain administrative functions for the joint venture pursuant to which the Company earned management, leasing, development fees and interest income of $2.6 million in 2004.

As discussed in Note 4, in 2005, the Company entered into the Mervyns Joint Venture that acquired the underlying real estate of 36 operating Mervyns stores for approximately $396.2 million. In 2006, the Mervyns Joint Venture purchased one additional site for approximately $11.0 million and the Company purchased one additional site for approximately $12.4 million. In 2005, the Company also purchased an additional site for approximately $14.4 million. The assets were acquired from several funds, one of which was managed by Lubert-Adler Real Estate Funds, which is owned in part by a director of the Company.

The Company utilizes a law firm for one of its development projects in which the father of one of the Company’s executive officers is a partner. The Company paid less than $0.1 million to this law firm in 2006 and 2005.

In 1995, the Company entered into a lease for office space owned by the mother of the Chairman of the Board and CEO (“CEO”). General and administrative rental expense associated with this office space aggregated $0.6 million, $0.6 million and $0.5 million for the years ended December 31, 2006, 2005 and 2004, respectively. The Company periodically utilizes a conference center owned by the trust of Bert Wolstein, deceased founder of the Company, father of the CEO, and one of its principal shareholders, for Company-sponsored events and meetings. The Company paid less than $0.1 million in 2006 and 2005 for the use of this facility.

The Company was also a party to a lawsuit that involved various claims against the Company relating to certain management-related services provided by the Company. The owner of the properties had entered into a management agreement with two entities (“Related Entities”) controlled by one of its principal shareholders and a former director of the Company, to provide management services. The Company agreed to perform those services on behalf of the Related Entities, and the fees paid by the owner of the properties were paid to the Company. One of the services to be provided by the Company was to obtain and maintain casualty insurance for the owner’s properties. A loss was incurred at one of the owner’s properties and the insurance company denied coverage. The Company filed a lawsuit against the insurance company. Separately, the Company entered into a settlement pursuant to which the Company paid $750,000 to the owner of the properties in 2004 and agreed to indemnify the Related Entities for any loss or damage incurred by either of the Related Entities if it were judicially determined that the owner of the property is not entitled to receive insurance proceeds under a policy obtained and maintained by the Company. The lawsuit against the insurance company was resolved with the insurance company agreeing to compensate the claimant for the loss as well as reimburse the Company for a portion of its attorneys fees.

In connection with the settlement, the CEO entered into a joint venture with the principal of the owner of the properties, and the Company entered into a management agreement with the joint venture effective February 1, 2004. The CEO holds an ownership interest of approximately 25% in the joint venture. The Company provides management and administrative services and receives fees equal to 3% of the gross income of each property for which services are provided, but not less than $5,000 per year from each such property, of which an aggregate of $0.1 million was earned in 2006 and 2005. The management agreement expires on February 28, 2007, unless terminated earlier at any time by the joint venture upon 30 days notice to the Company or by the Company upon 60 days notice to the joint venture.

Transactions with the Company’s equity affiliates are described in Note 2.


18.	Benefit Plans

Stock-Based Compensation

The Company’s stock option and equity-based award plans provide for grants to employees of the Company of incentive and non-qualified stock options to purchase common shares of the Company, rights to receive the appreciation in value of common shares, awards of common shares subject to restrictions on transfer, awards of common shares issuable in the future upon satisfaction of certain conditions and rights to purchase common shares and other awards based on common shares. Under the terms of the award plans, awards available for grant approximated 2.1 million shares at December 31, 2006. Options may be granted at per share prices not less than fair market value at the date of grant, and in the case of incentive options, must be exercisable within the maximum

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contractual term of 10 years thereof (or, with respect to incentive options granted to certain shareholders, within five years thereof). Options granted under the plans generally vest one year after the date of grant as to one-third of the optioned shares, with the remaining options vesting over the following two-year period.

The Company grants options to its directors. Such options are granted at the fair market value on the date of grant. Options granted generally become exercisable one year after the date of grant as to one-third of the options, with the remaining options being exercisable over the following two-year period.

Effective January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective method. The Company’s consolidated financial statements as of and for the year ended December 31, 2006, reflect the impact of SFAS 123(R). In accordance with the modified prospective method, the Company’s consolidated financial statements for prior periods have not been restated to reflect the impact of SFAS 123(R). Prior to the adoption of FAS 123(R), the Company applied APB 25, “Accounting for Stock Issued to Employees,” in accounting for its plans. Accordingly, the Company did not recognize compensation cost for stock options when the option exercise price equaled or exceeded the market value on the date of the grant. See Note 1 for disclosure of pro forma information regarding net income and earnings per share for 2005 and 2004. Assuming application of the fair value method pursuant to SFAS 123, the compensation cost, which was required to be charged against income for all of the above mentioned plans, was $5.3 million and $5.1 million for 2005 and 2004, respectively.

