<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 1-11690
-------------------------------
DEVELOPERS DIVERSIFIED REALTY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1723097
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34555 Chagrin Boulevard Moreland Hills, Ohio 44022
- --------------------------------------------------------------------------------
(Address of principal executive offices - zip code)
(216) 247-4700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
26,386,097 shares outstanding as of August 13, 1997
---------- ---------------
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.
Condensed Consolidated Statements of Operations for the Three Month Periods
ended June 30, 1997 and 1996.
Condensed Consolidated Statements of Operations for the Six Month Periods ended
June 30, 1997 and 1996.
Condensed Consolidated Statements of Cash Flows for the Six Month Periods ended
June 30, 1997 and 1996.
Notes to Condensed Consolidated Financial Statements.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Real estate rental property:
Land $ 156,360,432 $ 122,696,277
Land under development 30,926,510 27,304,847
Buildings 928,560,722 798,476,568
Fixtures and tenant improvements 16,620,953 14,805,101
Construction in progress 21,895,471 28,364,167
--------------- ---------------
1,154,364,088 991,646,960
Less accumulated depreciation (155,278,049) (142,039,284)
--------------- ---------------
Real estate, net 999,086,039 849,607,676
Cash and cash equivalents 15,111,160 12,600
Advances to and investments in joint ventures 120,510,286 106,795,688
Other assets 24,254,568 18,709,976
--------------- ---------------
$ 1,158,962,053 $ 975,125,940
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured indebtedness:
Fixed rate senior notes $ 291,594,250 $ 215,492,754
Revolving credit facilities 20,000,000 95,500,000
Subordinated convertible debentures 59,257,000 60,000,000
--------------- ---------------
370,851,250 370,992,754
Mortgage indebtedness:
Banks and other financial institutions 106,297,053 107,439,535
--------------- ---------------
Total indebtedness 477,148,303 478,432,289
Accounts payable and accrued expenses 27,016,040 20,920,765
Other liabilities 7,685,772 6,436,667
--------------- ---------------
511,850,115 505,789,721
--------------- ---------------
Minority equity interest 16,293,180 -
Commitments and contingencies
Shareholders' equity:
Class A - 9.5% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 1,500,000 shares authorized; 421,500 shares
issued and outstanding at June 30, 1997
and December 31, 1996 105,375,000 105,375,000
Class B - 9.44% cumulative redeemable preferred shares, without
par value, $250 liquidation value; 1,500,000 shares authorized; 177,500
shares issued and outstanding at June 30, 1997
and December 31, 1996 44,375,000 44,375,000
Common shares, without par value, $.10 stated value; 50,000,000
shares authorized; 26,385,104 and 21,682,917 shares issued
and outstanding at June 30, 1997 and December 31, 1996,
respectively 2,638,510 2,168,292
Paid-in-capital 535,611,348 369,417,186
Accumulated dividends in excess of net income (56,566,100) (51,384,259)
--------------- ---------------
631,433,758 469,951,219
Less: Unearned compensation - restricted stock (615,000) (615,000)
--------------- ---------------
630,818,758 469,336,219
--------------- ---------------
$ 1,158,962,053 $ 975,125,940
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues from operations:
Minimum rents $ 29,637,465 $ 23,037,039
Percentage and overage rents 550,005 430,498
Recoveries from tenants 7,544,515 5,575,231
Management fee income 791,980 636,207
Other 2,342,470 2,225,333
------------ ------------
40,866,435 31,904,308
------------ ------------
Rental operation expenses:
Operating and maintenance 3,450,422 2,798,557
Real estate taxes 4,933,496 3,362,394
General and administrative 2,666,836 1,891,462
Interest expense 8,431,006 6,636,224
Depreciation and amortization 7,799,824 5,973,897
------------ ------------
27,281,584 20,662,534
------------ ------------
Income before equity in net income
of joint ventures, minority equity interest and
gain on sales of real estate 13,584,851 11,241,774
Equity in net income of joint ventures 2,617,047 1,861,935
Minority equity interest (261,138) -
------------ ------------
Net income $ 15,940,760 $ 13,103,709
============ ============
Net income applicable to common shareholders $ 12,390,853 $ 9,553,803
============ ============
Net income per share:
Primary $ .49 $ .44
============ ============
Fully diluted $ .48 $ .44
============ ============
Dividends declared $ .63 $ .60
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues from operations:
Minimum rents $ 57,203,522 $ 45,719,623
Percentage and overage rents 1,607,044 1,184,706
Recoveries from tenants 14,770,383 11,318,857
Management fee income 1,515,240 1,145,016
Other 3,223,514 3,170,798
------------ ------------
78,319,703 62,539,000
------------ ------------
Rental operation expenses:
Operating and maintenance 7,123,542 5,921,437
Real estate taxes 9,324,545 6,775,735
General and administrative 5,026,320 3,538,743
Interest expense 16,478,208 13,979,230
Depreciation and amortization 15,206,281 11,878,502
------------ ------------
53,158,896 42,093,647
------------ ------------
Income before equity in net income
of joint ventures, minority equity interest and
gain on sales of real estate 25,160,807 20,445,353
Equity in net income of joint ventures 5,334,052 3,874,173
Minority equity interest (525,902) -
Gain on sales of real estate 3,525,785 -
------------ ------------
Net income $ 33,494,742 $ 24,319,526
============ ============
Net income applicable to common shareholders $ 26,394,929 $ 17,219,714
============ ============
Net income per share:
Primary $ 1.06 $ .83
============ ============
Fully diluted $ 1.04 $ .83
============ ============
Dividends declared $ 1.26 $ 1.20
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net cash flow provided by operating activities $ 44,415,734 $ 30,024,585
------------- -------------
Cash flow provided by (used for) investing activities:
Real estate developed or acquired (148,081,906) (39,582,648)
(Investments in and advances to) repayments from joint
ventures, net (12,878,974) (6,546,214)
Proceeds from sales of real estate 5,452,034 1,141,741
------------- -------------
Net cash flow used for investing activities (155,508,846) (44,987,121)
------------- -------------
Cash flow provided by (used for) financing activities:
Repayment of revolving credit facilities, net (75,500,000) (64,185,000)
Proceeds from construction loans - 2,923,926
Proceeds from issuance of Medium Term Notes, net of
underwriting commissions and $106,000 of offering
expenses paid - 52,594,000
Principal payments on rental property debt (1,142,482) (31,183,849)
Proceeds from issuance of Fixed Rate Senior Notes, net of
underwriting commissions and discounts and $500,000 of
offering expenses paid 75,577,000 -
Proceeds from issuance of common shares, net of
underwriting commissions and $735,000 and $300,000
of offering expenses paid in 1997 and 1996, respectively 165,113,652 75,389,307
Proceeds from issuance of Class B preferred shares, net of
underwriting commissions and $200,000 of offering
expenses paid - 4,182,050
Proceeds from issuance of common shares in conjunction
with exercise of stock options, the Company's 401(k)
plan and dividend reinvestment plan 820,085 307,892
Dividends paid (38,676,583) (19,935,067)
------------- -------------
Net cash flow provided by financing activities 126,191,672 20,093,259
------------- -------------
Increase in cash and cash equivalents 15,098,560 5,130,723
Cash and cash equivalents, beginning of period 12,600 12,100
------------- -------------
Cash and cash equivalents, end of period $ 15,111,160 $ 5,142,823
============= =============
</TABLE>
Supplemental disclosure of non cash investing and financing activities:
In conjunction with the acquisitions of certain shopping centers, the Company
assumed other liabilities and recorded a minority equity interests aggregating
approximately $17.8 million for the six month period ended June 30, 1997. In
addition, included in accounts payable was approximately $0.4 million relating
to construction in progress which did not require the use of cash.
