The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto appearing in Item 1 of this report and the more detailed information contained in our Annual Report on Form 10-K for the year ended December 31, 2008.

Unless the context otherwise requires, all references to "we", "our", "us", and "Equity One" in this report refer collectively to Equity One, Inc. and its subsidiaries.

Changes in Basis of Presentation

As discussed in Note 1 to the accompanying condensed consolidated financial statements, certain 2008 financial information has been reclassified so that the basis of presentation is consistent with that of the 2009 financial information. This reclassification includes (i) the adoption of the provisions required under the Consolidation Topic of FASB ASC and (ii) the adoption of the provisions required under the Earnings Per Share Topic of FASB ASC.

Executive Overview

We are a real estate investment trust, or REIT, that owns, manages, acquires, develops and redevelops neighborhood and community shopping centers. Our primary objective is to maximize stockholder value by generating sustainable cash flow growth and increasing the value of our real estate assets. To achieve our objective, we lease and manage our shopping centers primarily with experienced, in-house personnel. We acquire neighborhood or community shopping centers that either have leading anchor tenants or contain a mix of tenants that reflect the shopping needs of the communities they serve. We also develop and redevelop shopping centers on a tenant-driven basis, leveraging existing tenant relationships and/or geographic and demographic knowledge while seeking to minimize risks associated with such development or redevelopment.

Our Portfolio. As of September 30, 2009, our consolidated property portfolio comprised 180 properties, including 166 shopping centers consisting of approximately 18.9 million square feet of gross leasable area, or GLA, four development/redevelopment properties, six non-retail properties, and four land parcels held for development. Included in our portfolio for the three months ended September 30, 2009 are 21 shopping centers consisting of approximately 2.6 million square feet of GLA owned by DIM Vastgoed N.V., a Dutch public company ("DIM") in which we acquired a controlling stake in January 2009. As of September 30, 2009, the DIM properties were 91.1% leased. As of September 30, 2009, our core portfolio, which does not include DIM, was 90.1% leased and included national, regional and local tenants.

In addition, we currently own a 10% interest in GRI-EQY I, LLC, a joint venture with Global Retail Investors LLC, or GRI, which owns ten neighborhood shopping centers totaling approximately 1.4 million square feet of GLA as of September 30, 2009. The GRI joint venture properties were 93.0% leased at September 30, 2009. We also own a 20% interest in G&I VI Investment South Florida Portfolio, LLC, a joint venture with an affiliate of DRA Advisors which owns one office building and two neighborhood shopping centers totaling approximately 503,000 square feet of GLA as of September 30, 2009. In total, the properties owned by our joint venture with DRA were 66.8% leased at September 30, 2009.

In connection with our January 2009 acquisition of a controlling stake in DIM, we increased our voting control to approximately 74.6% of DIM's outstanding ordinary shares and acquired net assets of $114.2 million, subject to a noncontrolling interest of $25.8 million, resulting in a bargain gain of $26.9 million. The results of DIM's operations have been included in our financial statements from the acquisition date and for the nine months ended September 30, 2009. A pro forma consolidated statement of operations has not been presented because it is impracticable to prepare such information. Please refer to Note 5 in the accompanying unaudited condensed consolidated Financial Statements for a complete description of the transaction and for additional detail on the accounting of this transaction.

Outlook and Business Strategy. During 2009, our business has continued to feel the effects of the challenging economic environment and the turmoil in the U.S. credit and retail markets. Buyers and sellers of real estate assets continue to operate in a market that has made completing transactions more difficult. While we have seen an improvement in the capital and credit markets, the persistence of a consumer-led economic slowdown has had a meaningful impact on most retailers, causing many companies, both national and local, to cease or curtail operations or declare bankruptcy.

As a result of the difficult operating environment for many of our tenants, we have incurred higher than normal bad debt expense. For instance, for the nine months ended September 30, 2009, our bad debt expense was $3.6 million compared to $1.6 million for the same period in 2008. In addition, the occupancy of our core portfolio has fallen from 90.7% at June 30, 2009 to 90.1% at September 30,

2009 primarily as a result of the weaker economy and its effects on our tenants. We have seen these economic conditions broadly across all of our markets.

