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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11690
DEVELOPERS DIVERSIFIED REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-1723097
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Enterprise Parkway, Beachwood, Ohio 44122
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(Address of principal executive offices - zip code)
(216) 755-5500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicated by check |X| 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes
of common shares as of the latest practicable date.
61,462,277 shares outstanding as of May 10, 2000
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999.
Condensed Consolidated Statements of Operations for the Three Month Periods
ended March 31, 2000 and 1999.
Condensed Consolidated Statements of Cash Flows for the Three Month Periods
ended March 31, 2000 and 1999.
Notes to Condensed Consolidated Financial Statements.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
March 31, December 31,
ASSETS 2000 1999
----------- ------------
Real estate rental property:
Land $ 346,729 $ 342,859
Buildings 1,521,426 1,542,333
Fixtures and tenant improvements 35,067 34,176
Land under development 41,695 53,213
Construction in progress 101,121 95,693
----------- -----------
2,046,038 2,068,274
Less accumulated depreciation (260,013) (249,912)
----------- -----------
Real estate, net 1,786,025 1,818,362
Cash and cash equivalents 1,645 5,992
Investments in and advances to joint ventures 288,862 299,176
Minority equity investment 136,818 137,234
Notes receivable 5,866 5,590
Other assets 55,802 54,506
----------- -----------
$ 2,275,018 $ 2,320,860
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured indebtedness:
Fixed rate senior notes $ 592,351 $ 592,311
Revolving credit facility 297,000 272,000
----------- -----------
889,351 864,311
Secured indebtedness:
Revolving credit facility 23,775 18,775
Mortgage and other secured indebtednesss 225,563 268,965
----------- -----------
Total indebtedness 1,138,689 1,152,051
Accounts payable and accrued expenses 55,034 49,860
Dividends payable 20,842 20,826
Other liabilities 13,680 29,867
----------- -----------
1,228,245 1,252,604
----------- -----------
Minority equity interest 8,213 8,219
Preferred operating partnership interests 104,736 104,736
Operating partnership minority interests 102,956 102,956
Commitments and contingencies
Shareholders' equity:
Class A - 9.5% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 750,000 shares authorized; 421,500 shares
issued and outstanding at March 31, 2000 and December 31, 1999 105,375 105,375
Class B - 9.44% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 750,000 shares authorized; 177,500 shares
issued and outstanding at March 31, 2000 and December 31, 1999 44,375 44,375
Class C - 8.375% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 750,000 shares authorized; 400,000 shares issued
and outstanding at March 31, 2000 and December 31, 1999 100,000 100,000
Class D- 8.68% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 750,000 shares authorized; 216,000 shares issued
and outstanding at March 31, 2000 and December 31, 1999 54,000 54,000
Common shares, without par value, $.10 stated value; 100,000,000
shares authorized; 57,029,149 and 61,364,035 shares outstanding at
March 31, 2000 and December 31, 1999, respectively 6,146 6,136
Paid-in-capital 675,836 674,735
Accumulated dividends in excess of net income (95,438) (105,757)
----------- -----------
890,294 878,864
Less: Unearned compensation - restricted stock (1,523) (674)
Common stock in treasury at cost: 4,430,550 and 1,860,300 shares at
March 31, 2000 and December 31, 1999, respectively (57,903) (25,845)
------------ -----------
830,868 852,345
------------ -----------
$ 2,275,018 $ 2,320,860
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2000 1999
-------- --------
Revenues from operations:
Minimum rents $ 49,091 $ 46,257
Percentage and overage rents 1,852 1,750
Recoveries from tenants 13,176 11,655
Management fee income 1,635 1,298
Interest income 1,450 2,194
Other 1,602 1,984
-------- --------
68,806 65,138
-------- --------
Rental operation expenses:
Operating and maintenance 6,629 6,086
Real estate taxes 7,569 6,468
General and administrative 5,087 4,644
Interest 18,124 17,274
Depreciation and amortization 13,703 12,640
-------- --------
51,112 47,112
-------- --------
Income before equity in net income of joint
ventures, minority equity investment, gain
on disposition of real estate and real estate investments
and minority interests 17,694 18,026
Equity in net income of joint ventures 5,713 4,790
Equity in net income from minority equity investment 1,812 1,439
Gain on disposition of real estate and real estate investments 16,886 --
-------- --------
Income before minority interests 42,105 24,255
Minority interests:
Minority equity interests (28) (27)
Preferred operating partnership minority interests (2,408) (744)
Operating partnership minority interests (1,693) (1,616)
-------- --------
(4,129) (2,387)
-------- --------
Net income $ 37,976 $ 21,868
======== ========
Net income applicable to common shareholders $ 31,161 $ 15,053
======== ========
Per share data:
Earnings per common share -
Basic $ 0.53 $ 0.25
======== ========
Diluted $ 0.51 $ 0.24
======== ========
Dividends declared $ 0.36 $ 0.35
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2000 1999
-------- --------
Net cash flow provided by operating activities $ 34,068 $ 32,242
-------- --------
Cash flow provided by (used for) investing activities:
Real estate developed or acquired (6,860) (38,067)
Investments in and advances to joint ventures and minority
equity investment, net (44,608) (42,812)
Issuance of notes receivable, net (276) (4,086)
Proceeds from disposition of real estate and real estate investments 72,214 --
-------- --------
Net cash flow provided by (used for) investing activities 20,470 (84,965)
-------- --------
Cash flow provided by (used for) financing activities:
Proceeds from revolving credit facilities and
temporary bridge loans, net 8,000 78,000
Proceeds from construction loans -- 8,636
Principal payments on rental property debt (3,402) (6,328)
Payment of deferred finance costs (bank borrowings) (20) (51)
Proceeds from issuance of common shares in conjunction with
exercise of stock options, the Company's 401(k) plan,
dividend reinvestment plan and restricted stock plan 272 66
Purchase of treasury stock (32,067) --
Payment of distributions to preferred and operating
partnership minority interests (4,026) (198)
Dividends paid (27,642) (26,888)
-------- --------
Net cash flow provided by financing activities (58,885) 53,237
-------- --------
Increase in cash and cash equivalents (4,347) 514
Cash and cash equivalents, beginning of period 5,992 2,260
-------- --------
Cash and cash equivalents, end of period $ 1,645 $ 2,774
======== ========
Supplemental disclosure of non cash investing and financing activities:
