BEACHWOOD, Ohio, Feb. 17, 2011 /PRNewswire/ -- Developers
Diversified Realty Corporation (NYSE: DDR) today announced
operating results for the fourth quarter and year ended
December 31, 2010.
SIGNIFICANT FOURTH QUARTER ACTIVITY
- Reported operating FFO of $0.27
per diluted share, which excludes certain non-operating items
- Executed 396 total leases for 2.6 million square feet
- Increased the core portfolio leased rate to 92.3% at
December 31, 2010 from 92.0% at
September 30, 2010 and 91.2% at
December 31, 2009
- Improved the spread on new leases to +8.3% and renewals to
+4.8% for a blended overall spread of +5.4%, which compares to a
blended spread of +5.0% in the third quarter of 2010 and -4.4% in
the fourth quarter of 2009
- Reported Same Store Net Operating Income growth of 3.6% as
compared to an increase of 2.0% in the third quarter of 2010 and a
decrease of 3.5% in the fourth quarter of 2009
- Refinanced two senior unsecured revolving credit facilities
providing $1.015 billion of borrowing
capacity through February 2014
- Completed $163.4 million of asset
sales, of which the Company's pro-rata share was $62.8 million
- Issued $350 million aggregate
principal amount of 1.75% convertible senior notes due November 2040
- Reduced consolidated indebtedness by nearly $100 million to $4.3 billion at December 31, 2010
"We are pleased to report continued positive operational trends
within our portfolio, specifically as it relates to leasing
momentum and rental rates, and the resulting growth in same store
net operating income. Furthermore, the continued execution of
our strategic objectives in the capital markets continues to
improve our credit metrics, and we are keenly focused on delivering
additional progress throughout 2011," commented Developers
Diversified's president and chief executive officer, Daniel B. Hurwitz.
FINANCIAL HIGHLIGHTS
The Company's fourth quarter operating Funds From Operations
("FFO") was $70.9 million, or
$0.27 per diluted share, before
$114.8 million of net charges.
The Company's operating FFO for the year was $264.3 million, or $1.04 per diluted share, before $275.6 million of net charges.
The charges and gains, primarily non-cash, for the periods ended
December 31, 2010, are summarized as
follows (in millions):
|
|
|
|
Three
Months
|
|
Year
|
|
Non-cash impairment charges –
consolidated assets
|
|
$ 28.9
|
|
$ 116.5
|
|
Charges related to employee
separations
|
|
3.5
|
|
5.6
|
|
Gain on debt retirement,
net
|
|
(0.2)
|
|
(0.5)
|
|
Non-cash loss on equity
derivative instruments (Otto Family warrants)
|
|
25.5
|
|
40.2
|
|
Other expense, net
(1)
|
|
6.0
|
|
22.0
|
|
Equity in net loss of joint
ventures – loss on asset sales and impairment charges
|
|
0.4
|
|
6.8
|
|
Loss on change in control of
interests
|
|
-
|
|
0.4
|
|
Tax expense – deferred tax
assets reserve
|
|
49.9
|
|
49.9
|
|
Discontinued operations –
non-cash consolidated impairment charges and loss on
sales
|
|
1.3
|
|
67.1
|
|
Discontinued operations – FFO
associated with Mervyns Joint Venture, net of non-controlling
interest
|
|
-
|
|
4.8
|
|
Discontinued operations – gain
on deconsolidation of Mervyns Joint Venture
|
|
-
|
|
(5.6)
|
|
Gain on disposition of real
estate (land)
|
|
(0.5)
|
|
(0.4)
|
|
Less non-controlling interests –
portion of impairment charges allocated to outside
partners
|
|
-
|
|
(31.2)
|
|
|
|
$114.8
|
|
$ 275.6
|
|
|
|
(1) Amounts included in Other
expense are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
Year
|
|
Lease liability reserve -
primarily for cancelled development project
|
|
$
3.3
|
|
$
3.3
|
|
Litigation expenditures, net of
tax benefit
|
|
1.0
|
|
12.2
|
|
Debt extinguishment
costs
|
|
0.5
|
|
3.7
|
|
Other
|
|
1.2
|
|
2.8
|
|
|
|
$
6.0
|
|
$
22.0
|
|
|
|
|
|
|
|
|
Included in the non-operating items detailed above is a
$22.3 million non-cash charge
recognized in the fourth quarter of 2010 associated with a
development project the Company no longer plans to pursue. A
subsidiary of the Company's taxable REIT subsidiary ("TRS")
acquired a leasehold interest in the development located in
Norwood, Massachusetts as part of
a portfolio acquisition in 2003, and no longer expects to fund the
ground rent expense. The aggregate charge includes a
$19.3 million impairment and a
$3.0 million lease liability
associated with the ground lease. The Company also incurred
fourth quarter non-cash income tax expense of $49.9 million recognized due to the establishment
of a reserve against certain deferred tax assets within its TRS.
Based upon the continued loss activity recognized by the TRS,
including the $22.3 million charge
associated with the abandoned development project described above,
it was determined that it was more likely than not that the
deferred tax assets would not be utilizable, thus requiring a
current reserve.
FFO applicable to common shareholders for the three-month period
ended December 31, 2010, including
the above net charges, was a loss of $43.9
million, or $0.17 per diluted
share, which compares to a FFO loss of $28.0
million, or $0.14 per diluted
share, for the prior-year comparable period. The increased
FFO loss for the three-month period ended December 31, 2010, is primarily the result of the
establishment of a reserve against certain deferred tax assets and
an increase in expense recorded for the equity derivative
instruments associated with the Otto investment, partially offset
by a decrease in impairment-related charges.
