<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 10, 1998
---------------------
DEVELOPERS DIVERSIFIED REALTY CORPORATION
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 1-11690 34-1723097
---------------------------------------------------------------
(State or other Jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification Number)
34555 Chagrin Boulevard, Moreland Hills, Ohio 44022
---------------------------------------------------------------
Registrant's telephone number, including area code (440) 247-4700
-----------------
N/A
-----------------------------------------
(Former name of former address, if changed since last report)
<PAGE> 2
Item 5. Other Events
- ---------------------
On August 3, 1998, the Company entered into a definitive agreement to make
a series of strategic investments in American Industrial Properties ("AIP")
(NYSE:IND). Under the terms of a share purchase agreement effective July 30,
1998, the Company purchased 949,147 newly issued common shares for
approximately $14.7 million. Under the terms of a separate agreement, also
effective as of July 30, 1998, the Company acquired an additional 1,258,471
newly issued AIP shares in exchange for five light industrial properties
valued at approximately $19.5 million. Concurrent with entering into the
agreements, AIP appointed Scott A. Wolstein as chairman of its Board of Trust
Managers and three additional designees of the Company to newly created
positions on its Board of Trust Managers.
On November 20, 1998, the shareholders of AIP approved additional purchases
by the Company of up to 5,226,583 newly issued shares of AIP for approximately
$81.0 million. The Company purchased 2,815,192 of these additional shares for
approximately $43.6 million on November 20, 1998. Combined, the acquired shares
represent 31.7% of AIP's outstanding shares. Pursuant to the agreement, AIP
may, under certain circumstances and subject to certain limitations, exercise a
put right that would require the Company to purchase additional common or
convertible preferred shares of AIP, not to exceed $200 million, at a price not
to exceed $15.50 and $14.00 per share, respectively. AIP can only exercise its
right to put these additional shares for the purpose of financing property
acquisitions approved by AIP's Board of Trust Managers.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
This Form 8-K is being filed to update the pro forma financial information
filed in the Company's report on Form 8-K dated April 28, 1998 through the nine
month period ended September 30, 1998. The Company's acquisitions have been
reported on Forms 8-K dated July 1, 1998 and July 16, 1998.
In addition to the acquisitions previously reported, the Company, on
September 10, 1998, formed a joint venture with the institutional investment
advisory firm DRA Advisors, Inc. ("DRA"), which is acting on behalf of
institutional clients. In conjunction with the formation of this joint venture,
the Company contributed six existing shopping center properties valued at
approximately $238 million, with a net book value of $219 million. The Company
received, in exchange for the six properties contributed, a 50% equity
ownership interest in the joint venture and cash of approximately $192 million,
funded from debt and equity proceeds received as described below, which was
used to repay variable rate indebtedness on the Company's revolving credit
facilities. Simultaneously with the Company's contribution, the joint venture
entered into a seven year, $156 million mortgage with interest at a coupon rate
of 6.64% and DRA contributed cash of approximately $42 million in exchange for
a 50% equity interest. The Company also agreed to master lease certain space
occupied by tenants which have filed for bankruptcy under Chapter 11 with
annual base rent of $2.3 million. In exchange for the agreement to master lease
the space, the Company retained all rights associated with the bankruptcy claim
and to the benefits associated with the releasing, if applicable, of the
existing space. The Company does not believe that its exposure to loss is
material under the terms of the agreement. In accordance with the Joint Venture
agreement, the Company will continue to manage the properties and receive
management fees at market rates. The properties contributed to the joint
venture are as follows:
- Arrowhead Crossing - Peoria, Arizona (Phoenix)
- Foothills Towne Center - Ahwatukee, Arizona (Phoenix)
- Eagan Promenade - Eagan, Minnesota (Minneapolis)
- Maple Grove Crossing - Maple Grove, Minnesota (Minneapolis)
- Eastchase Market - Fort Worth, Texas
- Tanasbourne Town Center - Hillsboro, Oregon (Portland)
Financial Statements
- --------------------
The statements of revenue and certain expenses included in this report encompass
the following:
- - Statements of revenue and certain expenses (unaudited) for the six
months ended June 30, 1998 and 1997 for the following operating
shopping centers:
- The Family Center Properties (Acquired Properties)
- The Sansone Properties (Acquired Properties)
The operating results for three shopping centers under
development and six shopping center expansions acquired together with
the purchase of The Family Center Properties are not reflected in the
accompanying combined statement of revenue and certain expenses of The
Family Center Properties as no financial information existed for the
six month period ended June 30, 1998 and 1997. In addition, five
shopping centers acquired together with the purchase of The Sansone
Properties are not included in the accompanying combined statement of
<PAGE> 3
revenue and certain expenses of The Sansone Properties since these
centers were under development or in the lease-up-phase. Subsequent to
the Company's purchase, two of The Sansone Properties were sold to one
of the principal sellers.
As noted below, financial statements (audited) for the year
ended December 31, 1997 for these properties were presented in the
Company's Form 8-K dated April 28, 1998.
- - A statement of revenue and certain expenses (unaudited) for the six
months ended June 30, 1998 and 1997 is not presented for Tanasbourne,
Oregon (Acquired Property) because the property was in the final
development stage, and accordingly, the related historical operating
information would not be meaningful.
Pro Forma Financial Information (unaudited)
- -------------------------------------------
Unaudited pro forma financial information for the Company is presented as
follows:
- - Pro forma condensed consolidated statement of operations for the nine
month period ended September 30, 1998 and the year ended December 31,
1997.
- - Estimated twelve-month pro forma statement of taxable net operating
income and operating funds available for the year ended December 31,
1997.
A pro forma condensed consolidated balance sheet is not presented herein as
there are no adjustments for the aforementioned transactions to be made to the
September 30, 1998 balance sheet filed in the Company's Form 10-Q, as of that
date.
