DEVELOPERS DIVERSIFIED REALTY CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q


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

For the quarterly period ended June 30, 2004


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

For the transition period from _________ to __________

Commission file number 1-11690

DEVELOPERS DIVERSIFIED REALTY CORPORATION

(Exact name of registrant as specified in its charter)


Ohio		34-1723097

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3300 Enterprise Parkway, Beachwood, Ohio 44122

(Address of principal executive offices — zip code)

(216) 755-5500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicated 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

Indicated by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act) Yes þ No o

As of August 4, 2004, the registrant had 102,273,314 outstanding common shares, without par value.

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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)


	June 30,			December 31,
	2004			2003
Assets
Real estate rental property:
Land	$	1,372,811		$	821,893
Buildings		4,116,399			2,719,764
Fixtures and tenant improvements		95,726			90,384
Construction in progress		288,388			252,870

		5,873,324			3,884,911
Less accumulated depreciation		(518,399	)		(458,213	)

Real estate, net		5,354,925			3,426,698
Cash and cash equivalents		21,520			11,693
Restricted cash		—			99,340
Investments in and advances to joint ventures		260,182			260,143
Notes receivable		18,133			11,741
Other assets		179,876			131,536

	$	5,834,636		$	3,941,151

Liabilities and Shareholders’ Equity
Unsecured indebtedness:
Fixed rate notes	$	1,360,322		$	838,996
Variable rate term debt		350,000			300,000
Revolving credit facility		425,000			171,000

		2,135,322			1,309,996

Secured indebtedness:
Revolving credit facility		24,500			15,500
Mortgage and other secured indebtedness		1,075,292			757,635

		1,099,792			773,135

Total indebtedness		3,235,114			2,083,131
Accounts payable and accrued expenses		96,683			98,046
Dividends payable		53,063			43,520
Other liabilities		84,315			54,946

		3,469,175			2,279,643
Minority equity interest		23,474			24,543
Operating partnership minority interests		34,197			22,895

		3,526,846			2,327,081

Commitments and contingencies
Shareholders’ equity:
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 June 30, 2004 and December 31, 2003		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 June 30, 2004 and December 31, 2003		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 June 30, 2004 and December 31, 2003		205,000			205,000
Class I — 7.5% cumulative redeemable preferred shares, without par value, $500 liquidation value; 340,000 shares authorized; 340,000 shares issued and outstanding at June 30, 2004		170,000			—
Common shares, without par value, $.10 stated value; 200,000,000 shares authorized; 109,296,187 and 93,792,948 shares issued at June 30, 2004 and December 31, 2003, respectively		10,929			9,379
Paid-in-capital		1,796,865			1,301,232
Accumulated distributions in excess of net income		(89,568	)		(116,737	)
Deferred obligation		10,234			8,336
Accumulated other comprehensive income (loss)		318			(541	)
Less: Unearned compensation — restricted stock		(5,414	)		(3,892	)
Common stock in treasury at cost: 7,081,512 and 7,359,747 shares at June 30, 2004 and December 31, 2003, respectively		(120,574	)		(118,707	)

		2,307,790			1,614,070

	$	5,834,636		$	3,941,151

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

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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)


	2004			2003
Revenues from operations:
Minimum rents	$	104,800		$	91,229
Percentage and overage rents		1,400			1,292
Recoveries from tenants		30,040			23,109
Ancillary income		618			434
Other property related income		1,167			233
Management fee income		3,592			2,528
Development fee income		604			344
Other		6,504			2,858

		148,725			122,027

Rental operation expenses:
Operating and maintenance		16,049			15,068
Real estate taxes		19,902			14,270
General and administrative		11,050			11,189
Depreciation and amortization		31,930			23,970

		78,931			64,497

Other income (expense):
Interest income		998			1,156
Interest expense		(30,734	)		(23,042	)

		(29,736	)		(21,886	)

Income before equity in net income of joint ventures, minority interests, income tax of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate and real estate investments		40,058			35,644
Equity in net income of joint ventures		6,943			6,797

Income before minority interests, income tax of taxable REIT subsidiaries and franchise taxes, discontinued operations and gain on disposition of real estate and real estate investments		47,001			42,441
Minority interests:
Minority equity interests		(342	)		(391	)
Operating partnership minority interests		(624	)		(482	)

