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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 5, 1998
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 1-11690 34-1723097
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(State or other Jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification Number)
34555 Chagrin Boulevard, Moreland Hills, Ohio 44022
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Registrant's telephone number, including area code (440) 247-4700
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N/A
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(Former name of former address, if changed since last report)
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Item 5. Other Events
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In a press release dated August 5, 1998, the Company announced its
earnings information for the Company's second quarter of 1998. the following is
the text of the press release modified by redacting information relating to
funds from operation and information relating to the Company's senior debt
rating by a national rating agency.
DEVELOPERS DIVERSIFIED REALTY REPORTS
SECOND QUARTER 1998 OPERATING RESULTS
CLEVELAND, OHIO, AUGUST 5, 1998 - All information contained in this
release pertaining to the number of common shares and per share amounts reflect
the Company's two-for-one stock split which was effective August 3, 1998.
Developers Diversified Realty Corporation (NYSE: DDR), a real estate investment
trust ("REIT"), today announced that second quarter 1998 net income was $19.1
million or $0.27 per share (basic) for the second quarter of 1998, an increase
of 20.0% over second quarter 1997 net income of $15.9 million or $0.25 per share
(basic). Net income for the six month period ended June 30, 1998 was $36.3
million or $0.52 per share (basic) as compared to $33.5 million or $0.53 per
share (basic) in 1997.
Commenting on today's announcement Scott A. Wolstein, DDR's chairman
and chief executive officer commented, "We're pleased with these quarterly
results which reflect that our Company continues to perform well on all
cylinders, and that our portfolio continues to achieve positive rental growth."
LEASING:
Leasing and expansion activity continued to enhance operating results.
Average annualized shopping center base rent per leased square foot, including
those properties owned through joint ventures increased 3.6% to $8.54 at June
30, 1998, compared to $8.24 at June 30, 1997. Aggregate base and percentage
revenues from 1997 Core Portfolio Properties (i.e. shopping center properties
owned since January 1, 1997) increased approximately $3.3 million for the six
months ended June 30, 1998, as compared to the same period in 1997, representing
a 6.3% increase. At June 30, 1998 the in-place occupancy rate of the Company's
portfolio was at 95.9% as compared to 94.7% at June 30, 1997. As of June 30,
1998, the Company's portfolio was actually 97.3% leased which includes leases
signed where occupancy had not occurred as of that date.
For reporting tenants representing approximately 15.9 million square
feet of the Company's shopping center portfolio, same store sales for the latest
twelve month period increased 3.3% to $229 per square foot, compared to $222 per
square foot for the previous twelve month period.
EXPANSIONS:
The Company is currently expanding/redeveloping ten of its shopping centers,
listed below:
- 82,000 square foot former Wal-Mart unit to be replaced by Sears in Mt.
Vernon, Illinois along with a refurbishment of the center, which is
currently underway
- 190,000 square foot Wal-Mart Superstore expansion at Pamlico Plaza in
Washington, North Carolina
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- 24,000 square foot expansion/redevelopment at Tarpon Square shopping
center in Tarpon Springs, Florida, including Staples and additional
retail space
- 166,000 square foot Cinemark and Home Depot expansion/development at
Macedonia Commons in Macedonia, Ohio
- 45,000 square foot JoAnn, ETC. expansion/redevelopment at The Plazas at
Great Northern in North Olmsted, Ohio
- 66,300 square foot expansion/redevelopment at Berlin Mall in Berlin,
Vermont where Wal-Mart is replacing Rich's Department Store
- 18,000 square foot expansion at Barrington Town Square in Aurora, Ohio
- 25,000 square foot Kmart Expansion at Paul Bunyan Mall in Bemidji,
Minnesota
- 64,000 square foot Wal-Mart expansion at River Towne Square in New
Bern, North Carolina
- 70,000 square foot Burlington Coat Factory expansion at Eastwood
Festival in Birmingham, Alabama
The Company is also scheduled to commence expansion/redevelopment
projects during the latter half of 1998 at seven additional shopping centers.
ACQUISITIONS:
The following acquisitions occurred subsequent to March 31, 1998:
In April 1998, the Company acquired from Continental Real Estate,
interests in three additional shopping centers located in the Columbus, Ohio
area. Combined, these shopping centers will have approximately 1.0 million
square feet of total gross leasable area. The Company's proportionate share of
the investment cost will approximate $93.4 million upon completion of
approximately 345,000 square feet which is currently under construction. The
portion under construction has an estimated cost of approximately $42.4 million
and the Company is scheduled to close on this investment periodically throughout
1998.
In April 1998, the Company acquired the remaining ownership interest in
a 584,000 square foot shopping center in Princeton, New Jersey at a total cost
of approximately $36.4 million for consideration in the form of $27.8 million of
debt assumed and $0.8 million of operating partnership units and cash. The
Company had invested approximately $7.8 million in the shopping center at the
end of December 1997.
