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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) February 24, 1999
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 1-11690 34-1723097
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(State or other Jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification Number)
3300 Enterprise Parkway, Beachwood, Ohio 44122
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Registrant's telephone number, including area code (216) 755-5500
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N/A
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(Former name of former address, if changed since last report)
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Item 5. Other Events
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In a press release dated February 24, 1999, the Company announced its
earning information for the Company's fourth quarter of 1999. The following is
the text of the press release modified by redacting information relating to
funds from operation.
DEVELOPERS DIVERSIFIED REALTY REPORTS
FOURTH QUARTER 1998 OPERATING RESULTS
CLEVELAND, OHIO, FEBRUARY 24, 1999 - All information contained in this
release pertaining to the number of common shares and per share amounts reflect
the Company's two-for-one stock split which was effective August 3, 1998.
Developers Diversified Realty Corporation (NYSE: DDR) a real estate investment
trust ("REIT") today announced that fourth quarter 1998 net income for the three
month period ended December 31, 1998 was $20.9 million, an increase of 20.8%
over fourth quarter 1997 net income of $17.3 million. On a per share basis, net
income (basic) was $0.24 and $0.25 for the three month periods ended December
31, 1998 and 1997, respectively. Net income for the year ended December 31,
1998, was $77.9 million or $1.02 per share (basic) as compared to $67.5 million
or $1.03 per share (basic) in 1997.
Scott A. Wolstein, DDR's chairman and chief executive officer stated,
"We are very pleased with these operating results which reflect the initial
influence of more than $850 million in net real estate investments made during
the year. These investments have provided us immediate earnings enhancement, as
well as substantial future shopping center development opportunities. At the
same time, the continued outstanding retail sales performance of our tenants
demonstrates the high quality of our real estate assets which continue to
generate strong internal rental revenue growth, while at the same time allowing
to maintain high occupancy rates."
LEASING:
Average annualized shopping center base rent per leased square foot,
including those properties owned through joint ventures increased 5.9% to $8.99
at December 31, 1998, compared to $8.49 at December 31, 1997. Increases in
aggregate base and percentage revenues, relating to leasing and expansions of
1997 Core Portfolio Properties (i.e. shopping center properties owned since
January 1, 1997) were approximately $4.8 million for the year ended December 31,
1998, as compared to the same period in 1997, representing a 4.6% increase. At
December 31, 1998, the in-place occupancy rate of the Company's portfolio was at
96.5% as compared to 96.1% at December 31, 1997.
For reporting tenants, representing approximately 17.5 million square
feet of the Company's shopping center portfolio, same store sales for the latest
twelve month period increased 3.0% to $231 per square foot, compared to $225 per
square foot for the previous twelve month period.
EXPANSIONS:
During 1998, the Company completed seven expansion projects at an
aggregate cost of $11.2 million. The Company is currently expanding/redeveloping
eight of its shopping centers, including the following major projects:
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* A 190,000 square foot Wal-Mart Superstore expansion at Pamlico Plaza in
Washington, North Carolina
* A 166,000 square foot Cinemark (opened 2/99) and Home Depot
expansion/development at Macedonia Commons in Macedonia, Ohio
* A 66,300 square foot expansion/redevelopment at Berlin Mall in Berlin,
Vermont where Wal-Mart (opened 1/99) is replacing Rich's Department Store
* A 64,000 square foot Wal-Mart expansion at River Towne Square in New Bern,
North Carolina
* A 24,000 square foot Goody's (opened 1/99) expansion at North Road Plaza in
Orangeburg, South Carolina
* A 112,000 square foot Home Depot (opened 1/99) at the Plaza at Great
Northern in North Olmsted, Ohio
* A 183,000 square foot Wal-Mart Superstore at Springdale Plaza in Camden,
South Carolina.
The Company is also scheduled to commence expansion/redevelopment
projects during 1999 at ten additional shopping centers.
