1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 7, 1997
------------------
DEVELOPERS DIVERSIFIED REALTY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 1-11690 34-1723097
- --------------------------------------------------------------------------------
(State or other Jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification Number)
34555 Chagrin Boulevard, Moreland Hills, Ohio 44022
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code (440) 247-4700
---------------------
N/A
- --------------------------------------------------------------------------------
(Former name of former address, if changed since last report)
2
Item 5. Other Events
- ---------------------
During the period June 16, 1997 (the date of the most recent current report on
Form 8-K disclosing the Company's acquisitions through that date) through
November 3, 1997, through individual transactions, the Company completed the
acquisition of four shopping centers (the "Acquisition Properties"), none of
which individually constitutes a "significant subsidiary". The shopping centers
total 1,460,906 square feet of retail space, of which 1,143,101 square feet is
Company-owned gross leasable area. The Company's net investment in the
Acquisition Properties aggregated approximately $101.2 million, before any
contingent consideration. In conjunction with the acquisition of three of the
shopping centers, the aggregate purchase price is subject to possible upward
adjustment by approximately $30.7 million upon completion of construction of
approximately 202,000 additional square feet within the agreed earnout periods.
The Company's net investment was initially funded through proceeds made
available through revolving credit facilities and cash. In addition, the
Company entered into an agreement to acquire a shopping center in Fayetteville,
Arkansas. This shopping center has approximately 140,000 square feet of GLA and
the estimated purchase price is approximately $12.0 million. This property is
referred to herein as the "Probable Acquisition Property." Although the Company
believes it is probable that this property will be acquired, there can be no
assurance that the purchase transaction will be consummated. Information
regarding the Acquisition Properties and the Probable Acquisition Property is
attached as SCHEDULE A.
The acquisition of, or investment in, the Acquisition Properties, or with
respect to the Probable Acquisition Property will be, pursuant to individual
agreements for the sale and purchase of each property between each selling
entity and the Company. The factors considered by the Company in determining
the price to be paid for the properties included their historical and/or
expected cash flow, nature of the tenants and terms of leases in place,
occupancy rates, opportunities for alternative and/or new tenancies, current
operating costs and taxes on the properties and anticipated changes therein
under Company ownership, the outlots and expansion areas available, the
physical condition and locations of the properties, the anticipated effect on
the Company's financial results (including particularly Funds From Operations)
and the ability to sustain and potentially increase its distributions to
Company shareholders, and other factors. The Company took into consideration
capitalization rates at which it believes other shopping centers have recently
sold, but determined the price it was willing to pay primarily on the factors
discussed above related to the properties themselves and their fit with the
Company's operations. Separate independent appraisals were not obtained in
connection with the acquisition of the properties by the Company. The Company,
after investigation of the properties, is not aware of any material factors,
other than those enumerated above, that would cause the financial information
reported, where available, to not be necessarily indicative of future operating
results.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- --------------------------------------------------------------------------
Financial Statements
- --------------------
The statements of revenue and certain expenses included in this report relates
to the Cooks Corner shopping center located in Brunswick, Maine and the Spring
Creek Centre shopping center located in Fayetteville, Arkansas (the Probable
Acquisition Property) for the year ended December 31, 1996 and the six month
periods ended June 30, 1996 and 1997. Financial information for the remaining
three shopping centers acquired in 1997 are not presented because these
properties were either under development or in the lease-up phase and,
accordingly, the related operating information for such centers does not exist
or would not be meaningful.
3
Pro Forma Financial Information (unaudited)
- -------------------------------------------
Unaudited pro forma financial information is presented as follows:
- - Pro forma condensed consolidated balance sheet as of June 30, 1997.
- - Pro forma condensed consolidated statement of operations for the six
month period ended June 30, 1997 and for the year ended December 31,
1996.
- - Estimated twelve-month pro forma statement of taxable net operating
income and operating funds available.
