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) April 28, 1998
DEVELOPERS DIVERSIFIED REALTY CORPORATION
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(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
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Registrant's telephone number, including area code (440) 247-4700
---------------
N/A
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(Former name of former address, if changed since last report)
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ITEM 5. OTHER EVENTS
During the period April 23, 1998 (the date of the most recent current report on
Form 8-K disclosing the Company's acquisitions as of that date) through June
19, 1998, as a result of individual transactions with Continental Real Estate
Companies of Columbus, Ohio, the Company completed the acquisition, or
investment therein, of three shopping centers, two of which were acquired
through the purchase of joint venture interests. Combined, these shopping
centers will have approximately 1.0 million square feet of total gross leasable
area. The Company's proportionate share of the investment cost will be
approximately $93.4 million upon completion of approximately 345,000 square
feet of gross leasable area which is currently under construction. The portion
under construction has an estimated cost of approximately $42.4 million and the
Company is scheduled to close on this investment periodically throughout 1998.
In addition, the Company also acquired the remaining interest in a 584,000
square foot shopping center and an adjacent pad site in Princeton, New Jersey.
The total cost of this property aggregated approximately $37.3 million of which
$29.5 million was funded in April 1998. These four properties are referred to
herein as the "Acquired Properties".
The Company has entered into an agreement with Hermes Associates, LTD. ("Hermes"
or "The Family Center Properties"), to acquire nine shopping centers, an office
building and nine additional expansion, development or redevelopment projects
located in the Western United States as well as the Hermes operating/management
company. Combined, these shopping centers will have approximately 2.8 million
square feet of total gross leasable area and an estimated purchase price of
approximately $310 million. The Hermes operating company has no third party
revenue producing contracts but rather supports the management of The Family
Center Properties. The Company has also entered into an agreement with the
Sansone Company ("Sansone" or "The Sansone Properties") to (i) acquire fifteen
shopping centers, aggregating approximately 1.6 million square feet of gross
leasable area, (ii) form a joint venture, in which the Company will own a 50%
interest, to pursue projects in the Sansone development pipeline and to create
new development opportunities throughout the central Midwest, and (iii) acquire
a 50% interest in the Sansone's operating/management company. The Company's
estimated net investment in this transaction is approximately $172 million. In
addition, the Company has entered into an agreement with an affiliate of OPUS
Corporation to acquire the Phase II development of a 156,000 square foot
shopping center in Tanasbourne, Oregon at an estimated purchase price of
approximately $22.1 million. These properties are referred to herein as the
"Probable Acquisition Properties." Although the Company believes it is probable
that these acquisitions will occur, there can be no assurance that the purchase
transactions will be consummated. Information regarding the Acquired Properties
and the Probable Acquisition Properties is attached as SCHEDULE A.
The acquisition of, or investment in, the Acquired Properties were, or with
respect to the Probable Acquisition Properties will be, pursuant to agreements
for the sale and purchase of each property or interests therein between each
selling entity and the Company. The factors considered by the Company in
determining the price to be paid for the properties and related operating
companies 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
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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 encompass
the following:
- - An audited statement of revenue and certain expenses for the year ended
December 31, 1997, and the three month periods ended March 31, 1998 and
1997 (unaudited) for the following shopping center portfolios:
- The Family Center Properties (Probable Acquisition Properties)
- The Sansone Properties (Probable Acquisition Properties)
- - Statements of revenue and certain expenses for the three month period
ended March 31, 1998 (unaudited) for the following operating shopping
centers:
- Dublin Village Square (Acquired Property)
- Washington Park Plaza (Acquired Property)
As noted below, financial statements (audited) for the year ended
December 31, 1997 for these properties were presented in the Company's
Form 8-K/A dated February 25, 1998. A statement of revenue and certain
expenses for the three month period ended March 31 1998 (unaudited) is
not presented for Easton Market (Acquired Property) because the
property is under development and, accordingly, the related operating
information would not be meaningful.
- - A statement of revenue and certain expenses for the three month period
ended March 31 1998 (unaudited) is not presented for Tanasbourne,
Oregon (Probable Acquisition Property) because the property is in the
final development stage, and accordingly, the related historical
operating information would not be meaningful.
Audited statements of revenue and certain expenses for the year ended December
31, 1997 for the properties acquired from Continental Real Estate Companies of
Columbus, Ohio were filed (prior to acquisition) in the Company's current report
on Form 8-K/A dated February 25, 1998. A statement of revenue and certain
expenses was not presented for Easton Market in the February 25, 1998 Form 8-K/A
because the property was under development and, accordingly, the related
operating information would not be meaningful.
Financial information for the shopping center acquired in Princeton, New Jersey
is not presented as it is not considered material.
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PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Unaudited pro forma financial information for the Company is presented as
follows:
- - Pro forma condensed consolidated balance sheet as of March 31, 1998.
- - Pro forma condensed consolidated statement of operations for the three
month period ended March 31, 1998 and the year ended December 31, 1997.
- - Estimated twelve-month pro forma statement of taxable net operating
income and operating funds available.
EXHIBITS
- --------
3.1 Amendments to Amended and Restated Articles of Incorporation
of the Company
10.1 1998 Developers Diversified Realty Corporation Equity-Based
Award Plan
(23) Consent of Independent Accountants
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SCHEDULE A
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Company
Date of Owned Percent Year
Shopping Center Acquisition Square Feet Occupied Completed Principal Tenants
- -------------------------------------------------------------------------------------------------------------------------
Washington Plaza
Dayton, Ohio (1) 04/28/98 169,816 100.0% 1990 PharMor and Books a Million
Dublin Village Center AMC Theater, PharMor, Michael's and
Columbus, Ohio (2) 04/28/98 327,264 92.2% 1987 Designer Shoe Warehouse
Easton Market Galyan's, Kittler Furniture, Bed Bath &
Columbus, Ohio 04/28/98 508,334 94.5% 1998 Beyond, TJ Maxx and PETsMART
Tanasbourne Town Center Probable Office Depot, Haggan
Portland, OR Acquisition 155,892 96.0% 1995 Supermarket, Barnes & Noble,
Mervyn's
Nassau Park Border's Books, Best Buy, Linens & Things,
Princeton, NJ 04/28/98 202,121 100.0% 1995 Petsmart, Walmart, Sam's
(1) Property owned through a joint venture in which the Company owns a 50%
interest.
(2) Property owned through a joint venture in which the Company owns
approximately an 80% interest.
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SCHEDULE A (Continued)
Developers Diversified Realty Corporation
Family Center Properties Portfolio
Company
Date of Owned Percent Year
Shopping Center Acquisition Square Feet Occupied Completed* Principal Tenants
- ----------------------------------------------------------------------------------------------------------------------------------
Cineplex Odeon, Future Shop, Gart Sports, Shopko,
Family Center at Midvalley Probable Bently Square, Circuit City, Media Play, Office Max,
Taylorsville, UT Acquisition 848,043 98.87% 1982 Petsmart, Bed Bath & Beyond, Barnes&Noble, TJ Maxx
Family Center at Fort Union Probable Smith's, Mervyn's, Office Max, Deseret Book,
Midvale, UT Acquisition 657,077 90.49% 1973 Babies R Us, Walmart, Future Shop,Media Play
Family Center at Riverdale Probable Walmart, Gart Sports, Office Max, Circuit City,
Riverdale, UT Acquisition 772,227 98.76% 1991 Media Play, Target, Babies R Us
Hermes Building Probable
Salt Lake City, UT Acquisition 53,749 100.00% 1986
Family Center at Orem Probable
Orem, UT Acquisition 161,503 100.00% 1992 Kids R Us, Media Play, Office Depot
Family Center at Ogden Probable
Ogden, UT Acquisition 170,219 93.19% 1977 Harmon's Supermarket
Family Center at 33rd Street Probable
Salt Lake City, UT Acquisition 39,090 100.00% 1978
Family Place at Logan Probable
Logan, UT Acquisition 19,200 100.00% 1973
Family Center at Las Vegas Probable
Las Vegas, NV Acquisition 61,615 94.32% 1973
Family Center at Rapid City Probable
Rapid City, UT Acquisition 35,544 84.70% 1978
*Represents year in which initial building was completed
Several expansions may have occurred subsequent to this date.
