10-K/A

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

0001193125-14-106856.txt : 20140320 0001193125-14-106856.hdr.sgml : 20140320 20140319201839 ACCESSION NUMBER: 0001193125-14-106856 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20131231 FILED AS OF DATE: 20140320 DATE AS OF CHANGE: 20140319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DDR CORP CENTRAL INDEX KEY: 0000894315 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341723097 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11690 FILM NUMBER: 14705268 BUSINESS ADDRESS: STREET 1: 3300 ENTERPRISE PARKWAY CITY: BEACHWOOD STATE: OH ZIP: 44122 BUSINESS PHONE: 2167555500 MAIL ADDRESS: STREET 1: 3300 ENTERPRISE PARKWAY CITY: BEACHWOOD STATE: OH ZIP: 44122 FORMER COMPANY: FORMER CONFORMED NAME: DEVELOPERS DIVERSIFIED REALTY CORP DATE OF NAME CHANGE: 19940218 10-K/A 1 d693547d10ka.htm 10-K/A 10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

¨	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

DDR Corp.

(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)

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


Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, Par Value $0.10 Per Share		New York Stock Exchange
Depositary Shares, each representing 1/20 of a share of 7.375% Class H Cumulative Redeemable Preferred Shares without Par Value		New York Stock Exchange
Depositary Shares, each representing 1/20 of a share of 6.5% Class J Cumulative Redeemable Preferred Shares without Par Value		New York Stock Exchange
Depositary Shares, each representing 1/20 of a share of 6.25% Class K Cumulative Redeemable Preferred Shares without Par Value		New York Stock Exchange

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

None

(Title of Class)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 28, 2013, was $4.4 billion.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

359,142,581 common shares outstanding as of February 14, 2014

DOCUMENTS INCORPORATED BY REFERENCE

The registrant incorporates by reference in Part III hereof portions of its definitive Proxy Statement for its 2014 Annual Meeting of Shareholders.

EXPLANATORY NOTE

DDR Corp., an Ohio corporation (the “Company”), is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which was originally filed on February 28, 2014 (the “Original Filing”), to amend Item 15 to include the separate financial statements of DDRM Properties LLC, DDRTC Core Retail Fund, LLC and Sonae Sierra Brazil BV SARL, as required under Rule 3-09 of Regulation S-X.

Other than as set forth herein, this Amendment does not affect any other parts of or exhibits to the Original Filing, and those unaffected parts or exhibits are not included in this Amendment. This Amendment continues to speak as of the date of the Original Filing and the Company has not updated the disclosure contained herein to reflect events that have occurred since the filing of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Company’s other filings made with the Securities and Exchange Commission since the filing of the Original Filing, including amendments to those filings, if any.

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

a)	1. Financial Statements

The following documents were filed as a part of the Original Filing:

Report of Independent Registered Public Accounting Firm.

Consolidated Balance Sheets at December 31, 2013 and 2012.

Consolidated Statements of Operations for the three years ended December 31, 2013.

Consolidated Statements of Comprehensive Loss for the three years ended December 31, 2013.

Consolidated Statements of Equity for the three years ended December 31, 2013.

Consolidated Statements of Cash Flows for the three years ended December 31, 2013.

Notes to the Consolidated Financial Statements.

2. Financial Statement Schedules

The following financial statement schedules were filed as part of the Original Filing and should be read in conjunction with the Consolidated Financial Statements of the registrant:

Schedule

II — Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 2013.

III — Real Estate and Accumulated Depreciation at December 31, 2013.

IV — Mortgage Loans on Real Estate at December 31, 2013.

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

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


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

2	2.1	Agreement of Purchase and Sale between the Parties listed on Schedule A attached thereto, as REIT Seller, BRE Pentagon Retail Holding B, LLC, as Homart Seller, JDN Real Estate – Lakeland, L.P., as REIT Buyer, and the Company, as Homart Buyer, dated as of May 15, 2013**	Quarterly Report on Form 10-Q (Filed with the SEC on August 8, 2013; File No. 001-11690)

3	3.1	Third Amended and Restated Articles of Incorporation of the Company	Current Report on Form 8-K (Filed with the SEC on September 13, 2013; File No. 001-11690)

3	3.2	Amended and Restated Code of Regulations of the Company	Current Report on Form 8-K (Filed with the SEC on September 13, 2013; File No. 001-11690)

4	4.1	Specimen Certificate for Common Shares	Annual Report on Form 10-K (Filed with the SEC on February 28, 2012; File No. 001-11690)

4	4.2	Specimen Certificate for 7 3/8% Class H Cumulative Redeemable Preferred Shares	Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690)

4	4.3	Deposit Agreement, dated as of October 26, 2009, by and between the Company and Mellon Investor Services LLC Relating to Depositary Shares Representing 7 3/8% Class H Cumulative Redeemable Preferred Shares (including Specimen Certificate for Depositary Shares)	Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690)

4	4.4	Specimen Certificate for 6.50% Class J Cumulative Redeemable Preferred Shares	Registration Statement on Form 8-A (Filed with the SEC August 1, 2012; File No. 001-11690)

4	4.5	Deposit Agreement, dated as of August 1, 2012, among the Company and Computershare Shareowner Services LLC, as Depositary, and all holders from time to time of depositary shares relating to the Depositary Shares Representing 6.50% Class J Cumulative Redeemable Preferred Shares (including Specimen Certificate for Depositary Shares)	Current Report on Form 8-K (Filed with the SEC on August 1, 2012; File No. 001-11690)

4	4.6	Specimen Certificate for 6.250% Class K Cumulative Redeemable Preferred Shares	Registration Statement on Form 8-A (Filed with the SEC April 8, 2013; File No. 001-11690)

4	4.7	Deposit Agreement, dated as of April 9, 2013, among the Company and Computershare Shareowner Services LLC, as Depositary, and all holders from time to time of depositary shares relating to the Depositary Shares Representing	Current Report on Form 8-K (Filed with the SEC on April 9, 2013; File No. 001-11690)

		6.250% Class K Cumulative Redeemable Preferred Shares (including Specimen Certificate for Depositary Shares)



4	4.8	Indenture, dated as of May 1, 1994, by and between the Company and The Bank of New York (as successor to JP Morgan Chase Bank, N.A., successor to Chemical Bank), as Trustee	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)

4	4.9	Indenture, dated as of May 1, 1994, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (as successor to National City Bank)), as Trustee	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)

4	4.10	First Supplemental Indenture, dated as of May 10, 1995, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)

4	4.11	Second Supplemental Indenture, dated as of July 18, 2003, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Form S-3 Registration No. 333-108361 (Filed with the SEC on August 29, 2003)

4	4.12	Third Supplemental Indenture, dated as of January 23, 2004, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)

4	4.13	Fourth Supplemental Indenture, dated as of April 22, 2004, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Form S-4 Registration No. 333-117034 (Filed with the SEC on June 30, 2004)

4	4.14	Fifth Supplemental Indenture, dated as of April 28, 2005, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Annual Report on Form 10-K (Filed with the SEC on February 21, 2007; File No. 001-11690)

4	4.15	Sixth Supplemental Indenture, dated as of October 7, 2005, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Annual Report on Form 10-K (Filed with the SEC on February 21, 2007; File No. 001-11690)

4	4.16	Seventh Supplemental Indenture, dated as of August 28, 2006, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Current Report on Form 8-K (Filed with the SEC on September 1, 2006; File No. 001-11690)

4	4.17	Eighth Supplemental Indenture, dated as of March 13, 2007, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Current Report on Form 8-K (Filed with the SEC on March 16, 2007; File No. 001-11690)

4	4.18	Ninth Supplemental Indenture, dated as of September 30, 2009, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Form S-3 Registration No. 333-162451 (Filed on October 13, 2009)



4	4.19	Tenth Supplemental Indenture, dated as of March 19, 2010, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Quarterly Report on Form 10-Q (Filed with the SEC on May 7, 2010; File No. 001-11690)

4	4.20	Eleventh Supplemental Indenture, dated as of August 12, 2010, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Quarterly Report on Form 10-Q (Filed with the SEC on November 11, 2010; File No. 001-11690)

4	4.21	Twelfth Supplemental Indenture, dated as of November 5, 2010, by and between the Company and U.S. Bank National, Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Annual Report on Form 10-K (Filed with the SEC on February 28, 2011; File No. 001-11690)

4	4.22	Thirteenth Supplemental Indenture, dated as of March 7, 2011, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Quarterly Report on Form 10-Q (Filed with the SEC on May 9, 2011; File No. 001-11690)

4	4.23	Fourteenth Supplemental Indenture, dated as of June 22, 2012, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Form S-3 Registration No. 333-184221 (Filed with the SEC on October 1, 2012)

4	4.24	Fifteenth Supplemental Indenture, dated as of November 27, 2012, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690)

4	4.25	Sixteenth Supplemental Indenture, dated as of May 23, 2013, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Quarterly Report on Form 10-Q (Filed with the SEC on August 8, 2013; File No. 001-11690)

4	4.26	Seventeenth Supplemental Indenture, dated as of November 26, 2013, by and between the Company and U.S. Bank National Association (as successor to U.S. Bank Trust National Association (successor to National City Bank)), as Trustee	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

4	4.27	Form of Fixed Rate Senior Medium-Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)

4	4.28	Form of Fixed Rate Subordinated Medium-Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)

4	4.29	Form of Floating Rate Subordinated Medium-Term Note	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)

4	4.30	Eighth Amended and Restated Credit Agreement, dated as of October 20, 2010, by and among the Company, DDR PR Ventures LLC, S.E., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent	Current Report on Form 8-K (Filed with the SEC on October 21, 2010; File No. 001-11690)



4	4.31	Amend ment No. 1 to the Eighth Amended and Restated Credit Agreement, dated June 28, 2011, by and among the Company, DDR PR Ventures LLC, S.E., the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent	Current Report on Form 8-K (Filed with the SEC on July 1, 2011; File No. 001-11690)

4	4.32	Amendment No. 2 to the Eight Amended and Restated Credit Agreement, dated January 17, 2013, by and among the Company, DDR PR Ventures LLC, S.E., the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent	Current Report on Form 8-K (Filed with the SEC on January 18, 2013; File No. 001-11690)

4	4.33	Second Amended and Restated Secured Term Loan Agreement, dated June 28, 2011, by and among the Company, DDR PR Ventures LLC, S.E., KeyBank National Association, as Administrative Agent, and the other several banks, financial institutions and other entities from time to time parties to such loan agreement	Current Report on 8-K (Filed with the SEC on July 1, 2011; File No. 001-11690)

4	4.34	First Amendment to the Second Amended and Restated Secured Term Loan Agreement, dated January 17, 2013, by and among the Company, DDR PR Ventures LLC, S.E., KeyBank National Association, as Administrative Agent, and the other several banks, financial institutions and other entities from time to time parties to such loan agreement	Current Report on Form 8-K (Filed with the SEC on January 18, 2013; File No. 001-11690)

10	10.1	Directors’ Deferred Compensation Plan (Amended and Restated as of November 8, 2000)*	Form S-8 Registration No. 333-147270 (Filed with the SEC on November 9, 2007)

10	10.2	DDR Corp. 2005 Directors’ Deferred Compensation Plan (January 1, 2012 Restatement)*	Annual Report on Form 10-K (Filed with the SEC on February 28, 2012; File No. 001-11690)

10	10.3	First Amendment to the DDR Corp. 2005 Directors’ Deferred Compensation Plan (effective November 30, 2012)*	Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690)

10	10.4	Elective Deferred Compensation Plan (Amended and Restated as of January 1, 2004)*	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004; File No. 001-11690)

10	10.5	Developers Diversified Realty Corporation Equity Deferred Compensation Plan, restated as of January 1, 2009*	Annual Report on Form 10-K (Filed with the SEC on February 27, 2009; File No. 001-11690)

10	10.6	Amended and Restated 2002 Developers Diversified Realty Corporation Equity-Based Award Plan (Amended and Restated as of December 31, 2009)*	Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690)

10	10.7	Amended and Restated 2004 Developers Diversified Realty Corporation Equity-Based Award Plan (Amended and Restated as of December 31, 2009)*	Annual Report on Form 10-K (Filed with the SEC on February 26, 2010; File No. 001-11690)



10	10.8	Amended and Restated 2008 Developers Diversified Realty Corporation Equity-Based Award Plan (Amended and Restated as of June 25, 2009)*	Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690)

10	10.9	2012 Equity and Incentive Compensation Plan*	Form S-8 Registration No. 333-181422 (Filed with the SEC on May 15, 2012)

10	10.10	Form Restricted Shares Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690)

10	10.11	Form Restricted Shares Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690)

10	10.12	Form of Restricted Shares Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690)

10	10.13	Form of Incentive Stock Option Grant Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690)

10	10.14	Form of Incentive Stock Option Grant Agreement for Executive Officers (with accelerated vesting upon retirement) under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690)

10	10.15	Form of Non-Qualified Stock Option Grant Agreement for Executive Officers under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690)

10	10.16	Form of Non-Qualified Stock Option Grant Agreement for Executive Officers (with accelerated vesting upon retirement) under the 2004 Developers Diversified Realty Corporation Equity-Based Award Plan*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690)

10	10.17	Form Stock Option Agreement for Incentive Stock Options Grants to Executive Officers*	Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690)

10	10.18	Form Stock Option Agreement for Non-Qualified Stock Option Grants to Executive Officers*	Quarterly Report on Form 10-Q (Filed with the SEC August 7, 2009; File No. 001-11690)

10	10.19	Form Non-Qualified Stock Option Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690)

10	10.20	Form Non-Qualified Stock Option Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690)

10	10.21	Form of Incentive Stock Option Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690)



10	10.22	Form of Incentive Stock Option Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690)

10	10.23	Promotion Grant Agreement, dated January 1, 2010, by and between the Company and Daniel B. Hurwitz*	Quarterly Report on Form 10-Q (Filed with the SEC on May 7, 2010; File No. 001-11690)

10	10.24	Developers Diversified Realty Corporation Value Sharing Equity Program*	Quarterly Report on Form 10-Q (Filed with the SEC on November 9, 2006; File No. 001-11690)

10	10.25	Form of Value Sharing Equity Program Award Shares Agreement*	Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690)

10	10.26	2013 Value Sharing Equity Program*	Annual Report on Form 10-K (Filed with the SEC on March 1, 2013; File No. 001-11690)

10	10.27	Form of 2013 Value Sharing Equity Program Award Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC May 10, 2013; File No. 001-11690)

10	10.28	Amended and Restated Employment Agreement, dated July 29, 2009, by and between the Company and Daniel B. Hurwitz*	Quarterly Report on Form 10-Q (Filed with the SEC on November 6, 2009; File No. 001-11690)

10	10.29	First Amendment to the Amended and Restated Employment Agreement, dated December 31, 2012, by and between the Company and Daniel B. Hurwitz*	Current Report on Form 8-K (Filed with the SEC on January 2, 2013; File No. 001-11690)

10	10.30	Employment Agreement, dated April 12, 2011, by and between the Company and David J. Oakes*	Quarterly Report on Form 10-Q (Filed with the SEC on November 8, 2011; File No. 001-11690)

10	10.31	First Amendment to the Employment Agreement, dated December 31, 2012, by and between the Company and David J. Oakes*	Current Report on Form 8-K (Filed with the SEC on January 2, 2013; File No. 001-11690)

10	10.32	Employment Agreement, dated April 12, 2011, by and between the Company and Paul W. Freddo*	Quarterly Report on Form 10-Q (Filed with the SEC on November 8, 2011; File No. 001-11690)

10	10.33	First Amendment to the Employment Agreement, dated December 31, 2012, by and between the Company and Paul W. Freddo*	Current Report on Form 8-K (Filed with the SEC on January 2, 2013; File No. 001-11690)

10	10.34	Employment Agreement, dated February 29, 2012, by and between the Company and Christa A. Vesy*	Quarterly Report on Form 10-Q (Filed with the SEC May 9, 2012; File No. 001-11690)

10	10.35	First Amendment to the Employment Agreement, dated February 27, 2013, by and between the Company and Christa A. Vesy*	Current Report on Form 8-K (Filed with the SEC on March 4, 2013; File No. 001-11690)



10	10.36	Form of Change in Control Agreement, entered into with certain officers of the Company*	Annual Report on Form 10-K (Filed with the SEC on February 27, 2009; File No. 001-11690)

10	10.37	Form of Director and Officer Indemnification Agreement*	Quarterly Report on Form 10-Q (Filed with the SEC on November 8, 2011; File No. 001-11690)

10	10.38	Form of Medium-Term Note Distribution Agreement	Annual Report on Form 10-K (Filed with the SEC on March 30, 2000; File No. 001-11690)

10	10.39	Program Agreement for Retail Value Investment Program, dated February 11, 1998, by and among Retail Value Management, Ltd., the Company and The Prudential Insurance Company of America	Annual Report on Form 10-K (Filed with the SEC on March 15, 2004; File No. 001-11690)

10	10.40	Investors’ Rights Agreement, dated as of May 11, 2009, by and between the Company and Alexander Otto	Current Report on Form 8-K (Filed with the SEC on May 11, 2009; File No. 001-11690)

10	10.41	Waiver Agreement, dated as of May 11, 2009, by and between the Company and Alexander Otto	Current Report on Form 8-K (Filed with the SEC on May 11, 2009; File No. 001-11690)

21	21.1	List of Subsidiaries	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

23	23.1	Consent of PricewaterhouseCoopers LLP	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

23	23.2	Consent of PricewaterhouseCoopers LLP	Filed herewith

23	23.3	Consent of PricewaterhouseCoopers LLP	Filed herewith

23	23.4	Consent of Deloitte Touche Tohmatsu	Filed herewith

31	31.1	Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	Filed herewith

31	31.2	Certification of principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934	Filed herewith

32	32.1	Certification of chief executive officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350	Filed herewith

32	32.2	Certification of chief financial officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350	Filed herewith

99	99.1	DDRM Properties LLC Consolidated Financial Statements	Filed herewith

99	99.2	DDRTC Core Retail Fund, LLC Consolidated Financial Statements	Filed herewith

99	99.3	Sonae Sierra Brazil BV SARL Consolidated Financial Statements	Filed herewith



101	101.INS	XBRL Instance Document	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

101	101.SCH	XBRL Taxonomy Extension Schema Document	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

101	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

101	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

101	101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

101	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Annual Report on Form 10-K (Filed with the SEC on February 28, 2014; File No. 001-11690)

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

**	Certain immaterial schedules and exhibits to this exhibit have been omitted pursuant to the provisions of Regulation S-K, Item 601(b)(2). A copy of any of the omitted schedules and exhibits will be furnished to the Securities and Exchange Commission upon request.

c)	Financial Statements of Unconsolidated Joint Ventures:

Financial statements of the Company’s unconsolidated joint venture companies, except for DDRM Properties LLC, DDRTC Core Retail Fund, LLC and Sonae Sierra Brazil BV SARL have been omitted because they do not meet the significant subsidiary definition of S-X 210.1-02(w). The financial statements for DDRM Properties LLC, DDRTC Core Retail Fund, LLC and Sonae Sierra Brazil BV SARL are filed with this Amendment.

SIGNATURES

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


DDR Corp.

By:		/s/ Christa A. Vesy
		Christa A. Vesy
		Executive Vice President and Chief Accounting Officer

Date: March 19, 2014

EX-23.2 2 d693547dex232.htm EX-23.2 EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-184221, 333-184224) and in the Registration Statements on Form S-8 (Nos. 333-76537, 333-108681, 333-117069, 333-147270, 333-162453, 333-181442) of DDR Corp. of our report dated March 19, 2014 relating to the consolidated financial statements of DDRM Properties LLC, appearing in Amendment No. 1 to the Annual Report on Form 10-K of DDR Corp. for the year ended December 31, 2013.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

March 19, 2014

EX-23.3 3 d693547dex233.htm EX-23.3 EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-184221, 333-184224) and in the Registration Statements on Form S-8 (Nos. 333-76537, 333-108681, 333-117069, 333-147270, 333-162453, 333-181442) of DDR Corp. of our report dated March 19, 2014 relating to the consolidated financial statements of DDRTC Core Retail Fund, LLC, appearing in Amendment No. 1 to the Annual Report on Form 10-K of DDR Corp. for the year ended December 31, 2013.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

March 19, 2014

EX-23.4 4 d693547dex234.htm EX-23.4 EX-23.4

Exhibit 23.4

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-184221, 333-184224) and in the Registration Statements on Form S-8 (333-76537; 333-108681; 333-117069; 333-147270, 333-162453, 333-181442) of DDR Corp. of our report dated March 19, 2014, relating to the consolidated financial statements of Sonae Sierra Brazil BV Sarl (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph relating to information on the nature and effect of differences in accounting practices in conformity with IFRS as issued by IASB and accounting principles generally accepted in United States of America, presented in Note 32 to the consolidated financial statements), appearing in Amendment No.1 to the Annual Report on Form 10-K of DDR Corp. for the year ended December 31, 2013.

São Paulo, Brazil

March 19, 2014

/s/ DELOITTE TOUCHE TOHMATSU

Auditores Independentes

EX-31.1 5 d693547dex311.htm EX-31.1 EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Daniel B. Hurwitz, certify that:

1.	I have reviewed this Annual Report on Form 10-K as amended by Amendment No. 1 to Form 10-K of DDR Corp.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 19, 2014

Date

/s/ Daniel B. Hurwitz

Daniel B. Hurwitz

Chief Executive Officer

EX-31.2 6 d693547dex312.htm EX-31.2 EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David J. Oakes, certify that:

1.	I have reviewed this Annual Report on Form 10-K as amended by Amendment No. 1 to Form 10-K of DDR Corp.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 19, 2014

Date

/s/ David J. Oakes

David J. Oakes

President and Chief Financial Officer

EX-32.1 7 d693547dex321.htm EX-32.1 EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel B. Hurwitz, Chief Executive Officer of DDR Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Annual Report on Form 10-K of the Company for the period ended December 31, 2013, as amended by Amendment No. 1 to Form 10-K, as filed with the Securities and Exchange Commission (the “Report”), which this certification accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ Daniel B. Hurwitz

Daniel B. Hurwitz

Chief Executive Officer

March 19, 2014

EX-32.2 8 d693547dex322.htm EX-32.2 EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

I, David J. Oakes, President and Chief Financial Officer of DDR Corp. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

/s/ David J. Oakes

David J. Oakes

President and Chief Financial Officer

March 19, 2014

EX-99.1 9 d693547dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

DDRM PROPERTIES LLC

CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

DDRM Properties LLC

Consolidated Financial Statements

Table of Contents

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Contents


Independent Auditor’s Report			1

Consolidated Balance Sheets			2

Consolidated Statements of Operations and Comprehensive Loss			3

Consolidated Statements of Members’ Capital			4

Consolidated Statements of Cash Flows			5-6

Notes to Consolidated Financial Statements			7-19

Independent Auditor’s Report

To DDR Corp. and DDR Manatee Master REIT, Inc.:

We have audited the accompanying consolidated financial statements of DDRM Properties LLC and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of operations and comprehensive loss, of members’ capital and of cash flows for the year then ended.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DDRM Properties LLC and its subsidiaries at December 31, 2013, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

March 19, 2014

DDRM Properties LLC

Consolidated Balance Sheets

As of December 31, 2013 and 2012 (December 31, 2012 not Covered by Auditor’s Report)


	December 31,
	2013			2012
Assets
Real estate rental property:
Land	$	383,411,136		$	391,609,901
Building and building improvements		1,003,235,812			1,017,352,233
Tenant improvements		37,151,120			30,198,964

		1,423,798,068			1,439,161,098
Less accumulated depreciation		(230,197,884	)		(193,762,245	)

		1,193,600,184			1,245,398,853
Construction in progress		1,211,731			2,020,033

Real estate, net		1,194,811,915			1,247,418,886

Cash and cash equivalents		17,975,463			14,900,426
Restricted cash		1,736,460			1,065,436
Accounts receivable, net		13,333,507			11,644,747
Deferred financing costs, net of accumulated amortization of $8,271,929 as of 2013 and $7,064,710 as of 2012		4,409,801			5,406,266
Deferred lease costs, net of accumulated amortization of $8,074,823 as of 2013 and $5,951,356 as of 2012		11,072,432			9,594,336
Intangible assets, net of accumulated amortization of $38,087,247 as of 2013 and $32,501,585 as of 2012		4,847,529			10,716,741
Prepaid expenses and other assets		68,335			149,958

Total assets	$	1,248,255,442		$	1,300,896,796


Liabilities and Members’ Capital
Mortgage notes payable	$	928,620,646		$	923,332,693
Accrued interest		3,831,593			3,836,869
Accrued real estate taxes		1,786,332			1,787,545
Accounts payable and other accrued liabilities		12,602,897			15,231,491
Prepaid tenant rents		3,114,084			2,805,216
Tenant security deposits		3,113,882			2,938,119

Total liabilities		953,069,434			949,931,933

Members’ capital		293,465,108			348,705,163
Accumulated other comprehensive income		1,720,900			2,259,700

Total members’ capital		295,186,008			350,964,863

Total liabilities and members’ capital	$	1,248,255,442		$	1,300,896,796

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

- 2 -

DDRM Properties LLC

Consolidated Statements of Operations and Comprehensive Loss

For the Years Ended December 31, 2013, 2012 and 2011

(Years Ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	For the Year Ended December 31,
	2013			2012			2011
Revenues from operations:
Minimum rents	$	90,084,937		$	89,734,536		$	90,572,967
Percentage and overage rents		326,625			173,628			302,347
Recoveries from tenants		27,659,236			26,916,952			27,278,159
Ancillary and other income		1,322,406			1,870,732			1,834,007

Total revenues		119,393,204			118,695,848			119,987,480


Rental operation expenses:
Operating and maintenance		20,363,948			22,250,010			23,177,040
Real estate taxes		16,133,601			16,070,961			15,759,539
Asset management fees (Note 5)		3,661,690			3,661,690			3,661,690
Management fees (Note 5)		4,611,028			4,767,971			4,644,234
General and administrative		1,677,011			1,820,276			1,864,229
Depreciation and amortization		45,202,321			45,388,752			44,743,542
Impairment charges		25,234,220			—			7,231,145

