e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-11690
DEVELOPERS DIVERSIFIED REALTY CORPORATION
(Exact name of registrant as specified in its charter)
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Ohio
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34-1723097 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
3300 Enterprise Parkway, Beachwood, Ohio 44122
(Address of principal executive offices zip code)
(216) 755-5500
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yeso
Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
As of April 30, 2010, the registrant had 250,044,910 outstanding common shares, $0.10 par
value per share.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Unaudited
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009.
Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2010
and 2009.
Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2010
and 2009.
Notes to Condensed Consolidated Financial Statements.
-2-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
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March 31, 2010 |
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December 31, 2009 |
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Assets |
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Land |
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$ |
1,963,032 |
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$ |
1,971,782 |
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Buildings |
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5,674,571 |
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5,694,659 |
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Fixtures and tenant improvements |
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297,114 |
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287,143 |
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7,934,717 |
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7,953,584 |
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Less: Accumulated depreciation |
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(1,358,870 |
) |
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(1,332,534 |
) |
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6,575,847 |
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6,621,050 |
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Land held for development and construction in progress |
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848,552 |
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858,900 |
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Real estate held for sale, net |
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2,430 |
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10,453 |
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Total real estate assets, net- (variable interest entities $635.6 million at
March 31, 2010) |
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7,426,829 |
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7,490,403 |
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Investments in and advances to joint ventures |
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409,639 |
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420,541 |
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Cash and cash equivalents |
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25,748 |
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26,172 |
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Restricted cash (variable interest entities $43.3 million at March 31, 2010) |
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57,782 |
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95,673 |
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Notes receivable, net |
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59,234 |
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74,997 |
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Deferred charges, net |
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33,387 |
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33,162 |
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Other assets, net (variable interest entities $13.6 million at March 31, 2010) |
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275,384 |
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285,658 |
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$ |
8,288,003 |
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$ |
8,426,606 |
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Liabilities and Equity |
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Unsecured indebtedness: |
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Senior notes |
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$ |
1,840,275 |
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$ |
1,689,841 |
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Revolving credit facility |
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346,015 |
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775,028 |
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2,186,290 |
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2,464,869 |
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Secured indebtedness: |
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Term debt |
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800,000 |
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800,000 |
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Mortgage and other secured indebtedness (variable interest entities
$279.3 million at March 31, 2010) |
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1,744,611 |
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1,913,794 |
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2,544,611 |
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2,713,794 |
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Total indebtedness |
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4,730,901 |
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5,178,663 |
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Accounts payable and accrued expenses (variable interest entities $14.4
million at March 31, 2010) |
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110,895 |
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130,404 |
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Dividends payable |
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11,968 |
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10,985 |
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Other liabilities |
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169,331 |
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153,591 |
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Total liabilities |
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5,023,095 |
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5,473,643 |
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Redeemable operating partnership units |
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627 |
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627 |
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Commitments and contingencies (Note 7) |
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Developers Diversified Realty Corporation Equity: |
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Class G 8.0% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 750,000 shares authorized; 720,000 shares issued and
outstanding at March 31, 2010 and December 31, 2009, respectively |
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180,000 |
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180,000 |
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Class H 7.375% cumulative redeemable preferred shares, without par value,
$500 liquidation value; 750,000 shares authorized; 410,000 shares issued and
outstanding at March 31, 2010 and December 31, 2009, respectively |
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205,000 |
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205,000 |
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Class I 7.5% cumulative redeemable preferred shares, without par value,
$500 liquidation value; 750,000 shares authorized; 340,000 shares issued and
outstanding at March 31, 2010 and December 31, 2009, respectively |
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170,000 |
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170,000 |
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Common shares, with par value, $0.10 stated value; 500,000,000 shares
authorized; 250,087,719 and 201,742,589 shares issued at March 31, 2010 and
December 31, 2009, respectively |
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25,009 |
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20,174 |
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Paid-in-capital |
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3,755,574 |
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3,374,528 |
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Accumulated distributions in excess of net income |
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(1,146,324 |
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(1,098,661 |
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Deferred compensation obligation |
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12,999 |
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17,838 |
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Accumulated other comprehensive income |
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2,493 |
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9,549 |
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Less: Common shares in treasury at cost: 542,977 and 657,012 shares at March
31, 2010 and December 31, 2009, respectively |
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(12,479 |
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(15,866 |
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Non-controlling interests (variable interest entities $61.1 million at
March 31, 2010) |
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72,009 |
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89,774 |
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Total equity |
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3,264,281 |
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2,952,336 |
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$ |
8,288,003 |
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$ |
8,426,606 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
(Dollars in thousands, except per share amounts)
(Unaudited)
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2010 |
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2009 |
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Revenues from operations: |
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Minimum rents |
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$ |
136,889 |
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$ |
136,130 |
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Percentage and overage rents |
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2,119 |
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2,429 |
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Recoveries from tenants |
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47,434 |
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46,476 |
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Ancillary and other property income |
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4,973 |
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4,922 |
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Management fees, development fees and other fee income |
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14,016 |
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14,461 |
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Other |
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1,270 |
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3,248 |
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206,701 |
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207,666 |
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Rental operation expenses: |
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Operating and maintenance |
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36,101 |
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34,320 |
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Real estate taxes |
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28,940 |
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27,275 |
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Impairment charges |
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2,050 |
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7,305 |
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General and administrative |
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23,275 |
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19,171 |
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Depreciation and amortization |
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57,069 |
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59,605 |
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147,435 |
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147,676 |
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Other income (expense): |
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Interest income |
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1,330 |
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3,029 |
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Interest expense |
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(59,909 |
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(57,750 |
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Gain on repurchase of senior notes |
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1,091 |
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72,579 |
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Loss on equity derivative instruments |
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(24,868 |
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Other expense, net |
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(3,079 |
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(4,507 |
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(85,435 |
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13,351 |
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(Loss) income before equity in net income of joint ventures, tax (expense) benefit of
taxable REIT subsidiaries and state franchise and income taxes, discontinued
operations and (loss) gain on disposition of real estate, net of tax |
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(26,169 |
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73,341 |
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Equity in net income of joint ventures |
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1,647 |
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351 |
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(Loss) income before tax (expense) benefit of taxable REIT subsidiaries and state
franchise and income taxes, discontinued operations and (loss) gain on disposition of
real estate, net of tax |
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(24,522 |
) |
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73,692 |
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Tax (expense) benefit of taxable REIT subsidiaries and state franchise and income taxes |
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(1,017 |
) |
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1,036 |
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(Loss) income from continuing operations |
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(25,539 |
) |
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74,728 |
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Discontinued operations: |
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Loss from discontinued operations |
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(936 |
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(2,006 |
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Gain on disposition of real estate, net of tax |
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566 |
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11,609 |
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(370 |
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9,603 |
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(Loss) income before (loss) gain on disposition of real estate |
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(25,909 |
) |
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84,331 |
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(Loss) gain on disposition of real estate, net of tax |
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(675 |
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445 |
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Net (loss) income |
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$ |
(26,584 |
) |
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$ |
84,776 |
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Non-controlling interests: |
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Loss attributable to non-controlling interests |
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2,338 |
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2,631 |
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Income attributable to redeemable operating partnership units |
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(1 |
) |
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(6 |
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2,337 |
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2,625 |
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Net (loss) income attributable to DDR |
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$ |
(24,247 |
) |
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$ |
87,401 |
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Preferred dividends |
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10,567 |
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10,567 |
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Net (loss) income attributable to DDR common shareholders |
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$ |
(34,814 |
) |
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$ |
76,834 |
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Per share data: |
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Basic earnings per share data: |
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(Loss) income from continuing operations attributable to DDR common shareholders |
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$ |
(0.15 |
) |
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$ |
0.52 |
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Income from discontinued operations attributable to DDR common shareholders |
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0.07 |
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Net (loss) income attributable to DDR common shareholders |
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$ |
(0.15 |
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$ |
0.59 |
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Diluted earnings per share data: |
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(Loss) income from continuing operations attributable to DDR common shareholders |
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$ |
(0.15 |
) |
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$ |
0.52 |
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Income from discontinued operations attributable to DDR common shareholders |
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0.07 |
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Net (loss) income attributable to DDR common shareholders |
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$ |
(0.15 |
) |
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$ |
0.59 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
(Dollars in thousands)
(Unaudited)
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2010 |
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2009 |
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Net cash flow provided by operating activities: |
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$ |
44,304 |
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$ |
69,657 |
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Cash flow from investing activities: |
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Real estate developed or acquired, net of liabilities assumed |
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(37,599 |
) |
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(72,130 |
) |
Equity contributions to joint ventures |
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(729 |
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(5,243 |
) |
Issuance of joint venture advances, net |
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(82 |
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(3,485 |
) |
Return of investments in joint ventures |
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8,129 |
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5,195 |
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Issuance of notes receivable, net |
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(2,352 |
) |
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(5,260 |
) |
Decrease in restricted cash |
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37,891 |
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1,171 |
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Proceeds from disposition of real estate |
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29,429 |
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56,849 |
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Net cash flow provided by (used for) investing activities |
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34,687 |
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(22,903 |
) |
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Cash flow from financing activities: |
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(Repayments of) proceeds from revolving credit facilities, net |
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(426,663 |
) |
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230,719 |
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Repayment of senior notes |
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(147,706 |
) |
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(303,566 |
) |
Proceeds from issuance of senior notes, net of underwriting
commissions and offering expenses of $400 in 2010 |
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296,785 |
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Proceeds from mortgage and other secured debt |
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1,416 |
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|
68,940 |
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Principal payments on mortgage debt |
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(169,458 |
) |
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(29,964 |
) |
Payment of debt issuance costs |
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|
(138 |
) |
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|
(429 |
) |
Proceeds from issuance of common shares, net of underwriting
commissions and issuance costs of $1,400 in 2010 |
|
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382,762 |
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|
1,010 |
|
Payment from issuance of common shares in conjunction with
the exercise of stock options and dividend reinvestment plan |
|
|
(260 |
) |
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|
(829 |
) |
Contributions from non-controlling interests |
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|
50 |
|
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|
5,295 |
|
Distributions to non-controlling interest and redeemable
operating partnership units |
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(1,622 |
) |
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(424 |
) |
Dividends paid |
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(14,585 |
) |
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(10,567 |
) |
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Net cash flow used for financing activities |
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(79,419 |
) |
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|
(39,815 |
) |
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Cash and cash equivalents |
|
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(Decrease) increase in cash and cash equivalents |
|
|
(428 |
) |
|
|
6,939 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
4 |
|
|
|
(110 |
) |
Cash and cash equivalents, beginning of period |
|
|
26,172 |
|
|
|
29,494 |
|
|
|
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Cash and cash equivalents, end of period |
|
$ |
25,748 |
|
|
$ |
36,323 |
|
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Supplemental disclosure of non-cash investing and financing activities:
At March 31, 2010, dividends payable were $12.0 million. As disclosed in Note 1, the Company
deconsolidated one entity in connection with the adoption of ASC 810 effective January 1, 2010.
This resulted in a reduction to Real Estate Assets, net of approximately $28.7 million, an increase
to Investments in and Advances to Joint Ventures of approximately $8.4 million, a reduction in
Non-controlling Interests of approximately $12.4 million and an increase to Accumulated
Distributions in Excess of Net income of approximately $7.8 million. In addition, the Company
foreclosed on its interest in a note receivable secured by a development project resulting in an
increase to Real Estate Assets and a decrease to Notes Receivable of approximately $19.0 million.
The foregoing transactions did not provide for or require the use of cash for the three-month
period ended March 31, 2010.
At March 31, 2009, dividends payable were $32.8 million. The foregoing transaction did not
provide for or require the use of cash for the three-month period ended March 31, 2009.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-5-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Notes to Condensed Consolidated Financial Statements
1. NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
Developers Diversified Realty Corporation and its related real estate joint ventures and
subsidiaries (collectively, the Company or DDR) are primarily engaged in the business of
acquiring, expanding, owning, developing, redeveloping, leasing, managing and operating shopping
centers. Unless otherwise provided, references herein to the Company or DDR include Developers
Diversified Realty Corporation, its wholly-owned and majority-owned subsidiaries and its
consolidated and unconsolidated joint ventures.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and the applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, the interim financial statements
include all adjustments, consisting of only normal recurring adjustments, necessary for a fair
statement of the results of the periods presented. The results of operations for the three-month
periods ended March 31, 2010 and 2009 are not necessarily indicative of the results that may be
expected for the full year. These condensed consolidated financial statements should be read in
conjunction with the Companys audited financial statements and notes thereto included in the
Companys Form 10-K for the year ended December 31, 2009.
Principles of Consolidation
In June 2009, the Financial Accounting Standards Board (FASB) amended its guidance on
accounting for variable interest entities (VIEs) and issued Accounting Standards Codification No.
810, Amendments to Consolidation of Variable Interest Entities (ASC 810) and introduced a more
qualitative approach to evaluating VIEs for consolidation. The new accounting guidance resulted in
a change in the Companys accounting policy effective January 1, 2010. This standard requires a
company to perform an analysis to determine whether its variable interests give it a controlling
financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the
entity that has (a) the power to direct the activities of the VIE that most significantly affect
the VIEs economic performance and (b) the obligation to absorb losses or the right to receive
benefits that could
-6-
potentially be significant to the VIE. In determining whether it has the power to direct the
activities of the VIE that most significantly affect the VIEs performance, this standard requires
a company to assess whether it has an implicit financial responsibility to ensure that a VIE
operates as designed. This standard requires continuous reassessment of primary beneficiary status
rather than periodic, event-driven assessments as previously required and incorporates expanded
disclosure requirements. This new accounting guidance was effective for the Company on January 1,
2010, and is being applied prospectively.
The Companys adoption of this standard resulted in the deconsolidation of one entity in which
the Company has a 50% interest (Deconsolidated Entity). The Deconsolidated Entity owns one real
estate project, consisting primarily of land under development, which had $28.5 million of assets
as of December 31, 2009. As a result of the initial application of ASC 810, the Company recorded
its retained interest in the Deconsolidated Entity at its carrying amount. The difference between
the net amount removed from the balance sheet of the Deconsolidated Entity and the amount reflected
in Investments in and Advances to Joint Ventures of approximately $7.8 million was recognized as a
cumulative effect adjustment to accumulated distributions in excess of net income. This difference
was primarily due to the recognition of an other than temporary impairment charge that would have
been recorded had ASC 810 been effective when the Company first became involved with the
Deconsolidated Entity. The Companys maximum exposure to loss is equal to its investment in the
Deconsolidated Entity of $12.4 million and certain fees earned by the Company.
At March 31, 2010, the Companys joint venture with Macquarie DDR Trust, DDR MDT MV, owned the
underlying real estate of 30 assets formerly occupied by Mervyns. DDR provides management,
financing, expansion, re-tenanting and oversight services for this real estate investment. The
Company holds a 50% economic interest in DDR MDT MV, which is considered a VIE. The Company was
determined to be the primary beneficiary due to related party considerations, as well as being the
member determined to have a greater exposure to variability in expected losses as DDR is entitled
to earn certain fees from the joint venture. All fees earned from the joint venture are eliminated
in consolidation. The Companys condensed consolidated balance sheet discloses the amounts relating
to this entity aggregated with the Companys other consolidated VIEs.
-7-
Comprehensive (Loss) Income
Comprehensive (loss) income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net (loss) income |
|
$ |
(26,584 |
) |
|
$ |
84,776 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Change in fair value of interest-rate contracts |
|
|
3,468 |
|
|
|
4,723 |
|
Amortization of interest-rate contracts |
|
|
(93 |
) |
|
|
(93 |
) |
Foreign currency translation |
|
|
(11,902 |
) |
|
|
5,652 |
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income |
|
|
(8,527 |
) |
|
|
10,282 |
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
(35,111 |
) |
|
$ |
95,058 |
|
Comprehensive loss (income) attributable to non-controlling interests |
|
|
3,811 |
|
|
|
(1,318 |
) |
|
|
|
|
|
|
|
Total comprehensive (loss) income attributable to DDR |
|
$ |
(31,300 |
) |
|
$ |
93,740 |
|
|
|
|
|
|
|
|
2. EQUITY INVESTMENTS IN JOINT VENTURES
At March 31, 2010 and December 31, 2009, the Company had ownership interests in various
unconsolidated joint ventures which owned 258 and 327 shopping center properties, respectively.
Condensed combined financial information of the Companys unconsolidated joint venture
investments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
Condensed Combined Balance Sheets |
|
|
|
|
|
|
|
|
Land |
|
$ |
1,645,455 |
|
|
$ |
1,782,431 |
|
Buildings |
|
|
4,879,556 |
|
|
|
5,207,234 |
|
Fixtures and tenant improvements |
|
|
144,493 |
|
|
|
146,716 |
|
|
|
|
|
|
|
|
|
|
|
6,669,504 |
|
|
|
7,136,381 |
|
Less: Accumulated depreciation |
|
|
(637,662 |
) |
|
|
(636,897 |
) |
|
|
|
|
|
|
|
|
|
|
6,031,842 |
|
|
|
6,499,484 |
|
Land held for development and construction in progress (A) |
|
|
159,249 |
|
|
|
130,410 |
|
|
|
|
|
|
|
|
Real estate, net |
|
|
6,191,091 |
|
|
|
6,629,894 |
|
Receivables, net |
|
|
114,758 |
|
|
|
113,630 |
|
Leasehold interests |
|
|
11,166 |
|
|
|
11,455 |
|
Other assets |
|
|
328,014 |
|
|
|
342,192 |
|
|
|
|
|
|
|
|
|
|
$ |
6,645,029 |
|
|
$ |
7,097,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt |
|
$ |
4,151,864 |
|
|
$ |
4,547,711 |
|
Notes and accrued interest payable to DDR |
|
|
74,724 |
|
|
|
73,477 |
|
Other liabilities |
|
|
195,498 |
|
|
|
194,065 |
|
|
|
|
|
|
|
|
|
|
|
4,422,086 |
|
|
|
4,815,253 |
|
Accumulated equity |
|
|
2,222,943 |
|
|
|
2,281,918 |
|
|
|
|
|
|
|
|
|
|
$ |
6,645,029 |
|
|
$ |
7,097,171 |
|
|
|
|
|
|
|
|
Companys share of accumulated equity |
|
$ |
468,765 |
|
|
$ |
473,738 |
|
|
|
|
|
|
|
|
-8-
|
|
|
(A) |
|
The combined condensed balance sheet at March 31, 2010 included the Deconsolidated
Entity (Note 1), which is an entity under development with assets of approximately $24.9
million. |
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Condensed Combined Statements of Operations |
|
|
|
|
|
|
|
|
Revenues from operations |
|
$ |
172,225 |
|
|
$ |
214,154 |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
66,887 |
|
|
|
82,081 |
|
Depreciation and amortization |
|
|
48,058 |
|
|
|
58,727 |
|
Interest expense |
|
|
59,995 |
|
|
|
64,500 |
|
|
|
|
|
|
|
|
|
|
|
174,940 |
|
|
|
205,308 |
|
|
|
|
|
|
|
|
(Loss) income before income tax expense, other income, loss on
disposition of real estate and discontinued operations |
|
|
(2,715 |
) |
|
|
8,846 |
|
Income tax expense (primarily Sonae Sierra Brazil), net |
|
|
(4,799 |
) |
|
|
(1,990 |
) |
Other income, net |
|
|
|
|
|
|
11,678 |
|
Loss on disposition of real estate, net |
|
|
|
|
|
|
(26,741 |
) |
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(7,514 |
) |
|
|
(8,207 |
) |
Discontinued operations: |
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(584 |
) |
|
|
(246 |
) |
Loss on disposition of real estate, net of tax (A) |
|
|
(8,752 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
(9,336 |
) |
|
|
(275 |
) |
|
|
|
|
|
|
|
Net loss |
|
$ |
(16,850 |
) |
|
$ |
(8,482 |
) |
|
|
|
|
|
|
|
Companys share of equity in net income of joint ventures (B) |
|
$ |
1,660 |
|
|
$ |
791 |
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Loss on disposition of discontinued operations includes the sale of 16 properties by
one of the Companys unconsolidated joint ventures in the first quarter of 2010. This
disposition of assets resulted in a loss of $8.7 million for the three months ended March
31, 2010 in addition to the $145.0 million impairment charge recorded by this joint venture
in the fourth quarter of 2009. The Companys proportionate share of the loss on sale
recorded in the first quarter of 2010 was approximately $1.3 million. |
|
(B) |
|
The difference between the Companys share of net income, as reported above, and the
amounts included in the condensed consolidated statements of operations is attributable to
the amortization of basis differentials, deferred gains and differences in gain (loss) on
sale of certain assets due to the basis differentials. The Companys share of joint
venture net income decreased by $0.4 million for the three months ended March 31, 2009,
reflecting adjustments due to impairments, additional basis depreciation and basis
differences in assets sold. |
Investments in and advances to joint ventures include the following items, which
represent the difference between the Companys investment and its share of all of the
unconsolidated joint ventures underlying net assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Companys share of accumulated equity |
|
$ |
468.8 |
|
|
$ |
473.7 |
|
Basis differentials (A) |
|
|
(130.6 |
) |
|
|
(123.5 |
) |
Deferred development fees, net of portion
relating to the Companys interest |
|
|
(4.5 |
) |
|
|
(4.4 |
) |
Notes receivable from investments |
|
|
1.2 |
|
|
|
1.2 |
|
Amounts payable to DDR |
|
|
74.7 |
|
|
|
73.5 |
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures |
|
$ |
409.6 |
|
|
$ |
420.5 |
|
|
|
|
|
|
|
|
-9-
|
|
|
(A) |
|
This amount represents the aggregate difference between the Companys historical cost
basis and the equity basis reflected at the joint venture level. Basis differentials
recorded upon transfer of assets are primarily associated with assets previously owned by
the Company that have been transferred into an unconsolidated joint venture at fair value.