Exhibits
- --------
4(f) Medium Term Note - Form of Fixed Rate Senior Security
4(g) Medium Term Note - Form of Floating Rate Senior Security
4(h) Medium Term Note - Form of Fixed Rate Subordinated Security
4(i) Medium Term Note - Form of Floating Rate Subordinated Security
23 Consent of Independent Accountants
4
SCHEDULE A
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Company
Date of Owned Percent Year
Shopping Center Acquisition Square Feet Occupied Completed Principal Tenants
- ------------------------------------------------------------------------------------------------------------------------------------
Eagan Promenade HomePlace, Office Max, TJ Maxx and
Eagan, MN 07/01/97 224,350 100.0% 1997 Byerly's
Midway Marketplace
St. Paul, MN 07/11/97 309,876 100.0% 1997 Kmart, Cub Foods, PetsMart and Mervyn's
Cooks Corner
Brunswick, ME 08/14/97 290,784 99.7% 1965 Hoyt's Cinema, TJ Maxx and Sears
Centennal Promenade Border's, Golfsmith, HomePlace,
Denver, CO 10/02/97 318,091 100.0% 1997 Ross Dress for Less, Toys R Us,
Soundtrack, Office Max and Michael's
Spring Creek Centre Probable Wal Mart, National Home Center, Service
Fayetteville, AK Acquisition 139,962 97.8% 1995 Merchandise and TJ Maxx
5
DEVELOPERS DIVERSIFIED REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
JUNE 30, 1997
- --------------------------------------------------------------------------------
PAGE
----
COOKS CORNER
Report of Independent Accountants ........................................ F-2
Statement of Revenue and Certain Expenses for the year ended
December 31, 1996 and (unaudited) six month periods ended June 30, 1996
and 1997 ........................................................... F-3
Notes to Statement of Revenue and Certain Expenses ....................... F-4
SPRING CREEK CENTRE
Report of Independent Accountants......................................... F-5
Statement of Revenue and Certain Expenses for the year ended December 31,
1996 and (unaudited) six month periods ended June 30, 1996
and 1997 ........................................................... F-6
Notes to Statement of Revenue and Certain Expenses ....................... F-7
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(PRO FORMA - UNAUDITED):
Condensed Consolidated Balance Sheet as of June 30, 1997 ................. F-8
Condensed Consolidated Statement of Operations for the six month period
ended June 30, 1997 and for the year ended December 31, 1996 .......... F-11
Estimated Twelve Month Pro Forma Statement of Taxable Net Operating
Income and Operating Funds Available ................................. F-19
F-1
6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying Statement of Revenue and Certain
Expenses of Cooks Corner for the year ended December 31, 1996. This historical
statement is the responsibility of management. Our responsibility is to express
an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Cooks Corner.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Cooks
Corner, on the basis described in Note 2, for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
July 28, 1997
F-2
7
DEVELOPERS DIVERSIFIED REALTY CORPORATION
COOKS CORNER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
- --------------------------------------------------------------------------------
Six Months Six Months
Year Ended Ended Ended
December 31, 1996 June 30, 1996 June 30, 1997
----------------- ------------- -------------
(unaudited) (unaudited)
Revenue:
Minimum rents $2,074,197 $1,085,772 $1,097,659
Percentage and overage rents 165,805 134,306 143,484
Recoveries from tenants 446,655 126,933 280,973
Other income 24,834 15,350 11,805
---------- ---------- ----------
2,711,491 1,362,361 1,533,921
---------- ---------- ----------
Certain expenses:
Operating and maintenance 653,646 439,365 324,977
Real estate taxes 211,776 105,888 123,972
---------- ---------- ----------
865,422 545,253 448,949
---------- ---------- ----------
Revenue in excess of certain expenses $1,846,069 $ 817,108 $1,084,972
========== ========== ==========
The accompanying notes are an integral part of this
statement of revenue and certain expenses.
F-3
8
DEVELOPERS DIVERSIFIED REALTY CORPORATION
COOKS CORNER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses relates to
the operations of Cooks Corner, located in Brunswick, ME. The shopping center
was built in 1965.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period presented, as certain revenues and expenses,
which may not be comparable to the revenues and expenses expected to be earned
or incurred by the Company, in the future operations of the Property have been
excluded. Revenues excluded consist of interest, gains on sales of land, and
other revenues unrelated to the continuing operations of the Property. Expenses
excluded consist of depreciation on the building and improvements and
amortization of organization costs and other intangible assets, interest expense
and other general and administrative and leasing costs not directly related to
the future operations of the Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT
---------------------------------------------------
Developers Diversified Realty Corporation acquired the property on
August 14, 1997.