FFO applicable to common shareholders for the year ended
December 31, 2010, including the
above net charges, was a loss of $11.3
million, or $0.05 per diluted
share, which compares to a FFO loss of $144.6 million, or $0.90 per diluted share, for the prior-year
comparable period. The increase in FFO for the year ended
December 31, 2010, is primarily the
result of a decrease in impairment-related charges and lower
expense associated with the equity derivative instruments partially
offset by the establishment of a reserve against certain deferred
tax assets in 2010 and lower gain on debt retirement.
Net loss applicable to common shareholders for the three-month
period ended December 31, 2010, was
$94.8 million, or $0.37 per diluted share, which compares to a net
loss of $90.1 million, or
$0.46 per diluted share, for the
prior-year comparable period.
Net loss applicable to common shareholders for the year ended
December 31, 2010, was $251.6 million, or $1.03 per diluted share, which compares to a net
loss of $398.9 million, or
$2.51 per diluted share, for the
prior-year comparable period. The decrease in net loss for
the year ended December 31, 2010, is
primarily due to the same factors impacting FFO.
LEASING & PORTFOLIO OPERATIONS
The following results for the three-month period ended
December 31, 2010, highlight
continued strong leasing activity throughout the portfolio:
- Executed 161 new leases aggregating approximately 1.0 million
square feet and 235 renewals aggregating approximately 1.6 million
square feet. In total, the Company executed approximately 2.6
million square feet of leases for the quarter and 11.3 million for
the full year of 2010.
- Total portfolio average annualized base rent per occupied
square foot as of December 31, 2010
was $13.36, as compared to
$13.01 at December 31, 2009. Excluding the
Brazil portfolio, total portfolio
average annualized base rent per occupied square foot as of
December 31, 2010 was $12.46, as compared to $12.27 at December 31,
2009.
- The core portfolio leased rate was 92.3% as of December 31, 2010, as compared to 91.2% at
December 31, 2009. The core
portfolio and the Brazil portfolio
blended leased rate was 92.6% at December
31, 2010.
- On a cash basis, rental rates for new leases increased by 8.3%
over prior rents and renewals increased by 4.8%. For the
U.S.-portion of the portfolio, rental rates increased 6.5% for new
leases and 3.1% for renewals. On a blended basis, leasing
spreads increased by 5.4% during the quarter for the total
portfolio and 3.5% for the U.S.-portion of the portfolio. The
increase in the overall leasing spreads marks an improvement from
the increase of 5.0% for the portfolio reported in the third
quarter of 2010 and an improvement from the decrease of 4.4% for
the portfolio reported in the fourth quarter of 2009. Total
blended leasing spreads for the full year of 2010 increased 3.7%.
- Same store net operating income ("NOI") increased 3.6% for the
three-month comparable period and 1.1% for the full year 2010 as
compared to 2009.
DISPOSITIONS
The Company sold eight consolidated shopping centers,
aggregating approximately 0.8 million square feet, in the fourth
quarter of 2010, generating gross proceeds of approximately
$33.8 million. The Company
recorded an aggregate net gain of approximately $8.4 million related to asset sales in the fourth
quarter. The Company also sold $9.4
million in non-income producing assets.
In the fourth quarter of 2010, five of the Company's joint
ventures sold ten shopping centers, aggregating approximately 0.9
million square feet, generating gross proceeds of approximately
$120.2 million. The joint
ventures recorded an aggregate net loss of approximately
$1.4 million related to these asset
sales, of which the Company's proportionate share was a net gain of
approximately $4.9 million as a
result of an approximate $2.0 million
promoted interest recorded related to one asset.
CAPITAL MARKETS ACTIVITIES
In November 2010, the Company
issued $350 million aggregate
principal amount of 1.75% convertible senior notes due November 2040. The notes have an initial
conversion rate of approximately 61 common shares per $1,000 principal amount of the notes,
representing a conversion price of approximately $16.38 per common share. The initial
conversion rate is subject to adjustment under certain
circumstances. The Company may redeem the notes anytime on or after
November 15, 2015 in whole or in part
for cash equal to 100% of the principal amount of the notes plus
accrued and unpaid interest. The adjusted effective interest rate
for the liability component of the convertible notes for GAAP
purposes is 5.3%.
In October 2010, the Company
refinanced its unsecured credit facility arranged by JP Morgan
Chase Bank, N.A. and Wells Fargo Bank, N.A. The size of the
facility was reduced to $950 million
with an accordion feature up to $1.2
billion. In addition, the Company also entered into a
new $65 million unsecured credit
facility with PNC Bank, N.A. Both facilities mature in
February 2014. The Company's
borrowings under these facilities bear interest at variable rates
based on LIBOR plus 275 basis points, subject to adjustment based
on the Company's current corporate credit ratings from Moody's and
S&P.
In October 2010, the Company
amended its secured term loan with KeyBank National Association to
conform the covenants to the new revolving credit facility
covenants and repaid $200 million of
the outstanding balance.
2011 GUIDANCE
There has been no change in guidance since the last update
provided on January 10, 2011.
The Company continues to estimate operating FFO for 2011
between $0.90-$1.05 per diluted
share.
NON-GAAP DISCLOSURES
FFO is a supplemental non-GAAP financial measurement used as a
standard in the real estate industry and a widely accepted measure
of real estate investment trust ("REIT") performance.
Management believes that FFO and operating FFO provide
additional indicators of the financial performance of a REIT.
