UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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

For the quarterly period ended September 30, 2004

OR

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

For the transition period from ________ to ________

DEVELOPERS DIVERSIFIED REALTY CORPORATION

3300 Enterprise Parkway, Beachwood, Ohio 44122

(216) 755-5500

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 [  ]

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 [  ]

As of November 3, 2004, the registrant had 102,366,264 outstanding common shares, without par value.

-1-

PART I
FINANCIAL INFORMATION

-2-

DEVELOPERS DIVERSIFIED REALTY CORPORATION

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

-3-

DEVELOPERS DIVERSIFIED REALTY CORPORATION

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

-4-

DEVELOPERS DIVERSIFIED REALTY CORPORATION

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

-5-

DEVELOPERS DIVERSIFIED REALTY CORPORATION

Supplemental disclosure of non-cash investing and financing activities:

For the nine months ended September 30, 2004, in conjunction with the acquisition of 92 assets, the Company assumed mortgage debt at a fair value of approximately $475.0 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 September 30, 2004, dividends payable were $59.1 million. In 2004, in conjunction with stock for stock option exercises, the Company recorded $1.9 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 nine months ended September 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 $0.2 million, which represents the fair value of the Company’s fixed rate interest rate swaps at September 30, 2004. Included in other assets and debt is approximately $1.7 million, which represents the fair value of the Company’s reverse interest rate swaps at September 30, 2004. The foregoing transactions did not provide for or require the use of cash for the nine month period ended September 30, 2004.

-6-

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

     For the nine months ended September 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 $22.0 million. At September 30, 2003, dividends payable were $38.7 million. In 2003, in conjunction with stock for stock option exercises, the Company recorded $20.9 million to common stock and paid in capital, $29.5 million to treasury stock and $8.3 million to deferred obligation. The deferred obligation represents the portion of the common shares issued upon exercise that were not currently issued but rather deferred pursuant to a deferral plan for which the company maintains a separate trust. Other liabilities include approximately $0.8 million, which represents the fair value of the Company’s fixed rate interest rate swaps. Included in other assets and debt is approximately $6.7 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.

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

-7-

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 nine months ended September 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.

-8-

New Accounting Standards

FIN 46

     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 September 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. At September 30, 2004, this joint venture had advances payable to DDR of approximately $9.0 million with total real estate of $32.0 million and total debt of approximately $19.9 million, which is secured by the real estate assets of this entity and is non-recourse to the Company. 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 September 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.

-9-

Service Merchandise Joint Venture

     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. At September 30, 2004 this joint venture currently holds 66 fee simple, leasehold and ground lease interests previously owned by the Service Merchandise Company, Inc., including designation rights to 4 assets for which it has not obtained final title through the bankruptcy court. In total, these assets are located in 26 states across the United States. The VIE has total assets and total mortgage debt of approximately $174.9 million and $67.3 million, respectively, at September 30, 2004 and a note payable to DDR of approximately $14.0 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 $24.3 million, primarily representing the net carrying value of the Company’s investment in and advances to this entity as of September 30, 2004. However, the Company expects to recover the recorded amount of its investment in this entity.

MDT Joint Venture and Related Entities

     The Company earns property management, acquisition and financing fees from a VIE in which the Company has an 11.75% economic interest. The Company earns asset management and performance fees from a related joint venture (“VIE Manager”), in which the Company has a 50% ownership, and serves as the managing member for the VIE. The VIE, formed in November 2003, originally acquired four shopping centers from the Company and seven shopping centers held through joint ventures of the Company. At the date of formation, the entity was not determined to be a VIE and the Company accounted for its interest in this joint venture using the equity method of accounting.

     In May 2004, the joint venture acquired an additional 22 retail properties, eight of which were purchased from the Company, which required a reconsideration of the entity’s VIE status. Upon reconsideration, the entity was determined to be a VIE as a result of material master lease agreements for vacant spaces held with the acquired properties’ former owners. However, the Company was not determined to be the primary beneficiary of the VIE and the Company continues to account for its investment in the VIE using the equity method of accounting.

     The financial statements of the VIE as of September 30, 2004 and for the period ended September 30, 2004 are included as part of the combined financial statements in Note 2. 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 $89.3 million, primarily representing the aggregate net carrying value of the Company’s investments in and advances to the VIE and the VIE Manager as of September 30, 2004. However, the Company expects to recover the recorded amount of its investment in these entities.

