Developers Diversified Realty (NYSE: DDR) today announced operating
results for the second quarter ended June 30, 2009.
-- The Company's second quarter Funds From Operations ("FFO") was $0.51
per share before $240.0 million of net charges including the elimination of
the gain on the repurchases of unsecured notes of $45.9 million. The
Company's operating FFO for the six-month period was $1.18 per share before
the $187.8 million of net charges including the elimination of the gain on
repurchases of unsecured notes of $118.5 million.
FFO and net loss for the three- and six-month periods ended June 30, 2009
reflected $240.0 million, or $1.66 per share, and $187.8 million, or $1.37
per share, of net charges, respectively, primarily non cash, summarized as
follows (in millions):
Three Six
Months Months
------- -------
Consolidated non-cash impairment charges - assets under
contract to be sold and certain assets formerly occupied
by Mervyns $ 107.0 $ 117.9
Less portion of impairment charges and losses allocated
to non-controlling interests (Mervyns) (31.3) (31.1)
Non-cash potential change-in-control compensation charge 10.5 10.5
Gain on repurchases of unsecured notes (45.9) (118.5)
Loss on equity derivative instruments related to Otto
investment 80.0 80.0
Loan loss reserve and other expenses 6.9 10.8
Impairment charges, derivative (gains)/losses and losses
on asset sales - equity method investments 11.4 10.0
Non-cash impairment charges and loss on disposition -
equity method investments 40.3 46.9
Impairment charges and loss on sales - discontinued
operations 61.1 61.3
------- -------
$ 240.0 $ 187.8
======= =======
-- FFO applicable to common shareholders for the three-month period ended
June 30, 2009, including the above net charges, was a loss of $166.5
million, or $1.15 per diluted share, which compares to revised FFO of $95.9
million, or $0.79 per diluted share, for the prior-year comparable period.
Net loss applicable to common shareholders for the three-month period ended
June 30, 2009 was $237.2 million or $1.64 per diluted share, which compares
to revised net income of $26.1 million, or $0.22 per diluted share, for the
prior-year comparable period.
-- FFO applicable to common shareholders for the six-month period ended
June 30, 2009, including the above net charges, was a loss of $26.5
million, or $0.19 per diluted share, which compares to revised FFO of
$192.2 million, or $1.59 per diluted share, for the prior-year comparable
period. Net loss applicable to common shareholders for the six-month
period ended June 30, 2009 was $160.3 million, or $1.18 per diluted share,
which compares to revised net income of $55.7 million, or $0.46 per diluted
share, for the prior-year comparable period.
-- The 2008 results for both the three- and six-month periods ended June
30, 2008 have been revised to reflect the change in accounting relating to
convertible debt. This change resulted in additional non-cash interest
expense of $3.3 million for both three-month periods ended June 30, 2009
and 2008, and $7.1 million and $6.5 million for the six-month periods ended
June 30, 2009 and 2008, respectively.
-- Executed leases during the second quarter of 2009 totaled a Company
record of approximately 3.1 million square feet, including 147 new leases
and 259 renewals.
-- On a cash basis, base rental rates on new leases and renewals
decreased 4.7% overall.
-- Core portfolio leased percentage at June 30, 2009 was 90.7%,
consistent with the level at March 31, 2009.
-- Same store net operating income ("NOI") for the quarter decreased 5.0%
over the prior-year comparable period. The decrease in same store NOI is
primarily related to the bankruptcies and subsequent store closings of
Circuit City, Linens 'N Things, Goody's and Steve & Barry's.
Scott A. Wolstein, Developers Diversified's Chairman and Chief
Executive Officer, stated, "Our second quarter 2009 operating
results came in as expected despite the continued challenging
environment. Our portfolio's leased rate remained stable, and
leasing activity remained robust with deals for over 3 million
square feet of space being executed.
"Our de-leveraging plans remain on track and we remain intensely
focused on executing upon our capital raising and debt reducing
initiatives. Our activities to date have addressed our 2009 and
2010 maturities, and we have a capital plan in place that addresses
our 2011 and 2012 needs well before maturity."
Financial Results:
Net loss applicable to common shareholders was $237.2 million,
or $1.64 per share (diluted and basic), for the three-month period
ended June 30, 2009, as compared to revised net income of $26.1
million, or $0.22 per share (diluted and basic), for the prior-year
comparable period.
FFO applicable to common shareholders was a loss of $166.5
million for the three-month period ended June 30, 2009, as compared
to revised FFO income of $95.9 million for the three-month period
ended June 30, 2008. For the three-month period ended June 30,
2009, FFO per share was a loss of $1.15 (diluted and basic)
compared to revised FFO income of $0.79 (diluted and basic) for the
prior-year comparable period. The decrease in net income and
reported loss for the three-month period ended June 30, 2009, is
primarily the result of $240.0 million of net charges, mainly non
cash as detailed above, in addition to several tenant bankruptcies
in late 2008 and early 2009, also discussed above.