The Company also believes that FFO and operating FFO more
appropriately measure the core operations of the Company and
provide benchmarks to its peer group. Neither FFO nor
operating FFO represents cash generated from operating activities
in accordance with generally accepted accounting principles
("GAAP"), is necessarily indicative of cash available to fund cash
needs and should be considered as an alternative to net income
computed in accordance with GAAP as an indicator of the Company's
operating performance or as an alternative to cash flow as a
measure of liquidity. FFO is defined and calculated by the
Company as net income, adjusted to exclude: (i) preferred share
dividends, (ii) gains from disposition of depreciable real estate
property, except for gains generated from merchant build asset
sales, which are presented net of taxes, and those gains that
represent the recapture of a previously recognized impairment
charge, (iii) extraordinary items and (iv) certain non-cash items.
These non-cash items principally include real property
depreciation and amortization of intangibles, equity income from
joint ventures and equity income from non-controlling interests and
adding the Company's proportionate share of FFO from its
unconsolidated joint ventures and non-controlling interests,
determined on a consistent basis. The Company calculates
operating FFO by excluding the non-operating charges and gains
described above. Other real estate companies may calculate
FFO and operating FFO in a different manner. FFO excluding
the net non-operating items detailed above is useful to investors
as the Company removes these charges and gains to analyze the
results of its operations and assess performance of the core
operating real estate portfolio. A reconciliation of net
(loss) income to FFO and operating FFO is presented in the
financial highlights section.
SAFE HARBOR
Developers Diversified Realty Corporation considers portions of
the information in this press release to be forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934,
both as amended, with respect to the Company's expectation for
future periods. Although the Company believes that the
expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. For this purpose, any
statements contained herein that are not historical fact may be
deemed to be forward-looking statements. There are a number
of important factors that could cause our results to differ
materially from those indicated by such forward-looking statements,
including, among other factors, local conditions such as oversupply
of space or a reduction in demand for real estate in the area;
competition from other available space; dependence on rental income
from real property; the loss of, significant downsizing of or
bankruptcy of a major tenant; constructing properties or expansions
that produce a desired yield on investment; our ability to sell
assets on commercially reasonable terms; our ability to secure
equity or debt financing on commercially acceptable terms or at
all; our ability to enter into definitive agreements with regard to
our financing and joint venture arrangements or our failure to
satisfy conditions to the completion of these arrangements; and the
finalization of the financial statements for the year ended
December 31, 2010. For
additional factors that could cause the results of the Company to
differ materially from these indicated in the forward-looking
statements, please refer to the Company's Form 10-K as of
December 31, 2009. The Company
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the
date hereof.
ABOUT DEVELOPERS DIVERSIFIED REALTY
Developers Diversified owns and manages approximately 570 retail
operating and development properties in 41 states, Brazil, Canada and Puerto
Rico. Totaling approximately 132 million square feet, the
Company's shopping center portfolio features open-air,
value-oriented neighborhood and community centers, mixed-use
centers and lifestyle centers located in prime markets with stable
populations and high-growth potential. Developers Diversified is
the largest landlord in Puerto
Rico and owns a premier portfolio of regional malls
primarily clustered around Sao Paulo,
Brazil. Developers Diversified is a self-administered and
self-managed REIT operating as a fully integrated real estate
company. Additional information about the Company is available on
the Company's website at www.ddr.com.
CONFERENCE CALL INFORMATION & SUPPLEMENTAL
MATERIALS
A copy of the Company's Supplemental Financial/Operational
package is available to all interested parties upon request at the
Company's corporate office to Kate
Deck, Investor Relations Director, Developers Diversified
Realty Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122 or at www.ddr.com.
The Company will hold its quarterly conference call tomorrow,
February 18, 2011 at 10:00 a.m. Eastern Daylight Time. To
participate, please dial 866.831.6267 (domestic), or 617.213.8857
(international) at least ten minutes prior to the scheduled start
of the call. When prompted, provide the passcode: 33462177.
Access to the live call and replay will also be available
through the Company's website. The replay will be available
through March 18, 2011.