-10-

SAB 104

     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.

EITF Issue 03-06

     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.

Stock Based Compensation

     In October 2004, the FASB delayed the effective date of its proposed standard, “Share-Based Payment.” Public companies with calendar year-ends would be required to adopt the provisions of the standard effective for periods beginning after June 15, 2005, rather than January 1, 2005 as originally proposed. The delay comes at the request of several constituents, including the staff of the Securities and Exchange Commission. The Company is currently evaluating the effects of this proposed new standard.

Comprehensive Income

     Comprehensive income (in thousands) for the three month periods ended September 30, 2004 and 2003 was $44,170 and $42,179, respectively. Comprehensive income (in thousands) for the nine month periods ended September 30, 2004 and 2003 was $182,628 and $148,427, 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 for the three months ended September 30, 2004 and 2003, and $4.4 million and $4.0 million for the nine months ended September 30, 2004 and 2003, respectively (in thousands, except per share amounts).

-11-

2. EQUITY INVESTMENTS IN JOINT VENTURES

     At September 30, 2004 and December 31, 2003, the Company had ownership interests in various joint ventures, which owned 74 and 52 operating shopping center properties, respectively, and 66 and 75 shopping center sites, respectively, formerly owned by Service Merchandise Company, Inc.

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

-12-

*

For the three month periods ended September 30, 2004 and 2003, the difference between the $6.1 million and $7.1 million, respectively, of the Company’s proportionate share of net income reflected above and $5.3 million and $6.9 million, respectively, of equity in net income of joint ventures reflected in the Company’s condensed consolidated statements of operations is attributable to additional depreciation associated with basis differentials and differences in gain (loss) on sale of certain asset due to the basis differentials. For the nine month periods ended September 30, 2004 and 2003, the difference between the $31.4 million and $24.7 million, respectively, of the Company’s proportionate share of net income reflected above and $30.5 million and $23.7 million, respectively, of equity in net income of joint ventures reflected in the Company’s condensed consolidated statements of operations is attributable to additional depreciation associated with basis differentials and differences in gain (loss) on sale of certain assets due to the basis differentials. 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 cost of the net assets of the joint venture. Basis differentials also occur when the Company acquires assets from joint ventures or contributes assets to joint ventures.

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

-13-

MDT Joint Venture

     In May 2004, MDT Joint Venture acquired an indirect ownership interest in 23 retail properties, which consists of over 5.6 million square feet of GLA. The aggregate purchase price of the properties was approximately $538.0 million. Eight of the properties acquired by MDT Joint Venture were owned by the Company and one of the properties was held by the Company through a joint venture. Fourteen of the properties acquired by MDT Joint Venture were owned by Benderson Development Company, Inc. and related entities (“Benderson”). The Company has an effective ownership interest of 14.5% in MDT Joint Venture, which was formed in November 2003. The joint venture owned 33 and 11 operating shopping center properties, at September 30, 2004 and December 31, 2003, respectively.

Coventry II

     In July 2004, the Company, through its joint venture with Coventry II, acquired an effective 10% interest in a development partnership with David Berndt Interests, Inc. to develop a new shopping center in San Antonio, Texas, known as Westover Marketplace. The joint venture partnership acquired approximately 63 acres of land for $10.6 million and sold approximately 16 acres for $2.5 million to Target. The Company’s equity interest in this joint venture is approximately $0.8 million at September 30, 2004.

     In the first quarter of 2004, the Company, through its joint venture with Coventry II, acquired a 20% interest in Totem Lakes Mall, a 290,000 square foot shopping center in Suburban Seattle, Washington. The joint venture acquired the shopping center for approximately $37.0 million. The Company’s equity interest in this joint venture is approximately $2.3 million at September 30, 2004. The Company through another joint venture with Coventry II acquired a 20% interest in Phoenix Spectrum Mall, a 1,145,000 square foot shopping center in Phoenix, Arizona, for approximately $46.5 million. The Company’s equity interest in this joint venture is approximately $1.5 million at September 30, 2004.