Total expenses		116,883,819			93,959,660			101,081,419

Operating income		2,509,385			24,736,188			18,906,061


Other income (expense):
Interest income		3,183			1,976			7,062
Interest expense		(52,850,633	)		(53,359,630	)		(53,964,772	)
Loss on debt extinguishment		(464	)		(617	)		(1,862	)

		(52,847,914	)		(53,358,271	)		(53,959,572	)

Loss from continuing operations		(50,338,529	)		(28,622,083	)		(35,053,511	)

Discontinued operations:
Loss from discontinued operations		(33,001	)		(463,678	)		(8,095,313	)
Loss on disposition of real estate		—			(226,476	)		(928,897	)

		(33,001	)		(690,154	)		(9,024,210	)

Gain (loss) on disposition of real estate		131,475			579,139			(18,139	)


Net loss		(50,240,055	)		(28,733,098	)		(44,095,860	)


Other comprehensive loss:
Amortization of interest rate contracts		(538,800	)		(538,800	)		(538,800	)


Comprehensive loss	$	(50,778,855	)	$	(29,271,898	)	$	(44,634,660	)

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

- 3 -

DDRM Properties LLC

Consolidated Statements of Members’ Capital

For the Years Ended December 31, 2013, 2012 and 2011

(Years Ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	Total
Balance at December 31, 2010	$	431,871,421
Distributions		(3,500,000	)
Net loss		(44,095,860	)
Other comprehensive loss:
Amortization of interest rate contracts		(538,800	)

Balance at December 31, 2011	$	383,736,761
Distributions		(3,500,000	)
Net loss		(28,733,098	)
Other comprehensive loss:
Amortization of interest rate contracts		(538,800	)

Balance at December 31, 2012	$	350,964,863
Distributions		(5,000,000	)
Net loss		(50,240,055	)
Other comprehensive loss:
Amortization of interest rate contracts		(538,800	)

Balance at December 31, 2013	$	295,186,008

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

- 4 -

DDRM Properties LLC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013, 2012 and 2011

(Years Ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	For the Year Ended December 31,
	2013			2012			2011
Cash flow from operating activities:
Net loss	$	(50,240,055	)	$	(28,733,098	)	$	(44,095,860	)
Adjustments to reconcile net loss to net cash flow provided by operating activities:
Depreciation and amortization		45,202,321			45,501,279			45,925,331
Amortization of deferred financing costs and interest rate contracts		857,341			809,060			873,535
Amortization of above- and below- market leases, net		(743,477	)		(743,477	)		(2,242,029	)
Amortization of debt discount and premium		(235	)		2,279			221,797
Impairment charges		25,234,220			507,269			14,968,826
Loss on debt extinguishment		—			—			30,190
(Gain) loss on disposition of real estate		(131,475	)		(352,663	)		947,036
Changes in operating assets and liabilities:
Accounts receivable, net		(1,688,760	)		4,469,051			1,720,739
Prepaid expenses and other assets		81,623			(15,611	)		3,325
Accrued interest		(5,276	)		(36,965	)		(113,489	)
Accrued real estate taxes		(1,213	)		267,761			(368,141	)
Accounts payable and other accrued liabilities		(1,280,529	)		436,223			580,224
Prepaid tenant rents		308,868			812,600			(754,342	)
Tenant security deposits		175,763			142,617			232,224

Total adjustments		68,009,171			51,799,423			62,025,226

Net cash provided by operating activities		17,769,116			23,066,325			17,929,366

Cash flow from investing activities:
Net proceeds from disposition of real estate		252,655			7,733,815			27,811,899
Construction of and improvements to real estate and related assets		(10,116,547	)		(6,225,116	)		(9,359,352	)
Change in restricted cash		(671,024	)		295,206			42,057
Payment of lease procurement costs		(4,047,675	)		(3,620,681	)		(3,267,264	)

Net cash (used in) provided by investing activities		(14,582,591	)		(1,816,776	)		15,227,340

Cash flow from financing activities:
Proceeds of mortgage notes payable		17,000,000			—			—
Payments of mortgage notes payable		(11,711,812	)		(8,790,510	)		(33,382,406	)
Payments of debt issuance cost		(399,676	)		—			—
Distributions to Members		(5,000,000	)		(3,500,000	)		(3,500,000	)

Net cash used in financing activities		(111,488	)		(12,290,510	)		(36,882,406	)

Net change in cash and cash equivalents		3,075,037			8,959,039			(3,725,700	)
Cash and cash equivalents at beginning of period		14,900,426			5,941,387			9,667,087

Cash and cash equivalents at end of period	$	17,975,463		$	14,900,426		$	5,941,387

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

- 5 -

DDRM Properties LLC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013, 2012 and 2011

(Years Ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	For the Year Ended December 31,
	2013		2012		2011
Supplemental disclosure of non-cash operating and investing activities:

Write-off of fully amortized tenant improvements	$	380,123	$	506,103	$	694,561
Write-off of fully amortized loan costs		188,922		76,200		105,180
Write-off of fully amortized deferred lease costs		513,793		473,280		638,905
Write-off of fully amortized intangible assets		283,550		395,561		202,329
Write-off of fully amortized below-market leases		—		—		1,274,945
Write-off of fully amortized building costs		—		1,195,123		—
Capital expenditures included in accounts payable and other accrued liabilities		753,264		1,248,859		—
Below-market lease adjustment included in real estate, net and accounts payable and other accrued liabilities		—		—		9,971,635

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

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

- 6 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

1. Organization of Company

Background

DDRM Properties LLC (the “Company”) was formed in the state of Delaware on February 27, 2007 to acquire, own, operate and maintain shopping centers (the “Properties”) located throughout the United States. The Company first acquired the Properties on June 8, 2007.

The Company’s Members are DDR Corp. (“DDR”) and DDR Manatee Master REIT, Inc. (the “Master REIT”). The Master REIT is the Managing Member of the Company. DDR and the Master REIT have a 20% and 80% membership interest, respectively, and are collectively referred to as the “Members” and each, individually, a “Member.”

The Master REIT is responsible for the day-to-day management of the Company as the Managing Member. The Company has engaged DDR Property Management LLC (“DDRPM”), a wholly- owned subsidiary of DDR, to act as the Property Manager.

Nature of Business

The Company is engaged in the business of owning and operating shopping centers. The tenant base includes primarily national retail chains and local retailers. Consequently, the Company’s credit risk is concentrated in the retail industry. Adverse changes in general or local economic conditions could result in the inability of some tenants of the Company to meet their lease obligations and could adversely affect the Company’s ability to attract and retain tenants.

Revenues derived from the Company’s largest tenant Publix aggregated 14.2%, 14.1% and 14.7% of total revenues for the years ended December 31, 2013, 2012 and 2011, respectively.

The Properties

The Company owned 59, 59 and 60 properties located in eleven states as of December 31, 2013, 2012 and 2011, respectively, which are each owned by a wholly-owned single member limited liability company. The total gross leasable area of the Properties is 8,185,405 square feet (unaudited), 8,184,315 square feet (unaudited), and 8,210,075 square feet (unaudited) as of December 31, 2013, 2012 and 2011, respectively.

During the year ended December 31, 2013, the Company received net proceeds of $252,655 for a land condemnation of approximately 0.17 (unaudited) acres of land adjacent to a shopping center. The net proceeds were utilized to pay down the outstanding debt. The Company sold one property and a land parcel during the year ended December 31, 2012 and received net proceeds of $7,733,815. A portion of the proceeds was used to pay down the existing debt. The Company sold three properties and a land parcel during the year ended December 31, 2011 and received net proceeds of $27,811,899.

- 7 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Significant Membership Terms

The Company’s profits and losses are allocated to the Members in proportion to their respective percentage interests.

The Company’s cash flows are distributed to the Members on a quarterly basis in proportion to their respective percentage interests.

The term of the Company shall continue in perpetuity until one of the first following events occurs: i) an election to dissolve the Company made by the Members; ii) the sale or disposition of all or substantially all of the Properties and other assets of the Company; iii) entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Act; iv) the liquidation and dissolution of the parent entity of the Master REIT; or v) any other circumstance requiring the liquidation of the Company pursuant to any provision of the Agreement or any other Fund Governing Document.

2. Summary of Significant Accounting Principles

Principles of Consolidation

The consolidated financial statements include the accounts of DDRM Properties LLC and its wholly-owned subsidiaries, all of which are limited liability companies. All significant intercompany balances and transactions have been eliminated.

Real Estate

Real estate assets are stated at cost less accumulated depreciation.

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


Building and building improvements		5 to 31.5 years
Tenant improvements		Useful lives, which approximate lease terms, where applicable

Depreciation expense on buildings and tenant improvements for the year ended December 31, 2013 was $36,815,763, which includes $380,123 related to the write-off of unamortized basis associated with the early termination of tenant leases. Depreciation expense on buildings and tenant improvements was $37,167,943, which includes $1,115,785 related to the write-off of unamortized basis associated with the demolition of a building for redevelopment and the early termination of tenant leases for the year ended December 31, 2012. Depreciation expense on buildings and tenant improvements was $37,715,409, which includes $379,255 related to the write-off of unamortized basis associated with the early termination of tenant leases for the year ended December 31, 2011. Expenditures for maintenance and repairs are charged to operations as incurred. Significant expenditures, which improve or extend the life of the asset, are capitalized.

- 8 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

The Company reviews its real estate assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. The determination of undiscounted cash flows requires significant estimates made by management and is based on the most likely expected course of action at the balance sheet date based on current plans, intended hold periods and available market information. The determination of anticipated cash flows is inherently subjective and is based, in part, on assumptions regarding holding periods, future occupancy, rental rates and capital requirements that could differ materially from actual results. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. See Note 9 for a discussion related to impairment charges recorded during 2013, 2012 and 2011.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at acquisition to be cash equivalents. The Company maintains cash deposits with a major financial institution which from time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institution and believes that the risk of loss is minimal.

Restricted Cash

Pursuant to the provisions with the Company’s mortgage notes payable, funds are required to be held in escrow for the payment of real estate taxes and various capital expenditures. All such amounts are classified as restricted cash in the consolidated balance sheets.

Deferred Financing Costs

Costs incurred in obtaining long-term financing are capitalized and amortized. Amortization expense was $1,396,141, $1,347,860 and $1,412,335, for the years ended December 31, 2013, 2012 and 2011, respectively.

Deferred Lease Costs

Deferred lease costs represent direct costs paid to enter into tenant leases and are amortized over the related lease term. Amortization expense was $2,637,260, $2,437,915 and $2,170,032, which includes $513,793, $180,861 and $408,289, related to the write-off of unamortized costs associated with the early termination of tenant leases for the years ended December 31, 2013, 2012 and 2011, respectively.

- 9 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Intangible Assets and Liabilities

Intangible assets and liabilities (in the case of below-market leases) generally consist of in-place leases, tenant relationships, above-market leases, and below-market leases, which were recorded at the time of acquisition of certain properties. Above- and below-market lease values are recorded based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the estimated term of any below-market, fixed-rate renewal options for below-market leases. The purchase price is further allocated to in-place lease values and tenant relationship values based on management’s evaluation of the specific characteristics of the acquired lease portfolio and the Company’s overall relationship with the anchor tenants. The value of in-place leases and tenant relationships are amortized to depreciation and amortization expense over the weighted-average remaining initial term of the lease (and expected renewal periods for tenant relationships); however, no amortization period for the intangible assets will exceed the remaining depreciable life of the building. Above- and or below-market leases are amortized over the remaining life of the respective leases (plus fixed-rate renewal periods for below-market leases) as a decrease or increase to minimum rent, respectively. The Company’s intangible assets and liabilities are comprised of the following (in thousands):


	Net Carrying value at December 31,					Amortization - For the years ended December 31,
	2013		2012		Useful Life	2013		2012		2011
In-place leases⁽¹⁾	$	3,810.3	$	9,559.6	7 - 10 yrs	$	5,749.3	$	5,895.4	$	6,039.9
Above-market leases		1,037.2		1,157.1	13 -16 yrs		119.9		119.9		126.8

		4,847.5		10,716.7

Below-market leases (liability)⁽²⁾		7,497.6		8,361.0	8 - 21 yrs		863.4		863.4		2,368.8	⁽³⁾

⁽¹⁾	Includes value allocated to in-place leases, lease origination and tenant relationships.

⁽²⁾	Classified in accounts payable and other accrued liabilities in the consolidated balance sheets.

⁽³⁾	Includes $1,275.0 related to the write-off of unamortized basis associated with the early termination of tenant leases which increased minimum rent.

The net estimated amortization pertaining to the Company’s finite-lived intangible assets and liabilities for the five years ending December 31, is as follows:


2014	$	1,918,859
2015		(187,678	)
2016		(130,079	)
2017		(423,932	)
2018		(474,162	)

In the event that a tenant terminates its lease, the unamortized portion of the intangible values is written off as an adjustment to revenue or expense, as appropriate.

Revenue Recognition

- 10 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

the period in which the expenses are incurred based upon provisions of the individual tenant leases. Lease termination fees are generally recognized upon termination of a tenant’s lease and vacating the space with no further rights.

Income Taxes

The Company has elected to be treated as a partnership for federal income tax purposes. Accordingly, no provision has been made in the accompanying consolidated financial statements for any federal income taxes since each item of income, gain, loss, deduction or credit is reportable by the Members in their respective income tax returns. The statutes of limitations for income tax returns remain open for the years 2010 through 2013.

Interest

Interest paid aggregated $51,998,803, $52,585,256 and $53,787,891 for the years ended December 31, 2013, 2012 and 2011, respectively.

Disposition of Real Estate

Gains from dispositions are recognized using the full accrual or partial sale methods, provided that various criteria relating to the terms of sale and any subsequent involvement by the Company with the properties sold are met. If the criteria for sale recognition or gain recognition are not met because of a form of continuing involvement, the accounting for such transactions is dependent on the nature of the continuing involvement. In certain cases, a sale might not be recognized, and in others all or a portion of the gain might be deferred. Pursuant to the definition of a component of an entity and, assuming no significant continuing involvement or cash flows, the sale of a retail operating property is considered discontinued operations. Interest expense, which is specifically identifiable to the property, and the operations and gain or loss on sale are reported as discontinued operations.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

- 11 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

New Accounting Standards

Presentation of Other Comprehensive Income

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of comprehensive income. This guidance requires presentation of reclassification adjustments from other comprehensive income to net income in a single note or on the face of the financial statements. This guidance was effective for the Company on January 1, 2013. This guidance did not materially impact the Company’s consolidated financial statements.

3. Accounts Receivable

Accounts receivable, other than straight-line rents receivable, are expected to be collected within one year and are net of estimated unrecoverable amounts of $1,751,483 and $2,009,751 at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, straight-line rents receivable, net of a provision for uncollectible amounts of $467,935 and $437,542, respectively, aggregated $6,267,332 and $5,815,988, respectively. The Company analyzes accounts receivable, tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

4. Mortgage Notes Payable

The Company has the following mortgage notes payable outstanding:


	Carrying Value
	at December 31,				Interest Rate			Maturity Date
	2013		2012		Interest Rate			Maturity Date
2007 Pooled Secured Financing	$	883,504,936	$	883,819,266		5.60	%		07/05/17
2010 Pooled Secured Financing		28,379,019		28,934,661		4.21	%		04/11/15
2013 Pooled Secured Financing		16,736,691		—		3.56	%		02/01/18

Separate Mortgage Notes Payable
Hilliard Rome Commons		—		10,157,190		5.87	%		01/01/13
Meadow Square		—		421,341		6.72	%		07/01/13

	$	928,620,646	$	923,332,458

Unamortized net premium on separate mortgage notes payable		—		235

	$	928,620,646	$	923,332,693

The cross-collateralized 2007 pooled secured financing requires monthly payments of interest only with the principal due at maturity. The financing agreement requires that the sale of any property collateralized by the mortgage notes payable be approved by the Lender.

The cross-collateralized 2010 pooled secured financing requires monthly payments of principal and interest, based upon a 30-year amortization schedule.

- 12 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

In January 2013, the separate mortgage note payable for Hilliard Rome Commons was paid off at maturity. The Company obtained new mortgage financing for Hilliard Rome Commons and Heather Island Plaza (“2013 Pooled Secured Financing”) aggregating $17.0 million at a fixed interest rate of 3.56% with required monthly payments of principal and interest, based on a 30-year amortization schedule for a term of five years.

The Company repaid separate mortgage notes payable of $241,937 and $6,155,000 at maturity without penalty during the years ended December 31, 2013 and 2012, respectively. In 2011, the Company repaid six mortgage notes payable aggregating $32,003,000 and recorded a loss on debt extinguishment of $32,141, which consisted of prepayment fees and the write off of unamortized loan costs.

The number of properties collateralized and the net carrying value of the collateralized properties as of December 31, is as follows:


	Collateralized Properties				Net Carrying Value of Collaterized Properties
	2013		2012		2013		2012
2007 Pooled Secured Financing		52		52	$	1,081,573,045	$	1,122,505,257
2010 Pooled Secured Financing		3		3		65,953,125		72,136,496
2013 Pooled Secured Financing		2		—		28,047,901		—
Separate Property Mortgage Notes payable		—		2		—		37,182,108

		57		57	$	1,175,574,071	$	1,231,823,861

As of December 31, 2013, the scheduled principal payments of the mortgage notes payable for the next five years are as follows:


2014	$	903,959
2015		28,135,241
2016		346,742
2017		883,866,030
2018		15,368,674

	$	928,620,646

5. Transactions with Related Parties

DDRPM is entitled to an asset management fee equal to 0.75% of the gross asset value for each property as defined in the limited partnership agreement. Asset management fees incurred by the Company aggregated $3,661,690, $3,685,834 and $3,849,562 for the years ended December 31, 2013, 2012 and 2011, respectively.

Management fees earned by DDR and DDRPM are determined pursuant to provisions set forth in the management and leasing agreement. The management fees earned by DDR and DDRPM

- 13 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

are determined at an amount equal to 4% of gross rental receipts and are charged to operations as incurred. Management fees incurred by the Company aggregated $4,611,028, $4,782,886 and $4,765,820 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR employees perform certain maintenance services at the Properties. Maintenance services incurred by the Company aggregated $616,956, $586,701 and $813,281 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR and DDRPM have the ability to earn leasing commissions for the rental of space to tenants in accordance with the management and leasing agreement. Lease commissions are calculated based on whether the lease is a new lease or renewal of an existing lease, the rental income earned over the life of the lease or the square footage the tenant will occupy under the lease. Lease commissions incurred by the Company aggregated $3,878,669, $2,694,953 and $2,461,484 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR and DDRPM have the ability to earn construction management fees which are determined in accordance with the management and leasing agreement. Except for the redevelopment or expansion of a property, construction management fees are calculated based on 5% of the cost of tenant improvements and other capital improvements, plus reimbursement of out of pocket costs and third party expenses. The construction management fee for a redevelopment or an expansion is determined by the Company and DDR and DDRPM in connection with the approval of development expenditures. The construction management fee is payable as costs for the work conducted are due and is subject to adjustment once the final costs for the work are determined. The Company records the construction management fees to buildings and tenant improvements, as appropriate, and is depreciated over the estimated useful life of the related asset. Construction management fees incurred by the Company aggregated $445,289, $292,973 and $402,071 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR has the ability to earn fees for performing legal services on behalf of the Company. Legal fees incurred by the Company aggregated $335,124, $395,370 and $407,649 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR employees perform certain tax preparation services on behalf of the Company. Tax preparation fees incurred by the Company aggregated $13,037, $12,867 and $12,480 for the years ended December 31, 2013, 2012 and 2011, respectively.

Ancillary income fees earned by DDR and DDRPM are equal to 25% of all funds received from ancillary income sources, as defined in the management and leasing agreement. Ancillary income fees incurred by the Company aggregated $281,492, $338,829 and $287,497 for the years ended December 31, 2013, 2012 and 2011, respectively. These fees were recorded within general and administrative expenses in the consolidated statements of operations.

In accordance with the management agreement, DDR arranges for insurance coverage from insurers authorized to do business in the United States, which provide liability, property and

- 14 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

flood coverage. In 2013 and 2012, the Company remitted to DDR insurance premiums associated with these insurance policies. In 2011, the Company remitted to DDR and National Property Protection Company, an affiliate of DDR, insurance premiums to fund the premiums associated with these insurance policies. Insurance premiums billed to the Company aggregated $5,201,344, $4,424,900 and $4,168,161 for the years ended December 31, 2013, 2012 and 2011, respectively.

Related Party Payables

As of December 31, 2013 and 2012, the Company had related party payables of $2,064,700 and $1,974,429, respectively. The amounts are included within accounts payable and other accrued liabilities on the consolidated balance sheets and represents amounts owed to DDR and DDRPM for the services and fees discussed above incurred pursuant to the property management and other service agreements.

6. Commitments and Contingencies

Shopping center space is leased to tenants pursuant to agreements which provide for terms ranging from one to thirty years; and, in some cases, for annual rentals, which are subject to upward adjustments based on operating expense levels, sales volume, or contractual increases, as defined in the lease agreements.

The scheduled future minimum rents from rental property under the terms of all non-cancelable tenant leases, assuming no new or renegotiated leases or option extensions for such premises, for the subsequent five fiscal years ending December 31, are as follows:


2014	$	85,682,792
2015		77,457,816
2016		64,647,422
2017		50,638,734
2018		39,163,112

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

- 15 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

7. Derivative Instruments

Cash Flow Hedges

During 2007, the Company entered into treasury locks with a notional amount of $600.0 million. The treasury locks were executed to hedge the benchmark interest rate associated with forecasted interest payments related to the anticipated issuance of the mortgage notes payable. The treasury locks were terminated in connection with the issuance of $885.0 million in mortgage notes payable at the time the properties were acquired (Note 4). The effective portion of these hedging relationships has been deferred in accumulated other comprehensive income and will be reclassified into earnings over the term of the debt as an adjustment to interest expense. The Company expects that within the next 12 months it will reflect as an increase to earnings approximately $538,800 of the amount recorded in accumulated other comprehensive income.

The Company did not have any derivative financial instruments outstanding as of or during the years ended December 31, 2013, 2012 and 2011.

8. Fair Value of Financial Instruments

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

Cash and cash equivalents, restricted cash, accounts receivable, accounts payable:

The carrying amounts reported in the consolidated balance sheets for these financial instruments approximated fair value because of their short-term maturities.

Debt:

Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile, the Company has determined the fair value of its debt to be $961,111,384 and $912,651,847 at December 31, 2013 and 2012, respectively.

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

9. Impairment Charges

Pursuant to the provisions of the standard, Accounting for the Impairment or Disposal of Long-Lived Assets, related to assets being held and used, the Company recorded impairment charges related to four, one and three properties aggregating $25,234,220, $507,269 and $14,968,826 during the years ended December 31, 2013, 2012 and 2011, respectively. The impairments were triggered by a change in the estimated holding period assumptions used in the impairment

- 16 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

calculation. One property was sold in 2012 and two properties were sold in 2011 and as a result were classified within discontinued operations (Note 10) for the years ended December 31, 2013, 2012 and 2011, respectively.

Measurement of Fair Value

The Company is required to assess the fair value of impaired real estate assets. The valuation of impaired real estate assets is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows, the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. Although, the Company may consider multiple valuation techniques when measuring the fair value, in certain circumstances, a single valuation technique may be appropriate.

Fair Value Hierarchy

The standard Fair Value Measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). The following summarizes the fair value hierarchy:

•

Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

•

Level 2 — Quoted prices for identical assets and liabilities in markets that are inactive, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly, such as interest rates and yield curves that are observable at commonly quoted intervals, and

•

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

- 17 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Items Measured at Fair Value on a Non-Recurring Basis

The valuation techniques utilized by the Company were determined to fall under level 3 of the fair value hierarchy for the years ended December 31, 2013, 2012 and 2011, respectively.


	Fair Value Measurements (in millions)
	Level 1		Level 2		Level 3		Total		Total Impairment
December 31, 2013
Long-lived assets held and used	$	—	$	—	$	41.7	$	41.7	$	25.2
December 31, 2012
Long-lived assets sold		—		—		6.8		6.8		0.5
December 31, 2011
Long-lived assets held and used		—		—		13.8		13.8		7.2
Long-lived assets sold		—		—		15.2		15.2		7.8

The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring items (in millions):

Quantitative Information about Level 3 Fair Value Measurements

Fair Value

at December,

2013

2012

Valuation Technique

Unobservable Input

Range

Impairment of long-lived assets

41.7

—

Income Capitalization
Approach

Market Capitalization
Rate

6.75%-9.25%^(A)

Discounted Cash Flow

Discount Rate

8.0%-10.5%^(A)

Terminal
Capitalization Rate

6.75%-9.5%^(A)

—

6.8

Indicative Bid

N/A ^(B)

^(A)	The fair value measurement was developed by third-party sources subject to the Company’s corroboration for reasonableness.

^(B)	The fair value measurement was developed by third-party sources, based on a Purchase and Sale Agreement, subject to the Company’s corroboration for reasonableness.