Other basis differentials occur primarily when the Company has purchased interests in
existing unconsolidated joint ventures at fair market values, which differ from their
proportionate share of the historical net assets of the unconsolidated joint ventures. In
addition, certain acquisition, transaction and other costs, including capitalized interest
and impairments of the Companys investments that were other than temporary may not be
reflected in the net assets at the joint venture level. Certain basis differentials
indicated above are amortized over the life of the related asset. |
Service fees and income earned by the Company through management, acquisition, financing,
leasing and development activities performed related to all of the Companys unconsolidated joint
ventures are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Ended March 31, |
|
|
2010 |
|
2009 |
Management and other fees |
|
$ |
9.2 |
|
|
$ |
12.3 |
|
Acquisition, financing, guaranty and other fees |
|
|
0.2 |
|
|
|
0.3 |
|
Development fees and leasing commissions |
|
|
1.7 |
|
|
|
2.0 |
|
Interest income |
|
|
0.1 |
|
|
|
1.9 |
|
3. OTHER ASSETS, NET
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
Intangible assets: |
|
|
|
|
|
|
|
|
In-place leases (including lease origination
costs and fair market value of leases), net |
|
$ |
12,740 |
|
|
$ |
15,556 |
|
Tenant relations, net |
|
|
10,678 |
|
|
|
11,318 |
|
|
|
|
|
|
|
|
Total intangible assets (A) |
|
|
23,418 |
|
|
|
26,874 |
|
Other assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net (B) |
|
|
137,955 |
|
|
|
146,809 |
|
Prepaids, deposits and other assets |
|
|
114,011 |
|
|
|
111,975 |
|
|
|
|
|
|
|
|
Total other assets, net |
|
$ |
275,384 |
|
|
$ |
285,658 |
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Company recorded amortization expense of $1.7 million and $1.9 million for the
three-month periods ended March 31, 2010 and 2009, respectively, related to these
intangible assets. The amortization periods of the in-place leases and tenant relations
are approximately two to 31 years and ten years, respectively. |
|
(B) |
|
Includes straight-line rent receivables, net, of $55.7 million and $54.9 million at
March 31, 2010 and December 31, 2009, respectively. |
4. REVOLVING CREDIT FACILITIES
The Company maintains an unsecured revolving credit facility with a syndicate of financial
institutions, for which JP Morgan serves as the administrative agent (the Unsecured Credit
Facility). The Unsecured Credit Facility provides for borrowings of $1.25 billion, if certain
financial covenants
-10-
are maintained, and an accordion feature for a future expansion to $1.4 billion upon the
Companys request, provided that new or existing lenders agree to the existing terms of the
facility and increase their commitment level, and a maturity date of June 2010, with a one-year
extension option at the option of the Company subject to certain customary closing conditions. The
Unsecured Credit Facility includes a competitive bid option on periodic interest rates for up to
50% of the facility. The Companys borrowings under the Unsecured Credit Facility bear interest at
variable rates at the Companys election, based on either (i) the prime rate plus a specified
spread (-0.125% at March 31, 2010), as defined in the facility, or (ii) LIBOR, plus a specified
spread (0.75% at March 31, 2010). The specified spreads vary depending on the Companys long-term
senior unsecured debt rating from Standard and Poors and Moodys Investors Service. The Company is
required to comply with certain covenants relating to total outstanding indebtedness, secured
indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The
Unsecured Credit Facility is used to temporarily finance redevelopment, development and acquisition
of shopping center properties, to provide working capital and for general corporate purposes. The
Company was in compliance with these covenants at March 31, 2010. The Unsecured Credit Facility
also provides for an annual facility fee of 0.175% on the entire facility. At March 31, 2010, total
borrowings under the Unsecured Credit Facility aggregated $346.0 million with a weighted average
interest rate of 2.4%.
The Company also maintains a $75 million unsecured revolving credit facility with PNC Bank,
National Association (PNC) (together with the Unsecured Credit Facility, the Revolving
Credit Facilities). This facility has a maturity date of June 2010, with a one-year extension
option at the option of the Company subject to certain customary closing conditions. The PNC
facility reflects terms consistent with those contained in the Unsecured Credit Facility.
Borrowings under this facility bear interest at variable rates based on (i) the prime rate plus a
specified spread (0.125% at March 31, 2010), as defined in the facility, or (ii) LIBOR, plus a
specified spread (1.0% at March 31, 2010). The specified spreads are dependent on the Companys
long-term senior unsecured debt rating from Standard and Poors and Moodys Investors Service. The
Company is required to comply with certain covenants relating to total outstanding indebtedness,
secured indebtedness, maintenance of unencumbered real estate assets and fixed charge coverage. The
Company was in compliance with these covenants at March 31, 2010. At March 31, 2010 there were no
borrowings under the PNC facility.
5. SENIOR NOTES
During the three months ended March 31, 2010, the Company purchased approximately $155.9
million aggregate principal amount of its outstanding senior unsecured notes (of which $71.7
million related to the senior convertible notes) at a discount to par resulting in a net gain of
approximately $1.1 million. The amount of the gain recognized by the Company relating to the
purchases of the senior convertible notes is based on the difference on the amount of consideration
paid that was allocated to the liability component as compared to the carrying amount of the debt,
net of the unamortized discount and unamortized deferred financing fees.
In March 2010, the Company issued $300 million aggregate principal amount of 7.5% senior
unsecured notes due April 2017. Proceeds from the issuance were used to repay debt with
shorter-term maturities and to repay amounts outstanding on the Revolving Credit Facilities.
-11-
6. FINANCIAL INSTRUMENTS
Measurement of Fair Value
At March 31, 2010, the Company used pay-fixed interest rate swaps to manage its exposure to
changes in benchmark interest rates. The valuation of these instruments is determined using
widely accepted valuation techniques including discounted cash flow analysis on the expected cash
flows of each derivative.
Although the Company has determined that the significant inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with
the Companys counterparties and its own credit risk utilize Level 3 inputs, such as estimates of
current credit spreads, to evaluate the likelihood of default by itself and its counterparties. As
a result, the Company has determined that its derivative valuations in their entirety are
classified in Level 3 of the fair value hierarchy. These inputs reflect the Companys assumptions.
Items Measured at Fair Value on a Recurring Basis
The following table presents information about the Companys financial assets and liabilities
(in millions) which consists of interest rate swap agreements and marketable securities included in
the Companys elective deferred compensation plan that are included in other liabilities at March
31, 2010, measured at fair value on a recurring basis as of March 31, 2010, and indicates the fair
value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at |
|
|
March 31, 2010 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Derivative financial instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
12.0 |
|
|
$ |
12.0 |
|
Marketable Securities |
|
$ |
4.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4.0 |
|
The table presented below presents a reconciliation of the beginning and ending balances of
interest rate swap agreements that are included in other liabilities having fair value measurements
based on significant unobservable inputs (Level 3) (in millions):
|
|
|
|
|
|
|
Derivative |
|
|
|
Financial |
|
|
|
Instruments |
|
Balance of Level 3 at December 31, 2009 |
|
$ |
(15.4 |
) |
Total unrealized gain included in other comprehensive (loss) income |
|
|
3.4 |
|
|
|
|
|
Balance of Level 3 at March 31, 2010 |
|
$ |
(12.0 |
) |
|
|
|
|
The unrealized gain of $3.4 million above included in other comprehensive (loss) income
(OCI) is attributable to the net change in unrealized gains or losses relating to derivative
liabilities that are still held at March 31, 2010, none of which were reported in the Companys
condensed consolidated statements of operations because they are documented and qualify as hedging
instruments.
-12-
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable,
Accruals and Other Liabilities
The carrying amounts reported in the balance sheet for these financial instruments, excluding
the liability associated with the equity derivative instruments, approximated fair value because of
their short-term maturities.
Notes Receivable and Advances to Affiliates
The fair value is estimated by discounting the current rates at which management believes
similar loans would be made. The fair value of these notes was approximately $59.2 million and
$74.6 million at March 31, 2010 and December 31, 2009, respectively, as compared to the carrying
amounts of $60.5 million and $76.2 million, respectively. The carrying value of the tax increment
financing bonds approximated its fair value at March 31, 2010 and December 31, 2009. The fair
value of loans to affiliates is not readily determinable and has been estimated by management based
upon its assessment of the interest rate, credit risk and performance risk.
Debt
The fair market value of debt is determined using the trading price of public debt, or a
discounted cash flow technique that incorporates a market interest yield curve with adjustments for
duration, optionality and risk profile including the Companys non-performance risk.
Considerable judgment is necessary to develop estimated fair values of financial instruments.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts the
Company could realize on disposition of the financial instruments.
Financial instruments at March 31, 2010 and December 31, 2009, with carrying values that are
different than estimated fair values based on the valuation methods outlined in the standard, Fair
Value Measurements, at March 31, 2010 and December 31, 2009, are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
Senior notes |
|
$ |
1,840,275 |
|
|
$ |
1,895,343 |
|
|
$ |
1,689,841 |
|
|
$ |
1,691,445 |
|
Revolving Credit Facilities and Term
Debt |
|
|
1,146,015 |
|
|
|
1,131,103 |
|
|
|
1,575,028 |
|
|
|
1,544,481 |
|
Mortgage payable and other indebtedness |
|
|
1,744,611 |
|
|
|
1,769,694 |
|
|
|
1,913,794 |
|
|
|
1,875,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,730,901 |
|
|
$ |
4,796,140 |
|
|
$ |
5,178,663 |
|
|
$ |
5,111,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic
conditions. The Company principally manages its exposures to a wide variety of business and
operational risks through management of its core business activities. The Company manages economic
risks, including interest rate, liquidity, and credit risk, primarily by managing the amount,
sources and
-13-
duration of its debt funding and, from time to time, the use of derivative financial
instruments. Specifically, the Company enters into derivative financial instruments to manage exposures
that arise from business activities that result in the receipt or payment of future known and
uncertain cash amounts, the value of which are determined by interest rates. The Companys
derivative financial instruments are used to manage differences in the amount, timing and duration
of the Companys known or expected cash receipts and its known or expected cash payments
principally related to the Companys investments and borrowings.
The Company entered into consolidated joint ventures that own real estate assets in Canada and
Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates.
As such, the Company uses non-derivative financial instruments to economically hedge a portion of
this exposure. The Company manages currency exposure related to the net assets of its Canadian and
European subsidiaries primarily through foreign currency-denominated debt agreements.
Cash Flow Hedges of Interest Rate Risk
The Companys objectives in using interest rate derivatives are to manage its exposure to
interest rate movements. To accomplish this objective, the Company generally uses interest rate
swaps (Swaps) as part of its interest rate risk management strategy. Swaps designated as cash
flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without exchange of the
underlying notional amount.
|
|
|
|
|
|
|
|
|
Aggregate Notional |
|
LIBOR |
|
|
Amount (in millions) |
|
Fixed Rate |
|
Maturity Date |
$200 |
|
|
5.1 |
% |
|
June 2010 |
$100 |
|
|
4.9 |
% |
|
September 2010 |
$100 |
|
|
4.8 |
% |
|
February 2012 |
All components of the Swaps were included in the assessment of hedge effectiveness. The
Company expects that within the next 12 months, it will reflect as an increase to interest expense
(and a corresponding decrease to earnings) approximately $9.1 million.
The effective portion of changes in the fair value of derivatives designated and that qualify
as cash flow hedges is recorded in accumulated OCI and is subsequently reclassified into earnings
in the period that the hedged forecasted transaction affects earnings. During 2010, such
derivatives were used to hedge the variable cash flows associated with existing obligations. The
ineffective portion of the change in fair value of derivatives is recognized directly in earnings.
During the three-month periods ended March 31, 2010 and March 31, 2009, the amount of hedge
ineffectiveness recorded was not material.
-14-
Amounts reported in accumulated OCI related to derivatives will be reclassified to interest
expense as interest payments are made on the Companys variable-rate debt. As of March 31, 2010,
the Company had the following outstanding interest rate derivatives that were designated as cash
flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
Notional |
|
|
Number of |
|
Amount |
Interest Rate Derivative |
|
Instruments |
|
(in millions) |
Interest rate swaps |
|
Three |
|
$ |
400 |
|
The table below presents the fair value of the Companys derivative financial instruments
as well as their classification on the condensed consolidated balance sheets as of March 31, 2010
and December 31, 2009, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
March 31, 2010 |
|
December 31, 2009 |
Derivatives Designated as |
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
Hedging Instruments |
|
Location |
|
Fair Value |
|
Location |
|
Fair Value |
Interest rate products |
|
Other liabilities |
|
$ |
12.0 |
|
|
Other liabilities |
|
$ |
15.4 |
|
The effect of the Companys derivative instruments on net (loss) and income is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
Amount of Gain |
|
|
|
|
|
Reclassified from |
|
|
Recognized in OCI |
|
Location of Gain or |
|
Accumulated OCI into |
|
|
on Derivative |
|
(Loss) Reclassified |
|
(Loss) Income (Effective |
|
|
(Effective Portion) |
|
from Accumulated |
|
Portion) |
|
|
Three-Month Periods |
|
OCI into (Loss) |
|
Three-Month Periods |
Derivatives in Cash |
|
Ended March 31 |
|
Income (Effective |
|
Ended March 31 |
Flow Hedging |
|
2010 |
|
2009 |
|
Portion) |
|
2010 |
|
2009 |
Interest rate
products |
|
$ |
3.4 |
|
|
$ |
4.5 |
|
|
Interest expense |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
The Company is exposed to credit risk in the event of non-performance by the
counterparties to the Swaps. The Company believes it mitigates its credit risk by entering into
Swaps with major financial institutions. The Company continually monitors and actively manages
interest costs on its variable-rate debt portfolio and may enter into additional interest rate swap
positions or other derivative interest rate instruments based on market conditions. In addition,
the Company continually assesses its ability to obtain funds through additional equity and/or debt
offerings, including the issuance of unsecured senior notes and joint venture capital. Accordingly,
the cost of obtaining interest rate protection agreements in relation to the Companys access to
capital markets will continue to be evaluated. The Company has not, and does not plan to, enter
into any derivative financial instruments for trading or speculative purposes.
-15-
Credit-Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision
whereby if the Company defaults on certain of its unsecured indebtedness, then the Company could
also be declared in default on its derivative obligations resulting in an acceleration of payment
under those derivative obligations.
Net Investment Hedges
The Company is exposed to foreign exchange risk from its consolidated and unconsolidated
international investments. The Company has foreign currency-denominated debt agreements, which
exposes the Company to fluctuations in foreign exchange rates. The Company has designated these
foreign currency borrowings as a hedge to the net investment in its Canadian and European
subsidiaries. Changes in the spot rate value are recorded as adjustments to the debt balance with
offsetting unrealized gains and losses recorded in OCI. As the notional amount of the
non-derivative instrument substantially matches the portion of the net investment designated as
being hedged and the non-derivative instrument is denominated in the functional currency of the
hedged net investment, the hedge ineffectiveness recognized in earnings was not material.
The effect of the Companys net investment hedge derivative instruments on OCI is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) |
|
|
|
Recognized in OCI on |
|
|
|
Derivatives (Effective Portion) |
|
|
|
Three-Month Periods Ended |
|
|
|
March 31, |
|
Derivatives in Net Investment Hedging Relationships |
|
2010 |
|
|
2009 |
|
Euro denominated revolving credit facilities
designated as hedge of the Companys net
investment in its subsidiary |
|
$ |
5.7 |
|
|
$ |
4.6 |
|
|
|
|
|
|
|
|
Canadian denominated revolving credit facilities
designated as hedge of the Companys net
investment in its subsidiaries |
|
$ |
(3.3 |
) |
|
$ |
2.1 |
|
|
|
|
|
|
|
|
See discussion of equity derivative instruments in Note 9.
7. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company, along with Coventry Real Estate Advisors L.L.C., is a party to various joint
ventures with Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund, L.L.C.
(collectively the Coventry II Fund) through which 11 existing or proposed retail properties,
along with a portfolio of former Service Merchandise locations, were acquired at various times from
2003 through 2006. The properties were acquired by the joint ventures as value-add investments,
with major renovation and/or ground-up development contemplated for many of the properties. The
Company is generally responsible for day-to-day management of the retail properties. On November 4,
2009, Coventry Real Estate Advisors L.L.C., Coventry Real Estate Fund II, L.L.C. and Coventry Fund
II
-16-
Parallel Fund, L.L.C. (collectively, Coventry) filed suit against the Company and certain of
its affiliates and officers in the Supreme Court of the State of New York, County of New York. The
complaint alleges that the Company: (i) breached contractual obligations under a co-investment
agreement and various joint venture limited liability company agreements, project development
agreements and management and leasing agreements, (ii) breached its fiduciary duties as a member of
various limited liability companies, (iii) fraudulently induced the plaintiffs to enter into
certain agreements and (iv) made certain material misrepresentations. The complaint also requests
that a general release made by Coventry in favor of the Company in connection with one of the joint
venture properties should be voided on the grounds of economic duress. The complaint seeks
compensatory and consequential damages in an amount not less than $500 million as well as punitive
damages. In response, the Company filed a motion to dismiss the complaint or, in the alternative,
to sever the plaintiffs claims. The court has not yet ruled on the Companys motion.
