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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________to__________
Commission file number 1-11690
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-1723097
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
34555 Chagrin Boulevard Moreland Hills, Ohio 44022
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(Address of principal executive offices - zip code)
(440) 247-4700
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Shares, Without Par Value New York Stock Exchange
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Depositary Shares Representing
Class A Cumulative Redeemable Preferred Shares New York Stock Exchange
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Depositary Shares Representing
Class B Cumulative Redeemable Preferred Shares New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
2
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 X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant at March 16, 1998 was $991,953,728.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
27,819,716 common shares outstanding as of March 16, 1998
DOCUMENTS INCORPORATED BY REFERENCE.
The registrant incorporates by reference in Part III hereof portions of
its definitive Proxy Statement for its 1998 Annual Meeting of Shareholders.
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TABLE OF CONTENTS
Item No. Report Page
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PART I
1. Business ....................................................... 4
2. Properties...................................................... 10
3. Legal Proceedings............................................... 19
4. Submission of Matters to a Vote of Security Holders............. 19
PART II
5. Market for the Registrant's Common Equity and
Related Shareholder Matters ................................. 22
6. Selected Financial Data......................................... 23
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 25
8. Financial Statements and Supplementary Data..................... 33
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 33
PART III
10. Directors and Executive Officers of the Registrant.............. 34
11. Executive Compensation.......................................... 34
12. Security Ownership of Certain Beneficial Owners
and Management ............................................... 34
13. Certain Relationships and Related Transactions.................. 34
PART IV
14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K........................................... 35
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PART I
Item 1. BUSINESS
General Development of Business
Developers Diversified Realty Corporation (the "Company"), a
self-administered and self-managed real estate investment trust (a "REIT"), is
in the business of acquiring, developing, redeveloping, owning, leasing and
managing shopping centers and business centers. Unless otherwise provided,
references herein to the Company include Developers Diversified Realty
Corporation, its wholly owned and majority owned subsidiaries and its joint
ventures.
From January 1, 1995 to March 16, 1998, the Company has acquired 35
shopping center properties, including those owned through joint ventures, two of
which were acquired in 1998, eight of which were acquired in 1997, five of which
were acquired in 1996, 20 of which were acquired in 1995.
The Company's executive offices are located at 34555 Chagrin Boulevard,
Moreland Hills, Ohio 44022, and its telephone number is (440) 247-4700.
Financial Information about Industry Segments
The Company is in the business of managing, operating, leasing,
acquiring, developing and investing in shopping centers and business centers.
See the consolidated financial statements and notes thereto included in Item 8
of this Annual Report on Form 10-K for certain information required by Item 1.
Narrative Description of Business
Since 1965, the Company and Developers Diversified Group ("DDG"), its
predecessor, have owned and managed approximately 239 shopping centers. The
Company's portfolio as of March 16, 1998 consisted of 125 shopping centers
(including 15 properties which are owned through joint ventures, 14 of which the
Company owns a 50% interest, and one of which the Company owns a 35% interest),
five business centers and 70 undeveloped parcels (5 of which are owned through
joint ventures) aggregating approximately 175 acres (the "Portfolio
Properties"). In addition, the Company owns a 42.5% ownership interest in a
shopping center located in Princeton, New Jersey and a 75% interest in a joint
venture which acquired 33 retail sites, formerly occupied by Best Products. From
January 1, 1995 to March 16, 1998, the Company has acquired 35 shopping centers
containing an aggregate of 10.4 million square feet of GLA owned by the Company
for an aggregate purchase price of approximately $1.0 billion. During 1995, 1996
and 1997, the Company completed expansions at 32 of its shopping centers. As of
March 16, 1998, the Company was expanding seven shopping centers and expects to
commence expansions at additional shopping centers in 1998. The Company has also
substantially completed the development of 11 additional shopping centers since
December 31, 1994, at an aggregate cost of approximately $231.4 million
aggregating approximately 3.9 million square feet. As of March 16, 1998, the
Company had five shopping centers under development.
The Company's shopping centers were approximately 96.1% leased as of
December 31, 1997, and the business centers were 98.6% leased as of that date.
At December 31, 1997, the Company had entered into additional leases with anchor
tenants aggregating in excess of 158,000 square feet of vacant space, scheduled
to commence in 1998, which brings the leased rate at the shopping centers to
96.7%. On December 31, 1997, the average annualized base rent per square foot
of Company-owned GLA of the shopping centers was $8.49 and the business centers
was $4.04.
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The Company is self-administered and self-managed and, therefore, does
not engage or pay for a REIT advisor. The Company manages all of the Portfolio
Properties. At December 31, 1997, the Company owned and/or managed approximately
35.3 million total square feet of GLA, which included all of the Portfolio
Properties and 23 properties owned by third parties.
Strategy and Philosophy
The Company's investment objective is to increase cash flow and the
value of its portfolio of properties and to seek continued growth through the
selective acquisition, development, redevelopment, renovation and expansion of
income-producing real estate properties, primarily shopping centers. In pursuing
its investment objective, the Company will continue to seek to acquire and
develop high quality, well-located shopping centers and business centers with
attractive initial yields and strong prospects for future cash flow growth and
capital appreciation where the Company's financial strength and management and
leasing capabilities can enhance value.
Management believes that opportunities to acquire existing shopping
centers have been and will continue to be available to buyers with access to
capital markets, such as the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company's real estate strategy and philosophy is to grow its
business through a combination of leasing, expansion, acquisition and
development. The Company seeks to:
- increase cash flows and property values through strategic
leasing, re-tenanting, renovation and expansion of the
Company's portfolio;
- continue to selectively acquire well-located, quality shopping
centers (individually or in portfolio transactions) which have
leases at rental rates below market rates or other cash flow
growth or capital appreciation potential where the Company's
financial strength, relationships with retailers and
management capabilities can enhance value;
- increase cash flows and property values by continuing to take
advantage of attractive financing and refinancing
opportunities (see "Recent Developments - Financings");
- selectively develop the Company's undeveloped parcels or new
sites in areas with attractive demographics;
- hold properties for long-term investment and place a strong
emphasis on regular maintenance, periodic renovation and
capital improvements; and
- continue to manage and develop the properties of others to
generate fee income, subject to restrictions imposed by
federal income tax laws, and create opportunities for
acquisitions.
As part of its ongoing business the Company may periodically engage in
discussions with public and private real estate entities regarding possible
portfolio or asset acquisitions or business combinations.
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In addition, the Company intends to maintain a conservative debt
capitalization with a ratio of debt to total market capitalization (the sum of
the aggregate market value of the Company's common shares, the liquidation value
of preferred shares and the Company's total indebtedness) of less than .50 to
1.0. At December 31, 1997, the Company's debt to total market capitalization
ratio, excluding the Company's proportionate share of indebtedness of its
unconsolidated joint ventures, was approximately 0.36 to 1.0; and at March 16,
1998 this ratio was approximately 0.36 to 1.0 At December 31, 1997, the
Company's capitalization consisted of $668.5 million of debt (excluding the
Company's proportionate share of joint venture mortgage debt aggregating $190.3
million), $149.8 million of preferred stock and $1,059.0 million of market
equity. At December 31, 1997, the Company's total debt consisted of $526.0
million of fixed-rate debt and $142.5 million of variable rate debt.
Fluctuations in the market price of the Company's common shares may cause this
ratio to vary from time to time.
The strategy, philosophy, investment and financing policies of the
Company, and its policies with respect to certain other activities, including
its growth, debt capitalization, distributions, status as a REIT and operating
policies, are determined by the Board of Directors. Although it has no present
intention to do so, the Board of Directors may amend or revise these policies
from time to time without a vote of the shareholders of the Company.
Recent Developments
Financings
In January 1997, the Company completed a 3,350,000 common share
offering and received net proceeds of approximately $115.8 million. In June
1997, the Company completed a 1,300,000 common share offering and received net
proceeds of approximately $49.4 million. In September 1997, the Company
completed a 507,960 common share offering through a registered unit investment
trust and received net proceeds of approximately $18.8 million. In December
1997, the Company completed a 316,800 common share offering through a registered
unit investment trust and received net proceeds of approximately $11.3 million.
The proceeds from the four common share offerings mentioned above were primarily
used to retire variable rate debt. The common share offerings significantly
strengthened the Company's balance sheet and positioned the Company to continue
to take advantage of attractive acquisition, development and expansion
opportunities.
In March 1997, the Company issued, through a grantor trust, $75 million
of Pass-Through Asset Trust Securities (PATS), due March 2002, at a discount to
99.53%. These certificates are secured by fifteen year notes ("Notes") maturing
March 2012, issued by the Company to the trust. The trust sold an option which
enables the option holder to remarket the Notes upon maturity of the
certificates in March 2002. Simultaneously with the sale of the certificates,
the trust purchased the Notes from the Company for a premium in the amount of
the option payment.
In March 1997, the Company extended its $150 million unsecured
revolving credit facility, agented by the First National Bank of Chicago and
Bank of America NT&SA, for an additional year, through May 2000, and reduced the
interest rate 15 basis points. The amendment also introduced a competitive bid
feature for up to $75 million of borrowings. In April 1997, the Company extended
its $10 million unsecured revolving credit facility with National City Bank
through November 2000, and reduced the interest rate 15 basis points.
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In March 1997, the Company sold two business centers in Highland
Heights, Ohio aggregating approximately 113,000 square feet for approximately
$5.7 million and recognized a gain of approximately $3.5 million. The net
proceeds of approximately $5.4 million were used to repay revolving credit debt.
