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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11690
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-1723097
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3300 Enterprise Parkway, Beachwood, Ohio 44122
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(Address of principal executive offices - zip code)
(216) 755-5500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Shares, Without Par Value New York Stock Exchange
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Depositary Shares Representing
Class A Cumulative Redeemable Preferred Shares New York Stock Exchange
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Depositary Shares Representing
Class B Cumulative Redeemable Preferred Shares New York Stock Exchange
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Depositary Shares Representing
Class C Cumulative Redeemable Preferred Shares New York Stock Exchange
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Depositary Shares Representing
Class D Cumulative Redeemable Preferred Shares New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant at March 15, 1999 was $901,088,538.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
61,293,058 common shares outstanding as of March 15, 1999
DOCUMENTS INCORPORATED BY REFERENCE.
The registrant incorporates by reference in Part III hereof portions of
its definitive Proxy Statement for its 1999 Annual Meeting of Shareholders.
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TABLE OF CONTENTS
Item No. Report Page
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PART I
1. Business ................................................. 4
2. Properties................................................ 12
3. Legal Proceedings......................................... 23
4. Submission of Matters to a Vote of Security Holders....... 23
PART II
5. Market for the Registrant's Common Equity and
Related Shareholder Matters ........................... 26
6. Selected Financial Data................................... 27
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 29
7a. Quantitative and Qualitative Disclosures about Market
Risk .................................................. 40
8. Financial Statements and Supplementary Data............... 41
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. 41
PART III
10. Directors and Executive Officers of the Registrant........ 42
11. Executive Compensation.................................... 42
12. Security Ownership of Certain Beneficial Owners
and Management ......................................... 42
13. Certain Relationships and Related Transactions............ 42
PART IV
14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K..................................... 43
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PART I
Item 1. BUSINESS
General Development of Business
Developers Diversified Realty Corporation, an Ohio Corporation (the
"Company" or "DDR"), a self-administered and self-managed real estate investment
trust (a "REIT"), is in the business of acquiring, developing, redeveloping,
owning, leasing and managing shopping centers and business centers. Unless
otherwise provided, references herein to the Company or DDR include Developers
Diversified Realty Corporation, its wholly owned and majority owned
subsidiaries.
From January 1, 1996 to March 15, 1999, the Company has acquired 54
shopping center properties, including those owned through joint ventures, 41 of
which were acquired in 1998, eight of which were acquired in 1997 and five of
which were acquired in 1996.
The Company's executive offices are located at 3300 Enterprise Parkway,
Beachwood, Ohio 44122, and its telephone number is (216) 755-5500.
Share Split
Effective August 3, 1998, the Company effected a two for one share
split to shareholders of record on July 27, 1998 in the form of a stock
dividend. All per share amounts and the number of common shares outstanding
reflect this split, unless indicated otherwise.
Financial Information about Industry Segments
The Company is in the business of managing, operating, leasing,
acquiring, developing and investing in shopping centers and business centers.
See the consolidated financial statements and notes thereto included in Item 8
of this Annual Report on Form 10-K for certain information required by Item 1.
Narrative Description of Business
Since 1965, the Company and Developers Diversified Group ("DDG"), its
predecessor, have owned and managed approximately 318 shopping centers. The
Company's portfolio as of March 15, 1999 consisted of 161 shopping centers and
one business center (including 26 properties which are owned through joint
ventures), and 71 undeveloped parcels (10 of which are owned through joint
ventures) aggregating approximately 144 acres (the "Portfolio Properties"). From
January 1, 1996 to March 15, 1999, the Company has acquired 54 shopping centers
containing an aggregate of 9.4 million square feet of gross leasable area
("GLA") owned by the Company for an aggregate purchase price of approximately
$1.1 billion. During 1996, 1997 and 1998, the Company completed expansions at 27
of its shopping centers.
As of March 15, 1999, the Company was expanding nine shopping centers and
expects to commence expansions at additional shopping centers in 1999. The
Company has also substantially completed the development of nine additional
shopping centers since December 31, 1995, at an aggregate cost of approximately
$370 million aggregating approximately 3.1 million square feet of GLA. As of
March 15, 1999, the Company had seven shopping centers under development.
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The Company's shopping centers were approximately 96.5% leased as of
December 31, 1998. On December 31, 1998, the average annualized base rent per
square foot of Company-owned GLA of the shopping centers was $8.99.
The Company is self-administered and self-managed and, therefore, does
not engage or pay for a REIT advisor. The Company manages all of the Portfolio
Properties. At December 31, 1998, the Company owned and/or managed approximately
43.4 million total square feet of GLA, which included all of the Portfolio
Properties and 22 properties owned by third parties.
Strategy and Philosophy
The Company's investment objective is to increase cash flow and the
value of its portfolio of properties and to seek continued growth through the
selective acquisition, development, redevelopment, renovation and expansion of
income-producing real estate properties, primarily shopping centers. In
addition, the Company may also pursue the disposition of certain real estate
assets and utilize the proceeds to repay debt, repurchase the Company's common
shares, reinvest in other real estate assets and developments and for other
corporate purposes. In pursuing its investment objective, the Company will
continue to seek to acquire and develop high quality, well-located shopping
centers and business centers with attractive initial yields and strong prospects
for future cash flow growth and capital appreciation where the Company's
financial strength and management and leasing capabilities can enhance value.
Management believes that opportunities to acquire existing shopping
centers have been and will continue to be available to buyers with access to
capital markets and institutional investors, such as the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company's real estate strategy and philosophy is to grow its
business through a combination of leasing, expansion, acquisition and
development. The Company seeks to:
- increase cash flows and property values through strategic
leasing, re-tenanting, renovation and expansion of the Company's
portfolio;
- continue to selectively acquire well-located, quality shopping
centers (individually or in portfolio transactions) which have
leases at rental rates below market rates or other cash flow
growth or capital appreciation potential where the Company's
financial strength, relationships with retailers and management
capabilities can enhance value;
- increase cash flows and property values by continuing to take
advantage of attractive financing and refinancing opportunities
(see "Recent Developments - Financings");
- increase per share cash flows through the selective disposition
of certain real estate assets and utilizing the proceeds to repay
debt, repurchase of the Company's common shares and for other
corporate purposes.
- selectively develop the Company's undeveloped parcels or new
sites in areas with attractive demographics;
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- hold properties for long-term investment and place a strong
emphasis on regular maintenance, periodic renovation and capital
improvements; and
- continue to manage and develop the properties of others to
generate fee income, subject to restrictions imposed by federal
income tax laws, and create opportunities for acquisitions.
As part of its ongoing business the Company engages in discussions with
public and private real estate entities regarding possible portfolio or asset
acquisitions or business combinations.
In addition, the Company intends to maintain a conservative debt
capitalization ratio. At December 31, 1998, the Company's debt to total market
capitalization ratio, excluding the Company's proportionate share of
non-recourse indebtedness of its unconsolidated joint ventures, was
approximately 0.40 to 1.0; and at March 15, 1999 this ratio was approximately
0.46 to 1.0. At December 31, 1998, the Company's capitalization consisted of
$1.0 billion of debt (excluding the Company's proportionate share of joint
venture mortgage debt aggregating $369.6 million), $338.8 million of preferred
stock and preferred operating partnership units and $1.2 billion of market
equity. (Market equity is defined as common shares outstanding and operating
partnership units outstanding multiplied by the closing price per common share
on the New York Stock Exchange at December 31, 1998 of $17.75.) At December 31,
1998, the Company's total debt consisted of $836.3 million of fixed-rate debt
and $164.2 million of variable rate debt. Fluctuations in the market price of
the Company's common shares may cause this ratio to vary from time to time.
The strategy, philosophy, investment and financing policies of the
Company, and its policies with respect to certain other activities, including
its growth, debt capitalization, distributions, status as a REIT and operating
policies, are determined by the Board of Directors. Although it has no present
intention to do so, the Board of Directors may amend or revise these policies
from time to time without a vote of the shareholders of the Company.
Recent Developments
Financings
During 1998, the Company amended and restated its primary revolving
credit facility and increased the available borrowings to $375 million from $150
million, reduced the pricing to 0.85% over LIBOR from 1.10% over LIBOR and
extended the term for an additional year through April 2001. The amended and
restated facility 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 ($0.01 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. The Company also increased the amount
of its other unsecured revolving credit facility to $20 million from $10
million.
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In April 1998, the Company completed a 1,339,278 common share offering,
to a unit investment trust, and received net proceeds of approximately $25.3
million which were primarily used to repay borrowings on the Company's revolving
credit facilities.
In July 1998, the Company completed the sale of 4,000,000 8.375% Class
C Depositary Cumulative Redeemable Preferred Shares. In August and September
1998, the Company completed the sale of 2,160,000 8.68% Class D Depositary
Cumulative Redeemable Preferred Shares. The aggregate net proceeds of
approximately $148.3 million 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 common share split to shareholders of record on July 27,
1998. On August 3, 1998 each shareholder received one common share for each
common share held. The share split was effected in the form of a share dividend.
In December 1998, the Company completed a private placement of $35
million with AEW Targeted Securities Fund, L.P., an investment partnership
managed by AEW Capital Management, L.P. ("AEW"). This private placement was a
combination of preferred equity securities and a warrant to purchase
approximately 1.6 million common shares at a price of $21-5/8 per share or 1.4
million Class D Depositary Cumulative Redeemable Preferred Shares at a price of
$25.00 per share. The proceeds from this private placement were used to repay
borrowings on the Company's revolving credit facilities. These preferred equity
securities are structured as 8.5% cumulative redeemable preferred units of DDRC
Great Northern L.P., a wholly owned consolidated entity. The preferred units are
redeemable by DDRC Great Northern L.P. after five years. In addition, if the
warrant is exercised, the Company has the right to redeem the preferred units.
Generally, the warrant has a perpetual term, but will expire upon redemption of
the preferred units. The preferred equity securities and warrant were structured
to effectively function as a convertible preferred security.
In December 1998, the Company completed a 3,000,000 common share
offering, and received net proceeds of approximately $52.5 million which were
used to repay borrowings on the Company's revolving credit facilities.
During 1998, the Company issued approximately 4.6 million operating
partnership units, initially valued at approximately $91.4 million in
conjunction with certain property acquisitions. Each operating partnership unit
is exchangeable for one common share of the Company's stock or cash, at the
Company's option, generally beginning one year after the units were issued. The
operating partnership units were issued at prices ranging from $19.53 to $20.11
per unit.
During 1998, convertible debentures in the aggregate amount of $6.8
million converted into 0.4 million common shares. At December 31, 1998, the
Company had $40.1 million of its 7% convertible subordinated debentures
outstanding with a maturity date of August 1999 and a conversion price of
$16.6875 per common share. These debentures may be converted at any time prior
to maturity.
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During 1998, the Company also assumed an aggregate of $133.9 million of
mortgage debt in conjunction with certain property acquisitions.
In September 1998, the Company received net proceeds of approximately
$192 million in conjunction with the transfer of properties to a newly formed
joint venture with DRA (See Acquisitions 1998). The proceeds were used to repay
borrowings on the Company's revolving credit facilities.
In November 1998, eleven members of the Company's executive committee
acquired 974,633 common shares from the Company, primarily from the exercise of
previously granted stock options. These purchases increased the ownership of
common shares by senior management to 3.7%. The purchase raised approximately
$15 million and was funded through a third-party financed personal loan program
guaranteed by the Company.
On February 19, 1999, DDR's Board of Directors granted the executive
officers of the Company the right to implement a common share repurchase
program. Under the terms authorized by the Board of Directors, the Company may,
during the six month period beginning February 22, 1999, purchase common shares
of the Company in the open market, at price levels not to exceed $15.50 (120% of
the closing price of the securities on February 22, 1999), up to a maximum value
of $50 million. It is not the Company's intention to increase the leverage on
its balance sheet through this stock repurchase program. The Company may also
repurchase shares from time to time to limit shareholder dilution arising from
the issuance of operating partnership units in conjunction with property
acquisitions. The Company may also invest portions of the proceeds from the sale
of properties to purchase its own shares.
In November 1995, the Company commenced a medium-term note program (the
"Medium Term Note Program"). The Medium Term Note Program enables the Company
(i) to issue on an ongoing basis discrete amounts of unsecured debt that will
closely match, both as to timing and amount, the Company's specific liquidity
requirements, including property acquisition, development and redevelopment
costs, and (ii) to better manage the Company's debt maturities, including its
mortgage debt maturities. As of March 15, 1999, the Company had issued medium
term notes in aggregate amount of $417.7 million ($200 million in 1998, $102
million in 1997, and $115.7 million in 1996). The net proceeds from each
issuance were used to repay revolving credit facilities and mortgage debt. The
Medium Term Note Program remains available for the Company to issue additional
medium term notes when the Company considers market conditions advantageous.
Property Acquisitions, Developments and Expansions
During 1998, the Company and its joint ventures completed the
acquisition of, or investment in 41 shopping centers aggregating 7.4 million
square feet of Company owned GLA for an aggregate investment of approximately
$854.6 million.
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In March 1998, in a single transaction with Continental Real Estate
Companies ("Continental") of Columbus, Ohio, the Company completed the
acquisition of 10 shopping centers, two of which were acquired through
Continental. The 10 shopping centers total 1.2 million gross square feet of
Company-owned GLA. The aggregate cost of these centers was $91.9 million. In
April 1998, the Company acquired interests in three additional shopping centers
located in the Columbus, Ohio area, two of which are owned through joint
ventures from Continental. Combined, these three shopping centers have
approximately 1.0 million square feet of total GLA. The Company's proportionate
share of the investment cost will be approximately $93.4 million upon completion
of approximately 18,000 square feet which is currently under construction.
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. 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, one office building and eight additional
expansion, development or redevelopment projects. The nine shopping centers
total 2.4 million square feet of total GLA. The total consideration for this
portfolio was approximately $309 million. In addition, the Company acquired 13
shopping centers aggregating approximately 1.5 million square feet of GLA in the
St. Louis area from the Sansone Company. The Company also acquired a 50%
ownership interest in The Sansone Group's management company and development
company. The Company's net investment in this portfolio aggregated $163 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 ("Agreement") dated 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 owned by the
Company with a net book value of $7.4 million and valued at approximately $19.5
million, acquired approximately 1.3 million additional newly issued AIP shares
of beneficial interest. Concurrent with entering into the Agreement, AIP
increased its Board of Trust Managers by four positions to eleven members and
appointed the Company's designees Scott A. Wolstein, Albert T. Adams, Robert H.
Gidel and James A. Schoff to the Board. Mr. Wolstein was named AIP's Chairman of
the Board.
On November 20, 1998, the shareholders of AIP approved additional
purchases by the Company of approximately 5.2 million newly issued shares of AIP
for $81.0 million through the release of notes receivable to the Company and
cash. As of December 31, 1998 the Company had purchased 3.7 million of these
additional shares for approximately $57.1 million. Combined, the Company's
acquired shares represented 34.5% of AIP's total outstanding shares as of
December 31, 1998. In
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addition, the Company advanced $14.1 million to AIP in the form of a note
bearing interest at 10.25% annually. These advances were repaid in January 1999
through the release of indebtedness in exchange for shares of AIP. In January
1999, the Company acquired approximately 3.4 million shares of AIP at an
aggregate cost of $51.8 million of which approximately 1.5 million shares were
acquired at a price of $15.50 per share and 1.9 million shares were acquired at
a price of $14.93 per share. These shares were purchased in conjunction with
AIP's acquisition of a portfolio of properties for approximately $129.8 million.
As of March 23, 1999, the Company owned approximately 44.7% of AIP's outstanding
shares. Pursuant to the Agreement, AIP may, under certain circumstances and
subject to certain limitations and price adjustments based on the market price
of AIP's common shares, exercise a put right that would require the Company to
purchase additional common or convertible preferred shares of AIP at a price not
to exceed $15.50 and $14.00 per share, respectively, for a total amount not to
exceed $172.1 million as of March 4, 1999. AIP can only exercise this put right
for the sole purpose of financing property acquisitions approved by AIP's Board
of Trust Managers.
In September 1998, the Company entered into a 50/50 joint venture with
DRA Advisors. In conjunction with this joint venture the Company contributed
properties valued at approximately $238 million to the joint venture and DRA
Advisors contributed cash of approximately $42 million. The joint venture
entered into a $156 million, seven year mortgage with a coupon interest rate of
6.64%. Net proceeds from the mortgage and the capital contribution aggregating
approximately $192 million were then distributed to the Company and used to
repay borrowings on the Company's revolving credit facilities. The Company will
continue to manage the centers and receive market fees for these services.
On December 31, 1998 the Company acquired a 50% ownership interest in a
389,000 square foot shopping center in Leawood, Kansas. The Company's investment
aggregated approximately $18 million and was comprised of an equity investment
of approximately $12.3 million and a note receivable of $5.7 million.
The Company is currently expanding nine shopping centers at an
aggregate projected cost of $42.7 million. During 1998, the Company completed
seven expansion projects at an aggregate cost of $11.2 million. The Company is
currently expanding/redeveloping nine of its shopping centers aggregating
approximately 660,000 square feet of Company owned GLA and will continue to
pursue additional expansion opportunities. The Company and its joint ventures
currently have approximately 144 acres of undeveloped land consisting of 71
parcels, primarily adjacent to its existing shopping centers, available for
development, expansion or sale.
The Company has five shopping centers under construction at December
31, 1998. The first is a 445,000 square foot shopping center in Merriam, Kansas
which is being developed through a joint venture formed in October 1996, 50% of
which is owned by the Company. This center is anchored by Home Depot (not owned
by the Company), Cinemark Theaters, Hen House Supermarket, OfficeMax, Marshalls,
Old Navy and PETsMART. Construction of this shopping center was substantially
completed by December 31, 1998. The second is a 200,000 square foot second phase
of the Company's Erie, Pennsylvania center scheduled to be completed in the Fall
of 1999 and is to be
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anchored by Home Depot (not owned by the Company), PETsMart and Circuit City.
Additionally, the Company has also commenced the construction of a 280,000
square foot shopping center in Toledo, Ohio, a 185,000 square foot shopping
center in Solon, Ohio and a 220,000 square foot shopping center in Oviedo,
Florida (a suburb of Orlando). All three centers are scheduled for completion
during 1999 with several tenants opening in fourth quarter of 1998. The Company
is also pursuing additional development projects in Meridian, Idaho, Riverdale,
Utah and Coon Rapids, Minnesota.
The Company has entered into joint venture development agreements
for six additional projects with various developers throughout the country at a
projected cost aggregating approximately $237 million. Several of these projects
have commenced development and are currently scheduled for completion in 1999 or
2000. At December 31, 1998 the Company had invested approximately $30.7 million
in these projects. It is anticipated that several of these joint venture
projects will be developed through the Prudential Retail Value Fund. The
majority of the project costs are expected to be provided through construction
loans guaranteed by Prudential. Prudential will be responsible for 75% of any
funding requirements and the Company will be responsible for the remaining 25%.
The Company and Prudential will be entitled to receive a priority return on
equity capital advances at annual rates not lower than 10.5%.
In May 1998, the Company formed DDR OliverMcMillan ("DDROM"), with
OliverMcMillan, LLC, based in San Diego, California to develop, acquire, operate
and manage urban entertainment and retail projects throughout the United States.
DDROM's initial investments are comprised of six OliverMcMillan urban
entertainment and retail projects located in Southern California and Reno,
Nevada with a projected cost of approximately $223 million. Construction is
scheduled to commence at five of the six projects, generally during the second
half of 1999. At December 31, 1998 the Company had advanced approximately $13
million relating to land acquisitions and pre-development activities.
Nonrecourse construction financing will be obtained for each project, generally
estimated to be in excess of 70% of the total cost of construction. The Company
is entitled to receive a priority return on capital advances at a rate of 10.5%.
Retail Environment
During 1999, certain national and regional retailers experienced
financial difficulties and several have filed for protection under bankruptcy
laws. No significant bankruptcies have occurred during the period January 1
through March 15, 1999 with regard to the Company's portfolio of tenants. During
1998, Homeplace filed for protection under the bankruptcy laws. Homeplace
currently occupies 634,000 square feet of GLA in shopping centers owned by the
Company and its joint ventures, 2.7% of the Company's and its joint ventures
combined annualized base rental revenues and has lease terms extending through
2018. As of March 15, 1999, all of the Company's Homeplace stores continued to
operate.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 and the Consolidated Financial
Statements and Notes thereto included in Item 8 of this Annual Report on Form
10-K for further information on certain of the recent developments described
above.
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Competition
As one of the nation's largest owners and developers of neighborhood
and community shopping centers, the Company has established close relationships
with a large number of major national and regional retailers. Management is
associated with and actively participates in many shopping center and REIT
industry organizations.
Notwithstanding these relationships, there are numerous developers and
real estate companies that compete with the Company in seeking properties for
acquisition and tenants who will lease space in these properties.
Employees
As of March 15, 1999, the Company employed 230 full-time individuals,
including executive, administrative and field personnel. The Company considers
its relations with its personnel to be good.
Qualification as a Real Estate Investment Trust
The Company presently meets the qualification requirements of a REIT
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Company generally will not be subject to federal
income tax to the extent it meets certain requirements of the Code.
Item 2. PROPERTIES
At December 31, 1998 the Portfolio Properties included 161 shopping
centers (26 of which are owned through joint ventures). The shopping centers
include, consisting of 130 community shopping centers and power centers, 12
enclosed mini-malls and 19 neighborhood shopping centers. The Portfolio
Properties also include 71 undeveloped parcels (aggregating approximately 144
acres) primarily located adjacent to certain of the shopping centers. The
shopping centers aggregate approximately 32.8 million square feet of
Company-owned GLA (approximately 40.9 million square feet of total GLA) and are
located in 35 states, principally in the East and Midwest, with significant
concentrations in Ohio, Florida, Utah, Michigan and North Carolina.
The Company's shopping centers are designed to attract local area
customers and are typically anchored by one or more discount department stores
and often include a supermarket, drug store, junior department store and/or
other major "category-killer" discount retailer as additional anchors.
Substantially all of the shopping centers are anchored by a Wal-Mart, Kmart or
Target, and the power centers are anchored by two or more national or regional
tenants. The tenants of the shopping centers typically offer day-to-day
necessities rather than high-priced luxury items. As one of the nation's largest
owners and operators of shopping centers, the Company has established close
relationships with a large number of major national and regional retailers, many
of which occupy space in the shopping centers.
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Neighborhood and community shopping centers and power centers make up
the largest portion of the Company's portfolio, comprising 28.8 million (87.7%)
square feet of Company-owned GLA. Enclosed mini-malls account for 2.9 million
(8.9%) square feet of Company-owned GLA. On December 31, 1998, the average
annualized base rent per square foot of Company-owned GLA of the shopping
centers, including those owned through joint ventures, was $8.99.
The following table sets forth, as of December 31, 1998, information as
to anchor and/or national retail tenants which individually accounted for at
least 1.0% of total annualized base rent of the properties, including those
owned though joint ventures:
% of Shopping Center % of Company-owned
Base Rental Revenues Shopping Center GLA
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Wal-Mart 5.7% 9.3%
Kmart 3.9% 7.5%
Homeplace 2.7% 1.9%
T. J. Maxx/Marshall's 2.3% 2.3%
Kohl's Dept. Store 2.1% 2.5%
Office Max 2.1% 1.8%
Barnes & Noble/B. Dalton 2.0% 1.1%
AMC Theaters 1.5% 1.0%
Lowes Home Centers 1.5% 2.1%
Best Buy 1.4% 0.9%
Toys R Us 1.3% 1.9%
Gap/Old Navy 1.0% 0.6%
In addition, as of December 31, 1998 unless otherwise indicated, with respect to
the 161 shopping centers:
- 49 of these properties were developed by DDG, eight were
developed by the Company and the balance were acquired by the
Company;
- 96 of these properties are anchored by Wal-Mart, Kmart or Target
store;
- these properties range in size from 15,000 square feet to
approximately 900,000 square feet of GLA (with 29 properties
exceeding 400,000 square feet of GLA);
- approximately 60.2% of the Company-owned GLA of these properties
is leased to national chains, including subsidiaries, with
approximately 29.0% of the Company-owned GLA leased to regional
chains and approximately 7.4% of the Company-owned GLA leased to
local tenants;
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<PAGE> 14
- approximately 96.5% of the aggregate Company-owned GLA of these
properties was leased as of December 31, 1998 and, with respect
to the properties owned by the Company at December 31, for each
of the five years beginning with 1994, between 94.8% and 97.1% of
aggregate Company-owned GLA of these properties was leased);
- Nine of these properties are currently being expanded by the
Company, and the Company is pursuing the expansion of additional
properties.
TENANT LEASE EXPIRATIONS AND RENEWALS
The following table shows tenant lease expirations for the next ten
years at the Company's shopping centers, including joint ventures, assuming that
none of the tenants exercise any of their renewal options:
<TABLE>
<CAPTION>
Percentage of Percentage of
Total Leased Total Base
Annualized Average Base Sq. Footage Rental Revenues
No. of Approximate Base Rent Rent Per Sq. Foot Represented Represented
Expiration Leases Lease Area in Under Expiring Under Expiring by Expiring by Expiring
Year Expiring Square Feet Leases Leases Leases Leases
- ---------- -------- ----------- ------ ------ ------ ------
<C> <C> <C> <C> <C> <C> <C>
1999 ........... 470 1,625,766 $ 15,033,386 $ 9.25 5.1% 5.3%
2000 ........... 393 1,503,942 14,071,760 9.36 4.8% 4.9%
2001 ........... 456 1,641,654 16,781,386 10.22 5.2% 5.9%
2002 ........... 359 2,010,723 16,322,344 8.12 6.4% 5.7%
2003 ........... 309 1,808,629 15,390,081 8.51 5.7% 5.4%
2004 ........... 126 1,105,528 9,761,806 8.83 3.5% 3.4%
2005 ........... 108 1,321,372 10,055,589 7.61 4.2% 3.5%
2006 ........... 93 915,481 10,768,717 11.76 2.9% 3.8%
2007 ........... 93 1,104,971 12,517,180 11.33 3.5% 4.4%
2008 .......... 97 1,409,744 13,157,793 9.33 4.5% 4.6%
----- ---------- ------------ ----- ---- ----
2,504 14,447,810 $133,860,042 $ 9.27 45.7% 47.0%
</TABLE>
The rental payments under several of these leases will remain constant
until the expiration of their base terms, regardless of inflation. There can be
no assurance that any of these leases will be renewed or that any new tenants
will be obtained if not renewed.
The Company's 71 undeveloped parcels primarily consist of outlots,
retail pads and expansion pads which are primarily located adjacent to certain
of the shopping centers. The Company is pursuing an active marketing program to
lease or develop its undeveloped parcels.
- 14 -
<PAGE> 15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROPERTY LIST DECEMBER 31, 1998
- -------------------------------
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
termination/
Type of option
Center / Property Location Property (1) termination) Year Developed
===================================================================================================================================
<S> <C> <C> <C> <C>
Alabama
-------
1 Birmingham (Brook Highland), AL 5291 Highway 280 South PC Fee 1994
2 Birmingham (Eastwood Festival), AL 7001 Crestwood Blvd. PC Fee 1989
3 Huntsville, AL 6140-A University Drive PC Fee 1995
Arizona
-------
4 Phoenix (Ahwatukee), AZ 4711 East Ray Road PC Fee (6) 1996
5 Phoenix (Peoria), AZ 7553 West Bell Road PC Fee (6) 1995
Arkansas
--------
6 Fayetteville, AR 464 E. Joyce Boulevard PC Fee 1997
7 North Little Rock, AR 4124 East McCain Blvd PC Fee 1991
8 Russellville, AR 3093 East Main Street PC Fee 1992
California
----------
9 San Diego, CA 11610 Carmel Mntn. Rd. PC Fee (6) 1993
Colorado
--------
10 Alamosa, CO 145 Craft Avenue PC Fee 1986
11 Denver (Broadway Marketplace), CO 505 South Broadway PC Fee (6) 1993
12 Denver (Centennial), CO 9555 E. County Line Road PC Fee 1997
13 Trinidad, CO Hwy 239 @ I25 Frontage PC Fee 1986
Connecticut
-----------
14 Waterbury, CT 899 Wolcott Street PC GL 1973
Florida
-------
15 Cape Coral, FL 1420 Del Prado Blvd NC Fee 1985
16 Crystal River, FL 420 Sun Coast Hwy PC Fee 1986
17 Jacksonville, FL 3000 Dunn Avenue PC Fee 1988
</TABLE>
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
Company Average
Land Gross Total Base
Date Area Leasable Annualized Rent per
Center / Property Acquired (Acres) Area (sq.ft.) Base Rent (3) sq. ft. (4)
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Alabama
-------
1 Birmingham (Brook Highland), AL 12/29/1994 64.46 479,859 $3,860,872 $8.05
2 Birmingham (Eastwood Festival), AL 11/15/1995 45.49 302,901 2,229,710 7.78
3 Huntsville, AL 12/28/1995 5.29 41,000 460,750 11.24
Arizona
-------
4 Phoenix (Ahwatukee), AZ 02/21/1997 59.28 523,269 6,807,759 13.01
5 Phoenix (Peoria), AZ 07/02/1996 24.12 346,680 3,504,383 10.15
Arkansas
--------
6 Fayetteville, AR 11/20/1997 139,277 1,328,743 9.54
7 North Little Rock, AR 03/21/1994 27.76 294,357 1,622,864 6.11
8 Russellville, AR 04/18/1994 31.20 272,245 1,664,324 6.20
California
----------
9 San Diego, CA 11/17/1995 50.00 439,939 6,205,687 14.31
Colorado
--------
10 Alamosa, CO 13.10 19,875 160,440 8.07
11 Denver (Broadway Marketplace), CO 11/17/1995 38.59 369,386 3,470,518 9.58
12 Denver (Centennial), CO 10/01/1997 46.07 412,577 5,662,937 13.86
13 Trinidad, CO 17.88 63,836 222,671 4.45
Connecticut
-----------
14 Waterbury, CT 15.60 124,310 416,900 3.35
Florida
-------
15 Cape Coral, FL 9.61 74,202 532,227 7.33
16 Crystal River, FL 21.18 147,005 441,359 3.31
17 Jacksonville, FL 03/31/1995 30.82 219,073 1,364,900 6.45
</TABLE>
<TABLE>
<CAPTION>
Annual
Percentage Percent
Center / Property Rent Leased (5) Anchor Tenants (Lease Expiration / Option Expiration)
===================================================================================================================================
<S> <C> <C>
Alabama
-------
1 Birmingham (Brook Highland), AL 100.0% Wal-Mart (2004/2024), Winn-Dixie (2014/2044), Goody's
(2004/2019), Stein Mart (2011/2021), OfficeMax (2011/2026),
Rhodes Furniture (2004/2014), Regal Cinemas (2014
/2029)
2 Birmingham (Eastwood Festival), AL 115,165 94.6% Home Depot (not owned) Western Supermarkets (not
owned), Office Depot (1999/2014), Goody's (2004/2019),
Cobb Theaters (2006/2016)
3 Huntsville, AL 100.0% Wal-Mart (not owned)
Arizona
-------
4 Phoenix (Ahwatukee), AZ 100.0% HomePlace (2012/2027), Smith's (2021/2046), Stein Mart
(2011/2026), AMC Theatre (2021/2036), Barnes & Noble
(2012/2027), Baby Superstore (2007/2022), Ross Dress For
Less (2007/2022)
5 Phoenix (Peoria), AZ 99.6% Lil' Things (2009/2024), Barnes & Noble(2011/2026),
TJMaxx (2005/2020), Circuit City (2016/2036), Oshman's
(2017/2037), Linens 'N Things (2011/2026), Staples (2009/
2024), MacFrugal's (2010/2025), Fry's (not owned)
Arkansas
--------
6 Fayetteville, AR 100.0% TJMaxx (2005/2020), Service Merchandise (2016/2031),
Wal-Mart (not owned)
7 North Little Rock, AR 90.3% Kmart (2016/2066), Wards (2014/2034), TJMaxx (2001/
2011), Cinemark (2011/2031)
8 Russellville, AR 28,336 98.7% Wal-Mart (2011/2041), JCPenney (2012/2032), Beall-
Ladymon (2007/2022)
California
----------
9 San Diego, CA 98.6% Mervyn's (not owned), Kmart (2018/2048), Pacific Theaters
(2013/2023), Sportmart (2008/2023), Circuit City (2009/
2024), Marshall's (2009/2029), Ross Dress For Less (2004/
2019), Michael's (2004/2014), Barnes & Noble (2003/2013),
Blockbuster Music (1999/2014)
Colorado
--------
10 Alamosa, CO 13,587 100.0% Wal-Mart (not owned)
11 Denver (Broadway Marketplace), CO 98.0% Kmart (2019/2069), Albertson's (2019/2049), Sam's (2018/
2058), Office Max (2010/2035), Pep Boys (2014/2035)
12 Denver (Centennial), CO 99.0% Border's (2017/2027), Golfsmith (2007/2022), HomePlace
(2017/2037), Ross Dress For Less (2008/2028), Toys R Us
(2011/2046), Soundtrack (2017/2028), Office Max (2013/
2033), Michael's (2007/2027)
13 Trinidad, CO 343 78.3% Wal-Mart (not owned), Super Save (1998)
Connecticut
-----------
14 Waterbury, CT 100.0% Kmart (1998/2048), Grand Union (1999/2024)
Florida
-------
15 Cape Coral, FL 39,922 97.9% TJMaxx (2007/2017), Office Max (2012/2027)
