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Colgate Real Estate Workshop

Matt Lougee ‘07Director of FinanceDevelopers Diversified RealtySeptember 25-26, 2009

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The Basics

What’s a REIT?

A Real Estate Investment Trust is a corporation that uses the pooled capital of investors to purchase and manage income-producing property. To qualify as a REIT, the company must pay out at least 90% of its taxable income in the form of a dividend. REIT’s offer investors a liquid way to own real estate that combines the bond-like income stream from dividends with the price risk and growth potential found in traditional stocks.

DDR at a Glance

Assets Under Management $18.4 billion

Properties Owned and Managed 703

Gross Leasable Area 153 million sq. ft.

Leased Rate - IPO (1993) 95.7%

Leased Rate – Current 90.7%

Avg. Lease Term 7 years

Employees 770

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DDR’s Diverse Geographic Presence

13.6 msf 8.9%

5.8 msf 3.8%

GLA by State

+5.0 MSF

+1.0 – 5.0 MSF

Less than 1.0 MSF

5.0 msf 3.2%

153 MSF in 45 states plus Puerto Rico, Brazil, and Canada

10.2 msf 6.7%

16.6 msf 10.8%

15.2 msf 9.9%

7.4 msf 4.8%

5.2 msf 3.4% 9.4 msf

6.1% 5.0 msf

3.3%

Puerto Rico

Brazil

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The Downfall – What happened to REITs?

1. Capital Markets effectively shut down – Risk Re-priced

- No access to equity and debt – Fear and Irrationality

- Inability to refinance upcoming debt maturities

- Inability to finance transactions

- No way to fuel growth / returns

2. Declining Fundamentals - Consumer staying home

- Declining Occupancy – Weak tenants go bankrupt

- Linens N Things, Circuit City, Steve & Barry’s

- Declining NOI growth and Leasing spreads

= Declining

1. Asset Values

2. REIT Stock Prices

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The Downfall

2008 Price Performance - DDR vs. REIT Peers

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

DDR RMZ

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The Solution: Recapitalize the Balance Sheet

2009 Sources of Capital Amt. (mil.)Sell Assets $440Cut Dividend $240TALF CMBS Debt 1 $400TALF CMBS Debt 2 $210Unsecured Bonds $250Private Equity $110Public Equity $150Total $1,800

2009 Uses of Capital Amt. (mil.)Debt Repurchases $1,000TALF CMBS Debt I $155TALF CMBS Debt II $110Near-Term Mortgage Debt $535Total $1,800

Perpetual Preferred Stock$555.0

8%

Variable-Rate Revolving Credit and Term Debt

$1,369.520%

Fixed-Rate Revolving Credit and Term Debt

$600.09%

Construction Financing$167.3

2%

Common Shares Equity $751.9

11%

Senior Convertible Notes$536.0

8%

Fixed-Rate Unsecured Debt$1,285.2

19% Mortgage Debt$1,606.7

23%

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#1 – Term Asset-Backed Loan Facilities (TALF)

TALF Underwriting: CMBS Pool 1 CMBS Underwriting: 2005 - 2007

NOI (Current) $65,000,000 NOI (Pro Forma) $68,250,000Cap Rate 8.50% Cap Rate 6.00%Asset Value of Pool $764,706,000 Asset Value of Pool $1,137,500,000Loan to Value 50% Loan to Value 75%Proceeds to DDR $382,353,000 Proceeds to DDR $853,125,000

• Investors borrow from the Fed, then lend to REITs

• Lower borrowing rate than other sources of debt capital

• Loan secured by first mortgage in a cross-collateralized pool of assets

• Functions as a catalyst to restart the securitized lending market (CMBS)

• More scrutinized standards for ratings

• Conservative underwriting vs. Dominance of speculation ($600B ’05 – ’07)

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#2: Repurchase Bonds at Discounts to Par

Note: $227 million of our January 2009 notes were repaid at par in January

Bonds Outstanding

$0

$100

$200

$300

$400

$500

$600

$700

in m

illi

on

s

3Q08 3Q09

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Investors recognizing progress

2009 YTD Price Performance - DDR vs. REIT Peers

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

DDR RMZ

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The Future of Commercial Real Estate

The “New Normal” – Deep Recession ≠ Strong Recovery- Unemployment: +/- 10% (CRE / Unemployment – Lagging Indicators)- Savings Rate: “Paradox of Thrift” = Saving $ generates less economic activity- Government: Privatize Profits, Socialize Losses, Printing Prosperity?- Rational Credit Markets / Subdued Risk Appetite

REIT Recapitaliztion – “Re IPO”- Equity Raised - $17 billion- Debt Raised - $9 billion- REITs as Fixed Income or Total Return?

Opportunity: “Dry Powder”- Money waiting on the sidelines for trough valuations and distressed operators

Weed out bad retailers- Focus on credit quality and profit margin

Fundamentals - New development at historic lows; opportunity for absorption of 2005-2007 supply- Long term leases- Resiliance of consumer

Industry talent gap

- Entry level jobs extremely difficult - Tangible product- Opportunity to work in multi-dimensional sector with little peer competition- Risk-perspective