ACQUISITIONS:
In August 1998, the Company announced a strategic investment in
American Industrial Properties REIT [NYSE:IND] ("AIP"). Since July 1998, DDR has
transferred to AIP five light industrial properties valued at approximately
$19.5 million and additionally invested approximately $123.6 million ($85.9
million at December 31, 1998) coinciding with AIP property acquisitions. DDR
currently holds approximately 45.5% (34.5% at December 31, 1998) of outstanding
AIP shares of beneficial interest. Concurrent with entering into the strategic
investment agreements, AIP increased its Board of Trust Managers by four
positions and appointed DDR's designees, Scott A. Wolstein, Albert T. Adams,
Robert H. Gidel and James A. Schoff to the Board. Mr. Wolstein was then named
AIP's Chairman of the Board.
During the fourth quarter, the Company acquired additional square
footage at a total cost of approximately $7.3 million relating to the Easton
Market shopping center in Columbus, Ohio and in October 1998, the Company
acquired a 15,000 square foot shopping center in Florence, Kentucky at an
aggregate cost of approximately $2.4 million. Both of the acquisitions were made
in conjunction with the Company's acquisition of the Continental portfolio in
the first quarter of 1998.
In the fourth quarter of 1998, the Company acquired additional square
footage at a shopping center in Denver, CO for approximately $3.3 million. In
addition, the Company purchased a 50% equity interest in a shopping center in
Leawood, Kansas for approximately $18 million, which includes a $6 million note
receivable. The joint venture's total cost of this center was approximately $75
million comprised of $24 million of equity and $51 million of debt and
liabilities assumed.
DEVELOPMENTS:
In 1998, the Company had five shopping centers under construction. The
first, a 445,000 gross square foot shopping center in Merriam, Kansas was
developed through a joint venture formed in
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October 1996, with DRA Advisors, 50% of which is owned by the Company. This
center is anchored by Home Depot (not owned by the Company), Cinemark Theaters,
Hen House Supermarket, OfficeMax, Marshalls, Old Navy and PETsMART. The Merriam,
Kansas shopping center was substantially completed by year end 1998. The second
center is a 170,000 square foot shopping center in Solon, Ohio which was opened
in the fourth quarter of 1998. Additionally, the Company has also commenced the
construction of a 200,000 gross square foot second phase at its Erie,
Pennsylvania center, to be anchored by Home Depot (not owned by the Company),
PETsMART and Circuit City, a 240,000 square foot shopping center in Toledo,
Ohio, and a 230,000 square foot shopping center in Oviedo, Florida (a suburb of
Orlando). All three centers are scheduled for completion during 1999.
The Company has entered into joint venture development agreements for
six additional projects with various developers throughout the country at a
projected cost aggregating approximately $237 million. Several of these projects
have commenced development and are currently scheduled for completion in 1999
and 2000. The Company intends to finance its investment in these developments
through the Prudential/DDR Retail Value Fund.
In May 1998, the Company formed DDR OliverMcMillian ("DDROM"), with
OliverMcMillian, LLC, based in San Diego, California to develop, acquire,
operate and manage urban entertainment and retail projects throughout the United
States. DDROM's initial developments are comprised of six OliverMcMillian
initiated urban entertainment and retail projects located in Southern California
and Reno, Nevada.
FINANCINGS:
During 1998, the Company announced that it increased the amount of its
primary unsecured revolving credit facility to $375 million from $150 million,
reduced the pricing to .85% over LIBOR from 1.10% over LIBOR and extended the
term for an additional year through May 2001. The amended and restated facility
also continues to provide for a competitive bid option for up to 50% of the
facility amount. The Company recognized a non cash extraordinary charge of
approximately $0.9 million ($0.01 per share) in the first quarter of 1998
relating to the write-off of unamortized deferred finance costs associated with
the former revolving credit facility. The Company also increased the amount of
its smaller unsecured revolving credit facility to $20 million from $10 million.
