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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
AMENDMENT TO ANNUAL REPORT FILED PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 1-12558
DeBARTOLO REALTY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-1754014
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
7655 MARKET STREET
YOUNGSTOWN, OHIO 44513
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 758-7292
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
common stock, $0.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
For purposes of this amendment, "Company" shall mean DeBartolo Realty
Corporation.
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Part 1, Item 2 of the Company's Form 10-Q for the quarterly period ended March
31, 1996 is deleted and replaced in its entirety by the following:
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying consolidated and
combined financial statements and the notes thereto.
GENERAL BACKGROUND
The following discussion is based primarily on the consolidated financial
statements of the Company for the three months ended March 31, 1996 and 1995.
As used in this quarterly report on Form 10-Q, the term "Mall Store" means
stores (other than Anchors) that are typically specialty retailers and lease
space in shopping centers. "Anchor" generally refers to a department store or
other large retail store in excess of 60,000 square feet. The term "Mall GLA"
refers to the total gross leasable area of Mall Stores only.
RESULTS OF OPERATIONS
During the first quarter of 1996, the Company acquired additional partnership
interests of 33 1/3% and 25% in two of its then nonconsolidated joint
ventures ("Property Transactions"). As a result of these transactions, the
Company is now accounting for these properties using the consolidated method
of accounting whereas in 1995 the Company used the equity method of
accounting.
COMPARISON OF COMBINED THREE MONTHS ENDED MARCH 31, 1996
TO THREE MONTHS ENDED MARCH 31, 1995
REVENUES: Total revenues increased $9.2 million or 11.6% to $88.4 million in
1996 from $79.2 million in 1995. Of this increase, $3.5 million is
attributable to the Property Transactions. Minimum rents increased $3.3
million or 6.2% in 1996 of which $2.3 million is the result of the Property
Transactions. The remaining increase of $1.0 million is due to a $0.7 million
increase in specialty leasing and a $0.3 million increase in minimum rents
reflecting continued improvements in rental rates for reletting Mall Store
space and rents from specialty anchors on space that was leased subsequent to
the first quarter of 1995. Minimum rents include specialty leasing revenues
of $2.6 million in 1996 and $1.9 million in 1995.
Tenant recoveries increased $3.3 million or 16.6% of which $1.0 million is
attributable to the Property Transactions. The remaining increase of $2.3
million is attributable to increased recoverable expenses. Other revenues
increased $2.8 million primarily due to (i) $0.8 million increase in lease
cancellation income, (ii) $0.6 million settlement of previously disputed
phone commission income, (iii) a $0.7 million gain on sale of peripheral
land, and (iv) $0.4 million increase in advertising revenues.
Effective January 1, 1996, the Company acquired the management, leasing and
certain other operating divisions of the Property Manager. As a result, the
Company's other revenues include $0.3 million of management revenues and net
profits of leasing and other activities relating to third party contracts and
outside interests in joint ventures.
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SHOPPING CENTER EXPENSES: Shopping center expenses increased $4.9 million or
17.4% in 1996 of which $1.5 million is attributable to the Property
Transactions. Property operating expenses and repairs and maintenance
increased $3.3 million in 1996 of which $0.8 million is attributable to the
Property Transactions. The remaining $2.5 million increase is due to a $1.1
million increase in snow removal costs and a $0.8 million increase in other
shopping center operating expenses. Substantially all of this increase has
been recovered from tenants. The 1996 increase in real estate taxes of $0.3
million or 3.5% is attributable to the Property Transactions. Advertising and
promotion expenses increased $0.7 million in 1996 of which $0.1 million is
applicable to the Property Transactions. The remaining $0.6 million increase
is partially offset by a $0.4 million increase in advertising contributions
from tenants.
In 1996, management expenses totaling $2.1 million are substantially
comprised of salaries and other general and administrative expenses relating
to the management of the Company's portfolio. In 1995, these expenses were
management fees charged to the 49 consolidated properties, primarily by the
Property Manager.