F-4
9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying Statement of Revenue and Certain
Expenses of Spring Creek Centre for the year ended December 31, 1996. This
historical statement is the responsibility of management. Our responsibility is
to express an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with the rules and regulations
of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Spring Creek Centre.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Spring
Creek Centre, on the basis described in Note 2, for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
October 7, 1997
F-5
10
DEVELOPERS DIVERSIFIED REALTY CORPORATION
SPRING CREEK CENTRE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
- --------------------------------------------------------------------------------
Six Months Six Months
Year Ended Ended Ended
December 31, 1996 June 30, 1996 June 30, 1997
----------------- ------------- -------------
(unaudited) (unaudited)
Revenue:
Minimum rents $1,134,768 $534,186 $597,438
Recoveries from tenants 110,198 39,971 54,038
---------- -------- --------
1,244,966 574,157 651,476
---------- -------- --------
Certain expenses:
Operating and maintenance 149,552 60,562 80,850
Real estate taxes 44,614 22,307 27,105
---------- -------- --------
194,166 82,869 107,955
---------- -------- --------
Revenue in excess of certain expenses $1,050,800 $491,288 $543,521
========== ======== ========
The accompanying notes are an integral part of this
statement of revenue and certain expenses.
F-6
11
DEVELOPERS DIVERSIFIED REALTY CORPORATION
SPRING CREEK CENTRE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses relates to
the operations of Spring Creek Centre, located in Fayetteville, Arkansas. The
shopping center was built in 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period presented, as certain revenues and expenses,
which may not be comparable to the revenues and expenses expected to be earned
or incurred by the Company, in the future operations of the Property have been
excluded. Revenues excluded consist of interest, gains on sales of land, and
other revenues unrelated to the continuing operations of the Property. Expenses
excluded consist of depreciation on the building and improvements and
amortization of organization costs and other intangible assets, interest expense
and other general and administrative and leasing costs not directly related to
the future operations of the Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
F-7
12
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
- --------------------------------------------------------------------------------
(Unaudited)
The following unaudited pro forma condensed consolidated balance sheet is
presented as if the following had occurred as of June 30, 1997: (i) the
acquisition by the Company subsequent to June 30, 1997 of the Acquisition
Properties and the acquisition of the Probable Acquisition Property; (ii) the
sale by the Company of $50 million Medium Term Notes issued in July 1997 and
(iii) the sale by the Company of 507,960 common shares in September 1997
resulting in net proceeds of approximately $18.8 million. This pro forma
condensed consolidated balance sheet should be read in conjunction with the pro
forma condensed consolidated statement of operations of the Company presented
herein and the historical financial statements and notes thereto of the Company
included in the Developers Diversified Realty Corporation Forms 10-Q and 10-K
for the six-month period ended June 30, 1997 and the year ended December 31,
1996, respectively.
The unaudited pro forma condensed consolidated balance sheet does not purport to
represent what the actual financial position of the Company would have been at
June 30, 1997, nor does it purport to represent the future financial position of
the Company.
F-8
13
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Dollars in Thousands)
- --------------------------------------------------------------------------------
(Unaudited)
Company Pro Forma Company
Historical Adjustments Pro Forma
--------------------------------------------------
Assets:
Real estate, net $ 999,086 $113,225(a) $ 1,112,311
Cash and cash equivalents 15,111 - 15,111
Other assets 24,255 327(b) 24,582
Investment in and advances to
joint ventures 120,510 - 120,510
----------- -------- -----------
Total Assets $ 1,158,962 $113,552 $ 1,272,514
=========== ======== ===========
Liabilities:
Indebtedness:
Senior notes $ 291,594 $ 50,000(b) $ 341,594
Convertible debentures 59,257 - 59,257
Revolving credit agreements 20,000 40,332(d) 60,332
Mortgages payable 106,297 - 106,297
----------- -------- -----------
Total indebtedness 477,148 90,332 567,480
Other liabilities 34,702 4,063(a) 38,765
----------- -------- -----------
Total Liabilities 511,850 94,395 606,245
----------- -------- -----------
Minority interest 16,293 352(a) 16,645
Shareholders' equity:
Class A Preferred Shares 105,375 - 105,375
Class B Preferred Shares 44,375 - 44,375
Common shares 2,639 51(c) 2,690
Paid-in-capital 535,611 18,754(c) 554,365
Accumulated dividends in excess
of net income (56,566) - (56,566)
----------- -------- -----------
631,434 18,805 650,239
Less: Unearned compensation -
restricted stock (615) - (615)
----------- -------- -----------
630,819 18,805 649,624
----------- -------- -----------
Total Liabilities and
Shareholders' Equity $ 1,158,962 $113,552 $ 1,272,514
=========== ======== ===========
F-9
14
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
- --------------------------------------------------------------------------------
(Unaudited)
(a) Represents the investment in the Acquisition Properties purchased
during the period July 1, 1997 to November 3, 1997 and the assumed
acquisition of the Probable Acquisition Property. The acquired shopping
centers were initially funded through cash, minority equity interest,
other liabilities assumed and borrowings from revolving credit
facilities. The aggregate purchase price for the Probable Acquisition
Property reflected herein is assumed to be funded entirely through
proceeds from revolving credit agreements since the cash to be
utilized from operations or liabilities assumed is not determinable.