The fair values for stock-based awards granted in 2006, 2005 and 2004 were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:


	For the Year Ended December 31
	2006	2005	2004

Weighted average fair value of grants	$6.50	$4.52	$3.40
Risk-free interest rate (range)	4.4% - 5.1%	3.2% - 4.3%	2.2% - 3.3%
Dividend yield (range)	4.2% - 5.0%	4.6% - 5.4%	4.5% - 5.8%
Expected life (range)	3 - 4 years	3 - 6 years	3 - 5 years
Expected volatility (range)	19.8% - 20.3%	19.8% - 22.9%	19.9% - 22.7%

The risk-free rate was based upon a U.S. Treasury Strip with a maturity date that approximates the expected term of the award. The expected life of the award was derived by referring to actual exercise experience. The expected volatility of the stock was derived by referring to changes in the Company’s historical stock prices over a time frame similar to the expected life of the award. The Company has no reason to believe that future stock volatility is likely to materially differ from historical volatility.

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The following table reflects the stock option activity described above (aggregate intrinsic value in thousands):


									Weighted-
							Weighted-		Average
							Average		Remaining		Aggregate
	Number of Options						Exercise		Contractual		Intrinsic
	Employees			Directors			Price		Term		Value

Balance December 31, 2003		2,785			125		$	20.48
Granted		665			—			36.40
Exercised		(1,402	)		(37	)		20.06
Forfeited		(72	)		—			26.92

Balance December 31, 2004		1,976			88		$	25.66
Granted		622			—			41.96
Exercised		(639	)		(26	)		20.00
Forfeited		(56	)		—			34.76

Balance December 31, 2005		1,903			62		$	32.46
Granted		302			—			51.19
Exercised		(679	)		(20	)		29.31
Forfeited		(41	)		—			42.85

Balance December 31, 2006		1,485			42		$	37.28		7.4	$	39,205

Options exercisable at December 31,
2006		616			42		$	28.75		6.1	$	22,517
2005		635			62			25.22		6.2		15,198
2004		532			84			18.63		5.7		15,865

The following table summarizes the characteristics of the options outstanding at December 31, 2006 (in thousands):


Options Outstanding							Options Exercisable
			Weighted-
	Outstanding		Average		Weighted-				Weighted-
Range of	as of		Remaining		Average		Exercisable as		Average
Exercise Prices	12/31/06		Contractual Life		Exercise Price		of 12/31/06		Exercise Price

$11.50-$16.00		26,211		3.4	$	13.18		26,211	$	13.18
$16.01-$22.50		130,343		3.7		20.10		130,343		20.10
$22.51-$29.00		196,990		6.0		23.38		196,990		23.38
$29.01-$35.50		37,240		6.8		29.86		35,572		29.63
$35.51-$42.00		789,020		7.7		39.01		261,356		38.02
$42.01-$48.50		60,101		8.6		45.86		7,898		46.30
$48.51-$56.00		287,291		9.2		51.21		—		—

		1,527,196		7.4	$	37.28		658,370	$	28.75

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The following table reflects the activity for unvested stock option awards for the year ended December 31, 2006 (in thousands):


				Weighted-
				Average
				Grant Date
	Options			Fair Value

Unvested at December 31, 2005		1,268		$	4.27
Granted		302			6.50
Vested		(660	)		3.74
Forfeited		(41	)		4.64

Unvested at December 31, 2006		869		$	5.42

As of December 31, 2006, total unrecognized stock option compensation cost of share-based compensation arrangements aggregated $2.6 million. The cost is expected to be recognized over a weighted-average period of approximately 0.9 years.

Exercises of Employee Stock Options

The total intrinsic value of options exercised for the year ended December 31, 2006, was approximately $17.6 million. The total cash received from employees as a result of employee stock option exercises for the year ended December 31, 2006, was approximately $11.2 million. The Company settles employee stock option exercises primarily with newly issued common shares and, occasionally, with treasury shares.