During the period ended March 31, 2000, in conjunction with the formation of a
joint venture, the Company transferred property to the joint venture with a net
book value of $25.6 million and debt of $18.0 million in exchange for 50% equity
interest. Included in accounts payable was approximately $0.4 million relating
to construction in progress and $20.8 million of dividends declared at March 31,
2000. The foregoing transactions did not provide for or require the use of cash.
In conjunction with the acquisition of certain shopping centers, the Company
recorded minority equity interest aggregating approximately $1.8 million during
the three month period ended March 31, 1999. In addition, included in accounts
payable was approximately $0.2 million relating to construction in progress and
$21.5 million of dividends declared. The foregoing transaction did not provide
for or require the use of cash.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
Developers Diversified Realty Corporation, related real estate joint
ventures and its minority equity investment (the "Company" or "DDR"), are
engaged in the business of acquiring, expanding, owning, developing, managing
and operating neighborhood and community shopping centers, enclosed malls and
business centers.
Reclassifications
Certain reclassifications have been made to the 1999 financial
statements to conform to the 2000 presentation.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
New Accounting Standard
In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities. This statement requires fair value
accounting for all derivatives including recognizing all such instruments on the
balance sheet with an offsetting amount recorded in the income statement or as
part of comprehensive income. The new standard becomes effective for the Company
for the year ending December 31, 2001 (SFAS No. 137 deferred the effective date
from December 31, 2000). The Company does not expect this pronouncement to have
a material impact on the Company's financial position or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements, " which among other things
provides guidance on lessors' accounting for contingent rent. This bulletin
clarified that contingent rental income should be recognized once the factors
that trigger payment actually occur. The Company plans to adopt this bulletin,
as required, in the second quarter of 2000. The Company does not anticipate this
bulletin to have a material impact on the Company's results of operations or
financial positions.
Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and all majority owned subsidiaries and
investees where the Company has financial
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and operating control. Investments in real estate joint ventures and companies
for which the Company has the ability to exercise significant influence over but
does not have financial and operating control are accounted for using the equity
method of accounting.
These financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim financial
information and the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, the interim
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of the
periods presented. The results of the operations for the three months ended
March 31, 2000 and 1999 are not necessarily indicative of the results that may
be expected for the full year. These condensed consolidated financial statements
should be read in conjunction with the Company's audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
2. EQUITY INVESTMENTS IN JOINT VENTURES:
The Company's equity investments in joint ventures at March 31, 2000 consisted
of the following:
o A 50% joint venture interest in 16 operating shopping centers (one of which
was transferred from the Company to a joint venture in 2000 and two of
which were acquired in 1999);
o A 35% joint venture interest in one operating shopping center;
o A 20% joint venture interest in 10 operating shopping centers (effective
February 29, 2000, the Company sold 60% of its half interest in this joint
venture);
o A 57% joint venture interest in one shopping center, a portion of which is
under development;
o A 50% interest in six joint ventures each of which is developing a
shopping center;
o A 12.5% interest in two joint ventures each of which is developing a
shopping center (1999);
o An 80% joint venture interest in two operating shopping center properties;
o A 50% joint venture interest in a real estate management company and a
development company;
o A 50% joint venture interest in a limited partnership which is developing
six shopping centers;
o A 25% interest in one joint ventures which is developing a shopping center;
o A 95% economic interest in a management service subsidiary of which the
Company owns 1% of the voting and 100% of the non-voting common stock. This
entity owns a 25% joint venture interest in an opportunity fund ("Retail
Value Fund") which acquired a retail site in Long Beach, CA, which is being
redeveloped, 6 operating retail shopping centers in Kansas City, Kansas and
Kansas City Missouri (1999), a 75% joint venture interest which owns 13
retail sites formerly occupied by Best Products, and a 12.5% interest in a
joint venture interest which is developing a shopping center;
o An 81% economic interest in a management service subsidiary of which the
Company owns 9% of the voting and 100% of the non-voting common stock.
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Summarized combined financial information of the Company's joint venture
investments is as follows (in thousands):
March 31, December 31,
2000 1999
----------- ------------
Combined Balance Sheets:
Land $ 272,274 $ 262,485
Buildings 952,652 917,507
Fixtures and tenant improvements 5,756 5,010
Construction in progress 213,162 187,825
----------- -----------
1,443,844 1,372,827
Less accumulated depreciation (88,602) (82,481)
----------- -----------
Real estate, net 1,355,242 1,290,346
Other assets 81,735 76,173
----------- -----------
$ 1,436,977 $ 1,366,519
=========== ===========
Mortgage debt $ 920,456 $ 887,650
Amounts payable to DDR 150,388 123,743
Other liabilities 49,389 48,913
----------- -----------
1,120,233 1,060,306
Accumulated equity 316,744 306,213
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$ 1,436,977 $ 1,366,519
=========== ===========
Three Month Period
Ended March 31,
2000 1999
------- -------
Combined Statements of Operations:
Revenues from operations $47,439 $39,871
------- -------
Rental operation expenses 13,113 11,378
Depreciation and amortization expense
of real estate investments 6,681 5,481
Interest expense 16,088 14,024
------- -------
35,882 30,883
------- -------
Income before gain on sale of real estate 11,557 8,988
Gain on sale of real estate -- 91
------- -------
Net income $11,557 $ 9,079
======= =======
Included in management fee income for the three month period ended
March 31, 2000 and 1999, is approximately $1.5 and $1.2 million, respectively,
of management fees earned by the Company for services rendered to the joint
ventures. Similarly, other income for the three month period ended March 31,
2000 and 1999, includes $1.1 million and $0.5 million, respectively, of
development fee income and commissions for services rendered to the joint
ventures, net of amounts eliminated related to the Company's proportionate
share.