These macro-trends have made it more difficult for us to achieve our objectives of growing our business through internal rent increases, re-cycling capital from lower-tiered assets into higher quality properties, and growing our asset management business.

Notwithstanding the difficult operating environment, the execution of our business strategy during the third quarter of 2009 resulted in:

· the execution of 43 new leases in our core portfolio totaling 198,732 square feet, the renewal of 81 leases totaling 224,348 square feet and the extension of 7 leases totaling 141,142 square feet;

· the sale of our investment in Ramco-Gershenson Properties Trust at a net gain of approximately $6.3 million; and

· the sale of two outparcels and one operating property for aggregate sale proceeds of approximately $5.7 million resulting in gains on sale of $580,000;

For the nine months ended September 30, 2009, the execution of our business strategy resulted in:

· the sale of seven outparcels and one operating property for aggregate sale proceeds of $12.6 million resulting in gains on sale of $5.4 million;

· the acquisition of a controlling interest in DIM on January 14, 2009;

· the execution of 113 new leases in our core portfolio totaling 422,037 square feet, the renewal of 232 leases totaling 604,674 square feet and the extension of 31 leases totaling 405,790 square feet;

· the repayment of $171.6 million principal amount of senior notes that matured and the settlement of the related interest rate swap;

· the sale of approximately 9.11 million shares of our common stock in an underwritten public offering and concurrent private placement, the net proceeds of which were $126.2 million and were used to repay indebtedness and other corporate purposes; and

· the re-purchase of approximately $44.2 million of our outstanding unsecured senior notes with varying maturities, generating a gain on the early extinguishment of debt of approximately $12.4 million.

Following September 30, 2009, we continued to execute on our strategies resulting in the purchase of Westbury Plaza and the refinancing of the mortgage associated with our Carolina Pavilion property. Refer to the Liquidity and Capital Resources section for further discussion on these events.

Results of Operations

We derive substantially all of our revenues from rents received from tenants under existing leases on each of our properties. These revenues include fixed base rents, recoveries of expenses that we have incurred and that we pass through to the individual tenants and percentage rents that are based on specified percentages of tenants' revenues, in each case as provided in the particular leases.

Our primary cash expenses consist of our property operating expenses, which include real estate taxes, repairs and maintenance, management expenses, insurance, utilities, general and administrative expenses, which include payroll, office expenses, professional fees and other administrative expenses, and interest expense, primarily on mortgage debt, unsecured senior debt and revolving credit facilities. In addition, we incur substantial non-cash charges for depreciation and amortization on our properties. We also capitalize certain expenses, such as taxes and interest related to properties under development or redevelopment until the property is ready for its intended use.

Our consolidated results of operations often are not comparable from period to period due to the impact of property acquisitions, dispositions, developments and redevelopments. The results of operations of any acquired property are included in our financial statements as of the date of its acquisition. A large portion of the change in our statement of operations line items is related to these changes in our property portfolio. In particular, our 2009 results reflect the impact of consolidating DIM's operations with our own compared to 2008 during which DIM's results were not consolidated.

Comparison of the three months ended September 30, 2009 to 2008

The following summarizes line items from our unaudited condensed consolidated statements of operations that we think are important in understanding our operations and/or those items that have significantly changed in the three months ended September 30, 2009 as compared to the same period in 2008:

                                                         Three Months Ended
                                                           September 30,
                                                         2009          2008
                                                           (In thousands)

       Total revenue                                  $   66,824     $  56,456
       Property operating expenses                        19,518        14,852
       Rental property depreciation and
       amortization                                       15,438        11,259
       General and administrative expenses                 7,772         7,837
       Investment income                                   6,772         1,245
       Equity in (loss) income of real estate joint
       ventures                                               (9 )          74
       Other income                                          325           626
       Interest expense                                   17,733        15,182
       Gain on sale of real estate                             -            57
       Amortization of deferred financing fees               369           420
       Gain on extinguishment of debt                        160         2,298
       Income tax benefit (provision) of taxable
       REIT subsidiaries                                     774           (78 )
       Income from discontinued operations                   732           165
       Other-than-temporary impairment loss on
       available for sale securities                           -       (32,688 )
       Net loss attributable to noncontrolling
       interest                                              570             -
       NET INCOME (LOSS) ATTRIBUTABLE TO EQUITY ONE   $   15,318     $ (21,395 )

Included in the following discussion of results of operations are the results of DIM which have been consolidated with our results of operations for the three months ended September 30, 2009 but not for the comparable 2008 period. For additional details on the consolidation of DIM and the effect on our financial reporting, see the Notes to the condensed consolidated financial statements included in this report.