The initial purchase price, before any contingent consideration that
may be earned by the Sellers, is as follows:
Eagan Promenade, Minneapolis, MN $ 20,538
Midway Market Place, St. Paul, MN 22,340
Cooks Corner, Brunswick, ME 19,182
Centennial Promenade, Denver, CO 39,165
Spring Creek Centre, Fayetteville, AK 12,000
---------
$ 113,225
=========
(b) Represents the sale by the Company of $50 million of Medium Term Notes
in July 1997 and the use of proceeds thereof. The net proceeds to the
Company, after underwriting discounts and offering costs, were
approximately $49.7 million and were used to repay borrowings under the
revolving credit facilities.
(c) Represents the sale by the Company of 507,960 common shares in
September 1997 and the use of proceeds thereof. The net proceeds to the
Company, after underwriting discounts and offering costs, were $18.8
million and were primarily used to repay borrowings under the revolving
credit facilities.
(d) The net increase in the revolving credit facility debt is summarized as
follows (in thousands):
Purchase of the Acquisition Properties $ 96,810
Purchase of the Probable Acquisition Property 12,000
Sale of Medium Term Notes (49,673)
Sale of common shares (18,805)
----------
$ 40,332
==========
F-10
15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997
AND FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(Unaudited)
The unaudited pro forma condensed statement of operations for the six month
period ended June 30, 1997 is presented as if each of the following transactions
had occurred on January 1, 1997; (i) the acquisition by the Company of the
properties, which had an operating history, purchased from January 1, 1997
through November 3, 1997; (ii) the acquisition of the Probable Acquisition
Property; (iii) the sale by the Company of 3,350,000 common shares in January
1997; (iv) the sale by the Company of $75 million of 7.125% Pass-through Asset
Trust Securities in March 1997; (v) the sale by the Company of 1,300,000 common
shares in June 1997; (vi) the sale by the Company of $50 million of Medium Term
Notes in July 1997 and (vii) the sale by the Company of 507,960 common shares in
September 1997.
The unaudited pro forma condensed statement of operations for the year ended
December 31, 1996 is presented as if each of the following transactions had
occurred on January 1, 1996; (i) the acquisition by the Company of the
properties, which had an operating history, purchased from January 1, 1997
through November 3, 1997 (None of the properties acquired in 1996 had an
operating history.); (ii) the acquisition of the Probable Acquisition Property;
(iii) the sale by the Company of 175,000 Depositary Shares representing 9.44%
Class B Cumulative Redeemable Preferred Stock in January 1996; (iv) the sale by
the Company of 2,611,500 common shares in March 1996; (v) the sale by the
Company of $111.7 million of Medium Term Notes during 1996; (vi) the sale by the
Company of 3,350,000 common shares in January 1997 to the extent the proceeds
thereof were used to repay indebtedness assumed to be outstanding during 1996;
(vii) the sale by the Company of $75 million of 7.125% Pass-through Asset Trust
Securities in March 1997; (viii) the sale by the Company of 1,300,000 common
shares in June 1997; (ix) the sale by the Company of $50 million of Medium Term
Notes in July 1997 and (x) the sale by the Company of 507,960 common shares in
September 1997.
The foregoing pro forma information is based upon the historical consolidated
results of operations of the Company for the six month period ended year ended
June 30, 1997 and the year ended December 31, 1996, giving effect to the
transactions described above. The pro forma condensed consolidated statement of
operations should be read in conjunction with the pro forma condensed
consolidated balance sheet of the Company presented herein and the historical
financial statements and notes thereto of the Company included in the Developers
Diversified Realty Corporation Forms 10-Q and 10-K for the six month period
ended June 30, 1997 and the year ended December 31, 1996, respectively.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth above,
nor do they purport to represent the Company's results of operations for future
periods.