In November 1995, the Company commenced a medium-term note program (the
"Medium Term Note Program"). The Medium Term Note Program enables the Company
(i) to issue on an ongoing basis discrete amounts of unsecured debt that will
closely match, both as to timing and amount, the Company's specific liquidity
requirements, including property acquisition, development and redevelopment
costs, and (ii) to better manage the Company's debt maturities, including its
mortgage debt maturities. As of March 16, 1998, the Company had issued Medium
Term Notes in the aggregate amount of $317.7 million ($100 million in 1998,
$102 million in 1997, and $115.7 million in 1996 and 1995). The net proceeds
from each issuance were used to repay line of credit borrowings and mortgage
debt. The Medium Term Note Program remains available for the Company to issue
additional Medium Term Notes when the Company considers market conditions
advantageous.
Equity Investments in Joint Venture
In January 1997, the Company formed a joint venture with certain
institutional investors, which are advised by DRA Advisors, Inc., to acquire a
0.3 million square foot shopping center located in San Antonio, Texas. The
aggregate cost of the shopping center was approximately $38.3 million of which
the Company's proportionate ownership share was 35%. The Company contributed
approximately $3.5 million of equity and manages the shopping center pursuant
to a management agreement.
Property Acquisitions, Developments and Expansions
During 1997, the Company acquired seven shopping centers aggregating
2.4 million square feet of Company-owned GLA (Gross Leasable Area) for an
aggregate investment of approximately $267.9 million. In addition, in January
1997, the Company entered into a joint venture with certain institutional
investors which are advised by DRA Advisors, Inc. to acquire a 0.3 million
square foot shopping center located in San Antonio, Texas. The aggregate cost of
the shopping center was approximately $38.3 million of which the Company's
proportionate ownership share is 35%. The Company also contributed approximately
$0.5 million of additional assets to the OSTRS Joint Venture during 1997.
During 1997, the Company and its joint ventures completed expansions
and redevelopments at 13 of its shopping centers aggregating approximately 0.8
million square feet at an aggregate cost of approximately $39.0 million. The
Company is currently expanding seven shopping centers and will continue to
pursue additional expansion opportunities. The Company and its joint ventures
currently have approximately 175 acres of undeveloped land consisting of 70
parcels, primarily adjacent to its existing shopping centers, available for
development, expansion or sale.
During 1997, the Company substantially completed the construction of
four shopping centers which include: (i) a 235,000 square foot Phase II
development of the Canton, Ohio shopping center; (ii) a 500,000 square foot
shopping center in Boardman, Ohio; (iii) a 475,000 square foot shopping center
in Stow, Ohio and (iv) an 84,000 square foot community center in Aurora, Ohio.
Development activity was also completed at two of the Company's joint venture
shopping centers located in Atlanta, Georgia and Framingham, Massachusetts which
were acquired in connection with the Community Center Joint Ventures in November
1995.
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During 1997, the Company commenced construction on two additional
shopping centers which include a 200,000 square foot Phase II development of the
Erie, Pennsylvania center, and a 445,000 square foot shopping center in Merriam,
Kansas which is being developed through a joint venture formed in October 1996,
50% of which is owned by the Company. These shopping centers are scheduled for
completion during the last half of 1998. The Company has also commenced the
initial development of three additional shopping centers which include: (i) a
240,000 square foot shopping center in Toledo, Ohio; (ii) a 170,000 square foot
shopping center in Solon, Ohio and (iii) a 230,000 square foot shopping center
in Oviedo, Florida (a suburb of Orlando). All three centers are scheduled for
completion during the fourth quarter of 1998.
The Company is also involved with, or pursuing, joint venture
development opportunities on eight additional projects with various developers
throughout the country at a projected cost aggregating approximately $300
million. The majority of projects should commence development in 1998 and are
currently scheduled for completion in 1999.
In December 1997, the Company and Hendon Associates formed a joint
venture to acquire 33 retail sites, formerly occupied by Best Products, from
Metropolitan Life. Under the terms of the joint venture with Hendon Associates,
the Company advanced the capital to fund the purchase price of the assets and
it is expected that the Company will receive (i) a priority return of its
capital; (ii) a 15% compound annual return thereon and (iii) 75% of additional
available cash flow. The 33 retail sites, are located in 13 states with
concentrations in Ohio, California and New Jersey. These sites were acquired at
an initial cost of approximately $54.5 million. It is expected that a majority
of the 33 sites will be redeveloped and retenanted with a few sites being sold.
At the date of acquisition, it was anticipated that the Company's
ownership interest would be transferred to the "Retail Value Fund" ("Fund")
with Prudential Real Estate Investors upon finalization of the joint venture
documents which occurred on February 11, 1998. The Company contributed its
ownership interest in the joint venture formed with Hendon Associates to the
Fund, and in exchange for a 75% ownership interest in this joint venture, was
reimbursed approximately $41.5 million from Prudential Real Estate Investors.
The proceeds of $41.5 million were used to repay variable rate borrowings on
the Company's revolving credit facilities.
The Fund will invest in retail properties within the United States that
are in need of substantial retenanting and market repositioning. This Fund
may also make equity or debt investments in companies owning or managing retail
properties as well as in third party development projects that provide
significant growth opportunities. The retail property investments may include
enclosed malls, neighborhood centers or other potential commercial
redevelopment opportunities. The Company is expected to maintain an ownership
interest of approximately 25% in the Fund. The Company will also own a majority
of the stock of the general partner of the Fund. The general partner will own a
1% interest in the Fund and will receive an incentive participation equal to
33% of cash flow, after the limited partners receive a return of invested
capital plus a cumulative return of 10% thereon. The Fund will have its own
employees and the Company will assume retail management and operating
responsibilities including leasing, redevelopment and accounting and will be
paid fees in consideration of the foregoing services.
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In late December 1997, the Company acquired a 42.5% ownership interest
in a 584,000 square foot shopping center located in Princeton, New Jersey at an
initial cost of approximately $7.7 million. During the first half of 1998, the
Company anticipates acquiring the balance of the ownership interest in the
property through the issuance of approximately 11,850 Operating Partnership
Units, which will be convertible to the Company's common shares, and the
assumption of debt. Upon completion of the transaction, the Company's aggregate
investment will be approximately $36.4 million, including assumption of debt of
approximately $27.7 million. The Company also acquired a 45.1% ownership
interest in an adjacent development site at an initial cost of approximately
$9.9 million. Upon completion of construction, the Company anticipates
acquiring the balance of the ownership interest in exchange for cash and
Operating Partnership Units.
Retail Environment
During 1997, certain national and regional retailers experienced
financial difficulties and several have filed for protection under bankruptcy
laws. No significant bankruptcies have occurred during the period January 1
through March 16, 1998 with regard to the Company's portfolio of tenants.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations included in Item 7 and the Consolidated Financial
Statements and Notes thereto included in Item 8 of this Annual Report on Form
10-K for further information on certain of the recent developments described
above.
Competition
As one of the nation's largest owners and developers of neighborhood
and community shopping centers, the Company has established close relationships
with a large number of major national and regional retailers. Management is
associated with and/or actively participates in many shopping center and REIT
industry organizations.
Notwithstanding these relationships, there are numerous developers and
real estate companies that compete with the Company in seeking properties for
acquisition and tenants who will lease space in these properties.
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Employees
As of March 16, 1998, the Company employed 198 full-time individuals,
including executive, administrative and field personnel. The Company considers
its relations with its personnel to be good.
Qualification as a Real Estate Investment Trust
The Company presently meets the qualification requirements of a REIT
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Company generally will not be subject to federal
income tax to the extent it meets certain requirements of the Code.
Item 2. PROPERTIES
At December 31, 1997 the Portfolio Properties included 123 shopping
centers (13 of which are owned through joint ventures in which the Company and a
party otherwise unaffiliated with the Company owns a 50% interest and one of
which the Company owns a 35% interest), consisting of 106 community shopping
centers and power centers, 12 enclosed mini-malls, and five neighborhood
shopping centers. The Portfolio Properties also include five business centers
containing office and light industrial, warehouse and research space and 70
undeveloped parcels (aggregating approximately 175 acres) primarily located
adjacent to certain of the shopping centers. The shopping centers and business
centers aggregate approximately 25.2 million square feet of Company-owned GLA
(approximately 33.1 million square feet of total GLA) and are located in 30
states, principally in the East and Midwest, with significant concentrations in
Ohio, Florida, South Carolina, North Carolina, Michigan and Minnesota.
Neighborhood and community shopping centers and power centers make up
the largest portion of the Company's portfolio, comprising 21.8 million (86.6%)
square feet of Company-owned GLA. Enclosed mini-malls account for 2.9 million
(11.6%) square feet of Company-owned GLA, and business center space consists of
approximately 0.5 million (0.9%) square feet of Company-owned GLA. On December
31, 1997, the average annualized base rent per square foot of Company-owned GLA
of the shopping centers, including those owned through joint ventures, was $8.49
and of the business centers was $4.04.
The Company's shopping centers are designed to attract local area
customers and are typically anchored by one or more discount department stores
and often include a supermarket, drug store, junior department store and/or
other major "category-killer" discount retailer as additional anchors.
Substantially all of the shopping centers are anchored by a Wal-Mart, Kmart or
Target, and the power centers are anchored by two or more national or regional
tenants. The tenants of the shopping centers typically offer day-to-day
necessities rather than high-priced luxury items. As one of the nation's largest
owners and operators of shopping centers, the Company has established close
relationships with a large number of major national and regional retailers, many
of which occupy space in the shopping centers.