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SCHEDULE A (Continued)
Developers Diversified Realty Corporation
Sansone Properties Portfolio
Company
Date of Owned Percent Year
Shopping Center Acquisition Square Feet Occupied Completed Principal Tenants
- -----------------------------------------------------------------------------------------------------------------------------
Plaza at Sunset Hill Probable Homeplace, Marshall's, Home Depot, and
St. Louis, MO Acquisition 328,850 95% 1997 Petsmart
Shoppes at Sunset Hill Probable
St. Louis, MO Acquisition 97,678 94% 1998 Comp USA, Toys R Us, and Cost Plus
Promenade at Brentwood Probable Target, Sports Authority, and
St. Louis, MO Acquisition 299,205 100% 1998 Petsmart
Northland Square Probable
Cedar Rapids, IA Acquisition 187,068 100% 1994 TJ Maxx, Office Max, Barnes &Noble, and Kohl's
Olympic Oaks Village Probable
St. Louis, MO Acquisition 92,399 95% 1985 TJ Maxx
Gravois Village Probable
St. Louis, MO Acquisition 110,992 97% 1983 KMart
Morris Corners Probable
Springfield, MO Acquisition 56,033 100% 1989 Toys R Us
Keller Plaza Probable
St. Louis, MO Acquisition 52,842 100% 1988 Wehrenberg Theatres, and County Government
Southtowne Probable
St. Louis, MO Acquisition 144,808 100% 1995 Home Quarters Warehouse
Home Quarters Probable
St. Louis, MO Acquisition 100,911 100% 1992 Home Quarters
American Plaza Probable Home Depot, Sears Roebuck & Co, Sweet
St. Louis, MO Acquisition 17,500 100% 1998 Traditions, and American
Walgreen Probable
St. Louis, MO Acquisition 25,855 54% 1998 Walgreen
Walgreen Probable
Brentwood, MO Acquisition 17,504 100% 1988 Walgreen
Walgreen Plaza Probable
St. Louis, MO Acquisition 15,437 100% 1988 Walgreen
Walgreen Probable
Springfield, MO Acquisition 13,905 100% 1998 Walgreen
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
MARCH 31, 1998
- -------------------------------------------------------------------------------
PAGE
----
THE FAMILY CENTER PROPERTIES
Report of Independent Accountants ...................................... F-2
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 and (unaudited) three month periods ended
March 31, 1998 and 1997 ............................................. F-3
Notes to Combined Statement of Revenue and Certain Expenses ............ F-4
THE SANSONE PROPERTIES
Report of Independent Accountants ...................................... F-6
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 and (unaudited) three month periods ended March 31,
1998 and 1997 ....................................................... F-7
Notes to Combined Statement of Revenue and Certain Expenses ............ F-8
DUBLIN VILLAGE CENTER
Statement of Revenue and Certain Expenses for the three month period
ended March 31, 1998 (unaudited) ................................. F-11
Notes to Statement of Revenue and Certain Expenses .................. F-12
WASHINGTON PARK PLAZA
Statement of Revenue and Certain Expenses for the three month period
ended March 31, 1998 (unaudited) ................................ F-14
Notes to Statement of Revenue and Certain Expenses .................... F-15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(PRO FORMA - UNAUDITED):
Condensed Consolidated Balance Sheet as of March 31, 1998 ............. F-17
Condensed Consolidated Statement of Operations for the three month
period ended March 31, 1998 and for the year ended December 31, 1997 F-21
Estimated Twelve Month Pro Forma Statement of Taxable Net Operating
Income and Operating Funds Available ............................... F-32
F-1
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying combined statement of revenue
and certain expenses of The Family Center Properties, described in Note 1, for
the year ended December 31, 1997. 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 combined historical statement is prepared on the
basis described in Note 2, for the purpose of complying with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission (for inclusion in Form
8-K of Developers Diversified Realty Corporation) and is not intended to be a
complete presentation of the combined revenues and expenses of The Family Center
Properties.
In our opinion, the combined historical statement referred to
above presents fairly, in all material respects, the combined revenue and
certain expenses of The Family Center Properties, on the basis described in Note
2, for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
June 16, 1998
F-2
10
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE FAMILY CENTER PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
Three Month Period Ended Year Ended
------------------------------- December 31,
March 31, 1998 March 31, 1997 1997
--------------- -------------- ----------
(Unaudited) (Unaudited)
Revenue:
Minimum rents ..................... $ 4,628,337 $ 4,615,650 $18,176,955
Percentage and overage rents ...... 108,489 105,762 425,449
Recoveries from tenants ........... 737,404 748,011 3,444,742
Other income ...................... 3,353 7,016 20,525
----------- ----------- -----------
5,477,583 5,476,439 22,067,671
----------- ----------- -----------
Certain expenses:
Operating and maintenance ........ 558,251 439,299 2,843,614
Real estate taxes ................ 522,033 553,405 1,811,990
General and administrative ....... 280,141 259,137 1,117,795
----------- ----------- -----------
1,360,425 1,251,841 5,773,399
----------- ----------- -----------
Revenue in excess of certain expenses
$ 4,117,158 $ 4,224,598 $16,294,272
=========== =========== ===========
The accompanying notes are an integral part of this combined statement of
revenue and certain expenses.
F-3
11
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE FAMILY CENTER PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. OPERATIONS
For purposes of the accompanying combined statement of revenue
and certain expenses, The Family Center Properties represent certain shopping
center properties and one office property ("Properties"), and their management
operations which Developers Diversified Realty Corporation (the "Company")
intends to acquire in 1998. A summary of the Properties is as follows:
NAME OF PROPERTY LOCATION YEAR BUILT
--------------------------------------- ---------------- -------
Family Center at Midvalley, South Phase Taylorsville, UT 1982
Family Center at Midvalley, North Phase Taylorsville, UT 1992
Family Center at Fort Union, Phases I&II Midvale, UT 1973
Family Center at Fort Union, Phases III Midvale, UT 1995
Family Center at Riverdale, North Phase Riverdale, UT 1991
Family Center at Riverdale, South Phase Riverdale, UT 1995
Hermes Building Office Complex Salt Lake City, UT 1986
Family Center at Orem Orem, UT 1992
Family Center at Ogden 5-Points Ogden, UT 1977
Family Center at 33rd South Salt Lake City, UT 1978
Family Place at Logan Logan, UT 1973
Family Center at Las Vegas Las Vegas, NV 1973
Family Center at Rapid City Rapid City, UT 1978
A combined statement of revenue and certain expenses has been
presented because the Properties have varying ownership interests in common, are
under common control and management and will be purchased through a single
transaction.
The operating results of three shopping centers under development
and six shopping center expansions at the above listed properties, although
forming part of the same transaction with the Company, are not reflected in the
accompanying combined statement of revenue and certain expenses as no
historical financial information exists.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain
expenses has been prepared on the accrual basis of accounting.