16 Crystal River, FL 89,547 90.8% Beall's (2001/2016), Beall's Outlet (2001/2016), Scotty's
(2008/2038)
17 Jacksonville, FL 45,115 96.5% Wal-Mart (not owned), J.C.Penney (2002/2022), Winn Dixie
(2009/2034), Walgreen's (2029/2029)
</TABLE>
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
Type of termination/
Property option Year Date
Center / Property Location (1) termination) Developed Acquired
===========================================================================================================================
<C> <C> <C> <C> <C> <C>
18 Marianna, FL 2820 Highway 71 PC Fee 1990
19 Melbourne, FL 750-850 Apollo Blvd PC GL 1978
20 Naples, FL 5010 Airport Road North PC Fee (6) 1994 11/17/1995
21 Ocala, FL 3711 Silver Sprgs, NE PC Fee 1974
22 Orlando (Fern Park), FL 6735 U.S. #17-92 PC Fee 1970
23 Orlando (Pine Hills), FL 5250 W.Colonial Dr PC Fee 1989
24 Ormond Beach, FL 1458 West Granada Blvd PC Fee 1993 05/02/1994
25 Pensacola, FL 8934 Pensacola Blvd PC Fee 1988
26 Tampa (North Pointe), FL 15233 No.Dale Mabry PC Fee 1990
27 Tampa (Town N' Country), FL 7039 West Waters Ave PC Fee 1990
28 Tampa (Bayonet Point), FL U.S. 19 & S.R. 52 PC Fee 1985
29 Tampa (Brandon), FL 1602 Brandon Blvd PC GL 1972
30 Tampa (Palm Harbor), FL 300 East Lake Road PC Fee 1990 05/12/1995
31 Tampa (Spring Hill), FL 13050 Cortez Blvd PC Fee 1988
32 Tampa (Tarpon Springs), FL 41232 U.S. 19, North PC Fee 1974
33 Tampa (West Pasco), FL 7201 County Rd 54 PC Fee 1986
Georgia
-------
34 Atlanta (Duluth), GA 1630 Pleasant Hill Road PC Fee 1990 02/24/1994
35 Atlanta (Dunwoody), GA 1155 Mt. Vernon Highway PC Fee (6) 1995 11/17/1995
36 Atlanta (Marietta), GA 2609 Bells Ferry Road PC Fee (6) 1995 11/17/1995
37 Atlanta (Stone Mountain), GA 5615 Memorial Drive PC Fee 1973
Idaho
-----
38 Idaho Falls, ID 1515 Northgate Mile PC Fee 1976 02/26/1998
Illinois
--------
39 Chicago (Schaumburg), IL 1430 East Golf Road PC Fee (6) 1993 11/17/1995
40 Harrisburg, IL 701 North Commercial PC Fee 1991 02/17/1994
41 Mount Vernon, IL 42nd and Broadway MM Fee 1974 08/13/1993
Indiana
-------
42 Bedford, IN 1320 James Avenue PC Fee 1993 10/21/1993
43 Connersville, IN 2100 Park Road PC Fee 1991 12/10/1993
</TABLE>
- 16 -
<PAGE> 17
<TABLE>
<CAPTION>
Company Average
Land Gross Total Base Annual
Area Leasable Annualized Rent per Percentage
Center / Property (Acres) Area (sq.ft.) Base Rent (3) sq. ft. (4) Rent
===========================================================================================================================
<C> <C> <C> <C> <C> <C>
18 Marianna, FL 17.34 63,894 451,444 7.28 5,422
19 Melbourne, FL 15.52 121,913 457,065 3.92 31,376
20 Naples, FL 30.60 267,777 2,774,045 10.53
21 Ocala, FL 2.23 19,280 61,341 3.91 10,811
22 Orlando (Fern Park), FL 3.04 16,000 123,416 7.71
23 Orlando (Pine Hills), FL 30.57 177,115 1,191,684 7.32 25,349
24 Ormond Beach, FL 32.09 234,045 1,696,892 7.69
25 Pensacola, FL 21.00 75,736 324,071 7.99 26,891
26 Tampa (North Pointe), FL 23.70 104,473 1,163,413 11.14 5,825
27 Tampa (Town N' Country), FL 30.61 134,166 1,036,410 8.18
28 Tampa (Bayonet Point), FL 58.67 203,760 1,127,370 5.78
29 Tampa (Brandon), FL 17.33 139,522 251,205 2.30
30 Tampa (Palm Harbor), FL 5.80 52,395 788,479 15.05 1,746
31 Tampa (Spring Hill), FL 21.60 196,073 1,313,120 6.96
32 Tampa (Tarpon Springs), FL 23.30 198,797 1,066,230 5.67
33 Tampa (West Pasco), FL 24.40 135,421 997,103 7.78 4,077
Georgia
-------
34 Atlanta (Duluth), GA 30.67 99,025 1,234,837 12.96
35 Atlanta (Dunwoody), GA 8.70 343,115 4,276,142 12.53
36 Atlanta (Marietta), GA 48.28 319,908 3,640,944 11.45
37 Atlanta (Stone Mountain), GA 16.60 143,860 296,735 2.08
Idaho
-----
38 Idaho Falls, ID 24.46 148,593 744,393 5.47
Illinois
--------
39 Chicago (Schaumburg), IL 62.80 501,092 7,224,096 14.60
40 Harrisburg, IL 24.46 168,424 893,313 5.53
41 Mount Vernon, IL 39.25 262,979 837,198 3.43 198,177
Indiana
-------
42 Bedford, IN 20.56 223,135 1,292,335 5.87 6,761
43 Connersville, IN 21.99 141,791 816,965 5.76 1,992
</TABLE>
<TABLE>
<CAPTION>
Percent
Leased
Center / Property (5) Anchor Tenants (Lease Expiration / Option Expiration)
===================================================================================================================
<C> <C> <C>
18 Marianna, FL 97.0% Wal-Mart (not owned), Beall's (2005/2020) , Eckerd (2010/
2030)
19 Melbourne, FL 95.7% Kmart (2003/2048), Beall's (1997/2007)
20 Naples, FL 98.4% Winn Dixie (2014/2038), TJMaxx (2009/2024), Service
Merchandise (2015/2035), Ross Dress For Less (2005/2025),
Circuit City (2015/2035), OfficeMax
21 Ocala, FL 81.3% Kmart (not owned), Eckerd (1998/2018)
22 Orlando (Fern Park), FL 100.0% Kmart (not owned)
23 Orlando (Pine Hills), FL 91.9% Wal-Mart (not owned), Publix (2009/2019), Walgreens
(2029/2029)
24 Ormond Beach, FL 94.3% Kmart (2018/2064), Publix (2013/2033), Bealls (2004/2024)
25 Pensacola, FL 53.6% Wal-Mart (not owned), City Drug (1998/2003)
26 Tampa (North Pointe), FL 100.0% Wal-Mart (not owned), Publix (2010/2030)
27 Tampa (Town N' Country), FL 94.4% Wal-Mart (not owned), Beall's (2005/2029), Kash N Karry
(2010/2040)
28 Tampa (Bayonet Point), FL 95.7% Publix (2005/2025), Beall's (2002/2017), TJMaxx (2010/
2030)(*), Eckerd (2005/2025)
29 Tampa (Brandon), FL 78.1% Kmart (1997/2047)
30 Tampa (Palm Harbor), FL 100.0% Target (not owned), Albertson's (not owned), Eckerd (2010/
2025)
31 Tampa (Spring Hill), FL 96.2% Wal-Mart (not owned), Publix (2008/2028), Walgreens
(2028/2028), Beall's (2006/2046)
32 Tampa (Tarpon Springs), FL 94.6% Kmart (1999/2049), Big Lots (2002/2012), Beall's Outlet
(2003/2018)
33 Tampa (West Pasco), FL 94.6% Wal-Mart (not owned), Publix (2006/2026), Bealls (2001/
2016), Walgreens (2026/2026)
Georgia
-------
34 Atlanta (Duluth), GA 96.2% Wal-Mart (not owned), Office Depot (2000/2020), Ethan
Allen (2000/2010)
35 Atlanta (Dunwoody), GA 99.5% SteinMart (2010/2025), HomePlace (2011/2026), United
Artists (2015/2035), Babies R Us (2007/2027), Office Depot
(2012/2027), St. Joseph's Hospital (2006/2016)
36 Atlanta (Marietta), GA 99.4% Publix (2015/2035), HomePlace (2011/2026), PetsMart
(2011/2021), Barnes & Noble (2011/2026), Sportslife (2011/
2021), Stein Mart (2007/2027)
37 Atlanta (Stone Mountain), GA 99.2% Kmart (1998/2048)
Idaho
-----
38 Idaho Falls, ID 91.6% Fred Meyer (not owned), Lamonts (2001/2016), OfficeMax,
(2011/2026), Payless Drug (2006/2026),JoAnn Fabrics
(2002/2022), Hollywood Theaters (2001/2001)
Illinois
--------
39 Chicago (Schaumburg), IL 98.8% Builder's Square (2019/2049), Service Merchandise (2014/2049),
OfficeMax (2010/2020), Sports Authority (2013/2033),
Marshall's (2009/2024), 'Nordstrom Rack (2009/2024),
Border's Books (2009/2029), Circuit City (2010/2025),Off
5thSaksFifthAvenue(2011/2026), Container Store (2011/
2026)
40 Harrisburg, IL 95.9% Wal-Mart (2011/2041), Roundy's Grocery (2011/2031)
41 Mount Vernon, IL 92.9% Wal-Mart (2008/2028),J.C.Penney (1997/2022),
Martin's(1999/2014), Stage (1999/2014)
Indiana
-------
42 Bedford, IN 98.7% Kmart (2018/2068), J.C.Penney (2008/2028), Goody's
(2003/2018), Buehler's (2010/2025)
43 Connersville, IN 100.0% Wal-Mart (2011/2041), Cox Supermarket (2011/2026)
</TABLE>
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
termination/ Land
Type of option Year Date Area
Center / Property Location Property (1) termination) Developed Acquired (Acres)
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
44 Highland (Chicago), IN Highway 41 & Main Street PC Fee 1995 07/02/1996 16.08
Iowa
----
45 Cedar Rapids, IA 303-367 Collins Road, N.E. PC 1984 07/16/1998
46 Ottumwa, IA 1110 Quincy Avenue MM Fee 1990 34.00
Kansas
------
47 Leawood (Kansas City), KS 1110 Quincy Avenue PC Fee (6) 1990 34.00
48 Merriam, KS 5700 Antioch Road PC Fee (6) 1998
Kentucky
--------
49 Florence, KY Kentucky Highway 80 PC Fee 1998 11/23/1998 11.74
50 Hazard, KY Kentucky Highway 80 PC Fee 1978 11.74
Maine
-----
51 Brunswick, ME 172 Bath Road PC Fee 1965 07/15/1997 28.46
Massachusetts
-------------
52 Boston (Framingham), MA 1 Worcester Road PC Fee (6) 1994 11/17/1995 177.00
Michigan
--------
53 Bad Axe, MI 850 No.Van Dyke Rd PC Fee 1991 08/12/1993 18.58
54 Cheboygan, MI 1109 East State PC Fee 1988 12/14/1993 16.75
55 Detroit, MI 8400 E.Eight Mile Road PC Fee 1989 03/10/1998 24.46
56 Gaylord, MI 1401 West Main Street PC Fee 1991 08/12/1993 19.49
57 Grand Rapids (Walker), MI 3390-B Alpine Ave., N.W. PC Fee 1989 12/29/1995 16.40
58 Houghton, MI Highway M26 MM Fee 1981 21.48
59 Howell, MI 3599 East Grand River PC Fee 1991 09/23/1993 26.52
60 Mt Pleasant, MI 4208 E.Blue Grass Rd PC Fee 1990 09/24/1993 51.13
61 Sault Ste Marie, MI 4516 I-75 Business Spur PC Fee 1993 09/02/1994 40.08
Minnesota
---------
62 Bemidji, MN 1201 Paul Bunyan Dr MM Fee 1977 31.55
63 Brainerd, MN 1200 Hwy 210 West MM Fee 1985 17.19
64 Hutchinson, MN 1060 S.R. 15 MM Fee 1981 36.88
65 Minneapolis (Eagan), MN 1299 Promenade Place PC Fee (6) 1997 07/01/1997 45.70
</TABLE>
- 17 -
<PAGE> 18
<TABLE>
<CAPTION>
Company Average
Gross Total Base Annual
Leasable Annualized Rent per Percentage
Center / Property Area (sq.ft.) Base Rent (3) sq. ft. (4) Rent
===============================================================================================
<S> <C> <C> <C> <C>
44 Highland (Chicago), IN 293,867 2,740,661 9.83
Iowa
----
45 Cedar Rapids, IA 187,068 1,592,913 8.52
46 Ottumwa, IA 161,060 1,139,368 7.23 32,297
Kansas
------
47 Leawood (Kansas City), KS 388,962 6,975,705 18.85
48 Merriam, KS 300,795 3,081,689 10.41
Kentucky
--------
49 Florence, KY 15,000 273,000 18.20
50 Hazard, KY 111,492 408,827 3.77 12,647
Maine
-----
51 Brunswick, ME 307,620 2,116,468 6.99
Massachusetts
-------------
52 Boston (Framingham), MA 768,136 12,020,363 15.65
Michigan
--------
53 Bad Axe, MI 63,415 534,210 8.42
54 Cheboygan, MI 95,094 400,713 4.63 365
55 Detroit, MI 343,502 3,309,609 9.63
56 Gaylord, MI 190,482 1,105,256 5.88 2,340
57 Grand Rapids (Walker), MI 133,981 1,244,916 9.93
58 Houghton, MI 234,366 1,010,788 4.54 67,537
59 Howell, MI 215,137 1,198,446 5.94 9,851
60 Mt Pleasant, MI 248,963 1,528,696 6.14 7,865
61 Sault Ste Marie, MI 270,761 1,710,804 6.46
Minnesota
---------
62 Bemidji, MN 297,416 1,353,884 4.95 63,116
63 Brainerd, MN 257,489 1,711,809 6.74 57,666
64 Hutchinson, MN 121,001 800,323 7.20 26,964
65 Minneapolis (Eagan), MN 278,510 3,226,531 11.70
</TABLE>
<TABLE>
<CAPTION>
Percent
Center / Property Leased (5) Anchor Tenants (Lease Expiration / Option Expiration)
====================================================================================================================================
<S> <C> <C>
44 Highland (Chicago), IN 94.8% Marshall's (2011/2021), Circuit City (2016/2036), Kohl's (2016/2036),
OfficeMax (2012/2032), Jewel (not owned), Target (not owned)
Iowa
----
45 Cedar Rapids, IA 100.0% Kohl's (2021/2046), TJMaxx (2004/2014), Barnes & Noble (2010/2025),
Office Max (2010/2025)
46 Ottumwa, IA 97.8% Wal-Mart (not owned), J.C. Penney (2005/2035), Herberger (2004/2019)
Kansas
------
47 Leawood (Kansas City), KS 95.1% Wal-Mart (not owned), J.C. Penney (2005/2035), Herberger (2004/2019)
48 Merriam, KS 98.4% Home Depot (not owned), Cinemark, Hen House (2018/2038), Marshall's
(2008/2023), PetsMart (2016/2041), Office Max (2013/2033)
Kentucky
--------
49 Florence, KY 100.0% Kmart (2003/2053)(*), A&P (1998/2038)
50 Hazard, KY 97.3% Kmart (2003/2053)(*), A&P (1998/2038)
Maine
-----
51 Brunswick, ME 98.4% Hoyt's Cinemas (2010/2025), TJMaxx (2004/2019), Sears (2002/2027),
Bookland (2004/2004), Porteous (2001/2006)
Massachusetts
-------------
52 Boston (Framingham), MA 100.0% General Cinema (2014/2034), TJMaxx (2010/2020), Sears Homelife
(2004/2024), Marshall's (2011/2026), Bob's (2011/2026), Linens 'N Things
(2011/2026), Sports Authority (2015/2035), Barnes & Noble (2011/2026),
OfficeMax (2011/2026), Toys R Us (2020/2070), Kids R Us (2020/2070),
Bradlee's (2005/2020), Jordan Marsh (2020/2070), DSW (2007/2022)
Michigan
--------
53 Bad Axe, MI 100.0% Wal-Mart (not owned), Farmer Jack's (2012/2037)
54 Cheboygan, MI 91.1% Kmart (2005/2055), Carters Food Center (1999/2024)
55 Detroit, MI 100.0% Target Stores (2017/2032), Builders Square (2014/2029), Farmer Jack
(2008/2023), Toys "R" Us (2021/2036), American Multi-Cinema (2008/2018),
Kids "R" Us (2002/2013), Arbor Drugs (2000/2008)
56 Gaylord, MI 98.7% Wal-Mart (2010/2040), Buy-Low (2011/2031)
57 Grand Rapids (Walker), MI 93.5% Circuit City (not owned), Target (not owned), Toys R Us (not owned),
TJMaxx (2005/2020), Office Depot (2005/2019)
58 Houghton, MI 95.0% Kmart (2005/2055), J.C. Penney (2000/2020)
59 Howell, MI 93.8% Wal-Mart (2011/2041), Kroger (2012/2042)
60 Mt Pleasant, MI 100.0% Wal-Mart (2009/2039), Kroger (2011/2041), Odd Lots (1998/2008)
61 Sault Ste Marie, MI 97.8% Wal-Mart (2012/2042), J.C. Penney (2008/2033), Glen's Supermarket
(2013/2033), Office Max (2013/2028)
Minnesota
---------
62 Bemidji, MN 92.1% Kmart (2002/2052), J.C. Penney (1998/2018), Herberger's (2005/2030)
63 Brainerd, MN 98.7% Kmart (2004/2054), Herberger's (2008/2023), Movies 10 Theatre (2011/2026),
64 Hutchinson, MN 91.9% Kmart (not owned), J.C. Penney (2001/2021)
65 Minneapolis (Eagan), MN 99.0% HomePlace (2017/2037), Office Max (2013/2033), TJMaxx (2007/2022),
Byerly's (2016/2046), Barnes & Noble (2012/2027)
</TABLE>
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
termination/ Land
Type of option Year Date Area
Center / Property Location Property (1) termination) Developed Acquired (Acres)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
66 Minneapolis (Maple Grove), MN Weaver Lake Road & I-94 PC Fee (6) 1995 07/02/1996 25.61
67 St. Paul, MN 1450 University Avenue PC Fee 1995 07/11/1997 20.27
68 Worthington, MN 1635 Oxford Street MM Fee 1977 38.02
Mississippi
-----------
69 Starkville, MS 882 Highway 12 West PC Fee 1990 11/16/1994 28.81
70 Tupelo, MS 3850 North Gloster PC Fee 1992 12/15/1994 41.91
Missouri
--------
71 Fenton, MO Gravois Rd-Hwy 141 NC Fee 1970 11.07
72 Independence, MO 900 East 39th Street PC Fee (6) 1995 11/17/1995 46.95
73 St. Louis (Sunset Hill), MO 10980 Sunset Plaza PC 1997 07/16/1998
74 St. Louis (Brentwood), MO 1 Brentwood Promenade PC 1998 07/16/1998
Court
75 St. Louis (Olympic Oaks), MO 12109 Manchester Road NC 1985 07/16/1998
76 St. Louis (Gravois), MO 4523 Gravois Village PC 1983 07/16/1998
Plaza
77 St. Louis (Keller), MO 4500 LeMay Ferry Road NC 1987 07/16/1998
78 St. Louis (Southtowne), MO Kings Highway & Chippewa PC 1992 07/16/1998
79 St. Louis (HQ), MO 6303 S. Lindbergh Blvd. PC 1992 07/16/1998
80 St. Louis (American), MO 3144 South Kingshighway NC 1998 07/16/1998
81 Springfield, MO 1425 East Battlefield NC 1989 07/16/1998
New Jersey
----------
82 Princeton, NJ Route 1 and Quaker Bridge PC Fee 1995 12/30/1997
Road
New Mexico
----------
83 Los Alamos, NM 800 Trinity Drive NC Fee 1978 8.72
Nevada
------
84 Las Vegas, NV 14833 West Charleston NC 1973 07/02/1998
Blvd.
North Carolina
--------------
85 Ahoskie, NC 1400 East Memorial Drive PC Fee 1992 02/25/1994 26.95
86 Durham (New Hope Commons), NC 5428-B New Hope Commons PC Fee (6) 1995 11/17/1995 39.53
87 Durham (Oxford Commons), NC 3500 Oxford Road PC Fee 1990 41.70
88 Jacksonville, NC US Hwy 17-Western Ave PC Fee 1989 27.51
89 New Bern, NC 3003 Claredon Blvd PC Fee 1989 28.18
90 Washington, NC 536 Pamlico Plaza NC Fee 1990 22.17
</TABLE>
- 18 -
<PAGE> 19
<TABLE>
<CAPTION>
Company Average
Gross Total Base Annual
Leasable Annualized Rent per Percentage
Center / Property Area (sq.ft.) Base Rent (3) sq. ft. (4) Rent
==============================================================================================
<S> <C> <C> <C> <C>
66 Minneapolis (Maple Grove), MN 250,436 2,438,852 9.74
67 St. Paul, MN 324,354 2,569,255 8.02
68 Worthington, MN 185,658 971,165 5.75 15,708
Mississippi
-----------
69 Starkville, MS 234,652 1,251,555 5.45 14,283
70 Tupelo, MS 348,236 1,920,679 5.52
Missouri
--------
71 Fenton, MO 93,068 765,712 9.07 694
72 Independence, MO 365,062 3,922,523 10.79
73 St. Louis (Sunset Hill), MO 421,028 4,459,156 10.72
74 St. Louis (Brentwood), MO 299,770 3,654,297 12.62
75 St. Louis (Olympic Oaks), MO 92,372 1,190,445 13.34
76 St. Louis (Gravois), MO 110,992 603,155 5.43
77 St. Louis (Keller), MO 52,842 570,307 10.79
78 St. Louis (Southtowne), MO 0 0
79 St. Louis (HQ), MO 0 0
80 St. Louis (American), MO 29,500 81,000 3.90
81 Springfield, MO 56,033 454,293 8.11
New Jersey
----------
82 Princeton, NJ 202,121 3,644,696 18.03
New Mexico
----------
83 Los Alamos, NM 98,050 417,584 5.54 54,461
Nevada
------
84 Las Vegas, NV 62,005 664,672 10.72
North Carolina
--------------
85 Ahoskie, NC 188,428 949,789 5.08 15,903
86 Durham (New Hope Commons), NC 408,292 4,549,762 11.14
87 Durham (Oxford Commons), NC 206,827 1,205,226 6.26 109,873
88 Jacksonville, NC 79,200 338,377 7.66 6,384
89 New Bern, NC 238,388 1,561,291 6.83 7,538
90 Washington, NC 85,235 394,041 4.68 2,962
</TABLE>
<TABLE>
<CAPTION>
Percent
Center / Property Leased (5) Anchor Tenants (Lease Expiration / Option Expiration)
===============================================================================================================================
<S> <C>
66 Minneapolis (Maple Grove), MN 100.0% Kohl's (2016/2036), Barnes & Noble (2011/2026), Holiday Sports
(2011/2027), HomePlace (2016/2036), Cub Foods (not owned)
67 St. Paul, MN 98.7% Kmart (2022/2057), Cub Foods (2015/2045), PetsMart (2011/2036),Mervyn's
(2016/2046)
68 Worthington, MN 90.9% Kmart (2001/2051), J.C. Penney (2007/2032), Sterling (2001/2021), Hy-Vee
(2011/2031)
Mississippi
-----------
69 Starkville, MS 97.9% Wal-Mart (2015/2045), J.C. Penney (2010/2040), Kroger (2012/2042)
70 Tupelo, MS 100.0% Wal-Mart (2012/2042), Sam's (2012/2042), Goody's (2002/2017)
Missouri
71 Fenton, MO 90.7%
72 Independence, MO 99.6% Kohl's (2016/2036), Bed Bath & Beyond (2012/2027), Marshall's (2012/2027),
Rhodes Furniture (2016/2026), Barnes & Noble (2011/2026), American Multi-
Cinema (2015/2034)
73 St. Louis (Sunset Hill), MO 98.8% Homeplace (2011/2026), Marshall's (2012/2022), Home Depot (2023/2063),
Petsmart (2011/2031), Comp USA (2013/2028), Toys R Us (2013/2038), Cost
Plus (2009/2024), Borders (2011/2026)
74 St. Louis (Brentwood), MO 96.6% Target (2023/2048), Sports Authority (2013/2028), Petsmart (2014/2039)
75 St. Louis (Olympic Oaks), MO 96.6% TJ Maxx (2001/2006), Michael's (2005/2010), Walgreen's (2020/2020)
76 St. Louis (Gravois), MO 100.0% KMart (2008/2048)
77 St. Louis (Keller), MO 100.0% Wehrenberg Theatres (2003/2023)
78 St. Louis (Southtowne), MO Home Quarters (2021/2061)
79 St. Louis (HQ), MO Home Quarters (2018/2058)
80 St. Louis (American), MO 70.3% Home Depot (not owned), National Tire (2018/2038)
81 Springfield, MO 100.0% Toys R Us (2013/2038), Pier 1 (2000/2013)
New Jersey
----------
82 Princeton, NJ 100.0% Border's Books & Music (2011/2026), Best Buy (2012/2027), Linens N Things
(2011/2026), PetsMart (2011/2026), Wal-Mart (not owned), Sam's (not
owned), Home Depot (not owned)
New Mexico
----------
83 Los Alamos, NM 76.9% Furrs(1997/1997), Furrs Pharmacy (1998/2013), TG&Y(2018/2033)
Nevada
------
84 Las Vegas, NV 100.0% Big 5 Sports (2007/2017), Chief Auto Parts (2006/2011), Family Books
(2003/2003)
North Carolina
--------------
85 Ahoskie, NC 99.3% Wal-Mart (2013/2043), Belk (2008/2033), Food Lion (2012/2032)
86 Durham (New Hope Commons), NC 100.0% Wal-Mart (2015/2035), Upton's (not owned), Michael's (2005/2020),
Marshall's (2011/2026), Linens 'N Things (2011/2026), Best Buy
(2011/2026), OfficeMax (2010/2025), Barnes & Noble (2010/2025)
87 Durham (Oxford Commons), NC 93.1% Wal-Mart (not owned), Food Lion (2010/2030), Lowes (2011/2031)
88 Jacksonville, NC 55.8% Wal-Mart (not owned), Wilson's (2009/2024)
89 New Bern, NC 95.9% Wal-Mart (2009/2034), Goody's (2007/2017)
90 Washington, NC 98.9% Wal-Mart (2009/2034)
</TABLE>
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
termination/ Land
Type of option Year Date Area
Center / Property Location Property (1) termination) Developed Acquired (Acres)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
91 Waynesville, NC 201 Paragon Parkway PC Fee 1990 04/28/1993 28.40
92 Wilmington, NC S.College-New Centre Dr PC Fee 1989 57.78
North Dakota
------------
93 Dickinson, ND 1681 Third Avenue MM Fee 1978 27.10
Ohio
----
94 Akron (Stow) (Kmart Plaza), OH 4332 Kent Road PC Fee 1969 20.14
95 Akron (Stow) (Stow Community), OH Kent Road PC Fee 1997
96 Ashland, OH U.S. Route 42 PC Fee 1977 6.26
97 Bellefontaine, OH 2250 South Main Street NC Fee 1995 03/23/1998
98 Boardman, OH I-680 & US-224 PC Fee 1997 57.04
99 Canton, OH 5496 Dressler Road PC Fee (6) 1995 20.00
100 Canton (II), OH Dressler Road PC Fee 1997
101 Chillicothe, OH 867 North Bridge Street PC Fee 1974 16.70
102 Cincinnati, OH 5100 Glencrossing Way PC Fee 1990 05/26/1993 24.47
103 Cincinnati (Hamilton), OH 1371 Main Street NC Fee 1986 03/23/1998
104 Cleveland (Aurora), OH 70-130 Barrington Town NC Fee 1996
Square Drive
105 Cleveland (Eastlake), OH 33752 Vine Street PC Fee 1971 0.99
106 Cleveland (Elyria), OH 825 Cleveland PC Fee 1977 16.30
107 Cleveland (Highland Hts.), OH 6235 Wilson Mills Rd PC Fee 1995 11.63
108 Cleveland (Macedonia), OH 8210 Macedonia Commons PC Fee (6) 1994 07/05/1994 19.94
109 Cleveland (N.Olmsted), OH 5140-25877 Great PC Fee 1958 02/21/1997 43.14
Northern Blvd.
110 Cleveland (Solon Outlot), OH 6211 S.O.M. Center Rd PC Fee 1978 0.64
111 Cleveland (Solon), OH PC Fee 1998
112 Cleveland (W.65th), OH 3250 West 65th Street PC Fee 1977 4.18
113 Columbus (Grove City) (Derby 2161-2263 Stringtown PC Fee 1992 03/23/1998
Square), OH Road
114 Columbus (Lennox Town), OH 1647 Olentangy River PC Fee (6) 1997 03/23/1998
Road
115 Columbus (Dublin) (Perimeter 6644-6804 Perimeter Loop PC Fee 1996 03/23/1998
Shopping), OH Road
</TABLE>
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
Company Average
Gross Total Base Annual
Leasable Annualized Rent per Percentage
Center / Property Area (sq.ft.) Base Rent (3) sq. ft. (4) Rent
==============================================================================================
<S> <C> <C> <C> <C>
91 Waynesville, NC 181,894 1,107,117 6.09 1,455
92 Wilmington, NC 442,110 3,113,053 7.04 33,348
North Dakota
------------
93 Dickinson, ND 267,506 1,084,856 4.20 68,209
Ohio
----
94 Akron (Stow) (Kmart Plaza) , OH 116,806 189,344 1.62 39,772
95 Akron (Stow) (Stow Community) , OH 283,501 2,323,213 8.63
96 Ashland, OH 110,656 233,382 2.11
97 Bellefontaine, OH 54,780 460,152 8.40
98 Boardman, OH 505,995 4,046,314 8.12
99 Canton, OH 230,065 2,501,005 11.04
100 Canton (II), OH 225,588 2,346,949 10.53
101 Chillicothe, OH 236,009 1,807,422 7.66 9,630
102 Cincinnati, OH 231,224 2,190,218 9.66
103 Cincinnati (Hamilton), OH 40,000 230,000 5.75
104 Cleveland (Aurora), OH 65,373 644,221 12.79
105 Cleveland (Eastlake), OH 4,000 68,400 17.10
106 Cleveland (Elyria), OH 150,200 761,970 5.07 7,281
107 Cleveland (Highland Hts.), OH 247,146 2,563,263 10.37
108 Cleveland (Macedonia), OH 234,789 2,237,531 9.53
109 Cleveland (N.Olmsted), OH 615,851 6,440,255 10.65
110 Cleveland (Solon Outlot), OH 2,560 67,384 26.32
111 Cleveland (Solon), OH 124,989 1,261,432 10.46
112 Cleveland (W.65th), OH 49,420 243,870 5.22
113 Columbus (Grove City) (Derby 128,050 1,262,979 9.86
Square), OH
114 Columbus (Lennox Town), OH 336,273 3,069,191 9.13
115 Columbus (Dublin) (Perimeter 137,610 1,473,202 11.07
Shopping), OH
</TABLE>
<TABLE>
<CAPTION>
Percent
Center / Property Leased (5) Anchor Tenants (Lease Expiration / Option Expiration)
=================================================================================================================================
<S> <C>
91 Waynesville, NC 100.0% Wal-Mart (2011/2041), Food Lion (2011/2031)
92 Wilmington, NC 100.0% Wal-Mart (2009/2034), Sam's (not owned), Lowes (2009/2029), Hamrick's
(2002/2007), Goody's (2005/2015), Barnes & Noble (2007/2022)
North Dakota
------------
93 Dickinson, ND 96.5% Kmart (2003/2053), J.C. Penney (1998/2018), Herberger (2000/2020), Thrifty
Drug (2001/2001)
Ohio
----
94 Akron (Stow) (Kmart Plaza), OH 100.0% Kmart (1996/2006)
95 Akron (Stow) (Stow Community), OH 95.0% Target (not owned), Giant Eagle (2017/2032), Stein Mart (2007/2022),
OfficeMax (2011/2026)
96 Ashland, OH 100.0% Kmart (2002/2052), Quality Farm (2000/2003)
97 Bellefontaine, OH 100.0% Big Bear Supermarket (2016/2031)
98 Boardman, OH 98.5% Lowe's (2016/2046), Staples (2012/2032), Dick's Cothing & Sporting Goods
(2012/2027), Wal-Mart (2017/2047), PetsMart (2013/2038), Giant Eagle
(2018/2033)
99 Canton, OH 98.5% Kohl's (2016/2046), Target (not owned), London Fog (2011/2011), Dick's
Clothing & Sporting Goods (2010/2025)
100 Canton (II), OH 98.8% PetsMart (2013/2028), Service Merchandise (2013/2028), Homeplace
(2012/2027), Jo-Ann ETC. (2008/2023)
101 Chillicothe, OH 100.0% Lowes, (2015/2035), Kroger (2001/2031), Super X (2001/2031), Office Max
(2012/2027)
102 Cincinnati, OH 98.1% Thriftway (2009/2029), Service Merchandise (2006/2031)
103 Cincinnati (Hamilton), OH 100.0% Roundy's (2006/2021)
104 Cleveland (Aurora), OH 77.0% Heinens (not owned)
105 Cleveland (Eastlake), OH 100.0% Kmart (not owned)
106 Cleveland (Elyria), OH 100.0% Hill's (2003/2028), Finast (2010/2045)
107 Cleveland (Highland Hts.), OH 100.0% Builders Square (2020/2070), Kohl's (2007/2047), Dick's Clothing and
Sporting Goods (2016/2036)
108 Cleveland (Macedonia), OH 100.0% Wal-Mart (not owned), Finast (2018/2049), Kohl's (2016/2041)
109 Cleveland (N.Olmsted), OH 98.2% HomePlace (2017/2032), Best Buy (2010/2025), PetsMart (2003/2013), Kids R
Us (2008/2008), Marshall's (2000/2005), Regal Cinemas (2001/2001), Marc's
(2002/2007), CompUSA (2008/2023), Kronheim's (1999/2004), Finast (not
owned)
110 Cleveland (Solon Outlot), OH 100.0% Kmart (not owned)
111 Cleveland (Solon), OH 96.5% Bed, Bath & Beyond, Borders
112 Cleveland (W.65th), OH 94.6% Kmart (not owned), A&P (1997/2027), Revco (1997/2007)
113 Columbus (Grove City) (Derby 100.0% Big Bear Supermarket (2012/2027)
Square), OH
114 Columbus (Lennox Town), OH 100.0% Target (2016/2031), AMC Theatres (2021/2036), Barnes & Noble (2007/2022),
Staples (2011/2026), Just For Feet (2007/2022), Old Navy (2009/2009)
115 Columbus (Dublin) (Perimeter 96.7% Big Bear Supermarket (2016/2031), CVS (2011/2026)
Shopping), OH
</TABLE>
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
termination/ Land
Type of option Year Date Area
Center / Property Location Property (1) termination) Developed Acquired (Acres)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
116 Columbus (Dublin Vlg) (Dublin 6561-6815 Dublin Center PC Fee (6) 1987 05/15/1998
Village), OH Drive
117 Columbus (Easton) (Easton Market), 3740 Easton Market PC Fee 1998 05/15/1998
OH
118 Columbus (Pickerington), OH 1701-1797 Hill Road No. NC Fee 1990 03/23/1998
119 Columbus, OH 3622-3860 W. Dublin PC Fee (6) 1995 03/23/1998
Granville Road
120 Columbus (New Albany), OH 1370-1399 E.Johnstown NC Fee 1995 03/23/1998
Road
121 Columbus (Pataskala), OH 78-80 Oak Meadow Drive NC Fee 1980 03/23/1998
122 Dayton (Huber Hts.), OH 8280 Old Troy Pike PC Fee 1990 08/12/1993 17.39
123 Dayton (Washington), OH 615-799 Lyons Road PC Fee (6) 1990 05/15/1998
124 Hillsboro, OH 1100 North High St PC Fee 1979 11.02
125 Lebanon, OH 1879 Deerfield Road PC Fee 1990 08/12/1993 14.40
126 Tiffin, OH 870 West Market St MM Fee 1980 27.62
127 Toledo, OH 5245 Airport Highway PC Fee 1993 02/24/1995 22.87
128 Westlake, OH 30100 Detroit Road PC Fee 1974 12.71
129 Wilmington, OH 1025 S. South Street PC Fee 1977 7.38
130 Xenia (West Park Square), OH 1700 West Park Square PC Fee 1994 7.38
131 Zanesville (Kmart Plaza), OH 3431 North Maple Ave PC Fee 1990 3.28
Oregon
132 Portland (Hillsboro), OR NW Evergreen Pkwy. & NW PC Fee (6) 1995 08/22/1996 18.29
Ring Road
Pennsylvania
------------
133 Erie, PA 2301 West 38th Street PC GL8 1973 13.27
134 Erie, PA 1902 Keystone Drive PC Fee 1995 65.69
135 Philadelphia (E.Norriton), PA 2700 DeKalb Pike PC Fee 1975 24.22
South Carolina
--------------
136 Anderson (Crossroads), SC 406 Highway 28 By-Pass PC Fee 1990 03/08/1994 20.90
137 Anderson (Northtowne), SC 3812 Liberty Highway PC Fee 1993 03/22/1995 2.13
138 Camden (Springdale), SC 1671 Springdale Drive PC Fee 1990 06/24/1993 22.97
139 Charleston (Mt.Pleasant) (Wando 1500 Highway 17 North PC Fee 1992 03/30/1995 22.70
Crossing), SC
140 Charleston (North) (North Pointe), 7400 Rivers Avenue PC Fee 1989 11/07/1993 28.10
SC
141 Columbia, SC 5420 Forest Drive PC Fee 1995 11/13/1995 7.04
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
<CAPTION>
Company Average
Gross Total Base Annual
Leasable Annualized Rent per Percentage
Center / Property Area (sq.ft.) Base Rent (3) sq. ft. (4) Rent
==============================================================================================
<S> <C> <C> <C> <C>
116 Columbus (Dublin Vlg) (Dublin 327,080 3,309,839 11.03
Village), OH
117 Columbus (Easton) (Easton Market), 506,481 5,511,405 11.29
OH
118 Columbus (Pickerington), OH 59,495 796,742 13.39
119 Columbus, OH 317,581 3,349,512 10.76
120 Columbus (New Albany), OH 30,110 463,775 15.40
121 Columbus (Pataskala), OH 33,270 184,340 5.54
122 Dayton (Huber Hts.), OH 163,741 1,599,254 9.77 549
123 Dayton (Washington), OH 213,798 1,936,452 9.33
124 Hillsboro, OH 58,583 254,072 4.34 192
125 Lebanon, OH 26,500 227,720 8.59
126 Tiffin, OH 230,278 828,768 3.77 57,287
127 Toledo, OH 187,674 1,438,062 7.66 15,244
128 Westlake, OH 162,420 757,929 5.63 40,086
129 Wilmington, OH 55,130 205,822 3.99 17,817
130 Xenia (West Park Square), OH 104,873 814,756 7.89 2,971
131 Zanesville (Kmart Plaza), OH 13,283 123,400 10.03 2,598
Oregon
132 Portland (Hillsboro), OR 307,811 4,443,578 14.69
Pennsylvania
------------
133 Erie, PA 95,000 35,640 3.07 36,736
134 Erie, PA 484,030 3,942,284 8.14
135 Philadelphia (E.Norriton), PA 174,109 1,122,374 6.45 2,144
South Carolina
--------------
136 Anderson (Crossroads), SC 163,809 871,232 5.63
137 Anderson (Northtowne), SC 14,250 145,315 10.20 3,610
138 Camden (Springdale), SC 166,197 975,447 5.91
139 Charleston (Mt.Pleasant) (Wando 205,032 1,493,060 7.35 49,962
Crossing), SC
140 Charleston (North) (North Pointe), 255,567 1,775,119 7.21
SC
141 Columbia, SC 46,700 496,350 10.63 691
</TABLE>
<TABLE>
<CAPTION>
Percent
Center / Property Leased (5) Anchor Tenants (Lease Expiration / Option Expiration)
=================================================================================================================================
<S> <C>
116 Columbus (Dublin Vlg) (Dublin 91.7% AMC (2007/2033), DSW (2005/2015), PharMor (2003/2015), Michaels
Village), OH (2014/2019)
117 Columbus (Easton) (Easton Market), 96.4% Kittle's (2012/2037), Galyans (2013/2038), TJMaxx (2008/2023), Staples
OH (2013/2028), Comp USA (2013/2028), PetsMart (2015/2035), Golfsmith
(2013/2028), Michael's, DSW Shoe Warehouse (2012/2027), Bed Bath & Beyond
(2014/2029)
118 Columbus (Pickerington), OH 100.0% CVS (2020/2035)
119 Columbus, OH 98.0% Big Bear (2016/2031), Homeplace (2010/2025), Babies R Us (2011/2026),
Rhodes Furniture (2012/2027), Stein Mart (2007/2022), Staples (2010/2025),
Old Navy (2009/2009)
120 Columbus (New Albany), OH 100.0% Hoggy's Barn & Grille (2005/2015)
121 Columbus (Pataskala), OH 100.0% Village Market (2007/2017), Rite Aid (2000/2010)
122 Dayton (Huber Hts.), OH 100.0% Wal-Mart (not owned), Cub Foods (2011/2031), Sears (2002/2012)
123 Dayton (Washington), OH 97.1% Books-A-Million (2005/2015), PharMor (2008/2023), Just For Feet
(2007/2017), PetsMart (2003/2013)
124 Hillsboro, OH 100.0% Kmart (2004/2054) (*), Rite Aid (1999/2004), Bob & Carls (not owned)
125 Lebanon, OH 100.0% Wal-Mart (not owned), PK Lumber (not owned)
126 Tiffin, OH 95.4% Kmart (2005/2055), J.C. Penney (2000/2010), Heileg-Myers (2004/2014)
127 Toledo, OH 100.0% Best Buy (2009/2024),Office Depot (2009/2024),Michaels (2004/2014)Sears
(2002/2012), The Pharm (1999/2014)
128 Westlake, OH 82.8% Kmart (1999/2049), Marc's (2004/2019)
129 Wilmington, OH 93.5% Kmart (not owned), Super Valu (1998/2018)
130 Xenia (West Park Square), OH 98.5% Wal-Mart (not owned), Kroger (2019/2049)
131 Zanesville (Kmart Plaza), OH 92.6% Kmart (not owned)
Oregon
132 Portland (Hillsboro), OR 98.3% Office Depot (2010/2025), Haggan Supermarket (2021/2046), Barnes & Noble
(2011/2026), Mervyn's (not owned), Target (not owned)
Pennsylvania
------------
133 Erie, PA 12.2%
134 Erie, PA 100.0% Wal-Mart (2015/2045), Lowe's (2015/2045), Media Play (2010/2025), Kohl's
(2016/2046), Cinemark (2011/2026)
135 Philadelphia (E.Norriton), PA 100.0% Kmart (2000/2050), Acme (2002/2027), Thrift Drug (2002/2022)
South Carolina
--------------
136 Anderson (Crossroads), SC 94.5% Wal-Mart (2010/2040), Ingles (2011/2066)
137 Anderson (Northtowne), SC 100.0% Wal-Mart (not owned), Sam's (not owned)
138 Camden (Springdale), SC 99.3% Wal-Mart (2009/2039), Winn-Dixie (2011/2036), Goody's (2001/2016)
139 Charleston (Mt.Pleasant) (Wando 99.1% Wal-Mart (not owned), Lowe's (2012/2032), Piggly Wiggly (2012/2022),
Crossing), SC TJMaxx (2002/2012)
140 Charleston (North) (North Pointe), 96.3% Wal-Mart (2009/2039), Office Warehouse (2002/2012), Service Merchandise
SC (not owned), Rainbow Bay Crafts (2000/2015)
141 Columbia, SC 100.0% Wal-Mart (not owned)
</TABLE>
<TABLE>
<CAPTION>
Ownership
Interest
(ground
lease
termination/ Land
Type of option Year Date Area
Center / Property Location Property (1) termination) Developed Acquired (Acres)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
142 Greenville (Simpsonville), SC 621 Fairview Road PC Fee 1990 01/03/1994 17.23
143 Orangeburg, SC 2795 North Road PC Fee 1994 03/22/1995 2.65
144 Union, SC Highway 176 By-Pass #1 PC Fee 1990 06/24/1993 45.65
South Dakota
------------
145 Rapid City, SD 740-780 Mountain View NC 01/00/00 1972 07/02/1998
Road
146 Watertown, SD 1300 9th Avenue, S.E. MM Fee 1977 29.30
Texas
-----
147 Ft. Worth, TX SWC Eastchase Pkwy. and PC Fee (6) 1995 07/02/1996 17.00
I-30
148 San Antonio, TX 125 NE Loop 410 PC Fee (6) 1996 01/23/1997 26.45
Utah
----
149 Salt Lake City, UT 455 East 500 South BC 1985 07/02/1998
Street
150 Salt Lake City (Taylorsville), UT 5600 South Redwood Road PC 01/00/00 1982 07/02/1998
151 Salt Lake City (Midvale), UT 900 East Ft. Union Blvd. PC 01/00/00 1973 07/02/1998
152 Riverdale, UT 1050 West Riverdale Road PC 01/00/00 1995 07/02/1998
153 Orem, UT 1300 South Street PC 01/00/00 1991 07/02/1998
154 Ogden, UT 21-129 Harrisville Road PC 01/00/00 1977 07/02/1998
155 Salt Lake City, UT 3300 South Street NC 01/00/00 1978 07/02/1998
156 Logan, UT 400 North Street NC 01/00/00 1975 07/02/1998
Vermont
-------
157 Berlin, VT Route 4 MM Fee 1986 50.25
Virginia
--------
158 Fairfax, VA 12210 Fairfax Towne PC Fee (6) 1994 11/17/1995 22.79
Center
159 Martinsville, VA 240 Commonwealth Blvd MM Fee (6) 1989 43.73
160 Pulaski, VA 1000 Memorial Dr PC Fee 1990 04/28/1993 21.93
161 Winchester, VA 2190 So Pleasant Valley PC Fee 1990 12/10/1993 26.42
West Virginia
-------------
162 Huntington (Barboursville), WV 5-13 Mall Road NC Fee 1985 03/23/1998
====================================================================================================================================
3,250
</TABLE>
- 21 -
<PAGE> 22
<TABLE>
<CAPTION>
Company Average
Gross Total Base Annual
Leasable Annualized Rent per Percentage
Center / Property Area (sq.ft.) Base Rent (3) sq. ft. (4) Rent
==============================================================================================
<S> <C> <C> <C> <C>
142 Greenville (Simpsonville), SC 142,133 805,597 5.78
143 Orangeburg, SC 44,760 384,012 8.58
144 Union, SC 184,331 1,014,654 5.50 2,135
South Dakota
------------
145 Rapid City, SD 35,544 150,156 8.49
146 Watertown, SD 285,495 1,425,790 5.26 100,864
Texas
-----
147 Ft. Worth, TX 205,027 2,227,412 11.54
148 San Antonio, TX 286,394 3,927,650 14.21
Utah
----
149 Salt Lake City, UT 42,543 670,644 15.76
150 Salt Lake City (Taylorsville), UT 770,463 6,913,045 10.15
151 Salt Lake City (Midvale), UT 665,450 6,441,820 9.79
152 Riverdale, UT 552,233 4,064,464 7.49
153 Orem, UT 148,620 1,491,138 10.03
154 Ogden, UT 162,316 810,600 5.38
155 Salt Lake City, UT 39,032 297,552 8.14
156 Logan, UT 19,200 198,684 10.35
Vermont
-------
157 Berlin, VT 174,646 1,065,537 6.44 44,744
Virginia
--------
158 Fairfax, VA 253,941 4,014,659 15.81
159 Martinsville, VA 435,402 2,966,688 7.20
160 Pulaski, VA 143,299 885,999 6.26 27,962
161 Winchester, VA 230,940 2,067,155 9.00
West Virginia
-------------
162 Huntington (Barboursville), WV 70,900 264,875 3.74
==============================================================================================
32,796,612 $285,017,203 $8.99 $1,724,180
</TABLE>
<TABLE>
<CAPTION>
Percent
Center / Property Leased (5) Anchor Tenants (Lease Expiration / Option Expiration)
=================================================================================================================================
<S> <C>
142 Greenville (Simpsonville), SC 98.0% Kmart (2015/2065), Ingles (2011/2065)
143 Orangeburg, SC 100.0% Wal-Mart (not owned)
144 Union, SC 100.0% Wal-Mart (2009/2039), Belk's (2010/2030), Winn-Dixie (2010/2035)
South Dakota
------------
145 Rapid City, SD 49.8% Computerland (2005/2005)
146 Watertown, SD 94.9% Kmart (2002/2052), J.C. Penney (1998/2018), Herberger's (1999/2019), Osco
(1998/2003)
Texas
-----
147 Ft. Worth, TX 94.1% PetsMart (2011/2036), MJ Designs (2011/2031), Ross Dress For Less
(2006/2026), United Artists (2012/2027), Toys R Us (not owned), Target
(not owned)
148 San Antonio, TX 96.5% Ross Dress For Less (2007/2027), DSW Warehouse (2007/2027) , Best Buy
(2011/2026), Oshman's (2017/2037), HomePlace (2012/2027)
Utah
----
149 Salt Lake City, UT 100.0% Hermes Associates (1998/1998)
150 Salt Lake City (Taylorsville), UT 88.4% Cineplex Odeon (2017/2027), Future Shop (2016/2036), Gart Sports
(2017/2032), Circuit City (2016/2041), Media Play (2015/2035), OfficeMax
(2008/2018), PetsMart (2012/2027), Shopko (2014/2044)
151 Salt Lake City (Midvale), UT 98.9% Mervyn's (2005/2045), OfficeMax (2007/2017), Wal-Mart (2015/2045), Future
Shop (2016/2036), Media Play (2016/2036), Harmon's (1998/1998), Bed Bath &
Beyond (2014/2029), Baby Superstore (2013/2033)
152 Riverdale, UT 98.2% Wal-Mart (2011/2041), Gart Sports (2012/2017), OfficeMax (2008/2023),
Target (2017/2047), Media Play (2016/2036), Circuit City (2016/2036),
PetsMart (2014/2039)
153 Orem, UT 100.0% Kids R Us (2011/2021), Media Play (2015/2035), Toys R Us (2090/2090),
Heart's Desire (2013/2023)
154 Ogden, UT 92.9% Harmon's (2002/2012)
155 Salt Lake City, UT 93.6% Brighton Bank (2004/2019)
156 Logan, UT 100.0% Hasting's (2003/2008), Kinko's (2002/2002)
Vermont
-------
157 Berlin, VT 94.7% J.C. Penney (2009/2034)
Virginia
--------
158 Fairfax, VA 100.0% United Artists (2014/2034), Safeway (2019/2054), TJMaxx (2009/2024), Bed,
Bath & Beyond (2010/2020), Tower Records (2009/2019)
159 Martinsville, VA 94.6% J.C. Penney (2009/2034), Leggett (2009/2024), Sears (2009/2029), Kroger
(2017/2062), Goody's (2006/2016), Office Max (2012/2027)
160 Pulaski, VA 98.7% Wal-Mart (2011/2041), Food Lion (2011/2031)
161 Winchester, VA 99.5% Office Max (2012/2027), Kohl's (2018/2048), Giant Foods (2010/2040), Books
A-Million (2007/2017)
West Virginia
-------------
162 Huntington (Barboursville), WV 100.0% OfficeMax (2006/2021), Jo Ann Fabrics (1999/2009), Discount Emporium
===================================================
96.6%
</TABLE>
Footnotes:
===========
(1) "PC" indicates a power center or a community shopping center, "NC"
indicates a neighborhood shopping center, "MM" indicates an enclosed
mini-mall and "BC" indicates a business center.