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The following table sets forth, as of December 31, 1997, information as
to anchor and/or national retail tenants which individually accounted for at
least 1.0% of total annualized base rent of the properties, including those
owned though joint ventures:
% of Shopping Center % of Company-owned
Base Rental Revenues Shopping Center GLA
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Wal-Mart 7.2% 11.4%
Kmart 5.2 9.7
T. J. Maxx/Marshall's 2.8 2.6
Homeplace 2.6 1.9
Kohl's Dept. Store 2.4 2.6
Barnes & Noble/B. Dalton 2.2 1.1
Lowes Home Centers 2.1 2.8
Office Max 1.9 1.5
Best Buy 1.6 1.0
Fashion Bug 1.3 1.3
Kroger 1.2 1.3
JC Penny 1.2 2.5
Publix Supermarkets 1.1 1.3
General Cinema 1.1 0.3
AMC Theaters 1.0 0.6
In addition, as of December 31, 1997 unless otherwise indicated, with respect to
the 123 shopping centers:
- 49 of these properties were developed by DDG and seven were
developed by the Company;
- 90 of these properties are anchored by Wal-Mart, Kmart or
Target store;
- these properties range in size from just under 100,000 square
feet to approximately 900,000 square feet of GLA (with 32
properties exceeding 325,000 square feet of GLA);
- approximately 58.1% of the Company-owned GLA of these
properties is leased to national chains, including
subsidiaries, with approximately 32.2% of the Company-owned
GLA leased to regional chains and approximately 6.4% of the
Company-owned GLA leased to local tenants;
- approximately 96.1% of the aggregate Company-owned GLA of
these properties was leased as of December 31, 1997. The
Company has entered into additional leases with anchor tenants
aggregating in excess of 158,000 square feet of vacant space,
scheduled to commence in 1998, which brings the December 31,
1997 leased rate to 96.7% (and, with respect to the properties
owned by the Company at December 31, for each of the five
years beginning with 1993, between 94.8% and 97.1% of
aggregate Company-owned GLA of these properties was leased);
- Seven of the properties are currently being expanded by the
Company, and the Company is pursuing the expansion of
additional properties.
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TENANT LEASE EXPITATIONS AND RENEWALS
The following table show tenant lease expirations for the next ten years at the
Comany's shopping centers and business centers, including joint ventures,
assuming that none of the tenants exercise any of their renewal options:
Percentage of Percentage of
Total Leased Total Base
Annualized Average Base Sq. Footage Rental Revenues
No. of Approximate Base Rent Rent Per Sq. Foot Represented Represented
Expiration Leases Lease Area in Under Expiring Under Expiring by Expiring By Expiring
Year Expiring Square Feet Leases Leases Leases Leases
- ---------- -------- ------------- -------------- ---------------- ------------- ---------------
1998...... 257 926,994 $ 7,133,437 $ 7.40 3.8% 3.5%
1999...... 289 989,966 $ 9,230,495 $ 9.32 4.1% 4.5%
2000...... 242 817,474 $ 8,368,004 $ 10.24 3.4% 4.1%
2001...... 220 874,478 $ 8,863,940 $ 10.14 3.6% 4.3%
2002...... 192 1,344,136 $ 9,492,605 $ 7.06 5.6% 4.6%
2003...... 77 906,135 $ 5,189,351 $ 5.73 3.7% 2.5%
2004...... 57 635,993 $ 5,207,037 $ 8.19 2.6% 2.5%
2005...... 65 964,253 $ 6,917,645 $ 7.17 4.0% 3.4%
2006...... 46 564,647 $ 6,621,302 $ 11.73 2.3% 3.2%
2007...... 49 596,702 $ 6,596,269 $ 11.05 2.5% 3.2%
----- --------- ----------- --------- ---- ----
1,494 8,620,778 $73,620,085 $ 8.54 35.6% 36.0%
The five business centers are located in Ohio and range in size from
approximately 36,000 to 236,000 square feet of Company-owned GLA. The business
centers contain office and light industrial, warehouse and research space. As of
December 31, 1997, the business centers were 98.6% leased. All of the five
business centers are triple net leased, four are leased to single tenants, and
one is leased to multiple users. Pursuant to the triple net leases, the tenants
are obligated to pay all maintenance and insurance expenses and real estate
taxes, and all or substantially all operating expenses, relating to the
applicable business centers. The leases for the business centers have terms
which are scheduled to expire between October 1998 and November 2003. These
leases generally have fixed or cost-of-living rental increases in their option,
but not in their base terms. Accordingly, the rental payments under these leases
will remain constant until the expiration of their base terms, regardless of
inflationary increases. There can be no assurance that any of these leases will
be renewed or that any new tenants for the Company's business centers can be
obtained if not renewed.
The Company's 70 undeveloped parcels primarily consist of outlots,
retail pads and expansion pads which are primarily located adjacent to certain
of the shopping centers. The Company is pursuing an active marketing program to
lease or develop its undeveloped parcels.
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DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROPERTY LIST DECEMBER 31, 1997
- -------------------------------
Interest
(ground Company
lease Gross
termination/ Land Leaseable
Type of option Date Developed Area Area
Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.)
- --------------------- ---------------------- ------------ ----------- ----------------- ------ --------
Alabama
- -------
Birmingham (Brk), AL 5291 Highway 280 South PC Fee 12/01/94, 12/29/94(a) 64.46 479,859
Birmingham (East), AL 7001 Crestwood Blvd. PC Fee 03/01/89, 11/15/95(a) 45.49 284,475
Huntsville, AL 6140-A University Drive PC Fee 12/28/95, 12/28/95(a) 5.29 41,000
Arizona
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Ahwatukee, AZ 4711 East Ray Road PC 07/10/96, 02/21/97(a) 59.28 491,689
Phoenix, AZ 7553 West Bell Road PC Fee 10/01/95, 07/02/96(a) 24.12 346,680
Arkansas
- --------
Fayetteville, AR PC Fee 04/01/97, 11/20/97(a) 139,277
North Little Rock, AR 4124 East McCain Blvd PC Fee 07/01/91, 03/21/94(a) 27.76 294,357
Russellville, AR 3093 East Main Street PC Fee 02/01/92, 04/18/94(a) 31.20 272,245
California
- ----------
San Diego, CA 11610 Carmel Mntn. Rd. PC Fee(6) 04/01/93, 11/17/95(a) 50.00 439,939
Colorado
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Alamosa, CO 145 Craft Avenue PC Fee 01/01/86 13.10 19,875
Denver, CO 505 South Broadway PC Fee(6) 11/01/93, 11/17/95(a) 38.59 369,386
Denver, CO 9555 E. County Line Road PC Fee 09/01/97, 10/01/97(a) 46.07 336,944
Trinidad, CO Hwy 239 @ I25 Frontage PC Fee 05/01/86 17.88 63,836
Connecticut
- ----------
Waterbury, CT 899 Wolcott Street PC GL1 11/01/73 15.60 124,310
Florida
- -------
Bayonet Point, FL U.S. 19 & S.R. 52 PC Fee 09/01/85 58.67 203,760
Brandon, FL 1602 Brandon Blvd PC GL2 06/01/72 17.33 139,522
Cape Coral, FL 1420 Del Prado Blvd NC Fee 09/01/85 9.61 73,240
Crystal River, FL 420 Sun Coast Hwy PC Fee 10/01/86 21.18 146,954
Fern Park, FL 6735 U.S. #17-92 PC Fee 10/01/70 3.04 16,000
Jacksonville, FL 3000 Dunn Avenue PC Fee 12/01/88, 03/31/95(a) 30.82 219,073
Marianna, FL 2820 Highway 71 PC Fee 08/01/90 17.34 63,894
Melbourne, FL 750-850 Apollo Blvd PC GL3 11/01/78 15.52 121,913
Naples, FL 5010 Airport Road North PC Fee(6) 03/01/94, 11/17/95(a) 30.60 266,438
Ocala, FL 3711 Silver Sprgs, NE PC Fee 06/01/74 2.23 19,280
Mortgage
Obligation Average
as of Total Base
December 31, Annualized Rent per Percent
Center/Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration)
-------------------- ----------- ------------ --------- -------- ---------------------------------------------------
Alabama
-------
Birmingham (Brk), AL $3,788,250 $7.96 99.2% Wal-Mart (2004/2024), Winn-Dixie (2014/2044),
Goody's (2004/2019), Stein Mart (2011/2021),
OfficeMax (2011/2026)
Birmingham (East), AL 1,949,251 8.75 78.3% Home Depot (not owned) Western Supermarkets
(not owned), Office Depot (1999/2014), Goody's
(2004/2019), Stein Mart (2003/2018), Cobb Theaters
(2006/2016)
Huntsville, AL 459,850 11.22 100.0% Wal-Mart (not owned)
Arizona
-------
Ahwatukee, AZ 6,351,820 13.07 98.9% HomePlace (2012/2027), Smith's (2021/2046),
Stein Mart (2011/2026)
Phoenix, AZ 3,637,795 10.49 100.0% Lil' Things (2009/2024), Barnes & Noble(2011/2026)
TJMaxx (2005/2020), Circuit City (2016/2036),
Oshman's (2017/2037), Linens 'N Things(2011/2026),
Fry's (not owned)
Arkansas
--------
Fayetteville, AR 1,304,437 9.37 100.0% T.J. Maxx (2005/2020) Service Merchandise
(2016/2031)
North Little Rock, AR 1,755,364 6.55 91.1% Kmart (2016/2066), Wards (2014/2034), TJMaxx
(2001/2011), Cinemark (2011/2031)
Russellville, AR 1,659,354 6.15 99.1% Wal-Mart (2011/2041), JCPenney (2012/2032),
Beall-Ladymon (2007/2022)
California
----------
San Diego, CA 6,018,390 13.68 100.0% Mervyn's (not owned), Kmart (2018/2048), Pacific
Theaters (2013/2023), Sportmart (2008/2023),
Circuit City (2009/2024), Marshall's (2009/2029),
Ross Dress for Less (2004/2019), Michael's
(2004/2014), Barnes & Noble (2003/2013),
Blockbuster Music (1999/2014)
Colorado
--------
Alamosa, CO 155,158 7.81 100.0% Wal-Mart (not owned)
Denver, CO 3,559,127 9.64 100.0% Kmart (2019/2069), Albertson's (2019/2049),
Sam's (2018/2058), Office Max (2010/2035),
Pep Boys (2014/2035)
Denver, CO 4,394,117 13.04 100.0% Border's (2017/2027), Golfsmith (2007/2022),
HomePlace (2017/2037), Ross Dress For Less
(2008/2028), Toys R Us (2011/2046), Soundtrack
(2017/2028), Office Max (2013/2033), Michael's
(2007/2027)
Trinidad, CO 250,088 4.29 91.3% Wal-Mart (not owned), Super Save (1998)
Connecticut
Waterbury, CT 416,900 3.35 100.0% Kmart (1998/2048), Grand Union (1999/2024)
Florida
-------
Bayonet Point, FL 5,327,208 1,071,535 5.67 92.7% Publix (2005/2025), Beall's (2002/2017),
TJMaxx (2010/2030)*, Eckerd (2005/2025), Kmart
(1997/2047)
Brandon, FL 298,308 2.64 81.1% Kmart (1997/2047)
Cape Coral, FL 460,256 6.76 93.0% TJMaxx (2007/2017), Office Max (2012/2027)
Crystal River, FL 423,851 3.21 89.7% Beall's (2001/2016), Scotty's (2008/2038)
Fern Park, FL 80,363 7.18 70.0% Kmart (not owned)
Jacksonville, FL 7,904,705 1,357,080 6.42 96.5% Wal-Mart (not owned), J.C.Penney (2002/2022),
Winn Dixie (2009/2034), Walgreen's (2029/2029)
Marianna, FL 434,515 7.18 94.7% Wal-Mart (not owned), Beall's (2005/2020), Eckerd
(2010/2030)
Melbourne, FL 366,168 3.14 95.7% Kmart (2003/2048), Beall's (1997/2007)
Naples, FL 2,797,044 10.55 99.5% Winn Dixie (2014/2038), TJMaxx (2009/2024),
Service Merchandise (2015/2035), Ross Dress For
Less (2005/2025), Circuit City (2015/2035),
Office Max(2010/2025)
Ocala, FL 54,060 4.07 68.9% Kmart (not owned), Eckerd (1998/2018)
13
14
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROPERTY LIST DECEMBER 31, 1997
- -------------------------------
Interest
(ground Company
lease Gross
termination/ Land Leaseable
Type of option Date Developed Area Area
Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.)