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In February 2000, the Company entered into an agreement to sell 60% of
its half interest in the Community Centers Joint Venture to DRA Advisors, Inc.
at a price of approximately $163 million comprised of cash of approximately $66
million and debt assumed of $97 million. In conjunction with this transaction,
the Company recognized a gain of approximately $15.4 million associated with
this sale of its 60% interest. The Company's ownership in the joint venture
subsequent to this transaction is effectively 20% with funds advised by DRA
Advisors, Inc. owning 80%. The Company will continue to be responsible for the
day-to-day management of the shopping centers and receive fees for such
services.
In February 2000, the Company formed a joint venture with DRA Advisors,
Inc. whereby the Company contributed a wholly owned property in Phoenix, Arizona
valued at approximately $26.7 million and related mortgage debt of $18.0 million
and, in exchange, received a 50% equity ownership interest in the joint venture
and cash proceeds of approximately $4.3 million. In conjunction with this
transaction, the Company recognized a gain of approximately $0.5 million
associated with the sale of its partial interest. The Company will continue to
manage and operate the center and receive fees for such services.
In addition, the Company transferred its interest in two joint ventures
which each own a shopping center under development to the Retail Value Fund.
3. MINORITY EQUITY INVESTMENT:
In 1998, the Company announced the execution of a definitive agreement
providing for the strategic investment in American Industrial Properties REIT
(NYSE: IND) ("AIP") by the Company. At December 31, 1999 and March 31, 2000, the
Company owned 9,656,650 common shares in AIP representing approximately 46.1%
and 46.0%, respectively of AIP's total outstanding commons shares.
Summarized financial information of AIP, as reflected on the accounts of AIP, is
as follows (in thousands):
March 31, December 31,
2000 1999
--------- -----------
Balance Sheet:
Land $ 155,723 $ 159,566
Buildings 473,522 482,620
--------- ---------
629,245 642,186
Less accumulated depreciation (48,373) (46,931)
--------- ---------
Real estate, net 580,872 595,255
Other assets 28,567 25,427
--------- ---------
$ 609,439 $ 620,682
========= =========
Mortgage debt $ 324,583 $ 334,873
Other liabilities 23,448 27,321
--------- ---------
348,031 362,194
Accumulated equity 261,408 258,488
--------- ---------
$ 609,439 $ 620,682
========= =========
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Three month period
ended March 31,
2000 1999
-------- --------
Statement of Operations:
Revenues from operations $ 22,220 $ 20,323
-------- --------
Rental operation expenses 7,800 7,250
Depreciation and amortization
Expense 3,613 3,473
Interest expense 6,550 6,270
-------- --------
17,963 16,993
4,257 3,330
Minority interests (90) (44)
Equity earnings in joint venture 70 --
Gain on sales of real estate 3,116 --
-------- --------
Income before extraordinary item 7,353 3,286
Extraordinary item (329) --
-------- --------
Net income $ 7,024 $ 3,286
======== ========
In conjunction with the Company's equity investment in AIP, certain adjustments
were made, on the Company's accounts, to reflect the fair market value of the
assets at the date the Company invested in AIP. Accordingly, the Company's
equity in net income from minority equity investment is adjusted to reflect
these basis differences.
4. SHAREHOLDERS' EQUITY AND OPERATING PARTNERSHIP UNITS:
The following table summarizes the changes in shareholders' equity
since December 31, 1999 (in thousands):
Accumulated Unearned
Preferred Shares Common Shares Dividends in Compensation Treasury
($250 Stated ($.10 stated Paid-in Excess of Restricted Stock
Value) Value) Capital Net Income Stock at Cost Total
---------------- ------------- -------- ------------ ------------ --------- --------
Balance December 31, 1999 $303,750 $6,136 $674,735 $(105,757) $ (674) $(25,845) $852,345
Net income 37,976 37,976
Dividends declared -
Common Shares (20,842) (20,842)
Dividends declared -
Preferred Shares (6,815) (6,815)
Issuance of restricted stock 9 1,046 (849) 10 216
Purchases of common shares (32,068) (32,068)
Issuance of common shares
related to exercise of stock
options, employee 401(k) plan
and dividend reinvestment plan 1 55 56
-------- ------ -------- --------- ------- -------- --------
Balance March 31, 2000 $303,750 $6,146 $675,836 $ (95,438) $(1,523) $(57,903) $830,868
======== ====== ======== ========= ======= ======== ========
In February and August 1999, the Company's Board of Directors
authorized the Officers of the Company to implement a common share repurchase
program in response to what the Company believed was a distinct under valuation
of the Company's common shares in the public market. At March 31, 2000 and
December 31, 1999, treasury stock recorded on the Company's consolidated
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balance sheet consisted of 4,430,550 and 1,860,300 and common shares at a cost
of $57.9 million and $25.8 million, respectively.
5. REVOLVING CREDIT FACILITIES:
The Company maintains a $375 million unsecured revolving credit
facility with a syndicate of financial institutions, for which Bank One, NA
serves as the administrative agent (the "Unsecured Credit Facility"), for a term
through April 2001. The Unsecured Credit Facility includes a competitive bid
option for up to 50% of the facility amount. The Company's borrowings under this
facility bear interest at variable rates based on the prime rate or LIBOR plus a
specified spread (currently 0.85%), depending on the Company's long term senior
unsecured debt rating from Standard and Poor's and Moody's Investors Service.