During the fourth quarter of 1998, the Company issued Operating
Partnership Units in conjunction with the purchase of business centers acquired
and subsequently assigned to AIP and certain shopping centers. These units are,
in certain circumstances and at the election of the Company, exchangeable into
approximately 600,000 common shares of the Company. The share prices ranged from
$19.53 to $20.00 per unit.
In November 1998, eleven members of the Company's executive committee
acquired 974,633 common shares, primarily from the exercise of previously
granted stock options. These purchases increased the ownership of common shares
by senior management to 3.7%. The purchase raised approximately $15 million and
was funded through a third-part financed personal loan program.
In December 1998, the Company completed the private placement of $35
million of preferred equity securities and a warrant to purchase our common or
preferred shares with AEW Targeted Securities Fund, L.P., an investment
partnership managed by AEW Capital Management, L.P. Net proceeds of
approximately $34.1 million were used to pay down variable rate debt on the
Company's revolving credit facilities.
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In December 1998, the Company completed the sale of 3,000,000 common
shares. The net proceeds of approximately $52.5 million were used to repay
variable rate borrowings on the Company's unsecured revolving credit facilities.
On February 19, 1999, DDR's Board of Directors granted the executive
officers of the Company the right to implement a common share buy-back program
in response to what the Company's executive committee believes is a distinct
undervaluation of the Company's common shares. Under the terms authorized by the
DDR Board, the Company may, during the six month period beginning February 22,
1999, purchase in the open market, at price levels not to exceed 120% of the
closing price of the securities on February 22, 1999 ($15.50), DDR common
shares, up to a maximum value of $50 million. Acquisitions of shares may be made
to avoid shareholder dilution through the issuance of operating partnership
units in conjunction with property acquisitions. The Company may also invest
portions of the proceeds from the sale of properties in order to purchase its
own shares. It is not the Company's intention to increase the leverage on its
balance sheet through this stock buy-back program.
Developers Diversified Realty Corporation is a self-administered and
self-managed Real Estate Investment Trust ("REIT") operating as a
fully-integrated real estate Company which acquires, develops, owns, leases and
manages shopping centers and business centers.
A copy of the Company's Quarterly Supplemental Financial/Operational
package is available to all interested parties upon written request to Perry
Grueber, Vice President and Director of Investor Relations, Developers
Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, OH 44122.
Developers Diversified Realty Corporation considers portions of this
information to be forward-looking statements within the meaning of Section 27A
of the Securities Exchange Act of 1993 and Section 21 E of the Securities
Exchange Act of 1934, both as amended, with respect to the Company's expectation
for future periods. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be achieved.
For this purpose, any statements contained herein that are not historical fact
may be deemed to be forward looking statements. There are a number of important
factors that could cause the results of the Company to differ materially from
those indicated by such forward-looking statements, including among other
factors, local conditions such as oversupply of space or a reduction in demand
for real estate in the area, competition from other available space, dependence
on rental income from real property or the loss of a major tenant.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
FINANCIAL HIGHLIGHTS
(IN THOUSANDS - EXCEPT PER SHARE DATA)
Three Month Period Year Ended
Ended December 31, December 31,
1998 1997 1998 1997
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REVENUES:
Minimum rent (2) $ 44,729 $ 34,923 $ 168,182 $ 123,998
Percentage and overage rents (2) 494 388 2,746 2,343
Recoveries from tenants 12,274 9,583 43,071 32,377
Management fee income 1,083 779 3,653 3,097
