<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 25, 1998
-----------------
DEVELOPERS DIVERSIFIED REALTY CORPORATION
----------------------------------------------------------------------
(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
----------------------------------------------------------------------
Registrant's telephone number, including area code (440) 247-4700
---------------
N/A
----------------------------------------------------------------------
(Former name of former address, if changed since last report)
<PAGE> 2
This Form 8-K/A amends Item 2 of Developers Diversified Realty Corporation's
Current Report on Form 8-K previously filed with the Securities and Exchange
Commission on April 7, 1998. The acquisitions were inadvertantly filed as an
Item 2 instead of an Item 5 Other Events. This Form 8-K/A is also being filed
for the purpose of filing the financial statement and pro forma financial
information required by Item 7.
Item 5. Other Events
- --------------------
On March 23, 1998, through a single transaction with Continental Real Estate
Companies of Columbus, Ohio, the Company completed the acquisition of 10
shopping centers, two of which were acquired through joint ventures, (the
"Acquisition Properties"). The shopping centers total 1.2 million square feet of
retail space, all of which is Company-owned. The Company's net investment in the
Acquisition Properties aggregated approximately $87 million of assets including
a $5.2 million equity investment in a 50% owned joint venture, before any
contingent consideration. The Company's net investment was initially funded
through proceeds made available through revolving credit facilities and cash of
approximately $30.4 million, mortgages assumed of approximately $51.8 million, a
minority equity interest valued at approximately $2.0 million, and the issuance
of approximately 70,000 Operating Partnership ("OP") Units valued at
approximately $2.8 million. The OP Units are convertible, on a one for one
basis, into shares of the Company's common stock. The ten shopping centers or
interests therein were owned by individual partnerships having commonality of
ownership. In addition, the Company entered into an agreement, with the same
entity mentioned above, to acquire three additional shopping centers or
interests therein located in the Columbus, Ohio area. These shopping centers
have approximately 1.0 million square feet of total GLA and have an estimated
purchase price of approximately $107 million of which the Company's net
investment will approximate $91 million. These properties are referred to herein
as the "Probable Acquisition Properties." Although the Company believes it is
probable that these properties will be acquired, there can be no assurance that
the purchase transactions will be consummated. Information regarding the
Acquisition Properties and the Probable Acquisition Properties is attached as
SCHEDULE A.
The acquisition of, or investment in, the Acquisition Properties, or with
respect to the Probable Acquisition Properties will be, pursuant to individual
agreements for the sale and purchase of each property or interests therein
between each selling entity and the Company. The factors considered by the
Company in determining the price to be paid for the properties included their
historical and/or expected cash flow, nature of the tenants and terms of leases
in place, occupancy rates, opportunities for alternative and/or new tenancies,
current operating costs and taxes on the properties and anticipated changes
therein under Company ownership, the outlots and expansion areas available, the
physical condition and locations of the properties, the anticipated effect on
the Company's financial results (including particularly Funds From Operations)
and the ability to sustain and potentially increase its distributions to Company
shareholders, and other factors. The Company took into consideration
capitalization rates at which it believes other shopping centers have recently
sold, but determined the price it was willing to pay primarily on the factors
discussed above related to the properties themselves and their fit with the
Company's operations. Separate independent appraisals were not obtained in
connection with the acquisition of the properties by the Company. The Company,
after investigation of the properties, is not aware of any material factors,
other than those enumerated above, that would cause the financial information
reported, where available, to not be necessarily indicative of future operating
results.
During the period January 1, 1998 to March 23, 1998, through individual
transactions, the Company completed the acquisition of two shopping centers (Bel
Air Centre located in Detroit, MI and Country Club Mall located in Idaho Falls,
ID), neither of which individually constitutes a "significant subsidiary." The
shopping centers total 0.8 million square feet of retail space, of which
approximately 0.5 million square feet is Company-owned. The Company's net
investment in the two shopping centers aggregated approximately $40.2 million,
before any
<PAGE> 3
contingent consideration. The Company's net investment was initially funded
through proceeds made available through revolving credit facilities, cash and
liabilities assumed aggregating approximately $20.5 million and a mortgage
assumed of approximately $19.7 million. Country Club Mall was acquired from a
limited partnership in which the Company's Chairman Emeritus, the Chairman of
the Board and the Vice-Chairman of the Board owned, in the aggregate through a
separate partnership, a 1% general partner interest. Management believes that
the acquisition of this property was completed on terms at least as favorable to
the Company as could have been obtained from an unrelated third party. The
initial purchase price of the property was approximately $6.5 million. In
accordance with the purchase agreement, the Company may be required to pay the
seller an additional $0.8 million upon the leasing of vacant space in the
center. Information regarding these two properties is included on SCHEDULE A.
The acquisition of, or investment in, these two properties, was pursuant to
individual agreements for the sale and purchase of each property between each
selling entity and the Company. The factors considered by the Company in
determining the price to be paid for the properties included their historical
and/or expected cash flow, nature of the tenants and terms of leases in place,
occupancy rates, opportunities for alternative and/or new tenancies, current
operating costs and taxes on the properties and anticipated changes therein
under Company ownership, the outlots and expansion areas available, the physical
condition and locations of the properties, the anticipated effect on the
Company's financial results (including particularly Funds From Operations) and
the ability to sustain and potentially increase its distributions to Company
shareholders, and other factors. The Company took into consideration
capitalization rates at which it believes other shopping centers have recently
sold, but determined the price it was willing to pay primarily on the factors
discussed above related to the properties themselves and their fit with the
Company's operations. Separate independent appraisals were not obtained in
connection with the acquisition of the properties by the Company. The Company,
after investigation of the properties, is not aware of any material factors,
other than those enumerated above, that would cause the financial information
reported, where available, to not be necessarily indicative of future operating
results.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
Financial Statements
- --------------------
The statements of revenue and certain expenses included in this report encompass
the following:
* An audited statement of revenue and certain expenses for the year ended
December 31, 1997 for the following shopping centers:
- Belair Centre (acquired property)
- The Columbus Properties (acquired properties)
- Sun Center (acquired property)
- Dublin Village Center (probable acquisition property)
- Washington Park Plaza (probable acquisition property)
* Statement of revenue and certain expenses for the nine months ended
December 31, 1997 (audited) for Lennox Town Center (acquired property).