For the six month period ended June 30, 1996 included in accounts payable was
approximately $1.6 million relating to construction in progress and $13.0
million of dividends declared which did not require the use of cash.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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<PAGE> 7
DEVELOPERS DIVERSIFIED REALTY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Company is a self-administered and self-managed real estate
investment trust and is engaged in the business of acquiring, expanding, owning,
developing, managing and operating neighborhood and community shopping centers,
enclosed malls and business centers.
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. The
information furnished reflects all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results for the interim
periods presented, and all such adjustments are of a normal recurring nature.
Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
2. OFFERINGS
In January 1997, the Company sold 3,350,000 shares of common stock in
an underwritten offering at $36.625 per share. In March 1997, the Company issued
$75 million of 7.125% Pass-Through Asset Trust Securities which mature in March,
2012 with a put date of March, 2002. In June 1997, the Company sold 1,300,000
shares of common stock in an underwritten offering at $38.145 per share. The
aggregate net proceeds of approximately $240.7 million from the above offerings
were primarily used to retire variable rate indebtedness on the Company's
revolving credit facilities.
3. EQUITY INVESTMENTS IN JOINT VENTURES:
The Company's equity investments in joint ventures at June 30, 1997
were comprised of (i) a 50% joint venture interest in four Community Center
Joint Ventures, formed in November 1995 in conjunction with the acquisition of
the Homart Community Center Division of Sears, Roebuck and Co. ("Sears"), (ii) a
50% joint venture interest, formed in September 1996, with The Ohio State
Teachers Retirement Systems (OSTRS), (iii) a 50% joint venture interest, formed
in October 1996, in conjunction with the development of a 443,000 square foot
shopping center in Merriam, Kansas, (iv) a 35% joint venture interest in a
limited partnership, formed in January 1997, that owns a 286,388 square foot
shopping center located in San Antonio, Texas and (v) a 50% joint venture
interest in a limited partnership, formed in 1989, that owns a 411,977 square
foot shopping center located in Martinsville, Virginia.
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<PAGE> 8
Summarized combined financial information of the Company's joint venture
investments is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Combined Balance Sheets 1997 1996
------------ ------------
<S> <C> <C>
Real estate, net (1) $607,607,467 $561,624,478
Other assets 25,151,479 16,012,336
------------ ------------
$632,758,946 $577,636,814
============ ============
Mortgage debt $387,289,931 $360,113,705
Amounts payable to DDRC 16,590,567 10,747,149
Other liabilities 9,921,833 7,782,117
------------ ------------
413,802,331 378,642,971
Accumulated equity 218,956,615 198,993,843
------------ ------------
$632,758,946 $577,636,814
============ ============
<FN>
(1) Includes approximately $34.3 million and $43.4 million of construction
in progress at June 30, 1997 and December 31, 1996, respectively.
</TABLE>
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
Combined Statements of Operations 1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from operations $20,647,999 $14,923,802 $39,952,066 $29,521,241
----------- ----------- ----------- -----------
Rental operation expenses 5,066,819 4,137,858 9,725,687 7,917,972
Depreciation and amortization expenses 2,962,458 2,100,208 5,666,569 4,206,505
Interest expense 7,290,819 4,961,859 13,719,220 9,648,417
----------- ----------- ----------- -----------
15,320,096 11,199,925 29,111,476 21,772,894
----------- ----------- ----------- -----------
Net income $ 5,327,903 $ 3,723,877 $10,840,590 $ 7,748,347
=========== =========== =========== ===========
</TABLE>
Advances to and investments in joint ventures include acquisition costs
related to the Community Center Joint Ventures and the Merriam joint venture of
approximately $2.6 million and $1.1 million, respectively, and a deferred
gain of approximately $5.5 million related to the contribution of the real
estate property and mortgage debt to the OSTRS Joint Venture.
Included in 1997 management fee income for the six month period ended
June 30, 1997 and 1996, is approximately $1.4 million and $0.9 million,
respectively, of fees earned from services to the Company's joint ventures.
Other income for the six month period ended June 30, 1997 and 1996, includes
$0.3 million and $0.5 million, respectively, of development fee income from
services to the Company's joint ventures.
4. ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION
During the six month period ended June 30, 1997, the Company completed
the acquisition of, or investment in, four shopping centers with an aggregate
of approximately 1.4 million Company owned
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<PAGE> 9
gross leasable square feet (GLA) at an initial aggregate investment of
approximately $116.5 million. These properties are summarized as follows:
<TABLE>
<CAPTION>
Year Effective Date Company
Location Built of Acquisition GLA
------------------------------------------ ----- --------------------------- ---------
<S> <C> <C> <C>
Cleveland (North Olmsted), OH 1958 January 1, 1997 463,440
Cleveland (North Olmsted), OH 1987 January 1, 1997 142,947
San Antonio, TX (1) 1996 January 23, 1997 286,388
Phoenix, AZ 1996 February 21, and
March 27, 1997 490,885
---------
1,383,660
(1) Property acquired through a joint venture in which the Company =========
owns a 35% interest
</TABLE>
The operating results of the acquired shopping centers are included in
the results of operations of the Company from the effective date of acquisition.
The following unaudited supplemental pro forma operating data is
presented for the six months ended June 30, 1996 as if each of the following
transactions had occurred on January 1, 1996: (i) the acquisition by the Company
of all properties acquired by the Company in 1996 and 1997, (ii) the sale by the
Company of 175,000 depositary shares representing 9.44% Class B Cumulative
Redeemable Preferred Shares in January 1996, (iii) the completion of the sale by
the Company of $111.7 million of Medium Term Notes in 1996, (iv) the completion
of the sale by the Company of 2,611,500 Common Shares in March 1996, (v) the
completion of the sale by the Company of 3,350,000 common shares in January
1997, (vi) the completion of the sale by the Company of the $75 million 7.125%
Pass through Asset Trust Securities in March 1997 and (vii) the completion of
the sale by the Company of 1,300,000 common shares in June 1997.
<TABLE>
<CAPTION>
Six Month Period Ended June 30,
-------------------------------
(in thousands, except per share)
1996
-----------
<S> <C>
Pro forma revenues $ 66,003
===========
Pro forma net income applicable
to common shareholders $ 19,549
===========
Pro forma net income applicable
to common shareholders
per common share $ 0.86
===========
</TABLE>
Pro forma information for the six months ended June 30, 1997 is not
presented because two of the four acquired properties acquired in 1997 were
either under development or in the lease-up phase and, accordingly, the related
operating information for such centers either does not exist or would not be
meaningful. The two Cleveland, Ohio properties are included in the Company's
actual operating results for the entire six month period ended June 30, 1997.
Also, the 1996 pro forma information above does not include revenues and
expenses for two of the four properties acquired by the Company in 1997 and the
five properties acquired by the Company in 1996 prior to their respective
acquisition dates because these shopping centers were either under development
or in the lease-up phase and, accordingly, the related operating information for
such centers either does not exist or would not be meaningful.
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<PAGE> 10
5. SHAREHOLDERS' EQUITY:
The following table summarizes the changes in shareholders' equity
since December 31, 1996:
<TABLE>
<CAPTION>
Class A 9.5% Class B 9.44%
Cumulative Cumulative
Redeemable Redeemable
Preferred Preferred Accumulated
Shares ($250 Shares ($250 Dividends in
Liquidation Liquidation Common Paid-in Excess of Restricted
Value) Value) Shares Capital Net Income Stock Total
------------ ----------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $105,375,000 $44,375,000 $2,168,292 $369,417,186 $(51,384,259) $ (615,000) $469,336,219
Net income 33,494,742 33,494,742
Dividends declared -
Common Shares (31,576,770) (31,576,770)
Dividends declared -
Preferred Shares (7,099,813) (7,099,813)
Issuance of Common Shares 465,000 164,648,652 165,113,652
Conversion of Debentures 2,225 728,408 730,633
Stock options exercised 2,752 724,894 727,646
Shares issued through employee
401(k) plan 89 33,090 33,179
Shares issued through Dividend
Reinvestment Plan 152 59,118 59,270
------------ ----------- ---------- ------------ ------------ ------------ ------------
Balance June 30, 1997 $105,375,000 $44,375,000 $2,638,510 $535,611,348 $(56,566,100) $ (615,000) $630,818,758
============ =========== ========== ============ ============ ============ ============
</TABLE>
6. REVOLVING CREDIT FACILITIES:
In May 1995, the Company obtained a three year $150 million unsecured
revolving credit facility from a syndicate of financial institutions for which
the First National Bank of Chicago and the First National Bank of Boston serve
as agents (the "Unsecured Credit Facility"). In March 1997, the Company
renegotiated the terms of this facility to extend the agreement to May 2000,
reduce the specified spread over LIBOR by 15 basis points and introduce a
competitive bid feature for up to $75 million of borrowings. Borrowings under
this facility bear interest at variable rates based on the prime rate or LIBOR
plus a specified spread, currently at 1.10%, depending on the Company's long
term senior unsecured debt rating from Standard and Poor's and Moody's Investors
Service. The Unsecured Credit Facility is used to finance the acquisition of
shopping centers, to provide working capital and for general corporate purposes.
At June 30, 1997, $20.0 million was outstanding under this facility.
In addition, the Company maintains a $10 million unsecured revolving
credit facility with National City Bank. In April 1997, the Company renegotiated
the terms of the facility to extend the agreement to November 2000 and reduce
the interest rate by 15 basis points. Borrowings under this facility bear
interest at variable rates based on the prime rate or LIBOR plus a specified
spread, currently at 1.10%, depending on the Company's long term senior
unsecured debt rating from Standard and Poor's and Moody's Investors Service. At
June 30, 1997 there was no indebtedness outstanding under this facility.
7. EARNINGS PER SHARE
Primary earnings per share for net income applicable to common
shareholders was computed by dividing common share dividends paid or declared
for the period by the weighted average number of common shares outstanding plus
the undistributed net income applicable to common shareholders, as appropriate,
divided by the weighted average number of common shares and common share
equivalents outstanding. Common share equivalents are excluded from the earnings
per share calculation where
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<PAGE> 11
they would be antidilutive. The weighted average number of shares outstanding
utilized in the calculations is 24,846,085 and 20,647,638 for the six month
periods ended June 30, 1997 and 1996, respectively and 25,168,511 and 21,590,710
for the three month periods ended June 30, 1997 and 1996, respectively.