The Unsecured Credit Facility is used to finance the acquisition and development
of properties, to provide working capital and for general corporate purposes. At
March 31, 2000, $297.0 million was outstanding under this facility with a
weighted average interest rate of 6.9%.
The Company also maintains a secured revolving credit facility with
National City Bank of $25 million. This credit facility is secured by certain
partnership investments. The Company maintains the right to reduce this facility
to $20 million and to convert the borrowings to an unsecured revolving credit
facility. Borrowings under this facility bear interest at variable rates based
on the prime rate or LIBOR plus a specified spread (currently 0.85%) depending
on the Company's long term senior unsecured debt rating from Standard and Poor's
and Moody's Investors Service. At March 31, 2000, $23.8 million was outstanding
under this facility with a weighted average interest rate of 6.9%.
6. RELATED PARTY TRANSACTIONS
At March 31, 2000, the Company had advanced approximately $0.2 million
to certain, recently hired, officers of the Company in connection with various
relocation costs.
In conjunction with the establishment of DDR's equity investment in
certain entities, the Company's Chairman and Chief Executive Officer owns voting
stock in these entities in order to comply with certain REIT qualification
requirements.
7. EARNINGS AND DIVIDENDS PER SHARE
Earnings Per Share (EPS) have been computed pursuant to the provisions
of Statement of Financial Accounting Standards No. 128.
The following table provides a reconciliation of both income before
extraordinary item and the number of common shares used in the computations of
"basic" EPS, which utilized the weighted
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average number of common shares outstanding without regard to dilutive potential
common shares, and "diluted" EPS, which includes all such shares.
Three Month Period
Ended March 31,
(in thousands, except per share amounts)
2000 1999
-------- --------
Income before extraordinary item $ 37,976 $ 21,868
Less: Preferred stock dividend (6,815) (6,815)
-------- --------
Basic - Income before
extraordinary item applicable to
common shareholders 31,161 15,053
Effect of dilutive securities:
Operating partnership minority interests 1,693 --
-------- --------
Diluted - Income before
extraordinary item applicable to
common shareholders plus
assumed conversions $ 32,854 $ 15,053
======== ========
NUMBER OF SHARES:
Basic - average shares outstanding 59,034 61,302
Effect of dilutive securities:
Joint venture partnerships -- 2,526
Operating partnership minority interests 4,702 --
Stock options 21 187
Restricted stock 56 1
-------- --------
Diluted - average shares outstanding 63,813 64,016
======== ========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 0.53 $ 0.25
======== ========
Diluted $ 0.51 $ 0.24
======== ========
The weighted average contingently issuable OP units which are exchangeable, in
certain circumstances, into common shares aggregated 2.5 million for the three
month period ended March 31, 1999. In 2000, the Company intends to settle these
continently issuable OP Units in cash.
The conversion of the Company joint venture partners' interest in several joint
ventures were not included in the computation of diluted EPS because the effect
was antidilutive (1999). Significant estimates were utilized by the Company in
the determination of fair value for certain of the Company's joint ventures
where the joint venture partner has the right to convert its interest in the
partnership to common shares of the Company or cash, at the election of the
Company. These estimates were used to determine the number of common shares
assumed to be issued by the Company upon conversion, for purposes of determining
dilution, if any. However, in 1999, the Company made the determination that they
will settle these conversions in cash, and therefore, the calculation of EPS for
the period ended March 31, 2000 has excluded these conversions.
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8. SUBSEQUENT EVENTS
In April 2000, the Company purchased 2.0 million of its common shares
on the open market for an aggregate purchase price of approximately $28.1
million. The purchase of these shares was made in accordance with the Company's
share repurchase program approved by the Company's Board of Directors.
In April 2000, the Company purchased a 199,000 square foot shopping
center in Brentwood, Tennessee for approximately $22.5 million.
On May 1, 2000, the Company elected to terminate its entity level
involvement with DDR OliverMcMillian ("DDROM"). At March 31, 2000, DDROM was
pursuing the development of six urban entertainment and retail projects
aggregating 1.2 million square feet of GLA at the projected cost of
approximately $233 million. Three of these projects are under construction:
Gaslamp (San Diego, CA), Reno, NV and Oceanside, CA. The remaining projects are
scheduled to commence in 2000 with completion in 2001 and 2002. The Company
expects to retain its interest in the Gaslamp, Reno and Oceanside properties
and will consider other projects on a case by case basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto. Historical results and
percentage relationships set forth in the consolidated financial statements,
including trends which might appear, should not be taken as indicative of future
operations. The Company considers portions of this information to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
both as amended, with respect to the Company's expectations for future periods.
Forward-looking statements include, without limitation, statements related to
acquisitions (including any related pro forma financial information) and other
business development activities, future capital expenditures, financing sources
and availability, the effects of environmental and other regulations. Although
the Company believes that the expectations reflected in those forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes", "anticipates", "plans", "expects", "seeks", "estimates", and similar
expressions are intended to identify forward-looking statements. Readers should
exercise caution in interpreting and relying on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond the Company's control and could materially affect the
Company's actual results, performance or achievements.