- --------------------- ---------------------- ------------ ----------- ----------------- ------ --------
Orlando, FL 5250 W.Colonial Dr PC Fee 08/01/89 30.57 177,215
Ormond Beach, FL 1458 West Granada Blvd PC Fee 07/01/93, 05/02/94(a) 32.09 234,045
Palm Harbor, FL 300 East Lake Road PC Fee 05/01/90, 05/12/95(a) 5.80 52,395
Pensacola, FL 8934 Pensacola Blvd PC Fee 12/01/88 21.00 75,736
Spring Hill, FL 13050 Cortez Blvd PC Fee 09/01/88 21.60 196,073
Tampa (NPt), FL 15233 No.Dale Mabry PC Fee 12/01/90 23.70 104,473
Tampa (T'nC), FL 7039 West Waters Ave PC Fee 07/01/90 30.61 134,166
Tarpon Springs, FL 41232 U.S. 19, North PC Fee 11/01/74 23.30 192,964
West Pasco, FL 7201 County Rd 54 PC Fee 09/01/86 24.40 135,421
Georgia
- -------
Atlanta, GA 1155 Mt. Vernon Highway PC Fee(6) 11/01/95, 11/17/95(a) 30.67 288,045
Duluth, GA 1630 Pleasant Hill Road PC Fee 04/01/90, 02/24/94(a) 8.70 99,025
Marietta, GA 2609 Bells Ferry Road PC Fee(6) 08/01/95, 11/17/95(a) 48.28 319,908
Stone Mountain, GA 5615 Memorial Drive PC Fee 11/01/73 16.60 143,860
Illinois
- --------
Harrisburg, IL 701 North Commercial PC Fee 01/01/91, 02/17/94(a) 24.46 168,424
Mount Vernon, IL 42nd and Broadway MM Fee 08/01/74, 08/13/93(a) 39.25 265,717
Schaumburg, IL 1430 East Golf Road PC Fee 11/01/93, 11/17/95(a) 62.80 501,092
Indiana
- -------
Bedford, IN 1320 James Avenue PC Fee 07/01/93, 10/21/93(a) 20.56 223,135
Connersville, IN 2100 Park Road PC Fee 01/01/91, 12/10/93(a) 21.99 141,791
Highland, IN Highway 41 & Main Street PC Fee 11/01/95, 07/02/96(a) 16.08 294,115
Iowa
- ----
Ottumwa, IA 1110 Quincy Avenue MM Fee 04/01/90 34.00 161,060
Kentucky
- --------
Hazard, KY Kentucky Highway 80 PC Fee 08/01/78 11.74 111,492
Maine
- -----
Brunswick, ME 172 Bath Road PC Fee(6) 05/01/65, 07/15/97(a) 28.46 290,784
Massachusetts
- ------------
Framingham, MA 1 Worcester Road PC Fee(6) 08/01/94, 11/17/95(a) 177.00 768,046
Michigan
- --------
Bad Axe, MI 850 No.Van Dyke Rd PC Fee 01/01/91, 08/12/93(a) 18.58 63,415
Cheboygan, MI 1109 East State PC Fee 01/01/88, 12/14/93(a) 16.75 95,094
Mortgage
Obligation Average
as of Total Base
December 31, Annualized Rent per Percent
Center/Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration)
-------------------- ----------- ------------ --------- -------- ---------------------------------------------------
Orlando, FL 1,412,407 8.12 98.2% Wal-Mart (not owned), Publix (2009/2019),
Walgreens (2029/2029)
Ormond Beach, FL 1,776,321 7.74 98.0% Kmart (2018/2064), Publix (2013/2033), Bealls
(2004/2024)
Palm Harbor, FL 729,966 14.62 95.3% Target (not owned), Albertson's (not owned),
Eckerd (2010/2025)
Pensacola, FL 336,311 8.08 54.9% Wal-Mart (not owned), City Drug (1998/2003)
Spring Hill, FL 6,134,476 1,279,419 6.78 96.2% Wal-Mart (not owned), Publix (2008/2028), Walgreens
(2028/2028), Beall's (2006/2046)
Tampa (NPt), FL 1,157,564 11.08 100.0% Wal-Mart (not owned), Publix (2010/2030)
Tampa (T'nC), FL 1,046,996 8.34 93.6% Wal-Mart (not owned), Beall's (2005/2029),
Kash N Karry (2010/2040)
Tarpon Springs, FL 787,385 4.92 83.0% Kmart (1999/2049)
West Pasco, FL 4,783,894 1,017,079 7.79 96.4% Wal-Mart (not owned), Publix (2006/2026),
Bealls (2001/2016), Walgreens (2026/2026)
Georgia
-------
Atlanta, GA 4,163,570 14.63 98.8% SteinMart (2010/2025), HomePlace (2011/2026), United
Artists (2015/2035)
Duluth, GA 1,202,177 12.48 97.3% Wal-Mart (not owned), Office Depot (2000/2020),
Ethan Allen (2000/2010)
Marietta, GA 3,505,751 11.19 97.9% Publix (2015/2035), HomePlace (2011/2026), PetsMart
(2011/2021), Barnes & Noble (2011/2026)
Stone Mountain, GA 445,278 3.15 98.4% Kmart (1998/2048)
Illinois
--------
Harrisburg, IL 890,733 5.52 95.9% Wal-Mart (2011/2041), Roundy's Grocery (2011/2031)
Mount Vernon, IL 1,221,671 4.88 94.2% Wal-Mart (2008/2028),J.C.Penney (1997/2022),
Martin's(1999/2014), Stage (1999/2014)
Schaumburg, IL 7,225,919 14.49 99.5% Builder's Square (2019/2049), Service Merchandise
(2014/2049), OfficeMax (2010/2020), Sports Authority
(2013/2033), Marshall's (2009/2024), Nordstrom Rack
(2009/2024), Border's Books (2009/2029), Circuit
City (2010/2025), Off 5th Saks Fifth Avenue
(2011/2026)
Indiana
-------
Bedford, IN 1,280,755 5.81 98.7% Kmart (2018/2068), J.C.Penney (2008/2028), Goody's
(2003/2018), Buehler's (2010/2025)
Connersville, IN 806,151 5.69 100.0% Wal-Mart (2011/2041), Cox Supermarket (2011/2026)
Highland, IN 2,688,252 9.76 93.6% Marshall's (2011/2021), Circuit City (2016/2036),
Kohl's (2016/2036), OfficeMax (2012/2032), Jewel
(not owned), Target (not owned)
Iowa
----
Ottumwa, IA 1,110,173 7.13 96.6% Wal-Mart (not owned), J.C. Penney (2005/2035),
Herberger (2004/2019)
Kentucky
--------
Hazard, KY 414,959 3.72 100.0% Kmart (2003/2053)*, A&P (1998/2038)
Maine
-----
Brunswick, ME 1,933,341 6.67 99.7% Hoyt's Cinemas (2010/2025), TJMaxx (2004/2019),
Sears (2002/2027)
Massachusets
------------
Framingham, MA 12,008,557 15.86 98.6% General Cinema (2014/2034), TJMaxx (2010/2020),
Sears Homelife (2004/2024), Marshall's (2011/2026),
Bob's (2011/2026), Linens 'N Things (2011/2026)
Sports Authority (2015/2035), Barnes & Noble
(2011/2026), Ofice Max (2011/2026), Toys R Us
(2020/2070), Kids R Us (2020/2070), Bradlee's
(2005/2020)
Michigan
--------
Bad Axe, MI 524,530 8.27 100.0% Wal-Mart (not owned), Farmer Jack's (2012/2037)
Cheboygan, MI 397,950 4.60 91.1% Kmart (2005/2055), Carters Food Center (1999/2024)
14
15
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROPERTY LIST DECEMBER 31, 1997
- -------------------------------
Interest
(ground Company
lease Gross
termination/ Land Leaseable
Type of option Date Developed Area Area
Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.)