The Company believes that the allegations in the lawsuit are without merit and that it has
strong defenses against this lawsuit. The Company will vigorously defend itself against the
allegations contained in the complaint. This lawsuit is subject to the uncertainties inherent in
the litigation process and, therefore, no assurance can be given as to its ultimate outcome.
However, based on the information presently available to the Company, the Company does not expect
that the ultimate resolution of this lawsuit will have a material adverse effect on the Companys
financial condition, results of operations or cash flows.
On November 18, 2009, the Company filed a complaint in the Court of Common Pleas, Cuyahoga
County, Ohio, seeking, among other things, a temporary restraining order enjoining Coventry from
terminating for cause the management agreements between the Company and the various joint
ventures because the Company believes that requisite conduct in a for-cause termination (i.e.,
fraud or willful misconduct committed by an executive of the Company at the level of at least
senior vice president) did not occur. The court heard testimony in support of the Companys motion
(and Coventrys opposition) and on December 4, 2009 issued a ruling in the Companys favor.
Specifically, the court issued a temporary restraining order enjoining Coventry from terminating
the Company as property manager for cause. The court found that the Company was likely to succeed
on the merits, that immediate and irreparable injury, loss or damage would result to the Company in
the absence of such restraint, and that the balance of equities favored injunctive relief in the
Companys favor. A trial on the Companys request for a permanent injunction is currently scheduled
for September 27, 2010. The temporary restraining order will remain in effect until the trial. Due
to the inherent uncertainties of the litigation process, no assurance can be given as to the
ultimate outcome of this action.
The Company is also a party to litigation filed in November 2006 by a tenant in a Company
property located in Long Beach, California. The tenant filed suit against the Company and certain
affiliates, claiming the Company and its affiliates failed to provide adequate valet parking at the
property pursuant to the terms of the lease with the tenant. After a six-week trial, the jury
returned a verdict in October 2008, finding the Company liable for compensatory damages in the
amount of approximately $7.8 million. In addition, the trial court awarded the tenant attorneys
fees and expenses in the amount of approximately $1.5 million. The Company filed motions for a new
trial and for judgment notwithstanding the verdict, both of which were denied. The Company strongly
disagrees with the verdict, as well as the denial of the post-trial motions. As a result, the
Company is pursuing an
-17-
appeal of the verdict. Included in other liabilities on the condensed consolidated balance sheets is a
provision that represents managements best estimate of loss based upon a range of liability. The
Company will continue to monitor the status of the litigation and revise the estimate of loss as
appropriate. Although the Company believes it has a meritorious basis for reversing the jury
verdict, there can be no assurance that the Company will be successful in its appeal.
In addition to the litigation discussed above, the Company and its subsidiaries are subject to
various legal proceedings, which, taken together, are not expected to have a material adverse
effect on the Company. The Company is also subject to a variety of legal actions for personal
injury or property damage arising in the ordinary course of its business, most of which are covered
by insurance. While the resolution of all matters cannot be predicted with certainty, management
believes that the final outcome of such legal proceedings and claims will not have a material
adverse effect on the Companys liquidity, financial position or results of operations.
8. REDEEMABLE OPERATING PARTNERSHIP UNITS
At March 31, 2010 and December 31, 2009, the Company had 29,524 operating partnership units
(OP Units) outstanding, which are classified as redeemable operating partnership units on the
condensed consolidated balance sheets. These OP Units, issued to different partnerships, are
exchangeable, at the election of the OP Unit holder, and under certain circumstances at the option
of the Company, into an equivalent number of the Companys common shares or for the equivalent
amount of cash. The OP Unit holders are entitled to receive distributions, per OP Unit, generally
equal to the per share distributions on the Companys common shares. Redeemable OP Units are
presented at the greater of their carrying amount (at March 31, 2010 and December 31, 2009) or
redemption value at the end of each reporting period. Changes in the value from period to period
are charged to paid in capital in the Companys condensed consolidated balance sheets. Below is a
table reflecting the activity of the redeemable OP units (in thousands):
|
|
|
|
|
Balance at December 31, 2009 |
|
$ |
627 |
|
Net income |
|
|
1 |
|
Distributions |
|
|
(1 |
) |
Balance at March 31, 2010 |
|
$ |
627 |
|
|
|
|
|
-18-
9. EQUITY
The following table summarizes the changes in equity since December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developers Diversified Realty Corporation Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Excess of |
|
|
Deferred |
|
|
Other |
|
|
Treasury |
|
|
Non- |
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Paid-in |
|
|
Net Income |
|
|
Compensation |
|
|
Comprehensive |
|
|
Stock at |
|
|
Controlling |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
Capital |
|
|
(Loss) |
|
|
Obligation |
|
|
Income (Loss) |
|
|
Cost |
|
|
Interests |
|
|
Total |
|
Balance, December
31, 2009 |
|
$ |
555,000 |
|
|
$ |
20,174 |
|
|
$ |
3,374,528 |
|
|
$ |
(1,098,661 |
) |
|
$ |
17,838 |
|
|
$ |
9,549 |
|
|
$ |
(15,866 |
) |
|
$ |
89,774 |
|
|
$ |
2,952,336 |
|
Cumulative effect
of adoption of a
new accounting
standard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,848 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,384 |
) |
|
|
(20,232 |
) |
Issuance of common
shares related to
dividend
reinvestment plan
and director
compensation |
|
|
|
|
|
|
8 |
|
|
|
445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213 |
) |
|
|
|
|
|
|
240 |
|
Issuance of common
shares for cash
offering |
|
|
|
|
|
|
4,773 |
|
|
|
376,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074 |
|
|
|
|
|
|
|
382,762 |
|
Contributions from
non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
44 |
|
Issuance of
restricted stock |
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
371 |
|
|
|
|
|
|
|
(822 |
) |
|
|
|
|
|
|
(397 |
) |
Vesting of
restricted stock |
|
|
|
|
|
|
|
|
|
|
3,029 |
|
|
|
|
|
|
|
(5,210 |
) |
|
|
|
|
|
|
3,348 |
|
|
|
|
|
|
|
1,167 |
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
657 |
|
Dividends
declared-common
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,001 |
) |
Dividends
declared-preferred
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,567 |
) |
Distributions to
non-controlling
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,616 |
) |
|
|
(1,616 |
) |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,338 |
) |
|
|
(26,585 |
) |
Other
comprehensive (loss)
income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair
value of
interest rate
contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,468 |
|
|
|
|
|
|
|
|
|
|
|
3,468 |
|
Amortization of
interest rate
contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
(93 |
) |
Foreign currency
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,431 |
) |
|
|
|
|
|
|
(1,471 |
) |
|
|
(11,902 |
) |
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,247 |
) |
|
|
|
|
|
|
(7,056 |
) |
|
|
|
|
|
|
(3,809 |
) |
|
|
(35,112 |
) |
|
|
|
Balance, March 31,
2010 |
|
$ |
555,000 |
|
|
$ |
25,009 |
|
|
$ |
3,755,574 |
|
|
$ |
(1,146,324 |
) |
|
$ |
12,999 |
|
|
$ |
2,493 |
|
|
$ |
(12,479 |
) |
|
$ |
72,009 |
|
|
$ |
3,264,281 |
|
|
|
|
Common Shares Issued
In February 2010, the Company issued approximately 42.9 million of its common shares at $8.16
per share in an underwritten offering for net proceeds of approximately $338.1 million. In January
2010, the Company also sold approximately 5.0 million of its common shares through its continuous
equity program, generating gross proceeds of approximately $46.1 million at a weighted-average
price of $9.30 per share. Substantially all net proceeds from equity issuances were used to repay
debt.
-19-
Equity Derivative Instruments Otto Transaction
In February 2009, the Company entered into a stock purchase agreement (the Stock Purchase
Agreement) with Mr. Alexander Otto (the Investor) and certain members of the Otto family
(collectively with the Investor, the Otto Family) which provided for the issuance of warrants to
purchase up to 10.0 million common shares with an exercise price of $6.00 per share to members of
the Otto Family. The exercise price of the warrants is subject to downward adjustment if the
weighted average purchase price of all additional common shares sold, as defined, from the date of
issuance of the applicable warrant is less than $6.00 per share (herein referred to as Downward
Price Protection Provisions). Each warrant may be exercised at any time on or after the issuance
thereof for a five-year term. None of the warrants had been exercised as of March 31, 2010.
The Downward Price Protection Provisions described above resulted in the warrants being
required to be recorded at fair value as of the shareholder approval date of the Stock Purchase
Agreement of April 9, 2009, and marked-to-market through earnings as of each balance sheet date
thereafter until exercise or expiration.
These equity instruments were issued as part of the Companys overall deleveraging strategy
and were not issued in connection with any speculative trading activity or to mitigate any market
risks.
The table below presents the fair value of the Companys equity derivative instruments as well
as their classification on the condensed consolidated balance sheet as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated as |
|
Balance Sheet |
|
|
Fair |
|
|
Balance Sheet |
|
|
|
|
Hedging Instruments |
|
Location |
|
|
Value |
|
|
Location |
|
|
Fair Value |
|
Warrants |
|
Other liabilities |
|
$ |
81.0 |
|
|
Other liabilities |
|
$ |
56.1 |
|
The effect of the Companys equity derivative instruments on net loss is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
Derivatives not Designated |
|
Income Statement |
|
|
|
|
as Hedging Instruments |
|
Location |
|
|
Gain (Loss) |
|
|
|
Loss on equity |
|
|
|
|
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
|
|
Warrants |
|
instruments |
|
$ |
(24.9 |
) |
|
$ |
|
|
The above loss for the warrant contracts was derived principally from the increase of the
Companys stock price from January 1, 2010 to March 31, 2010.
Measurement of Fair Value Equity Derivative Instruments Valued on a Recurring Basis
The valuation of these instruments is determined using a Bloomberg pricing model. The Company
has determined that the warrants fall within Level 3 of the fair value hierarchy due to the
significance of the volatility and dividend yield assumptions in the overall valuation. The
Company
-20-
utilized historical volatility assumptions as it believes this better reflects the true valuation
of the instruments. Although the Company considered using an implied volatility based upon certain
short-term publicly traded options on its common shares, it instead utilized its historical share
price volatility when determining an estimate of fair value of its five-year warrants. The Company
believes that the long-term historic volatility better represents long-term future volatility and
is more consistent with how an investor would view the value of these securities. The Company will
continually evaluate its significant assumptions to determine what it believes provides the most
relevant measurements of fair value at each reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at |
|
|
|
|
|
|
|
|
March 31, 2010 (in millions) |
|
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Warrants |
|
$ |
|
|
|
$ |
|
|
|
$ |
81.0 |
|
|
$ |
81.0 |
|
The table presented below presents a reconciliation of the beginning and ending balances of
the equity derivative instruments that are included in other liabilities as noted above having fair
value measurements based on significant unobservable inputs (Level 3) (in millions).
|
|
|
|
|
|
|
Equity |
|
|
|
Derivative |
|
|
|
Instruments Liability |
|
Balance of Level 3 at December 31, 2009 |
|
$ |
(56.1 |
) |
Unrealized loss |
|
|
(24.9 |
) |
|
|
|
|
Balance of Level 3 at March 31, 2010 |
|
$ |
(81.0 |
) |
|
|
|
|
Dividends
Common share dividends declared were $0.02 per share for the three-month period ended March
31, 2010, which will be paid in cash. Common share dividends declared were $0.20 per share for the
three-month period ended March 31, 2009, which were paid in a combination of cash and common stock.
Deferred Obligations
Certain officers elected to have their deferred compensation distributed in 2010, which
resulted in a reduction of the deferred obligation and corresponding increase to paid in capital of
approximately $5.2 million.
-21-
10. OTHER REVENUES
Other revenues were comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Lease termination fees |
|
$ |
0.6 |
|
|
$ |
1.5 |
|
Financing fees |
|
|
0.2 |
|
|
|
0.3 |
|
Other miscellaneous |
|
|
0.5 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
$ |
1.3 |
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
11. IMPAIRMENT CHARGES
During the three-month periods ended March 31, 2010 and 2009, the Company recorded impairment
charges from continuing operations of $2.1 million and $7.3 million, respectively, on its
consolidated real estate investments. In addition, for the three-month periods ended March 31,
2010 and 2009, impairment charges of $1.0 million and $3.6 million, respectively, are reflected in
discontinued operations (Note 12). The asset impairments were triggered primarily due to the
Companys marketing of these assets for sale and changes in the Companys estimated hold period.
Items Measured at Fair Value on a Non-Recurring Basis
|
|
The following table presents information about the Companys impairment charges that were
measured on a fair value basis for the three months ended March 31, 2010. The table indicates the
fair value hierarchy of the valuation techniques utilized by the Company to determine such fair
value (in millions). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Losses |
Long-lived assets -
held and used and
held for sale |
|
$ |
|
|
|
$ |
|
|
|
$ |
3.6 |
|
|
$ |
3.6 |
|
|
$ |
3.1 |
|
12. DISCONTINUED OPERATIONS
All revenues and expenses of discontinued operations sold have been reclassified in the
condensed consolidated statements of operations for the three-month periods ended March 31, 2010
and 2009. The Company has one asset considered held for sale at March 31, 2010. The Company
considers assets held for sale when the transaction has been approved by the appropriate levels of
management and there are no known significant contingencies relating to the sale such that the sale
of the property within one year is considered probable. Included in discontinued operations for
the three-month periods ended March 31, 2010 and 2009, are five properties sold in 2010, (including
one held for sale at December 31, 2009) and one property held for sale at March 31, 2010
aggregating 1.0 million square feet, and 32 properties sold in 2009 aggregating 3.8 million square
feet, respectively. The operating results relating to assets sold or designated as held for sale
as of March 31, 2010, are as follows (in thousands):
-22-
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Revenues |
|
$ |
657 |
|
|
$ |
12,241 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Operating |
|
|
379 |
|
|
|
4,039 |
|
Impairment charges |
|
|
1,022 |
|
|
|
3,600 |
|
Interest, net |
|
|
90 |
|
|
|
3,133 |
|
Depreciation and amortization |
|
|
102 |
|
|
|
3,475 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,593 |
|
|
|
14,247 |
|
|
|
|
|
|
|
|
Loss before gain on disposition of real
estate |
|
|
(936 |
) |
|
|
(2,006 |
) |
Gain on disposition of real estate |
|
|
566 |
|
|
|
11,609 |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(370 |
) |
|
$ |
9,603 |
|
|
|
|
|
|
|
|
13. EARNINGS PER SHARE
The Companys unvested restricted share units contain rights to receive nonforfeitable
dividends, and thus are participating securities requiring the two-class method of computing
earnings per share (EPS). Under the two-class method, EPS is computed by dividing the sum of
distributed earnings to common shareholders and undistributed earnings allocated to common
shareholders by the weighted average number of common shares outstanding for the period. In
applying the two-class method, undistributed earnings are allocated to both common shares and
participating securities based on the weighted average shares outstanding during the period. The
following table provides a reconciliation of net (loss) income from continuing operations and the
number of common shares used in the computations of basic EPS, which utilizes the weighted
average number of common shares outstanding without regard to dilutive potential common shares, and
diluted EPS, which includes all such shares (in thousands, except per share amounts):
-23-
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Basic and Diluted Earnings: |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
(25,539 |
) |
|
$ |
74,728 |
|
Plus: (Loss) gain on disposition of real estate |
|
|
(675 |
) |
|
|
445 |
|
Less: Loss attributable to non-controlling interests |
|
|
2,337 |
|
|
|
2,625 |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to DDR |
|
|
(23,877 |
) |
|
|
77,798 |
|
Less: Preferred share dividends |
|
|
(10,567 |
) |
|
|
(10,567 |
) |
|
|
|
|
|
|
|
Basic and Diluted (Loss) income from continuing
operations attributable to DDR common shareholders |
|
|
(34,444 |
) |
|
|
67,231 |
|
Less: Earnings attributable to unvested shares and
operating partnership units |
|
|
(31 |
) |
|
|
(603 |
) |
|
|
|
|
|
|
|
Basic and Diluted (Loss) income from continuing operations |
|
$ |
(34,475 |
) |
|
$ |
66,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
Basic Average shares outstanding |
|
|
227,133 |
|
|
|
128,485 |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
DDR common shareholders |
|
$ |
(0.15 |
) |
|
$ |
0.52 |
|
Income from discontinued operations attributable to DDR
common shareholders |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders |
|
$ |
(0.15 |
) |
|
$ |
0.59 |
|
|
|
|
|
|
|
|
Number of Shares: |
|
|
|
|
|
|
|
|
Basic Average shares outstanding |
|
|
227,133 |
|
|
|
128,485 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Restricted stock |
|
|
|
|
|
|
800 |
|
Operating partnership units |
|
|
|
|
|
|
399 |
|
|
|
|
|
|
|
|
Diluted Average shares outstanding |
|
|
227,133 |
|
|
|
129,684 |
|
|
|
|
|
|
|
|
Dilutive Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
DDR common shareholders |
|
$ |
(0.15 |
) |
|
$ |
0.52 |
|
Income from discontinued operations attributable to DDR
common shareholders |
|
|
|
|
|
|
0.07 |
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders |
|
$ |
(0.15 |
) |
|
$ |
0.59 |
|
|
|
|
|
|
|
|
Amounts attributable to DDRs common shareholders: |
|
|
|
|
|
|
|
|
(Loss) income from continuing operations, net of tax |
|
$ |
(24,003 |
) |
|
$ |
77,718 |
|
Discontinued operations, net of tax |
|
|
(244 |
) |
|
|
9,683 |
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR |
|
$ |
(24,247 |
) |
|
$ |
87,401 |
|
|
|
|
|
|
|
|
Preferred dividends |
|
|
10,567 |
|
|
|
10,567 |
|
|
|
|
|
|
|
|
Net (loss) income attributable to DDR common shareholders |
|
$ |
(34,814 |
) |
|
$ |
76,834 |
|
|
|
|
|
|
|
|
Options to purchase 3.4 million and 3.6 million common shares were outstanding at March
31, 2010 and 2009, respectively, all of which were anti-dilutive in the calculations at March 31,
2010 and 2009. Accordingly, the anti-dilutive options were excluded from the computations.
Shares subject to issuance under the Companys value sharing equity program are not considered
in the computation of diluted EPS for three-month period ended March 31, 2010, as the shares were
considered anti-dilutive due to the Companys net loss from continuing operations. There were no
awards outstanding under this program at March 31, 2009.
-24-
The Companys two issuances of senior convertible notes, which are convertible into common
shares of the Company with conversion prices of approximately $74.56 and $64.23 at March 31, 2010
and 2009, respectively, were not included in the computation of diluted EPS for the three-month
periods ended March 31, 2010 and 2009, because the Companys stock price did not exceed the
conversion price of the conversion feature of the senior convertible notes in these periods and
would therefore be anti-dilutive. In addition, the purchased option related to the senior
convertible notes is not included in the computation of diluted EPS as the purchase option is
anti-dilutive.