Factors that could cause actual results, performance or achievements to
differ materially from those expressed or implied by forward-looking statements
include, but are not limited to, the following:
o The Company is subject to general risks affecting the real estate industry,
including the need to enter into new leases or renew leases on favorable
terms to generate rental revenues;
o The Company is subject to competition for tenants from other owners of
retail properties and its tenants are subject to competition from other
retailers and methods of distribution. The Company is dependent upon the
successful operations and financial condition of its tenants, particularly
certain of its major tenants, and could be adversely affected by the
bankruptcy of those tenants;
o The Company may fail to anticipate the effects on its properties of changes
in consumer buying practices, including sales over the Internet, and the
resulting retailing practices and space needs of its tenants;
o E-commerce may affect the sales volume of the Company's tenants which may
reduce the amount of percentage rental income;
o The Company may fail to identify, acquire, construct or develop additional
properties, that do not produce a desired yield on invested capital, or may
fail to effectively integrate acquisitions of properties or portfolios of
properties;
o Debt and equity financing may not be available, or may not be available on
favorable terms, for the Company to continue to grow and operate its
business;
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o The Company is subject to complex regulations related to its status as a
real estate investment trust ("REIT") and would be adversely affected if it
failed to qualify as a REIT;
o The Company must make distributions to shareholders to continue to qualify
as a REIT, and if the Company borrows funds to make distributions then
those borrowings may not be available on favorable terms;
o The Company could be adversely affected by changes in the local markets
where its properties are located, as well as by adverse changes in national
economic and market conditions;
o The Company is subject to potential environmental liabilities;
o The Company could be adversely affected by changes in government
regulations, including changes in environmental, zoning, tax and other
regulations;
o Changes in interest rates could adversely affect the market price for the
Company's common shares, as well as its performance and cash flow.
RESULTS OF OPERATIONS
Revenues from Operations
Total revenues increased $3.7 million, or 5.6%, to $68.8 million for
the three month period ended March 31, 2000 from $65.1 million for the same
period in 1999. Base and percentage rents for the three month period ended March
31, 2000 increased $2.9 million, or 6.1%, to $50.9 million as compared to $48.0
million for the same period in 1999. Approximately $0.8 million of the increase
in base and percentage rental income, for the three month period ended March 31,
2000 is the result of new leasing, re-tenanting and expansion of the Core
Portfolio Properties (shopping center properties owned as of January 1, 1999),
an increase of 1.8% over 1999 revenues from Core Portfolio Properties. The
shopping centers acquired by the Company in 1999 contributed $0.4 million of
additional base and percentage rental revenue and the seven new shopping center
developments contributed $1.8 million. These increases were offset by a $0.1
million decrease from the sale of three properties in 1999 and 2000.
At March 31, 2000, the in-place occupancy rate of the Company's
portfolio stood at 95.0% as compared to 96.1% at March 31, 1999 and 95.6% at
December 31, 1999. The slight decrease in occupancy rate is primarily
attributable to bankruptcies associated with Home Quarters, Service Merchandise
and Big Bear.
The average annualized base rent per leased square foot, including
those properties owned through joint ventures, was $9.19 at March 31, 2000 as
compared to $9.04 at March 31, 1999. Same store sales, for those tenants
required to report such information, representing approximately 19.1 million
square feet, increased 3.6% to $238 per square foot for the twelve month period.
The increase in recoveries from tenants of $1.5 million for the three
months ended March 31, 2000 is directly related to the increase in operating and
maintenance expenses and real estate taxes primarily associated with the 2000
and 1999 shopping center acquisitions and developments. Recoveries were
approximately 92.8% of operating expenses and real estate taxes for the three
month period ended March 31, 2000 and 1999. Management fee
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income increased by approximately $0.3 million for the three month period ended
March 31, 2000 compared to the same period in 1999, primarily associated with
the formation of new joint ventures in 1999 and 2000. Interest income decreased
$0.7 million, for the three month period ended March 31, 2000 compared to the
same period in 1999, primarily associated with advances made to certain joint
ventures and notes receivable outstanding in 1999.
Other income decreased by approximately $0.4 million which generally
reflects a decrease in commissions and financing fees from the Company's joint
ventures, relating to the ownership interest held by third party investors. This
decrease is offset by previously deferred development fees recognized in
connection with the Company's sale of 60% of its half interest in the Community
Centers Joint Venture.
Other income was comprised of the following (in thousands):
Three Month Period
Ended March 31,
2000 1999
------ ------
Temporary tenant rentals (Kiosks) $ 212 $ 82
Lease termination fees 188 349
Development fees 958 783
Other 244 770
------ ------
$1,602 $1,984
====== ======
Expenses from Operations
Rental operating and maintenance expenses for the three month period
ended March 31, 2000 increased $0.5 million, or 8.9%, to $6.6 million as
compared to $6.1 million for the same period in 1999. An increase of $0.3
million is attributable to the eight shopping centers acquired and developed in
2000 and 1999 and $0.2 million in the Core Portfolio Properties is primarily
attributable to an increase in various maintenance items.
Real estate taxes for the three month period ended March 31, 2000
increased $1.1 million, or 17.0%, to $7.6 million as compared to $6.5 million
for the same period in 1999. An increase of $0.6 million is related to the eight
shopping centers acquired and developed in 2000 and 1999 and $0.5 million in the
Core Portfolio Properties.
General and administrative expenses increased $0.4 million, or 9.5%, to
$5.0 million for the three month period ended March 31, 2000 as compared to $4.6
million in 1999. Total general and administrative expenses were approximately
4.4% of total revenues, including total revenues of joint ventures, for the
three month periods ended March 31, 2000 and 1999 (3.7% in 1999 after excluding
a severance charge).
The increase in general and administrative expenses is attributable to
the growth of the Company primarily related to acquisitions, expansions and
developments, relocation of the Company Headquarters to a new office in 1999 and
several new key executives. The Company continues to maintain a conservative
policy with regard to the expensing of all internal leasing salaries, legal
salaries and related expenses associated with the leasing and re-leasing of
existing space.
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Depreciation and amortization expense increased $1.1 million, or 8.4%,
to $13.7 million for the three month period ended March 31, 2000 as compared to
$12.6 million for the same period in 1999. An increase of $0.6 million is
related to the eight shopping centers acquired and developed in 2000 and 1999,
$0.4 million is related to Core Portfolio Properties and $0.1 million is related
to personal property primarily associated with the relocation of the Company's
headquarters.
Interest expense increased $0.8 million, or 4.9%, to $18.1 million for
the three month period ended March 31, 2000, as compared to $17.3 million for
the same period in 1999. The overall increase in interest expense for the three
month period ended March 31, 2000 as compared to the same period in 1999 is
primarily related to the acquisition and development of shopping centers during
2000 and 1999 and an increase in short term interest rates.