Performance Units

In 2000, the Board of Directors approved a grant of 30,000 Performance Units to the Company’s CEO. Pursuant to the provisions of the Plan, the 30,000 Performance Units were converted on December 31, 2004, to 200,000 restricted common shares based on the annualized total shareholders’ return for the five-year period ended December 31, 2004. These shares will vest over the following five-year period. In 2002, the Board of Directors approved grants aggregating 70,000 Performance Units to the Company’s CEO, President and Senior Executive Vice President. The 70,000 Performance Units granted to each of the individuals in 2002 converted to common restricted shares in amounts ranging from 70,000 to 466,666 common shares based on the annualized total shareholders’ return, as defined by the Plan, for the five-year period ending December 31, 2006. These restricted shares will vest over the following five-year period.

The fair value of each Performance Unit grant was estimated on the date of grant using a simulation approach model using the following assumptions:


		Range

Risk-free interest rate		4.4%-6.4%
Dividend yield		7.8%-10.9%
Expected life		10 years
Expected volatility		20%-23%

The performance units awards granted in 2000, were converted into restricted stock after the measurement date. The following table reflects the activity for the unvested awards for the year ended December 31, 2006 (in thousands):


	Awards

Unvested at December 31, 2005		170
Vested		(34	)

Unvested at December 31, 2006		136

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As of December 31, 2006, total unrecognized compensation cost of the 2000 and 2002 Performance Units granted, aggregated $0.2 million and $1.4 million, respectively. The cost is expected to be recognized over a three- and five-year term, respectively.

Outperformance Awards

In December 2005 and August 2006, the Board of Directors approved a grant of outperformance long-term incentive plan agreements with certain executive officers. The outperformance agreements provide for awards of the Company’s common shares, or an equivalent amount in cash, at the Company’s option, to certain officers of the Company if stated performance metrics are achieved.

With respect to the award plans granted to the Company’s Chief Executive Officer and Senior Executive Vice President (the “Senior Executive Officers”), the performance metrics are as follows: (a) a specified level of growth in the Company’s funds from operations (the “FFO Target”), (b) an increase in the market price of the Company’s common shares (the “Share Price Target”), (c) an increase in the market price of the Company’s common shares relative to the increase in the market prices of the relative common stock of companies included in a specified peer group (the “Comparative Share Price Target,”) together with the Share Price Target (the “Share Price Metrics”) and (d) non-financial performance criteria established by the Compensation Committee of the Board of Directors of the Company (the “Discretionary Metrics)” and, together with the FFO Target and the Share Price Metrics (the “Senior Executive Officer Targets”). The beginning of the measurement period for the Senior Executive Officer Targets is January 1, 2005, because the prior performance award measurement period for the Chief Executive Officer ended December 31, 2004. The current measurement period ends the earlier of December 31, 2007, or the date of a change in control.

If the FFO Target is achieved, the Company will issue to the Senior Executive Officers a number of common shares equal to (a) the dollar value assigned to the FFO Target set forth in such officer’s outperformance agreement, divided by (b) the greater of (i) the average closing price for the common shares over the 20 trading days ending on the applicable valuation date (as defined in the outpeformance agreements) or (ii) the closing price per common share on the last trading date before the senior officer valuation date (as defined in the outperformance agreements), or the equivalent amount of cash, at the Company’s option, as soon as practicable following the applicable vesting date, March 1, 2008.

If one or both of the Share Price Metrics are achieved, the Company will issue to the officer a number of shares set forth in the agreement, depending on whether one or both of the Share Price Metrics have been achieved, or the equivalent amount of cash, at the Company’s option, as soon as practicable following the applicable vesting date, March 1, 2008. The value of the number of common shares or equivalent amount paid in cash with respect to the Share Price Metrics that may be paid is capped at the amount specified in each Senior Executive Officer’s outperformance agreement.

If in the discretion of the Compensation Committee, the Discretionary Metrics have been achieved, the Company will issue to the officer a number of common shares equal to (a) the dollar value assigned to the Discretionary Metrics set forth in such Senior Executive Officer’s outperformance agreement, (b) divided by the greater of (i) the average closing price for the common shares over the twenty trading days ending on the valuation date (as defined in the outperformance agreements), or (ii) the closing price per common share on the last trading date before the senior officer valuation date (as defined in the outperformance agreements), or the equivalent amount of cash, at the Company’s option, as soon as practicable following the applicable vesting date, March 1, 2008.

With respect to nine additional executive officers (the “Officers”), the performance metrics are as follows: (a) the FFO Target, (b) a total return to the Company’s shareholders target (the “TRS Target”) and (c) a total return to the Company’s shareholders target relative to that of the total return to shareholders of companies included in a specified peer group (the “Comparative TRS Target,” together with the TRS Target, the “TRS Metrics” and, together with the FFO Target and the TRS Target, the “Officer Targets”). The measurement period for the Officer Targets is January 1, 2005, through the earlier of December 31, 2009, or the date of a change in control.

