Developers Diversified Realty Corp - Current report filing (8-K)
November 09 2007 - 2:16PM
Edgar (US Regulatory)
UNITED STATES 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)
June 30, 2007
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Ohio
|
|
1-11690
|
|
34-1723097
|
|
(State or other jurisdiction
of incorporation)
|
|
(Commission
File Number)
|
|
(IRS Employer
Identification No.)
|
|
|
|
3300 Enterprise Parkway, Beachwood, Ohio
|
|
44122
|
|
|
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Registrants telephone number, including area code (216) 755-5500
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (see General Instruction
A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
TABLE OF CONTENTS
Item 9.01 Financial Statements and Exhibits
As reported by the Company in its Current Report on Form 8-K dated and filed on
February 27, 2007, the Company consummated the merger of its subsidiary with Inland Retail Real
Estate Trust, Inc. (IRRETI) and the funding of the joint venture with TIAA-CREF
(TIAA-CREF Joint Venture) and related financing arrangements associated with the
transaction. This Current Report on Form 8-K is being filed to update the pro forma
financial information for the six months ended June 30, 2007 and the year ended December 31, 2006.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction
with the historical financial statements and notes thereto included in the Companys Form 10-Q for
the six months ended June 30, 2007 and Form 8-K dated
June 30, 2007 and filed on November 9, 2007
(which financial statements reflect the impact of property sales as discontinued operations
pursuant to the provisions of SFAS 144 Accounting for the Impairment or Disposal of Long Lived
Assets) for the year ended December 31, 2006.
On February 27, 2007, the Company and IRRETI consummated the transactions contemplated by the
agreement and plan of merger, dated October 20, 2006 (the Merger Agreement), among the Company, a
subsidiary of the Company and IRRETI. Pursuant to the Merger Agreement, the Company acquired
IRRETI for a total merger consideration of $14.00 per share plus accrued but unpaid dividends for
the month of February in cash, prorated in accordance with the Merger Agreement. As previously
announced, the Company elected to pay the merger consideration to the IRRETI stockholders through a
combination of $12.50 in cash and $1.50 in common shares of the Company, which equates to a
0.021569 common share of the Company. The Company acquired more than
300 assets at a total enterprise value of
approximately $6.2 billion, including approximately $3.0 billion of value related to retail centers
sold to the TIAA-CREF Joint Venture discussed below.
Immediately prior to the consummation of the transaction contemplated by the Merger Agreement, the
Company funded a joint venture with an affiliate of TIAA-CREF that purchased 66 community retail
centers from IRRETI for approximately $3.0 billion in total asset value.
An affiliate of TIAA-CREF contributed 85% of the equity in the joint venture, and an affiliate of
the Company contributed 15% of the equity in the joint venture. In addition to its distributions
from the joint venture, the Company will receive certain fees for asset management, leasing,
property management, development/tenant coordination and an initial acquisition fee.
The consolidated financial statements of IRRETI for the three-year period ended December 31, 2006
were included in the Companys Current Report on Form 8-K dated and filed on February 27, 2007.
In June
2007, the Company sold 17 shopping center assets, previously
acquired from IRRETI, to a third party.
In the second quarter of 2007, the Company formed DDR Domestic Retail Fund I (the Fund), a
sponsored, fully-seeded commingled fund. The Fund acquired 63 shopping center assets aggregating
8.3 million square feet (the Portfolio) from the Company and a joint venture for approximately
$1.5 billion. The Portfolio is comprised of 54 assets acquired by the Company through its
acquisition of IRRETI, seven assets formerly held in a joint venture with Kuwait Financial Centre
(DDR Markaz LLC Joint Venture), in which the Company had a 20% ownership interest, and two assets
from the Companys wholly-owned portfolio. As the Company does not have economic or effective control, the Fund is accounted for
using the equity method of accounting. The pro forma adjustments for the contribution of assets
are reflected herein.
Exhibits and Pro Forma Financial Information (unaudited)
|
(b)
|
|
Pro Forma Financial Information
|
|
|
|
|
Unaudited pro forma financial information for the Company is presented as follows:
|
|
|
|
Pro forma condensed consolidated statement of operations for the six months ended June 30, 2007
|
|
|
|
|
Pro forma condensed consolidated statement of operations for the year ended
December 31, 2006
|
|
|
|
|
Estimated twelve-month pro forma statement of taxable net operating income and
operating funds available for the twelve months ended December 31, 2006
|
DEVELOPERS DIVERSIFIED REALTY CORPORATION
INDEX TO PRO FORMA FINANCIAL STATEMENTS
June 30, 2007
(Unaudited)
|
|
|
Condensed Consolidated Statement of Operations for the Six Months ended
June 30, 2007
|
|
F-3
|
Condensed Consolidated Statement of Operations for the Year ended
December 31, 2006
|
|
F-9
|
Estimated Twelve-Month Pro Forma Statement of Taxable Net Operating
Income and Operating Funds Available
|
|
F-15
|
F-1
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months ended June 30, 2007
For the Year ended December 31, 2006
(In thousands, except per share data)
(Unaudited)
The unaudited pro forma condensed consolidated statement of operations for the six months ended
June 30, 2007 is presented as if (i) the merger with IRRETI and the funding for the TIAA-CREF Joint
Venture and related financings and (ii) the transfer of 56 properties or interests therein to an
effective 20% equity investment (the Fund) had occurred on January 1, 2006.
The unaudited pro forma condensed consolidated statement of operations for the year ended December
31, 2006 is presented as if (i) the merger with IRRETI and the funding for the TIAA-CREF Joint
Venture and related financings and (ii) the transfer of 56 properties or interests therein to an
effective 20% equity investment (the Fund) had occurred on January 1, 2006.
