-----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, NXSRwcACKyIBKwJdxDQ0Su2sK4ddIRdZhB+NWS2TTjo3KUQqpSQCa7NF9uOsZa1n rnZZKmRaVjRdAG1GMWincg== 0000950152-98-005500.txt : 19980625 0000950152-98-005500.hdr.sgml : 19980625 ACCESSION NUMBER: 0000950152-98-005500 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980428 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980624 SROS: NYSE 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 SEC ACT: SEC FILE NUMBER: 001-11690 FILM NUMBER: 98652867 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 1 DEVELOPERS DIVERSIFIED REALTY CORP. 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) April 28, 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 ITEM 5. OTHER EVENTS During the period April 23, 1998 (the date of the most recent current report on Form 8-K disclosing the Company's acquisitions as of that date) through June 19, 1998, as a result of individual transactions with Continental Real Estate Companies of Columbus, Ohio, the Company completed the acquisition, or investment therein, of three shopping centers, two of which were acquired through the purchase of joint venture interests. Combined, these shopping centers will have approximately 1.0 million square feet of total gross leasable area. The Company's proportionate share of the investment cost will be approximately $93.4 million upon completion of approximately 345,000 square feet of gross leasable area which is currently under construction. The portion under construction has an estimated cost of approximately $42.4 million and the Company is scheduled to close on this investment periodically throughout 1998. In addition, the Company also acquired the remaining interest in a 584,000 square foot shopping center and an adjacent pad site in Princeton, New Jersey. The total cost of this property aggregated approximately $37.3 million of which $29.5 million was funded in April 1998. These four properties are referred to herein as the "Acquired Properties". The Company has entered into an agreement with Hermes Associates, LTD. ("Hermes" or "The Family Center Properties"), to acquire nine shopping centers, an office building and nine additional expansion, development or redevelopment projects located in the Western United States as well as the Hermes operating/management company. Combined, these shopping centers will have approximately 2.8 million square feet of total gross leasable area and an estimated purchase price of approximately $310 million. The Hermes operating company has no third party revenue producing contracts but rather supports the management of The Family Center Properties. The Company has also entered into an agreement with the Sansone Company ("Sansone" or "The Sansone Properties") to (i) acquire fifteen shopping centers, aggregating approximately 1.6 million square feet of gross leasable area, (ii) form a joint venture, in which the Company will own a 50% interest, to pursue projects in the Sansone development pipeline and to create new development opportunities throughout the central Midwest, and (iii) acquire a 50% interest in the Sansone's operating/management company. The Company's estimated net investment in this transaction is approximately $172 million. In addition, the Company has entered into an agreement with an affiliate of OPUS Corporation to acquire the Phase II development of a 156,000 square foot shopping center in Tanasbourne, Oregon at an estimated purchase price of approximately $22.1 million. These properties are referred to herein as the "Probable Acquisition Properties." Although the Company believes it is probable that these acquisitions will occur, there can be no assurance that the purchase transactions will be consummated. Information regarding the Acquired Properties and the Probable Acquisition Properties is attached as SCHEDULE A. The acquisition of, or investment in, the Acquired Properties were, or with respect to the Probable Acquisition Properties will be, pursuant to 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 and related operating companies 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 3 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, and the three month periods ended March 31, 1998 and 1997 (unaudited) for the following shopping center portfolios: - The Family Center Properties (Probable Acquisition Properties) - The Sansone Properties (Probable Acquisition Properties) - - Statements of revenue and certain expenses for the three month period ended March 31, 1998 (unaudited) for the following operating shopping centers: - Dublin Village Square (Acquired Property) - Washington Park Plaza (Acquired Property) As noted below, financial statements (audited) for the year ended December 31, 1997 for these properties were presented in the Company's Form 8-K/A dated February 25, 1998. A statement of revenue and certain expenses for the three month period ended March 31 1998 (unaudited) is not presented for Easton Market (Acquired Property) because the property is under development and, accordingly, the related operating information would not be meaningful. - - A statement of revenue and certain expenses for the three month period ended March 31 1998 (unaudited) is not presented for Tanasbourne, Oregon (Probable Acquisition Property) because the property is in the final development stage, and accordingly, the related historical operating information would not be meaningful. Audited statements of revenue and certain expenses for the year ended December 31, 1997 for the properties acquired from Continental Real Estate Companies of Columbus, Ohio were filed (prior to acquisition) in the Company's current report on Form 8-K/A dated February 25, 1998. A statement of revenue and certain expenses was not presented for Easton Market in the February 25, 1998 Form 8-K/A because the property was under development and, accordingly, the related operating information would not be meaningful. Financial information for the shopping center acquired in Princeton, New Jersey is not presented as it is not considered material. 4 PRO FORMA FINANCIAL INFORMATION (UNAUDITED) Unaudited pro forma financial information for the Company is presented as follows: - - Pro forma condensed consolidated balance sheet as of March 31, 1998. - - Pro forma condensed consolidated statement of operations for the three month period ended March 31, 1998 and the year ended December 31, 1997. - - Estimated twelve-month pro forma statement of taxable net operating income and operating funds available. EXHIBITS - -------- 3.1 Amendments to Amended and Restated Articles of Incorporation of the Company 10.1 1998 Developers Diversified Realty Corporation Equity-Based Award Plan (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 - ------------------------------------------------------------------------------------------------------------------------- Washington Plaza Dayton, Ohio (1) 04/28/98 169,816 100.0% 1990 PharMor and Books a Million Dublin Village Center AMC Theater, PharMor, Michael's and Columbus, Ohio (2) 04/28/98 327,264 92.2% 1987 Designer Shoe Warehouse Easton Market Galyan's, Kittler Furniture, Bed Bath & Columbus, Ohio 04/28/98 508,334 94.5% 1998 Beyond, TJ Maxx and PETsMART Tanasbourne Town Center Probable Office Depot, Haggan Portland, OR Acquisition 155,892 96.0% 1995 Supermarket, Barnes & Noble, Mervyn's Nassau Park Border's Books, Best Buy, Linens & Things, Princeton, NJ 04/28/98 202,121 100.0% 1995 Petsmart, Walmart, Sam's (1) Property owned through a joint venture in which the Company owns a 50% interest. (2) Property owned through a joint venture in which the Company owns approximately an 80% interest.
6 SCHEDULE A (Continued)
Developers Diversified Realty Corporation Family Center Properties Portfolio Company Date of Owned Percent Year Shopping Center Acquisition Square Feet Occupied Completed* Principal Tenants - ---------------------------------------------------------------------------------------------------------------------------------- Cineplex Odeon, Future Shop, Gart Sports, Shopko, Family Center at Midvalley Probable Bently Square, Circuit City, Media Play, Office Max, Taylorsville, UT Acquisition 848,043 98.87% 1982 Petsmart, Bed Bath & Beyond, Barnes&Noble, TJ Maxx Family Center at Fort Union Probable Smith's, Mervyn's, Office Max, Deseret Book, Midvale, UT Acquisition 657,077 90.49% 1973 Babies R Us, Walmart, Future Shop,Media Play Family Center at Riverdale Probable Walmart, Gart Sports, Office Max, Circuit City, Riverdale, UT Acquisition 772,227 98.76% 1991 Media Play, Target, Babies R Us Hermes Building Probable Salt Lake City, UT Acquisition 53,749 100.00% 1986 Family Center at Orem Probable Orem, UT Acquisition 161,503 100.00% 1992 Kids R Us, Media Play, Office Depot Family Center at Ogden Probable Ogden, UT Acquisition 170,219 93.19% 1977 Harmon's Supermarket Family Center at 33rd Street Probable Salt Lake City, UT Acquisition 39,090 100.00% 1978 Family Place at Logan Probable Logan, UT Acquisition 19,200 100.00% 1973 Family Center at Las Vegas Probable Las Vegas, NV Acquisition 61,615 94.32% 1973 Family Center at Rapid City Probable Rapid City, UT Acquisition 35,544 84.70% 1978
*Represents year in which initial building was completed Several expansions may have occurred subsequent to this date. 7 SCHEDULE A (Continued) Developers Diversified Realty Corporation Sansone Properties Portfolio
Company Date of Owned Percent Year Shopping Center Acquisition Square Feet Occupied Completed Principal Tenants - ----------------------------------------------------------------------------------------------------------------------------- Plaza at Sunset Hill Probable Homeplace, Marshall's, Home Depot, and St. Louis, MO Acquisition 328,850 95% 1997 Petsmart Shoppes at Sunset Hill Probable St. Louis, MO Acquisition 97,678 94% 1998 Comp USA, Toys R Us, and Cost Plus Promenade at Brentwood Probable Target, Sports Authority, and St. Louis, MO Acquisition 299,205 100% 1998 Petsmart Northland Square Probable Cedar Rapids, IA Acquisition 187,068 100% 1994 TJ Maxx, Office Max, Barnes &Noble, and Kohl's Olympic Oaks Village Probable St. Louis, MO Acquisition 92,399 95% 1985 TJ Maxx Gravois Village Probable St. Louis, MO Acquisition 110,992 97% 1983 KMart Morris Corners Probable Springfield, MO Acquisition 56,033 100% 1989 Toys R Us Keller Plaza Probable St. Louis, MO Acquisition 52,842 100% 1988 Wehrenberg Theatres, and County Government Southtowne Probable St. Louis, MO Acquisition 144,808 100% 1995 Home Quarters Warehouse Home Quarters Probable St. Louis, MO Acquisition 100,911 100% 1992 Home Quarters American Plaza Probable Home Depot, Sears Roebuck & Co, Sweet St. Louis, MO Acquisition 17,500 100% 1998 Traditions, and American Walgreen Probable St. Louis, MO Acquisition 25,855 54% 1998 Walgreen Walgreen Probable Brentwood, MO Acquisition 17,504 100% 1988 Walgreen Walgreen Plaza Probable St. Louis, MO Acquisition 15,437 100% 1988 Walgreen Walgreen Probable Springfield, MO Acquisition 13,905 100% 1998 Walgreen
8 DEVELOPERS DIVERSIFIED REALTY CORPORATION INDEX TO FINANCIAL STATEMENTS MARCH 31, 1998 - -------------------------------------------------------------------------------
PAGE ---- THE FAMILY CENTER PROPERTIES Report of Independent Accountants ...................................... F-2 Combined Statement of Revenue and Certain Expenses for the year ended December 31, 1997 and (unaudited) three month periods ended March 31, 1998 and 1997 ............................................. F-3 Notes to Combined Statement of Revenue and Certain Expenses ............ F-4 THE SANSONE PROPERTIES Report of Independent Accountants ...................................... F-6 Combined Statement of Revenue and Certain Expenses for the year ended December 31, 1997 and (unaudited) three month periods ended March 31, 1998 and 1997 ....................................................... F-7 Notes to Combined Statement of Revenue and Certain Expenses ............ F-8 DUBLIN VILLAGE CENTER Statement of Revenue and Certain Expenses for the three month period ended March 31, 1998 (unaudited) ................................. F-11 Notes to Statement of Revenue and Certain Expenses .................. F-12 WASHINGTON PARK PLAZA Statement of Revenue and Certain Expenses for the three month period ended March 31, 1998 (unaudited) ................................ F-14 Notes to Statement of Revenue and Certain Expenses .................... F-15 DEVELOPERS DIVERSIFIED REALTY CORPORATION (PRO FORMA - UNAUDITED): Condensed Consolidated Balance Sheet as of March 31, 1998 ............. F-17 Condensed Consolidated Statement of Operations for the three month period ended March 31, 1998 and for the year ended December 31, 1997 F-21 Estimated Twelve Month Pro Forma Statement of Taxable Net Operating Income and Operating Funds Available ............................... F-32
F-1 9 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 of The Family Center 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 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 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 Family Center 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 Family Center 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 June 16, 1998 F-2 10 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE FAMILY CENTER PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES - -------------------------------------------------------------------------------
Three Month Period Ended Year Ended ------------------------------- December 31, March 31, 1998 March 31, 1997 1997 --------------- -------------- ---------- (Unaudited) (Unaudited) Revenue: Minimum rents ..................... $ 4,628,337 $ 4,615,650 $18,176,955 Percentage and overage rents ...... 108,489 105,762 425,449 Recoveries from tenants ........... 737,404 748,011 3,444,742 Other income ...................... 3,353 7,016 20,525 ----------- ----------- ----------- 5,477,583 5,476,439 22,067,671 ----------- ----------- ----------- Certain expenses: Operating and maintenance ........ 558,251 439,299 2,843,614 Real estate taxes ................ 522,033 553,405 1,811,990 General and administrative ....... 280,141 259,137 1,117,795 ----------- ----------- ----------- 1,360,425 1,251,841 5,773,399 ----------- ----------- ----------- Revenue in excess of certain expenses $ 4,117,158 $ 4,224,598 $16,294,272 =========== =========== ===========
The accompanying notes are an integral part of this combined statement of revenue and certain expenses. F-3 11 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE FAMILY CENTER PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES 1. OPERATIONS For purposes of the accompanying combined statement of revenue and certain expenses, The Family Center Properties represent certain shopping center properties and one office property ("Properties"), and their management operations which Developers Diversified Realty Corporation (the "Company") intends to acquire in 1998. A summary of the Properties is as follows:
