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 June 30, 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
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(I.R.S. Employer |
incorporation or organization)
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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). Yes
þ No o
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 July 30, 2010, the registrant had 250,122,627 outstanding common shares, $0.10 par value
per share.
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Unaudited
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Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 |
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2 |
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Condensed Consolidated Statements of Operations for the Three-Month Periods Ended June 30, 2010 and 2009 |
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3 |
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Condensed Consolidated Statements of Operations for the Six-Month Periods Ended June 30, 2010 and 2009 |
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4 |
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Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2010 and 2009 |
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5 |
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Notes to Condensed Consolidated Financial Statements |
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6 |
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- 1 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
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June 30, 2010 |
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December 31, 2009 |
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Assets |
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Land |
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$ |
1,932,469 |
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$ |
1,971,782 |
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Buildings |
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5,593,976 |
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5,694,659 |
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Fixtures and tenant improvements |
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308,128 |
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287,143 |
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7,834,573 |
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7,953,584 |
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Less: Accumulated depreciation |
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(1,403,028 |
) |
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(1,332,534 |
) |
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6,431,545 |
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6,621,050 |
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Land held for development and construction in progress |
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796,093 |
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858,900 |
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Real estate held for sale, net |
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3,000 |
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10,453 |
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Total real estate assets, net (variable interest entities $517.1 million at June 30, 2010) |
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7,230,638 |
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7,490,403 |
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Investments in and advances to joint ventures |
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415,829 |
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420,541 |
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Cash and cash equivalents |
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20,920 |
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26,172 |
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Restricted cash (variable interest entities $21.0 million at June 30, 2010) |
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35,474 |
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95,673 |
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Notes receivable, net |
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60,547 |
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74,997 |
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Other assets, net (variable interest entities $6.1 million at June 30, 2010) |
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288,535 |
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318,820 |
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$ |
8,051,943 |
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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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$ |
1,596,505 |
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$ |
1,689,841 |
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Revolving credit facilities |
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649,844 |
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775,028 |
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2,246,349 |
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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 $231.6 million at June 30, 2010) |
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1,591,702 |
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1,913,794 |
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2,391,702 |
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2,713,794 |
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Total indebtedness |
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4,638,051 |
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5,178,663 |
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Accounts
payable and accrued expenses (variable interest entities $15.5 million at June 30, 2010) |
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134,332 |
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130,404 |
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Dividends payable |
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11,969 |
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10,985 |
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Other liabilities |
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138,624 |
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153,591 |
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Total liabilities |
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4,922,976 |
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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 8) |
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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 June 30, 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 June 30, 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 June 30, 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; 250,123,575 and 201,742,589 shares issued at June 30, 2010 and December 31, 2009, respectively |
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25,012 |
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20,174 |
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Paid-in-capital |
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3,756,218 |
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3,374,528 |
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Accumulated distributions in excess of net income |
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(1,248,469 |
) |
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(1,098,661 |
) |
Deferred compensation obligation |
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12,874 |
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17,838 |
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Accumulated other comprehensive income |
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5,184 |
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9,549 |
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Less: Common shares in treasury at cost: 508,980 and 657,012 shares at June 30, 2010 and December 31, 2009, respectively |
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(11,877 |
) |
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(15,866 |
) |
Non-controlling interests (variable interest entities $23.6 million at June 30, 2010) |
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34,398 |
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89,774 |
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Total equity |
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3,128,340 |
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2,952,336 |
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$ |
8,051,943 |
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$ |
8,426,606 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED JUNE 30,
(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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$ |
135,869 |
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$ |
132,470 |
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Percentage and overage rents |
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600 |
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845 |
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Recoveries from tenants |
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42,926 |
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43,503 |
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Ancillary and other property income |
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4,936 |
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4,881 |
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Management fees, development fees and other fee income |
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13,145 |
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14,040 |
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Other |
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4,540 |
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1,737 |
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202,016 |
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197,476 |
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Rental operation expenses: |
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Operating and maintenance |
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37,197 |
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33,626 |
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Real estate taxes |
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26,517 |
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26,168 |
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Impairment charges |
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129,727 |
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48,246 |
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General and administrative |
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19,090 |
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28,412 |
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Depreciation and amortization |
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56,738 |
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56,836 |
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269,269 |
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193,288 |
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Other income (expense): |
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Interest income |
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1,525 |
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3,228 |
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Interest expense |
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(59,692 |
) |
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(57,765 |
) |
(Loss) gain on repurchase of senior notes |
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(1,090 |
) |
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45,901 |
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Gain (loss) on equity derivative instruments |
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21,527 |
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(80,025 |
) |
Other expense, net |
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(11,850 |
) |
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(6,656 |
) |
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(49,580 |
) |
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(95,317 |
) |
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Loss from continuing operations before equity in net loss of joint ventures, tax benefit (expense) of taxable REIT subsidiaries and state franchise and income taxes and gain on disposition of real estate, net of tax |
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(116,833 |
) |
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(91,129 |
) |
Impairment of joint ventures |
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(40,371 |
) |
Equity in net loss of joint ventures |
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(623 |
) |
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(9,153 |
) |
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Loss from continuing operations before tax benefit (expense) of taxable REIT subsidiaries and state franchise and income taxes and gain on disposition of real estate, net of tax |
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(117,456 |
) |
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|
(140,653 |
) |
Tax benefit (expense) of taxable REIT subsidiaries and state franchise and income taxes |
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|
3,590 |
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|
(909 |
) |
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Loss from continuing operations |
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(113,866 |
) |
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(141,562 |
) |
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Discontinued operations: |
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Loss from discontinued operations |
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(3,835 |
) |
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|
(84,067 |
) |
Loss on disposition of real estate, net of tax |
|
|
(4,057 |
) |
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|
(36,023 |
) |
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|
|
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(7,892 |
) |
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(120,090 |
) |
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|
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Loss before gain on disposition of real estate |
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|
(121,758 |
) |
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|
(261,652 |
) |
Gain on disposition of real estate, net of tax |
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|
592 |
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|
648 |
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Net loss |
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|
(121,166 |
) |
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|
(261,004 |
) |
Loss attributable to non-controlling interests |
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|
34,591 |
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|
34,419 |
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|
|
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Net loss attributable to DDR |
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$ |
(86,575 |
) |
|
$ |
(226,585 |
) |
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|
|
|
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Preferred dividends |
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|
10,567 |
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|
|
10,567 |
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|
|
|
|
|
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Net loss attributable to DDR common shareholders |
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$ |
(97,142 |
) |
|
$ |
(237,152 |
) |
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Per share data: |
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Basic earnings per share data: |
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|
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|
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Loss from continuing operations attributable to DDR common shareholders |
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$ |
(0.37 |
) |
|
$ |
(0.88 |
) |
Loss from discontinued operations attributable to DDR common shareholders |
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|
(0.02 |
) |
|
|
(0.76 |
) |
|
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|
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Net loss attributable to DDR common shareholders |
|
$ |
(0.39 |
) |
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$ |
(1.64 |
) |
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Diluted earnings per share data: |
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Loss from continuing operations attributable to DDR common shareholders |
|
$ |
(0.37 |
) |
|
$ |
(0.88 |
) |
Loss from discontinued operations attributable to DDR common shareholders |
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|
(0.02 |
) |
|
|
(0.76 |
) |
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|
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Net loss attributable to DDR common shareholders |
|
$ |
(0.39 |
) |
|
$ |
(1.64 |
) |
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|
|
|
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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 SIX-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands, except per share amounts)
(Unaudited)
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2010 |
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2009 |
|
Revenues from operations: |
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|
|
|
|
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|
Minimum rents |
|
$ |
272,358 |
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|
$ |
268,126 |
|
Percentage and overage rents |
|
|
2,720 |
|
|
|
3,274 |
|
Recoveries from tenants |
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|
90,232 |
|
|
|
89,843 |
|
Ancillary and other property income |
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|
9,898 |
|
|
|
9,797 |
|
Management fees, development fees and other fee income |
|
|
27,161 |
|
|
|
28,502 |
|
Other |
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|
5,809 |
|
|
|
4,984 |
|
|
|
|
|
|
|
|
|
|
|
408,178 |
|
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|
404,526 |
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Rental operation expenses: |
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|
|
|
|
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Operating and maintenance |
|
|
73,144 |
|
|
|
67,773 |
|
Real estate taxes |
|
|
55,177 |
|
|
|
53,160 |
|
Impairment charges |
|
|
131,777 |
|
|
|
55,551 |
|
General and administrative |
|
|
42,366 |
|
|
|
47,583 |
|
Depreciation and amortization |
|
|
113,531 |
|
|
|
116,076 |
|
|
|
|
|
|
|
|
|
|
|
415,995 |
|
|
|
340,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
2,855 |
|
|
|
6,256 |
|
Interest expense |
|
|
(118,981 |
) |
|
|
(114,793 |
) |
Gain on repurchase of senior notes |
|
|
|
|
|
|
118,479 |
|
Loss on equity derivative instruments |
|
|
(3,340 |
) |
|
|
(80,025 |
) |
Other expense, net |
|
|
(14,924 |
) |
|
|
(11,161 |
) |
|
|
|
|
|
|
|
|
|
|
(134,390 |
) |
|
|
(81,244 |
) |
|
|
|
|
|
|
|
Loss from continuing operations before equity in net income (loss) of joint ventures, tax benefit of taxable REIT subsidiaries and state franchise and income taxes and (loss) gain on disposition of real estate, net of tax |
|
|
(142,207 |
) |
|
|
(16,861 |
) |
Impairment of joint ventures |
|
|
|
|
|
|
(40,371 |
) |
Equity in net income (loss) of joint ventures |
|
|
1,023 |
|
|
|
(8,801 |
) |
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit of taxable REIT subsidiaries and state franchise and income taxes and (loss) gain on disposition of real estate, net of tax |
|
|
(141,184 |
) |
|
|
(66,033 |
) |
Tax benefit of taxable REIT subsidiaries and state franchise and income taxes |
|
|
2,574 |
|
|
|
127 |
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
(138,610 |
) |
|
|
(65,906 |
) |
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(5,566 |
) |
|
|
(87,002 |
) |
Loss on disposition of real estate, net of tax |
|
|
(3,491 |
) |
|
|
(24,416 |
) |
|
|
|
|
|
|
|
|
|
|
(9,057 |
) |
|
|
(111,418 |
) |
|
|
|
|
|
|
|
Loss before (loss) gain on disposition of real estate |
|
|
(147,667 |
) |
|
|
(177,324 |
) |
(Loss) gain on disposition of real estate, net of tax |
|
|
(83 |
) |
|
|
1,096 |
|
|
|
|
|
|
|
|
Net loss |
|
|
(147,750 |
) |
|
|
(176,228 |
) |
Loss attributable to non-controlling interests |
|
|
36,928 |
|
|
|
37,044 |
|
|
|
|
|
|
|
|
Net loss attributable to DDR |
|
$ |
(110,822 |
) |
|
$ |
(139,184 |
) |
|
|
|
|
|
|
|
Preferred dividends |
|
|
21,134 |
|
|
|
21,134 |
|
|
|
|
|
|
|
|
Net loss attributable to DDR common shareholders |
|
$ |
(131,956 |
) |
|
$ |
(160,318 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Basic earnings per share data: |
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to DDR common shareholders |
|
$ |
(0.53 |
) |
|
$ |
(0.43 |
) |
Loss from discontinued operations attributable to DDR common shareholders |
|
|
(0.02 |
) |
|
|
(0.75 |
) |
|
|
|
|
|
|
|
Net loss attributable to DDR common shareholders |
|
$ |
(0.55 |
) |
|
$ |
(1.18 |
) |
|
|
|
|
|
|
|
Diluted earnings per share data: |
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to DDR common shareholders |
|
$ |
(0.53 |
) |
|
$ |
(0.43 |
) |
Loss from discontinued operations attributable to DDR common shareholders |
|
|
(0.02 |
) |
|
|
(0.75 |
) |
|
|
|
|
|
|
|
Net loss attributable to DDR common shareholders |
|
$ |
(0.55 |
) |
|
$ |
(1.18 |
) |
|
|
|
|
|
|
|
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 SIX-MONTH PERIODS ENDED JUNE 30,
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Net cash flow provided by operating activities: |
|
$ |
127,981 |
|
|
$ |
139,879 |
|
|
|
|
|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
Real estate developed or acquired, net of liabilities assumed |
|
|
(75,804 |
) |
|
|
(113,647 |
) |
Equity contributions to joint ventures |
|
|
(18,497 |
) |
|
|
(8,915 |
) |
Issuance of joint venture advances, net |
|
|
(108 |
) |
|
|
(5,561 |
) |
Proceeds from sale and refinancing of joint venture interests |
|
|
3,567 |
|
|
|
158 |
|
Return of investments in joint ventures |
|
|
14,761 |
|
|
|
10,207 |
|
Issuance of notes receivable, net |
|
|
(4,550 |
) |
|
|
(4,316 |
) |
Decrease (increase) in restricted cash |
|
|
60,199 |
|
|
|
(1,011 |
) |
Proceeds from disposition of real estate |
|
|
65,682 |
|
|
|
138,167 |
|
|
|
|
|
|
|
|
Net cash flow provided by investing activities: |
|
|
45,250 |
|
|
|
15,082 |
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
(Repayments of) proceeds from revolving credit facilities, net |
|
|
(113,007 |
) |
|
|
135,952 |
|
Repayment of senior notes |
|
|
(389,924 |
) |
|
|
(456,918 |
) |
Proceeds from issuance of senior notes, net of underwriting commissions and offering expenses of $400 in 2010 |
|
|
296,785 |
|
|
|
|
|
Proceeds from mortgage and other secured debt |
|
|
4,327 |
|
|
|
319,389 |
|
Principal payments on mortgage debt |
|
|
(325,278 |
) |
|
|
(182,839 |
) |
Payment of debt issuance costs |
|
|
(2,309 |
) |
|
|
(2,783 |
) |
Proceeds from issuance of common shares, net of underwriting commissions and issuance costs of $1,400 and $524 in 2010 and 2009, respectively |
|
|
382,755 |
|
|
|
52,966 |
|
Proceeds (payment) from issuance of common shares in conjunction with the exercise of stock options and dividend reinvestment plan |
|
|
90 |
|
|
|
(1,046 |
) |
Contributions from non-controlling interests |
|
|
328 |
|
|
|
5,504 |
|
Return on investment non-controlling interests |
|
|
(2,001 |
) |
|
|
(850 |
) |
Distributions to non-controlling interest and redeemable operating partnership units |
|
|
(16 |
) |
|
|
(80 |
) |
Dividends paid |
|
|
(30,153 |
) |
|
|
(23,914 |
) |
|
|
|
|
|
|
|
Net cash flow used for financing activities |
|
|
(178,403 |
) |
|
|
(154,619 |
) |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents |
|
|
(5,172 |
) |
|
|
342 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(80 |
) |
|
|
(1,091 |
) |
Cash and cash equivalents, beginning of period |
|
|
26,172 |
|
|
|
29,494 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
20,920 |
|
|
$ |
28,745 |
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
At June 30, 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 six-month period
ended June 30, 2010.