Total revenue increased by approximately $10.4 million, or 18.4%, to $66.8 million in 2009. The increase is primarily attributable to the following:

· an increase of approximately $10.1 million attributable to the DIM properties;

· an increase of approximately $750,000 related to the completion of various development/redevelopment projects; and

· a decrease of approximately $250,000 attributable to the sale of two of our income producing properties to our joint venture with GRI.

Property operating expenses increased by approximately $4.7 million, or 31.4%, to $19.5 million in 2009. The increase primarily consists of the following:

· an increase of approximately $2.6 million attributable to the DIM properties;

· an increase of approximately $1.8 million in property operating costs due to an increase in bad debt expense, higher real estate tax expense, insurance expense and common area maintenance expense; and

· an increase of approximately $100,000 related to the completion of various development/redevelopment properties.

Rental property depreciation and amortization increased by approximately $4.2 million, or 37.1%, to $15.4 million for 2009 from $11.3 million in 2008. The increase in 2009 was primarily related to the following:

· an increase of approximately $4.4 million related to the DIM properties; and

· a decrease of approximately $150,000 attributable to the sale of two of our income producing properties to the GRI joint venture included fully in the 2008 results.

General and administrative expenses remained relatively flat at $7.8 million for the three months ended September 30, 2009 compared to the same period in 2008. The slight decrease of approximately $70,000 is attributable to:

· lower compensation expenses of approximately $480,000 related to headcount reductions and the streamlining of our executive management team;

· a reduction of $670,000 related to a decrease in professional fees, predevelopment expenses, training costs and other cost-cutting initiatives; offset by

· higher leasing costs of $400,000 due to lower capitalizable leasing efforts; and

· the consolidation of approximately $680,000 in general and administrative costs incurred as the result of DIM's ongoing operations, which comprise legal, accounting services and other costs which were not included in our results in 2008.

Investment income increased by approximately $5.5 million, to approximately $6.8 million, in 2009 compared to $1.2 million in 2008. The increase is mainly due to a $6.3 million gain associated with the sale of our Ramco stock. This increase was offset in part by lower interest income from our investment in debt securities that were either sold or that matured during 2009.

Equity in income/loss in unconsolidated joint ventures was a net loss of approximately $9,000 in 2009 compared to net income of $74,000 in 2008. The net loss represents our pro rata share of our joint ventures' operating results, which declined as a result of generally lower leasing activity. The net decrease was also attributable to the timing of the DRA joint venture, which was only included for a partial period in 2008.

Interest expense increased by approximately $2.6 million, or 16.8%, to approximately $17.7 million in 2009 as compared to $15.2 million in 2008. The increase is primarily attributable to the following:

· an increase of approximately $4.9 million of interest expense related to the DIM mortgages which were not consolidated for the three months ended September 30, 2008;

· an increase of approximately $350,000 associated with lower capitalized interest due to fewer development projects in process;

· an increase of approximately $609,000 related to higher balances on our lines of credit and higher mortgage balances; and

· a decrease of approximately $3.3 million related to lower interest on our senior notes following the repayment of our senior notes that matured in April 2009 and the repurchase of a portion of our senior notes at a discount;

Amortization of deferred financing costs decreased by approximately $51,000, to approximately $370,000, in 2009 compared to $420,000 in 2008.

In the third quarter of 2009, we repurchased and canceled approximately $835,000 principal amount of our senior notes and recognized a net gain on early extinguishment of debt of approximately $160,000. In the third quarter of 2008, we repurchased and canceled approximately $29.3 million principal amount of our senior debt and recognized a net gain on early extinguishment of debt of approximately $2.1 million along with a gain of approximately $200,000 associated with the early payoff of one of our mortgages.