The following unaudited pro forma information is based upon the historical consolidated results of
operations of the Company for the six months ended June 30, 2007 and the year ended December 31,
2006, giving effect to the items listed above. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the historical financial statements and
notes thereto included in the Companys Form 10-Q for the six months ended June 30, 2007 and Form
8-K dated June 30, 2007 and filed on November 9, 2007 (which financial statements reflect the
impact of property sales as discontinued operations pursuant to the provisions of SFAS 144
Accounting for the Impairment or Disposal of Long Lived Assets) for the year ended December 31,
2006.
The unaudited pro forma condensed consolidated statements of operations do not purport to represent
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 Companys results of
operations for future periods. The Company accounted for the merger utilizing the
purchase method of accounting. The pro forma adjustments relating to the merger are based on the
Companys preliminary purchase price allocation and certain estimates. The Company engaged an
appraiser to perform a valuation of the real estate and certain other assets, the results of which
are expected to be completed before December 31, 2007. As a result, the amounts included in
the pro forma adjustments are preliminary and subject to change.
There can be no assurance that
the final adjustments will not be materially different from those included herein.
F-2
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund and
|
|
|
|
|
|
|
|
Company
|
|
|
IRRETI
|
|
|
TIAA-CREF
|
|
|
IRRETI
|
|
|
Other
|
|
|
Company
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Joint Venture
|
|
|
Merger
|
|
|
Dispositions
|
|
|
Pro Forma
|
|
Revenues from rental
properties
|
|
$
|
434,820
|
|
|
$
|
77,565
|
|
|
$
|
(38,461
|
)(a)
|
|
$
|
|
|
|
$
|
(48,807
|
)(i)
|
|
$
|
425,117
|
|
Management fee and other
fee related income
|
|
|
21,078
|
|
|
|
|
|
|
|
|
|
|
|
2,048
|
(b)
|
|
|
3,644
|
(j)
|
|
|
26,770
|
|
Other income
|
|
|
20,450
|
|
|
|
1,332
|
|
|
|
(226
|
)(a)
|
|
|
|
|
|
|
(308
|
)(i)
|
|
|
21,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,348
|
|
|
|
78,897
|
|
|
|
(38,687
|
)
|
|
|
2,048
|
|
|
|
(45,471
|
)
|
|
|
473,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and
maintenance
|
|
|
62,720
|
|
|
|
9,871
|
|
|
|
(4,182
|
)(a)
|
|
|
|
|
|
|
(8,022
|
)(i)
|
|
|
60,387
|
|
Real estate taxes
|
|
|
56,952
|
|
|
|
8,525
|
|
|
|
(4,312
|
)(a)
|
|
|
|
|
|
|
(6,473
|
)(i)
|
|
|
54,692
|
|
General and
administrative
|
|
|
40,678
|
|
|
|
48,252
|
|
|
|
|
|
|
|
|
(c)
|
|
|
(40
|
)(i)
|
|
|
88,890
|
|
Depreciation and
amortization
|
|
|
107,225
|
|
|
|
25,057
|
|
|
|
(11,825
|
)(a)
|
|
|
415
|
(d)
|
|
|
(6,331
|
)(i)
|
|
|
114,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203
|
)(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,575
|
|
|
|
91,705
|
|
|
|
(20,319
|
)
|
|
|
212
|
|
|
|
(20,866
|
)
|
|
|
318,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
6,182
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)(i)
|
|
|
6,737
|
|
Interest expense
|
|
|
(135,452
|
)
|
|
|
(19,199
|
)
|
|
|
|
|
|
|
2,893
|
(f)
|
|
|
6,543
|
(i)
|
|
|
(125,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,571
|
(k)
|
|
|
|
|
Other income (expense)
|
|
|
(450
|
)
|
|
|
|
|
|
|
(9
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129,720
|
)
|
|
|
(18,641
|
)
|
|
|
(9
|
)
|
|
|
2,893
|
|
|
|
26,111
|
|
|
|
(119,366
|
)
|
Income before equity in
net income of joint
ventures, income tax of
taxable REIT
subsidiaries and
franchise taxes, and
minority interests
|
|
|
79,053
|
|
|
|
(31,449
|
)
|
|
|
(18,377
|
)
|
|
|
4,729
|
|
|
|
1,506
|
|
|
|
35,462
|
|
Equity in net income of
joint ventures
|
|
|
27,883
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
(280
|
)(g)
|
|
|
(1,257
|
)(l)
|
|
|
26,292
|
|
Income tax of taxable
REIT subsidiaries and
franchise taxes
|
|
|
15,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,770
|
|
Minority interests
|
|
|
(13,715
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,683
|
)(h)
|
|
|
17,373
|
(k)
|
|
|
(4,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
|
|
|
108,991
|
|
|
|
(31,503
|
)
|
|
|
(18,377
|
)
|
|
|
(3,234
|
)
|
|
|
17,622
|
|
|
|
73,499
|
|
Preferred dividends
|
|
|
(29,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to
common shareholders
from continuing
operations
|
|
$
|
79,191
|
|
|
$
|
(31,503
|
)
|
|
$
|
(18,377
|
)
|
|
$
|
(3,234
|
)
|
|
$
|
17,622
|
|
|
$
|
43,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to
common
shareholders from
continuing
operations
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.83
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to
common shareholders from continuing operations
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.82
|
(m)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number
of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
119,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
121,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-3
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007
(In thousands, except per share data)
(Unaudited)
|
(a)
|
|
Represents the formation of the effective 15% Company owned TIAA-CREF Joint Venture which
acquired 66 properties previously consolidated by IRRETI. All historic operating activity for
the 66 properties has been eliminated due to the sale of the properties to the TIAA-CREF Joint
Venture.
|
|
(b)
|
|
Estimated management fee and asset management fee income assumed to be
earned by the Company from the TIAA-CREF Joint Venture. The management fee is based upon a
contractual rate of 4% of IRRETI historical property revenues from the properties sold to the
TIAA-CREF Joint Venture. The asset management fee is based upon a contractual rate of 25
basis points of joint venture equity.
|
|
(c)
|
|
There has been no adjustment to IRRETIs historical general and administrative
expenses, which includes severance charges.