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If the FFO Target is achieved, the Company will issue to the Officer a number of common shares equal to (a) the dollar value assigned to the FFO Target set forth in such officer’s outperformance agreement and (b) divided by the greater of (i) the average closing price for the common shares over the twenty trading days ending on the valuation date (as defined in the outperformance agreements) or (ii) the closing price per common share on the last trading date before the officer valuation date (as defined in the outperformance agreements), or the equivalent amount of cash, at the Company’s option, as soon as practicable following the applicable vesting date, March 1, 2010.

If one or both of the TRS Metrics are achieved, the Company will issue to the Officer a number of shares set forth in the agreement, depending on whether one or both of the TRS Metrics have been achieved, or the equivalent amount of cash, at the Company’s option, as soon as practicable following the applicable vesting date. The value of the number of common shares or equivalent amount paid in cash with respect to the TRS Metrics that may be paid is capped at an amount specified in each Officer’s outperformance agreement, which management believes does not represent an obligation that is based solely or predominantly on a fixed monetary amount known at the grant date.

The fair value of each outperformance unit grant for the share price metrics was estimated on the date of grant using a Monte Carlo approach model using the following assumptions:


		Range

Risk-free interest rate		4.4%-5.0%
Dividend yield		4.4%-4.5%
Expected life		3-5 years
Expected volatility		19%-21%

As of December 31, 2006, there was $1.2 million and $1.1 million of total unrecognized compensation costs related to the two market metric components associated with the Senior Executive Officer and the Officers outperformance plans granted, respectively, and expected to be recognized over a 3.25-and 1.25-year term, respectively.

Restricted Stock Awards

In 2004, 2005 and 2006, the Board of Directors approved a grant of 105,974, 88,360 and 64,940 restricted shares of common stock, respectively, to several executives and outside directors of the Company. The restricted stock grants vest in equal annual amounts over a five-year period for the Company’s executives and over a three-year period for the restricted grants in 2004 to the outside directors of the Company. Restricted stock awards have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding. These grants have a weighted-average fair value at the date of grant ranging from $23.00 to $50.81, which was equal to the market value of the Company’s stock at the date of grant. In 2006 and 2005, grants of 9,497 and 6,912 shares of common stock, respectively, were issued as compensation to the outside directors. These grants had a weighted-average fair value at the date of grant ranging from $45.60 to $61.12, which was equal to the market value of the Company’s stock at the date of grant.

The following table reflects the activity for unvested restricted stock awards for the year ended December 31, 2006 (in thousands):


				Weighted-
				Average
				Grant Date
	Awards			Fair Value

Unvested at December 31, 2005		191		$	33.46
Granted		65			50.81
Vested		(94	)		32.37

Unvested at December 31, 2006		162		$	41.04

As of December 31, 2006, total unrecognized compensation of restricted stock award arrangements granted under the plans aggregated $6.6 million The cost is expected to be recognized over a weighted-average period of approximately 1.1 years.

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During 2006, 2005 and 2004, approximately $8.3 million, $5.7 million and $6.3 million, respectively, was charged to expense associated with awards under the equity-based award plans relating to stock grants, restricted stock and Performance Units.

401(k) Plan

The Company has a 401(k) defined contribution plan, covering substantially all of the officers and employees of the Company, that permits participants to defer up to a maximum of 15% of their compensation. The Company matched the participant’s contribution in an amount equal to 50% of the participant’s elective deferral for the plan year up to a maximum of 6% of a participant’s base salary plus annual cash bonus, not to exceed the sum of 3% of the participant’s base salary plus annual cash bonus. The Company’s plan allows for the Company to also make additional discretionary contributions. No discretionary contributions have been made. Employees’ contributions are fully vested, and the Company’s matching contributions vest 20% per year. Once an employee has been with the Company five years, all matching contributions are fully vested. The Company funds all matching contributions with cash. The Company’s contributions for each of the three years ended December 31, 2006, 2005 and 2004, were $0.6 million, $0.6 million and $0.5 million, respectively. The 401(k) plan is fully funded at December 31, 2006.