Fully diluted earnings per common share were calculated by dividing net
income applicable to common shareholders by the weighted average number of
common shares and common share equivalents during the period. Common share
equivalents included stock options outstanding and the assumed conversion of the
Debentures. The assumed conversion of the Debentures was antidilutive, and was
therefore excluded from the calculation. Common share equivalents for purposes
of the fully diluted earnings per share were 491,470 and 219,190 for the six
month periods ended June 30, 1997 and 1996 respectively and 503,667 and 220,135
for the three month periods ended June 30, 1997 and 1996, respectively.
As required by APB Opinion No. 15, supplementary pro forma income per
share data has been presented in Note 8.
The Company is required to adopt Statement of Financial Accounting
Standard No. 128 ("SFAS 128"), Earnings Per Share as of December 31, 1997;
earlier application is not permitted. SFAS 128 specified the computation,
presentation, and disclosure requirements for earnings per share. The Company
does not believe that the adoption of SFAS 128 will have a material effect on
the Company's method of calculation or display of earnings per share amounts.
8. CONVERTIBLE SUBORDINATED DEBENTURES
During the six month period ended June 30, 1997, debentures in the
principal amount of $743,000 were converted into approximately 22,000 common
shares. The majority of these debentures were converted on or before the record
date for the second quarter dividend. The related debenture interest was
forfeited by the debenture holders in accordance with the indenture. In
addition, approximately $12,000 of unamortized debenture issue costs were
reclassified to additional paid-in-capital. Had all converted debentures been
converted as of the beginning of the periods, net income available to common
shareholders per common share would have been $1.07 and $0.50 per share for the
three and six month periods ended June 30, 1997, respectively.
9. SUBSEQUENT EVENTS
In July 1997, the Company acquired two shopping shopping centers in
Minnesota. The first center, located in Eagen, Minnesota, will aggregate
approximately 271,000 square feet, once construction of approximately 92,000
square feet is completed. The purchase price for this center approximated $20.3
million and is subject to an upward adjustment to approximately $31.8 million
upon completion of the center. The second center, located in St. Paul,
Minnesota, will aggregate approximately 324,000 square feet, once construction
of approximately 14,000 square feet is completed. The purchase price for this
center approximated $22.3 million and is subject to an upward adjustment to
approximately $25.0 million upon completion of the center.
In July 1997, the Company issued $50 million of unsecured Fixed Rate
Senior Notes pursuant to its Medium Term Note program. These notes have terms
ranging from five to ten years with interest rates ranging from 6.80% to 7.02%.
The aggregate net proceeds were primarily used to retire variable rate
indebtedness.
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and the notes
thereto.
RESULTS OF OPERATIONS
Revenues from Operations
Total revenues increased $9.0 million, or 28.1% to $40.9 million for
the three month period ended June 30, 1997 from $31.9 million for the same
period in 1996. Total revenues increased $15.8 million, or 25.2% to $78.3
million for the six month period ended June 30, 1997 from $62.5 million for the
same period in 1996. Base and percentage rents for the three month period ended
June 30, 1997 increased $6.7 million or 28.5% to $30.2 million as compared to
$23.5 million for the same period in 1996. Base and percentage rents increased
$11.9 million, or 25.4% to $58.8 million for the six month period ended June 30,
1997 from $46.9 million for the same period in 1996. Approximately $1.5 million
of the increase in base and percentage rental income is the result of new
leasing, re-tenanting and expansion of the Core Portfolio Properties (shopping
center properties owned as of January 1, 1996), an increase of 3.3% over 1996
revenues from Core Portfolio Properties. The eight shopping centers acquired by
the Company in 1997 and 1996 contributed $10.9 million of additional base and
percentage rental revenue and the four new shopping center developments
contributed $1.7 million. The above increases were offset by the transfer of two
properties to a joint venture in September 1996 which reduced base and
percentage rental revenue by $2.2 million. At June 30, 1997 the occupancy rate
of the Company's portfolio was at 94.7% as compared to 94.4% at June 30, 1996.
The average annualized base rent per leased square foot, including
those properties owned through joint ventures, was $8.24 at June 30, 1997 as
compared to $7.85 at December 31, 1996. Same store sales, for the current twelve
month period, increased 3.28% to $230 per square foot as compared to $223 per
square foot for the prior twelve month period.
The increase in recoveries from tenants of $3.5 million is directly
related to the increase in operating and maintenance expenses and real estate
taxes primarily associated with the 1997 and 1996 shopping center acquisitions
and developments. Recoveries were approximately 89.8% of operating expenses and
real estate taxes for the six month period ended June 30, 1997 as compared to
89.1% for the same period in 1996. Management fee income and other income
increased by approximately $0.4 million which generally relates to an increase
in management fee income associated with the formation of several joint
ventures.
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<PAGE> 13
Other income was comprised of the following (in thousands):
<TABLE>
<CAPTION>
Three month period Six month Period
Ended June 30, Ended June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest $ 481 $ 284 $ 874 $ 637
Temporary tenant
rentals (Kiosks) 127 91 248 183
Lease termination fees 1,288 1,470 1,434 1,524
Development fees 259 168 415 467
Other 187 142 253 290
------ ------ ------ ------
$2,342 $2,155 $3,224 $3,101
====== ====== ====== ======
</TABLE>
Expenses from Operations
Rental operating and maintenance expenses for the three month period
ended June 30, 1997 increased $0.7 million, or 23.3% to $3.5 million as compared
to $2.8 million for the same period in 1996. Rental operating and maintenance
expenses increased $1.2 million, or 20.3% to $7.1 million for the six month
period ended June 30, 1997 from $5.9 million for the same period in 1996. An
increase of $0.9 million is attributable to the 11 shopping centers acquired and
developed in 1996 and 1997 and $0.3 million in the Core Portfolio Properties.
Real estate taxes increased $1.6 million, or 46.7%, to $4.9 million for
the three month period ended June 30, 1997 as compared to $3.3 million for the
same period in 1996. Real estate taxes increased $2.5 million, or 37.6% to $9.3
million for the six month period ended June 30, 1997 from $6.8 million for the
same period in 1996. An increase of $2.2 million is related to the 11 shopping
centers acquired and developed in 1996 and 1997 and $0.3 million in the Core
Portfolio Properties.