<PAGE> 4
DEVELOPERS DIVERSIFIED REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
- ------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FAMILY CENTER PROPERTIES
Combined Statement of Revenue and Certain Expenses for the (unaudited)
six months ended June 30, 1998 and 1997 ......................................... F-2
Notes to Combined Statement of Revenue and Certain Expenses ....................... F-3
THE SANSONE PROPERTIES
Combined Statement of Revenue and Certain Expenses for the (unaudited)
six months ended June 30, 1998 and 1997 .......................................... F-5
Notes to Combined Statement of Revenue and Certain Expenses ........................ F-6
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(PRO FORMA - UNAUDITED):
Condensed Consolidated Statement of Operations for the nine month
period ended September 30, 1998 and for the year ended December 31, 1997 ....... F-11
Estimated Twelve Month Pro Forma Statement of Taxable Net Operating
Income and Operating Funds Available for the year ended December 31, 1997 ...... F-22
</TABLE>
F-1
<PAGE> 5
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE FAMILY CENTER PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- --------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
----------------------------------------------
1998 1997
------ ------
----------------------------------------------
<S> <C> <C>
Revenue:
Minimum rents $ 9,516,521 $ 9,170,156
Percentage and overage rents 453,151 422,219
Recoveries from tenants 1,591,104 1,599,069
Other income 21,384 12,831
----------- -----------
11,582,160 11,204,275
----------- -----------
Certain expenses:
Operating and maintenance 1,101,515 1,007,021
Real estate taxes 1,028,640 1,078,402
General and administrative 568,914 576,792
----------- -----------
2,699,069 2,662,215
----------- -----------
Revenue in excess of certain expenses $ 8,883,091 $ 8,542,060
=========== ===========
</TABLE>
The accompanying notes are an integral part of this combined statement of
revenue and certain expenses.
F-2
<PAGE> 6
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE FAMILY CENTER PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -----------------------------------------------------------
(Unaudited)
1. OPERATIONS
----------
For purposes of the accompanying combined statement of revenue and
certain expenses, The Family Center Properties represent certain shopping center
properties and one office property ("Properties"), and their management
operations which Developers Diversified Realty Corporation (the "Company")
acquired on July 1, 1998. A summary of the Properties is as follows:
<TABLE>
<CAPTION>
NAME OF PROPERTY LOCATION YEAR BUILT
--------------------------------------- ------------------------ ----------
<S> <C> <C>
Family Center at Midvalley, South Phase Taylorsville, UT 1982
Family Center at Midvalley, North Phase Taylorsville, UT 1992
Family Center at Fort Union, Phases I&II Midvale, UT 1973
Family Center at Fort Union, Phases III Midvale, UT 1995
Family Center at Riverdale, North Phase Riverdale, UT 1991
Family Center at Riverdale, South Phase Riverdale, UT 1995
Hermes Building Office Complex Salt Lake City, UT 1986
Family Center at Orem Orem, UT 1992
Family Center at Ogden 5-Points Ogden, UT 1977
Family Center at 33rd South Salt Lake City, UT 1978
Family Place at Logan Logan, UT 1973
Family Center at Las Vegas Las Vegas, NV 1973
Family Center at Rapid City Rapid City, UT 1978
</TABLE>
A combined statement of revenue and certain expenses has been presented
because the Properties have varying ownership interests in common, are under
common control and management and were purchased through a single transaction.
The operating results of three shopping centers under development and
six shopping center expansions at the above listed properties, although forming
part of the same transaction with the Company, are not reflected in the
accompanying combined statement of revenue and certain expenses as no historical
financial information exists.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying combined statement of revenue and certain expenses has
been prepared on the accrual basis of accounting.
F-3
<PAGE> 7
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE FAMILY CENTER PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -----------------------------------------------------------
(Unaudited)
The accompanying combined financial statement is not representative of the
actual operations for the periods presented, as certain revenues and expenses,
which may not be comparable to the revenues and expenses expected to be earned
or incurred by the Company in the future operations of the Properties, have
been excluded. Revenues excluded consist of interest and other revenues
unrelated to the continuing operations of the Properties. Expenses excluded
consist of depreciation on the building and improvements, amortization of
intangible assets, interest expense and certain professional fees and
administrative costs not directly related to the future operations of the
Properties, primarily payroll associated with the former principals of the
Properties.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
CONCENTRATION OF RISK
- ---------------------
The Family Center Properties' tenant base includes primarily national
and regional retail chains and local retailers, consequently, the Properties'
credit risk is concentrated in the retail industry. There are no tenants which
individually represented greater than 10% of combined revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
Included in general and administrative expenses are costs associated
with the property management operations.
INTERIM STATEMENTS
- ------------------
The interim financial data for the six months ended June 30, 1998 and
1997 is unaudited; however, in the opinion of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
results for the periods presented are not necessarily indicative of the results
for the full year.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-4
<PAGE> 8
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- --------------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1998 1997
---------- ----------
<S> <C> <C>
Revenue:
Minimum rents $5,697,314 $4,463,936
Percentage and overage rents 30,184 19,330
Recoveries from tenants 1,304,191 1,100,328
Other income 90,211 94,094
---------- ----------
7,121,900 5,677,688
---------- ----------
Certain expenses:
Operating and maintenance 814,631 685,484
Real estate taxes 1,050,750 728,622
---------- ----------
1,865,381 1,414,106
---------- ----------
Revenue in excess of certain expenses $5,256,519 $4,263,582
========== ==========
</TABLE>
The accompanying notes are an integral part of this combined statement of
revenue and certain expenses.
F-5
<PAGE> 9
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -----------------------------------------------------------
(Unaudited)
1. OPERATION OF PROPERTIES
-----------------------
For purposes of the accompanying combined statement of revenue and
certain expenses, The Sansone Properties (the "Properties") represent certain
shopping center properties which Developers Diversified Realty Corporation (the
"Company") acquired on July 16, 1998. A summary of the Properties is as follows:
<TABLE>
<CAPTION>
NAME OF PROPERTY LOCATION YEAR BUILT
--------------------------------------- ------------------------ ----------
<S> <C> <C>
Plaza at Sunset Hill St. Louis, MO 1997
Northland Square Cedar Rapids, IA 1994
Olympic Oaks Village St. Louis, MO 1985
Gravois Village St. Louis, MO 1983
Morris Corners Springfield, MO 1989
Keller Plaza St. Louis, MO 1988
Southtowne St. Louis, MO 1995
Home Quarters St. Louis, MO 1992
Walgreen Brentwood, MO 1988
Walgreen Plaza St. Louis, MO 1988
Promenade at Brentwood St. Louis, MO 1998
</TABLE>
A combined statement of revenue and certain expenses has been presented
because the Properties have varying ownership interests in common, are under
common control and management and were purchased through a single transaction.
