Developers Diversified Realty Corporation 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
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 is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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 May 5, 2008, the registrant had 119,781,787 outstanding common shares, without par
value.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS Unaudited
-2-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
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March 31, |
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December 31, |
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2008 |
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2007 |
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Assets |
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Real estate rental property: |
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Land |
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$ |
2,103,771 |
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$ |
2,142,942 |
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Buildings |
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5,945,652 |
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5,933,890 |
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Fixtures and tenant improvements |
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245,980 |
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237,117 |
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8,295,403 |
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8,313,949 |
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Less: Accumulated depreciation |
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(1,077,841 |
) |
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(1,024,048 |
) |
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7,217,562 |
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7,289,901 |
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Construction in progress and land under development |
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782,534 |
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664,926 |
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Real estate held for sale |
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5,796 |
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Real estate, net |
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8,000,096 |
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7,960,623 |
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Investments in and advances to joint ventures |
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646,627 |
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638,111 |
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Cash and cash equivalents |
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70,964 |
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49,547 |
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Restricted cash |
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49,635 |
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58,958 |
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Notes receivable |
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19,076 |
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18,557 |
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Deferred charges, net |
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31,988 |
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31,172 |
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Other assets |
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335,357 |
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332,848 |
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$ |
9,153,743 |
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$ |
9,089,816 |
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Liabilities and Shareholders Equity |
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Unsecured indebtedness: |
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Senior notes |
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$ |
2,522,431 |
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$ |
2,622,219 |
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Revolving credit facilities |
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741,818 |
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709,459 |
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3,264,249 |
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3,331,678 |
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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 |
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1,645,552 |
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1,459,336 |
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2,445,552 |
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2,259,336 |
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Total indebtedness |
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5,709,801 |
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5,591,014 |
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Accounts payable and accrued expenses |
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135,588 |
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141,629 |
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Dividends payable |
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89,606 |
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85,851 |
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Other liabilities |
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146,247 |
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143,616 |
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6,081,242 |
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5,962,110 |
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Minority equity interest |
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113,743 |
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111,767 |
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Operating partnership minority interests |
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17,114 |
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17,114 |
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6,212,099 |
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6,090,991 |
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Commitments and contingencies |
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Shareholders equity: |
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Class G 8.0% cumulative redeemable preferred
shares, without par value, $250 liquidation value;
750,000 shares authorized; 720,000 shares issued
and outstanding at March 31, 2008 and December 31,
2007 |
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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;
410,000 shares authorized; 410,000 shares issued
and outstanding at March 31, 2008 and December 31,
2007 |
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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;
345,000 shares authorized; 340,000 shares issued
and outstanding at March 31, 2008 and December 31,
2007 |
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170,000 |
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170,000 |
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Common shares, without par value, $0.10 stated
value; 300,000,000 shares authorized; 126,796,241
and 126,793,684 shares issued at March 31, 2008
and December 31, 2007, respectively |
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12,679 |
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12,679 |
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Paid-in-capital |
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3,031,963 |
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3,029,176 |
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Accumulated distributions in excess of net income |
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(309,800 |
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(260,018 |
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Deferred compensation obligation |
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22,364 |
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22,862 |
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Accumulated other comprehensive (loss) income |
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(8,734 |
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8,965 |
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Less: Common shares in treasury at cost: 7,195,400
shares and 7,345,304 shares at March
31, 2008 and December 31, 2007, respectively |
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(361,828 |
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(369,839 |
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2,941,644 |
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2,998,825 |
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$ |
9,153,743 |
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$ |
9,089,816 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
(Dollars in thousands, except per share amounts)
(Unaudited)
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2008 |
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2007 |
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Revenues from operations: |
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Minimum rents |
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$ |
160,852 |
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$ |
149,825 |
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Percentage and overage rents |
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3,006 |
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2,005 |
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Recoveries from tenants |
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53,602 |
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45,722 |
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Ancillary and other property income |
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4,662 |
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4,702 |
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Management fees, development fees and other fee income |
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16,287 |
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9,082 |
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Other |
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3,487 |
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7,709 |
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241,896 |
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219,045 |
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Rental operation expenses: |
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Operating and maintenance |
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36,869 |
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27,342 |
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Real estate taxes |
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27,675 |
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25,810 |
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General and administrative |
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20,715 |
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21,518 |
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Depreciation and amortization |
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57,139 |
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52,096 |
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142,398 |
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126,766 |
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Other income (expense): |
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Interest income |
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582 |
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3,682 |
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Interest expense |
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(62,214 |
) |
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(60,471 |
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Other expense, net |
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(497 |
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(225 |
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(62,129 |
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(57,014 |
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Income before equity in net income of joint ventures, minority equity
interests, tax (expense) benefit of taxable REIT subsidiaries and
franchise taxes, discontinued operations and gain on disposition of
real estate, net of tax |
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37,369 |
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35,265 |
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Equity in net income of joint ventures |
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7,388 |
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6,281 |
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Income before minority equity interests, tax (expense) benefit of
taxable REIT subsidiaries and franchise taxes, discontinued
operations and (loss) gain on disposition of real estate, net of tax |
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44,757 |
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41,546 |
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Minority equity interests: |
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Minority equity interests |
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(1,776 |
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(1,488 |
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Preferred operating partnership minority interests |
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(3,782 |
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Operating partnership minority interests |
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(595 |
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(569 |
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(2,371 |
) |
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(5,839 |
) |
Tax (expense) benefit of taxable REIT subsidiaries and franchise taxes |
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(1,045 |
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15,061 |
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Income from continuing operations |
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41,341 |
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50,768 |
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Discontinued operations: |
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(Loss) income from discontinued operations |
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(93 |
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2,939 |
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(Loss) gain on disposition of real estate, net of tax |
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(191 |
) |
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2,819 |
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(284 |
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5,758 |
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Income before gain on disposition of real estate |
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41,057 |
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56,526 |
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Gain on disposition of real estate, net of tax |
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2,367 |
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6,010 |
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Net income |
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$ |
43,424 |
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$ |
62,536 |
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Preferred dividends |
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10,567 |
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13,792 |
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Net income applicable to common shareholders |
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$ |
32,857 |
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$ |
48,744 |
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Per share data: |
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Basic earnings per share data: |
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Income from continuing operations |
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$ |
0.28 |
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$ |
0.37 |
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Income from discontinued operations |
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0.05 |
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Net income applicable to common shareholders |
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$ |
0.28 |
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$ |
0.42 |
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Diluted earnings per share data: |
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Income from continuing operations |
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$ |
0.28 |
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$ |
0.37 |
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Income from discontinued operations |
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0.05 |
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Net income applicable to common shareholders |
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$ |
0.28 |
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$ |
0.42 |
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Dividends declared per common share |
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$ |
0.69 |
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$ |
0.66 |
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-4-
DEVELOPERS DIVERSIFIED REALTY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
(Dollars in thousands)
(Unaudited)
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2008 |
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2007 |
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Net cash flow provided by operating activities: |
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$ |
82,325 |
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$ |
129,672 |
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Cash flow from investing activities: |
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Real estate developed or acquired, net of liabilities assumed |
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(99,314 |
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(2,352,926 |
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Equity contributions to joint ventures |
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(18,993 |
) |
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(212,402 |
) |
Proceeds from joint venture advances, net |
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1,590 |
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1,574 |
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Proceeds from sale and refinancing of joint venture interests |
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736 |
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Return on investments in joint ventures |
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7,970 |
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4,285 |
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Issuance of notes receivable, net |
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(519 |
) |
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(238 |
) |
Decrease in restricted cash |
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9,323 |
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Proceeds from disposition of real estate |
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11,214 |
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57,242 |
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Net cash flow used for investing activities |
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(87,993 |
) |
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(2,502,465 |
) |
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Cash flow from financing activities: |
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Proceeds from revolving credit facilities, net |
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30,945 |
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350,000 |
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Repayment of senior notes |
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(100,000 |
) |
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(100,000 |
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Proceeds from term loans |
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900,000 |
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Repayment of term loans |
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(200,000 |
) |
Proceeds from mortgage and other secured debt |
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391,299 |
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35,126 |
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Principal payments on mortgage debt |
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(205,083 |
) |
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(148,231 |
) |
Proceeds from issuance of convertible senior notes, net of underwriting
commissions and
offering expenses of $288 in 2007 |
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|
587,712 |
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Payment of deferred finance costs |
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(3,109 |
) |
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(2,661 |
) |
Proceeds from issuance of common shares, net of underwriting commissions and
offering expenses of $208 in 2007 |
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746,645 |
|
Purchased option arrangement on common shares |
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(32,580 |
) |
Proceeds from issuance of common shares in conjunction with the exercise of stock
options, dividend reinvestment plan and restricted stock plan |
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87 |
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|
4,599 |
|
Proceeds from issuance of preferred operating partnership interest, net of expenses |
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|
484,204 |
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Return of investmentminority interest shareholder |
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|
1,210 |
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(4,399 |
) |
Purchase of operating partnership minority interests |
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(683 |
) |
Distributions to operating partnership minority interests |
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(541 |
) |
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(502 |
) |
Repurchase of common shares |
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(117,000 |
) |
Dividends paid |
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(89,452 |
) |
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(78,094 |
) |
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Net cash flow provided by financing activities |
|
|
25,356 |
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|
2,424,136 |
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Cash and cash equivalents
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Increase in cash and cash equivalents |
|
|
19,688 |
|
|
|
51,343 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,729 |
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|
Cash and cash equivalents, beginning of period |
|
|
49,547 |
|
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|
28,378 |
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Cash and cash equivalents, end of period |
|
$ |
70,964 |
|
|
$ |
79,721 |
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|
Supplemental disclosure of non-cash investing and financing activities:
For the three-month period ended March 31, 2008, other liabilities included approximately
$32.7 million, which represents the fair value of the
Companys interest rate swaps. At March 31,
2008, dividends payable were $89.6 million. In 2008, in accordance with the terms of the
outperformance unit plans, the Company issued 107,879 of its shares. The foregoing transactions
did not provide for or require the use of cash for the three-month period ended March 31, 2008.
For the three-month period ended March 31, 2007, in conjunction with the merger of Inland Retail
Real Estate Trust, Inc. (IRRETI) with a subsidiary of the Company, the Company acquired real
estate assets of $3.0 billion, investments in joint
ventures of approximately $22.3 million and accounts receivable and other assets
-5-
aggregating
approximately $111.1 million. A portion of the consideration used to acquire the $3.0 billion of
assets included assumed debt of $446.5 million, accounts payable and other liabilities
aggregating approximately $12.1 million and common shares of approximately $394.2 million. Other
liabilities included approximately $2.9 million, which represents the fair value of the Companys
interest rate swaps. At March 31, 2007, dividends payable were $90.1 million. In January 2007, in
accordance with performance unit plans, the Company issued 466,666 restricted shares of which
70,000 vested as of the date of issuance. The remaining 396,666 shares will vest in 2008 through
2011. The foregoing transactions did not provide for or require the use of cash for the
three-month period ended March 31, 2007.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
-6-
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 engaged in the business of acquiring,
expanding, owning, developing, redeveloping, leasing, managing and operating shopping centers and
enclosed malls.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Unaudited Interim Financial Statements
These financial statements have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and the applicable rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, the interim financial statements
include all adjustments, consisting of only normal recurring adjustments, necessary for a fair
statement of the results of the periods presented. The results of operations for the three-month
periods ended March 31, 2008 and 2007 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, 2007.
The Company consolidates certain entities in which it owns less than a 100% equity interest if
the entity is a variable interest entity (VIE), as defined in Financial Accounting Standards
Board (FASB) Interpretation No. 46(R) Consolidation of Variable Interest Entities (FIN 46(R))
and the Company is deemed to be the primary beneficiary in the VIE. The Company also consolidates
certain entities that are not a VIE as defined in FIN 46(R) in which it has effective control. The
Company consolidated one entity as a result of the adoption of Emerging Issues Task Force (EITF)
04-05, Investors Accounting for an Investment in a Limited Partnership When the Investor Is the
Sole General Partner and the Limited Partners Have Certain Rights. The equity method of
accounting is applied to entities in which the Company is not the primary beneficiary as defined by
FIN 46(R), or does not have effective control, but can exercise influence over the entity with
respect to its operations and major decisions.
-7-
Comprehensive Income
Comprehensive income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
43,424 |
|
|
$ |
62,536 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Change in fair value of interest rate contracts |
|
|
(21,439 |
) |
|
|
1,344 |
|
Amortization of interest rate contracts |
|
|
(364 |
) |
|
|
(364 |
) |
Foreign currency translation |
|
|
4,104 |
|
|
|
4,029 |
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
(17,699 |
) |
|
|
5,009 |
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
25,725 |
|
|
$ |
67,545 |
|
|
|
|
|
|
|
|
New Accounting Standards Implemented
The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115 SFAS 159
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159), which gives entities the option to measure
eligible financial assets, financial liabilities and firm commitments at fair value on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value
under other accounting standards. The election to use the fair value option is available when an
entity first recognizes a financial asset or financial liability or upon entering into a firm
commitment. Subsequent changes (i.e., unrealized gains and losses) in fair value must be recorded
in earnings. Additionally, SFAS No. 159 allows for a one-time election for existing positions upon
adoption, with the transition adjustment recorded to beginning retained earnings. The Company
adopted SFAS No. 159 on January 1, 2008 and did not elect to measure any assets, liabilities or firm commitments at fair value.
Fair Value Measurements SFAS 157
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS No.
157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This
statement clarifies the principle that fair value should be based on the assumptions that market
participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value
hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities
to be measured at fair value. SFAS No. 157 also provides for certain disclosure requirements,
including, but not limited to, the valuation techniques used to measure fair value and a discussion
of changes in valuation techniques, if any, during the period. The Company adopted this statement
for its financial assets and liabilities on January 1, 2008.
For nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at
fair value on a recurring basis, the effective date is fiscal years beginning after November 15,
2008. The Company is currently evaluating the impact that this statement, for nonfinancial assets
and liabilities, will have on its financial statements.
-8-
New Accounting Standards to Be Implemented
Business Combinations SFAS 141(R)
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations
(SFAS No. 141 (R)). The objective of this statement is to improve the relevance, representative
faithfulness, and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish that, this statement
establishes principles and requirements for how the acquirer: (i) recognizes and measures in its
financial statements, the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest of the acquiree, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase and (iii) determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is not permitted. The Company is currently assessing the
impact the adoption of SFAS No. 141 (R) would have on its financial position and results of
operations.