Other income decreased approximately $301,000 to $325,000 in 2009 compared to $626,000 in 2008. In 2008, we had income of approximately $600,000 from the execution of an easement agreement in settlement of a condemnation proceeding at one of our properties, and in 2009 we received insurance proceeds of approximately $290,000 after a tornado damaged one of our properties located in South Carolina.

In the third quarter of 2009, we recognized approximately $774,000 in net tax benefits mainly attributable to the consolidation of DIM, which accounts for approximately $889,000 of our tax benefit reported for the current period, as compared to a tax provision of $78,000 in 2008.

In the third quarter of 2009, we recognized a net gain of approximately $580,000 from discontinued operations mainly due to the sale of two ground lease outparcels at two of our income producing properties and the sale of an operating property, as compared to a $69,000 loss in the same period in 2008.

In the third quarter of 2008, we determined that a decline in value in our investment in DIM was "other-than-temporary", and, as a result, recorded an impairment loss equal to $32.7 million representing the difference between the carrying value of our investment and the fair market value on September 30, 2008. There was no comparable impairment loss in the three months ended September 30, 2009.

In the third quarter of 2009, net losses of approximately $570,000 were attributable to the noncontrolling interest in DIM. No comparable amounts are included in the 2008 period.

As a result of the foregoing, we had net income attributable to Equity One of approximately $15.3 million in the third quarter of 2009, compared to net loss of $21.4 million in the same period in 2008.

Comparison of the nine months ended September 30, 2009 to 2008

The following summarizes certain line items from our unaudited condensed consolidated statements of operations which we think are important in understanding our operations and/or those items which have significantly changed in the nine months ended September 30, 2009 as compared to the same period in 2008:

                                                          Nine Months Ended
                                                            September 30,
                                                         2009          2008
                                                           (In thousands)

        Total revenue                                  $ 203,436     $ 180,080
        Property operating expenses                       58,188        46,894
        Rental property depreciation and
        amortization                                      45,611        34,671
        General and administrative expenses               29,021        22,343
        Investment income                                 10,035         8,051
        Equity in income (loss) of real estate joint
        ventures                                             (37 )         244
        Other income                                       1,409           714
        Interest expense                                  55,425        46,578
        Gain on sale of real estate                            -        18,513
        Amortization of deferred financing fees            1,135         1,268
        Gain on acquisition of controlling interest
        in subsidiary                                     26,866             -
        Gain on extinguishment of debt                    12,395         5,374
        Income tax benefit of taxable REIT
        subsidiaries                                       2,263            73
        Income from discontinued operations                5,971           269
        Other-than-temporary impairment loss on
        available for sale securities                          -        32,688
        Net loss attributable to noncontrolling
        interest                                           1,553             -
        NET INCOME ATTRIBUTABLE TO EQUITY ONE          $  74,511     $  28,876

Total revenue increased by approximately $23.4 million, or 13.0%, to approximately $203.4 million in 2009 from approximately $180.1 million in 2008. The increase was primarily composed of the following:

· an increase of approximately $30.5 million attributable to the DIM properties;

· an increase of approximately $1.8 million related to the completion of various development/redevelopment projects;

· a decrease of approximately $7.2 million related to the sale of nine of our income producing properties to our GRI joint venture;

· a decrease of approximately $1.3 million related to a settlement fee received in 2008 in connection with a previous tenant's bankruptcy; and

· approximately $400,000 in lower revenue due to rent concessions, abatements, and generally lower occupancy.

Property operating expenses increased by approximately $11.3 million, or 24.1%, to approximately $58.2 million in 2009 from $46.9 million in 2008. The increase in 2009 is largely a result of the following activity:

· an increase of approximately $7.9 million related to the DIM properties;

· an increase of approximately $4.9 million in property operating costs due to an increase in bad debt expense, higher real estate tax expense, insurance expense and common area maintenance expense;

· an increase of approximately $400,000 related to the completion of various development/redevelopment projects; and

· a decrease of approximately $2.0 million associated with the sale of nine of our income producing properties to our GRI joint venture.