The Company has excluded from its basic and diluted EPS for the three-month period ended March
31, 2010 warrants to purchase 5.0 million common shares issued in May 2009 and warrants to purchase
5.0 million common shares issued in September 2009 because the warrants were considered
anti-dilutive due to the Companys net loss from continuing operations.
14. SEGMENT INFORMATION
The Company has two reportable segments, shopping centers and other investments. Each
shopping center is considered a separate operating segment; however, each shopping center on a
stand-alone basis is less than 10% of the revenues, profit or loss, and assets of the combined
reported operating segment and meets the majority of the aggregation criteria under the applicable
standard.
The following table summarizes the Companys combined shopping and business center portfolios
as of each balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
2010 |
|
2009 |
Shopping centers owned |
|
|
597 |
|
|
|
694 |
|
Unconsolidated joint ventures |
|
|
258 |
|
|
|
327 |
|
Consolidated joint ventures |
|
|
33 |
|
|
|
35 |
|
States(A) |
|
|
44 |
|
|
|
45 |
|
Business centers |
|
|
6 |
|
|
|
6 |
|
States |
|
|
4 |
|
|
|
4 |
|
|
|
|
(A) |
|
In addition to Puerto Rico and Brazil. |
The table below presents information about the Companys reportable segments (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2010 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
1,449 |
|
|
$ |
205,252 |
|
|
|
|
|
|
$ |
206,701 |
|
Operating expenses |
|
|
(769 |
) |
|
|
(66,322 |
)(A) |
|
|
|
|
|
|
(67,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
680 |
|
|
|
138,930 |
|
|
|
|
|
|
|
139,610 |
|
Unallocated expenses (B) |
|
|
|
|
|
|
|
|
|
$ |
(166,796 |
) |
|
|
(166,796 |
) |
Equity in net income of joint ventures |
|
|
|
|
|
|
1,647 |
|
|
|
|
|
|
|
1,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(25,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets |
|
$ |
49,727 |
|
|
$ |
8,735,972 |
|
|
|
|
|
|
$ |
8,785,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-25-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2009 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
1,523 |
|
|
$ |
206,143 |
|
|
|
|
|
|
$ |
207,666 |
|
Operating expenses |
|
|
(539 |
) |
|
|
(68,361 |
)(A) |
|
|
|
|
|
|
(68,900 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
984 |
|
|
|
137,782 |
|
|
|
|
|
|
|
138,766 |
|
Unallocated expenses (B) |
|
|
|
|
|
|
|
|
|
$ |
(64,389 |
) |
|
|
(64,389 |
) |
Equity in net income of joint ventures |
|
|
|
|
|
|
351 |
|
|
|
|
|
|
|
351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets |
|
$ |
49,844 |
|
|
$ |
9,039,844 |
|
|
|
|
|
|
$ |
9,089,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Includes impairment charges of $2.1 million and $7.3 million for the
three-month periods ended March 31, 2010 and 2009, respectively. |
|
(B) |
|
Unallocated expenses consist of general and administrative, depreciation and
amortization, other income/expense and tax benefit/expense as listed in the condensed
consolidated statements of operations. |
15. SUBSEQUENT EVENTS
In May 2010, the Company repaid a $60 million secured loan with an affiliate of the Otto
Family, which is included in Mortgage and other secured indebtedness on the Condensed Consolidated
Balance Sheets.
-26-
|
|
|
Item 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the condensed consolidated
financial statements and the notes thereto appearing elsewhere in this report. Historical results
and percentage relationships set forth in the condensed consolidated financial statements,
including trends that might appear, should not be taken as indicative of future operations. The
Company considers portions of this information 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 Companys expectations for future periods.
Forward-looking statements include, without limitation, statements related to acquisitions
(including any related pro forma financial information) and other business development activities,
future capital expenditures, financing sources and availability, and the effects of environmental
and other regulations. Although the Company believes that the expectations reflected in those
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
statements of historical fact should be deemed to be forward-looking statements. Without limiting
the foregoing, the words believes, anticipates, plans, expects, seeks, estimates and
similar expressions are intended to identify forward-looking statements. Readers should exercise
caution in interpreting and relying on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors that are, in some cases, beyond the Companys
control and that could cause actual results to differ materially from those expressed or implied in
the forward-looking statements and that could materially affect the Companys actual results,
performance or achievements.
Factors that could cause actual results, performance or achievements to differ materially from
those expressed or implied by forward-looking statements include, but are not limited to, the
following:
|
|
|
The Company is subject to general risks affecting the real estate industry,
including the need to enter into new leases or renew leases on favorable terms to
generate rental revenues, and the economic downturn may adversely affect the ability of
the Companys tenants, or new tenants, to enter into new leases or the ability of the
Companys existing tenants to renew their leases at rates at least as favorable as their
current rates; |
|
|
|
|
The Company could be adversely affected by changes in the local markets where its
properties are located, as well as by adverse changes in national economic and market
conditions; |
|
|
|
|
The Company may fail to anticipate the effects on its properties of changes in
consumer buying practices, including catalog sales and sales over the internet and the
resulting retailing practices and space needs of its tenants or a general downturn in its
tenants businesses, which may cause tenants to close stores or default in payment of
rent; |
|
|
|
|
The Company is subject to competition for tenants from other owners of retail
properties, and its tenants are subject to competition from other retailers and methods
of distribution. The Company is dependent upon the successful operations and financial
condition of its tenants, in particular of its major tenants, and could be adversely
affected by the bankruptcy of those tenants; |
-27-
|
|
|
The Company relies on major tenants, which makes it vulnerable to changes in the
business and financial condition of, or demand for its space, by such tenants; |
|
|
|
|
The Company may not realize the intended benefits of acquisition or merger
transactions. The acquired assets may not perform as well as the Company anticipated, or
the Company may not successfully integrate the assets and realize the improvements in
occupancy and operating results that the Company anticipates. The acquisition of certain
assets may subject the Company to liabilities, including environmental liabilities; |
|
|
|
|
The Company may fail to identify, acquire, construct or develop additional
properties that produce a desired yield on invested capital, or may fail to effectively
integrate acquisitions of properties or portfolios of properties. In addition, the
Company may be limited in its acquisition opportunities due to competition, the inability
to obtain financing on reasonable terms or any financing at all, and other factors; |
|
|
|
|
The Company may fail to dispose of properties on favorable terms. In addition, real
estate investments can be illiquid, particularly as prospective buyers may experience
increased costs of financing or difficulties obtaining financing, and could limit the
Companys ability to promptly make changes to its portfolio to respond to economic and
other conditions; |
|
|
|
|
The Company may abandon a development opportunity after expending resources if it
determines that the development opportunity is not feasible due to a variety of factors,
including a lack of availability of construction financing on reasonable terms, the
impact of the economic environment on prospective tenants ability to enter into new
leases or pay contractual rent, or the inability of the Company to obtain all necessary
zoning and other required governmental permits and authorizations; |
|
|
|
|
The Company may not complete development projects on schedule as a result of
various factors, many of which are beyond the Companys control, such as weather, labor
conditions, governmental approvals, material shortages or general economic downturn
resulting in limited availability of capital, increased debt service expense and
construction costs, and decreases in revenue; |
|
|
|
|
The Companys financial condition may be affected by required debt service
payments, the risk of default, and restrictions on its ability to incur additional debt
or to enter into certain transactions under its credit facilities and other documents
governing its debt obligations. In addition, the Company may encounter difficulties in
obtaining permanent financing or refinancing existing debt. Borrowings under the
Companys revolving credit facilities are subject to certain representations and
warranties and customary events of default, including any event that has had or could
reasonably be expected to have a material adverse effect on the Companys business or
financial condition; |
|
|
|
|
Changes in interest rates could adversely affect the market price of the Companys
common shares, as well as its performance and cash flow; |
|
|
|
|
Debt and/or equity financing necessary for the Company to continue to grow and
operate its business may not be available or may not be available on favorable terms; |
-28-
|
|
|
Disruptions in the financial markets could affect the Companys ability to obtain
financing on reasonable terms and have other adverse effects on the Company and the
market price of the Companys common shares; |
|
|
|
|
The Company is subject to complex regulations related to its status as a real
estate investment trust (REIT) and would be adversely affected if it failed to qualify
as a REIT; |
|
|
|
|
The Company must make distributions to shareholders to continue to qualify as a
REIT, and if the Company must borrow funds to make distributions, those borrowings may
not be available on favorable terms or at all; |
|
|
|
|
Joint venture investments may involve risks not otherwise present for investments
made solely by the Company, including the possibility that a partner or co-venturer may
become bankrupt, may at any time have different interests or goals than those of the
Company and may take action contrary to the Companys instructions, requests, policies or
objectives, including the Companys policy with respect to maintaining its qualification
as a REIT. In addition, a partner or co-venturer may not have access to sufficient
capital to satisfy its funding obligations to the joint venture. The partner could cause
a default under the joint venture loan for reasons outside of the Companys control.
Furthermore, the Company could be required to reduce the carrying value of its equity
method investments if a loss in the carrying value of the investment is other than
temporary; |
|
|
|
|
The outcome of pending or future litigation, including litigation with tenants or
joint venture partners, may adversely effect the Companys results of operations and
financial condition; |
|
|
|
|
The Company may not realize anticipated returns from its real estate assets outside
the United States. The Company expects to continue to pursue international opportunities
that may subject the Company to different or greater risks than those associated with its
domestic operations. The Company owns assets in Puerto Rico, an interest in an
unconsolidated joint venture that owns properties in Brazil and an interest in
consolidated joint ventures that were formed to develop and own properties in Canada and
Russia; |
|
|
|
|
International development and ownership activities carry risks in addition to those
the Company faces with the Companys domestic properties and operations. These risks
include: |
|
|
|
Adverse effects of changes in exchange rates for foreign currencies; |
|
|
|
|
Changes in foreign political or economic environments; |
|
|
|
|
Challenges of complying with a wide variety of foreign laws, including tax
laws, and addressing different practices and customs relating to corporate governance,
operations and litigation; |
|
|
|
|
Different lending practices; |
|
|
|
|
Cultural and consumer differences; |
-29-
|
|
|
Changes in applicable laws and regulations in the United States that affect
foreign operations; |
|
|
|
|
Difficulties in managing international operations and |
|
|
|
|
Obstacles to the repatriation of cash; |
|
|
|
Although the Companys international activities are currently a relatively small
portion of its business, to the extent the Company expands its international activities,
these risks could significantly increase and adversely affect its results of operations
and financial condition; |
|
|
|
|
The Company is subject to potential environmental liabilities; |
|
|
|
|
The Company may incur losses that are uninsured or exceed policy coverage due to
its liability for certain injuries to persons, property or the environment occurring on
its properties and |
|
|
|
|
The Company could incur additional expenses in order to comply with or respond to
claims under the Americans with Disabilities Act or otherwise be adversely affected by
changes in government regulations, including changes in environmental, zoning, tax and
other regulations. |
Executive Summary
The Company is a self-administered and self-managed REIT, in the business of owning, managing
and developing a portfolio of shopping centers. As of March 31, 2010, the Companys portfolio
consisted of 597 shopping centers and six business centers (including 258 owned through
unconsolidated joint ventures and 33 that are otherwise consolidated by the Company). These
properties consist of shopping centers, lifestyle centers and enclosed malls owned in the United
States, Puerto Rico and Brazil. At March 31, 2010, the Company owned and/or managed approximately
118.1 million total square feet of Gross Leasable Area (GLA), which includes all of the
aforementioned properties and 42 properties owned by a third party. The Company owns land in
Canada and Russia at which development was deferred. At March 31, 2010, the aggregate occupancy of
the Companys shopping center portfolio was 86.4%, as compared to 88.3% at March 31, 2009.
Excluding the impact of the Mervyns vacancy, the aggregate occupancy of the Companys shopping
center portfolio was 88.5% at March 31, 2010. The Company owned 694 shopping centers and six
business centers at March 31, 2009. The average annualized base rent per occupied square foot was
$12.77 at March 31, 2010, as compared to $12.30 at March 31, 2009.
Net loss applicable to DDR common shareholders for the three-month period ended March 31, 2010
was $34.8 million, or $0.15 per share (diluted and basic), compared to net income applicable to DDR
common shareholders of $76.8 million, or $0.59 per share (diluted and basic), for the prior-year
comparable period. Funds from operations (FFO) applicable to DDR common shareholders for the
three-month period ended March 31, 2010 was $28.4 million compared to $140.0 million for the
three-month period ended March 31, 2009. The decrease in FFO for the three-month period ended
March 31, 2010, is primarily the result of a decrease in the gain recognized on the repurchases of
senior notes, the loss on equity derivative instruments and the impact of 2009 asset sales.
-30-
First quarter 2010 operating results
The Company continues to demonstrate progress in its balance sheet initiatives since the end
of 2009 and believes this improvement underscores its unwavering commitment to reduce debt and
enhance the quality of its portfolio. The Company continues to be focused on its operating and
balance sheet initiatives, and believes it will continue to make strides throughout the remainder
of 2010 as new leases commence. In addition to enhancing the quality of the Companys shopping
centers through the commencement of new leases, the Company remains focused on overall portfolio
management by selling non-prime assets.
The Companys liquidity position continued to improve in the first quarter of 2010. Proceeds
from the Companys various capital raising activities this past quarter were utilized primarily to
repay debt. As a result, the Company reduced total consolidated debt from $5.2 billion at December
31, 2009 to $4.7 billion as of March 31, 2010. Additionally, the Companys liquidity increased to
approximately $1.0 billion of cash and availability on its revolving credit facilities as of March
31, 2010 from $0.1 billion at March 31, 2009.
The retail environment continues to show signs of improvement. Many retailers announced
stronger sales this year and solid earnings growth, which could translate into expansion plans for
some retailers. Quality space continues to be in demand, which could result in additional
occupancy in the Companys portfolio. Deal economics are still challenged and lease spreads remain
negative; however, the Company is encouraged by some improvement in deal economics. The Companys
anchor store redevelopment team continues to make progress with backfilling big-box vacancies that
occurred in 2008 and 2009.
The Company continues to minimize ground-up development spending in its domestic portfolio,
and instead allocates capital to the lease-up of existing projects because the Company believes
there may be opportunities to redevelop many of its existing assets. These redevelopments should
create a future growth opportunity of the Companys existing assets and create future value without
the level of risk or capital required for a new development.
As evidenced by the Companys capital markets activity this quarter, the Company continued to
opportunistically raise capital, reduce leverage and extend the Companys debt duration. In
January 2010, the Company raised gross proceeds of approximately $46.1 million through the use of
its continuous equity program at a weighted-average price of $9.30 per share. In February, the
Company completed a common equity offering generating net proceeds of approximately $338.1 million
and in March, the Company issued $300 million aggregate principal amount of senior unsecured notes
with a seven-year term. The Company also repurchased through a cash tender offer $83.1 million
aggregate principal amount of its senior unsecured notes due in 2010 and 2011, sold $456.4 million
of wholly-owned and joint venture assets in addition to generating retained earnings, all of which
contributed to leverage reduction. The net capital from all of this activity was predominately
used to de-lever and also to reinvest in the Companys assets.
In April, the Company also participated, through one of its unconsolidated joint ventures, DDR
Domestic Retail Fund, in one of the first multi-borrower CMBS transactions to close since 2008.
This
-31-
$30 million financing has a five-year term at an interest rate of 4.2%. It replaces three
loans with a comparable balance maturing in 2010.
The Company had a very active first quarter and made significant progress on its balance sheet
and operating initiatives. The Company has been executing capital raising activities proactively
and prudently based on opportunities in the market. For the last year, the Company believes it has
articulated a strategy of lowering leverage, increasing liquidity and extending debt maturities
with the goal of lowering the Companys risk profile and long-term cost of capital. The Company
intends to remain focused on continuing such improvement for the remainder of 2010.
Results of Operations
Continuing Operations
Shopping center properties owned as of January 1, 2009, but excluding properties under
development/redevelopment and those classified in discontinued operations, are referred to herein
as the Core Portfolio Properties.