- 18 -

DDRM Properties LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

10. Discontinued Operations

The Company did not have any property sales in 2013. Discontinued operations for the year ended December 31, 2012 includes the results of operations and loss on sale of $226,476 related to the sale of one property during 2012. Discontinued operations for the year ended December 31, 2011 includes the results of operations of one property sold during the year ended December 31, 2012 and the results of operations and loss on sale of $928,897 related to the sale of three properties sold during the year ended December 31, 2011. Discontinued operations for the years ended December 31, 2013, 2012, and 2011 are as follows:


	2013			2012			2011
Revenues:
Minimum rents	$	—		$	278,601		$	2,451,360
Percentage and overage rents		—			18,898			(14,906	)
Recoveries from tenants		—			60,464			655,083
Ancillary and other income		131			1,608			33,438

Total revenues		131			359,571			3,124,975

Expenses:
Operating and maintenance		3,153			129,986			769,719
Real estate taxes		—			12,574			303,612
Management fees		—			14,915			121,586
Asset management fees		—			24,144			187,872
General and administrative		29,981			21,834			82,883
Depreciation and amortization		—			112,527			1,181,789
Impairment charges		—			507,269			7,737,681

Total expense		33,134			823,249			10,385,142

Other income (expense)
Interest income		2			—			94
Interest expense		—			—			(804,961	)
Loss on debt extinguishments		—			—			(30,279	)

		2			—			(835,146	)

Loss before loss on disposition of real estate		(33,001	)		(463,678	)		(8,095,313	)
Loss on disposition of real estate		—			(226,476	)		(928,897	)


Loss from discontinued operations	$	(33,001	)	$	(690,154	)	$	(9,024,210	)

11. Subsequent Events

In accordance with ASC No. 855, Subsequent Events, the Company has evaluated subsequent events through the date of the Independent Auditor’s Report, the date the Company’s financial statements were available to be issued.

- 19 -

EX-99.2 10 d693547dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

DDRTC CORE RETAIL FUND, LLC

CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

DDRTC CORE RETAIL FUND, LLC

Consolidated Financial Statements

Table of Contents

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Contents


Independent Auditor’s Report			1

Consolidated Balance Sheets			2

Consolidated Statements of Operations			3

Consolidated Statements of Members’ Capital			4

Consolidated Statements of Cash Flows			5-6

Notes to Consolidated Financial Statements			7-22

Independent Auditor’s Report

To DDR TC LLC

and TREA Retail Property Portfolio 2006 LLC:

We have audited the accompanying consolidated financial statements of DDRTC Core Retail Fund, LLC and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 2013, and the related consolidated statements of operations, of members’ capital and of cash flows for the year then ended.

Management’s Responsibility for the Consolidated Financial Statements

Auditor’s Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DDRTC Core Retail Fund, LLC and its subsidiaries at December 31, 2013, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

March 19, 2014

DDRTC CORE RETAIL FUND, LLC

Consolidated Balance Sheets

As of December 31, 2013 and 2012

(December 31, 2012 not Covered by Auditor’s Report)


	December 31,
	2013			2012
Assets
Real estate rental property:
Land	$	431,374,430		$	512,257,050
Building and building improvements		1,059,330,049			1,259,864,394
Tenant improvements		58,979,904			55,094,178
Furniture, fixtures and equipment		644,471			413,631

		1,550,328,854			1,827,629,253
Less accumulated depreciation		(270,360,695	)		(280,535,374	)

		1,279,968,159			1,547,093,879
Construction in progress		517,502			2,245,176

Real estate, net		1,280,485,661			1,549,339,055

Cash and cash equivalents		12,800,288			13,206,064
Restricted cash		9,708,119			13,561,113
Accounts receivable, net		14,666,709			16,429,738
Notes receivable, net		591,716			694,971
Deferred financing costs, net of accumulated amortization of $2,379,770 as of 2013 and $1,266,830 as of 2012		2,478,904			2,914,981
Deferred lease costs, net of accumulated amortization of $5,053,038 as of 2013 and $4,304,313 as of 2012		8,421,094			8,818,699
Intangible assets, net of accumulated amortization of $37,967,087 as of 2013 and $39,197,893 as of 2012		17,344,960			26,577,150
Deposits		368,873			83,423
Prepaid expenses and other assets		657,211			755,506

Total assets	$	1,347,523,535		$	1,632,380,700


Liabilities and Members’ Capital
Mortgage notes payable	$	830,731,236		$	1,038,891,624
Accrued interest		3,195,914			3,173,226
Accrued real estate taxes		5,889,160			7,968,856
Prepaid tenant rents		4,958,098			5,153,793
Accounts payable and other accrued liabilities		13,399,639			14,227,859
Tenant security deposits		1,365,906			1,662,842

Total liabilities		859,539,953			1,071,078,200
Members’ capital		487,983,582			561,302,500

Total liabilities and members’ capital	$	1,347,523,535		$	1,632,380,700

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

DDRTC CORE RETAIL FUND, LLC

Consolidated Statements of Operations

For the Years Ended December 31, 2013, 2012 and 2011

(Years Ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	For the Year Ended December 31,
	2013			2012			2011
Revenues from operations:
Minimum rents	$	106,391,063		$	106,282,936		$	102,484,246
Percentage and overage rents		873,701			436,052			695,363
Recoveries from tenants		26,239,970			25,087,250			25,906,145
Ancillary and other income		2,761,286			2,788,349			2,637,633

Total revenues		136,266,020			134,594,587			131,723,387


Rental operation expenses:
Operating and maintenance		19,718,826			21,202,652			21,096,956
Real estate taxes		16,261,590			15,910,817			17,068,171
Asset management fees (Note 7)		676,189			676,188			676,189
Management fees (Note 7)		5,295,229			5,241,517			5,064,010
General and administrative		1,369,864			1,442,276			1,611,488
Depreciation and amortization		50,438,929			45,602,597			47,827,724
Impairment charges		30,505,000			—			115,054,730

Total expenses		124,265,627			90,076,047			208,399,268

Operating income (loss)		12,000,393			44,518,540			(76,675,881	)

Other income (expense):
Interest income		63,372			68,177			56,495
Interest expense		(39,882,331	)		(42,298,814	)		(43,522,667	)
Loss on debt extinguishment		(74,371	)		(303,541	)		—

		(39,893,330	)		(42,534,178	)		(43,466,172	)

(Loss) income from continuing operations		(27,892,937	)		1,984,362			(120,142,053	)

Discontinued operations:
Loss from discontinued operations		(6,214,731	)		(48,942,430	)		(148,298,515	)
Gain (loss) on disposition and foreclosure of real estate		25,617,573			305,497			(165,781	)

		19,402,842			(48,636,933	)		(148,464,296	)

Gain on disposition of land		32,836			157,869			—


Net loss	$	(8,457,259	)	$	(46,494,702	)	$	(268,606,349	)

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

DDRTC CORE RETAIL FUND, LLC

Consolidated Statements of Members’ Capital

For the Years Ended December 31, 2013, 2012 and 2011

(Years ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	DDR TC			TREA			Total
Balance at December 31, 2010	$	137,924,506		$	781,572,198		$	919,496,704
Distributions		(4,940,025	)		(27,993,475	)		(32,933,500	)
Net loss		(40,290,952	)		(228,315,397	)		(268,606,349	)

Balance at December 31, 2011	$	92,693,529		$	525,263,326		$	617,956,855
Contributions		19,748,426			111,907,750			131,656,176
Distributions		(21,272,374	)		(120,543,455	)		(141,815,829	)
Net loss		(6,974,205	)		(39,520,497	)		(46,494,702	)

Balance at December 31, 2012	$	84,195,376		$	477,107,124		$	561,302,500
Distributions		(9,729,249	)		(55,132,410	)		(64,861,659	)
Net loss		(1,268,589	)		(7,188,670	)		(8,457,259	)

Balance at December 31, 2013	$	73,197,538		$	414,786,044		$	487,983,582

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

DDRTC CORE RETAIL FUND, LLC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013, 2012 and 2011

(Years ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	For the Year Ended December 31,
	2013			2012			2011
Cash flow from operating activities:
Net loss	$	(8,457,259	)	$	(46,494,702	)	$	(268,606,349	)
Adjustments to reconcile net loss to net cash flow provided by operating activities:
Depreciation and amortization		55,632,982			57,465,960			65,153,592
Amortization of deferred financing costs		1,171,103			1,204,976			744,342
Amortization of above- and below-market leases		1,065,840			490,598			1,589,338
Amortization of debt premium		(160,970	)		(736,028	)		(1,146,357	)
Impairment charges		37,325,000			48,108,732			258,333,033
Gain on sale of land		(32,836	)		(157,869	)		—
(Gain) loss on disposition and foreclosure of real estate		(25,617,573	)		(305,497	)		165,781
Loss on extinguishment of debt		89,284			544,907			—
Changes in operating assets and liabilities:
Accounts receivable, net		280,180			6,639,225			2,831,392
Deposits		14,550			250,469			1,278,896
Prepaid expenses and other assets		3,858			1,106,438			123,748
Accrued interest		22,688			(1,737,985	)		79,593
Accrued real estate taxes		(850,078	)		689,874			233,306
Prepaid tenant rents		(195,695	)		(2,278,715	)		296,185
Accounts payable and other accrued liabilities		200,785			1,098,960			(1,296,385	)
Tenant security deposits		(60,148	)		81,271			169,537

Total adjustments		68,888,970			112,465,316			328,556,001

Net cash provided by operating activities		60,431,711			65,970,614			59,949,652


Cash flow from investing activities:
Construction of and improvements to real estate and related assets		(22,514,735	)		(12,170,578	)		(9,541,369	)
Repayments (issuance) of notes receivable		54,602			49,888			(688,169	)
Payment of lease procurement costs		(3,572,176	)		(4,500,047	)		(3,022,509	)
Change in restricted cash		3,852,994			(6,048,170	)		(1,045,881	)
Proceeds from disposition of real estate		235,079,067			113,664,775			23,086,969

Net cash provided by investing activities		212,899,752			90,995,868			8,789,041


Cash flow from financing activities:
Payments of debt issuance costs		(876,162	)		(4,028,014	)		(285,564	)
Proceeds from mortgage notes payable		—			214,500,000			—
Payments of mortgage notes payable		(207,999,418	)		(209,666,211	)		(3,307,339	)
Payments on revolving credit facility		—			(147,792,500	)		(31,037,500	)
Cash contributions from Members		—			131,656,176			—
Distributions to Members		(64,861,659	)		(141,815,829	)		(32,933,500	)

Net cash used in financing activities		(273,737,239	)		(157,146,378	)		(67,563,903	)


Net change in cash and cash equivalents		(405,776	)		(179,896	)		1,174,790
Cash and cash equivalents at beginning period		13,206,064			13,385,960			12,211,170

Cash and cash equivalents at end of period	$	12,800,288		$	13,206,064		$	13,385,960

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

DDRTC CORE RETAIL FUND, LLC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013, 2012 and 2011

(Years ended December 31, 2012 and 2011 not Covered by Auditor’s Report)


	For the Year Ended December 31,
	2013		2012		2011
Supplemental disclosure of non-cash investing and financing activities:

Write-off of fully amortized building and building improvements	$	5,825,101	$	—	$	—
Write-off of fully amortized tenant improvements		460,475		1,014,772		1,145,548
Write-off of fully amortized deferred financing costs		110,015		4,626,812		47,457
Write-off of fully amortized deferred lease costs		318,521		359,230		438,912
Write-off of fully amortized intangible assets		122,922		218,951		258,977
Write-off of fully amortized below-market leases		—		1,022,260		—
Capital expenditures included in accounts payable and other accrued liabilities		953,407		2,083,129		—
Transfer of net assets upon foreclosure		—		—		2,976,279
Below- market lease adjustment in real estate and accounts payable		—		—		1,662,575

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

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

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

1. Organization of Company

Background

DDRTC Core Retail Fund, LLC (the “Company”) was formed in the state of Delaware on November 3, 2006 to acquire, own, lease and manage shopping centers located across the United States (see Properties below). The Company’s members are DDR TC LLC (“DDR TC”) and TREA Retail Property Portfolio 2006 LLC (“TREA”). DDR TC and TREA are collectively referred to as the “Members”. DDR TC and TREA have a 15% and 85% membership interest, respectively, and are collectively referred to as the “Membership Interests”. DDR TC is a wholly-owned subsidiary of DDR Corp. (“DDR”).

DDR TC is responsible for the day-to-day management of the Company as the Operating Member. The Company has engaged DDR Property Management LLC (“DDRPM”), a wholly-owned subsidiary of DDR, and DDR to act as the Property Manager.

Nature of Business

The Company is engaged in the business of owning shopping centers. The tenant base includes primarily national retail chains and local retailers. Consequently, the Company’s credit risk is concentrated in the retail industry. Adverse changes in general or local economic conditions could result in the inability of some existing tenants of the Company to meet their lease obligations and could otherwise adversely affect the Company’s ability to attract and retain tenants.

The Properties

The Company owned 27, 39 and 41 properties in 12, 13 and 13 states as of December 31, 2013, 2012 and 2011, respectively (the “Properties”), which are each owned by a wholly-owned single member Limited Liability Company. The total GLA of the Properties is 9,069,372 square feet (unaudited), 10,757,718 square feet (unaudited) and 11,598,483 square feet (unaudited) as of December 31, 2013, 2012 and 2011, respectively.

The Company sold 12, two and two properties in 2013, 2012 and 2011 for a gross sales price of $242,430,000, $116,250,000 and $23,424,150, respectively. Additionally, the Company conveyed one property in Aiken, SC during the year ended December 31, 2011.

In 2012, the Company received final condemnation proceeds of $381,064, net, related to land that was condemned by the State of Florida Department of Transportation.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Significant Membership Terms

The Company’s significant membership terms are governed by the Limited Liability Company Agreement of DDRTC Core Retail Fund, LLC dated November 3, 2006 (“agreement”). The Company’s net profits are allocated to the Members i) first, to restore any negative capital balances to zero; ii) second, to the Members in proportion to their Membership Interests, as defined in the membership agreement, until each Member receives an internal return of 10% per annum on its unreturned capital; and iii) thereafter, all remaining profits 20% to DDR TC and 80% to DDR TC and TREA in proportion to their membership interests.

The Company’s net losses are allocated to the Members i) first, to the extent profits have been allocated to the Members, in reverse order 20% to DDR TC and 80% to DDR TC and TREA in proportion to their membership interests until profits have been fully offset; ii) second, to the extent profits have been allocated, in reverse order to Members in proportion to the amounts necessary so that the capital account balance of each Member is reduced to zero; and iii) thereafter, to the Members pro-rata in accordance with their respective membership interests.

The Company’s cash flows are distributed i) first, to the Members pro-rata in accordance with their membership interests until each Member receives an internal return of 10% on its unreturned capital; and, ii) thereafter, all remaining cash flows 20% to DDR TC and 80% to DDR TC and TREA in proportion to their membership interests.

The Company’s liquidation distributions are allocated to the Members proportionally in accordance with the positive balances in their capital accounts, until all Member capital accounts are reduced to zero.

The term of the Company is in perpetuity unless earlier dissolved and terminated under the governing documents of the membership agreement.

Either Member has the right to initiate a marketing notice, as defined by the Agreement, to market any or all of the underlying Properties. The initiating member must define the selling agent and the applicable properties. The other member has 10 business days to propose the purchase of one or more of the properties (“the initial offer”). The initiating member has 10 business days to accept or reject the initial offer. If the initiating member rejects the initial offer in writing, the Properties may be sold to a third party for 102.5% or more of the initial offer provided by the other member. If a third party offer is not greater than 102.5% of the initial offer, the initiating member must reoffer the properties subject to the marketing notice to the other member based upon the third party offer obtained. The other member must reply to the reoffer within 15 days or be deemed to have rejected the reoffer. Sales to Members are required to be consummated within 60 days.

Either Member has the right to initiate a buy-sell notice, as defined by the agreement, to sell its membership interest. The initiating member must define the value of the Company’s assets and a

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

selling/purchase price equal to the initiating members’ membership interest in the Company. The other member has 30 days to accept the initiating member’s offer. No response constitutes acceptance. Closing of the purchase and sale shall occur no later than one hundred eighty (180) days after the delivery of the election or deemed election or as otherwise agreed to in writing by both members. Either Member may cause a third-party sale of a property or the entire portfolio.

2. Summary of Significant Accounting Principles

Principles of Consolidation

The consolidated financial statements include the accounts of DDRTC Core Retail Fund, LLC and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Real Estate

Real estate assets are stated at cost less accumulated depreciation. Depreciation and amortization are provided for the properties on a straight-line basis over the estimated useful lives of the tangible assets as follows:


Building and building improvements		5 to 31.5 years
Tenant improvements		Useful lives, which approximate lease terms, where applicable

Depreciation expense was $48,478,629, $49,602,171 and $57,288,444 which includes $35,614, $347,137 and $730,612 related to the write-off of undepreciated basis associated with the early termination of tenant leases for the years ended December 31, 2013, 2012 and 2011, respectively. Expenditures for maintenance and repairs are charged to operations as incurred. Significant expenditures, which improve or extend the life of the asset, are capitalized.

The Company reviews its real estate assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An asset is considered impaired when the undiscounted future cash flows are not sufficient to recover the asset’s carrying value. The determination of undiscounted cash flows requires significant estimates made by management and is based on the most likely expected course of action at the balance sheet date based on current plans, intended holding periods and available market information. The determination of anticipated cash flows is inherently subjective and is based, in part, on assumptions regarding holding periods, future occupancy, rental rates and capital requirements that could differ materially from actual results. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. See Note 10 for a discussion related to impairment charges.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash deposits with a major financial institution from which time to time may exceed federally insured limits. The Company periodically assesses the financial condition of the institution and believes that the risk of loss is minimal.

Restricted Cash

Pursuant to the provisions within the Company’s mortgage notes payable, funds are required to be held in escrow related to the payment of real estate taxes, insurance, and various capital expenditures. Such amounts are classified as restricted cash on the consolidated balance sheets.

Deferred Financing Costs

Costs incurred in obtaining long-term financing are capitalized and amortized. Amortization expense was $1,171,103, $1,204,976 and $744,342 for the years ended December 31, 2013, 2012 and 2011, respectively.

Deferred Lease Costs

Deferred lease costs represent direct costs paid to enter into tenant leases and are amortized over the related lease term. Amortization expense was $2,004,777, $2,022,337 and $1,617,165 which includes $55,885, $155,662 and $277,146 related to the write-off of unamortized costs associated with the early termination of tenant leases for the years ended December 31, 2013, 2012 and 2011, respectively.

Intangible Assets and Liabilities

Intangible assets and liabilities (in the case of below-market leases) generally consist of in-place leases, lease origination costs, tenant relationships, above-market leases, and below-market leases, which were recorded at the time of acquisition of certain properties. Above- and below-market lease values are recorded based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the estimated term of any below-market, fixed-rate renewal options for below-market leases. The purchase price is further allocated to in-place lease values and tenant relationship values based on management’s evaluation of the specific characteristics of the acquired lease portfolio and the Company’s overall relationship with the anchor tenants. The value of in-place leases, lease origination costs and tenant relationships are amortized to depreciation and amortization expense over the weighted-average remaining initial term of the lease (and expected renewal periods for tenant relationships); however, no amortization period for the intangible assets will exceed the remaining depreciable life of the building. Above- and below-market leases are amortized over the remaining life of the respective leases (plus fixed-rate renewal periods for below-market leases) as a decrease or increase to minimum rents, respectively.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

The Company’s intangible assets and liabilities are comprised as follows (in thousands):


	Net Carrying Value at December 31,				Useful Life	Amortization - For the years ended December 31,
	2013		2012			2013			2012			2011
In-place leases⁽¹⁾	$	3,072.9	$	9,131.4	7-10 yrs.	$	5,149.6	⁽²⁾	$	5,841.4	⁽³⁾	$	6,248.0	⁽⁴⁾
Above-market leases		1,770.6		4,607.9	6-15 yrs.		876.9			1,084.5			1,122.0
Above-market ground lease		12,501.5		12,837.9	44 yrs.		336.4			336.4			336.4

	$	17,345.0	$	26,577.2


Below-market leases ⁽⁵⁾	$	2,194.8	$	2,342.2	21 yrs.		(147.4	)		(930.3	)		131.0

⁽¹⁾	Includes value allocated to in-place leases, loan origination costs and tenant relationships

⁽²⁾	Includes $35.5 related to the write-off of unamortized basis associated with the early termination of tenant leases

⁽³⁾	Includes $88.7 related to the write-off of unamortized basis associated with the early termination of tenant leases

⁽⁴⁾	Includes $129.4 related to the write-off of unamortized basis associated with the early termination of tenant leases

⁽⁵⁾	Amounts included in accounts payable and other accrued liabilities in the consolidated balance sheets

The estimated net amortization expense pertaining to the Company’s finite-lived intangible assets and liabilities for the subsequent five years ending December 31 is as follows:


2014	$	1,720,144
2015		1,480,881
2016		1,390,591
2017		367,017
2018		344,414

In the event that a tenant terminates its lease, the respective unamortized portion of the related intangible value is written off as an adjustment to revenue or expense, as appropriate.

Revenue Recognition

Minimum rents from tenants are recognized using the straight-line method over the lease term. Percentage and overage rents are recognized after the reported tenant’s sales have exceeded the applicable sales breakpoint. Revenues associated with tenant reimbursements are recognized in the period in which the expenses are incurred based upon provisions of the individual tenant leases. Lease termination fees are recognized upon the effective termination of a tenant’s lease when the Company has no further obligation under the lease.

Income Taxes

The Company has elected to be treated as a partnership for tax purposes. No provision has been made in the accompanying consolidated financial statements for any federal income taxes since each item of income, gain, loss, deduction or credit is reportable by the Members in their respective income tax returns. The statutes of limitations for income tax returns remain open for the years 2010 through 2013.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Interest

Interest paid during the years ended December 31, 2013, 2012 and 2011, aggregated $44,300,107, $55,351,715 and $59,820,294, respectively.

Disposition of Real Estate

Pursuant to the definition of a component of an entity and, assuming no significant continuing involvement or cash flows, the sale of a retail property is considered discontinued operations. Interest expense, which is specifically identifiable to the property, is included in the computation of interest expense attributable to discontinued operations.

Use of Estimates in Preparation of Financial Statements

3. Accounts Receivable and Notes Receivable

Accounts receivable, other than straight-line rents receivable, are expected to be collected within one year and are net of estimated unrecoverable amounts of $1,761,108 and $2,865,049 at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, straight-line rents receivable, net of a provision for uncollectible amounts of $430,177 and $517,431, respectively, aggregated $8,164,216 and $9,560,387, respectively. The Company analyzes accounts receivable, tenant credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

The Company assumed a $557,858 note receivable from a tenant at one of the properties with an interest rate of 10% and a maturity date of January 31, 2020. The original amount of the note at inception was $664,128. The Company reserved $448,653 and $400,000 of this note receivable at December 31, 2013 and 2012, respectively, due to the payer’s bankruptcy filing with no further receipt of principal and interest payments expected. The net amount of the note receivable outstanding was $0 and $48,653 at December 31, 2013 and 2012, respectively.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

In 2011, the Company entered into a $727,064 note receivable with a tenant at one of the properties with an interest rate of 9% and a maturity date of February 28, 2021. The tenant pays $9,210 of principal and interest monthly to the Company. The note receivable outstanding was $591,751 and $646,318 at December 31, 2013 and 2012, respectively.

4. Prepaid Expenses and Other Assets

Prepaid expenses and other assets are comprised of the following:


	Balance at December 31,
	2013		2012
Prepaid real estate taxes	$	353,940	$	532,730
Prepaid insurance		75,907		51,641
Prepaid state taxes		48,298		59,595
Other		179,066		111,540

	$	657,211	$	755,506

5. Mortgage Notes Payable

PNC Mortgage Notes Payable

In May 2012, the Company repaid the outstanding principal balance of the revolving credit facility (Note 6) with proceeds from a term loan agreement with PNC Bank N.A. (“PNC Mortgage”) that allows for borrowings up to $280,000,000, which was collateralized by 11 and 12 properties at December 31, 2013 and 2012, respectively. The PNC Mortgage is non-recourse allocated mortgage notes payable that are cross-collateralized and cross-defaulted.

The PNC Mortgage requires interest only payments based upon one of two interest rate options provided within the term loan agreement. The Company elected the LIBOR rate option, which is defined as the LIBOR rate plus 275 basis points. The PNC Mortgage is collateralized by real estate assets that have a carrying value of $475,962,292 and $513,254,884 at December 31, 2013 and 2012, respectively.

In December 2013, the Company refinanced the outstanding principal balance of the PNC Mortgage, which extended the maturity date to February 1, 2017, eliminated the two interest rate options and adjusted the interest rate to LIBOR plus 180 basis points. The interest rate was 2.05% and 3.00% at December 31, 2013 and 2012, respectively, based upon the 30-day LIBOR rate of 25 basis points.

The Company is required to comply with certain covenants. The covenants require that the collateralized asset’s debt service coverage ratio shall be equal to or greater than 1.50:1, and at all times the loan to value ratio shall not exceed 60%. Additionally, no single collateralized asset may represent more than 25% of the gross leasable area of the collateralized assets until the outstanding principal is less than $95,000,000. The Company was in compliance with its covenants at December 31, 2013 and 2012.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Metlife Mortgage Notes Payable

The Company has non-recourse mortgage notes payable with Metropolitan Life Insurance Company (“Metlife Mortgage”) that are cross-collateralized and cross-defaulted. The Metlife Mortgage was collateralized by seven and 17 properties at December 31, 2013 and 2012, respectively. The Metlife Mortgage is collateralized by real estate assets that have a net carrying value of $330,579,453 and $523,267,109 at December 31, 2013 and 2012, respectively.

In February 2012, the Company executed a 90 day extension of the Metlife Mortgage with the existing terms, which required interest only payments at a rate of 5.48%. Additionally, the Metropolitan Life Insurance Company exercised the $15,000,000 letter of credit (Note 6) and reduced the outstanding mortgage notes payable balances.

In May 2012, the Company modified the Metlife Mortgage, which was accounted for as a troubled debt restructuring. The Company repaid $76,000,000 of the outstanding mortgage notes payable. The interest rate was lowered from 5.48% to 4.63% and requires interest only payments through the extended maturity date of June 1, 2015. Additionally, the Company executed a reserve agreement for capital expenditures requiring monthly payments, which are classified as restricted cash on the consolidated balance sheets.

BOA Mortgage Notes Payable

The Company has non-recourse mortgage notes payable with Bank of America, N.A. (“BOA Mortgage”) that are cross-collateralized and cross-defaulted and requires interest only payments through the contractual maturity date. The BOA Mortgage was collateralized by 9 properties at December 31, 2013 and 2012, respectively. The BOA Mortgage is collateralized by real estate assets that have a net carrying value of $431,409,253 and $441,326,473 at December 31, 2013 and 2012, respectively.