- --------------------- ---------------------- ------------ ----------- ----------------- ------ --------
Gaylord, MI 1401 West Main Street PC Fee 02/01/91, 08/12/93(a) 19.49 190,482
Houghton, MI Highway M26 MM Fee 12/01/81 21.48 234,338
Howell, MI 3599 East Grand River PC Fee 11/01/91, 09/23/93(a) 26.52 215,137
Mt Pleasant, MI 4208 E.Blue Grass Rd PC Fee 07/01/90, 09/24/93(a) 51.13 248,963
Sault Ste Marie, MI 4516 I-75 Business Spur PC Fee 08/01/93, 09/02/94(a) 40.08 262,267
Walker, MI 3390-B Alpine Ave., N.W. PC Fee 09/01/89, 12/29/95(a) 16.40 133,981
Minnesota
- ---------
Bemidji, MN 1201 Paul Bunyan Dr MM Fee 11/01/77 31.55 295,611
Brainerd, MN 1200 Hwy 210 West MM Fee 08/01/85 17.19 256,722
Eagan, MN I299 Promenade Place PC Fee 04/01/97, 07/01/97(a) 45.70 243,282
Hutchinson, MN 1060 S.R. 15 MM Fee 12/01/81 36.88 121,001
Maple Grove, MN Weaver Lake Road & I-94 PC Fee 10/01/95, 07/02/96(a) 25.61 250,436
St. Paul, MN 1450 University Avenue PC Fee 10/01/95, 07/11/97(a) 20.27 313,781
Worthington, MN 1635 Oxford Street MM Fee 11/01/77 38.02 185,658
Mississippi
- -----------
Starkville, MS 882 Highway 12 West PC Fee 08/01/90, 11/16/94(a) 28.81 234,652
Tupelo, MS 3850 North Gloster PC Fee 08/01/92, 12/15/94(a) 41.91 348,236
Missouri
- --------
Fenton, MO Gravois Rd-Hwy 141 NC Fee 07/01/70 11.07 93,548
Independence, MO 900 East 39th Street PC Fee(6) 09/01/95, 11/17/95(a) 46.95 365,062
New Jersey
- ----------
Princeton, NJ Route 1 and Quaker Bridge Road PC Fee 06/06/95, 12/30/97(a) 202,104
New Mexico
- ----------
Los Alamos, NM 800 Trinity Drive NC Fee 07/01/78 8.72 98,050
North Carolina
- --------------
Ahoskie, NC 1400 East Memorial Drive PC Fee 12/01/92, 02/25/94(a) 26.95 187,257
Durham (Oxf), NC 3500 Oxford Road PC Fee 12/01/90 41.70 206,827
Durham (NHp), NC 5428-B New Hope Commons PC Fee(6) 07/01/95, 11/17/95(a) 39.53 408,292
Jacksonville, NC US Hwy 17-Western Ave PC Fee 08/01/89 27.51 79,200
New Bern, NC 3003 Claredon Blvd PC Fee 05/01/89 28.18 238,388
Washington, NC 536 Pamlico Plaza NC Fee 11/01/90 22.17 85,000
Waynesville, NC 201 Paragon Parkway PC Fee 06/01/90, 04/28/93(a) 28.40 181,894
Wilmington, NC S.College-New Centre Dr PC Fee 09/01/89 57.78 442,583
Mortgage
Obligation Average
as of Total Base
December 31, Annualized Rent per Percent
Center/Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration)
-------------------- ----------- ------------ --------- -------- ---------------------------------------------------
Gaylord, MI 1,095,147 5.82 98.7% Wal-Mart (2010/2040), Buy-Low (2011/2031)
Houghton, MI 2,798,376 1,033,054 4.74 93.1% Kmart (2005/2055), J.C. Penney (2000/2020)
Howell, MI 7,462,728 1,294,826 6.10 98.7% Wal-Mart (2011/2041), Kroger (2012/2042)
Mt Pleasant, MI 1,485,846 5.97 100.0% Wal-Mart (2009/2039), Kroger (2011/2041), Odd Lots
(1998/2008)
Sault Ste Marie, MI 7,519,794 1,585,229 6.41 94.3% Wal-Mart (2012/2042), J.C. Penney (2008/2033),
Glen's Supermarket (2013/2033)
Walker, MI 1,325,120 9.89 100.0% Circuit City (not owned), Target (not owned),
Toys R Us (not owned), TJMaxx (2005/2020), Office
Depot (2005/2019)
Minnesota
---------
Bemidji, MN 1,156,005 4.26 91.8% Kmart (2002/2052), J.C. Penney (1998/2018),
Herberger's (2005/2030)
Brainerd, MN 935,000 1,631,482 6.91 92.0% Kmart (2004/2054), Herberger's (2008/2023)
Eagan, MN 2,834,289 11.65 100.0% HomePlace (2017/2037), Office Max (2013/2033),
TJMaxx (2007/2022), Byerly's (2016/2046)
Hutchinson, MN 5,134,849 769,702 7.00 90.8% Kmart (not owned), J.C. Penney (2001/2021)
Maple Grove, MN 2,437,102 9.73 100.0% Kohl's (2016/2036), Barnes & Noble (2011/2026),
Holiday Sports (2011/2027), HomePlace (2016/2036),
Cub Foods (not owned)
St. Paul, MN 2,474,380 7.89 100.0% Kmart (2022/2057), Cub Foods (2015/2045), PetsMart
(2011/2036),Mervyn's (2016/2046)
Worthington, MN 1,057,405 5.86 97.2% Kmart (2001/2051), J.C. Penney (2007/2032), Sterling
(2001/2021), Hy-Vee (2011/2031)
Mississippi
-----------
Starkville, MS 2,417,963 1,217,711 5.36 96.7% Wal-Mart (2015/2045), J.C. Penney (2010/2040),
Kroger (2012/2042)
Tupelo, MS 1,874,722 5.42 99.3% Wal-Mart (2012/2042), Sam's (2012/2042), Goody's
(2002/2017)
Missouri
--------
Fenton, MO 754,923 8.76 92.1%
Independence, MO 3,669,243 10.24 98.1% Kohl's (2016/2036), Bed Bath & Beyond (2012/2027),
Marshall's (2012/2027), Rhodes Furniture
(2016/2026), Barnes & Noble (2011/2026), American
Multi-Cinema (2015/2034)
New Jersey
----------
Princeton, NJ 3,618,551 17.90 100.0% Wal-Mart (not owned), Sam's (not owned), Home Depot
(not owned), Border's Books and Music (2011/2026),
Best Buy (2012/2027), Linens N Things (2011/2026),
PetsMart (2011/2026)
New Mexico
----------
Los Alamos, NM 412,557 6.28 67.0% Furrs(1997/1997), Furrs Pharmacy (1998/2013),
TG&Y(2018/2033)
North Carolina
--------------
Ahoskie, NC 924,444 5.01 98.5% Wal-Mart (2013/2043), Belk (2008/2033), Food Lion
(2012/2032)
Durham (Oxf), NC 1,099,547 6.59 80.7% Wal-Mart (not owned), Food Lion (2010/2030), Lowes
(2011/2031)
Durham (NHp), NC 4,530,910 11.10 100.0% Wal-Mart (2015/2035), Upton's (not owned), Michael's
(2005/2020), Marshall's (2011/2026), Linens 'N
Things (2011/2026), Best Buy (2011/2026), OfficeMax
(2010/2025), Barnes & Noble (2010/2025)
Jacksonville, NC 2,664,141 550,995 6.96 100.0% Wal-Mart (not owned), Wilson's (2009/2024)
New Bern, NC 5,392,642 1,399,143 6.08 96.6% Wal-Mart (2009/2034)
Washington, NC 391,019 4.65 98.8% Wal-Mart (2009/2034)
Waynesville, NC 1,101,277 6.05 100.0% Wal-Mart (2011/2041), Food Lion (2011/2031)
Wilmington, NC 10,075,323 3,086,032 7.00 99.6% Wal-Mart (2009/2034), Sam's (not owned), Lowes
(2009/2029), Hamrick's (2002/2007), Goody's
(2005/2015)
15
16
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROPERTY LIST DECEMBER 31, 1997
Interest
(ground Company
lease Gross
termination/ Date Land Leaseable
Type of option Developed or Area Area
Center/Property Location Property (1) termination) Acquired (2) (Acres) (sq.ft.)