In July 1998, the Company acquired from Hermes Associates of Salt Lake
City, Utah, nine shopping centers and eight additional expansion, development or
redevelopment projects. The nine shopping centers total 2.8 million square feet
of total gross leasable area. The total cost of this portfolio was approximately
$310 million.
In July 1998, the Company also acquired the Phase II development of a
156,000 square foot shopping center in Tanasbourne, Oregon, adjacent to its
existing center at an aggregate cost of approximately $21.9 million.
The Company acquired 13 shopping centers aggregating approximately 1.6
million square feet of GLA in the St. Louis area from the Sansone Company in
July 1998. The Company also acquired a 50%
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investment the Sansone Group's operating company and development company. The
total purchase price aggregated approximately $167 million.
On August 4, 1998 the Company, in a joint release with American
Industrial Properties REIT [NYSE:IND] ("AIP"), announced the execution of a
definitive agreement providing for the strategic investment in AIP by the
Company. Under the terms of the Share Purchase Agreement dated to be effective
as of July 30, 1998, The Company purchased 949,147 newly issued common shares of
beneficial interest at $15.50 per share for approximately $14.7 million. Under
the terms of a separate agreement, also dated to be effective as of July 30,
1998, the Company, in exchange for five industrial properties previously owned
by the Company and valued at approximately $19.5 million, has acquired
approximately 1.3 million additional newly issued AIP shares of beneficial
interest. Combined, the Company's acquired shares represent 19.9% of AIP's
outstanding shares prior to the Company's purchase. A second purchase by the
Company of approximately 5.2 million newly issued shares of AIP for $81.0
million is subject to shareholder approval at a Special Meeting of AIP
Shareholders to be held before the end of 1998. Concurrent with entering into
the Agreement, AIP increased its Board of Trust Managers by four positions and
appointed the Company's designees Scott A. Wolstein, Albert T. Adams, Robert H.
Gidel and James A. Schoff to the Board. Mr. Wolstein has been named AIP's
Chairman of the Board.
DEVELOPMENTS:
The Company has commenced construction on two shopping centers. The
first is a 200,000 square foot Phase II development located adjacent to the
Company's Erie, Pennsylvania center, and is to be anchored by Home Depot (not
owned by the Company), PETsMART and Circuit City. The second is a 445,000 gross
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 be anchored by Home Depot (not owned by the Company), Cinemark
Theaters, Hen House Supermarket, OfficeMax, Marshalls, Old Navy and PETsMART.
Both the Erie, Pennsylvania (Phase II) and Merriam, Kansas shopping centers are
scheduled for completion during the last half of 1998.
The Company has also commenced the initial development of three
additional shopping centers: (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 during the fourth
quarter of 1998 and first half of 1999.
The Company has entered or intends to enter into agreements for seven
additional projects with various developers throughout the country at a
projected cost aggregating approximately $277 million. The majority of these
projects should commence development in 1998 and are currently scheduled for
completion in 1999 and 2000.
In May 1998, the Company formed DDR OliverMcMillian ("DDROM"), a new
private REIT with OliverMcMillian, LLC, based in San Diego, California to
develop, acquire, operate and manage urban entertainment and retail projects
throughout the United States. DDROM's first investments will be the completion
of eight OliverMcMillian initiated urban entertainment and retail projects
located in Southern California, Reno, Nevada and Tacoma, Washington with a
projected cost of approximately $256 million.
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FINANCINGS:
In January 1998, the Company issued, through its Medium Term Note
program, $100 million of senior unsecured fixed rate notes with a ten year
maturity and a 6.63% coupon rate. The proceeds were used to repay variable rate
borrowings on the Company's revolving credit facilities.
In March 1998, the Company announced that it increased the amount of
its primary unsecured revolving credit facility to $250 million from $150
million, reduced the pricing to .85% over LIBOR from 1.10% over LIBOR and
extended the term for an additional year through April 2001. The amended and
restated facility also continues to provide for a competitive bid option for up
to 50% of the facility amount. The Company recognized a non cash extraordinary
charge of approximately $0.9 million ($0.02 per share) in the first quarter of
1998 relating to the write-off of unamortized deferred finance costs associated
with the former revolving credit facility. In June 1998, the Company increased
the amount of this unsecured revolving credit facility to $300 million from $250
million. The Company also increased the amount of its other unsecured revolving
credit facility to $20 million from $10 million.
In April 1998, the Company completed a 669,639 common share offering
through a registered unit investment trust and received net proceeds of
approximately $25.3 million which were primarily used to repay variable rate
borrowings on the Company's unsecured revolving credit facilities.