* The Country Club Mall Shopping Center historical financial information is
not presented as it is not considered material.
<PAGE> 4
* Financial information for Easton Market (probable acquisition property)
is not presented because the property is under development and,
accordingly, the related operating information does not exist and would
not be meaningful.
Pro Forma Financial Information (unaudited)
- -------------------------------------------
Unaudited pro forma financial information is presented as follows:
* Pro forma condensed consolidated balance sheet as of December 31, 1997.
* Pro forma condensed consolidated statement of operations for the year
ended December 31, 1997.
* Estimated twelve-month pro forma statement of taxable net operating
income and operating funds available.
Exhibits
- --------
(23) Consent of Independent Accountants
<PAGE> 5
SCHEDULE A
DEVELOPERS DIVERSIFIED REALTY CORPORATION
<TABLE>
<CAPTION>
Company
Date of Owned Percent Year
Shopping Center Acquisition Square Feet Occupied Completed Principal Tenants
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Country Club Mall Fred Meyer (not owned), LaMont's, Payless
Idaho Falls, ID 02/25/98 148,593 90.0% 1976 Drug Store and OfficeMax
Bel Air Centre Target, AMC Theatres, Builders Square, Farmer
Detroit, MI 03/10/98 343,502 100.0% 1989 Jack Supermarket, Toys R Us and Kids R Us
Perimeter Shopping Center
Dublin, Ohio 03/23/98 137,610 97.6% 1996 Big Bear Supermarket and Revco
OfficeMax
Barboursville, West Virginia 03/23/98 70,900 100.0% 1985 OfficeMax and Discount Emporium
Big Bear
Bellefontaine, Ohio 03/28/98 54,780 100.0% 1995 Big Bear Supermarket
Roundy's
Hamilton, Ohio 03/23/98 30,110 100.0% 1986 Roundy's
Hoggies Center
Gahanna, Ohio 03/23/98 39,285 100.0% 1995
Roundy's/Rite Aid
Pataskala, Ohio 03/23/98 33,270 100.0% 1980 Roundy's and Rite Aid
Shoppes at Turnberry
Pickerington, Ohio 03/23/98 59,495 97.3% 1990 Revco and Bank One
Derby Square Shopping Center
Grove City, Ohio 03/23/98 128,050 100.0% 1992 Big Bear Supermarket and Bank One
Lennox Town Center Target, AMC Theatres, Barnes & Noble,
Columbus, Ohio (1) 03/23/98 336,044 100.0% 1997 Staples and Old Navy
Sun Center Big Bear Supermarket, HomePlace, Babies R
Columbus, Ohio (2) 03/23/98 317,581 98.0% 1995 Us, Rhodes Furniture, SteinMart and Staples
Washington Plaza Probable
Dayton, Ohio (3) Acquisition 169,816 100.0% 1990 PharMor and Books a Million
Dublin Village Center Probable AMC Theater, PharMor, Michael's and
Columbus, Ohio (4) Acquisition 327,264 92.2% 1987 Designer Shoe Warehouse
Easton Market Probable Galyan's, Kittler Furniture, Bed Bath &
Columbus, Ohio Acquisition 508,334 94.5% 1998 Beyond, TJ Maxx and PETsMART
</TABLE>
(1) Property acquired through a joint venture in which the Company owns a 50%
interest.
(2) Property acquired through a joint venture in which the Company owns a 79.45%
interest.
(3) Property scheduled to be owned through a joint venture in which the Company
would own a 50% interest.
(4) Property scheduled to be owned through a joint venture in which the Company
would own approximately an 80% interest.
<PAGE> 6
DEVELOPERS DIVERSIFIED REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
BELAIR CENTRE
<S> <C>
Report of Independent Accountants ................................................. F-3
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 .............................................................. F-4
Notes to Statement of Revenue and Certain Expenses ................................ F-5
THE COLUMBUS PROPERTIES
Report of Independent Accountants ................................................. F-6
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 .............................................................. F-7
Notes to Combined Statement of Revenue and Certain Expenses ....................... F-8
SUN CENTER
Report of Independent Accountants ................................................. F-10
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 .............................................................. F-11
Notes to Statement of Revenue and Certain Expenses ................................ F-12
DUBLIN VILLAGE CENTER
Report of Independent Accountants ................................................. F-14
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 .............................................................. F-15
Notes to Statement of Revenue and Certain Expenses ................................ F-16
WASHINGTON PARK PLAZA
Report of Independent Accountants ................................................. F-17
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 .............................................................. F-18
Notes to Statement of Revenue and Certain Expenses ................................ F-19
LENNOX TOWN CENTER
Report of Independent Accountants ................................................. F-20
Statement of Revenue and Certain Expenses for the nine months ended
December 31, 1997 .............................................................. F-21
Notes to Statement of Revenue and Certain Expenses ................................ F-22
</TABLE>
F-1
<PAGE> 7
DEVELOPERS DIVERSIFIED REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(PRO FORMA - UNAUDITED):
Condensed Consolidated Balance Sheet as of December 31, 1997 .................... F-24
Condensed Consolidated Statement of Operations for the year ended
December 31, 1997 ............................................................. F-28
Estimated Twelve Month Pro Forma Statement of Taxable Net Operating
Income and Operating Funds Available .......................................... F-36
</TABLE>
F-2
<PAGE> 8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying statement of revenue and certain
expenses of Belair Centre for the year ended December 31, 1997. This historical
statement is the responsibility of management. Our responsibility is to express
an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Belair Centre.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Belair
Centre, on the basis described in Note 2, for the year ended December 31, 1997,
in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
April 14, 1998
F-3
<PAGE> 9
DEVELOPERS DIVERSIFIED REALTY CORPORATION
BELAIR CENTRE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue:
Minimum rents $3,472,263
Percentage and overage rents 21,130
Recoveries from tenants 1,085,916
Other income 116,436
----------
4,695,745
----------
Certain expenses:
Operating and maintenance 868,296
Real estate taxes 350,244
----------
1,218,540
----------
Revenue in excess of certain expenses $3,477,205
==========
</TABLE>
The accompanying notes are an integral part of this statement of revenue
and certain expenses.