NAME OF PROPERTY LOCATION YEAR BUILT --------------------------------------- ---------------- ------- Family Center at Midvalley, South Phase Taylorsville, UT 1982 Family Center at Midvalley, North Phase Taylorsville, UT 1992 Family Center at Fort Union, Phases I&II Midvale, UT 1973 Family Center at Fort Union, Phases III Midvale, UT 1995 Family Center at Riverdale, North Phase Riverdale, UT 1991 Family Center at Riverdale, South Phase Riverdale, UT 1995 Hermes Building Office Complex Salt Lake City, UT 1986 Family Center at Orem Orem, UT 1992 Family Center at Ogden 5-Points Ogden, UT 1977 Family Center at 33rd South Salt Lake City, UT 1978 Family Place at Logan Logan, UT 1973 Family Center at Las Vegas Las Vegas, NV 1973 Family Center at Rapid City Rapid City, UT 1978
A combined statement of revenue and certain expenses has been presented because the Properties have varying ownership interests in common, are under common control and management and will be purchased through a single transaction. The operating results of three shopping centers under development and six shopping center expansions at the above listed properties, although forming part of the same transaction with the Company, are not reflected in the accompanying combined statement of revenue and certain expenses as no historical financial information exists. 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. F-4 12 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE FAMILY CENTER PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES - ------------------------------------------------------------------------------ The accompanying combined financial statement is not representative of the actual operations for the periods 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, gain on sales of assets and other revenues unrelated to the continuing operations of the Properties. Expenses excluded consist of depreciation on the building and improvements, and amortization of intangible assets, interest expense and certain professional fees and administrative costs not directly related to the future operations of the Properties, primarily payroll associated with the former principals of the Properties. INCOME RECOGNITION Rental income is recorded on the straight line basis. CONCENTRATION OF RISK The Family Center Properties' tenant base includes primarily national and regional retail chains and local retailers, consequently, the Properties' credit risk is concentrated in the retail industry. There were no tenants which individually represented greater than 10% of combined revenues. Revenues derived from the Properties' four largest tenants totaled 27% of total combined minimum rents for the year ended December 31, 1997. GENERAL AND ADMINISTRATIVE EXPENSES Included in general and administrative expenses are costs associated with the property management operations. INTERIM STATEMENTS The interim financial data for the three months ended March 31, 1998 and 1997 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results for the periods presented are not necessarily indicative of the results for the full year. 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. F-5 13 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 Sansone 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 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 Sansone 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 Sansone 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 June 16, 1998 F-6 14 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE SANSONE PROPERTIES COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES - -------------------------------------------------------------------------------
Three Month Period Ended Year Ended ---------------------------------- December 31, March 31, 1998 March 31, 1997 1997 -------------- --------------- ----------- (Unaudited) (Unaudited) Revenue: Minimum rents $ 2,563,564 $ 2,276,337 $ 9,245,612 Percentage and overage rents 20,692 -- 19,330 Recoveries from tenants 537,424 533,638 2,191,093 Other income 70,940 70,817 180,484 ----------- ----------- ----------- 3,192,620 2,880,792 11,636,519 ----------- ----------- ----------- Certain expenses: Operating and maintenance 369,351 424,188 1,295,430 Real estate taxes 409,017 374,388 1,521,879 ----------- ----------- ----------- 778,368 798,576 2,817,309 ----------- ----------- ----------- Revenue in excess of certain expenses $ 2,414,252 $ 2,082,216 $ 8,819,210 =========== =========== ===========
The accompanying notes are an integral part of this combined statement of revenue and certain expenses. F-7 15 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE SANSONE PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES - ------------------------------------------------------------------------------- 1. OPERATION OF PROPERTIES For purposes of the accompanying combined statement of revenue and certain expenses, The Sansone 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 ---------------------------------- ---------------------------- --------- Plaza at Sunset Hill St. Louis, MO 1997 Northland Square Cedar Rapids, IA 1994 Olympic Oaks Village St. Louis, MO 1985 Gravois Village St. Louis, MO 1983 Morris Corners Springfield, MO 1989 Keller Plaza St. Louis, MO 1988 Southtowne St. Louis, MO 1995 Home Quarters St. Louis, MO 1992 Walgreen Brentwood, MO 1988 Walgreen Plaza St. Louis, MO 1988
A combined statement of revenue and certain expenses has been presented because the Properties have varying ownership interests in common, are under common control and management and will be purchased through a single transaction. During the period 1995-1997, Plaza at Sunset Hill was redeveloped and expanded. The combined statement of revenue and certain expenses includes the results of Plaza at Sunset Hill for the year ended December 31, 1997 which reflects the operating results of an expansion for only a portion of the year. The expansion, representing approximately 30% of the GLA, was completed in 1997. F-8 16 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE SANSONE PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES - ------------------------------------------------------------------------------- The following shopping centers, which the Company also intends to acquire pursuant to the same purchase agreement, are not reflected in the accompanying combined statement of revenue and certain expenses since these centers were either under development or in the lease-up phase during the periods presented:
Center Name Location Year Built ----------- -------- ---------- Shoppes at Sunset Hill St. Louis, MO 1998 Promenade at Brentwood St. Louis, MO 1998 American Plaza St. Louis, MO 1998 Walgreens St. Louis, MO 1998 Walgreens Springfield, MO 1998
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 periods 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 and other revenues unrelated to the continuing operations of the Properties. Expenses excluded consist of depreciation on the buildings and improvements and amortization of organization costs and other intangible assets, interest expense, professional fees, charitable contributions, leasing commissions and other general and administrative costs not directly related to the future operations of the Properties. INCOME RECOGNITION Rental income is recorded on the straight line basis. F-9 17 DEVELOPERS DIVERSIFIED REALTY CORPORATION THE SANSONE PROPERTIES NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES - ------------------------------------------------------------------------------- CONCENTRATION OF RISK The Sansone Properties' tenant base includes primarily national and regional retail chains and local retailers, consequently, the Properties' credit risk is concentrated in the retail industry. For the year ended December 31, 1997, revenues derived from the Properties largest tenants, HomeQuarters Warehouse and the next four largest tenants, aggregated 11.7% and 27.0%, respectively, of total combined minimum rental revenues. INTERIM STATEMENTS The interim financial data for the three months ended March 31, 1998 and 1997 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results for the periods presented are not necessarily indicative of the results for the full year. 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. 3. RELATED PARTY TRANSACTION ------------------------- The Sansone Group, a property management Company controlled by the principals of The Sansone Properties, provided services to the Properties for all periods presented. The management fee is determined on a property by property basis pursuant to property management contracts which generally provide for a management fee calculated as 5% of rental revenue. The Company expects to acquire a 50% interest in The Sansone Group and plans to retain the management services provided to the Properties. Such management fees are included in operating and maintenance expenses in the accompanying combined statement of revenues and certain expenses and aggregated approximately $410,000 for the year ended December 31, 1997. 4. COMMITMENTS ----------- The Morris Corners Property is subject to a ground lease requiring payments of $19,978 per month through December 31, 2015. Included in operating and maintenance expense for the year ended December 31, 1997 is $239,736 of expense associated with this ground lease. F-10 18 DEVELOPERS DIVERSIFIED REALTY CORPORATION DUBLIN VILLAGE CENTER STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998 - ------------------------------------------------------------------------------- (Unaudited)
Revenue: Minimum rents $ 904,543 Percentage and overage rents 2,841 Recoveries from tenants 193,673 Other income 9,214 ---------- 1,110,271 ---------- Certain expenses: Operating and maintenance 81,246 Real estate taxes 135,577 ---------- 216,823 ---------- Revenue in excess of certain expenses $ 893,448 ==========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-11 19 DEVELOPERS DIVERSIFIED REALTY CORPORATION DUBLIN VILLAGE CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998 - ------------------------------------------------------------------------------- (Unaudited) 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") acquired an equity interest of approximately 80% in the Property on April 28, 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, professional fees, charitable contributions, 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. F-12 20 DEVELOPERS DIVERSIFIED REALTY CORPORATION DUBLIN VILLAGE CENTER NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998 - ------------------------------------------------------------------------------- (Unaudited) 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 largest tenants, AMC Theaters and Phar Mor, aggregated 25.3% and 7.3%, respectively, of total minimum base rental revenues for the period ended March 31, 1998. INTERIM STATEMENTS The interim financial data for the three months ended March 31, 1998 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim period. The results for the period presented are not necessarily indicative of the results for the full year. F-13 21 DEVELOPERS DIVERSIFIED REALTY CORPORATION WASHINGTON PARK PLAZA STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998 - ------------------------------------------------------------------------------ (Unaudited)
Revenue: Minimum rents $485,725 Recoveries from tenants 155,509 Other income 16,795 -------- 658,029 -------- Certain expenses: Operating and maintenance 88,433 Real estate taxes 78,000 -------- 166,433 -------- Revenue in excess of certain expenses $491,596 ========
The accompanying notes are an integral part of this statement of revenue and certain expenses. F-14 22 DEVELOPERS DIVERSIFIED REALTY CORPORATION WASHINGTON PARK PLAZA NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998 - ------------------------------------------------------------------------------- (Unaudited) 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") acquired a 50% equity interest in the Property on April 28, 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 operation 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, professional fees, charitable contributions, and other general and administrative costs not directly related to the future operation 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-15 23 DEVELOPERS DIVERSIFIED REALTY CORPORATION WASHINGTON PARK PLAZA NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES FOR THE THREE MONTHS ENDED MARCH 31, 1998 - -------------------------------------------------------------------------------- (Unaudited) 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 largest tenants, Pharmor and CVC International, aggregated 19.1% and 12.5%, respectively, of total minimum base rental revenues for the period ended March 31, 1998. INTERIM STATEMENTS - ------------------ The interim financial data for the three months ended March 31, 1998 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim period. The results for the period presented are not necessarily indicative of the results for the full year. F-16 24 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 - -------------------------------------------------------------------------------- (Unaudited) The following unaudited pro forma condensed consolidated balance sheet is presented as if the following had occurred on March 31, 1998: (i) the Company's acquisition of four shopping centers or interests therein which occurred subsequent to March 31, 1998 ("Acquired Properties"); (ii) the proposed acquisition of The Family Center Properties; (iii) the proposed acquisition of The Sansone Properties; (iv) the proposed acquisition of Phase II of a shopping center in Tanasbourne, Oregon and (v) the sale by the Company of 669,639 common shares completed in April 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's Forms 10-Q and 10-K for the three month period ended March 31, 1998 and the year ended December 31, 1997, respectively. 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 March 31, 1998, nor does it purport to represent the future financial position of the Company. F-17 25 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 - -------------------------------------------------------------------------------- (IN THOUSANDS) (Unaudited)