F-11
16
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(Unaudited) Pro Forma Adjustments
---------------------
Acquisitions,
Common
Share and Probable Company
Company Debt Share Acquisition Pro Forma
Historical Offerings Property (b) (Unaudited)
Revenues from rental properties $ 73,581 $ 1,534 (a) $ 652 $ 75,767
Management fees and other income 4,739 - - 4,739
-------- ------- -------- --------
78,320 1,534 652 80,506
-------- ------- -------- --------
Operating and maintenance 7,124 325(a) 81 7,530
Real estate taxes 9,325 124(a) 27 9,476
Depreciation and amortization 15,206 242(a) 151 15,599
General and administrative expenses 5,026 - - 5,026
Interest expense 16,478 717(a)(d) 449 16,209
(1,043)(c)(f)
(392)(e)(g)
-------- ------- -------- --------
53,159 (27) 708 53,840
-------- ------- -------- --------
Income (loss) before equity in net
income of joint ventures, minority
equity interest and gain on sales of
real estate 25,161 1,561 (56) 26,666
Equity in net income of
joint ventures 5,334 - - 5,334
Minority equity interest (526) (11)(a) - (537)
Gain on sales of real estate 3,526 - - 3,526
-------- ------- -------- --------
Net income (loss) $ 33,495 $ 1,550 $ (56) $ 34,989
======== ======= ======== ========
Per share data:
Income available to common shareholders:
Primary $ 1.06 $ 1.10 (h)
======== ========
Fully diluted $ 1.04 $ 1.08 (h)
======== ========
Weighted average number of common
shares (in thousands):
Primary 24,846 25,367
======== ========
Fully diluted 25,338 25,859
======== ========
F-12
17
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(Unaudited)
(a) Reflects revenues and expenses for the properties acquired during 1997, for
the period January 1, 1997 through the earlier of the date of acquisition, or
June 30, 1997 as follows:
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation Interest Interest
--------------- ----------- -------- ----- ----------- ------------ -------- --------
Great Northern Shopping
Center - North, Cleveland,
(North Olmsted), OH (1) 01/01/97 $ - $ - $ - $ - $ - $ -
Great Northern Shopping
Center - South, Cleveland,
(North Olmsted) OH (1) 01/01/97 - - - - - -
Plaza Del Norte, San
Antonio, TX (2), (3) 01/23/97 - - - - - -
Foothills Towne Center
Awatukee, AZ (2) 02/21/97 - - - - - -
Eagan Promenade
Minneapolis, MN (2) 07/01/97 - - - - - -
Midway Marketplace
St. Paul, MN (2) 07/11/97 - - - - - -
Cooks Corner
Brunswick, ME 08/14/97 1,534 124 325 242 717 11
Centennial Promenade
Denver, CO (2) 10/02/97 - - - - - -
-------- ------- ------- ------- ------ -----
$ 1,534 $ 124 $ 325 $ 242 $ 717 $ 11
======== ======= ======= ======= ====== =====
<FN>
(1) Included in historical statement of operation for the six
months ended June 30, 1997.
(2) No revenues or expenses have been included in the pro forma
statement of operations since the center was either under
development or in the lease-up phase during 1996 and 1997.
(3) Property acquired through a joint venture in which the Company
owns a 35% interest.
(b) Reflects revenues and expenses of the Probable Acquisition Property
contemplated as of November 3, 1997, for the period January 1, 1997
through June 30, 1997 as follows:
Real
Estate Operating &
Shopping Center Revenues Taxes Maintenance Depreciation Interest
--------------- -------- ----- ----------- ------------ --------
Spring Creek Centre
Fayetteville, AR $652 $ 27 $ 81 $151 $449
==== ===== ===== ==== ====
(c) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
3,350,000 common shares completed in January 1997.
F-13
18
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(d) Interest expense relating to the issuance of $75 million of 7.125%
Pass-through Asset Trust Securities completed in March 1997 is not
reflected herein as the proceeds thereof were considered to be used to
acquire shopping centers with no previous operating history.
Accordingly, the Company would not have issued these securities until
the time of acquisition.
(e) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
1,300,000 common shares completed in June 1997. See Note (h) with
regard to shares included in earnings per share calculation.
(f) Interest expense relating to the issuance of $50 million of Medium Term
Notes completed in July 1997 is not reflected herein as the proceeds
thereof were considered to be used to acquire shopping centers with no
previous operating history and/or for properties currently under
development. Accordingly, the Company would not have issued these
securities until the time of acquisition.
(g) The issuance of 507,960 common shares completed in September 1997 is
not reflected herein as the proceeds thereof were considered to be
used to acquire shopping centers with no previous operating history
and/or for properties currently under development. Accordingly, the
Company would not have issued these securities until the time of
acquisition.
