10. EQUITY

The following table summarizes the changes in equity since December 31, 2010 (in millions):


	Developers Diversified Realty Corporation Equity
									Accumulated
									Distributions						Accumulated
									in Excess of			Deferred			Other			Treasury			Non-
	Preferred			Common		Paid-in			Net Income			Compensation			Comprehensive			Stock at			Controlling
	Shares			Shares		Capital			(Loss)			Obligation			Income (Loss)			Cost			Interests			Total
Balance, December 31, 2010	$	555.0		$	25.6	$	3,869.0		$	(1,378.3	)	$	14.3		$	25.6		$	(14.6	)	$	38.1		$	3,134.7
Issuance of common shares related to the exercise of stock options, dividend reinvestment plan and director compensation							0.7												0.2						0.9
Issuance of common shares related to exercise of warrants					1.0		133.3																		134.3
Issuance of common shares for cash offering					1.0		128.9																		129.9
Contributions from non-controlling interests																						0.2			0.2
Issuance of restricted stock					0.1		(2.3	)					0.2						2.2						0.2
Vesting of restricted stock							1.7						(1.9	)					0.1						(0.1	)
Stock-based compensation expense							2.7																		2.7
Redemption of preferred shares		(180.0	)				6.4			(6.4	)														(180.0	)
Dividends declared-common shares										(21.7	)														(21.7	)
Dividends declared-preferred shares										(18.3	)														(18.3	)
Distributions to non-controlling interests																						(1.3	)		(1.3	)
Comprehensive income:
Net income										21.9												0.2			22.1
Other comprehensive (loss) income:
Settlement/change in fair value of interest rate contracts																(2.8	)								(2.8	)
Foreign currency translation																11.6						1.3			12.9

Comprehensive income		—			—		—			21.9			—			8.8			—			1.5			32.2

Balance, June 30, 2011	$	375.0		$	27.7	$	4,140.4		$	(1,402.8	)	$	12.6		$	34.4		$	(12.1	)	$	38.5		$	3,213.7

Common Shares and Redemption of Preferred Shares

In March 2011, Mr. Alexander Otto and certain members of his family (the “Otto Family”) exercised their warrants for 10 million common shares for cash proceeds of $60 million. In addition, in March 2011, the Company entered into a forward sale agreement to sell an aggregate of 9.5 million of its common shares for net proceeds aggregating $130.2 million, or $13.71 per share, which settled in April 2011.

In April 2011, the Company redeemed all of its outstanding shares of 8.0% Class G cumulative redeemable preferred shares at a redemption price of $25.105556 per Class G depositary share (the sum of $25.00 per share and dividends per share of $0.105556 prorated to the redemption date). The Company recorded a charge of approximately $6.4 million to net loss available to common shareholders in the second quarter of 2011 related to the write-off of the Class G preferred shares’ original issuance costs.

Dividends

Common share dividends declared were $0.04 and $0.08 per share, respectively, for the three- and six-month periods ended June 30, 2011, which were paid in cash. Common share dividends declared were $0.02 and $0.04 per share, respectively, for the three- and six-month periods ended June 30, 2010, which were paid in cash.

Deferred Obligations

Certain officers elected to have their deferred compensation distributed in 2011, which resulted in a reduction of the deferred obligation and corresponding increase to paid-in capital of approximately $2.2 million.

Equity Derivative Instruments — Otto Transaction

In February 2009, the Company entered into a stock purchase agreement with the Otto Family that provided for the issuance of warrants to purchase up to 10.0 million common shares with an exercise price of $6.00 per share to members of the Otto Family. In March 2011, the Otto Family notified the Company regarding its intent to exercise the warrants. As discussed above, all of the warrants were exercised in March 2011 for cash at $6.00 per common share. The exercise price of the warrants was subject to downward adjustment if the weighted average purchase price of all additional common shares sold, as defined, from the date of issuance of the applicable warrant was less than $6.00 per share (herein referred to as the “Downward Price Protection Provisions”).

The Downward Price Protection Provisions described above resulted in the warrants being required to be recorded at fair value as of the shareholder approval date of the Stock Purchase Agreement of April 9, 2009, and marked-to-market through earnings as of each balance sheet date thereafter until the exercise date of March 18, 2011. These equity instruments were issued as part of the Company’s overall deleveraging strategy and were not issued in connection with any speculative trading activity or to mitigate any market risks.

The fair value of the Company’s equity derivative instruments (warrants) were classified on the Company’s balance sheet as equity derivative liability-affiliate and had a fair value of $74.3 million at March 18, 2011, the exercise date, which was reclassified to paid-in capital and aggregated with the cash proceeds in the presentation above.

The effect of the Company’s equity derivative instruments on net income (loss) is as follows (in millions):

Three-Month Periods

Six-Month Periods

Derivatives not

Ended June 30,

Designated

Income Statement

2011

2010

2011

2010

as Hedging Instruments

Location

Gain (Loss)

Warrants

Gain (loss) on equity derivative instruments

—

21.5

21.9

(3.3

)

Measurement of Fair Value — Equity Derivative Instruments Valued on a Recurring Basis

The valuation of these instruments was determined using an option pricing model that considered all relevant assumptions including the Downward Price Protection Provisions. The two key unobservable input assumptions included in the valuation of the warrants were the volatility and dividend yield. Both measures were susceptible to change over time given the impact of movements in the Company’s common share price on each. The dividend yield assumptions used ranged from 3.0% - 3.2% in the first quarter of 2011 and 3.1% — 4.2% in the first six months of 2010. Since the initial valuation date, the Company used historical volatility assumptions to determine the estimate of fair value of the five-year warrants. The Company believed that the long-term historic volatility better represented the long-term future volatility and was more consistent with how an investor would view the value of these securities. The Company continually reassessed these assumptions and reviewed the assumptions again in March 2011 upon notification from the Otto Family regarding their intent to exercise the warrants. The Company determined that an implied volatility assumption was more representative of how a market participant would value the instruments given the shorter term nature of the warrants. The volatility assumptions used were 36.6% in the first quarter of 2011 and 78.3% in the first six months of 2010. The Company determined that the warrants fell within Level 3 of the fair value hierarchy due to the volatility and dividend yield assumptions used in the overall valuation.

The table below presents a reconciliation of the beginning and ending balances of the equity derivative instruments that were included in other liabilities at December 31, 2010 and having fair value measurements based on significant unobservable inputs (Level 3) (in millions):


	Equity
	Derivative
	Instruments —
	Liability
Balance of Level 3 at December 31, 2010	$	96.2
Unrealized gain		(21.9	)
Transfer out of liability to paid-in capital		(74.3	)

Balance of Level 3 at June 30, 2011	$	—