During the period 1995-1997, Plaza at Sunset Hill was redeveloped and
expanded. The combined statement of revenue and certain expenses for the six
months ended June 30, 1997 reflects the operating results of the expansion for
only a portion of the period. The expansion, representing approximately 30% of
the GLA, was completed in 1997.
At June 30, 1997, the Promenade at Brentwood was under development and
consequently no operating information is included in the combined statement of
revenue and certain expenses for the six month period then ended. For the six
month period ended June 30, 1998, the center was in the lease up phase and
includes a portion of the operating results as certain phases of the center
were not completed as of January 1, 1998. The center was substantially
completed at June 30, 1998.
F-6
<PAGE> 10
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -----------------------------------------------------------
(Unaudited)
The following shopping centers, which the Company also acquired pursuant to the
same purchase agreement, are not reflected in the accompanying combined
statement of revenue and certain expenses since these centers were either under
development or in the lease-up phase during the periods presented:
<TABLE>
<CAPTION>
Center Name Location Year Built
----------- -------- ----------
<S> <C> <C>
Shoppes at Sunset Hill St. Louis, MO 1998
American Plaza St. Louis, MO 1998
</TABLE>
The following shopping centers, which the Company also intends to
acquire pursuant to the same purchase agreement, are not reflected in the
accompanying combined statement of revenue and certain expenses since these
centers were either under development or in the lease-up phase during the
periods presented:
<TABLE>
<CAPTION>
Center Name Location Year Built
----------- -------- ----------
<S> <C> <C>
Walgreens St. Louis, MO 1998
Walgreens Springfield, MO 1998
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying combined statement of revenue and certain expenses has
been prepared on the accrual basis of accounting.
The accompanying combined financial statement is not representative of
the actual operations for the periods presented, as certain revenues and
expenses, which may not be comparable to the revenues and expenses expected to
be earned or incurred by the Company in the future operations of the Properties,
have been excluded. Revenues excluded consist of interest and other revenues
unrelated to the continuing operations of the Properties. Expenses excluded
consist of depreciation on the buildings and improvements, amortization of
organization costs and other intangible assets, interest expense, professional
fees, charitable contributions, leasing commissions and other general and
administrative costs not directly related to the future operations of the
Properties.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
F-7
<PAGE> 11
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE SANSONE PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
- -----------------------------------------------------------
(Unaudited)
CONCENTRATION OF RISK
- ---------------------
The Sansone Properties' tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Properties' credit
risk is concentrated in the retail industry. There are no tenants which
individually represented greater than 10% of combined revenues.
INTERIM STATEMENTS
- ------------------
The interim financial data for the six months ended June 30, 1998 and
1997 is unaudited; however, in the opinion of the Company, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
results for the periods presented are not necessarily indicative of the results
for the full year.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTION
-------------------------
The Sansone Group, a property management Company controlled by the principals of
The Sansone Properties, provided services to the Properties for all periods
presented. The management fee is determined on a property by property basis
pursuant to property management contracts which generally provide for a
management fee calculated as 5% of rental revenue. The Company acquired a 50%
interest in The Sansone Group and plans to retain the management services
provided to the Properties. Such management fees are included in operating and
maintenance expenses in the accompanying combined statement of revenues and
certain expenses and aggregated approximately $191,000 and $244,000 for the
period ended June 30, 1997 and June 30, 1998, respectively.
4. COMMITMENTS
-----------
The Morris Corners Property is subject to a ground lease requiring payments of
$19,978 per month through December 31, 2015.
F-8
<PAGE> 12
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------
(Unaudited)
The unaudited pro forma condensed statement of operations for the nine month
period ended September 30, 1998 is presented as if each of the following
transactions had occurred on January 1, 1997; (i) the acquisition by the
Company of those acquired properties, including those acquired through a joint
venture interest, which had an operating history, purchased from January 1,
1998 through December 3, 1998; (ii) the acquisition of The Family Center
Properties and The Sansone Properties (Acquired Properties), which had an
operating history, and the purchase of a 50% interest in The Sansone Group's
operating/management company; (iii) the sale by the Company of $200 million of
Medium Term Notes in January and July 1998; (iv) the purchase by the Company of
a partner's minority interest in one shopping center; (v) the sale by the
Company of 669,639 common shares (pre-split) in April 1998; (vi) the sale by
the Company of 4,000,000 Class C Depositary Shares in July 1998; (vii) the sale
by the Company of 2,160,000 Class D Depositary Shares in August and September
1998 and (viii) the transfer of six properties owned by the Company into a 50%
owned joint venture which occurred on September 10, 1998.
The unaudited pro forma condensed statement of operations for the year ended
December 31, 1997 is presented as if each of the following transactions had
occurred on January 1, 1997; (i) the acquisition by the Company of those
acquired properties, including those acquired through a joint venture interest,
which had an operating history, purchased from January 1, 1997 through December
3, 1998; (ii) the acquisition of The Family Center Properties and The Sansone
Properties (Acquired Properties), which had an operating history and the
purchase of a 50% interest in The Sansone Group's operating/management company;
(iii) the sale by the Company of 3,350,000 common shares (pre-split) in January
1997; (iv) the sale by the Company of $75 million of 7.125% Pass-through Asset
Trust Securities in March 1997; (v) the sale by the Company of 1,300,000 common
shares (pre-split) in June 1997; (vi) the sale by the Company of an aggregate
of $302 million of Medium Term Notes in 1997 and 1998; (vii) the sale by the
Company of 507,960 common shares (pre-split) in September 1997; (viii) the sale
by the Company of 316,800 (pre-split) common shares in December 1997; (ix) the
purchase by the Company of a partner's minority interest in one shopping
center; (x) the sale by the Company of 669,639 common shares (pre-split) in
April 1998; (xi) the sale by the Company of 4,000,000 Class C Depositary Shares
in July 1998; (xii) the sale by the Company of 2,160,000 Class D Depositary
Shares in August and September 1998 and (xiii) the transfer of six properties
owned by the Company into a 50% owned joint venture which occurred on
September 10, 1998.