Interest income 1,979 721 5,056 2,083
Other (3) 1,694 1,703 5,460 5,325
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62,253 48,097 228,168 169,223
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EXPENSES:
Operating and maintenance 5,903 5,069 20,070 16,144
Real estate taxes 6,767 5,533 26,510 20,001
General and administrative (4) 3,671 3,410 12,918 11,055
Interest 15,279 10,097 57,196 35,558
Depreciation and amortization 11,543 8,803 43,180 32,313
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43,163 32,912 159,874 115,071
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Income before equity in net income of joint ventures and
minority equity investment, minority equity
interests, gain (loss) on sales of real estate and
extraordinary item 19,090 15,185 68,294 54,152
Equity in net income of joint ventures (5) 2,719 2,357 12,888 10,893
Equity in net income of minority equity investment 531 -- 686 --
Minority equity interests (1,685) (262) (3,312) (1,049)
Gain (loss) on sales of real estate 284 -- 248 3,526
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Income before extraordinary item 20,939 17,280 78,804 67,522
Extraordinary item - write off of unamortized deferred
finance costs -- -- (882) --
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NET INCOME $ 20,939 $ 17,280 $ 77,922 $ 67,522
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NET INCOME, APPLICABLE TO COMMON SHAREHOLDERS $ 14,097 $ 13,730 $ 57,969 $ 53,322
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Per share data: (1)
Earnings per common share - basic:
Income before extraordinary item $ 0.24 $ 0.25 $ 1.03 $ 1.03
Extraordinary item -- -- (0.01) --
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Net income $ 0.24 $ 0.25 $ 1.02 $ 1.03
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Earnings per common share - diluted:
Income before extraordinary item $ 0.23 $ 0.25 $ 1.00 $ 1.03
Extraordinary item -- -- (0.02) --
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Net income $ 0.23 $ 0.25 $ 0.98 $ 1.03
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Dividends $ 0.3275 $ 0.315 $ 1.31 $ 1.26
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Basic - average shares outstanding (thousands) 58,302 54,612 56,949 51,766
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Diluted - average shares outstanding (thousands) 60,286 55,604 58,509 52,124
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(1) Effective August 3, 1998, the Company executed a two-for-one stock split
for shareholders of record on July 27,1998. All per share information and
number of shares outstanding reflects the stock split.
(2) Increases in shopping center base, percentage and overage rental revenues
for the year ended December 31, 1998 as compared to 1997, aggregated $44.6
million and consisted of $4.8 million relating to leasing and expansion of
core portfolio properties (an increase of 4.6% over 1997), $44.1 million
relating to 1997 and 1998 acquisitions and $4.2 million relating to
developments. These increases were offset by a decrease of $1.3 million
relating to the sale of one shopping center in December 1997 and the
transfer of 5 business centers to AIP in July 1998 and $7.2 million
relating to the transfer of 6 properties to a joint venture in September
1998. Included in the rental revenues for the year ended December 31, 1998
and 1997 is approximately $3.3 million and $2.0 million, respectively, of
revenue resulting from the recognition of straight line rents primarily
associated with recent acquisitions and developments.
(3) Other income for the year ended December 31, 1998 included approximately
$3.3 million in lease termination revenues and development fee income of
which approximately $1.0 million is reflected in the three month period
ended December 31, 1998. Other income for the year ended December 31, 1997
included approximately $3.8 million of lease termination revenues and
development fee income of which approximately $1.1 million is reflected in
the three month period ended December 31, 1997.
(4) General and administrative expenses include internal leasing salaries,
legal salaries and related expenses associated with the releasing of space
which are charged to operations as incurred. All internal costs associated
with acquisitions are expensed as incurred.