(h) Pro forma income per common share is based upon the weighted average
number of common shares assumed to be outstanding during 1997 and
includes all shares issued in conjunction with the 3,350,000 common
share offering in January 1997 and 273,000 shares of the 1,300,000
common share offering completed in June 1997 and 507,960 common shares
completed in September 1997. The remaining 1,027,000 shares issued in
June 1997 and the entire 507,960 shares issued in September 1997 were
not reflected in the pro forma statement of operations as the proceeds
were not considered to be received until the date the newly developed
shopping centers were acquired in 1997, since such centers had no
operating history.
In accordance with the Accounting Principles Board Opinion No. 15,
primary earnings per share before extraordinary item is calculated as
follows:
Undistributed loss:
Income available to common shareholders .......... $ 27,889
Total dividends declared - $1.26 per common share (31,962)
--------
Undistributed loss ............................... $ (4,073)
========
Per share data
Dividends declared ............................. $ 1.26
Undistributed loss ............................. (0.16)
--------
Primary ........................................ $ 1.10
========
Weighted average number of Common Shares:
Primary ........................................ 25,367
========
Fully diluted .................................. 25,859
========
F-14
19
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(Unaudited) Pro Forma Adjustments
---------------------
Acquisitions,
Common
Adjustments Share and Probable Company
Company Previously Debt Share Acquisition Pro Forma
Historical Reported (a) Offerings Property(g) (Unaudited)
---------- ------------ --------- ----------- -----------
Revenues from rental properties $ 122,275 $ -(b) $ 9,639(f) $ 1,245 $ 133,159
Management fees and other income 8,630 - - - 8,630
--------- ------- ------- --------- ---------
130,905 - 9,639 1,245 141,789
--------- ------- ------- --------- ---------
Operating and maintenance 12,098 - 1,551(f) 149 13,798
Real estate taxes 14,589 - 1,051(f) 45 15,685
Depreciation and amortization 25,062 - 2,038(f) 305 27,405
General and administrative expenses 8,436 - - - 8,436
Interest expense 29,888 (884)(c)(d) 3,891(f)(j) 821 29,968
(e) (3,957)(h)(k)
209(i)(l)
--------- ------- ------- --------- ---------
90,073 (884) 4,783 1,320 95,292
--------- ------- ------- --------- ---------
Income (loss) before equity in net
income of joint ventures, minority
equity interest 40,832 884 4,856 (75) 46,497
Equity in net income of
joint ventures 8,710 - - - 8,710
Minority equity interest - - (1,080)(f) - (1,080)
--------- ------- ------- --------- ---------
Net income (loss) $ 49,542 $ 884 $ 3,776 $ (75) $ 54,127
========= ======= ======= ========= =========
Per share data:
Income available to common shareholders:
Primary $ 1.67 $ 1.70 (m)
======== =========
Fully diluted $ 1.66 $ 1.69 (m)
======== =========
Weighted average number of common
shares (in thousands):
Primary 21,142 23,441
======== =========
Fully diluted 21,262 23,561
======== =========
F-15
20
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(Unaudited)
(a) Pro forma adjustments as previously reported represent adjustments for
those transactions enumerated in the Company's December 31, 1996 Form
10-K. Such adjustments are summarized in (b), (c), (d) and (e) below.
(b) No revenues or expenses have been included in the pro forma statement
of operations for the Properties acquired in 1996 because these
properties were either under development or in the lease-up phase and,
accordingly, the related operating information for such centers either
does not exist or would not be meaningful. The results of operations
from the date of acquisition are included in the Company's historical
results.
(c) Changes in interest expense relating to the use of proceeds from the
issuance of 175,000 Depositary Shares representing 9.44% Class B
Cumulative Redeemable Preferred stock in January 1996 to repay the
revolving credit facility borrowings is not reflected herein as the
effect is considered insignificant.
(d) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
2,611,500 common shares completed in March 1996.
(e) Changes in interest expense relating to the issuance of Medium Term
Notes completed in 1996 and the simultaneous repayment of the revolving
credit facility borrowings is not reflected herein as the effect is
considered insignificant.