Net loss applicable to common shareholders was $160.3 million,
or $1.18 per share (diluted and basic), for the six-month period
ended June 30, 2009, as compared to revised net income of $55.7
million, or $0.46 per share (diluted and basic), for the prior-year
comparable period.
FFO applicable to common shareholders was a loss of $26.5
million for the six-month period ended June 30, 2009, as compared
to revised FFO income of $192.2 million for the six-month period
ended June 30, 2008. For the six-month period ended June 30, 2009,
FFO per share was a loss of $0.19 (diluted and basic) compared to
revised FFO income of $1.59 (diluted and basic) for the prior-year
comparable period. The decrease in net income and reported loss for
the six-month period ended June 30, 2009, is primarily the result
of $187.8 million of net charges, mainly non cash as detailed
above, in addition to several tenant bankruptcies also discussed
above.
FFO is a supplemental non-GAAP financial measurement used as a
standard in the real estate industry and a widely accepted measure
of real estate investment trust ("REIT") performance. Management
believes that FFO provides an additional indicator of the financial
performance of a REIT. The Company also believes that FFO more
appropriately measures the core operations of the Company and
provides a benchmark to its peer group. FFO does not represent cash
generated from operating activities in accordance with generally
accepted accounting principles ("GAAP"), is not necessarily
indicative of cash available to fund cash needs and should not be
considered as an alternative to net income computed in accordance
with GAAP as an indicator of the Company's operating performance or
as an alternative to cash flow as a measure of liquidity. FFO is
defined and calculated by the Company as net income, adjusted to
exclude: (i) preferred share dividends, (ii) gains from disposition
of depreciable real estate property, except for those sold through
the Company's merchant building program, which are presented net of
taxes, (iii) extraordinary items and (iv) certain non-cash items.
These non-cash items principally include real property depreciation
and amortization of intangibles, equity income from joint ventures
and equity income from non-controlling interests and adding the
Company's proportionate share of FFO from its unconsolidated joint
ventures and non-controlling interests, determined on a consistent
basis. Other real estate companies may calculate FFO in a different
manner. FFO excluding the non-operating charges detailed above is
useful to investors as the Company removes these charges to analyze
the results of operations and assess performance of the core
operating real estate portfolio. A reconciliation of net income to
FFO is presented in the financial highlights section.
Leasing:
The following results for the three-month period ended June 30,
2009 highlight continued strong leasing activity throughout the
portfolio despite the current economic environment:
-- Executed 147 new leases aggregating approximately 0.9 million square
feet and 259 renewals aggregating approximately 2.2 million square feet.
-- On a cash basis, rental rates for new leases and renewals decreased
4.7%.
-- Total portfolio average annualized base rent per occupied square foot,
excluding assets in Brazil, as of June 30, 2009 was $12.49, as compared to
$12.41 at June 30, 2008.
-- Core portfolio leased rate was 90.7% as of June 30, 2009, as compared
to 95.5% at June 30, 2008 and 90.7% at March 31, 2009.
Overall, the Company is encouraged by the leasing activity
achieved during the second quarter. On a square foot basis, these
leasing results represent the greatest level of production in the
history of the Company. While the resulting rental spreads are much
less favorable than what the Company has historically achieved, it
should be no surprise that rental rates are under pressure as
bankruptcy driven vacancy has increased across the retail
sector.
Total annual recurring leasing capital expenditures for the
Company and its joint ventures are estimated to be approximately
$32 million ($0.27 per square foot of owned GLA) in 2009 calculated
based on 100% of the funding.
Strategic Transactions:
On February 23, 2009, the Company entered into a stock purchase
agreement (the "Stock Purchase Agreement") with Mr. Alexander Otto
(the "Investor") to issue and sell 30 million common shares for
aggregate gross proceeds of approximately $112.5 million to the
Investor and certain members of his family (collectively with the
Investor, the "Otto Family"). In addition, the Company will issue
warrants to purchase up to 10 million common shares with an
exercise price of $6.00 per share to the Otto Family. The share
issuance, together with the warrants issuances are collectively
referred to as the "Otto Transaction". Under the terms of the Stock
Purchase Agreement, the Company will also issue additional common
shares to the Otto Family in an amount equal to any dividends
declared, associated with the issuance of common shares, by the
Company after February 23, 2009 and prior to the applicable closing
of the stock purchase by the Investor. On April 9, 2009, the
Company's shareholders approved the sale of the common shares and
warrants to the Otto Family pursuant to the Otto Transaction. The
transaction will occur in two closings. The second closing with the
Otto Family is contracted to close before October 9, 2009. On May
11, 2009, the Company issued and sold 15.0 million shares and
warrants to purchase 5.0 million common shares to the Otto Family
for a purchase price of $52.5 million. The Company also issued an
additional 1,071,428 shares as a result of the first quarter 2009
dividend to the Otto Family associated with the initial 15.0
million shares. In June 2009, the Otto Family earned the right to
receive an additional 1,787,304 shares relating to the 2009
dividends declared to date associated with the second tranche of
15.0 million shares.