Prudential Joint Ventures

     In September 2004, one of the Company’s joint ventures with Prudential Real Estate Investors (“PREI”) sold a portion of the CityPlace shopping center in Long Beach, California for approximately $16.6 million. The portion that was sold was approximately 58,100 square feet of GLA. The joint venture recorded an aggregate merchant build gain of $4.6 million of which the Company’s net share is approximately $0.6 million.

     In July 2004, one of the Company’s equity affiliates, through a joint venture with PREI, purchased its development partner’s 50% interest, at a newly completed shopping center property located in Austin, Texas for approximately $4.9 million.

     In January 2004, one of the Company’s RVIP joint ventures sold a portion of a shopping center in Puente Hills, California, which represented approximately 300,000 square feet of GLA, for approximately $33.0 million and recognized a gain of approximately $4.9 million of which the Company’s proportionate share was approximately $0.7 million.

     In January 2004, one of the Company’s equity affiliates through a joint venture with PREI, purchased the remaining 50% interest from its development partner at a shopping center property located in Deer Park, Illinois for approximately $5.4 million.

Other Joint Ventures

     In March 2004, the Company acquired its joint venture partner’s 50% interest in a 248,000 square foot shopping center located in Littleton, Colorado. The Company’s purchase price, net of 50% of the mortgage debt assumed of $23.5 million, was approximately $6.3 million for the 50% equity interest.

-14-

     In January 2004, a joint venture in which the Company owns a 35% interest, sold a 320,000 square foot shopping center property located in San Antonio, Texas for approximately $59.1 million and recognized a gain of $19.1 million, of which the Company’s proportionate share was approximately $6.7 million.

Adoption of FIN 46 (Note 1):

     Pursuant to the adoption of FIN 46, the following entities were identified as variable interest entities and consolidated into the consolidated balance sheet and consolidated statement of operations of the Company at January 1, 2004. These five properties had aggregate assets, advances to DDR, mortgage debt and other liabilities of approximately $30.5 million, $9.7 million, $20.0 million and $0.2 million, respectively, at December 31, 2003. These joint ventures are identified as follows:

•

Four joint venture interests which own developable land located in Round Rock, Texas; Opelika, Alabama; Jackson, Mississippi; and Monroe, Louisiana. The Company owns a 50%, 11%, 50% and 50% interest in these joint ventures, respectively;

•

A 50% interest in an operating shopping center property located in Martinsville, Virginia.

     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 the 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.

3. MERGER, ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION

     During the first quarter of 2003, the Company’s and JDN’s shareholders approved a definitive merger agreement pursuant to which JDN shareholders received 0.518 common shares of DDR in exchange for each share of JDN common stock which closed on March 13, 2003. The Company issued 18.0 million common shares valued at $21.22 per share based upon the average of the closing prices of DDR common shares between October 2, 2002 and October 8, 2002, the period immediately prior to and subsequent to the announcement of the merger. The transaction initially valued JDN at approximately $1.1 billion, which included approximately $606.2 million of assumed debt at fair market value and $50 million of voting preferred shares. In the opinion of management, the $50 million of preferred shares represented fair value. These preferred shares were redeemed in September 2003. Through this merger, DDR acquired 102 retail assets aggregating 23 million square feet including 16 development properties comprising approximately six million square feet of total GLA. Additionally, DDR acquired a development pipeline of several properties. Included in the assets acquired are the land, building and tenant improvements associated with the underlying real estate. The other asset

-15-

allocation relates primarily to the value associated with in-place leases and tenant relationships of the properties. The Company entered into the merger to acquire a large portfolio of assets. The revenues and expenses relating to the JDN properties are included in DDR’s historical results of operations from the date of the merger, March 13, 2003.

     In addition, the Company acquired four shopping centers in 2003 or interests therein aggregating 1.7 million square feet for an aggregate purchase price of approximately $120 million.

     In March 2004, the Company announced that it entered into an agreement to purchase interests in 110 retail real estate assets with approximately 18.8 million square feet of GLA, from Benderson. The purchase price of the assets, including associated expenses, is expected to be approximately $2.3 billion, less assumed debt and the value of a 2% equity interest of approximately $16.2 million that Benderson will retain as set forth below. Benderson transferred or will transfer a 100% ownership in certain assets or entities owning certain assets. The remaining assets are held by a joint venture in which the Company holds a 98.0% interest and Benderson holds a 2.0% interest.