(2) Indicates the date developed or acquired by the Company or DDG, unless
denoted with (a), which indicates the date on which the property was
acquired by the company following completion of the IPO.
(3) Includes space leased as of December 31, 1998, for which rent was being
paid but which was not then occupied; also includes tenant leases
signed as of said date relating to approximately $223,000 in base
revenue which has not yet been fully billed.
(4) Calculated as total annualized base rentals divided by Company-owned
GLA actually leased as of December 31, 1998.
(5) Includes space leased as of December 31, 1998, for which rent was being
paid but which was not then occupied; also includes tenant leases
signed as of said date relating to approximately 46,000 square feet
which have not yet been fully occupied.
(6) One of fourteen (26) properties owned through joint ventures which
serve as collateral for joint venture mortgage debt aggregating
approximately $718.8 million (of which the Company's proportionate
share is $369.6 million) which is not reflected in the consolidated
indebtedness.
(*) This anchor tenant has closed and sublet the space.
(**) This tenant-owned anchor store has closed.
(***) This tenant-owned anchor store has closed and the space has been
sublet.
(****) This anchor tenant continues to pay rent to the Company but does not
occupy or sublet the space.
- 22 -
<PAGE> 23
Item 3. LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in
the ordinary course of business, the Company is not presently involved in any
litigation nor, to its knowledge, is any litigation threatened against the
Company or its properties, which is reasonably likely to have a material adverse
effect on the liquidity or results of operations of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, the
following information is reported below.
(a) The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position and Office with the Company
---- --- ------------------------------------
<S> <C> <C>
Scott A. Wolstein 46 Chairman of the Board of Directors and Chief
Executive Officer
James A. Schoff 53 Executive Vice President, Chief Investment Officer
and a Director
Richard J. Kaplan 55 Executive Vice President and Chief Operating Officer
John R. McGill 44 Vice President and Director of Development
Joan U. Allgood 46 Vice President and General Counsel
Loren F. Henry 51 Vice President and Director of Asset Management
William H. Schafer 41 Vice President and Chief Financial Officer
Alan Bobman 38 Regional Vice President of Leasing
Steven M. Dorsky 41 Regional Vice President of Leasing
Robin R. Walker 42 Regional Vice President of Leasing
</TABLE>
- 23 -
<PAGE> 24
Scott A. Wolstein has been the President, Chief Executive Officer and a
Director of the Company since its organization. Mr. Wolstein has been Chairman
of the Board of Directors of the Company since May 1997. Prior to the
organization of the Company, Mr. Wolstein was a principal and executive officer
of Developers Diversified Group ("DDG"). Mr. Wolstein is a graduate of the
Wharton School at the University of Pennsylvania and of the University of
Michigan Law School. Following his graduation from the University of Michigan
Law School, Mr. Wolstein was associated with the Cleveland law firm of Thompson,
Hine & Flory. He has served as President of the Board of Trustees of the United
Cerebral Palsy Association of Greater Cleveland and as a member of the Board of
The Great Lakes Theater Festival, Heartland PAC, Neighborhood Progress, Inc.,
The Park Synagogue, The Convention and Visitors Bureau of Greater Cleveland and
Bellefaire. Mr. Wolstein also serves as Chairman of the Board of Trust Managers
of American Industrial Properties REIT ("AIP").
James A. Schoff has been the Vice Chairman of the Board of Directors
and Chief Investment Officer of the Company since March 1998. From the
organization of the Company until March 1998, Mr. Schoff served as Executive
Vice President, Chief Operating Officer and a Director of the Company. After
graduating from Hamilton College and Cornell University Law School, Mr. Schoff
practiced law with the firm of Thompson, Hine and Flory LLP in Cleveland, Ohio
where he specialized in the acquisition and syndication of real estate
properties. Mr. Schoff serves as a member of the Board of Trustees of the
Western Reserve Historical Society, the Cleveland Ballet and the Children's Aid
Society. Mr. Schoff also serves as a director of AIP.
Richard J. Kaplan served as Executive Vice President and Chief
Operating Officer of the Company from April 1998 to March 1999. Mr. Kaplan
graduated from Northwestern University's School of Business and also attended
the McIntyre Entrepreneurial Executive Institute at the University of Virginia.
Prior to his appointment as DDR Chief Operating Officer, Mr. Kaplan was the
Managing Partner of Price Waterhouse's Cleveland based real estate practice. He
is a member of the American Institute of Certified Public Accountants, the Ohio
Society of Certified Public Accountants, the National Association of Real Estate
Investment Trusts and a member of several other professional and business
Associates. He is also the former Chairman of the Cleveland Chapter of the
American Red Cross and the United Way Board of Trustees and a current member of
the Board of Trustees of the Cleveland Citywide Development Corporation, the
Alzheimer's Association of Cleveland and the Jewish Family Services Association
of Cleveland.
John R. McGill has been affiliated with the Company and its predecessor
entities since 1969. During his tenure with the Company he has been involved
with the coordination and development of in excess of 85 properties, including
land acquisition, major tenant lease negotiations, and the overall development
program. Mr. McGill has been a Vice President and Director of Development of the
Company since April 1993.
Joan U. Allgood has been a Vice President and General Counsel of the
Company since its organization as a public company in 1993 and General Counsel
of its predecessor entities since 1987. Mrs. Allgood practiced law with the firm
of Thompson, Hine and Flory from 1983 to 1987, and is a graduate of Denison
University and Case Western Reserve University School of Law.
Loren F. Henry has been a Vice President, Director of Asset Management
of the Company since its organization as a public Company in 1993 and served as
President of one of its predecessor entities from 1984-1993. Mr. Henry earned a
Bachelor of Arts degree in Business Administration and Mathematics from Winona
State College.
-24-
<PAGE> 25
William H. Schafer has been a Vice President and Chief Financial
Officer of the Company since its organization as a public company and the Chief
Financial Officer of its predecessor entities since April 1992. Mr. Schafer
joined the Cleveland, Ohio office of the Price Waterhouse LLP accounting firm in
1983 and served there as a Senior Manager from July 1990 until he joined the
organization in 1992. Mr. Schafer graduated from the University of Michigan with
a Bachelor of Arts degree in Business Administration.
Alan Bobman joined the Company in October 1995 as Regional Vice
President of Leasing. Mr. Bobman was previously Divisional Director of Real
Estate at Charming Shoppes, Inc. which operates the Fashion Bug and Fashion Bug
Plus stores nationwide since 1985. He was employed at Charming Shoppes from 1985
until he joined the Company, and is an Insurance and Real Estate graduate of
Penn State University.
Steven M. Dorsky has been a Regional Vice President of Leasing since
November 1995. He was an Assistant Vice President and Senior Leasing Associate
for The Hausman Companies, a Cleveland based retail brokerage and management
firm from 1988 until he joined the Company. Mr. Dorsky earned a Bachelor of Arts
degree in business from Macalester College and a Masters degree in Social
Administration from Case Western Reserve University - School of Applied Social
Science.
Robin R. Walker joined the Company in April 1995 and was appointed
Regional Vice President of leasing in November 1995. Prior to joining the
Company, Ms. Walker was president of Aroco, Inc., a retail brokerage and tenant
representation firm based in Alabama from 1992 to 1995. Ms. Walker attended the
University of Alabama where she earned her degree in elementary education.
-25-
<PAGE> 26
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The following table shows the high and low sales price of the Company's
common shares on the New York Stock Exchange (the "NYSE") for each quarter in
1998 and 1997 and the dividends paid per common share in each such quarter:
1998 High Low Dividends
---- ---- --- ---------
First $20-7/16 $18-1/4 $.3275
Second 21-15/32 18-21/32 .3275
Third 20-9/16 16 .3275
Fourth 19-5/8 15-7/8 .3275
--------
$ 1.31
Dividends
Paid per
1997 High Low Common Share
---- ---- --- ------------
1st quarter $19-15/16 17-1/8 $ .315
2nd quarter 20 17-15/16 .315
3rd quarter 20-1/8 19-1/8 .315
4th quarter 20-5/8 18-21/32 .315
-------
$ 1.26
The approximate number of record holders of the Company's common shares
(its only class of common equity security) at March 15, 1999 was 422, and the
approximate number of beneficial owners of such shares was 23,000.
In February 1999, the Company declared its 1999 first quarter dividend
to shareholders of record on March 25, 1999 of $.35 per share, a 6.9% increase
over the quarterly dividend rate of $.3275 per share in 1997.
The Company intends to continue to declare quarterly dividends on its
common shares. However, no assurances can be made as to the amounts of future
dividends, since such dividends are subject to the Company's cash flow from
operations, earnings, financial condition, capital requirements and such other
factors as the Board of Directors considers relevant. The Company is required by
the Internal Revenue Code of 1986, as amended, to distribute at least 95% of its
REIT taxable income. The amount of cash available for dividends is impacted by
capital expenditures and debt service requirements to the extent that the
Company were to fund such items out of cash flow from operations.
In June 1995, the Company implemented a dividend reinvestment plan
under which shareholders may elect to reinvest their dividends automatically in
common shares. Under the plan, the Company may, from time to time, elect to
purchase common shares in the open market on behalf of participating
shareholders or may issue new common shares to such shareholders.
-26-
<PAGE> 27
Item 6. SELECTED FINANCIAL DATA
The financial data included in the following table has been selected by
the Company and has been derived from the financial statements for the last five
years and includes the information required by Item 301 of Regulation S-K.
COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
OPERATING DATA: ----------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues (primary real estate rentals) $ 228,168 $ 169,223 $130,905 $107,805 $ 81,974
--------- --------- -------- -------- --------
Expenses:
Rental operation 59,498 47,200 35,123 28,069 22,802
Depreciation & amortization 43,180 32,313 25,062 21,865 16,211
Interest 57,196 35,558 29,888 29,595 21,423
--------- --------- -------- -------- --------
159,874 115,071 90,073 79,529 60,436
--------- --------- -------- -------- --------
Income before equity in net income
(loss) from joint ventures, minority equity
interests, minority equity investment,
gains on sales
of real estate and extraordinary items 68,294 54,152 40,832 28,276 21,538
Equity in net income (loss) of joint ventures 12,888 10,893 8,710 486 (186)
Equity in net income from minority equity investment 686 - - - -
Minority equity interests (3,312) (1,049) - - -
Gain on sales of real estate 248 3,526 - 300 -
--------- --------- -------- -------- --------
Income before extraordinary item 78,804 67,522 49,542 29,062 21,352
Extraordinary item(2) (882) - - (3,557) (216)
--------- --------- -------- -------- --------
Net income $ 77,922 $ 67,522 $ 49,542 $ 25,505 $ 21,136
========= ========= ======== ======== ========
Net income applicable to
common shareholders $ 57,969 $ 53,322 $ 35,342 $ 24,250 $ 21,136
========= ========= ======== ======== ========
Earnings per share data - Basic: (3)
Income before extraordinary item $1.03 $1.03 $0.84 $0.74 $0.68
Net income $1.02 $1.03 $0.84 $0.65 $0.67
Weighted average number of common shares 56,949 51,760 42,294 37,560 31,612
Earnings per share data- Diluted: (3)
Income before extraordinary item $1.00 $1.03 $0.84 $0.74 $0.67
Net income $0.98 $1.03 $0.84 $0.64 $0.67
Weighted average number of common shares 58,509 52,124 42,372 37,818 31,832
Annual cash dividend $1.31 $1.26 $1.20 $1.08 $0.96
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Real estate (at cost) $1,890,423 $1,325,742 $991,647 $848,373 $686,890
Real estate, net of accumulated depreciation 1,687,326 1,154,005 849,608 728,333 586,839
Advances to and investments in joint ventures 266,257 136,267 106,796 83,190 8,710
Total assets 2,126,524 1,391,918 975,126 830,060 611,116
Total debt 1,000,481 668,521 478,432 405,726 394,435
Shareholders' equity 902,785 669,050 469,336 404,161 203,508
</TABLE>
-27-
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
OTHER DATA: --------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995(1) 1994(1)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flow provided from (used in):
Operating activities $ 137,493 $ 94,383 $ 75,820 $ 49,039 $ 39,112
Investing activities (538,289) (416,220) (199,670) (217,198) (191,810)
Financing activities 403,038 321,842 123,851 167,252 150,373
Funds from operations (4):
Net income applicable to
common shareholders $ 57,969 $ 53,322 $ 35,342 $ 24,250 $ 21,136
Depreciation and amortization 42,631 31,955 24,832 21,706 16,211
Equity in net (income) loss of joint ventures (12,888) (10,893) (8,710) (486) 186
Joint venture funds from operations 20,779 16,077 13,172 1,364 217
Equity in net income from minority equity investment (686) - - - -
Minority equity investment funds from operations 1,493 - - - -
Minority interest expense (OP Units) 3,069 10 - - -
Gain on sales of real estate (248) (3,526) - (300) -
Extraordinary items (2) 882 - - 3,557 216
--------- --------- --------- -------- --------
$ 113,001 $ 86,945 $ 64,636 $ 50,091 $ 37,966
========= ========= ========= ======== ========
Weighted average number of common
shares outstanding (Basic) 56,949 51,760 42,294 37,560 31,612
</TABLE>
(1) As described in the consolidated financial statements, the Company acquired
41 properties in 1998 (five of which are owned through joint ventures),
eight properties in 1997 (one of which is owned through a joint venture),
five properties in 1996, 20 properties in 1995 (10 of which are owned
through joint ventures) and 14 properties in 1994.
(2) In 1998, 1995 and 1994, the extraordinary charges relate primarily to the
write-off of deferred finance costs.
(3) Effective August 3, 1998, the Company executed a two-for-one share split
for shareholders of record on July 27, 1998 in the form of a share
dividend. Earnings per share data is reflected for all years utilizing
SFAS 128.
(4) Industry analysts generally consider funds from operations ("FFO") to be an
appropriate measure of the performance of an equity REIT. FFO 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 and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.
FFO is defined generally as net income applicable to common shareholders
excluding gains (losses) on sales of property, non-recurring charges and
extraordinary items, adjusting for certain noncash items, principally real
property depreciation, equity income (loss) from its joint ventures and
minority equity investment and adding the Company's proportionate share of
FFO of its unconsolidated joint ventures and minority equity investment,
determined on a consistent basis. The Company calculates FFO in accordance
with the foregoing definition, which is currently used by NAREIT. Certain
other real estate companies may calculate FFO in a different manner.
-28-
<PAGE> 29
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements, the notes thereto and the
comparative summary of selected financial data appearing elsewhere in
this report. Historical results and percentage relationships set forth
in the consolidated financial statements, including trends which might
appear, should not be taken as indicative of future operations.
The Company 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 21E of the Securities
Exchange Act of 1934, both as amended, with respect to the Company's
expectations 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 statements of historical fact may be
deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects",
"seeks", "estimates", and similar expressions are intended to identify
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 an 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.
COMPARISON OF 1998 TO 1997 RESULTS OF OPERATIONS
- ------------------------------------------------
Revenues from Operations
Total revenues increased $58.9 million, or 34.8%, to $228.1 million for
the year ended December 31, 1998 as compared to $169.2 million in 1997.
Base and percentage rents for 1998 increased $44.6 million, or 35.3%,
to $170.9 million as compared to $126.3 million in 1997. Approximately
$4.8 million of the increase in base and percentage rental income was
the result of new leasing, re-tenanting and expansion of the Core
Portfolio Properties (shopping center properties owned as of January 1,
1997), an increase of 4.6% over 1997 revenues from Core Portfolio
Properties. The 48 shopping centers acquired by the Company in 1998 and
1997 contributed $44.1 million of additional revenue and the 5 new
shopping center developments contributed $4.2 million. These increases
were offset by a decrease of $1.3 million relating to the sale of one
shopping center in December 1997 and the transfer of five business
centers to American Industrial Properties REIT ("AIP") in July 1998 and
$7.2 million relating to the transfer of six properties to a joint
venture in September 1998.
At December 31, 1998, the occupancy rate of the Company's shopping
centers aggregated 96.5% as compared to 96.1% at December 31, 1997. The
average annualized base rent per leased square foot, including those
properties owned through joint ventures, was $8.99 at December 31, 1998
as compared to $8.49 at December 31, 1997. During 1998, same store
sales, for those tenants required to report sales (approximately 17.5
million square feet), increased 3.0% to $231 per square foot as
compared to $225 per square foot for the prior twelve month period.
The increase in recoveries from tenants of $10.7 million was directly
related to the increase in operating and maintenance expenses and real
estate taxes primarily associated with the 1998 and 1997 shopping
center acquisitions and developments. Recoveries were approximately
92.5% of operating and maintenance expenses and real estate taxes in
1998 as compared to 90.0% in 1997.
Management fee income and other income increased by approximately
$3.7 million which generally related to increases in (i) interest
income of approximately $3.0 million, (ii) management fee income of
approximately $0.6 million primarily related to the acquisition of four
properties owned through joint ventures and the formation of a joint
venture in September 1998, (iii) development fee income of
approximately $0.7 million and (iv) other income of approximately $0.6
million. These increases were offset by a decrease in lease termination
fees of $1.2 million.
Expenses from Operations
Rental operating and maintenance expenses for the year ended December
31, 1998 increased $3.9 million, or 24.3%, to $20.0 million as compared
to $16.1 million in 1997. An increase of $5.2 million was attributable
to the 53 shopping centers acquired and developed in 1998 and 1997.
This increase was offset by decreases of $0.6 million related to the
Core Portfolio Properties generally associated with lower maintenance
activities in 1998 as compared to 1997 at a majority of the Company's
shopping centers, and $0.7 million relating to the sale and/or transfer
of 12 properties in 1998 and 1997.
Real estate taxes increased $6.5 million, or 32.5%, to $26.5 million
for the year ended December 31, 1998 as compared to $20.0 million in
1997. This increase was primarily attributable to the growth related to
the 53 shopping centers acquired and developed in 1998 and 1997 which
contributed $7.5 million of the increase and an additional $0.8 million
increase primarily related to expansions associated with the Core
Portfolio Properties. These increases were offset by a decrease of $1.8
million relating to the sale and/or transfer of 12 properties in 1997
and 1998.
General and administrative expenses increased $1.8 million, or 16.8%,
to $12.9 million for the year ended December 31, 1998 as compared to
$11.1 million in 1997. The increase is attributable to the growth of
the Company primarily related to the 1998 and 1997 acquisitions,
expansions and
29
<PAGE> 30
developments. The Company continues to maintain a conservative policy
with regard to the expensing of all internal leasing salaries, legal
salaries and related expenses associated with the leasing and
re-leasing of existing space. Total general and administrative expenses
were approximately 3.8% and 4.4% of total revenues, including revenues
of joint ventures, for the years ended December 31, 1998 and 1997,
respectively.
Depreciation and amortization expense increased $10.9 million, or
33.6%, to $43.2 million for the year ended December 31, 1998 as
compared to $32.3 million in 1997. The increase was primarily
attributable to the growth related to the 53 shopping centers acquired
and developed in 1998 and 1997 which contributed an $11.4 million
increase and an additional $1.3 million increase related to the
expansions and improvements associated with the Core Portfolio
Properties. These increases were offset by a decrease of $1.8 million
relating to the sale and/or transfer of 12 properties in 1998 and 1997.
Interest expense, net of amounts capitalized, increased $21.6
million, or 60.9%, to $57.2 million for the year ended December 31,
1998 as compared to $35.6 million in 1997. The overall increase in
interest expense was primarily related to the acquisition and
development of 53 shopping centers during 1998 and 1997. The weighted
average debt outstanding and related weighted average interest rate
during 1998 was $911.7 million and 7.4%, respectively, as compared to
$510.5 million and 7.7%, respectively, during 1997. Interest
capitalized, in conjunction with development and expansion projects,
was $9.9 million for the year ended December 31, 1998 as compared to
$4.0 million in 1997.
Other
Equity in net income of joint ventures increased $2.0 million, or
18.3%, to $12.9 million in 1998 as compared to $10.9 million in 1997.
This increase is primarily attributable to the joint ventures
formed/acquired during 1998 which aggregated approximately $3.2 million
of income of which $1.3 million relates to the acquisition of four
joint venture interests acquired from Continental Real Estate Companies
("Continental") of Columbus, Ohio during the first half of 1998. An
additional $1.2 million relates to the formation of a joint venture in
September 1998 with DRA Advisors whereby the Company contributed six
wholly owned shopping centers to a newly formed joint venture in
exchange for cash of $192 million and a 50% joint venture interest. The
remaining $0.7 million increase primarily relates to various other
recently formed joint ventures including Merriam, Nassau Pavilion,
Prudential, Oliver McMillan and Sansone Management Company. The above
increases were offset by a decrease in net income from the Community
Center Joint Ventures of approximately $1.0 million, primarily
associated with an increase in interest costs relating to the
refinancing of the variable rate bridge financings to long term fixed
rate financing in May 1997.
Equity in net income of minority equity investment of $0.7 million
relates to the Company's investment in American Industrial Properties
("AIP") (NYSE: IND) for the period July 30, 1998 to December 31, 1998.
The expense relating to minority interests increased $2.3 million, to
$3.3 million for the year ended December 31, 1998 as compared to $1.0
million in 1997. The increase generally relates to the Company's
issuance of operating partnership units ("OP Units") as partial
consideration for 21 shopping centers acquired in 1998. These OP Units
are exchangeable into approximately 4.6 million common shares of the
Company. This increase is offset by the Company's purchase, in March
1998, of the minority interest in one shopping center located in
Cleveland, Ohio, for approximately $16.3 million. The minority equity
interest expense primarily represents the priority distributions
associated with such interests.
The extraordinary item, which aggregated $0.9 million for the year
ended December 31, 1998, relates to the write-off of unamortized
deferred finance costs associated with the Company's former $150
million revolving credit facility which was replaced with a $375
million revolving credit agreement.
Net Income
Net income increased $10.4 million to $77.9 million for the year ended
December 31, 1998 as compared to $67.5 million in 1997. The increase in
net income was primarily attributable to increased net operating
revenues (total revenues less operating and maintenance expenses, real
estate taxes, and general and administrative expense) aggregating $46.7
million, resulting from new leasing, re-tenanting and expansion of Core
Portfolio Properties, and the 53 shopping centers acquired and
developed in 1998 and 1997. An additional increase of $2.7 million
related to equity income from joint ventures and minority investment in
AIP. The increase in net operating revenues and equity in net income
from joint ventures and minority investment in AIP was offset by
increases in interest expense, depreciation and amortization, minority
expense, extraordinary item and a reduction of gain on sales of real
estate of $21.6 million, $10.9 million, $2.3 million, $0.9 million and
$3.3 million, respectively.
30
<PAGE> 31
COMPARISON OF 1997 TO 1996 RESULTS OF OPERATIONS
- ------------------------------------------------
Revenues from Operations
Total revenues increased $38.3 million, or 29.3%, to $169.2 million for
the year ended December 31, 1997 as compared to $130.9 million in 1996.
Base and percentage rents for 1997 increased $28.2 million, or 28.7%,
to $126.3 million as compared to $98.1 million in 1996. Approximately
$3.5 million of the increase in base and percentage rental income was
the result of new leasing, re-tenanting and expansion of the Core
Portfolio Properties (shopping center properties owned as of January 1,
1996), an increase of 4.0% over 1996 revenues from Core Portfolio
Properties. The 12 shopping centers acquired by the Company in 1997 and
1996 contributed $23.7 million of additional revenue and the four new
shopping center developments contributed $4.0 million. The above
increases were offset by the contribution of two properties to a joint
venture in September 1996 which reduced base and percentage rental
revenue by $3.0 million.
At December 31, 1997, the occupancy rate of the Company's shopping
centers aggregated 96.1% as compared to 94.8% at December 31, 1996. At
December 31, 1997, the Company's portfolio was actually 96.7% leased,
including leases signed where occupancy had not occurred as of that
date. The average annualized base rent per leased square foot,
including those properties owned through joint ventures, was $8.49 at
December 31, 1997 as compared to $7.85 at December 31, 1996. During
1997, same store sales, for those tenants required to report sales
(approximately 12.6 million square feet), increased 4.17% to $230.59
per square foot as compared to $221.35 per square foot for the prior
twelve month period.
The increase in recoveries from tenants of $8.2 million was directly
related to the increase in operating and maintenance expenses and real
estate taxes associated with the 1997 and 1996 shopping center
acquisitions and developments. Recoveries were approximately 90.0% of
operating and maintenance expenses and real estate taxes in 1997 as
compared to 89.4% in 1996.
Management fee income and other income increased by approximately
$1.9 million which generally related to an increase in interest income
of approximately $0.9 million, management fee income of approximately
$0.5 million, development fee income of approximately $0.3 million and
kiosk income (temporary tenants) of approximately $0.2 million.
Expenses from Operations
Rental operating and maintenance expenses for the year ended December
31, 1997 increased $3.7 million, or 30.2%, to $16.1 million as compared
to $12.4 million in 1996. An increase of $2.7 million was attributable
to the 16 shopping centers acquired and developed in 1997 and 1996 and
an increase of $1.0 million was related to the Core Portfolio
Properties generally associated with increased maintenance activities
at a majority of the Company's shopping centers.
Real estate taxes increased $5.4 million, or 37.1%, to $20.0 million
for the year ended December 31, 1997 as compared to $14.6 million in
1996. This increase was primarily attributable to the growth related to
the 16 shopping centers acquired and developed in 1997 and 1996 which
contributed $5.1 million of the increase with the remaining $0.3
million increase primarily related to expansions associated with the
Core Portfolio Properties.
General and administrative expenses increased $3.0 million, or 35.9%,
to $11.1 million for the year ended December 31, 1997 as compared to
$8.1 million in 1996. The increase was primarily attributable to the
growth of the Company associated with the 1997 and 1996 acquisitions,
expansions and developments and increases in various incentive and
deferred compensation costs. The Company maintains a conservative
policy with regard to the expensing of all internal leasing salaries,
legal salaries and related expenses associated with the leasing and
re-leasing of existing space. In addition, the Company expensed all
internal costs associated with acquisitions. Total general and
administrative expenses were approximately 4.4% and 4.2% of total
revenues, including revenues of joint ventures, for the years ended
December 31, 1997 and 1996, respectively.
Depreciation and amortization expense increased $7.2 million, or
28.9%, to $32.3 million for the year ended December 31, 1997 as
compared to $25.1 million in 1996. The increase was primarily
attributable to the growth related to the 16 shopping centers acquired
and developed in 1997 and 1996 which contributed $6.7 million of the
increase and $1.1 million primarily related to the expansions and
improvements associated with the Core Portfolio Properties. The above
increases were offset by the contribution of two properties to a joint
venture in September 1996 which reduced depreciation expense by $0.6
million.
Interest expense, net of amounts capitalized, increased $5.7 million,
or 19.0%, to $35.6 million for the year ended December 31, 1997 as
compared to $29.9 million in 1996. The overall increase in interest
expense was primarily related to the acquisition and development of
shopping centers during 1997 and 1996. The weighted average debt
outstanding and related weighted average interest rate during 1997 was
$510.5 million and 7.7%, respectively, as compared to $426.5 million
and 7.8%, respectively, during 1996. Interest capitalized, in
conjunction with development and expansion projects, was $4.0 million
for the year ended December 31, 1997 as compared to $3.3 million in
1996.
31
<PAGE> 32
Other
Equity in net income of joint ventures increased $2.2 million, or
25.1%, to $10.9 million in 1997 as compared to $8.7 million in 1996. A
net increase of $0.8 million was attributable to the Community Center
Joint Ventures primarily associated with the completion of construction
at three of the ten shopping centers which were under construction at
the date of acquisition and a gain on sale of land. The aforementioned
increases were offset by an increase in interest costs associated with
the refinancing of variable rate bridge financing to long term fixed
rate financing in May 1997. An increase of $0.8 million was related to
the formation of a joint venture with Ohio State Teachers Retirement
Systems ("OSTRS") in September 1996. An increase of $0.4 million was
related to the formation of a joint venture in January 1997 which
acquired a shopping center in San Antonio, Texas. An increase of $0.2
million was related to the expansion and redevelopment of Liberty Fair
Mall in the Martinsville, Virginia joint venture.
The minority interest expense of $1.0 million for the year ended
December 31, 1997 related to the minority equity in three shopping
center properties acquired by the Company during 1997. The charge to
income represents the priority distributions associated with the
minority equity interests.
Gain on sales of real estate aggregated $3.5 million for the year
ended December 31, 1997. In March 1997, the Company sold two business
centers in Highland Heights, Ohio aggregating approximately 113,000
square feet for approximately $5.7 million. The two business centers
had been vacant for approximately 18 months.
Net Income
Net income increased $18.0 million to $67.5 million for the year ended
December 31, 1997 as compared to $49.5 million in 1996. The increase in
net income was attributable to increased net operating revenues (total
revenues less operating and maintenance expenses, real estate taxes,
and general and administrative expense) aggregating $26.3 million,
resulting from new leasing, re-tenanting and expansion of Core
Portfolio Properties, and the 16 shopping centers acquired and
developed in 1997 and 1996. An additional increase of $2.2 million
related to increased equity in net income of joint ventures and an
increase of $3.5 million related to the gain on sale of real estate.
The increase in net operating revenues, equity income from joint
ventures and gain on sale of real estate was offset by increases in
depreciation and amortization, interest expense and minority interest
of $7.3 million, $5.7 million and $1.0 million, respectively.
FUNDS FROM OPERATIONS
- ---------------------
Management believes that Funds From Operations ("FFO") provides an
additional indicator of the financial performance of a Real Estate
Investment Trust. FFO is defined generally as net income applicable to
common shareholders excluding gains on sales of real estate,
non-recurring charges and extraordinary items, adjusted for certain
non-cash items, principally real property depreciation, equity in net
income from its joint ventures and equity income from its minority
equity investment and adding the Company's proportionate share of FFO
of its unconsolidated joint ventures and minority equity investment,
determined on a consistent basis.
The Company calculates FFO in accordance with the foregoing
definition, which is currently used by the National Association of Real
Estate Investment Trusts ("NAREIT"). Certain other real estate
companies may calculate FFO in a different manner.
In 1998, FFO increased $26.1 million, or 30.0%, to $113.0 million as
compared to $86.9 million and $64.6 million in 1997 and 1996,
respectively. The increases in each year were attributable to the
continuing increases in revenues from Core Portfolio Properties,
acquisitions and developments. The Company's calculation of FFO is as
follows (in thousands) set forth in the table below:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income applicable to
common shareholders(1) $ 57,969 $ 53,322 $ 35,342
Depreciation and amortization
of real estate investments 42,631 31,955 24,832
Equity in net income of joint
ventures (12,888) (10,893) (8,710)
Equity in net income of minority
equity investment (686) - -
Joint ventures' FFO(2) 20,779 16,077 13,172
Minority equity investment FFO 1,493 - -
Minority interest (OP Units) 3,069 10 -
Gain on sales of real estate (248) (3,526) -
Extraordinary item 882 - -
--------- --------- ---------
$ 113,001 $ 86,945 $ 64,636
========= ========= =========
</TABLE>
(1) Includes straight-line rental revenues, which approximated $3.3 million,
$2.0 million and $0.7 million in 1998, 1997 and 1996, respectively,
primarily relating to recent acquisitions and new developments.
(2) Joint ventures' FFO is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income(a) $ 25,070 $ 22,132 $ 17,419
Depreciation and amortization
of real estate investments 16,009 11,658 8,924
Gain on sales of real estate (314) (1,085) -
-------- -------- --------
$ 40,765 $ 32,705 $ 26,343
-------- -------- --------
DDRC ownership interests(b) $ 20,779 $ 16,077 $ 13,172
======== ======== ========
</TABLE>
(a) Includes straight-line rental revenue of approximately $3.1 million, $2.9
million and $2.3 million in 1998, 1997 and 1996, respectively. The
Company's proportionate share of straight-line rental revenues was $1.5
million, $1.4 million and $1.1 million in 1998, 1997 and 1996,
respectively.
(b) At December 31, 1998, the Company owned a 50% joint venture interest
relating to 23 operating shopping center properties, an 80% joint venture
interest in two operating shopping center properties, a 35% joint venture
interest in one operating shopping center property, a 25% interest in the
Prudential Retail Value Fund and a 50% joint venture interest in a real
estate management company located in St. Louis, MO. At December 31, 1997,
the Company owned a 50% joint venture interest in 13 operating shopping
center properties and a 35% joint venture interest in one shopping center
property. At December 31, 1996, the Company owned a 50% joint venture
interest in 13 shopping center properties.
32
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company anticipates that cash flow from operating activities will
continue to provide adequate capital for all principal payments,
recurring tenant improvements, as well as dividend payments in
accordance with REIT requirements and that cash on hand, borrowings
under its existing revolving credit facilities, as well as other debt
and equity alternatives will provide the necessary capital to achieve
continued growth. Cash flow from operating activities for 1998
increased to $137.5 million as compared to $94.4 million in 1997. The
increase was attributable to the 53 shopping center acquisitions and
developments completed in 1998 and 1997, new leasing, expansion and
re-tenanting of the Core Portfolio Properties and the equity offerings
completed in 1998 and 1997.
The Company satisfied its REIT requirement of distributing at least
95% of ordinary taxable income with declared common and preferred share
dividends of $95.1 million in 1998 as compared to $79.7 million and
$66.0 million in 1997 and 1996, respectively. Accordingly, federal
income taxes were not incurred at the corporate level. The Company's
common share dividend payout ratio for the year approximated 67.0% of
its 1998 FFO as compared to 75.3% and 80.3% in 1997 and 1996,
respectively.
An increase in the 1999 quarterly dividend per common share to $0.35
from $0.3275 was approved in February 1999 by the Company's Board of
Directors. It is anticipated that the new dividend level will continue
to result in a conservative payout ratio. A low payout ratio enables
the Company to retain more capital which will be utilized towards
attractive investment opportunities in the development, acquisition and
expansion of portfolio properties.