Elective Deferred Compensation Plan

The Company has a non-qualified elective deferred compensation plan for certain officers that permits participants to defer up to 100% of their base salaries and annual performance-based cash bonuses, less applicable taxes and benefits deductions. The Company matched the participant’s contribution to any participant who has contributed the maximum permitted under the 401(k) plan. This matching contribution is equal to the difference between (a) 3% of the sum of the participant’s base salary and annual performance-based bonus deferred under the 401(k) plan and the deferred compensation combined and (b) the actual employer matching contribution under the 401(k) plan. Deferred compensation related to an employee contribution is charged to expense and is fully vested. Deferred compensation related to the Company’s matching contribution is charged to expense and vests 20% per year. Once an employee has been with the Company five years, all matching contributions are fully vested. The Company’s contribution was $0.1 million annually for the three years ended December 31, 2006. At December 31, 2006, 2005 and 2004, deferred compensation under this plan aggregated approximately $12.3 million, $9.9 million and $8.7 million, respectively. The plan is fully funded at December 31, 2006.

Equity Deferred Compensation Plan

In 2003, the Company established the Developers Diversified Realty Corporation Equity Deferred Compensation Plan (the “Plan”), a non-qualified compensation plan for certain officers and directors of the Company to defer the receipt of restricted shares and, for compensation earned prior to December 31, 2004, the gain otherwise recognizable upon the exercise of options (see Note 13 regarding the deferral of stock to this Plan.) At December 31, 2006 and 2005, there were 0.6 million common shares of the Company in the Plan in each year, valued at $39.6 million and $28.6 million, respectively. The Plan is fully funded at December 31, 2006.

Other Compensation

During 2006, 2005 and 2004, the Company recorded a $0.7 million, $1.5 million and $0.8 million charge, respectively, as additional compensation to the Company’s CEO, relating to an incentive compensation agreement associated with the Company’s investment in the Retail Value Fund Program. Pursuant to this agreement, the Company’s CEO is entitled to receive up to 25% of the distributions made by Coventry (Note 2), provided the Company achieves certain performance thresholds in relation to funds from operations growth and/or total shareholder return.


19.	Earnings and Dividends Per Share

Earnings Per Share (“EPS”) have been computed pursuant to the provisions of SFAS No. 128. The following table provides a reconciliation of income from continuing operations and the number of common shares used in the

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computations of “basic” EPS, which utilizes the weighted average of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares.


	For the Year Ended December 31,
	(In thousands, except per share amounts)
	2006			2005			2004

Income from continuing operations	$	167,619		$	172,975		$	168,957
Add: Gain on disposition of real estate and real estate investments		72,023			88,140			84,642
Less: Preferred stock dividends		(55,169	)		(55,169	)		(50,706	)

Basic — Income from continuing operations applicable to common shareholders		184,473			205,946			202,893
Add: Operating partnership minority interests		—			—			2,607

Diluted — Income from continuing operations applicable to common shareholders	$	184,473		$	205,946		$	205,500

Number of Shares:
Basic — Average shares outstanding		109,002			108,310			96,638
Effect of dilutive securities:
Stock options		546			677			997
Operating partnership minority interests		—			—			1,308
Restricted stock		65			155			81

Diluted — Average shares outstanding		109,613			109,142			99,024

Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders	$	1.69		$	1.90		$	2.10
Income from discontinued operations		0.13			0.20			0.20
Cumulative effect of adoption of a new accounting standard		—			—			(0.03	)

Net income applicable to common shareholders	$	1.82		$	2.10		$	2.27

Diluted earnings per share data:
Income from continuing operations applicable to common shareholders	$	1.69		$	1.88		$	2.08
Income from discontinued operations		0.12			0.20			0.19
Cumulative effect of adoption of a new accounting standard		—			—			(0.03	)

Net income applicable to common shareholders	$	1.81		$	2.08		$	2.24

Options to purchase 1.5 million, 2.0 million and 2.1 million shares of common stock were outstanding at December 31, 2006, 2005 and 2004, respectively (Note 18), a portion of which has been reflected above in diluted per share amounts using the treasury stock method. Options aggregating 0.1 million were antidilutive at December 31, 2005, and none of the options outstanding at 2006 or 2004 were antidilutive. Accordingly, the antidilutive options were excluded from the computations.

Basic average shares outstanding do not include restricted shares totaling 161,958, 191,406 and 202,198 that were not vested at December 31, 2006, 2005 and 2004, respectively, or Performance Units totaling 136,000 and 170,000, that were not vested at December 31, 2006 and 2005, respectively (there were none in 2004).

The exchange into common stock of the minority interests, associated with OP Units, was not included in the computation of diluted EPS for 2006 or 2005 because the effect of assuming conversion was antidilutive (Note 13).