The shareholders' approval of the Otto Transaction in April 2009
resulted in a "potential change in control" under the Company's
equity-based award plans. In addition, when the Otto Family
acquires beneficial ownership of 20% or more of the Company's
outstanding common shares as expected, a "change in control" will
be deemed to have occurred under the Company's equity deferred
compensation plans. In accordance with the equity-based award
plans, all unvested stock options became fully exercisable and all
restrictions on unvested shares lapsed, and, in accordance with the
equity deferred compensation plans, it is expected that all
unvested deferred stock units will become vested and no longer
subject to forfeiture. As such, in April 2009, the Company recorded
an accelerated non-cash charge of approximately $10.5 million in
accordance with SFAS 123(R) related to these equity awards. The
Company expects to record an additional non-cash charge of $4.7
million upon the occurrence of the change in control later in 2009
upon the closing of the second tranche of shares to the Otto
Family.
In addition, the shares and warrants were required to be
recognized at fair value in April 2009 and marked-to-market through
earnings thereafter until settlement or expiration. As a result,
the Company reported an aggregate non-cash loss of $80.0 million,
or $0.55 per diluted share, relating to the valuation adjustments
associated with these instruments in the second quarter of 2009,
due to the appreciation in share price.
Dispositions:
The Company sold nine properties, aggregating 1.0 million square
feet, in the second quarter of 2009, generating gross proceeds of
$82.4 million. The Company recorded an aggregate loss on sale of
approximately $36.3 million related to these assets. The Company's
joint ventures sold four properties, aggregating 0.4 million square
feet in the second quarter of 2009, generating gross proceeds of
$30.8 million.
The Company sold an additional four properties to date in the
third quarter of 2009 generating gross proceeds of approximately
$48.2 million. Impairment charges of $16.1 million were recorded in
the second quarter of 2009 relating to these assets.
Wholly-Owned and Consolidated Joint Venture Development:
The Company currently has the following wholly-owned and
consolidated joint venture shopping center projects under
construction:
Expected
Remaining Initial
Cost Anchor
Location Owned GLA ($ Millions) Opening * Description
---------- --------- ---------- ----------------
Miami (Homestead),
Florida** 272,610 $ (3.1) 2H 08 Community Center
Boise (Nampa), Idaho 431,689 37.4 2H 07 Community Center
Boston (Norwood),
Massachusetts 56,343 7.9 1H 10 Community Center
Elmira (Horseheads), New
York 350,987 10.9 1H 07 Community Center
Raleigh (Apex), North
Carolina (Promenade) 72,830 5.3 1H 09 Community Center
Austin (Kyle), Texas *** 443,092 25.4 2H 09 Community Center
---------- ---------
Total 1,627,551 $ 83.8
---------- ---------
* 1H = First Half, 2H = Second Half; either actual or anticipated
** Includes a reduction in costs from future land sales
*** Consolidated 50% Joint Venture
In addition to these current developments, several of which will
be developed in phases, the Company and its joint venture partners
intend to commence construction on various other developments only
after substantial tenant leasing has occurred and acceptable
construction financing is available, including several
international projects.
Unconsolidated Joint Venture Development:
The Company's unconsolidated joint ventures have the following
shopping center projects under construction.
DDR's Expected
Effective Remaining Initial
Ownership Cost Anchor
Location Percentage Owned GLA ($ Millions) Opening* Description
--------- ---------- --------- ---------- ----------------
Kansas City
(Merriam),
Kansas** 20.0% 158,632 $ (1.8) TBD Community Center
Dallas
(Allen),
Texas** 10.0% 797,665 (0.3) 1H 08 Lifestyle Center
Manaus, Brazil 47.4% 502,529 13.4 1H 09 Enclosed Mall
---------- ---------
Total 1,458,826 $ 11.3
---------- ---------
* 1H = First Half, 2H = Second Half; either actual or anticipated;
TBD = to be determined.
** Includes a reduction in costs from future land sales
Wholly-Owned and Consolidated Joint Venture Redevelopments and
Expansions:
The Company is currently expanding/redeveloping the following
wholly-owned and consolidated joint venture shopping centers at a
projected aggregate net cost of approximately $109.4 million. At
June 30, 2009, approximately $82.4 million of costs had been
incurred in relation to these projects.
Property Description
--------------------------- ---------------------------
Miami (Plantation), Florida Redevelop shopping center to include Kohl's
and additional junior tenants
Chesterfield, Michigan Construct 25,400 sf of small shop space and
retail space
Fayetteville, North Carolina Redevelop 18,000 sf of small shop space and
construct an outparcel building
Unconsolidated Joint Venture Redevelopments and Expansions:
The Company's unconsolidated joint ventures are currently
expanding/redeveloping the following shopping centers at a
projected net cost of $154.3 million, which includes original
acquisition costs related to assets acquired for redevelopment. At
June 30, 2009, approximately $118.9 million of costs had been
incurred in relation to these projects.
