-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IyoEybJ5KHu0iowEc2Y0q7acyruZZvvI1/8/cPxq1Y3BH1ytFhBBFLwOsx13yAKj qxfDwznGKZ2/md/sy4kBbw== 0000950152-98-003497.txt : 19980424 0000950152-98-003497.hdr.sgml : 19980424 ACCESSION NUMBER: 0000950152-98-003497 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980223 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980423 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVELOPERS DIVERSIFIED REALTY CORP CENTRAL INDEX KEY: 0000894315 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 341723097 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-11690 FILM NUMBER: 98599364 BUSINESS ADDRESS: STREET 1: 34555 CHAGRIN BLVD CITY: MORELAND HILLS STATE: OH ZIP: 44022 BUSINESS PHONE: 2162474700 MAIL ADDRESS: STREET 1: 34555 CHAGRIN BLVD CITY: MORELAND HILLS STATE: OH ZIP: 44022 8-K/A 1 DEVELOPERS DIVERSIFIED REALTY CORP. 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 25, 1998 ----------------- DEVELOPERS DIVERSIFIED REALTY CORPORATION ---------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 1-11690 34-1723097 ---------------------------------------------------------------------- (State or other Jurisdiction (Commission (IRS Employer or incorporation) File Number) Identification Number) 34555 Chagrin Boulevard, Moreland Hills, Ohio 44022 ---------------------------------------------------------------------- Registrant's telephone number, including area code (440) 247-4700 --------------- N/A ---------------------------------------------------------------------- (Former name of former address, if changed since last report) 2 This Form 8-K/A amends Item 2 of Developers Diversified Realty Corporation's Current Report on Form 8-K previously filed with the Securities and Exchange Commission on April 7, 1998. The acquisitions were inadvertantly filed as an Item 2 instead of an Item 5 Other Events. This Form 8-K/A is also being filed for the purpose of filing the financial statement and pro forma financial information required by Item 7. Item 5. Other Events - -------------------- On March 23, 1998, through a single transaction with Continental Real Estate Companies of Columbus, Ohio, the Company completed the acquisition of 10 shopping centers, two of which were acquired through joint ventures, (the "Acquisition Properties"). The shopping centers total 1.2 million square feet of retail space, all of which is Company-owned. The Company's net investment in the Acquisition Properties aggregated approximately $87 million of assets including a $5.2 million equity investment in a 50% owned joint venture, before any contingent consideration. The Company's net investment was initially funded through proceeds made available through revolving credit facilities and cash of approximately $30.4 million, mortgages assumed of approximately $51.8 million, a minority equity interest valued at approximately $2.0 million, and the issuance of approximately 70,000 Operating Partnership ("OP") Units valued at approximately $2.8 million. The OP Units are convertible, on a one for one basis, into shares of the Company's common stock. The ten shopping centers or interests therein were owned by individual partnerships having commonality of ownership. In addition, the Company entered into an agreement, with the same entity mentioned above, to acquire three additional shopping centers or interests therein located in the Columbus, Ohio area. These shopping centers have approximately 1.0 million square feet of total GLA and have an estimated purchase price of approximately $107 million of which the Company's net investment will approximate $91 million. These properties are referred to herein as the "Probable Acquisition Properties." Although the Company believes it is probable that these properties will be acquired, there can be no assurance that the purchase transactions will be consummated. Information regarding the Acquisition Properties and the Probable Acquisition Properties is attached as SCHEDULE A. The acquisition of, or investment in, the Acquisition Properties, or with respect to the Probable Acquisition Properties will be, pursuant to individual agreements for the sale and purchase of each property or interests therein between each selling entity and the Company. The factors considered by the Company in determining the price to be paid for the properties included their historical and/or expected cash flow, nature of the tenants and terms of leases in place, occupancy rates, opportunities for alternative and/or new tenancies, current operating costs and taxes on the properties and anticipated changes therein under Company ownership, the outlots and expansion areas available, the physical condition and locations of the properties, the anticipated effect on the Company's financial results (including particularly Funds From Operations) and the ability to sustain and potentially increase its distributions to Company shareholders, and other factors. The Company took into consideration capitalization rates at which it believes other shopping centers have recently sold, but determined the price it was willing to pay primarily on the factors discussed above related to the properties themselves and their fit with the Company's operations. Separate independent appraisals were not obtained in connection with the acquisition of the properties by the Company. The Company, after investigation of the properties, is not aware of any material factors, other than those enumerated above, that would cause the financial information reported, where available, to not be necessarily indicative of future operating results. During the period January 1, 1998 to March 23, 1998, through individual transactions, the Company completed the acquisition of two shopping centers (Bel Air Centre located in Detroit, MI and Country Club Mall located in Idaho Falls, ID), neither of which individually constitutes a "significant subsidiary." The shopping centers total 0.8 million square feet of retail space, of which approximately 0.5 million square feet is Company-owned. The Company's net investment in the two shopping centers aggregated approximately $40.2 million, before any 3 contingent consideration. The Company's net investment was initially funded through proceeds made available through revolving credit facilities, cash and liabilities assumed aggregating approximately $20.5 million and a mortgage assumed of approximately $19.7 million. Country Club Mall was acquired from a limited partnership in which the Company's Chairman Emeritus, the Chairman of the Board and the Vice-Chairman of the Board owned, in the aggregate through a separate partnership, a 1% general partner interest. Management believes that the acquisition of this property was completed on terms at least as favorable to the Company as could have been obtained from an unrelated third party. The initial purchase price of the property was approximately $6.5 million. In accordance with the purchase agreement, the Company may be required to pay the seller an additional $0.8 million upon the leasing of vacant space in the center. Information regarding these two properties is included on SCHEDULE A. The acquisition of, or investment in, these two properties, was pursuant to individual agreements for the sale and purchase of each property between each selling entity and the Company. The factors considered by the Company in determining the price to be paid for the properties included their historical and/or expected cash flow, nature of the tenants and terms of leases in place, occupancy rates, opportunities for alternative and/or new tenancies, current operating costs and taxes on the properties and anticipated changes therein under Company ownership, the outlots and expansion areas available, the physical condition and locations of the properties, the anticipated effect on the Company's financial results (including particularly Funds From Operations) and the ability to sustain and potentially increase its distributions to Company shareholders, and other factors. The Company took into consideration capitalization rates at which it believes other shopping centers have recently sold, but determined the price it was willing to pay primarily on the factors discussed above related to the properties themselves and their fit with the Company's operations. Separate independent appraisals were not obtained in connection with the acquisition of the properties by the Company. The Company, after investigation of the properties, is not aware of any material factors, other than those enumerated above, that would cause the financial information reported, where available, to not be necessarily indicative of future operating results. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits - --------------------------------------------------------------------------- Financial Statements - -------------------- The statements of revenue and certain expenses included in this report encompass the following: * An audited statement of revenue and certain expenses for the year ended December 31, 1997 for the following shopping centers: - Belair Centre (acquired property) - The Columbus Properties (acquired properties) - Sun Center (acquired property) - Dublin Village Center (probable acquisition property) - Washington Park Plaza (probable acquisition property) * Statement of revenue and certain expenses for the nine months ended December 31, 1997 (audited) for Lennox Town Center (acquired property). * The Country Club Mall Shopping Center historical financial information is not presented as it is not considered material. 4 * Financial information for Easton Market (probable acquisition property) is not presented because the property is under development and, accordingly, the related operating information does not exist and would not be meaningful. Pro Forma Financial Information (unaudited) - ------------------------------------------- Unaudited pro forma financial information is presented as follows: * Pro forma condensed consolidated balance sheet as of December 31, 1997. * Pro forma condensed consolidated statement of operations for the year ended December 31, 1997. * Estimated twelve-month pro forma statement of taxable net operating income and operating funds available. Exhibits - -------- (23) Consent of Independent Accountants 5 SCHEDULE A DEVELOPERS DIVERSIFIED REALTY CORPORATION
Company Date of Owned Percent Year Shopping Center Acquisition Square Feet Occupied Completed Principal Tenants - ------------------------------------------------------------------------------------------------------------------------------------ Country Club Mall Fred Meyer (not owned), LaMont's, Payless Idaho Falls, ID 02/25/98 148,593 90.0% 1976 Drug Store and OfficeMax Bel Air Centre Target, AMC Theatres, Builders Square, Farmer Detroit, MI 03/10/98 343,502 100.0% 1989 Jack Supermarket, Toys R Us and Kids R Us Perimeter Shopping Center Dublin, Ohio 03/23/98 137,610 97.6% 1996 Big Bear Supermarket and Revco OfficeMax Barboursville, West Virginia 03/23/98 70,900 100.0% 1985 OfficeMax and Discount Emporium Big Bear Bellefontaine, Ohio 03/28/98 54,780 100.0% 1995 Big Bear Supermarket Roundy's Hamilton, Ohio 03/23/98 30,110 100.0% 1986 Roundy's Hoggies Center Gahanna, Ohio 03/23/98 39,285 100.0% 1995 Roundy's/Rite Aid Pataskala, Ohio 03/23/98 33,270 100.0% 1980 Roundy's and Rite Aid Shoppes at Turnberry Pickerington, Ohio 03/23/98 59,495 97.3% 1990 Revco and Bank One Derby Square Shopping Center Grove City, Ohio 03/23/98 128,050 100.0% 1992 Big Bear Supermarket and Bank One Lennox Town Center Target, AMC Theatres, Barnes & Noble, Columbus, Ohio (1) 03/23/98 336,044 100.0% 1997 Staples and Old Navy Sun Center Big Bear Supermarket, HomePlace, Babies R Columbus, Ohio (2) 03/23/98 317,581 98.0% 1995 Us, Rhodes Furniture, SteinMart and Staples Washington Plaza Probable Dayton, Ohio (3) Acquisition 169,816 100.0% 1990 PharMor and Books a Million Dublin Village Center Probable AMC Theater, PharMor, Michael's and Columbus, Ohio (4) Acquisition 327,264 92.2% 1987 Designer Shoe Warehouse Easton Market Probable Galyan's, Kittler Furniture, Bed Bath & Columbus, Ohio Acquisition 508,334 94.5% 1998 Beyond, TJ Maxx and PETsMART
(1) Property acquired through a joint venture in which the Company owns a 50% interest. (2) Property acquired through a joint venture in which the Company owns a 79.45% interest. (3) Property scheduled to be owned through a joint venture in which the Company would own a 50% interest. (4) Property scheduled to be owned through a joint venture in which the Company would own approximately an 80% interest. 6 DEVELOPERS DIVERSIFIED REALTY CORPORATION INDEX TO FINANCIAL STATEMENTS DECEMBER 31, 1997 - --------------------------------------------------------------------------------
PAGE BELAIR CENTRE Report of Independent Accountants ................................................. F-3 Statement of Revenue and Certain Expenses for the year ended December 31, 1997 .............................................................. F-4 Notes to Statement of Revenue and Certain Expenses ................................ F-5 THE COLUMBUS PROPERTIES Report of Independent Accountants ................................................. F-6 Combined Statement of Revenue and Certain Expenses for the year ended December 31, 1997 .............................................................. F-7 Notes to Combined Statement of Revenue and Certain Expenses ....................... F-8 SUN CENTER Report of Independent Accountants ................................................. F-10 Statement of Revenue and Certain Expenses for the year ended December 31, 1997 .............................................................. F-11 Notes to Statement of Revenue and Certain Expenses ................................ F-12 DUBLIN VILLAGE CENTER Report of Independent Accountants ................................................. F-14 Statement of Revenue and Certain Expenses for the year ended December 31, 1997 .............................................................. F-15 Notes to Statement of Revenue and Certain Expenses ................................ F-16 WASHINGTON PARK PLAZA Report of Independent Accountants ................................................. F-17 Statement of Revenue and Certain Expenses for the year ended December 31, 1997 .............................................................. F-18 Notes to Statement of Revenue and Certain Expenses ................................ F-19 LENNOX TOWN CENTER Report of Independent Accountants ................................................. F-20 Statement of Revenue and Certain Expenses for the nine months ended December 31, 1997 .............................................................. F-21 Notes to Statement of Revenue and Certain Expenses ................................ F-22
F-1 7 DEVELOPERS DIVERSIFIED REALTY CORPORATION INDEX TO FINANCIAL STATEMENTS DECEMBER 31, 1997 - -------------------------------------------------------------------------------- DEVELOPERS DIVERSIFIED REALTY CORPORATION (PRO FORMA - UNAUDITED): Condensed Consolidated Balance Sheet as of December 31, 1997 .................... F-24 Condensed Consolidated Statement of Operations for the year ended December 31, 1997 ............................................................. F-28 Estimated Twelve Month Pro Forma Statement of Taxable Net Operating Income and Operating Funds Available .......................................... F-36