     Through September 30, 2004, the Company completed the purchase of 104 properties, including 14 purchased directly by MDT Joint Venture (Note 2) and 52 held by the joint venture with Benderson.

     With respect to the joint venture with Benderson, after 20 months from the initial acquisition, Benderson will have the right to cause the joint venture to redeem its 2.0% interest for a price equal to the agreed value of the interest on the closing date of approximately $16.2 million, increased or decreased to reflect changes in the price of the Company’s common shares during the period in which Benderson holds the 2.0% interest, less certain distributions Benderson receives from the joint venture. If Benderson exercises the foregoing right, the Company will have the right to satisfy the joint venture’s obligation by purchasing Benderson’s interest for cash or by issuing DDR common shares. If Benderson does not elect to exercise its right to have its interest redeemed, the Company will have the right after 30 months to purchase that 2.0% interest for cash or common shares for a price determined in the same manner as if Benderson had elected to cause such redemption.

     The Company funded the transaction through a combination of assumed debt, new debt financing of approximately $450 million, net proceeds of approximately $164.5 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 and asset transfers to MDT Joint Venture which generated net proceeds of approximately $194.3 million (Note 2). With respect to assumed debt, the fair value of existing indebtedness assumed upon closing is approximately $385 million, which includes an adjustment of approximately $30 million to fair value, based on rates for debt with similar terms and remaining maturities at the acquisition date. DDR has engaged an appraiser to perform valuations of the real estate and certain other assets. As a result, the purchase price allocation recorded as of September 30, 2004 is preliminary and subject to change. The revenues and expense relating to assets and interests acquired as of September 30, 2004 are included in DDR’s historical results of operations from various acquisition dates, which range from May 14, 2004 through August 2004.

-16-

     Benderson has also entered into a five-year master lease for vacant space that is either covered by a letter of intent as of the closing date or a new lease with respect to which the tenant has not begun to pay rent as of the closing date. During the five-year master lease, Benderson has agreed to pay the rent for such vacant space, until each applicable tenant’s rent commencement date. The Company recorded the estimated master lease receivable as part of the preliminary purchase price allocation.

     The Benderson assets are located in eleven states, with over 80.0% of the GLA in New York and New Jersey. The Benderson assets were approximately 94.6% leased, including master lease units, at June 30, 2004, and the largest tenants, based on revenues, include Tops Markets (Ahold USA), Wal-Mart/Sam’s Club, Home Depot and Dick’s Sporting Goods. Prior to the transaction, the Company owned less than 100,000 square feet of GLA in New York and approximately 2.7 million square feet of GLA in New Jersey. The Company entered into this transaction to acquire the largest, privately owned retail shopping center portfolio in the country in markets where the Company previously did not have a strong presence.

     The following unaudited supplemental pro forma operating data is presented for the three and nine month periods ended September 30, 2003 as if the merger with JDN, the acquisition of two properties or partnership interests and the acquisition of assets from Benderson and related financing were completed on January 1, 2003. The following unaudited supplemental pro forma operating data is presented for the three and nine month periods ended September 30, 2004 as if the acquisition of assets from Benderson and related financings were completed on January 1, 2003. Pro forma amounts include transaction costs, general and administrative expenses, losses on investments and settlement costs JDN reported in its historical results of approximately $19.3 million for the nine months ended September 30, 2003, which management believes to be non-recurring.

     The unaudited supplemental pro forma operating data is not necessarily indicative of what the actual results of operations of the Company would have been assuming the transactions had been completed as set forth above, nor do they purport to represent the Company’s results of operations for future periods. Certain of the properties were in the lease-up, therefore, the 2003 operating results are not reflective of the future operations of the properties in the aggregate. The Company accounted for the acquisition of assets utilizing the purchase method of accounting. The pro forma adjustments relating to the Benderson transaction are based on the Company’s preliminary purchase price allocation and certain estimates. The Company engaged an appraiser to perform valuations of the real estate and certain other assets. As a result, the purchase price allocation is preliminary and subject to change. Therefore, the amounts included in the pro forma adjustments are preliminary and could change. There can be no assurance that the final adjustments will not be materially different from those included herein.