F-4
12
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE FAMILY CENTER PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- ------------------------------------------------------------------------------
The accompanying combined financial statement is not representative of the
actual operations for the periods 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 Properties, have
been excluded. Revenues excluded consist of interest, gain on sales of assets
and other revenues unrelated to the continuing operations of the Properties.
Expenses excluded consist of depreciation on the building and improvements, and
amortization of intangible assets, interest expense and certain professional
fees and administrative costs not directly related to the future operations of
the Properties, primarily payroll associated with the former principals of the
Properties.
INCOME RECOGNITION
Rental income is recorded on the straight line basis.
CONCENTRATION OF RISK
The Family Center Properties' tenant base includes primarily
national and regional retail chains and local retailers, consequently, the
Properties' credit risk is concentrated in the retail industry. There were no
tenants which individually represented greater than 10% of combined revenues.
Revenues derived from the Properties' four largest tenants totaled 27% of total
combined minimum rents for the year ended December 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
Included in general and administrative expenses are costs associated with the
property management operations.
INTERIM STATEMENTS
The interim financial data for the three months ended March 31,
1998 and 1997 is unaudited; however, in the opinion of the Company, the interim
data includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
results for the periods presented are not necessarily indicative of the results
for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-5
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying combined statement of revenue
and certain expenses for The Sansone Properties, described in Note 1, for the
year ended December 31, 1997. 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 combined historical statement was prepared on
the basis described in Note 2, for the purpose of complying with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission (for inclusion in Form
8-K of Developers Diversified Realty Corporation) and is not intended to be a
complete presentation of the combined revenues and expenses of The Sansone
Properties.
In our opinion, the combined historical statement referred to
above presents fairly, in all material respects, the combined revenue and
certain expenses of The Sansone Properties, on the basis described in Note 2,
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
June 16, 1998
F-6
14
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
Three Month Period Ended Year Ended
---------------------------------- December 31,
March 31, 1998 March 31, 1997 1997
-------------- --------------- -----------
(Unaudited) (Unaudited)
Revenue:
Minimum rents $ 2,563,564 $ 2,276,337 $ 9,245,612
Percentage and overage rents 20,692 -- 19,330
Recoveries from tenants 537,424 533,638 2,191,093
Other income 70,940 70,817 180,484
----------- ----------- -----------
3,192,620 2,880,792 11,636,519
----------- ----------- -----------
Certain expenses:
Operating and maintenance 369,351 424,188 1,295,430
Real estate taxes 409,017 374,388 1,521,879
----------- ----------- -----------
778,368 798,576 2,817,309
----------- ----------- -----------
Revenue in excess of certain expenses $ 2,414,252 $ 2,082,216 $ 8,819,210
=========== =========== ===========
The accompanying notes are an integral part of this combined statement of
revenue and certain expenses.
F-7
15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
1. OPERATION OF PROPERTIES
For purposes of the accompanying combined statement of revenue
and certain expenses, The Sansone Properties (the "Properties") represent
certain shopping center properties which Developers Diversified Realty
Corporation (the "Company") intends to acquire in 1998. A summary of the
Properties is as follows:
CENTER NAME LOCATION YEAR BUILT
---------------------------------- ---------------------------- ---------
Plaza at Sunset Hill St. Louis, MO 1997
Northland Square Cedar Rapids, IA 1994
Olympic Oaks Village St. Louis, MO 1985
Gravois Village St. Louis, MO 1983
Morris Corners Springfield, MO 1989
Keller Plaza St. Louis, MO 1988
Southtowne St. Louis, MO 1995
Home Quarters St. Louis, MO 1992
Walgreen Brentwood, MO 1988
Walgreen Plaza St. Louis, MO 1988
A combined statement of revenue and certain expenses has been
presented because the Properties have varying ownership interests in common, are
under common control and management and will be purchased through a single
transaction.
During the period 1995-1997, Plaza at Sunset Hill was
redeveloped and expanded. The combined statement of revenue and certain expenses
includes the results of Plaza at Sunset Hill for the year ended December 31,
1997 which reflects the operating results of an expansion for only a portion of
the year. The expansion, representing approximately 30% of the GLA, was
completed in 1997.
F-8
16
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
The following shopping centers, which the Company also intends to
acquire pursuant to the same purchase agreement, are not reflected in the
accompanying combined statement of revenue and certain expenses since these
centers were either under development or in the lease-up phase during the
periods presented:
Center Name Location Year Built
----------- -------- ----------
Shoppes at Sunset Hill St. Louis, MO 1998
Promenade at Brentwood St. Louis, MO 1998
American Plaza St. Louis, MO 1998
Walgreens St. Louis, MO 1998
Walgreens Springfield, MO 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain
expenses has been prepared on the accrual basis of accounting.
The accompanying combined financial statement is not
representative of the actual operations for the periods 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
Properties, have been excluded. Revenues excluded consist of interest and other
revenues unrelated to the continuing operations of the Properties. Expenses
excluded consist of depreciation on the buildings and improvements and
amortization of organization costs and other intangible assets, interest
expense, professional fees, charitable contributions, leasing commissions and
other general and administrative costs not directly related to the future
operations of the Properties.
INCOME RECOGNITION
Rental income is recorded on the straight line basis.
F-9
17
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -------------------------------------------------------------------------------
CONCENTRATION OF RISK
The Sansone Properties' tenant base includes primarily national
and regional retail chains and local retailers, consequently, the Properties'
credit risk is concentrated in the retail industry. For the year ended December
31, 1997, revenues derived from the Properties largest tenants, HomeQuarters
Warehouse and the next four largest tenants, aggregated 11.7% and 27.0%,
respectively, of total combined minimum rental revenues.
INTERIM STATEMENTS
The interim financial data for the three months ended March 31,
1998 and 1997 is unaudited; however, in the opinion of the Company, the interim
data includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
results for the periods presented are not necessarily indicative of the results
for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTION
-------------------------
The Sansone Group, a property management Company controlled by the principals
of The Sansone Properties, provided services to the Properties for all periods
presented. The management fee is determined on a property by property basis
pursuant to property management contracts which generally provide for a
management fee calculated as 5% of rental revenue. The Company expects to
acquire a 50% interest in The Sansone Group and plans to retain the management
services provided to the Properties. Such management fees are included in
operating and maintenance expenses in the accompanying combined statement of
revenues and certain expenses and aggregated approximately $410,000 for the
year ended December 31, 1997.
4. COMMITMENTS
-----------
The Morris Corners Property is subject to a ground lease requiring payments of
$19,978 per month through December 31, 2015. Included in operating and
maintenance expense for the year ended December 31, 1997 is $239,736 of expense
associated with this ground lease.
F-10
18
DEVELOPERS DIVERSIFIED REALTY CORPORATION
DUBLIN VILLAGE CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
(Unaudited)
Revenue:
Minimum rents $ 904,543
Percentage and overage rents 2,841
Recoveries from tenants 193,673
Other income 9,214
----------
1,110,271
----------
Certain expenses:
Operating and maintenance 81,246
Real estate taxes 135,577
----------
216,823
----------
Revenue in excess of certain expenses $ 893,448
==========
The accompanying notes are an integral part of this statement of revenue and
certain expenses.