Individual Mortgage Notes Payable

During 2012, the Company repaid five individual mortgage notes payable. The individual mortgage notes payable are collateralized by individual real estate assets that have an aggregate net carrying value of $7,779,639 and $38,812,327 at December 31, 2013 and 2012, respectively.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

The terms of the Company’s outstanding mortgage notes payable at December 31, 2013 and 2012 are as follows:


					December
Property Name	Interest rate			Maturity date	2013		2012
PNC Bank Mortgage
Cox Creek Shopping Center			*		$	—	$	7,494,833
Westside Pavilion			*	02/01/17		25,704,077		25,492,987
McFarland Plaza			*	02/01/17		7,611,402		6,782,296
Cypress Trace			*	02/01/17		10,581,096		11,189,468
Shoppes at Lake Mary			*	02/01/17		8,934,038		9,394,931
Eisenhower Crossing			*	02/01/17		24,955,415		24,806,841
Heritage Pavilion			*	02/01/17		18,342,230		18,103,716
Fayette Pavilion I & II			*	02/01/17		39,379,645		41,432,702
Alexander Place			*	02/01/17		18,392,141		18,446,789
Warwick Center			*	02/01/17		12,727,262		12,720,103
Creeks at Virginia Center			*	02/01/17		22,459,873		22,431,717
Hillsboro Square			*	02/01/17		17,917,988		16,203,617

						207,005,167		214,500,000
Metlife Mortgage
Naugatuck Valley Shopping Center		4.63	%	06/01/15		—		38,500,000
Walks at Highwood Preserve I		4.63	%	06/01/15		—		19,600,000
Newnan Pavilion		4.63	%	06/01/15		25,214,636		26,775,000
Douglasville Pavilion		4.63	%	06/01/15		—		24,500,000
Stonebridge Square		4.63	%	06/01/15		—		16,650,000
Suwanee Crossroads		4.63	%	06/01/15		—		3,175,000
Village Crossing		4.63	%	06/01/15		64,225,515		68,200,000
Costco Plaza		4.63	%	06/01/15		13,089,951		13,900,000
Capital Plaza		4.63	%	06/01/15		—		5,250,000
Carlisle Commons		4.63	%	06/01/15		—		37,100,000
Bellevue Place Shopping Center		4.63	%	06/01/15		6,592,062		7,000,000
Town & Country Commons		4.63	%	06/01/15		37,927,897		40,275,000
Pavilion at Turkey Creek		4.63	%	06/01/15		31,076,862		33,000,000
Chesterfield Crossing		4.63	%	06/01/15		—		10,600,000
Commonwealth Center II		4.63	%	06/01/15		—		20,775,000
Jefferson Plaza		4.63	%	06/01/15		—		6,550,000
Birkdale Village		4.63	%	06/01/15		86,779,783		92,150,000

						264,906,706		464,000,000
BOA Mortgage
River Ridge		5.45	%	03/01/17		28,116,029		28,116,029
Market Square		5.45	%	03/01/17		14,649,463		14,649,463
Woodstock Square		5.45	%	03/01/17		29,006,478		29,006,478
Barrett Pavilion		5.45	%	03/01/17		70,373,016		70,373,016
Fayette Pavilion III & IV		5.45	%	03/01/17		50,712,288		50,712,288
Marketplace at Millcreek		5.45	%	03/01/17		57,307,446		57,307,446
Winslow Bay Commons		5.45	%	03/01/17		37,680,787		37,680,787
Overlook at King of Prussia		5.45	%	03/01/17		47,065,383		47,065,383
Columbiana Station II		5.45	%	03/01/17		15,296,764		15,296,764

						350,207,654		350,207,654
Individual Mortgage Note Payable
Shoppes at Willoughby Hills		6.98	%	07/01/18		7,887,344		9,298,635

					$	830,006,871	$	1,038,006,289
Unamortized net premium on assumed mortgage notes						724,365		885,335

					$	830,731,236	$	1,038,891,624

*	Refer to footnote disclosure above.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

As of December 31, 2013, the scheduled principal payments of the mortgage notes payable for the subsequent five years ending December 31, and thereafter, are as follows:


2014	$	1,513,012
2015		266,528,772
2016		1,738,979
2017		559,077,140
2018		1,148,968

	$	830,006,871

6. Revolving Credit Facility

In May 2012, the Company repaid $4,062,500 of borrowings under the revolving credit facility with proceeds generated from the disposition of collateralized and repaid the remaining outstanding principal balance of the revolving credit facility with proceeds from the $280,000,000 PNC Mortgage (Note 5).

The Company also had a $15,000,000 letter of credit outstanding under the revolving credit facility that collateralized the Metlife Mortgage (Note 5), which was exercised in February 2012. Proceeds were used to reduce the Metlife Mortgage (Note 5).

Interest paid on the revolving credit facility for the years ended December 31, 2012 and 2011 was $1,076,806 and $1,647,793, respectively.

7. Transactions with Related Parties

Fees Earned by Related Parties

DDRPM earns an asset management fee equal to 0.098% of the aggregate Capital Contributions and Member Loans as defined in the management agreement. Asset management fees earned by DDRPM and billed to the Company aggregated $761,367, $884,115 and $956,933 for the years ended December 31, 2013, 2012 and 2011, respectively. Pursuant to the fourth amendment of the LLC agreement effective May 23, 2012, the Company no longer pays asset management fees related to the properties encumbered by the Metlife Mortgage until certain benchmarks are achieved. As a result, the expense has been accrued, but the payment of the asset management fee ceased in May 2012. Accrued asset management fees related to properties encumbered by the Metlife Mortgage aggregated $384,242 and $176,578 as of December 31, 2013 and 2012, respectively.

DDRPM and DDR earn management fees at an amount equal to 4% of gross rental receipts, as defined in the management and operating agreements. Management fees earned by DDRPM and DDR and billed to the Company aggregated $5,922,470, $6,763,055 and $6,961,900 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

DDR employees perform certain maintenance services at the Properties. Maintenance services earned by DDR and billed to the Company aggregated $861,863, $1,100,032 and $1,009,576 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDRPM and DDR have the ability to earn leasing commissions for the rental of space to tenants in accordance with the management agreement. Lease commissions are calculated based on whether the lease is a new lease or renewal of an existing lease, the rental income earned over the life of the lease and the square footage the tenant will occupy under the lease. Lease commissions are capitalized and amortized over the life of the lease. Lease commissions earned by DDRPM and DDR and billed to the Company aggregated $1,445,548, $2,626,698 and $2,135,041 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDRPM and DDR have the ability to earn construction management fees which are determined in accordance with the management and operating agreement. Except for the redevelopment or expansion of a property, construction management fees are calculated based on 5% of the cost of tenant and other capital improvements, plus reimbursement of out of pocket costs and third party expenses. The construction management fee for a redevelopment or an expansion is determined by the Company and DDRPM and DDR in connection with the approval of the development expenditures. The construction management fee is payable as costs for the work conducted are due and is subject to adjustment once the final costs for the work are determined. The Company capitalizes the construction management fees as an addition to buildings and tenant improvements, as appropriate, and depreciates such costs over the estimated useful life of the related asset. Construction management fees earned by DDRPM and DDR and billed to the Company aggregated $938,199, $429,172 and $353,914 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR performs certain legal services on behalf of the Company. Legal services earned by DDR and billed to the Company aggregated $148,755, $284,676 and $305,417 for the years ended December 31, 2013, 2012 and 2011, respectively.

DDR employees perform certain tax preparation services on behalf of the Company. Tax preparation services earned by DDR aggregated $23,136, $22,572 and $22,460 for the years ended December 31, 2013, 2012 and 2011, respectively.

Ancillary income fees earned by DDRPM and DDR are equal to 25% of all funds generated from ancillary income sources, as defined in the management agreement. Ancillary income fees earned by DDRPM and DDR and billed to the Company aggregated $442,244, $476,305 and $455,761 for the years ended December 31, 2013, 2012 and 2011, respectively. These fees were recorded within general and administrative expenses in the consolidated statements of operations.

DDR purchased five properties from the Company that resulted in proceeds of $108,350,484 and a gain of $9,350,896 recorded in gain on disposition of real estate on the consolidated statements of operations for the year ended December 31, 2013.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Insurance

In accordance with the management agreement, DDR arranges for insurance coverage from insurers authorized to do business in the United States, which provide liability, property and flood coverage. In 2013 and 2012, the Company remitted to DDR insurance premiums associated with these insurance policies. Insurance premiums billed to the Company aggregated $4,245,308, $3,810,187 and $4,073,581 for the years ended December 31, 2013, 2012 and 2011, respectively.

Related Party Payables

As of December 31, 2013 and 2012, the Company had related party payables of $533,425 and $277,597, respectively. The amounts are included within accounts payable and other accrued liabilities on the consolidated balance sheets and represent amounts owed to DDRPM and DDR for the services and fees discussed above incurred pursuant to the property management and other service agreements.

8. Commitments and Contingencies


2014	$	105,040,907
2015		93,915,572
2016		79,766,566
2017		59,890,057
2018		45,358,959

Scheduled minimum rental payments under the terms of all non-cancellable operating leases in which the Company is the lessee related to ground leases for the subsequent five years ending December 31, are as follows:


2014	$	625,000
2015		625,000
2016		1,025,000
2017		1,025,000
2018		1,025,000

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Rental expense for all non-cancellable operating leases was $630,273 for the years ended December 31, 2013, 2012 and 2011, respectively.

The Company has recorded a contingent liability aggregating $1,150,000 related to a guarantee provided to the buyer of a shopping center sold during 2012 that is included in accounts payable and other accrued liabilities within the consolidated balance sheet as of December 31, 2012. The contingent liability relates to potential future capital expenditures required by the respective governing agencies related to tax increment financing bonds. The charge for the liability was included within the aggregate impairment charge recorded for the shopping center triggered by the Company’s decision to sell the asset. All activity associated with the shopping center is classified within discontinued operations (Note 11).

9. Fair Value of Financial Instruments

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

Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other accrued liabilities:

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

Debt:

Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile, the Company has determined the fair value of its mortgage notes payable to be $832,562,096 and $1,049,063,108 as of December 31, 2013 and 2012, respectively.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

10. Impairment Charges

Pursuant to the provisions of Accounting for the Impairment or Disposal of Long-Lived Assets, related to assets being held and used, the Company recorded impairment charges related to two, two and 17 properties aggregating $37,325,000, $48,108,732 and $258,333,033 for the years ended December 31, 2013, 2012 and 2011, respectively.

Measurement of Fair Value

The Company is required to assess the fair value of impaired assets. The valuation of impaired real estate assets is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows, the income capitalization approach considering prevailing market capitalization rates, analysis of recent comparable sales transactions, actual sales negotiations and bona fide purchase offers received from third parties and/or consideration of the amount that currently would be required to replace the asset, as adjusted for obsolescence. In general, the Company considers multiple valuation techniques when measuring the fair value. However, in certain circumstances, a single valuation technique may be appropriate.

Fair Value Hierarchy

Fair Value Measurements specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with Fair Value Measurements, the following summarizes the fair value hierarchy:

•

Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

•

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

Items Measured at Fair Value on a Non-Recurring Basis

The valuation techniques utilized by the Company were determined to fall under level 3 of the fair value hierarchy for the years ended December 31, 2013, 2012 and 2011, respectively.


	Fair Value Measurements
	Level 1		Level 2		Level 3		Total		Total Impairment
December 31, 2013
Long - lived assets:
Held and used	$	—	$	—	$	8.0	$	8.0	$	30.5
Sold ⁽¹⁾		—		—		17.4		17.4		6.8

December 31, 2012
Long - lived assets:
Sold ⁽¹⁾	$	—	$	—	$	117.3	$	117.3	$	48.1

December 31, 2011
Long - lived assets:
Held and used	$	—	$	—	$	342.7	$	342.7	$	115.0
Sold ⁽¹⁾		—		—		189.3		189.3		143.3

⁽¹⁾	The operating results of these properties, including the impairment charge, are reported in discontinued operations.

The following table presents quantitative information about the significant unobservable inputs used by the Company to determine the fair value of non-recurring items (in millions):

Quantitative Information about Level 3 Fair Value
Measurements

Fair Value at
December 31,

Valuation

Unobservable

2013

2012

Technique

Input

Range

Long-lived assets

Held and used

8.0

$ —

Discounted

Cash Flow

Discount Rate

10.25

Terminal
Capitalization
Rate

11.00

Sold

17.4

117.3

Indicative Bid

Indicative
Bid

N/A

^(A)

^(A)	The fair value measurement was developed by third party sources, (broker quote or purchase and sale agreement), subject to the Company’s corroboration for reasonableness.

DDRTC CORE RETAIL FUND, LLC

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2013, 2012 and 2011

(Information for the Years Ended December 31, 2012

and 2011 not Covered by Auditor’s Report)

11. Discontinued Operations

The Company sold 12, two and two properties that were classified as discontinued operations for the years ended December 31, 2013, 2012 and 2011, respectively. The operating results related to assets classified as discontinued operations for the years ended December 31, 2013, 2012 and 2011 are as follows:


	2013			2012			2011
Revenues from operations:
Minimum rents	$	13,126,811		$	27,756,784		$	35,517,469
Percentage and overage rents		4,839			485,031			722,736
Recoveries from tenants		4,325,294			8,386,735			11,665,963
Ancillary and other income		249,506			813,690			684,936

Total revenues		17,706,450			37,442,240			48,591,104


Rental operation expenses:
Operating and maintenance		2,129,632			5,448,946			8,977,578
Real estate taxes		3,368,567			6,737,845			8,514,574
Asset management fees		85,178			207,927			280,744
Management fees		711,580			1,593,176			1,962,489
General and administrative		150,995			401,076			610,343
Depreciation and amortization		5,194,053			11,863,362			17,325,868
Impairment charges		6,820,000			48,108,732			143,278,303

Total expenses		18,460,005			74,361,064			180,949,899

Operating loss		(753,555	)		(36,918,824	)		(132,358,795	)

Other income (expense):
Interest income		115			1,624			6,216
Interest expense		(5,446,378	)		(11,783,864	)		(15,945,936	)
Loss on debt extinguishment		(14,913	)		(241,366	)		—

		(5,461,176	)		(12,023,606	)		(15,939,720	)


Loss from discontinued operations		(6,214,731	)		(48,942,430	)		(148,298,515	)
Gain (loss) on disposition and foreclosure of real estate		25,617,573			305,497			(165,781	)

Gain (loss) after disposition and foreclosure of real estate	$	19,402,842		$	(48,636,933	)	$	(148,464,296	)

12. Subsequent Events

In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date of the Independent Auditor’s Report, the date the Company’s financial statements were available to be issued.

EX-99.3 11 d693547dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

Sonae Sierra Brazil BV SARL and Subsidiaries

Consolidated Financial Statements for the

Years Ended December 31, 2013,

2012 and 2011 and

Independent Auditors’ Report

Deloitte Touche Tohmatsu Auditores Independentes

INDEPENDENT AUDITORS’ REPORT

To the Shareholders, Directors and Management of

Sonae Sierra Brazil BV SARL

São Paulo - SP - Brazil

We have audited the accompanying consolidated financial statements of Sonae Sierra Brazil BV SARL (the “Company”), which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the three years ended December 31, 2013, and the related notes to the consolidated financial statements.

Management’s responsibility for the consolidated financial statements

The Company’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards - IFRS, as issued by the International Accounting Standards Board - IASB; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United States of America - U.S. GAAS. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Deloitte Touche Tohmatsu

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sonae Sierra Brazil BV SARL as of December 31, 2013 and 2012 and the results of their operations and their cash flows for the three years ended December 31, 2013 in conformity with IFRS, as issued by IASB.

Emphasis of Matter

Accounting practices in conformity with IFRS, as issued by IASB, vary in certain significant respects from generally accepted accounting principles in the United States of America - U.S. GAAP. Information relating to the nature and effect of such differences is presented in note 32 to the consolidated financial statements. Our opinion is not modified with respect to this matter.

São Paulo, March 19, 2014


DELOITTE TOUCHE TOHMATSU				Marcelo Magalhães Fernandes
Auditores Independentes				Engagement Partner


© 2014 Deloitte Touche Tohmatsu. All rights reserved.		2

SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES

BALANCE SHEETS AS OF DECEMBER 31, 2013 AND 2012

(In thousands of Brazilian reais - R$)


		Consolidated						Consolidated
	Note	12/31/13		12/31/12			Note	12/31/13		12/31/12
ASSETS						LIABILITIES AND EQUITY

CURRENT ASSETS						CURRENT LIABILITIES
Cash and cash equivalents	4		429,347		687,444	Loans and financing	12		61,168		50,659
Trade accounts receivable, net	5		40,196		33,605	Debentures	13		14,903		14,603
Recoverable taxes	6		9,979		16,456	Trade accounts payable			49,812		31,460
Prepaid expenses			29		53	Taxes payable	18		7,900		65,888
Other receivables	5		6,959		4,694	Personnel, payroll taxes, benefits and rewards			10,520		9,755

Total current assets			486,510		742,252	Key money	16		8,340		6,863

						Dividends payable	19		14,433		11,935
NONCURRENT ASSETS						Payables for purchase of asset	14		21,186		49,491
Restricted investments	31		6,124		4,065	Other payables			12,318		16,116

Trade accounts receivable, net	5		14,059		12,215	Total current liabilities			200,580		256,770

Recoverable taxes	6		18,472		8,253
Loans to condominiums	7 and 25		9,436		1,441	NONCURRENT LIABILITIES
Deferred income tax and social contribution	24		5,036		20,693	Loans and financing	12		510,495		378,669
Escrow deposits	17		11,677		9,950	Debentures	13		318,085		303,449
Other receivables	5		3,950		833	Key money	16		17,044		24,101
Investment under equity-method	8		33,375		28,530	Payables for purchase of asset	14		10,654		28,919
Investment property	10		3,946,171		3,248,095	Deferred income tax and social contribution	24		525,791		411,597
Property and equipment	9		3,163		3,495	Reserve for civil, tax, labor and social security risks	17		7,913		9,439
Intangible assets	11		5,662		3,585	Accrual for variable compensation	29		1,469		1,200

Total noncurrent assets			4,057,125		3,341,155	Total noncurrent liabilities			1,391,451		1,157,374


						EQUITY	19
						Capital			48		48
						Share premium			462,540		462,540
						Earnings reserves			1,398,449		1,207,402

						Equity attributable to owners of the Company			1,861,037		1,669,990
						Noncontrolling interests			1,090,567		999,273

						Total equity			2,951,604		2,669,263

TOTAL ASSETS			4,543,635		4,083,407	TOTAL LIABILITIES AND EQUITY			4,543,635		4,083,407

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

SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(In thousands of Brazilian reais - R$)


		Consolidated
	Note	12/31/13			12/31/12			12/31/11

NET OPERATING REVENUE FROM RENTALS, SERVICES AND OTHER	20		275,754			256,851			219,185

COST OF RENTALS, SERVICES AND OTHER	21		(58,715	)		(43,177	)		(36,809	)

GROSS PROFIT			217,039			213,674			182,376


OPERATING INCOME (EXPENSES)
General and administrative expenses	21		(22,638	)		(20,394	)		(17,836	)
Other tax expenses			(4,834	)		(1,389	)		(1,457	)
Equity pick-up	8		7,945			4,821			7,774
Changes in fair value of investment property	10		344,318			193,586			276,913
Other operating income, net	22		5,621			27,801			1,724

Total income from operations, net			330,412			204,425			267,118


OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES)			547,451			418,099			449,494

FINANCIAL EXPENSES, NET	23		(27,620	)		(13,090	)		(12,561	)

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION			519,831			405,009			436,933


INCOME TAX AND SOCIAL CONTRIBUTION
Current	24		(32,748	)		(91,803	)		(25,975	)
Deferred	24		(129,674	)		(8,754	)		(95,011	)

Total			(162,422	)		(100,557	)		(120,986	)

NET INCOME FOR THE YEAR			357,409			304,452			315,947


NET INCOME ATTRIBUTABLE TO
Owners of the Company			232,667			182,409			175,863
Noncontrolling interests			124,742			122,043			140,084

BASIC EARNINGS PER SHARE	19.5		1,264			991			966

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

SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(In thousands of Brazilian reais - R$)


	Consolidated
	12/31/13		12/31/12		12/31/11

NET INCOME FOR THE YEAR		357,409		304,452		315,947

Other comprehensive income		—		—		—

TOTAL COMPREHENSIVE INCOME		357,409		304,452		315,947


NET INCOME ATTRIBUTABLE TO
Owners of the Company		232,667		182,409		175,863
Noncontrolling interests		124,742		122,043		140,084

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

SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES

STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(In thousands of Brazilian reais - R$, except dividends per share)


	Note	Capital		Share premium			Retained earnings			Total equity attributable to owners of the parent			Noncontrolling interests			Total equity

BALANCES AS OF DECEMBER 31, 2010 (UNAUDITED)			47		654			957,818			958,519			266,023			1,224,542

Share premium	15		1		466,870			—			466,871			—			466,871
Loss on sale of interest in subsidiaries to third parties - IPO Sonae Sierra Brasil S.A.			—		—			(73,760	)		(73,760	)		73,760			—
Sale of interest in subsidiaries to third parties - IPO Sonae Sierra Brasil S.A.			—		—			—			—			465,021			465,021
Share issuance costs related to IPO Sonae Sierra Brasil S.A.			—		—			—			—			(16,083	)		(16,083	)
Net income for the year			—		—			175,863			175,863			140,084			315,947
Dividends (R$19,137.36 per share)			—		—			(3,483	)		(3,483	)		(4,661	)		(8,144	)
Dividends arising from operation of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center			—		—			—			—			(19,988	)		(19,988	)

BALANCES AS OF DECEMBER 31, 2011			48		467,524			1,056,438			1,524,010			904,156			2,428,166

Share premium decrease	19.2		—		(4,984	)		—			(4,984	)		—			(4,984	)
Net income for the year			—		—			182,409			182,409			122,043			304,452
Dividends (R$170,896.74 per share)			—		—			(31,445	)		(31,445	)		(12,415	)		(43,860	)
Dividends arising from operation of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center			—		—			—			—			(14,511	)		(14,511	)

BALANCES AS OF DECEMBER 31, 2012			48		462,540			1,207,402			1,669,990			999,273			2,669,263

Net income for the year			—		—			232,667			232,667			124,742			357,409
Dividends (R$226,192.93 per share)			—		—			(41,620	)		(41,620	)		(11,596	)		(53,216	)
Dividends arising from operation of Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Parque D. Pedro Shopping Center			—		—			—			—			(21,852	)		(21,852	)

BALANCES AS OF DECEMBER 31, 2013			48		462,540			1,398,449			1,861,037			1,090,567			2,951,604

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

SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(In thousands of Brazilian reais - R$)


	Consolidated
	12/31/13			12/31/12			12/31/11

CASH FLOW FROM OPERATING ACTIVITIES
Net income for the year		357,409			304,452			315,947
Adjustments to reconcile net income for the year to net cash provided by operating activities:
Depreciation and amortization		2,330			1,790			1,467
Residual value of property and equipment written-off		573			362			516
Gain by debentures adjustment in fair value hedge accounting		(1,982	)		—			—
Loss with derivatives transaction in fair value hedge accounting		1,828			—			—
Unbilled revenue from rentals		(1,950	)		(2,550	)		(1,285	)
Allowance for doubtful accounts receivable		2,792			2,401			418
Provision for (reversal of) civil, tax, labor and social security risks		(1,526	)		(846	)		(621	)
Accrual for variable compensation		2,012			1,928			777
Deferred income tax and social contribution		129,674			8,754			95,011
Income tax and social contribution		32,748			91,803			25,975
Interest on loans and financing		74,928			61,223			18,574
Transaction (gains) losses on foreign exchange		(2,875	)		1,461			37,230
Changes in fair value of investment property		(344,318	)		(193,586	)		(276,913	)
Gain on sale of investment property		—			(30,578	)		—
Equity pick-up		(7,945	)		(4,821	)		(7,774	)

(Increase) decrease in operating assets:
Trade accounts receivable, net		(9,277	)		(10,166	)		(3,406	)
Loans to condominiums		(7,995	)		(1,113	)		233
Recoverable taxes		(3,742	)		309			(7,106	)
Advances to suppliers		—			—			183
Prepaid expenses		24			452			(330	)
Escrow deposits		(1,727	)		(6,221	)		(145	)
Other receivables		(5,382	)		282			2,460

Increase (decrease) in operating liabilities:
Trade accounts payable		(10,008	)		6,777			(4,332	)
Taxes payable		(14,392	)		(19,202	)		(10,018	)
Personnel, payroll taxes, benefits and rewards		(978	)		442			648
Key money		(5,580	)		4,938			8,778
Other payables		(3,799	)		6,452			9,176

Cash provided by operating activities		180,842			224,743			205,463
Interest paid		(61,136	)		(34,414	)		(27,728	)
Income tax and social contribution paid		(76,344	)		(16,837	)		(13,742	)

Net cash provided by operating activities		43,362			173,492			163,993


CASH FLOW FROM INVESTING ACTIVITIES
Restricted investments		(2,059	)		(1,894	)		(1,614	)
Acquisition or construction of investment property		(341,735	)		(394,498	)		(306,545	)
Purchase of property and equipment		(4,014	)		(1,167	)		(3,203	)
Increase in intangible assets		(634	)		(511	)		(947	)
Proceeds from sale of investment property		—			238,696			—
Dividends received		3,100			2,448			650

Net cash used in investing activities		(345,342	)		(156,926	)		(311,659	)


CASH FLOW FROM FINANCING ACTIVITIES
Share premium decrease		—			(4,964	)		—
Payment of shareholder’s loan		—			—			(86,862	)
Debentures		—			300,000			—
Debentures issuance costs		—			(6,834	)		—
Payments of asset financed		(18,264	)		(18,040	)		—
IPO subsidiary Sonae Sierra Brasil S.A.		—			—			465,021
Share issuance costs related to IPO subsidiary Sonae Sierra Brasil S.A.		—			—			(24,368	)
Proceeds from loans and financing		169,825			78,984			153,216
Loans repaid - principal		(38,161	)		(11,579	)		(5,456	)
Distributed earnings of real estate funds - noncontrolling interests		(21,852	)		(22,672	)		(18,185	)
Dividends paid		(50,540	)		(39,601	)		(3,607	)

Net cash provided by financing activities		41,008			275,294			479,759

Effect of exchange rate changes on cash and cash equivalents		2,875			(1,830	)		742

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, NET		(258,097	)		290,030			332,835


CASH AND CASH EQUIVALENTS
Cash and cash equivalents at end of year		429,347			687,444			397,414
Cash and cash equivalents at beginning of year		687,444			397,414			64,579

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, NET		(258,097	)		290,030			332,835

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

Sonae Sierra Brazil BV SARL and Subsidiaries

SONAE SIERRA BRAZIL BV SARL AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)

1.	GENERAL INFORMATION

Sonae Sierra Brazil BV SARL (the “Company”) was incorporated under the laws of the Netherlands on January 22, 2001 as a limited liability company. On November 30, 2004, the principal establishment and effective place of the Company’s management was transferred from the Netherlands to the Grand Duchy of Luxembourg. The registered office of the Company is at 46A, Avenue John F. Kennedy, L.1855, Luxembourg. The principal business activities of the Company are holding, finance and real estate activities, particularly with respect to the development, exploitation and management of shopping malls.