Pro Forma Adjustments (Unaudited) --------------------------------- (a) (b) (c) The Family The Company Acquired Center Sansone Historical Properties Properties Properties ----------- ----------- ----------- ----------- Assets: Real estate, net $ 1,265,710 $ 54,363 $ 310,000 $ 152,000 Other real estate investments 7,760 (7,760) Cash and cash equivalents 14,101 (14,101) Other assets 32,704 Investment in and advances to joint ventures 162,977 8,351 20,000 ----------- ----------- ----------- ----------- Total Assets $ 1,483,252 $ 40,853 $ 310,000 $ 172,000 =========== =========== =========== =========== Liabilities: Indebtedness: Fixed rate senior notes $ 492,036 $ - $ - $ - Subordinated convertible debentures 44,142 Revolving credit agreements and other unsecured debt 95,000 8,946 195,700(f) 142,100(f) Mortgages payable 136,927 27,780 31,300 29,900 ----------- ----------- ----------- ----------- Total indebtedness 768,105 36,726 227,000 172,000 Other liabilities 43,375 ----------- ----------- ----------- ----------- Total liabilities 811,480 36,726 227,000 172,000 Operating partnership minority interests 3,151 4,127 83,000 Shareholders' equity: Class A Preferred Shares 105,375 Class B Preferred Shares 44,375 Common shares 2,782 Paid-in-capital 584,648 Accumulated dividends in excess of net income (68,098) ----------- ----------- ----------- ----------- 669,082 - - - Less: Unearned compensation restricted stock (461) ----------- ----------- ----------- ----------- 668,621 - - ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $ 1,483,252 $ 40,853 $ 310,000 $ 172,000 =========== =========== =========== =========== Pro Forma Adjustments (Unaudited) ----------------------------- (d) (e) Tanasbourne, Oregon Common Company Pro Shopping Stock Forma Center Offering (Unaudited) ----------- ----------- ----------- Assets: Real estate, net $ 22,100 $ - $ 1,804,173 Other real estate investments - Cash and cash equivalents - Other assets 32,704 Investment in and advances to joint ventures 191,328 ----------- ----------- ----------- Total Assets $ 22,100 $ - $ 2,028,205 =========== =========== =========== Liabilities: Indebtedness: Fixed rate senior notes $ - $ - $ 492,036 Subordinated convertible debentures 44,142 Revolving credit agreements and other unsecured debt 22,100(f) (25,260) 438,586(f) Mortgages payable 225,907 ----------- ----------- ----------- Total indebtedness 22,100 (25,260) 1,200,671 Other liabilities 43,375 ----------- ----------- ----------- Total liabilities 22,100 (25,260) 1,244,046 ----------- ----------- ----------- Operating partnership minority interests 90,278 Shareholders' equity: Class A Preferred Shares 105,375 Class B Preferred Shares 44,375 Common shares 67 2,849 Paid-in-capital 25,193 609,841 Accumulated dividends in excess of net income (68,098) ----------- ----------- ----------- - 25,260 694,342 Less: Unearned compensation restricted stock (461) ----------- ----------- ----------- - 25,260 693,881 ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $ 22,100 $ - $ 2,028,205 =========== =========== ===========
F-18 26 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 - ------------------------------------------------------------------------------- (Unaudited) (a) Represents the purchase of, or investment in, the four Acquired Properties. The initial purchase price, before any contingent consideration that may be payable to the sellers, is as follows (in thousands):
Easton Nassau Washington Dublin Market Park Park Plaza Village Total ------ ---- ---------- ------- ----- Purchase Price or Investment: Real estate, net $17,025 $29,578 $ -- $ -- $46,603(i) Investment in and advance to joint venture properties -- -- 1,370 6,981 8,351 ------- ------- ------- ------- ------- $17,025 $29,578 $ 1,370 $ 6,981 $54,954 ======= ======= ======= ======= ======= Purchase price consideration provided by: Cash Revolving credit facility $14,101 $ -- $ -- $ -- $14,101 2,924 -- -- 6,022 8,946 Mortgages assumed -- 27,780 -- -- 27,780 Issuances of operating partnership units -- 1,798 1,370 959 4,127(ii) ------- ------- ------- ------- ------- $17,025 $29,578 $ 1,370 $ 6,981 $54,954 ======= ======= ======= ======= =======
(i) Balance sheet adjustment also reflects reclassification of $7,760 from other real estate investments which represents the Company's initial equity interest in the Nassau Park shopping center purchased prior to December 31, 1997. (ii) Represents the issuance of an aggregate of 105,546 operating partnership units as a portion of the consideration relating to the acquisition of certain shopping centers. These units are, in certain circumstances, and at the option of the Company, exchangeable into the Company's common shares on a one for one basis. (b) Represents the purchase of The Family Center Properties, which are considered by the Company to be probable acquisitions as of June 19, 1998, although there is no assurance that the transaction will be consummated. The initial purchase price, before any contingent consideration that may be payable to the sellers, is summarized as follows (in thousands): Approximate purchase price - Real estate, net $310,000 ======== Assumed purchase price consideration to be provided by: Revolving credit agreements and other unsecured debt $195,700 Mortgages assumed 31,300 Issuance of operating partnership units 83,000(i) -------- $310,000 ========
(i) Operating partnership units are, in certain circumstances and, at the option of the Company, exchangeable on a one-for-one basis into common shares of the Company. Assumes approximately 1,815,000 of operating partnership units are issued. In addition, the Company has guaranteed the value of the operating partnership units for the period two years from the date of issue. The guarantee is determined with reference to the common shares of the Company. The final number of operating partnership units will not be known until the date the transaction is consummated and after expiration of the guarantee period. F-19 27 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 1998 - ------------------------------------------------------------------------------ (Unaudited) (c) Represents the purchase of The Sansone Properties and the purchase of a 50% interest in a development joint venture and the operating and management company which are considered by the Company to be probable acquisitions as of June 19, 1998, although there is no assurance that these transactions will be consummated. The initial purchase price, before any contingent consideration that may be payable to the sellers, is summarized as follows (in thousands):
Approximate purchase price: Real estate, net $ 152,000 Investment in and advances to joint ventures 20,000(i) ----------- $ 172,000 =========== Assumed purchase price consideration to be provided by: Revolving credit agreements and other unsecured debt $ 142,100 Mortgages assumed 29,900 ----------- $ 172,000 ===========
(i) Investments in and advances to joint ventures include the Company's 50% joint venture interest in certain rights to future development projects and the Company's 50% joint venture interest in the Sansone management/operating company. (d) Represents the purchase of a 156,000 square foot Phase II of a shopping center in Tanasbourne, Oregon for total consideration of $22.1 million funded by proceeds received from revolving credit agreements and other unsecured debt. There can be no assurance that the transaction will be consumated. (e) Represents the sale by the Company of 669,639 common shares completed in April 1998 and the use of proceeds thereof. The net proceeds to the Company, after underwriting discounts and offering costs, were approximately $25.3 million and were used to repay borrowings under the revolving credit facilities. (f) For purposes of presenting pro forma information, the Company's anticipated cash requirements associated with the funding of acquisitions is assumed to be provided from the use of revolving credit facilities and other unsecured debt sources. Actual financings may differ from those assumed above. F-20 28 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THREE MONTH PERIOD ENDED MARCH 31, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 - ------------------------------------------------------------------------------- (Unaudited) The unaudited pro forma condensed statement of operations for the three month period ended March 31, 1998 is presented as if each of the following transactions had occurred on January 1, 1997; (i) the acquisition by the Company of those Acquired Properties which had an operating history, purchased from January 1, 1998 through June 19, 1998; (ii) the acquisition of The Family Center Properties and The Sansone Properties (Probable Acquisition Properties), which had an operating history and the purchase of a 50% interest in the Sansone's operating/management company; (iii) the sale by the Company of $100 million of Medium Term Notes in January 1998; (iv) the purchase by the Company of a partner's minority interest in one shopping center and (v) the sale by the Company of 669,639 common shares in April 1998. 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 those Acquired Properties which had an operating history, purchased from January 1, 1997 through June 19, 1998; (ii) the acquisition of The Family Center Properties and The Sansone Properties (Probable Acquisition Properties), which had an operating history and the purchase of a 50% interest in the Sansone's operating/management company; (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 an aggregate 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; (ix) the purchase by the Company of a partner's minority interest in one shopping center and (x) the sale by the Company of 669,639 common shares in April 1998. The following pro forma information is based upon the historical consolidated results of operations of the Company for the three month period ended March 31, 1998 and the 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's Forms 10-Q and 10-K for the three month period ended March 31, 1998 and the year ended December 31, 1997, respectively. 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-21 29 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - ------------------------------------------------------------------------------- (Unaudited)
Pro Forma Adjustments (Unaudited) ----------------------------------- The Family Company Acquired Center Historical Properties Properties ---------- ---------- ---------- Revenues from rental properties $46,273 $ 2,363(a) $5,478(e) Management fees and other income 3,226 ------- ------- ------ 49,499 2,363 5,478 ------- ------- ------ Operating and maintenance 4,054 299(a) 558(e) Real estate taxes 5,959 189(a) 522(e) Depreciation and amortization 9,136 462(a) 1,206(e) General and administrative expenses 2,932 250(d) 280(e) Interest expense 11,453 1,333(a) 2,048(e) 330(b) 190(c) ------- ------- ------ 33,534 3,053 4,614 ------- ------- ------ Income (loss) before equity in net income of joint ventures, gain on sale of land, allocation to minority interest and extraordinary item 15,965 (690) 864 Equity in net income (loss) of joint ventures 2,238 395(b) Minority equity interest (189) (41)(a) (1,189)(e) (38)(b) 179(c) ------- ------- ------ Income (loss) before extraordinary item 18,014 $ (195) $ (325) ======= ========== Less: preferred dividends 3,550 ------- Income before extraordinary item applicable to common shareholders $14,464 ======= Per share data: Earnings per common share before extraordinary item: Basic $ 0.52 ======= Diluted $ 0.50 ======= Weighted average number of common shares (in thousands): Basic 27,750 ======= Diluted 28,366 ======= Pro Forma Adjustments (Unaudited) -------------------------------------------- Tanasbourne, Common The Oregon Share and Company Sansone Shopping Debt Pro Forma Properties Center (g) Offerings (Unaudited) ---------- ----------- ----------- ------------ Revenues from rental properties $3,193(f) $ - $ - $57,307 Management fees and other income 3,226 ------ ----------- ----------- ------------ 3,193 60,533 ------ ----------- ----------- ------------ Operating and maintenance 369(f) 5,280 Real estate taxes 7,079 409(f) Depreciation and amortization 699(f) 11,503 General and administrative expenses 3,462 Interest expense 1,698(f) (434)(i) 16,618 - (h) ------ ----------- ----------- ------------ 3,175 (434) 43,942 ------ ----------- ----------- ------------ Income (loss) before equity in net income of joint ventures, gain on sale of land, allocation to minority interest and extraordinary item 18 434 16,591 Equity in net income (loss) of joint ventures (19)(f) 2,614 Minority equity interest (1,278) ------ ----------- ----------- ------------ Income (loss) before extraordinary item $ (1) $ -- $ 434 17,927 ====== ========== ========== Less: preferred share dividends 3,550 ------------ Income before extraordinary item applicable to common shareholders $ 14,377 ============ Per share data: Earnings per common share before extraordinary item: Basic $ 0.50(j) ============ Diluted $ 0.49(j) ============ Weighted average number of common shares (in thousands): Basic 28,420 ============ Diluted 29,036 ============
F-22 30 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - ------------------------------------------------------------------------------- (Unaudited) (a) Reflects revenues and expenses for the three month period ended March 31, 1998 of the properties acquired during 1998 through the date of acquisition as follows:
Effective Real Date of Estate Operating & Minority Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(1) Interest (1) Interest --------------- ----------- -------- ----- ----------- ------------- ------------ -------- Country Club Mall 02/25/98 $ 131 $ 19 $ 17 $ 25 $ 65 $ -- Belair Centre 03/10/98 875 65 162 159 445 -- The Columbus Properties (2) 03/23/98 1,357 105 120 278 823 41 ------ ------ ------ --------- ------ ------ $2,363 $ 189 $ 299 $ 462 $1,333 $ 41 ====== ====== ====== ========= ====== ======
(1) 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. (2) No revenues or expenses have been included in the pro forma statement of operations for Easton Market, one of The Columbus Properties, since the center was either under development or in lease-up prior to acquisition. (b) Reflects revenues and expenses for four joint ventures acquired in 1998 for the three month period ended March 31, 1998 through the earlier of the date of acquisition or March 31, 1998 as follows:
Lennox Town Washington Dublin Village Center Sun Center Park Plaza Center Columbus, OH Columbus, OH Dayton, OH Columbus, OH Total ------------ ------------ ---------- ------------ ----- Revenues $ 717 $ 889 $ 658 $1,110 $3,374 ------ ------ ------ ------ ------ Operating and maintenance 49 48 88 81 266 Real estate taxes 96 76 78 136 386 Depreciation (1) 179 189 111 194 673 Interest (1) 380 442 265 420 1,507 ------ ------ ------ ------ ------ 704 755 542 831 2,832 ------ ------ ------ ------ ------ Net Income 13 134 116 279 $ 542 ====== Ownership interest 50% 79.45% 50% 80% ------ ------ ------ ------ Equity in net income of joint venture $ 7 $ 106 $ 58 $ 224 $ 395 ====== ====== ====== ====== ======