DDR's
Effective
Ownership
Property Percentage Description
----------- ----------- -----------
Buena Park, California 20% Large-scale redevelopment of enclosed
mall to open-air format
Los Angeles (Lancaster),
California 21% Relocate Walmart and redevelop former
Walmart space
Benton Harbor, Michigan 20% Construct 89,000 square feet of
anchor space and retail shops
Dividends:
The Company's second quarter dividend was paid in a combination
of cash and the Company's common shares. The aggregate amount of
cash paid to shareholders on July 21, 2009, was limited to 10% of
the total dividend paid. The Company issued approximately 6.1
million common shares based on volume weighted average trading
prices of $4.49 per share and paid $3.1 million in cash. This
payout initiative is consistent with the first quarter dividend
payout and is a part of the Company's strategy to further enhance
liquidity and maximize free cash flow while continuing to maintain
its REIT status.
Financings:
In the second quarter of 2009, the Company purchased
approximately $212.7 million face amount of its outstanding senior
notes at a discount to par resulting in a gross gain of
approximately $54.1 million. This gain was reduced by approximately
$8.2 million due to the adoption of FSP APB 14-1, "Accounting for
Convertible Debt That May Be Settled in Cash Upon Conversion", on
January 1, 2009 ("Convertible Debt Restatement").
In July 2009, the Company obtained a $17 million of mortgage
debt from a life insurance company on two shopping centers at a 6%
interest rate and maturing in 2017.
In May 2009, the Company completed an $85 million, 10-year loan
secured by four assets in Puerto Rico with a fixed interest coupon
rate of 7.59%. Also, in May 2009, the Company completed a $40
million, two-year secured loan with a one-year extension option.
The loan has a floating interest rate of LIBOR plus 600 basis
points with a LIBOR floor of 2.5%.
A $60 million six-month bridge loan funded by the Otto Family in
March 2009 was converted in May 2009 into a five-year fixed-rate
term loan with a 9% interest rate.
Developers Diversified Realty Corporation as of June 30, 2009
owned and managed approximately 690 retail operating and
development properties in 45 states, plus Puerto Rico, Brazil and
Canada, totaling approximately 153 million square feet. Developers
Diversified Realty Corporation is a self-administered and
self-managed REIT operating as a fully integrated real estate
company which acquires, develops, leases and manages shopping
centers.
A copy of the Company's Supplemental Financial/Operational
package is available to all interested parties upon request at our
corporate office to Thomas Morabito, Senior Director of Investor
Relations, Developers Diversified Realty Corporation, 3300
Enterprise Parkway, Beachwood, Ohio 44122 or on our Web site which
is located at http://www.ddr.com.
Developers Diversified Realty Corporation considers portions of
this information to be forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E 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 our
results 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; the loss of,
significant downsizing of or bankruptcy of a major tenant;
constructing properties or expansions that produce a desired yield
on investment; our ability to sell assets on commercially
reasonable terms; our ability to secure equity or debt financing on
commercially acceptable terms or at all; our ability to enter into
definitive agreements with regard to our financing and joint
venture arrangements or our failure to satisfy conditions to the
completion of these arrangements; our ability to continue to
satisfy conditions to consummate the sale of the second tranche of
common shares to the Otto Family; and the finalization of the
financial statements for three-month period ended June 30, 2009.