F-16
21
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(Unaudited)
(f) Reflects revenues and expenses for the year ended December 31, 1996, of
the properties acquired during 1997, as follows:
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation Interest Interest
--------------- ----------- -------- ----- ----------- ------------ -------- --------
Great Northern Shopping
Center - North, Cleveland,
(North Olmsted), OH 01/01/97 $5,125 $ 631 $ 676 $ 1,206 $1,903 $ 876
Great Northern Shopping
Center - South, Cleveland,
(North Olmsted) OH 01/01/97 1,803 208 222 344 677 183
Plaza Del Norte, San
Antonio, TX (1), (2) 01/23/97 - - -
Foothills Towne Center - - -
Awatukee, AZ (1) 02/21/97 - - - -
- -
Eagan Promenade
Minneapolis, MN (1) 07/01/97 - - - - - -
Midway Marketplace
St. Paul, MN (1) 07/11/97 - - - - - -
Cooks Corner,
Brunswick, ME 08/14/97 2,711 212 653 488 1,311 21
Centennial Promenade
Denver, CO (1) 10/02/97 - - - - - -
------ -------- ------ ------ -------- --------
$9,639 $ 1,051 $1,551 $2,038 $ 3,891 $ 1,080
====== ======== ====== ====== ======== ========
<FN>
(1) No revenues or expenses have been included in the pro forma
statement of operations since the center was either under
development or in the lease-up phase during 1996.
(2) Property acquired through a joint venture in which the Company
owns a 35% interest.
(g) Reflects revenues and expenses of the Probable Acquisition Property
contemplated as of November 3, 1997, for the period January 1, 1996
through December 31, 1996 as follows:
Real Estate Operating &
Shopping Center Revenues Taxes Maintenance Depreciation Interest
--------------- -------- ----- ----------- ------------ --------
Spring Creek Centre
Fayetteville, AR $1,245 $ 45 $ 149 $ 305 $ 821
====== ======= ====== ====== ======
(h) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
3,350,000 common shares completed in January 1997. See Note (m) with
regard to shares included in earnings per share calculation.
(i) Reflects the net increase in interest cost of $209 relating to the
variable rate indebtedness repaid with the proceeds from the $75
million of 7.125% Pass-through Asset Trust Securities completed in
March 1997. Pro forma interest incurred for the year ended December 31,
1996 on the Pass-through Asset Trust Securities is estimated at $4,176
and interest savings on the variable rate indebtedness repaid is
estimated at $3,967. Pro forma
F-17
22
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
interest expense is calculated based on the amount of proceeds assumed
to be used to fund the properties acquired in 1997 with operating
history. The remaining proceeds were not considered to be received
until the date the remaining 1997 shopping centers were acquired since
no previous operating history existed with regard to such properties.
(j) Interest expense relating to the issuance of $50 million of Medium Term
Notes completed in July 1997 is not reflected herein as the proceeds
thereof were considered to be used to acquire shopping centers with no
previous operating history and/or for properties currently under
development. Accordingly, the Company would not have issued these
securities until the time of acquisition.
(k) The issuance of 1,300,000 common shares completed in June 1997 is not
reflected herein as the proceeds thereof were considered to be used to
acquire shopping centers with no previous operating history.
Accordingly, the Company would not have issued these securities
until the time of acquisition.
(l) The issuance of 507,960 common shares completed in September 1997 is
not reflected herein as the proceeds thereof were considered to be
used to acquire shopping centers with no previous operating history.
Accordingly, the Company would not have issued these securities
until the time of acquisition.
(m) Pro forma income per common share is based upon the weighted average
number of common shares assumed to be outstanding during 1996 and
included 1,833,000 shares of the 3,350,000 common share offering
completed in January 1997. The remaining 1,517,000 shares issued in
June 1997 were not reflected in the pro forma statement of operations
as the proceeds were not considered to be received until the date the
1997 shopping centers were acquired since such centers had no
previous operating history.
In accordance with the Accounting Principles Board Opinion No. 15,
primary earnings per share before extraordinary item is calculated as
follows:
Undistributed loss:
Income available to common shareholders .......... $ 39,927
Total dividends declared - $2.40 per common share (56,258)
--------
Undistributed loss ............................... $(16,331)
========
Per share data
Dividends declared ............................. $ 2.40
Undistributed loss ............................. (0.70)
--------
Primary earnings per common share .............. $ 1.70
========
Weighted average number of Common Shares:
Primary earnings ............................... 23,441
========
Fully diluted .................................. 23,561
========
F-18
23
DEVELOPERS DIVERSIFIED REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
- --------------------------------------------------------------------------------
(Unaudited)
The following unaudited statement is a pro forma estimate of taxable income and
funds available from operations of the Company for the year ended December 31,
1996. The pro forma statement is based on the Company's historical operating
results for the twelve-month period ended December 31, 1996 adjusted for the
effect of (i) historical operations of the Acquisition Properties during 1996,
and the Probable Acquisition Property (ii) 175,000 depositary shares
representing 9.44 % Class B Cumulative Redeemable Preferred stock completed in
January 1996, (iii) 2,611,500 common share offering completed in March 1996,
(iv) Medium Term Notes offerings completed in 1996 and 1997, (v) 3,500,000
common share offering completed in January 1997, (vi) Pass-through Asset Trust
Securities issued in March 1997, (vii) 1,300,000 common share offering
completed in June 1997, (viii) 509,760 common share offering completed in
September 1997 and certain other items related to operations which can be
factually supported. This statement does not purport to forecast actual
operating results for any period in the future.