F-11
19
DEVELOPERS DIVERSIFIED REALTY CORPORATION
DUBLIN VILLAGE CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
(Unaudited)
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses,
relates to the operations of Dublin Village Center (the "Property") located in
Columbus, Ohio. The shopping center was built in 1987. Developers Diversified
Realty Corporation (the "Company") acquired an equity interest of approximately
80% in the Property on April 28, 1998.
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 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, professional fees,
charitable contributions, and other general and administrative costs not
directly related to the future operations of the Property.
INCOME RECOGNITION
Rental income is recorded on the straight line basis.
F-12
20
DEVELOPERS DIVERSIFIED REALTY CORPORATION
DUBLIN VILLAGE CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
(Unaudited)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CONCENTRATION OF RISK
Dublin Village Center's tenant base includes primarily national
and regional retail chains and local retailers, consequently, the Property's
credit risk is concentrated in the retail industry. Revenues derived from the
Property's largest tenants, AMC Theaters and Phar Mor, aggregated 25.3% and
7.3%, respectively, of total minimum base rental revenues for the period ended
March 31, 1998.
INTERIM STATEMENTS
The interim financial data for the three months ended March 31,
1998 is unaudited; however, in the opinion of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim period. The
results for the period presented are not necessarily indicative of the results
for the full year.
F-13
21
DEVELOPERS DIVERSIFIED REALTY CORPORATION
WASHINGTON PARK PLAZA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- ------------------------------------------------------------------------------
(Unaudited)
Revenue:
Minimum rents $485,725
Recoveries from tenants 155,509
Other income 16,795
--------
658,029
--------
Certain expenses:
Operating and maintenance 88,433
Real estate taxes 78,000
--------
166,433
--------
Revenue in excess of certain expenses $491,596
========
The accompanying notes are an integral part of this statement of revenue and
certain expenses.
F-14
22
DEVELOPERS DIVERSIFIED REALTY CORPORATION
WASHINGTON PARK PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- -------------------------------------------------------------------------------
(Unaudited)
1. OPERATION OF PROPERTY
The accompanying statement of revenue and certain
expenses relates to the operations of Washington Park Plaza (the "Property"),
located in Dayton, Ohio. The shopping center was built in 1990. Developers
Diversified Realty Corporation (the "Company") acquired a 50% equity interest in
the Property on April 28, 1998.
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 operation of the Property, have been
excluded. Revenues excluded consist of interest 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, professional fees,
charitable contributions, and other general and administrative costs not
directly related to the future operation of the Property.
INCOME RECOGNITION
Rental income is recorded on the straight line basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-15
23
DEVELOPERS DIVERSIFIED REALTY CORPORATION
WASHINGTON PARK PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
(Unaudited)
CONCENTRATION OF RISK
- ---------------------
Washington Park Plaza's tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Property's credit
risk is concentrated in the retail industry. Revenues derived from the
Property's largest tenants, Pharmor and CVC International, aggregated 19.1% and
12.5%, respectively, of total minimum base rental revenues for the period ended
March 31, 1998.
INTERIM STATEMENTS
- ------------------
The interim financial data for the three months ended March 31, 1998 is
unaudited; however, in the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim period. The results for the period
presented are not necessarily indicative of the results for the full year.
F-16
24
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
- --------------------------------------------------------------------------------
(Unaudited)
The following unaudited pro forma condensed consolidated balance sheet is
presented as if the following had occurred on March 31, 1998: (i) the Company's
acquisition of four shopping centers or interests therein which occurred
subsequent to March 31, 1998 ("Acquired Properties"); (ii) the proposed
acquisition of The Family Center Properties; (iii) the proposed acquisition of
The Sansone Properties; (iv) the proposed acquisition of Phase II of a shopping
center in Tanasbourne, Oregon and (v) the sale by the Company of 669,639 common
shares completed in April 1998. 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's Forms 10-Q and 10-K for the three
month period ended March 31, 1998 and the year ended December 31, 1997,
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
March 31, 1998, nor does it purport to represent the future financial position
of the Company.
F-17
25
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
- --------------------------------------------------------------------------------
(IN THOUSANDS)
(Unaudited)
Pro Forma Adjustments
(Unaudited)
---------------------------------
(a) (b) (c)
The Family The
Company Acquired Center Sansone
Historical Properties Properties Properties
----------- ----------- ----------- -----------
Assets:
Real estate, net $ 1,265,710 $ 54,363 $ 310,000 $ 152,000
Other real estate
investments 7,760 (7,760)
Cash and cash
equivalents 14,101 (14,101)
Other assets 32,704
Investment in and
advances to
joint ventures 162,977 8,351 20,000
----------- ----------- ----------- -----------
Total Assets $ 1,483,252 $ 40,853 $ 310,000 $ 172,000
=========== =========== =========== ===========
Liabilities:
Indebtedness:
Fixed rate senior
notes $ 492,036 $ - $ - $ -
Subordinated
convertible debentures 44,142
Revolving credit
agreements and other
unsecured debt 95,000 8,946 195,700(f) 142,100(f)
Mortgages payable 136,927 27,780 31,300 29,900
----------- ----------- ----------- -----------
Total indebtedness 768,105 36,726 227,000 172,000
Other liabilities 43,375
----------- ----------- ----------- -----------
Total liabilities 811,480 36,726 227,000 172,000
Operating partnership
minority interests 3,151 4,127 83,000
Shareholders' equity:
Class A Preferred
Shares 105,375
Class B Preferred
Shares 44,375
Common shares 2,782
Paid-in-capital 584,648
Accumulated dividends
in excess of net income (68,098)
----------- ----------- ----------- -----------
669,082 - - -
Less: Unearned
compensation
restricted stock (461)
----------- ----------- ----------- -----------
668,621 - -
----------- ----------- ----------- -----------
Total Liabilities and
Shareholders'
Equity $ 1,483,252 $ 40,853 $ 310,000 $ 172,000
=========== =========== =========== ===========
Pro Forma Adjustments
(Unaudited)
-----------------------------
(d) (e)
Tanasbourne,
Oregon Common Company Pro
Shopping Stock Forma
Center Offering (Unaudited)
----------- ----------- -----------
Assets:
Real estate, net $ 22,100 $ - $ 1,804,173
Other real estate
investments -
Cash and cash equivalents -
Other assets 32,704
Investment in and
advances to
joint ventures 191,328
----------- ----------- -----------
Total Assets $ 22,100 $ - $ 2,028,205
=========== =========== ===========
Liabilities:
Indebtedness:
Fixed rate senior
notes $ - $ - $ 492,036
Subordinated
convertible debentures 44,142
Revolving credit
agreements and other
unsecured debt 22,100(f) (25,260) 438,586(f)
Mortgages payable 225,907
----------- ----------- -----------
Total indebtedness 22,100 (25,260) 1,200,671
Other liabilities 43,375
----------- ----------- -----------
Total liabilities 22,100 (25,260) 1,244,046
----------- ----------- -----------
Operating partnership
minority interests 90,278
Shareholders' equity:
Class A Preferred
Shares 105,375
Class B Preferred
Shares 44,375
Common shares 67 2,849
Paid-in-capital 25,193 609,841
Accumulated dividends
in excess of net income (68,098)
----------- ----------- -----------
- 25,260 694,342
Less: Unearned
compensation
restricted stock (461)
----------- ----------- -----------
- 25,260 693,881
----------- ----------- -----------
Total Liabilities and
Shareholders'
Equity $ 22,100 $ - $ 2,028,205
=========== =========== ===========
F-18
26
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
- -------------------------------------------------------------------------------
(Unaudited)
(a) Represents the purchase of, or investment in, the four Acquired Properties.