However, Company management believes there will be a reduction in such expenses. There can be
no assurance that the Company will be successful in realizing anticipated costs savings.
|
|
(d)
|
|
To reflect depreciation expense utilizing a 31.5 year life for buildings. Depreciation
expense is calculated based on a preliminary purchase price allocation. The adjustment is
calculated as follows:
|
|
|
|
|
|
Fair market value of tangible real estate assets
|
|
$
|
2,982,115
|
|
Less: Non-depreciable real estate assets
|
|
|
(821,603
|
)
|
|
|
|
|
Depreciable buildings and improvements
|
|
$
|
2,160,512
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense based on 31.5 year life
|
|
$
|
11,271
|
|
Less: Depreciation expense recorded by IRRETI
|
|
|
(10,856
|
)
|
|
|
|
|
Depreciation expense adjustment through the date of acquisition
|
|
$
|
415
|
|
|
|
|
|
|
|
The allocation of the fair market value of real estate assets between buildings and
improvements and non-depreciable real estate, principally land, is preliminary and based
upon certain estimates.
|
F-4
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007 (continued)
(In thousands, except per share data)
(Unaudited)
(e)
|
|
To reflect amortization expense for intangible assets, primarily in-place lease values and
tenant relationship values, as follows:
|
|
|
|
|
|
Amortization expense estimated based upon a weighted
seven-year life
|
|
$
|
2,173
|
|
Less: Amortization expense recorded by IRRETI
|
|
|
(2,376
|
)
|
|
|
|
|
|
|
$
|
(203
|
)
|
|
|
|
|
(f)
|
|
To reflect the decrease in interest expense as follows:
|
|
|
|
|
|
Eliminate historical interest expense reported by
IRRETI
|
|
$
|
(19,199
|
)
|
Record interest expense relating to the bridge facility (principal $750,000)
|
|
|
7,587
|
|
Record interest expense associated with the TIAA- CREF
Joint Venture investment borrowed under the Companys
revolving credit facility (principal $183,281)
|
|
|
1,808
|
|
Record interest expense on the Companys revolving
credit facility (principal $146,893)
|
|
|
1,449
|
|
Record interest expense on the Companys term loan (principal $150,000)
|
|
|
1,505
|
|
Record interest at fair market value for assumed
secured indebtedness (principal $446,542)
|
|
|
3,997
|
|
Amortization of deferred financing costs relating to the
bridge facility
|
|
|
242
|
|
Capitalized
interest on estimated assumed construction in progress
|
|
|
(282
|
)
|
|
|
$
|
(2,893
|
)
|
|
|
|
|
|
|
The acquisition cost with respect to IRRETI was partially funded by $750,000 in the bridge facility borrowing which
bears interest at LIBOR plus 75 basis points. The bridge facility was
repaid in June 2007 through the sale of assets to third parties or
equity affiliates. Approximately $446,542 of existing secured
indebtedness was assumed at a weighted average market interest rate of
approximately 5.4%.
The remaining estimated funding of $480,174 was borrowed against the Companys
existing revolving credit facility and term loan which bore interest at LIBOR plus
60 basis points and 70 basis points, respectively. The Company
subsequently entered into alternate financing arrangements, including a
long-term debt financing and the sale of assets to third parties and equity
affiliates, to refinance the above borrowings.
|
F-5
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007 (continued)
(In thousands, except per share data)
(Unaudited)
|
|
Since the interest rates on the bridge facility, revolving
credit facility and Term Loan are based on a spread over LIBOR, the rates will periodically change. If the interest
rates on the incremental borrowings under these credit facilities increases or decreases by
12.5 basis points, the following adjustment would be made to interest
expense for the twelve month period:
|
|
|
|
|
|
Adjustment to interest expense if rate increases 12.5 basis points
|
|
$
|
1,538
|
|
Adjustment to interest expense if rate decreases 12.5 basis points
|
|
$
|
(1,538
|
)
|
(g)
|
|
Represents the estimated equity in net income from the TIAA-CREF Joint Venture. The amount
was calculated using the historical property revenues, operating and maintenance expenses,
real estate taxes, general and administrative expenses and other income. Depreciation and
amortization expense was calculated based upon the estimated fair market value of the related
assets and the estimated useful lives. The property management and asset management fees were
calculated pursuant to the contractual rates (see note b). Interest expense was calculated
based upon the fair market value of the assumed indebtedness and the stated fixed interest
rates of the joint venture financing. A
summary is as follows:
|
|
|
|
|
|
Revenues from operations (historical results)
|
|
$
|
38,687
|
|
Rental operation expenses
|
|
|
(10,056
|
)
|
Depreciation and amortization expense
|
|
|
(13,169
|
)
|
Asset management fee
|
|
|
(509
|
)
|
Interest expense
|
|
|
(16,822
|
)
|
|
|
|
|
Net loss
|
|
$
|
(1,869
|
)
|
|
|
|
|
Companys proportionate share of net loss
|
|
$
|
(280
|
)
|
|
|
|
|
|
|
Since the interest rate on the TIAA-CREF revolving credit facility
is based on a spread over LIBOR, the rate will periodically change. If the interest
rate on the incremental borrowing under this credit facility increases
or decreases by 12.5 basis points, the following adjustment would be
made to interest expense for the TIAA-CREF Joint Venture for the
twelve month period:
|
|
|
|
|
|
Adjustment to interest expense if rate increases 12.5 basis points
|
|
$
|
281
|
|
Adjustment to interest expense if rate decreases 12.5 basis points
|
|
$
|
(281
|
)
|
(h)
|
|
Represents preferred distributions relating to the $500 million
of preferred units assuming the preferred units are outstanding for the period January 1, 2007 to the date of acquisition. The preferred units have an increasing floating
distribution rate based upon LIBOR. This rate increases significantly if
the preferred units are still outstanding after 180 days. The
Company had
the right to redeem the preferred units at any time at a redemption price
equal to the aggregate liquidation preference of the preferred units plus
any accumulated unpaid distributions, subject to a discount of up to 3%.