At June 30, 2009, dividends payable were $37.7 million of which $3.1 million was paid in cash
in July 2009. The foregoing transaction did not provide for or require the use of cash for the
six-month period ended June 30, 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- and
six-month periods ended June 30, 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 reassessments 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 at June 30, 2010 is equal to its
investment in the Deconsolidated Entity of $12.4 million and certain future fees that may be earned
by the Company.
At June 30, 2010, the Companys joint venture with EDT Retail Trust (formerly Macquarie DDR
Trust, MDT), DDR MDT MV, owned the underlying real estate of 27 assets formerly occupied by
Mervyns which declared bankruptcy in 2008 and vacated all sites as of December 31, 2008 (Mervyns
Joint Venture). DDR provides management, financing, expansion, re-tenanting and oversight services
for this real estate investment. In connection with the recapitalization of MDT in June 2010, EDT
Retail Trust assumed MDTs 50% interest in the Mervyns Joint Venture. There were no changes to the
terms of the Mervyns Joint Venture. 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
Comprehensive loss is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(121,166 |
) |
|
$ |
(261,004 |
) |
|
$ |
(147,750 |
) |
|
$ |
(176,228 |
) |
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
interest-rate contracts |
|
|
4,102 |
|
|
|
(1,501 |
) |
|
|
7,570 |
|
|
|
3,222 |
|
Amortization of
interest-rate contracts |
|
|
(61 |
) |
|
|
(93 |
) |
|
|
(154 |
) |
|
|
(186 |
) |
Foreign currency translation |
|
|
(4,255 |
) |
|
|
19,103 |
|
|
|
(16,157 |
) |
|
|
23,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive
(loss) income |
|
|
(214 |
) |
|
|
17,509 |
|
|
|
(8,741 |
) |
|
|
26,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(121,380 |
) |
|
$ |
(243,495 |
) |
|
$ |
(156,491 |
) |
|
$ |
(149,755 |
) |
Comprehensive loss
attributable to
non-controlling interests |
|
|
37,495 |
|
|
|
31,833 |
|
|
|
41,304 |
|
|
|
35,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
attributable to DDR |
|
$ |
(83,885 |
) |
|
$ |
(211,662 |
) |
|
$ |
(115,187 |
) |
|
$ |
(113,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2. EQUITY INVESTMENTS IN JOINT VENTURES
At June 30, 2010 and December 31, 2009, the Company had ownership interests in various
unconsolidated joint ventures which owned 249 and 327 shopping center properties, respectively.
Condensed combined financial information of the Companys unconsolidated joint venture investments
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
Condensed Combined Balance Sheets |
|
|
|
|
|
|
|
|
Land |
|
$ |
1,616,270 |
|
|
$ |
1,782,431 |
|
Buildings |
|
|
4,846,362 |
|
|
|
5,207,234 |
|
Fixtures and tenant improvements |
|
|
147,186 |
|
|
|
146,716 |
|
|
|
|
|
|
|
|
|
|
|
6,609,818 |
|
|
|
7,136,381 |
|
Less: Accumulated depreciation |
|
|
(670,233 |
) |
|
|
(636,897 |
) |
|
|
|
|
|
|
|
|
|
|
5,939,585 |
|
|
|
6,499,484 |
|
Land held for development and construction in progress (A) |
|
|
173,793 |
|
|
|
130,410 |
|
|
|
|
|
|
|
|
Real estate, net |
|
|
6,113,378 |
|
|
|
6,629,894 |
|
Receivables, net |
|
|
124,504 |
|
|
|
113,630 |
|
Leasehold interests |
|
|
10,876 |
|
|
|
11,455 |
|
Other assets |
|
|
309,325 |
|
|
|
342,192 |
|
|
|
|
|
|
|
|
|
|
$ |
6,558,083 |
|
|
$ |
7,097,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt |
|
$ |
4,047,156 |
|
|
$ |
4,547,711 |
|
Notes and accrued interest payable to DDR |
|
|
82,522 |
|
|
|
73,477 |
|
Other liabilities |
|
|
202,523 |
|
|
|
194,065 |
|
|
|
|
|
|
|
|
|
|
|
4,332,201 |
|
|
|
4,815,253 |
|
Accumulated equity |
|
|
2,225,882 |
|
|
|
2,281,918 |
|
|
|
|
|
|
|
|
|
|
$ |
6,558,083 |
|
|
$ |
7,097,171 |
|
|
|
|
|
|
|
|
Companys share of accumulated equity |
|
$ |
474,398 |
|
|
$ |
473,738 |
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Deconsolidated Entity (Note 1), was combined with the unconsolidated investments as
of January 1, 2010. |
- 8 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Condensed Combined Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from operations |
|
$ |
170,347 |
|
|
$ |
201,206 |
|
|
$ |
340,440 |
|
|
$ |
413,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
71,124 |
|
|
|
76,104 |
|
|
|
137,237 |
|
|
|
157,672 |
|
Impairment charge |
|
|
10,922 |
|
|
|
|
|
|
|
10,922 |
|
|
|
|
|
Depreciation and amortization |
|
|
51,352 |
|
|
|
57,240 |
|
|
|
99,194 |
|
|
|
115,908 |
|
Interest expense |
|
|
60,838 |
|
|
|
77,348 |
|
|
|
120,488 |
|
|
|
141,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,236 |
|
|
|
210,692 |
|
|
|
367,841 |
|
|
|
414,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense, other (expense) income,
discontinued operations and gain (loss) on disposition of real
estate |
|
|
(23,889 |
) |
|
|
(9,486 |
) |
|
|
(27,401 |
) |
|
|
(1,445 |
) |
Income tax expense (primarily Sonae Sierra Brasil), net |
|
|
(5,035 |
) |
|
|
(2,562 |
) |
|
|
(9,833 |
) |
|
|
(4,552 |
) |
Other (expense) income, net |
|
|
|
|
|
|
(2,241 |
) |
|
|
|
|
|
|
9,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
|
(28,924 |
) |
|
|
(14,289 |
) |
|
|
(37,234 |
) |
|
|
3,440 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
674 |
|
|
|
(34,115 |
) |
|
|
885 |
|
|
|
(33,556 |
) |
Loss on disposition of real estate, net of tax (A) |
|
|
(3,212 |
) |
|
|
(6,048 |
) |
|
|
(11,963 |
) |
|
|
(6,077 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,538 |
) |
|
|
(40,163 |
) |
|
|
(11,078 |
) |
|
|
(39,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before gain (loss) on disposition of real estate, net |
|
|
(31,462 |
) |
|
|
(54,452 |
) |
|
|
(48,312 |
) |
|
|
(36,193 |
) |
Gain (loss) on disposition of real estate, net (B) |
|
|
17 |
|
|
|
|
|
|
|
17 |
|
|
|
(26,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(31,445 |
) |
|
$ |
(54,452 |
) |
|
$ |
(48,295 |
) |
|
$ |
(62,934 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Companys share of equity in net loss of joint ventures
(C) |
|
$ |
(1,824 |
) |
|
$ |
(11,876 |
) |
|
$ |
(164 |
) |
|
$ |
(11,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
For the six months ended June 30, 2010, loss on disposition of discontinued operations
includes the sale of 24 properties by three separate unconsolidated joint ventures, of
which 16 of those properties were sold during the first quarter of 2010. In the fourth
quarter of 2009, these joint ventures recorded impairment charges aggregating $170.9
million related to certain of these asset sales. The Companys proportionate share of the
loss on sales approximated $1.3 million for the six-months ended June 30, 2010. No loss
was recognized by the Company in the second quarter of 2010 as the investment basis of
these assets had been previously reduced. |
|
|
|
For the three- and six-month periods ended June 30, 2009, loss from discontinued operations
consisted of the sale of four properties by two separate unconsolidated joint ventures
resulting in a loss of $6.0 million of which the Companys proportionate share was $1.4
million. The results for the six-month period also included the sale of an additional
property by an unconsolidated joint venture resulting in a nominal loss. |
|
(B) |
|
In March 2009, a joint venture with Coventry transferred its interest in the Kansas
City, Missouri project (Ward Parkway) to the lender. The joint venture recorded a loss of
$26.7 million on the transfer, which is included in loss on disposition of real estate in
the condensed combined statements of operations for the six months ended June 30, 2009.
The Company recorded a $5.8 million loss in March 2009 related to the write-off of the book
value of its equity investment, which is included within equity in net income (loss) of
joint ventures in the condensed consolidated statements of operations. |
|
(C) |
|
The difference between the Companys share of net loss, 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 and other than temporary impairment
charges. Adjustments to the Companys share of joint venture net loss due to impairments,
additional basis depreciation and basis differences in assets sold are reflected as follows
for the three- and six-month periods ended (in millions): |
- 9 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
Six-Month Periods |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Income, net |
|
$ |
1.2 |
|
|
$ |
2.6 |
|
|
$ |
1.2 |
|
|
$ |
2.2 |
|
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):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Companys share of accumulated equity |
|
$ |
474.4 |
|
|
$ |
473.7 |
|
Basis differentials (A) |
|
|
(139.0 |
) |
|
|
(123.5 |
) |
Deferred development fees, net of portion
relating to the Companys interest |
|
|
(3.3 |
) |
|
|
(4.4 |
) |
Notes receivable from investments |
|
|
1.2 |
|
|
|
1.2 |
|
Amounts payable to DDR |
|
|
82.5 |
|
|
|
73.5 |
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures |
|
$ |
415.8 |
|
|
$ |
420.5 |
|
|
|
|
|
|
|
|
|
|
|
(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 assets. |
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 |
|
Six-Month Periods |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Management and other fees |
|
$ |
7.7 |
|
|
$ |
12.1 |
|
|
$ |
16.9 |
|
|
$ |
24.3 |
|
Financing and other fees |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.6 |
|
Development fees and leasing commissions |
|
|
2.0 |
|
|
|
1.7 |
|
|
|
3.7 |
|
|
|
3.7 |
|
Interest income |
|
|
0.1 |
|
|
|
2.0 |
|
|
|
0.2 |
|
|
|
3.9 |
|
- 10 -
3. OTHER ASSETS, NET
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
Intangible assets: |
|
|
|
|
|
|
|
|
In-place leases (including lease origination
costs and fair market value of leases), net |
|
$ |
11,387 |
|
|
$ |
15,556 |
|
Tenant relations, net |
|
|
10,169 |
|
|
|
11,318 |
|
|
|
|
|
|
|
|
Total intangible assets (A) |
|
|
21,556 |
|
|
|
26,874 |
|
Other assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net (B) |
|
|
135,761 |
|
|
|
146,809 |
|
Deferred charges, net |
|
|
30,221 |
|
|
|
33,162 |
|
Prepaids, deposits and other assets |
|
|
100,997 |
|
|
|
111,975 |
|
|
|
|
|
|
|
|
Total other assets, net |
|
$ |
288,535 |
|
|
$ |
318,820 |
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Company recorded amortization expense of $1.7 million for both of the three-month
periods ended June 30, 2010 and 2009, and $3.4 million and $3.6 million for the six-month
periods ended June 30, 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 $55.6 million and $54.9 million at
June 30, 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 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 has a maturity date
of June 2011. The Company exercised its one-year extension option to extend the term in June 2010.
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 June 30, 2010), as defined in the facility, or (ii) LIBOR, plus a specified
spread (0.75% at June 30, 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 Company
was in compliance with these covenants at June 30, 2010. 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 Unsecured Credit Facility also
provides for an annual facility fee of 0.175% on the entire facility. At June 30, 2010, total
borrowings under the Unsecured Credit Facility aggregated $615.3 million with a weighted average
interest rate of 1.9%.
- 11 -
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 2011. The Company exercised its
one-year extension option to extend the term in June 2010. 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 June
30, 2010), as defined in the facility, or (ii) LIBOR, plus a specified spread (1.0% at June 30,
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 June 30, 2010. At June 30, 2010, total borrowings under the PNC facility aggregated
$34.5 million with a weighted average interest rate of 1.3%.
5. SENIOR NOTES
During the three and six months ended June 30, 2010, the Company purchased approximately
$100.7 million and $256.6 million aggregate principal amount of its outstanding senior unsecured
notes, respectively, of which $66.4 million and $138.1 million related to the senior convertible
notes, respectively. The amount of the gain or loss recognized by the Company relating to the
purchases of the senior convertible notes is based on the difference between the amount of
consideration paid as compared to the carrying amount of the debt, net of the unamortized discount
and unamortized deferred financing fees. The Company recorded a write-off of $2.9 million and $5.9
million for the three- and six-month periods ended June 30, 2010, respectively, related to
unamortized deferred financing costs and accretion related to the senior unsecured notes
repurchased, which is included in (loss) gain on repurchase of senior notes in the condensed
consolidated statements of operations.
6. MORTGAGES PAYABLE
As disclosed in Note 1, the Company owns a 50% interest in the Mervyns Joint Venture, which is
consolidated by the Company. In June 2010, the Mervyns Joint Venture received a notice of default
from Midland Loan Services (Midland), the servicer for the non-recourse loan collateralizing all
of the remaining former Mervyns stores due to the non-payment of required monthly debt service.
The amount outstanding under this mortgage note payable was $179.8 million at June 30, 2010 and
matures in October 2010. At June 30, 2010, the joint venture had $21.0 million of restricted cash
that was applied to the outstanding mortgage balance in July 2010. The Mervyns Joint Venture and
Midland have agreed to jointly request that the court appoint a third-party receiver to manage and
liquidate the remaining former Mervyns stores.