The Company is 50% owned by Sierra Investments Holding BV, 10.33% owned by DDR Luxembourg SARL and 39.67% owned by DDR Luxembourg II SARL. The Company’s ultimate parent companies are Sonae Sierra SGPS S.A., headquartered in Portugal, and DDR Corp., headquartered in the United States of America.

Group companies

The Company’s direct and indirect subsidiaries included in the consolidated financial statements are the following:

Sierra Brazil 1 BV - headquartered in the Netherlands, is primarily engaged in holding equity interest in other companies and/or real estate investment funds, directly or indirectly through subsidiaries and associates. As of December 31, 2013, Sierra Brazil 1 BV holds 66.65% of the undivided interest in Sonae Sierra Brasil S.A.

Sonae Sierra Brasil S.A. - established on June 18, 2003, is primarily engaged in: (i) planning, developing, implementing and investing in real estate, namely shopping malls and related activities, as developer, builder, lessor and advisor; (ii) operating and managing own and/or third-party properties and stores and providing related services; and (iii) holding equity interest in other companies and/or real estate investment funds, directly or indirectly through subsidiaries and associates. Sonae Sierra Brasil S.A. trades its shares on BM&FBOVESPA (São Paulo Stock Exchange), under the ticker symbol “SSBR3”. As of December 31, 2013, Sonae Sierra Brasil S.A. holds 100.00% of the undivided interest in Sierra Investimentos Brasil Ltda. and Unishopping Consultoria Ltda.

Parque D. Pedro 1 BV SARL - is primarily engaged in holding equity interest in real estate investment funds, directly or indirectly through subsidiaries. As of December 31, 2013, Parque D. Pedro 1 BV SARL holds 27.61% and 7.97% of the undivided interest in Fundo de Investimento Imobiliário Shopping Parque D. Pedro and Fundo de Investimento Imobiliário - FII Parque Dom Pedro Shopping Center, respectively.

Fundo de Investimento Imobiliário Shopping Parque D. Pedro (“Fundo de Investimento Imobiliário I”) is engaged in holding long-term investment properties, to earn income by renting and leasing properties of its real estate assets. As of December 31, 2013, Fundo de Investimento Imobiliário I holds a trust equivalent to 85% of the undivided interest in Shopping Parque D. Pedro.

Sonae Sierra Brazil BV SARL and Subsidiaries

Fundo de Investimento Imobiliário - FII Parque Dom Pedro Shopping Center (“Fundo de Investimento Imobiliário II”) is engaged in holding long-term investment properties, to earn income by renting and leasing properties of its real estate assets. Established on June 30, 2009, through the partial spin-off of Fundo de Investimento Imobiliário I’s operations, Fundo de Investimento Imobiliário II holds a trust equivalent to 15% of the undivided interest in Shopping Parque D. Pedro. As of December 31, 2013 Fundo de Investimento Imobiliário II holds 17.72% of Fundo de Investimento Imobiliário I.

Sierra Investimentos Brasil Ltda. (“Sierra Investimentos”) is primarily engaged in: (i) planning, developing, implementing and investing in real estate, namely shopping malls and related activities, as developer, builder, lessor and advisor; (ii) operating and managing properties and stores and providing related services; and (iii) holding equity interest in other companies. As of December 31, 2013, Sierra Investimentos holds 42.28% and 50.1% of the undivided interest in Fundo de Investimento Imobiliário I and Fundo de Investimento Imobiliário II, respectively. As of December 31, 2013, this company is the parent company of Pátio Boavista Shopping Ltda. (“Pátio Boavista”), Patio São Paulo Shopping Ltda. (“Pátio São Paulo”), Pátio São Bernardo Shopping Ltda. (“Pátio São Bernardo”), Pátio Sertório Shopping Ltda. (“Pátio Sertório”), Pátio Uberlândia Shopping Ltda. (“Pátio Uberlândia”), Pátio Londrina Empreendimentos e Participações Ltda. (“Pátio Londrina”), Pátio Goiânia Shopping Ltda. (“Pátio Goiânia”) and Pátio Campinas Shopping Ltda. (“Pátio Campinas”).

Pátio Boavista, Pátio São Paulo, Pátio São Bernardo, Pátio Sertório, Pátio Uberlândia, Pátio Londrina, Pátio Goiânia and Pátio Campinas, - are primarily engaged in investing in real estate, namely shopping malls and related activities.

Unishopping Consultoria Imobiliária Ltda. (“Unishopping Consultoria”) is engaged in planning, installing, developing and managing shopping malls, leasing, operating and managing car park areas, managing properties and related services and is responsible for selling development stores in which the group holds interests.

As of December 31, 2013, 2012 and 2011, the Company’s subsidiaries and associates held the following interests in shopping malls:


		Undivided interest - %
Developer	Shopping mall	12/31/13		12/31/12		12/31/11

Fundo de Investimento Imobiliário I	Shopping Parque D. Pedro		85.00		85.00		85.00
Fundo de Investimento Imobiliário II	Shopping Parque D. Pedro		15.00		15.00		15.00
Pátio Penha (i)	Shopping Penha (iv)		—		—		73.18
Pátio Penha (i)	Shopping Plaza Sul		—		30.00		30.00
Pátio Londrina	Shopping Plaza Sul		30.00		—		—
Pátio São Bernardo	Shopping Plaza Sul		30.00		30.00		30.00
Pátio Boavista	Shopping Center Metrópole		100.00		100.00		100.00
Pátio Boavista (i)	Boavista Shopping		—		100.00		100.00
Pátio Campinas	Boavista Shopping		100.00		—		—
Sierra Enplanta (i)	Tivoli Shopping (iv)		—		—		30.00
Sierra Enplanta (i)	Pátio Brasil Shopping (iv)		—		—		10.42
Sierra Enplanta (i)	Franca Shopping		—		76.92		67.42

Sonae Sierra Brazil BV SARL and Subsidiaries


		Undivided interest - %
Developer	Shopping mall	12/31/13		12/31/12		12/31/11

Pátio Uberlândia	Franca Shopping		76.92		—		—
Pátio Sertório	Shopping Manauara		100.00		100.00		100.00
Pátio Uberlândia	Uberlândia Shopping		100.00		100.00		100.00
Pátio Londrina	Boulevard Londrina (ii)		88.64		84.48		84.48
Pátio Goiânia	Passeio das Águas Shopping (iii)		100.00		100.00		100.00
Campo Limpo Empreendimentos e Participações Ltda.	Shopping Campo Limpo		20.00		20.00		20.00

(i)	These subsidiaries were merged and/or spun-off on November 2, 2013, without impact to the consolidated structure.

(ii)	Opened on May 3, 2013.

(iii)

Opened on October 30, 2013.

(iv)	Property sold during 2012. See note 10.

2.	SIGNIFICANT ACCOUNTING POLICIES

2.1.

Declaration of conformity

The Company’s financial statements comprise:

•

The consolidated financial statements, in accordance with International Financial Reporting Standards - IFRS, as issued by the International Accounting Standards Board - IASB, have been prepared to fulfill the requirement of Rule 3-09 of Regulation S-X of its shareholder DDR Corp., to be included in its Form 10-K. The Company applied the accounting policies set out in note 2 for all periods presented.

2.2.

Basis of preparation

The financial statements have been prepared based on the historical cost and adjusted to reflect the fair values of the investment properties and certain financial instruments against net income for the year. The historical cost is generally based on the fair value of the consideration paid in exchange for assets.

The main accounting policies adopted in preparing these financial statements are summarized below. These practices are consistent with those adopted in the prior year reporting period.

The following is a summary of the significant accounting policies adopted by the group:

2.3.

Investments in associate

The investments are registered under the equity method.

Associates are entities that the Company is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not have control or joint control over those policies (see note 8).

Sonae Sierra Brazil BV SARL and Subsidiaries

2.4.

Basis of consolidation

The consolidated financial statements have been prepared and are presented in conformity with IFRS, as issued by IASB. The main accounting policies applied include the financial statements of the Company and of its subsidiaries. Intercompany balances and the Company’s investments in subsidiaries have been eliminated in consolidation. Non-controlling interests are stated separately.

Control is achieved when the Company:

•

Has power over the investee.

•

Is exposed, or has rights, to variable returns from its involvement with the investee.

•

Has the ability to use its power to affect its returns.

Sonae Sierra Brazil BV SARL and Subsidiaries

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

As of December 31, 2013, 2012 and 2011, the consolidated companies are as follows:


	Equity interest - %
	12/31/13		12/31/12		12/31/11

Direct subsidiaries:
Parque D. Pedro 1 BV SARL		100.00		100.00		100.00
Sierra Brazil 1 BV		100.00		100.00		100.00

Indirect subsidiaries:
Sonae Sierra Brasil S.A.		66.65		66.65		66.65
Sierra Investimentos Brasil Ltda.		66.65		66.65		66.65
Unishopping Administradora Ltda. (a)		—		66.65		66.65
Unishopping Consultoria Imobiliária Ltda.		66.65		66.65		66.65
Fundo de Investimento Imobiliário I (b)		63.12		63.12		63.12
Fundo de Investimento Imobiliário II		41.36		41.36		41.36
Sierra Enplanta Ltda. (a)		—		66.65		66.65
Pátio Boavista Shopping Ltda.		66.65		66.65		66.65
Pátio Penha Shopping Ltda. (a)		—		66.65		66.65
Pátio São Bernardo Shopping Ltda.		66.65		66.65		66.65
Pátio Sertório Shopping Ltda.		66.65		66.65		66.65
Pátio Uberlândia Shopping Ltda.		66.65		66.65		66.65
Pátio Londrina Empreendimentos e Participações Ltda.		66.65		66.65		66.65
Pátio Goiânia Shopping Ltda.		66.65		66.65		66.65
Pátio Campinas Shopping Ltda. (c)		66.65		—		—
Pátio São Paulo Shopping Ltda.		66.65		—		—

Unconsolidated associate - through Sierra Investimentos Brasil Ltda.-
Campo Limpo Empreendimentos e Participações Ltda.		20.00		20.00		20.00

(a)	Subsidiaries merged in the corporate restructuring process.

(b)	Considering that Fundos the Investimento Imobiliário I and II held 85% and 15%, respectively, of Shopping Parque D. Pedro, and that the Company held an indirect investment in Sonae Sierra Brasil of 66.65, the Company held 59.87% of this property on a combined basis as of December 31, 2013 and 2012.

(c)	Part of the net assets of indirect subsidiary Pátio Boavista was merged into Pátio Campinas on November 2, 2013.

2.5.

Segment reporting

Segment reporting is consistent with the internal report provided to the chief operating decision maker.

Sonae Sierra Brazil BV SARL and Subsidiaries

2.6.

Functional currency of the financial statements

The items included in the financial statements of each entity are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The Company and its subsidiaries’ functional and presentation currency is the Brazilian reais (R$).

2.7.

Foreign currency

In preparing the financial statements of the individual entities, transactions in foreign currency are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise.

2.8.

Cash and cash equivalents

Cash and cash equivalents are represented by available bank accounts. Short-term investments may be redeemed within 90 days and are comprised of highly-liquid securities convertible into cash, which presents an immaterial risk of change in fair value. Short-term investment balances are carried at cost plus income earned through the end of each reporting period.

2.9.

Restricted investments

As of December 31, 2013, 2012 and 2011, the indirect subsidiary, Sierra Investimentos had investments in Financial Treasury Bills (LFTs) linked to commitments assumed with Banco Ourinvest S.A., as described in note 31. Investment balances were carried at cost plus income earned through the end of each reporting period.

2.10.

Financial instruments

2.10.1.

Recognition and measurement

Transactions with financial instruments are initially recognized at transaction value.

Transaction costs directly attributable to the acquisition or issuance of financial assets and financial liabilities are added to or deducted from the financial assets and financial liabilities.

2.10.2.

Classification

The Company and its subsidiaries’ financial instruments have been classified into the following categories:

•

Measured at fair value through profit or loss: financial assets and financial liabilities held for trading, i.e., acquired or originated primarily for the purpose of sale or repurchase in the short term. Changes in fair value are accounted for in profit or loss, and balances are stated at fair value.

•

Loans and receivables: non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. The loans and receivables are classified as current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as noncurrent assets. The Company’s loans and receivables include loans to associates and subsidiaries and trade and other receivables.

Sonae Sierra Brazil BV SARL and Subsidiaries

2.11.

Derivatives

Derivatives are initially recognized at fair value at the trade date and subsequently re-measured at fair value at the end of the reporting period. The resulting gain or loss is recognized in profit or loss immediately, unless the derivative is designated and effective as a hedging instrument; in which the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

2.12.

Hedge accounting

The Company designates certain hedging instruments as fair value hedges.

At the beginning of the hedging relationship, the Company documents the relationship between the hedging instrument and the hedged item with its risk management objectives and strategy to enter into different hedging transactions. Additionally, the Company documents at the inception of a hedge, and continuously, if the hedging instrument used in a hedging relationship is highly effective in offsetting the exposure to changes in the hedged item’s fair values or cash flows attributable to the hedged risk.

Fair value hedges

Changes in the fair value of derivatives designated and qualified as fair value hedges are recorded in profit or loss together with any changes in the fair values of the hedged item, attributable to the hedged risk. Changes in the fair value of these instruments, as well as of the hedged item, are recognized in “Finance income (costs)”.

Hedge accounting is discontinued prospectively when the Company cancels the hedging relationship, when the hedging instrument expires, is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The adjustment to the fair value of the hedged item is accounted for in profit or loss, as of the adjustment date.

2.13.

Impairment of financial assets

Financial assets, except those designated at fair value through profit or loss, are valued using impairment indicators at the end of each annual reporting period. Impairment losses are recognized if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, with an impact on the estimated future cash flows.

The criteria used by the Company and its subsidiaries to determine if there is objective evidence that a financial asset is impaired includes:

•

Significant financial difficulty of the issuer or debtor

•

A breach of contract, such as default or delinquency in interest or principal payments

Sonae Sierra Brazil BV SARL and Subsidiaries

•

It is probable that the borrower will enter bankruptcy or other financial reorganization

•

The disappearance of an active market for the financial asset because of financial difficulties

The carrying amount of the financial asset is directly reduced by any impairment loss for all financial assets, except for receivables, in which case the carrying amount is reduced through use of an allowance account. Subsequent recoveries of previously written-off amounts are added to the allowance. Changes in the carrying amount of the allowance account are recognized in profit or loss.

2.14.

Trade accounts receivable

Rental revenue is recognized on a straight-line basis, according to contractual terms.

An allowance for doubtful accounts is recorded in an amount considered sufficient by management to cover probable losses on the realization of trade accounts receivable, (100% of amounts over 120 days past due).

Past-due and renegotiated amounts are recorded at the renegotiation amounts, including principal plus financial charges, to be collected according to the new receiving period. Concurrently, an additional allowance is recorded on financial charges incurred and included in renegotiations. The allowance is registered until the payment of the renegotiated balance.

2.15.

Property and equipment

Property and equipment is carried at cost of purchase, less accumulated depreciation. Depreciation is calculated on a straight-line basis at the rates mentioned in note 9, based on the estimated useful lives of the assets.

The residual values and the useful lives of the assets are annually reviewed and adjusted, when appropriate.

The carrying amount of property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. The gain or loss arising on the recognition of property and equipment corresponds to the difference between the amounts received and the carrying amount of the asset and is recognized in profit or loss.

2.16.

Investment property

Investment properties are represented by land and buildings in shopping malls held to earn rentals and/or for capital appreciation, as disclosed in note 10.

Investment properties are measured initially at their cost, including transaction costs. After initial recognition, investment properties are measured at fair value. The gain or loss from the change in fair value of investment properties in operation is recognized in profit or loss for the period in which it arises. Valuations were made by independent external appraisers using the cash flow model discounted at market rates. Semi-annually reviews are conducted to value any changes in the recognized balances.

Sonae Sierra Brazil BV SARL and Subsidiaries

Investment property under construction is recognized at cost of construction until it is placed into service or when the Company is able to measure, reliably, the fair value of the asset.

The fair value of an investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure.

2.17.

Intangible assets

Intangible assets acquired separately with finite useful lives are carried at cost less accumulated amortization and impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

2.18.

Impairment of tangible and intangible assets excluding goodwill

Items in property and equipment, intangible assets and other noncurrent assets are evaluated annually to identify evidence of unrecoverable losses or whenever significant events or material changes in circumstances indicate that the carrying value is not recoverable. In the event of a loss resulting from situations where the carrying amount of an asset exceeds its recoverable value, which is defined as the value in use of the asset, using the discounted cash flow method, an impairment loss is recognized in profit or loss.

2.19.

Loans, financing and debentures

Loans, financing and debentures are initially recognized at fair value, less transaction costs incurred, and subsequently stated at amortized cost. Any difference between the amounts raised (less transaction costs) and the settlement amount is recognized in the statement of income during the period the borrowings remain outstanding, using the effective interest rate method.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, that take substantial period to get ready for their intended use or sale, are capitalized as part of the cost of such assets through the date they are ready for their intended use or sale. Other borrowing costs are recognized in profit or loss for the period in which they are incurred.

Part of the transactions carried out using debentures issued by the Company, subject to fair value hedge, are stated at fair value. Gains and losses are recognized through profit or loss.

2.20.

Provisions

Provisions are recognized when there is a present obligation (legal or constructive) as a result of a past event, when a reliable estimate can be made of the amount of the obligation and its settlement is probable.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

Sonae Sierra Brazil BV SARL and Subsidiaries

As of December 31, 2013 and 2012, the main provisions recognized by the Company and subsidiaries are as follows:

2.20.1

Reserve for civil, tax, labor and social security risks

Reserves recorded for lawsuits assessed by the legal counsel and management of the Company and its subsidiaries as probable losses, considering the nature of the lawsuits, the legal counsel and management’s experience in similar cases. Reserves have been recognized for matters classified as legal obligations, regardless of the expected outcome of lawsuits.

2.20.2

Accrual for variable compensation

Accrual for variable compensation is recognized to cover the amounts of performance bonuses granted to some Company officers, which will only be paid three years after such bonuses are granted, provided the officers are still employees of the Company or its subsidiaries. These bonuses are adjusted through the payment date, based on the annual fluctuation of the Company’s market value, and are recognized on a straight-line basis in the income of period during the three-year period (from grant date to payment year) at the gross amount granted to these officers. A possible subsequent adjustment arising from changes in market value is recorded in the income of the period, when incurred.

2.21.

Revenue recognition

Revenue, costs and expenses are recognized on the accrual basis. Revenue from rentals is recognized on a straight-line basis over the term of rental agreements, pursuant to IAS 17 (Leases revenues, taking into account the contractual adjustment and the collection of the 13^th monthly rental and revenue from services, is recognized when services are provided). Revenues from assignment of rights to tenants are allocated to income over the term of the first rental agreement.

Our revenue derives mainly from the following activities:

Rental

Rental revenue refers to the rental of store space to tenants and other commercial space, such as sales stands, including rentals of commercial space for advertising and promotion. Rentals to shopping mall tenants account for the highest percentage of Company and its subsidiaries’ revenue.

Parking

Parking revenue refers to revenue from the operation of parking lots.

Services

Service revenue refers to the provision of asset and property management services to shopping mall tenants and owners and brokerage services.

The Company receives management fees from tenants for the management of the shopping mall common areas.

Sonae Sierra Brazil BV SARL and Subsidiaries

Brokerage services include the sale of vacant spaces and the identification and development of relationships with prospect tenants, such as store chains to minimize a shopping mall vacancy rate. Management fees are calculated as a percentage of the rent charged from a potential lessee.

Property space (key money) lease fee

Key money refer to the lease fees payable by new tenants as consideration for the advantages and benefits received by the tenants from their right to use the infrastructure offered by the shopping malls when new projects are launched, existing projects are expanded or the store rental is discontinued.

The amount payable by new tenants is negotiated based on the market value of the rented space. Usually the new tenants pay a higher fee for stores with greater visibility and exposure in the busiest areas of the shopping mall.

Lessee transfer fees

Revenue generated by the fees paid when the rental is transferred from a lessee to another, generally calculated as a percentage of the amount involved in the transfer.

2.22.

Income tax and social contribution

The operations related to the development, management and investment of shopping malls are located only in Brazil.

Subsidiary Sonae Sierra Brasil S.A. and its subsidiaries located in Brazil

Income tax is calculated at the rate of 15% plus a 10% surtax on annual taxable income exceeding R$240. Social contribution is calculated at the rate of 9% on annual taxable income. Deferred income tax and social contribution result from temporary differences in the recognition of income and expenses (for tax and financial reporting purposes), as well as tax loss carryforwards, when the utilization against future taxable income is probable.

As permitted by tax legislation, certain consolidated subsidiaries opted for taxation based on deemed income. Tax basis of income tax and social contribution are calculated at the rate of 32% on gross revenues from services and 100% of financial income, of which regular tax rates of 15%, plus a 10% surtax for income tax and 9% for social contribution are applied. As a result, these consolidated companies did not record deferred income tax and social contribution on tax loss carryforwards and temporary differences and are not subject to the noncumulative regime for taxes on revenue (Social Integration Program Tax on Revenue (PIS) and Social Security Funding Tax on Revenue (COFINS)).

Shareholders of Fundos de Investimento Imobiliário I and II are subject to tax on income from the fund.

In the specific case of the adjustment to fair value of investment property, regardless of the taxation regime elected by the subsidiaries and associates, deferred tax liabilities were recognized at the rate of 34% on such adjustments (except for the property under Fundos de Investimento Imobiliário I and II, which is tax exempt), based on the assumption that these properties can be sold and a capital gain can be determined.

Sonae Sierra Brazil BV SARL and Subsidiaries

Company

Current taxes

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of income because of items of income or expense items that are taxable or deductible in other years and items that are never taxable or deductible. The Company’s liability for current tax is calculated using a tax rate of 15%, that has been enacted or substantively enacted by the end of the reporting period.

Deferred taxes

For the adjustment to fair value of investment property related to Fundos de Investimento Imobiliário I and II, regardless of the taxation regime elected by the subsidiaries and associates, deferred tax liabilities were recognized at the rate of 15% on such adjustments, based on the assumption that these properties can be sold and a capital gain can be determined.

2.23.

Earnings per share

Basic and diluted earnings per share are calculated using net income for the year attributable to the owners of the Company and the weighted average number of shares outstanding in the year.

The Company has no debt convertible into shares, stock options granted or any other potentially dilutive instrument; therefore, diluted earnings per share is equal to basic earnings per share for the periods shown.

2.24.

New and revised standards and interpretations in 2013


Pronouncement		Description

Amendments to IFRS 7		Disclosures - Offsetting Financial Assets and Financial Liabilities
IFRS 10		Consolidated Financial Statements
IFRS 11		Joint Arrangements
IFRS 12		Disclosure of Interests in Other Entities
IFRS 13		Fair Value Measurement
IAS 19 (revised in 2011)		Employee Benefits

The Company’s management assessed these new standards and interpretations and concluded that there was no significant impact from adopting these new standards.

Sonae Sierra Brazil BV SARL and Subsidiaries

2.25.

New and revised standards and interpretations issued and not yet adopted

•

IFRS 9 - Financial Instruments: Classification and Measurement

IFRS 9 completes the first part of the project to supersede IAS 39 - Financial Instruments: Recognition and Measurement. This new standard uses a simple approach to determine whether a financial asset is stated at amortized cost or fair value, based on how an entity manages its financial instruments (its business model) and contractual cash flows underlying the financial assets. IFRS 9 also requires the adoption of only one method to determine losses on impairment of assets.

•

Amendments to IFRS 7 - Financial Instruments Disclosures - increases the disclosure requirements for transactions involving financial assets and liabilities

Effective for annual periods beginning on or after January 2015

•

Amendments to IAS 32 - Offsetting Financial Assets and Financial Liabilities - clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendment clarifies the meaning of “currently has a legal enforceable right to off-set” and “simultaneously realization and settlement”

•

Amendments to IFRS 10, IFRS 12, and IAS 27 - Investment entities - the amendment to IFRS 10 define an investment entity and requires a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit and loss in its consolidated and separate financial statements

Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for investment entities.

The Company’s management assessed these new standards and interpretations and does not expect significant effects on the reported amounts.

2.26.

Early adoption of Provisional Measure 627/13

Subsidiary Sonae Sierra Brasil S.A. and its subsidiaries located in Brazil

Provisional Measure 627, on November 11, 2013, and Regulatory Instruction 1397, on September 16, 2013, issued by Brazilian Federal Revenue Service, significantly changed federal tax rules. This provisional measure will be effective beginning 2015 and early adoption is permitted beginning 2014.