There is no discount if the preferred units are redeemed after 365 days
from the date of issuance. As a result, the pro forma adjustment also
includes the accretion expense associated with the full amount of the
$15,750 in issuance costs since the preferred units are assumed to be
outstanding through the period ended June 21, 2007. The Company redeemed the preferred
units in June 2007 with proceeds from the sale of assets to
third parties and contribution of assets to equity affiliates.
|
F-6
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007 (continued)
(In thousands, except share and per share data)
(Unaudited)
|
(i)
|
|
Reflects the elimination of revenues and expenses associated with the transfer of 56
wholly-owned properties, of which 54 properties were acquired from IRRETI, to an effectively owned 20% non-controlling equity affiliate, DDR
Domestic Retail Fund I and 17 IRRETI properties sold to a third party in June 2007, for the six months ended June 30, 2007. The pro forma adjustments for the contribution of assets associated with the transfer of three
wholly-owned properties to an effectively owned 10% non-controlling equity affiliate, Dividend
Capital Total Realty Trust Joint Venture, are not reflected herein as these assets were under
development or in the lease-up phase during 2006 and, therefore, the 2007 operating results are not
reflective of the future operations of the properties in the aggregate.
|
|
|
(j)
|
|
Estimated management fee and asset management fee income assumed to be earned by the Company
from an effectively owned 20% non-controlling equity affiliate. The management fee is based
upon a contractual rate of 4% of historical revenues for 56
wholly-owned assets contributed to the Fund. The other seven assets were
transferred from an equity affiliate and as such, the Companys management fee income from these
assets is already included in the historical results of operations.
The asset management fee is based upon a contractual rate of 0.75% of
the Fund equity.
|
|
|
(k)
|
|
Reflects the reduction in interest costs associated with the proceeds from the transfer of 56
wholly-owned properties to the Fund for the six months ended
June 30, 2007. It is assumed that proceeds of $1,231.3 million for the transfer of 56 properties
were utilized to repay $500 million of preferred units (see Note h) and
the bridge facility (see Note f) through the date of
acquisition by the Fund.
|
|
|
(l)
|
|
Represents the estimated equity in net loss from the Fund. The amount was calculated using the historical property revenues, operating
and maintenance expenses and real estate taxes. Depreciation and amortization expense was
calculated based upon the estimated fair market value of the related assets and the estimated
useful lives. The management fee and asset management fee was calculated pursuant to the
contractual rate (see Note j). Interest expense was calculated based upon the fair market
value of the assumed indebtedness and the stated variable interest rate. A summary through
the date of acquisition is as follows:
|
|
|
|
|
|
Revenues from operations (historical results)
|
|
$
|
56,783
|
|
Rental operation expenses
|
|
|
(18,982
|
)
|
Depreciation and amortization expense
|
|
|
(16,410
|
)
|
Asset management fees
|
|
|
(1,762
|
)
|
Interest expense
|
|
|
(23,393
|
)
|
|
|
|
|
Net loss
|
|
$
|
(3,764
|
)
|
|
|
|
|
Companys proportionate share of net loss
|
|
|
(753
|
)
|
Equity in net income historically recorded
|
|
|
504
|
|
|
|
|
|
Equity in net loss of joint venture adjustment
|
|
$
|
(1,257
|
)
|
|
|
|
|
F-7
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2007 (continued)
(In thousands, except per share data)
(Unaudited)
(m)
|
|
Pro forma income per common share is based upon the weighted-average
number of the Companys common shares assumed to be outstanding
during 2007 and
includes 17.3 million shares issued
(5.5 million shares on a weighted average
basis for the six months ended June 30, 2007) in conjunction with the merger, of which
5.7 million shares were issued to IRRETI stockholders. The 5.7 million shares equate
to a 0.021569 common share of the Company per share of IRRETI common stock in
satisfaction of $1.50 of the per share merger consideration. The number of common
shares issued was based upon a market value issuance price of $69.54 per share.
Of the total 5.7 million shares issued to IRRETI stockholders, 0.3 million shares
were issued out of the Companys treasury shares.
|
|
|
In accordance with SFAS No. 128, Earnings Per Share, basic and diluted earnings per share
from continuing operations is calculated as follows:
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
73,499
|
|
Add: Gain on disposition of real estate (1)
|
|
|
60,155
|
|
Less: Preferred stock dividends
|
|
|
(29,800
|
)
|
|
|
|
|
Basic and
diluted Income from continuing operations and
applicable to common shareholders
|
|
$
|
103,854
|
|
|
|
|
|
|
|
|
|
|
Number of shares:
|
|
|
|
|
Basic average shares outstanding
|
|
|
125,149
|
|
Effect of dilutive securities:
|
|
|
|
|
Stock options
|
|
|
575
|
|
Restricted stock
|
|
|
199
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
125,923
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
Basic earnings:
|
|
|
|
|
Income applicable to common shareholders from
continuing operations
|
|
$
|
0.83
|
|
Diluted earnings:
|
|
|
|
|
Income applicable to common shareholders from
continuing operations
|
|
$
|
0.82
|
|
|
|
(1) Amount represents actual gain on sale of assets from the
Company ($60,022) and IRRETI ($133) for the six months ended
June 30, 2007,
which are not presented in the accompanying pro forma condensed
consolidated statement of operations.