F-9
<PAGE> 13
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
AND FOR THE YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------
(Unaudited)
The following pro forma information is based upon the historical consolidated
results of operations of the Company for the nine month period ended September
30, 1998 and the year ended December 31, 1997, giving effect to the transactions
described above. The pro forma condensed consolidated statement of operations
should be read in conjunction with the historical financial statements and notes
thereto of the Company included in the Developers Diversified Realty
Corporation's Forms 10-Q and 10-K for the nine month period ended September 30,
1998 and the year ended December 31, 1997, respectively.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth above,
nor do they purport to represent the Company's results of operations for future
periods.
F-10
<PAGE> 14
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
(Unaudited)
--------------------------------------------
Transfer of
Previously Common Share, Properties -
Reported Preferred Share DDRA V Company
Company Acquired and Debt Joint Pro Forma
Historical Properties Offerings Venture (i) (Unaudited)
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from rental properties $ 156,501 $ 21,429 (a) $ - ($ 20,487) $ 157,443
Management fees and other income 9,281 (126) 9,849
694
--------- --------- --------- --------- ---------
165,782 21,429 - (19,919) 167,292
--------- --------- --------- --------- ---------
Operating and maintenance 14,034 2,271 (a) (1,383) 14,922
Real estate taxes 19,742 2,345 (a) (3,691) 18,396
Depreciation and amortization 31,638 5,007 (a) (3,766) 32,879
General and administrative expenses 9,247 250 (d) 10,066
569 (a)
Interest expense 41,917 10,342 (a) 315 (e) (7,850) 41,022
313 (b) (548)(f)
190 (c) (3,331)(g)
(326)(h)
--------- --------- --------- --------- ---------
116,578 21,287 (3,890) (16,690) 117,285
--------- --------- --------- --------- ---------
Income (loss) before equity in net
income of joint ventures, allocation to
minority interests, loss on sales of
land and extraordinary item
49,204 142 3,890 (3,229) 50,007
Equity in net income of joint ventures 10,323 81 (a) 3,115 14,001
482 (b)
Minority equity interests (1,628) (2,419)(a) (3,918)
(49)(b)
178 (c)
Loss on sales of land (36) (36)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item
57,863 ($1,585) $ 3,890 ($ 114) 60,054
========= ========= =========
Less: preferred share dividends (13,109) (17,722)
--------- ---------
Income before extraordinary item
applicable to common shareholders
$ 44,754 $ 42,332
========= =========
Per share data:
Earnings per common share before
extraordinary item:
Basic $ 0.79 $ 0.74 (j)
========= =========
Diluted $ 0.76 $ 0.71 (j)
========= =========
Weighted average number of common
shares (in thousands):
Basic 56,500 57,391
========= =========
Diluted 57,855 58,746
========= =========
</TABLE>
F-11
<PAGE> 15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(a) Reflects revenues and expenses through the date of acquisition for the
properties acquired from January 1, 1998 to December 3, 1998 as
follows:
<TABLE>
<CAPTION>
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(1) Interest (1) Interest
--------------- ----------- -------- ----- ----------- --------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Country Club Mall 02/25/98 $ 131 $ 19 $ 17 $ 25 $ 65 $ -
Belair Centre 03/10/98 875 65 162 159 445 -
The Columbus
Properties (2) 03/23/98 1,357 105 120 278 823 41
The Family Center
Properties (3), (4) 07/01/98 11,582 1,029 1,102 2,824 4,707 2,378
Tanasbourne Towne
Center (5) 07/02/98 - - - - - -
The Sansone
Properties (6) 07/16/98 7,484 1,127 870 1,721 4,302 -
------- ------- ------- ------- ------- -------
$21,429 $ 2,345 $ 2,271 $ 5,007 $10,342 $ 2,419
======= ======= ======= ======= ======= =======
(1) Depreciation determined utilizing a 31.5 year life for buildings with an operating history and calculated interest
related to the purchase of the operating properties with an estimated value of approximately $222 million and $111
million for The Family Center Properties and The Sansone Properties, respectively. Interest was determined
utilizing the Company's estimated interest under its lines of credit and/or the effective interest rate associated
with the mortgage debt assumed. No interest expense was presented relating to shopping centers under development
and expansion as related interest costs either would not have been incurred or would have been capitalized.
(2) No revenues or expenses have been included in the pro forma statement of operations for Easton Market, one of The
Columbus Properties, since the center was either under development or in lease-up prior to acquisition.
(3) General and administrative expenses reflect the operating expenses of the Hermes Associates, LTD.
management/operating company.
(4) Minority interest equity expense reflects the expense relating to the operating partnership units issued in
partial consideration for the purchase of The Family Centers Properties. Operating partnership units are, in
certain circumstances and, at the option of the Company, exchangeable into 3,630,668 common shares of the Company.
In addition, the Company has guaranteed the value of the operating partnership units for the period two years from
the date of issuance. The guarantee is determined with reference to the common shares of the Company. The final
number of operating partnership units issued as consideration will not be known until after expiration of the
guarantee period.
(5) Operating results for the Tanasbourne, Oregon shopping center are not presented as this shopping center was under
development during the period presented.
(6) Equity in net income (loss) in joint ventures represents the Company's equity in net income (loss) relating to its
50% joint venture interest in the operating/management company acquired from The Sansone Group.