Management is analyzing the effects from the adoption of such provisional measure, but does not expect significant effects by adopting it and intends to do the early adoption.

3.	CRITICAL ACCOUNTING JUDGMENTS AND MAIN ESTIMATES

In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Sonae Sierra Brazil BV SARL and Subsidiaries

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised.

The following are the main judgments and accounting estimates that the Company and its subsidiaries’ management understands as relevant for the preparation of the individual and consolidated financial statements:

Investment property value: the fair value of investment property is determined by valuing the future cash flows of each property at present value, as determined by independent valuers. The Company and its subsidiaries’ management uses its judgment to choose the method and define assumptions, which are mainly based on market conditions existing at the end of the reporting period.

Reserve for civil, tax, labor and social security risks: the reserve for risks is recognized for lawsuits assessed by the legal counsel and management of the Company and its subsidiaries as probable losses, considering the nature of the lawsuits, and the legal counsel and management’s experience in similar cases. Reserves have been recognized for matters classified as legal obligations, regardless of the expected final outcome of lawsuits.

Projections prepared for the realization of deferred income tax and social contribution balances: based on analyses of the multi-year operating projections, the Company recognized tax credits related to prior year tax loss carryforwards and temporary differences.

Maintenance of tax credits from tax loss carryforwards, deferred income tax and social contribution tax loss carryforwards is supported by future earnings projections prepared by the Company’s management and periodically reviewed, for the next ten years, to determine the recoverability of tax loss carryforwards and temporary differences.

4.	CASH AND CASH EQUIVALENTS


	Consolidated
	12/31/13		12/31/12

Cash		75		79
Banks		3,507		5,115
Short-term investments (a)		422,795		680,851
Interest bearing account (b)		2,970		1,399

Total		429,347		687,444

(a)	As of December 31, 2013, short-term investments are highly liquid and earn yield at a weighted average interest rate of 102.9% of the interbank deposit rate (CDI) (102.5% as of December 31, 2012).

(b)	Interest bearing account indexed to euros - € and earns yield at a weighted average interest rate of 0.85% per year.

Sonae Sierra Brazil BV SARL and Subsidiaries

5.	TRADE ACCOUNTS RECEIVABLE, NET AND OTHER RECEIVABLES

Trade accounts receivable, net


	Consolidated
	12/31/13			12/31/12

Rentals		49,613			41,649
Assignment of rights receivable (a)		1,298			1,300

Total trade receivables billed		50,911			42,949
Unbilled revenue from rentals (b)		14,059			12,215

Total trade receivables billed and unbilled		64,970			55,164
Allowance for doubtful accounts		(10,715	)		(9,344	)

Total		54,255			45,820


Current		(40,196	)		(33,605	)

Noncurrent		14,059			12,215

(a)	Represents receivables from lease of commercial spaces in shopping malls, also known as “Key Money”.

(b)	Represents the effect of unbilled revenue from rentals recognized on a straight-line basis according to agreement terms.

The aging list of trade accounts receivable billed as of December 31, 2013 and 2012 is as follows:


	Consolidated
	12/31/13		12/31/12

Current		39,013		32,874

Past due:
Up to 30 days		2,067		1,579
31 to 60 days		978		821
61 to 90 days		903		584
91 to 180 days		2,423		1,377
Over 180 days		5,527		5,714

Subtotal		11,898		10,075

Total		50,911		42,949

Sonae Sierra Brazil BV SARL and Subsidiaries

Allowance for doubtful accounts

Change in allowance for doubtful accounts is as follows:


	Consolidated

Balance as of December 31, 2010 (unaudited)		(9,985	)
Write-offs arising from uncollectible receivables		676
Allowances recognized in the year		(418	)

Balance as of December 31, 2011		(9,727	)
Write-offs arising from uncollectible receivables		417
Write-offs upon the sale of interests in the malls Tivoli, Penha and Pátio Brasil		2,367
Allowances recognized in the year		(2,401	)

Balance as of December 31, 2012		(9,344	)
Write-offs arising from uncollectible receivables		1,421
Allowances recognized in the year		(2,792	)

Balance as of December 31, 2013		(10,715	)

Other receivables

Additionally, the balance of “Other receivables” is broken down as follows:


	Consolidated
	12/31/13			12/31/12

Receivables of Banco Ourinvest S.A. (a)		833			833
Loan agreement with a storeowner (b)		3,117			—
Other receivables from condominiums		3,846			1,019
Receivables from parking operations		1,315			1,502
Vacations, 13^th salaries, and other advances to employees		98			256
Other		1,700			1,917

Total		10,909			5,527


Current		(6,959	)		(4,694	)

Noncurrent		3,950			833

(a)	As of December 31, 2013, the subsidiary Sierra Investimentos has R$833 in receivables from Banco Ourinvest S.A., as a result from the commitment entered into on October 29, 2009 (see note 31).

(b)	Refers to loans agreements entered into among Company’s subsidiaries and shopping storeowners. These agreements are subject to financial charges corresponding to the annual fluctuation of the Amplified Consumer Price Index - IPCA, and mature within up to 60 months.

Sonae Sierra Brazil BV SARL and Subsidiaries

6.	RECOVERABLE TAXES


	Consolidated
	12/31/13			12/31/12

Withholding income tax (IRRF)		27,774			23,988
Social contribution - Law 10833/03		369			452
Other		308			269

Total		28,451			24,709


Current		(9,979	)		(16,456	)

Noncurrent		18,472			8,253

7.	LOANS TO CONDOMINIUMS

Represent advances to condominiums of the shopping malls to cover cash shortages, notably arising from default. The amounts will be recovered as the common area maintenance fees are received and according to the condominiums’ cash availability.


		Consolidated
Subsidiary	Condominium	12/31/13		12/31/12

Pátio São Bernardo	Condomínio Shopping Center Plaza Sul		933		125
Pátio Sertório	Condomínio Manauara Shopping		341		—
Pátio Uberlândia	Condomínio Uberlândia Shopping		2,712		1,316
Pátio Londrina	Condomínio Boulevard Londrina Shopping		3,561		—
Pátio Goiânia	Condomínio Passeio das Águas Shopping		1,889		—

Total			9,436		1,441

These loans are considered related-party transactions (see note 25).

The contracted interest rates are based on the market practices and management does not expect problems on the realization of these amounts.

8.	INVESTMENT UNDER EQUITY-METHOD

Investment in associate

(i)

Indirect ownership interest held in Campo Limpo Empreendimentos e Participações Ltda.


	Consolidated
	12/31/13		12/31/12

Number of shares held by Sierra Investimentos		9,435,400		9,435,400
Interest held in investee’s capital (%)		20.00		20.00
Investment balance		33,375		28,530
Equity in subsidiaries		7,945		4,821

Sonae Sierra Brazil BV SARL and Subsidiaries

(ii)

Financial information on Campo Limpo Empreendimentos e Participações Ltda.


	12/31/13		12/31/12

Balance sheet:
Current assets		6,230		5,507
Noncurrent assets		220,475		185,610
Current liabilities		2,557		2,619
Noncurrent liabilities		57,272		45,849
Equity		166,876		142,649

	12/31/13		12/31/12		12/31/11

Profit or loss:
Revenue		22,430		20,117		14,885
Profit for the year and comprehensive income		39,725		24,104		38,620

(iii)

Changes in investments for the years ended December 31, 2013, 2012 and 2011


	Consolidated

Balance as of December 31, 2010 (unaudited)		19,033
Equity in investees		7,774
Dividends received		(650	)

Balance as of December 31, 2011		26,157
Equity in investees		4,821
Dividends received		(2,448	)

Balance as of December 31, 2012		28,530
Equity in investees		7,945
Dividends received		(3,100	)

Balance as of December 31, 2013		33,375

Non-controlling interest

(i)

Sonae Sierra Brasil S.A. and subsidiaries

Ownership interest held by non-controlling interest


	12/31/13		12/31/12		12/31/11

Interest in capital held by non-controlling (%)		33.35		33.35		33.35
Net income from non-controlling interests		57,854		61,874		77,055
Non-controlling interests in equity		743,908		697,583		648,123
Dividends paid to non-controlling		8,920		8,156		124

Sonae Sierra Brazil BV SARL and Subsidiaries

Consolidated financial information of Sonae Sierra Brasil S.A. and subsidiaries


	12/31/13		12/31/12

Balance sheet:
Current assets		481,589		736,779
Noncurrent assets		4,048,448		3,332,902
Current liabilities		224,475		276,021
Noncurrent liabilities		1,341,003		1,116,418
Equity		2,964,559		2,677,242

	12/31/13		12/31/12		12/31/11

Profit or loss:
Net operating revenue from rentals, services and other		275,754		256,851		219,185
Changes in fair value of investment properties		344,318		193,586		276,913
Net and comprehensive income for the year		368,497		309,795		364,307

(ii)

Fundos de Investimento Imobiliário I and II

Ownership interest held by non-controlling interest of Fundos de Investimento Imobiliário I and II


	Consolidated
	Fundo de Investimento Imobiliário I						Fundo de Investimento Imobiliário II
	12/31/13		12/31/12		12/31/11		12/31/13		12/31/12		12/31/11

Interest in capital held by non-controlling (%)		12.39		12.39		12.39		41.93		41.93		84.07

Net income from non-controlling interests		30,572		26,657		28,586		36,316		33,512		34,443
Non-controlling interests in equity		157,771		137,279		115,119		188,888		164,411		140,914
Dividends paid to non-controlling		10,133		9,333		8,007		11,719		13,339		10,178

Financial information of Fundos de Investimento Imobiliário I and II


	Fundo de Investimento Imobiliário I						Fundo de Investimento Imobiliário II
	12/31/13		12/31/12				12/31/13		12/31/12

Balance sheet:
Current assets		30,041		27,187				10,496		9,715
Noncurrent assets		1,256,099		1,094,195				447,277		389,404
Current liabilities		12,075		11,953				6,978		6,782
Noncurrent liabilities		691		1,446				122		255
Equity		1,273,374		1,107,983				450,673		392,082

	12/31/13		12/31/12		12/31/11		12/31/13		12/31/12		12/31/11

Profit or loss:
Net operating revenue from rentals, services and other		87,875		78,833		81,657		15,507		13,913		14,410
Changes in fair value of investment properties		159,615		136,667		158,811		28,167		24,118		28,185
Net and comprehensive income for the year		246,745		215,153		230,720		86,611		65,676		40,970

Sonae Sierra Brazil BV SARL and Subsidiaries

9.	PROPERTY AND EQUIPMENT


			12/31/13
	Annual		Consolidated
	depreciation rate - %		Cost		Accumulated depreciation			Net

Facilities		10		2,747		(2,747	)		—
Furniture and fixtures		10		930		(566	)		364
Machinery and equipment		10		674		(348	)		326
IT equipment		20		2,541		(1,863	)		678
Vehicles		20		2,659		(873	)		1,786
Other		20		54		(49	)		5

Subtotal				9,605		(6,446	)		3,159
Advances to suppliers		—		4		—			4

Total				9,609		(6,446	)		3,163


			12/31/12
	Annual		Consolidated
	depreciation rate - %		Cost		Accumulated depreciation			Net

Facilities		10		2,747		(2,747	)		—
Furniture and fixtures		10		923		(483	)		440
Machinery and equipment		10		662		(284	)		378
IT equipment		20		2,432		(1,566	)		866
Vehicles		20		2,338		(832	)		1,506
Other		20		45		(43	)		2

Subtotal				9,147		(5,955	)		3,192
Advances to suppliers		—		303		—			303

Total				9,450		(5,955	)		3,495

Changes in property and equipment in operation for the years ended December 31, 2013, 2012 and 2011


	Consolidated
	Facilities			Furniture and fixtures			Machinery and equipment			IT equipment			Vehicles			Other			Total

Balances as of December 31, 2010 (unaudited)		583			411			265			446			1,601			5			3,311
Additions		334			192			226			630			601			3			1,986
Write-offs		—			—			—			—			(516	)		—			(516	)
Depreciation		(710	)		(85	)		(87	)		(206	)		(154	)		(5	)		(1,247	)

Balances as of December 31, 2011		207			518			404			870			1,532			3			3,534
Additions		—			3			39			272			1,005			4			1,323
Write-offs		—			—			—			(9	)		(353	)		—			(362	)
Depreciation		(207	)		(81	)		(65	)		(267	)		(678	)		(5	)		(1,303	)

Balances as of December 31, 2012		—			440			378			866			1,506			2			3,192
Transfer from advances to suppliers		—			7			12			109			876			9			1,013
Additions		—			—			—			—			780			—			780
Write-offs		—			—			—			—			(573	)		—			(573	)
Depreciation		—			(83	)		(64	)		(297	)		(803	)		(6	)		(1,253	)

Balances as of December 31, 2013		—			364			326			678			1,786			5			3,159

Sonae Sierra Brazil BV SARL and Subsidiaries

Changes in construction in progress and advances to suppliers for the years ended December 31, 2013 and 2012


	Consolidated
	Construction in progress			Advances to suppliers			Total

Balances as of December 31, 2010 (unaudited)		1,162			59			1,221
Additions		1,764			2,386			4,150
Transfer to fixed asset in operation and intangible		(947	)		(1,986	)		(2,933	)

Balances as of December 31, 2011		1,979			459			2,438
Additions		—			1,167			1,167
Transfer to fixed asset in operation and intangible		(1,979	)		(1,323	)		(3,302	)

Balances as of December 31, 2012		—			303			303
Additions		2,520			714			3,234
Transfer to fixed asset in operation and intangible		(2,520	)		(1,013	)		(3,533	)

Balances as of December 31, 2013		—			4			4

10.	INVESTMENT PROPERTY

Under IAS 40, properties can be held to earn rentals, for capital appreciation or both to be recognized as an investment property. The Company’s management adopted the fair value method, from January 1, 2009.

The measurement and change in fair value of property are made at the date of the financial statements.


	Consolidated
	12/31/13		12/31/12

Constructed investment property		3,879,411		2,724,327
Investment property under construction		25,068		523,768
Land		41,692		—

Total		3,946,171		3,248,095

Sonae Sierra Brazil BV SARL and Subsidiaries

Changes in investment property


	Consolidated
	Constructed properties			Properties under construction			Land		Total

Balances as of December 31, 2010 (unaudited)		1,983,960			197,452			—		2,181,412
Additions		73,442			244,283			—		317,725
Gain from the change in fair value of properties		281,394			(4,481	)		—		276,913

Balances as of December 31, 2011		2,338,796			437,254			—		2,776,050
Additions		32,207			381,320			—		413,527
Acquisition of interest in property in operation (a)		72,701			—			—		72,701
Write-off - sale of interest and barter transaction in Shopping Penha (b)		(11,032	)		—			—		(11,032	)
Write-off - sale of Shopping Metrópole land (b)		(3,155	)		—			—		(3,155	)
Write-off - sale of the malls Tivoli, Penha and Pátio Brasil (b)		(193,582	)		—			—		(193,582	)
Transfer		231,222			(231,222	)		—		—
Gain (loss) from the change in fair value of properties		257,170			(63,584	)		—		193,586

Balances as of December 31, 2012		2,724,327			523,768			—		3,248,095
Additions (c)		50,171			333,497			—		383,668
Write-off - barter transaction of Boulevard Londrina (d)		(29,910	)		—			—		(29,910	)
Transfer (e)		832,197			(832,197	)		—		—
Transfers to land (f)		(41,692	)		—			41,692		—
Gain from the change in fair value of properties		344,318			—			—		344,318

Balances as of December 31, 2013		3,879,411			25,068			41,692		3,946,171

(a)

Additions to property in operation

(i)

Additional acquisition of Shopping Plaza Sul

On January 27, 2012, indirect subsidiary Pátio Penha and CSHG Brasil Shopping FII entered into an exchange agreement with cash consideration, whereby Pátio Penha acquired an additional 30% interest in Shopping Plaza Sul, in exchange for a non-controlling interest in Shopping Penha and another portion in cash in the amount of R$63,701 (original value), to be paid in 42 equal, consecutive installments of R$1,522 (original value), adjusted based on the CDI, beginning on February 27, 2012. After this transaction, the group interest in Shopping Plaza Sul is 60%.

(ii)

Additional acquisition of Franca Shopping

On October 4, 2012, the Company, through its indirect subsidiary Sierra Enplanta, acquired additional ownership interest of 9.5% in Franca Shopping in the amount of R$9,000. After this acquisition, the Company holds 76.9% of ownership interest in Franca Shopping.

(b)

Disposal of constructed investment properties

(i)

In connection with the barter transaction described in item (a) (i) above, subsidiary Pátio Penha delivered 17.1% of Shopping Penha to acquire 30% of Shopping Plaza Sul.

(ii)

Sale of Shopping Metrópole land

On August 27, 2012, indirect subsidiary Pátio Boavista sold the land to Setin Group (6,597 sqm) (information not audited by the independent auditors), next to Shopping Metrópole in São Bernardo do Campo, State of São Paulo, for R$11,000 in cash.

Sonae Sierra Brazil BV SARL and Subsidiaries

As a result of this transaction, subsidiary Pátio Boavista recognized a gain of R$7,467, which is recorded in “Other operating income (loss), net”, in the statement of income.

(iii)

Sale of interest in Shopping Penha

On February 6, 2012, subsidiary Pátio Penha sold its non-controlling interest of 5.06% in Shopping Penha to CSHG Brasil Shopping FII R$11,514, which was received in cash.

As a result of this transaction, subsidiary Pátio Penha recognized a gain of R$482, recorded in “Other operating income (loss), net”, in the statement of income.

(iv)

Sale of the remaining interest in Shopping Penha and the interests in the malls Tivoli and Pátio Brasil

On November 5, 2012, the Company sold its 10.4% stake in Pátio Brasil Shopping for R$36,133. The interest in Pátio Brasil Shopping was acquired by the mall’s controlling shareholders.

On December 11, 2012, the Company sold the remaining 51.0% stake in Shopping Penha and its 30.0% stake in Tivoli Shopping for a total of R$180,049. The Company will continue to provide management and sales services to Shopping Penha for at least five years and to Shopping Tivoli for at least three years. The interests in Shopping Penha and Tivoli Shopping were acquired by CSHG Brasil Shopping FII, a fund managed by Credit Suisse Hedging-Griffo.

As a result of these transactions, the indirect subsidiaries Pátio Penha and Sierra Enplanta recorded a gain, net of selling expenses, of R$13,247 and R$3,371, respectively, recorded in line item “Other operating (expenses) income, net,” in the statement of income for the year ended December 31, 2012.

(c)

Capitalized expenditures for the year ended December 31, 2013, in connection with properties under construction, refer to construction costs of projects Boulevard Londrina Shopping and Passeio das Águas Shopping, which were transferred to properties in operation on the opening date of the projects. Additionally, on September 6, 2013, indirect subsidiary Pátio Uberlândia acquired a land with 45.5 thousand sqm (unaudited information) at the price of R$24,563, for the expansion of Franca Shopping.

(d)

On May 3, 2013, indirect subsidiary Pátio Londrina transferred 11.36% of the stake held in Boulevard Londrina Shopping to pay for the land acquired for the construction of the aforementioned shopping mall. The Company, through the transaction, maintained its 88.64% interest.

(e)

On May 3, 2013, Boulevard Londrina Shopping was opened, with 47.8 thousand sqm of Gross Leasable Area (GLA) and 216 stores (unaudited information).

On October 30, 2013, Passeio das Águas Shopping, located in the city of Goiânia, was launched with 78.1 thousand sqm of GLA and 267 stores (unaudited information).

(f)

Refers to part of the land of projects Uberlândia Shopping and Passeio das Águas Shopping acquired for purposes of appreciation and future sale.

The title to part of the property comprising Shopping Boavista project is not registered with the Registry of Deed Office. As of December 31, 2013, the total amount of such property, which was accounted for as investment property, is R$64,655 (R$65,215 as of December 31, 2012).

Fair value measurement methodology

The fair value of each investment property in operation and in construction was determined based on a valuation reported at the time, prepared by an independent external appraiser (Cushman & Wakefield) and reviewed by management.

Sonae Sierra Brazil BV SARL and Subsidiaries

The valuation of these investment properties was prepared in accordance with the practice statements of the RICS Appraisal and Valuation Manual, published by The Royal Institution of Chartered Surveyors (“Red Book”), based in the United Kingdom.

The methodology adopted to calculate the market value (fair value) of an investment property in operation involves developing ten-year projections of gains and losses for each shopping mall, added to the residual value, which corresponds to a perpetuity calculated based on the net earnings of the 11^th year and a market yield rate (exit yield or cap rate). For the calculation of the perpetuity, the Company considered a real growth rate of 0.0%. These projections are discounted at the measurement date using a market discount rate.

The projections are not forecasted, but simply reflect the best estimate of the appraiser regarding the current view of the market with respect to the future revenue and cost of each property. The yield rate and the discount rate are set according to the local investment and institutional market and the reasonableness of the market value obtained according to the methodology above, equally tested in terms of the initial yield rate obtained based on net yield estimated for the first year of the projections.

In the valuation of the investment properties, some assumptions classified by the Red Book as “special” were considered. These assumptions relate mainly to recently opened shopping malls, where investment expenses not yet paid were not included, as such amounts are recognized in the financial statements.

The period for measurement at fair value is on semi-annual basis.

The assumptions used as of December 31, 2013 and 2012, for the measurement at fair value described above, are as follows:


12/31/13												12/31/12
Ten-year discount rate						Ten-year exit yield						Ten-year discount rate						Ten-year exit yield
Minimum			Maximum			Minimum			Maximum			Minimum			Maximum			Minimum			Maximum

	12.25	%		14.00	%		7.75	%		9.50	%		12.50	%		14.00	%		8.00	%		9.50	%

11.	INTANGIBLE ASSETS


	Annual amortization rate - %
			Consolidated
			12/31/13			12/31/12

Software		20		7,797			4,643
Accumulated amortization (*)				(2,135	)		(1,058	)

Total				5,662			3,585

(*)	For the year ended December 31, 2013, the amortization expense of the cost to purchase software, amounting to R$1,077 (R$487 as of December 31, 2012), is recognized under the caption “General and administrative expenses” in the statement of income.

Sonae Sierra Brazil BV SARL and Subsidiaries

Changes in intangible assets


	Consolidated
	Cost		Amortization			Net

Balance as of December 31, 2010 (unaudited)		1,206		(333	)		873
Additions		—		(238	)		(238	)
Transfer from construction in progress		947		—			947

Balance as of December 31, 2011		2,153		(571	)		1,582
Additions		511		(487	)		24
Transfer from construction in progress		1,979		—			1,979

Balance as of December 31, 2012		4,643		(1,058	)		3,585
Additions		634		(1,077	)		(443	)
Transfer from construction in progress		2,520		—			2,520

Balance as of December 31, 2013		7,797		(2,135	)		5,662

12.	LOANS AND FINANCING


			Consolidated
Domestic	Maturity		12/31/13			12/31/12

Banco do Amazonas S.A. - BASA (a)		12/10/20		119,546			136,543
Banco Itaú BBA S.A. (b)		10/21/15		8,152			13,048
Banco Itaú BBA S.A. (c)		10/17/16		14,019			19,344
Banco Bradesco S.A. (d)		10/27/25		117,778			73,463
Banco Bradesco S.A. (e)		10/26/25		72,784			78,084
Banco Itaú BBA S.A. (f)		05/10/23		42,654			51,237
Banco Santander S.A. (g)		06/22/23		196,730			57,609

Total				571,663			429,328


Current				(61,168	)		(50,659	)

Noncurrent				510,495			378,669

(a)

On December 17, 2008, subsidiary Pátio Sertório raised a loan of R$90,315 with Banco do Amazonas S.A. - BASA to finance the construction of the mall Shopping Manauara. In the year ended December 31, 2009, the subsidiary obtained new loans totaling R$21,985. These loans bear fixed interest of 10% per year, with possible discount of 15% if payments are made on the maturity date, and have a grace period of 48 months, during which only 50% of interests incurred are paid. The remaining balance of accrued interest will be paid after the grace period together with the principal repayment. The loan is collateralized by the Shopping Manauara property. The Company and subsidiary Sierra Investimentos are guarantors of this transaction.

(b)

On November 16, 2010, subsidiary Sierra Investimentos Brasil Ltda. raised R$20,000 with Banco Itaú BBA S.A. to finance working capital. This loan is subject to average interest linked to CDI plus 2.85% per year. The Company is the guarantor of this transaction. The loan is collateralized by: (i) the Shopping Metrópole property; and (ii) net receivables of Shopping Metrópole. This loan has a six-month grace period for the payment of the first installment of principal. On June 19, 2013, Sierra Investimentos changed the interest rate applied to CDI plus 1.66% per year.

Sonae Sierra Brazil BV SARL and Subsidiaries

(c)

On November 16, 2010, subsidiary Pátio Boavista raised R$27,000 with Banco Itaú BBA S.A. to finance working capital. This loan is subject to average interest linked to CDI plus 3.3% per year. The Company is the guarantor of this transaction. The loan is collateralized by: (i) the Shopping Metrópole property; and (ii) net receivables of Shopping Metrópole. This loan has a six-month grace period for the payment of the first installment of principal. On June 19, 2013, Pátio Boavista changed the interest rate applied to CDI plus 1.78% per year.

(d)

In the period from June to December 2013, subsidiary Pátio Londrina raised R$117,027 with Banco Bradesco S.A. to finance the construction of Shopping Londrina. This loan, in the total amount of R$120,000, bears a fixed rate equivalent to TR (a managed prime rate) plus 10.9% per year. The agreement is effective for 15 years, with a 2-year grace period for repaying the principal, beginning on April 27, 2014. After this period, the outstanding balance will be paid in 155 monthly consecutive installments. The loan is collateralized by the Shopping Londrina property. The Company is the guarantor of this transaction. On December 14, 2012, Pátio Londrina renegotiated the agreed interest rate to TR plus 9.7% per year.