(1) Based on the preliminary purchase price, determined depreciation utilizing a 31.5 year life for building and calculated interest at the effective interest rate associated with the mortgage debt assumed. An aggregate interest cost of $330 associated with the purchase of the Company's equity interest in the properties is calculated at the Company's estimated interest rate under its lines of credit. In addition to cash, the Company's purchase price was funded through the issuance of approximately 60,000 operating partnership units (OP Units). The minority interest expense associated with the OP Units is estimated to be $38 for the three month period ended March 31, 1998. F-23 31 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - -------------------------------------------------------------------------------- (c) 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. (d) The general and administrative expenses of the Company have been adjusted by $250 to reflect the estimated increased expenses expected to be incurred associated with additional operating personnel and related costs attributable to the increase in the Company's portfolio of properties resulting from acquisitions and development activities. (e) Reflects revenues and expenses of The Family Center Properties contemplated as of June 19, 1998 for the period January 1, 1998 through March 31, 1998. Based on a preliminary purchase price allocation, determined depreciation utilizing a 31.5 year life for buildings with an operating history and calculated interest related to the assumed purchase of the operating properties with an estimated value of approximately $190 million. Interest was determined utilizing the Company's estimated interest rate under its lines of credit and/or the effective interest rate associated with the mortgage debt assumed. No interest expense was presented relating to shopping centers under development and expansion as related interest costs either would not have been incurred or would have been capitalized. General and administrative expenses reflect the operating expenses of the Hermes Associates, LTD. management/operating company which is expected to be acquired. Minority interest equity expense reflects the estimated expense relating to the operating partnership units expected to be issued in partial consideration for the purchase of The Family Centers Properties. The final number of operating partnership units to be issued will not be known until the transaction is consummated and the guarantee period has expired. (See note b(i) of the pro forma condensed balance sheet). There can be no assurance that the Company will acquire an ownership interest in the The Family Center Properties. (f) Reflects revenues and expenses of The Sansone Properties contemplated as of June 19, 1998 for the period January 1, 1998 through March 31, 1998. Based on a preliminary purchase price allocation, determined depreciation utilizing a 31.5 year life for buildings with an operating history and calculated interest related to the assumed purchase of the operating properties with an estimated value of approximately $97 million. Interest was determined utilizing the Company's estimated interest rate under its lines of credit and/or effective interest rate associated with the mortgage debt assumed. No interest expense was presented relating to shopping centers under development and expansion as related interest costs either would not have been incurred or would have been capitalized. Equity in net income (loss) in joint ventures represents the Company's equity in net loss relating to its 50% joint venture interest in the operating/management company. There can be no assurance that the Company will acquire an ownership interest in The Sansone Properties. (g) Operating results for the Tanasbourne, Oregon shopping center are not presented as this shopping center was under development during the period presented. (h) An interest expense adjustment relating to the issuance of $100 million Medium Term Notes completed in January 1998 is not reflected herein as the net interest adjustment is considered insignificant. (i) Reflects the reduction of interest costs relating to variable rate indebtedness effectively repaid with the proceeds from the sale of 669,639 common shares completed in April 1998. F-24 32 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - ------------------------------------------------------------------------------- (j) Pro forma income per common share is based upon the weighted average number of common shares assumed to be outstanding for the three month period ended March 31, 1998. In accordance with the SFAS 128, earnings per share before extraordinary item is calculated as follows: Income before extraordinary item $ 17,927 Less: Preferred stock dividend (3,550) -------- Basic EPS - Income before extraordinary item applicable to common shareholders 14,377 Joint venture partnership (180) -------- Diluted EPS - Income before extraordinary item applicable to common shareholders plus assumed conversions $ 14,197 ======== NUMBER OF SHARES: Basic - average shares outstanding 28,420 Effect of dilutive securities: Stock options 449 Joint venture partnership 164 Restricted stock 3 -------- Diluted Shares 29,036 ======== PER SHARE AMOUNT: Income before extraordinary item Basic $ 0.50 ======== Diluted $ 0.49 ========
F-25 33 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - ------------------------------------------------------------------------------- (Unaudited)
Pro Forma Adjustments (Unaudited) ------------------------------------------------------- The Family The Company Acquired Center Sansone Historical Properties Properties Properties -------- -------- ------- ------- Revenues from rental properties $158,718 $ 3,073(a) $22,068(f) $11,637(g) 11,680(b) Management fees and other income 10,322 -------- -------- ------- ------- 169,040 14,753 22,068 11,637 -------- -------- ------- ------- Operating and maintenance 15,961 549(a) 2,844(f) 1,295(g) 1,525(b) Real estate taxes 20,001 203(a) 1,812(f) 1,522(g) 950(b) Depreciation and amortization 32,313 568(a) 4,749(f) 2,695(g) 2,271(b) General and administrative 11,055 750(e) 1,118(f) expenses Interest expense 35,558 1,516(a) 7,980(f) 6,510(g) 6,574(b) 1,212(c) 1,103(d) -------- -------- ------- ------- 114,888 17,221 18,503 12,022 -------- -------- ------- ------- Income (loss) before equity in net income of joint ventures, gain on sale and allocation to minority interest 54,152 (2,468) 3,565 (385) Equity in net income of joint ventures 10,893 1,654 (c) 630(g) Minority equity interest (1,049) (14)(a) (4,575)(f) (176)(b) (147)(c) 1,038 (d) Gain on sales of land 3,526 -------- -------- ------- ------- Income before extraordinary item 67,522 $ (113) $(1,010) $ 245 ======== ======= ======= Less: preferred share dividends (14,200) -------- Income before extra ordinary item applicable to common shareholders $ 53,322 ======== Per share data: Earnings per common share: Basic $2.06 ======== Diluted $2.05 ======== Weighted average number of common shares(in thousands): Basic 25,880 ======== Diluted 26,062 ======== Pro Forma Adjustments (Unaudited) ------------------------------ Tanasbourne, Common Oregon Share and Company Shopping Debt Pro Forma Center(h) Offerings (Unaudited) ----------- ----------- -------- Revenues from rental properties $ - $ - $207,176 Management fees and other income 10,322 ----------- ----------- -------- - - 217,498 ----------- ----------- -------- Operating and maintenance 22,174 Real estate taxes 24,488 Depreciation and amortization 42,596 General and administrative 12,923 expenses Interest expense (316)(i) 56,781 66(j) (1,771)(k) - (l) (903)(m) (748)(n) - (o) ----------- ----------- -------- - (3,672) 158,962 ----------- ----------- -------- Income (loss) before equity in net income of joint ventures, gain on sale and allocation to minority interest - 3,672 58,536 Equity in net income of joint ventures 13,177 Minority equity interest (4,923) Gain on sales of land 3,526 ----------- ----------- -------- Income before extraordinary item - $ 3,672 70,316 =========== ============ Less: preferred dividends (14,200) -------- Income before extra ordinary item applicable to common shareholders $56,116 ======== Per share data: Earnings per common share: Basic $2.06(p) ======== Diluted $2.04(p) ======== Weighted average number of common shares(in thousands): Basic 27,296 ======== Diluted 27,475 ========
F-26 34 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 - ------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT SHARE AND 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, (North Olmsted), OH (1) 01/01/97 $ -- $ -- $ -- $ -- $ -- $ -- Great Northern Shopping Center-South, Cleveland, (North Olmsted) OH (1) 01/01/97 -- -- -- -- -- -- Plaza Del Norte, San Antonio, TX (2),(3) 01/23/97 -- -- -- -- -- -- 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-27 35 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - ------------------------------------------------------------------------------- (Unaudited) (b) Reflects revenues and expenses for the year ended December 31, 1997 of the properties acquired from January 1, 1998 to June 19, 1998 as follows:
Effective Real Date of Estate Operating & Minority Shopping Center Acquisition Revenues Taxes Maintenance Depreciation(1) Interest(1) Interest --------------- ----------- -------- ----- ----------- ------------- ---------- -------- Country Club Mall 02/25/98 $ 871 $ 127 $ 115 $ 165 $ 441 $ -- Belair Centre 03/10/98 4,696 350 868 856 2,401 -- The Columbus Properties (2) 03/23/98 6,113 473 542 1,250 3,732 176 ------- ------- ------- ------- ------- ------- $11,680 $ 950 $ 1,525 $ 2,271 $ 6,574 $ 176 ======= ======= ======= ======= ======= =======
(1) 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. (2) No revenues or expenses have been included in the pro forma statement of operations for Easton Market, one of The Columbus Properties; since the center was either under development or in lease-up during 1997. (c) Reflects revenues and expenses of the four joint venture properties for the year ended December 31, 1997 in which an equity interest was acquired as follows:
Lennox Washington Dublin Village Town Center Sun Center Park Plaza Center Columbus, OH(1) Columbus, OH Dayton, OH Columbus, OH Total --------------- ----------- ---------- ------------ ----- Revenues $ 2,390 $ 4,008 $ 2,474 $ 4,888 $13,760 ------- ------- ------- ------- ------- Operating and maintenance 165 217 294 608 1,284 Real estate taxes 319 344 298 557 1,518 Depreciation (2) 604 851 452 787 2,694 Interest (2) 1,283 1,993 1,073 1,703 6,052 ------- ------- ------- ------- ------- 2,371 3,405 2,117 3,655 11,548 ------- ------- ------- ------- ------- NET INCOME 19 603 357 1,233 $ 2,212 ======= Ownership interest 50% 79.45% 50% 80% ------- ------- ------- ------- Equity in net income of joint ventures $ 9 $ 480 $ 179 $ 986 $ 1,654 ======= ======= ======= ======= =======
(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. An aggregate interest cost of $1,212 associated with the purchase of the Company's equity interest in these properties is calculated at the Company's estimated interest rate under its lines of credit. In addition to cash, the Company's purchase price was funded through the issuance of approximately 58,000 operating partnership units (OP Units). The minority interest expense associated with the OP Units is estimated to be $147 for the year ended December 31, 1997. F-28 36 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - ------------------------------------------------------------------------------- (d) 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. (e) The general and administrative expenses of the Company have been adjusted by $750 to reflect the estimated increased expenses expected to be incurred associated with additional operating personnel and related costs attributable to the increase in the Company's portfolio of properties resulting from acquisitions and development activities. (f) Reflects revenues and expenses of The Family Center Properties contemplated as of June 19, 1998 for the year ended December 31, 1997. Based on the preliminary purchase price allocation, determined depreciation utilizing a 31.5 year life for buildings and calculated interest related to the assumed purchase of the operating properties with an estimated value of approximately $187 million. Interest was determined utilizing the Company's estimated interest rate under its lines of credit and/or the effective interest rate associated with the mortgage debt assumed. No interest expense was presented relating to shopping centers under development and expansion as such interest costs would have been capitalized. General and administrative expenses reflect the operating expenses of the Hermes Associates, LTD. management/operating company which is expected to be acquired. Minority equity interest expense reflects the estimated expense relating to the operating partnership units expected to be issued in partial consideration for the purchase of The Family Center Properties. The final number of operating partnership units to be issued will not be known until the transaction is consummated and the guarantee period has expired (See note b(1) of the pro forma condensed balance sheet). There can be no assurance that the Company will acquire an ownership interest in The Family Center Properties. (g) Reflects revenues and expenses of The Sansone Properties contemplated as of June 19, 1998 for the year ended December 31, 1997. Based on the preliminary purchase price allocation, determined depreciation utilizing a 31.5 year life for buildings with an operating history and calculated interest related to the assumed purchase of the operating properties with an estimated value of approximately $93 million. Interest was determined at the Company's estimated interest rate under its lines of credit and/or the effective interest rate associated with the mortgage debt assumed. No interest expense was presented relating to shopping centers under development and expansion as related interest costs would have been capitalized. Equity in net income (loss) of joint ventures represents the Company's equity in net income (loss) relating to its 50% joint venture interest in the operating/management company. There can be no assurance that the Company will acquire an ownership interest in The Sansone Properties. (h) Operating results for the Tanasbourne, Oregon shopping center are not presented as this shopping center was under development during the year. F-29 37 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - -------------------------------------------------------------------------------- (i) 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. (j) 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. (k) 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. (l) The interest expense adjustment relating to the issuance of $202 million Medium Term Notes completed in 1997 and 1998 is not reflected herein as the net interest adjustment is considered insignificant. (m) Reflects the reduction of interest costs relating to variable rate indebtedness effectively repaid with the proceeds from the sale of 507,960 common shares completed in September 1997. (n) Reflects the reduction of interest costs relating to variable rate indebtedness effectively repaid with the proceeds form the sale of 316,800 common shares completed in December 1997. (o) The issuance of 669,639 common shares completed in April 1998, 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 of the date of issuance or the date the centers were acquired. (p) 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 common share offerings in 1997. The 669,639 shares issued in April 1998 were not reflected either in the pro forma statement of operations or in the earnings per share calculation prior to their issuance as the proceeds were not considered to be received until the date the developed shopping centers were acquired in 1998, since such centers had no operating history. F-30 38 DEVELOPERS DIVERSIFIED REALTY CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE UNITS AND PER SHARE DATA) - --------------------------------------------------------------------------------