DEVELOPERS
DIVERSIFIED REALTY CORPORATION
Financial
Highlights
(In
thousands)
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
Revenues:
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Minimum rents (A)
|
$ 134,645
|
|
$ 133,831
|
|
$ 535,284
|
|
$ 528,230
|
|
Percentage and overage rents
(A)
|
2,653
|
|
3,413
|
|
6,299
|
|
7,751
|
|
Recoveries from
tenants
|
42,041
|
|
43,823
|
|
175,309
|
|
174,826
|
|
Ancillary and other property
income
|
6,825
|
|
6,931
|
|
21,941
|
|
21,610
|
|
Management, development and
other fee income
|
13,312
|
|
14,489
|
|
53,434
|
|
57,683
|
|
Other (B)
|
4,000
|
|
1,128
|
|
10,802
|
|
7,299
|
|
|
203,476
|
|
203,615
|
|
803,069
|
|
797,399
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Operating and maintenance
(C)
|
33,996
|
|
36,191
|
|
137,862
|
|
135,153
|
|
Real estate taxes
|
25,843
|
|
25,623
|
|
108,299
|
|
102,391
|
|
Impairment charges
(D)
|
28,877
|
|
-
|
|
116,462
|
|
12,745
|
|
General and administrative
(E)
|
23,028
|
|
20,896
|
|
85,573
|
|
94,365
|
|
Depreciation and
amortization
|
57,506
|
|
54,362
|
|
222,862
|
|
217,841
|
|
|
169,250
|
|
137,072
|
|
671,058
|
|
562,495
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
Interest income
|
2,873
|
|
2,564
|
|
7,346
|
|
11,984
|
|
Interest expense (F)
|
(59,776)
|
|
(59,805)
|
|
(226,464)
|
|
(221,334)
|
|
Gain on debt retirement, net
(F)
|
152
|
|
2,690
|
|
485
|
|
145,050
|
|
Loss on equity derivative
instruments (G)
|
(25,539)
|
|
(1,597)
|
|
(40,157)
|
|
(199,797)
|
|
Other expense (H)
|
(5,954)
|
|
(19,888)
|
|
(24,346)
|
|
(29,192)
|
|
|
(88,244)
|
|
(76,036)
|
|
(283,136)
|
|
(293,289)
|
|
Loss before earnings from equity
method investments and other items
|
(54,018)
|
|
(9,493)
|
|
(151,125)
|
|
(58,385)
|
|
Equity in net income (loss) of
joint ventures (I)
|
9,377
|
|
(749)
|
|
5,600
|
|
(9,733)
|
|
Impairment of joint venture
investments (D)
|
(227)
|
|
(83,013)
|
|
(227)
|
|
(184,584)
|
|
Gain (loss) on change in control
of interests (J)
|
-
|
|
23,471
|
|
(428)
|
|
23,865
|
|
Tax (expense) benefit of taxable
REIT subsidiaries and state franchise and income taxes
(K)
|
(49,469)
|
|
1,228
|
|
(47,992)
|
|
767
|
|
Loss from continuing
operations
|
(94,337)
|
|
(68,556)
|
|
(194,172)
|
|
(228,070)
|
|
Income (loss) from discontinued
operations (L)
|
8,871
|
|
(19,099)
|
|
(54,867)
|
|
(184,697)
|
|
Loss before gain on disposition
of real estate
|
(85,466)
|
|
(87,655)
|
|
(249,039)
|
|
(412,767)
|
|
Gain on disposition of real
estate, net of tax
|
1,257
|
|
905
|
|
1,318
|
|
9,127
|
|
Net loss
|
(84,209)
|
|
(86,750)
|
|
(247,721)
|
|
(403,640)
|
|
(Income) loss attributable to
non-controlling interests
|
(17)
|
|
7,186
|
|
38,363
|
|
47,047
|
|
Net loss attributable to
DDR
|
$ (84,226)
|
|
$ (79,564)
|
|
$ (209,358)
|
|
$ (356,593)
|
|
Net loss applicable to common
shareholders
|
$ (94,793)
|
|
$ (90,131)
|
|
$ (251,627)
|
|
$ (398,862)
|
|
Funds From Operations
("FFO"):
|
|
|
|
|
|
|
|
|
Net loss applicable to common
shareholders
|
$ (94,793)
|
|
$ (90,131)
|
|
$(251,627)
|
|
$ (398,862)
|
|
Depreciation and amortization of
real estate investments
|
55,399
|
|
53,970
|
|
217,168
|
|
224,207
|
|
Equity in net (income) loss of
joint ventures (I)
|
(9,377)
|
|
749
|
|
(5,600)
|
|
9,306
|
|
Joint ventures' FFO
(I)
|
15,226
|
|
11,113
|
|
47,545
|
|
43,665
|
|
Non-controlling interests (OP
Units)
|
8
|
|
8
|
|
32
|
|
175
|
|
Gain on disposition of
depreciable real estate
|
(10,409)
|
|
(3,718)
|
|
(18,803)
|
|
(23,123)
|
|
FFO applicable to common
shareholders
|
(43,946)
|
|
(28,009)
|
|
(11,285)
|
|
(144,632)
|
|
Preferred dividends
|
10,567
|
|
10,567
|
|
42,269
|
|
42,269
|
|
FFO
|
$ (33,379)
|
|
$ (17,442)
|
|
$ 30,984
|
|
$ (102,363)
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Earnings per common
share
|
|
|
|
|
|
|
|
|
Basic
|
$
(0.37)
|
|
$
(0.46)
|
|
$
(1.03)
|
|
$
(2.51)
|
|
Diluted
|
$
(0.37)
|
|
$
(0.46)
|
|
$
(1.03)
|
|
$
(2.51)
|
|
Basic – average shares
outstanding
|
253,872
|
|
196,399
|
|
244,712
|
|
158,816
|
|
Diluted – average shares
outstanding
|
253,872
|
|
196,399
|
|
244,712
|
|
158,816
|
|
Dividends Declared
|
$
0.02
|
|
$
0.02
|
|
$
0.08
|
|
$
0.44
|
|
Funds From Operations –
Basic (M)
|
$
(0.17)
|
|
$
(0.14)
|
|
$
(0.05)
|
|
$
(0.90)
|
|
Funds From Operations – Diluted
(M)
|
$
(0.17)
|
|
$
(0.14)
|
|
$
(0.05)
|
|
$
(0.90)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data
(N)
|
|
|
|
|
|
December 31,
2010
|
|
December 31,
2009
|
|
Assets:
|
|
|
|
|
Real estate and rental
property:
|
|
|
|
|
Land
|
$ 1,837,403
|
|
$ 1,971,782
|
|
Buildings
|
5,491,489
|
|
5,694,659
|
|
Fixtures and tenant
improvements
|
339,129
|
|
287,143
|
|
|
7,668,021
|
|
7,953,584
|
|
Less: Accumulated
depreciation
|
(1,452,112)
|
|
(1,332,534)
|
|
|
6,215,909
|
|
6,621,050
|
|
Land held
for development and construction in progress
|
743,218
|
|
858,900
|
|
Real estate held for sale,