-17-

4. NOTES RECEIVABLE

     In May 2004, the Company acquired its joint venture partnership’s effective interest in tax increment financing bonds (“TIF Bonds”) from the City of Merriam (the “City”) which have a balance plus accrued interest of $8.4 million at September 30, 2004. The initial proceeds of the bonds were used by the City to purchase certain properties, which were later utilized as the site of a development property. Interest and principal of the TIF Bonds are repaid through incremental real estate taxes generated on the development project. TIF Bonds are owned by a Grantor Trust. The Grantor Trust makes distributions to beneficiaries of the trust who owns interests in the trust as evidenced by “certificates.” The TIF Bonds bear interest at a fixed rate of 6.9%. Interest and principal are payable semi-annually. The TIF Bonds mature on February 1, 2016 with all unpaid principal due at that date.

-18-

5. OTHER ASSETS

Other assets consist of the following (in thousands):

(1)

Includes straight line rent receivables, net, of $26.1 million and $21.6 million at September 30, 2004 and December 31, 2003 respectively and approximately $13.4 million related to master lease obligation from Benderson at September 30, 2004.

(2)

Includes approximately $32.8 million of intangible assets assigned based upon a preliminary purchase price allocation in conjunction with the acquisition of assets from Benderson (Note 3). These amounts are subject to change.

(3)

The Company recorded amortization expense of $1.7 million for the nine months ended September 30, 2004 and none in 2003 related to these intangible assets.

6. REVOLVING CREDIT FACILITIES

     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 Company expanded the available borrowing capacity to $1.0 billion in July 2004. The facility has a maturity date of May 2006. The Unsecured Credit Facility includes a competitive bid option for up to 50% of the facility amount. The Company’s borrowings under this facility bear interest at variable rates based on the prime rate or LIBOR plus a specified spread (0.8% at September 30, 2004), at the Company’s election, depending on the Company’s long term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. 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 September 30, 2004, $550 million was outstanding under this facility with a weighted average interest rate, excluding the effects of any interest rate swaps, of 2.5%.

     The Company also maintains two secured revolving credit facilities with National City Bank of $30 million and $25 million, respectively. The $30 million credit facility is secured by certain partnership investments and has a maturity date of June 2006, and the $25 million credit facility is a development construction facility secured by the applicable development project(s) and has a maturity date of June 2005. The Company maintains the right to reduce the $30 million facility to $20 million and to convert the borrowings to an unsecured revolving credit facility. Borrowings under these

-19-

facilities bear interest at variable rates based on the prime rate or LIBOR plus a specified spread (0.8% in relation to the $30 million facility and 1.00% to 1.25% depending on borrowings outstanding in relation to the $25 million facility at September 30, 2004) depending on the Company’s long term senior unsecured debt rating from Standard and Poor’s and Moody’s Investors Service. At September 30, 2004, $33.2 million was outstanding under these facilities with a weighted average interest rate of 2.9%.

7. TERM LOAN

     In connection with the financing related to the acquisition of assets from Benderson, the Company entered into a $200 million unsecured term loan (“Term Loan”) with JP Morgan and several other lenders. The Term Loan has a maturity date of May 2007 and bears interest at variable rates based on a spread over LIBOR of 0.75%. The interest rate on the Term Loan at September 30, 2004 was 2.6%.

8. UNSECURED NOTES

     In April 2004, the Company issued $250 million, 5.25% seven-year notes through a private placement. Net proceeds from this offering of approximately $248.2 million were used to partially fund the Benderson transaction.

     In January 2004, the Company issued $275 million of five-year unsecured senior notes with a coupon rate of 3.875%. Net proceeds from this offering of approximately $272.2 million were used to repay approximately $104 million of variable rate mortgage debt and $150 million of the Company’s unsecured term debt associated with the JDN merger, with the balance being used to repay revolving credit facilities.

9. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swaps:

     In June 2003, the Company entered into a $30 million interest rate swap for a two year term effectively converting floating rate debt of a secured construction loan into fixed rate debt with an effective interest rate of 2.9%. In January 2003, the Company entered into two interest rate swaps, $50 million for a 1.5 year term and $50 million for a 2 year term, effectively converting floating rate debt under the Unsecured Credit Facility into fixed rate debt with an effective weighted average interest rate of 2.865%. At September 30, 2004, $50 million remained outstanding with an effective interest rate of 2.82%. In March 2002, the Company entered into two reverse interest rate swap agreements, $40 million for a 2.75 year term and $60 million for a 5 year term, effectively converting a portion of the outstanding fixed rate debt under the Company’s fixed rate senior notes to a variable interest rate of six month LIBOR.