In accordance with the SFAS 128, earnings per share before extraordinary item is calculated as follows (in thousands): Income before extraordinary item $ 70,316 Less: Preferred stock dividend (14,200) -------- Basic EPS - Income before extraordinary item applicable to common shareholders $ 56,116 ======== Diluted EPS - Income before extraordinary item applicable to common shareholders plus assumed conversions $ 56,116 ======== NUMBER OF SHARES: Basic - average shares outstanding 27,296 Effect of dilutive securities: Stock options 176 Restricted stock 3 -------- Diluted Shares 27,475 ======== PER SHARE AMOUNT: Income before extraordinary item Basic $ 2.06 ======== Diluted $ 2.04 ========
F-31 39 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 operating funds available 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 Acquired 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, (viii) the purchase by the Company of a partner's minority interest in one shopping center, (ix) 669,639 common share offering completed in April 1998 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 historical financial statements included in the Company's Forms 10-K and 10-Q for the year ended December 31, 1997 and the three months ended March 31, 1998 and (ii) the pro forma condensed financial statements of the Company included elsewhere herein.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS): DDRC historical income before extraordinary item, exclusive of property depreciation and amortization (Note 1) .......................................................................................... $ 99,835 Acquired Properties - historical earnings from operations, as adjusted, exclusive of depreciation and amortization (Note 2) ........................................................ 2,791 Probable Acquisition Properties - historical earnings from operations, as adjusted, exclusive of depreciation and amortization (Note 2) ........................................................... 6,679 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 ................................................... -- 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 ................................................................................... 903 Pro forma adjustments arising from the utilization of the proceeds from the 316,800 common share offering ................................................................................... 748 Pro forma adjustments arising from the utilization of the proceeds form the 669,639 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 ...................................... (1,789) Pro forma tax depreciation for Probable Acquisition Properties ...................................... (5,600) --------- Pro forma taxable income before dividends deduction ................................................. 79,908 Estimated dividends deduction (Note 4) .......................................................... (82,986) -------- $ (3,078) ========= Pro forma taxable net operating income .............................................................. $ -- =========
F-32 40 DEVELOPERS DIVERSIFIED REALTY CORPORATION ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE - ------------------------------------------------------------------------------- (Unaudited)
ESTIMATE OF OPERATING FUNDS AVAILABLE (IN THOUSANDS): Pro forma taxable operating income before dividend deduction ...................$ 79,908 Add pro forma depreciation ................................................. 33,004 ------------ Estimated pro forma operating funds available (Note 5) ......................... $ 112,912 ============
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 (27,296,000 shares x $2.52 per share) $ 68,786 Class A Preferred Shares 10,011 Class B Preferred Shares 4,189 -------- $ 82,986 ========
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-33 41 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 June 23, 1998 /s/ William H. Schafer ------------------------------ ------------------------------ William H. Schafer Vice President and Chief Financial Officer EX-3.1 2 EXHIBIT 3.1 1 EXHIBIT 3.1 RESOLVED, that the first paragraph of Article FOURTH of the Company's Amended and Restated Articles of Incorporation be, and the same hereby is, deleted and there is substituted therefor the following: FOURTH: The authorized number of shares of the Corporation is 109,000,000, consisting of 100,000,000 Common Shares, without par value (hereinafter called "Common Shares"), 1,500,000 Class A Cumulative Preferred Shares, without par value (hereinafter called "Class A Shares"), 1,500,000 Class B Cumulative Preferred Shares, without par value (hereinafter called "Class B Shares"), 1,500,000 Class C Cumulative Preferred Shares, without par value (hereinafter called "Class C Shares"), 1,500,000 Class D Cumulative Preferred Shares, without par value (hereinafter called "Class D Shares"), 1,500,000 Class E Cumulative Preferred Shares, without par value (hereinafter called "Class E Shares"), and 1,500,000 Noncumulative Preferred Shares, without par value (hereinafter called "Noncumulative Shares"). EX-10.1 3 EXHIBIT 10.1 1 EXHIBIT 10.1 1998 DEVELOPERS DIVERSIFIED REALTY CORPORATION EQUITY-BASED AWARD PLAN SECTION 1. PURPOSE; DEFINITIONS. The purpose of the 1998 Developers Diversified Realty Corporation Equity-Based Award Plan (the "Plan") is to enable Developers Diversified Realty Corporation (the "Company") and its Subsidiaries (as defined below) to attract, retain and reward employees of the Company and its Subsidiaries and strengthen the mutuality of interests between those employees and the Company's shareholders by offering the employees equity or equity-based incentives thereby increasing their proprietary interest in the Company's business and enhancing their personal interest in the Company's success. For purposes of the Plan, the following terms are defined as follows: (a) "Affiliate" means any entity (other than the Company and any Subsidiary) that is designated by the Board as a participating employer under the Plan. (b) "Award" means any award of Stock Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Share Purchase Rights or Other Share-Based Awards under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Change in Control" has the meaning set forth in Section 11(b). (e) "Change in Control Price" has the meaning set forth in Section 11(d). (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto. (g) "Committee" means the Granting Committee of the Board of the Company. (h) "Company" means Developers Diversified Realty Corporation, an Ohio corporation, or any successor corporation. (i) "Deferred Shares" means an Award of the right to receive Shares at the end of a specified deferral period granted pursuant to Section 8. (j) "Disability" means a permanent and total disability as defined in Section 22(e)(3) of the Code. (k) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of a given date, (in order of applicability): (i) the closing price of a Common Share on the principal exchange on which the Common Shares are then trading, if any, on the day immediately prior to such date, or if Common Shares were not traded on the day previous to such date, then on the next preceding trading day during which a sale occurred; or (ii) if Common Shares are not traded on an exchange but are quoted on NASDAQ or a successor quotation 2 system, (A) the last sale price (if Common Shares are then listed as a National Market Issue under the NASD National Market System) or (B) if Common Shares are not then so listed, the mean between the closing representative bid and asked prices for Common Shares on the day previous to such date as reported by NASDAQ or such successor quotation system; or (iii) if Common Shares are not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the mean between the closing bid and asked prices for Common Shares, on the day previous to such date, as determined in good faith by the Committee; or (iv) if Common Shares are not publicly traded, the fair market value established by the Committee acting in good faith. (m) "Incentive Stock Option" means any Stock Option intended to be and designated as, and that otherwise qualifies as, an "Incentive Stock Option" within the meaning of Section 422 of the Code or any successor section thereto. (n) "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. (o) "Other Share-Based Awards" means an Award granted pursuant to Section 10 that is valued, in whole or in part, by reference to, or is otherwise based on, Shares. (p) "Outside Director" has the meaning set forth in Section 162(m) of the Code and the regulations promulgated thereunder. (q) "Plan" means the 1998 Developers Diversified Realty Corporation Equity-Based Award Plan, as amended from time to time. (r) "Potential Change in Control" has the meaning set forth in Section 11(c). (s) "Restricted Shares" means an Award of Shares that is granted pursuant to Section 7 and is subject to restrictions. (t) "Section 16 Participant" means a participant under the Plan who is subject to Section 16 of the Exchange Act. (u) "Share Appreciation Right" means an Award of a right to receive an amount from the Company that is granted pursuant to Section 6. (v) "Shares" means the Common Shares, without par value, of the Company. (w) "Stock Option" or "Option" means any option to purchase Shares (including Restricted Shares and Deferred Shares, if the Committee so determines) that is granted pursuant to Section 5. (x) "Share Purchase Right" means an Award of the right to purchase Shares that is granted pursuant to Section 9. (y) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations (other than the last corporation in the unbroken chain) owns stock - -------------------------------------------------------------------------------- Page 2 3 possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in that chain. SECTION 2. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall consist of not less than three directors of the Company, all of whom shall be Outside Directors. Those directors shall be appointed by the Board and shall serve as the Committee at the pleasure of the Board. The functions of the Committee specified in the Plan shall be exercised by the Board if and to the extent that no Committee exists that has the authority to so administer the Plan. The Committee shall have full power to interpret and administer the Plan and full authority to select the individuals to whom Awards will be granted and to determine the type and amount of any Award to be granted to each participant, the consideration, if any, to be paid for any Award, the timing of each Award, the terms and conditions of any Award granted under the Plan, and the terms and conditions of the related agreements that will be entered into with participants. As to the selection of and grant of Awards to participants who are not executive officers of the Company or any Subsidiary or Affiliate, or Section 16 Participants, the Committee may delegate its responsibilities to members of the Company's management in any manner consistent with applicable law. The Committee shall have the authority to adopt, alter and repeal such rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto); to direct employees of the Company or other advisors to prepare such materials or perform such analyses as the Committee deems necessary or appropriate; and otherwise to supervise the administration of the Plan. Any interpretation or administration of the Plan by the Committee, and all actions and determinations of the Committee, shall be final, binding and conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all participants in the Plan, their respective legal representatives, successors and assigns, and all persons claiming under or through any of them. No member of the Board or of the Committee shall incur any liability for any action taken or omitted, or any determination made, in good faith in connection with the Plan. SECTION 3. SHARES SUBJECT TO THE PLAN. (a) Aggregate Shares Subject to the Plan. Subject to adjustment as provided in Section 3(c), the total number of Shares reserved and available for Awards under the Plan is 1,000,000. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares. (b) Forfeiture or Termination of Awards of Shares. If any Shares subject to any Award granted hereunder are forfeited or an Award otherwise terminates or expires without the issuance of Shares, the Shares subject to that Award shall again be available for distribution in connection with future Awards under the Plan as set forth in Section 3(a), unless the participant who had been awarded those forfeited Shares or the expired or terminated Award has theretofore received dividends or other benefits of ownership with respect to those Shares. For purposes hereof, a participant shall not be deemed to have received a benefit of ownership with respect to those Shares by the exercise of voting rights, or by the - -------------------------------------------------------------------------------- Page 3 4 accumulation of dividends that are not realized because of the forfeiture of those Shares or the expiration or termination of the related Award without issuance of those Shares. (c) Adjustment. In the event of any merger, reorganization, consolidation, recapitalization, share dividend, share split, combination of shares or other change in corporate structure of the Company affecting the Shares, such substitution or adjustment shall be made in the aggregate number of Shares reserved for issuance under the Plan, in the number and option price of Shares subject to outstanding options granted under the Plan, in the number and purchase price of Shares subject to outstanding Share Purchase Rights granted under the Plan, in the number of Share Appreciation Rights granted under the Plan and in the number of Shares subject to Restricted Share Awards, Deferred Share Awards and any other outstanding Awards granted under the Plan as may be approved by the Committee, in its sole discretion, but the number of Shares subject to any Award shall always be a whole number. Any fractional Shares shall be eliminated. (d) Annual Award Limit. No participant may be granted Stock Options or other Awards under the Plan with respect to an aggregate of more than 500,000 Shares (subject to adjustment as provided in Section 3(c) hereof) during any calendar year. SECTION 4. ELIGIBILITY. Grants may be made from time to time to those officers and employees of the Company who are designated by the Committee in its sole and exclusive discretion. Eligible persons may include, but shall not necessarily be limited to, officers of the Company and any Subsidiary, excluding members of the Committee; however, Stock Options intended to qualify as Incentive Stock Options shall be granted only to eligible persons while actually employed by the Company or a Subsidiary. The Committee may grant more than one Award to the same eligible person. No Award shall be granted to any eligible person during any period of time when such eligible person is on a leave of absence. SECTION 5. STOCK OPTIONS. (a) Grant. Stock Options may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Stock Options will be made, the number of Shares purchasable under each Stock Option, and the other terms and conditions of the Stock Options in addition to those set forth in Sections 5(b) and 5(c). Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Options granted under the Plan may be of two types which shall be indicated on their face: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Subject to Section 5(c), the Committee shall have the authority to grant to any participant Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options. (b) Terms and Conditions. Options granted under the Plan shall be evidenced by an agreement ("Option Agreements"), shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: - -------------------------------------------------------------------------------- Page 4 5 (1) Option Price. The option price per share of Shares purchasable under a Non-Qualified Stock Option or an Incentive Stock Option shall be determined by the Committee at the time of grant and shall be not less than 100% of the Fair Market Value of the Shares at the date of grant (or, with respect to an Incentive Stock Option, 110% of the Fair Market Value of the Shares at the date of grant in the case of a participant who at the date of grant owns Shares possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or Subsidiary corporations (as determined under Sections 424(d), (e) and (f) of the Code)). (2) Option Term. The term of each Stock Option shall be determined by the Committee and may not exceed ten years from the date the Option is granted (or, with respect to an Incentive Stock Option, five years in the case of a participant who at the date of grant owns Shares possessing more than 10% of the total combined voting power of all classes of stock of the Company or its parent or Subsidiary corporations (as determined under Sections 424(d), (e) and (f) of the Code)). (3) Exercise. Stock Options shall be exercisable at such time or times and shall be subject to such terms and conditions as shall be determined by the Committee at or after grant; but, except as provided in Section 5(b)(6) and Section 11, unless otherwise determined by the Committee at or after grant, no Stock Option shall be exercisable prior to six months and one day following the date of grant. If any Stock Option is exercisable only in installments or only after specified exercise dates, the Committee may waive, in whole or in part, such installment exercise provisions, and may accelerate any exercise date or dates, at any time at or after grant, based on such factors as the Committee shall determine in its sole discretion. (4) Method of Exercise. Subject to any installment exercise provisions that apply with respect to any Stock Option, and the six month and one day holding period set forth in Section 5(b)(3), that Stock Option may be exercised in whole or in part, at any time during the Option period, by the holder thereof giving to the Company written notice of exercise specifying the number of Shares to be purchased. That notice shall be accompanied by payment in full of the Option price of the Shares for which the Option is exercised, in cash or Shares or by check or such other instrument as the Committee may accept. The value of each such Share surrendered or withheld shall be 100% of the Fair Market Value of the Shares on the date the option is exercised. No Shares shall be issued on an exercise of an Option until full payment has been made. A participant shall not have rights to dividends or any other rights of a shareholder with respect to any Shares subject to an Option unless and until the participant has given written notice of exercise, has paid in full for those Shares, has given, if requested, the representation described in Section 14(a), and those Shares have been issued to him. (5) Non-Transferability of Options. No Stock Option shall be transferable by any participant other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order (as defined in the Code or the Employment Retirement Income Security Act of 1974, as amended) except that, if so provided in the Option Agreement, the participant may transfer the Option, other than an Incentive Stock Option, during his lifetime to one or more members of his family, to one or more trusts for the benefit of one or more of his family, or to a partnership or partnerships of members of his family, provided that no consideration is paid for the transfer and that the transfer would not result in - -------------------------------------------------------------------------------- Page 5 6 the loss of any exemption under Rule 16b-3 of the Exchange Act with respect to any Option. The transferee of an Option will be subject to all restrictions, terms and conditions applicable to the Option prior to its transfer, except that the Option will not be further transferable by the transferee other than by will or by the laws of descent and distribution. (6) Termination of Employment (i) Termination by Death. Subject to Section 5(c), if any participant's employment with the Company or any Subsidiary or Affiliate terminates by reason of death, any Stock Option held by that participant shall become immediately and automatically vested and exercisable. If termination of a participant's employment is due to death, then any Stock Option held by that participant may thereafter be exercised for a period of one year (or such other period as the Committee may specify at or after grant) from the date of death. Notwithstanding the foregoing, in no event will any Stock Option be exercisable after the expiration of the option period of such Option. The balance of the Stock Option shall be forfeited if not exercised within one year. (ii) Termination by Reason of Disability. Subject to Sections 5(b)(3) and 5(c), if a participant's employment with the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Stock Option held by that participant shall become immediately and automatically vested and exercisable. If termination of a participant's employment is due to Disability, then any Stock Option held by that participant may thereafter be exercised by the participant or by the participant's duly authorized legal representative if the participant is unable to exercise the Option as a result of the participant's Disability, for a period of one year (or such other period as the Committee may specify at or after grant) from the date of such termination of employment, but in no event may any such Option be exercised prior to six months and one day from the date of grant; and if the participant dies within that one-year period (or such other period as the Committee may specify at or after grant), any unexercised Stock Option held by that participant shall thereafter be exercisable by the estate of the participant (acting through its fiduciary) for a period of one year from the date of that termination of employment. Notwithstanding the foregoing, in no event will any Stock Option be exercisable after the expiration of the option period of such Option. The balance of the Stock Option shall be forfeited if not exercised within one year. (iii) Termination by Retirement. Unless otherwise determined by the Committee at or after the time of granting any Stock Option, if a participant terminates employment with the Company or any Subsidiary or Affiliate because of normal or early retirement, all Stock Options held by that participant shall terminate one year after the date of retirement. Notwithstanding the foregoing, in no event will any Stock Option be exercisable after the expiration of the option period of such Option. The balance of the Stock Option shall be forfeited if not exercised within one year. (iv) Other Termination. Unless otherwise determined by the Committee at or after the time of granting any Stock Option, if a participant's employment with the Company or any Subsidiary or Affiliate terminates for any reason other than death, Disability or retirement, all Stock Options held by that participant shall terminate 30 days after the date employment terminates. - -------------------------------------------------------------------------------- Page 6 7 Notwithstanding the foregoing, in no event will any Stock Option be exercisable after the expiration of the option period of such Option. The balance of the Stock Option shall be forfeited. In the event a participant is granted a leave of absence by the Company or any Subsidiary or Affiliate to enter military service or because of sickness, his employment with the Company or such Subsidiary or Affiliate will not be considered terminated, and he shall be deemed an employee of the Company or such Subsidiary or Affiliate during such leave of absence or any extension thereof granted by the Company or such Subsidiary or Affiliate. (c) Incentive Stock Options. Notwithstanding Sections 5(b)(6) and (7), an Incentive Stock Option shall be exercisable by (i) a participant's authorized legal representative (if the participant is unable to exercise the Incentive Stock Option as a result of the participant's Disability) only if, and to the extent, permitted by Section 422 of the Code and (ii) by the participant's estate, in the case of death, or authorized legal representative, in the case of Disability, no later than 10 years from the date the Incentive Stock Option was granted (in addition to any other restrictions or limitations that may apply). Anything in the Plan to the contrary notwithstanding, no term or provision of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of the participants affected, to disqualify any Incentive Stock Option under that Section 422 or any successor Section thereto. (d) Buyout Provisions. The Committee may at any time buy out for a payment in cash, Shares, Deferred Shares or Restricted Shares an Option previously granted, based on such terms and conditions as the Committee shall establish and agree upon with the participant, but no such transaction involving a Section 16 Participant shall be structured or effected in a manner that would result in any liability on the part of the participant under Section 16(b) of the Exchange Act or the rules and regulations promulgated thereunder. (e) Certain Reissuance of Stock Options. To the extent Common Shares are surrendered by a participant in connection with the exercise of a Stock Option in accordance with Section 5(b), the Committee may, in its sole discretion, grant new Stock Options to such participant (to the extent Common Shares remain available for Awards), subject to the following terms and conditions: (1) The number of Common Shares shall be equal to the number of Common Shares being surrendered by the participant; (2) The option price per Common Share shall be equal to the Fair Market Value of Common Shares, determined on the date of exercise of the Stock Options whose exercise caused such Award; and (3) The terms and conditions of such Stock Options shall in all other respects replicate such terms and conditions of the Stock Options whose exercise caused such Award, except to the extent such terms and conditions are determined to not be wholly consistent with the general provisions of this Section 5, or in conflict with the remaining provisions of this Plan. - -------------------------------------------------------------------------------- Page 7 8 SECTION 6. SHARE APPRECIATION RIGHTS. (a) Grant. Share Appreciation Rights may be granted in connection with all or any part of an Option, either concurrently with the grant of the Option or, if the Option is a Non-Qualified Stock Option, by an amendment to the Option at any time thereafter during the term of the Option. Share Appreciation Rights may be exercised in whole or in part at such times under such conditions as may be specified by the Committee in the participant's Option Agreement. (b) Terms and Conditions. The following terms and conditions will apply to all Share Appreciation Rights that are granted in connection with Options: (1) Rights. Share Appreciation Rights shall entitle the participant, upon exercise of all or any part of the Share Appreciation Rights, to surrender to the Company, unexercised, that portion of the underlying Option relating to the same number of Shares as is covered by the Share Appreciation Rights (or the portion of the Share Appreciation Rights so exercised) and to receive in exchange from the Company an amount equal to the excess of (x) the Fair Market Value, on the date of exercise, of the Shares covered by the surrendered portion of the underlying Option over (y) the exercise price of the Shares covered by the surrendered portion of the underlying Option. The Committee may limit the amount that the participant will be entitled to receive upon exercise of the Share Appreciation Right. (2) Surrender of Option. Upon the exercise of the Share Appreciation Right and surrender of the related portion of the underlying Option, the Option, to the extent surrendered, will not thereafter be exercisable. The underlying Option may provide that such Share Appreciation Rights will be payable solely in cash. The terms of the underlying Option shall provide a method by which an alternative fair market value of the Shares on the date of exercise shall be calculated based on one of the following: (x) the closing price of the Shares on the national exchange on which they are then traded on the business day immediately preceding the day of exercise; (y) the highest closing price of the Shares on the national exchange on which they have been traded during the 90 days immediately preceding the Change in Control; or (z) the greater of (x) and (y). (3) Exercise. In addition to any further conditions upon exercise that may be imposed by the Committee, the Share Appreciation Rights shall be exercisable only to the extent that the related Option is exercisable, except that in no event will a Share Appreciation Right held by a Section 16 Participant be exercisable within the first six months after it is awarded even though the related Option is or becomes exercisable, and each Share Appreciation Right will expire no later than the date on which the related Option expires. A Share Appreciation Right may be exercised only at a time when the Fair Market Value of the Shares covered by the Share Appreciation Right exceeds the exercise price of the Shares covered by the underlying Option. No Share Appreciation Right held by a Section 16 Participant shall be