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The Senior Convertible Notes issued in August 2006, which are convertible into common shares of the Company at a price of $65.11, were not included in the computation of diluted EPS for 2006 as the Company’s stock price did not exceed the strike price of the conversion feature (Note 9). These notes were not outstanding in 2005 or 2004.

The forward equity contract entered into in December 2006 for 11.6 million common shares of the Company, was not included in the computation of diluted EPS for 2006 because the effect of assuming conversion was antidilutive (Note 13). This contract was not outstanding in 2005 or 2004.

20. Federal Income Taxes

The Company elected to be treated as a Real Estate Investment Trust (“REIT”) under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1993. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that the Company distribute at least 90% of its taxable income to its stockholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on taxable income it distributes to its stockholders. As the Company distributed sufficient taxable income for the three years ended December 31, 2006, no U.S. federal income or excise taxes were incurred.

If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any alternative minimum tax) and may not be able to qualify as a REIT for the four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, the Company has two taxable REIT subsidiaries that generate taxable income from non-REIT activities and are subject to federal, state and local income taxes.

At December 31, 2006, 2005 and 2004, the tax cost basis of assets was approximately $7.3 billion, $6.9 billion and $5.6 billion, respectively.

The following represents the combined activity of all of the Company’s taxable REIT subsidiaries (in thousands):


	For the Year Ended December 31,
	2006			2005			2004

Book income (loss) before income taxes	$	7,770		$	(5,166	)	$	(5,952	)

Components of income tax (benefit) expense are as follows:
Current:
Federal	$	3,410		$	—		$	—
State and local		490			—			—

		3,900			—			—

Deferred:
Federal		(6,428	)		(1,875	)		366
State and local		(945	)		(276	)		53

		(7,373	)		(2,151	)		419

Total (benefit) expense	$	(3,473	)	$	(2,151	)	$	419

The 2006 income tax benefit is primarily attributable to the Company’s ability to deduct intercompany interest costs due to the increased gain on disposition of real estate. The allowance of intercompany interest expense within the Company’s taxable REIT subsidiaries is subject to certain intercompany limitations based upon taxable income as required under Internal Revenue Code Section 163(j).

F-49

The differences between total income tax expense or benefit and the amount computed by applying the statutory federal income tax rate to income before taxes were as follows (in thousands):


	For the Year Ended December 31,
	2006			2005			2004

Statutory rate of 34% applied to pre-tax income (loss)	$	2,642		$	(1,757	)	$	(2,024	)
Effect of state and local income taxes, net of federal tax benefit		388			(258	)		(298	)
Valuation allowance (decrease) increase		(13,043	)		2,855			(1,226	)
Other		6,540			(2,991	)		3,967

Total (benefit) expense	$	(3,473	)	$	(2,151	)	$	419

Effective tax rate		(44.70	)%		41.64	%		(7.04	)%

Deferred tax assets and liabilities of the Company’s taxable REIT subsidiaries were as follows (in thousands):


	For the Year Ended December 31,
	2006			2005			2004

Deferred tax assets (1)	$	45,100		$	53,394		$	49,390
Deferred tax liabilities		(237	)		(2,861	)		(3,863	)
Valuation allowance (1)		(36,037	)		(49,080	)		(46,225	)

Net deferred tax asset (liability)	$	8,826		$	1,453		$	(698	)


(1)		The majority of the deferred tax assets and valuation allowance is attributable to interest expense, subject to limitations and basis differentials in assets due to purchase price accounting. Reconciliation of GAAP net income to taxable income is as follows (in thousands):


	For the Year Ended December 31,
	2006			2005			2004

GAAP net income	$	253,263		$	282,643		$	269,762
Add: Book depreciation and amortization (1)		93,189			64,854			38,999
Less: Tax depreciation and amortization (1)		(80,852	)		(52,362	)		(31,066	)
Book/tax differences on gains/losses from capital transactions		12,161			(4,382	)		(7,006	)
Joint venture equity in earnings, net (1)		(41,694	)		(111,351	)		(64,578	)
Dividends from subsidiary REIT investments		33,446			96,868			32,997
Deferred income		(2,136	)		1,495			(2,085	)
Compensation expense		(9,215	)		(10,589	)		2,301
Legal judgment		—			—			(9,190	)
Miscellaneous book/tax differences, net		(6,068	)		(12,186	)		(8,503	)

Taxable income before adjustments		252,094			254,990			221,631
Less: Capital gains		(69,977	)		(84,041	)		(73,110	)

Taxable income subject to the 90% dividend requirement	$	182,117		$	170,949		$	148,521


(1)		Depreciation expense from majority-owned subsidiaries and affiliates, which are consolidated for financial reporting purposes, but not for tax reporting purposes, is included in the reconciliation item “Joint venture equity in earnings, net.”