7. FINANCIAL INSTRUMENTS
Measurement of Fair Value
At June 30, 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
- 12 -
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 June
30, 2010, measured at fair value on a recurring basis as of June 30, 2010, and indicates the fair
value hierarchy of the valuation techniques utilized by the Company to determine such fair value
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at |
|
|
June 30, 2010 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Derivative financial instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
7.8 |
|
|
$ |
7.8 |
|
Marketable securities |
|
$ |
3.0 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3.0 |
|
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 |
|
|
7.6 |
|
|
|
|
|
Balance of Level 3 at June 30, 2010 |
|
$ |
(7.8 |
) |
|
|
|
|
The unrealized gain of $7.6 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 remain outstanding at June 30, 2010, none of which were reported in the Companys
condensed consolidated statements of operations because they are documented and qualify as hedging
instruments.
- 13 -
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts Payable,
Accrued Expenses and Other Liabilities
The carrying amounts reported in the condensed consolidated balance sheets 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, excluding those that are fully
reserved, was approximately $62.1 million and $74.6 million at June 30, 2010 and December 31, 2009,
respectively, as compared to the carrying amounts of $63.2 million and $76.2 million, respectively.
The carrying value of the tax increment financing bonds which was $12.7 million and $14.2 million
at June 30, 2010 and December 31, 2009, respectively, approximated its fair value at June 30, 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.
Debt instruments at June 30, 2010 and December 31, 2009, with carrying values that are
different than estimated fair values, are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
Senior notes |
|
$ |
1,596,505 |
|
|
$ |
1,641,363 |
|
|
$ |
1,689,841 |
|
|
$ |
1,691,445 |
|
Revolving Credit Facilities and Term Debt |
|
|
1,449,844 |
|
|
|
1,428,412 |
|
|
|
1,575,028 |
|
|
|
1,544,481 |
|
Mortgage payables and other indebtedness |
|
|
1,591,702 |
|
|
|
1,588,735 |
|
|
|
1,913,794 |
|
|
|
1,875,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,638,051 |
|
|
$ |
4,658,510 |
|
|
$ |
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 duration of its debt funding and, from time to time, the use of derivative financial
instruments.
- 14 -
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 may use 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 |
|
|
|
|
Amount |
|
LIBOR Fixed |
|
|
(in millions) |
|
Rate |
|
Maturity Date |
$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 an increase to interest expense
(and a corresponding decrease to earnings) of approximately $5.4 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 forcasted 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 six-month periods ended June 30, 2010 and June 30, 2009, the
amount of hedge ineffectiveness recorded was not material.
- 15 -
The table below presents the fair value of the Companys Swaps as well as their classification
on the condensed consolidated balance sheets as of June 30, 2010 and December 31, 2009, as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
June 30, 2010 |
|
December 31, 2009 |
Derivatives Designated as |
|
Balance Sheet |
|
Fair |
|
Balance Sheet |
|
|
Hedging Instruments |
|
Location |
|
Value |
|
Location |
|
Fair Value |
Interest rate products |
|
Other liabilities |
|
$ |
7.8 |
|
|
Other liabilities |
|
$ |
15.4 |
|
The effect of the Companys derivative instruments on net loss is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
|
|
|
Amount of Gain (Loss) Recognized |
|
Reclassified |
|
Amount of Gain Reclassified from |
|
|
in OCI on Derivatives (Effective |
|
from |
|
Accumulated OCI into Loss |
|
|
Portion) |
|
Accumulated |
|
(Effective Portion) |
Derivatives |
|
Three-Month |
|
Six-Month |
|
OCI into |
|
Three-Month |
|
Six-Month |
in Cash |
|
Periods Ended |
|
Periods Ended |
|
Loss |
|
Periods Ended |
|
Periods Ended |
Flow |
|
June 30 |
|
June 30 |
|
(Effective |
|
June 30 |
|
June 30 |
Hedging |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Portion) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Interest rate
products |
|
$ |
4.1 |
|
|
$ |
(4.3 |
) |
|
$ |
7.6 |
|
|
$ |
0.2 |
|
|
Interest expense |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
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 The Company has
not, and does not plan to, enter into any derivative financial instruments for trading or
speculative purposes.
Credit-Risk-Related Contingent Features
The Company has agreements with each of its swap 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 Swaps resulting in an acceleration of payment.
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 of its 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.
- 16 -
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 |
|
|
Six-Month Periods |
|
Derivatives in Net Investment Hedging |
|
Ended June 30 |
|
|
Ended June 30 |
|
Relationships |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Euro denominated
revolving credit
facilities
designated as hedge
of the Companys
net investment in
its subsidiary |
|
$ |
6.7 |
|
|
$ |
(5.3 |
) |
|
$ |
12.4 |
|
|
$ |
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian
denominated
revolving credit
facilities
designated as hedge
of the Companys
net investment in
its subsidiaries |
|
$ |
3.1 |
|
|
$ |
(7.8 |
) |
|
$ |
(0.2 |
) |
|
$ |
(5.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See discussion of equity derivative instruments in Note 9.
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company 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., which funds are advised and managed by, Coventry Real
Estate Advisors 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 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. In June 2010, the court granted
in part and denied in part the Companys motion. Coventry has filed a notice of appeal regarding
that portion of the motion granted by the court.
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
- 17 -
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 against Coventry 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
in September 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 appealed the verdict. In July 2010, the Court of Appeals entered an order affirming the
jury verdict. The Company is currently reviewing its options with regard to any further
opportunities to appeal the verdict. Included in other liabilities on the condensed consolidated
balance sheet at June 30, 2010 is a provision of $11.1 million that represents the full amount of
the verdict, plaintiffs attorneys fees and accrued interest. An additional charge of
approximately $2.7 million, net of tax, was recorded in the second quarter of 2010 relating to this
matter.
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.
- 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 |
|
|
|
|
|
|
11 |
|
|
|
517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
666 |
|
Issuance of common shares for cash offering |
|
|
|
|
|
|
4,773 |
|
|
|
376,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074 |
|
|
|
|
|
|
|
382,754 |
|
Contributions from non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328 |
|
|
|
328 |
|
Issuance of restricted stock |
|
|
|
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
496 |
|
|
|
|
|
|
|
(822 |
) |
|
|
|
|
|
|
(272 |
) |
Vesting of restricted stock |
|
|
|
|
|
|
|
|
|
|
3,029 |
|
|
|
|
|
|
|
(5,460 |
) |
|
|
|
|
|
|
3,599 |
|
|
|
|
|
|
|
1,168 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
1,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,237 |
|
Dividends declared-common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,004 |
) |
Dividends declared-preferred shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,134 |
) |
Distributions to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,016 |
) |
|
|
(2,016 |
) |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,928 |
) |
|
|
(147,750 |
) |
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,570 |
|
|
|
|
|
|
|
|
|
|
|
7,570 |
|
Amortization of interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
(154 |
) |
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,781 |
) |
|
|
|
|
|
|
(4,376 |
) |
|
|
(16,157 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110,822 |
) |
|
|
|
|
|
|
(4,365 |
) |
|
|
|
|
|
|
(41,304 |
) |
|
|
(156,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010 |
|
$ |
555,000 |
|
|
$ |
25,012 |
|
|
$ |
3,756,218 |
|
|
$ |
(1,248,469 |
) |
|
$ |
12,874 |
|
|
$ |
5,184 |
|
|
$ |
(11,877 |
) |
|
$ |
34,398 |
|
|
$ |
3,128,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 common
shares and 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 Company issued 32.9 million common shares to the Otto
Family in two closings, May and September 2009. The purchase price for the common shares was
subject to a downward adjustment if the weighted average purchase price of all additional common
shares sold, as defined, from February 23, 2009 until the applicable closing date was less than
$2.94 per share. 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 June 30, 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 |
|
|
June 30, 2010 |
|
December 31, 2009 |
Derivatives not Designated as |
|
Balance Sheet |
|
Fair |
|
Balance Sheet |
|
|
Hedging Instruments |
|
Location |
|
Value |
|
Location |
|
Fair Value |
Warrants |
|
Other liabilities |
|
$ |
59.4 |
|
|
Other liabilities |
|
$ |
56.1 |
|
The effect of the Companys equity derivative instruments on net loss is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
Six-Month Periods |
|
|
|
|
|
|
Ended June 30, |
|
Ended June 30, |
Derivatives not Designated |
|
Income Statement |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
as Hedging Instruments |
|
Location |
|
Gain (Loss) |
|
Gain (Loss) |
Warrants |
|
Gain (loss) on equity derivative instruments |
|
$ |
21.5 |
|
|
$ |
(10.3 |
) |
|
$ |
(3.3 |
) |
|
$ |
(10.3 |
) |
Equity forward issued shares |
|
Loss on equity derivative instruments |
|
|
|
|
|
|
(69.7 |
) |
|
|
|
|
|
|
(69.7 |
) |
The above gain or loss for the warrant contracts was derived principally from changes in
the Companys stock price from the date of issuance. The above loss for the equity forward was a
result of the increase in the stock price through the date of issuance of the shares or June 30,
2009.
- 20 -
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 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 |
|
|
June 30, 2010 (in millions) |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Warrants |
|
$ |
|
|
|
$ |
|
|
|
$ |
59.4 |
|
|
$ |
59.4 |
|
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 |
|
|
(3.3 |
) |
|
|
|
|
Balance of Level 3 at June 30, 2010 |
|
$ |
(59.4 |
) |
|
|
|
|
Dividends
Common share dividends declared were $0.02 and $0.04 per share for the three- and six-month
periods ended June 30, 2010, which were paid in cash. The Company declared a common share dividend
in both the first and second quarter of 2009 of $0.20 per share that was paid in a combination of
cash and the Companys common shares. The aggregate amount of cash paid to shareholders was
limited to 10% of the total dividend paid. In connection with the first and second quarter of 2009
dividends, the Company issued approximately 8.3 million and 6.1 million common shares,
respectively, based on the volume weighted average trading price of $2.80 and $4.49 per share,
respectively, and paid $2.6 million and $3.1 million, respectively, in cash.
- 21 -
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 $5.5 million.
10. OTHER REVENUES
Other revenues were comprised of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Lease termination fees |
|
$ |
3.0 |
|
|
$ |
1.1 |
|
|
$ |
3.6 |
|
|
$ |
2.6 |
|
Financing fees |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.6 |
|
Other miscellaneous |
|
|
1.3 |
|
|
|
0.3 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4.5 |
|
|
$ |
1.7 |
|
|
$ |
5.8 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. IMPAIRMENT CHARGES
The Company recorded impairment charges during the three- and six-month periods ended June 30,
2010 and 2009, on the following consolidated assets and investments (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Assets formerly occupied by Mervyns (a) |
|
$ |
32.2 |
|
|
$ |
43.3 |
|
|
$ |
32.2 |
|
|
$ |
43.3 |
|
Land held for development (b) |
|
|
54.3 |
|
|
|
|
|
|
|
54.3 |
|
|
|
|
|
Undeveloped land (c) |
|
|
4.9 |
|
|
|
0.4 |
|
|
|
4.9 |
|
|
|
0.4 |
|
Assets marketed for sale (c) |
|
|
38.3 |
|
|
|
4.5 |
|
|
|
40.4 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments from continuing operations |
|
$ |
129.7 |
|
|
$ |
48.2 |
|
|
$ |
131.8 |
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold assets included in discontinued operations |
|
|
3.2 |
|
|
|
83.9 |
|
|
|
4.2 |
|
|
|
87.5 |
|
Joint venture investments |
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges |
|
$ |
132.9 |
|
|
$ |
172.5 |
|
|
$ |
136.0 |
|
|
$ |
183.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Companys proportionate share of these impairments was $16.5 million after
adjusting for the allocation of loss to the non-controlling interest in this
consolidated joint venture and including those assets classified as discontinued
operations, for the three- and six-month periods ended June 30, 2010. The 2010
impairment charges were triggered in the three months ended June 30, 2010 primarily due
to a change in the Companys business plans for these assets and the resulting impact
on its holding period assumptions for this substantially vacant portfolio. During the
second quarter of 2010, the Company determined it was no longer committed to the
long-term management and investment of these assets. See discussion of the default
status of the joint ventures mortgage note payable in Note 6.
|
- 22 -
|
|
|
|
|
The Companys proportionate share of these impairments was $29.7 million after
adjusting for the allocation of loss to the non-controlling interest in this
consolidated joint venture and including those assets classified as discontinued
operations, for the three- and six-month periods ended June 30, 2009. The 2009
impairment charges were triggered primarily due to the Companys marketing of certain
assets for sale combined with the then overall economic downturn in the retail real
estate environment. A full write down of this portfolio was not recorded in 2009 due
to the Companys then holding period assumptions and future investment plans for these
assets. |
|
(b) |
|
Amounts reported in the second quarter of 2010 relate to land held for
development in Togliatti and Yaroslavl, Russia, of which the Companys proportionate
share was $41.9 million after adjusting for the allocation of loss to the
non-controlling interest in this consolidated joint venture. The asset impairments
were triggered primarily due to a change in the Companys investment plans for these
projects. Both investments relate to large-scale development projects in Russia.