net
|
-
|
|
10,453
|
|
Real estate, net
|
6,959,127
|
|
7,490,403
|
|
|
|
|
|
|
Investments in and advances to
joint ventures (O)
|
417,223
|
|
420,541
|
|
Cash
|
19,416
|
|
26,172
|
|
Restricted cash
|
4,285
|
|
95,673
|
|
Notes receivable, net
|
120,330
|
|
74,997
|
|
Receivables, including
straight-line rent, net
|
123,259
|
|
146,809
|
|
Other assets, net (K)
|
124,450
|
|
172,011
|
|
|
$ 7,768,090
|
|
$ 8,426,606
|
|
|
|
|
|
|
Liabilities &
Equity:
|
|
|
|
|
Indebtedness:
|
|
|
|
|
Revolving credit
facilities
|
$
279,865
|
|
$
775,028
|
|
Unsecured debt
|
2,043,582
|
|
1,689,841
|
|
Mortgage and other secured
debt
|
1,978,553
|
|
2,713,794
|
|
|
4,302,000
|
|
5,178,663
|
|
Dividends
payable
|
12,092
|
|
10,985
|
|
Equity derivative
liability (G)
|
96,237
|
|
56,080
|
|
Other
liabilities
|
223,074
|
|
228,542
|
|
Total
liabilities
|
4,633,403
|
|
5,474,270
|
|
|
|
|
|
|
Preferred shares
|
555,000
|
|
555,000
|
|
Common shares (M)
|
25,627
|
|
20,174
|
|
Paid-in-capital
|
3,868,990
|
|
3,374,528
|
|
Accumulated distributions in
excess of net income
|
(1,378,341)
|
|
(1,098,661)
|
|
Deferred compensation
obligation
|
14,318
|
|
17,838
|
|
Accumulated other comprehensive
income
|
25,646
|
|
9,549
|
|
Less: Common shares in
treasury at cost
|
(14,638)
|
|
(15,866)
|
|
Non-controlling
interests
|
38,085
|
|
89,774
|
|
Total equity
|
3,134,687
|
|
2,952,336
|
|
|
$ 7,768,090
|
|
$ 8,426,606
|
|
|
|
|
|
|
|
(A) Base and percentage rental revenues for the year ended
December 31, 2010, as compared to the
prior-year comparable period, increased $7.0
million primarily due to the acquisition of three shopping
centers, which generated an additional $8.5
million in revenues offset by a net decrease in operating
assets of $1.5 million.
Included in rental revenues for the years ended December 31, 2010 and 2009, is approximately
$2.5 million and $4.3 million, respectively, of revenue resulting
from the recognition of straight-line rents, including discontinued
operations.
(B) Other revenues were comprised of the following (in
millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Lease termination
fees
|
|
$ 3.4
|
|
$ 0.6
|
|
$ 7.5
|
|
$ 4.0
|
|
Financing fees
|
|
0.5
|
|
0.2
|
|
1.2
|
|
1.1
|
|
Other miscellaneous
|
|
0.1
|
|
0.3
|
|
2.1
|
|
2.2
|
|
|
|
$ 4.0
|
|
$ 1.1
|
|
$ 10.8
|
|
$ 7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
(C) Operating and maintenance expense, including discontinued
operations, includes the following expenses (in millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Bad debt
expense
|
|
$ 3.2
|
|
$ 5.4
|
|
$ 13.4
|
|
$ 16.1
|
|
Ground rent expense
(1)
|
|
1.2
|
|
1.3
|
|
4.9
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes non-cash
expense of approximately $0.5 million for the three-month periods
ended December 31, 2010 and 2009, respectively, and approximately
$2.0 million and $1.9 million for
the years ended December 31, 2010 and 2009, respectively, related
to straight-line ground rent expense.
|
|
|
|
|
|
|
|
|
|
|
(D) The Company recorded impairment charges during both the
three-month periods and years ended December
31, 2010 and 2009, on the following consolidated assets and
investments (in millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Land held for
development (1)
|
|
$
-
|
|
$
-
|
|
$ 54.3
|
|
$
-
|
|
Undeveloped land and
CIP
|
|
25.6
|
|
-
|
|
30.5
|
|
0.4
|
|
Assets marketed for
sale
|
|
3.3
|
|
-
|
|
31.7
|
|
12.3
|
|
|
|
$ 28.9
|
|
$
-
|
|
$116.5
|
|
$ 12.7
|
|
|
|
|
|
|
|
|
|
|
|
Sold assets
(2)
|
|
-
|
|
1.3
|
|
20.1
|
|
73.3
|
|
Assets formerly occupied
by Mervyns (3)
|
|
-
|
|
7.8
|
|
35.3
|
|
68.7
|
|
Total discontinued
operations
|
|
-
|
|
9.1
|
|
55.4
|
|
142.0
|
|
|
|
|
|
|
|
|
|
|
|
Joint venture
investments
|
|
0.2
|
|
83.0
|
|
0.2
|
|
184.6
|
|
Total impairment
charges
|
|
$ 29.1
|
|
$ 92.1
|
|
$172.1
|
|
$ 339.3
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts reported relate to
land held for development in Togliatti and Yaroslavl, Russia, of
which the Company's proportionate share was $41.9 million after
adjusting for the allocation of loss to the non-controlling
interest in this consolidated joint venture.
(2) See summary of discontinued
operations activity in note (L).
(3) The Company's proportionate
share of these impairments was $16.5 million and $33.6 million,
after adjusting for the allocation of loss to the non-controlling
interest in this previously consolidated joint venture for the
years ended December 31, 2010 and 2009, respectively. As
discussed in note (N), these assets were deconsolidated in the
third quarter of 2010 and all operating results have been
reclassified as discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
(E) General and administrative expenses include internal leasing
salaries, legal salaries and related expenses associated with the
releasing of space, which are charged to operations as incurred.