For additional factors that could cause the results of the Company
to differ materially from these indicated in the forward-looking
statements, please refer to the Company's Form 10-K as of December
31, 2008. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances
that arise after the date hereof.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2009 2008(E) 2009 2008(E)
---------- ---------- ---------- ----------
Revenues:
Minimum rents (A) $ 137,696 $ 151,743 $ 278,692 $ 303,818
Percentage and overage
rents (A) 1,038 1,145 3,641 3,909
Recoveries from tenants 44,829 46,162 92,714 97,403
Ancillary and other
property income 4,974 6,256 10,012 10,866
Management, development
and other fee income 14,040 15,637 28,502 31,924
Other (B) 1,732 1,691 4,982 4,728
---------- ---------- ---------- ----------
204,309 222,634 418,543 452,648
---------- ---------- ---------- ----------
Expenses:
Operating and
maintenance 35,292 33,373 70,805 68,289
Real estate taxes 27,671 26,884 56,112 53,205
Impairment charges (C) 107,014 - 117,919 -
General and
administrative (D) 28,412 21,333 47,583 42,047
Depreciation and
amortization 58,641 55,886 119,900 109,669
---------- ---------- ---------- ----------
257,030 137,476 412,319 273,210
---------- ---------- ---------- ----------
Other income (expense):
Interest income 3,228 547 6,257 1,115
Interest expense (E) (59,962) (62,362) (119,219) (125,612)
Gain on repurchases of
senior notes 45,901 200 118,479 200
Loss on equity derivative
instruments (F) (80,025) - (80,025) -
Other expenses (G) (6,913) (102) (10,575) (600)
---------- ---------- ---------- ----------
(97,771) (61,717) (85,083) (124,897)
---------- ---------- ---------- ----------
(Loss) income before equity
in net (loss) income of
joint ventures, impairment
of joint venture
investments, income tax
(expense) benefit of
taxable REIT subsidiaries
and franchise taxes,
discontinued operations
and gain on disposition of
real estate, net of tax (150,492) 23,441 (78,859) 54,541
Equity in net (loss) income
of joint ventures (H) (9,153) 12,555 (8,801) 19,943
Impairment of joint venture
investments (C) (40,266) - (41,140) -
Income tax (expense)
benefit of taxable REIT
subsidiaries and franchise
taxes (920) (286) 110 (1,317)
---------- ---------- ---------- ----------
(Loss) income from
continuing operations (200,831) 35,710 (128,690) 73,167
(Loss) income from
discontinued operations
(I) (60,821) 2,070 (48,634) 4,777
---------- ---------- ---------- ----------
(Loss) income before gain
on disposition of real
estate (261,652) 37,780 (177,324) 77,944
Gain on disposition of real
estate, net of tax 648 908 1,096 3,275
---------- ---------- ---------- ----------
Net (loss) income (261,004) 38,688 (176,228) 81,219
Loss (income) attributable
to non-controlling
interests (J) 34,419 (2,025) 37,044 (4,396)
---------- ---------- ---------- ----------
Net (loss) income
attributable to DDR $ (226,585) $ 36,663 $ (139,184) $ 76,823
========== ========== ========== ==========
Net (loss) income
applicable to common
shareholders $ (237,152) $ 26,096 $ (160,318) $ 55,689
========== ========== ========== ==========
Funds From Operations
("FFO"):
Net (loss) income
applicable to common
shareholders $ (237,152) $ 26,096 $ (160,318) $ 55,689
Depreciation and
amortization of real
estate investments 57,565 57,279 118,601 111,641
Equity in net loss (income)
of joint ventures (H) 9,153 (12,555) 8,374 (19,943)
Joint ventures' FFO (H) 3,809 25,908 18,968 45,088
Non-controlling interests
(OP Units) (J) 80 290 159 884
Loss (gain) on disposition
of depreciable real estate 60 (1,133) (12,274) (1,151)
---------- ---------- ---------- ----------
FFO applicable to common
shareholders (166,485) 95,885 (26,490) 192,208
Preferred dividends 10,567 10,567 21,134 21,134
---------- ---------- ---------- ----------
FFO $ (155,918) $ 106,452 $ (5,356) $ 213,342
========== ========== ========== ==========
Per share data:
Earnings per common share
Basic $ (1.64) $ 0.22 $ (1.18) $ 0.46
========== ========== ========== ==========
Diluted $ (1.64) $ 0.22 $ (1.18) $ 0.46
========== ========== ========== ==========
Dividends Declared $ 0.20 $ 0.69 $ 0.40 $ 1.38
========== ========== ========== ==========
Funds From Operations -
Basic (K) $ (1.15) $ 0.79 $ (0.19) $ 1.59
========== ========== ========== ==========
Funds From Operations -
Diluted (L) $ (1.15) $ 0.79 $ (0.19) $ 1.59
========== ========== ========== ==========
Basic - average shares
outstanding 144,227 119,390 136,514 119,269
========== ========== ========== ==========
Diluted - average shares
outstanding 144,227 120,342 136,514 119,430
========== ========== ========== ==========
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
(A) Base and percentage rental revenues for the six-month period
ended June 30, 2009, as compared to the prior-year comparable
period, decreased $25.4 million primarily due to store closings
related to five major tenant bankruptcies which aggregated $23.1
million, the most significant of which related to the assets
formerly occupied by Mervyns, which is 50% owned by the Company
through a consolidated joint venture. There was also a decrease of
$2.9 million in straight line rental income, a majority of which is
related to major tenant bankruptcies and a $0.2 million decrease
related to the Company's business centers. These decreases were off
set by net increased leasing activity of $0.8 million. Included in
rental revenues for the six-month periods ended June 30, 2009 and
2008, is approximately $1.3 million and $4.9 million, respectively,
of revenue resulting from the recognition of straight-line rents,
including discontinued operations.