During the second quarter of 2010, the Company determined that it is no longer
committed to invest the necessary amount of capital to complete the projects without
alternative sources of capital from third-party investors or lending institutions. |
|
(c) |
|
The impairment charges were triggered primarily due to the Companys marketing
of these assets for sale during the six months ended June 30, 2010. These assets were
not classified as held for sale as of June 30, 2010, due to outstanding substantive
contingencies associated with the respective contracts. |
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 six months ended June 30, 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 June 30, 2010 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Total Losses |
Long-lived assets -
held and used and
held for sale |
|
$ |
|
|
|
$ |
|
|
|
$ |
217.0 |
|
|
$ |
217.0 |
|
|
$ |
136.0 |
|
12. DISCONTINUED OPERATIONS
All revenues and expenses of discontinued operations sold have been reclassified in the
condensed consolidated statements of operations for the three- and six-month periods ended June 30,
2010 and 2009. The Company has one asset considered held for sale at June 30, 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- and six-month periods ended June 30, 2010 and 2009, are 12 properties sold in 2010
(including one held for sale at December 31, 2009) and one property held for sale at June 30, 2010
aggregating 1.5 million square feet, and 32 properties sold in 2009 aggregating 3.8 million square
feet, respectively. The balance sheet relating to the asset held for sale and the operating
results relating to assets sold or designated as held for sale as of June 30, 2010, are as follows
(in thousands):
- 23 -
|
|
|
|
|
|
|
June 30, 2010 |
|
Building |
|
$ |
4,623 |
|
Less: Accumulated depreciation |
|
|
(1,623 |
) |
|
|
|
|
Total assets held for sale |
|
$ |
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenues from operations |
|
$ |
459 |
|
|
$ |
11,180 |
|
|
$ |
1,655 |
|
|
$ |
24,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
426 |
|
|
|
4,449 |
|
|
|
1,244 |
|
|
|
8,946 |
|
Impairment charges |
|
|
3,160 |
|
|
|
83,859 |
|
|
|
4,182 |
|
|
|
87,459 |
|
Interest, net |
|
|
504 |
|
|
|
3,636 |
|
|
|
1,213 |
|
|
|
7,490 |
|
Depreciation and amortization of real
estate investments |
|
|
204 |
|
|
|
3,303 |
|
|
|
582 |
|
|
|
7,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
4,294 |
|
|
|
95,247 |
|
|
|
7,221 |
|
|
|
111,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before disposition of real estate |
|
|
(3,835 |
) |
|
|
(84,067 |
) |
|
|
(5,566 |
) |
|
|
(87,002 |
) |
Loss on disposition of real estate,
net |
|
|
(4,057 |
) |
|
|
(36,023 |
) |
|
|
(3,491 |
) |
|
|
(24,416 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,892 |
) |
|
$ |
(120,090 |
) |
|
$ |
(9,057 |
) |
|
$ |
(111,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
13. TRANSACTIONS WITH RELATED PARTIES
In May 2010, the Company repaid a $60 million collateralized loan, at par, with an affiliate
of the Otto Family, which was included in mortgage and other secured indebtedness on the condensed
consolidated balance sheet at December 31, 2009.
14. 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 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):
- 24 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Basic and Diluted Earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(113,866 |
) |
|
$ |
(141,562 |
) |
|
$ |
(138,610 |
) |
|
$ |
(65,906 |
) |
Plus: Gain (loss) on disposition of real estate |
|
|
592 |
|
|
|
648 |
|
|
|
(83 |
) |
|
|
1,096 |
|
Plus: Loss attributable to non-controlling
interests |
|
|
31,843 |
|
|
|
25,173 |
|
|
|
34,069 |
|
|
|
27,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
DDR |
|
|
(81,431 |
) |
|
|
(115,741 |
) |
|
|
(104,624 |
) |
|
|
(37,232 |
) |
Less: Preferred share dividends |
|
|
(10,567 |
) |
|
|
(10,567 |
) |
|
|
(21,134 |
) |
|
|
(21,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss from continuing
operations attributable to DDR common
shareholders |
|
|
(91,998 |
) |
|
|
(126,308 |
) |
|
|
(125,758 |
) |
|
|
(58,366 |
) |
Less: Earnings attributable to unvested shares
and operating partnership units |
|
|
(31 |
) |
|
|
(73 |
) |
|
|
(62 |
) |
|
|
(146 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss from continuing
operations |
|
$ |
(92,029 |
) |
|
|
(126,381 |
) |
|
$ |
(125,820 |
) |
|
|
(58,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(7,892 |
) |
|
|
(120,090 |
) |
|
|
(9,057 |
) |
|
|
(111,418 |
) |
Plus: Loss attributable to non-controlling
interests |
|
|
2,748 |
|
|
|
9,246 |
|
|
|
2,859 |
|
|
|
9,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss from discontinued
operations |
|
|
(5,144 |
) |
|
|
(110,844 |
) |
|
|
(6,198 |
) |
|
|
(101,952 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to DDR common
shareholders after allocation to participating
securities |
|
|
(97,173 |
) |
|
|
(237,225 |
) |
|
|
(132,018 |
) |
|
|
(160,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Average shares outstanding |
|
|
248,533 |
|
|
|
144,227 |
|
|
|
237,892 |
|
|
|
136,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
DDR common shareholders |
|
$ |
(0.37 |
) |
|
$ |
(0.88 |
) |
|
$ |
(0.53 |
) |
|
$ |
(0.43 |
) |
Loss from discontinued operations attributable
to DDR common shareholders |
|
|
(0.02 |
) |
|
|
(0.76 |
) |
|
|
(0.02 |
) |
|
|
(0.75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to DDR common shareholders |
|
$ |
(0.39 |
) |
|
$ |
(1.64 |
) |
|
$ |
(0.55 |
) |
|
$ |
(1.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to
DDR common shareholders |
|
$ |
(0.37 |
) |
|
$ |
(0.88 |
) |
|
$ |
(0.53 |
) |
|
$ |
(0.43 |
) |
Loss from discontinued operations attributable
to DDR common shareholders |
|
|
(0.02 |
) |
|
|
(0.76 |
) |
|
|
(0.02 |
) |
|
|
(0.75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to DDR common shareholders |
|
$ |
(0.39 |
) |
|
$ |
(1.64 |
) |
|
$ |
(0.55 |
) |
|
$ |
(1.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following potentially dilutive securities are considered in the calculation of EPS as
described below:
|
|
|
Options to purchase 3.4 million and 3.5 million common shares were outstanding at June
30, 2010 and 2009, respectively, all of which were anti-dilutive in the calculations at
June 30, 2010 and 2009. Accordingly, the anti-dilutive options were excluded from the
computations. |
- 25 -
|
|
|
Shares subject to issuance under the Companys value sharing equity program are not
considered in the computation of diluted EPS for the three- and six-month periods ended
June 30, 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 June
30, 2009. |
|
|
|
|
The Company has excluded from its basic and diluted EPS for the three- and six-month
periods ended June 30, 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. |
|
|
|
|
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
June 30, 2010 and 2009, respectively, were not included in the computation of diluted EPS
for the three- and six-month periods ended June 30, 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. |
15. 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 segments and meets the majority of the aggregation criteria under the applicable
accounting standard.
The following table summarizes the Companys combined shopping and business center portfolios
as of each balance sheet date:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
2010 |
|
2009 |
Shopping centers owned |
|
|
581 |
|
|
|
682 |
|
Unconsolidated joint ventures |
|
|
249 |
|
|
|
324 |
|
Consolidated joint ventures |
|
|
29 |
|
|
|
35 |
|
States(A) |
|
|
43 |
|
|
|
45 |
|
Business centers |
|
|
6 |
|
|
|
6 |
|
States |
|
|
4 |
|
|
|
4 |
|
|
|
|
(A) |
|
In addition to Puerto Rico and Brazil. |
- 26 -
The tables below present information about the Companys reportable segments (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2010 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
1,205 |
|
|
$ |
200,811 |
|
|
|
|
|
|
$ |
202,016 |
|
Operating expenses |
|
|
(496 |
) |
|
|
(192,945 |
) (A) |
|
|
|
|
|
|
(193,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
709 |
|
|
|
7,866 |
|
|
|
|
|
|
|
8,575 |
|
Unallocated expenses (B) |
|
|
|
|
|
|
|
|
|
$ |
(121,818 |
) |
|
|
(121,818 |
) |
Equity in net loss of joint ventures |
|
|
|
|
|
|
(623 |
) |
|
|
|
|
|
|
(623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(113,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended June 30, 2009 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
1,285 |
|
|
$ |
196,191 |
|
|
|
|
|
|
$ |
197,476 |
|
Operating expenses |
|
|
(894 |
) |
|
|
(107,146 |
) (A) |
|
|
|
|
|
|
(108,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
391 |
|
|
|
89,045 |
|
|
|
|
|
|
|
89,436 |
|
Unallocated expenses (B) |
|
|
|
|
|
|
|
|
|
$ |
(181,474 |
) |
|
|
(181,474 |
) |
Equity in net loss of joint ventures |
|
|
|
|
|
|
(49,524 |
) |
|
|
|
|
|
|
(49,524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(141,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2010 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
2,653 |
|
|
$ |
405,525 |
|
|
|
|
|
|
$ |
408,178 |
|
Operating expenses |
|
|
(1,264 |
) |
|
|
(258,834 |
) (A) |
|
|
|
|
|
|
(260,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
1,389 |
|
|
|
146,691 |
|
|
|
|
|
|
|
148,080 |
|
Unallocated expenses (B) |
|
|
|
|
|
|
|
|
|
$ |
(287,713 |
) |
|
|
(287,713 |
) |
Equity in net income of joint ventures |
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
1,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(138,610 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets |
|
$ |
49,909 |
|
|
$ |
8,583,757 |
|
|
|
|
|
|
$ |
8,633,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 27 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period Ended June 30, 2009 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
2,808 |
|
|
$ |
401,718 |
|
|
|
|
|
|
$ |
404,526 |
|
Operating expenses |
|
|
(1,433 |
) |
|
|
(175,051 |
) (A) |
|
|
|
|
|
|
(176,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
1,375 |
|
|
|
226,667 |
|
|
|
|
|
|
|
228,042 |
|
Unallocated expenses (B) |
|
|
|
|
|
|
|
|
|
$ |
(244,776 |
) |
|
|
(244,776 |
) |
Equity in net loss of joint ventures |
|
|
|
|
|
|
(49,172 |
) |
|
|
|
|
|
|
(49,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(65,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets |
|
$ |
49,485 |
|
|
$ |
8,817,660 |
|
|
|
|
|
|
$ |
8,867,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Includes impairment charges of $129.7 million and $48.2 million for the
three-month periods ended June 30, 2010 and 2009, respectively, and $131.8 million and
$55.6 million for the six-month periods ended June 30, 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. |
16. SUBSEQUENT EVENTS
In August 2010, the Company repaid $149.1 million of unsecured fixed-rate notes from
borrowings on the Companys Unsecured Credit Facility.
- 28 -
|
|
|
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; |
- 29 -
|
|
|
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; |
- 30 -
|
|
|
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; |
|
|
|
|
Changes in applicable laws and regulations in the United States that affect
foreign operations; |
- 31 -
|
|
|
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 June 30, 2010, the Companys portfolio
consisted of 581 shopping centers and six business centers (including 249 shopping centers owned
through unconsolidated joint ventures and 29 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 June 30, 2010, the Company owned and/or managed approximately
120.3 million total square feet of Gross Leasable Area (GLA), which includes all of the
aforementioned properties and 39 properties owned by a third party. The Company owns land in
Canada and Russia at which development was deferred. At June 30, 2010, the aggregate occupancy of
the Companys shopping center portfolio was 86.6%, as compared to 87.4% at June 30, 2009.
Excluding the impact of the Mervyns vacancy, the aggregate occupancy of the Companys shopping
center portfolio was 88.1% at June 30, 2010. The Company owned 682 shopping centers and six
business centers at June 30, 2009. The average annualized base rent per occupied square foot was
$12.96 at June 30, 2010, as compared to $12.52 at June 30 2009.
Net loss applicable to DDR common shareholders for the three-month period ended June 30, 2010
was $97.1 million, or $0.39 per share (diluted and basic), compared to net loss applicable to DDR
common shareholders of $237.2 million, or $1.64 per share (diluted and basic), for the prior-year
comparable period. Net loss applicable to DDR common shareholders for the six-month period ended
June 30, 2010 was $132.0 million, or $0.55 per share (diluted and basic), compared to net loss
applicable to DDR common shareholders of $160.3 million, or $1.18 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 June 30, 2010 was a loss of $32.8 million compared to
a loss of $166.5 million for the three-month period ended June 30, 2009. FFO applicable to DDR
common shareholders for the six-month period ended June 30, 2010 was a loss of $4.4 million
compared to a loss of $26.5 million for the six-month period ended June 30, 2009. The decrease in
the
- 32 -
FFO loss is primarily the result of a decrease in impairment-related charges and the equity
derivative adjustment associated with the Otto investment in 2010.
Second quarter 2010 operating results
The Company reduced consolidated outstanding indebtedness by nearly $92.9 million to $4.6
billion at June 30, 2010 through the use of the proceeds from asset sales and with a continued
focus on improving the Companys balance sheet to achieve its deleveraging goals. This quarter,
the Company and its joint ventures generated $84.4 million of proceeds from the sale of non-Prime
assets (Prime assets are considered those assets that the Company intends to hold for a long term
and not offer for sale to a third party), as the Company continues to focus on pruning the
portfolio of underperforming assets and enhancing the overall quality of its Prime portfolio.
These assets included a dark Kmart, former Mervyns and Service Merchandise boxes and various small
strips and outlots.
The second quarters deleveraging initiatives included purchasing $100.7 million aggregate
principal amount of the Companys 2010, 2011 and 2012 unsecured notes on the open market at a cash
discount to par of approximately $1.8 million. In addition, the Company continues to increase the
size of its unencumbered asset pool by repaying mortgages at eight wholly-owned shopping centers.
These assets can now benefit the Companys unsecured lenders. The Company expects to continue the
de-leveraging process in the remainder of 2010 and into 2011.
This quarter, the Company exercised its option to extend the term of both of the Companys
Revolving Credit Facilities by one-year. The outstanding balance on the Revolving Credit
Facilities at June 30, 2010 is less than half of the aggregate commitment, which supports the
Companys strategy to refinance these revolvers to smaller commitments than what is currently in
place. Ongoing asset sales, increasing operating margins and the conservative dividend policy is
expected to continue to lower the outstanding balances on the Revolving Credit Facilities. A
smaller revolver should provide sufficient access to liquidity without requiring the Company to
incur fees on excess capacity that it does not intend to utilize. The smaller capacity is also
consistent with the Companys intention to implement a longer-term financing strategy and shift
away from a reliance on short-term debt.
The number of tenant leases executed for the combined portfolio, including both new leases and
renewals, remained strong during the second quarter. The Company is pleased with the level of
activity and encouraged from both future occupancy and deal economics perspectives. Leasing in the
junior anchor space has remained strong and can be attributed in part to retailers continued focus
on achieving sales and profit growth through new-store openings. In addition, the lack of new
supply is forcing retailers to reconsider quality locations in well positioned existing shopping
centers. Retailers are continuing to show flexibility with their prototypes and have also
introduced new concepts in an effort to grow revenue.