- --------------------- ---------------------- ------------ ----------- ----------------- ------ --------
North Dakota
- ------------
Dickinson, ND 1681 Third Avenue MM Fee 05/01/78 27.10 267,506
Ohio
- ----
Ashland, OH U.S. Route 42 PC Fee 11/01/77 6.26 110,656
Aurora (Barrgtn), OH 70-130 Barrington Town Square
Drive NC 04/01/96 37,876
Aurora, OH 180 Lena Drive BC Fee 09/01/88 20.00 236,225
Boardman, OH I-680 & US-224 PC Fee 02/01/97 57.04 385,355
Canton, OH 5496 Dressler Road PC Fee(6) 10/01/95 20.00 229,920
Canton (II), OH Dressler Road PC Fee 10/01/97 180,582
Chillicothe, OH 867 North Bridge Street PC Fee 09/01/74 16.70 236,105
Cincinnati, OH 5100 Glencrossing Way PC Fee 11/01/90 24.47 231,224
05/26/93 (a)
Clev.W.65th, OH 3250 West 65th Street PC Fee 10/01/77 4.18 49,420
Eastlake, OH 33752 Vine Street PC Fee 09/01/71 0.99 4,000
Elyria, OH 825 Cleveland PC Fee 09/01/77 16.30 150,200
Highland Hts., OH 6235 Wilson Mills Rd PC Fee 11/01/95 11.63 247,146
Hillsboro, OH 1100 North High St PC Fee 03/01/79 11.02 58,583
Huber Hts., OH 8280 Old Troy Pike PC Fee 06/01/90 17.39 163,741
08/12/93 (a)
Lebanon, OH 1879 Deerfield Road PC Fee 01/01/90 (a) 14.40 26,500
08/12/93 (a)
Macedonia, OH 8210 Macedonia Commons PC Fee(6) 05/01/94 19.94 234,789
07/05/94 (a)
Mentor, OH Pine Needle BC Fee 11/01/87 3.10 40,200
N.Olmsted, OH 5140-25877 Great Northern Blvd. PC 06/01/58 43.14 619,327
02/21/97 (a)
Solon, OH 6211 S.O.M. Center Rd PC Fee 05/01/78 0.64 2,560
Stow, OH Kent Road PC Fee 08/01/97 170,222
Stow (Kmart), OH 4332 Kent Road PC Fee 07/01/69 20.14 116,806
Streetsboro, OH 3000 Crane Drive BC Fee 03/01/89 5.00 66,200
Tiffin, OH 870 West Market St MM Fee 09/01/80 27.62 230,278
Toledo, OH 5245 Airport Highway PC Fee 10/01/93 22.87 187,674
02/24/95 (a)
Twinsburg (Her), OH 9177 Dutton Drive BC Fee 11/01/89 3.90 35,555
Twinsburg (VSA), OH 9300 Dutton Drive BC Fee 11/01/89 6.80 85,800
Westlake, OH 30100 Detroit Road PC Fee 10/01/74 12.71 162,420
Wilmington, OH 1025 S. South Street PC Fee 11/01/77 7.38 55,130
Xenia, OH 1700 West Park Square PC Fee 11/01/94 7.38 104,873
Zanesville, OH 3431 North Maple Ave PC Fee 04/01/90 3.28 13,283
Oregon
- ------
Portland, OR NW Evergreen Pkwy.& NW
Ring Road PC Fee 11/01/95 18.29 151,970
08/22/96 (a)
Pennsylvania
- ------------
Erie, PA 2301 West 38th Street PC GL8 08/01/73 13.27 95,000
Mortgage
Obligation Average
as of Total Base
December 31, Annualized Rent per Percent
Center / Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration)
-------------------- ----------- ------------ --------- -------- ---------------------------------------------------
North Dakota
------------
Dickinson, ND 1,066,298 4.17 95.6% Kmart (2003/2053), J.C. Penney (1998/2018),
Herberger (2000/2020), Thrifty Drug (2001/2001)
Ohio
----
Ashland, OH 233,382 2.11 100.0% Kmart (2002/2052), N.J. Supermarkets (1997/2022)
Aurora (Barrgtn), OH 555,330 16.21 90.4% Heinens (not owned)
Aurora, OH 744,109 3.15 100.0% Hardline Services (2003/2013)
Boardman, OH 3,116,352 8.09 100.0% Lowe's (2016/2046), Staples (2012/2032), Dick's
Clothing & Sporting Goods (2012/2027), Wal-Mart
(2017/2047), PetsMart (2013/2038)
Canton, OH 2,519,104 11.10 98.7% Kohl's (2016/2046), Target (not owned), Media Play
(2011/2026), Dick's Clothing & Sporting Goods
(2010/2025)
Canton (II), OH 1,816,097 10.06 100.0% Service Merchandise, Homeplace, Jo-Ann ETC.
Chillicothe, OH 1,808,382 7.66 100.0% Lowes, (2015/2035), Kroger (2001/2031), Super X
(2001/2031)
Cincinnati, OH 2,208,518 9.56 99.9% Thriftway (2009/2029), Service Merchandise
(2006/2031)
Clev.W.65th, OH 229,630 4.91 94.6% Kmart (not owned), A&P (1997/2027), Revco
(1997/2007)
Eastlake, OH 68,400 17.10 100.0% Kmart (not owned),
Elyria, OH 761,970 5.07 100.0% Hill's (2003/2028), Finast (2010/2045)
Highland Hts., OH 2,563,263 10.37 100.0% Builders Square (2020/2070), Kohl's (2007/2047),
Dick's Clothing and Sporting Goods (2016/2036)
Hillsboro, OH 254,872 4.35 100.0% Kmart (2004/2054) *, Rite Aid (1999/2004),
Bob & Carls (not owned)
Huber Hts., OH 1,568,028 9.58 100.0% Wal-Mart (not owned), Cub Foods (2011/2031), Sears
(2002/2012)
Lebanon, OH 227,200 8.57 100.0% Wal-Mart (not owned), PK Lumber (not owned)
Macedonia, OH 2,230,843 9.50 100.0% Wal-Mart (not owned), Finast (2018/2049), Kohl's
(2016/2041)
Mentor, OH 227,130 5.65 100.0% Steris Corp (1999/2004)
N.Olmsted, OH 4,770,220 8.85 87.0% Regal Cinemas (2001/2001), Marc's (2002/2007),
CompUSA (2008/2023), Finast (not owned)
Solon, OH 64,792 25.31 100.0% Kmart (not owned)
Stow, OH 1,344,954 7.83 100.9% Target (NO), Giant Eagle, Stein Mart, OfficeMax
Stow (Kmart), OH 189,344 1.62 100.0% Kmart (1996/2006)
Streetsboro, OH 297,366 4.49 100.0% Alumax Alum (1997/2006)
Tiffin, OH 816,272 3.68 96.3% Kmart (2005/2055), J.C. Penney (2000/2010),
Heileg-Myers (2004/2014)
Toledo, OH 1,438,062 7.66 100.0% Best Buy (2009/2024),Office Depot (2009/2024),
Michaels (2004/2014) Sears (2002/2012)
Twinsburg (Her), OH 202,230 6.94 81.9%
Twinsburg (VSA), OH 377,424 4.40 100.0% VSA (1998)
Westlake, OH 937,483 6.04 95.5% Kmart (1999/2049), Marc's (2004/2019)
Wilmington, OH 181,854 3.99 82.6% Kmart (not owned), Super Valu (1998/2018)
Xenia, OH 790,484 7.54 100.0% Wal-Mart (not owned), Kroger (2019/2049)
Zanesville, OH 129,847 9.78 100.0% Kmart (not owned)
Oregon
------
Portland, OR 2,255,273 14.84 100.0% Office Depot (2010/2025), Haggan Supermarket
(2021/2046), Mervyn's (not owned), Target
(not owned)
Pennsylvania
------------
Erie, PA 209,655 2.37 93.3% Hill's (1998/2023)
16
17
DEVELOPERS DIVERSIFIED REALTY CORPORATION
PROPERTY LIST DECEMBER 31, 1997
Interest
(ground Company
lease Gross
termination/ Land Leaseable
Type of option Date Developed Area Area
Center/Property Location Property (1) termination) or Acquired (2) (Acres) (sq.ft.)
- --------------------- ---------------------- ------------ ----------- ----------------- ------ --------
Erie, PA 1902 Keystone Drive PC Fee 07/31/95 65.69 483,305
East Norriton, PA 2700 DeKalb Pike PC Fee 11/01/75 24.22 174,109
South Carolina
- --------------
Anderson, SC 406 Highway 28 By-Pass PC Fee 06/01/90, 03/08/94(a) 20.90 163,809
Anderson, SC 3812 Liberty Highway PC Fee 10/01/93, 03/22/95(a) 2.13 14,250
Camden, SC 1671 Springdale Drive PC Fee 03/01/90, 06/24/93(a) 22.97 166,197
Columbia, SC 5420 Forest Drive PC Fee 08/01/95, 11/13/95(a) 7.04 46,700
Mt.Pleasant, SC 1500 Highway 17 North PC Fee 03/01/92, 03/30/95(a) 22.70 205,032
No Charleston, SC 7400 Rivers Avenue PC Fee 08/01/89, 11/07/93(a) 28.10 251,007
Orangeburg, SC 2795 North Road PC Fee 07/01/94, 03/22/95(a) 2.65 22,200
Simpsonville, SC 621 Fairview Road PC Fee 10/01/90, 01/03/94(a) 17.23 142,133
Union, SC Highway 176 By-Pass #1 PC Fee 06/01/90, 06/24/93(a) 45.65 184,331
South Dakota
- ------------
Watertown, SD 1300 9th Avenue, S.E. MM Fee 11/01/77 29.30 285,495
Texas
- -----
Ft. Worth, TX SWC Eastchase Pkwy. and I-30 PC Fee 12/01/95, 07/02/96(a) 17.00 205,027
San Antonio, TX 125 NE Loop 410 PC Fee(6) 12/30/96, 01/23/97(a) 26.45 286,394
Vermont
- -------
Berlin, VT Route 4 MM Fee 09/01/86 50.25 174,646
Virginia
- --------
Fairfax, VA 12210 Fairfax Towne Center PC Fee(6) 10/01/94, 11/17/95(a) 22.79 253,941
Martinsville, VA 240 Commonwealth Blvd MM Fee(6) 07/01/89 43.73 435,401
Pulaski, VA 1000 Memorial Dr PC Fee 09/01/90, 04/28/93(a) 21.93 143,299
Winchester, VA 2190 So Pleasant Valley PC Fee 01/01/90, 12/10/93(a) 26.42 230,940
- --------------------- ---------------------- ------------ ----------- ----------------- ------ ----------
25,189,531
Mortgage
Obligation Average
as of Total Base
December 31, Annualized Rent per Percent
Center / Property 1997 Base Rent(3) sq.ft.(4) Leased(6) Anchor Tenants (Lease Expiration/Option Expiration)
-------------------- ----------- ------------ --------- -------- ---------------------------------------------------
Erie, PA 3,936,534 8.15 100.0% Wal-Mart (2015/2045), Lowe's (2015/2045), Media Play
(2010/2025), Kohl's (2016/2046)
East Norriton, PA 1,115,547 6.41 100.0% Kmart (2000/2050), Acme (2002/2027), Thrift Drug
(2002/2022)
South Carolina
--------------
Anderson, SC 858,356 5.58 93.8% Wal-Mart (2010/2040), Ingles (2011/2066)
Anderson, SC 143,316 10.06 100.0% Wal-Mart (not owned), Sam's (not owned)
Camden, SC 988,097 5.95 100.0% Wal-Mart (2009/2039), Winn-Dixie (2011/2036),
Goody's (2001/2016)
Columbia, SC 487,750 10.44 100.0% Wal-Mart (not owned)
Mt.Pleasant, SC 6,889,913 1,478,295 7.28 99.1% Wal-Mart (not owned), Lowe's (2012/2032), Piggly
Wiggly (2012/2022), TJMaxx (2002/2012)
No Charleston, SC 1,792,159 7.38 96.8% Wal-Mart (2009/2039), Office Warehouse (2002/2012),
Service Merchandise (not owned)
Orangeburg, SC 227,175 10.23 100.0% Wal-Mart (not owned)
Simpsonville, SC 837,111 5.89 100.0% Kmart (2015/2065), Ingles (2011/2065)
Union, SC 1,006,394 5.46 100.0% Wal-Mart (2009/2039), Belk's (2010/2030), Winn-Dixie
(2010/2035)
South Dakota
------------
Watertown, SD 1,376,125 4.96 97.2% Kmart (2002/2052), J.C. Penney (1998/2018),
Herberger's (1999/2019), Osco (1998/2003)
Texas
-----
Ft. Worth, TX 2,280,923 11.12 100.0% PetsMart (2011/2036), MJ Designs (2011/2031),
Ross Dress For Less (2006/2026), Toys R Us (not
owned), Target (not owned)
San Antonio, TX 3,971,782 14.27 97.2% Ross Dress For Less (2007/2027), DSW Warehouse
(2007/2027) , Best Buy (2011/2026), Oshman's
(2017/2037), HomePlace (2012/2027)
Vermont
-------
Berlin, VT 4,940,000 816,547 4.90 95.5% J.C. Penney (2009/2034)
Virginia
--------
Fairfax, VA 4,012,280 16.05 98.4% United Artists (2014/2034), Safeway (2019/2054),
TJMaxx (2009/2024), Bed, Bath & Beyond (2010/2020),
Tower Records (2009/2019)
Martinsville, VA 2,907,527 7.16 93.2% J.C. Penney (2009/2034), Leggett (2009/2024), Sears
(2009/2029), Kroger (2017/2062), Goody's (2006/2016)
Pulaski, VA 837,449 6.10 95.8% Wal-Mart (2011/2041), Food Lion (2011/2031)
Winchester, VA 9,294,686 2,012,148 8.90 97.9% Office Max (2012/2027), Kohl's (2018/2048),
Giant Foods (2010/2040), Books-A-Million (2007/2017)
-------------------- ----------- ------------ --------- -------- ---------------------------------------------------
$89,675,698 $204,506,635 $8.48 96.8%
==================
Footnotes:
(1) "PC" indicates a power center or a community shopping center, "NC"
indicates a neighborhood shopping center, "MM" indicates an enclosed
mini-mall and "BC" indicates a business center.