Revenues from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Base and percentage rental revenues (A) |
|
$ |
139,008 |
|
|
$ |
138,559 |
|
|
$ |
449 |
|
|
|
0.3 |
% |
Recoveries from tenants (B) |
|
|
47,434 |
|
|
|
46,476 |
|
|
|
958 |
|
|
|
2.1 |
|
Ancillary and other property income (C) |
|
|
4,973 |
|
|
|
4,922 |
|
|
|
51 |
|
|
|
1.0 |
|
Management fees, development fees and other fee
income (D) |
|
|
14,016 |
|
|
|
14,461 |
|
|
|
(445 |
) |
|
|
(3.1 |
) |
Other (E) |
|
|
1,270 |
|
|
|
3,248 |
|
|
|
(1,978 |
) |
|
|
(60.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
206,701 |
|
|
$ |
207,666 |
|
|
$ |
(965 |
) |
|
|
(0.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
This decrease in Core Portfolio Properties is primarily due to the impact of the major tenant bankruptcies in the
first quarter of 2009. These bankruptcies have also driven the current lower occupancy
level as compared to the Companys historical levels. The increase was due to the
following (in millions): |
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Core Portfolio Properties |
|
$ |
(3.0 |
) |
Acquisition of real estate assets |
|
|
2.6 |
|
Development/redevelopment of shopping center properties |
|
|
0.8 |
|
|
|
|
|
|
|
$ |
0.4 |
|
|
|
|
|
-32-
The following tables present the operating statistics impacting base and percentage
rental revenues summarized by the following portfolios: combined shopping center portfolio,
business center portfolio, wholly-owned shopping center portfolio and joint venture shopping
center portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shopping Center |
|
|
Business Center |
|
|
|
Portfolio |
|
|
Portfolio |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Centers owned |
|
|
597 |
|
|
|
694 |
|
|
|
6 |
|
|
|
6 |
|
Aggregate occupancy rate |
|
|
86.4 |
% |
|
|
88.3 |
% |
|
|
71.9 |
% |
|
|
72.4 |
% |
Average annualized base
rent per occupied
square foot |
|
$ |
12.77 |
|
|
$ |
12.30 |
|
|
$ |
12.27 |
|
|
$ |
12.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-Owned |
|
|
Joint Venture |
|
|
|
Shopping Centers |
|
|
Shopping Centers |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Centers owned |
|
|
306 |
|
|
|
332 |
|
|
|
258 |
|
|
|
327 |
|
Consolidated centers
primarily owned through
a joint venture
previously occupied by
Mervyns |
|
|
n/a |
|
|
|
n/a |
|
|
|
33 |
|
|
|
35 |
|
Aggregate occupancy rate |
|
|
87.2 |
% |
|
|
90.5 |
% |
|
|
83.2 |
% |
|
|
86.2 |
% |
Average annualized base
rent per occupied
square foot |
|
$ |
11.88 |
|
|
$ |
11.72 |
|
|
$ |
13.84 |
|
|
$ |
12.83 |
|
|
|
|
(B) |
|
Recoveries were approximately 72.9% and 75.5% of operating expenses and real estate
taxes including bad debt expense for the three months ended March 31, 2010 and 2009,
respectively. The increase in recoveries from tenants was primarily a result of the
increase in operating costs as described below. |
|
(C) |
|
Ancillary revenue opportunities have historically included short-term and seasonal
leasing programs, outdoor advertising programs, wireless tower development programs, energy
management programs, sponsorship programs and various other programs. |
|
(D) |
|
Decreased primarily due to the following (in millions): |
|
|
|
|
|
|
|
Increase (Decrease) |
|
Development fee income |
|
$ |
0.1 |
|
Leasing commissions |
|
|
0.3 |
|
Decrease in management fee income primarily related to asset sales |
|
|
(0.5 |
) |
Property and asset management fee income at various
unconsolidated joint ventures |
|
|
(0.3 |
) |
|
|
|
|
|
|
$ |
(0.4 |
) |
|
|
|
|
-33-
|
|
|
(E) |
|
Composed of the following (in millions): |
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Lease terminations |
|
$ |
0.6 |
|
|
$ |
1.5 |
|
Acquisition and financing fees |
|
|
0.2 |
|
|
|
0.3 |
|
Other |
|
|
0.5 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
$ |
1.3 |
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
Expenses from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Operating and maintenance (A) |
|
$ |
36,101 |
|
|
$ |
34,320 |
|
|
$ |
1,781 |
|
|
|
5.2 |
% |
Real estate taxes (A) |
|
|
28,940 |
|
|
|
27,275 |
|
|
|
1,665 |
|
|
|
6.1 |
|
Impairment charges (B) |
|
|
2,050 |
|
|
|
7,305 |
|
|
|
(5,255 |
) |
|
|
(71.9 |
) |
General and administrative (C) |
|
|
23,275 |
|
|
|
19,171 |
|
|
|
4,104 |
|
|
|
21.4 |
|
Depreciation and amortization
(A) |
|
|
57,069 |
|
|
|
59,605 |
|
|
|
(2,536 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
147,435 |
|
|
$ |
147,676 |
|
|
$ |
(241 |
) |
|
|
(0.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The changes for the three months ended March 31, 2010 compared to 2009, are due to the
following (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and |
|
|
|
|
|
|
|
|
|
Maintenance |
|
|
Real Estate Taxes |
|
|
Depreciation |
|
Core Portfolio Properties |
|
$ |
0.7 |
|
|
$ |
0.2 |
(1) |
|
$ |
(4.2 |
)(2) |
Acquisitions of real estate assets |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.6 |
|
Development/redevelopment of shopping
center properties |
|
|
|
|
|
|
0.9 |
|
|
|
0.5 |
(2) |
Business Center Properties |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
Provision for bad debt expense |
|
|
0.6 |
|
|
|
|
|
|
|
|
|
Personal property |
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.8 |
|
|
$ |
1.7 |
|
|
$ |
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company is in the process of appealing numerous real estate tax charges
given the current economic environment and increased vacancy resulting from
tenant bankruptcies. |
|
(2) |
|
Primarily relates to accelerated depreciation in 2009 of Fixtures
and tenant Improvements as a result of major tenant bankruptcies partially
offset by additional assets placed in service in 2010. |
|
(B) |
|
The Company recorded impairment charges of $3.1 million and $10.9 million for the three
months ended March 31, 2010 and 2009, respectively, on several consolidated real estate
assets of which $2.1 million and $7.3 million, respectively, is reflected in consolidated
operating expenses and $1.0 million and $3.6 million, respectively, is reflected in
discontinued operations. |
|
(C) |
|
The increase is primarily attributable to a $2.1 million separation charge relating to
the departure of an executive officer and general corporate expenses. Total general and
administrative expenses were approximately 5.5% and 4.3% of total revenues, including total
revenues of unconsolidated joint ventures and managed properties and discontinued
operations, for the three-month periods ended March |
-34-
|
|
|
|
|
31, 2010 and 2009, respectively. The Company continues to expense internal leasing
salaries, legal salaries and related expenses associated with certain leasing and re-leasing
of existing space. |
Other Income and Expenses (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Interest income (A) |
|
$ |
1,330 |
|
|
$ |
3,029 |
|
|
$ |
(1,699 |
) |
|
|
(56.1 |
)% |
Interest expense (B) |
|
|
(59,909 |
) |
|
|
(57,750 |
) |
|
|
(2,159 |
) |
|
|
3.7 |
|
Gain on repurchase of senior notes (C) |
|
|
1,091 |
|
|
|
72,579 |
|
|
|
(71,488 |
) |
|
|
(98.5 |
) |
Loss on equity derivative instruments (D) |
|
|
(24,868 |
) |
|
|
|
|
|
|
(24,868 |
) |
|
|
(100.0 |
) |
Other expense, net (E) |
|
|
(3,079 |
) |
|
|
(4,507 |
) |
|
|
1,428 |
|
|
|
(31.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(85,435 |
) |
|
$ |
13,351 |
|
|
$ |
(98,786 |
) |
|
|
(739.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Decreased primarily due to interest earned from financing receivables, the
principal of which aggregated $109.7 million and $124.2 million at March 31, 2010 and 2009,
respectively. In the fourth quarter of 2009, the Company established a full reserve on an
advance to an affiliate of $66.9 million and ceased the recognition of interest income.
The Company recorded $1.8 million of interest income in the first quarter of 2009 relating
to this advance. |
|
(B) |
|
The weighted-average debt outstanding and related weighted-average interest rates
are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Weighted-average debt outstanding (billions) |
|
$ |
4.9 |
|
|
$ |
5.8 |
|
Weighted-average interest rate |
|
|
4.9 |
% |
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
|
2010 |
|
|
2009 |
|
Weighted-average interest rate |
|
|
5.1 |
% |
|
|
4.2 |
% |
|
|
|
|
|
The increase in 2010 interest expense is primarily due to an increase in short-term interest
rates partially offset by a reduction in outstanding debt. The increase in weighted-average
interest rates in 2010 as compared to 2009 is also primarily related to the increase in
short-term interest rates. The Company ceases the capitalization of interest as assets are
placed in service or upon the temporary suspension of construction. Interest costs
capitalized in conjunction with development and expansion projects and unconsolidated
development joint venture interests were $3.1 million for the three months ended March 31,
2010 as compared to $5.8 million for the same period in 2009. Because the Company has
suspended certain construction activities, the amount of capitalized interest has decreased
in 2010. |
|
(C) |
|
Relates to the Companys purchase of approximately $155.9 million and $163.9
million aggregate principal amount of its outstanding senior unsecured notes, including
senior convertible notes, at a discount to par during the three months ended March 31, 2010
and 2009, respectively. Approximately $83.1 million aggregate principal amount of near-term
outstanding senior unsecured notes repurchased at par in March 2010 occurred through a cash
tender offer. |
|
(D) |
|
Represents the impact of the valuation adjustments for the equity derivative
instruments issued as part of the stock purchase agreement with Mr. Alexander Otto (the
Investor) and certain members of the Otto family (collectively with the Investor, the
Otto Family). The magnitude of the charge |
-35-
|
|
|
|
|
recognized primarily relates to the difference between the closing trading value of the
Companys common shares on December 31, 2009 compared to March 31, 2010. |
|
(E) |
|
Other expenses for the three months ended March 31, 2010, primarily related to
debt extinguishment costs of $1.1 million, litigation-related expenditures of $1.7 million
and the write off of costs related to abandoned development projects and other transactions
of $0.7 million. Other expenses for the three months ended March 31, 2009, primarily
related to the write-off of costs associated with abandoned development projects and other
transactions as well as litigation-related expenditures aggregating $3.6 million and a $0.9
million loss on the sale of Macquarie DDR Trust units. |
Other items (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Equity in net income of joint ventures (A) |
|
$ |
1,647 |
|
|
$ |
351 |
|
|
$ |
1,296 |
|
|
|
369.2 |
% |
Tax (expense) benefit of taxable REIT subsidiaries
and state franchise and income taxes (B) |
|
|
(1,017 |
) |
|
|
1,036 |
|
|
|
(2,053 |
) |
|
|
(198.2 |
) |
|
|
|
(A) |
|
A summary of the increase in equity in net income of joint ventures for the three
months ended March 31, 2010, is composed of the following (in millions): |
|
|
|
|
|
|
|
Increase |
|
Increase in income from existing joint ventures (1) |
|
$ |
0.2 |
|
Coventry II Fund investments (2) |
|
|
0.8 |
|
Disposition of joint venture assets (3) |
|
|
0.3 |
|
|
|
|
|
|
|
$ |
1.3 |
|
|
|
|
|
|
|
|
(1) |
|
Primarily due to increased operating results. |
|
(2) |
|
Losses associated with Coventry II investments recorded in 2009. As the
Company wrote down its basis in certain of these investments in 2009, additional
losses were not recorded in 2010 (see Coventry II Fund discussion in Off Balance
Sheet Arrangements below). |
|
(3) |
|
Primarily related to the decrease in net charges incurred by joint ventures
as a result of the disposition of assets in 2010 and 2009. |
|
(B) |
|
Primarily a result of a change in the net taxable income position in 2010 of the
Companys wholly-owned taxable REIT subsidiary. |
Discontinued Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Loss from discontinued operations (A) |
|
$ |
(936 |
) |
|
$ |
(2,006 |
) |
|
$ |
1,070 |
|
|
|
(53.3 |
)% |
Gain on disposition of real estate, net of tax |
|
|
566 |
|
|
|
11,609 |
|
|
|
(11,043 |
) |
|
|
(95.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(370 |
) |
|
$ |
9,603 |
|
|
$ |
(9,973 |
) |
|
|
(103.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Included in discontinued operations for the three months ended March 31, 2010 and 2009,
are six properties in 2010 (including one property classified as held for sale at March 31,
2010) aggregating 1.0 |
-36-
|
|
|
|
|
million square feet, and 32 properties sold in 2009 aggregating 3.8 million square feet,
respectively. In addition, included in the reported loss for the three months ended March
31, 2010 and 2009, is $1.0 million and $3.6 million, respectively, of impairment charges. |
(Loss) gain on Disposition of Real Estate (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
(Loss) gain on disposition of real estate, net (A) |
|
$ |
(675 |
) |
|
$ |
445 |
|
|
$ |
(1,120 |
) |
|
|
(251.7 |
)% |
|
|
|
(A) |
|
These gains are primarily attributable to the subsequent leasing of units related
to master lease and other obligations, which were originally established on disposed
properties, that are no longer required. |
Non-controlling interests (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Non-controlling interests (A) |
|
$ |
2,337 |
|
|
$ |
2,625 |
|
|
$ |
(288 |
) |
|
|
(11.0 |
)% |
|
|
|
(A) |
|
Includes the following (in millions): |
|
|
|
|
|
|
|
(Increase) Decrease |
|
DDR MDT MV (owned approximately 50% by the Company) (1) |
|
$ |
(0.7 |
) |
Other non-controlling interests |
|
|
0.3 |
|
Decrease in the quarterly distribution to operating partnership
unit investments |
|
|
0.1 |
|
|
|
|
|
|
|
$ |
(0.3 |
) |
|
|
|
|
|
|
|
(1) |
|
The consolidated joint venture owns real estate formerly occupied by
Mervyns, which declared bankruptcy in 2008 and vacated all sites as of December
31, 2008. The decrease is primarily a result of a reduction in net losses by
the joint venture due to the sale of assets and commencement of leases at
certain sites. |
Net (Loss) Income (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net (loss) income
attributable to DDR |
|
$ |
(24,247 |
) |
|
$ |
87,401 |
|
|
$ |
(111,648 |
) |
|
|
(127.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-37-
The decrease in net income attributable to DDR for the three months ended March 31, 2010
as compared to 2009, is primarily the result of a decrease in the gain recognized on the
repurchases of senior notes, the loss on equity derivative instruments and the impact of 2009 asset
sales. A summary of changes in 2010 as compared to 2009 is as follows (in millions):
|
|
|
|
|
Decrease in net operating revenues (total revenues in excess of operating and
maintenance expenses and real estate taxes) |
|
$ |
(4.2 |
) |
Decrease in impairment charges |
|
|
5.3 |
|
Increase in general and administrative expenses |
|
|
(4.1 |
) |
Decrease in depreciation expense |
|
|
2.5 |
|
Decrease in interest income |
|
|
(1.7 |
) |
Increase in interest expense |
|
|
(2.2 |
) |
Decrease in gain on repurchase of senior notes |
|
|
(71.5 |
) |
Loss on equity derivative instruments |
|
|
(24.9 |
) |
Change in other expense |
|
|
1.4 |
|
Increase in equity in net income of joint ventures |
|
|
1.3 |
|
Change in income tax (expense) benefit |
|
|
(2.1 |
) |
Decrease in loss from discontinued operations |
|
|
1.0 |
|
Decrease in net gain on disposition of real estate of discontinued operations properties |
|
|
(11.0 |
) |
Increase in net loss on disposition of real estate |
|
|
(1.1 |
) |
Change in non-controlling interests |
|
|
(0.3 |
) |
|
|
|
|
Decrease in net income attributable to DDR |
|
$ |
(111.6 |
) |
|
|
|
|
Funds From Operations
The Company believes that FFO, which is a non-GAAP financial measure, provides an additional
and useful means to assess the financial performance of REITs. FFO is frequently used by securities
analysts, investors and other interested parties to evaluate the performance of REITs, most of
which present FFO along with net income attributable to DDR as calculated in accordance with GAAP.
FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate
and real estate investments, which assumes that the value of real estate assets diminishes ratably
over time. Historically, however, real estate values have risen or fallen with market conditions,
and many companies utilize different depreciable lives and methods. Because FFO excludes
depreciation and amortization unique to real estate, gains and certain losses from depreciable
property dispositions, and extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact on operations from trends in occupancy rates, rental
rates, operating costs, acquisition and development activities and interest costs. This provides a
perspective of the Companys financial performance not immediately apparent from net income
determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income (loss), adjusted to
exclude (i) preferred share dividends, (ii) gains from disposition of depreciable real estate
property, except for those properties sold through the Companys merchant building program, 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, equity income (loss) from joint ventures and equity
-38-
income (loss) from non-controlling interests, and adding the Companys proportionate share of
FFO from its unconsolidated joint ventures and non-controlling interests, determined on a
consistent basis.
For the reasons described above, management believes that FFO and Operating FFO (as described
below) provide the Company and investors with an important indicator of the Companys operating
performance. It provides a recognized measure of performance other than GAAP net income, which may
include non-cash items (often significant). Other real estate companies may calculate FFO and
Operating FFO in a different manner.
This measure of performance is used by the Company for several business purposes and by other
REITs. The Company uses FFO in part (i) as a measure of a real estate assets performance, (ii) to
shape acquisition, disposition and capital investment strategies, and (iii) to compare the
Companys performance to that of other publicly traded shopping center REITs.
Management recognizes FFOs and Operating FFOs limitations when compared to GAAPs income
from continuing operations. FFO and Operating FFO do not represent amounts available for needed
capital replacement or expansion, debt service obligations, or other commitments and uncertainties.
Management does not use FFO or Operating FFO as an indicator of the Companys cash obligations and
funding requirements for future commitments, acquisitions or development activities. Neither FFO
nor Operating FFO represents cash generated from operating activities in accordance with GAAP and
neither is necessarily indicative of cash available to fund cash needs, including the payment of
dividends. Neither FFO nor Operating FFO should be considered an alternative to net income
(computed in accordance with GAAP) or as an alternative to cash flow as a measure of liquidity. FFO
and Operating FFO are simply used as additional indicators of the Companys operating performance.
For the three-month period ended March 31, 2010, FFO applicable to DDR common shareholders was
$28.4 million, as compared to $140.0 million for the same period in 2009. The decrease in FFO for
the three-month period ended March 31, 2010, is primarily the result of a decrease in the gain
recognized on the repurchases of senior notes, the loss on equity derivative instruments and the
impact of 2009 asset sales.
The Companys calculation of FFO is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net (loss) income applicable to DDR common shareholders
(A) |
|
$ |
(34,814 |
) |
|
$ |
76,834 |
|
Depreciation and amortization of real estate investments |
|
|
54,594 |
|
|
|
61,036 |
|
Equity in net income of joint ventures |
|
|
(1,647 |
) |
|
|
(778 |
) |
Joint ventures FFO (B) |
|
|
11,555 |
|
|
|
15,159 |
|
Non-controlling interests (OP Units) |
|
|
8 |
|
|
|
79 |
|
Gain on disposition of depreciable real estate (C) |
|
|
(1,267 |
) |
|
|
(12,334 |
) |
|
|
|
|
|
|
|
FFO applicable to DDR common shareholders |
|
|
28,429 |
|
|
|
139,996 |
|
Preferred dividends |
|
|
10,567 |
|
|
|
10,567 |
|
|
|
|
|
|
|
|
Total FFO |
|
$ |
38,996 |
|
|
$ |
150,563 |
|
|
|
|
|
|
|
|
-39-
|
|
|
(A) |
|
Includes straight-line rental revenues of approximately $1.0 million for
both of the three-month periods ended March 31, 2010 and 2009. In addition,
includes straight-line ground rent expense of approximately $0.5 million and
$0.4 million in 2010 and 2009, respectively (including discontinued operations). |
|
(B) |
|
Joint ventures FFO is summarized as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Net loss (1) |
|
$ |
(16,850 |
) |
|
$ |
(8,482 |
) |
Depreciation and amortization of real estate
investments |
|
|
50,314 |
|
|
|
64,041 |
|
|
|
|
|
|
|
|
|
|
$ |
33,464 |
|
|
$ |
55,559 |
|
|
|
|
|
|
|
|
DDR ownership interests (2) |
|
$ |
11,555 |
|
|
$ |
15,159 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes straight-line rental revenue of approximately $1.2 million and
$0.7 million for the three-month periods ended March 31, 2010 and 2009,
respectively, of which the Companys proportionate share was $0.2 million
and de minimis in 2009. |
|
(2) |
|
The Companys share of joint venture equity in net loss
was decreased by $0.4 million for the three-month period ended March 31,
2009 due to the impact of basis differentials. |
|
|
|
At March 31, 2010 and 2009, the Company owned unconsolidated joint venture
interests relating to 258 and 327 operating shopping center properties,
respectively. |
|
(C) |
|
The amount reflected as gain on disposition of real estate and
real estate investments from continuing operations in the condensed consolidated
statements of operations includes residual land sales, which management
considers to be the disposition of non-depreciable real property and the sale of
newly developed shopping centers. These dispositions are included in the
Companys FFO and therefore are not reflected as an adjustment to FFO. There
were no gain on land sales during the three-month periods ended March 31, 2010
and 2009. |
FFO excluding the net non-operating charges detailed below, or Operating FFO, is useful
to investors as the Company removes these net charges to analyze the results of its operations and
assess performance of the core operating real estate portfolio.