While the Companys view on the underlying risks inherent in the capital markets has not
changed materially and its strategy remains firmly in place, the Company continues its focus on
property level fundamentals which were consistent with expectations in the second quarter of 2010.
The Company is astutely aware of the fragile state, volatility and unevenness of the current
economic recovery. However, the Company believes that over the long-term, the Companys
disciplined
- 33 -
strategy should prove to be prudent and allow for the Company to be prepared for any future
challenges and opportunities the economic environment may present.
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 June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Base and percentage rental revenues |
|
$ |
136,469 |
|
|
$ |
133,315 |
|
|
$ |
3,154 |
|
|
|
2.4 |
% |
Recoveries from tenants |
|
|
42,926 |
|
|
|
43,503 |
|
|
|
(577 |
) |
|
|
(1.3 |
) |
Ancillary and other property income |
|
|
4,936 |
|
|
|
4,881 |
|
|
|
55 |
|
|
|
1.1 |
|
Management fees, development fees
and other fee income |
|
|
13,145 |
|
|
|
14,040 |
|
|
|
(895 |
) |
|
|
(6.4 |
) |
Other |
|
|
4,540 |
|
|
|
1,737 |
|
|
|
2,803 |
|
|
|
161.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
202,016 |
|
|
$ |
197,476 |
|
|
$ |
4,540 |
|
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods |
|
|
|
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Base and percentage rental revenues (A) |
|
$ |
275,078 |
|
|
$ |
271,400 |
|
|
$ |
3,678 |
|
|
|
1.4 |
% |
Recoveries from tenants (B) |
|
|
90,232 |
|
|
|
89,843 |
|
|
|
389 |
|
|
|
0.4 |
|
Ancillary and other property income (C) |
|
|
9,898 |
|
|
|
9,797 |
|
|
|
101 |
|
|
|
1.0 |
|
Management fees, development fees and other fee
income (D) |
|
|
27,161 |
|
|
|
28,502 |
|
|
|
(1,341 |
) |
|
|
(4.7 |
) |
Other (E) |
|
|
5,809 |
|
|
|
4,984 |
|
|
|
825 |
|
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
408,178 |
|
|
$ |
404,526 |
|
|
$ |
3,652 |
|
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The increase was due to the following (in millions): |
|
|
|
|
|
|
|
Increase |
|
Core Portfolio Properties |
|
$ |
(3.1 |
) |
Acquisition of real estate assets |
|
|
5.3 |
|
Development/redevelopment of shopping center properties |
|
|
1.5 |
|
|
|
|
|
|
|
$ |
3.7 |
|
|
|
|
|
|
|
|
|
|
The decrease in Core Portfolio Properties is primarily attributable to the major tenant
bankruptcies that occurred in the first quarter of 2009. These bankruptcies have also driven
the current lower occupancy level as compared to the Companys historical levels. The
Company acquired three assets in the fourth quarter of 2009 contributing to the $5.3 million
increase. |
|
|
|
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: |
- 34 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shopping Center |
|
Business Center |
|
|
Portfolio |
|
Portfolio |
|
|
June 30, |
|
June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Centers owned |
|
|
581 |
|
|
|
682 |
|
|
|
6 |
|
|
|
6 |
|
Aggregate occupancy rate |
|
|
86.6 |
% |
|
|
87.4 |
% |
|
|
72.3 |
% |
|
|
71.6 |
% |
Average annualized base
rent per occupied
square foot |
|
$ |
12.96 |
|
|
$ |
12.52 |
|
|
$ |
12.10 |
|
|
$ |
12.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-Owned |
|
Joint Venture |
|
|
Shopping Centers |
|
Shopping Centers |
|
|
June 30, |
|
June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Centers owned |
|
|
303 |
|
|
|
323 |
|
|
|
249 |
|
|
|
324 |
|
Consolidated centers
primarily owned through
a joint venture
previously occupied by
Mervyns |
|
|
n/a |
|
|
|
n/a |
|
|
|
29 |
|
|
|
35 |
|
Aggregate occupancy rate |
|
|
88.5 |
% |
|
|
90.0 |
% |
|
|
84.6 |
% |
|
|
85.2 |
% |
Average annualized base
rent per occupied
square foot |
|
$ |
11.91 |
|
|
$ |
11.74 |
|
|
$ |
14.24 |
|
|
$ |
13.22 |
|
|
|
|
(B) |
|
Recoveries were approximately 70.3% and 74.3% of operating expenses and real estate
taxes including the impact of bad debt expense recognized for the six months ended June 30,
2010 and 2009, respectively. The decrease in the recovery percentage from tenants was
primarily a result of an overall increase in bad debt expense. Bad debt expense was
approximately 1.8% of total revenues in 2010 as compared to 1.4% in 2009. |
|
(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): |
|
|
|
|
|
|
|
(Decrease) |
|
|
|
Increase |
|
Development fee income |
|
$ |
(0.1 |
) |
Leasing commissions |
|
|
1.3 |
|
Decrease in management fee income primarily related to asset sales |
|
|
(1.6 |
) |
Property and asset management fee income at various
unconsolidated joint ventures |
|
|
(0.9 |
) |
|
|
|
|
|
|
$ |
(1.3 |
) |
|
|
|
|
- 35 -
|
|
|
(E) |
|
Composed of the following (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Lease terminations |
|
$ |
3.0 |
|
|
$ |
1.1 |
|
|
$ |
3.6 |
|
|
$ |
2.6 |
|
Financing fees |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
0.6 |
|
Other miscellaneous |
|
|
1.3 |
|
|
|
0.3 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4.5 |
|
|
$ |
1.7 |
|
|
$ |
5.8 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Operating and maintenance |
|
$ |
37,197 |
|
|
$ |
33,626 |
|
|
$ |
3,571 |
|
|
|
10.6 |
% |
Real estate taxes |
|
|
26,517 |
|
|
|
26,168 |
|
|
|
349 |
|
|
|
1.3 |
|
Impairment charges |
|
|
129,727 |
|
|
|
48,246 |
|
|
|
81,481 |
|
|
|
168.9 |
|
General and administrative |
|
|
19,090 |
|
|
|
28,412 |
|
|
|
(9,322 |
) |
|
|
(32.8 |
) |
Depreciation and amortization |
|
|
56,738 |
|
|
|
56,836 |
|
|
|
(98 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
269,269 |
|
|
$ |
193,288 |
|
|
$ |
75,981 |
|
|
|
39.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods |
|
|
|
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Operating and maintenance (A) |
|
$ |
73,144 |
|
|
$ |
67,773 |
|
|
$ |
5,371 |
|
|
|
7.9 |
% |
Real estate taxes (A) |
|
|
55,177 |
|
|
|
53,160 |
|
|
|
2,017 |
|
|
|
3.8 |
|
Impairment charges (B) |
|
|
131,777 |
|
|
|
55,551 |
|
|
|
76,226 |
|
|
|
137.2 |
|
General and administrative (C) |
|
|
42,366 |
|
|
|
47,583 |
|
|
|
(5,217 |
) |
|
|
(11.0 |
) |
Depreciation and amortization
(A) |
|
|
113,531 |
|
|
|
116,076 |
|
|
|
(2,545 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
415,995 |
|
|
$ |
340,143 |
|
|
$ |
75,852 |
|
|
|
22.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The changes for the six months ended June 30, 2010 compared to 2009, are due to the
following (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
|
|
and |
|
|
Real Estate |
|
|
|
|
|
|
Maintenance |
|
|
Taxes |
|
|
Depreciation |
|
Core Portfolio Properties |
|
$ |
1.6 |
|
|
$ |
0.1 |
(1) |
|
$ |
(3.7 |
) (2) |
Acquisitions of real estate assets |
|
|
0.7 |
|
|
|
1.1 |
|
|
|
1.2 |
|
Development/redevelopment of shopping
center properties |
|
|
1.2 |
|
|
|
0.8 |
|
|
|
(1.0 |
) (2) |
Business Center Properties |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
Provision for bad debt expense |
|
|
1.8 |
(3) |
|
|
|
|
|
|
|
|
Personal property |
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5.4 |
|
|
$ |
2.0 |
|
|
$ |
(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 and write offs in
2009 as a result of major tenant bankruptcies partially offset by additional
assets placed in service in 2010. |
- 36 -
|
|
|
(3) |
|
The increase in bad debt expense as compared to the prior year
relates to an increase in reserves associated with local tenants in litigation
and bankruptcy. |
|
(B) |
|
The Company recorded impairment charges during the three- and six-month periods ended
June 30, 2010 and 2009, on the following consolidated assets and investments (in
millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Assets formerly occupied by Mervyns
(1) |
|
$ |
32.2 |
|
|
$ |
43.3 |
|
|
$ |
32.2 |
|
|
$ |
43.3 |
|
Land held for development (2) |
|
|
54.3 |
|
|
|
|
|
|
|
54.3 |
|
|
|
|
|
Undeveloped land (3) |
|
|
4.9 |
|
|
|
0.4 |
|
|
|
4.9 |
|
|
|
0.4 |
|
Assets marketed for sale (3) |
|
|
38.3 |
|
|
|
4.5 |
|
|
|
40.4 |
|
|
|
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments from continuing operations |
|
$ |
129.7 |
|
|
$ |
48.2 |
|
|
$ |
131.8 |
|
|
$ |
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold assets included in discontinued
operations |
|
|
3.2 |
|
|
|
83.9 |
|
|
|
4.2 |
|
|
|
87.5 |
|
Joint venture investments |
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
40.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impairment charges |
|
$ |
132.9 |
|
|
$ |
172.5 |
|
|
$ |
136.0 |
|
|
$ |
183.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys proportionate share of these impairments was $16.5 million after
adjusting for the allocation of loss to the non-controlling interest in this
consolidated joint venture and including those assets classified as discontinued
operations, for the three- and six-month periods ended June 30, 2010. The 2010
impairment charges were triggered primarily due to a change in the Companys
holding period assumptions for this substanitally vacant portfolio. During the
second quarter of 2010, the Company determined it was no longer committed to the
long-term management and investment of these assets. (See discussion of the
default status of the joint ventures mortgage note payable in Liquidity and
Capital Resources.) |
|
|
|
The Companys proportionate share of these impairments was $29.7 million after
adjusting for the allocation of loss to the non-controlling interest in this
consolidated joint venture and including those assets classified as discontinued
operations, for the three- and six-month periods ended June 30, 2009. The 2009
impairment charges were triggered primarily due to the Companys marketing of
certain assets for sale combined with the then overall economic downturn in the
retail real estate environment. A full write down of this portfolio was not
recorded in 2009 due to the Companys then holding period assumptions and future
investment plans for these assets. |
|
(2) |
|
Amounts reported in 2010 relate to land held for development in
Togliatti and Yaroslavl, Russia, of which the Companys proportionate share was
$41.9 million after adjusting for the allocation of loss to the non-controlling
interest in this consolidated joint venture. The asset impairments were triggered
primarily due to a change in the Companys investment plans for these projects.
Both investments relate to large-scale development projects in Russia. During the
second quarter of 2010, the Company determined that it is no longer committed to
invest the necessary amount of capital to complete the projects without
alternative sources of capital from third party investors or lending institutions. |
|
(3) |
|
The impairment charges were triggered primarily due to the Companys
marketing of these assets for sale during the six months ended June 30, 2010.