|
F-8
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund and
|
|
|
|
|
|
|
Company
|
|
|
IRRETI
|
|
|
Reclassifications
|
|
|
IRRETI
|
|
|
TIAA-CREF
|
|
|
IRRETI
|
|
|
Other
|
|
|
Company
|
|
|
|
Historical
|
|
|
Historical
|
|
|
(a)
|
|
|
Adjusted
|
|
|
Joint Venture
|
|
|
Merger
|
|
|
Dispositions
|
|
|
Pro Forma
|
|
Revenues from rental properties
|
|
$
|
715,449
|
|
|
$
|
492,654
|
|
|
$
|
|
|
|
$
|
492,654
|
|
|
$
|
(245,068
|
)(b)
|
|
$
|
|
|
|
$
|
(118,499
|
)(j)
|
|
$
|
844,536
|
|
Management fee and other fee related
income
|
|
|
30,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,163
|
(c)
|
|
|
8,332
|
(k)
|
|
|
57,789
|
|
Other income
|
|
|
34,441
|
|
|
|
10,687
|
|
|
|
6,293
|
|
|
|
16,980
|
|
|
|
(5,850
|
)(b)
|
|
|
|
|
|
|
(2,306
|
)(j)
|
|
|
43,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
780,184
|
|
|
|
503,341
|
|
|
|
6,293
|
|
|
|
509,634
|
|
|
|
(250,918
|
)
|
|
|
19,163
|
|
|
|
(112,473
|
)
|
|
|
945,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance
|
|
|
108,013
|
|
|
|
73,369
|
|
|
|
|
|
|
|
73,369
|
|
|
|
(32,447
|
)(b)
|
|
|
|
|
|
|
(17,625
|
)(j)
|
|
|
131,310
|
|
Real estate taxes
|
|
|
91,076
|
|
|
|
56,028
|
|
|
|
|
|
|
|
56,028
|
|
|
|
(29,855
|
)(b)
|
|
|
|
|
|
|
(15,300
|
)(j)
|
|
|
101,949
|
|
General and administrative
|
|
|
60,679
|
|
|
|
14,590
|
|
|
|
|
|
|
|
14,590
|
|
|
|
|
|
|
|
|
(d)
|
|
|
(169
|
)(j)
|
|
|
75,100
|
|
Depreciation and amortization
|
|
|
183,171
|
|
|
|
145,372
|
|
|
|
|
|
|
|
145,372
|
|
|
|
(71,344
|
)(b)
|
|
|
4,028
|
(e)
|
|
|
(36,535
|
)(j)
|
|
|
227,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,608
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442,939
|
|
|
|
289,359
|
|
|
|
|
|
|
|
289,359
|
|
|
|
(133,646
|
)
|
|
|
6,636
|
|
|
|
(69,629
|
)
|
|
|
535,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
9,053
|
|
|
|
|
|
|
|
4,906
|
|
|
|
4,906
|
|
|
|
|
|
|
|
|
|
|
|
(20)
|
(j)
|
|
|
13,939
|
|
Interest expense
|
|
|
(211,132
|
)
|
|
|
(121,419
|
)
|
|
|
|
|
|
|
(121,419
|
)
|
|
|
|
|
|
|
26,380
|
(g)
|
|
|
30,910
|
(j)
|
|
|
(231,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,602
|
(l)
|
|
|
|
|
Other income (expense)
|
|
|
(446
|
)
|
|
|
13,965
|
|
|
|
(13,965
|
)
|
|
|
|
|
|
|
50
|
(b)
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,525
|
)
|
|
|
(107,454
|
)
|
|
|
(9,059
|
)
|
|
|
(116,513
|
)
|
|
|
50
|
|
|
|
26,380
|
|
|
|
74,492
|
|
|
|
(218,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in net income of
joint ventures, income tax of
taxable REIT subsidiaries and
franchise taxes, and minority
interests
|
|
|
134,720
|
|
|
|
106,528
|
|
|
|
(2,766
|
)
|
|
|
103,762
|
|
|
|
(117,222
|
)
|
|
|
38,907
|
|
|
|
31,648
|
|
|
|
191,815
|
|
Equity in net income of joint ventures
|
|
|
30,337
|
|
|
|
|
|
|
|
(455
|
)
|
|
|
(455
|
)
|
|
|
|
|
|
|
(646
|
)(h)
|
|
|
(2,143
|
)(m)
|
|
|
27,093
|
|
Income tax of taxable REIT
subsidiaries and franchise taxes
|
|
|
2,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,497
|
|
Minority interests
|
|
|
(8,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,339
|
)(i)
|
|
|
58,339
|
(l)
|
|
|
(8,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
159,101
|
|
|
|
106,528
|
|
|
|
(3,221
|
)
|
|
|
103,307
|
|
|
|
(117,222
|
)
|
|
|
(20,078
|
)
|
|
|
87,844
|
|
|
|
212,952
|
|
Preferred dividends
|
|
|
(55,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to common
shareholders
from continuing
operations
|
|
$
|
103,932
|
|
|
$
|
106,528
|
|
|
$
|
(3,221
|
)
|
|
$
|
103,307
|
|
|
$
|
(117,222
|
)
|
|
$
|
(20,078
|
)
|
|
$
|
87,844
|
|
|
$
|
157,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to common
shareholders from
continuing operations
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.85
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income applicable to common
shareholders from
continuing operations
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.84
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
109,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
109,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-9
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (continued)
(In thousands, except per share data)
(Unaudited)
(a)
|
|
Represents reclassifications of IRRETI historical results to break out other income and interest income in accordance with S-X
rules and to conform to the
Companys financial statement presentation. The IRRETI income
applicable to common shareholders from continuing operations of $3,221
represents gain on disposition of real estate.