(B) Other income for the three- and six-month periods ended June
30, 2009 and 2008 was comprised of the following (in millions):
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2009 2008 2009 2008
--------- --------- --------- ---------
Lease termination fees $ 1.1 $ 1.4 $ 2.6 $ 4.2
Financing fees 0.3 0.1 0.6 0.1
Other miscellaneous 0.3 0.2 1.8 0.4
--------- --------- --------- ---------
$ 1.7 $ 1.7 $ 5.0 $ 4.7
========= ========= ========= =========
(C) The Company recorded impairment charges on consolidated
assets that are either under contract or being marketed for sale as
the book basis of the assets was in excess of the estimated fair
market value. Of this amount, $61.0 million related to impairment
charges on 13 assets formerly occupied by Mervyns, of which the
Company's proportionate share was $29.7 million after adjusting for
the allocation of the loss to the non- controlling interest in this
consolidated joint venture. An additional $25.1 million (see
footnote I) was reported as a component of discontinued operations
relating to those assets classified as held for sale pursuant to
SFAS No. 144 and $36.0 million was reflected as actual loss on sale
as part of discontinued operations.
In addition, the Company recorded an approximate $40.3 million
in impairment charges associated with joint venture investments in
accordance with APB Opinion No. 18, "The Equity Method of
Accounting for Investment in Common Stock." These charges primarily
related to the Company's investments in the Coventry II joint
ventures.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
(D) 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.
For the six-month periods ended June 30, 2009 and 2008, general and
administrative expenses were approximately 5.4% and 4.4% of total
revenues, including joint venture revenues, respectively. In the
second quarter, the Company recorded a non-cash charge of $10.5
million as a result of the potential change in control provisions
included in the Company's equity-based award plans triggered from
the shareholder approval of the Otto Transaction, as previously
discussed. Excluding this charge, general and administrative
expenses were 4.2% of total revenues for the six-month period ended
June 30, 2009.
(E) In 2009, the Company adopted FSP APB 14-1. The adoption of
this FSP required the Company to restate its interest expense and
record a non-cash interest-related charge of $3.3 million and $6.5
million, net of capitalized interest, for the three and six months
ended June 30, 2008, respectively. The Company recorded non-cash
interest expense of approximately $3.3 million and $7.1 million for
the three and six months ended June 30, 2009, respectively, in
accordance with this new accounting standard.
(F) Represents the impact of the valuation adjustments for the
equity derivative instruments issued as part of the Otto
Transaction. The total non-cash charge includes a $38.0 million
expense recognized on the 16.1 million shares issued to the Otto
Family in May 2009. The level of expense recognized primarily
relates to the difference between the closing trading value of the
Company's common shares of $3.12 on April 9, 2009, which was less
than closing trading value of the Company's common shares on the
May 11, 2009 issuance date of $5.48. The balance of the $80.0
million expense included $31.7 million recognized on the valuation
adjustment of the second tranche of 15.0 million common shares
expected to be issued later in 2009 including the impact of
declared dividends payable in common shares, as well as $10.3
million relating to the warrant valuation adjustments.
(G) Other expenses primarily related to a reserve associated
with a mezzanine note receivable of $5.4 million as well as
litigation-related expenditures, the write off of costs related to
abandoned development projects and costs incurred for transactions
that are not expected to close.
(H) The following is a summary of the combined operating results
of the Company's joint ventures:
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2009 2008 2009 2008
--------- --------- --------- ---------
Revenues from operations (a) $ 216,639 $ 233,416 $ 445,205 $ 468,476
--------- --------- --------- ---------
Operating expense (b) 101,196 78,631 188,274 158,627
Depreciation and amortization
of real estate investments 62,402 59,126 125,788 115,008
Interest expense 83,511 71,360 153,820 148,018
--------- --------- --------- ---------
247,109 209,117 467,882 421,653
--------- --------- --------- ---------
(Loss) income from operations
before tax expense and
discontinued operations (30,470) 24,299 (22,677) 46,823
Income tax expense (2,562) (2,865) (4,552) (6,645)
(Loss) income from discontinued
operations, net of tax (b) (13,131) 826 (12,324) 1,332
Loss on disposition of
discontinued operations, net
of tax (c) (6,048) - (6,077) 340
Loss on disposition of assets - (11) (26,741) (13)
Other, net (d) (2,241) 50,100 9,437 56,539
--------- --------- --------- ---------
Net (loss) income $ (54,452) $ 72,349 $ (62,934) $ 98,376
========= ========= ========= =========
DDR ownership interests (e) $ (11,876) $ 12,740 $ (11,073) $ 20,214
========= ========= ========= =========
FFO from joint ventures are summarized as follows:
Net (loss) income $ (54,452) $ 72,349 $ (62,934) $ 98,376
(Loss) income on disposition
of real estate, including
discontinued operations - 11 - 13
Depreciation and amortization
of real estate investments 62,947 59,845 127,037 116,449
--------- ---------- --------- ----------
$ 8,495 $ 132,205 $ 64,103 $ 214,838
========= ========== ========= ==========
DDR ownership interests (e) $ 3,809 $ 25,908 $ 18,968 $ 45,808
========= ========== ========= ==========
DDR joint venture
distributions received, net $ 7,061 $ 12,601 $ 15,736 $ 26,301
========= ========== ========= ==========
(a) Revenues for the three-month periods ended June 30, 2009 and
2008 included approximately $0.9 million and $1.8 million,
respectively, resulting from the recognition of straight-line
rents, of which the Company's proportionate share was $0.1 million
and $0.3 million, respectively. Revenues for the six-month periods
ended June 30, 2009 and 2008 included approximately $1.7 million
and $4.1 million, respectively, resulting from the recognition of
straight-line rents, of which the Company's proportionate share was
$0.1 million and $0.5 million, respectively.