The initial purchase price, before any contingent consideration that may be
payable to the sellers, is as follows (in thousands):
Easton Nassau Washington Dublin
Market Park Park Plaza Village Total
------ ---- ---------- ------- -----
Purchase Price or Investment:
Real estate, net $17,025 $29,578 $ -- $ -- $46,603(i)
Investment in and advance
to joint venture
properties -- -- 1,370 6,981 8,351
------- ------- ------- ------- -------
$17,025 $29,578 $ 1,370 $ 6,981 $54,954
======= ======= ======= ======= =======
Purchase price consideration provided by:
Cash
Revolving credit facility $14,101 $ -- $ -- $ -- $14,101
2,924 -- -- 6,022 8,946
Mortgages assumed -- 27,780 -- -- 27,780
Issuances of operating
partnership units -- 1,798 1,370 959 4,127(ii)
------- ------- ------- ------- -------
$17,025 $29,578 $ 1,370 $ 6,981 $54,954
======= ======= ======= ======= =======
(i) Balance sheet adjustment also reflects reclassification of $7,760 from
other real estate investments which represents the Company's initial
equity interest in the Nassau Park shopping center purchased prior to
December 31, 1997.
(ii) Represents the issuance of an aggregate of 105,546 operating
partnership units as a portion of the consideration relating to the
acquisition of certain shopping centers. These units are, in certain
circumstances, and at the option of the Company, exchangeable into the
Company's common shares on a one for one basis.
(b) Represents the purchase of The Family Center Properties, which are
considered by the Company to be probable acquisitions as of June 19, 1998,
although there is no assurance that the transaction will be consummated.
The initial purchase price, before any contingent consideration that may be
payable to the sellers, is summarized as follows (in thousands):
Approximate purchase price - Real estate, net $310,000
========
Assumed purchase price consideration to be provided by:
Revolving credit agreements and other unsecured debt $195,700
Mortgages assumed 31,300
Issuance of operating partnership units 83,000(i)
--------
$310,000
========
(i) Operating partnership units are, in certain circumstances and, at the
option of the Company, exchangeable on a one-for-one basis into common
shares of the Company. Assumes approximately 1,815,000 of operating
partnership units are issued. In addition, the Company has guaranteed
the value of the operating partnership units for the period two years
from the date of issue. The guarantee is determined with reference to
the common shares of the Company. The final number of operating
partnership units will not be known until the date the transaction is
consummated and after expiration of the guarantee period.
F-19
27
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
- ------------------------------------------------------------------------------
(Unaudited)
(c) Represents the purchase of The Sansone Properties and the purchase of a
50% interest in a development joint venture and the operating and
management company which are considered by the Company to be probable
acquisitions as of June 19, 1998, although there is no assurance that
these transactions will be consummated. The initial purchase price, before
any contingent consideration that may be payable to the sellers, is
summarized as follows (in thousands):
Approximate purchase price:
Real estate, net $ 152,000
Investment in and advances to joint ventures 20,000(i)
-----------
$ 172,000
===========
Assumed purchase price consideration to be provided by:
Revolving credit agreements and other unsecured debt $ 142,100
Mortgages assumed 29,900
-----------
$ 172,000
===========
(i) Investments in and advances to joint ventures include the Company's
50% joint venture interest in certain rights to future development
projects and the Company's 50% joint venture interest in the Sansone
management/operating company.
(d) Represents the purchase of a 156,000 square foot Phase II of a shopping
center in Tanasbourne, Oregon for total consideration of $22.1 million
funded by proceeds received from revolving credit agreements and other
unsecured debt. There can be no assurance that the transaction will be
consumated.
(e) Represents the sale by the Company of 669,639 common shares completed in
April 1998 and the use of proceeds thereof. The net proceeds to the
Company, after underwriting discounts and offering costs, were
approximately $25.3 million and were used to repay borrowings under the
revolving credit facilities.
(f) For purposes of presenting pro forma information, the Company's anticipated
cash requirements associated with the funding of acquisitions is assumed to
be provided from the use of revolving credit facilities and other unsecured
debt sources. Actual financings may differ from those assumed above.
F-20
28
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THREE MONTH PERIOD ENDED MARCH 31, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(Unaudited)
The unaudited pro forma condensed statement of operations for the three month
period ended March 31, 1998 is presented as if each of the following
transactions had occurred on January 1, 1997; (i) the acquisition by the
Company of those Acquired Properties which had an operating history, purchased
from January 1, 1998 through June 19, 1998; (ii) the acquisition of The Family
Center Properties and The Sansone Properties (Probable Acquisition Properties),
which had an operating history and the purchase of a 50% interest in the
Sansone's operating/management company; (iii) the sale by the Company of $100
million of Medium Term Notes in January 1998; (iv) the purchase by the Company
of a partner's minority interest in one shopping center and (v) the sale by the
Company of 669,639 common shares in April 1998.
The unaudited pro forma condensed statement of operations for the year ended
December 31, 1997 is presented as if each of the following transactions had
occurred on January 1, 1997; (i) the acquisition by the Company of those
Acquired Properties which had an operating history, purchased from January 1,
1997 through June 19, 1998; (ii) the acquisition of The Family Center
Properties and The Sansone Properties (Probable Acquisition Properties), which
had an operating history and the purchase of a 50% interest in the Sansone's
operating/management company; (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 an
aggregate of $202 million of Medium Term Notes in 1997 and 1998; (vii) the sale
by the Company of 507,960 common shares in September 1997; (viii) the sale by
the Company of 316,800 common shares in December 1997; (ix) the purchase by the
Company of a partner's minority interest in one shopping center and (x) the
sale by the Company of 669,639 common shares in April 1998.