ACQUISITIONS, DEVELOPMENTS AND EXPANSIONS
- -----------------------------------------
During the three year period ended December 31, 1998, the Company and
its joint ventures expended $1.8 billion, net, to acquire, develop,
expand, improve and re-tenant its properties as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
COMPANY:
Acquisitions $ 688.4(1) $ 267.9 $ 113.9
Completed expansions 11.2 29.8 24.6
Developments and
construction in progress 115.0 41.1 48.2
Tenant improvements, building
renovations and furniture
and fixtures 6.7 4.2 1.1
Minority equity investments 94.8(2) - -
Other real estate investment - 72.1 -
-------- -------- --------
916.1 415.1 187.8
Less real estate sales and property
contributed to joint ventures (328.8) (8.9) (44.5)
-------- -------- --------
Company Total 587.3 406.2 143.3
-------- -------- --------
JOINT VENTURES:
Acquisitions / Contributions 489.3(3) 38.8 42.8
Completed expansions - 9.2 -
Developments and
construction in progress 86.7 31.9 47.1
Tenant improvements and
building renovations 1.8 0.2 -
-------- -------- --------
577.8 80.1 89.9
Less real estate sales (33.8) (6.1) -
-------- -------- --------
Joint Ventures Total 544.0 74.0 89.9
-------- -------- --------
$1,131.3 $ 480.2 $ 233.2
======== ======== ========
</TABLE>
(1) Includes developments and construction in progress aggregating $64.9
million at the date of acquisition.
(2) Represents the Company's equity investment in AIP of $80.7 million, which
approximated an ownership share of 34.5%, and notes receivable of $14.1 at
December 31, 1998.
(3) Includes transfers aggregating $323.1 million from the Company and the
acquisition of joint venture interests aggregating $166.2 million.
33
<PAGE> 34
Acquisitions 1998
During 1998, the Company and its joint ventures completed the
acquisition of, or investment in 41 shopping centers aggregating 7.4
million square feet of Company owned gross leasable area (GLA) for an
aggregate investment of approximately $854.6 million.
In March 1998, in a single transaction with Continental, the Company
completed the acquisition of 10 shopping centers, two of which were
acquired through joint ventures. The 10 shopping centers total 1.2
million gross square feet of Company-owned retail space. The aggregate
cost of these centers was $91.9 million. In April 1998, the Company
acquired from Continental, interests in three additional shopping
centers located in the Columbus, Ohio area, two of which are owned
through joint ventures. Combined, these shopping centers have
approximately 1.0 million square feet of total GLA. The Company's
proportionate share of the investment cost will approximate $93.4
million upon completion of approximately 18,000 square feet which is
currently under construction.
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. 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, one office building and eight
additional expansion, development or redevelopment projects. The nine
shopping centers total 2.4 million square feet of total GLA. The total
consideration for this portfolio was approximately $309 million. In
addition, the Company also acquired 13 shopping centers aggregating
approximately 1.5 million square feet of GLA in the St. Louis area from
the Sansone Company. The Company also acquired a 50% ownership interest
in The Sansone Group's management Company and development company. The
Company's net investment in this portfolio aggregated $163 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
("Agreement") dated 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 as of July 30, 1998, the Company, in exchange for
five industrial properties owned by the Company with a net book value
of $7.4 million and valued at approximately $19.5 million, acquired
approximately 1.3 million additional newly issued AIP shares of
beneficial interest. 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 was named AIP's
Chairman of the Board.
On November 20, 1998, the shareholders of AIP approved additional
purchases by the Company of approximately 5.2 million newly issued
shares of AIP for $81.0 million. As of December 31, 1998 the Company
had purchased 3.7 million of these additional shares for approximately
$57.1 million. Combined, the Company's acquired shares represented
34.5% of AIP's total outstanding shares as of December 31,1998. In
addition the Company advanced $14.1 million to AIP in the form of a
note with interest at 10.25%. These advances were repaid in January
1999. In January 1999, the Company acquired an additional 3,410,615
shares of AIP at an aggregate cost of $51.8 million of which
approximately 1.5 million shares were acquired at a price of $15.50 per
share and 1.9 million shares were acquired at a price of $14.93 per
share. These shares were purchased in conjunction with AIP's
acquisition of a portfolio of properties for approximately $129.8
million. As of March 4, 1999, the Company owned approximately 45.5% of
AIP's outstanding shares. Pursuant to the Agreement, AIP may, under
certain circumstances and subject to certain limitations, exercise a
put right that would require the Company to purchase additional common
or convertible preferred shares of AIP at a price not to exceed $15.50
and $14.00 per share, respectively, for a total amount not to exceed
$172.1 million as of March 4, 1999. AIP can only exercise its right to
these additional shares, for the sole purpose of financing property
acquisitions approved by AIP's Board of Trust Managers.
In September 1998, the Company entered into a 50/50 joint venture with
DRA Advisors. In conjunction with this joint venture the Company
contributed properties valued at approximately $238 million to the
joint venture and DRA contributed cash of approximately $42 million. In
addition, the joint venture entered into a $156 million, seven year
mortgage with a coupon interest rate of 6.64%. Net proceeds aggregating
approximately $192 million were distributed to the Company and used to
repay borrowings on the Company's revolving credit facilities. The
Company will continue to manage the centers and receive market fees for
these services.
On December 31, 1998 the Company acquired a 50% ownership interest in a
389,000 square foot shopping center in Leawood, Kansas. The Company's
investment aggregated approximately $18 million and was comprised of an
equity investment of approximately $12.3 million and a note receivable
of $5.7 million.
34
<PAGE> 35
Expansions 1998
The Company is currently expanding nine shopping centers at an
aggregate projected cost of $42.7 million. During 1998, the Company
completed seven expansion projects at an aggregate cost of $11.2
million. The Company is currently expanding/redeveloping nine of its
shopping centers aggregating approximately 660,000 square feet of
Company owned GLA and will continue to pursue additional expansion
opportunities. The Company and its joint ventures currently have
approximately 144 acres of undeveloped land consisting of 71 parcels,
primarily adjacent to its existing shopping centers, available for
development, expansion or sale.
Developments 1998
The Company has five shopping centers under construction at December
31, 1998. The first is a 445,000 square foot shopping center in
Merriam, Kansas which is being developed through a joint venture formed
in October 1996, 50% of which is owned by the Company. This center is
anchored by Home Depot (not owned by the Company), Cinemark Theaters,
Hen House Supermarket, OfficeMax, Marshalls, Old Navy and PETsMART.
Construction of this shopping center was substantially completed by
December 31, 1998. The second is a 200,000 square foot second phase of
the Company's Erie, Pennsylvania center scheduled to be completed in
the Fall of 1999 and is to be anchored by Home Depot (not owned by the
Company), PETsMART and Circuit City. Additionally, the Company has also
commenced the construction of a 280,000 square foot shopping center in
Toledo, Ohio, a 185,000 square foot shopping center in Solon, Ohio and
a 220,000 square foot shopping center in Oviedo, Florida (a suburb of
Orlando). All three centers are scheduled for completion during 1999
with several tenants opening in the fourth quarter of 1998. The Company
is also pursuing additional development projects in Meridian, Idaho,
Riverdale, Utah and Coon Rapids, Minnesota.
The Company has entered into joint venture development agreements for
six additional projects with various developers throughout the country
at a projected cost aggregating approximately $237 million. Several of
these projects have commenced development and are currently scheduled
for completion in 1999 or 2000. At December 31, 1998 the Company had
invested approximately $30.7 million in these projects. It is
anticipated that several of these joint venture projects will be
developed through the Prudential Retail Value Fund. The majority of the
project costs are expected to be provided through construction loans
guaranteed by Prudential. Prudential will be responsible for 75% of any
funding requirements and the Company will be responsible for the
remaining 25%. The Company and Prudential will be entitled to receive a
priority return on equity capital advances at rates not lower than
10.5%.
In May 1998, the Company formed DDR OliverMcMillan ("DDROM"), with
OliverMcMillan, LLC, based in San Diego, California to develop,
acquire, operate and manage urban entertainment and retail projects
throughout the United States. DDROM's initial investments are comprised
of six OliverMcMillan urban entertainment and retail projects located
in Southern California and Reno, Nevada with a projected cost of
approximately $223 million. Construction is scheduled to commence at
five of the six projects, generally during the second half of 1999. At
December 31, 1998 the Company had advanced approximately $13 million
relating to land acquisitions and predevelopment activities.
Nonrecourse construction financing will be obtained for each project,
generally estimated to be in excess of 70% of the total cost of
construction. The Company is entitled to receive a priority return on
capital advances at a rate of 10.5%.
1997 Activity
During 1997, the Company acquired seven shopping centers aggregating
2.4 million square feet of Company owned GLA for an aggregate
investment of approximately $267.9 million. In addition, in January
1997, the Company entered into a joint venture with certain
institutional investors which are advised by DRA Advisors, Inc. to
acquire a 0.3 million square foot shopping center located in San
Antonio, Texas. The aggregate cost of the shopping center was
approximately $38.3 million of which the Company's proportionate
ownership share is 35%. The Company also contributed approximately $0.5
million of additional assets to the OSTRS Joint Venture during 1997.
During 1997, the Company and its joint ventures completed expansions
and redevelopment's aggregating approximately 0.8 million square feet
at an aggregate cost of approximately $39.0 million at 13 of its
shopping centers.
During 1997, the Company substantially completed the construction of
four shopping centers which included: (i) a 235,000 square foot Phase
II development of the Canton, Ohio shopping center; (ii) a 500,000
square foot shopping center in Boardman, Ohio; (iii) a 475,000 square
foot shopping center in Stow, Ohio and (iv) an 84,000 square foot
shopping center in Aurora, Ohio.
Development activity was completed at two of the Company's joint
venture shopping centers located in Atlanta, Georgia and Framingham,
Massachusetts which were acquired in connection with the Community
Center Joint Ventures in November 1995.
35
<PAGE> 36
In December 1997, the Company acquired 33 retail redevelopment sites,
formerly occupied by Best Products, at a cost of approximately $54.5
million. In February 1998, these assets were contributed to the Retail
Value Fund, a joint venture with Prudential Real Estate Investors. See
discussion under "Financing Activities" below regarding the Retail
Value Fund.
1996 Activity
During 1996, the Company acquired five shopping centers aggregating 1.1
million square feet of Company owned GLA for an aggregate purchase
price of approximately $113.9 million.
In September 1996, the Company entered into a joint venture with OSTRS.
In conjunction with the formation of the joint venture, the Company
contributed to the joint venture two recently developed shopping
centers with a net book value of $41.6 million and non-recourse
mortgage debt aggregating $36.4 million. OSTRS funded initial cash
contributions of $11.6 million, which was used to repay a portion of
the non-recourse mortgage debt. In addition to owning a 50% interest in
the joint venture, the Company continues to manage the two properties
pursuant to a management agreement.
During 1996, the Company completed expansions at seven of its shopping
centers aggregating approximately 375,000 square feet for an aggregate
cost of approximately $24.6 million.
During 1996, the Company completed the first phase of a 520,000 square
foot shopping center development in Canton, Ohio for an aggregate cost
of $21.2 million. This property was contributed into the joint venture
with OSTRS as discussed above. The Company also completed the
development of the initial phase of a shopping center in Aurora, Ohio
aggregating approximately 84,000 square feet at a total cost of $4.9
million. Construction had also commenced on the development of four
additional shopping centers aggregating approximately 1.7 million
square feet for an aggregate projected cost of approximately $117
million. In addition, the Company completed the development of the
Independence, Missouri shopping center, which is one of the three
Community Center Joint Venture properties acquired while under
development in 1995 through the Homart transactions. The remaining two
shopping centers under development, located in Framingham,
Massachusetts and Atlanta, Georgia, were in the final stages of
construction. As of December 31, 1996, the majority of tenants had
opened at each of these centers.
FINANCING ACTIVITIES
- --------------------
The above acquisitions, developments and expansions were generally
financed through cash provided from operating activities, revolving
credit facilities, mortgages assumed, construction loans, unsecured
public debt, common and preferred equity offerings, joint venture
capital and OP Units. Total debt outstanding at December 31, 1998 was
$1.0 billion as compared to $668.5 million and $478.4 million at
December 31, 1997 and 1996, respectively. In 1998, the Company
increased total debt by $332.0 million primarily to fund acquisitions,
developments, expansions and other real estate investments.
During 1998, the Company issued an aggregate of $200 million of senior
unsecured fixed rate notes through its Medium Term Note Program. In
January 1998, $100 million of Senior Notes were issued with a maturity
of 10 years and an interest rate of 6.625% and in July 1998, $100
million of Senior Notes were issued with a maturity of 20 years and an
interest rate of 7.5%. The proceeds were used to repay variable rate
borrowings on the Company's revolving credit facilities primarily
incurred with shopping center acquisitions.
During 1998, the Company amended and restated its revolving credit
facility and increased the available borrowings to $375 million from
$150 million, reduced the pricing to 0.85% 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 ($0.01 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. 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
(pre-split), through a registered unit investment trust, and received
net proceeds of approximately $25.3 million which were primarily used
to repay borrowings on the Company's revolving credit facilities.
In July 1998, the Company completed the sale of 4,000,000 Class C
Depositary Cumulative Redeemable Preferred Shares. In August and
September 1998, the Company completed the sale of 2,160,000 Class D
Depositary Cumulative Redeemable Preferred Shares. The aggregate net
proceeds of approximately $148.3 million were used to repay variable
rate borrowings on the Company's unsecured revolving credit facilities.
36
<PAGE> 37
In July 1998, the Company announced that the Board of Directors
approved a two-for-one share split to shareholders of record on July
27, 1998 in the form of a share dividend. On August 3, 1998 each
shareholder received one common share for each common share held on
that date.
In December 1998, the Company completed a private placement of $35
million with AEW Targeted Securities Fund, L.P., an investment
partnership managed by AEW Capital Management, L.P. ("AEW"). This
private placement was a combination of preferred equity securities and
a warrant to purchase approximately 1.6 million common shares at a
price of $21-5/8 per share or 1.4 million Class D Depositary Cumulative
Redeemable Preferred Shares at a price of $25.00 per share. The
proceeds from this private placement were used to repay borrowings on
the Company's revolving credit facilities. These preferred equity
securities are structured as 8.5% cumulative redeemable preferred units
of DDRC Great Northern L.P., a wholly owned consolidated entity. The
preferred units are redeemable by DDRC Great Northern L.P. after five
years. In addition, if the warrant is exercised the Company has the
right to redeem the preferred units. Generally, the warrant has a
perpetual term, but will expire upon redemption of the preferred units.
The preferred equity securities and warrant were structured to function
as a convertible preferred security.
In December 1998, the Company completed a 3,000,000 common share
offering, and received net proceeds of approximately $52.5 million
which were used to repay borrowings on the Company's revolving credit
facilities.
During 1998 the Company also issued approximately 4.6 million OP Units
valued at approximately $91.4 million in conjunction with certain
property acquisitions. Each OP Unit is exchangeable into one common
share of the Company's stock or cash, at the Company's option. The OP
Units were issued at prices ranging from $19.53 to $20.11 per unit.
A summary of the aggregate gross proceeds raised through the issuance
of common shares, preferred shares, preferred partnership units,
warrants, senior unsecured notes, construction loans and OP Units
issued as consideration for the purchase of real estate assets
aggregated $1,089.2 million during the three year period ended December
31, is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
EQUITY:
Common shares $ 80.9 $204.1 $ 75.6
Operating partnership units 91.4 0.4 -
Class B preferred shares - - 4.4
Class C preferred shares 100.0 - -
Class D preferred shares 54.0 -
Preferred partnership units and warrant 35.0 - -
------ ------ ------
Total Equity 361.3 204.5 80.0
DEBT:
Senior fixed rate notes 200.0 102.0 111.7
Construction loans 29.7 - -
------ ------ ------
$591.0 $306.5 $191.7
====== ====== ======
</TABLE>
During 1998, Convertible Debentures in the aggregate amount of $6.8
million converted into 0.4 million common shares. At December 31, 1998,
the Company had $40.1 million of its 7% convertible debentures
outstanding with a maturity date of August 1999 and a conversion price
of $16.6875 per common share.
During the year ended December 31, 1998, the Company also assumed
mortgage debt in conjunction with certain property acquisitions
aggregating $133.9 million.
In addition, in September 1998 the Company received net proceeds of
approximately $192 million in conjunction with the formation of a joint
venture with DRA. (See 1998 acquisitions). The proceeds were used to
repay borrowings on the Company's revolving credit facilities.
In November 1998, eleven members of the Company's executive committee
acquired 974,633 common shares, primarily from the exercise of
previously granted stock options. These purchases increased the
ownership of common shares by senior management to 3.7%. The purchase
raised approximately $15 million and was funded through a third-party
financed personal loan program guaranteed by the Company.
37
<PAGE> 38
On February 19, 1999, DDR's Board of Directors granted the executive
officers of the Company the right to implement a common share buy-back
program in response to what the Company's executive committee believes
to be an undervaluation of the Company's common shares. Under the terms
authorized by the Board of Directors, the Company may, during the six
month period beginning February 22, 1999, purchase common shares of the
Company in the open market, at price levels not to exceed 120% of the
closing price of the securities on February 22, 1999 ($15.50), up to a
maximum value of $50 million. It is not the Company's intention to
increase the leverage on its balance sheet through this stock buy-back
program. Acquisitions of shares may be made to limit shareholder
dilution which may arise as a result of the issuance of OP Units in
conjunction with property acquisitions. The Company may also invest
portions of the proceeds from the sale of properties to purchase its
own shares.
CAPITALIZATION
- --------------
At December 31, 1998, the Company's capitalization consisted of $1.0
billion of debt (excluding the Company's proportionate share of joint
venture mortgage debt aggregating $369.6 million), $338.8 million of
preferred stock and preferred partnership units and $1.2 billion of
market equity (market equity is defined as common shares outstanding
and operating partnership units outstanding multiplied by the closing
price per common share on the New York Stock Exchange at December
31, 1998 of $17.75) resulting in a debt to total market capitalization
ratio of .40 to 1.0 as compared to the ratios of .36 to 1.0 and .33 to
1.0 at December 31, 1997 and 1996, respectively. At December 31, 1998,
the Company's total debt consisted of $836.3 million of fixed rate debt
and $164.2 million of variable rate debt.
It is management's intention that the Company have access to the
capital resources necessary to expand and develop its business.
Accordingly, the Company may seek to obtain funds through additional
equity offerings or debt financings in a manner consistent with its
intention to operate with a conservative debt capitalization policy and
maintain its investment grade ratings with Moody's Investor Services
and Standard and Poor's. In February 1999, the Company filed a shelf
registration statement with the Securities and Exchange Commission
under which $750 million of debt securities, preferred shares or common
shares may be issued. In addition, as of December 31, 1998, the Company
had $263.0 million available under its $395.0 million of unsecured
revolving credit facilities. As of December 31, 1998, the Company also
had 106 operating properties with $151.2 million, or 69.2%, of the
total revenue for the year ended December 31, 1998 which were
unencumbered thereby providing a potential collateral base for future
borrowings.
INFLATION
- ---------
Substantially all of the Company's long-term leases contain provisions
designed to mitigate the adverse impact of inflation. Such provisions
include clauses enabling the Company to receive percentage rentals
based on tenants' gross sales, which generally increase as prices rise,
and/or escalation clauses, which generally increase rental rates during
the terms of the leases. Such escalation clauses are often related to
increases in the consumer price index or similar inflation indices. In
addition, many of the Company's leases are for terms of less than ten
years, which permits the Company to seek to increase rents upon
re-rental at market rates. Most of the Company's leases require the
tenants to pay their share of operating expenses, including common area
maintenance, real estate taxes, insurance and utilities, thereby
reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation.
38
<PAGE> 39
ECONOMIC CONDITIONS
- -------------------
Historically, real estate has been subject to a wide range of cyclical
economic conditions which affect various real estate sections and
geographic regions with differing intensities and at different times.
Adverse changes in general or local economic conditions could result in
the inability of some existing tenants of the Company to meet their
lease obligations and could otherwise adversely affect the Company's
ability to attract or retain tenants. The shopping centers are
typically anchored by one or more discount department stores (usually
Wal-Mart, Kmart, Target, Kohl's, TJ Maxx/Marshalls), supermarkets and
drug stores which generally offer day-to-day necessities, rather than
high-priced luxury items. Since these merchants typically perform
better in an economic recession than those who market high priced
luxury items, the percentage rents received by the Company have
remained relatively stable. In addition, the Company seeks to reduce
its operating and leasing risks through ownership of a portfolio of
properties with a diverse geographic and tenant base.
During 1998 and 1997, certain national and regional retailers have
experienced financial difficulties and several have filed for
protection under bankruptcy laws. Although the Company has experienced
an increase in the number of tenants filing for protection under
bankruptcy laws, the Company has not incurred any significant financial
losses through March 4, 1999 with regard to the Company's portfolio of
tenants. During 1998, Homeplace filed for protection under Chapter 11
of the bankruptcy laws. Homeplace currently occupies 634,000 square
feet of GLA in shopping centers owned by the Company and its joint
ventures and represents 2.7% of the Company's and its joint ventures
combined annualized base rental revenues for the year ended December
31, 1998. As of March 4, 1999 all of the Company's Homeplace stores
continued to operate. The Company believes that the quality of the real
estate where the Homeplace stores are located, is such that the
releasing of the space at similar terms, would generally not be
difficult in the event that Homeplace would reject any of its leases.
Year 2000
The Year 2000 issue ("Year 2000") is the result of computer programs
being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have
time-sensitive hardware and software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations, including
among other things, a temporary inability to process transactions,
collect rents, or engage in similar normal business activities.
The Company believes that it has identified all of its information
technology ("IT") and non-IT systems to assess the Year 2000 readiness.
Critical IT systems include, but are not limited to: accounts
receivable and rent collections, accounts payable and general ledger,
human resources and payroll (both property and corporate levels), cash
management, fixed assets, all IT hardware (such as desktop/laptop
computers and data networking equipment). Critical non-IT systems
include telephone systems, fax machines, copy machines as well as
property environmental, health safety and security systems (such as
elevators and alarm systems).
39
<PAGE> 40
The Company has conducted an assessment of its core internal and
external IT systems. The majority of these systems are currently Year
2000 compliant or are in the process of being modified to be compliant.
The Company is currently in the process of determining its exposure to
any non-IT systems that are not Year 2000 compliant and believes that
all such systems will have been identified, evaluated and completed
with respect to their Year 2000 compliance by the close of the third
quarter of 1999.
To date, the Company has expended approximately $40,000 and expects
to expend an additional $70,000 in connection with upgrading building
management, mechanical and computer systems. The costs of the project
and the date on which the Company believes it will complete the Year
2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the
continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated.
In some cases, various third party vendors have been queried on their
Year 2000 readiness. The Company continues to query its significant
suppliers and vendors to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. To date, the Company is not aware
of any significant supplier or vendors with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity,
or capital resources. However, there can be no assurances that the
systems of other companies, on which the Company's systems rely, will
be timely converted and would not have an adverse effect on the
Company's systems.
The Company believes it has an effective program in place that will
resolve the Year 2000 issue in a timely manner. Aside from catastrophic
failure of banks or governmental agencies, the Company believes that it
could continue its normal business operations if compliance by the
Company is delayed. The Company does not intend to develop a formal
contingency plan, as the Company believes that all critical systems
will be Year 2000 compliant. The Company does not believe that the Year
2000 issue will materially impact its results of operations, liquidity
or capital resources.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company's primary market risk exposure is interest rate risk. At
December 31, 1998, approximately 83.6% of the Company's debt (excluding
joint venture debt) bore interest at fixed rates with a weighted
average maturity of approximately 7.9 years and a weighted average
interest rate of approximately 7.6%. The remainder of the Company's
debt bears interest at variable rates with a weighted average maturity
of approximately 2.3 years and a weighted average interest rate of
approximately 6.5% at December 31, 1998. As of December 31, 1998, the
Company's joint ventures, indebtedness aggregated $601.6 million of
fixed rate debt, of which the Company's proportionate share was $310.0
million, and $117.2 million of variable rate debt, of which the
Company's proportionate share was $59.6 million. The Company intends to
utilize variable rate indebtedness available under its revolving credit
facilities in order to initially fund future acquisitions, developments
and expansions of shopping centers. Thus, to the extent that the
Company incurs additional variable rate indebtedness, its exposure to
increases in interest rates in an inflationary period would increase.
The Company believes, however, that in no event would increases in
interest expense as a result of inflation significantly impact the
Company's distributable cash flow.
At December 31, 1998, the fair value of the Company's fixed rate debt
amounted to a liability of $823.5 million (excluding joint venture
debt) compared to its carrying amount of $836.3 million. The fair value
of the Company's proportionate share of joint venture fixed rate debt
was $315.8 million compared to its carrying amount of $310.0 million.
The Company estimates that a 100 basis point decrease in market
interest rates at December 31,1998 would have changed the fair value of
the Company's fixed rate debt and proportionate share of joint ventures
fixed rate debt to a liability of $866.1 million and $319.7 million,
respectively. The sensitivity to changes in interest rates of the
Company's fixed rate debt was determined with a valuation model based
upon changes that measure the net present value of such obligations
which arise from the hypothetical estimate as discussed above. The
Company intends to continuously monitor and actively manage interest
costs on its variable rate debt portfolio and may enter into swap
positions based on market fluctuations. In addition, the Company
believes that it has the ability to obtain funds through additional
equity and/or debt offerings, including the issuance of medium term
notes. Accordingly, the cost of obtaining such protection agreements in
relation to the Company's access to capital markets will continue to be
evaluated.
40
<PAGE> 41
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in a separate section at the end
of this report beginning on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-41-
<PAGE> 42
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference
to the information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Company's Proxy
Statement in connection with its annual meeting of shareholders to be held on
May 18, 1999, and the information under the heading "Executive Officers" in Part
I of this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the "Executive Compensation"
section of the Company's Proxy Statement in connection with its annual meeting
of shareholders to be held on May 18, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the "Security Ownership of Certain
Beneficial Owners and Management" section of the Company's Proxy Statement in
connection with its annual meeting of shareholders to be held on May 18, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the "Certain Transactions" section
of the Company's Proxy Statement in connection with its annual meeting of
shareholders to be held on May 18, 1999.
-42-
<PAGE> 43
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULES
AND REPORTS ON FORM 8-K
a) 1. Financial Statements
The following documents are filed as part of this report:
Report of Independent Accountants - Developers Diversified
Realty Corporation
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the three years
ended December 31, 1998.
Consolidated Statements of Shareholders Equity for the three
years ended December 31, 1998.
Consolidated Statements of Cash Flows for the three years
ended December 31, 1998.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following financial statement schedules are filed herewith as
part of this Annual Report on Form 10-K and should be read in
conjunction with the Consolidated Financial Statements of the
registrant:
Schedule
--------
II Valuation and Qualifying Accounts and Reserves for the three
years ended December 31, 1998
III Real Estate and Accumulated Depreciation at
December 31, 1998
Schedules not listed above have been omitted because they
are not applicable or because the information required to
be set forth therein is included in the Consolidated
Financial Statements or notes thereto.
b) Current Reports on Form 8-K and 8-K/A were filed on April 7, 1998,
April 23, 1998, June 24, 1998, July 14, 1998, July 31, 1998,
August 11, 1998 and December 8, 1998 in which information
regarding Items 2, 5 and 7 of Form 8-K was reported.
c) Exhibits
The following exhibits are filed as part of, or incorporated by
reference into, this Report:
43
<PAGE> 44
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
2 2.1 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus Corporation for Maple
Grove Crossing Shopping
Center
2 2.2 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus North Corporation for
Highland Grove Shopping
Center
2 2.3 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus South Corporation for
Eastchase Market Shopping
Center
2 2.4 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus Northwest, L.L.C. for
Tanasbourne Town Center
Phase I Shopping Center
2 2.5 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus Southwest Corporation
for Arrowhead Crossing
Shopping Center
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
2 2.6 Share Purchase Agreement AIP's Current Report on Form
between the Company and 8-K (Filed with the SEC on
American Industrial August 5, 1998, SEC file
Properties REIT ("AIP") number 1-9016)
dated as of July 30, 1998
2 2.7 Amendment No. 1 to the Amendment No. 1 to Schedule
Share Purchase Agreement 13D (Filed with the SEC with
between the Company and AIP respect to AIP by the Company
dated as of September 14, on September 17, 1998, SEC
1998 file number 1-9016)
3 3.1 Amended and Restated Quarterly Report on Form 10-Q
Articles of Incorporation (Filed with the SEC on
of the Company November 16, 1998)
3 3.2 Code of Regulations of the Filed herewith
Company
4 4.1 Specimen Certificate for Form S-11 Registration No.
Common Shares 33-54930 (Filed with the SEC
on November 23, 1992)
4 4.2 Specimen Certificate for Annual Report on Form 10-K
Depositary Shares Relating (Filed with the SEC on March
to 9.5% Class A Cumulative 30, 1996)
Redeemable Preferred Shares
4 4.3 Specimen Certificate for Annual Report on Form 10-K
9.5% Class A Cumulative (Filed with the SEC on March
Redeemable Preferred Shares 30, 1996)
4 4.4 Specimen Certificate for Annual Report on Form 10-K
Depositary Shares Relating (Filed with the SEC on March
to 9.44% Class B Cumulative 30, 1996)
Redeemable Preferred Shares
4 4.5 Specimen Certificate for Annual Report on Form 10-K
9.44% Class B Cumulative (Filed with the SEC on March
Redeemable Preferred Shares 30, 1996)
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
4 4.6 Form of Indemnification Form S-11 Registration
Agreement No. 33-54930 (Filed with the
SEC on November 23, 1992)
4 4.7 Indenture dated as of May Current Report on Form 8-K
1, 1994 by and between the (Filed with the SEC on
Company and Chemical Bank, May 27, 1994)
as Trustee
4 4.8 Indenture dated as of May Current Report on Form 8-K
1, 1994 by and between the (Filed with the SEC on
Company and National City December 5, 1994)
Bank, as Trustee (the "NCB
Indenture")
4 4.9 First Supplement to NCB Annual Report on Form 10-K
Indenture (Filed with the SEC on March
30, 1996)
4 4.10 Specimen 7% Convertible Annual Report on Form 10-K
Subordinated Debentures due (Filed with the SEC on April
1999 1, 1995)
4 4.11 Specimen Senior Note due Annual Report on Form 10-K
2000 (Filed with the SEC on March
30, 1996)
4 4.12 Loan Agreement dated as of Current Report on Form 8-K
May 15, 1997, between (Filed with the SEC on June
Community Centers One 18, 1997)
L.L.C., Community Centers
Two L.L.C., Shoppers World
Community Center, L.P. and
Lehman Brothers Holdings
Inc., d/b/a/ Lehman
Capital, a Division of
Lehman Brothers Holdings,
Inc.
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
4 4.13 Amended and Restated Current Report on Form 8-K
Promissory Note, dated as (Filed with the SEC on June
of May 15, 1997, between 18, 1997)
Community Centers Two
L.L.C. and Shoppers World
Community Center L.P. and
Lehman Brothers Holdings
Inc., d/b/a/ Lehman
Capital, a Division of
Lehman Brothers Holdings, Inc.
4 4.14 Amended and Restated Current Report on Form 8-K
Promissory Note, dated as (Filed with the SEC on June
of May 15, 1997, between 18, 1997)
Community Centers One
L.L.C. and Lehman Brothers
Holdings Inc., d/b/a/
Lehman Capital, a Division
of Lehman Brothers
Holdings, Inc.
4 4.15 Amended and Restated Current Report on Form 8-K
Promissory Note, dated as (Filed with the SEC on June
of May 15, 1997, between 18, 1997)
Community Centers One
L.L.C. and Lehman Brothers
Holdings Inc., d/b/a/
Lehman Capital, a Division
of Lehman Brothers
Holdings, Inc.
4 4.16 Amended and Restated Credit Annual Report on Form 10-K
Agreement, dated as of (Filed with the SEC on March
February 24, 1998, among 31, 1998)
the Company and The First
National Bank of Chicago
4 4.17 Form of Fixed Rate Senior Current Report on Form 8-K
Medium - Term Note (Filed with the SEC on
November 7, 1997)
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
4 4.18 Form of Floating Rate Current Report on Form 8-K
Senior Medium - Term Note (Filed with the SEC on
November 7, 1997)
4 4.19 Form of Fixed Rate Current Report on Form 8-K
Subordinated Medium - Term (Filed with the SEC on
Note November 7, 1997)
4 4.20 Form of Floating Rate Current Report on Form 8-K
Subordinated Medium - Term (Filed with the SEC on
Note November 7, 1997)
4 4.21 First Amendment dated as of Quarterly Report on Form 10-Q
June 30, 1998 to Amended (Filed with the SEC August 14,
and Restated Revolving 1998)
Credit Agreement between
the Company and the First
National Bank of Chicago
4 4.22 Specimen Certificate for Form 8-A Registration
Depositary Shares Relating Statement (Filed with the SEC
to 8-3/8% Class C July 2, 1998)
Cumulative Redeemable
Preferred Shares
4 4.23 Specimen Certificate for Form 8-A Registration
8-3/8% Class C Cumulative Statement (Filed with the SEC
Redeemable Preferred Shares July 2, 1998)
4 4.24 Specimen Certificate for Form 8-A Registration
Depositary Shares Relating Statement (Filed with the SEC
to 8.68% Class D Cumulative August 18, 1998)
Redeemable Preferred Shares
4 4.25 Specimen Certificate for Form 8-A Registration
8.68% Class D Cumulative Statement (Filed with the SEC
Redeemable Preferred Shares August 18, 1998)
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
10 10.1 Registration Rights Form S-11 Registration No.
Agreement 33-54930 (Filed with the SEC
on November 23, 1992)
10 10.2 Stock Option Plan Form S-8 Registration
No. 33-74562 (Filed with the
SEC on January 28, 1994)
10 10.3 Employment Agreement Form S-11 Registration
between the Company and No. 33-54930 (Filed with the
Scott A. Wolstein SEC on November 23, 1992)
10 10.4 Employment Agreement Form S-11 Registration No.
between the Company and 33-54930 (Filed with the SEC
James A. Schoff on November 23, 1992)
10 10.5 Limited Partnership Annual Report on Form 10-K
Agreement dated as of (Filed with the SEC on March
November 16, 1995 among DD 30, 1996)
Community Centers Three,
Inc. and certain other
parties named therein
10 10.6 Amended and Restated Annual Report on Form 10-K
Limited Liability Company (Filed with the SEC on March
Agreement dated as of 30, 1996)
November 17, 1995 among DD
Community Centers One, Inc.
and certain other parties
named therein
10 10.7 Amended and Restated Annual Report on Form 10-K
Limited Liability Company (Filed with the SEC on March
Agreement dated as of 30, 1996)
November 17, 1995 among DD
Community Centers Two, Inc.
and certain other parties
named therein
</TABLE>
49
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
10 10.8 Limited Liability Company Annual Report on Form 10-K
Agreement dated as of (Filed with the SEC on March
November 17, 1995 among the 30, 1996)
Company and certain other
parties named therein
10 10.9 Purchase and Sale Agreement Annual Report on Form 10-K
dated as of October 16, (Filed with the SEC on
1995 among the Company and March 30, 1996)
certain other parties
named therein
10 10.10 Directors' Deferred Annual Report on Form 10-K
Compensation Plan (Filed with the SEC on April
1, 1995)
10 10.11 Elective Deferred Annual Report on Form 10-K
Compensation Plan (Filed with the SEC on April
1, 1995)
10 10.12 Developers Diversified Current Report on Form 8-K
Realty Corporation (Filed with the SEC on January
Equity-Based Award Plan 14, 1997)
10 10.13 Restricted Shares Current Report on Form 8-K
Agreement, dated July 17, (Filed with the SEC on June
1996, between the Company 18, 1997)
and Scott A. Wolstein.
10 10.14 Performance Units Current Report on Form 8-K
Agreement, dated July 17, (Filed with the SEC on June
1996, between the Company 18, 1997)
and Scott A. Wolstein.
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
-------- ----------- ----------- ---------
<S> <C> <C> <C>
10 10.15 Program Agreement for Annual Report on Form 10-K
Retail Value Investment (Filed with the SEC on March
Program, dated as of 31, 1998)
February 11, 1998, among
Retail Value Management,
Ltd., the Company and The
Prudential Insurance
Company of America
10 10.16 Share Option Agreement, Annual Report on Form 10-K
dated April 15, 1997, (Filed with the SEC on March
between the Company and 31, 1998)
Scott A. Wolstein
10 10.17 Share Option Agreement, Annual Report on Form 10-K
dated May 12, 1997, between (Filed with the SEC on March
the Company and Scott A. 31, 1998)
Wolstein
10 10.18 Employment Agreement Filed herewith
between the Company and
Richard J. Kaplan
10 10.19 1998 Developers Diversified Current Report on Form 8-K
Realty Corporation (Filed with the SEC on June
Equity-Based Award Plan 24, 1998)
12 12.1 Computation of Ratio of Form S-3 Registration No.
Earnings to Fixed Charges 333-72519 (Filed with the SEC
on March 2, 1999)
21 21.1 List of Subsidiaries Filed herewith
23 23.1 Consent of Price Waterhouse Filed herewith
</TABLE>
51
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
By: /s/ Scott A. Wolstein
---------------------------
Scott A. Wolstein,
Chairman, President and
Chief Executive Officer
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 31st day of March, 1998.
/s/ Scott A. Wolstein Chairman, President, Chief Executive Officer
- ------------------------- and Director (Principal Executive Officer)
Scott A. Wolstein
/s/ James A. Schoff Vice Chairman of the Board, Chief Investment
- ------------------------- Officer and Director
James A. Schoff
/s/ William H. Schafer Vice President and Chief Financial Officer
- ------------------------- (Principal Financial and Accounting Officer)
William H. Schafer
/s/ William N. Hulett III Director
- -------------------------
William N. Hulett III
/s/ Albert T. Adams Director
- -------------------------
Albert T. Adams
/s/ Dean S. Adler Director
- -------------------------
Dean S. Adler
Director
- -------------------------
Barry A. Sholem
/s/ Ethan Penner Director
- -------------------------
Ethan Penner
-52-
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Page
----
Financial Statements:
Report of Independent Accountants .............................. F-2
Consolidated Balance Sheets at December 31, 1998 and 1997....... F-3
Consolidated Statements of Operations for the three years ended
December 31, 1998 ........................................... F-4
Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 1998 ................................ F-5
Consolidated Statements of Cash Flows for the three years ended
December 31, 1998 ........................................... F-6
Notes to Consolidated Financial Statements ..................... F-7
Financial Statement Schedules:
II - Valuation and Qualifying Accounts and Reserves for the
three years ended December 31, 1998................. F-27
III - Real Estate and Accumulated Depreciation at
December 31, 1998 .................................. F-28
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Financial statements of the Company's unconsolidated joint venture
companies have been omitted because the joint ventures' proportionate share of
the income from continuing operations is less than 20% of the respective
consolidated amount and advances to and investment in each joint venture is
less than 20% of consolidated total assets.