17
18
(2) Indicates the date the center was developed. Dates denoted with (a),
indicate the date on which the property was acquired by the company
following completion of the IPO.
(3) Includes space leased as of December 31, 1997,for which rent was being paid
but which was not then occupied; also includes tenant leases signed as of
said date relating to approximately $800,000 in base revenue which has not
yet been fully billed.
(4) Calculated as total annualized base rentals divided by Company-owned GLA
actually leased as of December 31, 1997
(5) Includes space leased as of December 31, 1997,for which rent was being paid
but which was not then occupied; also includes tenant leases signed as of
said date relating to approximately 158,000 square feet which have not yet
been fully occupied.
(6) One of fourteen (14) properties owned through joint ventures which serve as
collateral for joint venture mortgage debt aggregating approximately $389.2
million (of which the Company's proportionate share is $190.3 million)
which is not reflected in the consolidated indebtedness.
* This anchor tenant has closed and sublet the space.
** This tenant-owned anchor store has closed.
*** This tenant-owned anchor store has closed and the space has been sublet.
**** This anchor tenant continues to pay rent to the Company but does not occupy
or sublet the space.
18
19
Item 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, the
following information is reported below.
(a) The executive officers of the Company are as follows:
Name Age Position and Office with the Company
- -------------------- --------- ---------------------------------------
Scott A. Wolstein 45 Chairman of the Board of Directors and Chief
Executive Officer
James A. Schoff 52 Executive Vice President, Chief Operating Officer
and a Director
John R. McGill 43 Vice President and Director of Development
Joan U. Allgood 45 Vice President and General Counsel
Loren F. Henry 50 Vice President and Director of Management
William H. Schafer 40 Vice President and Chief Financial Officer
Alan Bobman 37 Regional Vice President of Leasing
Steven M. Dorsky 40 Regional Vice President of Leasing
Robin R. Walker 41 Regional Vice President of Leasing
-19-
20
Scott A. Wolstein has been the President, Chief Executive Officer and a
Director of the Company since its organization and assumed the responsibilities
of Chairman of the Board of Directors in February 1997. Prior to the
organization of the Company, Mr. Wolstein was a principal and executive officer
of its predecessor entities since before 1992. Mr. Wolstein is a graduate of the
Wharton School at the University of Pennsylvania and of the University of
Michigan Law School. Following his graduation from the University of Michigan
Law School, Mr. Wolstein was associated with the Cleveland law firm of Thompson,
Hine & Flory. He has served as President of the Board of Trustees of the United
Cerebral Palsy Association of Greater Cleveland and as a member of the Board of
The Great Lakes Theater Festival, Neighborhood Progress, Inc., The Park
Synagogue, Cleveland's Convention and Visitors Bureau of Greater Cleveland and
Bellefaire. He is currently a member of the Executive Committee of the Board of
Trustees of the National Association of Real Estate Investment Trusts and a
member of the Board of Trustees of the International Council of Shopping Centers
and serves as the General Co-Chairman of the Cleveland Campaign for the State of
Israel Bonds. He is also a member of the Young Presidents Organization, the
Urban Land Institute, the National Realty Committee, and the Wharton Real Estate
Center. Mr. Wolstein is the son of Bert L. Wolstein, Chairman Emeritus
James A. Schoff has been Executive Vice President, Chief Operating
Officer and a Director of the Company since its organization. After graduating
from Hamilton College and Cornell University Law School, Mr. Schoff practiced
law with the firm of Thompson, Hine and Flory where he specialized in the
acquisition and syndication of real estate properties. Mr. Schoff serves as a
member of the Board of Trustees of the Western Reserve Historical Society, the
Children's Aid Society and the Cleveland Ballet.
John R. McGill has been affiliated with the Company and its predecessor
entities since 1969. During his tenure with the Company he has been involved
with the coordination and development of in excess of 85 properties, including
land acquisition, major tenant lease negotiations, and the overall development
program. Mr. McGill has been a Vice President and Director of Development of the
Company since April 1993.
Joan U. Allgood has been a Vice President and General Counsel of the
Company since its organization as a public company and General Counsel of its
predecessor entities since 1987. Mrs. Allgood practiced law with the firm of
Thompson, Hine and Flory from 1983 to 1987, and is a graduate of Denison
University and Case Western Reserve University School of Law.
Loren F. Henry has been a Vice President, Director of Management of the
Company since its organization as a public Company and served as President of
one of its predecessor entities from 1984-1993. Mr. Henry earned a Bachelor of
Arts degree in Business Administration and Mathematics from Winona State
College.
William H. Schafer has been a Vice President and Chief Financial
Officer of the Company since its organization as a public company and the Chief
Financial Officer of its predecessor entities since April 1992. Mr. Schafer
joined the Cleveland, Ohio office of the Price Waterhouse LLP accounting firm in
1983 and served there as a Senior Manager from July 1990 until he joined the
organization in 1992. Mr. Schafer graduated from the University of Michigan with
a Bachelor of Arts degree in Business Administration.
-20-
21
Alan Bobman joined the Company in October 1995 as Regional Vice
President of Leasing. Mr. Bobman was previously Divisional Director of Real
Estate at Charming Shoppes, Inc. which operates the Fashion Bug and Fashion Bug
Plus stores nationwide. He was employed at Charming Shoppes since 1985, and is
an Insurance and Real Estate graduate of Penn State University.
Steven M. Dorsky has been a Regional Vice President of Leasing since
November 1995. Prior to joining the Company, he was an Assistant Vice President
and Senior Leasing Associate for the Cleveland based retail brokerage and
management firm, The Hausman Companies. Mr. Dorsky earned a Bachelor of Arts
degree in business from Macalester College and a Masters degree in Social
Administration from Case Western Reserve University - School of Applied Social
Science.
Robin R. Walker joined the Company in April 1995 and was appointed
Regional Vice President of leasing in November 1995. Prior to joining the
Company, Ms. Walker was president of Aroco, Inc., a retail brokerage and tenant
representation firm based in Alabama. Ms. Walker attended the University of
Alabama where she earned her degree in elementary education.
-21-
22
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The following table shows the high and low sales price of the Company's
common shares on the New York Stock Exchange (the "NYSE") for each quarter in
1997 and 1996 and the dividends paid per common share with respect to each such
quarter:
Dividends
Paid per
1997 High Low Common Share
- ----------- -------- ------- ------------
1st quarter $ 38-5/8 $34-1/4 $ .63
2nd quarter 40 35-7/8 .63
3rd quarter 40-1/4 38-1/4 .63
4th quarter 41-1/4 37-5/16 .63
--------
$ 2.52
Dividends
Paid per
1996 High Low Common Share
- ----------- -------- ------- -------------
1st quarter $ 31-3/4 $28-1/8 $ .60
2nd quarter 32 28-1/8 .60
3rd quarter 33-1/8 30-1/2 .60
4th quarter 37-1/4 32-1/8 .60
--------
$ 2.40
The approximate number of record holders of the Company's common
shares, (the only class of common equity) at March 16, 1998 was 425, and the
approximate number of beneficial owners of such shares was 20,000.