exercisable by its terms within the first six months after it is granted, and a Section 16 Participant may exercise a Share Appreciation Right only during a period beginning on the third business day and ending on the twelfth business day following the release for publication of quarterly or annual summary statements of the Company's sales and earnings. (4) Method of Exercise. Share Appreciation Rights may be exercised by the participant giving written notice of the exercise to the Company, stating the number of Share Appreciation Rights the participant has elected to exercise and surrendering the portion of the - -------------------------------------------------------------------------------- Page 8 9 underlying Option relating to the same number of Shares as the number of Share Appreciation Rights elected to be exercised. (5) Payment. The manner in which the Company's obligation arising upon the exercise of the Share Appreciation Right will be paid will be determined by the Committee and shall be set forth in the participant's Option Agreement. The Committee may provide for payment in Shares or cash, or a fixed combination of Shares or cash, or the Committee may reserve the right to determine the manner of payment at the time the Share Appreciation Right is exercised. Shares issued upon the exercise of a Share Appreciation Right will be valued at their Fair Market Value on the date of exercise. - -------------------------------------------------------------------------------- Page 9 10 SECTION 7. RESTRICTED SHARES. (a) Grant. Restricted Shares may be issued alone, in addition to or in tandem with other Awards under the Plan or cash awards made outside the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Restricted Shares will be made, the number of Restricted Shares to be awarded to each participant, the price (if any) to be paid by the participant (subject to Section 7(b)), the date or dates upon which Restricted Share Awards will vest, the period or periods within which those Restricted Share Awards may be subject to forfeiture, and the other terms and conditions of those Awards in addition to those set forth in Section 7(b). The Committee may condition the grant of Restricted Shares upon the attainment of specified performance goals or such other factors as the Committee may determine in its sole discretion. (b) Terms and Conditions. Restricted Shares awarded under the Plan shall be subject to the following terms and conditions and such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable. A participant who receives a Restricted Share Award shall not have any rights with respect to that Award, unless and until the participant has executed an agreement evidencing the Award in the form approved from time to time by the Committee, has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of that Award. (1) The purchase price (if any) for Restricted Shares shall be determined by the Committee at the time of grant. (2) Awards of Restricted Shares must be accepted by executing a Restricted Share Award agreement and paying the price (if any) that is required under Section 7(b)(1). (3) Each participant receiving a Restricted Share Award shall be issued a stock certificate in respect of those Restricted Shares. The certificate shall be registered in the name of the participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to the Award. (4) The Committee shall require that the stock certificates evidencing the Restricted Shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Shares Award, the participant shall have delivered to the Company a stock power, endorsed in blank, relating to the Shares covered by that Award. (5) Subject to the provisions of this Plan and the Restricted Share Award agreement, during a period set by the Committee commencing with the date of any Award (the "Restriction Period"), the participant shall not be permitted to sell, transfer, pledge, assign or otherwise encumber the Restricted Shares covered by that Award. The Restriction Period shall not be less than three years in duration ("Minimum Restriction Period") unless otherwise determined by the Committee at the time of grant. Subject to these limitations and the Minimum Restriction Period requirement, the Committee, in its sole discretion, may provide for the lapse of restrictions in installments and may accelerate or waive restrictions, in whole or in part, based on service, performance or such other factors and criteria as the Committee may determine in its sole discretion. - -------------------------------------------------------------------------------- Page 10 11 (6) Except as provided in this Section 7(b)(6) and Section 7(b)(5) and Section 7(b)(7), the participant shall have, with respect to the Restricted Shares awarded, all of the rights of a shareholder of the Company, including the right to vote the Shares and the right to receive any dividends. The Committee, in its sole discretion, as determined at the time of Award, may permit or require the payment of cash dividends to be deferred and subject to forfeiture and, if the Committee so determines, reinvested, subject to Section 14(f), in additional Restricted Shares to the extent Shares are available under Section 3, or otherwise reinvested. Unless the Committee or Board determines otherwise, Share dividends issued with respect to Restricted Shares shall be treated as additional Restricted Shares that are subject to the same restrictions and other terms and conditions that apply to the Shares with respect to which such dividends are issued. (7) No Restricted Shares shall be transferable by a participant other than by will or by the laws of descent and distribution. (8) If a participant's employment with the Company or any Subsidiary or Affiliate terminates by reason of death, any Restricted Shares held by that participant shall thereafter vest and any restriction shall lapse to the extent such Restricted Shares would have become vested or no longer subject to restriction within one year from the time of death had the participant continued to fulfill all of the conditions of the Restricted Share Award during that period (or on such accelerated basis as the Committee may determine at or after grant). The balance of the Restricted Shares shall be forfeited. (9) If a participant's employment with the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Restricted Shares held by that participant shall thereafter vest and any restriction shall lapse to the extent such Restricted Shares would have become vested or no longer subject to restriction within one year from the time of termination had the participant continued to fulfill all of the conditions of the Restricted Share Award during that period (or on such accelerated basis as the Committee may determine at or after grant), subject in all cases to the Minimum Restriction Period requirement. The balance of the Restricted Shares shall be forfeited. (10) Unless otherwise determined by the Committee at or after the time of granting any Restricted Shares, if a participant's employment with the Company or any Subsidiary or Affiliate terminates for any reason other than death or Disability, the Restricted Shares held by that participant that are unvested or subject to restriction at the time of termination shall thereupon be forfeited. (c) Minimum Value. In order to better ensure that Award payments actually reflect the performance of the Company and service of the participant, the Committee may provide, in its sole discretion, for a tandem performance-based or other award designed to guarantee a minimum value, payable in cash or Shares, to the recipient of a Restricted Share Award, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Committee. SECTION 8. DEFERRED SHARES. (a) Grant. Deferred Shares may be awarded alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside the Plan. The Committee shall determine the individuals to whom, and the time or times at which, Deferred Shares shall be - -------------------------------------------------------------------------------- Page 11 12 awarded, the number of Deferred Shares to be awarded to any participant, the duration of the period (the "Deferral Period") during which, and the conditions under which, receipt of the Shares will be deferred, and the other terms and conditions of the Award in addition to those set forth in Section 8(b). The Committee may condition the grant of Deferred Shares upon the attainment of specified performance goals or such other factors as the Committee shall determine in its sole discretion. (b) Terms and Conditions. Deferred Share Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: (1) The purchase price for Deferred Shares shall be determined at the time of grant by the Committee. Subject to the provisions of the Plan and the Award agreement referred to in Section 8(b)(9), Deferred Share Awards may not be sold, assigned, transferred, pledged or otherwise encumbered during the Deferral Period. At the expiration of the Deferral Period (or the Elective Deferral Period referred to in Section 8(b)(8), where applicable), stock certificates shall be delivered to the participant, or the participant's legal representative, for the Shares covered by the Deferred Share Award. The Deferral Period applicable to any Deferred Share Award shall not be less than six months and one day ("Minimum Deferral Period"). (2) Unless otherwise determined by the Committee at grant, amounts equal to any dividends declared during the Deferral Period with respect to the number of Shares covered by a Deferred Share Award will be paid to the participant currently, or deferred and deemed to be reinvested in additional Deferred Shares, or otherwise reinvested, all as determined by the Committee, in its sole discretion, at or after the time of the Award. (3) No Deferred Shares shall be transferable by a participant other than by will or by the laws of descent and distribution. (4) If a participant's employment by the Company or any Subsidiary or Affiliate terminates by reason of death, any Deferred Shares held by such participant shall thereafter vest or any restriction shall lapse to the extent such Deferred Shares would have become vested or no longer subject to restriction within one year from the time of death had the participant continued to fulfill all of the conditions of the Deferred Share Award during that period (or on such accelerated basis as the Committee may determine at or after grant). The balance of the Deferred Shares shall be forfeited. (5) If a participant's employment by the Company or any Subsidiary or Affiliate terminates by reason of Disability, any Deferred Shares held by such participant shall thereafter vest or any restriction lapse to the extent such Deferred Shares would have become vested or no longer subject to restriction within one year from the time of termination had the participant continued to fulfill all of the conditions of the Deferred Shares Award during that period (or on such accelerated basis as the Committee may determine at or after grant), subject in all cases to the Minimum Deferral Period requirement. The balance of the Deferred Shares shall be forfeited. (6) Unless otherwise determined by the Committee at or after the time of granting any Deferred Share Award, if a participant's employment by the Company or any - -------------------------------------------------------------------------------- Page 12 13 Subsidiary or Affiliate terminates for any reason other than death or Disability, all Deferred Shares held by such participant which are unvested or subject to restriction shall thereupon be forfeited. (7) Based on service, performance or such other factors or criteria as the Committee may determine, the Committee may, at or after grant, accelerate the vesting of all or any part of any Deferred Share Award or waive a portion of the Deferral Period for all or any part of such Award, subject in all cases to the Minimum Deferral Period requirement. (8) A participant may elect to further defer receipt of a Deferred Share Award (or an installment of an Award) for a specified period or until a specified event (the "Elective Deferral Period"), subject in each case to the Committee's approval and the terms of this Section 8 and such other terms as are determined by the Committee, all in its sole discretion. Subject to any exceptions approved by the Committee, such election must be made at least 12 months prior to completion of the Deferral Period for such Deferred Share Award (or such installment). (9) Each such Award shall be confirmed by, and subject to the terms of, a Deferred Share Award agreement evidencing the Award in the form approved from time to time by the Committee. (c) Minimum Value Provisions. In order to better ensure that Award payments actually reflect the performance of the Company and service of the participant, the Committee may provide, in its sole discretion, for a tandem performance-based or other Award designed to guarantee a minimum value, payable in cash or Shares to the recipient of a Deferred Share Award, subject to such performance, future service, deferral and other terms and conditions as may be specified by the Committee. SECTION 9. SHARE PURCHASE RIGHTS. (a) Grant. Share Purchase Rights may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside the Plan. The Committee shall determine the individuals to whom, and the time or times at which, grants of Share Purchase Rights will be made, the number of Shares which may be purchased pursuant to the Share Purchase Rights, and the other terms and conditions of the Share Purchase Rights in addition to those set forth in Section 9(b). The Shares subject to the Share Purchase Rights may be purchased, as determined by the Committee at the time of grant: (1) at the Fair Market Value of such Shares on the date of grant; or (2) at 85% of the Fair Market Value of such Shares on the date of grant if the grant of Share Purchase Rights is made in lieu of cash compensation. Subject to Section 9(b) hereof, the Committee may also impose such deferral, forfeiture or other terms and conditions as it shall determine, in its sole discretion, on such Share Purchase Rights or the exercise thereof. Each Share Purchase Right Award shall be confirmed by, and be subject to the terms of, a Share Purchase Rights Agreement which shall be in form approved by the Committee. - -------------------------------------------------------------------------------- Page 13 14 (b) Terms and Conditions. Share Purchase Rights may contain such additional terms and conditions not inconsistent with the terms of the Plan as the Committee shall deem desirable, and shall generally be exercisable for such period as shall be determined by the Committee. However, Share Purchase Rights granted to Section 16 Participants shall not become exercisable earlier than six months and one day after the grant date. Share Purchase Rights shall not be transferable by a participant other than by will or by the laws of descent and distribution. SECTION 10. OTHER SHARE-BASED AWARDS. (a) Grant. Other Awards of Shares