F-4
<PAGE> 10
DEVELOPERS DIVERSIFIED REALTY CORPORATION
BELAIR CENTRE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses relates to
the operations of Belair Centre (the "Property"), located in Detroit, MI. The
shopping center was built in 1989. Developers Diversified Realty Corporation
(the "Company") acquired the property on February 24, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period 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 Property, have been
excluded. Revenues excluded consist of interest and other revenues unrelated
to the continuing operations of the Property. Expenses excluded consist of
depreciation on the building and improvements and amortization of organization
costs and other intangible assets, interest expense, management fees,
professional fees, contributions, advertising costs and other general and
administrative costs not directly related to the future operations of the
Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
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.
CONCENTRATION OF RISK
- ---------------------
Belair Centre's tenant base includes primarily national and regional
retail chains and local retailers, consequently, the Property's credit risk is
concentrated in the retail industry.
Revenues derived from the Property's two largest tenants, AMC Theatres
and Builders Square, aggregated 19.4% and 15.9%, respectively, of total base
revenues.
F-5
<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying combined statement of revenue and
certain expenses for The Columbus Properties, described in Note 1, for the year
ended December 31, 1997. This historical statement is the responsibility of
management. Our responsibility is to express an opinion on this historical
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying combined historical statement was prepared on the
basis described in Note 2, for the purpose of complying with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission (for inclusion in the
Form 8-K of Developers Diversified Realty Corporation) and is not intended to be
a complete presentation of the combined revenues and expenses of The Columbus
Properties.
In our opinion, the combined historical statement referred to above
presents fairly, in all material respects, the combined revenue and certain
expenses of The Columbus Properties on the basis described in Note 2 for the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
January 18, 1998
F-6
<PAGE> 12
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE COLUMBUS PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue:
Minimum rents $5,032,883
Percentage and overage rents 86,996
Recoveries from tenants 989,206
Other income 3,287
----------
6,112,372
----------
Certain expenses:
Operating and maintenance 541,335
Real estate taxes 472,915
----------
1,014,250
----------
Revenue in excess of certain expenses $5,098,122
==========
</TABLE>
The accompanying notes are an integral part of this combined statement
of revenue and certain expenses.
F-7
<PAGE> 13
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE COLUMBUS PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTIES
-----------------------
For purposes of the accompanying combined statement of revenue and
certain expenses, The Columbus Properties (the "Properties") represent certain
shopping center properties which Developers Diversified Realty Corporation (the
"Company") intends to acquire in 1998. A summary of the Properties is as
follows:
<TABLE>
<CAPTION>
CENTER NAME LOCATION YEAR BUILT
- ---------------------------- ------------ ----
<S> <C> <C>
Derby Square Shopping Center Columbus, OH 1992
Perimeter Shopping Center Columbus, OH 1996
Shoppes at Turnberry Columbus, OH 1990
Big Bear Shopping Center Bellefontaine, OH 1995
OfficeMax Center Barboursville, WV 1985
Roundy's Shopping Center Hamilton, OH 1986
Hoggies Retail Center New Albany, OH 1995
Roundy's and Rite Aid Pataskala, OH 1980
</TABLE>
A combined statement of revenue and certain expenses has been
presented because the Properties have commonality of ownership, are under
common control and management, and, although they will be purchased pursuant to
separate purchase agreements, are considered to be a single transaction since
their purchase was negotiated simultaneously.
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 period 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, gains on sales of
land, and other revenues unrelated to the continuing operations of the
Properties. Expenses excluded consist of depreciation on the building and
improvements and amortization of organization costs and other intangible assets,
interest expense, professional fees, charitable contributions, and other general
and administrative costs not directly related to the future operations of the
Properties.
F-8
<PAGE> 14
DEVELOPERS DIVERSIFIED REALTY CORPORATION
THE COLUMBUS PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
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.
CONCENTRATION OF RISK
- ---------------------
The Columbus Properties' tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Properties' credit
risk is concentrated in the retail industry.
Revenues derived from the Properties two largest tenants, Big Bear and
Roundy's, aggregated 33.4% and 7.4%, respectively, of total combined base
revenues.
3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT
---------------------------------------------------
On March 23, 1998, the Company acquired the Properties.
F-9
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying statement of revenue and certain
expenses of Sun Center for the year ended December 31, 1997. This historical
statement is the responsibility of management. Our responsibility is to express
an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Sun Center.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Sun
Center, on the basis described in Note 2, for the year ended December 31, 1997,
in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
January 18, 1998
F-10
<PAGE> 16
DEVELOPERS DIVERSIFIED REALTY CORPORATION
SUN CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue:
Minimum rents $3,405,262
Percentage and overage rent 32,951
Recoveries from tenants 569,123
Other income 1,041
----------
4,008,377
----------
Certain expenses:
Operating and maintenance 216,603
Real estate taxes 344,194
----------
560,797
----------
Revenue in excess of certain expenses $3,447,580
==========
</TABLE>
The accompanying notes are an integral part of this statement of
revenue and certain expenses.