</TABLE>
F-12
<PAGE> 16
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(b) Reflects revenues and expenses for four joint ventures acquired in 1998
through the date of acquisition as follows:
<TABLE>
<CAPTION>
Lennox Town Washington Dublin Village
Center Sun Center Park Plaza Center
Columbus, OH Columbus, OH Dayton, OH Columbus, OH Total
------------ ------------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Revenues $ 717 $ 889 $ 863 $1,456 $3,925
------ ------ ------ ------ ------
Operating and maintenance 49 48 116 107 320
Real estate taxes 96 76 102 178 452
Depreciation (1) 179 189 147 253 768
Interest (1) 380 442 347 551 1,720
------ ------ ------ ------ ------
704 755 712 1,089 3,260
------ ------ ------ ------ ------
Net Income 13 134 151 367 $ 665
Ownership interest 50% 79.45% 50% 80% ======
------ ------ ------ ------
Equity in net income of joint venture $ 7 $ 106 $ 76 $ 293 $ 482
====== ====== ====== ====== ======
(1) Based on the preliminary purchase price allocation, determined depreciation
utilizing a 31.5 year life for building and calculated interest at the effective
interest rate associated with the mortgage debt assumed.
An aggregate interest cost of $313 associated with the purchase of the Company's equity
interest in the properties is calculated at the Company's estimated interest rate under its
lines of credit.
In addition to cash, the Company's purchase price was funded through the issuance of
operating partnership units (OP Units) exchangeable, at the option of the Company and under
certain circumstances, into 116,892 of the Company's common shares. The minority interest
expense associated with the OP Units is estimated to be $49 for the period prior to
acquisition.
</TABLE>
(c) Represents the elimination of the minority interest expense and the
related interest expense incurred by the Company due to the purchase of
the minority interest in a shopping center located in North Olmsted,
Ohio in March 1998.
(d) The general and administrative expenses of the Company have been
adjusted by $250 to reflect the estimated increased expenses expected
to be incurred associated with additional operating personnel and
related costs attributable to the increase in the Company's portfolio
of properties resulting from acquisitions and development activities.
(e) Reflects the net increase in interest cost of $315 relating to variable
rate indebtedness repaid with the proceeds from the sale of the Medium
Term Notes completed on July 15, 1998. Pro forma interest incurred
through the date of issuance on the Medium Term Notes is estimated at
$4,055 and interest savings on the variable rate indebtedness repaid is
estimated at $3,740.
(f) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
669,639 common shares (pre split) completed in April 1998.
F-13
<PAGE> 17
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(g) Reflects the reduction of interest costs relating to unsecured variable
rate indebtedness repaid with the proceeds from the sale of 4,000,000
Class C Depositary Shares in July 1998. The dividends assumed to be
payable on the Class C Depositary Shares are deducted from income to
arrive at income available to holders of Common Shares. (See (j))
(h) Reflects the reduction of interest costs relating to unsecured variable
rate indebtedness repaid with the proceeds from the sale of 2,160,000
Class D Depositary Shares in August and September 1998. The dividends
assumed to be payable on the Class D Depositary Shares are deducted
from income to arrive at income available to holders of Common Shares.
(See (j)).
(i) Reflects the operating results of the six properties owned by the
Company and transferred into a 50% owned-joint venture for the period
prior to September 10, 1998.
The equity in net income of the joint venture is as follows:
<TABLE>
<S> <C>
Revenues $20,613
-------
Operating and maintenance 1,383
Real estate taxes 3,691
Depreciation 3,019
Interest 6,289
-------
14,382
-------
Net income 6,231
Ownership interest 50%
-------
Equity in net income of joint venture $ 3,115
=======
</TABLE>
Operating results for the Tanasbourne, Oregon shopping center are not
presented prior to their acquisition date as a portion of this
shopping center was under development during 1998.
Management fees of $694 represents the Company's fees earned through
the management of these properties.
Determined depreciation utilizing a 40 year life for buildings and
calculated interest related to the purchase of the operating centers.
Interest was determined based on the effective interest rate
associated with the mortgate debt incurred simultaneously with the
transfer of these properties.
Reflects an aggregate interest savings of $7,850 associated with the
repayment of the Company's lines of credit with proceeds of $192
million received by the Company simultaneously with the transfer of
these properties to a joint venture. The adjustment is calculated
at the Company's estimated interest rate incurred under its lines of
credit.
(j) Pro forma income per common share is based upon the weighted average
number of common shares assumed to be outstanding for the nine month
period ended September 30, 1998.
Effective August 3, 1998, the Company executed a two-for-one stock
split, for shareholders of record on July 27, 1998. All per share
information and number of shares outstanding reflects the stock split.