Non-Controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51
SFAS 160
In December 2007, the FASB issued Statement No. 160, Non-Controlling Interest in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS No. 160). A non-controlling interest,
sometimes called minority interest, is the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. The objective of this statement is to improve the relevance,
comparability, and transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting standards that
require: (i) the ownership interest in subsidiaries held by other parties other than the parent be
clearly identified, labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parents equity, (ii) the amount of consolidated net income
attributable to the parent and to the non-controlling interest be clearly identified and presented
on the face of the consolidated statement of operations, (iii) changes in a parents ownership
interest while the parent retains its controlling financial interest in a subsidiary be accounted
for consistently and requires that they be accounted for similarly, as equity transactions, (iv)
when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former
subsidiary be initially measured at fair value, the gain or loss on the deconsolidation of the
subsidiary is measured using fair value of any non-controlling equity investments rather than the
carrying amount of that retained investment and (v) entities provide sufficient disclosures that
clearly identify and distinguish between the interest of the parent and the interest of the
non-controlling owners. This statement is effective for fiscal years, and interim reporting periods
within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is not
permitted. The Company is currently assessing the impact the adoption of SFAS No. 160 would have on
the Companys financial position and results of operations.
-9-
Disclosures about Derivative Instruments and Hedging Activities SFAS 161
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161), which is intended to help investors better understand how derivative
instruments and hedging activities affect an entitys financial position, financial performance and
cash flows through enhanced disclosure requirements. The enhanced disclosures primarily surround
disclosing the objectives and strategies for using derivative instruments by their underlying risk
as well as a tabular format of the fair values of the derivative instruments and their gains and
losses. SFAS No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. The Company is
currently assessing the potential impact that the adoption of SFAS No. 161 will have on its
financial position and results of operations.
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) FSP APB 14-a
In May 2008, the FASB issued FASB Staff Position (FSP), Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP
APB 14-a) which prohibits the consideration of convertible debt instruments that may be settled in
cash upon conversion, including partial cash settlement, as debt instruments within the scope of
FSP APB 14-a and requires issuers of such instruments to separately account for the liability and
equity components by allocating the proceeds from issuance of the instrument between the liability
component and the embedded conversion option (i.e., the equity component). The difference between
the principal amount of the debt and the amount of the proceeds allocated to the liability
component should be reported as a debt discount and subsequently amortized to earnings over the
instruments expected life. As a result, a lower net income could be reflected as interest expense
would include both the current periods amortization of the debt discount and the instruments
coupon interest. This statement is effective for fiscal years beginning after December 15, 2008,
and for interim periods within those fiscal years, with retrospective application required. Early
adoption will not be permitted. The Company is currently assessing the impact that the
adoption of FSP APB 14-a will have on its financial position and results of operations.
Accounting for Transfers of Financial Assets and Repurchase Financing Transactions FSP FAS 140-3
In February 2008, the FASB issued a FSP on Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (FSP FAS 140-3). This FSP addresses the issue of whether or
not these transactions should be viewed as two separate transactions or as one linked
transaction. The FSP includes a rebuttable presumption linking the two transactions unless the
presumption can be overcome by meeting certain criteria. The FSP is effective for fiscal years
beginning after November 15, 2008 and will apply only to original transfers made after that date;
early adoption will not be permitted. The Company is currently evaluating the impact, if any, the
adoption of FSP FAS 140-3 will have on its financial position and results of operations.
-10-
2. EQUITY INVESTMENTS IN JOINT VENTURES
At March 31, 2008 and December 31, 2007, the Company had ownership interests in various
unconsolidated joint ventures which, as of the respective dates, owned 273 shopping center
properties and 44 shopping center sites formerly owned by Service Merchandise Company, Inc.
Combined condensed financial information of the Companys unconsolidated joint venture
investments is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Combined Balance Sheets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
2,386,799 |
|
|
$ |
2,384,069 |
|
Buildings |
|
|
6,269,832 |
|
|
|
6,253,167 |
|
Fixtures and tenant improvements |
|
|
113,309 |
|
|
|
101,115 |
|
|
|
|
|
|
|
|
|
|
|
8,769,940 |
|
|
|
8,738,351 |
|
Less: Accumulated depreciation |
|
|
(463,607 |
) |
|
|
(412,806 |
) |
|
|
|
|
|
|
|
|
|
|
8,306,333 |
|
|
|
8,325,545 |
|
Construction in progress |
|
|
260,845 |
|
|
|
207,387 |
|
|
|
|
|
|
|
|
Real estate, net |
|
|
8,567,178 |
|
|
|
8,532,932 |
|
Receivables, net |
|
|
119,732 |
|
|
|
124,540 |
|
Leasehold interests |
|
|
13,634 |
|
|
|
13,927 |
|
Other assets |
|
|
439,253 |
|
|
|
365,925 |
|
|
|
|
|
|
|
|
|
|
$ |
9,139,797 |
|
|
$ |
9,037,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage debt |
|
$ |
5,581,082 |
|
|
$ |
5,551,839 |
|
Amounts payable to DDR |
|
|
8,196 |
|
|
|
8,492 |
|
Other liabilities |
|
|
269,393 |
|
|
|
201,083 |
|
|
|
|
|
|
|
|
|
|
|
5,858,671 |
|
|
|
5,761,414 |
|
Accumulated equity |
|
|
3,281,126 |
|
|
|
3,275,910 |
|
|
|
|
|
|
|
|
|
|
$ |
9,139,797 |
|
|
$ |
9,037,324 |
|
|
|
|
|
|
|
|
Companys share of accumulated equity (1) |
|
$ |
628,817 |
|
|
$ |
614,477 |
|
|
|
|
|
|
|
|
-11-
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Combined Statements of Operations: |
|
|
|
|
|
|
|
|
Revenues from operations |
|
$ |
238,187 |
|
|
$ |
145,258 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Rental operation |
|
|
80,918 |
|
|
|
48,443 |
|
Depreciation and amortization |
|
|
56,604 |
|
|
|
30,502 |
|
Interest |
|
|
77,295 |
|
|
|
45,669 |
|
|
|
|
|
|
|
|
|
|
|
214,817 |
|
|
|
124,614 |
|
|
|
|
|
|
|
|
Income before income tax expense and
discontinued operations |
|
|
23,370 |
|
|
|
20,644 |
|
Income tax expense |
|
|
(3,780 |
) |
|
|
(2,249 |
) |
Other gain, net |
|
|
6,439 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
26,029 |
|
|
|
18,395 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
(157 |
) |
Loss on disposition of real estate |
|
|
(2 |
) |
|
|
(341 |
) |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(498 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
26,027 |
|
|
$ |
17,897 |
|
|
|
|
|
|
|
|
Companys share of equity in net
income of joint ventures (2) |
|
$ |
7,489 |
|
|
$ |
6,511 |
|
|
|
|
|
|
|
|
Investments in and advances to joint ventures include the following items, which represent the
difference between the Companys investment and its share of all of the
unconsolidated joint ventures underlying net assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
Companys share of
accumulated equity |
|
$ |
628.8 |
|
|
$ |
614.5 |
|
Basis differentials (2) |
|
|
109.0 |
|
|
|
114.1 |
|
Deferred development fees, net of
portion relating to the Companys
interest |
|
|
(4.3 |
) |
|
|
(3.8 |
) |
Basis differential upon transfer of
assets (2) |
|
|
(96.6 |
) |
|
|
(97.2 |
) |
Notes receivable from investments |
|
|
1.5 |
|
|
|
2.0 |
|
Amounts payable to DDR |
|
|
8.2 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
Investments in and advances to joint
ventures (1) |
|
$ |
646.6 |
|
|
$ |
638.1 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The difference between the Companys share of accumulated equity and the investments
in and advances to joint ventures recorded on the Companys condensed consolidated balance
sheets primarily results from basis differentials, as described below, deferred
development fees, net of the portion relating to the Companys interest, notes and amounts
receivable from the joint venture investments. |
|
(2) |
|
For the three-month periods ended March 31, 2008 and 2007, the difference between the
$7.5 million and $6.5 million, respectively, of the Companys share of equity in net income
of joint ventures reflected above and the $7.4 million and $6.3 million, respectively, of
equity in net income of joint ventures reflected in the Companys condensed consolidated
statements of operations is primarily attributable to amortization associated with basis
differentials and differences in the recognition of gains on sales. The Companys share of
joint venture net income has been decreased by approximately $0.1 million and $0.3 million
for the three-month periods ended March 31, 2008 and 2007, respectively, to reflect
additional basis depreciation and basis differences in assets sold. Basis differentials
occur primarily when the Company has purchased interests in existing joint ventures at fair
market values, which differ from their proportionate share of the historical net assets of
the joint venture. Basis differentials upon transfer of assets are primarily associated
with assets previously owned by the Company that have been transferred into a joint venture
at fair value. |
-12-
Service fees earned by the Company through management, acquisition, financing, leasing and
development activities performed related to all of the Companys unconsolidated joint ventures are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Ended March 31, |
|
|
2008 |
|
2007 |
Management and other fees |
|
$ |
12.9 |
|
|
$ |
7.2 |
|
Acquisition, financing, guarantee and other
fees (1) |
|
|
|
|
|
|
6.3 |
|
Development fees and leasing commissions |
|
|
3.2 |
|
|
|
1.9 |
|
Interest income |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
(1) |
|
Acquisition fees of $6.3 million were earned from the formation of the joint venture
with TIAA-CREF in 2007, excluding the Companys retained ownership of approximately 15%.
The Companys fees were earned in conjunction with services rendered by the Company in
connection with the acquisition of the IRRETI real estate assets. |
In February 2008, the Company began purchasing units of Macquarie DDR Trust (MDT), an
Australian Based Listed Property Trust sponsored by Macquarie Bank Limited (ASX: MBL), an
international investment bank, advisor and manager of specialized real estate funds. MDT is DDRs
joint venture partner in the DDR Macquarie Fund LLC Joint Venture (the Fund). Through March 31,
2008, the Company purchased 29.7 million units at an aggregate purchase price of $14.0 million.
Through the combination of its purchase of the units in MDT and its direct and indirect ownership
of the Fund, DDR is entitled to an approximate 17.2% economic interest in the Fund at March 31,
2008. As the Company has the ability to exercise significant influence over operating and
financial policies, the Company accounts for both its interest in MDT and the Fund using the equity
method of accounting.
3. ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION
Acquisitions
On February 22, 2007, IRRETI shareholders approved a merger with a subsidiary of the Company
pursuant to a merger agreement among IRRETI, the Company and the subsidiary. Pursuant to the
merger, the Company acquired all of the outstanding shares of IRRETI for a total merger
consideration of $14.00 per share, of which $12.50 per share was funded in cash and $1.50 per share
was paid in the form of DDR common shares. As a result, on February 27, 2007, the Company issued
5.7 million DDR common shares to the IRRETI shareholders with an aggregate value of approximately
$394.2 million valued at $69.54 per share, which was the average closing price of the Companys
common shares for the 10 trading days immediately preceding the two trading days prior to the
IRRETI shareholders meeting.
The IRRETI merger was initially recorded at a total cost of approximately $6.2 billion. Real
estate and related assets of approximately $3.1 billion was recorded by the Company and
approximately $3.0 billion was recorded by the TIAA-CREF Joint Venture. The Company assumed debt at
a fair market value of approximately $443.0 million. At the time of the merger, the IRRETI real
estate portfolio consisted of 315 community shopping centers, neighborhood shopping centers and
single
-13-
tenant/net leased retail properties, totaling approximately 35.2 million square feet of
Company-owned GLA, and five development properties. In connection with the merger, the TIAA-CREF Joint Venture
acquired 66 of these shopping centers totaling approximately 15.6 million square feet of
Company-owned GLA. During 2007, the Company sold 78 of the assets, valued at approximately $1.2
billion, acquired in the merger with IRRETI, 21 of which were sold to an independent buyer and the
remaining 57 were contributed to unconsolidated joint ventures.
Pro Forma Financial Information
The following supplemental pro forma operating data is presented for the three-month period
ended March 31, 2007, as if the IRRETI merger, the formation of the joint venture with TIAA-CREF
and the contribution of 57 assets to unconsolidated joint ventures were completed as of January 1,
2007. Pro forma amounts include general and administrative expenses that IRRETI reported in its
historical results of approximately $48.3 million for the three-month period ended March 31, 2007,
including severance, a substantial portion of which management believes to be non-recurring. The
supplemental pro forma operating data does not present the formation of the Dividend Capital Total
Realty Trust Joint Venture.
This acquisition was accounted for using the purchase method of accounting. The revenues and
expenses related to assets and interests acquired are included in the Companys historical results
of operations from the date of purchase.
The pro forma financial information is presented for informational purposes only and may not
be indicative of what actual results of operations would have been had the acquisitions occurred as
indicated, nor does it purport to represent the results of the operations for future periods (in
thousands, except per share data):
|
|
|
|
|
|
|
Three-Month |
|
|
|
Period Ended |
|
|
|
March 31, |
|
|
|
2007 |
|
Pro forma revenues |
|
$ |
231,367 |
|
|
|
|
|
Pro forma income from continuing operations |
|
$ |
8,451 |
|
|
|
|
|
Pro forma income from discontinued operations |
|
$ |
5,758 |
|
|
|
|
|
Pro forma net income applicable to common
shareholders |
|
$ |
6,561 |
|
|
|
|
|
Per share data: |
|
|
|
|
Basic earnings per share data: |
|
|
|
|
Income from continuing operations |
|
$ |
0.01 |
|
Income from discontinued operations |
|
|
0.05 |
|
|
|
|
|
Net income applicable to common shareholders |
|
$ |
0.06 |
|
|
|
|
|
Diluted earnings per share data: |
|
|
|
|
Income from continuing operations |
|
$ |
0.01 |
|
Income from discontinued operations |
|
|
0.05 |
|
|
|
|
|
Net income applicable to common shareholders |
|
$ |
0.06 |
|
|
|
|
|
-14-
4. OTHER ASSETS
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Intangible assets: |
|
|
|
|
|
|
|
|
In-place leases (including lease origination costs and fair
market value of leases), net |
|
$ |
29,524 |
|
|
$ |
31,201 |
|
Tenant relations, net |
|
|
21,317 |
|
|
|
22,102 |
|
|
|
|
|
|
|
|
Total intangible assets (1) |
|
|
50,841 |
|
|
|
53,303 |
|
Other assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net (2) |
|
|
197,552 |
|
|
|
199,354 |
|
Prepaids, deposits and other assets |
|
|
86,964 |
|
|
|
80,191 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
335,357 |
|
|
$ |
332,848 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company recorded amortization expense of $2.2 million and $1.8 million for the
three-month periods ended March 31, 2008 and 2007, respectively. The amortization period
of the in-place leases and tenant relations is approximately two to 31 years and ten
years, respectively. |
|
(2) |
|
Includes straight-line rent receivables, net of $64.5 million and $61.7 million at
March 31, 2008 and December 31, 2007, respectively. |
5. REVOLVING CREDIT FACILITIES
The Company maintains an unsecured revolving credit facility with a syndicate of financial
institutions, for which JP Morgan serves as the administrative agent (the Unsecured Credit
Facility), which was amended in December 2007. The Unsecured Credit Facility provides for
borrowings of $1.25 billion, an accordion feature for a future expansion to $1.4 billion and a
maturity date of June 2010, with a one-year extension option. 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, as defined in the facility or (ii) LIBOR,
plus a specified spread (0.60% at March 31, 2008). The specified spread over LIBOR varies depending
on the Companys long-term senior unsecured debt rating from Standard and Poors and Moodys
Investors Service. The Company is required to comply with certain covenants relating to total
outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and
fixed charge coverage. The Unsecured Credit Facility is used to finance the acquisition,
development and expansion of shopping center properties, to provide working capital and for general
corporate purposes. The Company was in compliance with these covenants at March 31, 2008. The
facility also provides for an annual facility fee of 0.15% on the entire facility. At March 31,
2008, total borrowings under the Unsecured Credit Facility aggregated $716.8 million with a
weighted average interest rate of 3.9%.