General and administrative expenses increased $0.8 million, or 41.0%,
to $2.7 million for the three month period ended June 30, 1997 as compared to
$1.9 million in 1996. General and administrative expenses increased $1.5
million, or 42.0% to $5.0 million for the six month period ended June 30, 1997
from $3.5 million for the same period in 1996. The increase is attributable to
the growth of the Company primarily related to acquisitions, expansions and
developments. The Company continues to maintain a conservative policy with
regard to the expensing of all internal leasing salaries, legal salaries and
related expenses associated with the leasing and re-leasing of existing space.
Total general and administrative expenses were approximately 4.3% and 3.8% of
total revenues, including revenues of joint ventures, at June 30, 1997 and 1996,
respectively.
Depreciation and amortization expense increased $1.8 million, or 30.6%,
to $7.8 million for the three month period ended June 30, 1997 as compared to
$6.0 million for the same period in 1996. Depreciation and amortization
increased $3.3 million, or 28.0% to $15.2 million for the six month period ended
June 30, 1997 from $11.9 million for the same period in 1996. An increase of
$2.7 million is related to the 11 shopping centers acquired and developed 1996
and 1997 and $0.6 million in the Core Portfolio Properties.
Interest expense increased $1.8 million, or 27.0%, to $8.4 million for
the three month period ended June 30, 1997, as compared to $6.6 million for the
same period in 1996. Interest expense increased $2.5 million, or 17.9% to $16.5
million for the six month period ended June 30, 1997 from
-13-
<PAGE> 14
$14.0 million for the same period in 1996. The overall increase in interest
expense for the three and six month periods ended June 30, 1997 as compared to
the same periods in 1996 is primarily related to the acquisition and
development of shopping centers during 1997 and 1996. The weighted average debt
outstanding during the six month period ended June 30, 1997 and related
weighted average interest rate was $456.1 million and 7.8%, respectively,
compared to $378.7 million and 8.2%, respectively, for the same period in 1996.
Interest costs capitalized, in conjunction with development and expansion
projects, were $1.0 million and $1.8 million for the three and six month
periods ended June 30, 1997, respectively, as compared to $1.0 million and $1.6
million, respectively, for the same periods in 1996.
Equity in net income of joint ventures increased $0.8 million, or
40.6%, to $2.6 million for the three month period ended June 30, 1997 as
compared to $1.8 million for the same period in 1996. Equity in net income of
joint ventures increased $1.5 million, or 37.7% to $5.4 million for the six
month period ended June 30, 1997 from $3.9 million for the same period in 1996.
An increase of $0.8 million is attributable to the Community Center Joint
Ventures primarily associated with the completion of construction at five of the
ten shopping centers which were under construction at the date of acquisition.
An increase of $0.5 million is related to the formation of a joint venture with
Ohio State Teachers Retirement Systems ("OSTRS") in September 1996. An increase
of $0.2 million is related to the formation of a joint venture in January, 1997
which owns a shopping center in San Antonio, Texas.
The minority equity interest of $0.3 million and $0.5 million for the
three and six month periods ended June 30, 1997, respectively, relates to the
Company's investment in two shopping center properties in January 1997. The
amount represents the priority distribution associated with the minority equity
interest.
Gain on sales of real estate aggregated $3.5 million for the six month
period ended June 30, 1997. In March 1997, the Company sold two business centers
in Highland Heights, Ohio aggregating approximately 113,000 square feet for
approximately $5.7 million. The two business centers had been vacant for
approximately 18 months.
Net Income
Net income increased $2.8 million, or 21.7% to $15.9 million for the
three month period ended June 30, 1997, as compared to net income of $13.1
million for the same period in 1996. Net income increased $9.2 million, or 37.7%
to $33.5 million for the six month period ended June 30, 1997 from $24.3 million
for the same period in 1996. The increase in net income of $9.2 million is
primarily attributable to the increased net operating revenues (total revenues
less operating and maintenance, real estate taxes and general and administrative
expense) aggregating $10.5 million, resulting from new leasing, retenanting and
expansion of Core Portfolio Properties, and the 11 shopping centers acquired and
developed in 1996 and 1997. An increase of $1.5 million relates to increased
equity income from joint ventures and an increase of $3.5 million relates to a
gain on sale of real estate. The increase in net operating revenues, equity
income from joint ventures and gain on sale of real estate was offset by
increases in depreciation, interest expense and minority equity interest of $3.3
million, $2.5 million and $0.5 million, respectively.
-14-
<PAGE> 15
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") provides an
additional indicator of the financial performance of a Real Estate Investment
Trust. FFO is defined generally as net income applicable to common shareholders
excluding gains (losses) on sale of property, non recurring and extraordinary
items, adjusting for certain non-cash items, principally real property
depreciation and equity income (loss) from its joint ventures and adding the
Company's proportionate share of FFO of its unconsolidated joint ventures,
determined on a consistent basis. The Company calculates FFO in accordance with
the foregoing definition, which is substantially the same as the definition
currently used by the National Association of Real Estate Investment Trusts
("NAREIT"). Certain other real estate companies may calculate funds from
operations in a different manner. For the three month period ended June 30,
1997, FFO increased $5.1 million or 30.5% to $21.6 million as compared to $16.5
million for the same period in 1996. For the six month period ended June 30,
1997 FFO increased $9.6 million, or 30.9% to $40.7 million from $31.1 million
for the same period in 1996. The increase is attributable to increases in
revenues from Core Portfolio Properties, acquisitions and developments. The
Company's calculation of FFO is as follows (in thousands):
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income applicable to
common shareholders (1) $ 12,391 $ 9,554 $ 26,395 $ 17,220
Depreciation of real property 7,711 5,916 15,032 11,771
Equity in net income of
joint ventures (2,617) (1,862) (5,334) (3,874)
Joint Ventures FFO (2) 4,072 2,912 8,123 5,977
Gain on sales of real estate - - (3,526) -
-------- -------- -------- --------
$ 21,557 $ 16,520 $ 40,690 $ 31,094
======== ======== ======== ========
</TABLE>
(1) Includes straight line rental revenues of approximately $0.5 and $0.1
for the three month period ended June 30, 1997 and 1996, respectively,
and approximately $0.8 million and $0.2 million for the six month
periods ended June 30, 1997 and 1996, respectively, primarily related
to recent acquisitions and new developments.