INTEREST EXPENSE: Interest expense decreased $1.3 million or 4.4% in 1996
including a $2.0 million increase resulting from the Property Transactions.
The remaining $3.3 million decrease is caused by debt paydowns with the
proceeds of the 1995 follow-on public stock offering and a reduction in
amortization of interest rate protection agreements resulting from a 1995
interest rate swap agreement.
JOINT VENTURES: Net income of the nonconsolidated joint ventures increased
$2.5 million to $5.5 million in 1996 from $3.0 million in 1995 primarily due
to the change in accounting for two joint ventures from the equity method to
the consolidated method. Revenues of the nonconsolidated joint ventures
decreased $1.8 million to $35.2 million in 1996 from $37.0 million in 1995 of
which $3.5 million of the decrease was due to the Property Transactions. The
remaining $1.7 million increase is due to (i) a $0.4 million increase in
minimum rents, (ii) a $0.3 million increase in specialty leasing revenues,
(iii) a $0.7 million increase in revenues from lessees' cancellation of
leases, and (iv) a $0.2 million increase in tenant recoveries.
Shopping center expenses decreased $.6 million to $13.4 million in 1996 of
which $1.5 million is resulting from the Property Transactions. The remaining
$0.9 million increase is due to (i) a $0.5 million increase in property
operating and repairs and maintenance expenses resulting from increased snow
removal and other shopping center operating expenses, and (ii) a $0.3 million
increase in advertising expenses.
The Operating Partnership's share of income from nonconsolidated joint
ventures increased $1.7 million primarily due to the impact of the Property
Transactions.
INCOME BEFORE LIMITED PARTNERS' INTEREST: The 1995 gain on sale of assets
represents a gain from the sale of a partnership interest in a mall
development site acquired from the DeBartolo Group and simultaneously sold to
a third party.
Extraordinary items recognized in the first quarter of 1996 represents a gain
of $9.2 million from the disposition of one shopping center and the related
extinguishment of debt.
Net income (loss) before limited partners' interest increased $11.3 million
to $23.0 million for the first quarter 1996 from $11.7 million for the first
quarter 1995 as the result of the above-mentioned fluctuations.
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INVESTING ACTIVITIES: Net cash used in investing activities of $17.9 million,
as shown in the consolidated statement of cash flows, for the three months
ended March 31, 1996 are primarily comprised of additions to investment
properties and tenant allowances of $15.6 million (see "capital
expenditures") and net contributions to nonconsolidated joint ventures of
$1.4 million. Net cash used in investing activities totaled $3.3 million for
the three months ended March 31, 1995, principally comprised of (i) additions
to investment properties totaling $9.1 million and (ii) $2.5 million related
to the buyback of underproductive space at Lafayette Square and Glen Burnie
Mall. These investments were offset by (i) net proceeds from the sale of a
partnership interest in a mall site located in Strongsville, Ohio totaling
$3.8 million in the first quarter 1995 and (ii) distributions received from
nonconsolidated joint ventures of $5.3 million.
FINANCING ACTIVITIES: Net cash used in financing activities for the three
months ended March 31, 1996 and 1995 totaled $32.7 and $26.1 million,
respectively, principally comprised of dividends and distributions to the
Company's shareholders and limited partners in the Operating Partnership.
PORTFOLIO LEASING AND SALES TRENDS
RENTAL RATES: During the first quarter 1996, new leases commenced on 179,563
square feet of space in DeBartolo Malls at an average initial rent of $26.55.
Included in the 1996 lease commencements are leases to mall shop tenants on
154,686 square feet of previously leased space at average initial minimum
rents of $27.02 which represents a 13.0% increase over the average expiring
rents of $23.91 for this space.
LEASED AREA: Leased mall area increased to 84.2% as of March 31, 1996, from
84.0% at March 31, 1995. During first quarter 1996, 106,000 square feet of
underproductive space was recovered. Of that space, 74,000 square feet was
due to bankruptcies, with the balance due to lease cancellations. As a
result, although the impact from bankruptcies continues, the Company was able
to offset these losses with leasing activity throughout the portfolio.