F-1
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Developers Diversified Realty Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Developers Diversified Realty Corporation and its subsidiaries (the "Company")
at December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules listed in the accompanying index,
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 4, 1999
F-2
<PAGE> 55
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
ASSETS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate rental property:
Land $ 317,823 $ 183,809
Buildings 1,404,734 1,071,717
Fixtures and tenant improvements 24,131 18,418
Land under development 34,534 23,668
Construction in progress 115,541 28,130
----------- -----------
1,896,763 1,325,742
Less accumulated depreciation (203,097) (171,737)
----------- -----------
Real estate, net 1,693,666 1,154,005
Other real estate investments - 72,149
Cash and cash equivalents 2,260 18
Accounts receivable, net 24,022 16,282
Notes receivable 49,008 4,081
Advances to and investments in joint ventures 266,257 136,267
Minority equity investment 80,710 -
Deferred charges, net 5,230 4,668
Other assets 5,371 4,448
----------- -----------
$ 2,126,524 $ 1,391,918
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured indebtedness:
Fixed rate senior notes $ 592,154 $ 392,254
Revolving credit facilities 132,000 139,700
Subordinated convertible debentures 40,065 46,891
----------- -----------
Secured indebtedness 764,219 578,845
Mortgage indebtedness 236,262 89,676
----------- -----------
Total indebtedness 1,000,481 668,521
Accounts payable and accrued expenses 50,380 28,601
Dividends payable 20,072 -
Other liabilities 11,878 9,100
----------- -----------
1,082,811 706,222
----------- -----------
Minority equity interest 8,177 16,293
Preferred operating partnership interests 32,101 -
Operating partnership minority interests 100,650 353
Commitments and contingencies (Note 14)
Shareholders' equity:
Class A - 9.5%cumulative redeemable preferred shares, without par value, $250
liquidation value; 1,500,000 shares authorized; 421,500 shares
issued and outstanding at December 31, 1998 and 1997 105,375 105,375
Class B - 9.44%cumulative redeemable preferred shares, without par value,
$250 liquidation value; 1,500,000 shares authorized; 177,500 shares
issued and outstanding at December 31, 1998 and 1997 44,375 44,375
Class C - 8.375%cumulative redeemable preferred shares, without par value,
$250 liquidation value; 1,500,000 shares authorized; 400,000 shares
issued and outstanding at December 31, 1998 100,000 -
Class D - 8.68%cumulative redeemable preferred shares, without par value,
$250 liquidation value; 1,500,000 shares authorized; 216,000 shares
issued and outstanding at December 31, 1998 54,000 -
Common shares, without par value, $.10 stated value; 100,000,000 and 50,000,000
shares authorized at December 31,1998 and 1997, respectively; 61,289,186
and 27,687,576 shares issued and outstanding at December 31,1998 and 1997,
respectively 6,129 2,769
Paid-in-capital 673,910 580,509
Accumulated dividends in excess of net income (80,697) (63,517)
----------- -----------
903,092 669,511
Less: Unearned compensation - restricted stock (307) (461)
----------- -----------
902,785 669,050
----------- -----------
$ 2,126,524 $ 1,391,918
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 56
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues from operations:
Minimum rents $ 168,182 $ 123,998 $ 96,285
Percentage and overage rents 2,746 2,343 1,862
Recoveries from tenants 43,071 32,377 24,128
Management fee income 3,653 3,097 2,632
Interest 5,056 2,083 1,213
Other 5,460 5,325 4,785
--------- --------- ---------
228,168 169,223 130,905
--------- --------- ---------
Rental operation expenses:
Operating and maintenance 20,070 16,144 12,399
Real estate taxes 26,510 20,001 14,589
General and administrative 12,918 11,055 8,135
Interest 57,196 35,558 29,888
Depreciation and amortization 43,180 32,313 25,062
--------- --------- ---------
159,874 115,071 90,073
--------- --------- ---------
Income before equity in net income of joint ventures,
minority equity investment, minority interests,
gain on sales of real estate and extraordinary item 68,294 54,152 40,832
Equity in net income of joint ventures 12,888 10,893 8,710
Equity in net income from minority equity investment 686 - -
Minority interests (3,312) (1,049) -
Gain on sales of real estate 248 3,526 -
--------- --------- ---------
Income before extraordinary item 78,804 67,522 49,542
Extraordinary item - extinguishment of debt-deferred
finance costs written off (882) - -
--------- --------- ---------
Net income $ 77,922 $ 67,522 $ 49,542
--------- --------- ---------
Net income applicable to common shareholders $ 57,969 $ 53,322 $ 35,342
========= ========= =========
Per share data:
Earnings per common share - basic:
Income before extraordinary item $ 1.03 $ 1.03 $ 0.84
Extraordinary item (0.01) - -
--------- --------- ---------
Net income $ 1.02 $ 1.03 $ 0.84
========= ========= =========
Earnings per common share - diluted:
Income before extraordinary item $ 1.00 $ 1.03 $ 0.84
Extraordinary item (0.02) - -
--------- --------- ---------
Net income $ 0.98 $ 1.03 $ 0.84
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 57
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
COMMON ACCUMULATED UNEARNED
PREFERRED SHARES DIVIDENDS INCOMPENSATION-
SHARES ($250 ($.10 STATED PAID-IN EXCESS OF RESTRICTED
STATED VALUE) VALUE) CAPITAL NET INCOME STOCK TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995(1) $145,375 $ 1,897 $ 291,843 $(34,954) $ - $ 404,161
Issuance of 77,474 common shares for
cash related to exercise of stock options,
employee 401(k)plan and dividend
reinvestment plan - 7 1,873 - - 1,880
Issuance of 25,000 common shares related
to restricted stock plan - 3 766 - (615) 154
Issuance of 2,611,500 common shares for
cash - underwritten offering - 261 75,128 - - 75,389
Issuance of 17,500 Class B preferred shares
for cash - underwritten offering 4,375 - (193) - - 4,182
Net income - - - 49,542 - 49,542
Dividends declared - common shares - - - (51,889) - (51,889)
Dividends declared - preferred shares - - - (14,083) - (14,083)
--------------------------------------------------------------------------------
Balance, December 31, 1996(1) 149,750 2,168 369,417 (51,384) (615) 469,336
Issuance of 137,145 common shares for
cash related to exercise of stock options,
employee 401(k)plan, executive stock
purchase plan and dividend reinvestment
plan - 14 3,495 - - 3,509
Issuance of 5,474,760 common shares for
cash - underwritten offerings - 548 194,713 - - 195,261
Vesting of restricted stock - - - - 154 154
Conversion of debentures into 392,754
common shares - 39 12,884 - - 12,923
Net income - - - 67,522 - 67,522
Dividends declared - common shares - - - (65,455) - (65,455)
Dividends declared - preferred shares - - - (14,200) - (14,200)
--------------------------------------------------------------------------------
Balance, December 31, 1997(1) 149,750 2,769 580,509 (63,517) (461) 669,050
Issuance of 1,077,994 common shares(2) for
cash related to exercise of stock
options, employee 401(k)plan,executive
stock purchase plan and dividend
reinvestment plan - 108 15,782 - - 15,890
Issuance of 3,669,639 common shares(2) for
cash - underwritten offerings - 367 77,404 - - 77,771
Stated value of shares issued in
connection with a two-for-one stock
split - 2,861 (2,861) - - -
Issuance of 616,000 Class C and
Class D preferred shares for
cash - underwritten offerings 154,000 - (5,720) - - 148,280
Vesting of restricted stock - - - - 154 154
Conversion of debentures into 236,779
common shares(2) - 24 6,747 - - 6,771
Issuance of warrant - - 2,049 - - 2,049
Net income - - - 77,922 - 77,922
Dividends declared - common shares - - - (75,730) - (75,730)
Dividends declared - preferred shares - - - (19,372) - (19,372)
--------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $303,750 $ 6,129 $ 673,910 $(80,697) $ (307) $ 902,785
================================================================================
</TABLE>
(1) Share amounts do not reflect the effect of the July 1998 stock split.
(2) Share amounts reflect issuances both pre and post the July 1998 stock split.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 58
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
Year Ended December 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow operating activities:
Net income $ 77,922 $ 67,522 $ 49,542
Adjustments to reconcile net income to net cash flow provided by
operating activities, net of contributions to joint ventures:
Depreciation and amortization 43,180 32,313 25,062
Amortization of deferred finance costs 1,474 1,399 1,686
Write-off of deferred finance costs 882 - -
Equity in net income of joint ventures (12,888) (10,893) (8,710)
Equity in net income from minority equity investment (686) - -
Cash distributions from joint ventures 19,643 10,185 8,646
Cash distributions from minority equity investment 442 - -
Gain on sales of real estate (248) (3,526) -
Net change in accounts receivable (7,743) (4,907) (4,478)
Net change in accounts payable and accrued expenses 12,419 1,369 1,061
Net change in other operating assets and liabilities 3,096 921 3,011
--------- --------- ---------
Total adjustments 59,571 26,861 26,278
--------- --------- ---------
Net cash flow provided by operating activities 137,493 94,383 75,820
--------- --------- ---------
Cash flow from investing activities:
Real estate developed or acquired (569,566) (391,798) (185,667)
Equity contributions to joint ventures (130,592) (8,093) (14,870)
Advances to joint ventures (17,559) (22,085) (855)
Acquisition of minority equity interest (16,293) - -
Issuance of notes receivable (44,928) (4,081) -
Distributions from transfer of properties to joint ventures 233,986 - -
Proceeds from sales of real estate 6,663 9,837 1,722
--------- --------- ---------
Net cash flow used for investing activities: (538,289) (416,220) (199,670)
--------- --------- ---------
Cash flow from financing activities:
(Repayment of) proceeds from revolving credit facilities and
temporary bridge loans, net (7,700) 44,200 26,600
Principal payments on rental property debt (17,029) (17,764) (32,204)
Proceeds from construction loans 29,732 - 2,924
Proceeds from issuance of Medium Term Notes, net of underwriting
commissions and $400, $200, and $300 of offering expenses paid
in 1998, 1997 and 1996, respectively 198,012 101,234 110,898
Proceeds from issuance of Fixed Rate Senior Notes, net of
underwriting commissions and discounts and $500 of
offering expenses paid in 1997 - 74,147 -
Proceeds relating to premium on issuance of Fixed Rate Senior Notes- - 1,430 -
Payment of deferred finance costs (bank borrowings) (1,193) (674) -
Proceeds from issuance of common shares, net of underwriting
commissions and $400, $900 and $300 of offering expenses paid
in 1998, 1997 and 1996, respectively 77,771 195,261 75,389
Proceeds from issuance of preferred shares, net of underwriting
commissions and $459 and $200 of offering expenses paid
in 1998 and 1996, respectively 148,280 - 4,182
Proceeds from issuance of preferred partnership units and warrant
net of $850 of offering expenses paid 34,150 - -
Proceeds from issuance of common shares in conjunction with
exercise of stock options, 401(k)plan, reinvestment plan and
restricted stock plan 16,044 3,663 2,034
Dividends paid (75,029) (79,655) (65,972)
--------- --------- ---------
Net cash provided by financing activities 403,038 321,842 123,851
--------- --------- ---------
Increase in cash and cash equivalents 2,242 5 1
Cash and cash equivalents, beginning of year 18 13 12
--------- --------- ---------
Cash and cash equivalents, end of year $ 2,260 $ 18 $ 13
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Developers Diversified Realty Corporation, subsidiaries (the "Company"
or "DDR") and related real estate joint ventures and its minority
equity investment are engaged in the business of acquiring, expanding,
owning, developing, managing and operating neighborhood and community
shopping centers, enclosed malls and business centers. The Company's
shopping centers are typically anchored by discount department stores
(usually Wal-Mart, Kmart, Target, Kohl's, TJ Maxx/Marshall's), home
improvement stores, supermarkets, book stores, office supply stores,
electronic stores and drug stores which usually offer day-to-day
necessities. At December 31,1998, the Company owned shopping centers in
35 states. The tenant base includes primarily national and regional
retail chains and local retailers, consequently, the Company's credit
risk is concentrated in the retail industry.
Revenues derived from the Company's two largest tenants, Wal-Mart and
Kmart, aggregated 9.4%, 12.3% and 15.6% of total revenues, including
joint venture revenues, for the years ended December 31, 1998, 1997 and
1996, respectively, as follows:
<TABLE>
<CAPTION>
YEAR WAL-MART KMART
----------------------------------------------
<S> <C> <C>
1998 5.3% 4.1%
1997 7.1% 5.2%
1996 9.3% 6.3%
</TABLE>
The total percentage of Company owned gross leasable area ("GLA"),
including joint venture GLA, attributed to Wal-Mart and Kmart was 9.3%
and 7.5%, respectively, at December 31, 1998. The Company's ten largest
tenants comprised 22.9%, 25.6% and 32.2% of total revenues for the
years ended December 31, 1998, 1997 and 1996, respectively. Management
believes the Company's portfolio is diversified in terms of location of
its shopping centers and its tenant profile. Adverse changes in general
or local economic conditions, could result in the inability of some
existing tenants to meet their lease obligations and could otherwise
adversely affect the Company's ability to attract or retain tenants.
During 1998 and 1997, certain national and regional retailers
experienced financial difficulties and several filed for protection
under bankruptcy laws. Although the Company has experienced an increase
in the number of tenants filing for protection under bankruptcy laws,
the Company has not incurred any significant losses through March 4,
1999 with regard to the Company's portfolio of tenants. During 1998,
Homeplace filed for protection under Chapter 11 of the bankruptcy laws.
Homeplace currently occupies 634,000 square feet of gross leasable area
in shopping centers owned by the Company and its joint ventures which
represents 2.7% of the Company's and its joint ventures combined
annualized base rental revenues. As of March 4, 1999 all of the
Company's Homeplace stores continue to operate. The Company believes
that the quality of the real estate, where the Homeplace stores are
located, is such that the releasing of the space at similar terms would
generally not be difficult in the event that Homeplace rejects any of
its leases.
Principles of Consolidation
All majority owned subsidiaries and investees where the Company has
financial and operating control are included in the consolidated
financial statements. All significant intercompany balances and
transactions have been eliminated in consolidation. Investments in real
estate joint ventures and companies for which the Company has the
ability to exercise significant influence over but does not have
financial operating control are accounted for using the equity method
of accounting. Accordingly, the Company's share of the earnings of
these joint ventures and companies is included in consolidated net
income.
Statement of Cash Flows and Supplemental Disclosure of Non-Cash Investing and
Financing Information
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Non-cash investing and financing activities are summarized as follows
(in millions):
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Conversion of debentures and related deferred finance costs $ 6.7 $ 12.9 $ -
Minority interests and operating partnership units
relating to shopping center acquisitions 108.5 16.6 -
Contribution of net assets to joint ventures 27.6 0.5 5.2
Acquisition of a minority equity investment 7.4 - -
Mortgages assumed, shopping center acquisitions 133.9 - -
Other liabilities assumed, shopping center acquisitions 2.8 6.2 1.1
Accounts payable related to construction in progress 6.6 0.2 5.3
Two-for-one stock split 2.9 - -
Dividends declared, not paid 20.1 - -
</TABLE>
The foregoing transactions did not provide or use cash and,
accordingly, they are not reflected in the statements of cash flows.
F-7
<PAGE> 60
Real Estate
Real estate assets are stated at cost less accumulated depreciation,
which, in the opinion of management, is not in excess of the individual
property's estimated undiscounted future cash flows, including
estimated proceeds from disposition.
Depreciation and amortization are provided on a straight-line basis
over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
Buildings 18 to 31 years
----------------------------------------------------------------
<S> <C>
Furniture/Fixtures and Useful lives, which approximate
Tenant Improvements lease terms, where applicable
----------------------------------------------------------------
</TABLE>
Depreciation expense was $43.2 million, $32.3 million and $25.1 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
Expenditures for maintenance and repairs are charged to operations as
incurred. Renovations which improve or extend the life of the asset are
capitalized. Included in land at December 31, 1998 was undeveloped real
estate, generally outlots or expansion pads adjacent to the shopping
centers and enclosed malls owned by the Company (excluding shopping
centers owned through joint ventures) which aggregated approximately
132 acres at 61 sites.
Construction in progress includes shopping center developments and
significant expansions and re-developments. The Company capitalizes
interest on funds used for the construction or expansion of shopping
centers, including funds advanced to joint ventures with qualifying
development activities. Capitalization of interest ceases when
construction activities are completed and the property is available for
occupancy by tenants. For the years ended December 31, 1998, 1997 and
1996, the Company capitalized interest of $9.9 million, $4.0 million,
and $3.3 million, respectively. In addition, the Company capitalized
certain construction administration costs of $1.8 million, $1.3 million
and $1.1 million in 1998, 1997 and 1996, respectively.
Deferred Financing Costs
Costs incurred in obtaining long-term financing are included in
deferred charges in the accompanying balance sheets and are amortized
over the terms of the related debt agreements; such amortization is
reflected as interest expense in the consolidated statements of
operations.
Revenue Recognition
Minimum rents from tenants are recognized monthly using the
straight-line method. Percentage and overage rents are recognized after
the tenants' reported sales have exceeded the applicable sales
breakpoint. Revenues associated with tenant reimbursements are
recognized in the period in which the expenses are incurred based upon
the tenant lease provisions. Lease termination fees are included in
other income and recognized upon termination of a tenant's lease, which
generally coincides with the receipt of cash.
Accounts Receivable
Accounts receivable, other than straight-line rents receivable, are
expected to be collected within one year and are net of estimated
unrecoverable amounts of approximately $2.1 million and $2.4 million at
December 31, 1998 and 1997, respectively. At December 31, 1998 and
1997, straight-line rent receivables, net of a provision for
uncollectible amounts, aggregated $4.2 million and $2.8 million,
respectively.
Gain on Sales of Real Estate
Gain on sales of real estate generally relates to the sale of outlots
and land adjacent to existing shopping centers and is recognized at
closing when the earnings process is deemed to be complete. During
1998, the Company sold several outlots adjacent to the Company's
shopping centers and recognized an aggregate gain of $0.2 million.
During 1997, the Company sold two business centers and a shopping
center and recognized an aggregate gain of $3.5 million.
General and Administrative Expenses
General and administrative expenses include internal leasing and legal
salaries and related expenses which are charged to operations as
incurred. All internal personnel costs associated with the acquisition
of real estate are expensed as incurred.
Interest and Real Estate Taxes
Interest and real estate taxes incurred during the development and
significant expansion of shopping centers are capitalized and
depreciated over the life of the building. In addition, interest is
also capitalized on investments and advances to joint ventures
associated with the development of shopping centers during the
development period.
Interest paid during the years ended December 31, 1998, 1997 and 1996
aggregated $63.4 million, $36.2 million and $31.2 million,
respectively.
F-8
<PAGE> 61
Intangible Assets
Intangible assets consist primarily of the goodwill and property
management contracts and rights to certain development projects
obtained through the acquisitions of real estate management businesses,
which are amortized to expense on the straight line basis over their
estimated useful lives of 15 years. The carrying value of intangible
assets is periodically reviewed by the Company and impairments are
recognized when the expected future operating cash flows derived from
such intangible assets is less than their carrying value.
Derivative Financial Instruments
The Company may from time to time enter into interest rate swap
contracts as hedges against increasing rates on its variable rate debt.
The Company does not utilize these arrangements for trading or
speculative purposes. To qualify for hedge accounting, the contracts
must meet defined correlation and effectiveness criteria, be designated
as a hedge and result in cash flows and financial statement effects
which substantially offset those of the position being hedged. The
Company records net amounts received or paid under these contract as
adjustments to interest expense. At December 31, 1998 and 1997, there
were no interest rate swap contracts outstanding. See Note 3 for a
description of the Company's funding commitment relating to its equity
affilitate.
Federal Income Taxes
The Company has elected to be taxed as a qualified Real Estate
Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended. As a REIT, the Company is entitled to a tax deduction for the
amount of dividends paid to its shareholders, thereby effectively
subjecting the distributed net income of the Company to taxation at the
shareholder level only, provided it distributes at least 95% of its
taxable income and meets certain other REIT qualification requirements.
As the Company distributed sufficient taxable income for the years
ended December 31, 1998, 1997 and 1996, no U.S. Federal income or
excise taxes were incurred. The Company is subject to state and local
income and franchise taxes in certain states and municipalities which
are reflected in operating and maintenance expenses.
The tax basis of assets and liabilities exceeds the amounts reported
in the accompanying financial statements by approximately $110 million,
$111 million and $108 million at December 31, 1998, 1997 and 1996,
respectively.
Business Segment Information
In June 1997, the FASB issued SFAS No. 131 - Disclosure about Segments
of an Enterprise and Related Information. SFAS 131 establishes
standards for disclosure about operating segments in annual financial
statements and selected information in interim financial reports. It
also establishes standards for related disclosures about the products
and services, geographic areas and major customers. The sole business
of the Company and its consolidated affiliates is the ownership,
development and operation of retail shopping centers. The Company
evaluates operating results and allocates resources on a
property-by-property basis. The Company does not distinguish or group
its operations on a geographic basis. Accordingly, the Company believes
it has a single reportable segment for SFAS 131 purposes. Further, all
operations are within the United States and significant tenant revenues
have been previously disclosed. Therefore, no additional disclosure
relating to the adoption of SFAS 131 is considered necessary.
New Accounting Standards
In June 1997, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 130 - Reporting Comprehensive Income. SFAS No.
130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the
changes in equity of a business during a period from transactions and
other events and circumstances from nonowner sources. The new standard
becomes effective for the Company for the year ending December 31,
1998, and requires that comparative information from earlier years be
stated to conform to the requirements of this standard. Effective March
31, 1998, the Company implemented SFAS No. 130 - Reporting
Comprehensive Income. For the years ended December 31, 1998, 1997 and
1996 the Company had no items of other comprehensive income requiring
additional disclosure.
In June 1998, the FASB issued SFAS No. 133 - Accounting for
Derivative Instruments and Hedging Activities. This statement requires
fair value accounting for all derivatives including recognizing all
such instruments on the balance sheet with an offsetting amount
recorded in the income statement or as part of comprehensive income.
The new standard becomes effective for the Company for the year ending
December 31, 2000. The Company does not expect this pronouncement to
have a material impact on the Company's financial position or cash
flows.
F-9
<PAGE> 62
Stock Split
The Board of Directors of the Company approved a two-for-one stock
split to shareholders of record on July 27, 1998. On August 3, 1998,
each such 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. Accordingly, $2.9 million was transferred from
additional paid in capital to common stock, representing the stated
value of additional shares issued. All share and per share data and
Operating Partnership Units ("OP Units") included in these consolidated
financial statements including all such disclosures have been adjusted
to reflect this split, except as indicated.
Reclassification
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
Use of Estimates in Preparation of Financial Statements
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 assets and
liabilities, the disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses during the year. Actual
results could differ from those estimates.
2. EQUITY INVESTMENTS IN JOINT VENTURES
- ---------------------------------------
The Company's equity investments in joint ventures at December 31, 1998
was comprised of the following:
A 50% joint venture interest in 23 operating shopping centers
(13 in 1997 and 1996);
A 35% joint venture interest in one operating shopping center
acquired in 1997;
A 57% joint venture interest acquired in 1997, which is
developing one shopping center;
A 50% interest in six joint ventures each of which are
developing a shopping center (formed in 1998 and 1997);
An 80% joint venture interest in two operating shopping center
properties acquired in 1998;
A 25% joint venture interest in an opportunity fund formed in
1998 which acquired several retail sites which are being
redeveloped;
A 50% joint venture interest in a real estate management company
and development company acquired in 1998;
A 50% joint venture interest in a limited partnership acquired
in 1998 which is developing seven shopping centers;
A 95% economic interest in a management service subsidiary
formed in 1998 of which the Company owns 1% of the voting and
100% of the non-voting common stock; and
An 81% economic interest in a management service subsidiary
formed in 1998 of which the Company owns 9% of the voting and
100% of the non-voting common stock.
F-10
<PAGE> 63
Combined condensed financial information of the Company's joint venture
investments is summarized as follows (in thousands):
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS December 31,
1998 1997
----------- -----------
<S> <C> <C>
Land $ 237,459 $ 147,466
Buildings 838,704 482,153
Fixtures and tenant improvements 2,467 1,315
Construction in progress 67,898 19,172
----------- -----------
1,146,528 650,106
Accumulated depreciation (56,887) (26,113)
----------- -----------
Real estate, net 1,089,641 623,993
Other assets 57,253 25,817
----------- -----------
$ 1,146,894 $ 649,810
=========== ===========
Mortgage debt $ 718,846 $ 389,160
Amounts payable to DDR 85,846 32,667
Other liabilities 22,500 9,549
----------- -----------
827,192 431,376
Accumulated equity 319,702 218,434
----------- -----------
$ 1,146,894 $ 649,810
=========== ===========
Company's proportionate share
of accumulated equity $ 162,108 $ 107,706
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS For the years ended
December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues from operations $109,752 $ 82,434 $ 63,681
-------- -------- --------
Rental operation expenses 28,045 20,189 16,192
Depreciation and amortization expense 16,009 11,658 8,924
Interest expense 40,942 29,540 21,146
-------- -------- --------
84,996 61,387 46,262
-------- -------- --------
Income before gain on sale of real estate 24,756 21,047 17,419
Gain on sale of real estate 314 1,085 -
-------- -------- --------
Net income $ 25,070 $ 22,132 $ 17,419
======== ======== ========
Company's proportionate share of
net income $ 12,888 $ 10,893 $ 8,710
======== ======== ========
</TABLE>
The Company has made advances to several partnerships in the form of
notes receivable which accrue interest at rates ranging from LIBOR plus
0.85% to fixed rate loans of 10.5% and maturity dates ranging from
November 1999 to December 2008.
Advances to and investments in joint ventures includes the following
items which represent the difference between the Company's investment
and its proportionate share of the joint ventures underlying net assets
(in millions):
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
-----------------------
<S> <C> <C>
Acquisition, transaction and other costs,
including interest, not reflected at the
joint venture level $40.8 $ 2.9
Deferred development fees (2.1) (1.0)
Deferred gain (20.3) (5.9)
</TABLE>
Certain basis differentials are amortized over the life of the
related asset.
The income earned by the Company through management, development and
financing activities related to the Company's joint ventures, is as
follows (in millions):
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
-----------------------------
<S> <C> <C> <C>
Management fees and leasing commissions $3.2 $2.7 $2.1
Development fees 1.7 0.6 0.7
Interest income 2.4 1.5 0.8
</TABLE>
Cash distributions are generally made from the joint ventures to the
extent that "net cash flows", as defined in the joint venture
agreements, are generated. During 1998, 1997 and 1996, the joint
ventures distributed an aggregate of $19.6 million, $10.2 million and
$8.6 million, respectively, to its joint venture partners. The 1998
distributions exclude the $192 million distribution associated with the
formation of a joint venture in September 1998 discussed below.
During 1997 and 1998, the Company entered into six separate 50% owned
joint ventures to pursue additional shopping center developments.
F-11
<PAGE> 64
In February 1998, the Company entered into an agreement with
Prudential Real Estate investors and formed a Retail Value Fund (the
"Fund"). The Fund invests in retail properties within the United States
that are in need of substantial retenanting and market repositioning
and may also make equity and debt investments in companies owning or
managing retail properties as well as in third party development
projects that provide significant growth opportunities. The retail
property investments may include enclosed malls, neighborhood and
community centers or other potential commercial redevelopment
opportunities. The Company maintains an effective 25.45% (70% of which
is the Company's share of a 1% general partner interest which provides
for a 33% profit interest once the limited partners have received a 10%
priority return) ownership interest. The Fund's general partner has its
own employees and the Company assumed retail management
responsibilities including leasing redevelopment, accounting and
operating and receives fees for its management and construction
supervision services. The Fund acquired 33 retail sites, formerly
occupied by Best Products, located in 13 different states and a
shopping center in Longbeach, CA acquired in December 1998, which will
be redeveloped.
In March and April 1998, through transactions with Continental Real
Estate Companies of Columbus, Ohio, the Company acquired interests in
four shopping center joint ventures. The aggregate cost of these
shopping centers, including the assumption of approximately $82.0
million of debt, was approximately $113.8 million. The Company paid
approximately $19.1 million in cash and issued $2.1 million of OP Units
for its share of the partnership equity interests. The Company manages
these shopping centers pursuant to a management agreement.
In May 1998, the Company formed DDR OliverMcMillan (DDROM) to
develop, acquire, operate and manage urban entertainment and retail
projects throughout the United States. At December 31, 1998 DDROM had
six projects in the initial stage of development. The investment and
development activities of DDROM are overseen by a four person Board of
Directors. The Company's Chief Executive Officer serves as Chairman of
DDROM's Board of Directors and its Vice Chairman and Chief Investment
Officer serves as a director tegether with two executives from the
joint venture partner. The majority of the projects are scheduled to
commence construction in 1999 with completion in 2000 and 2001.
In July 1998, in connection with the acquisition of certain shopping
center properties from The Sansone Group, the Company acquired a 50%
interest in The Sansone Group's operating/management company which
manages shopping centers and other properties in the St. Louis, MO
area. The Company is entitled to a preferred return of the first $1.0
million in net operating income, on an annual basis up to the first $5
million. In addition, the Company acquired a 50% interest in the
Sansone Group Development Company.
On September 10, 1998 the Company formed a joint venture whereby the
Company contributed six existing shopping center properties valued at
approximately $238 million and in exchange received a 50% equity
ownership interest in the joint venture and cash of approximately $192
million, funded from debt and equity proceeds received as described
below. The $192 million was used to repay variable rate indebtedness on
the Company's revolving credit facilities. In conjunction with the
Company's contribution, the joint venture entered into a seven year,
$156 million mortgage with interest at a coupon rate of 6.64% and the
joint venture partner contributed cash of approximately $42 million in
exchange for a 50% equity interest. Upon contribution, the Company did
not recognize a gain upon transfer of the properties. The Company also
entered into a master lease for certain space occupied by a tenant
which filed for bankruptcy under Chapter 11 with annual base rent of
$2.0 million and lease terms through 2018. In exchange for the
agreement to master lease the space, the Company retained all rights
associated with the bankruptcy claim and to the benefits associated
with the releasing of the existing space, if necessary. The Company
does not believe that its exposure to loss is material under the terms
of the agreement. In accordance with the joint venture agreement, the
Company will continue to manage the properties and receive management
fees.
The joint venture agreements generally include provisions whereby
each partner has the right to trigger a purchase or sale of its
interest in the joint ventures (Reciprocal Purchase Rights) or to
initiate a purchase and sale of the properties (Property Purchase
Rights) after a certain number of years or if either party is in
default of the joint venture agreements.
In addition, several of the joint venture agreements include a
provision whereby, the Company's joint venture partners may convert
all, or a portion of, their respective interests in such joint ventures
into common shares of the Company. The terms of the conversion are set
forth in the governing documents of such joint ventures. However, if
the joint venture partners elect to convert their respective interest
into common shares, the Company will, in most cases, have the sole
option to pay cash instead of issuing common shares. If the Company
agrees to the issuance of common shares, the agreement provides that
the converting joint venture partner will execute a lock-up arrangement
acceptable to the Company.
3. MINORITY EQUITY INVESTMENT:
- ------------------------------
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
F-12
<PAGE> 65
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 owned
by the Company, with a net book value of approximately $7.4 million and
valued at approximately $19.5 million, acquired approximately 1.3
million additional newly issued AIP shares of beneficial interest. Upon
contribution, the Company did not recognize a gain. 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 was named AIP's Chairman of the Board.
On November 20, 1998, the shareholders of AIP approved additional
purchases by the Company of up to 5,226,583 newly issued shares of AIP
for approximately $81.0 million. Through December 31, 1998 the Company
purchased 3,683,578 of these additional shares for approximately $57.1
million.
At December 31, 1998, the aggregate number of acquired shares was
5,891,196 which represents 34.5% of AIP's total outstanding common
shares. The Company's investment is accounted for using the equity
method of accounting. The aggregate acquisition price for the shares
exceeds the Company's share of the historical underlying net assets of
AIP by approximately $21.2 million which has been assigned principally
to real estate with the remainder to goodwill. The portion attributable
to real estate is being amortized over 40 years and the amount
associated with goodwill is being amortized over 15 years. The
5,891,196 shares of AIP closed at $11.6875 per share at December 31,
1998 for an aggregate amount of $68.9 million.
In January 1999, the Company acquired 1,543,005 shares of AIP's
common stock at a price of $15.50 per share and 1,867,610 shares of
AIP's common stock at a price of $14.93 per common share. As of March
4, 1999, the Company owned 9,301,817 shares of AIP's common stock
representing approximately 45.5% of AIP's total outstanding shares.
Pursuant to the agreement, AIP may as of March 4, 1999, under certain
circumstances and subject to certain limitations, exercise a put right
that would require the Company to purchase additional common or
convertible preferred shares of AIP for a total amount not to exceed
$172.1 million at a price not to exceed $15.50 and $14.00 per share,
respectively. AIP can only exercise its right to put these additional
shares for the purpose of financing property acquisitions approved by
AIP's Board of Trust Managers. Based on the terms of the option, the
Company has determined that it approximates fair value.
Summarized financial information as reflected on the accounts of AIP
as of December 31, 1998 and for the period July 30, 1998 to December
31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,1998
<S> <C>
Balance sheet:
Land $ 112,473
Buildings 392,562
---------
Less accumulated depreciation 505,035
Real estate, net (33,352)
---------
Other assets 471,683
28,647
---------
$ 500,330
=========
Mortgage debt $ 252,481
Other liabilities and minority interests 42,270
---------
294,751
Accumulated equity 205,579
---------
$ 500,330
=========
</TABLE>
<TABLE>
<CAPTION>
For the period July 30, 1998 to
December 31, 1998
<S> <C>
Statement of Operations:
Revenues from operations $ 25,460
---------
Rental operation expenses 10,405
Depreciation and amortization expense 4,219
Interest expense (1) 7,766
Provisions for losses on real estate 10,060
---------
32,450
---------
Loss from operations (6,990)
Minority interests 166
---------
Loss before charge for change in control (6,824)
Charge for change in control (5,780)
---------
Net loss $ (12,604)
=========
</TABLE>
(1) Interest expense includes $0.7 million paid to the Company on advances made
during the year at an interest rate of 10.25%
F-13
<PAGE> 66
For the period from July 30, 1998 to December 31, 1998, the Company
has recorded in equity in net income from minority equity investment,
$0.7 million representing the Company's equity in AIP's $3.2 million of
income excluding the provisions for loss on real estate and change in
control charges. The real estate impairment and change in control
charges detailed above are reconciling items between the Company's
proportionate share of AIP's reported results of operations and the
amount reflected in the Company's financial statements as equity in net
income from minority equity investment. These amounts were considered
by the Company in its allocation of its cost to AIP's underlying assets
and liabilities.
4. ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION
- ---------------------------------------------------
During the years ended December 31, 1998, 1997 and 1996, the Company
completed the acquisition of 49 shopping centers, excluding those
acquired through joint ventures as discussed in Note 2, (37 in 1998, 7
in 1997 and 5 in 1996) at an aggregate cost of $688.4 million, $267.9
million and $113.9 million, respectively. These acquisitions were
accounted for using the purchase method of accounting. Significant
acquisitions were as follows:
In March 1998, in a single transaction with Continental Real Estate
Companies ("Continental") of Columbus, Ohio, the Company completed the
acquisition of 10 shopping centers, two of which were acquired through
joint ventures. The 10 shopping centers total 1.2 million GLA of
Company-owned retail space. The aggregate cost of these centers was
$91.9 million. The Company's net investment was initially funded
through its revolving credit facilities, cash and liabilities assumed
of approximately $31.6 million, mortgages assumed of approximately
$57.5 million (including $29.3 million of joint venture mortgage debt)
and the issuance of OP Units valued at approximately $2.8 million. In
certain circumstances and at the option of the Company, these units are
exchangeable into 139,872 shares of the Company's common stock.
In April 1998, the Company acquired from Continental, 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 GLA. The Company's cost will approximate $93.4
million upon completion of construction. The portion under construction
has an estimated cost of approximately $4.4 million and the Company is
scheduled to close on this investment periodically throughout 1999.
In July 1998, the Company acquired from Hermes Associates of Salt
Lake City, Utah, ("Hermes Properties") nine shopping centers, one
office building and eight additional expansion, development or
redevelopment projects. The nine shopping centers aggregate 2.4 million
square feet of total GLA. The total consideration for this portfolio
was approximately $309 million comprised of $30.6 million of debt
assumed, the issuance of OP Units, which are exchangeable, in certain
circumstances and at the option of the Company, into 3,630,668 shares
of the Company's common stock or cash, initially valued at $73.0
million and $194.2 million of cash and $11.2 million other liabilities
assumed.
In July 1998, the Company also acquired 13 shopping centers
aggregating approximately 1.6 million square feet in the St. Louis,
Missouri area, at an aggregate cost of $152.5 million. Two of these
centers were subsequently sold at an aggregate price of approximately
$4.4 million. The Company also acquired a 50% ownership interest in the
Sansone Group's management company and development company. The
Company's net investment in this portfolio aggregated $162.6 million
comprised of $27.6 million of debt assumed and $135 million of cash.
The operating results of the acquired shopping centers are included
in the results of operations of the Company from the date of purchase,
including the acquisition of properties owned through joint ventures,
discussed in Note 2. The properties owned through joint ventures are
included in equity in net income of joint ventures in the statements of
operations.
The following unaudited supplemental pro forma information is
presented to reflect the effects of the common share offerings,
preferred share offerings, debt offerings and the property acquisitions
consummated through December 31, 1998, including the joint venture
formations and acquisitions (Note 2), as if all such transactions had
occurred on January 1, 1997 with regard to the 1998 and 1997
acquisitions and as if all such transactions relating to the 1996 and
1997 acquisitions had occurred on January 1, 1996. The pro forma
financial information is presented for informational purposes only and
may not be indicative of what actual results of operations would have
been had the acquisitions occurred as indicated nor does it purport to
represent the results of the operations for future periods (in
thousands, except per share data):
F-14
<PAGE> 67
<TABLE>
<CAPTION>
For the years ended December 31, (Unaudited)
1998(a) 1997(b) 1996(c)
-------- -------- --------
<S> <C> <C> <C>
Pro forma revenues $229,678 $194,976 $140,544
-------- -------- --------
Pro forma income before extraordinary item $ 80,994 $ 70,174 $ 53,273
-------- -------- --------
Pro forma net income applicable to common shareholders: $ 55,547 $ 55,974 $ 39,074
-------- -------- --------
Pro forma net income applicable to common shareholders:
Basic $ 0.97 $ 1.03 $ 0.85
-------- -------- --------
Diluted $ 0.93 $ 1.01 $ 0.85
-------- -------- --------
</TABLE>
(a) Reflects revenues and expenses of the properties acquired in 1998 for
the period January 1, 1998 through the effective date of acquisition.
Operating results for the Company's acquired properties located in
Columbus (Easton Market), OH; Princeton, NJ; Portland, OR; St. Louis
(American Plaza) MO; St. Louis (Promenade at Brentwood), MO and
Florence, KY are not reflected in the 1998 pro forma information prior
to their respective acquisition dates because these shopping centers
were either under development or in the lease-up phase and,
accordingly, the related operating information for such centers either
does not exist or would not be meaningful. In addition, the 1998 and
1997 pro forma information does not include the results of shopping
center expansions occurring at five of the shopping centers acquired by
the Company.
(b) Reflects revenues and expenses of the properties acquired in 1998 and
1997 for the period January 1, 1997 through the effective date of
acquisition. Operating results for the Company's acquired properties
located in San Antonio, TX; Ahwatukee, AZ; Eagan, MN; St. Paul, MN;
Denver, CO; Columbus (Easton Market), OH; Princeton, NJ; Portland, OR;
St. Louis (American Plaza), MO; St. Louis (Promenade at Brentwood), MO
and Florence, KY are not reflected in the 1997 pro forma information
prior to their respective acquisition dates because these shopping
centers were either under development or in the lease-up phase and,
accordingly, the related operating information for such centers either
does not exist or would not be meaningful.
