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 FAS 160 and
(ii) the adoption of FSP No. EITF 03-6-1.

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 either existing tenant relationships or geographic and demographic knowledge while seeking to minimize risks associated with land development.

Our Portfolio. As of June 30, 2009, our consolidated property portfolio comprised 181 properties, including 167 shopping centers consisting of approximately 19.0 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 June 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 June 30, 2009, the DIM properties were 91.9% leased. As of June 30, 2009, our core portfolio, which does not include DIM, was 90.7% 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 June 30, 2009. The GRI joint venture properties were 93.7% leased at June 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 June 30, 2009. In total, the properties owned by our joint venture with DRA were 66.9% leased at June 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 six months ended June 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 in accordance with FAS 141R.

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 as a result, in part, of substantial declines in the available capital from the credit markets. 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. 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. As an example, reductions in occupancy have adversely affected our rental revenue and expense recoveries, and caused us to increase bad debt expense, thereby negatively affecting our year over year same property net operating income, which was down 3.2%.

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

· the execution of 40 new leases in our core portfolio totaling 123,237 square feet, the renewal of 72 leases totaling 191,873 square feet and the extension of 17 leases totaling 254,406 square feet;

· 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;

· the re-purchase of approximately $12.9 million of our outstanding unsecured senior notes with varying maturities, generating a gain on the early extinguishment of debt of approximately $3.5 million for the three months ended June 30, 2009;

· 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 three outparcels in Homestead, FL and Baton Rouge, LA for aggregate sale proceeds of approximately $5.2 million resulting in gains on sale of $3.6 million; and

· the sale of various equity securities for net proceeds of approximately $1.8 million resulting in a net loss of approximately $10,000.

For the six months ended June 30, 2009, the execution of our business strategy resulted in:

· the sale of five outparcels in Homestead, FL, Baton Rouge, LA and Huntsville, AL for aggregate sale proceeds of $6.9 million resulting in gains on sale of $4.8 million;

· the acquisition of a 9.6% interest in Ramco-Gershenson Properties Trust with a cost basis of approximately $9.0 million and the subsequent appointment of two independent representatives to its board of trustees;

· the repurchase of $43.4 million of our outstanding senior notes with varying maturities, generating a gain of $12.2 million; and

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

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 and other expenses, 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.

Comparison of the three months ended June 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 June 30, 2009 as compared to the same period in 2008:

                                                               Three Months Ended
                                                                     June 30
                                                                2009          2008
                                                                 (In thousands)

 Total revenue                                               $   67,660     $ 60,749
 Property operating expenses                                     19,759       16,004
 Rental property depreciation and amortization                   14,897       11,661
 General and administrative expenses                              8,993        7,620
 Investment income                                                1,205          644
 Equity in income (loss) of real estate joint ventures              (21 )        170
 Other income                                                        34           45
 Interest expense                                                18,129       15,413
 Gain on sale of real estate                                          -       18,499
 Amortization of deferred financing fees                            322          420
 Gain on acquisition of controlling interest in subsidiary            -            -
 Gain on extinguishment of debt                                   3,544          696
 Income tax benefit of taxable REIT subsidiaries                    850           67
 Income (loss) from discontinued operations                       3,679         (334 )
 Net loss attributable to Noncontrolling interest                   506            -
 NET INCOME ATTRIBUTABLE TO EQUITY ONE                       $   15,357     $ 29,418

Included in the following discussion of results of operations are the results of DIM which has been consolidated with our results of operations for the three months ended June 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 $6.9 million, or 11.4%, to $67.7 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 $570,000 related to the completion of various development/redevelopment projects;

· a decrease of approximately $2.1 million attributable to the sale of nine of our income producing properties to our joint venture with GRI;

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

· a decrease of approximately $500,000 associated with lower joint venture acquisition fees partially offset by an increase of approximately $130,000 related to management services provided to our joint ventures.

Property operating expenses increased by approximately $3.8 million, or 23.5%, to $19.8 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;

· an increase of approximately $200,000 related to the completion of various development/redevelopment properties; and

· a decrease of approximately $825,000 associated with the sale of nine of our income producing properties to our joint venture with GRI; and

Rental property depreciation and amortization increased by approximately $3.2 million, or 27.8%, to $14.9 million for 2009 from $11.7 million in 2008. The increase in 2009 was primarily related to the following:

· an increase of approximately $4.2 million related to the DIM properties; and

· a decrease of approximately $400,000 attributable to the sale of our nine income producing properties to the GRI joint venture included fully in the 2008 results, but not included in the 2009 results, and a decrease in depreciation in 2009 due to the 2008 results containing a $500,000 adjustment for a tenant that vacated during the three months ended June 30, 2008. There were no comparable depreciation adjustments in the same 2009 period.