(e)

From August 2010 to February 2012, subsidiary Pátio Uberlândia raised R$77,152 with Banco Bradesco S.A. to finance the construction of Shopping Uberlândia with a fixed rate equivalent to TR plus 11.3% per year. The agreement is effective for 15 years, with a 2-year grace period for the interest installment. After this period, the outstanding balance will be paid in 156 monthly consecutive installments. The loan is collateralized by the Shopping Uberlândia property. The Company is the guarantor of this transaction. On November 21, 2012, Pátio Uberlândia renegotiated the agreed interest rate to TR plus 9.7% per year.

(f)

On June 29, 2011, subsidiary Pátio Boavista raised R$52,651 with Banco Itaú BBA S.A. to finance the expansion of Shopping Metrópole. This loan bears a fixed rate equivalent to TR plus 10.30% per year. The agreement is effective for 7 years, with a 12-month grace period for repaying the principal. After this period, the outstanding balance will be paid in 72 monthly consecutive installments. The Company is the guarantor of this transaction. The loan is collateralized by: (i) the Shopping Metrópole property; and (ii) Shopping Metrópole’s net receivables. On June 19, 2013, Pátio Boavista renegotiated the interest rate applied to TR plus 9.3% per year. On September 23, 2013, Pátio Boavista renegotiated the repayment schedule to 128 monthly consecutive installments; because of this change, the maturity date of the agreement changed from May 10, 2018 to May 10, 2023.

(g)

Between March and December 2012, subsidiary Pátio Goiânia raised R$179,005 with Banco Santander (Brasil) to finance the construction of Passeio das Águas Shopping. The approved funding line, in the total amount of R$200,000, bears a fixed rate equivalent to the TR plus 11.00% per year. The agreement is effective for 12 years, with a 24-month grace period for repaying the principal. After this period, the outstanding balance will be paid in 111 monthly, consecutive installments. The finance is collateralized by Passeio das Águas Shopping property. The Company is the guarantor of this transaction. On December 21, 2012, Pátio Goiânia renegotiated the agreed interest rate to TR plus 9.7% per year.

As of December 31, 2013, the total amount of the properties pledged to the banks, in connection with the borrowings and financing, is R$1,983,836 and the amount of net receivables pledged by Pátio Boavista is R$3,614.

Covenants

The loan agreements entered by the Company and its subsidiaries, described above, do not provide for compliance with any financial ratios, such as debt ratios, expense coverage with interests, etc.

Sonae Sierra Brazil BV SARL and Subsidiaries

Changes in loans and financing for the years ended December 31, 2013, 2012 and 2011


Balance as of December 31, 2010 (unaudited)	201,848
New borrowings	153,216
Payments - principal	(5,456	)
Interest payments	(26,083	)
Interest capitalized on investment property under construction	9,143
Interest allocated to net income	18,223

Balance as of December 31, 2011	350,891
New borrowings	78,984
Payments - principal	(11,579	)
Interest payments	(29,142	)
Interest capitalized on investment property under construction	12,556
Interest allocated to net income	27,618

Balance as of December 31, 2012	429,328
New borrowings	169,825
Payments - principal	(38,161	)
Interest payments	(37,844	)
Interest capitalized on investment property under construction	12,966
Interest allocated to net income	35,549

Balance as of December 31, 2013	571,663

The noncurrent portion of line item “Loans and financing” as of December 31, 2013, matures as follows:


2015			66,845
2016			62,323
2017			58,232
2018			58,232
2019			58,232
2020 - 2024			188,667
2025 - 2026			17,964

Total			510,495

13.	DEBENTURES


			Consolidated
Debentures	Maturity		12/31/13			12/31/12

Securities - 1^st series		02/15/17		97,542			96,514
Securities - 2^nd series		02/15/19		233,618			221,538
Loss with derivative transaction in fair value hedge accounting		02/15/19		1,828			—

Total				332,988			318,052


Current				(14,903	)		(14,603	)

Noncurrent				318,085			303,449

Sonae Sierra Brazil BV SARL and Subsidiaries

On February 15, 2012, the Company issued 30,000 nonconvertible debentures, in two series, with a par value of R$10 each, totaling R$300,000. After the book-building procedure carried out on March 2, 2012, which defined the debenture interest, the series can be summarized as follows:

•

1^st series: 9,550 debentures, in the total amount of R$95,500, yielding a floating annual rate equivalent to CDI plus 0.96%, with final maturity within five years. Compensation will be paid semiannually.

•

2^nd series: 20,450 debentures, in the total amount of R$204,500, yielding a floating annual rate equivalent to consumer price index (IPCA) plus 6.25%, with final maturity within seven years. Compensation will be paid annually.

As described in note 27.3, on August 22, 2013, the Company contracted a derivative instrument (swap) in the notional amount of R$54,500, to partially hedge the inflation rate risk (IPCA) subject to the interest of the 2^nd series of debentures. In this transaction, the Company replaced the IPCA + 6.25% per year by the CDI +1.24% per year.

The swap agreement expires within six years and matures on February 15, 2019. This maturity date is the same as the hedged instrument.

This transaction is intended to adjust the Company’s indebtedness, including the change from variable IPCA rate to the CDI. Although both rates are variable, the CDI currently reflects the primary compensation index of the Company’s financial assets and, therefore, is more appropriate to manage financial instruments.

Changes in debentures, recorded in current and noncurrent liabilities, are broken down as follows:


Balance as of December 31, 2011	—
New borrowings	300,000
Amortizable borrowing costs	(6,834	)
Amortized borrowing costs	863
Interest allocated to net income	28,580
Interest payments	(4,557	)

Balance as of December 31, 2012	318,052
New borrowings	—
Amortizable borrowing costs	1,111
Interest allocated to net income	35,120
Interest payments	(21,141	)
Gain on debentures adjustment in fair value hedging accounting	(1,982	)
Loss with derivatives transaction in fair value hedging accounting	1,828

Balance as of December 31, 2013	332,988

Sonae Sierra Brazil BV SARL and Subsidiaries

The debenture, classified in noncurrent liabilities, will be repaid as follows:


	Principal and interests		Unamortized cost			R$

2015		—		(1,111	)		(1,111	)
2016 (repayment of 50% of 1^st series)		47,750		(1,111	)		46,639
2017 (repayment of 50% of 1^st series)		47,750		(744	)		47,006
2018 (repayment of 50% of 2^nd series)		113,167		(671	)		112,496
2019 (repayment of 50% of 2^nd series)		113,167		(112	)		113,055

Total		321,834		(3,749	)		318,085

Covenants

The debenture indenture subjects the Company to covenants, which are related mainly to financial ratios, as Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA (*), net debt and net financing expenses. Below we demonstrate the contractually required ratios:


		Contractually required ratio

Net debt/EBITDA		Equal or less than 3.5
EBITDA/Net financing expenses		Equal or greater than 1.75

As of December 31, 2013, the Company’s management believes that it is compliant with all covenants.

(*) The indenture defines EBITDA as net income before net financial expenses (including net currency exchange variations), income and social contribution taxes, depreciation and amortization.

14.	PAYABLES FOR PURCHASE OF ASSET


	Consolidated
	12/31/13			12/31/12

Acquisition of equity interest in shopping mall (a)		31,840			49,108
Acquisition of land (b)		—			29,302

Total		31,840			78,410


Current		(21,186	)		(49,491	)

Noncurrent		10,654			28,919

Sonae Sierra Brazil BV SARL and Subsidiaries

Changes in trade accounts payable - acquisition of assets are as follows:


Balance as of December 31, 2010 (unaudited)	—
Acquisition of land	25,000

Balance as of December 31, 2011	25,000
Acquisition of equity interest in shopping mall (a)	63,701
Payment of principal	(18,040	)
Financial charges allocated to profit or loss	4,162
Financial charges capitalized under investment property under construction	4,302
Financial charges paid	(715	)

Balance as of December 31, 2012	78,410
Payment of principal	(18,264	)
Financial charges allocated to profit or loss	3,148
Financial charges paid	(2,151	)
Financial charges capitalized under investment property under construction	607
Write-off - barter transaction of Boulevard Londrina Shopping	(29,910	)

Balance as of December 31, 2013	31,840

(a)

The balance payable refers to an asset barter transaction with cash consideration involving Shopping Center Penha for acquisition of stake in Shopping Plaza Sul. Such account payables will be settled in 42 equal consecutive installments of R$1,522 (original value), adjusted based on the CDI. As of December 31, 2013, 18 installments are outstanding.

(b)

The amount payable as of December 31, 2012 refers to the plot of land located in the city of Londrina. In consideration for the land, an undivided interest equivalent to 11.36% in the Boulevard Londrina project will be transferred. With the opening of the mall on May 3, 2013, the subsidiary Pátio Londrina completed this barter transaction by handing over the 11.36% undivided interest in the mall (see note 10.d).

15.	RELATED PARTIES - SHAREHOLDERS’ LOAN

Sonae Sierra SGPS S.A. and the Company had entered into a facility agreement on January 1, 2002. Under this facility agreement, Sonae Sierra SGPS S.A. agreed to provide a loan to the Company, up to a maximum amount of €200,000,000.

On October 20, 2006, Sonae Sierra SGPS S.A. and DDR Luxembourg SARL entered into a Shareholders’ Agreement related to the Company, according to which Sonae Sierra SGPS S.A. assigned 50% of its position in the facility to DDR Luxembourg SARL.

On June 1, 2008, Sonae Sierra SGPS S.A. and DDR Luxembourg SARL agreed to raise the principal amount up to €400,000,000.

The loan has no fixed repayment date.

As of December 31, 2010, the interest was calculated as follows:

•

Equal to 80% of the accumulated results accounted in the financial year, upon the Company having obtained positive results

•

With a maximum rate of interest of 15% per year, calculated on the average of the principal loan amount outstanding in each relevant year, since inception of the loan

Sonae Sierra Brazil BV SARL and Subsidiaries

Interest due and payable shall be paid after the formal approval of the annual accounts of the previous year.

On December 23, 2010, Sonae Sierra SGPS S.A. transferred its interests, rights and obligations to Sierra Investments Holding BV.

On December 20, 2011, the Company changed the agreement as follows:

•

Interest shall be an amount derived from the net income of the financial year. For the related agreement purpose, the net income corresponds to income less: (i) the operating expenses of the borrower; and (ii) the amount equal to 0.125% per annum of the outstanding principal amount of the means of the shareholder loan provided by the borrower to Sierra Brazil BV.

•

Interest accrued and unpaid or due and payable may, at the discretion of the lender, be converted into share capital of the borrower.

On December 29, 2011, the balances of shareholders’ loan were converted into share capital and share premium in the respective amounts of R$100.00, equivalent to €200, and R$466,870, equivalent to €193,596,148, as mentioned above.

Changes in shareholders’ loans


Balance as of December 31, 2010 (unaudited)	516,444
Interest allocated to net income	351
Payments - interest	(1,645	)
Payments - principal	(86,862	)
Exchange rate variation	38,582
Capitalization of shareholders’ loan and issue of share premium	(466,870	)

Balance as of December 31, 2011	—

16.

KEY MONEY


		Consolidated
Subsidiary	Shopping mall	12/31/13			12/31/12

Pátio Boavista	Boavista Shopping		2,962			3,047
Pátio Sertório	Shopping Manauara		2,007			7,628
Pátio Uberlândia	Uberlândia Shopping		5,021			8,432
Pátio Londrina	Boulevard Londrina		6,839			7,250
Pátio Goiânia	Passeio das Águas		7,270			2,818
Fundo de Investimento Imobiliário I	Shopping Parque D. Pedro		1,092			1,520
Fundo de Investimento Imobiliário II	Shopping Parque D. Pedro		193			269

Total			25,384			30,964


Current			(8,340	)		(6,863	)

Noncurrent			17,044			24,101

Sonae Sierra Brazil BV SARL and Subsidiaries

Key money refers to the lease agreements for the use of property space, payable by tenants from the time the point of sales lease agreement is executed. New tenants pay for the right to use commercial locations in the shopping malls. Upon the launching of new projects, expansions or when a store is returned. These amounts are negotiated based on the market value of the locations.

The key money amounts are billed according to the lease term, up to 60 months, and are recognized on a straight-line basis in the statement of income over the lease agreement period.

17.	RESERVE FOR CIVIL, TAX, LABOR AND SOCIAL SECURITY RISKS

The Company and its subsidiaries are parties to civil, tax, labor and social security lawsuits at different courts and levels. Based on the opinion of its legal counsel, the Company’s management recorded a reserve for lawsuits whose likelihood of an unfavorable outcome is considered probable. The reserve for risks is broken down as follows:


	Consolidated
	12/31/13		12/31/12

Labor and social security (a)		3,477		4,191
Tax (b)		3,754		3,597
Civil (c)		682		1,651

Total		7,913		9,439

Changes in the reserve for civil, tax, labor and social security risks


	Consolidated
	Labor and social security (a)			Tax (b)			Civil (c)			Total

Balance as of December 31, 2010 (unaudited)		6,306			3,982			618			10,906
Addition		728			—			873			1,601
Inflation adjustments (*)		368			206			25			599
Payments		—			—			(11	)		(11	)
Reversals		(2,027	)		(733	)		(50	)		(2,810	)

Balance as of December 31, 2011		5,375			3,455			1,455			10,285
Addition		1,399			—			373			1,772
Inflation adjustments (*)		357			142			231			730
Payments		—			—			(6	)		(6	)
Reversals		(2,940	)		—			(402	)		(3,342	)

Balance as of December 31, 2012		4,191			3,597			1,651			9,439
Addition		665			—			23			688
Inflation adjustments (*)		335			157			75			567
Payments		—			—			(32	)		(32	)
Reversals		(1,714	)		—			(1,035	)		(2,749	)

Balance as of December 31, 2013		3,477			3,754			682			7,913

(*)	Adjusted for inflation in accordance with the specific indexes defined by the respective courts or legislation in force.

Sonae Sierra Brazil BV SARL and Subsidiaries

(a)

Labor and social security

As of December 31, 2013, the Company and its subsidiaries whose contingency in the amount of R$1,210 (R$1,197 as of December 31, 2012) was assessed as a probable loss by the legal counsel.

For the social security risks, as of December 31, 2013, the Company maintained a reserve of R$2,267 (R$2,994 as of December 31, 2012) according to the legal counsel’s opinion, which estimated that the likelihood of loss on these lawsuits is probable.

(b)

Tax

IRRF, CIDE, CPMF and CADE

The Company is claiming the suspension of the payment of IRRF, economic intervention contribution (CIDE) and tax on banking transaction (CPMF) on payments made abroad. The historical amounts of such lawsuits correspond to the total amount of R$3,344 (R$3,187 as of December 31, 2012), which are deposited in escrow and accrued, since the likelihood of loss on these lawsuits is probable.

The CIDE and IRRF lawsuits had an unfavorable decision to the Company on appellate court and await ruling at special appeal.

There was a final and unappealable decision on the lawsuit challenging the CPMF levied an unfavorable decision of foreign payments to subsidiary Sierra Investimentos. This decision will not require disbursements since the court costs have already been paid and the subsidiary was not sentenced to pay attorney’s fees to the prevailing party arising from the injunction. Presently, subsidiary Sierra Investimentos awaits the settlement of the escrow deposit, which amounts to R$1,278, in order to write off the tax credit.

Additionally, Sierra Investimentos recognizes a reserve for contingencies and made an escrow deposit of R$410, corresponding to the administrative fine imposed by the CADE (Brazilian antitrust agency). As of December 31, 2012, this lawsuit had already obtained a final and un-appealable decision. Presently, Sierra Investimentos is awaiting the withdrawal of the escrow deposits made by the CADE to settle the fine, with no impact on net income.

(c)

Civil

The Company’s subsidiaries are defendants in several lawsuits arising from their regular business activities, especially involving compensation, contract termination and shopping mall rental renewal and revision lawsuits.

The Company’s subsidiaries are plaintiffs in lawsuits mostly related to evictions (due to default and contractual breaches), executions and collections.

Sonae Sierra Brazil BV SARL and Subsidiaries

The Company and its subsidiaries are parties to other tax, civil, labor and social security lawsuits arising from the normal course of their business and whose likelihood of loss is possible. These lawsuits amounted to R$70,695 as of December 31, 2013 and R$68,321 as of December 31, 2012. The Company does not expect a material impact on its financial statements. The main lawsuits are described as follows:

(i)

The subsidiary Pátio Sertório Shopping Ltda. filed suit against the building company responsible for the construction of Manauara Shopping. It refers to an action involving rescission of contract combined with indemnity for pain and suffering, claiming payment of compensation due to nonperformance and irregularities in the construction of Manauara Shopping. Additionally, subsidiary Pátio Sertório Shopping Ltda. is a defendant in a lawsuit started by the building company, claiming payment of the updated amount of R$25,253 related to the execution of the construction of Manauara Shopping. Currently the proceeding awaits ruling at lower court.

(ii)

The subsidiary Pátio Londrina is a party to an arbitration proceeding filed against the building company responsible for the construction of Boulevard Londrina Shopping. The counterparty claims compensation for the agreement termination, damages, pain and suffering for the non-compliance of the construction schedule and the resulting delay of the project’s opening. The building company claims compensation for pain and suffering, damages and loss of profits in the updated amount of R$35,958. Currently the proceeding awaits the arbitration award.

Escrow deposits

Breakdown of escrow deposits:


	Consolidated
	12/31/13		12/31/12

Labor and social security		454		85
Tax		4,206		3,597
Civil		7,017		6,268

Total		11,677		9,950

On March 5, 2012, subsidiary Pátio Sertório made an escrow deposit amounting to R$6,112 related to the lawsuit filed by the building company responsible for the construction of the mall, Manauara Shopping, for amounts of the contractual retention made during construction.

18.	TAXES PAYABLE


	Consolidated
	12/31/13		12/31/12

Income tax and social contribution (*)		4,163		61,414
Withholding income taxes (IRRF)		1,355		1,368
Social Security Funding Tax on Revenue (COFINS)		1,355		1,387
Social Integration Program Tax on Revenue (PIS)		304		304
Services tax (ISS)		523		934
Other		200		481

Total		7,900		65,888

(*)	As of December 31, 2012, the balance mainly referred to the tax calculated on the capital gain earned on the investment property sale transactions described in note 10.

Sonae Sierra Brazil BV SARL and Subsidiaries

19.	EQUITY - COMPANY

19.1.

Capital

As of December 31, 2013, the authorized share capital of the Company amounts to €91,000, divided into 910 ordinary shares with a nominal value of €100 each.

As of December 31, 2013, the issued and paid-up capital amounts to R$48, equivalent to €18,400, divided into 92 A Shares and 92 B Shares, with a nominal value of €100 each.

19.2.

Capital and share premium

On December 29, 2011, the capital was increased from R$47, equivalent to €18,200, divided into 91 A Shares and 91 B Shares, with a nominal value of €100, to R$48, equivalent to €18,400, divided into 92 A Shares and 92 B Shares, with a nominal value of €100.

The capital increase and related share premium account were subscribed as follows:

•

Sierra Investimentos subscribed and paid 1 A Share with nominal value of €100 and performed a contribution in kind of a shareholders’ loan in the amount of R$233,436 (equivalent to €96,798,074). As result of this transaction, a share premium in the amount of R$236,435 (equivalent to €96,797,974) was recognized.

•

DDR Luxembourg subscribed and paid 1 B Share with nominal value of €100 and performed a contribution in kind of a shareholders’ loan in the amount of R$233,436 (equivalent to €96,798,074). As result of this transaction, a share premium in the amount of R$236,435 (equivalent to €96,797,974) was recognized.

On April 4, 2012 it was approved by the shareholders that the Company repays share premium to the shareholders in the amount of R$2,492, equivalent to €1,000,000 of the Company to Sierra Investimentos and the amount of R$2,492, equivalent to €1,000,000 of the Company to DDR Luxembourg SARL.

19.3.

Initial Public Offering - Sonae Sierra Brasil S.A.

During February and March 2011, the subsidiary Sonae Sierra Brasil S.A., a company incorporated under the Brazilian law, carried out an initial public offering of 23,251,043 ordinary shares issued by Sonae Sierra Brasil S.A., all nominative, without par value, free and clear of any liens or charges, at the price of R$20.00 per share, for a total of R$465,021. After this operation, the subsidiary, which holds companies headquartered in Brazil, is now held by the Company at 66.65%. This transaction resulted in a loss of R$73,760 recognized in equity.

The related shares issuance costs in the amount of R$16,083, net of taxes (R$24,368 gross amount), were accounted for as a reduction to the non-controlling interests. These costs are comprised mainly by commissions, attorney’s fees, audit fees, registration fee, printing, publications and other expenses.

Sonae Sierra Brazil BV SARL and Subsidiaries

19.4.

Dividends

Company

For the years ended December 31, 2013, 2012 and 2011, the Company paid dividends totaling R$41,620, R$31,445 and R$3,483, respectively.

Sonae Sierra Brasil S.A.

Under the Sonae Sierra Brasil S.A. bylaws, shareholders are entitled to minimum dividends of 25% of net income adjusted pursuant to the Brazilian Corporate Law. These realized minimum mandatory dividends were recorded by the subsidiary as of December 31, 2013, 2012 and 2011 in the amounts of R$34,772, R$26,748 and R$13,977, respectively.

On May 15, 2012, Sonae Sierra Brasil S.A. paid R$24,456 (R$16,300 to controlling shareholders and R$8,156 to non-controlling shareholders).

On May 15, 2013, Sonae Sierra Brasil S.A. paid R$26,748 (R$17,828 to controlling shareholders and R$8,920 to non-controlling shareholders).

The realized minimum mandatory dividends related to non-controlling interests as of December 31, 2013, 2012 and 2011 amount to R$11,596, R$8,920 and R$4,661, respectively.

Fundos de Investimento Imobiliário I and II

Fundos de Investimento Imobiliário I and II distribute to unit holders a minimum of 95% of their income, even though in excess of the revenue (expenses) (cash basis), calculated based on the existing cash and cash equivalents payable to unit holders registered as such on the closing of the last business day of the month preceding the respective payment.

For the years ended December 31, 2013, 2012 and 2011, dividends paid totaled R$21,852, R$22,672 and R$18,185, respectively.

As of December 31, 2013, 2012 and 2011, the balances of dividends payable related to non-controlling interests amount to R$2,837, R$3,015 and R$11,176, respectively.

19.5.

Earnings per share

As required by IAS 33 - Earnings per Share, below is the reconciliation of net income to the amounts used to calculate the basic earnings per share.

The Company has no debt convertible into shares or stock options granted; therefore, the diluted earnings per share were equal to the basic earnings per share calculated as follows:


	Consolidated
	12/31/13		12/31/12		12/31/11
Net income for the year attributable to the Company’s owners		232,667		182,409		175,863
Weighted average of outstanding common shares		184		184		182

Basic earnings per share		1,264		991		966

Sonae Sierra Brazil BV SARL and Subsidiaries

20.	NET OPERATING REVENUE FROM RENTALS, SERVICES AND OTHER


	Consolidated
	12/31/13			12/31/12			12/31/11

Gross revenue:
Rentals		243,457			224,350			186,058
Revenue from services		20,202			17,763			16,294
Parking revenue		27,919			26,471			24,172
Key money		18,993			12,064			10,341
Other income		5,198			2,784			2,784

Total		315,769			283,432			239,649

Deductions:
Taxes on rentals and services		(20,968	)		(18,255	)		(14,768	)
Discounts and abatements		(19,047	)		(8,326	)		(5,696	)

Total		(40,015	)		(26,581	)		(20,464	)

Net revenue		275,754			256,851			219,185

21.	EXPENSES BY NATURE


	Consolidated
	12/31/13		12/31/12		12/31/11

Depreciation and amortization		2,330		1,790		1,467
Personnel		31,694		28,676		24,935
Services rendered by third parties		11,438		10,507		10,654
Cost of occupancy (vacant stores)		14,501		6,111		3,851
Costs of contractual agreements with tenants		6,299		2,219		1,428
Allowance for (reversal of) doubtful accounts receivable		2,792		2,401		418
Rent		2,756		2,571		2,780
Others		9,543		9,296		9,112

Total		81,353		63,571		54,645


Classified as:
Cost of rentals, services and other		58,715		43,177		36,809
General and administrative expenses		22,638		20,394		17,836

22.	OTHER OPERATING INCOME, NET


	Consolidated
	12/31/13		12/31/12			12/31/11

Gain on the sale of investment properties		—		30,758			—
Sales transaction costs		—		(6,048	)		—
Other		5,621		3,091			1,724

Total		5,621		27,801			1,724

Sonae Sierra Brazil BV SARL and Subsidiaries

23.	FINANCIAL INCOME (EXPENSES), NET


	Consolidated
	12/31/13			12/31/12			12/31/11

Financial income:
Loans and receivables:
Interest from short-term investments		41,374			49,607			42,175
Interest receivable		1,333			1,364			1,202
Monetary and exchange variations		2,875			369			—
Other		2,726			1,328			1,116

		48,308			52,668			44,493

Fair value through profit and loss-
Gain arising from debenture adjustment hedged in a fair value hedge accounting		1,982			—			—

		1,982			—			—

		50,290			52,668			44,493

Financial expenses:
Other financial liabilities:
Monetary and exchange variations		(31	)		(2,930	)		(37,972	)
Interest on loans and financing		(35,549	)		(27,618	)		(18,223	)
Interest on payables for purchase of land		(3,148	)		(4,162	)		—
Interest on debentures		(36,231	)		(29,443	)		—
Other		(1,123	)		(1,605	)		(859	)

		(76,082	)		(65,758	)		(57,054	)

Fair value through profit and loss-
Loss on derivatives designated as a hedging instrument in a fair value hedge accounting		(1,828	)		—			—

		(1,828	)		—			—

		(77,910	)		(65,758	)		(57,054	)

Total, net		(27,620	)		(13,090	)		(12,561	)

24.	INCOME TAX AND SOCIAL CONTRIBUTION

Income tax and social contribution expense

The Company and its subsidiaries’ operations are located in Brazil; therefore, the reconciliation of income tax expense was prepared according to the statutory rates in Brazil.