F-14
<PAGE> 18
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
In accordance with the SFAS 128, earnings per share before
extraordinary item is calculated as follows:
<TABLE>
<S> <C>
Income before extraordinary item $ 60,054
Less: Preferred stock dividend (17,722)
--------
Basic EPS - Income before extraordinary item applicable to common
shareholders 42,332
Joint venture partnership (640)
--------
Diluted EPS - Income before extraordinary item applicable to common
shareholders plus assumed conversions $ 41,692
========
NUMBER OF SHARES:
Basic - average shares outstanding 57,391
Effect of dilutive securities:
Stock options 876
Joint venture partnership 479
--------
Diluted Shares 58,746
========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 0.74
========
Diluted $ 0.71
========
</TABLE>
F-15
<PAGE> 19
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
(Unaudited)
------------------------------------------------------
Transfer of
Previously Common Share, Properties -
Reported Preferred Share DDRA V Company
Company Acquired and Debt Joint Pro Forma
Historical Properties Offerings Venture (o) (Unaudited)
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from rental properties $ 158,718 $ 3,073 (a) $ - ($22,717) $ 183,974
44,900 (b)
Management fees and other income 10,322 (84) 11,002
764
--------- --------- --------- --------- ---------
169,040 47,973 - (22,037) 194,976
--------- --------- --------- --------- ---------
Operating and maintenance 15,961 549 (a) (1,603) 20,519
5,612 (b)
Real estate taxes 20,001 203 (a) (3,413) 21,022
4,231 (b)
Depreciation and amortization 32,313 568 (a) (4,196) 38,665
9,980 (b)
General and administrative expenses 11,055 750 (e) 12,923
1,118 (b)
Interest expense 35,558 1,516 (a) (316)(f) (9,667) 46,938
20,888 (b) 66 (g)
1,212 (c) (1,771)(h)
1,103 (d) - (i)
(903)(j)
(748)(k)(l)
- (m)(n)
--------- --------- --------- --------- ---------
114,888 47,730 (3,672) (18,879) 140,067
--------- --------- --------- --------- ---------
Income (loss) before equity in net
income of joint ventures, allocation
to minority interests and gain on sales
of land and extraordinary item 54,152 243 3,672 (3,158) 54,909
Equity in net income of joint ventures 10,893 1,654 (c) 3,485 16,662
630 (b)
Minority equity interests (1,049) (14)(a) (4,923)
(4,751)(b)
(147)(c)
1,038 (d)
Gain on sales of land 3,526 3,526
--------- --------- --------- --------- ---------
Income before extraordinary item 67,522 ($ 1,347) $ 3,672 $ 327 70,174
========= ========= =========
Less: preferred share dividends (14,200) (14,200)
--------- ---------
Income before extraordinary item
applicable to common shareholders $ 53,322 $ 55,974
========= =========
Per share data:
Earnings per common share:
Basic $ 1.03 $ 1.03 (p)
========= =========
Diluted $ 1.03 $ 1.01 (p)
========= =========
Weighted average number of common shares
(in thousands)
Basic 51,760 54,592
========= =========
Diluted 52,124 55,333
========= =========
</TABLE>
F-16
<PAGE> 20
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(a) Reflects revenues and expenses for the properties acquired during 1997,
for the period January 1, 1997 through the earlier of the date of
acquisition, or December 31, 1997 as follows:
<TABLE>
<CAPTION>
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation (4) Interest (4) Interest
--------------- ----------- -------- ----- ----------- ---------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Great Northern Shopping
Center - North,
Cleveland, (North
Olmsted), OH (1) 01/01/97 $ - $ - $ - $ - $ - $ -
Great Northern Shopping
Center - South,
Cleveland, (North
Olmsted) OH (1) 01/01/97 - - - - - -
Plaza Del Norte, San
Antonio, TX (2), (3) 01/23/97 - - - - - -
Foothills Towne Center
Awatukee, AZ (2) 02/21/97 - - - - - -
Eagan Promenade
Minneapolis, MN (2) 07/01/97 - - - - - -
Midway Marketplace
St. Paul, MN (2) 07/11/97 - - - - - -
Cooks Corner
Brunswick, ME 08/14/97 1,907 154 404 300 806 14
Centennial Promenade
Denver, CO (2) 10/02/97 - - - - - -
Spring Creek Centre
Fayetteville, AR 11/20/97 1,166 49 145 268 710 -
-------- -------- -------- -------- -------- --------
$ 3,073 $ 203 $ 549 $ 568 $ 1,516 $ 14
======== ======== ======== ======== ======== ========
(1) Included in historical statement of operations for the year ended December 31, 1997.
(2) No revenues or expenses have been included in the pro forma statement of operations since the center was either
under development or in the lease-up phase during 1997.
(3) Property acquired through a joint venture in which the Company owns a 35% interest.
(4) Determined depreciation utilizing a 31.5 year life for buildings based on the preliminary purchase price
allocation and calculated interest at the Company's estimated interest rate under its lines of credit.
</TABLE>
F-17
<PAGE> 21
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(b) Reflects revenues and expenses for the year ended December 31, 1997 of
the properties acquired from January 1, 1998 to December 3, 1998 as
follows:
<TABLE>
<CAPTION>
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation (1) Interest (1) Interest
--------------- ----------- -------- ----- ----------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Country Club Mall 02/25/98 $ 871 $ 127 $ 115 $ 165 $ 441 $ -
Belair Centre 03/10/98 4,696 350 868 856 2,401 -
The Columbus
Properties (2) 03/23/98 6,113 473 542 1,250 3,732 176
The Family Center
Properties (3) (4) 07/01/98 22,068 1,812 2,844 5,202 8,237 4,575
Tanasbourne Towne
Center (5) 07/02/98 - - - - - -
The Sansone
Properties (6) 07/16/98 11,152 1,469 1,243 2,507 6,077 -
-------- -------- -------- -------- -------- --------
$ 44,900 $ 4,231 $ 5,612 $ 9,980 $ 20,888 $ 4,751
======== ======== ======== ======== ======== ========
(1) Depreciation determined utilizing a 31.5 year life for buildings and calculated interest related to the purchase
of the operating properties with an estimated value of approximately $205 million and $86 million for The Family
Center Properties and The Sansone Properties, respectively. Interest was determined utilizing the Company's
estimated interest rate under its lines of credit and/or the effective interest rate associated with the
mortgage debt assumed. No interest expense was presented relating to shopping centers under development and
expansion as such interest costs would have been capitalized.
(2) No revenues or expenses have been included in the pro forma statement of operations for Easton Market, one of The
Columbus Properties; since the center was either under development or in lease-up during 1997.
(3) General and administrative expenses reflect the operating expenses of the Hermes Associates, LTD.
management/operating company.
(4) Minority interest equity expense reflects the expense relating to the operating partnership units issued in
partial consideration for the purchase of The Family Centers Properties. Operating partnership units are, in
certain circumstances and, at the option of the Company, exchangeable into 3,630,668 common shares of the Company.
In addition, the Company has guaranteed the value of the operating partnership units for the period two years from
the date of issuance. The guarantee is determined with reference to the common shares of the Company. The final
number of operating partnership units issued as consideration will not be known until after expiration of the
guarantee period.
(5) Operating results for the Tanasbourne, Oregon shopping center are not presented as this shopping center was under
development during the year.
(6) Equity in net income (loss) of joint ventures represents the Company's equity in net income (loss) relating to its
50% joint venture interest in the operating/management company acquired from The Sansone Group.