In July 1998, the Company completed the sale of 4,000,000 Class C
depository preferred shares. The net proceeds of approximately $96.5 million
were used to repay variable rate borrowings on the Company's unsecured revolving
credit facilities.
In July 1998, the Company issued, pursuant to its Medium Term Note
program, $100 million senior unsecured fixed rate notes with a 20 year maturity
and a 7.5% coupon rate. The proceeds were used to repay variable rate borrowings
on the Company's revolving credit facilities.
In July 1998, the Company announced that the board of directors
approved a two-for-one stock split to shareholders of record on July 27, 1998.
On August 3, 1998 each shareholder received one share of common stock for each
share of common stock held. This stock split was effected in the form of a stock
dividend.
Developers Diversified Realty Corporation is a fully-integrated real
estate company which acquires, develops, owns, leases and manages shopping
centers and business centers operating as a self-administered and self-managed
Real Estate Investment Trust.
Developers Diversified Realty Corporation considers portions of this
information to be forward-looking statements within the meaning of Section 27A
of the Securities Exchange Act of 1933 and Section 21 E of the Securities
Exchange Act of 1934, both as amended, with respect to the Company's expectation
for future periods. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be achieved.
For this purpose, any statements contained herein that are not historical fact
may be deemed to be forward looking statements. There are a number of important
factors that could cause the results of the Company to differ materially from
those indicated by such forward-looking statements, including among other
factors, local conditions such as oversupply of space or a reduction in demand
for real estate in the area, competition from other available space, dependence
on rental income from real property or the loss of a major tenant.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
FINANCIAL HIGHLIGHTS
(IN THOUSANDS - EXCEPT PER SHARE DATA)(1)
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rent (2) $ 39,713 $ 29,637 $ 75,846 $ 57,204
Percentage and overage rents (2) 824 550 1,927 1,607
Recoveries from tenants 9,790 7,545 18,827 14,770
Management fee income 808 792 1,564 1,515
Other (3) 1,845 2,342 4,315 3,224
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52,980 40,866 102,479 78,320
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EXPENSES:
Operating and maintenance 4,210 3,450 8,264 7,124
Real estate taxes 6,536 4,933 12,494 9,325
General and administrative (2) 3,071 2,667 6,003 5,026
Interest 13,314 8,431 24,767 16,478
Depreciation and amortization 10,084 7,800 19,220 15,206
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37,215 27,281 70,748 53,159
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Income before equity in net income of joint ventures, minority
equity interests, gain on sales of real estate and extraordinary
item 15,765 13,585 31,731 25,161
Equity in net income of joint ventures (3) 3,473 2,617 5,712 5,334
Minority equity interests (101) (261) (291) (526)
Gain on sales of real estate - - - 3,526
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Income before extraordinary item 19,137 15,941 37,152 33,495
Extraordinary item - write off of unamortized deferred finance
costs - - (882) -
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NET INCOME $ 19,137 $ 15,941 $ 36,270 $ 33,495
========= ========= ========= =========
NET INCOME, APPLICABLE TO COMMON SHAREHOLDERS $ 15,587 $ 12,391 $ 29,170 $ 26,395
========= ========= ========= =========
Per share data: (1)
Basic earnings per common share:
Income before extraordinary item $ 0.27 $ 0.25 $ 0.54 $ 0.53
Extraordinary item - - (.02) -
--------- --------- --------- ---------
Net income $ 0.27 $ 0.25 $ 0.52 $ 0.53
========= ========= ========= =========
Diluted earnings per common share:
Income before extraordinary item $ 0.27 $ 0.24 $ 0.52 $ 0.52
Extraordinary item - - (.02) -
--------- --------- --------- ---------
Net income $ 0.27 $ 0.24 $ 0.50 $ 0.52
========= ========= ========= =========
Dividends $ 0.3275 $ 0.315 $ 0.655 $ 0.63
========= ========= ========= =========
Basic - average shares outstanding (thousands) 56,703 50,328 56,105 49,682
========= ========= ========= =========
Diluted - average shares outstanding (thousands) 58,003 51,226 57,394 50,545
========= ========= ========= =========
</TABLE>
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(1) Effective August 3, 1998, the Company executed a two-for-one stock
split, for shareholders of record on July 27, 1998. All per share
information and number of shares outstanding reflects the stock split.
(2) Increases in shopping center base, percentage and overage rental
revenues for the six months ended June 30, 1998 as compared to 1997,
aggregated $19.0 million and consisted of $3.3 million relating to
leasing and expansion of core portfolio properties (an increase of 6.3%
over 1997), $13.8 million relating to 1997 and 1998 acquisitions and
$2.2 million relating to developments. These increases were offset by a
decrease of $0.3 million relating to the sale of one shopping center in
December 1997. Included in the rental revenues for the six months ended
June 30, 1998 and 1997 is approximately $1.5 million and $0.8 million,
respectively, of revenue resulting from the recognition of straight
line rents primarily associated with recent acquisitions and
developments.