The Company incurred the following net non-operating charges and gains for the three months
ended March 31, 2010 and 2009, aggregating $36.8 million and $55.0 million, respectively, as
summarized as follows (in millions):
-40-
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month |
|
|
|
Periods Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Loss on equity derivative instruments related to Otto investment |
|
$ |
24.9 |
|
|
$ |
|
|
Executive separation charge |
|
|
2.1 |
|
|
|
|
|
Impairment charges consolidated assets |
|
|
2.1 |
|
|
|
10.9 |
|
Consolidated impairment charges and loss on sales included in
discontinued operations |
|
|
2.4 |
|
|
|
|
|
Debt extinguishment costs and other expenses |
|
|
3.1 |
|
|
|
|
|
FFO associated with Mervyns joint venture, net of
non-controlling interest |
|
|
2.0 |
|
|
|
|
|
Loss on asset sales equity method investments |
|
|
1.3 |
|
|
|
|
|
Loss on disposition of joint venture investment |
|
|
|
|
|
|
5.8 |
|
Impairment charges on equity method investment |
|
|
|
|
|
|
0.9 |
|
Gain on repurchases of senior notes |
|
|
(1.1 |
) |
|
|
(72.6 |
) |
|
|
|
|
|
|
|
Total non-operating items |
|
$ |
36.8 |
|
|
$ |
(55.0 |
) |
FFO attributable to DDR common shareholders |
|
|
28.4 |
|
|
|
140.0 |
|
|
|
|
|
|
|
|
Operating FFO |
|
$ |
65.2 |
|
|
$ |
85.0 |
|
|
|
|
|
|
|
|
During 2008, due to the volatility and volume of significant and unusual accounting
charges and gains recorded in the Companys operating results, management began computing Operating
FFO and discussing it with the users of the Companys financial statements, in addition to other
measures such as net loss determined in accordance with GAAP as well as FFO. The Company believes
that FFO excluding the net non-operating charges and gains detailed above, or Operating FFO, along
with reported GAAP measures, enables management to analyze the results of its operations and assess
performance of its operating real estate and also may be useful to investors. The Company will
continue to evaluate the usefulness and relevance of the reported non-GAAP measures, and such
reported measures could change. Additionally, the Company provides no assurances that these charges
and gains are non-recurring. These charges and gains could be reasonably expected to recur in
future results of operations.
Operating FFO is a non-GAAP financial measure and, as described above, its use combined with
the required primary GAAP presentations, has been beneficial to management in improving the
understanding of the Companys operating results among the investing public and making comparisons
of other REITs operating results to the Companys more meaningful. The adjustments above may not
be comparable to how other REITs or real estate companies calculate their results of operations and
differs from NAREITs definition of FFO.
Operating FFO has the same limitations as FFO as described above and should not be considered
as an alternative to net income (determined in accordance with GAAP) as an indication of the
Companys performance. Operating FFO does not represent cash generated from operating activities
determined in accordance with GAAP, and is not a measure of liquidity or an indicator of our
ability to make cash distributions. The Company believes that to further understand its
performance, Operating FFO should be compared with the Companys reported net loss and
-41-
considered in addition to cash flows in accordance with GAAP, as presented in its condensed
consolidated financial statements.
Liquidity and Capital Resources
The Company relies on capital to buy, develop and improve its shopping center properties.
Events in early 2009, including failures and near-failures of a number of large financial services
companies, have made the capital markets increasingly volatile. The Company periodically evaluates
opportunities to issue and sell additional debt or equity securities, obtain credit facilities from
lenders, or repurchase, refinance or otherwise restructure long-term debt for strategic reasons, or
to further strengthen the financial position of the Company.
The Company maintains an unsecured revolving credit facility with a syndicate of financial
institutions, for which JP Morgan Securities, Inc. serves as the administrative agent (the
Unsecured Credit Facility). The Unsecured Credit Facility provides for borrowings of $1.25
billion if certain financial covenants are maintained and an accordion feature for a future
expansion to $1.4 billion upon the Companys request, provided that new or existing lenders agree
to the existing terms of the facility and increase their commitment level, and a maturity date of
June 2010, with a one-year extension option. The Company also maintains a $75 million unsecured
revolving credit facility with PNC Bank, National Association (together with the Unsecured Credit
Facility, the Revolving Credit Facilities). This facility has a maturity date of June 2010, with
a one-year extension option at the option of the Company subject to certain customary closing
conditions. The Revolving Credit Facilities and the indentures under which the Companys senior and
subordinated unsecured indebtedness is, or may be, issued contain certain financial and operating
covenants and require the Company to comply with certain covenants including, among other things,
leverage ratios and debt service coverage and fixed charge coverage ratios, as well as limitations
on the Companys ability to incur secured and unsecured indebtedness, sell all or substantially all
of the Companys assets, and engage in mergers and certain acquisitions. These credit facilities
and indentures also contain customary default provisions including the failure to make timely
payments of principal and interest payable thereunder, the failure to comply with the Companys
financial and operating covenants, the occurrence of a material adverse effect on the Company, and
the failure to pay when due any other Company consolidated indebtedness (including non-recourse
obligations) in excess of $50 million. In the event our lenders declare a default, as defined in
the applicable loan documentation, this could result in our inability to obtain further funding
and/or an acceleration of any outstanding borrowings.
As of March 31, 2010, the Company was in compliance with all of its financial covenants.
However, due to the economic environment, the Company has less financial flexibility than desired
given the current market dislocation. The Companys current business plans indicate that it will
continue to be able to operate in compliance with these covenants in 2010 and beyond. If there is a
continued decline in the retail and real estate industries and a decline in consumer confidence
leading to a decline in consumer spending and/or the Company is unable to successfully execute its
plans, the Company could violate these covenants, and as a result may be subject to higher finance
costs and fees and/or accelerated maturities. In addition, certain of the Companys credit
facilities and indentures permit the acceleration of the maturity of the underlying debt in the
event certain other debt of the Company has been accelerated. Furthermore, a default under a loan
to the Company or its affiliates, a foreclosure on a mortgaged property owned by the Company or its
affiliates or the inability to
-42-
refinance existing indebtedness may have a negative impact on the Companys financial
condition, cash flows and results of operations. These facts, and an inability to predict future
economic conditions, have encouraged the Company to adopt a strict focus on lowering leverage and
increasing financial flexibility.
The Revolving Credit Facilities have an initial maturity in June 2010, but have a one-year
extension at the Companys option. The Company anticipates exercising this option in the second
quarter. The Company is currently in discussions with the participating banks as well as several
banks that have expressed interest in participating in the Revolving Credit Facilities. It is
expected that the size of these Revolving Credit Facilities will be reduced because the Company
intends to implement a longer-term financing strategy and reduce its reliance on short-term debt.
The Company believes the Revolving Credit Facilities should be appropriately sized for the
Companys future growth strategy.
At March 31, 2010, the following information summarizes the availability of the Revolving
Credit Facilities (in billions):
|
|
|
|
|
Revolving Credit Facilities |
|
$ |
1.325 |
|
Less: |
|
|
|
|
Amount outstanding |
|
|
(0.346 |
) |
Unfunded Lehman Brothers Holdings Commitment |
|
|
(0.008 |
) |
Letters of credit |
|
|
(0.020 |
) |
|
|
|
|
Amount Available |
|
$ |
0.951 |
|
|
|
|
|
As of March 31, 2010, the Company had cash and line of credit availability aggregating
approximately $1.0 billion. As of March 31, 2010, the Company also had 235 unencumbered
consolidated operating properties generating $91.2 million, or 44.4%, of the total revenue of the
Company for the three months ended March 31, 2010, thereby providing a potential collateral base
for future borrowings or to sell to generate cash proceeds, subject to consideration of the
financial covenants on unsecured borrowings.
The Company anticipates that cash flow from operating activities will continue to provide
adequate capital for all scheduled interest and monthly principal payments on outstanding
indebtedness, recurring tenant improvements and dividend payments in accordance with REIT
requirements.
The Company is committed to prudently managing and minimizing discretionary operating and
capital expenditures and raising the necessary equity and debt capital to maximize liquidity, repay
outstanding borrowings as they mature and comply with financial covenants in 2010 and beyond. The
Company has already implemented several steps integral to the successful execution of its capital
raising plans through a combination of retained capital, the issuance of common shares, debt
financing and refinancing, and asset sales.
Although the Company has made considerable progress during 2009 and thus far in 2010
implementing the steps to address its objectives of reducing leverage, improving liquidity,
continuing to comply with its covenants and repaying obligations as they become due, certain
transactions may not close as anticipated or at all and, therefore, there can be no assurances that
the Company will be
-43-
able to execute these plans, which could adversely impact the Companys operations, including
its ability to remain compliant with its covenants.
Part of the Companys overall strategy includes addressing debt maturing in 2010 and years
following. As part of this strategy, in February 2010, the Company issued approximately 42.9
million of its common shares in an underwritten offering for net proceeds of approximately $338.1
million. In January 2010, the Company also sold approximately 5.0 million of its common shares
through its continuous equity program, generating gross proceeds of approximately $46.1 million.
In the first quarter of 2010, the Company purchased approximately $155.9 million aggregate
principal amount of its outstanding senior unsecured notes. Included in the first quarter
purchases was $83.1 million aggregate principal amount of outstanding senior unsecured notes
repurchased through a cash tender offer at par in March 2010. The first quarter purchases
primarily included debt maturing in 2010 and 2011. In March 2010, the Company issued $300 million
aggregate principal amount of its 7.5% senior unsecured notes due April 2017. Substantially all of
the proceeds from these offerings were used to repay debt with shorter-term maturities and to repay
amounts outstanding on the Revolving Credit Facilities.
The Company has been very careful to balance the amount and timing of its debt maturities. The
Company continually evaluates its debt maturities, and based on managements current assessment,
believes it has viable financing and refinancing alternatives. However, these alternatives may
materially affect its expected financial results as interest rates on replacement financing will
likely be higher than current rates. Although the credit environment has become much more difficult
since late 2008, the Company continues to pursue opportunities in the unsecured debt market as well
with the largest U.S. banks, select life insurance companies, certain local banks and some
international lenders. The approval process from the lenders is slow, but lenders are continuing to
execute financing agreements. While pricing and loan-to-value ratios remain dependent on specific
deal terms, in general, pricing spreads have declined and loan-to-values ratios are lower than
historic norms but better than the past year. Moreover, the Company continues to look beyond 2010
to ensure that it continues to execute its strategy to lower leverage, increase liquidity and
extend debt duration with the goal of lowering the Companys risk profile and long-term cost of
capital.
At March 31, 2010, the Companys consolidated 2010 debt maturities consist of $298.9 million
of unsecured notes, of which $147.3 million mature in May 2010 and $151.6 million mature in August
2010; $248.2 million of consolidated mortgage debt (of which the Companys proportionate share is
$110.3 million); $8.8 million of construction loans (of which the Companys proportionate share is
$4.4 million) and $346.0 million of Unsecured Revolving Credit Facilities (subject to extension as
described above). The Company intends to address these maturities using the availability on its
Revolving Credit Facilities, proceeds from asset sales, retained cash flow and funds from
additional discretionary capital-raising initiatives.
At March 31, 2010, the Companys unconsolidated joint venture mortgage debt was $755.4 million
(of which the Companys proportionate share is $230.1 million). Of this amount, $248.7 million (of
which the Companys proportionate share is $41.9 million) is attributable to the Coventry II Fund
assets (see Coventry II Fund discussion below) that, except for one, have all matured and are
currently in default. At March 31, 2010, the remainder of the Companys unconsolidated joint
venture mortgage debt maturing in 2010 aggregated $506.7 million, of which the Companys
proportionate
-44-
share is approximately $188.2 million. Of this amount $34.0 million was repaid or
refinanced in April 2010. Most of these loans are in the process of being refinanced or extended.
These obligations generally require monthly payments of principal and/or interest over the
term of the obligation. In light of the current economic conditions, no assurance can be provided
that the aforementioned obligations will be refinanced or repaid as currently anticipated. Also,
additional financing may not be available at all or on terms favorable to the Company (see
Contractual Obligations and Other Commitments).
The Companys core business of leasing space to well-capitalized retailers continues to
perform well, as the Companys primarily discount-oriented tenants gain market share from retailers
offering higher price points and more discretionary goods. These long-term leases generate
consistent and predictable cash flow after expenses, interest payments and preferred share
dividends. This capital is available for use at the Companys discretion for investment, debt
repayment, share repurchases and the payment of dividends on the common shares.
The Companys cash flow activities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
Cash flow provided by operating activities |
|
$ |
44,304 |
|
|
$ |
69,657 |
|
Cash flow provided by (used for) investing activities |
|
|
34,687 |
|
|
|
(22,903 |
) |
Cash flow used for financing activities |
|
|
(79,419 |
) |
|
|
(39,815 |
) |
Operating Activities: The decrease in cash flow from operating activities in the three
months ended March 31, 2010 as compared to the same period in 2009, was primarily due the impact of
asset sales.
Investing Activities: The change in cash flow from investing activities for the three months
ended March 31, 2010 as compared to the same period in 2009, was primarily due to a reduction in
capital expenditure spending for redevelopment and ground-up development projects as well as the
release of restricted cash.
Financing Activities: The change in cash used for financing activities for the three months
ended March 31, 2010 as compared to the same period in 2009, is primarily due to an increase in
debt repurchases and repayments partially offset by proceeds from the issuance of common shares and
senior notes.
The Company satisfied its REIT requirement of distributing at least 90% of ordinary taxable
income with declared common and preferred share dividends of $15.6 million for the first quarter of
2010, as compared to $36.4 million of cash dividends for the same period in 2009. Accordingly,
federal income taxes have not been incurred by the Company thus far during 2010.
The Company declared a quarterly dividend of $0.02 per common share for the first quarter of
2010. The Company will continue to monitor the 2010 dividend policy and provide for adjustments,
-45-
as determined to be in the best interests of the Company and its shareholders, to maximize the
Companys free cash flow while still adhering to REIT payout requirements.
Sources and Uses of Capital
Dispositions
The Company sold five consolidated properties, aggregating 0.9 million square feet, in the
three months ended March 31, 2010, generating an aggregate gain on disposition of approximately
$0.6 million.
As part of the Companys deleveraging strategy, the Company is actively marketing non-prime
assets for sale. Opportunities for large portfolio asset sales are not occurring as frequently as
in the past; therefore, the Company is also focusing on selling single-tenant assets and smaller
shopping centers. For certain real estate assets in which the Company has entered into agreements
subsequent to March 31, 2010, that are subject to contingencies, a loss of approximately $40
million could be recorded if all such sales were consummated on the terms currently being
negotiated. The Company evaluates all potential sale opportunities taking into account the
long-term growth prospects of assets being sold, the use of proceeds and the impact to the
Companys balance sheet, including financial covenants, in addition to the impact on operating
results. As a result, it is possible that additional assets could be sold for a loss after taking
into account the above considerations.
Developments, Redevelopments and Expansions
In 2010, the Company expects to expend an aggregate of approximately $88.6 million, of which
approximately $26.4 million was spent through March 31, 2010, before deducting sales proceeds, to
develop, expand, improve and re-tenant various properties. The Companys development,
redevelopment and expansion activity is summarized below.
The Company will continue to closely monitor its spending in 2010 for developments and
redevelopments, both for consolidated and unconsolidated projects, as the Company considers this
funding to be discretionary spending. The Company does not anticipate expending a significant
amount of funds on joint venture development projects in 2010. One of the important benefits of the
Companys asset class is the ability to phase development projects over time until appropriate
leasing levels can be achieved. To maximize the return on capital spending and balance the
Companys de-leveraging strategy, the Company has revised its investment criteria thresholds. The
revised underwriting criteria include a higher cash-on-cost project return threshold, a longer
period before the leases commence and a higher stabilized vacancy rate. The Company applies this
revised strategy to both its consolidated and certain unconsolidated joint ventures that own assets
under development because the Company has significant influence and, in some cases, approval rights
over decisions relating to capital expenditures.
Development (Wholly-Owned and Consolidated Joint Ventures)
The Company currently has the following wholly-owned and consolidated joint venture shopping
center projects under construction:
-46-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Remaining |
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
Location |
|
Owned GLA |
|
|
($ Millions) |
|
|
Description |
|
Boise (Nampa), Idaho |
|
|
431.7 |
|
|
$ |
17.1 |
|
|
Community Center |
Austin (Kyle), Texas * |
|
|
443.1 |
|
|
|
16.5 |
|
|
Community Center |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
874.8 |
|
|
$ |
33.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Consolidated 50% Joint Venture |
In addition to these projects, which will be developed in phases, the Company and its
joint venture partners intend to commence construction on various other developments, including
several international projects only after substantial tenant leasing has occurred and acceptable
construction financing is available.
Redevelopments and Expansions (Wholly-Owned and Consolidated Joint Ventures)
The Company is currently expanding/redeveloping a wholly-owned shopping center in Miami
(Plantation), Florida, at a projected aggregate net cost of approximately $48.1 million. At March
31, 2010, approximately $24.0 million of costs had been incurred in relation to the redevelopment
of this project.
Off-Balance Sheet Arrangements
The Company has a number of off-balance sheet joint ventures and other unconsolidated entities
with varying economic structures. Through these interests, the Company has investments in operating
properties, development properties and two management and development companies. Such arrangements
are generally with institutional investors and various developers located throughout the United
States.
The unconsolidated joint ventures that have total assets greater than $250 million (based on
the historical cost of acquisition by the unconsolidated joint venture) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Ownership |
|
|
|
|
|
|
Company-Owned |
|
|
|
|
Unconsolidated Real |
|
Percentage |
|
|
|
|
|
|
Square Feet |
|
|
Total Debt |
|
Estate Ventures |
|
(A) |
|
|
Assets Owned |
|
|
(Thousands) |
|
|
(Millions) |
|
DDRTC Core Retail Fund LLC |
|
|
15.0 |
% |
|
50 shopping centers in several states |
|
|
12,164 |
|
|
$ |
1,330.5 |
|
Domestic Retail Fund |
|
|
20.0 |
|
|
63 shopping centers in several states |
|
|
8,279 |
|
|
|
966.4 |
|
Sonae Sierra Brazil BV Sarl |
|
|
50.0 |
|
|
Ten shopping centers and a
management company in Brazil |
|
|
3,780 |
|
|
|
92.4 |
|
DDR SAU Retail Fund |
|
|
20.0 |
|
|
29 shopping centers in several states |
|
|
2,376 |
|
|
|
226.2 |
|
|
|
|
(A) |
|
Ownership may be held through different investment structures. Percentage ownerships
are subject to change, as certain investments contain promoted structures. |
Funding for Joint Ventures
In connection with the development of shopping centers owned by certain affiliates, the
Company and/or its equity affiliates have agreed to fund the required capital associated with
approved development projects aggregating approximately $4.1 million at March 31, 2010. These
obligations,
-47-
composed principally of construction contracts, are generally due in 12 to 36 months as the
related construction costs are incurred and are expected to be financed through new or existing
construction loans, revolving credit facilities and retained capital.
The Company has provided loans and advances to certain unconsolidated entities and/or related
partners in the amount of $71.0 million at March 31, 2010, for which the Companys joint venture
partners have not funded their proportionate share. Included in this amount, the Company has
advanced $66.9 million of financing to one of its unconsolidated joint ventures, which accrues
interest at the greater of LIBOR plus 700 basis points or 12% and a default rate of 16%, and has an
initial maturity of July 2011. The Company established a reserve for the full amount recorded
related to this advance in 2009 (see Coventry II Fund discussion below).
Coventry II Fund
At March 31, 2010, Coventry Real Estate Advisors L.L.C., sponsored and, its affiliate served
as managing member of, Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund,
L.L.C. (collectively the Coventry II Fund), which along with the Company, through a series of
joint ventures, owned nine value-added retail properties and 42 sites formerly occupied by Service
Merchandise. The Company co-invested approximately 20% in each joint venture and is generally
responsible for day-to-day management of the properties. Pursuant to the terms of the joint
venture, the Company earns fees for property management, leasing and construction management. The
Company also could earn a promoted interest, along with the Coventry II Fund, above a preferred
return after return of capital to fund investors (see Legal Matters).