These assets were not classified as held for sale as of June 30, 2010, due to
outstanding substantive contingencies associated with the respective contracts. |
|
(C) |
|
Total general and administrative expenses were approximately 5.1% and 5.4% of total
revenues, including total revenues of unconsolidated joint ventures and managed properties
and discontinued operations, for the six-month periods ended June 30, 2010 and 2009,
respectively. During the six months ended June 30, 2010, the Company incurred a $2.1
million separation charge relating to the departure of an executive officer. In 2009, the
Company recorded an accelerated non-cash charge of |
- 37 -
|
|
|
|
|
approximately $10.5 million related to certain equity awards as a result of the
Companys shareholders approving a potential change in control. 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 June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Interest income |
|
$ |
1,525 |
|
|
$ |
3,228 |
|
|
$ |
(1,703 |
) |
|
|
(52.8 |
)% |
Interest expense |
|
|
(59,692 |
) |
|
|
(57,765 |
) |
|
|
(1,927 |
) |
|
|
3.3 |
|
(Loss) gain on repurchase of senior notes |
|
|
(1,090 |
) |
|
|
45,901 |
|
|
|
(46,991 |
) |
|
|
(102.4 |
) |
Gain (loss) on equity derivative
instruments |
|
|
21,527 |
|
|
|
(80,025 |
) |
|
|
101,552 |
|
|
|
(126.9 |
) |
Other expense, net |
|
|
(11,850 |
) |
|
|
(6,656 |
) |
|
|
(5,194 |
) |
|
|
78.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(49,580 |
) |
|
$ |
(95,317 |
) |
|
$ |
45,737 |
|
|
|
(48.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Interest income (A) |
|
$ |
2,855 |
|
|
$ |
6,256 |
|
|
$ |
(3,401 |
) |
|
|
(54.4 |
)% |
Interest expense (B) |
|
|
(118,981 |
) |
|
|
(114,793 |
) |
|
|
(4,188 |
) |
|
|
3.6 |
|
Gain on repurchase of senior notes (C) |
|
|
|
|
|
|
118,479 |
|
|
|
(118,479 |
) |
|
|
(100.0 |
) |
Loss on equity derivative instruments (D) |
|
|
(3,340 |
) |
|
|
(80,025 |
) |
|
|
76,685 |
|
|
|
(95.8 |
) |
Other expense, net (E) |
|
|
(14,924 |
) |
|
|
(11,161 |
) |
|
|
(3,763 |
) |
|
|
33.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(134,390 |
) |
|
$ |
(81,244 |
) |
|
$ |
(53,146 |
) |
|
|
65.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Decreased primarily due to interest earned from mortgage receivables, which aggregated
$110.7 million and $121.0 million at June 30, 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 $3.7
million of interest income for the six-month period ended June 30, 2009 relating to this
advance. |
|
(B) |
|
The weighted-average debt outstanding and related weighted-average interest rates
including amounts allocated to discontinued operations are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended |
|
|
June 30, |
|
|
2010 |
|
2009 |
Weighted-average debt outstanding (in billions) |
|
$ |
4.8 |
|
|
$ |
5.7 |
|
Weighted-average interest rate |
|
|
5.0 |
% |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
At June 30, |
|
|
2010 |
|
2009 |
Weighted-average interest rate |
|
|
4.6 |
% |
|
|
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 Company ceases the
capitalization of interest as assets are placed in service or upon the suspension of
construction. Interest costs capitalized in conjunction with development and expansion
projects and unconsolidated development joint venture interests were $3.2 million and $6.3
million for the three and six months ended June 30, 2010, respectively, as compared to |
- 38 -
|
|
|
|
|
$5.8 million and $11.6 million for the respective periods in 2009. Because the Company has
suspended certain construction activities, the amount of capitalized interest has
significantly decreased in 2010. |
|
(C) |
|
Relates to the Companys purchase of approximately $256.6 million and $376.2 million
aggregate principal amount of its outstanding senior unsecured notes, including senior
convertible notes, at a net discount to par during the six months ended June 30, 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. The Company recorded $5.9 million and $17.0 million during the six months
ended June 30, 2010 and 2009, respectively, related to the required write-off of
unamortized deferred financing costs and accretion related to the senior unsecured notes
repurchased for the six months ended June 30, 2010 and 2009, respectively. |
|
(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 recognized primarily relates to the difference
between the closing trading value of the Companys common shares from January 1, 2010 to
June 30, 2010 and April 9, 2009 through the date of issuance or June 30, 2009. |
|
(E) |
|
Other (expenses) income were comprised of the following (in millions): |
|
|
|
|
|
|
|
|
|
|
|
Six-Month Period |
|
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
Litigation-related expenses (1) |
|
$ |
(10.0 |
) |
|
$ |
(3.7 |
) |
Debt extinguishment costs |
|
|
(4.0 |
) |
|
|
|
|
Note receivable reserve |
|
|
0.1 |
|
|
|
(5.4 |
) |
Sale of MDT units |
|
|
|
|
|
|
(0.8 |
) |
Abandoned projects and other expenses |
|
|
(1.0 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
$ |
(14.9 |
) |
|
$ |
(11.2 |
) |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Increase primarily relates to an increase in a reserve of $5.1 million in the
second quarter of 2010 relating to a legal matter involving a property in Long
Beach, California (See discussion in Economic Conditions Legal Matters). |
Other items (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
Equity in net loss of joint ventures |
|
$ |
(623 |
) |
|
$ |
(9,153 |
) |
|
$ |
8,530 |
|
|
|
(93.2 |
)% |
Tax benefit (expense) of taxable
REIT subsidiaries and state
franchise and income taxes |
|
|
3,590 |
|
|
|
(909 |
) |
|
|
4,499 |
|
|
|
(494.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
Equity in net income (loss) of joint ventures (A) |
|
$ |
1,023 |
|
|
$ |
(8,801 |
) |
|
$ |
9,824 |
|
|
|
(111.6 |
)% |
Tax benefit of taxable REIT subsidiaries and state
franchise and income taxes (B) |
|
|
2,574 |
|
|
|
127 |
|
|
|
2,447 |
|
|
|
1,926.8 |
|
- 39 -
|
|
|
(A) |
|
A summary of the increase in equity in net income of joint ventures for the six months
ended June 30, 2010, is composed of the following (in millions): |
|
|
|
|
|
|
|
(Decrease) |
|
|
|
Increase |
|
Decrease in income from existing joint ventures (1) |
|
$ |
(0.6 |
) |
Coventry II Fund investments (2) |
|
|
7.5 |
|
Disposition of joint venture assets (3) |
|
|
2.9 |
|
|
|
|
|
|
|
$ |
9.8 |
|
|
|
|
|
|
|
|
(1) |
|
Net decrease in income from several joint ventures due in part to change in
tenant mix. |
|
(2) |
|
Primarily related to the losses from Coventry II investments recorded in
2009. As the Company wrote off its basis in certain of these investments in 2009,
and it has no intention or obligation to fund any additional losses, no additional
losses were recorded in 2010 (see Coventry II Fund discussion in Off Balance Sheet
Arrangements below). |
|
(3) |
|
Primarily related to a decrease in impairments and losses from joint
ventures sold prior to January 1, 2010. |
|
(B) |
|
Primarily a result of a change in the net taxable income position in 2010 of the
Companys wholly-owned taxable REIT subsidiary and certain state tax refunds. |
Discontinued Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Loss from discontinued operations (A) |
|
$ |
(3,835 |
) |
|
$ |
(84,067 |
) |
|
$ |
80,232 |
|
|
|
(95.4 |
)% |
Loss on disposition of real estate, net of tax |
|
|
(4,057 |
) |
|
|
(36,023 |
) |
|
|
31,966 |
|
|
|
(88.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(7,892 |
) |
|
$ |
(120,090 |
) |
|
$ |
112,198 |
|
|
|
(93.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods |
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Loss from discontinued operations (A) |
|
$ |
(5,566 |
) |
|
$ |
(87,002 |
) |
|
$ |
81,436 |
|
|
|
(93.6 |
)% |
Loss on disposition of real estate, net of tax |
|
|
(3,491 |
) |
|
|
(24,416 |
) |
|
|
20,925 |
|
|
|
(85.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,057 |
) |
|
$ |
(111,418 |
) |
|
$ |
102,361 |
|
|
|
(91.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Included in discontinued operations for the six months ended June 30, 2010 and 2009,
are 12 properties in 2010 (including one property classified as held for sale at June 30,
2010) aggregating 1.5 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 six
months ended June 30, 2010 and 2009, is $4.2 million and $87.5 million, respectively, of
impairment charges triggered by the sale of the related assets. |
- 40 -
(Loss) gain on Disposition of Real Estate (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
Gain on disposition of real estate, net (A) |
|
$ |
592 |
|
|
$ |
648 |
|
|
$ |
(56 |
) |
|
|
(8.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods |
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
(Loss) gain on disposition of real estate, net (A) |
|
$ |
(83 |
) |
|
$ |
1,096 |
|
|
$ |
(1,179 |
) |
|
|
(107.6 |
)% |
|
|
|
(A) |
|
The Company recorded net gains on disposition of real estate and real estate
investments as follows (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Six-Month Periods |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Land sales (1) |
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
0.3 |
|
|
$ |
|
|
Previously deferred
gains and other gains
and losses on
dispositions (1)
(2) |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
(0.4 |
) |
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.6 |
|
|
$ |
0.6 |
|
|
$ |
(0.1 |
) |
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These dispositions did not meet the criteria for discontinued operations as the
land did not have any significant operations prior to disposition. |
|
(2) |
|
These gains and losses are primarily attributable to the subsequent
leasing of units subject to master leases and other obligations originally
established on disposed properties, which are no longer required. |
Non-controlling interests (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
Non-controlling interests |
|
$ |
34,591 |
|
|
$ |
34,419 |
|
|
$ |
172 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months |
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
2010 |
|
2009 |
|
$ Change |
|
% Change |
Non-controlling interests (A)
|
|
$ |
36,928 |
|
|
$ |
37,044 |
|
|
$ |
(116 |
) |
|
|
(0.3 |
)% |
|
|
|
(A) |
|
Includes the following (in millions): |
|
|
|
|
|
|
|
(Increase) |
|
|
|
Decrease |
|
DDR MDT MV (owned approximately 50% by the Company) (1) |
|
$ |
(12.8 |
) |
Other non-controlling interests (2) |
|
|
12.6 |
|
Decrease in the quarterly distribution to operating partnership
unit investments |
|
|
0.1 |
|
|
|
|
|
|
|
$ |
(0.1 |
) |
|
|
|
|
- 41 -
|
|
|
(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 increase is
primarily a result of the decrease in the amount of impairment charges recorded in 2010 as
compared to 2009. The non-controlling interests share of impairment charges was
approximately $18.8 million for the six-month period ended June 30, 2010 as compared to
$31.3 million for the six-month period ended June 30, 2009, including discontinued
operations. |
|
(2) |
|
The decrease is a result of the non-controlling interests share
of impairment chares recorded in the second quarter of 2010 related to land held
for development in Togliatti and Yaroslavl, Russia. |
Net Loss (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net loss attributable to DDR |
|
$ |
(86,575 |
) |
|
$ |
(226,585 |
) |
|
$ |
140,010 |
|
|
|
(61.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods |
|
|
|
|
|
|
|
|
|
Ended June 30, |
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
$ Change |
|
|
% Change |
|
Net loss attributable to DDR |
|
$ |
(110,822 |
) |
|
$ |
(139,184 |
) |
|
$ |
28,362 |
|
|
|
(20.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net loss attributable to DDR for the three and six months ended June 30,
2010 as compared to 2009, is primarily the result of a decrease in impairment-related charges
including discontinued operations and the equity derivative adjustment associated with the Otto
investment in 2010.
A summary of changes in 2010 as compared to 2009 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month |
|
|
Six-Month |
|
|
|
Period Ended |
|
|
Period Ended |
|
|
|
June 30, |
|
|
June 30, |
|
Increase (decrease) in net operating revenues
(total revenues in excess of operating and
maintenance expenses and real estate taxes) |
|
$ |
0.6 |
|
|
$ |
(3.5 |
) |
Increase in impairment charges |
|
|
(81.5 |
) |
|
|
(76.2 |
) |
Decrease in general and administrative expenses |
|
|
9.3 |
|
|
|
5.2 |
|
Decrease in depreciation expense |
|
|
0.1 |
|
|
|
2.5 |
|
Decrease in interest income |
|
|
(1.7 |
) |
|
|
(3.4 |
) |
Increase in interest expense |
|
|
(1.9 |
) |
|
|
(4.2 |
) |
Decrease in gain on repurchase of senior notes |
|
|
(47.0 |
) |
|
|
(118.5 |
) |
Decrease in loss on equity derivative instruments |
|
|
101.6 |
|
|
|
76.7 |
|
Change in other expense |
|
|
(5.2 |
) |
|
|
(3.8 |
) |
Decrease in equity in net loss of joint ventures |
|
|
8.5 |
|
|
|
9.8 |
|
Decrease in impairment of joint venture investments |
|
|
40.4 |
|
|
|
40.4 |
|
Change in income tax (expense) benefit |
|
|
4.5 |
|
|
|
2.4 |
|
Decrease in loss from discontinued operations |
|
|
80.2 |
|
|
|
81.4 |
|
Increase in net gain on disposition of real estate
of discontinued operations properties |
|
|
32.0 |
|
|
|
20.9 |
|
Increase in net loss on disposition of real estate |
|
|
(0.1 |
) |
|
|
(1.2 |
) |
Change in non-controlling interests |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
Decrease in net loss attributable to DDR |
|
$ |
140.0 |
|
|
$ |
28.4 |
|
|
|
|
|
|
|
|
- 42 -
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 can provide 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
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
- 43 -
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 June 30, 2010, FFO applicable to DDR common shareholders was
a loss of $32.8 million, as compared to a loss of $166.5 million for the same period in 2009. For
the six-month period ended June 30, 2010, FFO applicable to DDR common shareholders was a loss of
$4.4 million, as compared to a loss of $26.5 million for the same period in 2009. The decrease in
FFO for the six-month period ended June 30, 2010, is primarily the result of a decrease in
impairment-related charges and the equity derivative adjustment associated with the Otto investment
in 2010.