The following pro forma information is based upon the historical consolidated
results of operations of the Company for the three month period ended March 31,
1998 and the year ended December 31, 1997, 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's Forms 10-Q and 10-K for the three month period ended March 31,
1998 and the year ended December 31, 1997, 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-21
29
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- -------------------------------------------------------------------------------
(Unaudited)
Pro Forma Adjustments
(Unaudited)
-----------------------------------
The
Family
Company Acquired Center
Historical Properties Properties
---------- ---------- ----------
Revenues from rental
properties $46,273 $ 2,363(a) $5,478(e)
Management fees and other income 3,226
------- ------- ------
49,499 2,363 5,478
------- ------- ------
Operating and maintenance 4,054 299(a) 558(e)
Real estate taxes 5,959 189(a) 522(e)
Depreciation and amortization 9,136 462(a) 1,206(e)
General and
administrative expenses 2,932 250(d) 280(e)
Interest expense 11,453 1,333(a) 2,048(e)
330(b)
190(c)
------- ------- ------
33,534 3,053 4,614
------- ------- ------
Income (loss) before equity in net
income of joint ventures, gain on sale
of land, allocation to
minority interest and
extraordinary item 15,965 (690) 864
Equity in net income (loss) of
joint ventures 2,238 395(b)
Minority equity interest (189) (41)(a) (1,189)(e)
(38)(b)
179(c)
------- ------- ------
Income (loss) before
extraordinary item 18,014 $ (195) $ (325)
======= ==========
Less: preferred dividends 3,550
-------
Income before extraordinary item
applicable to common shareholders $14,464
=======
Per share data:
Earnings per common share before
extraordinary item:
Basic $ 0.52
=======
Diluted $ 0.50
=======
Weighted average number of
common shares (in thousands):
Basic 27,750
=======
Diluted 28,366
=======
Pro Forma Adjustments
(Unaudited)
--------------------------------------------
Tanasbourne, Common
The Oregon Share and Company
Sansone Shopping Debt Pro Forma
Properties Center (g) Offerings (Unaudited)
---------- ----------- ----------- ------------
Revenues from rental
properties $3,193(f) $ - $ - $57,307
Management fees and other income 3,226
------ ----------- ----------- ------------
3,193 60,533
------ ----------- ----------- ------------
Operating and maintenance 369(f) 5,280
Real estate taxes 7,079
409(f)
Depreciation and amortization 699(f) 11,503
General and
administrative expenses 3,462
Interest expense 1,698(f) (434)(i) 16,618
- (h)
------ ----------- ----------- ------------
3,175 (434) 43,942
------ ----------- ----------- ------------
Income (loss) before equity in net
income of joint ventures, gain on sale
of land, allocation to
minority interest and
extraordinary item 18 434 16,591
Equity in net income (loss) of
joint ventures (19)(f) 2,614
Minority equity interest (1,278)
------ ----------- ----------- ------------
Income (loss) before
extraordinary item $ (1) $ -- $ 434 17,927
====== ========== ==========
Less: preferred share dividends 3,550
------------
Income before extraordinary item
applicable to common shareholders $ 14,377
============
Per share data:
Earnings per common share before
extraordinary item:
Basic $ 0.50(j)
============
Diluted $ 0.49(j)
============
Weighted average number of
common shares (in
thousands):
Basic 28,420
============
Diluted 29,036
============
F-22
30
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- -------------------------------------------------------------------------------
(Unaudited)
(a) Reflects revenues and expenses for the three month period ended March 31,
1998 of the properties acquired during 1998 through the date of
acquisition as follows:
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(1) Interest (1) Interest
--------------- ----------- -------- ----- ----------- ------------- ------------ --------
Country Club Mall 02/25/98 $ 131 $ 19 $ 17 $ 25 $ 65 $ --
Belair Centre 03/10/98 875 65 162 159 445 --
The Columbus
Properties (2) 03/23/98 1,357 105 120 278 823 41
------ ------ ------ --------- ------ ------
$2,363 $ 189 $ 299 $ 462 $1,333 $ 41
====== ====== ====== ========= ====== ======
(1) Determined depreciation utilizing a 31.5 year life for building based
on the preliminary purchase price allocation and calculated interest
at the Company's estimated interest rate under its lines of credit
and/or the effective interest rate associated with the mortgage debt
assumed.
(2) No revenues or expenses have been included in the pro forma statement
of operations for Easton Market, one of The Columbus Properties,
since the center was either under development or in lease-up prior
to acquisition.
(b) Reflects revenues and expenses for four joint ventures acquired in 1998 for
the three month period ended March 31, 1998 through the earlier of the date
of acquisition or March 31, 1998 as follows:
Lennox Town Washington Dublin Village
Center Sun Center Park Plaza Center
Columbus, OH Columbus, OH Dayton, OH Columbus, OH Total
------------ ------------ ---------- ------------ -----
Revenues $ 717 $ 889 $ 658 $1,110 $3,374
------ ------ ------ ------ ------
Operating and
maintenance 49 48 88 81 266
Real estate taxes 96 76 78 136 386
Depreciation (1) 179 189 111 194 673
Interest (1) 380 442 265 420 1,507
------ ------ ------ ------ ------
704 755 542 831 2,832
------ ------ ------ ------ ------
Net Income 13 134 116 279 $ 542
======
Ownership interest 50% 79.45% 50% 80%
------ ------ ------ ------
Equity in net income
of joint venture $ 7 $ 106 $ 58 $ 224 $ 395
====== ====== ====== ====== ======
(1) Based on the preliminary purchase price, determined depreciation
utilizing a 31.5 year life for building and calculated interest
at the effective interest rate associated with the mortgage debt
assumed.
An aggregate interest cost of $330 associated with the purchase of the
Company's equity interest in the properties is calculated at the
Company's estimated interest rate under its lines of credit.
In addition to cash, the Company's purchase price was funded through
the issuance of approximately 60,000 operating partnership units (OP
Units). The minority interest expense associated with the OP Units is
estimated to be $38 for the three month period ended March 31, 1998.
F-23
31
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- --------------------------------------------------------------------------------
(c) Represents the elimination of the minority interest expense due to the
purchase by the Company of the minority interest in a shopping center
located in North Olmsted, Ohio in March 1998.
(d) The general and administrative expenses of the Company have been adjusted
by $250 to reflect the estimated increased expenses expected to be incurred
associated with additional operating personnel and related costs
attributable to the increase in the Company's portfolio of properties
resulting from acquisitions and development activities.
(e) Reflects revenues and expenses of The Family Center Properties
contemplated as of June 19, 1998 for the period January 1, 1998 through
March 31, 1998.
Based on a preliminary purchase price allocation, determined depreciation
utilizing a 31.5 year life for buildings with an operating history and
calculated interest related to the assumed purchase of the operating
properties with an estimated value of approximately $190 million. Interest
was determined utilizing the Company's estimated interest rate under its
lines of credit and/or the effective interest rate associated with the
mortgage debt assumed. No interest expense was presented relating to
shopping centers under development and expansion as related interest costs
either would not have been incurred or would have been capitalized.
General and administrative expenses reflect the operating expenses of the
Hermes Associates, LTD. management/operating company which is expected to
be acquired.
Minority interest equity expense reflects the estimated expense relating
to the operating partnership units expected to be issued in partial
consideration for the purchase of The Family Centers Properties. The final
number of operating partnership units to be issued will not be known until
the transaction is consummated and the guarantee period has expired. (See
note b(i) of the pro forma condensed balance sheet).
There can be no assurance that the Company will acquire an ownership
interest in the The Family Center Properties.
(f) Reflects revenues and expenses of The Sansone Properties contemplated as of
June 19, 1998 for the period January 1, 1998 through March 31, 1998.
Based on a preliminary purchase price allocation, determined depreciation
utilizing a 31.5 year life for buildings with an operating history and
calculated interest related to the assumed purchase of the operating
properties with an estimated value of approximately $97 million. Interest
was determined utilizing the Company's estimated interest rate under its
lines of credit and/or effective interest rate associated with the
mortgage debt assumed. No interest expense was presented relating to
shopping centers under development and expansion as related interest costs
either would not have been incurred or would have been capitalized.
Equity in net income (loss) in joint ventures represents the Company's
equity in net loss relating to its 50% joint venture interest in the
operating/management company.
There can be no assurance that the Company will acquire an ownership
interest in The Sansone Properties.
(g) Operating results for the Tanasbourne, Oregon shopping center are not
presented as this shopping center was under development during the period
presented.
(h) An interest expense adjustment relating to the issuance of $100 million
Medium Term Notes completed in January 1998 is not reflected herein as the
net interest adjustment is considered insignificant.
(i) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of 669,639
common shares completed in April 1998.
F-24
32
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- -------------------------------------------------------------------------------
(j) Pro forma income per common share is based upon the weighted average number
of common shares assumed to be outstanding for the three month period ended
March 31, 1998.