For the years ended December 31,
2010 and 2009, general and administrative expenses were
approximately 5.2% and 5.4% of total revenues, respectively,
including joint venture and managed property revenues.
During the year ended December 31,
2010, the Company incurred $5.3
million in employee separation charges. During the
year ended December 31, 2009, the
Company recorded a non-cash charge of $15.4
million as a result of the change in control provisions
included in the Company's equity-based award plans. Excluding
these charges, general and administrative expenses were 4.9% and
4.5% of total revenues for the years ended December 31, 2010 and 2009, respectively.
(F) The Company recorded the following in connection with its
outstanding convertible debt (in millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Non-cash interest expense
related to amortization of the debt discount
|
|
$3.0
|
|
$2.5
|
|
$8.2
|
|
$12.2
|
|
Non-cash adjustment to
gain on repurchase
|
|
0.1
|
|
3.9
|
|
4.9
|
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
(G) Represents the non-cash impact of the valuation adjustments
of the equity derivative instruments (warrants) issued as part of
the share purchase transaction with the Otto Family completed in
2009, as a result of changes in the Company's stock price.
The liability will be reclassified into equity upon ultimate
exercise or expiration of the warrants.
(H) Other (expenses) income were comprised of the following (in
millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Litigation-related
expenses (1)
|
|
$ (1.0)
|
|
$ (2.1)
|
|
$ (14.6)
|
|
$ (6.4)
|
|
Lease liability reserve
(2)
|
|
(3.3)
|
|
-
|
|
(3.3)
|
|
-
|
|
Debt extinguishment
costs
|
|
(0.5)
|
|
(13.9)
|
|
(3.7)
|
|
(14.2)
|
|
Note receivable
reserve
|
|
-
|
|
-
|
|
0.1
|
|
(5.4)
|
|
Sale of MDT
units
|
|
-
|
|
-
|
|
-
|
|
2.8
|
|
Abandoned projects and
other expenses
|
|
(1.2)
|
|
(3.9)
|
|
(2.8)
|
|
(6.0)
|
|
|
|
$ (6.0)
|
|
$ (19.9)
|
|
$ (24.3)
|
|
$ (29.2)
|
|
|
|
|
|
|
|
|
|
|
|
(1) The year ended December 31,
2010 includes a $5.1 million reserve recorded in connection with a
legal matter at a property in Long Beach, California. This
reserve was offset by a tax benefit of approximately $2.4 million,
classified in the tax expense (benefit) line item in the
consolidated statements of operations, because the asset is owned
through the Company's TRS. Total litigation-related
expenditures, net of the tax benefit, were $1.0 million and $12.2
million for the three-month period and year ended December 31,
2010, respectively.
(2) Represents the liability
recorded pursuant to ASC 420, Exit or Disposal Cost Obligations,
primarily relating to the contractual obligations associated with
the ground lease for an abandoned development project in Norwood,
Massachusetts.
|
|
|
|
|
|
|
|
|
|
|
(I) At December 31, 2010 and 2009,
the Company owned joint venture interests, excluding consolidated
joint ventures, in 236 and 274 shopping center properties,
respectively. See below for a summary of the combined
condensed operating results and select balance sheet data of the
Company's unconsolidated joint ventures.
(J) In October 2009, the Company's
approximate 14.5% interest in the MDT US LLC joint venture was
redeemed in exchange for a 100% interest in three shopping center
assets and a cash payment of $1.6
million. The Company accounted for this transaction as
a step acquisition and, as a result, recognized a $23.5 million gain.
(K) The Company incurred a fourth quarter non-cash income tax
expense of $49.9 million recognized
due to the establishment of a reserve against certain deferred tax
assets within its TRS. Based upon the continued loss activity
recognized by the TRS, including a fourth quarter impairment and
lease liability charge of $22.3
million associated with an abandoned development project, it
was determined that it was more likely than not that the deferred
tax assets would not be utilizable, thus requiring a current
reserve. Net deferred tax assets are classified within Other
assets on the consolidated balance sheet at December 31, 2009.
(L) The operating results relating to assets classified as
discontinued operations are summarized as follows:
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Revenues from
operations
|
$ 892
|
|
$ 6,666
|
|
$ 12,015
|
|
$ 45,910
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
70
|
|
4,844
|
|
8,535
|
|
24,915
|
|
Impairment
charges
|
-
|
|
9,055
|
|
55,438
|
|
141,973
|
|
Interest, net
|
134
|
|
5,583
|
|
9,892
|
|
23,566
|
|
Depreciation
and amortization
|
194
|
|
2,222
|
|
4,441
|
|
16,126
|
|
Total expenses
|
398
|
|
21,704
|
|
78,306
|
|
206,580
|
|
Loss before disposition of
real estate
|
494
|
|
(15,038)
|
|
(66,291)
|
|
(160,670)
|
|
Gain on deconsolidation of
interests
|
-
|
|
-
|
|
5,649
|
|
-
|
|
Gain (loss) on disposition
of real estate, net
|
8,377
|
|
(4,061)
|
|
5,775
|
|
(24,027)
|
|
Net income
(loss)
|
$ 8,871
|
|
$ (19,099)
|
|
$ (54,867)
|
|
$ (184,697)
|
|
|
|
Discontinued operations for all
periods presented include the activity associated with the
50% owned joint venture, DDR MDT
MV LLC ("MV LLC" or the "Mervyns Joint Venture"), which
was deconsolidated during the
third quarter of 2010. See further discussion in note
(N).