The Companys calculation of FFO is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss applicable to DDR common
shareholders (A) |
|
$ |
(97,142 |
) |
|
$ |
(237,152 |
) |
|
$ |
(131,956 |
) |
|
$ |
(160,318 |
) |
Depreciation and amortization of
real estate investments |
|
|
54,148 |
|
|
|
57,565 |
|
|
|
108,742 |
|
|
|
118,601 |
|
Equity in net loss (income) of
joint ventures |
|
|
623 |
|
|
|
9,153 |
|
|
|
(1,023 |
) |
|
|
8,374 |
|
Joint ventures FFO (B) |
|
|
10,307 |
|
|
|
3,809 |
|
|
|
21,862 |
|
|
|
18,968 |
|
Non-controlling interests (OP Units) |
|
|
8 |
|
|
|
80 |
|
|
|
16 |
|
|
|
159 |
|
(Gain) loss on disposition of
depreciable real estate
(C) |
|
|
(788 |
) |
|
|
60 |
|
|
|
(2,055 |
) |
|
|
(12,274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO applicable to DDR common
shareholders |
|
|
(32,844 |
) |
|
|
(166,485 |
) |
|
|
(4,414 |
) |
|
|
(26,490 |
) |
Preferred dividends |
|
|
10,567 |
|
|
|
10,567 |
|
|
|
21,134 |
|
|
|
21,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FFO |
|
$ |
(22,277 |
) |
|
$ |
(155,918 |
) |
|
$ |
16,720 |
|
|
$ |
(5,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Includes straight-line rental revenue of approximately $0.3
million and $0.4 million for the three-month periods ended June 30, 2010 and
2009, respectively, and $1.3 million and $1.4 million for the six-month periods
ended June 30, 2010 and 2009, respectively. In addition, includes straight-line
ground rent expense of approximately $0.5 million and $0.4 million for the
three-month periods ended June 30, 2010 and 2009, respectively, and $1.0 and
$0.8 million for the six-month periods ended June 30, 2010 and 2009,
respectively (including discontinued operations). |
|
(B) |
|
At June 30, 2010 and 2009, the Company owned unconsolidated joint
venture interests relating to 249 and 324 operating shopping center properties,
respectively. |
- 44 -
|
|
|
|
|
Joint ventures FFO is summarized as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Six-Month Periods Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss (1) |
|
$ |
(31,445 |
) |
|
$ |
(54,452 |
) |
|
$ |
(48,295 |
) |
|
$ |
(62,934 |
) |
Loss on sale of real estate |
|
|
(47 |
) |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
Depreciation and amortization of real
estate investments |
|
|
51,688 |
|
|
|
62,947 |
|
|
|
102,001 |
|
|
|
127,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,196 |
|
|
$ |
8,495 |
|
|
$ |
53,659 |
|
|
$ |
64,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDR ownership interests (2) |
|
$ |
10,307 |
|
|
$ |
3,809 |
|
|
$ |
21,862 |
|
|
$ |
18,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Revenues for the three- and six-month periods
includes the following (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
Six-Month Periods |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Straight-line rents |
|
$ |
0.9 |
|
|
$ |
0.9 |
|
|
$ |
2.1 |
|
|
$ |
1.7 |
|
DDRs proportionate share |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
(2) |
|
Adjustments to the Companys share of joint venture
equity in net loss is related primarily to differences impacting
amortization and depreciation, impairment charges and (loss) gain on
dispositions as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period |
|
Six-Month Period |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Income, net |
|
$ |
1.2 |
|
|
$ |
2.6 |
|
|
$ |
1.2 |
|
|
$ |
2.2 |
|
|
|
|
(C) |
|
The amount reflected as (gain) loss 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. For
the six-month period ended June 30, 2010, the Company recorded $0.3 million of
gain on land sales. There were no gains on land sales during the three- and
six-month periods ended June 30, 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 non-operating charges and gains for the three months ended June 30, 2010
and 2009, aggregating $97.8 million and $240.0 million, respectively, and for the six months ended
June 30, 2010 and 2009, aggregating $134.6 million and $187.8 million, respectively, summarized as
follows (in millions):
- 45 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month |
|
|
For the Six-Month |
|
|
|
Periods Ended June 30, |
|
|
Periods Ended June 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Impairment charges consolidated assets |
|
$ |
129.7 |
|
|
$ |
48.2 |
|
|
$ |
131.8 |
|
|
$ |
55.6 |
|
Less portion of impairment charges allocated
to non-controlling interests |
|
|
(31.2 |
) |
|
|
(31.3 |
) |
|
|
(31.2 |
) |
|
|
(31.1 |
) |
Executive separation charge |
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
Loss (gain) on debt retirement |
|
|
1.1 |
|
|
|
(45.9 |
) |
|
|
|
|
|
|
(118.5 |
) |
(Gain) loss on equity derivative instruments
related to Otto investment |
|
|
(21.5 |
) |
|
|
80.0 |
|
|
|
3.3 |
|
|
|
80.0 |
|
Litigation expenditures, debt extinguishment
costs and other expenses |
|
|
9.1 |
|
|
|
6.9 |
|
|
|
12.1 |
|
|
|
10.8 |
|
Loss on asset sales and impairment charges
equity method investments |
|
|
2.0 |
|
|
|
11.4 |
|
|
|
3.3 |
|
|
|
10.0 |
|
Consolidated impairment charges and loss on
sales discontinued operations |
|
|
6.9 |
|
|
|
119.9 |
|
|
|
9.4 |
|
|
|
123.6 |
|
FFO associated with Mervyns joint venture, net
of non-controlling interest |
|
|
1.7 |
|
|
|
|
|
|
|
3.8 |
|
|
|
|
|
Change-in-control compensation charge |
|
|
|
|
|
|
10.5 |
|
|
|
|
|
|
|
10.5 |
|
Impairment charges on equity method investments |
|
|
|
|
|
|
40.3 |
|
|
|
|
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-operating items |
|
$ |
97.8 |
|
|
$ |
240.0 |
|
|
$ |
134.6 |
|
|
$ |
187.8 |
|
FFO attributable to DDR common shareholders |
|
|
(32.8 |
) |
|
|
(166.5 |
) |
|
|
(4.4 |
) |
|
|
(26.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating FFO attributable to DDR common
shareholders |
|
$ |
65.0 |
|
|
$ |
73.5 |
|
|
$ |
130.2 |
|
|
$ |
161.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 the
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
the Companys calculation of Operating FFO 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 the
- 46 -
Companys 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 considered
in addition to cash flows in accordance with GAAP, as presented in its condensed consolidated
financial statements.
Liquidity and Capital Resources
Economic events, including failures and near-failures of a number of large financial services
companies, have made the capital markets more 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 2011. 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 2011. 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 of the Company or its
subsidiaries (i.e. entities in which the Company has a greater than 50% interest) to pay when due
any indebtedness (including non-recourse obligations) in excess of $50 million. In the event the
Companys lenders declare a default, as defined in the applicable loan documentation, this could
result in the Companys inability to obtain further funding and/or an acceleration of any
outstanding borrowings.
As of June 30, 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.
The Companys current business plans indicate that it will continue to be able to operate in
compliance with these covenants for the remainder of 2010 and beyond. If there is a continued
decline in the retail and real estate industries and 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
- 47 -
or its affiliates or the inability to 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 mature in June 2011, as the Company exercised a one-year
extension option in June 2010. The Company is currently in discussions with the participating
banks as well as several other banks that have expressed interest in participating in the upcoming
renewal of its Revolving Credit Facilities. It is expected that the size of these Revolving Credit
Facilities will be reduced. The Company intends to continue implementing a longer-term financing
strategy and reduce its reliance on short-term debt. The Company believes its renewed the
Revolving Credit Facilities should be appropriately sized for the Companys liquidity strategy.
There can be no assurances that the Company will be able to successfully consummate a renewal of
its Revolving Credit Facilties.
At June 30, 2010, the following information summarizes the availability of the Revolving
Credit Facilities (in billions):
|
|
|
|
|
Revolving Credit Facilities |
|
$ |
1.325 |
|
Less: |
|
|
|
|
Amount outstanding |
|
|
(0.650 |
) |
Unfunded Lehman Brothers Holdings Commitment |
|
|
(0.008 |
) |
Letters of credit |
|
|
(0.020 |
) |
|
|
|
|
Amount Available |
|
$ |
0.647 |
|
|
|
|
|
As of June 30, 2010, the Company had cash and line of credit availability aggregating
approximately $0.7 billion. As of June 30, 2010, the Company also had unencumbered consolidated
operating properties generating approximately $133.9 million of net operating income as calculated
pursuant to the Companys loan agreements for the six months ended June 30, 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. Over
the past 12 months 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 over the past 18 months 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 able
to execute
- 48 -
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 six months of 2010, the Company purchased approximately $256.6 million aggregate
principal amount of its outstanding senior unsecured notes which includes the repurchase of $83.1
million aggregate principal amount of outstanding senior unsecured notes repurchased through a cash
tender offer at par in March 2010. 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 focused on balancing 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 more
challenging 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 often 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, improve the Companys credit ratings and extend debt duration with the goal of lowering
the Companys risk profile and long-term cost of capital.
At June 30, 2010, the Companys consolidated 2010 debt maturities consist of $149.1 million
aggregate principal amount of unsecured notes that were repaid at maturity in August 2010 and
$199.7 million of consolidated mortgage debt (of which the Companys proportionate share is $105.4
million). The Company has one wholly-owned maturity of $11.1 million due in November 2010 that is
expected to be repaid at maturity by utilizing the availability on its Revolving Credit Facilities.
Approximately $179.8 million of the $199.7 million consolidated mortgage debt maturing this year
relates to the 50% owned joint venture that owns the assets formerly occupied by Mervyns (see
discussion below) of which the Companys proportionate share is $89.9 million. The remaining $8.8
million of the consolidated mortgage debt maturing in 2010 (of which the Companys proportionate
share is $4.4 million) is attributable to a consolidated joint venture in Terrell, Texas.
At June 30, 2010, the Companys unconsolidated joint venture mortgage debt maturing in 2010
was $543.6 million (of which the Companys proportionate share is $145.1 million). Of this amount,
$339.4 million (of which the Companys proportionate share is $60.0 million) is attributable to the
Coventry II Fund assets (see Coventry II Fund discussion below) that all have matured and two of
- 49 -
which are in default as of August 6, 2010. At June 30, 2010, the remainder of the Companys
unconsolidated joint venture mortgage debt maturing in 2010 aggregated $204.2 million, of which the
Companys proportionate share is approximately $85.1 million. 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).
As of June 30, 2010, the Companys joint venture with EDT Retail Trust (formerly Macquarie DDR
Trust, MDT), DDR MDT MV, owned the underlying real estate of 27 assets formerly occupied by
Mervyns, which declared bankruptcy in 2008 and vacated all sites as of December 31, 2008 (Mervyns
Joint Venture). The Company owns a 50% interest in the Mervyns Joint Venture, which is
consolidated by the Company. In June 2010, the Mervyns Joint Venture received a notice of default
from Midland Loan Services (Midland), the servicer for the non-recourse loan encumbering all of
the remaining former Mervyns stores due to the non-payment of required monthly debt service. The
amount outstanding under this mortgage note payable was $179.8 million at June 30, 2010 and matures
in October 2010. At June 30, 2010, the joint venture had $21.0 million of restricted cash that was
applied to the outstanding mortgage balance in July 2010. The Mervyns Joint Venture and Midland
have agreed to jointly request that the court appoint a third-party receiver to manage and
liquidate the remaining former Mervyns stores.
During the second quarter of 2010, the Company changed its holding period assumptions for this
primarily vacant portfolio as it was no longer committed to providing any additional capital. This
triggered the recording of consolidated impairment charges of approximately $37.6 million on the
Mervyns Joint Venture assets of which the Companys proportionate share is $16.5 million adjusting
for the allocation of loss to the non-controlling interest. Further, the Company has made a
preliminary determination of what it believes is the accounting impact of the appointment of a
third-party receiver of this portfolio. Once this event occurs, the Company believes the Mervyns
Joint Venture would no longer have the ability to direct the activities that most significantly
impact the performance of the entity. As a result, the Company expects that the assets and
obligations of the Mervyns Joint Venture will no longer be consolidated in its consolidated balance
sheets and operations of the Company.
Cash Flow Activity
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.
- 50 -
The Companys cash flow activities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six-Month Periods Ended |
|
|
|
June 30, |
|
|
|
2010 |
|
|
2009 |
|
Cash flow provided by operating activities |
|
$ |
127,981 |
|
|
$ |
139,879 |
|
Cash flow provided by investing activities |
|
|
45,250 |
|
|
|
15,082 |
|
Cash flow used for financing activities |
|
|
(178,403 |
) |
|
|
(154,619 |
) |
Operating Activities: The decrease in cash flow from operating activities in the six
months ended June 30, 2010 as compared to the same period in 2009, was primarily due to the impact
of asset sales.
Investing Activities: The change in cash flow from investing activities for the six months
ended June 30, 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 offset by a reduction in proceeds from disposition of real estate.
Financing Activities: The change in cash used for financing activities for each of the six
months ended June 30, 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 cash dividends of $31.1 million for the six months
ended June 30, 2010, as compared to $77.7 million of dividends paid in a combination of cash and
the Companys shares 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 and second
quarters of 2010. The Company will continue to monitor the 2010 dividend policy and provide for
adjustments, 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 12 consolidated properties, aggregating 1.4 million square feet, for the six
months ended June 30, 2010, generating gross proceeds of $68.0 million and recorded an aggregate
loss on disposition of approximately $3.5 million. Three separate joint ventures sold 24
properties, aggregating 4.3 million square feet through June 30, 2010, generating gross proceeds of
$468.4 million. The Companys proportionate share of the aggregate loss recorded by these joint
ventures was approximately $1.3 million.
As part of the Companys deleveraging strategy, the Company has been marketing non-prime
assets for sale. The Company is focusing on selling single-tenant assets and smaller shopping
centers
- 51 -
with limited opportunity for growth. For certain real estate assets for which the Company has
entered into agreements that are subject to contingencies, including contracts executed subsequent
to June 30, 2010, a loss of approximately $15 million could be recorded if all such sales were
consummated on the terms currently being negotiated. Given the current state of the financial
markets and the Companys experience over the past few years, it is difficult for many buyers to
complete these transactions in the timing contemplated or at all. The Company has not recorded an
impairment charge on these assets at June 30, 2010 as the undiscounted cash flows, when considering
and evaluating the various alternative courses of action that may occur, exceed the assets current
carrying value. 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 $84.9 million, net, of
which approximately $51.9 million, net, was spent through June 30, 2010, before considering sales
proceeds, to develop, expand, improve and re-tenant various consolidated properties.
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.
The Company has two consolidated projects that are being developed in phases at a projected
aggregate net cost of approximately $204.0 million. At June 30, 2010, approximately $174.9 million
of costs had been incurred in relation to these projects. The Company is also currently
expanding/redeveloping a wholly-owned shopping center in Miami (Plantation), Florida, at a
projected aggregate net cost of approximately $49.9 million. At June 30, 2010, approximately $29.5
million of costs had been incurred in relation to this redevelopment project.
At June 30, 2010, the Company has approximately $533.2 million of recorded costs related to
land and projects under development, for which active construction has ceased. Based on the
Companys current intentions and business plans, the Company believes that the expected
undiscounted cash flows exceed its current carrying value. However, if the Company was to dispose
of certain of these assets in the current market, the Company would likely incur a loss, which
could be material. The Company evaluates its intentions with respect to these assets each
reporting period and
- 52 -
records an impairment charge equal to the difference between the current carrying value and fair
value when the expected undiscounted cash flows is less than the assets carrying value.
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company- |
|
|
|
|
Effective |
|
|
|
|
|
Owned Square |
|
|
Unconsolidated Real Estate |
|
Ownership |
|
|
|
|
|
Feet |
|
Total Debt |
Ventures |
|
Percentage (A) |
|
Assets Owned |
|
(Thousands) |
|
(Millions) |
DDRTC Core Retail Fund LLC |
|
|
15.0 |
% |
|
50 shopping centers in several states |
|
|
12,161 |
|
|
$ |
1,233.8 |
|
Domestic Retail Fund |
|
|
20.0 |
% |
|
63 shopping centers in several states |
|
|
8,279 |
|
|
|
966.2 |
|
Sonae Sierra Brasil BV Sarl |
|
|
47.8 |
% |
|
Ten shopping centers and a management company in Brazil |
|
|
3,787 |
|
|
|
90.1 |
|
DDR SAU Retail Fund |
|
|
20.0 |
% |
|
29 shopping centers in several states |
|
|
2,377 |
|
|
|
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 and for
which the Company is the development manager, the Company and/or its equity affiliates have agreed
to fund the required capital associated with approved development projects aggregating
approximately $4.7 million at June 30, 2010. These obligations, 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 June 30, 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 has a default rate of 16% and 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).
- 53 -
Coventry II Fund
At June 30, 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 39 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 Real Estate Advisors LLC,
above a preferred return after return of capital to fund investors (see Legal Matters).
As of June 30, 2010, the aggregate carrying amount of the Companys net investment in the
Coventry II Fund joint ventures was approximately $14.8 million. The Company advanced $66.9
million of financing to one of the Coventry II Fund joint ventures, Coventry II DDR Bloomfield. At
June 30, 2010, this advance was fully reserved. 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 $39.4
million at June 30, 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.