The weighted average debt outstanding during the three month period
ended March 31, 2000 and related weighted average interest rate was $1.2 billion
and 7.3%, respectively, compared to $1.1 billion and 7.2%, respectively, for the
same period in 1999. Interest costs capitalized, in conjunction with
development, expansion projects and development joint venture interests, was
$2.8 million for the three month period ended March 31, 2000, as compared to
$2.7 million for the same period in 1999.
Equity in net income of joint ventures increased $0.9 million, or
19.3%, to $5.7 million for the three month period ended March 31, 2000 as
compared to $4.8 million for the same period in 1999. An increase of $0.8
million is related to the joint ventures formed in 1999 and 2000. The remaining
increase of $0.1 million relates to various other joint ventures formed prior to
1999.
Equity in net income of minority equity investment increased $0.4
million, to $1.8 million, or 25.9%, for the three month period ended March 31,
2000, as compared to $1.4 million for the same period in 1999. This increase
related to the company's equity investment in AIP (NYSE: IND) which began in
August 1998. During the first quarter of 1999, the Company's investment in AIP
increased from 34.5% at December 31, 1998 to 45.4%. (9.3 million shares) in
conjunction with the acquisition of several properties. As of March 31, 2000,
the Company owned approximately 9.7 million shares of AIP which approximates
46.0% of AIP's outstanding common shares.
The minority equity interest expense increased $1.7 million, to $4.1
million for the three month period ended March 31, 2000, as compared to $2.4
million for the same period in 1999. This increase of $1.7 million relates to
the Company's issuance of preferred operating partnership minority units
("Units") in September 1999. These Units may be exchanged, under certain
circumstances, into preferred shares of the Company.
Gain on disposition of real estate and real estate investments
aggregated $16.9 million for the three month period ended March 31, 2000. In
February 2000, The Company sold a property in Stone Mountain, Georgia and
recorded a gain of approximately $1.0 million. The Company also sold 60% of its
half interest in a joint venture which owns 10 operating shopping centers and
recognized a gain of approximately $15.4 million excluding the related
development fees of $0.4 million previously deferred which is included in other
income. In connection with the formation of one joint venture, the Company sold
one property, received cash and a 50% partnership interest and recognized a gain
of approximately $0.5 million.
Net Income
Net income increased $16.1 million, or 73.7%, to $38.0 million for the
three month period ended March 31, 2000, as compared to net income of $21.9
million for the same period in 1999. The increase in net income of $16.1 million
is primarily attributable to the gain on sale of real estate and
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real estate investments of $16.9 million, increases in net operating revenues
(total revenues less operating and maintenance, real estate taxes and general
and administrative expense) aggregating $1.6 million, resulting from new
leasing, retenanting and expansion of Core Portfolio Properties and the eight
shopping centers acquired and developed in 2000 and 1999 and an increase of $1.3
million relating to equity in net income from joint ventures and minority equity
investment. This aggregate increase was offset by increases in depreciation,
interest and minority interest expense of $1.1 million, $0.9 million and $1.7
million, respectively.
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") provides an
additional indicator of the financial performance of a Real Estate Investment
Trust. FFO is defined generally as net income applicable to common shareholders
excluding gains (losses) on sale of property, extraordinary items, adjusted for
certain non-cash items, principally real property depreciation and equity income
(loss) from its joint ventures and adding the Company's proportionate share of
FFO of its unconsolidated joint ventures, determined on a consistent basis. The
Company calculates FFO in accordance with the foregoing definition, which is
substantially the same as the definition currently used by the National
Association of Real Estate Investment Trusts ("NAREIT"). Certain other real
estate companies may calculate FFO in a different manner. For the three month
period ended March 31, 2000, FFO (diluted) increased $0.8 million, or 2.4%, to
$34.2 million as compared to $33.4 million for the same period in 1999, as
adjusted to comply with the revised definition of FFO effective January 1, 2000.
The increase is attributable to increases in revenues from Core Portfolio
Properties, acquisitions and developments. The Company's calculation of FFO is
as follows (in thousands):
Three Month Period
Ended March 31,
2000 1999
-------- --------
Net income applicable to
common shareholders (1) $ 31,161 $ 15,053
Depreciation of real estate investments 13,416 12,463
Equity in net income of joint ventures (5,713) (4,790)
Equity in net income of minority equity investment (1,812) (1,439)
Joint Ventures' FFO (2) 8,835 7,575
Minority equity investment FFO 3,532 2,882
Minority interest expense and real estate investments
(OP Units) 1,693 1,617
Gain on disposition of real estate and real estate
investments (16,886) --
-------- --------
$ 34,226 $ 33,361
======== ========
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(1) Includes straight line rental revenues of approximately $1.0
million and $1.1 million for the three month periods ended March
31, 2000 and 1999, respectively.
(2) Joint Ventures' Funds From Operations are summarized as follows:
Three Month Period
Ended March 31,
2000 1999
------- --------
Net income (a) $11,557 $ 9,079
Gain on sales of real estate -- (91)
Depreciation of real estate investments 6,681 5,481
------- --------
$18,238 $ 14,469
======= ========
DDRC Ownership interests (b) $ 8,835 $ 7,575
======= ========
(a) Revenues for the three month periods ended March 31, 2000 and
1999 include approximately $0.9 million and $1.1 million,
respectively, resulting from the recognition of straight line
rents of which the Company's proportionate share is $0.4 million
and $0.5 million, respectively.