(b) The DDR Macquarie Fund reported impairment losses on three
assets under contract to be sold aggregating $33.9 million. Of this
amount, approximately $20.2 million was reported as a component of
operating expenses and $13.7 million was reported as a component of
discontinued operations relating to the one asset classified as
held for sale pursuant to SFAS No. 144. The Company's proportionate
share of these impairment losses aggregated $5.5 million for both
the three and six month periods.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
(c) Loss on disposition of discontinued operations consists of
the sale of four properties by two separate unconsolidated joint
ventures in the second quarter of 2009 resulting in a loss of $6.0
million of which the Company's proportionate share was $1.4 million
for the three- and six-months ended June 30, 2009.
(d) Includes the effects of certain derivative instruments that
are marked-to-market through earnings from the Company's equity
investment in Macquarie DDR Trust aggregating approximately $2.2
million of loss and $9.4 million of income for the three- and
six-month periods ended June 30, 2009, respectively, of which the
Company's share was approximately $0.2 million and $1.0 million,
respectively.
(e) The Company's share of joint venture net loss was decreased
by $2.7 million and the equity in net income was decreased by $0.2
million for the three-month periods ended June 30, 2009 and 2008,
respectively. The Company's share of joint venture net loss was
decreased by $2.3 million and the equity in net income was
decreased by $0.3 million for the six-month periods ended June 30,
2009 and 2008, respectively. These adjustments relate primarily to
basis differences impacting amortization and depreciation and
(loss) gain on dispositions.
At June 30, 2009 and 2008, the Company owned joint venture
interests, excluding consolidated joint ventures, in 324 and 317
shopping center properties, respectively.
(I) The operating results relating to assets classified as
discontinued operations are summarized as follows:
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2009 2008 2009 2008
--------- ---------- --------- ----------
Revenues $ 4,347 $ 10,426 $ 10,020 $ 22,428
--------- ---------- --------- ----------
Expenses:
Operating 1,116 3,222 2,748 6,677
Impairment charges 25,091 - 25,091 -
Interest, net 1,439 2,169 3,079 4,393
Depreciation 1,499 4,043 3,320 7,467
--------- ---------- --------- ----------
Total expenses 29,145 9,434 34,238 18,537
--------- ---------- --------- ----------
(Loss) income before (loss)
gain on disposition of real
estate (24,798) 992 (24,218) 3,891
(Loss) gain on disposition of
real estate, net (36,023) 1,078 (24,416) 886
--------- ---------- --------- ----------
Net (loss) income $ (60,821) $ 2,070 $ (48,634) $ 4,777
========= ========== ========= ==========
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
(J) Non-controlling interests are comprised of the
following:
Three-Month Period Six-Month Period
Ended June 30, Ended June 30,
2009 2008 2009 2008
--------- --------- --------- ---------
Loss (income) attributable to
non-controlling interests $ 34,425 $ (2,005) $ 37,056 $ (4,356)
Loss attributable to redeemable
operating partnership units (6) (20) (12) (40)
--------- --------- --------- ---------
$ 34,419 $ (2,025) $ 37,044 $ (4,396)
========= ========= ========= =========
In June 2008, 0.5 million operating partnership units were converted into
an equivalent number of common shares of the Company.
