CLEVELAND-Developers Diversified Realty said during a Q2conference call report Tuesday that retailers are succeedingdespite grumpy consumer demand, and therefore malls are doingbetter than expected. The company posted an FFO loss, but saidsame-store NOI was up 1.5% for the quarter.

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The FFO loss for Q2 2010 was $32.8 million, or 13 cents pershare, compared to a loss of $166.5 million, or $1.15 per share ayear ago. The net loss for the quarter was $97.1 million, or 39cents per share, compared to a net loss of $237.2 million, or $1.64per share, in Q2 2009.

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However, President and CEO Dan Hurwitz said this past quarterfeatured the first evidence of positive leasing spreads andpositive same-store NOI growth since the beginning of the financialcrisis. On the asset sales front, DDR sold $100 million ofnon-prime assets since March 31. “We continue to focus on pruningthe portfolio of underperforming properties and enhancing theoverall quality of our prime portfolio,” Hurwitz said. “We believethat current environment provides a unique opportunity to sell intothe market at more favorable terms, and therefore we will continueto accelerate non-prime asset sales where prudent even thoughdilutive to near term FFO and therefore also expect to exceed ouryear-end budget of $150 million of dispositions.

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He also said that the company will end the year with flat toslightly positive same-store NOI, overcoming negative NOI in thefirst quarter with positive NOI for the balance of the year. “Whileconsumer confidence may be generally low and has been for manyquarters, tenant balance sheets are strong and major bankruptcieshave not been nonexistent for over a year. While rents in certaincases are still below long-term averages and bad debt remains aconcern, property level momentum is real,” Hurwitz said during thecall.

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Paul Freddo, senior EVP, leasing and development for thecompany, said the firm is seeing more tenants exercise theirrenewal options at their contractual rent. “While there are someexceptions, we have seen far fewer situations where the tenant hasa viable or economically reasonable opportunity to relocate,” hesaid.

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Freddo said retail sales in Brazil remained strong resulting inmany US based retailers such as Wal-Mart and Cinemark activelyseeking to expand their store base there. A new development inUberlandia is progressing as planned and is expected to open inlate 2011. The project is anchored by Wal-Mart and Cinemark and ison schedule to open at 90% leased. The firm is also renovatingand expanding two other Brazil properties, the Parque Dom Pedro andthe Shopping Metropole in Sao Paulo. The company has 630 retailoperating and development properties in 43 states, Brazil, Canadaand Puerto Rico.

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