and other Awards that are valued, in whole or in part, by reference to, or are otherwise based on, Shares, including, without limitation, performance shares, convertible preferred shares, convertible debentures, exchangeable securities and Share Awards or options valued by reference to Book Value or Subsidiary performance, may be granted alone, in addition to or in tandem with other Awards granted under the Plan or cash awards made outside the Plan. At the time the Shares or Other Share-Based Awards are granted, the Committee shall determine the individuals to whom and the time or times at which such Shares or Other Share-Based Awards shall be awarded, the number of Shares to be used in computing an Award or which are to be awarded pursuant to such Awards, the consideration, if any, to be paid for such Shares or Other Share-Based Awards, and all other terms and conditions of the Awards in addition to those set forth in Section 10(b). The provisions of Other Share-Based Awards need not be the same with respect to each participant. (b) Terms and Conditions. Other Share-Based Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable: (1) Subject to the provisions of this Plan and the Award agreement referred to in Section 10(b)(5) below, Shares awarded or subject to Awards made under this Section 10 may not be sold, assigned, transferred, pledged or otherwise encumbered prior to the date on which the Shares are issued, or, if later, the date on which any applicable restriction, performance, holding or deferral period or requirement is satisfied or lapses. All Shares or Other Share-Based Awards granted under this Section 10 shall be subject to a minimum holding period (including any applicable restriction, performance and/or deferral periods) of six months and one day ("Minimum Holding Period"). (2) Subject to the provisions of this Plan and the Award agreement and unless otherwise determined by the Committee at the time of grant, the recipient of an Other Share-Based Award shall be entitled to receive, currently or on a deferred basis, interest or dividends or interest or dividend equivalents with respect to the number of Shares covered by the Award, as determined at the time of the Award by the Committee, in its sole discretion, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. (3) Subject to the Minimum Holding Period, any Other Share-Based Award and any Shares covered by any such Award shall vest or be forfeited to the extent, at the times - -------------------------------------------------------------------------------- Page 14 15 and subject to the conditions, if any, provided in the Award agreement, as determined by the Committee in its sole discretion. (4) In the event of the participant's Disability or death, or in cases of special circumstances, the Committee may, in its sole discretion, waive, in whole or in part, any or all of the remaining limitations imposed hereunder or under any related Award agreement (if any) with respect to any part or all of any Award under this Section 10, provided that the Minimum Holding Period requirement may not be waived, except in case of a participant's death. (5) Each Award shall be confirmed by, and subject to the terms of, an agreement or other instrument evidencing the Award in the form approved from time to time by the Committee, the Company and the participant. (6) Shares (including securities convertible into Shares) issued on a bonus basis under this Section 10 shall be issued for no cash consideration. Shares (including securities convertible into Shares) purchased pursuant to a purchase right awarded under this Section 10 shall bear a price of at least 85% of the Fair Market Value of the Shares on the date of grant. The purchase price of such Shares, and of any Other Share-Based Award granted hereunder, or the formula by which such price is to be determined, shall be fixed by the Committee at the time of grant. (7) In the event that any "derivative security," as defined in Rule 16a-1(c) (or any successor thereto) promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, is awarded pursuant to this Section 10 to any Section 16 Participant, such derivative security shall not be transferrable other than by will or by the laws of descent and distribution. SECTION 11. CHANGE IN CONTROL PROVISION. (a) Impact of Event. In the event of: (i) a "Change in Control" as defined in Section 11(b) or (ii) a "Potential Change in Control" as defined in Section 11(c), the following acceleration and valuation provisions shall apply: (1) Any Stock Options awarded under the Plan not previously exercisable and vested shall become fully exercisable and vested; (2) Any Share Appreciation Rights shall become immediately exercisable; (3) The restrictions applicable to any Restricted Share Awards, Deferred Shares, Share Purchase Rights and Other Share-Based Awards shall lapse and such Shares and Awards shall be deemed fully vested; and (4) The value of all outstanding Awards, in each case to the extent vested, shall, unless otherwise determined by the Committee in its sole discretion at or after grant but prior to any Change in Control or Potential Change in Control, be cashed out on the basis of the "Change in Control Price" as defined in Section 11(d) as of the date such Change in Control or such Potential Change in Control is determined to have occurred; - -------------------------------------------------------------------------------- Page 15 16 but the provisions of Sections 11(a)(l) through (3) shall not apply with respect to Awards granted to any Section 16 Participant which have been held by such participant for less than six months and one day as of the date that such Change in Control or Potential Change in Control is determined to have occurred. (b) Definition of Change in Control. For purposes of Section 11(a), a "Change in Control" means the occurrence of any of the following: (i) the Board or shareholders of the Company approve a consolidation or merger in which the Company is not the surviving corporation, the sale of substantially all of the assets of the Company, or the liquidation or dissolution of the Company; (ii) any person or other entity (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) purchases any Shares (or securities convertible into Shares) pursuant to a tender or exchange offer without the prior consent of the Board of Directors, or becomes the beneficial owner of securities of the Company representing 20% or more of the voting power of the Company's outstanding securities; or (iii) during any two-year period, individuals who at the beginning of such period constitute the entire Board of Directors cease to constitute a majority of the Board of Directors, unless the election or the nomination for election of each new director is approved by at least two-thirds of the directors then still in office who were directors at the beginning of that period. (c) Definition of Potential Change in Control. For purposes of Section 11(a), a "Potential Change in Control" means the happening of any one of the following: (1) The approval by the shareholders of the Company of an agreement by the Company, the consummation of which would result in a Change in Control of the Company as defined in Section 11(b); or (2) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than the Company or a Subsidiary or any Company employee benefit plan (including any trustee of any such plan acting in its capacity as trustee)) of securities of the Company representing 5% or more of the combined voting power of the Company's outstanding securities and the adoption by the Board of a resolution to the effect that a Potential Change in Control of the Company has occurred for purposes of this Plan. (d) Change in Control Price. For purposes of this Section 11, "Change in Control Price" means the highest price per share paid in any transaction reported on the New York Stock Exchange Composite Index (or, if the Shares are not then traded on the New York Stock Exchange, the highest price paid as reported for any national exchange on which the Shares are then traded) or paid or offered in any bona fide transaction related to a Change in Control or Potential Change in Control of the Company, at any time during the 60-day period immediately preceding the occurrence of the Change in Control (or, when applicable, the occurrence of the Potential Change in Control event), in each case as determined by the Committee. SECTION 12. AMENDMENTS AND TERMINATION. The Board may at any time, in its sole discretion, amend, alter or discontinue the Plan, but no such amendment, alteration or discontinuation shall be made that would impair the rights of a participant under an Award theretofore granted, without the participant's consent. The Company shall submit to the shareholders of the Company, for their approval, any amendments to the Plan required pursuant to Section - -------------------------------------------------------------------------------- Page 16 17 162(m) of the Code or which would materially increase the benefits accruing to participants under the Plan so long as such approval is required by law or regulation. The Committee may at any time, in its sole discretion, amend the terms of any Award, but no such amendment shall be made that would impair the rights of a participant under an Award theretofore granted, without the participant's consent; nor shall any such amendment be made that would make the applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any Section 16 Participant holding the Award without the participant's consent. Subject to the above provisions, the Board shall have all necessary authority to amend the Plan to take into account changes in applicable securities and tax laws and accounting rules, as well as other developments. SECTION 13. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payment not yet made to a participant by the Company, nothing contained herein shall give that participant any rights that are greater than those of a general creditor of the Company. - -------------------------------------------------------------------------------- Page 17 18 SECTION 14. GENERAL PROVISIONS. (a) The Committee may require each participant acquiring Shares pursuant to an Award under the Plan to represent to and agree with the Company in writing that the participant is acquiring the Shares without a view to distribution thereof. The certificates for any such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All Shares or other securities delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be put on any certificate for any such Shares to make appropriate reference to those restrictions. (b) Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to shareholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases. (c) Neither the adoption of the Plan, nor its operation, nor any document describing, implementing or referring to the Plan, or any part thereof, shall confer upon any participant under the Plan any right to continue in the employ, or as a director, of the Company or any Subsidiary or Affiliate, or shall in any way affect the right and power of the Company or any Subsidiary or Affiliate to terminate the employment, or service as a director, of any participant under the Plan at any time with or without assigning a reason therefor, to the same extent as the Company or any Subsidiary or Affiliate might have done if the Plan had not been adopted. (d) For purposes of this Plan, a transfer of a participant between the Company and any Subsidiary or Affiliate shall not be deemed a termination of employment. (e) No later than the date as of which an amount first becomes includable in the gross income of the participant for federal income tax purposes with respect to any Award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Committee regarding the payment of, any federal, state or local taxes or other items of any kind required by law to be withheld with respect to that amount. Subject to the following sentence, unless otherwise determined by the Committee, withholding obligations may be settled with Shares, including unrestricted Shares previously owned by the participant or Shares that are part of the Award that gives rise to the withholding requirement. Notwithstanding the foregoing, any election by a Section 16 Participant to settle any tax withholding obligation with Shares that are part of an Award shall be subject to approval by the Committee in its sole discretion. The obligations of the Company under the Plan shall be conditional on those payments or arrangements and the Company and its Subsidiaries and Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise payable to the participant. (f) The actual or deemed reinvestment of dividends or dividend equivalents in additional Restricted Shares (or in Deferred Shares or other types of Awards) at the time of any dividend payment shall be permissible only if sufficient Shares are available under Section 3 for reinvestment (taking into account then outstanding Stock Options). - -------------------------------------------------------------------------------- Page 18 19 (g) The Plan, all Awards made and actions taken thereunder and any agreements relating thereto shall be governed by and construed in accordance with the laws of the State of Ohio. (h) All agreements entered into with participants pursuant to the Plan shall be subject to the Plan. (i) The provisions of Awards need not be the same with respect to each participant. SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN. The Plan was adopted by the Board on March 2, 1998 and is subject to approval by a majority of the holders of the Company's outstanding Shares, in accordance with applicable law. If the Plan is not so approved within twelve (12) months after the date the Plan is adopted by the Board of Directors, the Plan and any Grants made hereunder shall be null and void. However, if the Plan is so approved, no further shareholder approval shall be required with respect to the granting of Awards pursuant to the Plan. SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the Plan on or after March 1, 2008, but Awards granted prior to that date may extend beyond that date. - -------------------------------------------------------------------------------- Page 19 EX-23 4 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference (i) in the Prospectuses constituting part of the Registration Statements on Form S-3 (Nos. 333-37067 and 333-05565) and (ii) in the Registration Statements on Form S-8 (Nos. 333-33819, 33-84606 and 33-74562) of Developers Diversified Realty Corporation of our report dated June 16, 1998 relating to the combined statement of revenue and certain expenses of The Family Center Properties and our report dated June 16, 1998 relating to the combined statement of revenue and certain expenses of The Sansone Properties, both of which appear in the Current Report on Form 8-K of Developers Diversified Realty Corporation dated April 28, 1998. PRICE WATERHOUSE LLP Cleveland, Ohio June 23, 1998 -----END PRIVACY-ENHANCED MESSAGE-----