F-50

Reconciliation between cash dividends paid and the dividends paid deduction is as follows (in thousands):


	For the Year Ended December 31,
	2006			2005			2004

Cash dividends paid	$	306,929		$	285,710		$	226,537
Less: Dividends designated to prior year		(6,900	)		(14,651	)		(19,557	)
Plus: Dividends designated from the following year		6,900			6,900			14,651
Less: Portion designated capital gain distribution		(69,977	)		(84,041	)		(73,110	)
Less: Return of capital		(54,835	)		(22,969	)		—

Dividends paid deduction	$	182,117		$	170,949		$	148,521

Characterization of distributions is as follows (per share):


	For the Year Ended December 31,
	2006		2005		2004

Ordinary income	$	1.31	$	1.24	$	1.19
Capital gains		0.37		0.44		0.51
Return of capital		0.50		0.21		—
Unrecaptured Section 1250 gain		0.13		0.17		0.08

	$	2.31	$	2.06	$	1.78

All or a portion of the fourth quarter dividends for each of the years ended December 31, 2006, 2005 and 2004, have been allocated and reported to shareholders in the subsequent year. Dividends per share reported to shareholders for the years ended December 31, 2006, 2005 and 2004, are summarized as follows:


			Gross
2006	Date		Ordinary		Capital Gain		Return of		Total
Dividends	Paid		Income		Distributions		Capital		Dividends

4th quarter 2005		01/06/06	$	0.30	$	0.12	$	0.12	$	0.54
1st quarter		04/03/06		0.33		0.13		0.13		0.59
2nd quarter		07/05/06		0.34		0.12		0.13		0.59
3rd quarter		10/02/06		0.34		0.13		0.12		0.59
4th quarter		01/08/07		—		—		—		—

			$	1.31	$	.50	$	.50	$	2.31


			Gross
2005	Date		Ordinary		Capital Gain		Return of		Total
Dividends	Paid		Income		Distributions		Capital		Dividends

4th quarter 2004		01/06/05	$	0.26	$	0.13	$	0.05	$	0.44
1st quarter		04/04/05		0.32		0.16		0.06		0.54
2nd quarter		07/05/05		0.33		0.16		0.05		0.54
3rd quarter		10/03/05		0.33		0.16		0.05		0.54
4th quarter		01/08/06		—		—		—		—

			$	1.24	$	0.61	$	0.21	$	2.06

F-51


			Gross
2004	Date		Ordinary		Capital Gain		Total
Dividends	Paid		Income		Distributions		Dividends

4th quarter 2003		01/05/04	$	0.18	$	0.10	$	0.28
1st quarter		04/05/04		0.31		0.15		0.46
2nd quarter		07/06/04		0.31		0.15		0.46
3rd quarter		10/04/04		0.34		0.17		0.51
4th quarter		01/06/05		0.05		0.02		0.07

			$	1.19	$	0.59	$	1.78


21.	Segment Information

The Company had two reportable business segments, shopping centers and business centers, determined in accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” The Company sold the majority of its business center assets in 2005. Each shopping center and business center is considered a separate operating segment, and both segments utilize the accounting policies described in Note 1; however, each shopping center on a stand-alone basis is less than 10% of the revenues, profit or loss, and assets of the combined reported operating segment and meets the majority of the aggregation criteria under SFAS 131.

At December 31, 2006, the shopping center segment consisted of 467 shopping centers (including 167 owned through unconsolidated joint ventures and 39 consolidated by the Company) in 44 states, plus Puerto Rico and Brazil. At December 31, 2006, the business center segment consists of seven business centers in five states.