(2) Joint Venture Funds From Operations are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Net income (a) $ 5,328 $ 3,724 $10,841 $ 7,748
Depreciation of real property 2,962 2,100 5,666 4,207
------- ------- ------- -------
$ 8,290 $ 5,824 $16,507 $11,955
======= ======= ======= =======
DDRC Ownership interests (b) $ 4,072 $ 2,912 $ 8,123 $ 5,977
======= ======= ======= =======
</TABLE>
(a) Revenues for the three month periods ended June 30, 1997 and
1996 include approximately $0.8 million and $0.6 million,
respectively, resulting from the recognition of straight line
rents of which the Company's proportionate share is $0.4
million and $0.3 million, respectively. Revenues for the six
month period ended June 30, 1997 and 1996 include
approximately $1.4 million and $1.1 million, respectively,
resulting from the recognition of straight line rents of which
the Company's proportionate share is $0.7 million and $0.55
million, respectively.
-15-
<PAGE> 16
(b) At June 30, 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. At
June 30, 1996 the Company owned a 50% joint venture interest
in eleven shopping center properties.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash flow from operating activities will continue
to provide adequate capital for all principal payments, recurring tenant
improvements, as well as dividend payments in accordance with REIT requirements
and that cash on hand, borrowings available under its existing revolving credit
facilities, as well as other debt and equity alternatives will provide the
necessary capital to achieve continued growth. Cash flow from operating
activities for the six month period ended June 30, 1997 increased to $44.4
million as compared to $30.0 million for the same period in 1996. The increase
is attributable to the 11 acquisitions and developments completed in 1997 and
1996, new leasing, expansion and re-tenanting of the core portfolio properties
and the equity offerings completed in 1997 and 1996.
An increase in the 1997 quarterly dividend per common share to $.63 from $.60
was approved in December 1996 by the Company's Board of Directors. It is
anticipated that the current dividend level will result in a more conservative
payout ratio as compared to prior years. A lower payout ratio will enable the
Company to retain more capital which will be utilized for attractive investment
opportunities in the development, acquisition and expansion of portfolio
properties. The Company's common share dividend payout ratio for the first two
quarters of 1997 approximated 77.6% of the actual Funds From Operations.
During the six month period ended June 30, 1997, the Company and its joint
ventures invested $168.5 million, net, to acquire, develop, expand, improve and
re-tenant its properties. The Company's expansion acquisition and development
activity is summarized below:
Expansions
The Company is currently expanding/redeveloping ten of its shopping centers,
including a 40,000 square foot expansion at Brookhighland Plaza, in Birmingham,
Alabama; a 92,000 square foot expansion at Mariner Square Shopping Center in
Spring Hill, Florida; a 30,000 square foot expansion at Chillicothe Place in
Chillicothe, Ohio; a 48,000 square foot expansion at Towne Center Prado in
Marietta, Georgia; a 190,000 square foot expansion at Pamlico Plaza in
Washington, North Carolina; a 79,000 square foot expansion and redevelopment at
Liberty Fair Mall in Martinsville, Virginia; a 130,000 square foot redevelopment
at Apple Blossom Corners in Winchester, Virginia; a 50,000 square foot
redevelopment in North Olmsted, Ohio; a 61,000 square foot redevelopment at Del
Prado Mall in Cape Coral, Florida and an 18,000 square foot expansion at Kmart
Plaza in East Norriton, Pennsylvania.
Acquisitions
During 1997 the Company acquired two adjacent shopping center properties in
Ahwatukee, Arizona (a suburb of Phoenix), aggregating 490,885 square feet for an
aggregate purchase price of approximately $65.3 million. The Company also
acquired a majority ownership interest in two adjacent shopping center
properties aggregating 606,387 square feet in North Olmsted, Ohio (a suburb of
Cleveland) for an initial investment of approximately $38 million.
-16-
<PAGE> 17
The Company also acquired a 35% ownership interest in a 286,000 square foot
shopping center in San Antonio, Texas. This shopping center was acquired at a
cost of approximately $38.3 million of which the Company's proportionate share
aggregated approximately $13.4 million.
In addition, the Company acquired two shopping centers in Minnesota, in July
1997. The first center, located in Minneapolis, Minnesota will aggregate
approximately 271,000 square feet once construction of approximately 92,000
square feet is completed. The Company paid approximately $20.3 million for the
completed portion of the center. The second center, located in St. Paul,
Minnesota, will aggregate approximately 324,000 square feet, once construction
of approximately 14,000 square feet is completed. The Company paid approximately
$22.3 million for the completed portion of this center.
Developments
The Company has substantially completed the construction of an 84,000 square
foot community shopping center in Aurora, Ohio with a Heinen's Supermarket (not
owned by the Company) and Revco Drug Store as anchor tenants. Development
activity also continues to progress at the Company's shopping centers in
Atlanta, Georgia and Framingham, Massachusetts which were acquired in connection
with the Community Center Joint Ventures in November 1995. The Atlanta and
Framingham centers are scheduled to be substantially completed by the end of
1997. The majority of tenants have opened at each center.
Construction has also commenced on the development of five additional shopping
centers which include: (i) a 235,000 square foot Phase II development of the
Canton, Ohio center which will include HomePlace, Service Merchandise, PETsMART
and JoAnn Fabrics ETC as anchor tenants; (ii) a 500,000 square foot shopping
center in Boardman, Ohio which includes Wal-Mart, Lowe's, Dick's Sporting Goods,
Giant Eagle Supermarket, Staples and PETsMART as anchor tenants (the Lowe's,
Wal-Mart and Dick's Sporting Goods stores opened during the first quarter of
1997); (iii) a 475,000 square foot shopping center in Stow, Ohio which will
include Target (not owned by the Company), Giant Eagle Supermarket (opened
fourth quarter 1996), Stein Mart and Office Max (opened first quarter 1997) as
anchor tenants; (iv) a 200,000 square foot Phase II development of the Erie,
Pennsylvania center, which includes Home Depot (not owned by the Company) and
PETsMART as anchor tenants and (v) a 445,000 square foot shopping center in
Merriam, Kansas which is being developed through a joint venture formed in
October 1996, 50% of which is owned by the Company. This center will include
Home Depot (not owned by the Company), Cinemark, Hen House Supermarket, Office
Max, TJ Maxx and PETsMART as anchor tenants. The Canton, Ohio and Boardman,
Ohio shopping centers are scheduled for completion during the second half of
1997 and the Stow, Ohio; Erie, Pennsylvania (Phase II) and Merriam, Kansas
shopping centers are scheduled for completion in 1998.