The Company also maintains a $75 million unsecured revolving credit facility, amended in
December 2007, with National City Bank (together with the Unsecured Credit Facility, the Revolving
Credit Facilities). This facility has a maturity date of June 2010, with a one-year extension
option, and 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, as
defined in the facility or (ii) LIBOR, plus a specified spread (0.60% at March 31, 2008). The
specified spread over LIBOR is dependent on the Companys long-term senior unsecured debt rating
from Standard and Poors and Moodys
-15-
Investors Service. The Company is required to comply with certain covenants relating to total
outstanding indebtedness, secured indebtedness, maintenance of unencumbered real estate assets and
fixed charge coverage. The Company was in compliance with these covenants at March 31, 2008. At
March 31, 2008, total borrowings under the National City Bank Facility aggregated $25.0 million with
a weighted average interest rate of 3.6%.
6. FAIR VALUE MEASUREMENTS
As of March 31, 2008, the aggregate fair value of the Companys interest rate swaps that have
been designated and qualify as a cash flow hedge was a liability of $32.7 million, which is
included in other liabilities in the condensed consolidated balance sheet. The effective portion
of the gain or loss on the interest rate swaps is reported as a component of other comprehensive
income and will be reclassified into earnings in the same period or periods during which the hedged
interest payments are a charge to earnings. For the three-month period ended March 31, 2008, the
amount of hedge ineffectiveness was not material.
The
Company adopted the provisions of SFAS No. 157, as amended by FSP FAS 157-1 and FSP FAS
157-2, on January 1, 2008.
Fair Value Hierarchy
SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to
those valuation techniques reflect assumptions other market participants would use based upon
market data obtained from independent sources (observable inputs). In accordance with SFAS No.
157, the following summarizes the fair value hierarchy:
Level 1 |
|
Quoted prices in active markets that are unadjusted and accessible at the
measurement date for identical, unrestricted assets or liabilities; |
|
Level 2 |
|
Quoted prices for identical assets and liabilities in markets that are not
active, quoted prices for similar assets and liabilities in active markets or financial
instruments for which significant inputs are observable, either directly or indirectly such as
interest rates and yield curves that are observable at commonly
quoted intervals and |
|
Level 3 |
|
Prices or valuations that require inputs that are both significant to the fair
value measurement and unobservable. |
In certain cases, the inputs used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair
value measurement in its entirety falls has been determined based on the lowest level input that is
significant to the fair value measurement in its entirety. The Companys assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment,
and considers factors specific to the asset or liability.
-16-
Measurement of Fair Value
At March 31, 2008, the Company used pay-fixed interest rate swaps to manage its interest.
The valuation of these instruments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each derivative.
Although the Company has determined that the significant inputs used to value its derivatives
fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with
the Companys counterparties and its own credit risk utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by itself and its counterparties.
However, as of March 31, 2008, the Company has assessed the significance of the impact of the
credit valuation adjustments on the overall valuation of its derivative positions and has
determined that the credit valuation adjustments are not significant to the overall valuation of
its derivatives. As a result, the Company has determined that its derivative valuations in their
entirety are classified in Level 2 of the fair value hierarchy.
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 that are included in other
liabilities at March 31, 2008, measured at fair value on a recurring basis as of March 31, 2008,
and indicates the fair value hierarchy of the valuation techniques utilized by the Company to
determine such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
at March 31, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Derivative Financial Instruments |
|
$ |
|
|
|
$ |
32.7 |
|
|
$ |
|
|
|
$ |
32.7 |
|
7. CONTINGENCIES
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.
-17-
8. SHAREHOLDERS EQUITY
The following table summarizes the changes in shareholders equity since December 31, 2007 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
($0.10 |
|
|
|
|
|
|
Distributions |
|
|
|
|
|
|
Other |
|
|
Treasury |
|
|
|
|
|
|
Preferred |
|
|
Stated |
|
|
Paid-in |
|
|
In Excess of |
|
|
Deferred |
|
|
Comprehensive |
|
|
Stock |
|
|
|
|
|
|
Shares |
|
|
Value) |
|
|
Capital |
|
|
Net Income |
|
|
Obligation |
|
|
Income |
|
|
at Cost |
|
|
Total |
|
Balance, December 31, 2007 |
|
$ |
555,000 |
|
|
$ |
12,679 |
|
|
$ |
3,029,176 |
|
|
$ |
(260,018 |
) |
|
$ |
22,862 |
|
|
$ |
8,965 |
|
|
$ |
(369,839 |
) |
|
$ |
2,998,825 |
|
Issuance of common shares
related to exercise of stock
options, dividend reinvestment
plan, performance plan and
director compensation |
|
|
|
|
|
|
|
|
|
|
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,700 |
|
|
|
5,271 |
|
Issuance of restricted stock |
|
|
|
|
|
|
|
|
|
|
(5,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,081 |
|
|
|
897 |
|
Vesting of restricted stock |
|
|
|
|
|
|
|
|
|
|
7,113 |
|
|
|
|
|
|
|
(498 |
) |
|
|
|
|
|
|
(4,770 |
) |
|
|
1,845 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
2,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,287 |
|
Dividends declaredcommon
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,639 |
) |
Dividends declaredpreferred
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,567 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,424 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,439 |
) |
|
|
|
|
|
|
(21,439 |
) |
Amortization of interest
rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(364 |
) |
|
|
|
|
|
|
(364 |
) |
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,104 |
|
|
|
|
|
|
|
4,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,424 |
|
|
|
|
|
|
|
(17,699 |
) |
|
|
|
|
|
|
25,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008 |
|
$ |
555,000 |
|
|
$ |
12,679 |
|
|
$ |
3,031,963 |
|
|
$ |
(309,800 |
) |
|
$ |
22,364 |
|
|
$ |
(8,734 |
) |
|
$ |
(361,828 |
) |
|
$ |
2,941,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common share dividends declared, per share, were $0.69 and $0.66 for the three-month periods
ended March 31, 2008 and 2007, respectively.
In June 2007, the Companys Board of Directors authorized a common share repurchase program.
Under the terms of the program, the Company may purchase up to a maximum value of $500 million of
its common shares over a two-year period. As of March 31, 2008, the Company had repurchased under
this program 5.6 million of its common shares at a weighted average cost of $46.66 per share.
During the three months ended March 31, 2008, the vesting of restricted stock grants to
certain officers and directors of the Company, approximating 0.2 million common shares of the
Company, was deferred through the Companys non-qualified deferred compensation plans and,
accordingly, the Company recorded approximately $4.0 million in
deferred obligations. Also, in the first quarter of 2008, in
accordance with the transition rules under Section 409A of the
internal revenue code, an officer elected to have his deferrals
distributed to him in 2008 which resulted in a reduction of deferred
obligation of approximately $4.7 million.
-18-
9. OTHER INCOME
Other income for the three-month periods ended March 31, 2008 and 2007 was composed of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Acquisition fees (1) |
|
$ |
|
|
|
$ |
6.3 |
|
Lease termination fees |
|
|
3.3 |
|
|
|
1.3 |
|
Other, net |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
$ |
3.5 |
|
|
$ |
7.7 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes acquisition fees of $6.3 million earned from the formation of the joint
venture with TIAA-CREF in February 2007, excluding the Companys retained ownership of
approximately 15%. The Companys fees were earned in conjunction with services rendered by
the Company in connection with the acquisition of the IRRETI real estate assets. |
10. DISCONTINUED OPERATIONS
Pursuant to the definition of a component of an entity in SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144), all earnings of discontinued
operations sold or held for sale, assuming no significant continuing involvement, have been
reclassified in the Condensed Consolidated Statements of Earnings for
the three-month periods ended March 31, 2008
and 2007. The Company considers assets held for sale when the transaction has been approved and
there are no significant contingencies related to the sale that may prevent the transaction from
closing. Included in discontinued operations for the three-month periods ended March 31, 2008 and
2007, are two properties sold in 2008 (including one property held for sale at December 31, 2007)
aggregating 0.1 million square feet, and 67 shopping centers sold in 2007 (including one property
held for sale at December 31, 2006 and 22 properties acquired through the IRRETI merger in 2007),
aggregating 6.3 million square feet. The operating results relating to assets sold are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Revenues |
|
$ |
119 |
|
|
$ |
11,916 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Operating |
|
|
134 |
|
|
|
3,257 |
|
Interest, net |
|
|
10 |
|
|
|
3,220 |
|
Depreciation |
|
|
68 |
|
|
|
2,500 |
|
|
|
|
|
|
|
|
Total expense |
|
|
212 |
|
|
|
8,977 |
|
|
|
|
|
|
|
|
(Loss) income before (loss) gain on
disposition of real estate |
|
|
(93 |
) |
|
|
2,939 |
|
(Loss) gain on disposition of real estate |
|
|
(191 |
) |
|
|
2,819 |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(284 |
) |
|
$ |
5,758 |
|
|
|
|
|
|
|
|
-19-
11. EARNINGS PER SHARE
Earnings Per Share (EPS) has been computed pursuant to the provisions of SFAS No. 128,
Earnings Per Share. The following table provides a reconciliation of net income from continuing
operations and the number of common shares used in the computations of basic EPS, which utilizes
the weighted average number of common shares outstanding without regard to dilutive potential
common shares, and diluted EPS, which includes all such shares (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Income from continuing operations |
|
$ |
41,341 |
|
|
$ |
50,768 |
|
Add: Gain on disposition of real estate |
|
|
2,367 |
|
|
|
6,010 |
|
Less: Preferred stock dividends |
|
|
(10,567 |
) |
|
|
(13,792 |
) |
|
|
|
|
|
|
|
Basic and Diluted Income from continuing operations
applicable to common shareholders |
|
$ |
33,141 |
|
|
$ |
42,986 |
|
|
|
|
|
|
|
|
Number of Shares: |
|
|
|
|
|
|
|
|
Basic Average shares outstanding |
|
|
119,148 |
|
|
|
114,851 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Convertible notes |
|
|
|
|
|
|
13 |
|
Stock options |
|
|
151 |
|
|
|
604 |
|
Restricted stock |
|
|
50 |
|
|
|
193 |
|
|
|
|
|
|
|
|
Diluted Average shares outstanding |
|
|
119,349 |
|
|
|
115,661 |
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Basic earnings per share data: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.28 |
|
|
$ |
0.37 |
|
Income from discontinued operations |
|
|
|
|
|
|
0.05 |
|
|
|
|
|
|
|
|
Net income applicable to common shareholders |
|
$ |
0.28 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
Diluted earnings per share data: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.28 |
|
|
$ |
0.37 |
|
Income from discontinued operations |
|
|
|
|
|
|
0.05 |
|
|
|
|
|
|
|
|
Net income applicable to common shareholders |
|
$ |
0.28 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
The exchange of the minority equity interest associated with operating partnership units into
common shares was not included in the computation of diluted EPS for the three-month periods ended
March 31, 2008 and 2007, because the effect of assuming conversion was anti-dilutive.
The Companys senior convertible notes issued in March 2007, which are convertible into common
shares of the Company with an initial conversion price of approximately $74.75, were not included
in the computation of diluted EPS for the three months ended March 31, 2008 and 2007. The senior
convertible notes, which are convertible into common shares of the Company with an initial
conversion price of approximately $65.11, were not included in the computation of diluted EPS for
the three months ended March 31, 2008. The Companys stock price did not exceed the strike price
of the conversion feature of the senior convertible notes in these periods.
12. SEGMENT INFORMATION
The Company has two reportable business segments, shopping centers and other investments,
determined in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131). Each shopping center is considered a separate operating
-20-
segment; however, each shopping center on a stand-alone basis is less than 10% of the revenues,
profit or loss, and assets of the combined reported operating segment and meets the majority of the
aggregation criteria under SFAS No. 131.
At March 31, 2008, the shopping center segment consisted of 710 shopping centers (including
317 owned through unconsolidated joint ventures and 40 that are otherwise consolidated by the
Company) in 45 states, plus Puerto Rico and Brazil. At March 31, 2007, the shopping center segment
consisted of 773 shopping centers (including 211 owned through unconsolidated joint ventures and 39
that are otherwise consolidated by the Company) in 45 states, plus Puerto Rico and Brazil. At
March 31, 2008 and 2007, the Company also owned seven business centers in five states.