|
|
(b)
|
|
Represents the formation of the effective 15% Company owned TIAA-CREF Joint Venture which
acquired 66 properties previously consolidated by IRRETI. All historic operating activity for
the 66 properties has been eliminated due to the sale of the properties to the TIAA-CREF Joint
Venture.
|
|
(c)
|
|
Estimated management fee and asset management fee income assumed to be
earned by the Company from the TIAA-CREF Joint Venture. The management fee is based upon a
contractual rate of 4% of IRRETI historical property revenues from the properties sold to the
TIAA-CREF Joint Venture. The asset management fee is based upon a contractual rate of 25
basis points of joint venture equity. The acquisition fee is based upon a contractual rate of
25 basis points of the acquisition value of which the Company only recognizes revenue relating
to the outside partner ownership interest of 85%.
|
|
(d)
|
|
There has been no adjustment to IRRETIs historical general and administrative expenses.
However, Company management believes there will be a reduction in such expenses. There can be
no assurance that the Company will be successful in realizing anticipated costs savings.
|
|
(e)
|
|
To reflect depreciation expense utilizing a 31.5 year life for buildings. Depreciation
expense is calculated based on a preliminary purchase price
allocation. The adjustment is
calculated as follows:
|
|
|
|
|
|
Fair market value of tangible real estate assets
|
|
$
|
2,982,115
|
|
Less: Non-depreciable real estate assets
|
|
|
(821,603
|
)
|
|
|
|
|
Depreciable buildings and improvements
|
|
$
|
2,160,512
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense based on 31.5 year life
|
|
$
|
67,622
|
|
Less: Depreciation expense recorded by IRRETI
|
|
|
(63,594
|
)
|
|
|
|
|
Depreciation expense adjustment
|
|
$
|
4,028
|
|
|
|
|
|
|
|
The allocation of the fair market value of real estate assets between buildings and
improvements and non-depreciable real estate, principally land, is preliminary and based
upon certain estimates.
|
F-10
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (continued)
(In thousands, except per share data)
(Unaudited)
(f)
|
|
To reflect amortization expense for intangible assets, primarily in-place lease values and
tenant relationship values, as follows:
|
|
|
|
|
|
Amortization expense estimated based upon a weighted
seven-year life
|
|
$
|
13,042
|
|
Less: Amortization expense recorded by IRRETI
|
|
|
(10,434
|
)
|
|
|
|
|
|
|
$
|
2,608
|
|
|
|
|
|
(g)
|
|
To reflect the decrease in interest expense as follows:
|
|
|
|
|
|
Eliminate historical interest expense reported by
IRRETI
|
|
$
|
(121,419
|
)
|
Record interest expense relating to the bridge facility (principal $750,000)
|
|
|
43,819
|
|
Record interest expense associated with the TIAA-CREF
Joint Venture investment borrowed under the Companys
revolving credit facility (principal $183,281)
|
|
|
10,433
|
|
Record interest expense on the Companys revolving
credit facility (principal $146,893)
|
|
|
8,362
|
|
Record interest expense on the Companys term loan (principal $150,000)
|
|
|
8,689
|
|
Record interest at fair market value for assumed
secured indebtedness (principal $446,542)
|
|
|
23,979
|
|
Amortization of deferred financing costs relating to the
bridge facility
|
|
|
1,450
|
|
Capitalized
interest on estimated assumed construction in progress
|
|
|
(1,693
|
)
|
|
|
$
|
(26,380
|
)
|
|
|
|
|
|
|
The acquisition cost with respect to IRRETI was partially funded by $750,000 in the bridge facility borrowing which
bears interest at LIBOR plus 75 basis points. The bridge facility was
repaid in June 2007 through the sale of assets to third parties or
equity affiliates. Approximately $446,542 of existing secured
indebtedness was assumed at a weighted average market interest rate of
approximately 5.4%.
The remaining estimated funding of $480,174 was borrowed against the Companys
existing revolving credit facility and term loan which bore interest at LIBOR plus
60 basis points and 70 basis points, respectively. The Company
subsequently entered into alternate financing arrangements, including
a long-term debt financing and the sale of assets to third parties and equity
affiliates, to refinance the above borrowings.