		(966	)		(873	)
Income tax of taxable REIT subsidiaries and franchise taxes		(221	)		—

Income from continuing operations		45,814			41,568
Discontinued Operations:
Loss from discontinued operations		—			(1,212	)

Income before gain on disposition of real estate and real estate investments		45,814			40,356
Gain on disposition of real estate and real estate investments, net of tax		40,998			28,046

Net income	$	86,812		$	68,402

Net income applicable to common shareholders	$	74,295		$	57,140

Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders	$	0.78		$	0.68
Loss from discontinued operations		—			(0.01	)

Net income applicable to common shareholders	$	0.78		$	0.67

Diluted earnings per share data:
Income from continuing operations applicable to common shareholders	$	0.77		$	0.67
Loss from discontinued operations		—			(0.01	)

Net income applicable to common shareholders	$	0.77		$	0.66

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

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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)


	2004			2003
Revenues from operations:
Minimum rents	$	193,759		$	164,868
Percentage and overage rents		3,128			2,477
Recoveries from tenants		55,831			42,790
Ancillary income		1,383			782
Other property related income		2,073			307
Management fee income		6,702			5,132
Development fee income		795			673
Other		10,023			5,921

		273,694			222,950

Rental operation expenses:
Operating and maintenance		32,314			28,210
Real estate taxes		35,772			26,400
General and administrative		21,494			18,913
Depreciation and amortization		57,031			43,733

		146,611			117,256

Other income (expense):
Interest income		2,358			2,759
Interest expense		(55,669	)		(41,945	)

		(53,311	)		(39,186	)

Income before equity in net income of joint ventures, minority interests, income tax of taxable REIT subsidiaries and franchise taxes, discontinued operations, gain on disposition of real estate and real estate investments and cumulative effect of adoption of a new accounting standard		73,772			66,508
Equity in net income of joint ventures		25,164			16,896

Income before minority interests, income tax of taxable REIT subsidiaries and franchise taxes, discontinued operations, gain on disposition of real estate and real estate investments and cumulative effect of adoption of a new accounting standard		98,936			83,404
Minority interests:
Minority equity interests		(914	)		(843	)
Preferred operating partnership minority interests		—			(2,236	)
Operating partnership minority interests		(1,196	)		(859	)

		(2,110	)		(3,938	)
Income tax of taxable REIT subsidiaries and franchise taxes		(892	)		—

Income from continuing operations		95,934			79,466
Discontinued Operations:
Loss from discontinued operations		(703	)		(924	)

Income before gain on disposition of real estate and real estate investments and cumulative effect of adoption of a new accounting standard		95,231			78,542
Gain on disposition of real estate and real estate investments, net of tax		45,368			28,245

Income before cumulative effect of adoption of a new accounting standard		140,599			106,787
Cumulative effect of adoption of a new accounting standard		(3,001	)		—

Net income	$	137,598		$	106,787

Net income applicable to common shareholders	$	114,476		$	83,650

Per share data:
Basic earnings per share data:
Income from continuing operations applicable to common shareholders	$	1.30		$	1.09
Loss from discontinued operations		(0.01	)		(0.01	)
Cumulative effect of adoption of a new accounting standard		(0.03	)		—

Net income applicable to common shareholders	$	1.26		$	1.08

Diluted earnings per share data:
Income from continuing operations applicable to common shareholders	$	1.28		$	1.07
Loss from discontinued operations		(0.01	)		(0.01	)
Cumulative effect of adoption of a new accounting standard		(0.03	)		—

Net income applicable to common shareholders	$	1.24		$	1.06

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

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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands)
(Unaudited)


	2004			2003
Net cash flow provided by operating activities	$	143,436		$	110,534

Cash flow from investing activities:
Real estate developed or acquired, net of liabilities assumed		(1,733,502	)		(141,884	)
Decrease in restricted cash		99,340			—
Proceeds from sale and refinancing of joint venture interests		28,778			12,004
Investments in and advances to joint ventures, net		(40,112	)		(62,989	)
Repayment of notes receivable		2,108			6,647
Advances to affiliates		(3,194	)		(11,930	)
Proceeds from disposition of real estate and real estate investments		233,000			210,668