The Company has also commenced the initial development of three additional
shopping centers which include: (i) a 240,000 square foot shopping center in
Toledo, Ohio; (ii) a 170,000 square foot shopping center in Solon, Ohio and
(iii) a 230,000 square foot shopping center in Oviedo, Florida (a suburb of
Orlando). All three centers are scheduled for completion in 1998.
FINANCING ACTIVITIES
The acquisitions, developments and expansions were financed through cash
provided from operating activities, revolving credit facilities, mortgages
assumed and debt and equity offerings. Total debt outstanding at June 30, 1997
was $477.1 million compared to $366.5 million at June 30, 1996.
-17-
<PAGE> 18
In January 1997, the Company successfully completed a 3,350,000 common share
offering and received net proceeds of approximately $116 million which were
primarily used to retire variable rate debt. In June 1997, the Company
successfully completed a 1,300,000 common share offering and received net
proceeds of approximately $49.4 million which were primarily used to retire
variable rate debt. The common share offerings significantly strengthened the
Company's balance sheet and positioned the Company to continue to take advantage
of attractive acquisition, development and expansion opportunities discussed
above.
In March 1997, the Company issued $75 million of senior unsecured Putable Asset
Trust Securities (PATS). The PATS were issued at a discount of 99.53%, have a
coupon rate of 7.125%, mature on March 15, 2012 and have a put date of March 15,
2002. The effective yield to the put date, after adjusting for the call premium
and debt issue costs, is approximately 6.9%.
In March 1997, the Company extended its $150 million unsecured revolving credit
facility, agented by the First National Bank of Chicago and the First National
Bank of Boston, for an additional year, through May 2000, and reduced the
interest rate 15 basis points. The amendment also introduced a competitive bid
feature for up to $75 million of borrowings.
In March 1997, the Company sold two business centers in Highland Heights, Ohio
aggregating approximately 113,000 square feet for approximately $5.7 million and
recognized a gain of approximately $3.5 million. The net proceeds of
approximately $5.4 million were used to repay revolving credit debt.
In April 1997, the Company extended its $10 million unsecured revolving credit
facility with National City Bank through November 2000, and reduced the interest
rate 15 basis points.
In May 1997, the Company refinanced $322.5 million of non-recourse joint venture
indebtedness relating to the Community Centers Joint Ventures. This indebtedness
now bears interest at a fixed coupon rate of 7.378% and matures in May 2002.
In July 1997, the Company issued $50 million of Senior unsecured fixed rate
notes through its Medium Term Note program with maturities ranging from five to
ten years and interest rates ranging from 6.80% to 7.02%. The proceeds were used
to repay variable rate borrowings on the Company's revolving credit facilities
primarily associated with the July 1997 shopping center acquisitions.
At June 30, 1997, the Company's capitalization consisted of $477.1 million of
debt (excluding the Company's proportionate share of joint venture mortgage debt
aggregating $189.6 million), $149.8 million of preferred stock and $1,055.4
million of market equity (market equity is defined as common shares outstanding
multiplied by the closing price of the common shares on the New York Stock
Exchange at June 30, 1997 of $40.00) resulting in a debt total market
capitalization ratio of .28 to 1.0. At June 30, 1997, the Company's total debt
consisted of $454.2 million of fixed rate debt, and $22.9 million of variable
rate debt.
It is management's intention that the Company have access to the capital
resources necessary to expand and develop its business. Accordingly, the Company
may seek to obtain funds through additional equity offerings or debt financing
in a manner consistent with its intention to operate with a conservative debt
capitalization policy and maintain its investment grade ratings with Moody's
Investor Services and Standard and Poor's. In June 1996, the Company filed a
shelf registration statement with the Securities and Exchange Commission under
which $400 million of debt securities, preferred shares or common shares may be
issued. As of June 30, 1997, the Company had $169.0 million available under its
shelf
-18-
<PAGE> 19
registration statement. In addition, as of June 30, 1997 the Company had cash of
$15.1 million and $140 million available under its $160 million of unsecured
revolving credit facilities. On June 30, 1997, the Company also had 94 operating
properties with $60.7 million or 73.3% of the total revenue for the six month
period ended June 30, 1997 which were unencumbered thereby providing a potential
collateral base for future borrowings.
INFLATION
Substantially all of the Company's long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such provisions include
clauses enabling the Company to receive percentage rentals based on tenants'
gross sales, which generally increase as prices rise, and/or escalation clauses,
which generally increase rental rates during the terms of the leases. Such
escalation clauses are often related to increases in the consumer price index or
similar inflation indices. In addition, many of the Company's leases are for
terms of less than ten years, which permits the Company to seek increased rents
upon re-rental at market rates. Most of the Company's leases require the tenants
to pay their share of operating expenses, including common area maintenance,
real estate taxes, insurance and utilities, thereby reducing the Company's
exposure to increases in costs and operating expenses resulting from inflation.
At June 30, 1997, approximately 95.2% of the Company's debt (not
including joint venture debt) bore interest at fixed rates with a weighted
average maturity of approximately 4.4 years and a weighted average interest rate
of approximately 7.8%. The remainder of the Company's debt bears interest at
variable rates, with a weighted average maturity of approximately 3.2 years and
a weighted average interest rate of approximately 6.6%. As of June 30, 1997 the
Company's Community Center Joint Ventures had fixed rate debt aggregating
approximately $322.5 million. The Company's OSTRS Joint Venture has variable
rate debt aggregating $24.3 million. The Company's joint venture in San Antonio,
Texas has variable rate debt aggregating $26.7 million. The Company intends to
utilize variable rate indebtedness available under its revolving credit
facilities to initially fund future acquisitions of shopping centers. Thus, to
the extent that the Company incurs additional variable rate indebtedness, its
exposure to increases in interest rates in an inflationary period would
increase. The Company believes, however, that increases in interest expense as
a result of inflation would not significantly impact the Company's distributable
cash flow.