As of March 31, 2010, the aggregate carrying amount of the Companys net investment in the
Coventry II Fund joint ventures was approximately $15.1 million. As discussed above, the Company
has also advanced $66.9 million of financing to one of the Coventry II Fund joint ventures,
Coventry II DDR Bloomfield, relating to the development of the project in Bloomfield Hills,
Michigan, (Bloomfield Loan). In addition to its existing equity and note receivable, the Company
has provided partial payment guaranties to third-party lenders in connection with the financings
for five of the Coventry II Fund projects. The amount of each such guaranty is not greater than the
proportion to the Companys investment percentage in the underlying project, and the aggregate
amount of the Companys guaranties is approximately $39.2 million at March 31, 2010.
Although the Company will not acquire additional assets through the Coventry II Fund joint
ventures, additional funds may be required to address ongoing operational needs and costs
associated with the joint ventures undergoing development or redevelopment. The Coventry II Fund is
exploring a variety of strategies to obtain such funds, including potential dispositions and
financings. The Company continues to maintain the position that it does not intend to fund any of
its joint venture partners capital contributions or their share of debt maturities.
For the Bloomfield Hills, Michigan project, a $48.0 million land loan matured on December 31,
2008, and on February 24, 2009, the lender for the land loan sent to the borrower a formal notice
of default (the Company provided a payment guaranty in the amount of $9.6 million with respect to
such loan and in July 2009, paid such guaranty in full in exchange for a complete release from the
lender). The above referenced $66.9 million Bloomfield Loan from the Company relating to the
Bloomfield Hills, Michigan project is cross-defaulted with this third-party loan. As a result, on
March
-48-
3, 2009, the Company sent the borrower a formal notice of default relating to its loan. The
third party lender for the land loan subsequently filed a foreclosure action and initiated legal
proceedings against the Coventry II Fund for its failure to fund its 80% payment guaranty. During
the fourth quarter of 2009, the Company determined that, due to the current status of the existing lender
foreclosure action and other litigation related to the project as well as current market and
economic conditions, management of the joint venture has not definitively or formally made a
determination as to whether development of the project would be resumed. Consequently, the Company
determined that the fair value of the joint venture assets, consisting of land and development
costs, was insufficient to repay the Companys note receivable. As a result, in December 2009, the
Company recorded a charge of $66.9 million on the carrying value of the note receivable, including
accrued interest, based upon the estimated fair value of the land and its improvements. This charge
is reflected in the impairment of the joint venture investments line item in the consolidated
statement of operations for the year ended December 31, 2009.
Six of the remaining Coventry II Fund joint ventures also have third-party credit facilities
that matured.
For the Kansas City, Missouri project, a $35.0 million loan matured on January 2, 2009, and on
January 6, 2009, the lender sent to the borrower a formal notice of default (the Company did not
provide a payment guaranty with respect to such loan). On March 26, 2009, the Coventry II Fund
joint venture transferred its ownership of this property to the lender. The Company recorded a $5.8
million loss related to the write-off of the book value of its equity investment. Pursuant to the
agreement with the lender, the Company initially managed the shopping center while the Coventry II
Fund marketed the property for sale. Although the Coventry II Fund continues to market the
property, the Company elected to terminate its management agreement for the shopping center,
effective on June 30, 2009. The joint venture has the ability to receive excess sale proceeds
depending upon the timing and terms of a future sale arrangement.
For the Merriam, Kansas project, a $17.0 million land loan matured on January 20, 2009, and on
February 17, 2009, the lender sent to the borrower a formal notice of default (the Company provided
a payment guaranty in the amount of $2.2 million with respect to such loan). On July 21, 2009, the
Company closed on a three-party transaction with the lender and the Coventry II Fund, pursuant to
which the Coventry II Fund transferred to the Company its entire interest in the project, the
lender released the Coventry II Fund from its payment guaranty, and the lender extended the loan.
As a result, the Merriam, Kansas project now is wholly owned by the Company, and the debt matures
on May 31, 2011.
For the San Antonio, Texas project, a $20.9 million loan matured on July 7, 2009. On November
9, 2009, the Company, the Coventry II Fund and the lender executed a modification agreement
extending the term of the loan to November 9, 2011. The Company did not provide a payment guaranty
with respect to such loan.
For the Kirkland, Washington project and the Benton Harbor, Michigan project, loans in the
amounts of $29.5 million and $16.0 million, respectively, matured on September 30, 2009. The
Company provided payment guaranties in the amount of $5.9 million and $3.2 million, respectively,
-49-
with respect to such loans. The Coventry II Fund and the Company are in negotiations with the
lender to extend such loans.
On April 8, 2009, the lender of the Service Merchandise portfolio sent to the borrower a
formal notice of default based upon the Coventry II Funds failure to satisfy certain net worth
covenants. On April 1, 2010 the loan matured, and on April 2, 2010, the lender sent to the borrower
a formal notice of default with respect to the borrowers failure to repay the loan on or before
the maturity date. The Company provided a payment guaranty in the amount of $1.8 million with
respect to such loan. The Coventry II Fund is exploring a variety of strategies to pay down the
outstanding obligation and is negotiating forbearance terms with the lender.
On August 13, 2009, the senior and mezzanine lenders in the Cincinnati, Ohio, project sent to
the borrowers a formal notice of default, based upon the borrowers inability to fund mezzanine
loan payments and protective advances. The Company did not provide a payment guaranty with respect
to such loan. The Coventry II Fund is exploring restructuring strategies with the lenders.
On September 22, 2009, the lender on the Orland Park, Illinois project sent to the borrower a
formal notice of default based upon the Coventry II Funds failure to satisfy certain net worth
covenants. The Company did not provide a payment guaranty with respect to such loan.
Other Joint Ventures
The Company is involved with overseeing the development activities for several of its
unconsolidated joint ventures that are constructing, redeveloping or expanding shopping centers.
The Company earns a fee for its services commensurate with the level of oversight provided. The
Company generally provides a completion guaranty to the third party lending institution(s)
providing construction financing.
The Companys unconsolidated joint ventures have aggregate outstanding indebtedness to third
parties of approximately $4.2 billion and $5.8 billion at March 31, 2010 and 2009, respectively
(see Item 3. Quantitative and Qualitative Disclosures About Market Risk). Such mortgages and
construction loans are generally non-recourse to the Company and its partners; however, certain
mortgages may have industry-standard recourse provisions to the Company and its partners in certain
limited situations, such as misuse of funds and material misrepresentations. In connection with
certain of the Companys unconsolidated joint ventures, the Company agreed to fund any amounts due
to the joint ventures lender if such amounts are not paid by the joint venture based on the
Companys pro rata share of such amount aggregating $43.9 million at March 31, 2010, including
guarantees associated with the Coventry II Fund.
The Company entered into an unconsolidated joint venture that owns real estate assets in
Brazil and has generally chosen not to mitigate any of the residual foreign currency risk through
the use of hedging instruments for this entity. The Company will continue to monitor and evaluate
this risk and may enter into hedging agreements at a later date.
The Company entered into consolidated joint ventures that own real estate assets in Canada and
Russia. The net assets of these subsidiaries are exposed to volatility in currency exchange rates.
-50-
As such, the Company uses non-derivative financial instruments to hedge this exposure. The
Company manages currency exposure related to the net assets of the Companys Canadian and European
subsidiaries primarily through foreign currency-denominated debt agreements into which the Company
enters. Gains and losses in the parent companys net investments in its subsidiaries are
economically offset by losses and gains in the parent companys foreign currency-denominated debt
obligations.
For the three months ended March 31, 2010, $2.4 million of net gains related to the foreign
currency-denominated debt agreements was included in the Companys cumulative translation
adjustment. As the notional amount of the non-derivative instrument substantially matches the
portion of the net investment designated as being hedged and the non-derivative instrument is
denominated in the functional currency of the hedged net investment, the hedge ineffectiveness
recognized in earnings was not material.
Financing Activities
The Company has historically accessed capital sources through both the public and private
markets. The Companys acquisitions, developments, redevelopments and expansions are generally
financed through cash provided from operating activities, revolving credit facilities, mortgages
assumed, construction loans, secured debt, unsecured debt, common and preferred equity offerings,
joint venture capital, preferred OP Units and asset sales. Total consolidated debt outstanding at
March 31, 2010, was approximately $4.7 billion, as compared to approximately $5.8 billion at March
31, 2009 and $5.2 billion at December 31, 2009.
In March 2010, the Company issued $300 million aggregate principal amount of 7.5% senior
unsecured notes due April 2017. Proceeds from the offering were used to repay debt with
shorter-term maturities and to reduce amounts outstanding on the Companys unsecured credit
facilities.
In the first quarter of 2010, the Company purchased approximately $155.9 million aggregate
principal amount of its outstanding senior unsecured notes, including senior convertible notes, at
a discount to par, resulting in a gross gain of approximately $4.1 million prior to the write off
of unamortized deferred financing costs and unamortized discount. Included in the first quarter
purchases was approximately $83.1 million aggregate principal amount of near-term outstanding
senior unsecured notes repurchased through a cash tender offer at par in March 2010. The first
quarter purchases included debt maturities in 2010 and 2011 as well as convertible senior unsecured
notes due in 2012.
In February 2010, the Company issued approximately 42.9 million of its common shares in an
underwritten offering for net proceeds of approximately $338.1 million. In January 2010, the
Company also sold approximately 5.0 million of its common shares through its continuous equity
program, generating gross proceeds of approximately $46.1 million. Substantially all of the
proceeds from these offerings were used to repay debt with shorter-term maturities and to repay
amounts outstanding on the Revolving Credit Facilities.
-51-
Capitalization
At March 31, 2010, the Companys capitalization consisted of $4.7 billion of debt, $555
million of preferred shares and $3.0 billion of market equity (market equity is defined as common
shares and OP Units outstanding multiplied by $12.17, the closing price of the common shares on the
New York Stock Exchange at March 31, 2010), resulting in a debt to total market capitalization
ratio of 0.57 to 1.0, as compared to a ratio of 0.9 to 1.0 at March 31, 2009. The closing price of
the common shares on the New York Stock Exchange was $2.13 at March 31, 2009. At March 31, 2010,
the Companys total debt consisted of $3.8 billion of fixed-rate debt and $0.9 billion of
variable-rate debt, including $400.0 million of variable-rate debt that had been effectively
swapped to a fixed rate through the use of interest rate derivative contracts. At March 31, 2009,
the Companys total debt consisted of $4.1 billion of fixed-rate debt and $1.7 billion of
variable-rate debt, including $600 million of variable-rate debt that had been effectively swapped
to a fixed rate through the use of interest rate derivative contracts.
It is managements current strategy to have access to the capital resources necessary to
manage its balance sheet, to repay upcoming maturities and to consider making prudent investments
should such opportunities arise. Accordingly, the Company may seek to obtain funds through
additional debt or equity financings and/or joint venture capital in a manner consistent with its
intention to operate with a conservative debt capitalization policy and maintain an investment
grade rating with Moodys Investors Service and re-establish an investment grade rating with
Standard and Poors and Fitch. The security rating is not a recommendation to buy, sell or hold
securities, as it may be subject to revision or withdrawal at any time by the rating organization.
Each rating should be evaluated independently of any other rating. In light of the current economic
conditions, the Company may not be able to obtain financing on favorable terms, or at all, which
may negatively affect future ratings. In August 2009, one of the Companys rating agencies reduced
the Companys debt rating to below investment grade.
Contractual Obligations and Other Commitments
The Companys maturities for the remainder of 2010 consist of $298.9 million aggregate
principal amount of senior unsecured notes and $257.1 million in consolidated mortgage loans, of
which $110.3 million is attributable to the Companys 50% owned joint venture that owns the assets
formerly occupied by Mervyns. These maturities are expected to be refinanced or repaid from
operating cash flow, the Revolving Credit Facilities, assets sales and/or new financings. No
assurance can be provided that the aforementioned obligations will be refinanced or repaid as
anticipated (see Liquidity and Capital Resources).
At March 31, 2010, the Company had letters of credit outstanding of approximately $54.3
million on its consolidated assets. The Company has not recorded any obligation associated with
these letters of credit. The majority of letters of credit are collateral for existing
indebtedness and other obligations of the Company.
In conjunction with the development of shopping centers, the Company has entered into
commitments aggregating approximately $68.0 million with general contractors for its wholly-owned
and consolidated joint venture properties at March 31, 2010. These obligations, comprised
principally of construction contracts, are generally due in 12 to 18 months as the related
construction costs are
-52-
incurred and are expected to be financed through operating cash flow and/or new or existing
construction loans, assets sales or revolving credit facilities.
The Company routinely enters into contracts for the maintenance of its properties which
typically can be cancelled upon 30 to 60 days notice without penalty. At March 31, 2010, the
Company had purchase order obligations, typically payable within one year, aggregating
approximately $3.2 million related to the maintenance of its properties and general and
administrative expenses.
The Company continually monitors its obligations and commitments. There have been no other
material items entered into by the Company since December 31, 2003, through March 31, 2010, other
than as described above. See discussion of commitments relating to the Companys joint ventures and
other unconsolidated arrangements in Off-Balance Sheet Arrangements.
Inflation
Most of the Companys long-term leases contain provisions designed to mitigate the adverse
impact of inflation. Such provisions include clauses enabling the Company to receive additional
rental income from escalation clauses that generally increase rental rates during the terms of the
leases and/or percentage rentals based on tenants gross sales. Such escalations are determined by
negotiation, increases in the consumer price index or similar inflation indices. In addition, many
of the Companys leases are for terms of less than ten years, permitting the Company to seek
increased rents at market rates upon renewal. Most of the Companys leases require the tenants to
pay their share of operating expenses, including common area maintenance, real estate taxes,
insurance and utilities, thereby reducing the Companys exposure to increases in costs and
operating expenses resulting from inflation.
Economic Conditions
The retail market in the United States significantly weakened in 2008 and continued to be
challenged in 2009. Consumer spending has declined in response to erosion in housing values and
stock market investments, more stringent lending practices and job losses. Retail sales have
declined and tenants have become more selective in new store openings. Some retailers have closed
existing locations and, as a result, the Company has experienced a loss in occupancy. The reduced
occupancy will likely continue to have a negative impact on the Companys consolidated cash flows,
results of operations and financial position in 2010. Offsetting some of the current challenges
within the retail environment, the Company has a low occupancy cost relative to other retail
formats and historic averages, as well as a diversified tenant base with only one tenant exceeding
2.0% of total 2010 consolidated revenues (Walmart at 5.2%). Other significant tenants include
Target, Lowes, Home Depot, Kohls, T.J. Maxx/Marshalls, Publix Supermarkets, PetSmart and Bed Bath
& Beyond, all which have relatively strong credit ratings, remain well-capitalized and have
outperformed other retail categories on a relative basis. The Company believes these tenants should
continue providing it with a stable revenue base for the foreseeable future, given the long-term
nature of these leases. Moreover, the majority of the tenants in the Companys shopping centers
provide day-to-day consumer necessities with a focus toward value and convenience versus
high-priced discretionary luxury items, which the Company believes will enable many of the tenants
to continue operating within this challenging economic environment.
-53-
The Company monitors potential credit issues of its tenants, and analyzes the possible effects
to the financial statements of the Company and its unconsolidated joint ventures. In addition to
the collectability assessment of outstanding accounts receivable, the Company evaluates the related
real estate for recoverability, as well as any tenant related deferred charges for recoverability,
which may include straight-line rents, deferred lease costs, tenant improvements, tenant
inducements and intangible assets (Tenant Related Deferred Charges). The Company routinely
evaluates its exposure relating to tenants in financial distress. Where appropriate, the Company
has either written off the unamortized balance or accelerated depreciation and amortization expense
associated with the Tenant Related Deferred Charges for such tenants.
The retail shopping sector has been affected by the competitive nature of the retail business
and the competition for market share as well as general economic conditions where stronger
retailers have out-positioned some of the weaker retailers. These shifts have forced some market
share away from weaker retailers and required them, in some cases, to declare bankruptcy and/or
close stores. Certain retailers have announced store closings even though they have not filed for
bankruptcy protection. However, these store closings often represent a relatively small percentage
of the Companys overall gross leasable area and, therefore, the Company does not expect these
closings to have a material adverse effect on the Companys overall long-term performance. Overall,
the Companys portfolio remains stable. However, there can be no assurance that these events will
not adversely affect the Company (see Item 1A. Risk Factors in the Companys Annual Report of Form
10-K for the year ended December 31, 2009).
Historically, the Companys portfolio has performed consistently throughout many economic
cycles, including downward cycles. Broadly speaking, national retail sales have grown consistently
since World War II, including during several recessions and housing slowdowns. In the past, the
Company has not experienced significant volatility in its long-term portfolio occupancy rate. The
Company has experienced downward cycles before and has made the necessary adjustments to leasing
and development strategies to accommodate the changes in the operating environment and mitigate
risk. In many cases, the loss of a weaker tenant creates an opportunity to re-lease space at higher
rents to a stronger retailer. More importantly, the quality of the property revenue stream is high
and consistent, as it is generally derived from retailers with good credit profiles under long-term
leases, with very little reliance on overage rents generated by tenant sales performance. The
Company believes that the quality of its shopping center portfolio is strong, as evidenced by the
high historical occupancy rates, which have previously ranged from 92% to 96% since the Companys
initial public offering in 1993. Although the Company experienced a significant decline in
occupancy in 2009 due to the major tenant bankruptcies, the shopping center portfolio occupancy,
excluding the impact of the Mervyns vacancy, was at 88.5% at March 31, 2010. Notwithstanding the
decline in occupancy compared to historic levels, the Company continues to sign a large number of
new leases, with overall leasing spreads that continue to stabilize, as new leases and renewals
have historically. Moreover, the Company has been able to achieve these results without
significant capital investment in tenant improvements or leasing commissions. While tenants may
come and go over time, shopping centers that are well-located and actively managed are expected to
perform well. The Company is very conscious of, and sensitive to, the risks posed to the economy,
but is currently comfortable that the position of its portfolio and the general diversity and
credit quality of its tenant base should enable it to successfully navigate through these
challenging economic times.
-54-
Legal Matters
The Company is a party to various joint ventures with the Coventry II Fund through which 11
existing or proposed retail properties, along with a portfolio of former Service Merchandise
locations, were acquired at various times from 2003 through 2006. The properties were acquired by
the joint ventures as value-add investments, with major renovation and/or ground-up development
contemplated for many of the properties. The Company is generally responsible for day-to-day
management of the retail properties. On November 4, 2009, Coventry Real Estate Advisors L.L.C.,
Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund, L.L.C. (collectively,
Coventry) filed suit against the Company and certain of its affiliates and officers in the
Supreme Court of the State of New York, County of New York. The complaint alleges that the Company:
(i) breached contractual obligations under a co-investment agreement and various joint venture
limited liability company agreements, project development agreements and management and leasing
agreements, (ii) breached its fiduciary duties as a member of various limited liability companies,
(iii) fraudulently induced the plaintiffs to enter into certain agreements and (iv) made certain
material misrepresentations. The complaint also requests that a general release made by Coventry in
favor of the Company in connection with one of the joint venture properties should be voided on the
grounds of economic duress. The complaint seeks compensatory and consequential damages in an amount
not less than $500 million as well as punitive damages. In response, the Company filed a motion to
dismiss the complaint or, in the alternative, to sever the plaintiffs claims. The court has not
yet ruled on the Companys motion.
The Company believes that the allegations in the lawsuit are without merit and that it has
strong defenses against this lawsuit. The Company will vigorously defend itself against the
allegations contained in the complaint. This lawsuit is subject to the uncertainties inherent in
the litigation process and, therefore, no assurance can be given as to its ultimate outcome.