(5) The following is a summary of the Company's combined operating results
relating to joint ventures (in thousands):
Three month period Year ended
ended December 31, December 31,
1998 1997 1998 1997
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Revenues from operations (a) $ 35,519 $ 21,585 $ 109,752 $ 82,434
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Operating expenses 10,276 5,705 28,045 20,189
Depreciation 5,391 3,086 16,009 11,658
Interest expense 12,752 7,977 40,942 29,540
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28,419 16,768 84,996 61,387
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Income before gain (loss) on sales of real estate 7,100 4,817 24,756 21,047
Gain (loss) on sales of real estate (1,031) -- 314 1,085
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Net income $ 6,069 $ 4,817 $ 25,070 $ 22,132
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DDRC Ownership interests (b) $ 2,719 $ 2,357 $ 12,888 $ 10,893
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(a) Revenues for the three month periods ended December 31, 1998 and 1997
include approximately $1.0 million and $0.8 million, respectively,
resulting from the recognition of straight line rents of which the
Company's proportionate share is $0.5 million and $0.4 million,
respectively. Revenues for the year ended December 31, 1998 and 1997
include approximately $3.1 million and $2.9 million, respectively,
resulting from the recognition of straight line rents of which the
Company's proportionate share is $1.5 million and $1.4 million,
respectively.
(b) At December 31, 1998, the Company owned a 50% joint venture interest
relating to 23 shopping center properties, an 80% joint venture
interest in two shopping center properties and a 35% joint venture
interest in one shopping center property. At December 31, 1997, the
Company owned a 50% joint venture interest relating to 13 shopping
center properties and a 35% joint venture interest in one shopping
center property.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
FINANCIAL HIGHLIGHTS
(IN THOUSANDS)
Selected Balance Sheet Data:
December 31, 1998 December 31, 1997
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ASSETS:
Real estate and rental property:
Land $ 317,823 $ 183,809
Land under development 34,534 23,668
Buildings 1,404,734 1,071,717
Fixtures and tenant improvements 24,131 18,418
Construction in progress 109,201 28,130
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1,890,423 1,325,742
Less accumulated depreciation (203,097) (171,737)
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1,687,326 1,154,005
Other real estate investments -- 72,149
Cash 2,260 18
Advances to and investments
in joint ventures 280,492 136,267
Minority equity investment 80,710 --
Notes receivable 29,111 4,081
Other assets 40,285 25,398
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$ 2,120,184 $ 1,391,918
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LIABILITIES:
Indebtedness:
Revolving credit facilities $ 132,000 $ 139,700
Senior unsecured fixed rate debt 592,154 392,254
Mortgage debt 236,262 89,676
Subordinated debentures 40,065 46,891
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1,000,481 668,521
Dividends payable 20,072 --
Other liabilities 55,918 37,701
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1,076,471 706,222
Minority interests in Operating Partnerships 140,928 16,646
SHAREHOLDERS' EQUITY 902,785 669,050
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$ 2,120,184 $ 1,391,918
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
FINANCIAL HIGHLIGHTS
(IN THOUSANDS)
Selected Balance Sheet Data (Continued):
Combined condensed balance sheets relating to the Company's joint ventures:
December 31, December 31,
1998 1997
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Land $ 237,459 $ 147,466
Buildings 838,704 482,153
Fixtures and tenant improvements 2,467 1,315
Construction in progress 67,898 19,172
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1,146,528 650,106
Accumulated depreciation (56,887) (26,113)
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Real estate, net 1,089,641 623,993
Other assets 57,253 25,817
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$ 1,146,894 $ 649,810
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Mortgage debt (a) $ 718,846 $ 389,160
Notes and accrued interest
payable to DDRC 85,140 32,667
Other liabilities 23,206 9,549
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827,192 431,376
Accumulated equity 319,702 218,434
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$ 1,146,894 $ 649,810
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(a) The Company's proportionate share of joint venture mortgage debt aggregated
approximately $369.6 million and $190.3 million at December 31, 1998 and
December 31, 1997, respectively.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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Exhibits
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4.1 Second Amended and Restated Credit Agreement dated as of November 16,
1998 among the Company, The First National Bank of Chicago, Bank
of America National Trust & Savings Association, Fleet National Bank,
Commerzbank Aktiengesellschaft, UBS AG, New York Branch, AmSouth Bank
and the several Lenders named therein.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Date March 8, 1999 /s/ William H. Schafer
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William H. Schafer
Vice President and Chief Financial Officer