(c) Reflects revenues and expenses of the properties acquired in 1997 and
1996 for the period January 1, 1996 through the effective date of
acquisition. Operating results for the Company's acquired properties
located in Phoenix, AZ; Maple Grove, MN; Highland, IN: Fort Worth, TX;
Portland, OR; San Antonio, TX; Ahwatukee, AZ; Eagan, MN; St. Paul, MN
and Denver, CO are not reflected in the 1996 pro forma information
prior to their respective acquisition dates because these shopping
centers were either under development or in the lease-up phase and,
accordingly, the related operating information for such centers either
does not exist or would not be meaningful.
5. OTHER REAL ESTATE INVESTMENTS
- --------------------------------
In December 1997, the Company and Hendon Associates formed a joint
venture to acquire 33 retail sites, formerly occupied by Best Products,
from Metropolitan Life. Under the terms of the Joint Venture, with
Hendon Associates, the Company had advanced the capital to fund the
purchase price of the assets. The 33 retail sites, are located in 13
states with concentrations in Ohio, California and New Jersey. These
sites were acquired at an initial cost of approximately $54.5 million.
In February 1998, the Company's joint venture interest was contributed
to the Retail Value Fund, a joint venture with Prudential Real Estate
Investors discussed in Note 2.
Additionally, in December 1997, the Company acquired a 42.5%
ownership interest in a 584,000 square foot shopping center, located in
Princeton, New Jersey for an initial cost of approximately $7.7
million. During the second quarter of 1998, the Company acquired the
balance of the ownership interest in the property. The total purchase
price of the shopping center, including liabilities assumed, was
approximately $36.4 million which was funded through the issuance of OP
Units convertible into approximately 79,000 shares of common stock of
the Company and the assumption of approximately $27.8 million of debt.
The Company's investment in this property is included in real estate
assets at December 31, 1998.
The Company also acquired a 45.1% ownership interest in an adjacent
development site at an initial cost of approximately $9.9 million. Upon
completion of construction, the Company has the option to acquire the
remaining ownership interest for cash and/or OP Units. This investment
is reflected in advances to and investments in joint ventures at
December 31, 1998.
6. NOTES RECEIVABLE
- -------------------
Notes receivable and related accrued interest are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Construction mortgage receivable $ 6,559 $ 3,047
Notes receivable 8,039 1,034
Mortgage receivable 20,174 -
Notes receivable American Industrial Properties 14,236 -
------- -------
$49,008 $ 4,081
------- -------
</TABLE>
The Company acquired a 50% participating interest together with Bank of
America National Trust in a construction loan receivable secured by a
first mortgage on certain real estate relating to a shopping center
development in Phoenix, AZ. The note, including accrued interest,
aggregates approximately $6.6 million and $3.0 million at December 31,
1998 and 1997, respectively. This note bears interest at the rate of
7.0% per annum at December 31,1998 payable monthly and is due in July
1999. The Company has committed to fund up to $10.5 million, or 50%, of
the aggregate construction loan and has received a first right of
refusal on the purchase of the property upon completion of
construction.
F-15
<PAGE> 68
The Company has provided advances, including accrued interest,
aggregating $8.0 million and $1.0 million at December 31, 1998 and
1997, respectively. Such advances have been made to certain developers
in accordance with the respective underlying partnership agreements.
The notes are secured by certain rights in future development projects,
partnership interests and a personal guaranties. The notes bear
interest at 10.5% with maturity dates ranging from March 1999 to
December 2002.
In July 1998, the Company advanced $20.0 million to a real estate
developer which is evidenced by a mortgage note collateralized by six
real estate projects. The mortgage note bears interest at LIBOR (5.70%
at December 31, 1998) plus 450 basis points and is due in January 2000.
Interest is payable monthly and at December 31, 1998, interest and
principal of $20.2 million are outstanding.
At December 31, 1998 the Company had advances due from AIP,
aggregating $14.2 million in the form of a demand note receivable with
interest at 10.25%. The notes and related interest were repaid in
January 1999.
7. DEFERRED CHARGES
- -------------------
Deferred charges consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1997
------- -------
<S> <C> <C>
Deferred financing costs $ 9,480 $ 9,056
Other 7 146
------- -------
9,487 9,202
Less-accumulated amortization (4,257) (4,534)
------- -------
$ 5,230 $ 4,668
======= =======
</TABLE>
The Company incurred deferred finance costs aggregating $2.9 million
and $1.9 million in 1998 and 1997, respectively, primarily relating to
the Company's issuance of Senior Notes (Note 9) and unsecured revolving
credit agreements (Note 8). Amortization of deferred charges was $1.4
million, $1.4 million and $1.5 million for the years ended December
1998, 1997 and 1996, respectively.
During 1998, the Company wrote off $0.9 million (none in 1997 and
1996) of unamortized deferred finance costs in conjunction with the
amendment and restatement of its Unsecured Credit Facility (Note 8) and
the repayment of certain secured indebtedness.
8. REVOLVING CREDIT FACILITIES
- ------------------------------
Since May 1995, the Company has maintained a $150 million unsecured
revolving credit facility from a syndicate of financial institutions
for which the First National Bank of Chicago serves as agent (the
"Unsecured Credit Facility"). During 1998, the Company amended and
restated this facility to increase the facility to $375 million, reduce
the specified spread over LIBOR from 1.1% to 0.85%, modify certain
covenants and extend the term for an additional year, through April
2001. During the first quarter of 1998, the Company recognized a
non-cash extraordinary charge of approximately $0.9 million ($0.01 per
share), relating to the write-off of unamortized deferred finance costs
associated with the former revolving credit facility. Borrowings under
this facility bear interest at variable rates based on LIBOR plus a
specified spread, (0.85% at December 31, 1998). The spread is dependent
on the Company's long term senior unsecured debt rating from Standard
and Poor's and Moody's Investors Service. The Company is required to
comply with certain covenants relating to total outstanding
indebtedness, secured indebtedness, net worth, maintenance of
unencumbered real estate assets and debt service coverage. The facility
also provides for a facility fee of 0.15% on the entire facility. The
Unsecured Credit Facility is used to finance the acquisition of real
estate, to provide working capital and for general corporate purposes.
At December 31, 1998 and 1997, total borrowings under this facility
aggregated $132.0 million and $138.2 million, respectively, with a
weighted average interest rate of 6.5% and 7.9%, respectively.
In September 1996, the Company entered into a three year $10 million
unsecured revolving credit facility with National City Bank, (together
with the $375 million Unsecured Credit Facility, the "Revolving Credit
Facilities"). In June 1998, the Company renegotiated the terms of this
facility to increase the facility to $20 million, to extend the
agreement through November 2000 and reduce the interest rate 15 basis
points. Borrowings under this facility bear interest at variable rates
based on the prime rate or LIBOR plus a specified spread (0.85% at
December 31, 1998). The spread is dependent on the Company's long term
senior unsecured debt rating from Standard and Poors and Moody's
Investors Service. The Company is required to comply with certain
covenants relating to total outstanding indebtedness, secured
indebtedness, net worth, maintenance of unencumbered real estate assets
and debt service coverage. The facility also provides for commitment
fees of 0.15% on the unused credit amount. At December 31, 1997, total
borrowings under this facility aggregated $1.5 million with a weighted
average interest rate of 7.1%. At December 31, 1998, there were
borrowings outstanding under this facility.
Total fees paid by the Company on its revolving credit facilities in
1998, 1997 and 1996 aggregated approximately $0.5 million, $0.3 million
and $0.3 million, respectively.
F-16
<PAGE> 69
9. FIXED RATE SENIOR NOTES
- --------------------------
The following is a summary of the Company's outstanding unsecured fixed
rate senior notes:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Unsecured Fixed Rate
Senior Notes (1) $517,383 $317,554
Pass-Through Asset
Trust Securities (2) 74,771 74,700
-------- --------
$592,154 $392,254
======== ========
</TABLE>
(1) Two of the senior notes were issued at a discount. The unamortized
discount aggregated $0.3 million and $0.2 million at December 31, 1998
and 1997, respectively. The effective interest rates of these notes
range from 6.65% to 7.67% per annum.
(2) In March 1997, the Company issued, through a grantor trust, $75 million
of Pass-Through Asset Trust Securities (PATS), due March 2002, at a
discount to 99.53%. These certificates are secured by fifteen year
notes maturing March 2012, issued by the Company to the trust. The
trust sold an option which enables the option holder to re-market the
notes upon maturity ("Notes") of the certificates in March 2002.
Simultaneously with the sale of the certificates, the trust purchased
the notes from the Company for a premium in the amount of the option
payment. This premium, $1.3 and $1.4 million at December 31, 1998 and
1997, respectively, is being amortized over the fifteen year life of
the Notes and is included in other liabilities. If the option holder
does not elect to re-market the Notes, then they become due and payable
in March 2002.Interest is paid semi-annually in arrears on March 15 and
September 15. These notes have a coupon interest rate of 7.13% per
annum.
The above fixed rate senior notes have maturities ranging from May 2000
to July 2018. Interest rates ranged from approximately 6.58% to 7.625%
averaging 7.2% at December 31, 1998 and 1997. These Notes may not be
redeemed by the Company prior to maturity and will not be subject to
any sinking fund. The Fixed Rate Senior Notes were issued pursuant to
an indenture dated May 1, 1994 which contains certain covenants
including limitation on incurrence of debt, maintenance of unencumbered
real estate assets and debt service coverage. Interest is paid
semi-annually in arrears on May 15 and November 15.
10. SUBORDINATED CONVERTIBLE DEBENTURES
- ---------------------------------------
In August 1994, the Company issued, through an underwritten offering,
$60 million of unsecured subordinated convertible debentures
("Debentures") which mature on August 15, 1999. The Debentures bear
interest at 7% per annum. Interest is paid semi-annually in arrears on
February 15 and August 15. The Debentures were issued pursuant to an
indenture dated May 1, 1994. The Debentures are non-callable by the
Company and are convertible at any time prior to maturity into common
shares at a conversion price of $16.6875 per share, subject to
adjustment under certain conditions. The Debentures are unsecured and
subordinate to present and future senior indebtedness, as defined in
the indenture.
Debentures in the principal amount of $6.8 million and $13.1 million
were converted into approximately 0.4 million and 0.8 million common
shares, during 1998 and 1997, respectively. In accordance with the
indenture, the related accrued but unpaid interest was forfeited by the
holders. In addition, upon conversion of the debentures, approximately
$0.1 and $0.2 million of unamortized debenture issue costs were charged
to additional paid-in-capital during 1998 and 1997, respectively.
11. MORTGAGES PAYABLE AND SCHEDULED PRINCIPAL REPAYMENTS
- --------------------------------------------------------
At December 31, 1998, mortgages payable, collateralized by real estate
with a net book value of approximately $384.2 million and related
tenants leases, are generally due in monthly installments of principal
and/or interest and mature at various dates through 2027. Interest
rates ranged from approximately 3.7% to 10.875% (averaging 8.3% and
8.6% at December 31, 1998 and 1997). Variable rate debt obligations,
included in mortgages payable at December 31, 1998 and 1997, totaled
approximately $32.2 million and $2.8 million, respectively. Interest
rates on the variable rate debt averaging 6.3% and 5.3% at December 31,
1998 and 1997, respectively.
As of December 31, 1998, the scheduled principal payments of
mortgages payable, Fixed Rate Senior Notes, Revolving Credit Facilities
and Debentures for the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-----------------------------
<S> <C>
1999 $ 81,107
2000 135,180
2001 232,543
2002 116,858
2003 37,070
Thereafter 397,723
-----------------------------
$1,000,481
-----------------------------
</TABLE>
F-17
<PAGE> 70
Principal payments in the year 2001 include $132 million associated
with the maturing of the Revolving Credit Facilities.
Principal payments in the year 2002 assume that the PATS option
holder (Note 9) will not exercise the option to re-market the Notes and
the trust will therefore put the Notes to the Company to finance the
reacquisition of the PATS at maturity.
12. FINANCIAL INSTRUMENTS
- -------------------------
The following methods and assumptions were used by the Company in
estimating fair value disclosures of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payable, accruals and
other liabilities:
The carrying amounts reported in the balance sheet for these financial
instruments approximated fair value because of their short maturities.
The carrying amount of straight-line rents receivable does not
materially differ from their fair market value.
Notes receivable and advances to affiliates:
The fair value is estimated by discounting the current rates at which
similar loans would be made. At December 31, 1998 and 1997, the
carrying amounts reported in the balance sheet approximate fair value.
Debt:
The carrying amounts of the Company's borrowings under its Revolving
Credit Facilities approximate fair value because such borrowings are at
variable rates. The fair value of the fixed rate senior notes was based
on borrowings with a similar remaining maturity based on the Company's
estimated interest rate spread over the applicable treasury rate. Fair
value of the mortgages payable was estimated using a discounted cash
flow analysis, based on the Company's incremental borrowing rates for
similar types of borrowing arrangements with the same remaining
maturities. Fair value of the Debentures was determined based on their
closing price as of December 31, 1998 and 1997, as reported by the New
York Stock Exchange.
Considerable judgment is necessary to develop estimated fair values
of financial instruments. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Company could realize
on disposition of the financial instruments.
Financial instruments at December 31, 1998 and 1997, with carrying
values that are different than estimated fair values are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Debentures $ 40,065 $ 41,167 $ 46,891 $ 52,049
Fixed Rate Senior Notes 592,154 568,624 392,254 400,862
Mortgages payable 236,262 247,009 89,676 93,943
------------------------- ------------------------
$868,481 $856,800 $528,821 $546,854
========================= ========================
</TABLE>
See Note 3 for a description of the Company's funding commitment to its
minority equity investment. The Company intends to continuously monitor
and actively manage interest costs on its variable rate debt portfolio.
The Company may, from time to time, enter into interest rate hedge
agreements to manage interest costs and risks associated with changing
interest rates.
13. MINORITY EQUITY INTERESTS, PREFERRED OPERATING PARTNERSHIP MINORITY
INTERESTS, OPERATING PARTNERSHIP MINORITY INTERESTS, PREFERRED SHARES AND
COMMON SHARES
- -----------------------------------------------------------------------------
Minority Equity Interests
In 1998, the Company acquired, in conjunction with the acquisition of
the Hermes Properties, through a subsidiary partnership, a majority
ownership interest in a shopping center and development parcels in
Utah. The minority partners' equity interest in this partnership is
$8.2 million at December 31, 1998. Minority equity interest expense
includes approximately $0.1 million for the year ended December 31,
1998 related to the minority partner's share of net income.
In 1997, the Company acquired, through a subsidiary partnership, a
majority ownership interest in two adjacent shopping centers located in
North Olmsted, Ohio. At the date of acquisition the shopping centers
were valued at $56.7 million. The Company contributed cash and assumed
liabilities aggregating $40.4 million and the balance of $16.3 million
was retained by the seller as a minority equity interest. The minority
equity interest owners were entitled to a priority cash return of 6.5%
per annum on their partnership capital account balance, as defined in
the partnership agreement. The priority cash return during 1998 and
1997 aggregated approximately $0.2 million and $1.0 million,
respectively, and has been reflected as a charge to minority equity
interest in the consolidated statements of operations. In March 1998,
the Company acquired the minority equity interest for $16.3 million.
F-18
<PAGE> 71
Preferred Operating Partnership Minority Interests
In December 1998, the Company completed a private placement of $35
million with AEW Targeted Securities Fund, L.P., an investment
partnership managed by AEW Capital Management, L.P. ("AEW"). This
private placement was a combination of preferred equity securities and
a warrant to purchase approximately 1.6 million common shares of the
Company at a price of $21-5/8 per share or 1.4 million Class D
cumulative redeemable preferred shares at a price of $25 per share. The
Company recorded $32.9 million as preferred operating partnership
interests and $2.1 million to additional paid in capital in respect of
the warrant. The proceeds from this private placement were used to
repay amounts outstanding on the Revolving Credit Facilities. The
preferred equity securities are structured as 8.5% cumulative
redeemable preferred units ("Preferred Units") of DDRC Great Northern
L.P., a wholly owned, consolidated partnership. The Preferred Units are
redeemable without restriction by AEW, for cash or common shares at the
option of the Company, and redeemable after five years by DDRC Great
Northern L.P. for cash or common shares at AEW's option. In addition,
if the warrant is exercised, the Company has the right to redeem the
Preferred Units for cash or common shares at its option. Generally, the
warrant has a perpetual term, but will expire upon redemption of the
Preferred Units. During 1998, the Company reflected $0.2 million as a
charge to operating partnership minority interest in the consolidated
statements of operations relating to the accrued return associated with
the Preferred Units at December 31, 1998.
Operating Partnership Minority Interests
At December 31, 1998 and 1997, the Company had 4,581,104 and 17,894 OP
Units outstanding, respectively. During 1998 and 1997 the Company
acquired, through subsidiary partnerships, a majority ownership
interest in several shopping centers. In conjunction with these
acquisitions, the Company issued 4,563,210 and 17,894 OP Units which
are exchangeable, under certain circumstances and at the option of the
Company into an equivalent number of the Company's common shares or for
the equivalent amount of cash. In connection with the Company's
purchase of certain shopping centers during 1998 and the related
issuance of approximately 3.6 million of the above mentioned OP Units,
the Company provided a guarantee of the value of the OP Units, which
includes the aggregate value derived from both the value of the OP
Units and the distributions received pursuant to the terms of the
OP Units. As of July 1, 2000, if required, the guarantee amount is
payable in the form of additional OP Units. The purchase was recorded
at the estimated fair value of the guaranteed amounts. Contingently
issuable OP Units are included in weighted average shares outstanding
for purposes of determining diluted earnings per share.
The OP Unit holders are entitled to receive distributions, per OP
Unit, equal to the per share distributions on the Company's common
shares. During 1998 and 1997, the unit holders have received or are
entitled to receive distributions aggregating $2.9 million and $.01
million, respectively, which has been reflected as a charge to minority
interest in the consolidated statements of operations.
Preferred Shares
In August and September 1998, the Company sold 2,160,000 depositary
shares of 8.68% Class D Cumulative Redeemable Preferred Stock at $25
per depositary share. In July 1998, the Company sold 4,000,000
depositary shares of 8.375% Class C Cumulative Redeemable Preferred
Stock at $25 per depositary share. The Class A, B, C and D depositary
shares represent 1/10 of a share of their respective preferred class of
shares. The Class A, Class B, Class C and Class D depositary shares are
not redeemable by the Company prior to November 15, 2000, December 26,
2000, July 7, 2003 and August 20, 2003, respectively, except in certain
circumstances relating to the preservation of the Company's status as a
REIT. The aggregate net proceeds from the sale of the Class C and Class
D shares in 1998 of approximately $148.3 million were used to retire
variable rate indebtedness. The Company's authorized preferred shares
consist of the following:
- 1,500,000 Class A Cumulative Redeemable Preferred Shares, without
par value
- 1,500,000 Class B Cumulative Redeemable Preferred Shares, without
par value
- 1,500,000 Class C Cumulative Redeemable Preferred Shares, without
par value
- 1,500,000 Class D Cumulative Redeemable Preferred Shares, without
par value
- 1,500,000 Class E Cumulative Redeemable Preferred Shares, without
par value
- 1,500,000 Non Cumulative preferred shares, without par value
Common Shares
The Board of Directors of the Company approved a two-for-one stock
split to shareholders of record on July 27, 1998. On August 3, 1998,
each such shareholder received one share of common
F-19
<PAGE> 72
stock for each share of common stock held. This stock split was
effected in the form of a stock dividend. Accordingly, $2.9 million was
transferred from additional paid in capital to common stock,
representing the stated value of additional shares issued.
Common share issuances over the three year period ended December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Issuance Number of Price Per Net Proceeds
Date Shares Share (in millions)
----------------------------------------------------------
<S> <C> <C> <C>
March 1996 5,223,000 $14.475 $ 75.4
January 1997 6,700,000 $18.3125 115.8
June 1997 2,600,000 $19.0725 49.4
September 1997 1,015,920 $19.59375 18.8
December 1997 633,600 $18.875 11.3
April 1998 1,339,278 $18.86115 25.2
December 1998 3,000,000 $18.5625 52.6
</TABLE>
The aggregate net proceeds of $348.5 million from the above offerings
were primarily used to repay amounts outstanding on Unsecured Revolving
Credit Facilities and for general corporate purposes.
14. TRANSACTIONS WITH RELATED PARTIES
- -------------------------------------
In September 1998, the Company sold two properties to a principal of
one of the Company's joint venture partners. These properties
aggregated approximately 33,000 square feet and were sold for
approximately $4.4 million.
In June 1998, the Company acquired, from a partnership owned by the
Company's Chairman Emeritus and an officer of the Company,
approximately 18 acres of land, adjacent to a shopping center owned
through one of the Company's joint ventures, at a purchase price of
approximately $4.4 million.
In February 1998, the Company acquired a shopping center located in
Idaho Falls, Idaho 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 partnership interest. The shopping center aggregates
approximately 0.2 million square feet of Company GLA. The initial
purchase price of the property was approximately $6.5 million. In
accordance with the purchase agreement, the Company paid an additional
$0.6 million upon the leasing of vacant space in the center in January
1999.
In addition in 1998, the Company paid to a partnership owned by the
Chairman Emeritus approximately $0.1 million for leasing/sales
commissions associated with leasing or sale of certain shopping center
outlots. Also, the Company paid approximately $0.7 million in 1998 to a
company owned by the brother-in-law of The Chairman of the Board
relating to fees and commissions on the acquisition of several shopping
centers in 1998.
The Chairman of the Board and Chief Executive Officer of the Company
received 100,000 stock options in his role as Chairman of AIP's Board
of Trustees. All benefits associated with these options were assigned
to the Company.
In conjunction with the establishment of DDR's equity investment in
certain entities, the Company's Chairman of the Board and Chief
Executive Officer owns voting stock in these entities in order to meet
certain REIT qualification requirements.
During 1998, the Company periodically advanced funds to the Chairman
of the Board and Chief Executive Officer in amounts up to $0.4 million.
The advances, which were made to reduce the outstanding principal
balance of, and to prevent the sale of common shares from, a margin
account loan, were outstanding for periods ranging from five days to
one month with an interest rate of LIBOR plus 0.85%.
In 1998, the eleven members of the Company's executive committee,
either through the exercise of previously granted stock options or
through the direct purchase of unissued shares had acquired 974,663 of
the Company's common shares. The purchase of such shares was financed
by a five-year personal loan program aggregating approximately $15
million (at market interest rates) arranged by First Chicago/Bank One.
These loans are guaranteed by the Company. The individuals
participating in the program are responsible for repayment of these
personal loans and have fully indemnified the Company should the
Company's guarantee be called upon.
The Company entered into a lease for office space owned by one of its
principal partners/shareholders. General and administrative rental
expense associated with this office space aggregated $0.7 million, $0.6
million, and $0.5 million for the years ended December 31, 1998, 1997
and 1996, respectively. The increase in rental expense was primarily
related to the leasing of additional space to accommodate the Company's
growth.
The Company continues to have management agreements with various
partnerships and performs certain administrative functions on behalf of
entities owned in part by a related party, in which
F-20
<PAGE> 73
management fee and leasing fee income of $0.2 million was earned in
1998 and $0.1 million in 1997 and 1996. Transactions with the Company's
equity affiliates have been described in Notes 2 and 3.
15. COMMITMENTS AND CONTINGENCIES
- ---------------------------------
The Company is engaged in the operation of shopping centers/malls which
are either owned or, with respect to certain shopping centers, operated
under long-term ground leases which expire at various dates through
2048, with renewal options. Space in the shopping centers is leased to
tenants pursuant to agreements which provide for terms ranging
generally from one to 30 years and, in some cases, for annual rentals
which are subject to upward adjustments based on operating expense
levels, sales volume, or contractual increases as defined in the lease
agreements.
The scheduled future minimum revenues from rental properties under
the terms of all noncancelable tenant leases, assuming no new or
renegotiated leases or option extensions for such premises, for the
subsequent five years ending December 31, are as follows (in
thousands):
<TABLE>
<S> <C>
1999 $ 173,923
2000 164,771
2001 154,982
2002 143,914
2003 130,954
Thereafter 1,117,241
----------
$1,885,785
==========
</TABLE>
Scheduled minimum rental payments under the terms of all non-cancelable
operating leases in which the Company is the lessee, principally for
office space and ground leases, for the subsequent five years ending
December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 1,819
2000 1,815
2001 1,815
2002 1,816
2003 1,817
Thereafter 24,259
-------
$33,341
=======
</TABLE>
There were no capital leases in which the Company is the lessee at
December 31, 1998 or 1997.
In conjunction with the development and expansion of various shopping
centers, the Company has entered into agreements for the construction
of the shopping centers and acquisition of land aggregating
approximately $13.0 million as of December 31, 1998.
In connection with certain shopping center acquisitions, the Company
provided the related sellers with a right to lease vacant space to
tenants, acceptable to the Company, for additional consideration. At
December 31, 1998 there were rights to purchase additional units at
three shopping centers for an estimated $8 million.
As discussed in Note 2, the Company has entered into several joint
ventures with various third party developers. In conjunction with the
joint venture agreements, the Company has agreed to fund the required
equity capital associated with approved development projects. The
Company is entitled to receive a priority return on equity capital
advances at a minimum rate of 10.5%
As discussed in Notes 13 and 14, the Company has provided certain
guarantees relating to OP Units and officer loans, respectively. In
addition, the Company has entered into a master lease with regard to
certain tenants (Note 2).
16. OTHER INCOME
- ----------------
Other income was comprised of the following (in thousands):
<TABLE>
<CAPTION>
For the years ended
December 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Temporary tenant rentals (kiosks) $ 697 830 689
Lease termination fees 1,621 2,830 3,007
Development fees 1,722 1,003 672
Other 1,420 662 417
------ ------ ------
$5,460 $5,325 $4,785
============================
</TABLE>
17. BENEFIT PLANS
- -----------------
Stock Option and Other Equity Based Plans
Effective January 31, 1993, the Company established an incentive and
non-qualified stock option plan under which 4,113,806 of the Company's
common shares at December 31, 1998 were reserved for issuance to
eligible employees. Options may be granted at per share prices not less
than fair
F-21
<PAGE> 74
market value at the date of grant, and in the case of incentive
options, must be exercisable within ten years thereof (or, with respect
to options granted to certain shareholders, within five years thereof).
Options granted under the plan generally become exercisable on the year
after the date of grant as to one third of the optioned shares, with
the remaining options being exercisable over the following two-year
period.
In 1997, the Board of Directors approved the issuance of 900,000
stock options to the Company's Chief Executive Officer which vested
upon issuance of the options granted, 700,000 options were issued
outside of a qualified plan.
In addition to the stock option plan described above, the Company
granted options for a total of 950,000 shares to its directors and
certain officers who are not employees of the Company. Such options
were granted at the fair market value on the date of grant. Options
with respect to 150,000 shares were exercisable one year from the date
of grant, and options with respect to the remaining 800,000 shares
become exercisable one year after the date of grant as to one third of
the 800,000 shares with the remaining options being exercisable over
the following two-year period.
The following table reflects the stock option activity described
above (in thousands):
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
EXECUTIVE WEIGHTED AVERAGE
EMPLOYEES DIRECTORS OFFICER EXERCISE PRICE FAIR VALUE
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 1,654 650 - $12.93
Granted 1,066 240 - 15.32 $1.33
Exercised (132) (10) - 11.84
Canceled (58) - - 14.23
----- --- --- ------
Balance December 31, 1996 2,530 880 - 13.87
Granted 1,202 50 700 19.74 $3.15
Exercised (254) (10) - 12.52
Canceled (62) - - 16.59
----- --- --- ------
Balance December 31, 1997 3,416 920 700 16.18
Granted 540 10 - 19.95 $1.43
Exercised (1,093) - - 13.31
Canceled (72) - - 18.44
----- --- --- ------
Balance December 31, 1998 2,791 930 700 $17.32
===== === === ======
</TABLE>
The following table summarizes the characteristics of the options
outstanding at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Outstanding Weighted-Average Exercisable
Range of as of Remaining Weighted-Average as of Weighted-Average
Exercise Prices 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.00-$16.50 2,055 6.6 $14.39 1,635 $14.13
$16.50-$24.00 2,366 9.4 $19.86 1,213 $19.36
----------------------------------------------------------------------------
4,421 8.1 $17.32 2,848 $16.36
</TABLE>
As of December 31,1998, 1997 and 1996, 2,848, 3,097 and 1,617 options
(in thousands), respectively were exercisable. The weighted average
exercise prices of these exercisable options were $16.36, $15.03 and
$12.75 at December, 31,1998, 1997 and 1996, respectively.
During 1998, the Company's executive committee purchased
approximately 0.9 million of the shares exercised (See Note 14).
In April 1996 and May 1998, the shareholders approved equity-based
award plans ("Award Plan") which provide for the grant, to employees of
the Company, of options to purchase commons shares of the Company,
rights to receive the appreciation in value of common shares, award of
common shares subject to restrictions on transfer, awards of common
share issuable in the future upon satisfaction of certain conditions,
rights to purchase common share and other awards based on common
shares. Under the terms of the Award Plans, awards may be granted with
the respect to an aggregate of not more than 3,200,000 common shares.
In 1996, the Board of Directors approved a grant of 50,000 restricted
shares of common stock and 30,000 Participation Units to the Company's
Chief Executive Officer. The 50,000 shares of restricted stock vest in
equal annual amounts of 10,000 shares per year through the year 2000
and had a weighted average fair value at the date of grant of $15.3125,
which was equal to the market value of the Company's stock at that
date. The 30,000 Participation Units will be converted into common
shares, ranging from 30,000 common shares to 200,000 common shares at
the end of five years depending upon achievement of performance
objectives. The actual number of shares issued will be based upon the
average annual total shareholder return during the five year period.
The weighted average fair values of the performance units at the date
of grant for the 30,000 units granted in 1996 was $15.875, which was
equal to the Company's stock at that date. During 1998, 1997 and 1996
approximately $0.8 million, $1.3 million and $0.5 million,
respectively, was charged to expense
F-22
<PAGE> 75
associated with awards under the equity based award plan relating to
restricted stock and participation units.
The Company applies APB 25, "Accounting for Stock Issued to
Employees" in accounting for its plans. Accordingly, the Company does
not recognize compensation cost for stock options when the option
exercise price equals or exceeds the market value on the date of the
grant. The compensation cost which is required to be charged against
income for all of the above mentioned plans was $1.8 million, $5.8
million and $1.4 million for 1998, 1997 and 1996, respectively. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair values of the options granted at the grant
dates, consistent with the method set forth in the Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", the Company's net income and earnings per share would
have been as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------
<S> <C> <C> <C> <C>
Net income applicable to As reported $57,969 $53,322 $35,342
common shareholders Pro forma $56,168 $47,515 $33,905
Basic earnings As reported $1.02 $1.03 $0.84
per share Pro forma $0.99 $0.92 $0.80
Diluted earnings As reported $0.98 $1.03 $0.84
per share Pro forma $0.95 $0.91 $0.80
</TABLE>
For purposes of the pro forma presentation, the fair value of each
option grant was estimated on the date of grant using the Black-Scholes
options pricing model using the following assumptions:
<TABLE>
<CAPTION>
For the years ended December 31,
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Risk free interest rate or (range) 4.7%-5.8% 5.8%-7.9% 6.5%-6.8%
Dividend yield (range) 6.4%-7.5% 6.8%-7.1% 7.8%
Expected life (range) 6-10 years 8.1-10 years 8.3-10 years
Expected volatility (range) 13.2%-19.1% 22.5%-31.7% 17.1%-24.4%
</TABLE>
401(k) Plan
Effective July 1, 1994, the Company adopted a 401(k) defined
contribution plan covering substantially all of the officers and
employees of the Company which permits participants to defer up to a
maximum of 15% of their compensation. The Company will match 25% of the
employee's contribution up to a maximum of 6% of an employee's annual
compensation. The Company may also make additional discretionary
contributions. Employees' contributions are fully vested and the
Company's matching contributions vest 20% per year, including service
prior to the plan's effective date. Once an employee has been with the
Company five years, all matching contributions are fully vested. The
Company's contribution to the plan for the year ended December 31,
1998, 1997 and 1996 were made by the issuance of Company stock with a
market value of $0.05 million, $0.04 million, and $0.03 million,
respectively. The 401(k) plan is fully funded at December 31, 1998.
Elective Deferred Compensation Plan
Effective October 15, 1994, the Company adopted a non-qualified
elective deferred compensation plan for certain key executives which
permits eligible employees to defer up to 25% of their compensation.
The Company will match 25% of an employee's contribution up to a
maximum of 6% of an employee's annual compensation, after deducting
contributions, if any, made in conjunction with the Company's 401(k)
plan. Through March 31, 1998 both the deferred and matching
contributions were made in Company performance units with the gains and
losses being related to the Company's quoted share price. In April
1998, the Company elected to amend the investment elections available
to employees such that the same investment elections, except for the
Company's common stock elections is permitted. Deferred compensation
charged to expense related to an employee contribution is fully vested
and the Company's matching contribution vests 20% per year, including
service prior to the plan's effective date. Once an employee has been
with the Company five years, all matching contributions are fully
vested. The Company's contribution, including plan earnings for the
years ended December 31, 1998, 1997 and 1996 was $0.6 million, $.04
million and $.05 million, respectively. At December 31, 1998, 1997 and
1996, deferred compensation under this plan aggregated $0.5 million,
$0.3 million and $0.2 million, respectively. The plan is fully funded
at December 31, 1998.
18. EARNINGS AND DIVIDENDS PER SHARE
- ------------------------------------
Earnings Per Share (EPS) have been computed pursuant to the provisions
of Statement of Financial Accounting Standards No. 128. Further, as
discussed in Note 1, in 1998, the Company effected a stock split in the
form of a stock dividend in which each shareholder received one share
of common stock for each share of common stock held. All years
presented have been restated to reflect this stock split.
F-23
<PAGE> 76
The following table provides a reconciliation of both income before
extraordinary item and the number of common shares used in the
computations of "basic" EPS, which utilized the weighted average number
of common shares outstanding without regard to dilutive potential
common shares, and "diluted" EPS, which includes all such shares.
<TABLE>
<CAPTION>
For the year ended December 31,
(In thousands, except per share amounts)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income before extraordinary item $ 78,804 $ 67,522 $ 49,542
Less: Preferred stock dividend (19,953) (14,200) (14,200)
-------- -------- --------
Basic EPS- Income before extraordinary item
applicable to common shareholders 58,851 53,322 35,342
Effect of dilutive share securities:
Operating partnership minority interests - 10 -
Joint Venture Partnerships (632) - -
-------- -------- --------
Diluted EPS- Income before extraordinary item
applicable to common shareholders plus
assumed conversions $ 58,219 $ 53,332 $ 35,342
======== ======== ========
NUMBER OF SHARES:
Basic - average shares outstanding 56,949 51,760 42,294
Effect of dilutive securities:
Operating partnership minority interests - 6 -
Joint venture partnerships and
minority interests 1,056 - -
Stock options 499 352 72
Restricted stock 5 6 6
-------- -------- --------
Diluted - average shares outstanding 58,509 52,124 42,372
======== ======== ========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 1.03 $ 1.03 $ 0.84
Diluted $ 1.00 $ 1.03 $ 0.84
</TABLE>
Options to purchase 4,420,981, 5,036,412 and 3,409,268 shares of
common stock were outstanding at December 31, 1998, 1997 and 1996,
respectively (Note 17), a portion of which has been reflected above
using the treasury stock method.
The weighted average contingently issuable OP Units which are
convertible into common shares aggregated 0.7 million for the year
ended December 31, 1998.
Restricted shares totaling 20,000, 30,000 and 40,000, respectively,
were unvested at December 31, 1998, 1997 and 1996 and consequently,
were not included in the computation of basic EPS for all years
presented (Note 17).
Performance Units issued in 1996, convertible into 30,000 to 200,000
common shares of the Company, were not included in the computation of
diluted EPS for all years presented because the effect was antidilutive
(Note 17).
Debentures, which are convertible into common shares of the Company
at a price of $16.6875, were not included in the computation of diluted
EPS for all years presented because the effect was antidilutive (Note
10).
The conversion of the Company's joint venture partners' interest in
the Merriam (dilutive in 1998), San Antonio, Community Center and DDRA
V joint ventures and a joint venture with two operating properties were
not included in the computation of diluted EPS because the effect was
antidilutive, for all years presented, where applicable (Note 2).
Significant estimates were utilized by the Company in the determination
of fair value for certain of the Company's joint ventures where the
joint venture partner has the right to convert its interest in the
partnership to common shares of the Company (Note 2). These estimates
were used to determine the number of common shares assumed to be issued
by the Company open a conversion, for purposes of determining dilution.
The conversion into common stock of the Minority Interests were not
included in the computation of diluted EPS in 1998 and 1997 because the
effect of assuming conversion was antidilutive (Note 13).
The redemption of the preferred units through the exercise of the
warrant into common shares was not included in the computation of
diluted EPS in 1998 because the effect was antidulutive (Note 13).
F-24
<PAGE> 77
Dividends declared per share for the years ended December 31, 1998,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL
1998 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1st quarter 03/31/98 $0.3199 $ - $0.0075 $ .3275
2nd quarter 06/30/98 0.3199 - 0.0075 .3275
3rd quarter 10/01/98 0.3199 - 0.0075 .3275
4th quarter* 01/04/99 0.2459 - 0.0060 .2516
-------------------------------------------------------------
$1.2056 $ - $0.0285 $1.2341
=============================================================
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL
1997 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS
- ----------------------------------------------------------------------------------------------------------
1st quarter 03/31/97 $0.25 $0.055 $0.01 $ .315
2nd quarter 06/30/97 0.26 0.055 - .315
3rd quarter 09/30/97 0.26 0.055 - .315
4th quarter 12/30/97 0.25 0.055 0.01 .315
-------------------------------------------------------------
$1.02 $0.22 $0.02 $1.26
=============================================================
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL
1996 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS
- ----------------------------------------------------------------------------------------------------------
1st quarter 04/01/96 $0.2375 $0.06 $ .0025 $ .30
2nd quarter 07/01/96 0.2375 0.06 .0025 .30
3rd quarter 09/30/96 0.2375 0.06 .0025 .30
4th quarter 12/30/96 0.2375 0.06 .0025 .30
-------------------------------------------------------------
$0.95 $0.24 $0.01 $1.20
=============================================================
</TABLE>
* A portion of the fourth quarter 1998 dividend paid on January 4, 1999
will be reported to shareholders in 1999, of which $15,061,461 ($0.2459
per share) was reported as ordinary income and ($0.006 per share) was
reflected as capital gain distrubutions for the year ended December
31,1998.
19. SUBSEQUENT EVENTS
- ---------------------
On January 15,1999, the Company purchased an additional 3,410,615
shares of AIP for approximately $51.8 million in conjunction with AIP's
acquisition of a portfolio of properties with an aggregate cost of
approximately $129 million. Following the purchase of these shares the
Company's stock ownership aggregated approximately 45.5% of AIP's
outstanding common stock. The Company funded its investment through the
use of borrowings under the Company's Revolving Credit Facilities.
In January 1999, the Company repaid a mortgage of a 50% owned joint
venture partnership aggregating approximately $49.2. In return, the
joint venture entered into a corresponding mortgage note payable to the
Company with an interest rate of LIBOR plus 2.75%. In addition, the
Company received a loan origination fee for this transaction of $0.4
million. The Company anticipates that the joint venture will obtain a
permanent mortgage on the property in excess of $50 million during the
first half of 1999. The proceeds will be used to repay the mortgage
notes to the Company and any other advances made to the joint venture
or joint venture partners.
In February 1999, the board of directors declared a 6.9% increase in
the quarterly dividend per common share to $.35 per share from $.3275
per share. The first quarter dividend is payable on April 5, 1999 to
shareholders of record on March 25, 1999.
On February 19, 1999, DDR's Board of Directors granted the executive
officers of the Company the right to implement a common share buy-back
program. Under the terms authorized by the Board of Directors, the
Company may, during the six-month period beginning February 22, 1999,
purchase common shares of the Company in the open market, at price
levels not to exceed 120% of the closing price of the securities on
February 22, 1999 ($15.50), up to a maximum value of $50 million.