|
F-11
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (continued)
(In thousands, except per share data)
(Unaudited)
|
|
Since the interest rates on the bridge facility, revolving
credit facility and term loan are based on a spread over LIBOR, the rates will periodically change. If the interest
rates on the incremental borrowings under these credit facilities increases or decreases by
12.5 basis points, the following adjustment would be made to interest expense:
|
|
|
|
|
|
Adjustment to interest expense if rate increases 12.5
basis points
|
|
$
|
1,538
|
|
Adjustment to interest expense if rate decreases 12.5
basis points
|
|
$
|
(1,538
|
)
|
(h)
|
|
Represents the estimated equity in net income from the TIAA-CREF Joint Venture. The amount
was calculated using the historical property revenues, operating and maintenance expenses,
real estate taxes, general and administrative expenses and other income. Depreciation and
amortization expense was calculated based upon the estimated fair market value of the related
assets and the estimated useful lives. The property management and asset management fees were
calculated pursuant to the contractual rates (see note c). Interest expense was calculated
based upon the fair market value of the assumed indebtedness and the stated fixed interest
rates of the joint venture financing. A summary is as follows:
|
|
|
|
|
|
Revenues from operations (historical results)
|
|
$
|
250,918
|
|
Rental operation expenses
|
|
|
(72,225
|
)
|
Depreciation and amortization expense
|
|
|
(79,013
|
)
|
Asset management fee
|
|
|
(3,055
|
)
|
Interest expense
|
|
|
(100,932
|
)
|
|
|
|
|
Net loss
|
|
$
|
(4,307
|
)
|
|
|
|
|
Companys proportionate share of net loss
|
|
$
|
(646
|
)
|
|
|
|
|
|
|
Since the interest rate on the TIAA-CREF revolving credit facility
is based on a spread over LIBOR, the rate will periodically change. If the interest
rate on the incremental borrowing under this credit facility increases
or decreases by 12.5 basis points, the following adjustment would be
made to interest expense for the TIAA-CREF Joint Venture:
|
|
|
|
|
|
Adjustment to interest expense if rate increases 12.5 basis points
|
|
$
|
281
|
|
Adjustment to interest expense if rate decreases 12.5 basis points
|
|
$
|
(281
|
)
|
(i)
|
|
Represents preferred distributions relating to the $500 million
of preferred units assuming the preferred units are outstanding for the
full 12 months in 2006. The preferred units have an increasing floating
distribution rate based upon LIBOR. This rate increases significantly if
the preferred units are still outstanding after 180 days. The
Company had
the right to redeem the preferred units at any time at a redemption price
equal to the aggregate liquidation preference of the preferred units plus
any accumulated unpaid distributions, subject to a discount of up to 3%.
There is no discount if the preferred units are redeemed after 365 days
from the date of issuance. As a result, the pro forma adjustment also
includes the accretion expense associated with the full amount of the
$15,750 in issuance costs since the preferred units are assumed to be
outstanding throughout 2006. The Company redeemed the preferred
units in June 2007 with proceeds from the sale of assets to
third parties and contribution of assets to equity affiliates.
|
F-12
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (continued)
|
|
(In thousands, except share and per share data)
(Unaudited)
|
|
(j)
|
|
Reflects the elimination of revenues and expenses associated with the transfer of 56
wholly-owned properties, of which 54 properties were acquired from IRRETI, to an effectively owned 20% non-controlling equity affiliate, DDR
Domestic Retail Fund I and 17 IRRETI properties sold to a third party in June 2007, for the year ended December 31, 2006. The pro forma adjustments for the contribution of assets associated with the transfer of three
wholly-owned properties to an effectively owned 10% non-controlling equity affiliate, Dividend
Capital Total Realty Trust Joint Venture, are not reflected herein as these assets were under
development or in the lease-up phase during 2006 and, therefore, the 2006 operating results are not
reflective of the future operations of the properties in the aggregate.
|
|
|
(k)
|
|
Estimated management fee and asset management fee income assumed to be earned by the Company
from an effectively owned 20% non-controlling equity affiliate. The management fee is based
upon a contractual rate of 4% of historical revenues for 56
wholly-owned assets contributed to the Fund. The other seven assets were
transferred from an equity affiliate and as such, the Companys management fee income from these
assets is already included in the historical results of operations.
The asset management fee is based upon a contractual rate of 0.75% of
the Fund equity.
|
|
|
(l)
|
|
Reflects the reduction in interest costs associated with the proceeds from the transfer of 56
wholly-owned properties to the Fund for the year ended
December 31, 2006. It is assumed that proceeds of $1,231.3 million for the transfer of 56 properties
were utilized to repay $500 million of preferred units (see Note i)
and the bridge facility (see Note g) for the year ended
December 31, 2006.
|
|
|
(m)
|
|
Represents the estimated equity in net loss from the Fund. The amount was calculated using the historical property revenues, operating
and maintenance expenses and real estate taxes. Depreciation and amortization expense was
calculated based upon the estimated fair market value of the related assets and the estimated
useful lives. The management fee and asset management fee was calculated pursuant to the
contractual rate (see Note k). Interest expense was calculated based upon the fair market
value of the assumed indebtedness and the stated variable interest rate. A summary for the
year ended December 31, 2006 is as follows:
|
|
|
|
|
|
Revenues from operations (historical results)
|
|
$
|
129,314
|
|
Rental operation expenses
|
|
|
(38,858
|
)
|
Depreciation and amortization expense
|
|
|
(37,670
|
)
|
Asset management fees
|
|
|
(4,046
|
)
|
Interest expense
|
|
|
(53,701
|
)
|
|
|
|
|
Net loss
|
|
$
|
(4,961
|
)
|
|
|
|
|
Companys proportionate share of net loss
|
|
|
(992
|
)
|
Equity in net income historically recorded
|
|
|
1,151
|
|
|
|
|
|
Equity in net loss of joint venture adjustment
|
|
$
|
(2,143
|
)
|
|
|
|
|
F-13
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006 (continued)
(In thousands, except per share data)
(Unaudited)
(n)
|
|
Pro forma income per common share is based upon the weighted-average
number of the Companys common shares assumed to be outstanding during 2006 and
includes 17.3 million shares issued in conjunction with the merger, of which 5.7
million shares were issued to IRRETI stockholders. The 5.7 million shares equate
to a 0.021569 common share of the Company per share of IRRETI common stock in
satisfaction of $1.50 of the per share merger consideration. The number of common
shares issued was based upon a market value issuance price of $69.54 per share.