The table below presents information about the Companys reportable segments for the
three-month periods ended March 31, 2008 and 2007 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2008 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
2,686 |
|
|
$ |
239,210 |
|
|
|
|
|
|
$ |
241,896 |
|
Operating expenses |
|
|
(1,180 |
) |
|
|
(63,364 |
) |
|
|
|
|
|
|
(64,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
1,506 |
|
|
|
175,846 |
|
|
|
|
|
|
|
177,352 |
|
Unallocated expenses (1) |
|
|
|
|
|
|
|
|
|
$ |
(141,028 |
) |
|
|
(141,028 |
) |
Equity in net income of joint ventures |
|
|
|
|
|
|
7,388 |
|
|
|
|
|
|
|
7,388 |
|
Minority equity interests |
|
|
|
|
|
|
|
|
|
|
(2,371 |
) |
|
|
(2,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
41,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real
estate assets as of March 31, 2008 |
|
$ |
103,160 |
|
|
$ |
8,974,777 |
|
|
|
|
|
|
$ |
9,077,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2007 |
|
|
|
Other |
|
|
Shopping |
|
|
|
|
|
|
|
|
|
Investments |
|
|
Centers |
|
|
Other |
|
|
Total |
|
Total revenues |
|
$ |
1,301 |
|
|
$ |
217,744 |
|
|
|
|
|
|
$ |
219,045 |
|
Operating expenses |
|
|
(427 |
) |
|
|
(52,725 |
) |
|
|
|
|
|
|
(53,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income |
|
|
874 |
|
|
|
165,019 |
|
|
|
|
|
|
|
165,893 |
|
Unallocated expenses (1) |
|
|
|
|
|
|
|
|
|
$ |
(115,567 |
) |
|
|
(115,567 |
) |
Equity in net income of joint ventures |
|
|
|
|
|
|
6,281 |
|
|
|
|
|
|
|
6,281 |
|
Minority equity interests |
|
|
|
|
|
|
|
|
|
|
(5,839 |
) |
|
|
(5,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real
estate assets as of March 31, 2007 |
|
$ |
96,429 |
|
|
$ |
10,357,581 |
|
|
|
|
|
|
$ |
10,454,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real
estate assets as of December 31, 2007 |
|
$ |
101,989 |
|
|
$ |
8,882,749 |
|
|
|
|
|
|
$ |
8,984,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unallocated expenses consist of general and administrative, interest income,
interest expense, tax benefit/expense, other income/expense and depreciation and
amortization as listed in the condensed consolidated statements of operations. |
-21-
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial
statements, the notes thereto and the comparative summary of selected financial data appearing
elsewhere in this report. Historical results and percentage relationships set forth in the
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 Exchange 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 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; |
|
|
|
|
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 sales over the Internet and the resulting retailing
practices and space needs of its tenants; |
|
|
|
|
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; |
|
|
|
|
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 |
-22-
|
|
|
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 and other factors; |
|
|
|
|
The Company may fail to dispose of properties on favorable terms. In addition, real
estate investments can be illiquid and 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, or if it is unable 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 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 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; |
|
|
|
|
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; |
|
|
|
|
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 borrows funds to make distributions, those borrowings may not be
available on favorable terms; |
|
|
|
|
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; |
|
|
|
|
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 |
-23-
|
|
|
properties in Brazil and an interest in consolidated joint ventures that will develop and own
properties in Canada, Russia and Ukraine; |
|
|
|
International development and ownership activities carry risks that are different
from 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 taxes,
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; |
|
|
|
|
Difficulties in managing international operations and |
|
|
|
|
Obstacles to the repatriation of earnings and 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; |
|
|
|
|
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 and |
|
|
|
|
Changes in interest rates could adversely affect the market price of the Companys
common shares, as well as its performance and cash flow. |
Executive Summary
The Company is a self-administered and self-managed REIT, in the business of acquiring,
developing, redeveloping, owning, leasing and managing shopping centers. As of March 31, 2008, the
Companys portfolio consisted of 710 shopping centers and seven business centers (including 317
properties owned through unconsolidated joint ventures and 40 properties owned through consolidated
joint ventures). These properties consist of shopping centers, lifestyle centers and enclosed malls
owned in the United States, Puerto Rico and Brazil. At March 31, 2008, the Company owned and/or
managed approximately 162 million total square feet of Gross Leasable Area (GLA), which includes
all of the aforementioned properties and 12 properties owned by third parties. The Company also has
assets under development in Canada and Russia. The Company believes that its portfolio of shopping
center properties is one of the largest (measured by the amount of total GLA) currently held by any
publicly-traded REIT. At March 31, 2008, the aggregate occupancy of the Companys shopping center
portfolio
-24-
was 94.5%, as compared to 95.0% at March 31, 2007. The Company owned 710 shopping centers at
March 31, 2008 as compared to 773 shopping centers at March 31, 2007. The average annualized base
rent per occupied square foot was $12.42 at March 31, 2008, as compared to $11.83 at March 31,
2007. The Company also owns seven office and industrial properties.
Net
income applicable to common shareholders for the three-month period ended March 31, 2008, was $32.9 million, or $0.28 per
share (diluted and basic), compared to net income of $48.7 million, or $0.42 per share (diluted and
basic), for the prior-year comparable period. Funds From Operations (FFO) applicable to common
shareholders for the three-month period ended March 31, 2008, was $99.6 million compared to $106.2
million for the three-month period ended March 31, 2007, a decrease of 6.2%. The decrease in FFO
applicable to common shareholders of approximately $6.6 million is principally attributable to the
release of certain tax reserves and transactional income that occurred in 2007 that was not
repeated in the first quarter of 2008. These decreases were partially offset by a full three
months of operating results for the merger with Inland Retail Real
Estate Trust, Inc. (IRRETI).
During the first quarter of 2008, the Company remained focused on its balance sheet,
identifying and obtaining financing at reasonable pricing and evaluating opportunities created by
the distress in the financial markets. This strategy reflects the Companys primary interest in
maintaining a strong balance sheet, while still capitalizing on attractive investment opportunities
that have been created by current market conditions. The Company continues to review prospective
investments based upon risk and return attributes; and the current markets offer some opportunities
that the Company has not seen in recent years.
Since the second quarter of 2007, the debt capital markets have been volatile and challenging
and numerous financial institutions have experienced unprecedented write-offs and liquidity issues.
Currently, the Company believes that lenders appetites for new financing are mixed. Rates
available from commercial and investment banks are widely divergent. Often, the larger banks are
interested in offering greater loan participations, which provides increased opportunities for
local or regional banks. The Company also has noted that life insurance companies are becoming
more selective in relation to new lending opportunities. Life insurance companies also appear to
be more interested in smaller loans versus large portfolios. The overall trend from lenders is
that the quality of sponsorship and relationship strength are critical factors in their decision
making process. The Company has established strong relationships with various financial
institutions since its inception as a public company in 1993, which have enabled the Company to
continue to effectively access the debt markets despite the challenging environment.
During the first quarter of 2008, the Company closed on over $500 million in new financings
including a five-year, $350 million secured financing on a portfolio of six wholly-owned properties
with a coupon interest rate of 5%. Other loan closings in the first quarter of 2008 included a $71
million construction loan on a development in Homestead, Florida and the refinancing of $72 million
of unconsolidated joint venture debt. The Companys 50% joint venture with Sonae Sierra in Brazil
also closed on a R$50 million reais revolving credit facility
with Bank Itau. The Company
continues to actively pursue additional secured project refinancings, primarily for its
unconsolidated joint ventures, and expects to close on these refinancings throughout the remainder
of 2008.
-25-
Also in 2008, the Company began purchasing units of Macquarie DDR Trust (MDT), an Australian
Based Listed Property Trust sponsored by Macquarie Bank Limited (ASX: MBL), an international
investment bank, advisor and manager of specialized real estate funds. MDT is the Companys joint
venture partner in the DDR Macquarie Fund LLC joint venture. Through March 31, 2008, the Company
purchased 29.7 million units at an aggregate purchase price of $14.0 million. Through the
combination of its purchase of the units in MDT and its direct and indirect ownership of the Fund,
DDR is entitled to an approximate 17.2% economic interest in the Fund. The Company views the
purchase of these units as an attractive investment alternative. By purchasing MDTs units, the
Company is able to increase its ownership in high quality assets in the Companys portfolio in a
manner that provides an immediate return on investment. Purchasing these units also ensures that
the Company has aligned its interests with the interests of other unit holders of MDT.
Retail Environment
In a decelerating economic environment, it is natural to see retailers that offer shoppers a
compelling value proposition and a have a strong balance sheet greatly expand market share at the
expense of competitors that are less well-positioned. As a retail landlord, the Company knows that
this competition can and will occur. The Companys leasing staff continues to evaluate the credit
quality of its tenants. In this regard, they are often marketing space that is currently leased to
take advantage of the opportunity to re-lease the space as a means of maximizing revenue potential
and limiting downtime.
Considering the current economic environment, the Company is pleased with its portfolio
performance and outlook for the remainder of the year. As the Companys portfolio has long-term
leases with high credit quality retailers that appeal to consumers demand for value and
convenience, the portfolio has historically performed well in times of macroeconomic stress. While
some deceleration in retailer new store growth is expected, many tenants actually do well in
tougher economies and view these challenges as an opportunity to gain market share. The Company is
well-positioned to benefit from the current economy in which consumers are increasingly
price-sensitive and less inclined to buy fully-priced discretionary items because the Companys
portfolio is founded on retailers that offer price leadership and value. These retailers are the
clear beneficiaries of consumer spending. The Company has observed this trend evolve in the
performance of department stores versus discount retailers and among discount apparel retailers
versus specialty retailers.
DDR Portfolio
Several aspects of the Companys portfolio quality, aside from the Companys long-term
consistency of portfolio metrics (occupancy, rent growth and leasing spreads), which illustrate the
stability and quality of the portfolio, that help it to better withstand against macroeconomic
volatility, include, but are not limited to, the following:
|
|
|
Tenant credit quality; |
|
|
|
|
A relatively low amount of capital expenditure needed to maintain the portfolio in a
condition to achieve income growth and a meaningful impact on the cash flow and |
|
|
|
|
Overall asset quality. Retailers make location decisions on far more than simply
demographics. Asset quality is also impacted by tenancy and physical location. While |
-26-
|
|
|
demographics play a part in defining asset quality, retailers also analyze markets based
on trade area, which often are irregularly-shaped to reflect variables such as asset size
or critical mass, competition, physical or geographic barriers and transportation. |
In conclusion, from both an operating standpoint and a leasing standpoint, the Company expects
the portfolio to continue to demonstrate solid results, despite the threat of a weakening economy.
Results of Operations
Revenues from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Base and percentage rental revenues |
|
$ |
163,858 |
|
|
$ |
151,830 |
|
|
$ |
12,028 |
|
|
|
7.9 |
% |
Recoveries from tenants |
|
|
53,602 |
|
|
|
45,722 |
|
|
|
7,880 |
|
|
|
17.2 |
|
Ancillary and other property income |
|
|
4,662 |
|
|
|
4,702 |
|
|
|
(40 |
) |
|
|
(0.9 |
) |
Management fees, development fees
and other fee income |
|
|
16,287 |
|
|
|
9,082 |
|
|
|
7,205 |
|
|
|
79.3 |
|
Other |
|
|
3,487 |
|
|
|
7,709 |
|
|
|
(4,222 |
) |
|
|
(54.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
241,896 |
|
|
$ |
219,045 |
|
|
$ |
22,851 |
|
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Base and percentage rental revenues relating to new leasing, re-tenanting and expansion of the
core portfolio properties (shopping center properties owned as of January 1, 2007, and since March
1, 2007 with regard to IRRETI assets, excluding properties
under development/redevelopment and those classified as discontinued operations) (Core Portfolio
Properties) increased approximately $3.2 million, or 2.5%, for the three-month period ended March
31, 2008, as compared to the same period in 2007. The increase in base and percentage rental
revenues is due to the following (in millions):
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Core Portfolio Properties |
|
$ |
3.2 |
|
IRRETI merger and acquisition of real estate assets |
|
|
17.8 |
|
Development/redevelopment of shopping center properties |
|
|
1.4 |
|
Disposition of shopping center properties in 2007 |
|
|
(10.7 |
) |
Business center properties |
|
|
0.4 |
|
Straight-line rents |
|
|
(0.1 |
) |
|
|
|
|
|
|
$ |
12.0 |
|
|
|
|
|
At March 31, 2008, the aggregate occupancy rate of the Companys shopping center portfolio was
94.5%, as compared to 95.0% at March 31, 2007. The Company owned 710 shopping centers at March 31,
2008, as compared to 773 shopping centers at March 31, 2007. The average annualized base rent per
occupied square foot was $12.42 at March 31, 2008, as compared to $11.83 at March 31, 2007.
At March 31, 2008, the aggregate occupancy rate of the Companys wholly-owned shopping centers
was 92.7%, as compared to 94.2% at March 31, 2007. The Company had 353 wholly-owned shopping
centers at March 31, 2008, as compared to 475 shopping centers at March 31, 2007. The average
annualized base rent per occupied square foot for wholly-owned shopping centers was $11.63 at March
31, 2008, as compared to $11.37 at March 31, 2007.
-27-
At March 31, 2008, the aggregate occupancy rate of the Companys joint venture shopping
centers was 96.1%, as compared to 97.0% at March 31, 2007. The Companys joint ventures owned 357
shopping centers including 40 consolidated centers primarily owned through the Mervyns Joint
Venture at March 31, 2008, as compared to 259 shopping centers including 39 consolidated centers
primarily owned through the Mervyns Joint Venture at March 31, 2007. The average annualized base
rent per occupied square foot was $13.12 at March 31, 2008, as compared to $12.41 at March 31,
2007. The increase is a result of the mix of shopping center assets in the joint ventures at March
31, 2008, as compared to March 31, 2007, primarily related to the 2007 formation of the TIAA-CREF
Joint Venture, DDR Domestic Retail Fund I and Dividend Capital Total Realty Joint Venture.
At March 31, 2008, the aggregate occupancy rate of the Companys business centers was 70.5%,
as compared to 60.5% at March 31, 2007. The increase in occupancy is primarily due to a large
vacancy filled at a business center in Boston, Massachusetts. The business centers consist of seven
assets in five states at March 31, 2008 and 2007.
Recoveries from tenants increased $7.9 million for the three-month period ended March 31,
2008, as compared to the same period in 2007. This increase is primarily due to an increase in
operating expenses and real estate taxes that aggregated $11.4 million due to the merger with
IRRETI in February 2007. Recoveries were approximately 83.1% and 86.0% of operating expenses and
real estate taxes for the three-month periods ended March 31, 2008 and 2007, respectively.