</TABLE>
F-18
<PAGE> 22
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(c) Reflects revenues and expenses of the four joint venture properties for
the year ended December 31, 1997 in which an equity interest was
acquired as follows:
<TABLE>
<CAPTION>
Lennox Town Washington Dublin Village
Center Sun Center Park Plaza Center
Columbus, OH(1) Columbus, OH Dayton, OH Columbus, OH Total
-------------- ------------ ---------- ------------ -----
<S> <C> <C> <C> <C> <C>
Revenues $ 2,390 $ 4,008 $ 2,474 $ 4,888 $13,760
------- ------- ------- ------- -------
Operating and maintenance 165 217 294 608 1,284
Real estate taxes 319 344 298 557 1,518
Depreciation (2) 604 851 452 787 2,694
Interest (3) 1,283 1,993 1,073 1,703 6,052
------- ------- ------- ------- -------
2,371 3,405 2,117 3,655 11,548
------- ------- ------- ------- -------
Net Income 19 603 357 1,233 $ 2,212
Ownership interest 50% 79.45% 50% 80% =======
------- ------- ------- -------
Equity in net income of joint ventures $ 9 $ 480 $ 179 $ 986 $ 1,654
======= ======= ======= ======= =======
(1) Revenues and expenses prior to April 1, 1997 are not included in the pro forma statement of operations since
the center was in the lease up phase.
(2) Determined depreciation utilizing a 31.5 year life for building based on the preliminary purchase price
allocation at the effective interest rate associated with the mortgage debt assumed.
(3) An aggregate interest cost of $1,212 associated with the purchase of the Company's equity interest in these
properties is calculated at the Company's estimated interest rate under its lines of credit or at the
effective interest rate associated with the mortgage debt assumed.
</TABLE>
In addition to cash, the Company's purchase price was funded through
the issuance of operating partnership units (OP Units) exchangeable, at
the option of the Company and under certain circumstances, into 116,892
of the Company's common shares. The minority interest expense
associated with the OP Units is estimated to be $147 for the year ended
December 31, 1997.
(d) Represents the elimination of the minority interest expense and the
related expense incurred by the Company due to the purchase of the
minority interest in a shopping center located in North Olmsted, Ohio
in March 1998.
(e) The general and administrative expenses of the Company have been
adjusted by $750 to reflect the estimated increased expenses expected
to be incurred associated with additional operating personnel and
related costs attributable to the increase in the Company's portfolio
of properties resulting from acquisitions and development activities.
(f) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
3,350,000 common shares (pre-split) completed in January 1997.
(g) Reflects the net increase in interest cost of $66 relating to variable
rate indebtedness repaid with the proceeds from the sale of $75 million
7.125% Pass-through Assets Trust Securities completed in March 1997.
Pro forma interest is estimated at $1,103 and interest savings on the
variable rate indebtedness repaid is estimated at $1,037.
(h) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
1,300,000 common shares (pre-split) completed in June 1997.
F-19
<PAGE> 23
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(i) The interest expense adjustment relating to the issuance of $302
million Medium Term Notes completed in 1997 and 1998 is not reflected
herein as the net interest adjustment is considered insignificant.
(j) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
507,960 common shares (pre-split) completed in September 1997.
(k) Reflects the reduction of interest costs relating to variable rate
indebtedness effectively repaid with the proceeds from the sale of
316,800 common shares (pre-split) completed in December 1997.
(l) The issuance of 669,639 common shares (pre-split) completed in April
1998, or utilization of the proceeds derived from the sale thereof, are
not reflected herein prior to their issuance as the proceeds were
considered to be used to acquire shopping centers with no previous
operating history and/or for properties under development. Accordingly,
the Company would not have issued these securities until the earlier of
the date of issuance or the date the centers were acquired.
(m) An interest expense adjustment relating to the issuance of 4,000,000
Class C Depositary Shares completed in July 1998, is not reflected
herein prior to the issuance as the proceeds were considered to be used
to acquire shopping centers with no previous operating history and/or
for properties under development. Accordingly, the Company would not
have issued these securities until the earlier of the date of issuance
or the date the centers were acquired.
(n) An interest expense adjustment relating to the issuance of 2,160,000
Class D Depositary Shares completed in August and September 1998, is
not reflected herein prior to the issuance as the proceeds were
considered to be used to acquire shopping centers with no previous
operating history and/or for properties under development. Accordingly,
the Company would not have issued these securities until the earlier of
the date of issuance or the date the centers were acquired.
(o) Reflects the operating results of the six properties owned by the
Company and transferred into a 50% owned joint venture.
The equity in net income of the joint venture is as follows:
<TABLE>
<S> <C>
Revenues $22,800
-------
Operating and maintenance 1,604
Real estate taxes 3,413
Depreciation 3,741
Interest 7,073
-------
15,831
-------
Net income 6,969
Ownership interest 50%
-------
Equity in net income of joint venture $ 3,485
=======
</TABLE>
Operating results for the Tanasbourne, Oregon; Ahwatukee, Arizona and
Eagan, Minnesota shopping centers are not presented prior to their
acquisition date as these shopping centers were under development
during 1998 and 1997.
Management fees of $764 represents the Company's fees earned through
the management of these properties.
Determined depreciation utilizing a 40 year life for buildings and
calculated interest related to the purchase of the operating centers.
Interest was determined based on the effective interest rate
associated with the mortgage debt incurred similtaneously with the
transfer of these properties.
Reflects an aggregate interest savings of $9,667 associated with the
repayment of the Company's lines of credit with proceeds of $192
million received by the Company simultaneously with the transfer of
these properties to a joint venture. The adjustment is calculated
at the Company's estimated interest rate incurred under its lines of
credit.
F-20
<PAGE> 24
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -----------------------------------------------
(Unaudited)
(p) Pro forma income per common share is based upon the weighted average
number of common shares assumed to be outstanding during 1997 and
includes all shares issued in conjunction with the common share
offerings in 1997. The 669,639 shares (pre-split) issued in April 1998
were not reflected either in the pro forma statement of operations or
in the earnings per share calculation prior to their issuance as the
proceeds were not considered to be received until the date the
developed shopping centers were acquired in 1998 since such centers had
no operating history.