F-11
<PAGE> 17
DEVELOPERS DIVERSIFIED REALTY CORPORATION
SUN CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses relates to
the operations of Sun Center (the "Property"), located in Columbus, Ohio. The
shopping center was built in 1995. Developers Diversified Realty Corporation
(the "Company") intends to acquire a majority interest in the Property in 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period 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 Property, have been
excluded. Revenues excluded consist of interest and other revenues unrelated to
the continuing operations of the Property. Expenses excluded consist of
depreciation on the building and improvements and amortization of organization
costs and other intangible assets, interest expense and other general and
administrative costs not directly related to the future operations of the
Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
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.
F-12
<PAGE> 18
DEVELOPERS DIVERSIFIED REALTY CORPORATION
SUN CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
CONCENTRATION OF RISK
- ---------------------
Sun Center's tenant base includes primarily national and regional
retail chains and local retailers, consequently, the Property's credit risk is
concentrated in the retail industry.
Revenues derived from the Property's two largest tenants, Big Bear and
HomePlace, aggregated 22.4% and 19.2%, respectively, of total base revenues.
3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT
---------------------------------------------------
On March 23, 1998, the Company acquired a 79.45% ownership interest in
the Property.
F-13
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying statement of revenue and certain
expenses of Dublin Village Center for the year ended December 31, 1997. This
historical statement is the responsibility of management. Our responsibility is
to express an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Dublin Village Center.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Dublin
Village Center, on the basis described in Note 2, for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
January 18, 1998
F-14
<PAGE> 20
DEVELOPERS DIVERSIFIED REALTY CORPORATION
DUBLIN VILLAGE CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue:
Minimum rents $3,719,068
Percentage and overage rents 39,728
Recoveries from tenants 1,117,638
Other income 11,492
----------
4,887,926
----------
Certain expenses:
Operating and maintenance 607,585
Real estate taxes 557,249
----------
1,164,834
----------
Revenue in excess of certain expenses $3,723,092
==========
</TABLE>
The accompanying notes are an integral part of this statement of
revenue and certain expenses.
F-15
<PAGE> 21
DEVELOPERS DIVERSIFIED REALTY CORPORATION
DUBLIN VILLAGE CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses, relates to
the operations of Dublin Village Center (the "Property") located in Columbus,
Ohio. The shopping center was built in 1987. Developers Diversified Realty
Corporation (the "Company") intends to acquire an equity interest of
approximately 80% in the Property in 1998, although there can be no assurance
that the purchase transaction will be consummated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period 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 Property, have been
excluded. Revenues excluded consist of interest and other revenues unrelated to
the continuing operations of the Property. Expenses excluded consist of
depreciation on the building and improvements and amortization of organization
costs and other intangible assets, interest expense and other general and
administrative costs not directly related to the future operations of the
Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
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.
CONCENTRATION OF RISK
- ---------------------
Dublin Village Center's tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Property's credit
risk is concentrated in the retail industry.
Revenues derived from the Property's two largest tenants, AMC Theatres
and PharMor, aggregated 25.9% and 7.4%, respectively, of total base revenues.
F-16
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying statement of revenue and certain
expenses of Washington Park Plaza for the year ended December 31, 1997. This
historical statement is the responsibility of management. Our responsibility is
to express an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Washington Park Plaza.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Washington
Park Plaza, on the basis described in Note 2, for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
January 18, 1998
F-17
<PAGE> 23
DEVELOPERS DIVERSIFIED REALTY CORPORATION
WASHINGTON PARK PLAZA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue:
Minimum rents $1,878,030
Recoveries from tenants 596,304
Other income 21
----------
2,474,355
----------
Certain expenses:
Operating and maintenance 293,965
Real estate taxes 298,024
----------
591,989
----------
Revenue in excess of certain expenses $1,882,366
==========
</TABLE>
The accompanying notes are an integral part of this statement of
revenue and certain expenses.
F-18
<PAGE> 24
DEVELOPERS DIVERSIFIED REALTY CORPORATION
WASHINGTON PARK PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses relates to
the operations of Washington Park Plaza (the "Property"), located in Dayton,
Ohio. The shopping center was built in 1990. Developers Diversified Realty
Corporation (the "Company") intends to acquire a fifty percent equity interest
in the Property in 1998, although there can be no assurance that the purchase
transaction will be consummated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period 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 Property, have been
excluded. Revenues excluded consist of interest and other revenues unrelated to
the continuing operations of the Property. Expenses excluded consist of
depreciation on the building and improvements and amortization of organization
costs and other intangible assets, interest expense and other general and
administrative costs not directly related to the future operations of the
Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
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.
CONCENTRATION OF RISK
- ---------------------
Washington Park Plaza's tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Property's credit
risk is concentrated in the retail industry.
Revenues derived from the Property's two largest tenants, PharMor and
CVC International, aggregated 19.6% and 12.4%, respectively, of total base
revenues.
F-19
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
We have audited the accompanying statement of revenue and certain
expenses of Lennox Town Center for the nine months ended December 31, 1997. This
historical statement is the responsibility of management. Our responsibility is
to express an opinion on this historical statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the historical statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the historical
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying historical statement is prepared on the basis
described in Note 2, for the purpose of complying with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of
Developers Diversified Realty Corporation) and is not intended to be a complete
presentation of the revenues and expenses of Lennox Town Center.