F-25
<PAGE> 78
20. PRICE RANGE OF COMMON SHARES (UNAUDITED)
- --------------------------------------------
The high and low sale prices per share of the Company's common shares,
as reported on the New York Stock Exchange Composite tape, and declared
dividends per share for the quarterly periods indicated were as
follows:
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
----------- --------- -----------
<S> <C> <C> <C>
1998:
FIRST $20-7/16 $18-1/4 $.3275
SECOND 21-15/32 18-21/32 .3275
THIRD 20-9/16 16 .3275
FOURTH 19-5/8 15-7/8 .3275
1997:
First $19-5/16 $17-1/8 $ .315
Second 20 17-15/16 .315
Third 20-1/8 19-1/8 .315
Fourth 20-5/8 18-21/32 .315
</TABLE>
As of March 15, 1999 there were 422 record holders and approximately
23,000 beneficial owners of the Company's common shares.
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------
The following table sets forth the quarterly results of operations for
the years ended December 31, 1998 and 1997 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998:
REVENUES FROM OPERATIONS $49,539 $52,981 $63,395 $62,253 $228,168
INCOME BEFORE EQUITY IN NET INCOME OF
JOINT VENTURES AND MINORITY EQUITY INVESTMENT,
MINORITY INTERESTS, GAIN ON SALES OF
REAL ESTATE AND EXTRAORDINARY ITEM 15,965 15,765 17,475 19,089 68,294
INCOME BEFORE EXTRAORDINARY ITEM 18,015 19,137 20,712 20,940 78,804
NET INCOME 17,133 19,137 20,712 20,940 77,922
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS 13,583 15,587 14,702 14,097 57,969
BASIC:
INCOME BEFORE EXTRAORDINARY ITEM PER
COMMON SHARE $0.26 $0.27 $0.26 $0.24 $1.03
NET INCOME PER COMMON SHARE $0.25 $0.27 $0.26 $0.24 $1.02
WEIGHTED AVERAGE NUMBER OF SHARES 55,500 56,703 57,257 58,302 56,949
DILUTED:
INCOME BEFORE EXTRAORDINARY ITEM
PER COMMON SHARE $0.25 $0.27 $0.25 $0.23 $1.00
NET INCOME PER COMMON SHARE $0.24 $0.27 $0.25 $0.23 $0.98
WEIGHTED AVERAGE NUMBER OF SHARES 56,732 58,003 58,765 60,286 58,509
First Second Third Fourth Total
-----------------------------------------------------
1997:
Revenues from operations $37,461 $40,913 $42,752 $48,097 $169,223
Income before equity in net income of
joint ventures and minority interests and
gain on sales of real estate 11,576 13,585 13,807 15,184 54,152
Income before extraordinary item 17,554 15,941 16,747 17,280 67,522
Net income 17,554 15,941 16,747 17,280 67,522
Net income applicable to common shareholders 14,004 12,391 13,197 13,730 53,322
Basic:
Income before extraordinary item
per common share $ .29 $ .25 $ .25 $ .25 $ 1.03
Net income per common share $ .29 $ .25 $ .25 $ .25 $ 1.03
Weighted average number of shares 49,030 50,328 53,112 54,594 51,760
Diluted:
Income before extraordinary item
per common share $ .28 $ .24 $ .25 $ .25 $ 1.03
Net income per common share $ .28 $ .24 $ .25 $ .25 $ 1.03
Weighted average number of shares 49,874 51,226 54,148 55,604 52,124
</TABLE>
F-26
<PAGE> 79
SCHEDULE II
DEVELOPERS DIVERSIFIED REALTY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Balance at
beginning of Charged end of
year to expense Deductions year
---- ---------- ---------- ----
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for uncollectible accounts . . . . $ 2,383 $ 1,083 $ 1,391 $ 2,075
======= ======= ======== ========
Year ended December 31, 1997
Allowance for uncollectible accounts . . . . . $ 1,770 $ 749 $ 136 $ 2,383
======= ======= ======== ========
Year ended December 31, 1996
Allowance for uncollectible accounts . . . . . $ 990 $ 1,292 $ 512 $ 1,770
======= ======= ======== ========
</TABLE>
F-27
<PAGE> 80
DEVELOPERS DIVERSIFIED REALTY CORPORATION SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 1998
<TABLE>
<CAPTION>
Initial Cost Total Cost (A)
---------------------------- ------------------------------------------------
Buildings & Buildings &
Land Improvements Improvements Land Improvements Total
------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BRANDON, FL ............... $0 $4,111,281 $0 $0 $4,114,943 $4,114,943
STOW, OH .................. 1,035,856 9,028,257 0 992,520 19,938,665 20,931,185
FERN PARK, FL (ORLANDO) ... 445,852 302,755 97,300 445,852 409,103 854,955
EASTLAKE, OH .............. 40,000 141,000 0 40,000 144,188 184,188
HIGHLAND HTS., OH ......... 3,987,052 7,895,991 0 3,987,052 13,342,214 17,329,266
WESTLAKE, OH .............. 424,225 3,802,863 203,235 424,225 4,055,893 4,480,118
WATERBURY, CT ............. 0 3,048,300 0 0 3,048,300 3,048,300
ZANESVILLE, OH ............ 0 619,023 0 0 619,023 619,023
E. NORRITON, PA ........... 80,408 4,697,718 233,380 80,408 7,281,488 7,361,896
PALM HARBOR, FL ........... 1,136,915 4,089,138 0 1,136,915 4,145,712 5,282,627
TARPON SPRINGS, FL ........ 248,067 7,381,640 80,859 248,067 10,964,375 11,212,442
BAYONET PT., FL ........... 2,112,566 8,180,960 127,530 2,254,649 8,387,077 10,641,726
STARKVILLE, MS ............ 1,271,081 8,209,214 0 1,112,263 9,648,182 10,760,445
TUPELO, MS ................ 2,282,000 14,978,722 0 2,282,000 15,683,922 17,965,922
JACKSONVILLE, FL .......... 3,005,420 9,425,063 0 3,005,420 9,463,626 12,469,046
STONE MOUNTAIN, GA ........ 460,471 3,018,074 21,890 460,471 3,060,042 3,520,513
BRUNSWICK, MA ............. 3,836,358 15,459,460 0 3,836,358 17,799,645 21,636,003
ATLANTA, GA ............... 475,360 9,373,552 0 475,360 9,549,570 10,024,930
ERIE, PA .................. 10,880,479 19,200,609 0 6,979,094 32,439,715 39,418,809
ERIE, PA .................. 1 2,563,770 12,990 1 3,061,768 3,061,769
CHILLICOTHE, OH ........... 42,857 2,549,287 2,200 1,266,066 11,799,780 13,065,846
OCALA, FL ................. 26,800 351,065 25,028 26,800 377,329 404,129
TAMPA, FL (WATERS) ........ 4,105,230 6,640,240 324,071 3,905,230 7,269,003 11,174,233
MACEDONIA, OH ............. 4,391,693 0 0 4,391,693 0 4,391,693
WINCHESTER, VA ............ 618,075 13,903,078 0 618,075 18,789,620 19,407,695
HUBER HEIGHTS, OH ......... 757,422 14,468,512 1,000 757,422 14,584,437 15,341,859
LEBANON, OH ............... 651,025 911,178 30,993 651,025 1,049,306 1,700,331
WILMINGTON, OH ............ 156,975 1,615,646 50,575 156,975 1,758,936 1,915,911
HILLSBORO, OH ............. 79,579 1,984,831 0 79,579 1,986,444 2,066,023
CANTON, OH PHASE II ....... 5,672,187 0 0 6,393,685 13,419,332 19,813,017
XENIA, OH ................. 948,202 3,938,138 0 673,202 6,052,627 6,725,829
BOARDMAN, OH .............. 9,025,281 0 0 8,152,281 27,948,552 36,100,833
SOLON, OH ................. 6,220,200 7,454,151 0 6,220,200 7,454,151 13,674,351
CINCINNATI, OH ............ 2,399,250 11,238,105 172,198 2,399,250 12,129,442 14,528,692
BEDFORD, IN ............... 706,282 8,424,532 5,750 1,066,656 10,009,514 11,076,170
WATERTOWN, SD ............. 62,712 6,442,712 441,927 62,712 8,206,513 8,269,225
CONNERSVILLE, IN .......... 539,720 6,457,710 0 539,720 6,562,442 7,102,162
ASHLAND, OH ............... 209,500 2,272,624 0 209,500 2,388,684 2,598,184
PENSACOLA, FL ............. 1,804,641 4,010,290 273,372 3,989,840 4,334,862 8,324,702
W.65TH CLEVELAND, OH ...... 90,120 1,463,076 15,000 90,120 1,541,540 1,631,660
LOS ALAMOS, NM ............ 725,000 3,499,950 30,336 725,000 3,870,158 4,595,158
NORTH OLMSTED, OH ......... 12,209,206 45,008,616 13,971 12,209,206 51,426,723 63,635,929
TAMPA, FL (DALE) .......... 4,268,673 5,368,147 204,666 4,268,673 6,077,386 10,346,059
WAYNESVILLE, NC ........... 431,910 8,088,668 131,096 431,910 8,238,844 8,670,754
AHOSKIE, NC ............... 269,530 7,775,856 3,168 269,530 7,808,224 8,077,754
PULASKI, VA ............... 528,075 6,395,809 2,000 528,075 6,405,435 6,933,510
ST. LOUIS, MO (SUNSET) .... 10,496,401 31,530,669 0 10,496,401 31,530,669 42,027,070
ST. LOUIS, MO (SH SNST) ... 2,294,428 6,873,734 0 2,294,428 6,873,734 9,168,162
ST. LOUIS, MO (BRNTWD) .... 10,627,899 32,053,255 0 10,627,899 32,053,255 42,681,154
CEDAR RAPIDS, IA .......... 4,219,246 12,697,187 0 4,219,246 12,697,187 16,916,433
ST. LOUIS, MO (OLYMPIC) ... 2,775,280 8,369,712 0 2,775,280 8,369,712 11,144,992
ST. LOUIS, MO (GRAVOIS) ... 1,336,311 4,049,826 0 1,336,311 4,049,826 5,386,137
ST. LOUIS, MO (MORRIS) .... 0 2,048,384 0 0 2,048,384 2,048,384
ST. LOUIS, MO (KELLER) .... 1,632,451 4,936,304 0 1,632,451 4,936,304 6,568,755
ST. LOUIS, MO (STHTWN) .... 1,502,294 4,545,833 0 1,502,294 4,545,833 6,048,127
ST. LOUIS, MO (HMEQTR) .... 1,405,214 4,254,663 0 1,405,214 4,254,663 5,659,877
ST. LOUIS, MO (AMRICN) .... 243,968 770,897 0 243,968 770,897 1,014,865
AURORA, OH ................ 832,436 0 0 832,436 5,460,070 6,292,506
WORTHINGTON, MN ........... 373,943 6,404,291 440,740 373,943 7,648,178 8,022,121
HARRISBURG, IL ............ 550,100 7,619,281 0 550,100 7,837,294 8,387,394
IDAHO FALLS, ID ........... 1,301,527 0 0 1,301,527 5,316,770 6,618,297
MT. VERNON, IL ............ 1,789,009 9,398,696 111,000 1,789,009 13,400,834 15,189,843
FENTON, MO ................ 413,993 4,243,854 475,714 413,993 6,602,340 7,016,333
MELBOURNE, FL ............. 1 3,084,819 116,638 1 3,204,645 3,204,646
SIMPSONVILLE, SC .......... 430,800 6,563,154 0 430,800 6,567,154 6,997,954
CAMDEN, SC ................ 627,100 7,519,161 6,500 2,791,609 7,874,094 10,665,703
UNION, SC ................. 684,750 7,629,275 500 684,750 7,648,975 8,333,725
N. CHARLESTON, SC ......... 910,840 11,346,348 1,000 1,081,462 14,921,446 16,002,908
S. ANDERSON, SC ........... 1,365,600 6,117,482 13,170 1,365,600 6,150,152 7,515,752
ANDERSON, SC .............. 204,094 939,733 0 204,094 939,733 1,143,827
ORANGEBURG, SC ............ 317,934 1,692,836 0 317,934 1,720,834 2,038,768
MT. PLEASANT, SC .......... 2,583,887 10,469,891 0 2,589,300 10,469,892 13,059,192
COLUMBIA, SC .............. 600,000 3,262,624 0 600,000 3,262,624 3,862,624
SAULT STE. MARIE, MI ...... 1,826,454 13,709,705 0 1,826,454 14,963,835 16,790,289
CHEBOYGAN, MI ............. 126,670 3,612,242 0 126,670 3,688,254 3,814,924
GRAND RAPIDS, MI .......... 1,926,389 8,039,411 0 1,926,389 8,053,837 9,980,226
DETROIT, MI ............... 6,737,895 26,988,238 27,131 6,737,895 27,015,369 33,753,264
HOUGHTON, MI .............. 439,589 7,300,952 1,820,772 439,589 9,360,850 9,800,439
BAD AXE, MI ............... 183,850 3,647,330 0 183,850 4,040,030 4,223,880
GAYLORD, MI ............... 269,900 8,727,812 2,250 269,900 9,090,854 9,360,754
HOWELL, MI ................ 331,500 11,938,263 750 331,500 12,127,717 12,459,217
MT. PLEASANT, MI .......... 766,950 7,768,538 20,340 766,950 11,490,772 12,257,722
ELYRIA, OH ................ 352,295 5,692,642 0 352,295 5,692,642 6,044,937
MIDVALLEY, UT ............. 25,661,553 56,759,311 0 25,661,553 56,759,311 82,420,864
TAYLORSVILLE, UT .......... 24,327,057 53,686,013 0 24,327,057 53,686,013 78,013,070
OREM, UT .................. 5,428,428 12,258,654 0 5,428,428 12,258,654 17,687,082
LOGAN, UT ................. 773,540 1,651,355 0 773,540 1,651,355 2,424,895
SALT LAKE CITY, UT ........ 986,363 2,132,099 0 986,363 2,132,099 3,118,462
RIVERDALE, UT ............. 15,845,056 36,478,636 0 15,845,056 36,478,636 52,323,692
BEMIDJI, MN ............... 442,031 8,228,731 500,161 442,031 9,028,612 9,470,643
THE HERMES BUILDING ....... 2,801,326 5,996,621 0 2,801,326 5,996,621 8,797,947
OGDEN, UT ................. 3,619,570 7,715,892 0 3,619,570 7,715,892 11,335,462
LAS VEGAS, NV ............. 2,142,168 4,561,986 0 2,142,168 4,561,986 6,704,154
RAPID CITY, SD ............ 757,928 1,624,575 0 757,928 1,624,575 2,382,503
CAPE CORAL, FL ............ 1,286,628 2,548,149 149,507 1,286,628 5,237,622 6,524,250
TRINDAD, CO ............... 411,329 2,578,930 197,546 411,329 2,764,874 3,176,203
HAZARD, KY ................ 402,563 3,271,343 296,745 402,563 3,573,888 3,976,451
FLORENCE, KY .............. 490,797 1,967,928 0 490,797 1,967,928 2,458,725
BIRMINGHAM, AL ............ 3,726,122 13,973,590 0 3,726,122 16,073,044 19,799,166
BIRMINGHAM, AL ............ 10,572,916 26,002,258 0 11,434,040 32,246,394 43,680,434
HUNTSVILLE, AL ............ 600,000 3,058,100 0 600,000 3,070,253 3,670,253
JACKSONVILLE, NC .......... 521,111 3,998,798 172,993 521,111 4,171,791 4,692,902
ORMOND BEACH, FL .......... 1,048,380 15,812,069 3,875 1,048,380 16,163,162 17,211,542
ALAMOSA, CO ............... 161,479 1,034,465 210,958 161,479 1,239,493 1,400,972
WILMINGTON, NC ............ 4,785,052 16,851,571 1,182,775 9,557,063 24,134,566 33,691,629
BERLIN, VT ................ 858,667 10,948,064 23,935 866,217 11,543,267 12,409,484
BRAINERD, MN .............. 703,410 9,104,117 271,802 1,182,018 12,606,911 13,788,929
SPRING HILL, FL ........... 1,083,851 4,816,166 265,762 2,095,973 8,012,882 10,108,855
TIFFIN, OH ................ 432,292 5,907,856 434,761 432,292 6,641,356 7,073,648
TOLEDO, OH ................ 2,490,543 10,582,588 0 2,490,543 10,583,789 13,074,332
TOLEDO, OHIO .............. 5,556,887 0 0 5,766,887 5,820,330 11,587,217
DENVER, CO ................ 7,833,069 35,550,405 0 7,833,069 46,152,815 53,985,884
DICKINSON, ND ............. 57,470 6,864,237 354,820 51,148 7,587,989 7,639,137
WEST PASCO, FL ............ 1,422,383 6,552,470 8,500 1,357,699 6,564,014 7,921,713
MARIANNA, FL .............. 1,496,347 3,499,835 129,855 1,496,347 3,642,290 5,138,637
HUTCHINSON, MN ............ 401,502 5,510,326 656,937 426,502 6,256,444 6,682,946
NEW BERN, NC .............. 780,029 8,204,036 71,587 1,049,710 12,774,562 13,824,272
HIGHLAND, IN .............. 4,003,400 20,101,245 0 4,003,400 22,891,664 26,895,064
PRINCETON, NJ ............. 7,121,176 29,782,565 0 7,121,176 29,782,565 36,903,741
ST. PAUL, MN .............. 4,467,901 18,084,446 0 4,469,511 19,345,806 23,815,317
RUSSELLVILLE, AR .......... 624,100 13,391,122 0 624,100 13,494,276 14,118,376
N. LITTLE ROCK, AR ........ 907,083 17,159,794 0 907,083 17,194,123 18,101,206
FAYETTEVILLE, AK .......... 2,365,974 9,503,285 0 5,371,806 10,141,296 15,513,102
OTTUMWA, IA ............... 338,125 8,564,280 102,680 276,186 8,873,250 9,149,436
WASHINGTON, NC ............ 990,780 3,118,121 33,690 2,250,459 3,185,176 5,435,635
OVIDEO, FL ................ 6,010,173 0 0 6,010,173 0 6,010,173
ORLANDO, FL ............... 4,792,146 11,673,702 84,343 4,792,146 12,397,964 17,190,110
DURHAM, NC ................ 2,210,222 11,671,268 277,631 2,210,222 12,143,055 14,353,277
CRYSTAL RIVER, FL ......... 1,216,709 5,795,643 364,531 1,219,142 6,182,077 7,401,219
BELLEFONTAINE, OH ......... 997,584 3,220,998 0 997,584 3,220,998 4,218,582
DUBLIN, OH ................ 3,609,345 11,546,009 0 3,609,345 11,546,009 15,155,354
GROVE CITY, OH ............ 2,847,868 9,132,150 0 2,847,868 9,132,150 11,980,018
HAMILTON, OH .............. 494,659 1,618,302 0 494,659 1,618,302 2,112,961
GAHANNA, OH ............... 1,028,931 3,319,584 0 1,028,931 3,319,584 4,348,515
PATASKALA, OH ............. 513,731 1,679,038 0 513,731 1,679,038 2,192,769
PICKERINGTON, OH .......... 1,896,406 6,085,926 0 1,896,406 6,085,926 7,982,332
BARBOURSVILLE, OH ......... 431,487 1,416,640 2,466 431,487 1,419,106 1,850,593
COLUMBUS, OH .............. 11,087,204 44,493,622 0 11,087,204 44,493,622 55,580,826
Portfolio Balance (DDR) ... 56,240 115,594,593 4,616,405 56,240 120,210,997 120,267,238
------------------------------------------- ------------------------------------------------
$339,062,345 $1,338,320,160 $15,955,305 $352,356,418 $1,544,406,796 $1,896,763,215
============ ============== =========== ============ ============== ==============
</TABLE>
F-28
<PAGE> 81
<TABLE>
<CAPTION>
Total Cost,
Net of Depreciable Date of
Accumulated Accumulated Lives Construction (C)
Depreciation Depreciation Encumbrances (Years)(1) Acquisition (A)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BRANDON, FL ............... $3,632,647 $482,296 $0 S/L 30 1972 (C)
STOW, OH .................. 2,345,829 18,585,356 0 S/L 30 1969 (C)
FERN PARK, FL (ORLANDO) ... 267,702 587,253 0 S/L 30 1970 (C)
EASTLAKE, OH .............. 119,723 64,465 0 S/L 30 1971 (C)
HIGHLAND HTS., OH ......... 1,217,757 16,111,509 0 S/L 31.5 1995 (C)
WESTLAKE, OH .............. 3,139,733 1,340,385 0 S/L30 1974 (C)
WATERBURY, CT ............. 2,599,093 449,207 0 S/L 30 1973 (C)
ZANESVILLE, OH ............ 167,045 451,978 0 S/L 31.5 1990 (C)
E. NORRITON, PA ........... 3,668,608 3,693,288 0 S/L 30 1975 (C)
PALM HARBOR, FL ........... 497,695 4,784,932 0 S/L 31.5 1995 (A)
TARPON SPRINGS, FL ........ 5,981,759 5,230,683 0 S/L 30 1974 (C)
BAYONET PT., FL ........... 3,750,842 6,890,884 5,327,208 S/L 30 1985 (C)
STARKVILLE, MS ............ 1,218,218 9,542,227 0 S/L 31.5 1994 (A)
TUPELO, MS ................ 2,030,227 15,935,695 0 S/L 31.5 1994 (A)
JACKSONVILLE, FL .......... 1,129,927 11,339,119 7,674,027 S/L 31.5 1995 (A)
STONE MOUNTAIN, GA ........ 2,613,934 906,579 0 S/L 30 1973 (C)
BRUNSWICK, MA ............. 779,994 20,856,009 0 S/L 30 1973 (C)
ATLANTA, GA ............... 1,493,497 8,531,433 0 S/L 31.5 1994 (A)
ERIE, PA .................. 3,276,316 36,142,493 0 S/L 31.5 1995 (C)
ERIE, PA .................. 2,143,344 918,425 0 S/L 30 1973 (C)
CHILLICOTHE, OH ........... 2,087,994 10,977,852 0 S/L 30 1974 (C)
OCALA, FL ................. 314,539 89,590 0 S/L 30 1974 (C)
TAMPA, FL (WATERS) ........ 1,914,395 9,259,838 0 S/L 31.5 1990 (C)
MACEDONIA, OH ............. 0 4,391,693 0 S/L 31.5 1998 (C)
WINCHESTER, VA ............ 2,467,611 16,940,084 0 S/L 31.5 1993 (A)
HUBER HEIGHTS, OH ......... 2,501,531 12,840,328 0 S/L 31.5 1993 (A)
LEBANON, OH ............... 247,320 1,453,011 0 S/L 31.5 1993 (A)
WILMINGTON, OH ............ 1,179,651 736,260 0 S/L 30 1977 (C)
HILLSBORO, OH ............. 1,290,303 775,720 0 S/L 30 1979 (C)
CANTON, OH PHASE II ....... 464,994 19,348,023 0 S/L 31.5 1995 (A)
XENIA, OH ................. 720,505 6,005,324 0 S/L 31.5 1994 (A)
BOARDMAN, OH .............. 1,257,488 34,843,345 0 S/L 31.5 1997 (A)
SOLON, OH ................. 32,677 13,641,674 0 S/L 31.5 1998 (C)
CINCINNATI, OH ............ 2,198,102 12,330,590 0 S/L 31.5 1993 (A)
BEDFORD, IN ............... 1,473,022 9,603,148 0 S/L 31.5 1993 (A)
WATERTOWN, SD ............. 4,736,222 3,533,003 0 S/L 30 1977 (C)
CONNERSVILLE, IN .......... 1,056,772 6,045,390 0 S/L 31.5 1993 (A)
ASHLAND, OH ............... 1,661,679 936,505 0 S/L 30 1977 (C)
PENSACOLA, FL ............. 1,431,605 6,893,097 0 S/L 30 1988 (C)
W.65TH CLEVELAND, OH ...... 1,069,068 562,592 0 S/L 30 1977 (C)
LOS ALAMOS, NM ............ 1,392,351 3,202,807 0 S/L 30 1978 (C)
NORTH OLMSTED, OH ......... 3,042,726 60,593,203 0 S/L 31.5 1997 (A)
TAMPA, FL (DALE) .......... 1,503,606 8,842,453 0 S/L 31.5 1990 (C)
WAYNESVILLE, NC ........... 1,595,477 7,075,277 0 S/L 31.5 1993 (A)
AHOSKIE, NC ............... 1,209,362 6,868,392 0 S/L 31.5 1994 (A)
PULASKI, VA ............... 1,156,395 5,777,115 0 S/L 31.5 1993 (A)
ST. LOUIS, MO (SUNSET) .... 502,139 41,524,931 0 S/L 31.5 1998 (A)
ST. LOUIS, MO (SH SNST) ... 110,148 9,058,014 0 S/L 31.5 1998 (A)
ST. LOUIS, MO (BRNTWD) .... 510,299 42,170,855 0 S/L 31.5 1998 (A)
CEDAR RAPIDS, IA .......... 203,007 16,713,426 11,448,099 S/L 31.5 1998 (A)
ST. LOUIS, MO (OLYMPIC) ... 133,247 11,011,745 5,008,378 S/L 31.5 1998 (A)
ST. LOUIS, MO (GRAVOIS) ... 64,241 5,321,896 3,139,576 S/L 31.5 1998 (A)
ST. LOUIS, MO (MORRIS) .... 29,238 2,019,146 0 S/L 31.5 1998 (A)
ST. LOUIS, MO (KELLER) .... 78,137 6,490,618 2,808,870 S/L 31.5 1998 (A)
ST. LOUIS, MO (STHTWN) .... 71,533 5,976,594 0 S/L 31.5 1998 (A)
ST. LOUIS, MO (HMEQTR) .... 66,920 5,592,957 3,554,191 S/L 31.5 1998 (A)
ST. LOUIS, MO (AMRICN) .... 12,177 1,002,688 0 S/L 31.5 1998 (A)
AURORA, OH ................ 400,132 5,892,374 0 S/L 31.5 1995 (C)
WORTHINGTON, MN ........... 4,306,447 3,715,674 0 S/L 30 1977 (C)
HARRISBURG, IL ............ 1,181,334 7,206,060 0 S/L 31.5 1994 (A)
IDAHO FALLS, ID ........... 139,752 6,478,545 0 S/L 31.5 1998 (A)
MT. VERNON, IL ............ 1,744,329 13,445,514 0 S/L 31.5 1993 (A)
FENTON, MO ................ 2,551,248 4,465,085 0 S/L 30 1983 (A)
MELBOURNE, FL ............. 2,102,050 1,102,596 0 S/L 30 1978 (C)
SIMPSONVILLE, SC .......... 1,044,401 5,953,553 0 S/L 31.5 1994 (A)
CAMDEN, SC ................ 1,371,422 9,294,281 0 S/L 31.5 1993 (A)
UNION, SC ................. 1,346,504 6,987,221 0 S/L 31.5 1993 (A)
N. CHARLESTON, SC ......... 2,091,491 13,911,417 0 S/L 31.5 1993 (A)
S. ANDERSON, SC ........... 956,381 6,559,371 0 S/L 31.5 1994 (A)
ANDERSON, SC .............. 111,874 1,031,953 0 S/L 31.5 1995 (A)
ORANGEBURG, SC ............ 206,778 1,831,990 0 S/L 31.5 1995 (A)
MT. PLEASANT, SC .......... 1,246,262 11,812,930 6,723,397 S/L 31.5 1995 (A)
COLUMBIA, SC .............. 327,989 3,534,635 0 S/L 31.5 1995 (A)
SAULT STE. MARIE, MI ...... 1,919,345 14,870,944 6,967,804 S/L 31.5 1994 (A)
CHEBOYGAN, MI ............. 582,839 3,232,085 0 S/L 31.5 1993 (A)
GRAND RAPIDS, MI .......... 769,953 9,210,273 0 S/L 31.5 1995 (A)
DETROIT, MI ............... 716,061 33,037,203 18,977,522 S/L 31.5 1998 (A)
HOUGHTON, MI .............. 6,166,784 3,633,655 2,498,376 S/L 30 1980 (C)
BAD AXE, MI ............... 673,467 3,550,413 0 S/L 31.5 1993 (A)
GAYLORD, MI ............... 1,545,835 7,814,919 0 S/L 31.5 1993 (A)
HOWELL, MI ................ 2,002,632 10,456,585 7,164,530 S/L 31.5 1993 (A)
MT. PLEASANT, MI .......... 1,698,106 10,559,616 0 S/L 31.5 1993 (A)
ELYRIA, OH ................ 2,412,227 3,632,710 0 S/L 30 1977 (C)
MIDVALLEY, UT ............. 864,286 81,556,578 4,845,000 S/L 31.5 1998 (A)
TAYLORSVILLE, UT .......... 816,261 77,196,809 0 S/L 31.5 1998 (A)
OREM, UT .................. 173,691 17,513,391 8,411,160 S/L 31.5 1998 (A)
LOGAN, UT ................. 27,247 2,397,648 995,998 S/L 31.5 1998 (A)
SALT LAKE CITY, UT ........ 38,328 3,080,134 0 S/L 31.5 1998 (A)
RIVERDALE, UT ............. 510,965 51,812,727 10,127,983 S/L 31.5 1998 (A)
BEMIDJI, MN ............... 4,739,388 4,731,255 0 S/L 30 1977 (C)
THE HERMES BUILDING ....... 97,313 8,700,634 2,123,332 S/L 31.5 1998 (A)
OGDEN, UT ................. 119,624 11,215,838 0 S/L 31.5 1998 (A)
LAS VEGAS, NV ............. 74,465 6,629,689 2,882,708 S/L 31.5 1998 (A)
RAPID CITY, SD ............ 29,603 2,352,900 644,971 S/L 31.5 1998 (A)
CAPE CORAL, FL ............ 1,344,494 5,179,756 0 S/L 30 1985 (C)
TRINDAD, CO ............... 1,151,437 2,024,766 0 S/L 30 1986 (C)
HAZARD, KY ................ 2,240,050 1,736,401 0 S/L 30 1978 (C)
FLORENCE, KY .............. 15,582 2,443,143 0 S/L 31.5 1998 (A)
BIRMINGHAM, AL ............ 1,444,824 18,354,342 0 S/L 31.5 1994 (A)
BIRMINGHAM, AL ............ 3,651,037 40,029,397 0 S/L 31.5 1995 (A)
HUNTSVILLE, AL ............ 295,219 3,375,034 0 S/L 31.5 1995 (A)
JACKSONVILLE, NC .......... 1,254,421 3,438,481 2,664,141 S/L 31.5 1989 (C)
ORMOND BEACH, FL .......... 2,359,305 14,852,237 0 S/L 31.5 1994 (A)
ALAMOSA, CO ............... 607,593 793,379 0 S/L 30 1986 (C)
WILMINGTON, NC ............ 5,344,225 28,347,404 10,075,323 S/L 31.5 1989 (C)
BERLIN, VT ................ 4,252,022 8,157,462 4,940,000 S/L 30 1986 (C)
BRAINERD, MN .............. 2,219,156 11,569,773 845,000 S/L 31.5 1991 (A)
SPRING HILL, FL ........... 1,824,029 8,284,826 6,048,346 S/L 30 1988 (C)
TIFFIN, OH ................ 3,896,859 3,176,789 0 S/L 30 1980 (C)
TOLEDO, OH ................ 1,287,921 11,786,411 0 S/L 31.5 1995 (A)
TOLEDO, OHIO .............. 30,795 11,556,422 0 S/L 31.5 1997 (C)
DENVER, CO ................ 1,348,698 52,637,186 0 S/L 31.5 1997 (C)
DICKINSON, ND ............. 5,109,356 2,529,781 0 S/L 30 1978 (C)
WEST PASCO, FL ............ 2,787,649 5,134,064 4,783,894 S/L 30 1986 (C)
MARIANNA, FL .............. 969,893 4,168,744 0 S/L 31.5 1990 (C)
HUTCHINSON, MN ............ 3,684,347 2,998,599 5,014,946 S/L 30 1981 (C)
NEW BERN, NC .............. 2,929,046 10,895,226 5,392,642 S/L 31.5 1989 (C)
HIGHLAND, IN .............. 1,582,232 25,312,832 0 S/L 31.5 1997 (A)
PRINCETON, NJ ............. 708,657 36,195,084 27,668,077 S/L 31.5 1998 (A)
ST. PAUL, MN .............. 893,950 22,921,367 0 S/L 31.5 1997 (A)
RUSSELLVILLE, AR .......... 2,001,214 12,117,162 0 S/L 31.5 1994 (A)
N. LITTLE ROCK, AR ........ 2,587,904 15,513,302 0 S/L 31.5 1994 (A)
FAYETTEVILLE, AK .......... 343,249 15,169,853 0 S/L 31.5 1997 (A)
OTTUMWA, IA ............... 2,740,254 6,409,182 0 S/L 31.5 1990 (C)
WASHINGTON, NC ............ 973,296 4,462,339 0 S/L 31.5 1990 (C)
OVIDEO, FL ................ 0 6,010,173 0 S/L 31.5 1997 (C)
ORLANDO, FL ............... 3,816,374 13,373,736 0 S/L 31.5 1989 (C)
DURHAM, NC ................ 3,101,939 11,251,338 0 S/L 31.5 1990 (C)
CRYSTAL RIVER, FL ......... 2,689,376 4,711,843 0 S/L 30 1986 (C)
BELLEFONTAINE, OH ......... 59,181 4,159,401 3,098,533 S/L 31.5 1998 (A)
DUBLIN, OH ................ 213,339 14,942,015 10,677,986 S/L 31.5 1998 (A)
GROVE CITY, OH ............ 169,255 11,810,763 7,849,332 S/L 31.5 1998 (A)
HAMILTON, OH .............. 37,840 2,075,121 0 S/L 31.5 1998 (A)
GAHANNA, OH ............... 78,372 4,270,143 0 S/L 31.5 1998 (A)
PATASKALA, OH ............. 30,622 2,162,147 856,236 S/L 31.5 1998 (A)
PICKERINGTON, OH .......... 112,238 7,870,094 5,293,417 S/L 31.5 1998 (A)
BARBOURSVILLE, OH ......... 33,345 1,817,248 0 S/L 31.5 1998 (A)
COLUMBUS, OH .............. 592,315 54,988,511 0 S/L 31.5 1998 (A)
Portfolio Balance (DDR) ... 1,317,031 118,950,207 0
--------------------------------------------
$203,097,126 $1,693,666,089 $206,531,003
============ ============== ============
</TABLE>
- --------------------------------------------
(1) S/L refers to straight-line depreciation.
(A) The Aggregate Cost for Federal Income Tax purposes was approximately
$1,913.4 million at December 31, 1998.
The changes in Total Real Estate Assets for the three years ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- ------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $1,325,742,705 $991,646,960 $848,373,336
ACQUISITIONS 688,431,449 267,868,208 114,390,359
IMPROVEMENTS AND EXPANSIONS 58,566,168 78,701,065 64,199,411
CHANGES IN LAND UNDER DEVELOPMENT
AND CONSTRUCTION IN PROGRESS 98,276,932 (3,871,141) 9,557,168
SALES AND RETIREMENTS (274,254,039) (8,602,387) (44,873,314)
-------------- -------------- ------------
BALANCE, END OF YEAR $1,896,763,215 $1,325,742,705 $991,646,960
============== ============== ============
</TABLE>
The changes in Accumulated Depreciation and Amortization for the three years
ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $171,737,359 $142,039,284 $120,040,503
DEPRECIATION FOR YEAR 42,952,125 32,208,290 24,872,181
SALES AND RETIREMENTS (11,592,358) (2,510,215) (2,873,400)
------------ ------------ ------------
BALANCE, END OF YEAR $203,097,126 $171,737,359 $142,039,284
============ ============ ============
</TABLE>
F-29
<PAGE> 1
EXHIBIT 3.2
CODE OF REGULATIONS
-------------------
OF
--
DEVELOPERS DIVERSIFIED REALTY CORPORATION
-----------------------------------------
ARTICLE I
---------
Meetings of Shareholders
------------------------
Section 1. ANNUAL MEETINGS. The annual meeting of
shareholders shall be hold at such time and on such date as may be fixed by the
Board of Directors and stated in the notice of the meeting, for the election of
directors, the consideration of reports to be laid before such meeting and the
transaction of such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders shall be called upon the written request of the president, the
directors by action at a meeting, a majority of the directors acting without a
meeting, or of the holders of shares entitling them to exercise twenty-five
percent (25%) of the voting power of the Corporation entitled to vote thereat.
Calls for such meetings shall specify the purposes thereof. No business other
than that specified in the call shall be considered at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each shareholder of
record entitled to vote at or entitled to notice of the meeting, not more than
sixty (60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the shareholder at his address as the same
appears upon the records of the Corporation. Any shareholder, either before or
after any meeting, may waive any notice required to be given by law or under
these Regulations.
Section 4. PLACE OF MEETINGS. Meetings of shareholders shall be
held at the principal office of the Corporation unless the Board of Directors
determines that a meeting shall be held at some other place within or without
the State of Ohio and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling them to
exercise a majority of the voting power of the Corporation entitled to vote at
any meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business to be considered at such meeting; provided, however,
that no action required by law or by the Articles of Incorporation or these
Regulations to be authorized or taken by the holders of a designated
proportion of the shares of any particular class or of each class may be
authorized or taken by a lessor proportion. The holders of a majority of the
voting shares represented at a meeting, whether or not a quorum is present,
may adjourn such meeting from time to time, until a quorum shall be present.
<PAGE> 2
Section 6. RECORD DATE. The Board of Directors may fix a
record date for any lawful purpose, including without limiting the generality of
the foregoing, the determination of shareholders entitled to (i) receive notice
of or to vote at any meeting, (ii) receive payment of any dividend or
distribution, (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to any
contract right with respect thereto, or (iv) participate in the execution of
written consents, waivers or releases. Said record date shall not be more than
sixty (60) days preceding the date of such meeting, the date fixed for the
payment of any dividend or distribution or the date fixed for the receipt or the
exercise of rights, as the case may be.
If a record date shall not be fixed, the record date for the
determination of shareholders who are entitled to notice of, or who are entitled
to vote at, a meeting of shareholders, shall be the close of business on the
date next preceding the day on which notice is given, or the close of business
on the date next preceding the day on which the meeting is held, as the case may
be.
Section 7. PROXIES. A person who is entitled to attend a
shareholders' meeting, to vote thereat, or to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person.
ARTICLE II
----------
Directors
---------
Section 1. NUMBER OF DIRECTORS. Until changed in accordance
with the provisions of this section, the number of directors of the Corporation,
none of whom need be shareholders, shall be seven (7). The number of directors
may be fixed or changed, but in no case shall the number be fewer than three (3)
or more than fifteen (15), at any annual meeting or at any special meeting
called for that purpose by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of the Corporation on
such proposal. [SEE EXHIBIT B ATTACHED]
Section 2. ELECTION OF DIRECTORS. Directors shall be elected
at the annual meeting of shareholders, but when the annual meeting is not held
or directors are not elected thereat, they may be elected at a special meeting
called and held for that purpose. Such election shall be by ballot whenever
requested by any shareholder entitled to vote at such election; but, unless such
request is made, the election may be conducted in any manner approved at such
meeting.
At each meeting of shareholders for the election of directors,
the persons receiving the greatest number of votes shall be directors.
Page 2
<PAGE> 3
Section 3. TERM OF OFFICE. Each director shall hold office
until the annual meeting next succeeding his election and until his successor is
elected and qualified, or until his earlier resignation, removal from office or
death.