The increase in recoveries from tenants was primarily related to the following (in millions):
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
IRRETI merger and acquisition of real estate assets |
|
$ |
4.5 |
|
Development/redevelopment of shopping center properties 2007 |
|
|
1.4 |
|
Transfer of assets to unconsolidated joint ventures in 2007 |
|
|
(2.9 |
) |
Increase in operating expenses at the remaining shopping center
and business center properties |
|
|
4.9 |
|
|
|
|
|
|
|
$ |
7.9 |
|
|
|
|
|
Ancillary and other property income is a result of pursuing additional revenue opportunities
in the Core Portfolio Properties. The Company believes its ancillary income program will continue
to be an industry leader among shopping center developers. Continued growth is anticipated in the
area of ancillary or non-traditional revenue as new revenue opportunities are identified and as
currently established revenue opportunities grow throughout the Companys core, acquired and
development portfolios. The slight decrease in ancillary and other property income is related to
the conversion of operating arrangements at one of the Companys shopping centers into a
long-term lease agreement. This conversion resulted in a decrease in ancillary and other property
income of $2.0 million and a corresponding increase in base rent. Ancillary revenue opportunities
have in the past included short-term and seasonal leasing programs, outdoor advertising programs,
wireless tower development programs, energy management programs, sponsorship programs and various
other programs.
-28-
The increase in management, development and other fee income for the three-month period ended
March 31, 2008, is primarily due to the following (in millions):
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Newly formed unconsolidated joint venture interests |
|
$ |
4.8 |
|
Development fee income |
|
|
(0.1 |
) |
Other income |
|
|
1.0 |
|
Sale of several of the Companys unconsolidated joint venture properties |
|
|
(0.2 |
) |
Leasing commissions |
|
|
1.4 |
|
Increase in management fee income at various unconsolidated joint
ventures |
|
|
0.3 |
|
|
|
|
|
|
|
$ |
7.2 |
|
|
|
|
|
Management fee income is expected to continue to increase as unconsolidated joint ventures
acquire additional properties and as assets under development become operational. Development fee
income was primarily earned through the redevelopment of assets through the Coventry II Fund. The
Company expects to continue to pursue additional development unconsolidated joint ventures as
opportunities present themselves.
Other income for the three-month periods ended March 31, 2008 and 2007 was composed of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Acquisition fees (1) |
|
$ |
|
|
|
$ |
6.3 |
|
Lease termination fees |
|
|
3.3 |
|
|
|
1.3 |
|
Other, net |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
$ |
3.5 |
|
|
$ |
7.7 |
|
|
|
|
|
|
|
|
(1) |
|
Includes acquisition fees of $6.3 million earned from the formation of the joint venture with
TIAA-CREF in February 2007, excluding the Companys retained ownership interest. The Companys
fee was earned in conjunction with services rendered by the Company in connection with the
acquisition of the IRRETI real estate assets. |
Expenses from Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Operating and maintenance |
|
$ |
36,869 |
|
|
$ |
27,342 |
|
|
$ |
9,527 |
|
|
|
34.8 |
% |
Real estate taxes |
|
|
27,675 |
|
|
|
25,810 |
|
|
|
1,865 |
|
|
|
7.2 |
|
General and administrative |
|
|
20,715 |
|
|
|
21,518 |
|
|
|
(803 |
) |
|
|
(3.7 |
) |
Depreciation and amortization |
|
|
57,139 |
|
|
|
52,096 |
|
|
|
5,043 |
|
|
|
9.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
142,398 |
|
|
$ |
126,766 |
|
|
$ |
15,632 |
|
|
|
12.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance expenses include the Companys provision for bad debt expense, which
approximated 1.4% and 0.7% of total revenues for the three-month periods ended March 31, 2008 and
2007, respectively (see Economic Conditions).
-29-
The increase in rental operation expenses, excluding general and administrative, for the
three-month period ended March 31, 2008, compared to 2007, is due to the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Real |
|
|
Depreciation |
|
|
|
and |
|
|
Estate |
|
|
and |
|
|
|
Maintenance |
|
|
Taxes |
|
|
Amortization |
|
Core Portfolio Properties |
|
$ |
4.9 |
|
|
$ |
|
|
|
$ |
1.5 |
|
IRRETI merger and acquisition of real estate assets |
|
|
2.2 |
|
|
|
3.1 |
|
|
|
7.1 |
|
Development/redevelopment of shopping center properties |
|
|
1.1 |
|
|
|
0.5 |
|
|
|
(0.4 |
) |
Transfer of assets to unconsolidated joint ventures in 2007 |
|
|
(1.1 |
) |
|
|
(1.8 |
) |
|
|
(4.1 |
) |
Business center properties |
|
|
0.6 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Provision for bad debt expense |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
Personal property |
|
|
|
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9.5 |
|
|
$ |
1.9 |
|
|
$ |
5.0 |
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses for the three-month period ended March 31, 2008 includes
increased expenses due to the merger with IRRETI and additional stock-based compensation expense.
Total general and administrative expenses were approximately 4.3% and 5.7%, respectively, of total
revenues, including total revenues of unconsolidated joint ventures, for the three-month periods
ended March 31, 2008 and 2007, respectively. The decrease in general and administrative expenses
for the three-month period and this percentage in comparison to total revenues is primarily due to
additional compensation expense of $4.1 that was recorded by the Company in 2007 in connection with
the Companys former presidents departure as an executive officer.
The Company continues to expense internal leasing salaries, legal salaries and related
expenses associated with certain leasing and re-leasing of existing space. In addition, the
Company capitalized certain direct and incremental construction and software development and
implementation costs consisting of direct wages and benefits, travel expenses and office overhead
costs of $3.9 million and $3.1 million for the three-month periods ending March 31, 2008 and 2007,
respectively.
Other Income and Expenses (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Interest income |
|
$ |
582 |
|
|
$ |
3,682 |
|
|
$ |
(3,100 |
) |
|
|
(84.2 |
)% |
Interest expense |
|
|
(62,214 |
) |
|
|
(60,471 |
) |
|
|
(1,743 |
) |
|
|
2.9 |
|
Other expense, net |
|
|
(497 |
) |
|
|
(225 |
) |
|
|
(272 |
) |
|
|
120.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(62,129 |
) |
|
$ |
(57,014 |
) |
|
$ |
(5,115 |
) |
|
|
9.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income for the three-month period ended March 31, 2008, decreased primarily due to
excess cash held by the Company immediately following the closing as a result of the IRRETI merger
in February 2007.
-30-
Interest expense increased primarily due to the IRRETI merger and associated borrowings
combined with other development assets becoming operational, yet this interest expense was
significantly offset by a decrease in short-term interest rates. The weighted average debt
outstanding and related weighted average interest rates are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Ended March 31, |
|
|
2008 |
|
2007 |
Weighted average debt outstanding (billions) |
|
$ |
5.7 |
|
|
$ |
5.2 |
|
Weighted average interest rate |
|
|
4.9 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
At March 31, |
|
|
2008 |
|
2007 |
Weighted average interest rate |
|
|
4.8 |
% |
|
|
5.4 |
% |
The reduction in weighted average interest rates is primarily related to the Companys
issuance of $600 million of senior convertible notes in March 2007 with a coupon rate of 3.0% and
the recent decline in short-term interest rates. Interest costs capitalized, in conjunction with
development and expansion projects and development joint venture interests were $9.1 million and
$5.7 million for the three-month periods ended March 31, 2008 and 2007, respectively.
Other income/expense primarily relates to abandoned acquisition and development project costs
and litigation settlements or costs.
Other (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
Equity in net income of joint ventures |
|
$ |
7,388 |
|
|
$ |
6,281 |
|
|
$ |
1,107 |
|
|
|
17.6 |
% |
Minority equity interests |
|
|
(2,371 |
) |
|
|
(5,839 |
) |
|
|
3,468 |
|
|
|
(59.4 |
) |
Income tax (expense) benefit of
taxable REIT subsidiaries and
franchise taxes |
|
|
(1,045 |
) |
|
|
15,061 |
|
|
|
(16,106 |
) |
|
|
(106.9 |
) |
The increase in equity in net income of joint ventures is primarily due to increased income at
the joint ventures. A summary of the increase in equity in net income of joint ventures for the
three-month period ended March 31, 2008, is composed of the following (in millions):
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Acquisition of assets by unconsolidated joint ventures |
|
$ |
0.2 |
|
Decrease in gains from sale transactions as compared to 2007 |
|
|
(0.9 |
) |
Acquisitions and increased operating results of a joint venture in Brazil |
|
|
1.5 |
|
Various other increases |
|
|
0.3 |
|
|
|
|
|
|
|
$ |
1.1 |
|
|
|
|
|
-31-
In addition to the sale of the DDR Markaz LLC Joint Venture assets in June 2007, the Companys
unconsolidated joint ventures sold the following assets during 2007.
2007 Sales
One 25.5% effectively owned shopping center
Six sites formerly occupied by Service Merchandise
Minority equity interest expense decreased for the three-month period ended March 31, 2008,
primarily due to the following (in millions):
|
|
|
|
|
|
|
(Increase) |
|
|
|
Decrease |
|
Preferred operating partnership units (1) |
|
$ |
3.8 |
|
Mervyns Joint Venture (owned approximately 50% by the Company) |
|
|
(0.1 |
) |
Net increase in net income from consolidated joint venture investments |
|
|
(0.2 |
) |
|
|
|
|
|
|
$ |
3.5 |
|
|
|
|
|
|
|
|
(1) |
|
Preferred operating partnership units were issued in February 2007 as part of the financing
of the IRRETI merger. These units were repaid in June 2007. |
The aggregate income tax benefit of $15.1 million for the three-month period ended March 31,
2007, is primarily due to the Company recognizing an income tax benefit of approximately $15.4
million in the first quarter of 2007 resulting from the reversal of a previously established
valuation allowance against certain deferred tax assets. The reserves were related to deferred tax
assets established in prior years, at which time it was determined that it was more likely than not
that the deferred tax asset would not be realized and, therefore, a valuation allowance was
required. Several factors were considered in the first quarter of 2007 that contributed to the
reversals of the valuation allowance. The most significant factor was the sale of merchant building
assets by the Companys taxable REIT subsidiary in the second quarter of 2007 and similar projected
taxable gains for future periods. Other factors include the merger of various taxable REIT
subsidiaries and the anticipated profit levels of the Companys taxable REIT subsidiaries, which
will facilitate the realization of the deferred tax assets. Management regularly assesses
established reserves and adjusts these reserves when facts and circumstances indicate that a change
in estimate is necessary. Based upon these factors, management determined that it is more likely
than not that the deferred tax assets will be realized in the future and, accordingly, the
valuation allowance recorded against those deferred tax assets is no longer required.
Discontinued Operations (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
(Loss) income from discontinued operations |
|
$ |
(93 |
) |
|
$ |
2,939 |
|
|
$ |
(3,032 |
) |
|
|
(103.2 |
)% |
(Loss) gain on disposition of real estate,
net of tax |
|
|
(191 |
) |
|
|
2,819 |
|
|
|
(3,010 |
) |
|
|
(106.8 |
) |
Included in discontinued operations for the three-month periods ended March 31, 2008 and 2007,
are two properties sold in 2008 (including one property classified as held for sale at December 31,
2007), aggregating 0.1 million square feet, and 67 shopping centers sold in 2007 (including one
property held for sale at December 31, 2006 and 22 properties acquired through the IRRETI merger in
2007), aggregating 6.3 million square feet.
-32-
Gain on Disposition of Real Estate (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
Gain on disposition of real estate, net of tax |
|
$ |
2,367 |
|
|
$ |
6,010 |
|
|
$ |
(3,643 |
) |
|
|
(60.6 |
)% |
The Company recorded net gains on disposition of real estate and real estate investments for
the three-month periods ended March 31, 2008 and 2007, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Land sales (1) |
|
$ |
2.1 |
|
|
$ |
5.4 |
|
Previously deferred gains and other loss on dispositions (2) |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
$ |
2.4 |
|
|
$ |
6.0 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These dispositions did not meet the discontinued operations disclosure
requirement as the land did not have any significant operations prior
to disposition. |
|
(2) |
|
Primarily attributable to the recognition of additional gains associated
with the leasing of units associated with master lease and other obligations on
previously disposed properties. |
Net Income (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
Net income |
|
$ |
43,424 |
|
|
$ |
62,536 |
|
|
$ |
(19,112 |
) |
|
|
(30.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income decreased primarily due to the release of certain tax reserves in 2007 and a
reduction in the amount of gains on sale of real estate offset by income resulting from the merger
with IRRETI in February 2007 and an increase in Core Portfolio Property income. A summary of
changes in net income in 2008 as compared to 2007 is as follows (in millions):
|
|
|
|
|
|
|
Three-Month Period |
|
|
|
Ended March 31, |
|
Increase in net operating revenues (total revenues
in excess of operating and maintenance expenses and
real estate taxes) |
|
$ |
11.3 |
|
Decrease in general and administrative expenses |
|
|
0.8 |
|
Increase in depreciation expense |
|
|
(5.0 |
) |
Decrease in interest income |
|
|
(3.1 |
) |
Increase in interest expense |
|
|
(1.7 |
) |
Change in other expense |
|
|
(0.3 |
) |
Increase in equity in net income of joint ventures |
|
|
1.1 |
|
Decrease in minority equity interest expense |
|
|
3.5 |
|
Change in income tax benefit/expense |
|
|
(16.1 |
) |
Decrease in income from discontinued operations |
|
|
(3.0 |
) |
Decrease in gain on disposition of real estate of
discontinued operations properties |
|
|
(3.0 |
) |
Decrease in gain on disposition of real estate |
|
|
(3.6 |
) |
|
|
|
|
Decrease in net income |
|
$ |
(19.1 |
) |
|
|
|
|
-33-
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 as calculated in accordance with GAAP.
FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate
and real estate investments, which assumes that the value of real estate assets diminishes ratably
over time. Historically, however, real estate values have risen or fallen with market conditions,
and many companies utilize different depreciable lives and methods. Because FFO excludes
depreciation and amortization unique to real estate, gains and certain losses from depreciable
property dispositions and extraordinary items, it provides a performance measure that, when
compared year over year, reflects the impact on operations from trends in occupancy rates, rental
rates, operating costs, acquisition and development activities and interest costs. This provides a
perspective of the Companys financial performance not immediately apparent from net income
determined in accordance with GAAP.
FFO is generally defined and calculated by the Company as net income, adjusted to exclude: (i)
preferred share dividends, (ii) gains from disposition of depreciable real estate property, except
for those sold through the Companys merchant building program, which are presented net of taxes,
(iii) extraordinary items and (iv) certain non-cash items. These non-cash items principally include
real property depreciation, equity income from joint ventures and equity income from minority
equity investments and adding the Companys proportionate share of FFO from its unconsolidated
joint ventures and minority equity investments, determined on a consistent basis.