Rental property depreciation and amortization increased by approximately $10.9 million, or 31.6%, to $45.6 million in 2009 from $34.7 million in 2008. The increase in 2009 is due primarily to the following:

· an increase of approximately $13.1 million related to the DIM properties;

· a decrease of approximately $1.5 million attributable to the sale of nine of our income producing properties to the GRI joint venture; and

· a decrease of approximately $700,000 attributable to accelerated depreciation recorded in the 2008 period related to previously capitalized tenant improvements and leasing commissions that were expensed as the tenants vacated.

General and administrative expenses increased by approximately $6.7 million, or 30.0%, to approximately $29.0 million in 2009 compared to $22.3 million in 2008. The increase is primarily attributable to $3.4 million associated with severance and severance related costs associated with the termination of employment of two senior executives initiated as part of our management streamlining and cost management program during the first quarter of 2009. We also incurred additional costs of $1.4 million primarily due to higher legal and advisory fees attributable to our investment in Ramco-Gershenson Properties Trust and our acquisition of DIM Vastgoed. In addition, we had $1.8 million in administrative costs associated with DIM's ongoing operations, which comprise legal, accounting services and other costs. None of these costs was included in the 2008 general and administrative expense.

Investment income increased by approximately $2.0 million, or 24.6%, to approximately $10.0 million in 2009 from $8.1 million in 2008. The increase is due to the $6.3 million net gain associated with the sale of our Ramco stock, an increase in dividend income of approximately $800,000 related to our Ramco investment as well as other equity investments that we own, and approximately $1.0 million of higher interest income associated with our investment in debt securities. These increases were offset in part by $5.9 million in lower dividend income associated with the consolidation of DIM and approximately $300,000 in lower interest earned on cash balances.

Equity in loss in unconsolidated joint ventures was approximately $37,000 in 2009 compared to equity income of $240,000 in 2008. The net loss represents our pro rata share of our joint ventures' operating results. The joint ventures results were only included for a portion of 2008 based on when the ventures were formed.

Other income increased approximately $700,000 to approximately $1.4 million in 2009 compared to $714,000 in 2008. In 2008, we recorded other income of approximately $600,000 following the execution of an easement agreement in settlement of a condemnation proceeding at one of our properties, and in 2009 we received insurance proceeds of approximately $290,000 after a tornado damaged one of our properties located in South Carolina.

Interest expense increased by approximately $8.8 million, or 19.0%, to approximately $55.4 million in 2009 as compared to $46.6 million for 2008. The increase is primarily attributable to the following:

· an increase of approximately $14.6 million of interest expense related to the DIM mortgages;

· an increase of approximately $1.1 million associated with lower capitalized interest due to fewer development projects in process;

· an increase of approximately $580,000 in interest related to higher balances on our lines of credit;

· an increase of approximately $3.0 million related to the full year effect of a new mortgage that closed during the fourth quarter of 2008;

· a decrease of approximately $1.8 million related to the repayment of certain mortgages;

· a decrease of approximately $7.2 million related to lower interest on our senior notes following the repayment of our senior notes that matured in April 2009 and the repurchase of a portion of our senior notes at a discount; and

· a decrease of approximately $1.5 million attributable to interest expense related to nine income producing properties sold to the GRI joint venture in 2008.

For the nine months ended September 30, 2009, there were no gains on sale of real estate other than those in discontinued operations as compared to the same period for 2008, which generated a gain on sale of real estate of approximately $18.5 million which was primarily attributable to the sale of nine of our income producing properties to our joint venture with GRI.

Amortization of deferred financing costs decreased to approximately $1.1 million in 2009 compared to approximately $1.3 million in 2008. The decrease is mainly due to the larger amount of senior notes repurchased in 2009 and 2008.

The gain on acquisition of a controlling interest in a subsidiary of approximately $26.9 million was generated from our acquisition of a controlling interest in DIM. The total gain consists of approximately $39.0 million representing the net value of DIM assets acquired in excess of our cost basis after recognizing approximately a $12.1 million revaluation loss of our previously recorded cost of investments in DIM.

In the nine months ended September 30, 2009, we repurchased and canceled . . .