F-2 8 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation We have audited the accompanying statement of revenue and certain expenses of Belair Centre for the year ended December 31, 1997. This historical statement is the responsibility of management. Our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement is prepared on the basis described in Note 2, for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of Developers Diversified Realty Corporation) and is not intended to be a complete presentation of the revenues and expenses of Belair Centre. In our opinion, the historical statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Belair Centre, on the basis described in Note 2, for the year ended December 31, 1997, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Cleveland, Ohio April 14, 1998 F-3 9 DEVELOPERS DIVERSIFIED REALTY CORPORATION BELAIR CENTRE STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Revenue: Minimum rents $3,472,263 Percentage and overage rents 21,130 Recoveries from tenants 1,085,916 Other income 116,436 ---------- 4,695,745 ---------- Certain expenses: Operating and maintenance 868,296 Real estate taxes 350,244 ---------- 1,218,540 ---------- Revenue in excess of certain expenses $3,477,205 ==========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-4 10 DEVELOPERS DIVERSIFIED REALTY CORPORATION BELAIR CENTRE NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. OPERATION OF PROPERTY --------------------- The accompanying statement of revenue and certain expenses relates to the operations of Belair Centre (the "Property"), located in Detroit, MI. The shopping center was built in 1989. Developers Diversified Realty Corporation (the "Company") acquired the property on February 24, 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION - --------------------- The accompanying statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying financial statement is not representative of the actual operations for the period presented, as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by the Company in the future operations of the Property, have been excluded. Revenues excluded consist of interest and other revenues unrelated to the continuing operations of the Property. Expenses excluded consist of depreciation on the building and improvements and amortization of organization costs and other intangible assets, interest expense, management fees, professional fees, contributions, advertising costs and other general and administrative costs not directly related to the future operations of the Property. INCOME RECOGNITION - ------------------ Rental income is recorded on the straight line basis. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF RISK - --------------------- Belair Centre's tenant base includes primarily national and regional retail chains and local retailers, consequently, the Property's credit risk is concentrated in the retail industry. Revenues derived from the Property's two largest tenants, AMC Theatres and Builders Square, aggregated 19.4% and 15.9%, respectively, of total base revenues. F-5 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation We have audited the accompanying combined statement of revenue and certain expenses for The Columbus Properties, described in Note 1, for the year ended December 31, 1997. This historical statement is the responsibility of management. Our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying combined historical statement was prepared on the basis described in Note 2, for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of Developers Diversified Realty Corporation) and is not intended to be a complete presentation of the combined revenues and expenses of The Columbus Properties. In our opinion, the combined historical statement referred to above presents fairly, in all material respects, the combined revenue and certain expenses of The Columbus Properties on the basis described in Note 2 for the year ended December 31, 1997, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Cleveland, Ohio January 18, 1998 F-6 12 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE COLUMBUS PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Revenue: Minimum rents $5,032,883 Percentage and overage rents 86,996 Recoveries from tenants 989,206 Other income 3,287 ---------- 6,112,372 ---------- Certain expenses: Operating and maintenance 541,335 Real estate taxes 472,915 ---------- 1,014,250 ---------- Revenue in excess of certain expenses $5,098,122 ==========
The accompanying notes are an integral part of this combined statement of revenue and certain expenses. F-7 13 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE COLUMBUS PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. OPERATION OF PROPERTIES ----------------------- For purposes of the accompanying combined statement of revenue and certain expenses, The Columbus Properties (the "Properties") represent certain shopping center properties which Developers Diversified Realty Corporation (the "Company") intends to acquire in 1998. A summary of the Properties is as follows:
CENTER NAME LOCATION YEAR BUILT - ---------------------------- ------------ ---- Derby Square Shopping Center Columbus, OH 1992 Perimeter Shopping Center Columbus, OH 1996 Shoppes at Turnberry Columbus, OH 1990 Big Bear Shopping Center Bellefontaine, OH 1995 OfficeMax Center Barboursville, WV 1985 Roundy's Shopping Center Hamilton, OH 1986 Hoggies Retail Center New Albany, OH 1995 Roundy's and Rite Aid Pataskala, OH 1980
A combined statement of revenue and certain expenses has been presented because the Properties have commonality of ownership, are under common control and management, and, although they will be purchased pursuant to separate purchase agreements, are considered to be a single transaction since their purchase was negotiated simultaneously. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION The accompanying combined statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying combined financial statement is not representative of the actual operations for the period presented, as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by the Company in the future operations of the Properties, have been excluded. Revenues excluded consist of interest, gains on sales of land, and other revenues unrelated to the continuing operations of the Properties. Expenses excluded consist of depreciation on the building and improvements and amortization of organization costs and other intangible assets, interest expense, professional fees, charitable contributions, and other general and administrative costs not directly related to the future operations of the Properties. F-8 14 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE COLUMBUS PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- INCOME RECOGNITION - ------------------ Rental income is recorded on the straight line basis. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF RISK - --------------------- The Columbus Properties' tenant base includes primarily national and regional retail chains and local retailers, consequently, the Properties' credit risk is concentrated in the retail industry. Revenues derived from the Properties two largest tenants, Big Bear and Roundy's, aggregated 33.4% and 7.4%, respectively, of total combined base revenues. 3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT --------------------------------------------------- On March 23, 1998, the Company acquired the Properties. F-9 15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation We have audited the accompanying statement of revenue and certain expenses of Sun Center for the year ended December 31, 1997. This historical statement is the responsibility of management. Our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement is prepared on the basis described in Note 2, for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of Developers Diversified Realty Corporation) and is not intended to be a complete presentation of the revenues and expenses of Sun Center. In our opinion, the historical statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Sun Center, on the basis described in Note 2, for the year ended December 31, 1997, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Cleveland, Ohio January 18, 1998 F-10 16 DEVELOPERS DIVERSIFIED REALTY CORPORATION SUN CENTER STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Revenue: Minimum rents $3,405,262 Percentage and overage rent 32,951 Recoveries from tenants 569,123 Other income 1,041 ---------- 4,008,377 ---------- Certain expenses: Operating and maintenance 216,603 Real estate taxes 344,194 ---------- 560,797 ---------- Revenue in excess of certain expenses $3,447,580 ==========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-11 17 DEVELOPERS DIVERSIFIED REALTY CORPORATION SUN CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. OPERATION OF PROPERTY --------------------- The accompanying statement of revenue and certain expenses relates to the operations of Sun Center (the "Property"), located in Columbus, Ohio. The shopping center was built in 1995. Developers Diversified Realty Corporation (the "Company") intends to acquire a majority interest in the Property in 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION - --------------------- The accompanying statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying financial statement is not representative of the actual operations for the period presented, as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by the Company in the future operations of the Property, have been excluded. Revenues excluded consist of interest and other revenues unrelated to the continuing operations of the Property. Expenses excluded consist of depreciation on the building and improvements and amortization of organization costs and other intangible assets, interest expense and other general and administrative costs not directly related to the future operations of the Property. INCOME RECOGNITION - ------------------ Rental income is recorded on the straight line basis. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-12 18 DEVELOPERS DIVERSIFIED REALTY CORPORATION SUN CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- CONCENTRATION OF RISK - --------------------- Sun Center's tenant base includes primarily national and regional retail chains and local retailers, consequently, the Property's credit risk is concentrated in the retail industry. Revenues derived from the Property's two largest tenants, Big Bear and HomePlace, aggregated 22.4% and 19.2%, respectively, of total base revenues. 3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT --------------------------------------------------- On March 23, 1998, the Company acquired a 79.45% ownership interest in the Property. F-13 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation We have audited the accompanying statement of revenue and certain expenses of Dublin Village Center for the year ended December 31, 1997. This historical statement is the responsibility of management. Our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement is prepared on the basis described in Note 2, for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of Developers Diversified Realty Corporation) and is not intended to be a complete presentation of the revenues and expenses of Dublin Village Center. In our opinion, the historical statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Dublin Village Center, on the basis described in Note 2, for the year ended December 31, 1997, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Cleveland, Ohio January 18, 1998 F-14 20 DEVELOPERS DIVERSIFIED REALTY CORPORATION DUBLIN VILLAGE CENTER STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Revenue: Minimum rents $3,719,068 Percentage and overage rents 39,728 Recoveries from tenants 1,117,638 Other income 11,492 ---------- 4,887,926 ---------- Certain expenses: Operating and maintenance 607,585 Real estate taxes 557,249 ---------- 1,164,834 ---------- Revenue in excess of certain expenses $3,723,092 ==========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-15 21 DEVELOPERS DIVERSIFIED REALTY CORPORATION DUBLIN VILLAGE CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. OPERATION OF PROPERTY --------------------- The accompanying statement of revenue and certain expenses, relates to the operations of Dublin Village Center (the "Property") located in Columbus, Ohio. The shopping center was built in 1987. Developers Diversified Realty Corporation (the "Company") intends to acquire an equity interest of approximately 80% in the Property in 1998, although there can be no assurance that the purchase transaction will be consummated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION - --------------------- The accompanying statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying financial statement is not representative of the actual operations for the period presented, as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by the Company in the future operations of the Property, have been excluded. Revenues excluded consist of interest and other revenues unrelated to the continuing operations of the Property. Expenses excluded consist of depreciation on the building and improvements and amortization of organization costs and other intangible assets, interest expense and other general and administrative costs not directly related to the future operations of the Property. INCOME RECOGNITION - ------------------ Rental income is recorded on the straight line basis. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF RISK - --------------------- Dublin Village Center's tenant base includes primarily national and regional retail chains and local retailers, consequently, the Property's credit risk is concentrated in the retail industry. Revenues derived from the Property's two largest tenants, AMC Theatres and PharMor, aggregated 25.9% and 7.4%, respectively, of total base revenues. F-16 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation We have audited the accompanying statement of revenue and certain expenses of Washington Park Plaza for the year ended December 31, 1997. This historical statement is the responsibility of management. Our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement is prepared on the basis described in Note 2, for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of Developers Diversified Realty Corporation) and is not intended to be a complete presentation of the revenues and expenses of Washington Park Plaza. In our opinion, the historical statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Washington Park Plaza, on the basis described in Note 2, for the year ended December 31, 1997, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Cleveland, Ohio January 18, 1998 F-17 23 DEVELOPERS DIVERSIFIED REALTY CORPORATION WASHINGTON PARK PLAZA STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Revenue: Minimum rents $1,878,030 Recoveries from tenants 596,304 Other income 21 ---------- 2,474,355 ---------- Certain expenses: Operating and maintenance 293,965 Real estate taxes 298,024 ---------- 591,989 ---------- Revenue in excess of certain expenses $1,882,366 ==========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-18 24 DEVELOPERS DIVERSIFIED REALTY CORPORATION WASHINGTON PARK PLAZA NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. OPERATION OF PROPERTY --------------------- The accompanying statement of revenue and certain expenses relates to the operations of Washington Park Plaza (the "Property"), located in Dayton, Ohio. The shopping center was built in 1990. Developers Diversified Realty Corporation (the "Company") intends to acquire a fifty percent equity interest in the Property in 1998, although there can be no assurance that the purchase transaction will be consummated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION - --------------------- The accompanying statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying financial statement is not representative of the actual operations for the period presented, as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by the Company in the future operations of the Property, have been excluded. Revenues excluded consist of interest and other revenues unrelated to the continuing operations of the Property. Expenses excluded consist of depreciation on the building and improvements and amortization of organization costs and other intangible assets, interest expense and other general and administrative costs not directly related to the future operations of the Property. INCOME RECOGNITION - ------------------ Rental income is recorded on the straight line basis. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATION OF RISK - --------------------- Washington Park Plaza's tenant base includes primarily national and regional retail chains and local retailers, consequently, the Property's credit risk is concentrated in the retail industry. Revenues derived from the Property's two largest tenants, PharMor and CVC International, aggregated 19.6% and 12.4%, respectively, of total base revenues. F-19 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Developers Diversified Realty Corporation We have audited the accompanying statement of revenue and certain expenses of Lennox Town Center for the nine months ended December 31, 1997. This historical statement is the responsibility of management. Our responsibility is to express an opinion on this historical statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the historical statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the historical statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the historical statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying historical statement is prepared on the basis described in Note 2, for the purpose of complying with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission (for inclusion in the Form 8-K of Developers Diversified Realty Corporation) and is not intended to be a complete presentation of the revenues and expenses of Lennox Town Center. In our opinion, the historical statement referred to above presents fairly, in all material respects, the revenue and certain expenses of Lennox Town Center, on the basis described in Note 2, for the nine months ended December 31, 1997, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Cleveland, Ohio January 18, 1998 F-20 26 DEVELOPERS DIVERSIFIED REALTY CORPORATION LENNOX TOWN CENTER STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- Revenue: Minimum rents $1,956,462 Recoveries from tenants 417,916 Other income 15,565 ---------- 2,389,943 ---------- Certain expenses: Operating and maintenance 164,902 Real estate taxes 319,439 ---------- 484,341 ---------- Revenue in excess of certain expenses $1,905,602 ==========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-21 27 DEVELOPERS DIVERSIFIED REALTY CORPORATION LENNOX TOWN CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. OPERATION OF PROPERTY --------------------- The accompanying statement of revenue and certain expenses relates to the operations of Lennox Town Center (the "Property"), located in Columbus, Ohio. The shopping center was built in 1997. The accompanying presentation represents a nine month period since prior to April 1, 1997, the Property was in lease up and the operating information prior to that time would not be meaningful. Developers Diversified Realty Corporation (the "Company") intends to acquire an interest in the Property in 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF PRESENTATION - --------------------- The accompanying statement of revenue and certain expenses has been prepared on the accrual basis of accounting. The accompanying financial statement is not representative of the actual operations for the period presented, as certain revenues and expenses, which may not be comparable to the revenues and expenses expected to be earned or incurred by the Company, in the future operations of the Property, have been excluded. Revenues excluded consist of interest and other revenues unrelated to the continuing operations of the Property. Expenses excluded consist of depreciation on the building and improvements and amortization of organization costs and other intangible assets, interest expense and other general and administrative costs not directly related to the future operations of the Property. INCOME RECOGNITION - ------------------ Rental income is recorded on the straight line basis. USE OF ESTIMATES - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-22 28 DEVELOPERS DIVERSIFIED REALTY CORPORATION LENNOX TOWN CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- CONCENTRATION OF RISK - --------------------- Lennox Town Center's tenant base includes primarily national and regional retail chains and local retailers, consequently, the Property's credit risk is concentrated in the retail industry. Revenues derived from the Property's two largest tenants, AMC Theatres and Barnes & Noble, aggregated 17.1% and 11.3%, respectively, of total base revenues. 3. EVENT SUBSEQUENT TO INDEPENDENT ACCOUNTANTS' REPORT --------------------------------------------------- On March 23, 1998 the Company acquired a 50% ownership interest in the Property. F-23 29 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 - ------------------------------------------------------------------------------- (Unaudited) The following unaudited pro forma condensed consolidated balance sheet is presented as if the following had occurred as of December 31, 1997: (i) the Company's acquisition of twelve shopping centers or interests therein which occurred subsequent to January 1, 1998 ("Acquisition Properties"); (ii) the Company's acquisition of the three probable acquisition properties or interests therein ("Probable Acquisition Properties"); (iii) the Company's formation of a joint venture with Prudential Real Estate Investors which occurred in February 1998; (iv) the sale by the Company of $100 million Medium Term Notes issued in January 1998 and (v) the Company's purchase of a partner's minority interest in one shopping center which occurred in March 1998. This pro forma condensed consolidated balance sheet should be read in conjunction with the pro forma condensed consolidated statement of operations of the Company presented herein and the historical financial statements and notes thereto of the Company included in the Developers Diversified Realty Corporation Form 10-K for the year ended December 31, 1997. The unaudited pro forma condensed consolidated balance sheet does not purport to represent what the actual financial position of the Company would have been at December 31, 1997. F-24 30 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 - ------------------------------------------------------------------------------- (IN THOUSANDS) (Unaudited)
Company Pro Forma Company Historical Adjustments Pro Forma ------------------------------------------------- Assets: Real estate, net $ 1,154,005 $ 212,936(a) $ 1,366,941 Other real estate investments 72,149 (54,500)(e) 17,649 Cash and cash equivalents 18 -- 18 Other assets 29,479 625(b) 30,104 Investment in and advances to joint ventures 136,267 6,331(a) 155,572 12,974(e) ----------- --------- ----------- Total assets $ 1,391,918 $ 178,366 $ 1,570,284 =========== ========= =========== Liabilities: Indebtedness: Fixed rate senior notes $ 392,254 $ 99,744(b) $ 491,998 Convertible debentures 46,891 -- 46,891 Revolving credit agreements 139,700 27,451(c) 125,625 (41,526)(e) Mortgages payable 89,676 94,150(f) 183,826 ----------- --------- ----------- Total indebtedness 668,521 179,819 848,340 Other liabilities 37,701 876 (a) 38,577 Minority interest 16,293 (16,293)(d) 3,686 3,686 (g) Operating partnership minority interests 353 10,278 (h) 10,631 ----------- --------- ----------- Total liabilities and minority interests 722,868 178,366 901,234 Shareholders' equity: Class A Preferred Shares 105,375 -- 105,375 Class B Preferred Shares 44,375 -- 44,375 Common shares 2,769 -- 2,769 Paid-in-capital 580,509 -- 580,509 Accumulated dividends in excess of net income (63,517) -- (63,517) ----------- --------- ----------- 669,511 -- 669,511 Less: Unearned compensation - restricted stock (461) -- (461) ----------- --------- ----------- 669,050 -- 669,050 ----------- --------- ----------- Total Liabilities and Shareholders' Equity $ 1,391,918 $ 178,366 $ 1,570,284 =========== ========= ===========
F-25 31 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 - ------------------------------------------------------------------------------- (Unaudited) (a) Represents the purchase of or investment in the twelve Acquired Properties and the three Probable Acquisition Properties. The Acquisition Properties were purchased by the Company during the period January 1, 1998 through March 23, 1998. The Probable Acquisition Properties represent the properties considered by the Company to be probable acquisitions as of April 17, 1998, although there is no assurance that the transactions will be consummated. The purchase of the acquired shopping centers were initially funded through cash, mortgages and other liabilities assumed (including minority equity interests) issuance of operating partnership units and borrowings from revolving credit facilities. The initial purchase price, before any contingent consideration that may be payable to the sellers, is as follows (in thousands): Wholly or Majority Owned Properties: Country Club Mall, Idaho Falls, ID $ 6,508 Belair Centre, Detroit, MI 33,690 The Columbus Properties (9 properties) 82,738 Probable Acquisition Properties (2 properties) 90,000 ------------ $ 212,936 Equity investment in Joint Venture Properties: Acquired Property $ 5,181 Probable Acquisition Property 1,150 ---------- $ 6,331 ==========