In 2009, in connection with the Bloomfield Hills, Michigan land loan, the lender sent to the
borrower a formal notice of default and filed a foreclosure action and initiated legal proceedings
against the Coventry II Fund for its failure to fund its 80% payment guaranty. The Company paid
its 20% guarantee of this loan in July 2009.
Also in 2009, the mortgages on the Kirkland, Washington project and the Benton Harbor,
Michigan project matured. The Company provided payment guaranties with respect to such loans. In
June 2010, these loans were extended for one year.
Also in 2009, the lenders for the Service Merchandise portfolio, the Orland Park, Illinois
project and the Cincinnati, Ohio, project sent to the borrowers formal notices of default. The
Company provided a partial payment guaranty for the Service Merchandise
portfolio loan. The Coventry II Fund is exploring a variety of strategies with these lenders.
On July 23, 2010, the construction loan for the Allen, Texas project matured, and on August 2,
2010, the borrower received from the lender formal notice of default. The Company provided a
payment guaranty with respect to such loan. The Coventry II Fund is exploring a variety of
extension and forbearance strategies.
- 54 -
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 $4.0 billion and $5.8 billion at June 30, 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 $44.1 million at June 30, 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.
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 six months ended June 30, 2010, $12.2 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
- 55 -
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
June 30, 2010, was approximately $4.6 billion, as compared to approximately $5.2 billion at
December 31, 2009 and $5.6 billion at June 30, 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 six months of 2010, the Company purchased approximately $256.6 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 $5.9 million prior to the write-off
of $5.9 million of unamortized convertible debt accretion, 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. These 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.
Capitalization
At June 30, 2010, the Companys capitalization consisted of $4.6 billion of debt, $555 million
of preferred shares and $2.5 billion of market equity (market equity is defined as common shares
and OP Units outstanding multiplied by $9.90, the closing price of the Companys common shares on
the New York Stock Exchange at June 30, 2010), resulting in a debt to total market capitalization
ratio of 0.6 to 1.0, as compared to a ratio of 0.8 to 1.0 at June 30, 2009. The closing price of the common shares on the New York
Stock Exchange was $4.88 at June 30, 2009. At June 30, 2010, the Companys total debt consisted of
$3.2 billion of fixed-rate debt and $1.4 billion of variable-rate debt, including $200 million of
variable-rate debt that had been effectively swapped to a fixed rate through the use of interest
rate derivative contracts. At June 30, 2009, the Companys total debt consisted of $3.9 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 to reduce the cost of capital with Moodys Investors Service and re-establish an
investment grade rating with
- 56 -
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.
Contractual Obligations and Other Commitments
The Companys maturities for the remainder of 2010 consist of $149.1 million aggregate
principal amount of senior unsecured notes repaid at maturity in August 2010 and $199.7 million in
consolidated mortgage loans. The consolidated mortgage loans are comprised of a $179.8 million
secured mortgage held by the Companys 50% owned joint venture that owns the assets formerly
occupied by Mervyns (of which the Companys proportionate share is $89.9 million) (see Liquidity
and Capital Resources regarding loan default); a $8.8 million mortgage on a 50% owned asset in
Terrell, Texas (of which the Companys proportionate share is $4.4 million) and an $11.1 million
mortgage on a wholly-owned asset. The Company expects to repay the $11.1 million mortgage at
maturity by utilizing the availability on its Revolving Credit Facilities. No assurance can be
provided that the aforementioned obligations will be refinanced or repaid as anticipated (see
Liquidity and Capital Resources).
At June 30, 2010, the Company had letters of credit outstanding of approximately $54.1 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 $48.8 million with general contractors for its wholly-owned
and consolidated joint venture properties at June 30, 2010. These obligations, comprised
principally of construction contracts, are generally
due in 12 to 18 months as the related construction costs are 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 June 30, 2010, the
Company had purchase order obligations, typically payable within one year, aggregating
approximately $4.2 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 June 30, 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
- 57 -
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. Retail sales declined and tenants became more selective for new store openings.
Some retailers closed existing locations and, as a result, the Company experienced a loss in
occupancy compared to its historic levels. The reduced occupancy in 2009 will likely continue to
have a negative impact on the Companys consolidated cash flows, results of operations and
financial position in 2010. However, the Company believes there is an improvement in the level of
optimism within its tenant base. The Company believes that many retailers are looking to open new
stores in 2010 and have strong store opening plans for 2011 and 2012. The lack of new supply is
causing retailers to reconsider opportunities to open new stores in quality locations in well
positioned shopping centers. The Company continues to see strong demand from a broad range of
retailers, particularly in the off-price sector, which is a reflection on the general outlook of
consumers who are responding to the broader economic uncertainty by demanding more value for their
dollars. Offsetting some of the impact resulting from the reduced occupancy is that 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 2.1% 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.
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
- 58 -
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 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 88.1% at June 30, 2010. Notwithstanding the
decline in occupancy compared to historic levels, the Company continues to sign a large number of
new leases at rental rates that are returning to historic averages. Moreover, the Company has been
able to achieve these results without significant capital investment in tenant improvements or
leasing commissions. 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.
Legal Matters
The Company 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., which funds are advised and managed by, Coventry Real
Estate Advisors 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 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
- 59 -
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. In June 2010, the court granted
in part and denied in part the Companys motion. Coventry has filed a notice of appeal regarding
that portion of the motion granted by the court.
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 against Coventry 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 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 appealed the verdict. In July 2010, the Court of Appeals entered an order affirming the
jury verdict. The Company is currently reviewing its options with regard to any further
opportunities to appeal the verdict. Included in other liabilities on the condensed consolidated
balance sheet at June 30, 2010 is a
- 60 -
provision of $11.1 million that represents the full amount of
the verdict, plaintiffs attorneys fees and accrued interest. A charge of approximately $5.1
million ($2.7 million net of tax), was recorded in the second quarter of 2010 relating to this
matter.
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 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 reassessments 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. 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.
- 61 -
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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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
Average |
|
|
|
|
Amount |
|
Maturity |
|
Interest |
|
Percentage |
|
Amount |
|
Maturity |
|
Interest |
|
Percentage |
|
|
(Millions) |
|
(Years) |
|
Rate |
|
of Total |
|
(Millions) |
|
(Years) |
|
Rate |
|
of Total |
Fixed-Rate Debt
(A) |
|
$ |
3,230.8 |
|
|
|
3.6 |
|
|
|
5.9 |
% |
|
|
69.7 |
% |
|
$ |
3,684.0 |
|
|
|
3.3 |
|
|
|
5.7 |
% |
|
|
71.1 |
% |
Variable-Rate Debt
(A) |
|
$ |
1,407.3 |
|
|
|
1.9 |
|
|
|
1.6 |
% |
|
|
30.3 |
% |
|
$ |
1,494.7 |
|
|
|
2.0 |
|
|
|
1.5 |
% |
|
|
28.9 |
% |
|
|
|
(A) |
|
Adjusted to reflect the $200 million and $400 million of variable-rate debt that LIBOR
was swapped to a fixed-rate of 4.9% and 5.0% at June 30, 2010 and December 31, 2009,
respectively. |
The Companys unconsolidated joint ventures fixed-rate indebtedness is summarized as
follows:
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|
June 30, 2010 |
|
December 31, 2009 |
|
|
Joint |
|
Companys |
|
Weighted- |
|
Weighted- |
|
Joint |
|
Companys |
|
Weighted- |
|
Weighted |
|
|
Venture |
|
Proportionate |
|
Average |
|
Average |
|
Venture |
|
Proportionate |
|
Average |
|
-Average |
|
|
Debt |
|
Share |
|
Maturity |
|
Interest |
|
Debt |
|
Share |
|
Maturity |
|
Interest |
|
|
(Millions) |
|
(Millions) |
|
(Years) |
|
Rate |
|
(Millions) |
|
(Millions) |
|
(Years) |
|
Rate |
Fixed-Rate Debt |
|
$ |
3,336.7 |
|
|
$ |
715.8 |
|
|
|
4.4 |
|
|
|
5.6 |
% |
|
$ |
3,807.2 |
|
|
$ |
785.4 |
|
|
|
4.8 |
|
|
|
5.6 |
% |
Variable-Rate Debt |
|
$ |
710.5 |
|
|
$ |
134.7 |
|
|
|
1.4 |
|
|
|
3.3 |
% |
|
$ |
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 June 30, 2010 and December 31, 2009,
the interest rate on the Companys $200 million and $400 million, respectively, 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.
- 62 -
The fair value of the Companys fixed-rate debt is adjusted to (i) include the $200 million
and $400 million that were swapped to a fixed rate at June 30, 2010 and December 31, 2009,
respectively, 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 June 30, 2010 and December 31, 2009, is
summarized as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
100 Basis Point |
|
|
|
|
|
|
|
|
|
100 Basis Point |
|
|
|
|
|
|
|
|
|
|
Increase in |
|
|
|
|
|
|
|
|
|
Increase in |
|
|
Carrying |
|
Fair |
|
Market Interest |
|
Carrying |
|
Fair |
|
Market Interest |
|
|
Value |
|
Value |
|
Rates |
|
Value |
|
Value |
|
Rates |
Companys fixed-rate debt |
|
$ |
3,230.8 |
|
|
$ |
3,284.7 |
(A) |
|
$ |
3,194.5 |
(B) |
|
$ |
3,684.0 |
|
|
$ |
3,672.1 |
(A) |
|
$ |
3,579.4 |
|
Companys proportionate
share of joint venture
fixed-rate debt |
|
$ |
715.8 |
|
|
$ |
668.3 |
|
|
$ |
648.1 |
|
|
$ |
785.4 |
|
|
$ |
703.1 |
|
|
$ |
681.0 |
|
|
|
|
(A) |
|
Includes the fair value of interest rate swaps, which was a liability of $7.8
million and $15.4 million at June 30, 2010 and December 31, 2009, respectively. |
|
(B) |
|
Includes the fair value of interest rate swaps, which was a liability of $6.2
million and $12.2 million at June 30, 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 June 30, 2010 would result in an increase in interest expense of approximately $7.0
million for the Company and $0.7 million representing the Companys proportionate
share of the joint ventures interest expense relating to variable-rate debt outstanding for the
six-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 June 30, 2010, the
Company had no other material exposure to market risk.
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
- 63 -
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 June 30, 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.
- 64 -
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 Coventry Real Estate Fund II, L.L.C. and
Coventry Fund II Parallel Fund, L.L.C., which funds are advised and managed by, Coventry Real
Estate Advisors 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 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. In June 2010, the court granted
in part and denied in part the Companys motion. Coventry has filed a notice of appeal regarding
that portion of the motion granted by the court.
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 against Coventry 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
- 65 -
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 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 appealed the verdict. In July 2010, the Court of Appeals entered an order affirming the
jury verdict. The Company is currently reviewing its options with regard to any further
opportunities to appeal the verdict. Included in other liabilities on the condensed consolidated
balance sheet at June 30, 2010 is a provision of $11.1 million that represents the full amount of
the verdict, plaintiffs attorneys fees and accrued interest.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number |
|
|
(or Approximate |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
|
Shares that May Yet |
|
|
|
|
|
|
|
|
|
|
|
of Publicly |
|
|
Be Purchased Under |
|
|
|
(a) Total number of |
|
|
(b) Average Price |
|
|
Announced Plans |
|
|
the Plans or |
|
|
|
shares purchased (1) |
|
|
Paid per Share |
|
|
or Programs |
|
|
Programs |
|
April 1 30, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
May 1 31, 2010 |
|
|
891 |
|
|
|
11.83 |
|
|
|
|
|
|
|
|
|
June 1 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
891 |
|
|
$ |
11.83 |
|
|
|
|
|
|
|
|
|
|
|
|
(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 stock options. |
- 66 -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. RESERVED
ITEM 5. OTHER INFORMATION
None
- 67 -
ITEM 6. EXHIBITS
|
|
|
10.1
|
|
Letter Agreement, dated March 23, 2010, by and between Developers Diversified Realty
Corporation and Richard E. Brown |
|
|
|
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 |
|
|
|
101.INS
|
|
XBRL Instance Document.2 |
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document. 2 |
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document. 2 |
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document. 2 |
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document. 2 |
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document. 2 |
|
|
|
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. |
|
2 |
|
Submitted electronically herewith. |
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible
Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2010 and
December 31, 2009, (ii) Condensed Consolidated Statements of Operations for the Three-Month Periods
Ended June 30, 2010 and 2009, (iii) Condensed Consolidated Statements of Operations for the
Six-Month Periods Ended June 30, 2010 and 2009, (iv) Condensed Consolidated Statements of Cash
Flows for the Six-Month Periods Ended June 30, 2010 and 2009, and (v) Notes to Condensed
Consolidated Financial Statements.
In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to
this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of
the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of
any registration or other document filed under the Securities Act or the Exchange Act, except as
shall be expressly set forth by specific reference in such filing.
- 68 -
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
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Christa A. Vesy
|
|
|
|
(Date)
|
|
|
|
Christa A. Vesy, Senior Vice President and Chief |
|
|
|
|
|
|
|
Accounting Officer (Authorized Officer) |
|
|
- 69 -
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Exhibit No. |
|
|
|
|
|
|
|
Filed Herewith or |
Under Reg. |
|
Form 10-Q |
|
|
|
Incorporated Herein |
S-K Item 601 |
|
Exhibit No. |
|
Description |
|
by Reference |
10
|
|
|
10.1 |
|
|
Letter Agreement, dated March 23,
2010, by and between Developers
Diversified Realty Corporation and
Richard E. Brown
|
|
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 |
|
|
|
|
|
|
|
|
|
101
|
|
101.INS
|
|
XBRL Instance Document
|
|
Submitted electronically herewith |
|
|
|
|
|
|
|
|
|
101
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
Submitted electronically herewith |
|
|
|
|
|
|
|
|
|
101
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation
Linkbase Document
|
|
Submitted
electronically
herewith |
|
|
|
|
|
|
|
|
|
101
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition
Linkbase Document
|
|
Submitted
electronically
herewith |
|
|
|
|
|
|
|
|
|
101
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
Document
|
|
Submitted
electronically
herewith |
|
|
|
|
|
|
|
|
|
101
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation
Linkbase Document
|
|
Submitted
electronically
herewith |
- 70 -