For the reasons described above, management believes that FFO provides 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 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 (i) in executive employment agreements to determine incentives based on
the Companys performance, (ii) as a measure of a real estate assets performance, (iii) to shape
acquisition, disposition and capital investment strategies and (iv) to compare the Companys
performance to that of other publicly traded shopping center REITs.
Management recognizes FFOs limitations when compared to GAAPs income from continuing
operations. FFO does not represent amounts available for needed capital replacement or expansion,
debt service obligations, or other commitments and uncertainties. Management does not use FFO as an
indicator of the Companys cash obligations and funding requirements for future commitments,
acquisitions or development activities. FFO does not represent cash generated from operating
activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash
needs, including the payment of dividends. FFO should not 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 is simply used as an additional indicator of the Companys operating performance.
-34-
For the three-month period ended March 31, 2008, FFO applicable to common shareholders was
$99.6 million, as compared to $106.2 million for the same period in 2007. The decrease in FFO in
2008 is principally attributable to the release of certain tax reserves and transactional income
that occurred in 2007 that was not repeated in the first quarter of 2008. These decreases were
partially offset by a full three months of operating results from the merger with IRRETI and
increases in revenues from the Core Portfolio Properties and developments. The Companys
calculation of FFO is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
|
Ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Net income applicable to common shareholders (1) |
|
$ |
32,857 |
|
|
$ |
48,744 |
|
Depreciation and amortization of real estate investments |
|
|
54,362 |
|
|
|
52,449 |
|
Equity in net income of joint ventures |
|
|
(7,388 |
) |
|
|
(6,281 |
) |
Joint ventures FFO (2) |
|
|
19,181 |
|
|
|
13,559 |
|
Minority equity interests (OP Units) |
|
|
595 |
|
|
|
569 |
|
Gain on disposition of depreciable real estate (3) |
|
|
(19 |
) |
|
|
(2,857 |
) |
|
|
|
|
|
|
|
FFO applicable to common shareholders |
|
|
99,588 |
|
|
|
106,183 |
|
Preferred dividends |
|
|
10,567 |
|
|
|
13,792 |
|
|
|
|
|
|
|
|
Total FFO |
|
$ |
110,155 |
|
|
$ |
119,975 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes straight-line rental revenues of approximately $2.8 million and $3.1
million for the three-month periods ended March 31, 2008 and 2007, respectively. |
|
(2) |
|
Joint ventures FFO is summarized as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Ended March 31, |
|
|
2008 |
|
2007 |
Net income (a) |
|
$ |
26,027 |
|
|
$ |
17,897 |
|
Loss on disposition of real estate, net (b) |
|
|
2 |
|
|
|
|
|
Depreciation and amortization of real estate investments |
|
|
56,604 |
|
|
|
30,963 |
|
|
|
|
|
|
|
|
|
|
$ |
82,633 |
|
|
$ |
48,860 |
|
|
|
|
|
|
|
|
DDR ownership interest (c) |
|
$ |
19,181 |
|
|
$ |
13,559 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes straight-line rental revenue of approximately $2.3
million and $1.3 million for the three-month periods ended March 31, 2008 and
2007, respectively, of which the Companys proportionate share is $0.3 million
and $0.2 million, respectively. |
|
(b) |
|
The gain or loss on disposition of recently developed shopping
centers, generally owned by the Companys taxable REIT subsidiaries, is included
in FFO, as the Company considers these properties part of the merchant building
program. These properties were either developed through the Retail Value
Investment Program with Prudential Real Estate Investors, or were assets sold in
conjunction with the formation of the joint venture that holds the designation
rights for the Service Merchandise properties. |
|
(c) |
|
The Companys share of joint venture net income has been reduced
by $0.1 million and $0.3 million, for the three-month periods ended March 31,
2008 and 2007, respectively, related to basis differences in depreciation and
adjustments to gain on sales. |
-35-
|
|
|
|
|
At March 31, 2008 and 2007, the Company owned unconsolidated joint venture
interests relating to 273 and 211 operating shopping center properties,
respectively. In addition, at March 31, 2008 and 2007, the Company owned 44 and
48 shopping center sites, respectively, formerly owned by Service Merchandise
through its 20% owned joint venture. The Company also owned an approximate 25%
interest in the Prudential Retail Value Fund and a 50% joint venture equity
interest in two real estate management/development companies. |
|
|
|
(3) |
|
The amount reflected as gain on disposition of real estate and real estate
investments from continuing operations in the consolidated statement 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 three-month periods ended March 31, 2008 and 2007, net gains
resulting from residual land sales aggregated $2.1 million and $5.4 million,
respectively. For the three-month periods ended March 31, 2008 and 2007, merchant
building gains, net of tax, aggregated $0.1 million and $0.5 million, respectively. |
Liquidity and Capital Resources
At March 31, 2008, the Company had $583.2 million available on its revolving credit facilities
and the Company continues to maintain a substantial unencumbered asset pool that it believes can be
used for additional secured and unsecured borrowings of nearly $6 billion.
The Company anticipates that cash flow from operating activities will continue to provide
adequate capital for all interest and monthly principal payments on outstanding indebtedness,
recurring tenant improvements and dividend payments in accordance with REIT requirements. The
Company anticipates that cash on hand, borrowings available under its existing revolving credit
facilities and other debt and equity alternatives, including the issuance of common and preferred
shares, OP Units, joint venture capital and asset dispositions, will provide the necessary capital
to achieve continued growth and the repayment of principal balances of the Companys debt upon its
maturity. The proceeds from the sale of assets classified as discontinued operations and other
asset dispositions will also be utilized to acquire and develop assets. The Company anticipates
being a net seller of assets in 2008 by divesting certain recently developed assets, land parcels
and non-core assets. These asset sales would provide the capital necessary to fund the growing
number of investment and development opportunities. The Company believes that its acquisitions and
developments completed in 2007, new leasing, expansion and re-tenanting of the Core Portfolio
Properties continue to add to the Companys operating cash flow.
The Company continues to evaluate its maturing debt and based on managements current
assessment, believes it has viable financing and refinancing alternatives that will not adversely
impact its expected financial results (see Contractual Obligations and other Commitments).
During the first quarter of 2008, the Company completed an aggregate collateralized financing
of $350 million, with a fixed interest coupon rate of 5% and a five-year maturity. Other loan
closings included a $71 million construction loan on a development property in Homestead, Florida
in March 2008 and a three-year, $40 million construction loan relating to the expansion of the
Companys corporate headquarters in Beachwood, Ohio in April 2008. Also, the Company refinanced
$72.1 million of mortgage debt at one of its unconsolidated joint ventures with the existing lender
at LIBOR plus 1.25% with a two-year maturity and a one-year extension option in March 2008.
-36-
The Company and its partners continue to assess their 2008 maturities. As of March 31, 2008,
the Company had $278.3 million of consolidated debt and the
Companys joint ventures have $491.4 million of unconsolidated joint
venture debt maturing in 2008. In 2008, debt maturities are anticipated to be repaid through
several sources as described below.
The Company has $38.5 million in mortgage loans that are expected to be repaid from operating
cash flow and asset dispositions and $45.9 million in mortgage loans that are expected to be
refinanced. Also, construction loans of $32.7 million are anticipated to be refinanced or extended
on similar terms. The Company will continue to seek opportunities to obtain construction financing
at commercially reasonable pricing to fund development activity. The Company anticipates all of
2008 maturities related to unconsolidated joint venture mortgages will be refinanced or extended on
similar terms.
The Companys 2009 maturities include mortgage and unsecured obligations of $123.5 million and
$274.8 million, respectively, that are anticipated to be refinanced or repaid from operating cash
flow, asset dispositions and/or other unsecured debt or equity financings or refinanced or extended
on similar terms.
These obligations generally have monthly payments of principal and/or interest over the term
of the obligation. No assurance can be provided that the aforementioned obligations will be
refinanced or repaid as currently anticipated.
The decrease in cash flow from operations primarily relates to the combination of a $24
million increase in prepaids and accounts receivable at March 31, 2008 and a $25 million increase
in payables, primarily interest, at March 31, 2007 relating to the timing of the IRRETI acquisition
in February 2007. Changes in cash flow from investing activities in 2008, as compared to 2007, are
primarily due to a reduction in both the acquisition and sale of assets as the merger with IRRETI
closed in February 2007, plus additional equity contributions to unconsolidated joint ventures.
The reduction to investing activities was slightly offset by the purchase of MDT units. Changes in
cash flow from financing activities in 2008, as compared to 2007, primarily relate to decrease in
2008 financing activity, as the 2007 activity reflects the financing required to fund the merger
with IRRETI.
The Companys cash flow activities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods |
|
|
Ended March 31, |
|
|
2008 |
|
2007 |
Cash flow provided by operating activities |
|
$ |
82,325 |
|
|
$ |
129,672 |
|
Cash flow used for investing activities |
|
|
(87,993 |
) |
|
|
(2,502,465 |
) |
Cash flow provided by financing activities |
|
|
25,356 |
|
|
|
2,424,136 |
|
During 2007, the Companys Board of Directors authorized a common share repurchase program.
Under the terms of the program, the Company may purchase up to a maximum value of $500 million of
its common shares over a two-year period. Through December 31, 2007, the Company had repurchased
under this program 5.6 million of its common shares in open market transactions at an aggregate
cost of approximately $261.9 million. From January 1, 2008 through May 5, 2008, the Company has
not purchased any of its common shares.
-37-
In January 2008, the Company announced its intent to increase its 2008 quarterly dividend per
common share to $0.69 from $0.66. The payout ratio is determined based on common and preferred
dividends declared as compared to the Companys FFO. The Companys common share dividend payout
ratio for the first three months of 2008 was approximately 83.6% of reported FFO, as compared to
78.2% for the same period in 2007. See Off Balance Sheet Arrangements and Contractual
Obligations and Other Commitments sections for discussion of additional disclosure of capital
resources.
Acquisitions, Developments, Redevelopments and Expansions
During the three-month period ended March 31, 2008, the Company and its unconsolidated joint
ventures expended an aggregate of approximately $178.2 million ($93.2 million by the Company and
$85.0 million by its unconsolidated joint ventures), net, to acquire, develop, expand, improve and
re-tenant various properties. The Companys acquisition, development, redevelopment and expansion
activity is summarized below.
Acquisitions
In January 2008, through a 50% consolidated joint venture interest with Holborn Brampton
Limited Partnership, the Company acquired 43 acres of land in Brampton, Ontario, Canada, for
approximately $32.6 million to develop a retail shopping center.
Macquarie DDR Trust
In February 2008, the Company began purchasing units of Macquarie DDR Trust (MDT), an
Australian Based Listed Property Trust sponsored by Macquarie Bank Limited (ASX: MBL), an
international investment bank, advisor and manager of specialized real estate funds. MDT is DDRs
joint venture partner in the DDR Macquarie Fund LLC Joint Venture (the Fund). Through the
combination of its purchase of the units in MDT and its direct and indirect ownership of the Fund,
DDR is entitled to an approximate 17.2% economic interest in the Fund at March 31, 2008. Through
April 17, 2008, as filed with the Australian Securities Exchange (ASX Limited), the Company has
purchased 56.6 million MDT units in open market transactions at an aggregate cost of approximately
$26.0 million, which reflects a weighted-average price per unit of $0.46. As the Company has the
ability to exercise significant influence over operating and financial policies, the Company
accounts for both its interest in MDT and the Fund using the equity method of accounting.
-38-
Development (Wholly-Owned and Consolidated Joint Ventures)
The Company currently has the following wholly-owned and consolidated joint venture shopping
center projects under construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected |
|
|
|
|
|
|
Owned |
|
|
Net Cost |
|
|
|
|
Location |
|
GLA |
|
|
(Millions) |
|
|
Description |
|
Ukiah (Mendocino),
California ** |
|
|
409,900 |
|
|
$ |
101.4 |
|
|
Mixed Use |
Miami (Homestead), Florida |
|
|
275,839 |
|
|
|
74.9 |
|
|
Community Center |
Miami, Florida |
|
|
400,685 |
|
|
|
142.6 |
|
|
Mixed Use |
Tampa (Brandon), Florida |
|
|
241,700 |
|
|
|
55.5 |
|
|
Community Center |
Tampa (Wesley Chapel), Florida |
|
|
73,360 |
|
|
|
13.7 |
|
|
Community Center |
Boise (Nampa), Idaho |
|
|
450,855 |
|
|
|
123.1 |
|
|
Community Center |
Boston, Massachusetts
(Seabrook, New Hampshire) |
|
|
210,180 |
|
|
|
50.1 |
|
|
Community Center |
Elmira (Horseheads), New York |
|
|
350,987 |
|
|
|
53.0 |
|
|
Community Center |
Raleigh (Apex), North
Carolina (Promenade) |
|
|
81,780 |
|
|
|
17.9 |
|
|
Community Center |
Raleigh (Apex), North
Carolina (Beaver Creek
Crossing, Phase II) |
|
|
162,270 |
|
|
|
50.8 |
|
|
Community Center |
Austin (Kyle), Texas ** |
|
|
325,005 |
|
|
|
60.0 |
|
|
Community Center |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,982,561 |
|
|
$ |
743.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** |
|
Consolidated 50% Joint Venture |
The wholly-owned and consolidated joint venture development estimated funding schedule, net of
reimbursements, as of March 31, 2008, is as follows (in millions):
|
|
|
|
|
Funded as of March 31, 2008 |
|
$ |
430.3 |
|
Projected net funding during 2008 |
|
|
54.1 |
|
Projected net funding thereafter |
|
|
258.6 |
|
|
|
|
|
Total |
|
$ |
743.0 |
|
|
|
|
|
In addition to these current developments, the Company and its unconsolidated joint ventures
are scheduled to commence construction on various other developments, including several
international projects. The Company has also identified several additional potential development
opportunities reflecting an aggregate estimated cost of over $1 billion. While there are no
assurances any of these projects will be undertaken, they provide a source of potential development
projects over the next several years.