In our opinion, the historical statement referred to above presents
fairly, in all material respects, the revenue and certain expenses of Lennox
Town Center, on the basis described in Note 2, for the nine months ended
December 31, 1997, in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Cleveland, Ohio
January 18, 1998
F-20
<PAGE> 26
DEVELOPERS DIVERSIFIED REALTY CORPORATION
LENNOX TOWN CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue:
Minimum rents $1,956,462
Recoveries from tenants 417,916
Other income 15,565
----------
2,389,943
----------
Certain expenses:
Operating and maintenance 164,902
Real estate taxes 319,439
----------
484,341
----------
Revenue in excess of certain expenses $1,905,602
==========
</TABLE>
The accompanying notes are an integral part of this statement of
revenue and certain expenses.
F-21
<PAGE> 27
DEVELOPERS DIVERSIFIED REALTY CORPORATION
LENNOX TOWN CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. OPERATION OF PROPERTY
---------------------
The accompanying statement of revenue and certain expenses relates to
the operations of Lennox Town Center (the "Property"), located in Columbus,
Ohio. The shopping center was built in 1997. The accompanying presentation
represents a nine month period since prior to April 1, 1997, the Property was in
lease up and the operating information prior to that time would not be
meaningful. Developers Diversified Realty Corporation (the "Company") intends to
acquire an interest in the Property in 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
BASIS OF PRESENTATION
- ---------------------
The accompanying statement of revenue and certain expenses has been
prepared on the accrual basis of accounting.
The accompanying financial statement is not representative of the
actual operations for the period 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 Property, have been
excluded. Revenues excluded consist of interest and other revenues unrelated to
the continuing operations of the Property. Expenses excluded consist of
depreciation on the building and improvements and amortization of organization
costs and other intangible assets, interest expense and other general and
administrative costs not directly related to the future operations of the
Property.
INCOME RECOGNITION
- ------------------
Rental income is recorded on the straight line basis.
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.
F-22
<PAGE> 28
DEVELOPERS DIVERSIFIED REALTY CORPORATION
LENNOX TOWN CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
CONCENTRATION OF RISK
- ---------------------
Lennox Town Center's tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Property's credit
risk is concentrated in the retail industry.
Revenues derived from the Property's two largest tenants, AMC Theatres
and Barnes & Noble, aggregated 17.1% and 11.3%, respectively, of total base
revenues.
3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT
---------------------------------------------------
On March 23, 1998 the Company acquired a 50% ownership interest in the
Property.
F-23
<PAGE> 29
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(Unaudited)
The following unaudited pro forma condensed consolidated balance sheet is
presented as if the following had occurred as of December 31, 1997: (i) the
Company's acquisition of twelve shopping centers or interests therein which
occurred subsequent to January 1, 1998 ("Acquisition Properties"); (ii) the
Company's acquisition of the three probable acquisition properties or interests
therein ("Probable Acquisition Properties"); (iii) the Company's formation of a
joint venture with Prudential Real Estate Investors which occurred in February
1998; (iv) the sale by the Company of $100 million Medium Term Notes issued in
January 1998 and (v) the Company's purchase of a partner's minority interest in
one shopping center which occurred in March 1998. This pro forma condensed
consolidated balance sheet should be read in conjunction with the pro forma
condensed consolidated statement of operations of the Company presented herein
and the historical financial statements and notes thereto of the Company
included in the Developers Diversified Realty Corporation Form 10-K for the year
ended December 31, 1997.
The unaudited pro forma condensed consolidated balance sheet does not purport to
represent what the actual financial position of the Company would have been at
December 31, 1997.
F-24
<PAGE> 30
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Company Pro Forma Company
Historical Adjustments Pro Forma
-------------------------------------------------
<S> <C> <C> <C>
Assets:
Real estate, net $ 1,154,005 $ 212,936(a) $ 1,366,941
Other real estate investments 72,149 (54,500)(e) 17,649
Cash and cash equivalents 18 -- 18
Other assets 29,479 625(b) 30,104
Investment in and advances to
joint ventures 136,267 6,331(a) 155,572
12,974(e)
----------- --------- -----------
Total assets $ 1,391,918 $ 178,366 $ 1,570,284
=========== ========= ===========
Liabilities:
Indebtedness:
Fixed rate senior notes $ 392,254 $ 99,744(b) $ 491,998
Convertible debentures 46,891 -- 46,891
Revolving credit agreements 139,700 27,451(c) 125,625
(41,526)(e)
Mortgages payable 89,676 94,150(f) 183,826
----------- --------- -----------
Total indebtedness 668,521 179,819 848,340
Other liabilities 37,701 876 (a) 38,577
Minority interest 16,293 (16,293)(d) 3,686
3,686 (g)
Operating partnership minority interests 353 10,278 (h) 10,631
----------- --------- -----------
Total liabilities and minority interests 722,868 178,366 901,234
Shareholders' equity:
Class A Preferred Shares 105,375 -- 105,375
Class B Preferred Shares 44,375 -- 44,375
Common shares 2,769 -- 2,769
Paid-in-capital 580,509 -- 580,509
Accumulated dividends in excess of
net income (63,517) -- (63,517)
----------- --------- -----------
669,511 -- 669,511
Less: Unearned compensation -
restricted stock (461) -- (461)
----------- --------- -----------
669,050 -- 669,050
----------- --------- -----------
Total Liabilities and
Shareholders' Equity $ 1,391,918 $ 178,366 $ 1,570,284
=========== ========= ===========
</TABLE>
F-25
<PAGE> 31
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(Unaudited)
(a) Represents the purchase of or investment in the twelve Acquired Properties
and the three Probable Acquisition Properties. The Acquisition Properties
were purchased by the Company during the period January 1, 1998 through
March 23, 1998. The Probable Acquisition Properties represent the
properties considered by the Company to be probable acquisitions as of
April 17, 1998, although there is no assurance that the transactions will
be consummated. The purchase of the acquired shopping centers were
initially funded through cash, mortgages and other liabilities assumed
(including minority equity interests) issuance of operating partnership
units and borrowings from revolving credit facilities. The initial purchase
price, before any contingent consideration that may be payable to the
sellers, is as follows (in thousands):
<TABLE>
<S> <C>
Wholly or Majority Owned Properties:
Country Club Mall, Idaho Falls, ID $ 6,508
Belair Centre, Detroit, MI 33,690
The Columbus Properties (9 properties) 82,738
Probable Acquisition Properties (2 properties) 90,000
------------
$ 212,936
Equity investment in Joint Venture Properties:
Acquired Property $ 5,181
Probable Acquisition Property 1,150
----------
$ 6,331
==========
</TABLE>
(b) Represents the sale by the Company of $100 million of Medium Term Notes in
January 1998 and the use of proceeds thereof. The net proceeds to the
Company, after underwriting discounts and offering costs, were
approximately $99.1 million and were used to repay borrowings under the
revolving credit facilities.