Net cash flow (used for) provided by investing activities		(1,413,582	)		12,516

Cash flow from financing activities
Proceeds from (repayment of) revolving credit facilities, net		463,000			(272,188	)
(Repayment of) proceeds from borrowings from term loan		(150,000	)		300,000
Proceeds from construction loans and mortgages		53,084			195,444
Proceeds from issuance of medium term notes, net of underwriting commissions and $421 of offering expenses		520,003			—
Repayment of senior notes		—			(100,000	)
Principal payments on rental property debt		(162,923	)		(157,711	)
Payment of deferred finance costs		(2,082	)		(4,404	)
Proceeds from issuance of common shares, net of underwriting commissions and $538 of offering expenses paid		490,863			—
Proceeds from issuance of preferred shares, net of underwriting commissions and $598 and $724 of offering expenses paid in 2004 and 2003, respectively		164,047			173,606
Redemption of preferred operating partnership units		—			(180,000	)
Proceeds from issuance of common shares in conjunction with the exercise of stock options, dividend reinvestment plan and restricted stock plan		5,907			10,193
Distributions to preferred and operating partnership minority interests		(1,040	)		(4,741	)
Dividends paid		(100,886	)		(77,611	)

Net cash flow provided by (used for) financing activities		1,279,973			(117,412	)

Increase in cash and cash equivalents		9,827			5,638
Cash and cash equivalents, beginning of period		11,693			16,371

Cash and cash equivalents, end of period	$	21,520		$	22,009

Supplemental disclosure of non-cash investing and financing activities:

For the six months ended June 30, 2004, in conjunction with the acquisition of 89 assets, the Company assumed mortgage debt at a fair value of approximately $467.0 and other liabilities of approximately $17.4 million. In conjunction with the acquisition of it’s partners 50% interest in a shopping center in March 2004, the Company acquired a property with a book value of $63.6 million and assumed debt of $47.0 million. In connection with the adoption of FIN 46 effective January 1, 2004, the Company consolidated real estate assets of $26.4 million and a mortgage payable of $20.0 million. At June 30, 2004, dividends payable were $53.1 million. In 2004, in conjunction with stock for stock option exercises, the Company recorded $1.6 million to treasury stock and $1.9 million to deferred obligation. The deferred obligation represents the portion of the common shares issuable upon exercise that were not currently issued but rather deferred pursuant to a deferral plan for which the Company maintains a separate trust. For the six months ended June 30, 2004, minority interests with a book value of approximately $4.9 million were converted into approximately 224,000 common shares of the Company. Other assets include approximately $0.1 million, which represents the fair value of the Company’s fixed rate interest rate swaps at June 30, 2004. Included in other assets and debt is approximately $3.3 million, which represents the fair value of the Company’s reverse interest rate swaps at June 30, 2004. The foregoing transactions did not provide for or require the use of cash for the 6 month period ended June 30, 2004.

For the six months ended June 30, 2003, in conjunction with the acquisition of a shopping center the Company assumed liabilities of approximately $8.4 million. In connection with the merger of JDN Realty Corporation, the Company issued approximately 18.0 million common shares at an aggregate value of $381.8 million, $50.0 million of preferred shares, assumed mortgage and unsecured debt at a fair value of approximately $606.2 million and other liabilities of approximately

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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands)
(Unaudited)

$22.0 million. At June 30, 2003, dividends payable were $35.2 million. In June 2003, the Company’s Chief Executive Officer completed a stock for stock option exercise, in which the Company recorded $20.1 million to common shares and paid in capital, $28.3 million to treasury stock and $8.2 million to deferred obligation. The deferred obligation represents the excess portion of the common shares exercised that were not physically awarded but rather deferred in a separate trust. Other liabilities include approximately $0.9 million, which represents the fair value of the Company’s interest rate swaps. Included in other assets and debt is approximately $7.3 million, which represents the fair value of the Company’s reverse interest rate swaps. The foregoing transactions did not provide for or require the use of cash for the 6 months period ended June 30, 2004.

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

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DEVELOPERS DIVERSIFIED REALTY CORPORATION

Notes to Condensed Consolidated Financial Statements

1. NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION

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

Reclassifications

Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

Use of Estimates

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

Unaudited Interim Financial Statements

The Company consolidates certain entities in which it owns less than a 100% equity interest if it is deemed to be the primary beneficiary in a variable interest entity, as defined in FIN No. 46 “Consolidation of Variable Interest Entities” (“Fin 46.”) The Company also consolidates entities in which it has a controlling direct or indirect voting interest. The equity method of accounting is applied to entities in which the Company does not have a controlling direct or indirect voting interest, but can exercise influence over the entity with respect to its operations and major decisions.

These financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of the periods presented. The results of the operations for the three and six months ended June 30, 2004 and 2003 are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Form 8-K dated June 22, 2004 and filed on June 24, 2004 which reflects the impact of property sales as discontinued operations pursuant to the provisions of Statement of Financial Accounting Standard (“SFAS”) 144 — “Accounting for the Impairment or Disposal of Long-Lived Assets” for the year ended December 31, 2003.

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New Accounting Standards

In January 2003, the FASB issued FIN 46. This Interpretation was revised in December 2003. The objective of this Interpretation is to provide guidance on how to identify a variable interest entity (“VIE”) and determine when the assets, liabilities, non-controlling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds a variable interest in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIEs expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN 46 also requires additional disclosure by primary beneficiaries and other significant variable interest holders. The disclosure provisions of this Interpretation became effective upon issuance in January 2003. The consolidation requirements of this Interpretation applied immediately to VIEs created after January 31, 2003 and no later than the end of the first fiscal year or interim period ending after March 15, 2004 for public companies with non-special purpose entities that were created prior to February 1, 2003. The consolidation requirements of this Interpretation were applicable to special purpose entities no later than the end of the first fiscal year or interim period ending after December 15, 2003.

The Company evaluated all of its pre-existing joint venture relationships in order to determine whether the entities are VIEs and whether the Company is considered to be the primary beneficiary or whether it holds a significant variable interest. Effective January 1, 2004, the Company consolidated five entities that were previously accounted for under the equity method. Four of these entities represent investments in undeveloped land located in Round Rock, Texas; Opelika, Alabama; Jackson, Mississippi; and Monroe, Louisiana, with combined real estate balances of $6.1 million as of June 30, 2004, and liabilities of $0.8 million of which $0.7 million is owed to the Company. The other entity consolidated is an operating shopping center property located in Martinsville, Virginia, in which DDR has a 50% interest, and advances of approximately $8.9 million. The total real estate of this entity is $32.0 million and the total debt is approximately $20 million, all of which is secured by the real estate assets of this entity and is non-recourse to the Company’s other assets. The Company recorded a charge of $3.0 million in the first quarter of 2004 as a result of the adoption of this standard relating to the minority partner’s cumulative losses in excess of its cost basis in the Martinsville, Virginia joint venture (Note 2).

In May of 2004, the Company assumed all of the rights and obligations related to an independent trust (the “Grantor Trust”) from one of the Company’s joint venture entities in which the Company held a 50% interest. The Grantor Trust, a special purpose entity, owns tax exempt floating rate bonds which are serviced from incremental tax revenue generated on a shopping center development in Merriam, Kansas. The Company was determined to be the primary beneficiary of the Grantor Trust and consolidated the Grantor Trust’s assets and obligations assumed. As of June 30, 2004, the Grantor Trust has outstanding obligations totaling approximately $8.6 million and a receivable from the city of Merriam, Kansas of approximately $8.4 million. The Grantor Trust obligation is secured by a letter of credit guaranteed by the Company.

The Company holds a 25% economic interest in a VIE, in which the Company was not determined to be the primary beneficiary. In March 2002, this VIE acquired the designation rights to real estate assets owned and controlled by Service Merchandise Company, Inc. The venture currently holds 69 fee simple, leasehold and ground lease interests previously owned by the Service Merchandise Company, Inc., and designation rights to 4 assets for which it has not obtained final title through the bankruptcy court. In total, these assets are located in 27 states across the United States. The VIE has

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total assets and total mortgage debt of approximately $178.5 million and $74.1 million, respectively, at June 30, 2004. The Company has a note receivable from the entity of approximately $13.6 million. In the unlikely event that all of the underlying assets of this entity had no value and all other owners failed to meet their obligations, the Company estimates that its maximum exposure to loss would approximate $24.1 million, primarily representing the net carrying value of the Company’s investment in and advances to this entity as of June 30, 2004. However, the Company expects to recover the recorded amount of it’s investment in this entity.