-39-
Development (Unconsolidated Joint Ventures)
The Companys unconsolidated joint ventures have the following shopping center projects under
construction. At March 31, 2008, $283.7 million of costs had been incurred in relation to these
development projects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint |
|
|
DDRs Effective |
|
|
|
|
|
|
Expected |
|
|
|
|
|
|
Venture |
|
|
Ownership |
|
|
Owned |
|
|
Net Cost |
|
|
|
|
Location |
|
Partner |
|
|
Percentage |
|
|
GLA |
|
|
(Millions) |
|
|
Description |
|
Kansas City
(Merriam), Kansas |
|
Coventry II |
|
|
20.0 |
% |
|
|
202,116 |
|
|
$ |
46.8 |
|
|
Community Center |
Detroit (Bloomfield
Hills), Michigan |
|
Coventry II |
|
|
10.0 |
% |
|
|
882,197 |
|
|
|
192.5 |
|
|
Lifestyle Center |
Dallas (Allen), Texas |
|
Coventry II |
|
|
10.0 |
% |
|
|
797,665 |
|
|
|
171.2 |
|
|
Lifestyle Center |
Manaus, Brazil |
|
Sonae Sierra |
|
|
47.4 |
% |
|
|
477,630 |
|
|
|
82.6 |
|
|
Enclosed Mall |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
2,359,608 |
|
|
$ |
493.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unconsolidated joint venture development estimated funding schedule, net of
reimbursements, as of March 31, 2008, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anticipated |
|
|
|
|
|
|
DDRs |
|
|
JV Partners |
|
|
Proceeds from |
|
|
|
|
|
|
Proportionate |
|
|
Proportionate |
|
|
Construction |
|
|
|
|
|
|
Share |
|
|
Share |
|
|
Loans |
|
|
Total |
|
Funded as of March 31, 2008 |
|
$ |
42.2 |
|
|
$ |
111.2 |
|
|
$ |
130.3 |
|
|
$ |
283.7 |
|
Projected net funding during
2008 |
|
|
32.4 |
|
|
|
82.7 |
|
|
|
106.5 |
|
|
|
221.6 |
|
Projected net funding thereafter |
|
|
(12.0 |
) |
|
|
(55.7 |
) |
|
|
55.5 |
|
|
|
(12.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
62.6 |
|
|
$ |
138.2 |
|
|
$ |
292.3 |
|
|
$ |
493.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopments and Expansions (Wholly-Owned and Consolidated Joint Ventures)
The Company is currently expanding/redeveloping the following wholly-owned and consolidated
joint venture shopping centers at a projected aggregate net cost of approximately $152.5 million.
At March 31, 2008, approximately $99.6 million of costs had been incurred in relation to these
projects.
|
|
|
Property |
|
Description |
Miami (Plantation), Florida
|
|
Redevelop shopping center to include Kohls and additional junior tenants |
Chesterfield, Michigan
|
|
Construct 25,400 sf of small shop space and retail space |
Olean, New York
|
|
Wal-Mart expansion and tenant relocation |
Fayetteville, North Carolina
|
|
Redevelop 18,000 sf of small shop space and construct an outparcel
building |
Akron (Stow), Ohio
|
|
Redevelop former K-Mart space and develop new outparcels |
Dayton (Huber Heights), Ohio
|
|
Construct 45,000 sf junior tenant |
-40-
Redevelopments and Expansions (Unconsolidated Joint Ventures)
The Companys unconsolidated joint ventures are currently expanding/redeveloping the following
shopping centers at a projected net cost of $458.9 million, which includes original acquisition
costs related to assets acquired for development. At March 31, 2008, approximately $404.4 million
of costs had been incurred in relation to these projects. The following is a summary of these
unconsolidated joint venture redevelopment and expansion projects:
|
|
|
|
|
|
|
|
|
|
|
|
|
DDRs |
|
|
|
|
|
|
Effective |
|
|
|
|
|
|
Ownership |
|
|
Property |
|
Joint Venture Partner |
|
Percentage |
|
Description |
Buena Park, California
|
|
Coventry II
|
|
|
20.0 |
% |
|
Large-scale redevelopment of
enclosed mall to open-air
format |
Los Angeles
(Lancaster),
California
|
|
Prudential Real
Estate Investors
|
|
|
21.0 |
% |
|
Relocate Wal-Mart and
redevelop former Wal-Mart
space |
Chicago (Deer Park),
Illinois
|
|
Prudential Real
Estate Investors
|
|
|
25.75 |
% |
|
Re-tenant former retail shop
space with junior tenant and
construct 13,500 sf
multi-tenant outparcel
building |
Benton Harbor, Michigan
|
|
Coventry II
|
|
|
20.0 |
% |
|
Construct 89,000 sf of anchor
space and retail shops |
Kansas City, Missouri
|
|
Coventry II
|
|
|
20.0 |
% |
|
Relocate retail shops and
re-tenant former retail shop
space |
Cincinnati, Ohio
|
|
Coventry II/Thor
Equities
|
|
|
18.0 |
% |
|
Redevelop former JCPenney space |
Dispositions
In the first quarter of 2008, the Company sold two shopping center properties, including one
shopping center that was classified as held for sale at December 31, 2007, aggregating 0.1 million
square feet for approximately $8.0 million and recognized an immaterial loss.
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.
-41-
The unconsolidated joint ventures that have total assets greater than $250 million are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective |
|
|
|
Company-Owned |
|
|
|
|
Ownership |
|
|
|
Square Feet |
|
Total Debt |
Unconsolidated Real Estate Venture |
|
Percentage (1) |
|
Assets Owned |
|
(Thousands) |
|
(Millions) |
Sonae Sierra Brazil BV Sarl
|
|
|
47.4 |
% |
|
Nine shopping centers, one
shopping center under development
and a management company in
Brazil
|
|
|
3,483 |
|
|
$ |
|
|
DDR Domestic Retail Fund I
|
|
|
20.0 |
|
|
63 shopping center assets in
several states
|
|
|
8,342 |
|
|
|
968.3 |
|
DDR SAU Retail Fund LLC
|
|
|
20.0 |
|
|
29 shopping center assets in
several states
|
|
|
2,355 |
|
|
|
226.2 |
|
DDRTC Core Retail Fund LLC
|
|
|
15.0 |
|
|
66 shopping center assets in
several states
|
|
|
15,737 |
|
|
|
1,772.7 |
|
DDR Macquarie Fund LLC
|
|
|
17.2 |
|
|
51 shopping center assets in
several states
|
|
|
12,171 |
|
|
|
1,209.8 |
|
|
|
|
(1) |
|
Ownership may be held through different investment structures. Percentage ownerships are
subject to change as certain investments contain promoted structures. |
In connection with the development of shopping centers owned by certain of these affiliates,
the Company and/or its equity affiliates have agreed to fund the required capital associated with
approved development projects aggregating approximately $78.6 million at March 31, 2008. 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 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 $3.6 million at March 31, 2008, for which the Companys joint venture
partners have not funded their proportionate share. These entities are current on all debt service
owed to DDR.
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 guarantee to the third party lending institution(s)
providing construction financing.
The Companys unconsolidated joint ventures have aggregate outstanding indebtedness to third
parties of approximately $5.6 billion and $4.5 billion at March 31, 2008 and 2007, 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 recourse 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 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 $62.9 million at March 31, 2008.
The Company entered into separate joint ventures that own real estate assets in Brazil, Canada
and Russia. Although in certain circumstances the Company has obtained funding in the entities
functional currencies, the Company has generally chosen not to mitigate any of the residual foreign
-42-
currency risk through the use of hedging instruments. The Company will continue to monitor and
evaluate this risk and may enter into hedging agreements at a later date.
Financing Activities
The
volatility in the debt markets during the past several months has caused borrowing spreads
over treasury rates to reach higher levels than previously experienced. This uncertainty
re-emphasizes the need to access diverse sources of capital, maintain liquidity and stage debt
maturities carefully. Most significantly, it underscores the importance of a conservative balance
sheet that provides flexibility in accessing capital and enhances the Companys ability to manage
assets with limited restrictions. A conservative balance sheet should allow DDR to be opportunistic
in its investment strategy and in accessing the most efficient and lowest cost of financing
available.
In March 2008, the Company entered into mortgage loans with Metropolitan Life Insurance
Company on six of its wholly-owned shopping center assets, four of which are located in the
continental U.S. and two of which are located in Puerto Rico, for an aggregate of $350.0 million
with a maturity date of April 2013. The loans have a fixed interest rate of 5.0% and provide for
interest-only debt service payments with a balloon payment at maturity. The Company used the
proceeds from the loans to repay scheduled 2008 debt maturities and the remaining balance to repay
revolving credit facilities.
In January 2008, the Company repaid unsecured senior notes of $100.0 million through
borrowings on the Companys revolving credit facilities.
Other loan closings during the quarter included a $71 million construction loan on the
Companys Homestead, Florida development and the refinancing of $72 million of unconsolidated joint
venture debt. In addition, the Companys 50% joint venture with Sonae Sierra, which owns and
develops retail real estate in Brazil, closed on a R$50 million reais revolving credit facility in
February 2008.
Capitalization
At March 31, 2008, the Companys capitalization consisted of $5.7 billion of debt, $555
million of preferred shares, and $5.1 billion of market equity (market equity is defined as common
shares and OP Units outstanding multiplied by the closing price of the common shares on the New
York Stock Exchange at March 31, 2008, of $41.88), resulting in a debt to total market
capitalization ratio of 0.50 to 1.0. At March 31, 2008, the Companys total debt consisted of $4.6
billion of fixed-rate debt and $1.1 billion of variable-rate debt, including $600 million of
variable-rate debt that was effectively swapped to a fixed rate. At March 31, 2007, the Companys
total debt consisted of $4.7 billion of fixed-rate debt and $1.4 billion of variable-rate debt,
including $500 million of variable-rate debt which was effectively swapped to a fixed rate.
It is managements strategy to have access to the capital resources necessary to expand and
develop its business. Accordingly, the Company may seek to obtain funds through additional equity
offerings, debt financings and/or joint venture capital in a manner consistent with its intention
to operate with a conservative debt capitalization policy and maintain its investment grade ratings
with Moodys Investors Service and Standard and Poors. The security rating is not a recommendation
to
-43-
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.
The Companys 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, including, among other things, 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.
Although the Company intends to operate in compliance with these covenants, if the Company were to
violate those covenants, the Company may be subject to higher finance costs and fees or accelerated
maturity. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness
would likely have a negative impact on the Companys financial condition and results of operations.
As of March 31, 2008, the Company had $0.6 billion available under its $1.325 billion
revolving credit facilities and cash of $71.0 million. As of March 31, 2008, the Company also had
294 unencumbered consolidated operating properties generating $123.6 million, or 51.7% of the total
revenue of the Company for the three-month period ended March 31, 2008, thereby providing a
potential collateral base for future borrowings, subject to consideration of the financial
covenants on unsecured borrowings.
Contractual Obligations and Other Commitments
In 2008, debt maturities are anticipated to be repaid through several sources. Maturities for
the remainder of 2008 consist of $278.3 million in mortgage loans that are expected to be
refinanced or repaid from operating cash flow, revolving credit facilities, assets sales and/or new
financings. No assurance can be provided that the aforementioned obligations will be refinanced or
repaid as anticipated (see Liquidity and Capital Resources).
At March 31, 2008, the Company had letters of credit outstanding of approximately $77.9
million. 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 $58.0 million with general contractors for its wholly-owned
properties at March 31, 2008. 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 or
revolving credit facilities.
The Company entered into master lease agreements during 2004 through 2007 in connection with
the transfer of properties to certain unconsolidated joint ventures, which are recorded as a
liability and reduction of the related gain on sale. The Company is responsible for the monthly
base rent, all operating and maintenance expenses and certain tenant improvements and leasing
commissions for units not yet leased at closing for a three-year period. At March 31, 2008, the
Companys material
-44-
master lease obligations, included in accounts payable and accrued expenses, were incurred
with the properties transferred to the following unconsolidated joint ventures were (in millions):
|
|
|
|
|
DDR Markaz II |
|
$ |
0.2 |
|
DDR MDT PS LLC |
|
|
1.0 |
|
Dividend Capital Total Realty Trust Joint Venture |
|
|
0.9 |
|
|
|
|
|
|
|
$ |
2.1 |
|
|
|
|
|
The Company routinely enters into contracts for the maintenance of its properties which
typically can be cancelled upon 30-60 days notice without penalty. At March 31, 2008, the Company
had purchase order obligations, typically payable within one year, aggregating approximately $9.5
million related to the maintenance of its properties and general and administrative expenses.
The Company continually monitors its obligations and commitments. There have been no other
material items entered into by the Company since December 31, 2003, through March 31, 2008, 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
Substantially all of the Companys long-term leases contain provisions designed to mitigate
the adverse impact of inflation. Such provisions include clauses enabling the Company to receive
additional rental income from escalation clauses that generally increase rental rates during the
terms of the leases and/or percentage rentals based on tenants gross sales. Such escalations are
determined by negotiation, increases in the consumer price index or similar inflation indices. In
addition, many of the Companys leases are for terms of less than ten years, permitting the Company
to seek increased rents at market rates upon renewal. Most of the Companys leases require the
tenants to pay their share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing the Companys exposure to increases in costs and
operating expenses resulting from inflation.
Economic Conditions
Historically, real estate has been subject to a wide range of cyclical economic conditions
that affect various real estate markets and geographic regions with differing intensities and at
different times. Different regions of the United States have been experiencing varying degrees of
economic growth or distress. Adverse changes in general or local economic conditions could result
in the inability of some tenants of the Company to meet their lease obligations and could otherwise
adversely affect the Companys ability to attract or retain tenants. The Companys shopping centers
are typically anchored by two or more national tenants (Wal-Mart or Target), home improvement
stores (Home Depot or Lowes Home Improvement) and two or more junior tenants (Bed Bath & Beyond,
Kohls, Circuit City, T.J. Maxx or PetSmart), which generally offer day-to-day necessities, rather
than high-priced luxury items. In addition, the Company seeks to reduce its operating and leasing
risks through ownership of a portfolio of properties with a diverse geographic and tenant base.
-45-
The retail shopping sector has been affected by the competitive nature of the retail business
and the competition for market share where stronger retailers have out-positioned some of the
weaker retailers. These shifts have forced some market share away from weaker retailers and
required them, in some cases, to declare bankruptcy and/or close stores. Certain retailers have
announced store closings even though they have not filed for bankruptcy protection. Notwithstanding
any store closures, the Company does not expect to have any significant losses associated with
these tenants. Overall, the Companys portfolio remains stable. While negative news relating to
troubled retail tenants tends to attract attention, the vacancies created by unsuccessful tenants
may also create opportunities to increase rent.