     All derivatives, which have primarily been limited to interest rate swaps designated as cash flow hedges, are recognized on the balance sheet at their fair value. On the date that the Company enters into an interest rate swap, it designates the derivative as a hedge against the variability of cash flows that are to be paid in connection with a recognized or forecasted liability. 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.

-20-

     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 qualifies 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 (or in the fair value) 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 purchases interest rate swaps designated as cash flow hedges to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The Company purchases interest rate swaps designated as fair-value hedges to minimize significant unplanned fluctuations in the fair value of its fixed rate debt that are caused by interest rate volatility. The Company generally does not utilize these arrangements for trading or speculative purposes. 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 meet all of their payment obligations. To mitigate this exposure, the Company purchases its interest rate swaps from major financial institutions.

Cash Flow Hedges

     As of September 30, 2004 and December 31, 2003, the aggregate fair value of the Company’s interest rate swaps was an asset of $0.2 million and a liability of $0.4 million, respectively, which is included in other liabilities in the condensed consolidated balance sheet. For the nine month periods ended September 30, 2004 and 2003, 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 twelve months it will reflect as an increase to earnings $0.2 million of the amount recorded in accumulated other comprehensive loss. The fair value of the interest rate swaps is based upon the estimated amounts the Company would receive or pay to terminate the contract at the reporting date and is determined using interest rate market pricing models.

Fair Value Hedges

     As of September 30, 2004 and December 31, 2003, the aggregate fair value of the Company’s reverse interest rate swaps was an asset of $1.7 million and $5.6 million, respectively, which is

-21-

included in other assets, with the offsetting liability in fixed rate notes in the condensed consolidated balance sheet. For the nine months ended September 30, 2004, as the critical terms of the interest rate swaps and the hedged items are the same, no ineffectiveness was recorded in the condensed consolidated statements of operations. The fair value of these reverse interest rate swaps is based upon the estimated amounts the Company would receive or pay to terminate the contract at the reporting date and is determined using interest rate market pricing models.

Joint Venture Derivative Instruments

     At September 30, 2004, the Company’s joint ventures had two interest rate swaps aggregating $75 million, converting a portion of the variable rate mortgage debt to a fixed rate of 5.4%. At December 31, 2003, the Company’s joint ventures had two interest rate swaps aggregating $93 million, converting a portion of the variable rate mortgage debt to a weighted average fixed rate of approximately 5.6% and an interest rate cap agreement, which matured in March 2004 and had a notional amount of $175 million, and a strike price of 4.0%. The aggregate fair value of these instruments at September 30, 2004 was not significant. The aggregate fair value of these instruments at December 31, 2003 was a liability of $0.7 million, of which the Company’s proportionate share was a liability of $0.2 million, respectively.

     In November 2003, in connection with the formation of MDT Joint Venture, the venture entered into a fixed rate interest swap, which carries a notional amount of $9.1 million, and converted variable rate debt to a fixed rate of 3.5%. This swap is not an effective hedge at September 30, 2004. The amount of hedge ineffectiveness was not material to the Company. This swap is marked to market with the adjustments flowing through MDT Joint Venture’s statement. This contract was entered into pursuant to MDT’s financial requirements.

10. CONTINGENCIES

     In January 2004, the appellate court denied the Company’s appeal of a judgment in the amount of $8.0 million, plus interest and attorneys’ fees, against the Company and two other defendants, in connection with a verdict reached in a civil trial involving a claim filed by a movie theater relating to a property owned by the Company. After consultation with legal counsel, the Company determined that it would not appeal the appellate court’s ruling. The Company accrued a liability of $9.2 million, representing the judgment plus accrued interest and legal costs, at December 31, 2003. In February 2004, the Company paid $8.7 million, representing the amount of the judgment and accrued interest. In July 2004, the Company settled and paid approximately $0.2 million of the remaining amounts due for the attorney’s fees. Based on the obligations assumed by the Company in connection with the acquisition of the property and the Company’s policy to indemnify officers and employees for actions taken during the course of company business, the judgment was not apportioned among the defendants (Note 14).