The Company intends to continuously monitor and actively manage
interest costs on its variable rate debt portfolio and may enter into swap
positions based on market fluctuations. In addition, the Company believes that
it has the ability to obtain funds through additional equity and/or debt
offerings, including the issuance of medium term notes. Accordingly, the cost of
obtaining such protection agreements in relation to the Company's access to
capital markets will continue to be evaluated.
ECONOMIC CONDITIONS
Many regions of the United States, including regions in which the
Company owns property, have experienced varying degrees of economic recession. A
continuation of the economic recession, or further adverse changes in general or
local economic conditions, could result in the inability of some existing
tenants of the Company to meet their lease obligations and could otherwise
adversely affect the Company's ability to attract or retain tenants. The
shopping centers are typically anchored by discount department stores (usually
Wal-Mart, Kmart or J.C. Penney), supermarkets, and drug stores which usually
offer day-to-day necessities, rather than high-priced luxury items. Since these
merchants typically perform better in an economic recession than those who
market high priced luxury items, the percentage rents received by the Company
have remained relatively stable. In addition, the Company
-19-
<PAGE> 20
seeks to reduce its operating and leasing risks through ownership of a portfolio
of properties with a diverse geographic and tenant base.
During 1996 and 1997, certain national and regional retailers
experienced financial difficulties and several have filed for protection under
bankruptcy laws. Although the Company has experienced an increase in the number
of tenants filing for protection under bankruptcy laws, no significant
bankruptcies have occurred through August 12, 1997 with regard to the Company's
portfolio of tenants.
-20-
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in
the ordinary course of business, the Company is not presently involved in any
litigation nor, to its knowledge, is any litigation threatened against the
Company or its properties, which is reasonably likely to have a material adverse
effect on the liquidity or results of operations of the Company.
ITEM 2. MATERIAL MODIFICATIONS OF RIGHTS OF REGISTRANT'S SECURITIES
None
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 12, 1997, the Company held its Annual Meeting of Shareholders.
The matters presented to the shareholders for a vote and the vote on such
matters were as follows:
a) Election of Directors to serve until the next annual meeting
of shareholders:
<TABLE>
<CAPTION>
For Abstain
--- -------
<S> <C> <C>
Scott A. Wolstein 22,158,929 112,601
James A. Schoff 22,160,344 111,186
Walter H. Teninga 22,158,704 112,826
William N. Hulett, III 22,153,492 118,038
Ethan Penner 19,701,708 2,569,822
Albert T. Adams 22,143,712 127,818
Dean S. Adler 22,146,722 124,808
</TABLE>
b) Proposal to amend Article Fourth of the Company's Amended and
Restated Articles of Incorporation
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
22,157,922 31,411 82,196 0
</TABLE>
c) Proposal to amend the Developers Diversified Realty
Corporation 1992 Employees' Share Option Plan
<TABLE>
<CAPTION>
Brokers
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
21,236,115 903,804 131,610 0
</TABLE>
-21-
<PAGE> 22
No other matters were submitted to the shareholders for a vote.
ITEM 5. OTHER EVENTS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -
11.1 Earnings per Share
27 (a) Financial Data Schedule
b) Reports on Form 8-K
<TABLE>
<CAPTION>
Date of Report Items Reported
-------------- --------------
<S> <C>
June 18, 1997 Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
June 19, 1997 Item 5. Other Events
Item 7. Financial statements, Pro Forma Financial
Information and Exhibits
</TABLE>
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
August 13, 1997 /s/ Scott A. Wolstein
- -------------------------------- ------------------------------------
(Date) Scott A. Wolstein, President and
Chief Executive Officer
August 13, 1997 /s/ William H. Schafer
- -------------------------------- ------------------------------------
(Date) William H. Schafer, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
-23-
<PAGE> 1
EXHIBIT 11.1
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Earning per share
For the Three Month Periods Ended June 30,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Primary - per APB -15,
Interpretation 102
Dividends declared per weighted
average share outstanding
(25,168,511 shares) $ 0.63
Dividends declared per weighted
average share outstanding
(21,590,710 shares) $ 0.60
Undistributed loss per share:
($3,411,448) divided by
25,168,511 shares (0.14)
------------
($3,401,980) divided by
21,590,710 shares (0.16)
------------
Income per share $ 0.49 $ 0.44
============ ============
Undistributed loss:
Income available to common shareholders per
statement of operations $ 12,390,853 $ 9,553,803
Dividends declared (15,802,301) (12,955,783)
------------ ------------
($ 3,411,448) ($ 3,401,980)
============ ============
Fully diluted:
Income available to common shareholders' $ 12,390,853 = $0.48 $ 9,553,803 = $0.44
------------ ------------
Weighted average number of shares and equivalents 25,672,178 21,810,845
</TABLE>
-24-
<PAGE> 2
EXHIBIT 11.1
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Earning per share
For the Six Month Periods Ended June 30,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Primary - per APB -15,
Interpretation 102
Dividends declared per weighted
average share outstanding
(24,846,085 shares) $ 1.26
Dividends declared per weighted
average share outstanding
(20,647,638 shares) $ 1.25
Undistributed loss per share:
($5,181,819) divided by
24,846,085 shares (0.20)
------------
($8,687,763) divided by
20,647,638 shares (0.42)
------------
Income per share $ 1.06 $ 0.83
============ ============
Undistributed loss:
Income available to common shareholders per
statement of operations $ 26,394,929 $ 17,219,714
Dividends declared (31,576,770) (25,907,477)
------------ ------------
($ 5,181,841) ($ 8,687,763)
============ ============
Fully diluted:
Income available to common shareholders' $ 26,394,929 = $1.04 $ 17,219,714 = $0.83
------------ ------------
Weighted average number of shares and equivalents 25,337,555 20,866,828
</TABLE>
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 15,111,160
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
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