|
|
|
|
|
|
|
|
|
|
(M) For purposes of computing FFO and operating FFO per share,
the following share information was utilized (in millions):
|
|
|
At December
31,
|
|
|
|
2010
|
|
2009
|
|
|
Common shares
outstanding
|
256.2
|
|
201.6
|
|
|
OP Units outstanding ("OP
Units")
|
0.4
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
256.2
|
|
197.9
|
|
246.6
|
|
159.7
|
|
Assumed conversion of OP
Units
|
0.4
|
|
0.4
|
|
0.4
|
|
0.4
|
|
FFO Weighted average common
shares and OP Units – Basic and Diluted
|
256.6
|
|
198.3
|
|
247.0
|
|
160.1
|
|
Assumed conversion of dilutive
securities
|
8.2
|
|
5.2
|
|
7.4
|
|
3.1
|
|
Operating FFO Weighted average
common shares and OP Units –Diluted
|
264.8
|
|
203.5
|
|
254.4
|
|
163.2
|
|
|
|
|
|
|
|
|
|
|
|
(N) The December 31, 2009 balance
sheet reflects the consolidation of a 50% owned joint venture, MV
LLC, which as of that date owned 31 sites formerly occupied by
Mervyns.
|
|
|
December 31,
2009
|
|
|
|
|
Real estate, net
|
$218.7
|
|
Restricted cash
|
$ 50.5
|
|
Mortgage debt
|
$225.4
|
|
Non-controlling
interests
|
$ 22.4
|
|
|
|
|
|
The 25 assets owned by MV LLC in August
2010 were placed in the control of a court appointed
receiver and as a result, the entity that holds the assets and
nonrecourse mortgage loan was deconsolidated for accounting
purposes pursuant to the provisions of Accounting Standards
Codification No. 810, "Consolidation" ("ASC 810"). Upon
deconsolidation in the third quarter of 2010, the Company recorded
a gain of approximately $5.6 million
because the carrying value of the nonrecourse debt exceeded the
carrying value of the collateralized assets. Following the
deconsolidation, the Company no longer has any economic rights or
obligations in MV LLC. The revenues and expenses associated
with MV LLC for the current and prior periods, including the
$5.6 million gain, are classified
within discontinued operations in the statements of operations.
(O) Included in the Company's balance sheet as of December 31, 2009, was $28.5 million of assets owned by a consolidated
joint venture that was deconsolidated in accordance with the
adoption of ASC 810 as of January 1,
2010.
DEVELOPERS
DIVERSIFIED REALTY CORPORATION
Summary
Results of Combined Unconsolidated Joint Ventures
(In
thousands)
|
|
|
|
Combined condensed income
statements
|
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Revenues from operations
(A)
|
$171,846
|
|
$ 172,531
|
|
$ 668,946
|
|
$ 778,770
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
61,309
|
|
67,630
|
|
256,380
|
|
301,637
|
|
Impairment charges
(B)
|
1,304
|
|
218,479
|
|
12,291
|
|
218,479
|
|
Depreciation and amortization of
real estate investments
|
47,752
|
|
49,619
|
|
187,876
|
|
218,547
|
|
Interest
expense
|
59,285
|
|
63,440
|
|
230,649
|
|
280,345
|
|
|
169,650
|
|
399,168
|
|
687,196
|
|
1,019,008
|
|
Income (loss) from operations
before tax expense and discontinued operations
|
2,196
|
|
(226,637)
|
|
(18,250)
|
|
(240,238)
|
|
Income tax expense
|
(6,502)
|
|
(2,948)
|
|
(20,449)
|
|
(10,013)
|
|
Income (loss) from discontinued
operations, net of tax (C)
|
219
|
|
(172,417)
|
|
(9,674)
|
|
(206,436)
|
|
(Loss) gain on disposition of
discontinued operations, net of tax (D)
|
(1,371)
|
|
64
|
|
(26,674)
|
|
(19,448)
|
|
Gain (loss) on disposition
of assets (E)
|
-
|
|
843
|
|
17
|
|
(25,973)
|
|
Other, net (F)
|
-
|
|
-
|
|
-
|
|
7,153
|
|
Net loss
|
$ (5,458)
|
|
$(401,095)
|
|
$ (75,030)
|
|
$(494,955)
|
|
Net gain (loss) at DDR
ownership interests (G)
|
$ 10,676
|
|
$ (22,147)
|
|
$ 6,319
|
|
$ (34,522)
|
|
FFO at DDR's ownership
interests (H)
|
$ 15,226
|
|
$ 11,113
|
|
$ 47,545
|
|
$ 43,665
|
|
|
|
|
|
|
|
|
|
|
|
Combined condensed
balance sheets
|
|
|
|
|
December 31,
2010
|
|
December 31,
2009
|
|
|
|
|
|
|
Land
|
$ 1,566,682
|
|
$ 1,782,431
|
|
Buildings
|
4,783,841
|
|
5,207,234
|
|
Fixtures and tenant
improvements
|
154,292
|
|
146,716
|
|
|
6,504,815
|
|
7,136,381
|
|
Less: Accumulated
depreciation
|
(726,291)
|
|
(636,897)
|
|
|
5,778,524
|
|
6,499,484
|
|
Land held for development and
construction in progress (I)
|
174,237
|
|
130,410
|
|
Real estate, net
|
5,952,761
|
|
6,629,894
|
|
Receivables, including
straight-line rent, net
|
111,569
|
|
113,630
|
|
Leasehold interests
|
10,296
|
|
11,455
|
|
Other assets, net
|
303,826
|
|
342,192
|
|
|
$ 6,378,452
|
|
$ 7,097,171
|
|
|
|
|
|
|
Mortgage debt (J)
|
$ 3,950,794
|
|
$ 4,547,711
|
|
Notes and accrued interest
payable to DDR
|
87,282
|
|
73,477
|
|
Other liabilities
|
186,728
|
`
|
194,065
|
|
|
4,224,804
|
|
4,815,253
|
|
Accumulated equity
|
2,153,648
|
|
2,281,918
|
|
|
$ 6,378,452
|
|
$ 7,097,171
|
|
|
|
|
|
|
|
(A) Revenues for the three-month periods and years ended reflect
the following (in millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Straight-line
rents
|
|
$1.0
|
|
$(0.3)
|
|
$3.9
|
|
$2.7
|
|
DDR's proportionate
share
|
|
0.2
|
|
-
|
|
0.6
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2009 combined condensed income statement includes the
results of operation of the EDT joint venture. In
October 2009, the Company redeemed
its ownership interest in this joint venture and are not reflected
in discontinued operations.