(K) For purposes of computing FFO per share (basic), the
weighted average shares outstanding were adjusted to reflect the
assumed conversion of approximately 0.4 million Operating
Partnership Units ("OP Units") outstanding at June 30, 2009 and
2008, into 0.4 million common shares for the three-and six-month
periods ended June 30, 2009 and 0.8 million common shares for the
three-and six-month periods ended June 30, 2008, on a weighted
average basis. The weighted average diluted shares and OP Units
outstanding, for purposes of computing FFO were approximately 144.6
million and 120.8 million for the three-month periods ended June
30, 2009 and 2008, respectively and 136.9 million and 120.7 million
for the six-month periods ended June 30, 2009 and 2008,
respectively.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
Selected Balance Sheet Data (A):
December 31,
June 30, 2009 2008 (B)
------------- -------------
Assets:
Real estate and rental property:
Land $ 2,013,216 $ 2,073,947
Buildings 5,623,674 5,890,332
Fixtures and tenant improvements 270,353 262,809
------------- -------------
7,907,243 8,227,088
Less: Accumulated depreciation (1,282,375) (1,208,903)
------------- -------------
6,624,868 7,018,185
Construction in progress 908,121 882,478
Assets held for sale 51,781 -
------------- -------------
Real estate, net 7,584,770 7,900,663
Investments in and advances to joint ventures 560,112 583,767
Cash 28,745 29,494
Restricted cash (C) 112,802 111,792
Notes receivable 74,691 75,781
Receivables, including straight-line rent,
net 149,452 164,356
Other assets, net 141,418 154,369
------------- -------------
$ 8,651,990 $ 9,020,222
============= =============
Liabilities:
Indebtedness:
Revolving credit facilities $ 1,169,503 $ 1,027,183
Unsecured debt 1,821,209 2,402,032
Mortgage and other secured debt 2,573,990 2,437,440
------------- -------------
5,564,702 5,866,655
Dividends payable 37,703 6,967
Other liabilities (D) 280,639 281,179
------------- -------------
5,883,044 6,154,801
Redeemable operating partnership units 627 627
Equity 2,768,319 2,864,794
------------- -------------
$ 8,651,990 $ 9,020,222
============= =============
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
(A) Amounts include the consolidation of a 50% owned joint
venture, DDR MDT MV LLC ("MV LLC"), that owns 32 sites formerly
occupied by Mervyns at June 30, 2009, which includes $255.5 million
and $348.5 million of real estate assets at June 30, 2009 and
December 31, 2008, respectively. Mortgage debt relating to these
assets aggregated $237.5 million and $258.5 million at June 30,
2009 and December 31, 2008, respectively. Non-controlling interests
relating to this joint venture aggregated $32.6 million and $70.2
million at June 30, 2009 and December 31, 2008, respectively.
(B) The December 31, 2008 selected balance sheet data was
revised to reflect the adoption of two accounting standards in the
first quarter of 2009.
-- The Company adopted the provisions of FSP APB 14-1, resulting
in the Convertible Debt Restatement. The Company increased real
estate assets by $2.9 million and shareholders' equity by $52.6
million and decreased unsecured debt by $50.7 million and deferred
charges by $1.0 million.
-- The Company adopted the provisions of SFAS No. 160,
"Non-controlling Interests in Consolidated Financial Statements -
an Amendment of ARB No. 51," which impacted the accounting for
transactions with non-controlling shareholders. The Company no
longer has a line item in its balance sheet referred to as Minority
Interests. Equity at December 31, 2008 has been revised to include
$120.1 million attributable to non-controlling interests. Equity at
June 30, 2009 includes $98.8 million attributable to
non-controlling interests.
(C) Restricted cash primarily consists of $64.2 million and
$64.8 million at MV LLC at June 30, 2009 and December 31, 2008,
respectively. At June 30, 2009, the MV LLC restricted cash is
comprised of $23.9 million received from the seller of the Mervyns
portfolio relating to Mervyns bankruptcy filing in the third
quarter 2008, a $33.0 million net capital contribution by the
members of MV LLC, and $7.3 million related to a security deposit
letter of credit, all of which are required to be held in escrow by
the lender. Also included is $46.0 million and $47.0 million at
June 30, 2009 and December 31, 2008, respectively, relating to the
terms of a bond issue for one of the Company's projects in
Mississippi.
(D) Includes a $41.2 million non-cash liability relating to the
equity derivative instruments deemed issued in connection with the
Otto Transaction as of June 30, 2009. The instruments will be
reclassified into equity upon ultimate exercise or expiration of
the instruments.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(in thousands)
Selected Balance Sheet Data (Continued):
Combined condensed balance sheets relating to the Company's joint ventures
are as follows:
June 30, December 31,
2009 2008
------------ ------------
Land $ 2,368,888 $ 2,378,033
Buildings 6,443,218 6,353,985
Fixtures and tenant improvements 153,654 131,622
------------ ------------
8,965,760 8,863,640
Less: Accumulated depreciation (706,457) (606,530)
------------ ------------
8,259,303 8,257,110
Construction in progress 309,156 412,357
------------ ------------
Real estate, net 8,568,459 8,669,467
Receivables, including straight-line rent, net 150,797 136,410
Leasehold interests 12,035 12,615
Other assets 358,344 315,591
------------ ------------
$ 9,089,635 $ 9,134,083
Mortgage debt (a) $ 5,768,969 $ 5,776,897
Notes and accrued interest payable to DDR 73,272 64,967
Other liabilities 252,800 237,363
------------ ------------
6,095,041 6,079,227
Accumulated equity 2,994,594 3,054,856
------------ ------------
$ 9,089,635 $ 9,134,083
============ ============
(a) The Company's proportionate share of joint venture debt aggregated
approximately $1,209.9 million and $1,216.1 million at June 30, 2009
and December 31, 2008, respectively.
Media Contact: Scott Schroeder 216-755-5500 Email Contact
Investor Contact: Thomas Morabito 216-755-5500 Email Contact
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