(c) The net increase in the revolving credit facility debt is summarized as
follows (in thousands):
<TABLE>
<S> <C>
Purchase of the Acquisition Properties $ 50,887
Assumed purchase of the Probable Acquisition Properties 59,390
Issuance of Medium Term Notes (99,119)
Funding of minority interest purchased 16,293
-----------
$ 27,451
===========
</TABLE>
(d) Represents the purchase by the Company of the minority interest in a
shopping center located in North Olmsted, Ohio in March 1998. The aggregate
cash paid reflected herein is assumed to be funded entirely through
proceeds from revolving credit facilities.
F-26
<PAGE> 32
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Unaudited)
(e) Represents the formation of a joint venture with Prudential Real Estate
Investors whereby the Company contributed its recently acquired investment
in 33 retail sites formerly occupied by Best Products and was reimbursed
75% of its invested capital aggregating $41,526. The Company's remaining
investment balance of approximately $12,974 was reclassified from other
real estate investments to investment in and advances to joint ventures.
(f) Mortgage debt assumed associated with the Acquisition Properties and
Probable Acquisition Properties is summarized as follows (in thousands):
<TABLE>
<S> <C>
Belair Centre, Detroit, MI $19,689
The Columbus Properties (9 properties) 51,861
Probable Acquisition Properties (2 properties) 22,600
--------
$94,150
=======
</TABLE>
(g) Minority interests associated with the Acquisition Property and Probable
Acquisition Property is summarized as follows (in thousands):
<TABLE>
<S> <C>
Acquired Property $ 2,006
Probable Acquisition Property 1,680
--------
$ 3,686
========
</TABLE>
(h) Operating partnership minority interests associated with the Acquisition
Properties and Probable Acquisition Properties are summarized as follows (in
thousands):
<TABLE>
<S> <C>
Acquired Properties $ 2,798
Probable Acquisition Properties 7,480
--------
$ 10,278
========
</TABLE>
F-27
<PAGE> 33
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
(Unaudited)
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 the
Acquisition Properties, which had an operating history, purchased from January
1, 1997 through April 17, 1998; (ii) the acquisition of the three Probable
Acquisition Properties, which had an operating history; (iii) the sale by the
Company of 3,350,000 common shares 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 in June 1997; (vi) the sale
by the Company of $202 million of Medium Term Notes in 1997 and 1998; (vii)
the sale by the Company of 507,960 common shares in September 1997; (viii) the
sale by the Company of 316,800 common shares in December 1997 and (ix) the
purchase by the Company of a partner's minority interest in one shopping center.
The foregoing pro forma information is based upon the historical consolidated
results of operations of the Company for 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 pro forma
condensed consolidated balance sheet of the Company presented herein and the
historical financial statements and notes thereto of the Company included in the
Developers Diversified Realty Corporation Form 10-K for the year ended December
31, 1997.
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-28
<PAGE> 34
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
(Unaudited) Pro Forma Adjustments
<TABLE>
<CAPTION>
Common
Share Probable Company
Company Acquired and Debt Acquisition Pro Forma
Historical Properties Offerings Properties (Unaudited)
---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues from rental properties $ 158,718 $ 3,073(a) $ 4,888(d) $ 182,367
15,688(b)
Management fees and other income 10,322 - 10,322
---------- ------ ------- ----------- ---------
169,040 18,761 4,888(d) 192,689
---------- ------ ------- ----------- ---------
Operating and maintenance 15,961 549(a) 608(d) 18,859
1,741(b)
Real estate taxes 20,001 203(a) 557(d) 22,055
1,294(b)
Depreciation and amortization 32,313 568(a) 787(d) 36,790
3,122(b)
General and administrative expenses 11,055 750(m) - - 11,805
Interest expense 35,558 1,516(a) (316)(f),(j) 1,980(d) 47,648
9,234(b) 66 (g),(k)
263(c) (1,771)(h)
1,103(l) 15 (i)
---------- ------ ------- ----------- ---------
114,888 20,343 (2,006) 3,932 137,157
---------- ------ ------- ----------- ---------
Income (loss) before equity in net
income of joint ventures, gain on
sales of real estate and allocation
to minority interest 54,152 (1,582) 2,006 956 55,532
Equity in net income of joint ventures 10,893 9(c) - 137(e) 11,039
Minority equity interest (1,049) (14)(a) - (196)(d) (447)
(163)(b) (63)(e)
1,038 (l)
Gain on sales of real estate 3,526 - - - 3,526
---------- ------ ------- ----------- ---------
Net income (loss) $ 67,522 $ (712) $ 2,006 $ 834 $ 69,650
======= ======= =========
Less: preferred dividends (14,200) (14,200)
---------- ------- ------- ----------- ---------
Net income applicable to common
shareholders $ 53,322 $ 55,450
========== =========
Per share data:
Earnings per common share:
Basic $ 2.06 $ 2.08(n)
========= =========
Diluted $ 2.05 $ 2.07(n)
========= =========
Weighted average number of common
shares (in thousands):
Basic 25,880 26,625
========= =========
Diluted 26,062 26,804
========= =========
</TABLE>
F-29
<PAGE> 35
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT 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> <C>
Great Northern Shopping
Center - North,
Cleveland, 01/01/97 $ - $ - $ - $ - $ - $ -
(North Olmsted), OH (1)
Great Northern Shopping
Center - South,
Cleveland, 01/01/97 - - - - - -
(North
Olmsted) OH (1)
Plaza Del Norte,
San Antonio, TX 01/23/97 - - - - - -
(2), (3)
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
====== ==== ==== ==== ====== ===
</TABLE>
(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.