Of the total 5.7 million shares issued to IRRETI stockholders, 0.3 million shares
were issued out of the Companys treasury shares. For purposes of this pro forma
presentation, it is assumed that the Company had the necessary amount of shares in
treasury available for re-issuance in 2006.
|
|
|
In accordance with SFAS No. 128, Earnings Per Share, basic and diluted earnings per share
from continuing operations is calculated as follows:
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
212,952
|
|
Add: Gain on disposition of real estate (1)
|
|
|
75,244
|
|
Less: Preferred stock dividends
|
|
|
(55,169
|
)
|
|
|
|
|
Basic and diluted Income from continuing operations and
applicable to common shareholders
|
|
$
|
233,027
|
|
|
|
|
|
|
|
|
|
|
Number of shares:
|
|
|
|
|
Basic average shares outstanding
|
|
|
126,268
|
|
Effect of dilutive securities:
|
|
|
|
|
Stock options
|
|
|
546
|
|
Restricted stock
|
|
|
65
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
126,879
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
Basic earnings:
|
|
|
|
|
Income applicable to common shareholders from
continuing operations
|
|
$
|
1.85
|
|
Diluted earnings:
|
|
|
|
|
Income applicable to common shareholders from
continuing operations
|
|
$
|
1.84
|
|
(1)
|
|
Amount represents actual gain on sale of assets from the
Company and IRRETI for the year
ended December 31, 2006, which are not presented in the accompanying pro forma condensed consolidated statement of operations.
|
F-14
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, 2006. The pro forma statement is based on the Companys
historical operating results for the twelve-month period ended December 31, 2006 adjusted for the
effect of (i) the issuance of $250 million of convertible
notes in August 2006, (ii) the Companys merger with IRRETI and related financings and certain other items related to
operations which can be factually supported (iii) the issuance of $600 million of convertible notes in March 2007, (iv) the transfer of 56 properties or interests therein to an effective 20% equity investment and (v) the transfer of
three properties or interests therein to an effective 10% equity investment had occurred on
January 1, 2006. 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 Companys Form 8-K dated June 30, 2007
and filed on November 9, 2007 (which financial statements reflect the impact of property sales as
discontinued operations pursuant to the provisions of SFAS 144 Accounting for the Impairment or
Disposal of Long Lived Assets) for the year ended December 31, 2006 and (ii) the pro forma
condensed consolidated financial statements of the Company included elsewhere herein.
F-15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Estimated Twelve-Month Pro Forma Statement of Taxable Net Operating Income
and Operating Funds Available
(Unaudited)
|
|
|
|
|
Estimate of Taxable Net Operating Income (in thousands):
|
|
|
|
|
Company historical income from continuing operations before
extraordinary item, exclusive of property depreciation and amortization
(Note 1)
|
|
$
|
342,272
|
|
IRRETI historical income from continuing operations before extraordinary
item, exclusive of property depreciation and amortization (Note 2)
|
|
|
248,679
|
|
TIAA-CREF Joint Venture historical earnings from continuing
operations, as
adjusted, exclusive of depreciation and amortization (Note 2)
|
|
|
(188,566
|
)
|
Merger with
IRRETI historical earnings from continuing operations, as
adjusted, exclusive of depreciation and amortization (Note 2)
|
|
|
(13,442
|
)
|
Issuance of $250 million of convertible notes in August 2006
|
|
|
|
|
Issuance of
$600 million convertible notes in March 2007
|
|
|
|
|
Fund and Other Dispositions historical income from continuing operations
before extraordinary item, exclusive of property depreciation and
amortization (Note 2)
|
|
|
51,309
|
|
Estimated 2006 tax depreciation and amortization (Note 3)
|
|
|
(156,726
|
)
|
Pro forma tax depreciation of the merger with IRRETI
|
|
|
(30,944
|
)
|
|
|
|
|
Pro forma taxable income before dividends deduction
|
|
|
252,582
|
|
Estimated dividends deduction (Note 4)
|
|
|
(353,161
|
)
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Pro forma taxable net operating income
|
|
$
|
|
|
|
|
|
|
Estimate of Operating Funds Available (in thousands):
|
|
|
|
|
Pro forma taxable operating income before dividend deduction
|
|
$
|
252,582
|
|
Add pro forma depreciation
|
|
|
187,670
|
|
|
|
|
|
Estimated pro forma operating funds available (Note 5)
|
|
$
|
440,252
|
|
|
|
|
|
F-16
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Estimated Twelve-Month Pro Forma Statement of Taxable Net Operating Income
and Operating Funds Available
(Unaudited)
|
|
|
Note 1 -
|
|
The historical earnings from operations represents the Companys
earnings from operations for the twelve-months ended December 31,
2006, as reflected in the Companys historical financial
statements.
|
|
|
|
Note 2 -
|
|
The historical earnings from
operations represent the revenues and
certain expenses as referred to in the pro forma condensed
consolidated statement of operations for the year ended December
31, 2006, included elsewhere herein.
|
|
|
|
Note 3 -
|
|
Tax depreciation for the Company is based upon the Companys
historical cost basis, as reflected in the Companys financial
statements in accordance with generally accepted accounting
principles. At December 31, 2006, the tax cost basis of assets
was approximately $ 7.3 billion. The costs consist primarily of
land or depreciable assets that 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 (126,268,000 shares x $2.36(a) per share)
|
|
$
|
297,992
|
|
Class F Preferred shares
|
|
|
12,900
|
|
Class G Preferred shares
|
|
|
14,400
|
|
Class H Preferred shares
|
|
|
15,119
|
|
Class I Preferred shares
|
|
|
12,750
|
|
|
|
|
|
|
|
$
|
353,161
|
|
|
|
|
|
|
|
|
(a)
|
|
No pro forma adjustments have been made to the Companys 2006 dividends since
the operating results from the Companys acquisition of IRRETI in 2006 are not reflective of
the future operating results.
|
|
|
|
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-17
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
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
Date
November 9, 2007
|
|
|
|
|
|
|
|
|
|
|
|
/s/ William H. Schafer
|
|
|
|
|
William H. Schafer
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
F-18
Developers Realty (NYSE:DDR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Developers Realty (NYSE:DDR)
Historical Stock Chart
From Jul 2023 to Jul 2024