However, based on the information presently available to the Company, the Company does not expect
that the ultimate resolution of this lawsuit will have a material adverse effect on the Companys
financial condition, results of operations or cash flows.
On November 18, 2009, the Company filed a complaint in the Court of Common Pleas, Cuyahoga
County, Ohio, seeking, among other things, a temporary restraining order enjoining Coventry from
terminating for cause the management agreements between the Company and the various joint
ventures since the Company believes that requisite conduct in a for-cause termination (i.e.,
fraud or willful misconduct committed by an executive of the Company at the level of at least
senior vice president) did not occur. The court heard testimony in support of the Companys motion
(and Coventrys opposition) and on December 4, 2009 issued a ruling in the Companys favor.
Specifically, the court issued a temporary restraining order enjoining Coventry from terminating
the Company as property manager for cause. The court found that the Company was likely to succeed
on the merits, that immediate and irreparable injury, loss or damage would result to the Company in
the absence of such restraint, and that the balance of equities favored injunctive relief in the
Companys favor. A trial on the Companys request for a permanent injunction is currently scheduled
for September 27, 2010. The temporary restraining order will remain in effect until the trial. Due
to the inherent uncertainties of the litigation process, no assurance can be given as to the
ultimate outcome of this action.
-55-
The Company is also a party to litigation filed in November 2006 by a tenant in a Company
property located in Long Beach, California. The tenant filed suit against the Company and certain
affiliates, claiming the Company and its affiliates failed to provide adequate valet parking at the
property pursuant to the terms of the lease with the tenant. After a six-week trial, the jury
returned a verdict in October 2008, finding the Company liable for compensatory damages in the
amount of approximately $7.8 million. In addition, the trial court awarded the tenant attorneys
fees and expenses in the amount of approximately $1.5 million. The Company filed motions for a new
trial and for judgment notwithstanding the verdict, both of which were denied. The Company strongly
disagrees with the verdict, as well as the denial of the post-trial motions. As a result, the
Company is pursuing an appeal of the verdict. Included in other liabilities on the consolidated
balance sheet is a provision that represents managements best estimate of loss based upon a range
of liability. The Company will continue to monitor the status of the litigation and revise the
estimate of loss as appropriate. Although the Company believes it has a meritorious basis for
reversing the jury verdict, there can be no assurance that the Company will be successful in its
appeal.
In addition to the litigation discussed above, the Company and its subsidiaries are subject to
various legal proceedings, which, taken together, are not expected to have a material adverse
effect on the Company. The Company is also subject to a variety of legal actions for personal
injury or property damage arising in the ordinary course of its business, most of which are covered
by insurance. While the resolution of all matters cannot be predicted with certainty, management
believes that the final outcome of such legal proceedings and claims will not have a material
adverse effect on the Companys liquidity, financial position or results of operations.
New Accounting Standards
New Accounting Standards Implemented
Amendments to Consolidation of Variable Interest Entities
In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Codification No. 810, Amendments to Consolidation of Variable Interest Entities (ASC 810), which
was effective for fiscal years beginning after November 15, 2009, and introduced a more qualitative
approach to evaluating Variable Interest Entities (VIEs) for consolidation. This standard
requires a company to perform an analysis to determine whether its variable interests give it a
controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE
as the entity that has (a) the power to direct the activities of the VIE that most significantly
affect the VIEs economic performance and (b) the obligation to absorb losses or the right to
receive benefits that could potentially be significant to the VIE. In determining whether it has
the power to direct the activities of the VIE that most significantly affect the VIEs performance,
this standard requires a company to assess whether it has an implicit financial responsibility to
ensure that a VIE operates as designed. This standard requires continuous reassessment of primary
beneficiary status rather than periodic, event-driven assessments as previously required, and
incorporates expanded disclosure requirements. This new accounting guidance was effective for the
Company on January 1, 2010, and is being applied prospectively.
-56-
The Companys adoption of this standard resulted in the deconsolidation of one entity in which
the Company has a 50% interest. The deconsolidated entity owns one real estate project,
consisting primarily of land under development, which had $28.5 million of assets as of December
31, 2009. As a result of the initial application of ASC 810, the Company recorded its retained
interest in the deconsolidated entity at its carrying amount. The difference between the net
amount removed from the balance sheet of the deconsolidated entity and the amount reflected
Investments in and Advances to Joint Ventures of approximately $7.8 million was recognized as a
cumulative effect adjustment to accumulated distributions in excess of net income. This difference
was primarily due to the recognition of an other than temporary impairment charge that would have
been recorded had ASC 810 been effective when the Company first became involved with the
deconsolidated entity.
-57-
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Companys primary market risk exposure is interest rate risk. The Companys debt,
excluding unconsolidated joint venture debt, is summarized as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
|
|
|
|
Amount (Millions) |
|
|
Maturity (Years) |
|
|
Interest Rate |
|
|
Percentage of Total |
|
|
Amount (Millions) |
|
|
Maturity (Years) |
|
|
Interest Rate |
|
|
Percentage of Total |
|
Fixed-Rate Debt
(A) |
|
$ |
3,797.8 |
|
|
|
3.4 |
|
|
|
5.9 |
% |
|
|
80.3 |
% |
|
$ |
3,684.0 |
|
|
|
3.3 |
|
|
|
5.7 |
% |
|
|
71.1 |
% |
Variable-Rate Debt
(A) |
|
$ |
933.1 |
|
|
|
1.7 |
|
|
|
1.7 |
% |
|
|
19.7 |
% |
|
$ |
1,494.7 |
|
|
|
2.0 |
|
|
|
1.5 |
% |
|
|
28.9 |
% |
|
|
|
(A) |
|
Adjusted to reflect the $400 million of variable-rate debt that LIBOR was swapped to a
fixed-rate of 5.0% at March 31, 2010. |
The Companys unconsolidated joint ventures fixed-rate indebtedness is summarized as
follows:
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|
March 31, 2010 |
|
|
December 31, 2009 |
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|
Companys |
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|
|
Companys |
|
|
|
|
|
|
|
|
|
Joint Venture Debt |
|
|
Proportionate Share |
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
Joint Venture Debt |
|
|
Proportionate Share |
|
|
Weighted-Average |
|
|
Weighted-Average |
|
|
|
(Millions) |
|
|
(Millions) |
|
|
Maturity (Years) |
|
|
Interest Rate |
|
|
(Millions) |
|
|
(Millions) |
|
|
Maturity (Years) |
|
|
Interest Rate |
|
Fixed-Rate Debt |
|
$ |
3,456.6 |
|
|
$ |
735.1 |
|
|
|
4.5 |
|
|
|
6.0 |
% |
|
$ |
3,807.2 |
|
|
$ |
785.4 |
|
|
|
4.8 |
|
|
|
5.6 |
% |
Variable-Rate Debt |
|
$ |
695.3 |
|
|
$ |
120.2 |
|
|
|
0.7 |
|
|
|
3.0 |
% |
|
$ |
740.5 |
|
|
$ |
131.6 |
|
|
|
0.6 |
|
|
|
3.0 |
% |
The Company intends to utilize retained cash flow, proceeds from asset sales, financing
and variable-rate indebtedness available under its Revolving Credit Facilities to repay
indebtedness and fund capital expenditures of the Companys shopping centers. Thus, to the extent
the Company incurs additional variable-rate indebtedness, its exposure to increases in interest
rates in an inflationary period would increase. The Company does not believe, however, that
increases in interest expense as a result of inflation will significantly impact the Companys
distributable cash flow.
The interest rate risk on a portion of the Companys and its unconsolidated joint ventures
variable-rate debt described above has been mitigated through the use of interest rate swap
agreements (the Swaps) with major financial institutions. At March 31, 2010 and December 31,
2009, the interest rate on the Companys $400 million consolidated floating rate debt, was swapped to fixed rates. The Company is exposed to credit risk in the event of
nonperformance by the counterparties to the Swaps. The Company believes it mitigates its credit
risk by entering into Swaps with major financial institutions.
-58-
The fair value of the Companys fixed-rate debt is adjusted to (i) include the $400 million
that were swapped to a fixed rate at March 31, 2010 and December 31, 2009, and (ii) include the
Companys proportionate share of the joint venture fixed-rate debt. An estimate of the effect of a
100-point increase at March 31, 2010 and December 31, 2009, is summarized as follows (in millions):
|
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|
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|
|
|
|
|
March 31, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
100 Basis Point |
|
|
|
|
|
|
|
|
|
|
100 Basis Point |
|
|
|
|
|
|
|
|
|
|
|
Increase in Market |
|
|
|
|
|
|
|
|
|
|
Increase in Market |
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
Interest Rates |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Interest Rates |
|
Companys fixed-rate debt |
|
$ |
3,797.8 |
|
|
$ |
3,891.9 |
(A) |
|
$ |
3,766.8 |
(B) |
|
$ |
3,684.0 |
|
|
$ |
3,672.1 |
(A) |
|
$ |
3,579.4 |
(B) |
Companys proportionate
share of joint venture
fixed-rate debt |
|
$ |
735.1 |
|
|
$ |
693.3 |
|
|
$ |
666.5 |
|
|
$ |
785.4 |
|
|
$ |
703.1 |
|
|
$ |
681.0 |
|
|
|
|
(A) |
|
Includes the fair value of interest rate swaps, which was a liability of $12.0 and
$15.4 million at March 31, 2010 and December 31, 2009, respectively. |
|
(B) |
|
Includes the fair value of interest rate swaps, which was a liability of $9.6
million and $12.2 million at March 31, 2010 and December 31, 2009, respectively. |
The sensitivity to changes in interest rates of the Companys fixed-rate debt was
determined utilizing a valuation model based upon factors that measure the net present value of
such obligations that arise from the hypothetical estimate as discussed above.
Further, a 100 basis point increase in short-term market interest rates on variable-rate debt
at March 31, 2010 would result in an increase in interest expense of approximately $2.3 million for
the Company and $0.3 million representing the Companys proportionate share of the joint ventures
interest expense relating to variable-rate debt outstanding for the three-month period. The
estimated increase in interest expense for the year does not give effect to possible changes in the
daily balance for the Companys or joint ventures outstanding variable-rate debt.
The Company and its joint ventures intend to continually monitor and actively manage interest
costs on their variable-rate debt portfolio and may enter into swap positions based on market
fluctuations. In addition, the Company believes that it has the ability to obtain funds through
additional equity and/or debt offerings and joint venture capital. Accordingly, the cost of
obtaining such protection agreements in relation to the Companys access to capital markets will
continue to be evaluated. The Company has not entered, and does not plan to enter, into any
derivative financial instruments for trading or speculative purposes. As of March 31, 2010, the
Company had no other material exposure to market risk.
-59-
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Based on their evaluation as required by Securities Exchange Act Rules 13a-15(b) and
15d-15(b), the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have
concluded that the Companys disclosure controls and procedures (as defined in Securities Exchange
Act Rule 13a-15(e)) are effective as of the end of the period covered by this quarterly report on
Form 10-Q to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules and forms and were
effective as of the end of such period to ensure that information required to be disclosed by the
Company issuer in reports that it files or submits under the Securities Exchange Act is accumulated
and communicated to the Companys management, including its CEO and CFO, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
During the three-month period ended March 31, 2010, there were no changes in the Companys
internal control over financial reporting that materially affected or are reasonably likely to
materially affect the Companys internal control over financial reporting.
-60-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than routine litigation and administrative proceedings arising in the ordinary course of
business, the Company is not currently involved in any litigation nor, to its knowledge, is any
litigation threatened against the Company or its properties that is reasonably likely to have a
material adverse effect on the liquidity or results of operations of the Company.
The Company is a party to various joint ventures with the Coventry II Fund through which 11
existing or proposed retail properties, along with a portfolio of former Service Merchandise
locations, were acquired at various times from 2003 through 2006. The properties were acquired by
the joint ventures as value-add investments, with major renovation and/or ground-up development
contemplated for many of the properties. The Company is generally responsible for day-to-day
management of the retail properties. On November 4, 2009, Coventry Real Estate Advisors L.L.C.,
Coventry Real Estate Fund II, L.L.C. and Coventry Fund II Parallel Fund, L.L.C. (collectively,
Coventry) filed suit against the Company and certain of its affiliates and officers in the
Supreme Court of the State of New York, County of New York. The complaint alleges that the Company:
(i) breached contractual obligations under a co-investment agreement and various joint venture
limited liability company agreements, project development agreements and management and leasing
agreements, (ii) breached its fiduciary duties as a member of various limited liability companies,
(iii) fraudulently induced the plaintiffs to enter into certain agreements and (iv) made certain
material misrepresentations. The complaint also requests that a general release made by Coventry in
favor of the Company in connection with one of the joint venture properties should be voided on the
grounds of economic duress. The complaint seeks compensatory and consequential damages in an amount
not less than $500 million as well as punitive damages. In response, the Company filed a motion to
dismiss the complaint or, in the alternative, to sever the plaintiffs claims. The court has not
yet ruled on the Companys motion.
The Company believes that the allegations in the lawsuit are without merit and that it has
strong defenses against this lawsuit. The Company will vigorously defend itself against the
allegations contained in the complaint. This lawsuit is subject to the uncertainties inherent in
the litigation process and, therefore, no assurance can be given as to its ultimate outcome.
However, based on the information presently available to the Company, the Company does not expect
that the ultimate resolution of this lawsuit will have a material adverse effect on the Companys
financial condition, results of operations or cash flows.
On November 18, 2009, the Company filed a complaint in the Court of Common Pleas, Cuyahoga
County, Ohio, seeking, among other things, a temporary restraining order enjoining Coventry from
terminating for cause the management agreements between the Company and the various joint
ventures since the Company believes that requisite conduct in a for-cause termination (i.e.,
fraud or willful misconduct committed by an executive of the Company at the level of at least
senior vice president) did not occur. The court heard testimony in support of the Companys motion
(and Coventrys opposition) and on December 4, 2009 issued a ruling in the Companys favor.
-61-
Specifically, the court issued a temporary restraining order enjoining Coventry from
terminating the Company as property manager for cause. The court found that the Company was
likely to succeed on the merits, that immediate and irreparable injury, loss or damage would result
to the Company in the absence of such restraint, and that the balance of equities favored
injunctive relief in the Companys favor. A trial on the Companys request for a permanent
injunction is currently scheduled for September 27, 2010. The temporary restraining order will
remain in effect until the trial. Due to the inherent uncertainties of the litigation process, no
assurance can be given as to the ultimate outcome of this action.
None.
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ISSUER PURCHASES OF EQUITY SECURITIES
|
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|
(d) Maximum Number |
|
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|
|
|
|
|
|
|
|
|
|
(or Approximate |
|
|
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|
|
|
|
(c) Total Number of |
|
|
Dollar Value) of |
|
|
|
(a) Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
Shares that May Yet |
|
|
|
number of shares |
|
|
|
|
|
|
Part of Publicly |
|
|
Be Purchased Under |
|
|
|
purchased |
|
|
(b) Average Price |
|
|
Announced Plans or |
|
|
the Plans or |
|
|
|
(1) |
|
|
Paid per Share |
|
|
Programs |
|
|
Programs |
|
January 1 31, 2010 |
|
|
21,150 |
|
|
$ |
8.89 |
|
|
|
|
|
|
|
|
|
February 1 28, 2010 |
|
|
13,754 |
|
|
|
10.11 |
|
|
|
|
|
|
|
|
|
March 1 31, 2010 |
|
|
38,555 |
|
|
|
12.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
73,459 |
|
|
$ |
11.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of common shares surrendered or deemed
surrendered to the Company to satisfy minimum tax withholding obligations in
connection with the vesting and/or exercise of awards under the Companys
equity-based compensation plans with respect to outstanding shares of restricted
stock. |
|
|
|
ITEM 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
None.
|
|
|
ITEM 5. |
|
OTHER INFORMATION |
None
-62-
ITEM 6. EXHIBITS
4.1 |
|
Tenth Supplemental Indenture dated as of March 19, 2010 by and between the Company and U.S.
Bank National Association (as successor to U.S. Bank Trust National Association (successor to
National City Bank)), as Trustee |
|
10.1 |
|
Separation Agreement and Release, dated January 26, 2010, by and between the Company and
William H. Schafer |
|
10.2 |
|
Promotion Grant Agreement, dated January 1, 2010, by and between Developers Diversified
Realty Corporation and Daniel B. Hurwitz |
|
31.1 |
|
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Exchange Act
of 1934 |
|
31.2 |
|
Certification of principal financial officer pursuant to Rule 13a-14(a) of the Exchange Act
of 1934 |
|
32.1 |
|
Certification of CEO pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of
2002 1 |
|
32.2 |
|
Certification of CFO pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of this report pursuant to the Sarbanes-Oxley Act of
2002 1 |
|
1 |
|
Pursuant to SEC Release No. 34-4751, these exhibits are deemed to
accompany this report and are not filed as part of this report. |
-63-
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 thereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
|
|
|
|
May 7, 2010
|
|
/s/ David J. Oakes |
|
|
|
|
|
(Date)
|
|
David J. Oakes, Senior Executive Vice President and Chief |
|
|
|
Financial Officer (Principal Financial Officer) |
|
|
|
|
|
May 7, 2010
|
|
/s/ Christa A. Vesy |
|
|
|
|
|
(Date)
|
|
Christa A. Vesy, Senior Vice President and Chief Accounting |
|
|
|
Officer (Chief Accounting Officer) |
|
-64-
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Exhibit No. |
|
|
|
|
|
|
|
Filed Herewith or |
Under Reg. S-K Item |
|
Form 10-Q |
|
|
|
Incorporated Herein |
601 |
|
Exhibit No. |
|
Description |
|
by Reference |
4.1
|
|
|
4.1 |
|
|
Tenth
Supplemental
Indenture dated as
of March 19, 2010
by and between the
Company and U.S.
Bank National
Association (as
successor to U.S.
Bank Trust National
Association
(successor to
National City
Bank)), as Trustee
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
10.1
|
|
|
10.1 |
|
|
Separation
Agreement and
Release, dated
January 26, 2010,
by and between the
Company and William
H. Schafer
|
|
Current Report
on Form 8-K (filed
with the SEC on
January 26, 2010;
Commission File No.
1-11690 |
|
|
|
|
|
|
|
|
|
10.2
|
|
|
10.2 |
|
|
Promotion Grant Agreement, dated January 1, 2010, by and between Developers Diversified Realty Corporation and Daniel B. Hurwitz
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
31
|
|
|
31.1 |
|
|
Certification of
principal executive
officer pursuant to
Rule 13a-14(a) of
the Exchange Act of
1934
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
31
|
|
|
31.2 |
|
|
Certification of
principal financial
officer pursuant to
Rule 13a-14(a) of
the Exchange Act of
1934
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
32
|
|
|
32.1 |
|
|
Certification of
CEO pursuant to
Rule 13a-14(b) of
the Exchange Act
and 18 U.S.C.
Section 1350, as
adopted pursuant to
Section 906 of this
report pursuant to
the Sarbanes-Oxley
Act of 2002 1
|
|
Filed herewith |
|
|
|
|
|
|
|
|
|
32
|
|
|
32.2 |
|
|
Certification of
CFO pursuant to
Rule 13a-14(b) of
the Exchange Act
and 18 U.S.C.
Section 1350, as
adopted pursuant to
Section 906 of this
report pursuant to
the Sarbanes-Oxley
Act of 2002 1
|
|
Filed herewith |
-65-