F-30
<PAGE> 36
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
(b) Reflects revenues and expenses for the year ended December 31, 1997 of the
properties acquired from January 1, 1998 to April 17, 1998 as follows:
<TABLE>
<CAPTION>
Effective Real
Date of Estate Operating & Minority
Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(2) Interest(2) Interest
--------------- ----------- -------- ----- ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Country Club Mall
Idaho Falls, ID 02/25/98 $ 871 $ $115 $165 $441 $ -
127
Belair Centre
Detroit, MI 03/10/98 4,696 350 868 856 2,401 -
Derby Square
Grove City, OH 03/23/98 1,451 142 129 301 902 54
Perimeter
Dublin, OH 03/23/98 1,848 183 218 382 1,191 -
Shoppes at Turnberry
Pickerington, OH 03/23/98 1,031 73 113 201 615 76
Big Bear
Bellefontaine, OH 03/23/98 460 - - 106 304 -
OfficeMax
Bourboursville, WV 03/23/98 314 4 39 45 121 15
Roundy's
Hamilton, OH 03/23/98 253 22 1 52 139 28
Hoggies
Gahanna, OH 03/23/98 482 30 39 109 290 -
Roundy's and Rite Aid
Pataskala, OH 03/23/98 274 19 2 54 169 3
Sun Center
Columbus, OH (1) 03/23/98 4,008 344 217 851 2,661 (13)
----- --- --- --- ----- ----
$15,688 $1,294 $1,741 $3,122 $9,234 $163
======= ====== ====== ====== ====== ====
</TABLE>
(1) Property acquired through a joint venture in which the Company owns a
79.45% interest.
(2) Determined depreciation utilizing a 31.5 year life for building based on
the preliminary purchase price allocation and calculated interest at the
Company's estimated interest rate under its lines of credit and/or the
effective interest rate associated with the mortgage debt assumed.
F-31
<PAGE> 37
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
(c) Reflects revenues and expenses for Lennox Towne Center, Columbus, Ohio
for the nine month period ended December 31, 1997 in which a 50%
equity interest was acquired on March 23, 1998 as follows:
(1)
Revenues $2,390
Operating and maintenance 165
Real estate taxes 319
Depreciation (2) 604
Interest (2) 1,283
--------
2,371
--------
19
Ownership interest 50%
Equity in net income of joint venture $ 9
========
(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 and calculated interest
at the effective interest rate associated with the mortgage debt
assumed. Interest costs of $263 associated with the purchase of the
Company's 50% equity interest in this property is calculated at the
Company's estimated interest rate under its lines of credit.
(d) Reflects revenues and expenses of two Probable Acquisition Properties
contemplated as of April 17, 1998 for the period January 1, 1997 through
December 31, 1997 as follows:
<TABLE>
<CAPTION>
Real
Estate Operating & Minority
Shopping Center Revenues Taxes Maintenance Depreciation (3) Interest (3) Interest
--------------- -------- ----- ----------- ---------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Easton Market
Columbus, OH (1) $ - $- $ - $ - $-
$-
Dublin Village Center
Columbus, OH (2) 4,888 557 608 787 1,980 196
----- --- --- --- ----- ---
$4,888 $557 $608 $787 $1,980 $196
====== ==== ==== ==== ====== ====
</TABLE>
(1) 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.
(2) Property is anticipated to be acquired through a joint venture in
which the Company is expected to own an 80% interest. There can be no
assurance that the Company will acquire the Probable Acquisition
Properties.
(3) Determined depreciation utilizing a 31.5 year life for building based
on the preliminary purchase price allocation and calculated interest
at the Company's estimated interest rate under its lines of credit
and/or the effective interest rate associated with the mortgage debt
assumed.
F-32
<PAGE> 38
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
(e) Reflects revenues and expenses for Washington Park Plaza, Dayton, Ohio,
a Probable Acquisition Property, which is assumed to be acquired
through a 50% joint venture interest, contemplated as of April 17, 1998
for the period January 1, 1997 through December 31, 1997 as follows:
Revenues $2,474
Operating and maintenance 294
Real estate taxes 298
Depreciation (1) 432
Interest (1) 1,176
-------
2,200
-------
274
Ownership interest 50%
Equity in net income of joint venture $ 137
======
(1) Determined depreciation utilizing a 31.5 year life for building
based on the preliminary purchase price allocation and calculated
interest at the effective interest rate associated with the
mortgage debt assumed.
The Company's purchase price is anticipated to be funded through the
use of cash and the issuance of OP Units. The minority interest
expense associated with these OP Units is estimated to be $63 for the
year ended December 31, 1997.
There can be no assurance that the Company will acquire an ownership
interest in the Probable Acquisition Property.
(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 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 completed in June 1997.