This statement should be read in conjunction with (i) the 1996 historical
financial statements included on the Company's Form 10-K for the year ended
December 31, 1996 and (ii) the pro forma condensed financial statements of the
Company included elsewhere herein.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
DDRC historical net income, exclusive of property depreciation and amortization (Note 1) ............ $ 74,604
Acquisition Properties - historical earnings from operations, as adjusted, exclusive
of depreciation and amortization (Note 2) ........................................................ 2,066
Probable Acquisition Property - historical earnings from operations, as adjusted, exclusive of
depreciation and amortization (Note 2) ........................................................... 230
Pro forma adjustments arising from the utilization of the proceeds from the 175,000 Class B
Depositary Shares ................................................................................ -
Pro forma adjustments reflecting the decrease in interest expense arising from the utilization of the
proceeds from the 2,611,500 common share offering ................................................ 884
Pro forma adjustments arising from the utilization of the proceeds from the issuance of Medium
Term Notes to repay variable rate indebtedness ................................................... -
Pro forma adjustments reflecting the decrease in interest expense arising from the utilization of
the proceeds from the 3,350,000 common share offering ............................................ 3,957
Pro forma adjustments arising reflecting the increase in interest expense from the utilization of the
proceeds from the issuance of Pass-through Asset Trust Securities to repay variable rate
indebtedness ..................................................................................... (209)
Pro forma adjustments arising from the utilization of the proceeds from the 1,300,000 common
share offering ................................................................................... -
Pro forma adjustments arising from the utilization of the proceeds from the 507,960 common
share offering ................................................................................... -
Estimated tax depreciation and amortization (Note 3):
Estimated 1996 tax depreciation and amortization .................................................... (19,295)
Pro forma tax depreciation for Properties acquired during 1996 ...................................... -
Pro forma tax depreciation for Properties acquired during 1997 ...................................... (1,605)
Pro forma tax depreciation for Probable Acquisition Property ........................................ (300)
--------
Pro forma taxable income before dividends deduction ................................................. 60,332
Estimated dividends deduction (Note 4) .......................................................... (70,458)
--------
$(10,126)
Pro forma taxable net operating income .............................................................. $ -
========
ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS):
Pro forma taxable operating income before dividends deduction ....................................... $ 60,332
Add pro forma depreciation ...................................................................... 21,200
--------
Estimated pro forma operating funds available (Note 5) .............................................. $ 81,532
========
F-19
24
DEVELOPERS DIVERSIFIED REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
- --------------------------------------------------------------------------------
(Unaudited)
Note 1 - The historical earnings from operations represents the Company's
earnings from operations for the twelve months ended December 31, 1996
as reflected in the Company's historical financial statements.
Note 2 - The historical earnings from operations for the properties acquired
during 1997 represent the revenues and certain expenses as referred to
in the pro forma condensed consolidated statement of operations for the
year ended December 31, 1996 included elsewhere herein.
Note 3 - Tax depreciation for the Company is based upon the Company's tax basis
in the properties which exceeds the historical cost basis, as reflected
in the Company's financial statements in accordance with generally
accepted accounting principles, by approximately $20 million before
accumulated depreciation. The costs are generally depreciated on a
straight-line method over a 40-year life for tax purposes.
Note 4 - Estimated dividends deduction is calculated as follows:
Common share dividend (23,441,000 x $2.40) $ 56,258
Class A Preferred Shares 10,011
Class B Preferred Shares 4,189
--------
$ 70,458
========
Note 5 - Operating funds available does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund
cash needs.
F-20
25
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 hereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY
CORPORATION
Date November 7, 1997 /s/ William H. Schafer
-------------------------- ------------------------------------------
William H. Schafer
Vice President and Chief Financial Officer
F-21