MALL STORE SALES: Total Mall Store Sales are an important factor contributing
to the level of revenues generated by the DeBartolo Malls because such sales
ultimately influence the total occupancy cost a tenant can pay. Total Mall
Store Sales measure a mall portfolio's ability to generate sales over its
total square footage and may be affected by occupancy. Total Mall Store sales
of DeBartolo Malls, including Large Space Users (defined as theaters, drug
stores, variety stores, cafeterias and other large stores), increased 3.7% to
$612.3 million for the three months ended March 31, 1996 from $590.2 million
for the three months ended March 31, 1995. Comparable Mall Store sales
increased 10.6% for the first quarter of 1996 versus the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. As of March 31, 1996, the Company's total capital availability was
approximately $289 million. Of the $289 million, approximately $28.2 million
is reserved for dividends and distributions payable in April, 1996. The
Company's unused borrowing capacity was approximately $264 million including
$90 million of contractual borrowing commitments, subject to customary lender
approval rights, for capital expenditures on properties securing the
respective mortgages.
FINANCINGS AND REFINANCINGS. In April, 1996 the Company expanded its
revolving credit facility to $150 million and total availability increased to
$140 million of which $55 million is outstanding at March 31, 1996. This
facility is secured by three properties and carries an interest rate of LIBOR
plus 175 basis points.
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Effective March 29, 1996, the Company finalized a joint venture agreement
with a financial institution and closed a $52 million construction loan with
a group of banks for the development of Indian River Mall and a complementary
power center. The Company owns 50% of this joint venture.
DEBT. The Company's pro rata share of debt is approximately $1.568 billion
which includes the Company's pro rata share of debt applicable to the
nonconsolidated joint ventures of $186.0 million. The Company's pro rata
share of total floating rate debt is $275.2 million and is subject to the
below-mentioned interest rate swaps and interest rate caps.
The Company has an interest rate swap agreement to pay LIBOR at (i) 4.75% on
approximately $218 million of debt through April 1997 and (ii) 5.71% on $87.2
million of debt from May 1997 through April 2001. The Company has an interest
rate cap agreement which limits interest on $87.2 million of debt to no more
than LIBOR of 8.44% for the period May 1996 through March 2001.
Loans maturing during 1996 total $151.1 million for three consolidated
properties and $25.9 million for two nonconsolidated joint ventures. The
Company expects to refinance $137.7 million relating to two of the
consolidated properties and has conveyed ownership of a third property to its
lender effective as of March 1, 1996, thereby fully satisfying the
outstanding balance of $13.4 million. The Company has extended or anticipates
extending the maturity dates relating to the mortgages of the two
nonconsolidated joint ventures.
CAPITAL EXPENDITURES
The Company continued to implement its $500 million strategic redevelopment,
renovation and remerchandising program which will ultimately impact 34 of the
Company's 50 super-regional and regional malls.
During the first quarter of 1996, the Company invested $32.0 million ($22.1
million Operating Pertnership's share) including $14.5 million for
consolidated properties in its development program. The Company is
progressing on the construction of Indian River Mall incurring first quarter
1996 costs of $6.1 million. Construction commenced on mall renovations and
food court additions at Chautauqua Mall and Lafayette Square. Expansions at
Summit Mall and University Park Mall are nearing completion with grand
reopenings scheduled for the fall of 1996. Burlington Coat Factory at Randall
Park Mall opened in April, 1996. At The Florida Mall, work on the new Saks
Fifth Avenue store is proceeding on target for its fall 1996 opening.
Tenant allowances for consolidated properties paid during the first quarter
of 1996 totaled $1.1 million compared to $0.5 million during the same period
in 1995.