General and administrative expenses increased by approximately $1.4 million, or 18.0%, to approximately $9.0 million in 2009 compared to approximately $7.6 million in 2008. The increase is primarily attributable to an increase in professional services of approximately $500,000 related to legal and advisory fees associated with our investment in Ramco-Gershenson, an increase in leasing personnel costs and higher audit fees associated with our acquisition of DIM. In addition, we incurred approximately $820,000 in administrative costs associated with DIM's ongoing operations, which comprise legal, accounting services and other costs in the first quarter of 2009.

Investment income increased by approximately $560,000, or 87.2%, to approximately $1.2 million in 2009 compared to $644,000 in 2008. The increase is mainly due to higher dividend income of approximately $400,000 generated from our equity investments and an increase in interest income associated with our debt securities of approximately $130,000.

Equity in loss in unconsolidated joint ventures increased by approximately $191,000, to a loss of approximately $21,000 in 2009 compared to income of $170,000 in 2008. The change was primarily attributable to the full year effect of higher interest expense associated with a new loan for our GRI joint venture that closed in June 2008 and net operating losses from our DRA joint venture which closed in September of 2008. The net loss of $21,000 represents our pro rata share of our joint ventures' operating results.

Interest expense increased by approximately $2.7 million, or 17.6%, to approximately $18.1 million in 2009 as compared to $15.4 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 acquired in the first quarter;

· an increase of approximately $300,000 associated with lower capitalized interest due to fewer development projects in process;

· an increase of approximately $300,000 related to higher balances on our lines of credit; and

· a decrease of approximately $2.5 million related to the repayment of our senior notes due in April 2009 as well as lower interest related to debt repurchases that occured in the last year.

In the three months ended June 30, 2009, there were no gains associated with the sale of real estate other than those in discontinued operations. For the 2008 comparable period, we recognized a gain on sale of real estate of $18.5 million which was primarily attributable to the sale of nine or our income producing properties to the GRI joint venture.

Amortization of deferred financing costs decreased by approximately $100,000, to approximately $320,000, in 2009 compared to $420,000 in 2008. The decrease is mainly due to a higher volume of senior note repurchases and maturities in 2009 as compared to 2008.

In the second quarter of 2009, we repurchased and canceled approximately $12.9 million principal amount of our senior notes and recognized a net gain on early extinguishment of debt of approximately $3.5 million. In the second quarter of 2008, we repurchased and canceled approximately $10.5 million principal amount of our senior debt and recognized a net gain on early extinguishment of debt of approximately $700,000.

In the second quarter of 2009, we recognized approximately $850,000 in net tax benefits mainly attributable to the consolidation of DIM, which accounts for approximately $900,000 of our tax benefit reported for the current period, as compared to a tax benefit of $67,000 in 2008.

In the second quarter of 2009, we recognized a net gain of approximately $3.7 million from discontinued operations mainly due to the sale of three ground lease outparcels at two of our income producing properties, as compared to a $334,000 loss in the same period in 2008.

In the second quarter of 2009, net losses of approximately $506,000 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 $15.4 million in the second quarter of 2009, compared to net income of $29.4 million in the second quarter of 2008.

Comparison of the six months ended June 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 six months ended June 30, 2009 as compared to the same period in 2008:

                                                                Six Months Ended
                                                                     June 30
                                                               2009          2008
                                                                 (In thousands)

 Total revenue                                               $ 136,889     $ 123,905
 Property operating expenses                                    38,676        32,046
 Rental property depreciation and amortization                  30,184        23,423
 General and administrative expenses                            21,248        14,506
 Investment income                                               3,262         6,807
 Equity in income (loss) of real estate joint ventures             (28 )         170
 Other income                                                    1,085            88
 Interest expense                                               37,692        31,395
 Gain on sale of real estate                                         -        18,498
 Amortization of deferred financing fees                           766           849
 Gain on acquisition of controlling interest in subsidiary      26,866             -
 Gain on extinguishment of debt                                 12,235         3,076
 Income tax benefit of taxable REIT subsidiaries                 1,489           151
 Income (loss) from discontinued operations                      4,978          (204 )
 Net loss attributable to noncontrolling interest                  984             -
 NET INCOME ATTRIBUTABLE TO EQUITY ONE                       $  59,194     $  50,272

Total revenue increased by approximately $13.0 million, or 10.5%, to approximately $136.9 million in 2009 from approximately $123.9 million in 2008. The increase was primarily composed of the following:

· an increase of approximately $20.4 million attributable to the DIM properties;

· an increase of approximately $1.1 million related to the completion of various development/redevelopment projects;

· a decrease of approximately $7.0 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

· a net decrease of approximately $200,000 in same-property revenue due primarily to lower percentage rent income and lower small shop occupancy which also has the effect of lowering rental, rent reductions and expense recovery income.