(3) Other income for the six months ended June 30, 1998 included
approximately $1.7 million in lease termination revenues and
development fee income of which approximately $0.5 million is reflected
in the three month period ended June 30, 1998. Other income for the six
month period ended June 30, 1997 included approximately $1.8 million of
lease termination revenues and development fee income of which
approximately $1.5 million is reflected in the three month period ended
June 30, 1997.
(4) General and administrative expenses include internal leasing salaries,
legal salaries and related expenses associated with the leasing of
space which are charged to operations as incurred. All internal costs
associated with acquisitions are expensed as incurred.
(5) The following is a summary of the Company's combined operating results
relating to joint ventures (in thousands):
<TABLE>
<CAPTION>
Three month period Six month period
ended June 30, ended June 30,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues from operations (a) $24,436 $20,648 $44,946 $39,952
------- ------- ------- -------
Operating expenses 5,740 5,067 10,529 9,726
Depreciation 3,492 2,962 6,537 5,666
Interest expense 9,515 7,291 17,642 13,719
------- ------- ------- -------
18,747 15,320 34,708 29,111
------- ------- ------- -------
Income before gain on sales of real estate 5,689 5,328 10,238 10,841
Gain on sales of real estate 2,812 - 2,812 -
------- ------- ------- -------
Net income $ 8,501 $ 5,328 $13,050 $10,841
======= ======= ======= =======
DDRC Ownership interests (b) $ 3,688 $ 2,617 $ 5,927 $ 5,334
======= ======= ======= =======
</TABLE>
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(a) Revenues for the three month periods ended June 30, 1998 and
1997 include approximately $0.7 million and $0.8 million
resulting from the recognition of straight line rents of which
the Company's proportionate share is $0.3 million and $0.4
million respectively. Revenues for the six month periods ended
June 30, 1998 and 1997 include approximately $1.3 million and
$1.4 million resulting from the recognition of straight line
rents of which the Company's proportionate share is $0.6
million and $0.7 million respectively.
(b) At June 30, 1998, the Company owned a 50% joint venture
interest relating to 15 shopping center properties, an 80%
joint venture interest in two shopping center properties, a
35% joint venture interest in one shopping center property and
a 25% interest in the Prudential Retail Value Fund. 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.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
FINANCIAL HIGHLIGHTS
(IN THOUSANDS)
Selected Balance Sheet Data:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS:
Real estate and rental property:
Land $ 216,137 $ 183,809
Land under development 32,013 23,668
Buildings 1,216,996 1,071,717
Fixtures and tenant improvements 21,092 18,418
Construction in progress 45,964 28,130
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1,532,202 1,325,742
Less accumulated depreciation (190,903) (171,737)
----------- -----------
1,341,299 1,154,005
Other real estate investments - 72,149
Cash 1,882 18
Advances to and investments in joint ventures 185,148 136,267
Other assets 39,227 29,479
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$ 1,567,556 $ 1,391,918
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LIABILITIES:
Indebtedness:
Revolving credit facilities $ 139,000 $ 139,700
Senior unsecured fixed rate debt 492,075 392,254
Mortgage debt 152,276 89,676
Subordinated debentures 41,277 46,891
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824,628 668,521
Other liabilities 41,473 37,701
----------- -----------
866,101 706,222
Minority interest 6,978 16,646
Shareholders' equity 694,477 669,050
----------- -----------
$ 1,567,556 $ 1,391,918
=========== ===========
</TABLE>
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
FINANCIAL HIGHLIGHTS
(IN THOUSANDS)
Selected Balance Sheet Data (Continued):
Combined condensed balance sheets relating to the Company's joint ventures:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Land $ 165,732 $ 147,466
Buildings 552,065 482,153
Fixtures and tenant improvements 1,704 1,315
Construction in progress 97,664 19,172
--------- ---------
817,165 650,106
Accumulated depreciation (47,554) (26,113)
--------- ---------
Real estate, net 769,611 623,993
Other assets 54,093 25,817
--------- ---------
$ 823,704 $ 649,810
========= =========
Mortgage debt (a) $ 482,069 $ 389,160
Notes and accrued interest
payable to DDRC 41,022 32,667
Other liabilities 20,368 9,549
--------- ---------
543,459 431,376
Accumulated equity 280,245 218,434
--------- ---------
$ 823,704 $ 649,810
========= =========
</TABLE>
(a) The Company's proportionate share of joint venture mortgage debt
aggregated approximately $250.4 million and $190.3 million at June 30,
1998 and December 31, 1997, respectively.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY
CORPORATION
Date August 11, 1998 /s/ William H. Schafer
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William H. Schafer
Vice President and Chief Financial Officer