Section 4. REMOVAL. All the directors or any individual
director may be removed from office, without assigning any cause, by the vote of
the holders of a majority of the voting power entitling them to elect directors
in place of those to be removed, provided that unless all the directors are
removed, no individual director shall be removed in case the votes of a
sufficient number of shares are cast against his removal which, if cumulatively
voted at an election of all the directors would be sufficient to elect at least
one director. In case of any such removal, a new director may be elected at the
same meeting for the unexpired term of each director removed.
Section 5. VACANCIES. Vacancies in the Board of Directors may
be filled by a majority vote of the remaining directors until an election to
fill such vacancies is had. Shareholders entitled to elect directors shall have
the right to fill any vacancy in the board (whether the same has been
temporarily filled by the remaining directors or not) at any meeting of the
shareholders called for that purpose, and any directors elected at any such
meeting of shareholders shall serve until the next annual election of directors
and until their successors are elected and qualified.
Section 6. QUORUM AND TRANSACTION OF BUSINESS. A majority of
the whole authorized number of directors shall constitute a quorum for the
transaction of business, except that a majority of the directors in office shall
constitute a quorum for filling a vacancy on the board. Whenever less than a
quorum is present at the time and place appointed for any meeting of the board,
a majority of those present may adjourn the meeting from time to time until a
quorum shall be present. The act of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the board.
Section 7. ANNUAL MEETING. Annual meetings of the Board of
Directors shall be held immediately following annual meetings of the
shareholders, or as soon thereafter as is practicable. If no annual meeting of
the shareholders is held, or if directors are not elected thereat, then the
annual meeting of the Board of Directors shall be held immediately following any
special meeting of the shareholders at which directors are elected, or as soon
thereafter as is practicable. If such annual meeting of directors is held
immediately following a meeting of the shareholders, it shall be held at the
same place at which such shareholders' meeting was held.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places, within or without the State of
Ohio, as the Board of Directors may, by resolution or by-law, from time to time,
determine. The secretary shall give notice of each such resolution or by-law to
any director who was not present at the time the same was adopted, but no
further notice of such regular meeting need be given.
Section 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman of the board, the president, any vice
president, or any two members of the
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<PAGE> 4
Board of Directors, and shall be held at such times and places, within or
without the State of Ohio, as may be specified in such call.
Section 10. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of
the time and place of each annual or special meeting shall be given to each
director by the secretary or by the person or persons calling such meeting. Such
notice need not specify the purpose or purposes of the meeting and may be given
in any manner or method and at such time so that the director receiving it may
have reasonable opportunity to participate in the meeting. Such notice shall, in
all events, be deemed to have been properly and duly given if mailed at least
forty-eight (48) hours prior to the meeting and directed to the residence of
each director as shown upon the secretary's records and, in the event of a
meeting to be held through the use of communications equipment, if the notice
sets forth the telephone number at which each director may be reached for
purposes of participation in the meeting as shown upon the secretary's records
and states that the secretary must be notified if a director desires to be
reached at a different telephone number. The giving of notice shall be deemed to
have been waived by any director who shall participate in such meeting and may
be waived, in a writing, by any director either before or after such meeting.
Section 11. COMPENSATION. The directors, as such, shall be
entitled to receive such reasonable compensation for their services as may be
fixed from time to time by resolution of the board, and expenses of attendance,
if any, may be allowed for attendance at each annual, regular or special meeting
of the board. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of the executive committee or of any standing or
special committee may by resolution of the board be allowed such compensation
for their services as the board may deem reasonable, and additional compensation
may be allowed to directors for special services rendered.
Section 12. BY-LAWS. For the government of its actions, the
Board of Directors may adopt by-laws consistent with the Articles of
Incorporation and these Regulations.
ARTICLE III
-----------
Committees
----------
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may
from time to time, by resolution passed by a majority of the whole board, create
an executive committee of three or more directors, the members of which shall be
elected by the Board of Directors to serve during the pleasure of the board. If
the Board of Directors does not designate a chairman of the executive committee,
the executive committee shall elect a chairman from its own number. Except as
otherwise provided herein and in the resolution creating an executive committee,
such committee shall, during the intervals between the meetings of the Board of
Directors, possess and may exercise all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors The executive committee shall keep full records and accounts of its
proceedings and transactions. All action by the executive committee shall be
reported to the
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Board of Directors at its meeting next succeeding such action and shall be
subject to control, revision and alteration by the Board of Directors, provided
that no rights of third persons shall be prejudicially affected thereby.
Vacancies in the executive committee shall be filled by the directors, and the
directors may appoint one or more directors as alternate members of the
committee who may take the place of any absent member or members at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the
provisions of these Regulations, the executive committee shall fix its own rules
of procedure and shall meet as provided by such rules or by resolutions of the
Board of Directors, and it shall also meet at the call of the president, the
chairman of the executive committee or any two members of the committee. Unless
otherwise provided by such rules or by such resolutions, the provisions of
Section 10 of Article II relating to the notice required to be given of meetings
of the Board of Directors shall also apply to meetings of the executive
committee. A majority of the executive committee shall be necessary to
constitute a quorum. The executive committee may act in a writing, or by
telephone with written confirmation, without a meeting, but no such action of
the executive committee shall be effective unless concurred in by all members of
the committee.
Section 3. OTHER COMMITTEES. The Board of Directors may by
resolution provide for such other standing or special committees as it deems
desirable, and discontinue the same at pleasure. Each such committee shall have
such powers and perform such duties, not inconsistent with law, as may be
delegated to it by the Board of Directors. The provisions of Section 1 and
Section 2 of this Article shall govern the appointment and action of such
committees so far as the same are consistent with such appointment and unless
otherwise provided by the Board of Directors. Vacancies in such committees shall
be filled by the Board of Directors or as the Board of Directors may provide.
ARTICLE IV
----------
Officers
--------
Section 1. GENERAL PROVISIONS. The Board of Directors shall
elect a president, such number of vice presidents as the board may from time to
time determine, a secretary and a treasurer and, in its discretion, a chairman
of the Board of Directors. The Board of Directors may from time to time create
such offices and appoint such other officers, subordinate officers and assistant
officers as it may determine. The president, any vice president who succeeds to
the office of the president, and the chairman of the board shall be, but the
other officers need not be, chosen from among the members of the Board of
Directors. Any two of such offices, other than that of president and vice
president, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation
shall hold office during the pleasure of the Board of Directors, and, unless
sooner removed by the Board of Directors, until the organization meeting of the
Board of Directors following the date of their election and until their
successors are chosen and qualified. The Board of Directors may remove
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any officer at any time, with or without cause. A vacancy in any office, however
created, shall be filled by the Board of Directors.
ARTICLE V
---------
Duties of Officers
------------------
Section 1. CHAIRMAN OF THE BOARD. The chairman of the board,
if one be elected, shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may be prescribed by the Board of
Directors.
Section 2. PRESIDENT. The president shall be the chief
executive officer of the Corporation and shall exercise supervision over the
business of the Corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall preside at all meetings of
shareholders and, in the absence of the chairman of the board, or if a chairman
of the board shall not have been elected, shall also preside at meetings of the
Board of Directors. He shall have authority to sign all certificates for shares
and all deeds, mortgages, bonds, agreements, notes, and other instruments
requiring his signature; and shall have all the powers and duties prescribed by
Chapter 1701 of the Revised Code of Ohio and such others as the Board of
Directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall have
such powers and duties as may from time to time be assigned to them by the Board
of Directors or the president. At the request of the president, or in the case
of his absence or disability, the vice president designated by the president (or
in the absence of such designation, the vice president designated by the board)
shall perform all the duties of the president and, when so acting, shall have
all the powers of the president. The authority of vice presidents to sign in the
name of the Corporation certificates for shares and deeds, mortgages, bonds,
agreements, notes and other instruments shall be coordinate with like authority
of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all
the proceedings of the shareholders and Board of Directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of shareholders and directors; shall produce on request at each
meeting of shareholders a certified list of shareholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or by the Board of Directors; and, in general, shall perform all duties incident
to the office of secretary and such other duties as may from time to time be
assigned to him by the Board of Directors or the president.
Section 5. TREASURER. The treasurer shall have general
supervision of all finances; he shall receive and have in charge all money,
bills, notes, deeds, leases, mortgages and similar property belonging to the
Corporation, and shall do with the same as may from time to time be
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required by the Board of Directors. He shall cause to be kept adequate and
correct accounts of the business transactions of the Corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
stated capital and shares, together with such other accounts as may be required,
and upon the expiration of his term of office shall turn over to his successor
or to the Board of Directors all property, books, papers and money of the
Corporation in his hands; and shall have such other powers and duties as may
from time to time be assigned to him by the Board of Directors or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. The Board of
Directors may appoint such assistant and subordinate officers as it may deem
desirable. Each such officer shall hold office during the pleasure of the Board
of Directors, and perform such duties as the Board of Directors or the president
may prescribe.
The Board of Directors may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their authority
and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence
of any officer of the Corporation, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
being, the powers or duties, or any of them, of such officers to any other
officer or to any director.
ARTICLE VI
----------
Transactions with Certain Affiliates
------------------------------------
Following the consummation of the sale of Common Shares,
without par value, of the Corporation pursuant to the Corporation's first
effective registration statement for such shares filed under the Securities Act
of 1933, as amended (the "Securities Act") the Corporation shall not, nor shall
it permit its subsidiaries to, (i) lend money to, or borrow money from, any
employee of the Corporation or any "affiliate" (as defined in Rule 405 under the
Securities Act) of the Developers Diversified Group including, without
limitation, Developers Diversified Limited Partnership, an Ohio limited
partnership, Developers Diversified, Ltd., an Ohio limited partnership, W & M
Properties, an Ohio general partnership, W & Z Properties, Ltd., an Ohio limited
partnership, and DE Properties Corporation, an Ohio corporation, or (ii) enter
into any other transaction or agreement with any such affiliate, unless such
other transaction or agreement is approved by a majority of the Directors of the
Corporation who are "Independent Directors" (as defined in the Corporation's
Articles of Incorporation).
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ARTICLE VII
-----------
Indemnification and Insurance
-----------------------------
Section 1. INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party, to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, other
than an action by or in the right of the Corporation, by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The
Corporation shall indemnify any person who was or is a party, or is threatened
to be made a party to any threatened, pending, or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless, and only to the extent that the Court of Common
Pleas, or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the Court of Common Pleas or such court shall
deem proper.
Section 3. INDEMNIFICATION AS MATTER OF RIGHT. To the extent
that a director, trustee, officer, employee, or agent has been successful on the
merits or otherwise in defense of any action, suit, or proceeding referred to in
Sections 1 and 2 of this Article VII, or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection therewith.
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Section 4. DETERMINATION OF CONDUCT. Any indemnification under
Sections 1 and 2 of this Article VII, unless ordered by a court, shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, trustee, officer, employee, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Sections 1 and 2 of this Article VII. Such determination
shall be made (a) by a majority vote of a quorum consisting of directors of the
Corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel, other than an attorney or a firm having
associated with it an attorney who has been retained by or who has performed
services for the Corporation or any person to be indemnified within the past
five years, or (c) by the shareholders or (d) by the Court of Common Pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under Section 4(a) or by
independent legal counsel under Section 4(b) of this Article VII shall be
promptly communicated to the person who threatened or brought the action or
suit, by or in the right of the Corporation under Section 2 of this Article
VII, and within ten days after receipt of such notification, such person shall
have the right to petition the Court of Common Pleas or the court in which such
action or suit was brought to review the reasonableness of such determination.
Section 5. ADVANCE PAYMENT OF EXPENSES. Expenses, including
attorneys' fees, incurred in defending any action, suit, or proceeding referred
to in Sections 1 and 2 of this Article VII, may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding as
authorized by the directors in the specific case upon receipt of an undertaking
by or on behalf of the director, trustee, officer, employee, or agent to repay
such amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article VII.
Section 6. NONEXCLUSIVITY. The indemnification provided by this
Article VII shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Articles of Incorporation or
the Code of Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office and shall continue as to a
person who has ceased to be a director, trustee, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such a
person.
Section 7. LIABILITY INSURANCE. The Corporation may purchase
and maintain insurance an behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII or
of Chapter 1701 of the Ohio Revised Code.
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ARTICLE VIII
------------
Certificates for Shares
-----------------------
Section 1. FORM AND EXECUTION. Certificates for shares,
certifying the number of fully paid shares owned, shall be issued to each
shareholder in such form as shall be approved by the Board of Directors. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary or the treasurer or an assistant treasurer;
provided, however, that if such certificates are countersigned by a transfer
agent and/or registrar, the signatures of any of said officers and the seal of
the Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers, who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of a transfer agent or
registrar, shall nevertheless be conclusively deemed to have been adopted by the
Corporation by the use and delivery thereof and shall be as effective in all
respects as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. TRANSFER AND REGISTRATION OF CERTIFICATES. The
Board of Directors shall have authority to make such rules and regulations, not
inconsistent with law, the Articles of Incorporation or this Code of
Regulations, as it deems expedient concerning the issuance, transfer and
registration of certificates for shares and the shares represented thereby.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of that fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances satisfactory to the Corporation and to all transfer agents and
registrars of the class of shares represented by the certificate against any and
all losses, damages, costs, expenses or liabilities to which they or any of them
may be subjected by reason of the issue and delivery of such new certificate or
certificates or in respect of the original certificate.
Section 4. REGISTERED SHAREHOLDERS. A person in whose name
shares are of record on the books of the Corporation shall conclusively be
deemed the unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor any
transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
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ARTICLE IX
----------
Fiscal Year
-----------
The fiscal year of the Corporation shall end on December 31,
of each year, or on such other date as may be fixed from time to time by the
Board of Directors.
ARTICLE X
---------
Seal
----
The Board of Directors may provide a suitable seal containing
the name of the Corporation. If deemed advisable by the Board of Directors,
duplicate seals may be provided and kept for the purposes of the Corporation.
ARTICLE XI
----------
Amendments
----------
This Code of Regulations may be amended, or new regulations
may be adopted, at any meeting of shareholders called for such purpose by the
affirmative vote of, or without a meeting by the written consent of, the holders
of shares entitling them to exercise a majority of the voting power of the
Corporation on such proposal.
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EXHIBIT B
RESOLVED, that Section 1 of Article II of the Company's Code
of Regulations be, and the same hereby is, deleted in its entirety and there is
substituted therefor the following:
Section 1. Number of Directors. Until changed in accordance
with the provisions of this section, the number of directors of the
Corporation, none of whom need be shareholders, shall be seven (7). The
number of directors may be fixed or changed, but in no case shall the
number be fewer than three (3) or more than fifteen(15), at any annual
meeting or at any special meeting called for that purpose by the
affirmative vote of the holders of shares entitling them to exercise a
majority of the voting power of the Corporation on such proposal.
Notwithstanding the foregoing, the aggregate number of members of the
Board of Directors shall automatically increase by the number of
directors elected pursuant to Section 5(b) of Item I, Section 5(b) of
Item II, Section 5(b) of Item III, Section 5(b) of Item IV, Section
5(b) of Item V, and/or Section 5(b) of Item VI of Division A of Article
FOURTH of the Amended and Restated Articles of Incorporation of the
Corporation, as amended, such directors to be elected and hold office
in accordance with such provisions of the Amended and Restated Articles
of Incorporation of the Corporation, as amended, notwithstanding any
other provision of this Code of Regulations.
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is entered into as of the 6th day of
March, 1998, between Developers Diversified Realty Corporation, an Ohio
corporation (the "Company"), and Richard J. Kaplan (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. EMPLOYMENT.
-----------
(a) The Company hereby employs the Executive
as its Senior Vice President and Chief Operating Officer and the Executive
hereby accepts such employment, on the terms and subject to the conditions
hereinafter set forth.
(b) During the term of this Employment
Agreement and any renewal hereof (all references herein to the terms of this
Employment Agreement shall include references to the period of renewal hereof,
if any), the Executive shall be and have the titles of Senior Vice President and
Chief Operating Officer and shall devote all of his business time and all
reasonable efforts to his employment and perform diligently such duties as are
customarily performed by Chief Operating Officers of companies similar in size
to the Company, together with such other duties as may be reasonably requested
from time to time by the President of the Company or the Board of Directors of
the Company (the "Board"), which duties shall be consistent with his positions
as set forth above and as provided in Paragraph 2.
2. TERM AND POSITIONS.
-------------------
(a) Subject to the provisions for termination
hereinafter provided, the term of this Employment Agreement shall begin on April
1, 1998 and shall continue for the current "fiscal year" (as hereinafter
defined) and for the two immediately succeeding fiscal years. As of December 31,
2000, such term automatically shall be extended for the fiscal year commencing
January 1, 2001 and for each fiscal year thereafter, unless this Employment
Agreement is terminated by the Company with "cause" (as hereinafter defined) at
any time, or without cause upon not less than ninety days prior written notice.
The term "fiscal year" means the period beginning on the day after the Saturday
closest to January 1, in one year and ending on the Saturday closest to December
31 in the next year.
(b) The Executive shall be entitled to serve
as a Senior Vice President and the Chief Operating Officer of the Company. For
service as an officer and employee of the Company, the Executive shall be
entitled to the full protection of the applicable indemnification provisions of
the articles of incorporation and code of regulations of the Company, as the
same may be amended from time to time.
(c) If:
<PAGE> 2
(i) the Company materially changes the
Executive's duties and responsibilities as set forth
in Paragraphs 1(b) and 2(b) without his consent;
(ii) the Executive's place of employment or
the principal executive offices of the Company are
located more than fifty (50) miles from the
geographical center of Cleveland, Ohio;
(iii) there occurs a material breach by the
Company of any of its obligations under this
Employment Agreement, which breach has not been cured
in all material respects within thirty (30) days
after the Executive gives notice thereof to the
Company; or
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company;
then in any such event the Executive shall have the right to terminate his
employment with the Company, but such termination shall not be considered a
voluntary resignation or termination of such employment or of this Employment
Agreement by the Executive but rather a discharge of the Executive by the
Company without "cause" (as defined in Paragraph 5(a)(ii)).
(d) The Executive shall be deemed not to have
consented to any written proposal calling for a material change in his duties
and responsibilities unless he shall give written notice of his consent thereto
to the Board within fifteen (15) days after receipt of such written proposal. If
the Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of said fifteen (15) day
period.
(e) The term "change in control" means the first
to occur of the following events:
(i) any person or group of commonly
controlled persons owns or controls, directly or
indirectly, fifty percent (50%) or more of the voting
control or value of the capital stock of the Company;
or
(ii) any person or group of commonly
controlled persons owning less than five percent (5%)
of the voting control or value of the capital stock
of the Company within 30 days following the
consummation of the initial public offering of the
Company's Common Shares owns or controls, directly or
indirectly, more than twenty percent (20%) of the
voting control or value of the capital stock of the
Company; or
(iii) the shareholders of the Company
approve an agreement to merge or consolidate with
another corporation or other entity resulting
(whether separately or in connection with a series of
transactions) in a change in ownership of twenty
percent (20%) or more of the voting control or value
of the capital stock of the Company, or an agreement
to sell or otherwise dispose of all or substantially
all of the Company's assets (including, without
limitation, a plan of liquidation or dissolution), or
otherwise approve of a fundamental alteration in the
nature of the Company's business.
-2-
<PAGE> 3
Notwithstanding the foregoing provisions of this Paragraph 2, the ownership of
capital stock by the Executive, Bert L. Wolstein, Scott A. Wolstein, James A.
Schoff and/or their respective affiliates shall not be deemed to result in a
"change in control" of the Company.
3. COMPENSATION.
-------------
During the term of this Employment Agreement, the
Company shall pay or provide, as the case may be, to the Executive the
compensation and other benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a
base salary payable in accordance with the Company's usual pay practices (and in
any event no less frequently than monthly) of Three Hundred Thousand Dollars
($300,000) per annum.
(b) The Company shall pay to the Executive bonus
compensation for each fiscal year of the Company, not later than 90 days
following the end of each fiscal year or the termination of the employment, as
the case may be, prorated on a per diem basis for partial fiscal years,
determined and calculated in a manner set forth on Exhibit A attached hereto.
(c) The Company shall provide to the Executive
such life, medical, hospitalization and dental insurance for himself, his spouse
and eligible family members as may be determined by the Board to be consistent
with industry standards.
(d) The Executive shall participate in all
retirement and other benefit plans of the Company generally available from time
to time to employees of the Company and for which the Executive qualifies under
the terms thereof (and nothing in this Agreement shall or shall be deemed to in
any way effect the Executive's rights and benefits thereunder except as
expressly provided herein).
(e) The Executive shall be entitled to such
periods of vacation and sick leave allowance each year as are determined by the
President of the Company in his reasonable and good faith discretion, which in
any event shall be not less than as provided under the Company's vacation and
sick leave policy for executive officers.
(f) The Executive shall be entitled to
participate in any equity or other employee benefit plan that is distinguished
from general management, of the Company. The Executive's participation in and
benefits under any such plan shall be on the terms and subject to the conditions
specified in the governing document of the particular plan.
(g) The Company shall reimburse the Executive
or provide him with an expense allowance during the term of this Employment
Agreement for travel, entertainment and other expenses, including, without
limitation, the dues charged by The Union Club Company from time to time,
reasonably and necessarily incurred by the Executive in connection with the
Company's business. The Executive shall furnish such documentation with respect
to reimbursement to be paid hereunder as the Company shall reasonably request.
4. PAYMENT IN THE EVENT OF DEATH OR PERMANENT
DISABILITY.
-----------------------------------------------------
(a) In the event of the Executive's death or
"permanent disability" (as hereinafter defined) during the term of this
Employment Agreement, the Company shall pay to the Executive (or his successors
and assigns in the event of his death) an amount equal to two (2) times the
Executive's then effective per annum rate of salary, as determined under
Paragraph 3(a), plus a pro rata
-3-
<PAGE> 4
portion of the bonus applicable to the fiscal year in which such death or
permanent disability occurs, as such bonus is determined under paragraph 3(b).
(b) The pro rata portion of the bonus described
in Paragraph 4(a) shall be paid when and as provided in Paragraph 3(b). The
remainder of the benefit to be paid pursuant to Paragraph 4(a) shall be paid
within ninety (90) days after the date of death or permanent disability, as the
case may be.
(c) Except as otherwise provided in Paragraphs
3(d) and 4(a), in the event of the Executive's death or permanent disability the
Executive shall be entitled to no further compensation or other benefits under
this Employment Agreement, except as to that portion of any unpaid salary and
other benefits accrued and earned by him hereunder up to and including the date
of such death or permanent disability, as the case may be.
(d) For purposes of this Employment Agreement,
the Executive's "permanent disability" shall be deemed to have occurred after
one hundred twenty (120) days in the aggregate during any consecutive twelve
(12) month period, or after ninety (90) consecutive days, during which one
hundred twenty (120) or ninety (90) days, as the case may, the Executive, by
reason of his physical or mental disability or illness, shall have been unable
to discharge his duties under this Employment Agreement. The date of permanent
disability shall be such one hundred twentieth (120th) or ninetieth (90th) day,
as the case may be. In the event either the Company or the Executive, after
receipt of notice of the Executive's permanent disability from the other,
dispute that the Executive's permanent disability shall have occurred, the
Executive shall promptly submit to a physical examination by the chief of
medicine of any major accredited hospital in the Cleveland, Ohio, area and,
unless such physician shall issue his written statement to the effect that in
his opinion, based on his diagnosis, the Executive is capable of resuming his
employment and devoting his full time and energy to discharging his duties
within thirty (30) days after the date of such statement, such permanent
disability shall be deemed to have occurred.
5. TERMINATION.
------------
(a) The employment of the Executive under this
Employment Agreement, and the terms hereof, may be terminated by the Company:
(i) on the death or permanent
disability (as previously defined) of the Executive, or
(ii) for cause at any time by action of
the Board. For purposes hereof, the term "cause" shall mean:
(A) The Executive's fraud,
commission of a felony or of an act or series of acts
which result in material injury to the business
reputation of the Company, commission of an act or
series of repeated acts of dishonesty which are
materially inimical to the best interests of the
Company, or the Executive's willful and repeated
failure to perform his duties under this Employment
Agreement, which failure has not been cured within
fifteen (15) days after the Company gives notice
thereof to the Executive; or
(B) The Executive's material breach
of any material provision of this Employment
Agreement, which breach has not been cured in all
-4-
<PAGE> 5
substantial respects within ten (10) days after the
Company gives notice thereof to the Executive.
The exercise by the Company of its rights of termination under
this Paragraph 5 shall be the Company's sole remedy in the
event of the occurrence of the event as a result of which such
right to terminate arises. Upon any termination of this
Employment Agreement, the Executive shall be deemed to have
resigned from all offices and directorships held by the
Executive in the Company.
(b) In the event of a termination claim by the
Company to be for "cause" pursuant to Paragraph 5(a)(ii), the Executive shall
have the right to have the justification for said termination determined by
arbitration in Cleveland, Ohio. In order to exercise such right, the Executive
shall serve on the Company within thirty (30) days after termination a written
request for arbitration. The Company immediately shall request the appointment
of an arbitrator by the American Arbitration Association and thereafter the
question of "cause" shall be determined under the rules of the American
Arbitration Association, and the decision of the arbitrator shall be final and
binding upon both parties. The parties shall use all reasonable efforts to
facilitate and expedite the arbitration and shall act to cause the arbitration
to be completed as promptly as possible. During the pendency of the arbitration,
the Executive shall continue to receive all compensation and benefits to which
he is entitled hereunder, and if at any time during the pendency of such
arbitration the Company fails to pay and provide all compensation and benefits
to the Executive in a timely manner the Company shall be deemed to have
automatically waived whatever rights it then may have had to terminate the
Executive's employment for cause. Expenses of the arbitration shall be borne
equally by the parties.
(c) In the event of termination for any of the
reasons set forth in subparagraph (a) of this Paragraph 5, except as otherwise
provided in Paragraphs 3(d) and 4(a), the Executive shall be entitled to no
further compensation or other benefits under this Employment Agreement, except
as to that portion of any unpaid salary and other benefits accrued and earned by
him hereunder up to and including the effective date of such termination.
6. COVENANTS AND CONFIDENTIAL INFORMATION.
---------------------------------------
(a) The Executive acknowledges the Company's
reliance and expectation of the Executive's continued commitment to performance
of his duties and responsibilities during the term of this Employment Agreement.
In light of such reliance and expectation on the part of the Company, during the
term of this Employment Agreement and for a period of two (2) years thereafter
(and, as to clause (ii) of this subparagraph (a), at any time during and after
the term of this Employment Agreement), the Executive shall not, directly or
indirectly, do or suffer either of the following:
(i) Own, manage, control or participate in
the ownership, management or control, or be employed or
engaged by or otherwise affiliated or associated as a
consultant, independent contractor or otherwise with, any
other corporation, partnership, proprietorship, firm,
association or other business entity engaged in the business
of, or otherwise engage in the business of, acquiring, owning,
developing or managing commercial shopping centers; provided,
however, that the ownership of not more than one percent (1%)
of any class of publicly traded securities of any entity shall
not be deemed a violation of this covenant; or
(ii) Disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of, the
Company, any confidential information relating to the
Company's operations, properties or
-5-
<PAGE> 6
otherwise to its particular business or other trade secrets of
the Company, it being acknowledged by the Executive that all
such information regarding the business of the Company
compiled or obtained by, or furnished to, the Executive while
the Executive shall have been employed by or associated with
the Company is confidential information and the Company's
exclusive property; provided, however, that the foregoing
restrictions shall not apply to the extent that such
information (A) is clearly obtainable in the public domain,
(B) becomes obtainable in the public domain, except by reason
of the breach by the Executive of the terms hereof, (C) was
not acquired by the Executive in connection with his
employment or affiliation with the Company or with Price
Waterhouse LLP, (D) was not acquired by the Executive from the
Company or its representatives or (E) is required to be
disclosed by rule of law or by order of a court or
governmental body or agency.
(b) The Executive agrees and understands that
the remedy at law for any breach by him of this Paragraph 6 will be inadequate
and that the damages following from such breach are not readily susceptible to
being measured in monetary terms. Accordingly, it is acknowledged that, upon
adequate proof of the Executive's violation of any legally enforceable provision
of this Paragraph 6, the Company shall be entitled to immediate injunctive
relief and may obtain a temporary order restraining any threatened or further
breach. Nothing in this Paragraph 6 shall be deemed to limit the Company's
remedies at law or in equity for any breach by the Executive of any of the
provisions of this Paragraph 6 which may be pursued or availed of by the
Company.
(c) The Executive has carefully considered the
nature and extent of the restrictions upon him and the rights and remedies
conferred upon the Company under this Paragraph 6, and hereby acknowledges and
agrees that the same are reasonable in time and territory, are designed to
eliminate competition which otherwise would be unfair to the Company, do not
stifle the inherent skill and experience of the Executive, would not operate as
a bar to the Executive's sole means of support, are fully required to protect
the legitimate interests of the Company and do not confer a benefit upon the
Company disproportionate to the detriment to the Executive.
7. TAX ADJUSTMENT PAYMENTS. If all or any portion of the
amounts payable to the Executive under this Employment Agreement (together with
all other payments of cash or property, whether pursuant to this Employment
Agreement or otherwise, including, without limitation, the issuance of common
stock of the Company, or the granting, exercise or termination of options
therefor) constitutes "excess parachute payments" within the meaning of Section
280G of the Code that are subject to the excise tax imposed by Section 4999 of
the Code (or any similar tax or assessment), the amounts payable hereunder shall
be increased to the extent necessary to place the Executive in the same
after-tax position as he would have been in had no such tax assessment been
imposed on any such payment paid or payable to the Executive under this
Employment Agreement or any other payment that the Executive may receive in
connection therewith. The determination of the amount of any such tax or
assessment and the incremental payment required hereby in connection therewith
shall be made by the accounting firm employed by the Executive within thirty
(30) calendar days after such payment and said incremental payment shall be made
within five (5) calendar days after determination has been made. If, after the
date upon which the payment required by this Paragraph 7 has been made, it is
determined (pursuant to final regulations or published rulings of competent
jurisdiction, Internal Revenue Service audit assessment or otherwise) that the
amount of excise or other similar taxes or assessments payable by the Executive
is greater than the amount initially so determined, then the Company shall pay
the Executive an amount equal to the sum of: (i) such additional excise or other
taxes, plus (ii) any interest, fines and penalties resulting from such
underpayment, plus (iii) an excise or other tax assessment payable by the
Executive with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause
-6-
<PAGE> 7
(iii), in the manner described above in this Paragraph 7. Payment thereof shall
be made within five (5) calendar days after the date upon which such subsequent
determination is made.
8. MISCELLANEOUS.
--------------
(a) The Executive represents and warrants that
he is not a party to any agreement, contract or understanding, whether
employment or otherwise, which would restrict or prohibit him from undertaking
or performing employment in accordance with the terms and conditions of this
Employment Agreement.
(b) The provisions of this Employment Agreement
are severable and if any one or more provision may be determined to be illegal
or otherwise unenforceable, in whole or in part, the remaining provision and any
partially unenforceable provision to the extent enforceable in any jurisdiction
nevertheless shall be binding and enforceable.
(c) The rights and obligations of the Company
under this Employment Agreement shall inure to the benefit of, and shall be
binding on, the Company and its successors and assigns, and the rights and
obligations (other than obligations to perform services) of the Executive under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, the Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or
relating to this Employment Agreement, or the breach thereof, shall be settled
by arbitration in accordance with the Rules of the American Arbitration
Association then pertaining in the City of Cleveland, Ohio, and judgment upon
the award rendered by the arbitrator or arbitrators may be entered in any court
having jurisdiction thereof. The arbitrator or arbitrators shall be deemed to
possess the powers to issue mandatory orders and restraining orders in
connection with such arbitration; provided, however, that nothing in this
Paragraph 8(d) shall be construed so as to deny the Company the right and power
to seek and obtain injunctive relief in a court of equity for any breach or
threatened breach by the Executive of any of his covenants contained in
Paragraph 6 hereof.
(e) Any notice to be given under this Employment
Agreement shall be personally delivered in writing or shall have been deemed
duly given when received after it is posted in the United States mail, postage
prepaid, registered or certified, return receipt requested, and if mailed to the
Company, shall be addressed to its principal place of business, attention:
General Counsel, and if mailed to the Executive, shall be addressed to him at
his home address last known on the records of the Company, or at such other
address or addresses as either the Company or the Executive may hereafter
designate in writing to the other.
(f) The failure of either party to enforce any
provision or provisions of this Employment Agreement shall not in any way be
construed as a waiver of any such provision or provisions as to any future
violations thereof, nor prevent that party thereafter from enforcing each and
every other provision of this Employment Agreement. The rights granted the
parties herein are cumulative and the waiver of any single remedy shall not
constitute a waiver of such party's right to assert all other legal remedies
available to it under the circumstances.
(g) This Employment Agreement supersedes all
prior agreements and understandings between the parties and may not be modified
or terminated orally. No modification, termination or attempted waiver shall be
valid unless in writing and signed by the party against whom the same is sought
to be enforced.
-7-
<PAGE> 8
(h) This Employment Agreement shall be governed
by and construed according to the laws of the State of Ohio.
(i) Captions and paragraph headings used herein
are for convenience and are not a part of this Employment Agreement and shall
not be used in construing it.
(j) Where necessary or appropriate to the
meaning hereof, the singular and plural shall be deemed to include each other,
and the masculine, feminine and neuter shall be deemed to include each other.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement on the day and year first set forth herein.
DEVELOPERS DIVERSIFIED REALTY
CORPORATION
By: /s/ Scott A. Wolstein
Authorized Officer
/s/ Richard J. Kaplan
Richard J. Kaplan
-8-
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
--------------------
OF
--
DEVELOPERS DIVERSIFIED REALTY CORPORATION
-----------------------------------------
<TABLE>
<CAPTION>
STATE OF
--------
INCORPORATION OR
----------------
SUBSIDIARY ORGANIZATION
---------- ------------
<S> <C>
1. Developers Diversified Finance Corporation Ohio
2. Developers Diversified of Alabama, Inc. Alabama
3. Community Centers One, L.L.C. Delaware
4. Community Centers Two, L.L.C. Delaware
5. Community Centers Three, L.L.C. Delaware
6. Shoppers World Community Center, L.P. Delaware
7. DD Community Centers One, Inc. Ohio
8. DD Community Centers Two, Inc. Ohio
9. DD Community Centers Three, Inc. Ohio
10. Arizona Crossing Limited Liability Company Ohio
(fka Arrowhead Crossing Company Ltd.)
11. Highland Grove Limited Liability Company Ohio
12. Merriam Town Center Ltd. Ohio
13. DOTRS Limited Liability Company Ohio
14. Developers Diversified of Pennsylvania, Inc. Ohio
15. Pedro Community Centers, Inc. Ohio
16. DDRA Community Centers Four, L.P. Texas
17. Developers Diversified Cook's Corner LP Ohio
18. Developers Diversified Centennial Promenade LP Ohio
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OF
--------
INCORPORATION OR
----------------
SUBSIDIARY ORGANIZATION
---------- ------------
<S> <C>
19. DDRC PDK Hagerstown LLC Ohio
20. DDRC PDK Salisbury LLC Ohio
21. Developers Diversified of Indiana, Inc. Ohio
22. DDR Nassau Park II Inc. Ohio
23. DDR Nassau Pavilion Inc. Ohio
24. Developers Diversified of Mississippi, Inc. Ohio
25. DDRC Michigan LLC Ohio
26. Coon Rapids Riverdale Village LLC Ohio
27. DDR Nassau Pavilion Associates LP Georgia
28. DDR Continental LP Ohio
29. DDR Continental Inc. Ohio
30. Hendon/DDR/BP, LLC Delaware
31. DDR Hendon Nassau Park II LP Georgia
32. DDRC P&M Deer Park Town Center LLC Ohio
33. DDR OliverMcMillan LP Delaware
34. DDR OliverMcMillan Inc. Delaware
35. DDR Industrial Realty Corporation Delaware
36. DDR Office Flex Corporation Delaware
37. DDR Office Flex LP Ohio
38. DDR Realty Company (fka DDR Realty Trust, Inc.) Maryland
39. ORIX Sansone Brentwood L.L.C. Illinois
40. The Plaza at Sunset Hills, L.L.C. Missouri
41. The Shoppes at Sunset Hills, L.L.C. Missouri
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATE OF
--------
INCORPORATION OR
----------------
SUBSIDIARY ORGANIZATION
---------- ------------
<S> <C>
42. DDR Family Centers LP Delaware
43. DDR Family Centers I Inc. Ohio
44. DDRC Gateway LLC Delaware
45. DDRC Salem LLC Delaware
46. DDR DB Opportunity Sub, Inc. Ohio
47. DDR DB Development Ventures LP Texas
48. DDRA Community Centers Five, L.P. Delaware
49. DD Community Centers Five Inc. Ohio
50. Easton Market Limited Liability Company Ohio
51. Continental Sawmill Limited Liability Company Ohio
52. Continental Sawmill Limited Partnership Ohio
53. Sun Center Limited Ohio
54. Drexel Washington Limited Liability Company Ohio
55. Drexel Washington Limited Partnership Ohio
56. Lennox Town Center Limited Ohio
57. Hermes Associates Utah
58. Hermes Associates, Ltd. Utah
59. University Square Associates, Ltd. Utah
60. Vidalakis Investment Company, Ltd. Utah
61. Vidalakis Investment Company II, Ltd. Utah
62. Big V Associates, Ltd. Utah
63. Riverdale Retail Associates L.C. Utah
64. TFCM Associates, LLC Utah
65. Fort Union Associates, L.C. Utah
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
STATE OF
--------
INCORPORATION OR
----------------
SUBSIDIARY ORGANIZATION
---------- ------------
<S> <C>
66. Rocky Mountain Real Estate L.L.C. Utah
67. Sansone Group/DDR LLC Missouri
68. DDR Sansone Development Ventures LLC Missouri
69. DDR OliverMcMillan Management Services, Inc. Delaware
70. Coventry Real Estate Partners, Ltd. (fka Retail Value Management Ltd.) Ohio
71. Retail Value Investment Program Limited Partnership I Delaware
72. Retail Value Investment Program Limited Partnership II Delaware
73. Retail Value Investment Program Limited Partnership III Delaware
74. Retail Value Investment Program Limited Partnership IV Delaware
75. Retail Value Investment Program Limited Partnership V Delaware
76. Retail Value Investment Program Limited Partnership VI Delaware
77. DDR Michigan II LLC Ohio
78. Town Center Plaza, L.L.C. Delaware
79. DD Development Company, Inc. Ohio
80. Plainville Connecticut L.L.C. (fka DDR Connecticut L.L.C.) Ohio
81. Plainville Development L.P. (fka DDR Plainville Development L.P.) Ohio
82. DDRC Great Northern Limited Partnership Ohio
</TABLE>
<PAGE> 1
Exhibit 23.1
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. 333-70607 and
333-72519) and in the Registration Statements on Form S-8 (Nos. 333-33819 and
33-74562) of Developers Diversified Realty Corporation of our report dated March
4, 1999 appearing on page F-2 of this Form 10-K.
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,260
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,896,763
<DEPRECIATION> 203,097
<TOTAL-ASSETS> 1,693,666
<CURRENT-LIABILITIES> 0
<BONDS> 1,000,481,408
0
303,750
<COMMON> 6,129
<OTHER-SE> 592,906
<TOTAL-LIABILITY-AND-EQUITY> 2,126,524
<SALES> 0
<TOTAL-REVENUES> 228,168
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 59,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,196
<INCOME-PRETAX> 78,804
<INCOME-TAX> 0
<INCOME-CONTINUING> 78,804
<DISCONTINUED> 0
<EXTRAORDINARY> 882
<CHANGES> 0
<NET-INCOME> 77,922
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 0.98
</TABLE>