In accordance with the SFAS 128, earnings per share before extraordinary
item is calculated as follows:
Income before extraordinary item $ 17,927
Less: Preferred stock dividend (3,550)
--------
Basic EPS - Income before extraordinary item applicable to common
shareholders 14,377
Joint venture partnership (180)
--------
Diluted EPS - Income before extraordinary item applicable to common
shareholders plus assumed conversions $ 14,197
========
NUMBER OF SHARES:
Basic - average shares outstanding 28,420
Effect of dilutive securities:
Stock options 449
Joint venture partnership 164
Restricted stock 3
--------
Diluted Shares 29,036
========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 0.50
========
Diluted $ 0.49
========
F-25
33
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- -------------------------------------------------------------------------------
(Unaudited)
Pro Forma Adjustments (Unaudited)
-------------------------------------------------------
The Family The
Company Acquired Center Sansone
Historical Properties Properties Properties
-------- -------- ------- -------
Revenues from rental
properties $158,718 $ 3,073(a) $22,068(f) $11,637(g)
11,680(b)
Management fees and
other income 10,322
-------- -------- ------- -------
169,040 14,753 22,068 11,637
-------- -------- ------- -------
Operating and
maintenance 15,961 549(a) 2,844(f) 1,295(g)
1,525(b)
Real estate taxes 20,001 203(a) 1,812(f) 1,522(g)
950(b)
Depreciation and amortization 32,313 568(a) 4,749(f) 2,695(g)
2,271(b)
General and
administrative 11,055 750(e) 1,118(f)
expenses
Interest expense 35,558 1,516(a) 7,980(f) 6,510(g)
6,574(b)
1,212(c)
1,103(d)
-------- -------- ------- -------
114,888 17,221 18,503 12,022
-------- -------- ------- -------
Income (loss) before
equity in net income of joint
ventures, gain on sale and
allocation to minority
interest 54,152 (2,468) 3,565 (385)
Equity in net income of
joint ventures 10,893 1,654 (c) 630(g)
Minority equity interest (1,049) (14)(a) (4,575)(f)
(176)(b)
(147)(c)
1,038 (d)
Gain on sales of land 3,526
-------- -------- ------- -------
Income before
extraordinary item 67,522 $ (113) $(1,010) $ 245
======== ======= =======
Less: preferred share
dividends (14,200)
--------
Income before extra
ordinary item
applicable to common
shareholders $ 53,322
========
Per share data:
Earnings per common
share:
Basic $2.06
========
Diluted $2.05
========
Weighted average
number of common
shares(in thousands):
Basic 25,880
========
Diluted 26,062
========
Pro Forma Adjustments (Unaudited)
------------------------------
Tanasbourne, Common
Oregon Share and Company
Shopping Debt Pro Forma
Center(h) Offerings (Unaudited)
----------- ----------- --------
Revenues from rental
properties $ - $ - $207,176
Management fees and
other income 10,322
----------- ----------- --------
- - 217,498
----------- ----------- --------
Operating and
maintenance 22,174
Real estate taxes 24,488
Depreciation and amortization 42,596
General and
administrative 12,923
expenses
Interest expense (316)(i) 56,781
66(j)
(1,771)(k)
- (l)
(903)(m)
(748)(n)
- (o)
----------- ----------- --------
- (3,672) 158,962
----------- ----------- --------
Income (loss) before
equity in net income of joint
ventures, gain on sale and
allocation to minority
interest - 3,672 58,536
Equity in net income of
joint ventures 13,177
Minority equity interest (4,923)
Gain on sales of land 3,526
----------- ----------- --------
Income before extraordinary item - $ 3,672 70,316
=========== ============
Less: preferred
dividends (14,200)
--------
Income before extra
ordinary item
applicable to common
shareholders $56,116
========
Per share data:
Earnings per common
share:
Basic $2.06(p)
========
Diluted $2.04(p)
========
Weighted average
number of common
shares(in thousands):
Basic 27,296
========
Diluted 27,475
========
F-26
34
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND 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 December 31, 1997 as follows:
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(4) Interest(4) 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 1,907 154 404 300 806 14
Centennial Promenade
Denver, CO (2) 10/02/97 -- -- -- -- -- --
Spring Creek Centre
Fayetteville, AR 11/20/97 1,166 49 145 268 710 --
------ ------ ------ ------ ------ ------
$3,073 $ 203 $ 549 $ 568 $1,516 $ 14
====== ====== ====== ====== ====== ======
(1) Included in historical statement of operations for the year ended
December 31, 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 1997.
(3) Property acquired through a joint venture in which the Company owns a
35% interest.
(4) Determined depreciation utilizing a 31.5 year life for buildings based
on the preliminary purchase price allocation and calculated interest
at the Company's estimated interest rate under its lines of credit.
F-27
35
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- -------------------------------------------------------------------------------
(Unaudited)
(b) Reflects revenues and expenses for the year ended December 31, 1997 of
the properties acquired from January 1, 1998 to June 19, 1998 as
follows:
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(1) Interest(1) Interest
--------------- ----------- -------- ----- ----------- ------------- ---------- --------
Country Club Mall 02/25/98 $ 871 $ 127 $ 115 $ 165 $ 441 $ --
Belair Centre 03/10/98 4,696 350 868 856 2,401 --
The Columbus
Properties (2) 03/23/98 6,113 473 542 1,250 3,732 176
------- ------- ------- ------- ------- -------
$11,680 $ 950 $ 1,525 $ 2,271 $ 6,574 $ 176
======= ======= ======= ======= ======= =======
(1) Determined depreciation utilizing a 31.5 year life for building based
on the preliminary purchase price allocation and calculated interest
at the Company's estimated interest rate under its lines of credit
and/or the effective interest rate associated with the mortgage debt
assumed.
(2) No revenues or expenses have been included in the pro forma statement
of operations for Easton Market, one of The Columbus Properties; since
the center was either under development or in lease-up during 1997.
(c) Reflects revenues and expenses of the four joint venture properties for the
year ended December 31, 1997 in which an equity interest was acquired as
follows:
Lennox Washington Dublin Village
Town Center Sun Center Park Plaza Center
Columbus, OH(1) Columbus, OH Dayton, OH Columbus, OH Total
--------------- ----------- ---------- ------------ -----
Revenues $ 2,390 $ 4,008 $ 2,474 $ 4,888 $13,760
------- ------- ------- ------- -------
Operating and
maintenance 165 217 294 608 1,284
Real estate taxes 319 344 298 557 1,518
Depreciation (2) 604 851 452 787 2,694
Interest (2) 1,283 1,993 1,073 1,703 6,052
------- ------- ------- ------- -------
2,371 3,405 2,117 3,655 11,548
------- ------- ------- ------- -------
NET INCOME 19 603 357 1,233 $ 2,212
=======
Ownership interest 50% 79.45% 50% 80%
------- ------- ------- -------
Equity in net income of
joint ventures $ 9 $ 480 $ 179 $ 986 $ 1,654
======= ======= ======= ======= =======
(1) Revenues and expenses prior to April 1, 1997 are not included in the
pro forma statement of operations since the center was in the lease up
phase.
(2) Determined depreciation utilizing a 31.5 year life for building based
on the preliminary purchase price allocation and calculated interest
at the effective interest rate associated with the mortgage debt
assumed.
An aggregate interest cost of $1,212 associated with the purchase of
the Company's equity interest in these properties is calculated at the
Company's estimated interest rate under its lines of credit.
In addition to cash, the Company's purchase price was funded through the
issuance of approximately 58,000 operating partnership units (OP Units). The
minority interest expense associated with the OP Units is estimated to be $147
for the year ended December 31, 1997.
F-28
36
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- -------------------------------------------------------------------------------
(d) Represents the elimination of the minority interest expense due to the
purchase by the Company of the minority interest in a shopping center
located in North Olmsted, Ohio in March 1998.