(b) Represents the sale by the Company of $100 million of Medium Term Notes in January 1998 and the use of proceeds thereof. The net proceeds to the Company, after underwriting discounts and offering costs, were approximately $99.1 million and were used to repay borrowings under the revolving credit facilities. (c) The net increase in the revolving credit facility debt is summarized as follows (in thousands): Purchase of the Acquisition Properties $ 50,887 Assumed purchase of the Probable Acquisition Properties 59,390 Issuance of Medium Term Notes (99,119) Funding of minority interest purchased 16,293 ----------- $ 27,451 ===========
(d) Represents the purchase by the Company of the minority interest in a shopping center located in North Olmsted, Ohio in March 1998. The aggregate cash paid reflected herein is assumed to be funded entirely through proceeds from revolving credit facilities. F-26 32 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 (Unaudited) (e) Represents the formation of a joint venture with Prudential Real Estate Investors whereby the Company contributed its recently acquired investment in 33 retail sites formerly occupied by Best Products and was reimbursed 75% of its invested capital aggregating $41,526. The Company's remaining investment balance of approximately $12,974 was reclassified from other real estate investments to investment in and advances to joint ventures. (f) Mortgage debt assumed associated with the Acquisition Properties and Probable Acquisition Properties is summarized as follows (in thousands): Belair Centre, Detroit, MI $19,689 The Columbus Properties (9 properties) 51,861 Probable Acquisition Properties (2 properties) 22,600 -------- $94,150 =======
(g) Minority interests associated with the Acquisition Property and Probable Acquisition Property is summarized as follows (in thousands): Acquired Property $ 2,006 Probable Acquisition Property 1,680 -------- $ 3,686 ========
(h) Operating partnership minority interests associated with the Acquisition Properties and Probable Acquisition Properties are summarized as follows (in thousands): Acquired Properties $ 2,798 Probable Acquisition Properties 7,480 -------- $ 10,278 ========
F-27 33 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 - ------------------------------------------------------------------------------- (Unaudited) The unaudited pro forma condensed statement of operations for the year ended December 31, 1997 is presented as if each of the following transactions had occurred on January 1, 1997; (i) the acquisition by the Company of the Acquisition Properties, which had an operating history, purchased from January 1, 1997 through April 17, 1998; (ii) the acquisition of the three Probable Acquisition Properties, which had an operating history; (iii) the sale by the Company of 3,350,000 common shares in January 1997; (iv) the sale by the Company of $75 million of 7.125% Pass-through Asset Trust Securities in March 1997; (v) the sale by the Company of 1,300,000 common shares in June 1997; (vi) the sale by the Company of $202 million of Medium Term Notes in 1997 and 1998; (vii) the sale by the Company of 507,960 common shares in September 1997; (viii) the sale by the Company of 316,800 common shares in December 1997 and (ix) the purchase by the Company of a partner's minority interest in one shopping center. The foregoing pro forma information is based upon the historical consolidated results of operations of the Company for year ended December 31, 1997, giving effect to the transactions described above. The pro forma condensed consolidated statement of operations should be read in conjunction with the pro forma condensed consolidated balance sheet of the Company presented herein and the historical financial statements and notes thereto of the Company included in the Developers Diversified Realty Corporation Form 10-K for the year ended December 31, 1997. The unaudited pro forma condensed consolidated statements of operations are not necessarily indicative of what the actual results of operations of the Company would have been assuming the transactions had been completed as set forth above, nor do they purport to represent the Company's results of operations for future periods. F-28 34 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- (Unaudited) Pro Forma Adjustments
Common Share Probable Company Company Acquired and Debt Acquisition Pro Forma Historical Properties Offerings Properties (Unaudited) ---------- ---------- --------- ---------- ----------- Revenues from rental properties $ 158,718 $ 3,073(a) $ 4,888(d) $ 182,367 15,688(b) Management fees and other income 10,322 - 10,322 ---------- ------ ------- ----------- --------- 169,040 18,761 4,888(d) 192,689 ---------- ------ ------- ----------- --------- Operating and maintenance 15,961 549(a) 608(d) 18,859 1,741(b) Real estate taxes 20,001 203(a) 557(d) 22,055 1,294(b) Depreciation and amortization 32,313 568(a) 787(d) 36,790 3,122(b) General and administrative expenses 11,055 750(m) - - 11,805 Interest expense 35,558 1,516(a) (316)(f),(j) 1,980(d) 47,648 9,234(b) 66 (g),(k) 263(c) (1,771)(h) 1,103(l) 15 (i) ---------- ------ ------- ----------- --------- 114,888 20,343 (2,006) 3,932 137,157 ---------- ------ ------- ----------- --------- Income (loss) before equity in net income of joint ventures, gain on sales of real estate and allocation to minority interest 54,152 (1,582) 2,006 956 55,532 Equity in net income of joint ventures 10,893 9(c) - 137(e) 11,039 Minority equity interest (1,049) (14)(a) - (196)(d) (447) (163)(b) (63)(e) 1,038 (l) Gain on sales of real estate 3,526 - - - 3,526 ---------- ------ ------- ----------- --------- Net income (loss) $ 67,522 $ (712) $ 2,006 $ 834 $ 69,650 ======= ======= ========= Less: preferred dividends (14,200) (14,200) ---------- ------- ------- ----------- --------- Net income applicable to common shareholders $ 53,322 $ 55,450 ========== ========= Per share data: Earnings per common share: Basic $ 2.06 $ 2.08(n) ========= ========= Diluted $ 2.05 $ 2.07(n) ========= ========= Weighted average number of common shares (in thousands): Basic 25,880 26,625 ========= ========= Diluted 26,062 26,804 ========= =========
F-29 35 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- (Unaudited) (a) Reflects revenues and expenses for the properties acquired during 1997, for the period January 1, 1997 through the earlier of the date of acquisition, or December 31, 1997 as follows:
Effective Real Date of Estate Operating & Minority Shopping Center Acquisition Revenues Taxes Maintenance Depreciation (4) Interest (4) Interest --------------- ----------- -------- ----- ----------- ---------------- ------------ -------- Great Northern Shopping Center - North, Cleveland, 01/01/97 $ - $ - $ - $ - $ - $ - (North Olmsted), OH (1) Great Northern Shopping Center - South, Cleveland, 01/01/97 - - - - - - (North Olmsted) OH (1) Plaza Del Norte, San Antonio, TX 01/23/97 - - - - - - (2), (3) Foothills Towne Center Awatukee, AZ (2) 02/21/97 - - - - - - Eagan Promenade Minneapolis, MN (2) 07/01/97 - - - - - - Midway Marketplace St. Paul, MN (2) 07/11/97 - - - - - - Cooks Corner Brunswick, ME 08/14/97 1,907 154 404 300 806 14 Centennial Promenade Denver, CO (2) 10/02/97 - - - - - - Spring Creek Centre Fayetteville, AR 11/20/97 1,166 49 145 268 710 - ----- -- --- --- - --- - $3,073 $203 $549 $568 $1,516 $14 ====== ==== ==== ==== ====== ===
(1) Included in historical statement of operations for the year ended December 31, 1997. (2) No revenues or expenses have been included in the pro forma statement of operations since the center was either under development or in the lease-up phase during 1997. (3) Property acquired through a joint venture in which the Company owns a 35% interest. (4) Determined depreciation utilizing a 31.5 year life for buildings based on the preliminary purchase price allocation and calculated interest at the Company's estimated interest rate under its lines of credit. F-30 36 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- (b) Reflects revenues and expenses for the year ended December 31, 1997 of the properties acquired from January 1, 1998 to April 17, 1998 as follows:
Effective Real Date of Estate Operating & Minority Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(2) Interest(2) Interest --------------- ----------- -------- ----- ----------- --------------- -------- -------- Country Club Mall Idaho Falls, ID 02/25/98 $ 871 $ $115 $165 $441 $ - 127 Belair Centre Detroit, MI 03/10/98 4,696 350 868 856 2,401 - Derby Square Grove City, OH 03/23/98 1,451 142 129 301 902 54 Perimeter Dublin, OH 03/23/98 1,848 183 218 382 1,191 - Shoppes at Turnberry Pickerington, OH 03/23/98 1,031 73 113 201 615 76 Big Bear Bellefontaine, OH 03/23/98 460 - - 106 304 - OfficeMax Bourboursville, WV 03/23/98 314 4 39 45 121 15 Roundy's Hamilton, OH 03/23/98 253 22 1 52 139 28 Hoggies Gahanna, OH 03/23/98 482 30 39 109 290 - Roundy's and Rite Aid Pataskala, OH 03/23/98 274 19 2 54 169 3 Sun Center Columbus, OH (1) 03/23/98 4,008 344 217 851 2,661 (13) ----- --- --- --- ----- ---- $15,688 $1,294 $1,741 $3,122 $9,234 $163 ======= ====== ====== ====== ====== ====
(1) Property acquired through a joint venture in which the Company owns a 79.45% interest. (2) Determined depreciation utilizing a 31.5 year life for building based on the preliminary purchase price allocation and calculated interest at the Company's estimated interest rate under its lines of credit and/or the effective interest rate associated with the mortgage debt assumed. F-31 37 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- (c) Reflects revenues and expenses for Lennox Towne Center, Columbus, Ohio for the nine month period ended December 31, 1997 in which a 50% equity interest was acquired on March 23, 1998 as follows: (1) Revenues $2,390 Operating and maintenance 165 Real estate taxes 319 Depreciation (2) 604 Interest (2) 1,283 -------- 2,371 -------- 19 Ownership interest 50% Equity in net income of joint venture $ 9 ======== (1) Revenues and expenses prior to April 1, 1997 are not included in the pro forma statement of operations since the center was in the lease up phase. (2) Determined depreciation utilizing a 31.5 year life for building based on the preliminary purchase price allocation and calculated interest at the effective interest rate associated with the mortgage debt assumed. Interest costs of $263 associated with the purchase of the Company's 50% equity interest in this property is calculated at the Company's estimated interest rate under its lines of credit. (d) Reflects revenues and expenses of two Probable Acquisition Properties contemplated as of April 17, 1998 for the period January 1, 1997 through December 31, 1997 as follows:
Real Estate Operating & Minority Shopping Center Revenues Taxes Maintenance Depreciation (3) Interest (3) Interest --------------- -------- ----- ----------- ---------------- ------------ -------- Easton Market Columbus, OH (1) $ - $- $ - $ - $- $- Dublin Village Center Columbus, OH (2) 4,888 557 608 787 1,980 196 ----- --- --- --- ----- --- $4,888 $557 $608 $787 $1,980 $196 ====== ==== ==== ==== ====== ====
(1) No revenues or expenses have been included in the pro forma statement of operations since the center was either under development or in the lease-up phase during 1997. (2) Property is anticipated to be acquired through a joint venture in which the Company is expected to own an 80% interest. There can be no assurance that the Company will acquire the Probable Acquisition Properties. (3) Determined depreciation utilizing a 31.5 year life for building based on the preliminary purchase price allocation and calculated interest at the Company's estimated interest rate under its lines of credit and/or the effective interest rate associated with the mortgage debt assumed. F-32 38 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- (e) Reflects revenues and expenses for Washington Park Plaza, Dayton, Ohio, a Probable Acquisition Property, which is assumed to be acquired through a 50% joint venture interest, contemplated as of April 17, 1998 for the period January 1, 1997 through December 31, 1997 as follows: Revenues $2,474 Operating and maintenance 294 Real estate taxes 298 Depreciation (1) 432 Interest (1) 1,176 ------- 2,200 ------- 274 Ownership interest 50% Equity in net income of joint venture $ 137 ====== (1) Determined depreciation utilizing a 31.5 year life for building based on the preliminary purchase price allocation and calculated interest at the effective interest rate associated with the mortgage debt assumed. The Company's purchase price is anticipated to be funded through the use of cash and the issuance of OP Units. The minority interest expense associated with these OP Units is estimated to be $63 for the year ended December 31, 1997. There can be no assurance that the Company will acquire an ownership interest in the Probable Acquisition Property. (f) Reflects the reduction of interest costs relating to variable rate indebtedness effectively repaid with the proceeds from the sale of 3,350,000 common shares completed in January 1997. (g) Reflects the net increase in interest cost of $66 relating to variable rate indebtedness repaid with the proceeds from the sale of $75 million 7.125% Pass-through Assets Trust Securities completed in March 1997. Pro forma interest is estimated at $1,103 and interest savings on the variable rate indebtedness repaid is estimated at $1,037. (h) Reflects the reduction of interest costs relating to variable rate indebtedness effectively repaid with the proceeds from the sale of 1,300,000 common shares completed in June 1997. (i) Reflects the net increase in interest cost of $15 relating to the variable rate indebtedness repaid with the proceeds from the $202 million Medium Term Notes completed in 1997 and 1998. Pro forma interest incurred for the year ended December 31, 1997 on the Medium Term Notes is estimated at $483 and interest savings on the variable rate indebtedness repaid is estimated at $468. Pro forma interest expense is calculated based on the amount of proceeds assumed to be used to fund the properties acquired in 1997 and 1998 which had operating history. Shopping Centers with no operating history, or which were in lease up prior to the Company's acquisition, were not deemed to be acquired by the Company until the actual acquisition date, therefore, the remaining proceeds were not considered to be received until the earlier of the date of issuance or the date the remaining 1997 and 1998 shopping centers were acquired. F-33 39 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- (j) The issuance of 507,960 common shares completed in September 1997, or utilization of the proceeds derived from the sale thereof, are not reflected herein prior to their issuance as the proceeds were considered to be used to acquire shopping centers with no previous operating history and/or for properties under development. Accordingly, the Company would not have issued these securities until the earlier the date of issuance or the date the centers were acquired. (k) The issuance of 316,800 common shares completed in December 1997, or utilization of the proceeds derived from the sale thereof, are not reflected herein prior to their issuance as the proceeds were considered to be used to acquire shopping centers with no previous operating history and/or for properties under development. Accordingly, the Company would not have issued these securities until the earlier the date of issuance or the date the centers were acquired. (l) Represents the elimination of the minority interest expense due to the purchase by the Company of the minority interest in a shopping center located in North Olmsted, Ohio in March 1998. (m) The general and administrative expenses of the Company have been adjusted by $750 to reflect the expected increased expenses estimated to be incurred associated with additional operating personnel and related costs attributable to acquisitions and development activities. (n) Pro forma income per common share is based upon the weighted average number of common shares assumed to be outstanding during 1997 and includes all shares issued in conjunction with the 3,350,000 common share offering in January 1997 and the 1,300,000 common share offering completed in June 1997. The 507,960 shares issued in September 1997 and the 316,800 shares issued in December 1997 were reflected in the pro forma statement of operations only from the date of issuance as the proceeds were not considered to be received until the date the newly developed shopping centers were acquired in 1997 and 1998, since such centers had no operating history. Since the acquisition of Easton Market in Columbus, Ohio is assumed to have occurred on December 31, 1997, as it had no operating results prior to that time, the operating partnership units are excluded from the calculation. F-34 40 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------- In accordance with the SFAS 128, earnings per share before extraordinary item is calculated as follows: Income before extraordinary item $ 69,650 Less: Preferred stock dividend (14,200) --------- Basic EPS - Income before extraordinary item applicable to common shareholders $ 55,450 ========= Diluted EPS - Income before extraordinary item applicable to common shareholders plus assumed conversions $ 55,719 ========= NUMBER OF SHARES: Basic - average shares outstanding Effect of dilutive securities: 26,625 Stock options 176 Restricted stock 3 --------- Diluted Shares 26,804 ========= PER SHARE AMOUNT: Income before extraordinary item Basic 2.08 ========= Diluted 2.07 =========