(B) For the three months and year ended December 31, 2010, impairment charges were
recorded by two of the Company's unconsolidated joint ventures
relating to three assets, of which the Company's proportionate
share of these impairment charges for the year ended was
approximately $0.5 million. The
Company's proportionate share of the fourth quarter charge was
immaterial. For the three months and year ended December 31, 2009, an impairment charge of
$218.5 million was recorded by one of
the Company's unconsolidated joint ventures related to a suspended
development project. The Company's proportionate share of the
loss was zero as the Company had written off its basis in the
investment in the second quarter of 2009.
(C) Impairment charges reclassified to discontinued operations
relating to assets sales were $8.8
million for the year ended December
31, 2010 and $170.9 million
and $204.8 for the three months and
year ended December 31, 2009,
respectively. The Company's proportionate share of these
impairment charges was $0.3 million
for the year ended December 31, 2010
and $2.6 million and $8.1 million for the three months and year ended
December 31, 2009, respectively.
(D) For the three months ended December
31, 2010, a $4.9 million net
gain was recorded for the Company's proportionate share of the
assets sold during that period as a result of promoted interests
from one of the asset sales. For the year ended December 31, 2010, loss on disposition of
discontinued operations includes the sale of 35 properties by five
separate unconsolidated joint ventures. In 2009, $170.9 million of impairment charges were
recorded by these joint ventures in anticipation of the sales
transactions as noted in (C) above. The Company's
proportionate share of the aggregate loss for the assets sold for
the year ended December 31, 2010 was a gain of approximately $0.8
million.
For the year ended December 31,
2009, loss on disposition of discontinued operations
included the sale of 12 properties by three separate unconsolidated
joint ventures resulting in a loss of $19.4
million of which the Company's proportionate share was
$1.4 million.
(E) In the first quarter of 2009, an unconsolidated joint
venture disposed of a property resulting in a loss of $26.7 million, of which the Company's
proportionate share was $5.8
million.
(F) Activity related to the Company's investment in the MDT
units that were liquidated in 2009.
(G) Adjustments to the Company's share of joint venture equity
in net loss is related primarily to basis differences impacting
amortization and depreciation, impairment charges and (loss) gain
on dispositions as follows (in millions):
|
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
(Loss) income,
net
|
|
$(1.2)
|
|
$21.4
|
|
$(0.7)
|
|
$24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
(H) FFO from unconsolidated joint ventures are summarized as
follows:
|
|
|
Three-Month
Periods
Ended
December 31,
|
|
Year
Ended
December
31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net loss
|
$ (5,458)
|
|
$(401,095)
|
|
$(75,030)
|
|
$(494,955)
|
|
Loss on sale of real
estate
|
(24,687)
|
|
(843)
|
|
(24,734)
|
|
(843)
|
|
Depreciation and
amortization of real estate investments
|
48,508
|
|
55,528
|
|
198,323
|
|
245,000
|
|
FFO
|
$ 18,363
|
|
$(346,410)
|
|
$ 98,559
|
|
$(250,798)
|
|
FFO at DDR's ownership
interests
|
$ 15,226
|
|
$ 11,113
|
|
$ 47,545
|
|
$ 43,665
|
|
Operating FFO at DDR's
ownership interests (1)
|
$ 15,721
|
|
$ 13,722
|
|
$ 54,433
|
|
$ 62,690
|
|
DDR joint venture
distributions received, net (2)
|
$ 24,470
|
|
$ 7,963
|
|
$ 53,768
|
|
$ 31,455
|
|
|
|
(1) Excluded from operating FFO
is the Company's pro rata share of net charges primarily related to
impairment charges and losses on the disposition of assets as
disclosed on page 2 of this press release.
(2) Distributions for 2009
included $2.5 million from a foreign investment that have yet to be
expatriated to the United States.
|
|
|
|
|
|
|
|
|
|
(I) The Company's proportionate share of joint venture land held
for development and construction in progress aggregated
approximately $71.7 million and
$37.6 million at December 31, 2010 and December 31, 2009, respectively.
The combined condensed balance sheet at December 31, 2010 included a joint venture under
development that was deconsolidated by the Company as of
January 1, 2010 due to the adoption
of ASC 810 (Footnote O in this release).
(J) The Company's proportionate share of joint venture debt
aggregated approximately $835.8
million and $917.0 million at
December 31, 2010 and December 31, 2009, respectively.
SOURCE Developers Diversified Realty Corporation