In December 2003, the Staff of the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”, which supercedes SAB 101, Revenue Recognition in Financial Statements.” SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Financial Statements Frequently Asked Questions and Answers (the “FAQ”) issued with SAB 101 that had been codified in SEC Topic 13, “Revenue Recognition.” Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The adoption of this bulletin did not have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a final consensus regarding Issue 03-6, “Participating Securities and the Two-Class Method under SFAS 128”. The issue addresses a number of questions regarding the computation of earnings per share (“EPS”) by companies that have issued securities other than common stock that participate in dividends and earnings of the issuing entity. Such securities are contractually entitled to receive dividends when and if the entity declares dividends on common stock. The issue also provides further guidance in applying the two-class method of calculating EPS once it is determined that a security is participating. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. This consensus is effective for the period ended June 30, 2004 and should be applied by restating previously reported EPS. The adoption of this consensus did not have a material impact on the Company’s financial position, results of operations or cash flows.

Comprehensive Income

Comprehensive income (in thousands) for the three month periods ended June 30, 2004 and 2003 was $87,598 and $68,244, respectively. Comprehensive income (in thousands) for the six month periods ended June 30, 2004 and 2003 was $138,458 and $106,248, respectively.

Stock Based Compensation

The Company applies APB 25, “Accounting for Stock Issued to Employees” in accounting for its plans. Accordingly, the Company does not recognize compensation cost for stock options when the option exercise price equals or exceeds the market value on the date of the grant. Assuming application of the fair value method pursuant to SFAS 123, the compensation cost, which is required to be charged against income for all plans, was $1.5 million and $1.3 million for the three months ended June 30,

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2004 and 2003, respectively and $2.9 million and $2.4 million for the six months ended June 30, 2004 and 2003, respectively.


	Three Month Periods						Six Month Periods
	Ended June 30,						Ended June 30,
	2004			2003			2004			2003
Net income, as reported	$	86,812		$	68,402		$	137,598		$	106,787
Add: Stock-based employee compensation included in reported net income		964			2,204			2,252			2,986
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards		(1,472	)		(1,297	)		(2,898	)		(2,438	)

	$	86,304		$	69,309		$	136,952		$	107,335

Earnings Per Share:
Basic — as reported	$	0.75		$	0.67		$	1.26		$	1.08
Basic — pro forma	$	0.74		$	0.68		$	1.26		$	1.08
Diluted — as reported	$	0.74		$	0.66		$	1.24		$	1.06
Diluted — pro forma	$	0.73		$	0.67		$	1.24		$	1.06

2. EQUITY INVESTMENTS IN JOINT VENTURES

At June 30, 2004 and December 31, 2003, the Company had an ownership interest in various joint ventures, which owned 74 and 54 operating shopping center properties, respectively, and 69 and 72, respectively, shopping center sites formerly owned by Service Merchandise Company, Inc. Included in these amounts is the joint venture with DDR Macquarie Fund LLC (“MDT Joint Venture”), the Company’s joint venture with Macquarie DDR Trust, an Australian Listed Property Trust sponsored by Macquarie Bank Limited, which the Company had an effective ownership interest of 14.5% in 33 and 11 operating shopping center properties, respectively, at June 30, 2004 and December 31, 2003, and has been segregated and discussed separately in Note 3.

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Combined condensed financial information of the Company’s joint venture investments excluding MDT Joint Venture is as follows (in thousands):


	June 30,			December 31,
	2004			2003
Combined Balance Sheets:
Land	$	342,323		$	359,591
Buildings		1,009,210			1,116,741
Fixtures and tenant improvements		28,947			24,985
Construction in progress		38,086			38,018

		1,418,566			1,539,335
Less accumulated depreciation		(104,749	)		(117,235	)

Real estate, net		1,313,817			1,422,100
Receivables, net		36,685			43,479
Leasehold interests		27,656			28,895
Other assets		61,901			68,807

	$	1,440,059		$	1,563,281

Mortgage debt	$	905,739		$	946,617
Amounts payable to DDR		17,408			31,008
Amounts payable to other partners		40,080			31,247
Other liabilities		52,680			65,078

		1,015,907			1,073,950
Accumulated equity		424,152			489,331

	$	1,440,059		$	1,563,281

Company’s proportionate share of accumulated equity	$	137,979