Effective August 3, 1998, the Company executed a two-for-one stock
split, for shareholders of record on July 27, 1998. All per share
information and number of shares outstanding reflect the stock split.
In accordance with the SFAS 128, earnings per share before
extraordinary item is calculated as follows (in thousands):
<TABLE>
<S> <C>
Income before extraordinary item $ 70,174
Less: Preferred stock dividend (14,200)
--------
Basic EPS - Income before extraordinary item applicable to common
shareholders $ 55,974
========
Diluted EPS - Income before extraordinary item applicable to common
shareholders plus assumed conversions $ 55,974
========
NUMBER OF SHARES:
Basic - average shares outstanding 54,592
Effect of dilutive securities:
Stock options 350
Joint venture partnership 384
Restricted stock 7
--------
Diluted Shares 55,333
========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 1.03
========
Diluted $ 1.01
========
</TABLE>
F-21
<PAGE> 25
DEVELOPERS DIVERSIFIED REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
- ----------------------------------------------------------
(Unaudited)
The following unaudited statement is a pro forma estimate of taxable income and
operating funds available for the year ended December 31, 1997. The pro forma
statement is based on the Company's historical operating results for the
twelve-month period ended December 31, 1997 adjusted for the effect of: (i)
historical operations of the Acquired Properties; (ii) Medium Term Notes
offerings completed in 1997 and 1998; (iii) 3,500,000 common share (pre-split)
offering completed in January 1997; (iv) Pass-through Asset Trust Securities
issued in March 1997; (v) 1,300,000 common share (pre-split) offering completed
in June 1997; (vi) 509,760 common share (pre-split) offering completed in
September 1997; (vii) 316,800 common share (pre-split) offering completed in
December 1997; (viii) the purchase by the Company of a partner's minority
interest in one shopping center; (ix) 669,639 common share (pre-split) offering
completed in April 1998; (x) 4,000,000 Class C Depositary Shares offering
completed in July 1998; (xi) 2,160,000 Class D Depositary Shares offering
completed in August and September 1998 and certain other items related to
operations which can be factually supported. This statement does not purport to
forecast actual operating results for any period in the future.
This statement should be read in conjunction with (i) the historical financial
statements included in the Company's Forms 10-K and 10-Q for the year ended
December 31, 1997 and the nine months ended September 30, 1998 and (ii) the pro
forma condensed financial statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
<S> <C>
DDRC historical income before extraordinary item, exclusive of property depreciation and amortization
(Note 1) ................................................................................................. $ 99,835
Acquired Properties - historical earnings from operations, as adjusted, exclusive of depreciation and
amortization (Note 2) ................................................................................... 9,266
Pro forma adjustments reflecting the purchase of minority interests .......................................... (65)
Pro forma adjustments reflecting the transfer of six properties to a joint venture ........................... (3,869)
Pro forma adjustments arising from the utilization of the proceeds from the issuance of Medium
Term Notes to repay variable rate indebtedness ............................................................ -
Pro forma adjustments reflecting the decrease in interest expense arising from the utilization of
the proceeds from the 3,350,000 common share offering ..................................................... 316
Pro forma adjustments arising reflecting the increase in interest expense from the utilization of the proceeds
from the issuance of Pass-through Asset Trust Securities to repay variable rate indebtedness .............. (66)
Pro forma adjustments arising from the utilization of the proceeds from the 1,300,000 common share offering .. 1,771
Pro forma adjustments arising from the utilization of the proceeds from the 507,960 common share offering .... 903
Pro forma adjustments arising from the utilization of the proceeds from the 316,800 common share offering .... 748
Pro forma adjustments arising from the utilization of the proceeds from the 669,639 common share offering .... -
Pro forma adjustments arising from the utilization of the proceeds from the 4,000,000 Class C Depositary
Preferred Share offering ................................................................................. -
Pro forma adjustments arising from the utilization of the proceeds from the 2,160,000 Class D Depositary
Preferred Share Offering ................................................................................. -
Estimated tax depreciation and amortization (Note 3):
Estimated 1997 tax depreciation and amortization ............................................................. (25,088)
Pro forma tax depreciation for Properties acquired during 1997 ............................................... (527)
Pro forma tax depreciation for Properties acquired during 1998 ............................................... (9,050)
--------
Pro forma taxable income before dividends deduction .......................................................... 74,174
Estimated dividends deduction (Note 4) ................................................................... (82,986)
--------
$ (8,812)
========
Pro forma taxable net operating income ................................................................... $ -
========
</TABLE>
F-22
<PAGE> 26
DEVELOPERS DIVERSIFIED REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
- ----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS):
<S> <C>
Pro forma taxable operating income before dividend deduction $ 74,174
Add pro forma depreciation ................................. 34,665
--------
Estimated pro forma operating funds available (Note 5) ..... $108,839
========
</TABLE>
Note 1 - The historical earnings from operations represents the Company's
earnings from operations for the twelve months ended December 31, 1997
as reflected in the Company's historical financial statements.
Note 2 - The historical earnings from operations for the properties acquired
in 1997 and 1998 represent the revenues and certain expenses as
referred to in the pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 included elsewhere
herein.
Note 3 - Tax depreciation for the Company is based upon the Company's tax
basis in the properties which exceeds the historical cost basis, as
reflected in the Company's financial statements in accordance with
generally accepted accounting principles, by approximately $18 million
before accumulated depreciation. The costs are generally depreciated on
a straight-line method over a 40-year life for tax purposes.
Note 4 - Estimated dividends deduction is calculated as follows:
<TABLE>
<S> <C>
Common share dividend (54,592,000 shares x $1.26 per share) $68,786
Class A Preferred Shares 10,011
Class B Preferred Shares 4,189
Class C Preferred Shares -
Class D Preferred Shares -
-------
$82,986
=======
</TABLE>
Note 5 - Operating funds available does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund
cash needs.
F-23
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY
CORPORATION
Date December 4, 1998 /s/ William H. Schafer
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William H. Schafer
Vice President and Chief Financial
Officer
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