     The Company and its subsidiaries are also subject to other legal proceedings. All such proceedings, 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 liability 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.

-22-

11. SHAREHOLDERS’ EQUITY AND OPERATING PARTNERSHIP UNITS

     The following table summarizes the changes in shareholders’ equity since December 31, 2003 (in thousands):

     Common share dividends declared, per share, were $0.51 and $0.41 for the three month periods ended September 30, 2004 and 2003, respectively. Common share dividends declared, per share, were $1.43 and $1.23 for the nine month periods ended September 30, 2004 and 2003, respectively.

     In May 2004, the Company issued and sold 15,000,000 of DDR Common shares. Net proceeds from the sale of the common shares were approximately $491 million.

     In May 2004, the Company issued and sold 6,800,000 depository shares, each representing 1/20 of a share of 7.50% Class I Cumulative Redeemable Preferred shares. Net proceeds from the sale of the depository shares were approximately $164.0 million.

     Proceeds from these offerings were used to partially fund the Benderson transaction.

     In 2004, certain officers of the Company completed a stock for stock option exercise and received approximately 0.2 million common shares of stock in exchange for 0.3 million common shares of the Company. In addition, vesting of restricted stock grants approximating 0.1 million shares of common stock of the Company were deferred through the Company’s equity award plan. In connection with these transactions the Company recorded $1.9 million in deferred obligations. The shares associated with the option exercises and restricted stock vesting were deferred into the

-23-

Developers Diversified Realty Corporation Deferred Compensation Plan, a non-qualified compensation plan.

12. OTHER INCOME

     Other income for the three and nine month periods ended September 30, 2004 and 2003 was comprised of the following (in millions):

(1)

Settlement of a call option on March 31, 2003 relating to the MOPPRS debt assumed from JDN, principally arising from an increase in interest rates from the date of acquisition, March 13, 2003, to the date of settlement.

13. DISCONTINUED OPERATIONS

     Included in discontinued operations for the nine month periods ended September 30, 2004 and 2003, are eight properties sold in 2004, aggregating 0.3 million square feet (one of these properties was accounted for under the equity method prior to December 2003), and 13 properties sold in 2003, aggregating 0.9 million square feet. The balance sheet relating to the asset held for sale and operating results relating to assets sold and held for sale are as follows (in thousands):

-24-

14. TRANSACTIONS WITH RELATED PARTIES

     The Company assumed the full liability for the Regal Cinemas judgment (Note 10). The other defendants included a former executive of the Company and a real estate development partnership (the “Partnership”) owned by this individual and the former Chairman of the Board, who was also a significant shareholder and a director of the Company.

     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 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. 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.

     In connection with the settlement, the Chairman of the Board of Directors and Chief Executive Officer of the Company (“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 25.0% in the joint venture. The Company will provide management and administrative services and will receive fees equal to 3.0% of the gross income of each property for which services are provided, but not less than $5,000 per year from each such property. 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.

-25-

15. 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 net income and the number of common shares used in the computations of “basic” EPS, which utilizes the weighted average number of common shares outstanding without regard to dilutive potential common shares, and “diluted” EPS, which includes all such shares. There have been no changes to dilutive securities from those disclosed 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 SFAS 144 – “Accounting for the Impairment or Disposal of Long-Lived Assets” for the year ended December 31, 2003 other than as described below.

16. SEGMENT INFORMATION

     The Company has 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.” Each shopping center and business center is considered a separate operating segment. However, each segment on a stand-alone basis is less than 10% of the revenues, profit or

-26-

loss, and assets of the combined reported operating segments and meets the majority of the aggregation criteria under SFAS 131.

     The shopping center segment consists of 440 shopping centers, including 140 owned through joint ventures (two of which are consolidated by the Company), in 44 states aggregating approximately 73.9 million square feet of Company-owned GLA. These shopping centers range in size from approximately 10,000 square feet to 750,000 square feet of Company-owned GLA. The business center segment consists of 33 business centers in 11 states aggregating approximately 4.0 million square feet of Company-owned GLA. These business centers range in size from approximately 10,000 square feet to 330,000 square feet of Company-owned GLA.

     The table below presents information about the Company’s reportable segments for the three and nine month periods ended September 30, 2004 and 2003.