The table below presents information about the Company’s reportable segments for the years ended December 31, 2006, 2005 and 2004 (in thousands):


	2006
	Business			Shopping
	Centers			Centers			Other			Total

Total revenues	$	4,386		$	813,712					$	818,098
Operating expenses		(1,999	)		(207,089	)					(209,088	)

		2,387			606,623						609,010
Unallocated expenses (1)							$	(463,275	)		(463,275	)
Equity in net income of joint ventures					30,337						30,337
Minority interests								(8,453	)		(8,453	)

Income from continuing operations										$	167,619

Total real estate assets	$	90,772		$	7,359,921					$	7,450,693


	2005
	Business			Shopping
	Centers			Centers			Other			Total

Total revenues	$	7,077		$	712,486					$	719,563
Operating expenses		(1,800	)		(180,554	)					(182,354	)

		5,277			531,932						537,209
Unallocated expenses (1)							$	(391,226	)		(391,226	)
Equity in net income of joint ventures					34,873						34,873
Minority interests								(7,881	)		(7,881	)

Income from continuing operations										$	172,975

Total real estate assets	$	86,374		$	6,942,963					$	7,029,337

F-52


	2004
	Business			Shopping
	Centers			Centers			Other			Total

Total revenues	$	8,674		$	553,682					$	562,356
Operating expenses		(1,734	)		(135,045	)					(136,779	)

		6,940			418,637						425,577
Unallocated expenses (1)							$	(292,451	)		(292,451	)
Equity in net income of joint ventures					40,895						40,895
Minority interests								(5,064	)		(5,064	)

Income from continuing operations										$	168,957

Total real estate assets	$	264,615		$	5,338,809					$	5,603,424


(1)		Unallocated expenses consist of general and administrative, interest income, interest expense, tax benefit/expense, other income/expense and depreciation and amortization as listed in the consolidated statements of operations.


22.	Subsequent Events

Inland Retail Real Estate Trust, Inc.

In October 2006, the Company and Inland Retail Real Estate Trust, Inc. (“IRRETI”) announced that they entered into a definitive merger agreement. Under the terms of the agreement, the Company will acquire all of the outstanding shares of IRRETI for a total merger consideration of $14.00, of which $12.50 per share is expected to be funded in cash and $1.50 per share in the form of DDR common stock is to be based upon the ten-day average closing price of DDR’s shares determined two trading days prior to the IRRETI stockholders’ meeting to approve the transaction (plus accrued unpaid dividends), scheduled for February 22, 2007.

The transaction has a total 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.

In November 2006, 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-CREF expects to contribute 85% of the equity in the joint venture, and an affiliate of DDR expects to contribute 15% of the equity in the joint venture.

It is anticipated that this transaction will be approved by the IRRETI shareholders and will close at the end of February 2007. However, there is no assurance that the transaction will close in February 2007 as expected.

Coventry

Effective January 2007, the Company acquired the remaining 25% minority interest in Coventry (Note 2) and, as such, the Company now owns 100% in this entity. The aggregate purchase price was approximately $12.8 million.

President and Chief Operating Officer

In February 2007, David M. Jacobstein announced he was stepping down from the Company effective May 2007. Daniel B. Hurwitz, who currently serves as Senior Executive Vice President and Chief Investment Officer will assume the role of President and Chief Operating Officer effective May 2007. The Company will record a severance charge of approximately $4.1 million to general and administrative expense in 2007 in connection with these agreements.

Forward Sale Agreements

In February 2007, the Company exercised its option to settle, pursuant to the terms the forward sale agreements, in its common shares on February 26, 2007 (Note 13).

F-53

23. Quarterly Results of Operations (Unaudited)

The following table sets forth the quarterly results of operations, restated for discontinued operations, for the years ended December 31, 2006 and 2005 (in thousands, except per share amounts):


	First		Second		Third		Fourth		Total

2006:
Revenues	$	200,565	$	198,342	$	204,779	$	214,412	$	818,098
Net income		49,727		78,736		62,812		61,989		253,264
Net income applicable to common shareholders		35,935		64,943		49,020		48,197		198,095
Basic:
Net income per common share	$	0.33	$	0.59	$	0.45	$	0.44	$	1.82
Weighted average number of shares		108,962		109,393		109,120		108,638		109,002
Diluted:
Net income per common share	$	0.33	$	0.59	$	0.45	$	0.44	$	1.81
Weighted average number of shares		109,609		110,866		109,670		109,308		109,613
2005:
Revenues	$	170,003	$	174,432	$	178,638	$	196,490	$	719,563
Net income		105,550		67,954		60,277		48,862		282,643
Net income applicable to common shareholders		91,758		54,162		46,485		35,069		227,474
Basic:
Net income per common share	$	0.85	$	0.50	$	0.43	$	0.32	$	2.10
Weighted average number of shares		108,005		108,276		108,431		108,523		108,310
Diluted:
Net income per common share	$	0.84	$	0.50	$	0.43	$	0.32	$	2.08
Weighted average number of shares		110,244		109,022		109,211		109,168		109,142

F-54

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.