Fitch Ratings Upgrades JDN; Initiates Coverage On DDR; Rating Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 13, 2003

Fitch Ratings has upgraded the $160 million of senior unsecured notes issued by JDN Realty Corporation due 2004 through 2007 to 'BBB-' from 'BB', and has upgraded approximately $50 million of outstanding preferred stock to 'BB+' from 'B+'. Upon closing of Developers Diversified Realty Corporation's (DDR) acquisition of JDN Realty Corporation (JDN), Fitch has initiated coverage on Developers Diversified Corporation's $397 million of senior unsecured notes due 2003 through 2018 at 'BBB-', and $304 million of preferred stock at 'BB+'. The Rating Outlook is Stable.

DDR has closed on its $1.1 billion acquisition of JDN, through the assumption of $584 million of JDN debt, $50 million in preferred stock, and the balance through a stock-for-stock exchange (each JDN share for 0.518 share of DDR). The JDN bonds will remain in a wholly-owned subsidiary of DDR, and due to DDR's control of the subsidiary the ratings now reflect Fitch's opinion of the consolidated DDR organization. Fitch views the acquisition of JDN as providing a strategic fit in terms of asset quality and tenant compatibility, while further enhancing DDR's nationwide geographic presence and increasing the overall asset base of DDR by approximately 30%. In addition, the acquisition could potentially improve bondholders' position with the un-encumbering of certain JDN assets, such as DDR's use of a short-term $300 million unsecured bridge facility to repay $235 million outstanding on JDN's secured bank facility, with the balance applied toward the repayment of JDN's $75 million of senior unsecured MOPPRS. Fitch will continue to monitor the integration of JDN assets into DDR's portfolio, including 19 JDN development projects (representing total owned square feet (sf) of 3 million, of which 1.76 million sf is currently opened), along with the re-financing plans for DDR's $300 million bridge facility and the status of unencumbered JDN assets, which may provide additional credit support to bondholders.

The ratings are supported by DDR's high quality asset base, experienced and capable management team, strong tenant relationships, and the firm's ability to maintain solid property fundamentals in terms of occupancy (currently over 95%) and rental growth in the midst of a more constrained economic environment. DDR (inclusive of JDN's assets) exhibits strong defensive portfolio features highlighted by a well diversified tenant base with its largest tenant Walmart (rated 'AA' by Fitch) representing 4.2% of total base revenues, and no other tenant represents more than 4% of total base revenues. Other defensive features include a long average lease term of 7 years, one of the better averages among its peer group, which also minimizes its re-leasing exposure in this constrained economic environment. Although DDR has displayed positive leasing and re-leasing spreads with an average positive 9% leasing/re-leasing spread as of fourth quarter 2002. Other support includes a geographically diversified portfolio with a nationwide footprint. DDR's largest geographic exposure is Ohio at 12% of total gross leaseable area (GLA) with no other state representing more than 9% of GLA.

Fitch recognizes DDR's operating capacity of owning a portfolio of dominant 'open air' shopping centers ranging in size from 250,000 to greater, anchored with four or more nationally recognized tenants (such as Walmart, Kohl's, Target, Bed, Bath & Beyond, and TJ Maxx), plus 20,000 to 80,000 sf of small shop space, along with two to four out-parcel tenants. The centers are typically located within highly trafficked areas with solid demographics. In addition, DDR properties usually have excess land located within or adjacent to its assets that provide configuration flexibility, which combined with DDR's development and re-development expertise, enhances the asset's competitive positioning through expansion and re-development opportunities and out-parcel sales.

Credit concerns center around DDR's heightened leverage ratios estimated by Fitch, as of March 2003, and inclusive of JDN, at 51% of un-depreciated book (45% of total market capitalization). Incorporating DDR's preferred stock, its debt plus preferred over un-depreciated book is 60% (53% over total market capitalization), as of March 2003. Both leverage ratios are considered elevated for the rating level. DDR has stated its intention to reduce overall leverage, primarily through the sale of non-core assets, which when implemented and depending on the amount, may be viewed as favorable.

In addition, DDR engages in the significant use of joint ventures (JV), which further encumber assets and with an average loan-to-book on its JVs of 65% (loan-to-value of 53%), DDR's pro-rata share of debt further heightens its overall leverage levels. Although Fitch acknowledges that the use of JVs is consistent with DDR's operating strategy and the firm does have a successful history of operating joint ventures in terms of structuring and maintaining strong partner relations.

Other concerns include DDR's heavy reliance on short-term debt that has contributed to an uneven and sizeable near-term debt maturity schedule with 21% of total debt due in 2004 and another 17% of total debt due in 2005. These near-term maturities are attributed to its $300 million bridge loan used to facilitate the JDN acquisition (due in 2004, but has two 6-month extension options), $140 million of unsecured notes due in 2004, and $400 million outstanding on its $650 million bank credit facility (due 2005). In addition, aggressive bank line usage has provided DDR an interest rate subsidy that helps support its interest and fixed charge coverage ratios. Interest and fixed charge coverage (inclusive of the JDN acquisition), as of March 2003 and estimated by Fitch at 2.6 times (x) and 2.2x, respectively (inclusive of capitalized interest and capital expenditures). Financial flexibility is adequate for its rating category with Fitch estimated unsecured net operating income (NOI) covering unsecured interest expense at better than 2.2x coverage (adjusted for capital expenditures).

Other concerns include a sizeable development pipeline of $400 million (includes JDN's development pipeline) representing 10% of un-depreciated book (9% of total market capitalization), although DDR is recognized for its ability to minimize development risk by requiring substantial pre-leasing efforts and focusing on re-development opportunities within its existing centers, as opposed to ground-up development.

The Rating Outlook for DDR is Stable, primarily due to Fitch's Stable Outlook for retail real estate investment trusts (REITs), as highlighted by Fitch's 2003 REIT Scorecard (dated Jan. 17, 2003 and available on the Fitch Ratings web site at 'www.fitchratings.com'), and DDR's exposure to value-oriented and discount retailers, which tend to be more resilient in an economic downturn.

Developers Diversified Realty Corporation (NYSE: DDR) exhibits a nationwide geographic presence and currently owns and manages over 400 operating and development retail properties throughout 44 states encompassing nearly 87 million sf. Headquartered in Beachwood, Ohio, DDR is one of the largest retail REITs with a total market capitalization estimated at approximately $4.6 billion, as of March 2003.