(e) The general and administrative expenses of the Company have been adjusted
by $750 to reflect the estimated increased expenses expected to be incurred
associated with additional operating personnel and related costs
attributable to the increase in the Company's portfolio of properties
resulting from acquisitions and development activities.
(f) Reflects revenues and expenses of The Family Center Properties
contemplated as of June 19, 1998 for the year ended December 31, 1997.
Based on the preliminary purchase price allocation, determined
depreciation utilizing a 31.5 year life for buildings and calculated
interest related to the assumed purchase of the operating properties with
an estimated value of approximately $187 million. Interest was determined
utilizing the Company's estimated interest rate under its lines of credit
and/or the effective interest rate associated with the mortgage debt
assumed. No interest expense was presented relating to shopping centers
under development and expansion as such interest costs would have been
capitalized.
General and administrative expenses reflect the operating expenses of the
Hermes Associates, LTD. management/operating company which is expected to
be acquired.
Minority equity interest expense reflects the estimated expense relating to
the operating partnership units expected to be issued in partial
consideration for the purchase of The Family Center Properties. The final
number of operating partnership units to be issued will not be known until
the transaction is consummated and the guarantee period has expired
(See note b(1) of the pro forma condensed balance sheet).
There can be no assurance that the Company will acquire an ownership
interest in The Family Center Properties.
(g) Reflects revenues and expenses of The Sansone Properties contemplated as of
June 19, 1998 for the year ended December 31, 1997.
Based on the preliminary purchase price allocation, determined depreciation
utilizing a 31.5 year life for buildings with an operating history and
calculated interest related to the assumed purchase of the operating
properties with an estimated value of approximately $93 million. Interest
was determined at the Company's estimated interest rate under its lines of
credit and/or the effective interest rate associated with the mortgage debt
assumed. No interest expense was presented relating to shopping centers
under development and expansion as related interest costs would have been
capitalized.
Equity in net income (loss) of joint ventures represents the Company's
equity in net income (loss) relating to its 50% joint venture interest in
the operating/management company.
There can be no assurance that the Company will acquire an ownership
interest in The Sansone Properties.
(h) Operating results for the Tanasbourne, Oregon shopping center are not
presented as this shopping center was under development during the year.
F-29
37
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- --------------------------------------------------------------------------------
(i) 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.
(j) Reflects the net increase in interest cost of $66 relating to variable rate
indebtedness repaid with the proceeds from the sale of $75 million 7.125%
Pass-through Assets Trust Securities completed in March 1997. Pro forma
interest is estimated at $1,103 and interest savings on the variable rate
indebtedness repaid is estimated at $1,037.
(k) 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.
(l) The interest expense adjustment relating to the issuance of $202 million
Medium Term Notes completed in 1997 and 1998 is not reflected herein as the
net interest adjustment is considered insignificant.
(m) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of 507,960
common shares completed in September 1997.
(n) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds form the sale of 316,800
common shares completed in December 1997.
(o) The issuance of 669,639 common shares completed in April 1998, or
utilization of the proceeds derived from the sale thereof, are not
reflected herein prior to their issuance as the proceeds were considered to
be used to acquire shopping centers with no previous operating history
and/or for properties under development. Accordingly, the Company would not
have issued these securities until the earlier of the date of issuance or
the date the centers were acquired.
(p) 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 common share offerings in 1997. The
669,639 shares issued in April 1998 were not reflected either in the pro
forma statement of operations or in the earnings per share calculation
prior to their issuance as the proceeds were not considered to be received
until the date the developed shopping centers were acquired in 1998, since
such centers had no operating history.
F-30
38
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA)
- --------------------------------------------------------------------------------
In accordance with the SFAS 128, earnings per share before extraordinary
item is calculated as follows (in thousands):
Income before extraordinary item $ 70,316
Less: Preferred stock dividend (14,200)
--------
Basic EPS - Income before extraordinary item applicable to common
shareholders $ 56,116
========
Diluted EPS - Income before extraordinary item applicable to common
shareholders plus assumed conversions $ 56,116
========
NUMBER OF SHARES:
Basic - average shares outstanding 27,296
Effect of dilutive securities:
Stock options 176
Restricted stock 3
--------
Diluted Shares 27,475
========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 2.06
========
Diluted $ 2.04
========
F-31
39
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
operating funds available for the year ended December 31, 1997. The pro forma
statement is based on the Company's historical operating results for the
twelve-month period ended December 31, 1997 adjusted for the effect of (i)
historical operations of the Acquired Properties and the Probable Acquisition
Properties, (ii) Medium Term Notes offerings completed in 1997 and 1998, (iii)
3,500,000 common share offering completed in January 1997, (iv) Pass-through
Asset Trust Securities issued in March 1997, (v) 1,300,000 common share
offering completed in June 1997, (vi) 509,760 common share offering completed
in September 1997, (vii) 316,800 common share offering completed in December
1997, (viii) the purchase by the Company of a partner's minority interest in
one shopping center, (ix) 669,639 common share offering completed in April 1998
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 historical financial
statements included in the Company's Forms 10-K and 10-Q for the year ended
December 31, 1997 and the three months ended March 31, 1998 and (ii) the pro
forma condensed financial statements of the Company included elsewhere herein.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
DDRC historical income before extraordinary item, exclusive of property depreciation and amortization
(Note 1) .......................................................................................... $ 99,835
Acquired Properties - historical earnings from operations, as adjusted, exclusive
of depreciation and amortization (Note 2) ........................................................ 2,791
Probable Acquisition Properties - historical earnings from operations, as adjusted, exclusive of
depreciation and amortization (Note 2) ........................................................... 6,679
Pro forma adjustments reflecting the purchase of minority interests ................................. (65)
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 ............................................ 316
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 ..................................................................................... (66)
Pro forma adjustments arising from the utilization of the proceeds from the 1,300,000 common
share offering ................................................................................... 1,771
Pro forma adjustments arising from the utilization of the proceeds from the 507,960 common
share offering ................................................................................... 903
Pro forma adjustments arising from the utilization of the proceeds from the 316,800 common
share offering ................................................................................... 748
Pro forma adjustments arising from the utilization of the proceeds form the 669,639 common
share offering ................................................................................... --
Estimated tax depreciation and amortization (Note 3):
Estimated 1997 tax depreciation and amortization .................................................... (25,088)
Pro forma tax depreciation for Properties acquired during 1997 ...................................... (527)
Pro forma tax depreciation for Properties acquired during 1998 ...................................... (1,789)
Pro forma tax depreciation for Probable Acquisition Properties ...................................... (5,600)
---------
Pro forma taxable income before dividends deduction ................................................. 79,908
Estimated dividends deduction (Note 4) .......................................................... (82,986)
--------
$ (3,078)
=========
Pro forma taxable net operating income .............................................................. $ --
=========
F-32
40
DEVELOPERS DIVERSIFIED REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
- -------------------------------------------------------------------------------
(Unaudited)
ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS):
Pro forma taxable operating income before dividend deduction ...................$ 79,908
Add pro forma depreciation ................................................. 33,004
------------
Estimated pro forma operating funds available (Note 5) ......................... $ 112,912
============
Note 1 - The historical earnings from operations represents the Company's
earnings from operations for the twelve months ended December 31,
1997 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, 1997 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
$18 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 (27,296,000 shares x $2.52 per share) $ 68,786
Class A Preferred Shares 10,011
Class B Preferred Shares 4,189
--------
$ 82,986
========
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-33
41
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 June 23, 1998 /s/ William H. Schafer
------------------------------ ------------------------------
William H. Schafer
Vice President and Chief
Financial Officer