Although certain individual tenants within the Companys portfolio have filed for bankruptcy
protection, the Company believes that several of its major tenants, including Wal-Mart, Home Depot,
Kohls, Target, Lowes Home Improvement, T.J. Maxx and Bed Bath & Beyond, are financially secure
retailers based upon their credit quality. This stability is further evidenced by the tenants
relatively constant same store tenant sales growth in the current economic environment. Headlines
describe the plight of subprime borrowers, the general troubles in the housing market and the
potential for such problems to impact consumer spending. Historically, the Companys portfolio has
performed consistently throughout many economic cycles, including downward cycles. Broadly
speaking, national retail sales have grown consistently since World War II, including during
several recessions and housing slowdowns. More specifically, in the past the Company has not
experienced significant volatility in its long-term portfolio occupancy rate. The Company believes
that the quality of its shopping center portfolio is strong, as evidenced by the high historical
occupancy rates, which have ranged from 92% to 96% since the Companys public offering in 1993.
Also, average base rental rates have increased from $5.48 to $12.42 since 1993. Moreover, the
Company has been able to achieve these results without significant capital investment in tenant
improvements or leasing commissions. While tenants may come and go over time, shopping centers that
are well-located and actively managed are expected to perform well. The Company is very conscious
of, and sensitive to, the risks posed to the economy, but is currently comfortable with the
position of its portfolio and the general diversity and credit quality of its tenant base.
Legal Matters
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
The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115 SFAS 159
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS No. 159), which gives entities the option to measure
eligible
-46-
financial assets, financial liabilities and firm commitments at fair value on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value
under other accounting standards. The election to use the fair value option is available when an
entity first recognizes a financial asset or financial liability or upon entering into a firm
commitment. Subsequent changes (i.e., unrealized gains and losses) in fair value must be recorded
in earnings. Additionally, SFAS No. 159 allows for a one-time election for existing positions upon
adoption, with the transition adjustment recorded to beginning retained earnings. The Company
adopted SFAS No. 159 on January 1, 2008.
Fair Value Measurements SFAS 157
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS No.
157). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities. This
statement clarifies the principle that fair value should be based on the assumptions that market
participants would use when pricing the asset or liability. SFAS No. 157 establishes a fair value
hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority
to unobservable data. SFAS No. 157 applies whenever other standards require assets or liabilities
to be measured at fair value. SFAS No. 157 also provides for certain disclosure requirements,
including, but not limited to, the valuation techniques used to measure fair value and a discussion
of changes in valuation techniques, if any, during the period. The Company adopted this statement
for its financial assets and liabilities on January 1, 2008 and
did not elect to measure any assets, liabilities or firm commitments
at fair value.
For nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at
fair value on a recurring basis, the effective date is fiscal years beginning after November 15,
2008. The Company is currently evaluating the impact that this statement, for nonfinancial assets
and liabilities, will have on its financial statements.
New Accounting Standards to Be Implemented
Business Combinations SFAS 141(R)
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations
(SFAS No. 141 (R)). The objective of this statement is to improve the relevance, representative
faithfulness, and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish that, this statement
establishes principles and requirements for how the acquirer: (i) recognizes and measures in its
financial statements, the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest of the acquiree, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase and (iii) determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. This statement applies prospectively to business combinations for
which the acquisition date is on or after the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is not permitted. The Company is currently assessing the impact
the adoption of SFAS No. 141 (R) would have on its financial position and results of operations.
-47-
Non-Controlling Interests in Consolidated Financial Statements an Amendment of ARB No. 51
SFAS 160
In December 2007, the FASB issued Statement No. 160, Non-Controlling Interest in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS No. 160). A non-controlling interest,
sometimes called minority interest, is the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. The objective of this statement is to improve the relevance,
comparability, and transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting standards that
require: (i) the ownership interest in subsidiaries held by other parties other than the parent be
clearly identified, labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parents equity, (ii) the amount of consolidated net income
attributable to the parent and to the non-controlling interest be clearly identified and presented
on the face of the consolidated statement of operations, (iii) changes in a parents ownership
interest while the parent retains its controlling financial interest in a subsidiary be accounted
for consistently and requires that they be accounted for similarly, as equity transactions, (iv)
when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former
subsidiary be initially measured at fair value, the gain or loss on the deconsolidation of the
subsidiary is measured using fair value of any non-controlling equity investments rather than the
carrying amount of that retained investment and (v) entities provide sufficient disclosures that
clearly identify and distinguish between the interest of the parent and the interest of the
non-controlling owners. This statement is effective for fiscal years, and interim reporting periods
within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is not
permitted. The Company is currently assessing the impact the adoption of SFAS No. 160 would have on
the Companys financial position and results of operations.
Disclosures about Derivative Instruments and Hedging Activities SFAS 161
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161), which is intended to help investors better understand how derivative
instruments and hedging activities affect an entitys financial position, financial performance and
cash flows through enhanced disclosure requirements. The enhanced disclosures primarily surround
disclosing the objectives and strategies for using derivative instruments by their underlying risk
as well as a tabular format of the fair values of the derivative instruments and their gains and
losses. SFAS No. 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged. The Company is
currently assessing the potential impact that the adoption of SFAS No. 161 will have on its
financial position and results of operations.
Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) FSP APB 14-a
In May 2008, the FASB issued FASB Staff Position (FSP), Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP
APB 14-a) which prohibits the consideration of convertible debt instruments that may be settled in
cash upon conversion, including partial cash settlement, as debt instruments within the scope of
FSP APB 14-a and requires issuers of such instruments to separately account for the liability and
equity components by allocating the proceeds from issuance of the instrument between the liability
component
-48-
and the embedded conversion option (i.e., the equity component). The difference between the
principal amount of the debt and the amount of the proceeds allocated to the liability component
should be reported as a debt discount and subsequently amortized to earnings over the instruments
expected life. As a result, a lower net income could be reflected as interest expense would
include both the current periods amortization of the debt discount and the instruments coupon
interest. This statement is effective for fiscal years beginning after December 15, 2008, and for
interim periods within those fiscal years, with retrospective application required. Early adoption
will not be permitted. The Company is currently assessing the impact that the adoption
of FSP APB 14-a will have on its financial position and results of operations.
Accounting for Transfers of Financial Assets and Repurchase Financing Transactions FSP FAS 140-3
In February 2008, the FASB issued a FSP on Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (FSP FAS 140-3). This FSP addresses the issue of whether or
not these transactions should be viewed as two separate transactions or as one linked
transaction. The FSP includes a rebuttable presumption linking the two transactions unless the
presumption can be overcome by meeting certain criteria. The FSP is effective for fiscal years
beginning after November 15, 2008 and will apply only to original transfers made after that date;
early adoption will not be permitted. The Company is currently evaluating the impact, if any, the
adoption of FSP FAS 140-3 will have on its financial position and results of operations.
-49-
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
March 31, 2007 |
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Percentage |
|
|
|
|
|
Average |
|
Average |
|
Percentage |
|
|
Amount |
|
Maturity |
|
Interest |
|
of |
|
Amount |
|
Maturity |
|
Interest |
|
of |
|
|
(Millions) |
|
(Years) |
|
Rate |
|
Total |
|
(Millions) |
|
(Years) |
|
Rate |
|
Total |
Fixed-Rate Debt (1) |
|
$ |
4,578.2 |
|
|
|
3.8 |
|
|
|
5.1 |
% |
|
|
80.2 |
% |
|
$ |
4,772.4 |
|
|
|
4.3 |
|
|
|
5.2 |
% |
|
|
77.8 |
% |
Variable-Rate
Debt (1) |
|
$ |
1,131.6 |
|
|
|
3.7 |
|
|
|
3.5 |
% |
|
|
19.8 |
% |
|
$ |
1,360.5 |
|
|
|
1.9 |
|
|
|
6.0 |
% |
|
|
22.2 |
% |
(1) |
|
Adjusted to reflect the $600 million and $500 million of variable-rate debt that LIBOR was
swapped to a fixed rate of 5.0% at March 31, 2008 and 2007. |
The Companys unconsolidated joint ventures fixed-rate indebtedness, including $557.3 million
of variable-rate debt, that was swapped to a weighted average fixed rate of approximately 5.3% at
March 31, 2008 and 2007, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
March 31, 2007 |
|
|
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 |
|
$ |
4,514.3 |
|
|
$ |
885.1 |
|
|
|
5.7 |
|
|
|
5.3 |
% |
|
$ |
3,534.5 |
|
|
$ |
672.4 |
|
|
|
5.6 |
|
|
|
5.3 |
% |
Variable-Rate
Debt |
|
$ |
1,066.8 |
|
|
$ |
185.8 |
|
|
|
1.4 |
|
|
|
3.6 |
% |
|
$ |
969.1 |
|
|
$ |
165.0 |
|
|
|
1.5 |
|
|
|
6.3 |
% |
The Company intends to utilize variable-rate indebtedness available under its revolving credit
facilities and construction loans to initially fund future acquisitions, developments and
expansions of 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 the Companys and its unconsolidated joint ventures variable-rate
debt described above has been mitigated through the use of interest rate swap agreements (the
Swaps) with major financial institutions. At March 31, 2008 and 2007, the interest rate on the
Companys $600 and $500 million consolidated floating rate debt, respectively, was swapped to fixed
rates. At March 31, 2008 and 2007, the interest rate on the Companys $557.3 million of joint
venture floating rate debt (of which $96.0 million and $80.8 million is the Companys proportionate
share at March 31, 2008 and 2007, respectively) was swapped to fixed
rates. The Company is exposed
to credit risk in the event of
-50-
non-performance by the counter-parties to the Swaps. The Company believes it mitigates its
credit risk by entering into Swaps with major financial institutions.
In November 2007, the Company entered into a treasury lock with a notional amount of $100
million. The treasury lock was terminated in connection with the issuance of mortgage debt in March
2008. The treasury lock was executed to hedge the benchmark interest rate associated with
forecasted interest payments associated with the anticipated issuance of fixed-rate borrowings.
The effective portion of these hedging relationships has been deferred in accumulated other
comprehensive income and will be reclassified into earnings over the term of the debt as an
adjustment to earnings, based on the effective-yield method.
The fair value of the Companys fixed-rate debt adjusted to: (i) include the $600 million and
$500 million, respectively, that was swapped to a fixed rate at March 31, 2008 and 2007; (ii)
include the Companys proportionate share of the joint venture fixed-rate debt and (iii) include
the Companys proportionate share of $96.0 million and $80.8 million that was swapped to a fixed
rate at March 31, 2008 and 2007, respectively, and an estimate of the effect of a 100 point
decrease in market interest rates, is summarized as follows:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
March 31, 2007 |
|
|
|
|
|
|
|
|
|
|
100 Basis Point |
|
|
|
|
|
|
|
|
|
100 Basis Point |
|
|
Carrying |
|
Fair |
|
Decrease in |
|
Carrying |
|
Fair |
|
Decrease in |
|
|
Value |
|
Value |
|
Market Interest |
|
Value |
|
Value |
|
Market Interest |
|
|
(Millions) |
|
(Millions) |
|
Rates |
|
(Millions) |
|
(Millions) |
|
Rates |
Companys fixed-rate debt |
|
$ |
4,578.2 |
|
|
$ |
4,475.0 |
(1) |
|
$ |
4,616.2 |
(2) |
|
$ |
4,772.4 |
|
|
$ |
4,795.4 |
(1) |
|
$ |
4,927.2 |
(2) |
Companys proportionate
share of joint venture
fixed-rate debt |
|
$ |
885.1 |
|
|
$ |
885.9 |
(3) |
|
$ |
931.1 |
(4) |
|
$ |
672.4 |
|
|
$ |
671.4 |
(3) |
|
$ |
705.2 |
(4) |
|
|
|
(1) |
|
Includes the fair value of interest rate swaps, which was a liability of $32.7
million and $2.9 million at March 31, 2008 and 2007, respectively. |
|
(2) |
|
Includes the fair value of interest rate swaps, which was a liability of $47.2
million and $16.2 million at March 31, 2008 and 2007, respectively. |
|
(3) |
|
Includes the Companys proportionate share of the fair value of interest rate
swaps that was a liability of $6.4 million and $0.7 million at March 31, 2008 and 2007,
respectively. |
|
(4) |
|
Includes the Companys proportionate share of the fair value of interest rate
swaps that was a liability of $12.2 million and $4.8 million at March 31, 2008 and
2007, 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 at March 31, 2008 and
2007, would result in an increase in interest expense of approximately $2.8 million and $3.4
million, respectively, for the Company and $0.5 million and $0.4 million, respectively,
representing the Companys proportionate share of the joint ventures interest expense relating to
variable-rate debt outstanding, for the three-month periods. The estimated increase in interest
expense for the three-month periods does not give effect to possible changes in the daily balance
for the Companys or joint ventures outstanding variable-rate debt.
-51-
The Company and its joint ventures continually monitor and actively manage interest costs on
their variable-rate debt portfolio and may enter into interest rate swap positions based on market
conditions. In addition, the Company continually assess its ability to obtain funds through
additional equity and/or debt offerings, including the issuance of medium term notes and joint
venture capital. Accordingly, the cost of obtaining interest rate protection agreements in relation
to the Companys access to capital markets will continue to be evaluated. The Company has not, and
does not plan to, enter into any derivative financial instruments for trading or speculative
purposes. As of March 31, 2008, the Company had no other material exposure to market risk.
-52-
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 rules 13a-15(e)) are effective as of the end of the period covered by this quarterly report on
Form 10-Q to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules and forms and were
effective as of the end of such period to ensure that information required to be disclosed by the
Company issuer in reports that it files or submits under the Securities Exchange Act is accumulated
and communicated to the Companys management, including its CEO and CFO, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure. During
the three-month period ended March 31, 2008, 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.
-53-
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 presently involved in any litigation nor, to its knowledge, is any
litigation threatened against the Company or its properties, which is reasonably likely to have a
material adverse effect on the liquidity or results of operations of the Company.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 26, 2007, the Board of Directors authorized a common share repurchase program. Under
the terms of the program, the Company may purchase up to a maximum value of $500 million of its
common shares over a two-year period. At March 31, 2008, the Company had repurchased under this
program 5.6 million of its common shares at a gross cost of approximately $261.9 million at a
weighted-average price per share of $46.66. The Company made no repurchases during the quarter
ended March 31, 2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
31.1 |
|
Certification of principal executive 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 |
-54-
31.3 |
|
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
20021 |
|
31.4 |
|
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
20021 |
|
|
|
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. |
-55-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
|
|
|
|
|
|
|
|
May 12, 2008 |
/s/ William H. Schafer
|
|
(Date) |
William H. Schafer, Executive Vice President and |
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Chief Financial Officer (Duly Authorized Officer) |
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May 12, 2008 |
/s/ Christa A. Vesy
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|
(Date) |
Christa A. Vesy, Senior Vice President and Chief |
|
|
Accounting Officer (Chief Accounting Officer) |
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