Property operating expenses increased by approximately $6.6 million, or 20.7%, to approximately $38.7 million in 2009 from $32.1 million in 2008. The increase in 2009 is largely a result of the following activity:

· an increase of approximately $5.3 million related to the DIM properties;

· an increase of approximately $300,000 related to the completion of various development/redevelopment projects;

· an increase of approximately $3.2 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

· a decrease of approximately $2.2 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 $6.8 million, or 28.9%, to $30.2 million in 2009 from $23.4 million in 2008. The increase in 2009 is due primarily to the following:

· an increase of approximately $8.7 million related to the DIM properties;

· a decrease of approximately $1.4 million attributable to the sale of nine of our income producing properties to the GRI joint venture; and

· a decrease of approximately $500,000 attributable to accelerated depreciation recorded in the 2008 period related to a tenant that vacated during the three months ended June 30, 2008.

General and administrative expenses increased by approximately $6.7 million, or 46.5%, to approximately $21.2 million in 2009 compared to $14.5 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 $1.7 million due to: an increase in leasing personnel costs, higher rental costs due to our leasing of additional office space and higher legal and advisory fees attributable to our investment in Ramco-Gershenson Properties Trust. In addition, we had $1.6 million in administrative costs associated with DIM's ongoing operations, which comprises legal, accounting services and other costs.

Investment income decreased by approximately $3.5 million, or 52.1%, to approximately $3.3 million in 2009 from $6.8 million in 2008. The decrease is primarily associated with the suspension of DIM's dividend for 2009 which, is partly offset by an increase in higher dividend income related to other equity investments that we own and higher interest income associated with our debt securities.

Equity in loss in unconsolidated joint ventures increased cost incurred by approximately $198,000, to a loss of approximately $28,000 in 2009 compared to income of approximately $170,000 in 2008. The change was primarily attributable to the full year effect of higher interest expense associated with a new loan for our GRI joint venture that closed in June of 2008 and by net operating losses from our DRA joint venture which closed in September of 2008. The net loss of approximately 28,000 represents our pro rata share of our joint ventures operating results.

Other income increased approximately $1.0 million in the 2009 period compared to the same 2008 period. The increase is associated primarily with approximately $800,000 in income related to insurance proceeds received for tornado damage to one of our properties located in South Carolina.

Interest expense increased by approximately $6.3 million, or 20.1%, to approximately $37.7 million in 2009 as compared to $31.4 million for 2008. The increase is primarily attributable to the following:

· an increase of approximately $9.8 million of interest expenses related to the DIM mortgages;

· an increase of approximately $2.0 million related to the full year effect of a new mortgage that closed during the fourth quarter of 2008;

· an increase of approximately $200,000 due to higher balances on our line of credit;

· an increase of approximately $800,000 associated with lower capitalized interest due to fewer development projects in process;

· a decrease of approximately $5.1 million related to the repayment of certain mortgages and senior notes, including the repayment of our senior notes due in April 2009; and

· a decrease of approximately $1.6 million attributable to interest expense related to nine income producing properties sold to the GRI joint venture during the second quarter of 2008.

For the six months ended June 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 by approximately $83,000, to approximately $766,000, in 2009 compared to $849,000 in 2008. The decrease is mainly due to the larger amount of senior notes repurchased in 2009 as compared to 2008.

The gain on acquisition of 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 six months ended June 30, 2009, we repurchased and canceled approximately $43.4 million principal amount of our senior notes and recognized a net gain on early extinguishment of debt of approximately $12.2 million. In the same 2008 period, we repurchased and canceled approximately $38.0 million of our senior debt and recognized a net gain on early extinguishment of debt of approximately $3.1 million.

During the six months ended June 30, 2009, we recognized approximately $1.5 million net tax benefits mainly attributable to the consolidation of DIM, which accounts for $1.6 million of the tax benefit in the current period, net of approximately $160,000 tax provision for our other taxable REIT subsidiary. In the comparable 2008 period, we recognized a tax benefit of approximately $151,000.

For the six months ended June 30, 2009, our discontinued operations resulted in net income of approximately $5.0 million compared to a net loss of approximately $200,000 in 2008. In the current period, we sold five ground lease outparcels at . . .