(b) At March 31, 2000, the Company owned joint venture interests
relating to 42 operating shopping center properties, a 25%
interest in the Prudential Retail Value Fund and a 50% joint
venture in a real estate management company. At March 31, 1999,
the Company owned joint venture interests in 26 operating
shopping center properties, a 25% interest in the Prudential
Retail Value Fund and a 50% joint venture in a real estate
management company.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for all principal payments, recurring
tenant improvements, as well as dividend payments in accordance with REIT
requirements and that cash on hand, borrowings available under its existing
revolving credit facilities, as well as other debt and equity alternatives,
including the issuance of OP Units and joint venture capital, will provide the
necessary capital to achieve continued growth. Cash flow from operating
activities for the three month period ended March 31, 2000 increased to $34.1
million as compared to $32.2 million for the same period in 1999. The increase
is attributable to the shopping center acquisitions and developments completed
in 2000 and 1999, new leasing, expansion and re-tenanting of the core portfolio
properties.
An increase in the 2000 quarterly dividend per common share to $0.36
from $0.35 was approved in March 2000 by the Company's Board of Directors. The
Company's common share dividend payout ratio for the first quarter of 2000
approximated 60.9% of the actual FFO as compared to 62.8% for the same period in
1999. It is anticipated that the current dividend level will result in a more
conservative payout ratio as compared to prior years. A lower payout ratio will
enable the Company to retain more capital which will be utilized for attractive
investment opportunities in the development, acquisition and expansion of
portfolio properties.
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During the three month period ended March 31, 2000, the Company and its
joint ventures invested $11.5 million, net, to acquire, develop, expand, improve
and re-tenant its properties. The Company's expansion acquisition and
development activity is summarized below:
Expansions:
The Company is currently expanding/redeveloping three of its shopping
centers at an aggregate cost of $6.3 million. These expansion projects include:
o A 71,000 square foot Belk's and additional retail expansion at Springdale
Plaza in Camden, South Carolina.
o A 26,000 square foot retail expansion at the K-Mart shopping center in
Brandon, Florida.
o A 25,000 square foot Old Navy expansion at the Spring Creek Centre in
Fayetteville, Arkansas.
The Company is also scheduled to commence expansion/redevelopment projects at
five additional shopping centers located in: North Charleston, SC; North Canton,
OH; Maple Grove, MN; Mount Pleasant, SC and Wilmington, NC.
Development (Wholly Owned):
The wholly-owned development projects are as follows:
o A 416,000 square foot shopping center in Meridian, Idaho (a suburb of
Boise), which is scheduled for completion in 2000 and is expected to be
anchored by Wal-Mart (not owned by the Company), Shepler's, Shopko (which
opened during the fourth quarter of 1999), Bed, Bath & Beyond, Office Depot
and Old Navy.
o The Company is also in the initial phase of development relating to a
shopping center located in Riverdale, UT.
In addition, Phase II of both the Toledo, Ohio and Oviedo, Florida
projects are under construction and scheduled for completion in 2000.
Development (Joint Ventures):
The Company has joint venture development agreements on an additional
eleven shopping center projects with leading regional developers. These eleven
projects have an aggregate projected cost of approximately $376.2 million. All
of these projects have commenced development and are currently scheduled for
completion in 2000 and 2001. The Company is currently financing five of these
projects through the Prudential/DDR Retail Value Fund. These projects are
located in Plainville, CT; Round Rock, TX; Hagerstown, MD; Deer Park, IL and
Long Beach, CA and the Company expects to finance an additional project located
in San Antonio, TX through this Fund. The remaining five projects are located in
Everett, MA; Coon Rapids, MN; Salisbury, MD (Phase II); Fenton, MO and St.
Louis, MO.
During the first quarter, the Company through its affiliate, DDR
OliverMcMillan ("DDROM"), pursued six urban entertainment and retail projects
aggregating 1.2 million square feet of GLA at a projected cost of approximately
$233 million. Three of these projects are under construction: Gaslamp,
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Reno and Oceanside. The remaining projects are scheduled to commence in 2000
with completion in 2001 and 2002. On May 1, 2000, the Company elected to
terminate its entity level involvement with DDROM. The Company is expected to
retain its interests in the Gaslamp, Reno and Oceanside properties and will
consider other projects on a case by case basis.
FINANCING ACTIVITIES
The acquisitions, developments and expansions in 2000 and 1999 were
financed through cash provided from operating activities, revolving credit
facilities, mortgage debt assumed, construction loans, sale of property,
issuance of OP Units and other joint venture capital. Total debt outstanding at
March 31, 2000 was $1.1 billion compared to $1.2 billion at December 31, 1999.
In February 2000, the Company entered into an agreement to sell 60% of
its half interest in the Community Centers Joint Venture to DRA Advisors, Inc.
at a price of approximately $163 million comprised of cash of approximately $66
million and debt assumed of $97 million. In conjunction with this transaction,
the Company recognized a gain of approximately $15.4 million associated with
this sale of its 60% interest. The Company's ownership in the joint venture
subsequent to this transaction is effectively 20% with funds advised by DRA
Advisors, Inc. owning 80%. The Company will continue to be responsible for the
day-to-day management of the shopping centers and receive fees for such
services.
In February 2000, the Company formed a joint venture with DRA Advisors,
Inc. whereby the Company contributed a wholly owned property in Phoenix, Arizona
valued at approximately $26.7 million and related mortgage debt of $18.0 million
and, in exchange, received a 50% equity ownership interest in the joint venture
and cash proceeds of approximately $4.3 million. In conjunction with this
transaction, the Company recognized a gain of approximately $0.5 million
associated with the sale of its partial interest. The Company will continue to
manage and operate the center and receive fees for such services.
In February 2000, the Company sold a shopping center in Stone Mountain,
Georgia, a suburb of Atlanta, for approximately $1.8 million and recognized a
gain of approximately $1.0 million.
From February 29, 2000 through April 28, 2000, the Company purchased,
in open market transactions, 4.6 million of its common shares, at prices ranging
from $11.61 to $14.58, for an aggregate purchase price of approximately $60.2
million in accordance with the stock repurchase plan approved by the Company's
Board of Directors.