(i) Reflects the net increase in interest cost of $15 relating to the variable
rate indebtedness repaid with the proceeds from the $202 million Medium
Term Notes completed in 1997 and 1998. Pro forma interest incurred for the
year ended December 31, 1997 on the Medium Term Notes is estimated at $483
and interest savings on the variable rate indebtedness repaid is estimated
at $468. Pro forma interest expense is calculated based on the amount of
proceeds assumed to be used to fund the properties acquired in 1997 and
1998 which had operating history. Shopping Centers with no operating
history, or which were in lease up prior to the Company's acquisition, were
not deemed to be acquired by the Company until the actual acquisition date,
therefore, the remaining proceeds were not considered to be received until
the earlier of the date of issuance or the date the remaining 1997 and 1998
shopping centers were acquired.
F-33
<PAGE> 39
DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO
FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
(j) The issuance of 507,960 common shares completed in September 1997, 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 the date of issuance or the
date the centers were acquired.
(k) The issuance of 316,800 common shares completed in December 1997, 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 the date of issuance or the
date the centers were acquired.
(l) Represents the elimination of the minority interest expense due to the
purchase by the Company of the minority interest in a shopping center
located in North Olmsted, Ohio in March 1998.
(m) The general and administrative expenses of the Company have been adjusted
by $750 to reflect the expected increased expenses estimated to be
incurred associated with additional operating personnel and related costs
attributable to acquisitions and development activities.
(n) 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 3,350,000 common share offering in
January 1997 and the 1,300,000 common share offering completed in June
1997. The 507,960 shares issued in September 1997 and the 316,800 shares
issued in December 1997 were reflected in the pro forma statement of
operations only from the date of issuance as the proceeds were not
considered to be received until the date the newly developed shopping
centers were acquired in 1997 and 1998, since such centers had no operating
history. Since the acquisition of Easton Market in Columbus, Ohio is
assumed to have occurred on December 31, 1997, as it had no operating
results prior to that time, the operating partnership units are excluded
from the calculation.
F-34
<PAGE> 40
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
In accordance with the SFAS 128, earnings per share before
extraordinary item is calculated as follows:
<TABLE>
<S> <C>
Income before extraordinary item $ 69,650
Less: Preferred stock dividend (14,200)
---------
Basic EPS - Income before extraordinary item applicable to common
shareholders $ 55,450
=========
Diluted EPS - Income before extraordinary item applicable to common
shareholders plus assumed conversions $ 55,719
=========
NUMBER OF SHARES:
Basic - average shares outstanding
Effect of dilutive securities: 26,625
Stock options 176
Restricted stock 3
---------
Diluted Shares 26,804
=========
PER SHARE AMOUNT:
Income before extraordinary item
Basic 2.08
=========
Diluted 2.07
=========
</TABLE>
F-35
<PAGE> 41
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
funds available from operations of the Company 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 twelve Acquisition Properties and the
Probable Acquisition Properties, (ii) Medium Term Notes offerings completed in
1997 and 1998, (iii) 3,500,000 common share offering completed in January 1997,
(iv) Pass-through Asset Trust Securities issued in March 1997, (v) 1,300,000
common share offering completed in June 1997, (vi) 509,760 common share offering
completed in September 1997, (vii) 316,800 common share offering completed in
December 1997 and (viii) the purchase by the Company of a partner's minority
interest in one shopping center 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 1997 historical
financial statements included on the Company's Form 10-K for the year ended
December 31, 1997 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 net income, exclusive of property depreciation and amortization (Note 1) .............................. $ 99,835
Acquisition Properties - historical earnings from operations, as adjusted, exclusive
of depreciation and amortization (Note 2) .......................................................................... 3,043
Probable Acquisition Properties - historical earnings from operations, as adjusted, exclusive of
depreciation and amortization (Note 2) ............................................................................. 1,621
Pro forma adjustments reflecting the purchase of minority interests ................................................... (65)
Pro forma adjustments arising from the utilization of the proceeds from the issuance of Medium
Term Notes to repay variable rate indebtedness ..................................................................... 15
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 ..................................................................................................... -
Pro forma adjustments arising from the utilization of the proceeds from the 316,800 common
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 ........................................................ (2,069)
Pro forma tax depreciation for Probable Acquisition Property (620)
---------
Pro forma taxable income before dividends deduction ................................................................... 78,166
Estimated dividends deduction (Note 4) ............................................................................ (81,295)
---------
$ (3,129)
=========
Pro forma taxable net operating income ................................................................................ $ -
=========
ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS):
Pro forma taxable operating income before dividend deduction .......................................................... $ 78,166
Add pro forma depreciation ........................................................................................ 28,304
Estimated pro forma operating funds available (Note 5) ................................................................ $ 106,470
=========
</TABLE>
F-36
<PAGE> 42
DEVELOPERS DIVERSIFIED REALTY CORPORATION
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
- --------------------------------------------------------------------------------
(Unaudited)
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
during 1997 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
(26,625,000 shares x $2.52 per share) $ 67,095
Class A Preferred Shares 10,011
Class B Preferred Shares 4,189
----------
$ 81,295
</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-37
<PAGE> 43
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 April 23, 1998 /s/ William H. Schafer
----------------------- --------------------------------------------
William H. Schafer
Vice President and Chief Financial Officer
F-38
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 333-37067 and
333-05565) of Developers Diversified Realty Corporation of our reports dated
January 18, 1998 relating to the combined statement of revenue and certain
expenses of The Columbus Properties and the statement of revenue and certain
expenses of Lennox Town Center, Sun Center, Dublin Village Center and Washington
Park Plaza and our report dated April 14, 1998 relating to the statement of
revenue and certain expenses of Belair Centre, all of which appear in the
Current Report on Form 8-K of Developers Diversified Realty Corporation dated
February 25, 1998.
PRICE WATERHOUSE LLP
Cleveland, Ohio
April 23, 1998