F-35 41 DEVELOPERS DIVERSIFIED REALTY CORPORATION ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE - ------------------------------------------------------------------------------- (Unaudited) The following unaudited statement is a pro forma estimate of taxable income and funds available from operations of the Company for the year ended December 31, 1997. The pro forma statement is based on the Company's historical operating results for the twelve-month period ended December 31, 1997 adjusted for the effect of (i) historical operations of the twelve Acquisition Properties and the Probable Acquisition Properties, (ii) Medium Term Notes offerings completed in 1997 and 1998, (iii) 3,500,000 common share offering completed in January 1997, (iv) Pass-through Asset Trust Securities issued in March 1997, (v) 1,300,000 common share offering completed in June 1997, (vi) 509,760 common share offering completed in September 1997, (vii) 316,800 common share offering completed in December 1997 and (viii) the purchase by the Company of a partner's minority interest in one shopping center and certain other items related to operations which can be factually supported. This statement does not purport to forecast actual operating results for any period in the future. This statement should be read in conjunction with (i) the 1997 historical financial statements included on the Company's Form 10-K for the year ended December 31, 1997 and (ii) the pro forma condensed financial statements of the Company included elsewhere herein.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS): DDRC historical net income, exclusive of property depreciation and amortization (Note 1) .............................. $ 99,835 Acquisition Properties - historical earnings from operations, as adjusted, exclusive of depreciation and amortization (Note 2) .......................................................................... 3,043 Probable Acquisition Properties - historical earnings from operations, as adjusted, exclusive of depreciation and amortization (Note 2) ............................................................................. 1,621 Pro forma adjustments reflecting the purchase of minority interests ................................................... (65) Pro forma adjustments arising from the utilization of the proceeds from the issuance of Medium Term Notes to repay variable rate indebtedness ..................................................................... 15 Pro forma adjustments reflecting the decrease in interest expense arising from the utilization of the proceeds from the 3,350,000 common share offering .............................................................. 316 Pro forma adjustments arising reflecting the increase in interest expense from the utilization of the proceeds from the issuance of Pass-through Asset Trust Securities to repay variable rate indebtedness ....................................................................................................... (66) Pro forma adjustments arising from the utilization of the proceeds from the 1,300,000 common share offering ..................................................................................................... 1,771 Pro forma adjustments arising from the utilization of the proceeds from the 507,960 common share offering ..................................................................................................... - Pro forma adjustments arising from the utilization of the proceeds from the 316,800 common share offering ..................................................................................................... - Estimated tax depreciation and amortization (Note 3): Estimated 1997 tax depreciation and amortization ...................................................................... (25,088) Pro forma tax depreciation for Properties acquired during 1997 (527) Pro forma tax depreciation for Properties acquired during 1998 ........................................................ (2,069) Pro forma tax depreciation for Probable Acquisition Property (620) --------- Pro forma taxable income before dividends deduction ................................................................... 78,166 Estimated dividends deduction (Note 4) ............................................................................ (81,295) --------- $ (3,129) ========= Pro forma taxable net operating income ................................................................................ $ - ========= ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS): Pro forma taxable operating income before dividend deduction .......................................................... $ 78,166 Add pro forma depreciation ........................................................................................ 28,304 Estimated pro forma operating funds available (Note 5) ................................................................ $ 106,470 =========
F-36 42 DEVELOPERS DIVERSIFIED REALTY CORPORATION ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE - -------------------------------------------------------------------------------- (Unaudited) Note 1 - The historical earnings from operations represents the Company's earnings from operations for the twelve months ended December 31, 1997 as reflected in the Company's historical financial statements. Note 2 - The historical earnings from operations for the properties acquired during 1997 represent the revenues and certain expenses as referred to in the pro forma condensed consolidated statement of operations for the year ended December 31, 1997 included elsewhere herein. Note 3 - Tax depreciation for the Company is based upon the Company's tax basis in the properties which exceeds the historical cost basis, as reflected in the Company's financial statements in accordance with generally accepted accounting principles, by approximately $18 million before accumulated depreciation. The costs are generally depreciated on a straight-line method over a 40-year life for tax purposes. Note 4 - Estimated dividends deduction is calculated as follows: Common share dividend (26,625,000 shares x $2.52 per share) $ 67,095 Class A Preferred Shares 10,011 Class B Preferred Shares 4,189 ---------- $ 81,295
Note 5 - Operating funds available does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. F-37 43 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DEVELOPERS DIVERSIFIED REALTY CORPORATION Date April 23, 1998 /s/ William H. Schafer ----------------------- -------------------------------------------- William H. Schafer Vice President and Chief Financial Officer F-38 EX-23 2 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 333-37067 and 333-05565) of Developers Diversified Realty Corporation of our reports dated January 18, 1998 relating to the combined statement of revenue and certain expenses of The Columbus Properties and the statement of revenue and certain expenses of Lennox Town Center, Sun Center, Dublin Village Center and Washington Park Plaza and our report dated April 14, 1998 relating to the statement of revenue and certain expenses of Belair Centre, all of which appear in the Current Report on Form 8-K of Developers Diversified Realty Corporation dated February 25, 1998. PRICE WATERHOUSE LLP Cleveland, Ohio April 23, 1998 -----END PRIVACY-ENHANCED MESSAGE-----