Sonae Sierra Brazil BV SARL and Subsidiaries


	Consolidated
	12/31/13			12/31/12			12/31/11

Income before income tax and social contribution		519,831			405,009			436,933
Statutory rate		34	%		34	%		34	%

Expected income tax and social contribution charge, at statutory rate		(176,743	)		(137,703	)		(148,557	)
Effect of income tax and social contribution on permanent differences:
Equity in investees		2,701			1,639			2,643
Exchange variations on shareholder’s loan		—			—			(13,118	)
Other permanent differences		326			(185	)		(907	)
Effect of income tax and social contribution on temporary differences and tax loss carryforwards:
Temporary differences		91			(927	)		1,303
Tax loss carryforwards (**)		(28,482	)		(1,488	)		609
Effect of taxation of subsidiaries taxed based on deemed income		1,568			4,237			5,641
Effect of different taxation of Fundos de Investimento Imobiliário I and II (*)		38,117			33,870			31,400

Income tax and social contribution expense at effective rate		(162,422	)		(100,557	)		(120,986	)

Effective rate		31	%		25	%		28	%

(*)	Fundos de Investimento Imobiliário I and II are tax exempt (see details in note 2.22).

(**)	Deferred income taxes on tax losses not recognized.

Deferred income tax and social contribution

Based on analyses of the multi-year operating projections, the Company and its subsidiaries recognized tax credits related to tax loss carryforwards and temporary differences in prior years.

Maintenance of tax credits from tax loss carryforwards (deferred income tax and social contribution tax loss carryforwards) is supported by future earnings projections prepared by the Company’s management and periodically reviewed, for the next ten years, to determine the recoverability of tax loss carryforwards and temporary differences.

Deferred income tax and social contribution are broken down as follows:


	12/31/13			12/31/12

Tax loss carryforward		8,249			4,686
Reserve for civil, tax, labor and social security risks		1,767			598
Allowance for doubtful accounts		2,174			1,979
Other temporary reserves		(9	)		(2,971	)
Change in fair value of investment property		(532,936	)		(395,374	)
Other		—			178

Total deferred income tax and social contribution		(520,755	)		(390,904	)


In noncurrent assets		5,036			20,693

In noncurrent liabilities		(525,791	)		(411,597	)

Sonae Sierra Brazil BV SARL and Subsidiaries

Recognized noncurrent tax credits totaling R$17,226 as of December 31, 2013 should be realized within up to ten years, as shown below:


Year	Consolidated

2014		361
2015		—
2016		268
2017		1,707
2018		2,963
2019 - 2023		11,927

Total		17,226

25.	RELATED-PARTY TRANSACTIONS

In the course of the Company’s business, controlling shareholders, subsidiaries, the associates and condominiums (related parties) carry out commercial and financial intercompany transactions. These commercial transactions primarily include management of shopping malls (common charges and promotion fund).

Balances with related parties as of December 31, 2013, and 2012 are as follows:


Balance sheet	Purpose	12/31/13		12/31/12

Current assets-
Affiliates:
Condomínio Shopping Center Penha	(a)		110		—
Condomínio Civil Center Shopping São Bernardo	(b)		420		—
Condomínio Tivoli Shopping Center	(b)		64		—
Condomínio Franca Shopping Center	(b)		58		—
Condomínio Parque Dom Pedro Shopping	(b)		633		5
Condomínio Shopping Center Plaza Sul	(b)		143		—

Total (a)			1,428		5


Noncurrent assets-
Affiliates:
Condomínio Manauara	(c)		341		—
Condomínio Shopping Center Plaza Sul	(c)		933		125
Condomínio Boulevard Londrina Shopping	(c)		3,561		—
Condomínio Passeio das Águas Shopping	(c)		1,889		—
Condomínio Uberlândia Shopping	(c)		2,712		1,316

Total			9,436		1,441

Sonae Sierra Brazil BV SARL and Subsidiaries


		Consolidated
Profit or loss	Purpose	12/31/13		12/31/12		12/31/11

Operating revenue-
Affiliates:
Condomínio Shopping Center Penha	(b)		1,317		1,241		1,130
Condomínio Civil Center Shopping São Bernardo	(b)		1,022		1,081		846
Condomínio Tivoli Shopping Center	(b)		567		520		463
Condomínio Shopping Pátio Brasil	(b)		—		632		784
Condomínio Franca Shopping Center	(b)		439		412		361
Condomínio Boavista Shopping	(b)		901		877		834
Condomínio Shopping Center Plaza Sul	(b)		1,606		1,504		1,215
Condomínio Parque Dom Pedro Shopping	(b)		2,908		2,750		2,548
Condomínio Campo Limpo Shopping	(b)		887		818		685
Condomínio Manauara Shopping	(b)		1,849		1,726		1,609
Uberlândia Shopping	(b)		1,265		911		—
Boulevard Londrina Shopping	(b)		851		—		—
Passeio das Águas Shopping	(b)		245		—		—

Total			13,857		12,472		10,475


Financial income (expenses)-
Affiliates:
Sierra Investments Holding BV	(d)		—		—		(19,466	)
DDR Luxembourg SARL	(d)		—		—		(19,467	)

			—		—		(38,933	)

(a)	Included in the balance of receivables, net and other receivables.

(b)	Refers to revenue from services provided by the subsidiary Unishopping Consultoria Ltda., which relates to the management of common charges and the promotion fund of the condominiums. This revenue is recognized in line item “Revenue from services”, as disclosed in note 20.

(c)	Refers to loans to condominiums described in note 7.

(d)	Refers to accounts payable related to shareholder’s loan with affiliate entities. See note 15.

26.	OPERATING SEGMENTS REPORTING

Segment reporting is used by the Company’s top management to make decisions about resources to be allocated to a segment and assess its performance.

Therefore, the Company’s segments reportable pursuant to IFRS 8 are as follows:

Development and management

Refers to the provision of asset and property management services to shopping malls tenants and owners, brokerage services, and development of a project for a new shopping mall

Sonae Sierra Brazil BV SARL and Subsidiaries

Investment

Refers to the rental of store space to tenants and other commercial space, such as sales stands, rental of commercial space for advertising and promotion, operation of parking lots, and the property space (key money) lease fee

(i)

Segment reporting of asset

12/31/13

Development
and management

Investment

Total

Asset

32,996

4,510,639

4,543,635

12/31/12

Development
and management

Investment

Total

Asset

25,819

4,057,588

4,083,407

12/31/11

Development
and management

Investment

Total

Asset

22,318

3,263,837

3,286,155

(ii)

Segment reporting of statement of income


	2013			2012			2011

Shopping mall gross revenue by segment:
Development and management		45,625			44,653			39,383
Investment		295,568			265,669			223,355
Elimination of inter-segment revenue		(25,424	)		(26,890	)		(23,089	)

Total		315,769			283,432			239,649


Deductions:
Taxes		(20,968	)		(18,255	)		(14,768	)
Discounts and rebates		(19,047	)		(8,326	)		(5,696	)

Total		(40,015)			(26,581)			(20,464)
Net operating revenue		275,754			256,851			219,185


Shopping mall costs and general and administrative expenses by segment:
Development and management		(36,993	)		(39,530	)		(33,670	)
Investment		(69,784	)		(50,931	)		(44,066	)
Elimination of inter-segment cost		25,424			26,890			23,091

Total		(81,353	)		(63,571	)		(54,645	)

Adjusted operating profit		194,401			193,280			164,540

Sonae Sierra Brazil BV SARL and Subsidiaries


	2013			2012			2011

Operating income before financial income (expenses)		547,451			418,099			449,494

Other tax expenses		4,834			1,389			1,457
Equity pick-up		(7,945	)		(4,821	)		(7,774	)
Changes in fair value of investment property		(344,318	)		(193,586	)		(276,913	)
Other operating income, net		(5,621	)		(27,801	)		(1,724	)

Adjusted operating profit		194,401			193,280			164,540

The operations related to the development, management and investment of shopping malls are located only in Brazil. Therefore, the Company does not present analyses of revenues by geographical area.

27.	FINANCIAL INSTRUMENTS

The Company and its subsidiaries conduct transactions involving financial instruments, all of which are recorded in balance sheet accounts, which are intended to meet their operating and financial needs.

These financial instruments are managed based on policies, definition of strategies and establishment of control systems, which are duly monitored by the management of the Company and its subsidiaries, with a view to maximize shareholder value and achieve a balance between debt and equity capital.

The Company and its subsidiaries’ main financial instruments are represented by:

Cash and cash equivalents, restricted investments and escrow deposits: are classified as loans and receivable and their carrying amount is equivalent to the assets’ fair value

Trade accounts receivable and loans to condominiums: are classified as loans and receivables and recorded at the contracted amounts, which approximate market

Loans and financing: are classified as other financial liabilities and the fair value is determined using generally accepted pricing models based on analyses of discounted cash flows

Debentures: are classified as other financial liabilities (part of the debentures issued by the Company, subject to fair value hedge, is stated at fair value)

Domestic trade accounts payables: are classified as other financial liabilities and recorded at the contracted amounts, which approximate market

Sonae Sierra Brazil BV SARL and Subsidiaries

As of December 31, 2013 and 2012, the carrying amounts and fair values of the Company’s and its subsidiaries’ financial instruments are as follows:


				12/31/13				12/31/12
Type	Classification	Fair value hierarchy		Carrying amount		Fair value		Carrying amount		Fair value

Assets:
Cash and cash equivalents	Loans and receivables		Level 2		429,347		429,347		687,444		687,444
Trade accounts receivables	Loans and receivables		Level 2		54,255		54,255		45,820		45,820
Restricted investments	Loans and receivables		Level 2		6,124		6,124		4,065		4,065
Loans to condominiums	Loans and receivables		Level 2		9,436		9,436		1,441		1,441
Escrow deposits	Loans and receivables		Level 2		11,677		11,677		9,950		9,950

Liabilities:
Loans and financing	Other financial liabilities		Level 2		571,663		571,663		429,328		429,328
Debentures	Other financial liabilities		Level 2		273,125		266,906		318,052		346,989
Debentures	Fair value through profit and loss		Level 2		58,035		58,035		—		—
Domestic trade accounts payable	Other financial liabilities		Level 2		49,812		49,812		31,460		31,460
Derivatives	Fair value through profit and loss		Level 2		1,828		1,828		—		—

The measurement of financial instruments is grouped into levels 1 to 3, based on the fair value hierarchy:

•

Level 1 - quoted prices in active markets for identical assets and liabilities.

•

Level 2 - other techniques according to which all inputs with significant effects on the fair value are observable, either directly or indirectly. The fair values of the financial assets and financial liabilities included in the level 2 category above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

•

Level 3 - techniques that use inputs with significant effects on fair value not based on observable market inputs.

According to their nature, financial instruments may involve known or unknown risks, and the Company’s judgment is important to the risk assessment. Thus, risks may exist with or without guarantees depending on circumstantial or legal aspects. The main market risk factors that may affect the Company’s business are as follows:

27.1.

Credit risk

The Company has a large customer base and constantly monitors trade receivables using internal controls, which limit the risk of default. The allowance for doubtful accounts is recognized in an amount considered by management as sufficient to cover probable losses on the collection of receivables, based on the following criterion: allowance of 100% for receivables past due over 120 days.

The credit risk related to cash and cash equivalents is limited as the counterparties are represented by banks, with a high rating assigned by international credit rating agencies.

Sonae Sierra Brazil BV SARL and Subsidiaries

27.2.

Price fluctuation risk

The Company’s revenue consists of rentals received from shopping mall tenants. In general, rentals are adjusted based on the annual fluctuation of IPCA, as provided in the lease agreements. The rental levels may vary according to adverse economic conditions and, consequently, the revenue level may be affected. Management monitors these risks in order to minimize impacts on its business.

27.3.

Interest rate risk

Results from the portion of debt contracted with interest linked to the CDI, TR and IPCA and involves the risk of increase in financial expenses as a result of unfavorable rates.

The Company contracted non-speculative derivatives (swap) to partially hedge the inflation rate risk (IPCA) subject to interest of the 2^nd series of debentures, as follows:

Fair value

Passive
index
edge

Type

Initial
date

Maturity
date

Notional
amount

Active
index edge

Passive
index edge

Active
index edge

Amount

Swap

08/22/13

02/15/19

54.500

IPCA + 6,25% p.a.

CDI + 1,24% p.a.

57,882

59,710

(1,828

)

The aforementioned swap transaction was designated by the Company as a fair value hedge accounting transaction. The fair value of debentures, which is the subject matter of the swap transaction, corresponds to a gain of R$1,982 (see notes 13 and 23).

27.4.

Currency risk

Trade receivables and trade payables are denominated in Brazilian reais and are not exposed to exchange fluctuations.

27.5.

Capital risk

The Company and its subsidiaries manage their capital to ensure regular business continuity and, at the same time, maximize return for all stakeholders or parties involved in their operations, by optimizing debt and equity balance.

The Company and its subsidiaries’ equity structure consists of loans and financing and debentures detailed in notes 12 and 13, less cash and cash equivalents, and consolidated shareholders’ equity (including capital, reserves and non-controlling interests, as mentioned in note 19).

27.6.

Liquidity risk management

The Company and its subsidiaries manage the liquidity risk by maintaining proper reserves, bank and other credit facilities to raise new borrowings that they consider appropriate, based on the continuous monitoring of budgeted and actual cash flows, and the combination of the maturity profiles of financial assets and financial liabilities.

Sonae Sierra Brazil BV SARL and Subsidiaries

Liquidity risk and interest tables

The tables below detail the remaining contractual maturity of the Company’s financial liabilities and the contractual payment periods. These tables were prepared in accordance with undiscounted cash flows of financial liabilities, based on the closest date when the Company and its subsidiaries should settle the corresponding obligations. The tables include interest and principal cash flows. As interest flows are based on floating rates, the undiscounted amount was based on the interest curves at year-end. Contractual maturity is based on the most recent date when the Company and its subsidiaries should settle the related obligations.


December 31, 2013	Weighted average effective interest rate			Less than one month		From one to three months		From three months to one year		Between one and five years		More than five years		Total

Loans and financing		9.66	%		6,963		13,704		83,517		391,302		325,980		821,466
Debentures		11.68	%		—		20,544		6,557		333,344		163,565		524,010

Sensitivity analysis on financial instruments

Considering the financial instrument previously described, the Company and its subsidiaries have developed a sensitivity analysis based on 25% and 50% fluctuations in the risk variable taken into consideration. These scenarios may impact the Company and its subsidiaries’ net income and/or future cash flows, as described below:

•

Base scenario: maintenance of interest in the same levels as those as of December 31, 2013.

•

Adverse scenario: a 25% fluctuation of the main risk factor of the financial instrument compared to the level as of December 31, 2013.

•

Remote scenario: a 50% fluctuation of the main risk factor of the financial instrument compared to the level as of December 31, 2013.

Assumptions

As described above, the Company believes that it is mainly exposed to the risks of fluctuation of the CDI, TR and IPCA, which is the basis to adjust a substantial portion of short-term investments and loans and financing. Accordingly, the table below shows the indices and rates used to prepare the sensitivity analysis:


Assumptions	Base scenario			Adverse scenario			Remote scenario

CDI fluctuation:
Short-term investments		10.34	%		7.76	%		5.17	%
Loans, financing, debentures and swap derivatives		10.34	%		12.93	%		15.51	%

Sonae Sierra Brazil BV SARL and Subsidiaries


Assumptions	Base scenario			Adverse scenario			Remote scenario

TR fluctuation-
Loans, financing and debentures		0.20	%		0.25	%		0.30	%

IPCA fluctuation-
Debentures		5.76	%		7.20	%		8.64	%
Swap derivatives		5.76	%		4.32	%		2.88	%

Management analysis


			Consolidated
Risk factor	Financial instrument	Risk	Base scenario (*)		Adverse scenario		Remote scenario

Short-term investments	Interest rate	Decrease in CDI rate		43,717		32,809		21,859
Loans	Interest rate	Increase in CDI rate		2,282		2,852		3,423
Loans	Interest rate	Increase in TR rate		860		1,075		1,290
Debentures	Interest rate	Increase in CDI rate		9,986		12,343		14,812
Debentures	Interest rate	Increase IPCA rate		11,779		14,545		17,454

Swap derivatives	Inflation index and interest rate	Increase in CDI rate and Decrease in IPCA		2,898		5,282		7,667

(*)	The Company’s base scenario is comprised of interest estimated for the next 12-month period.

The Company’s management understands that the market risks originated from other financial instruments are immaterial.

28.

INSURANCE

As of December 31, 2013, insurance is as follows:


	Insured amount

Civil liability (shopping mall operations)		213,684
Fire		1,765,725
Loss of profits		250,611
Windstorm/smoke		117,276

Sonae Sierra Brazil BV SARL and Subsidiaries

29.	MANAGEMENT COMPENSATION

During the years ended December 31, 2013, 2012 and 2011, expenses on management compensation are broken down as follows:


	Consolidated
	12/31/13		12/31/12		12/31/11

Payroll and related taxes		3,639		3,825		4,146
Variable compensation		2,012		1,928		777
Benefits		364		335		297

Total		6,015		6,088		5,220

These amounts are recorded in line item “Cost of rents and services”, in the statement of income.

The amounts referring to the compensation of key management personnel are represented by short and long-term benefits, substantially corresponding to management fees and sharing profit (including performance bonuses). The Company and its subsidiaries do not pay post-employment benefits or share-based compensation.

As of December 31, 2013, the balance of line item “Accrual for variable compensation”, totaling R$1,469 (R$1,200 as of December 31, 2012), stated in noncurrent liabilities, includes only variable compensation (performance bonuses) awarded to the subsidiary Sonae Sierra Brasil S.A.’s officers.

Additionally, as approved at the annual General and Extraordinary Shareholders’ Meeting (AGO/E) held on April 25, 2013, the overall compensation to Directors and Officers of the subsidiary Sonae Sierra Brasil S.A. in 2013 is R$10,000.

30.	ADDITIONAL DISCLOSURES ON CASH FLOWS

The Company and its subsidiaries conducted the following noncash transactions:


	Consolidated
	12/31/13		12/31/12		12/31/11

Capitalized interest in properties for investment in construction (see notes 12 and 14)		13,573		16,920		9,143
Purchase of land (see note 10)		—		63,701		—
Capital increased (capital and share premium)		—		—		466,871
Increase in trade payables due to properties for investment in construction		28,360		11,171		2,037
Transfer of construction in progress and advances to suppliers of property and equipment and intangible assets		3,533		3,302		2,933
Barter transaction of Boulevard Londrina Shopping		29,910		—		—

Sonae Sierra Brazil BV SARL and Subsidiaries

31.	COMMITMENTS

With the enactment of Law 12024, dated August 27, 2009, which describes the tax treatment applicable to income earned by real estate investment funds, the administrator of Fundo de Investimento Imobiliário I, Banco Ourinvest S.A., stopped retaining IRRF on income paid to a certain shareholder headquartered in Brazil. In view of the inquiry made by Banco Ourinvest S.A., to the Federal Revenue Service on the content and scope of this law, Sierra Investimentos committed to an agreement entered into with this bank, dated October 29, 2009, to make a short - term investment under custody to cover a possible collection of the tax that is not being withheld. At the same date, Parque D. Pedro 1 BV/SARL (a Luxembourg company belonging to the same corporate group of the Company) and Sierra Investimentos, entered into an agreement under which Parque D. Pedro 1 BV/SARL agrees to reimburse Sierra Investimentos for any type of risk arising from the nonpayment of tax by Banco Ourinvest S.A.

As of May 13, 2010, the federal government filed an appeal against the federal lower court decision. On June 11, 2010, Banco Ourinvest S.A. filed its counter-arguments and currently awaits the appellate court decision.

As of December 31, 2013, subsidiary Sierra Investimentos has R$833 receivable from Banco Ourinvest S.A., as a result of the agreement entered into on October 29, 2009. These receivables are classified in line item “Other receivables”, in noncurrent assets (see note 5). In addition, the subsidiary Sierra Investimentos has a balance of R$6,124 (R$4,065 as of December 31, 2012) in restricted investments, stated in noncurrent assets.

32.	SUPPLEMENTAL INFORMATION - RECONCILIATION OF EQUITY AND NET INCOME BETWEEN U.S. GAAP AND IFRS, AS ISSUED BY IASB

The Company presents in this note the reconciliation of equity and net income between the amounts calculated in accordance with the U.S. GAAP and IFRS for the years ended December 31, 2013 and 2012 are as follows:

Reconciliation

Reconciliation of shareholders’ equity as of December 31, 2013 and 2012:


		Consolidated
	Note	12/31/13			12/31/12

Shareholders’ equity as reported under IFRS			2,951,605			2,669,263
Adjustment of the fair value of investment property	(a)		(3,946,171	)		(3,248,095	)
Effect of cost of investment property	(a)		2,300,796			1,918,798
Effect of depreciation of investment property	(a)		(186,360	)		(152,754	)
Write-off of prepaid commission expenses(c)			10,943			10,527
Campo Limpo Empreendimentos e Participações Ltda.	(d)		(22,538	)		(17,474	)
Other differences			(1,874	)		6,378
Effect of deferred income tax and social contribution	(e)		505,141			377,128

Shareholders’ equity under U.S. GAAP			1,611,542			1,563,771

Sonae Sierra Brazil BV SARL and Subsidiaries

Reconciliation of income for the years ended December 31, 2013, 2012 and 2011:


		Consolidated
	Note	12/31/13			12/31/12			12/31/11

Net income as reported under IFRS			357,409			304,452			315,947
Adjustment of the fair value of investment property	(a)		(344,318	)		(193,586	)		(276,913	)
Effect of depreciation	(a)		(36,596	)		(26,486	)		(20,652	)
Interest capitalized on investment property under construction	(b)		29,213			24,601			—
Write-off of prepaid commission expenses	(c)		416			(2,198	)		1,965
Campo Limpo Empreendimentos e Participações Ltda.	(d)		(5,064	)		(2,312	)		(6,339	)
Effect of deferred income tax and social contribution	(e)		128,013			51,096			81,545
Gain on sales of investment properties	(f)		—			174,527			—
Income tax and social contribution related to gain on sales of investment properties	(f)		—			(60,073	)		—
Other differences			(1,271	)		3,496			4,415

Net income under U.S. GAAP			127,802			273,517			99,968

Summary of main differences between U.S. GAAP and IFRS:

(a)

Investment properties

Under IFRS, investment properties are measured initially at their cost, including transaction costs. After initial recognition, investment properties are measured at fair value. The gain or loss from the change in fair value of investment properties in operation are recognized in profit or loss for the period in which it arises.

Under U.S. GAAP, investment properties are carried at acquisition cost, including borrowing costs. Depreciation is calculated under the straight-line method based on estimated useful lives of the assets.

(b)

Interest capitalized on investment property under construction

Under IFRS, income earned on the temporary investment of actual borrowings is offset against the actual borrowing costs to be capitalized.

Under U.S. GAAP, income earned on the temporary investment of actual borrowings is not generally deducted from the amount of borrowing costs to be capitalized.

(c)

Write-off of prepaid commission expenses

Under U.S. GAAP, the Company recorded costs on commissions paid on store rentals as prepaid expenses, which are amortized over a five-year period taking into account the start and the termination of the lease agreements.

Under IFRS, these expenses and costs do not meet the definition of an asset; therefore, were recognized as operating costs when incurred.

(d)

Campo Limpo Empreendimentos e Participações Ltda.

The associate Campo Limpo Empreendimentos e Participações Ltda. also prepares financial statements in accordance with IFRS, and, as such, applies the policies described in items (a) and (b) above related to adjustment of the fair value of investment property. This amount represents the impact of these two adjustments in consolidated net income arising from the equity method valuation.

Sonae Sierra Brazil BV SARL and Subsidiaries

(e)

Deferred income taxes

The deferred income taxes reconciling item represents the tax effect of all the GAAP adjustments discussed in the reconciliation table above.

(f)

Gain on sales of investment properties

Under IFRS, investment properties are measured initially at their cost, including transaction costs. After initial recognition, investment properties are measured at fair value.

Under U.S. GAAP, investment properties are carried at acquisition cost, including borrowing costs less accumulated depreciation.

Therefore, the GAAP adjustment corresponds to the different results obtained by assets measured at fair value in IFRS and assets measured at cost of acquisition, deducted from accumulated depreciation in U.S. GAAP.

Breakdown of investment property under U.S. GAAP as of December 31, 2013 and 2012


			12/31/13
	%		Cost		Depreciation			Net

Land		—		267,970		—			267,970
Building		2.2		1,787,518		(133,168	)		1,654,350
Furniture and fixtures		10		238,568		(53,192	)		185,376

Subtotal				2,294,056		(186,360	)		2,107,696
Construction in progress		—		6,740		—			6,740

Total				2,300,796		(186,360	)		2,114,436


			12/31/12
	%		Cost		Depreciation			Net

Land		—		170,705		—			170,705
Building		2.2		1,013,953		(117,505	)		896,448
Furniture and fixtures		10		125,114		(35,249	)		89,865

Subtotal				1,309,772		(152,754	)		1,157,018
Construction in progress		—		609,026		—			609,026

Total				1,918,798		(152,754	)		1,766,044

33.	SUBSEQUENT EVENT

On March 10, 2014, the DDR Corp., the ultimate controlling shareholder of DDR Luxembourg SARL and DDR Luxembourg II SARL, has issued a material fact to inform the signing of a letter of intent with Mr. Alexander Otto for the possible acquisition of shares owned by DDR Corp., representing 50% of the corporate capital of the Company. Sierra Investments Holdings B.V., who holds the other 50% of the Company’s corporate capital, informed that it decided not to exercise its right of first refusal in relation to the acquisition of this corporate stake in Sonae Sierra Brazil BV SARL.

Sonae Sierra Brazil BV SARL and Subsidiaries

34.	APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved by the Executive Committee and authorized for issue on March 19, 2014.