CASH GENERATED BEFORE DEBT PAYMENTS AND CAPITAL EXPENDITURES
Management believes that cash generated before debt repayments and capital
expenditures (commonly referred to as funds from operations) provides an
important indicator of the financial performance of the Company. Cash generated
before debt repayments and capital expenditures is defined as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property (other than adjacent land located at
DeBartolo Properties after April 21, 1994), plus depreciation of real property
and certain amortization and other non-cash items, and after adjustments for
unconsolidated partnerships and joint ventures. Accordingly, management expects
that cash generated before debt repayments and capital expenditures will be the
most significant factor considered by the Board of Directors in determining the
amount of cash dividends the Company will make to shareholders.
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The Company's management believes that cash generated before debt repayments and
capital expenditures is an important and widely used measure of the operating
performance of REITs which provides a relevant basis for comparison among REITs.
Cash generated before debt repayments and capital expenditures is presented to
assist investors in analyzing the performance of the Company. The Company's
method of calculating cash generated before debt repayments and capital
expenditures may be different from the methods used by other REITs to calculate
funds from operations. Cash generated before debt repayments and capital
expenditures: (i) does not represent cash flow from operations as defined by
generally accepted acounting principles; (ii) should not be considered as an
alternative to net income as a measure of operating performance or to cash flows
for operating, investing and financing activities; and (iii) is not an
alternative to cash flows as a measure of liquidity.
The following shows cash generated before debt repayments and capital
expenditures:
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED
------------------------------------------------
MARCH 31, 1996 (1) MARCH 31, 1995 (1)
------------------ ------------------
<S> <C> <C> <C> <C>
Income before extraordinary items and Limited
Partners' Interest in the Operating Partnership $ 13.8 $ 11.7
Adjustments for non-cash items:
Depreciation, amortization and other (2) $ 19.8 $ 20.7
Deferred stock expense and other 0.1 19.9 (0.2) 20.5
--- ---- ----- ----
33.7 32.2
Other adjustments:
Gain on sale of assets (3) --- (3.8)
--- -----
Cash generated before debt repayments and
capital expenditures $ 33.7 $ 28.4
= ==== = ====
Company's share of cash generated before debt
repayments and capital expenditures $ 20.8 $ 16.7
= ==== = ====
</TABLE>
(1) The calculation of cash generated before debt payments and capital
expenditures has been revised to adopt the National Association of Real
Estate Investment Trust's revised definition. The cash generated before
debt payments and capital expenditures for the first quarter 1995 has been
restated to $28.4 million from $28.7 million to conform with the 1996
calculation and presentation. Adjustments include (i) $0.2 million for
depreciation of furniture, fixtures and equipment, (ii) $0.1 million for
amortization of deferred loan costs and (iii) $0.7 million for the
amortization of interest rate protection agreements, and (iv) an adjustment
of $0.7 million to include straight-line rent accruals. The Company's share
of cash generated before debt payments and capital expenditures was
restated to $16.7 million from $16.9 million and the per share amount was
restated to $0.34 from $0.35 as a result of the above adjustments.
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(2) The depreciation, amortization and other is comprised of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------ 1995
CONSOLIDATED NONCONSOLIDATED COMPANY'S COMPANY'S
PROPERTIES PROPERTIES TOTAL SHARE SHARE
------------ --------------- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Depreciation of building and
improvements and
amortization of deferred
leasing expenses $15.3 $5.2 $20.5 $17.4 $16.8
Amortization of formation
costs 2.4 0.1 2.5 2.4 3.9
----- ---- ----- ----- -----
$17.7 $5.3 $23.0 $19.8 $20.7
===== ==== ===== ===== =====
</TABLE>
(3) The 1995 adjustment represents a gain on the sale of a partnership
interest in a mall development site acquired from the DeBartolo Group and
simultaneously sold to a third party.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized:
DeBARTOLO REALTY CORPORATION
/s/ James R. Giuliano, III
- ----------------------------------------------
Name: James R. Giuliano, III
Title: Senior Vice President, Chief Financial Officer and Director
Date: June 26, 1996
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