At March 31, 2000, the Company's capitalization consisted of $1.1
billion of debt (excluding the Company's proportionate share of joint venture
mortgage debt aggregating $362.5 million), $413.8 million of preferred shares
and preferred partnership units and $856.5 million of market equity (market
equity is defined as common shares and OP Units outstanding multiplied by the
closing price per common share on the New York Stock Exchange at March 31, 2000
of $13.875), resulting in a debt to total market capitalization ratio of 0.47 to
1. At March 31, 2000, the Company's total debt consisted of $749.9 million of
fixed rate debt and $388.8 million of variable rate debt.
It is management's intention that the Company have access to the
capital resources necessary to expand and develop its business. Accordingly, the
Company may seek to obtain funds through additional equity offerings or debt
financing or joint venture capital in a manner consistent with its intention to
operate with a conservative debt capitalization policy and maintain its
investment grade ratings with Moody's Investor Services and Standard and Poor's.
As of March 31, 2000, the Company had $750.0 million available under its shelf
registration statement. In addition, as of March 31, 2000,
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had $750.0 million available under its shelf registration statement. In
addition, as of March 31, 2000, the Company had cash of $1.6 million and $79.2
million available under its $400 million of revolving credit facilities. On
March 31, 2000, the Company also had 141 operating properties with $53.0
million, or 72.7%, of the total revenue for the three month period ended March
31, 2000 which were unencumbered, thereby providing a potential collateral base
for future borrowings.
INFLATION
Substantially all of the Company's long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such provisions include
clauses enabling the Company to receive percentage rentals based on tenants'
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. Such
escalation clauses are often related to increases in the consumer price index or
similar inflation indices. In addition, many of the Company's leases provide for
fixed rate rental increases or are for terms of less than ten years, which
permits the Company to seek increased rents upon re-rental at market rates. Most
of the Company's leases require the tenants to pay their share of operating
expenses, including common area maintenance, real estate taxes, insurance and
utilities, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation.
ECONOMIC CONDITIONS
Historically, real estate has been subject to a wide range of cyclical
economic conditions which affect various real estate sectors and geographic
regions with differing intensities and at different times. 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 or retain tenants.
The shopping centers are typically anchored by discount department stores
(Wal-Mart, Kmart or Target), off price department stores (Kohl's, TJ
Maxx/Marshalls), home improvement stores (Home Depot, Lowes) and supermarkets
which generally offer day-to-day necessities, rather than high-priced luxury
items. Since these merchants typically perform better in an economic recession
than those who market high priced luxury items, the percentage rents received by
the Company have remained relatively stable. In addition, the Company seeks to
reduce its operating and leasing risks through ownership of a portfolio of
properties with a diverse geographic and tenant base.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. At
March 31, 2000 and 1999, approximately 65.8% and 77.4%, respectively, of the
Company's debt (excluding joint venture debt) bore interest at fixed rates with
a weighted average maturity of approximately 7.1 years and 7.3 years,
respectively, and a weighted average interest rate of approximately 7.5% and
7.6%, respectively. The remainder of the Company's debt bears interest at
variable rates with a weighted average maturity of approximately 1.0 year and
2.0 years, respectively, and a weighted average interest rate of approximately
7.0% and 5.9%, respectively, at March 31, 2000 and 1999. As of March 31, 2000
and 1999, the Company's joint ventures' indebtedness aggregated $721.0 million
and $656.7 million, respectively, of fixed rate debt, of which the Company's
proportionate share was $263.4 million and $337.5 million, respectively, and
$237.1 million and $74.9 million, respectively, of variable rate debt, of which
the Company's proportionate share was $97.1 million and $38.6 million,
respectively. The Company intends to utilize variable rate indebtedness
available under its revolving credit facilities in order to initially fund
future acquisitions, developments and expansions of shopping centers. Thus, to
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the extent that the Company incurs additional variable rate indebtedness, its
exposure to increases in interest rates in an inflationary period would
increase. The Company believes, however, that in no event would increases in
interest expense as a result of inflation significantly impact the Company's
distributable cash flow.
At March 31, 2000 and 1999, the fair value of the Company's fixed rate
debt amounted to a liability of $715.3 million and $826.7 million, respectively
(excluding joint venture debt) compared to its carrying amount of $749.9 million
and $837.0 million, respectively. The fair value of the Company's proportionate
share of joint venture fixed rate debt was $254.0 million and $342.3 million,
respectively, compared to its carrying amount $263.4 million and $337.5 million,
respectively. The Company estimates that a 100 basis point decrease in market
interest rates at March 31, 2000 and 1999 would have changed the fair value of
the Company's fixed rate debt to a liability of $744.4 million and $868.1
million, respectively, and would have changed the fair value of the Company's
proportionate share of joint ventures fixed rate debt to a liability of $265.0
million and $346.2 million, respectively. The sensitivity to changes in interest
rate of the Company's fixed rate debt was determined utilizing a valuation model
based upon factors that measure the net present value of such obligations which
arise from the hypothetical estimate as discussed above.
The Company intends to continuously monitor and actively manage
interest costs on its variable rate debt portfolio and may enter into swap
positions based on market fluctuations. In addition, the Company believes that
it has the ability to obtain funds through additional equity and/or debt
offerings, including the issuance of medium term notes and joint venture
capital. Accordingly, the cost of obtaining such protection agreements in
relation to the Company's access to capital markets will continue to be
evaluated.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in
the ordinary course of business, the Company is not presently involved in any
litigation nor, to its knowledge, is any litigation threatened against the
Company or its properties, which is reasonably likely to have a material adverse
effect on the liquidity or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements 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.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
May 15, 2000 /s/ Scott A. Wolstein
- ----------------------- --------------------------------------------
(Date) Scott A. Wolstein, Chairman of the Board and
Chief Executive Officer
May 15, 2000 /s/ William H. Schafer
- ----------------------- --------------------------------------------
(Date) William H. Schafer, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
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