In January 1998, the Company declared its 1998 first quarter dividend
to shareholders of record on February 13, 1998 of $.655 per share, a 4.0%
increase over the quarterly dividend rate of $.63 per share in 1997.
The Company intends to continue to declare quarterly dividends on its
common shares. However, no assurances can be made as to the amounts of future
dividends, since such dividends are subject to the Company's cash flow from
operations, earnings, financial condition, capital requirements and such other
factors as the Board of Directors considers relevant. The Company is required by
the Internal Revenue Code of 1986, as amended, to distribute at least 95% of its
REIT taxable income. The amount of cash available for dividends is impacted by
capital expenditures and debt service requirements to the extent that the
Company were to fund such items out of cash flow from operations.
In June 1995, the Company implemented a dividend reinvestment plan
under which shareholders may elect to reinvest their dividends automatically in
common shares. Under the plan, the Company may, from time to time, elect to
purchase common shares in the open market on behalf of participating
shareholders or may issue new common shares to such shareholders.
-22-
23
Item 6. SELECTED FINANCIAL DATA
The financial data included in the following table has been selected by
the Company and has been derived from the financial statements for the last five
years and include the information required by Item 301 of Regulation S-K.
COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
OPERATING DATA:
Pro forma
1997(1) 1996(1) 1995(1) 1994(1) 1993(2) 1993(1)
--------- --------- --------- --------- --------- ---------
Revenues (primary real estate rentals) $ 169,040 $ 130,905 $ 107,805 $ 81,974 $ 54,606 $ 54,531
--------- --------- --------- --------- --------- ---------
Expenses:
Rental operation 47,017 35,123 28,069 22,802 16,963 16,863
Depreciation & amortization 32,313 25,062 21,865 16,211 10,393 10,393
Interest 35,558 29,888 29,595 21,423 13,407 15,060
--------- --------- --------- --------- --------- ---------
114,888 90,073 79,529 60,436 40,763 42,316
--------- --------- --------- --------- --------- ---------
Income before equity in net income
(loss) from joint ventures, minority equity
interests, gains on sales of real estate,
non-recurring charges and extraordinary
items 54,152 40,832 28,276 21,538 13,843 12,215
Equity in net income (loss) of joint ventures 10,893 8,710 486 (186) (347) (347)
Minority equity interests (1,049) - - - -
Gain on sales of real estate 3,526 - 300 - 122 122
Non-recurring charges (3) - - - - - (2,641)
--------- --------- --------- --------- --------- ---------
Income before extraordinary item 67,522 49,542 29,062 21,352 13,618 9,349
Extraordinary item (3) - - (3,557) (216) - (731)
--------- --------- --------- --------- --------- ---------
Net income $ 67,522 $ 49,542 $ 25,505 $ 21,136 $ 13,618 $ 8,618
========= ========= ========= ========= ========= =========
Net income applicable to
common shareholders $ 53,322 $ 35,342 $ 24,250 $ 21,136 $ 13,618 $ 8,618
========= ========= ========= ========= ========= =========
Earnings per share data - Basic: (4)
Income before extraordinary item $ 2.06 $ 1.67 $ 1.48 $ 1.35 $ 1.10 $ 0.82
Net income $ 2.06 $ 1.67 $ 1.29 $ 1.34 $ 1.10 $ 0.76
Weighted average number of common
shares 25,880 21,147 18,780 15,806 12,391 11,383
Earnings per share data- Diluted: (4)
Income before extraordinary item $ 2.05 $ 1.67 $ 1.47 $ 1.34 $ 1.10 $ 0.82
Net income $ 2.05 $ 1.67 $ 1.28 $ 1.33 $ 1.10 $ 0.76
Weighted average number of common
shares 26,062 21,186 18,909 15,916 12,402 11,394
Annual cash dividend $ 2.52 $ 2.40 $ 2.16 $ 1.92 $ 1.60(5) $ 1.42
AT DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Real estate (at cost) $1,325,742 $ 991,647 $ 848,373 $ 686,890 $ 459,049
Real estate, net of accumulated depreciation 1,154,005 849,608 728,333 586,839 375,183
Advances to and investments in joint ventures 136,267 106,796 83,190 8,710 9,078
Total assets 1,391,918 975,126 830,060 611,116 395,942
Total debt 668,521 478,432 405,726 394,435 184,534
Shareholders' equity 669,050 469,336 404,161 203,508 197,118
-23-
24
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
Proforma
1997(1) 1996(1) 1995(1) 1994(1) 1993(2) 1993(1)
--------- --------- --------- --------- --------- ---------
OTHER DATA:
Cash flow provided from (used in)
Operating activities $ 94,383 $ 75,820 $ 49,039 $ 39,112 (6) $ 19,151
Investing activities (416,220) (199,670) (217,198) (191,810) (6) (137,232)
Financing activities 321,842 123,851 167,252 150,373 (6) 120,417
Funds from operations (7):
Net income applicable to
common shareholders $ 53,322 $ 35,342 $ 24,250 $ 21,136 $ 13,618 $ 8,618
Depreciation and amortization 31,955 24,832 21,706 16,211 10,393 10,393
Equity in net (income) loss of joint ventures (10,893) (8,710) (486) 186 347 347
Joint venture funds from operations 16,077 13,172 1,364 217 105 105
Minority interest expense (OP Units) 10 - - - - -
Gain on sales of real estate (3,526) - (300) - (122) (122)
Non-recurring and extraordinary items (3) - - 3,557 216 - 3,372
--------- --------- --------- --------- --------- ---------
$ 86,945 $ 64,636 $ 50,091 $ 37,966 $ 24,341 $ 22,713
========= ========= ========= ========= ========= =========
Weighted average number of common
shares outstanding 25,880 21,147 18,780 15,806 12,391 11,383
(1) As described in the consolidated financial statements, the Company
acquired eight properties in 1997 (one of which is owned through a
joint venture), five properties in 1996, 20 properties in 1995 (10 of
which are owned through joint ventures), 14 properties in 1994 and 17
properties in 1993.
(2) Pro forma adjustments reflect only those adjustments associated with
the Company's IPO and do not include the pro forma adjustments
associated with the secondary offerings and acquisitions in 1994 and
1993.
(3) The non-recurring charges in 1993 relate to costs incurred in
connection with the transfer of the initial properties (primarily
transfer taxes and title insurance costs) and the 1993 extraordinary
item relates to debt prepayment fees and write-off of deferred finance
costs. In 1995 and 1994, the extraordinary charges relate primarily to
the write-off of deferred finance costs.
(4) Earnings per share data is reflected for all the years utilizing
SFAS 128.
(5) Represents annualized dividend rate as declared by the Board of
Directors.
(6) Pro forma information has not been presented.
(7) Industry analysts generally consider funds from operations ("FFO") to
be an appropriate measure of the performance of an equity REIT. FFO
does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs and should
not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flow
as a measure of liquidity. FFO is defined generally as net income
applicable to common shareholder excluding gains (losses) on sale of
property, non-recurring charges and extraordinary items, adjusting for
certain noncash items, principally real property depreciation and
equity income (loss) from its joint ventures and adding the Company's
proportionate share of FFO of its unconsolidated joint ventures,
determined on a consistent basis. The Company calculates FFO in
accordance with the foregoing definition, which is currently used by
NAREIT. Certain other real estate companies may calculate FFO in a
different manner.
-24-
25
Item 7.
MANAGEMENT'S 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 which 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 Company's expectations for future periods. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. For this purpose, any statements contained
herein that are not statements of historical fact may 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. There are a
number of important factors that could cause the results of the Company to
differ materially from those indicated by such forward-looking statements,
including, among other factors, local conditions such as an oversupply of space
or a reduction in demand for real estate in the area, competition from other
available space, dependence on rental income from real property or the loss of a
major tenant.
COMPARISON OF 1997 TO 1996 RESULTS OF OPERATIONS
REVENUES FROM OPERATIONS
Total revenues increased $38.1 million, or 29.1%, to $169.0 million for the year
ended December 31, 1997 as compared to $130.9 million in 1996. Base and
percentage rents for 1997 increased $28.2 million, or 28.7%, to $126.3 million
as compared to $98.1 million in 1996. Approximately $3.5 million of the increase
in base and percentage rental income was the result of new leasing, retenanting
and expansion of the Core Portfolio Properties (shopping center properties owned
as of January 1, 1996), an increase of 4.0% over 1996 revenues from Core
Portfolio Properties. The 12 shopping centers acquired by the Company in 1997
and 1996 contributed $24.1 million of additional revenue and the four new
shopping center developments contributed $4.0 million. The above increases were
offset by the contribution of two properties to a joint venture in September
1996 which reduced base and percentage rental revenue by $3.0 million.
At December 31, 1997, the occupancy rate of the Company's shopping centers
aggregated 96.1% as compared to 94.8% at December 31, 1996. At December 31,
1997, the Company's portfolio was actually 96.7% leased, including leases signed
where occupancy had not occurred as of that date. The average annualized base
rent per leased square foot, including those properties owned through joint
ventures, was $8.49 at December 31, 1997 as compared to $7.85 at December 31,
1996. During 1997, same store sales, for those tenants required to report sales
(approximately 12.6 million square feet), increased 4.17% to $230.59 per square
foot as compared to $221.35 per square foot in 1996.
The increase in recoveries from tenants of $8.2 million was directly related to
the increase in operating and maintenance expenses and real estate taxes
associated with the 1997 and 1996 shopping center acquisitions and developments.
Recoveries were approximately 90.0% of operating and maintenance expenses and
real estate taxes in 1997 as compared to 89.4% in 1996.
Management fee income and other income increased by approximately $1.7 million
which generally related to an increase in interest income of approximately $0.9
million, management fee income of approximately $0.3 million, development fee
income of approximately $0.3 million and kiosk income (temporary tenants) of
approximately $0.2 million.
EXPENSES FROM OPERATIONS
Rental operating and maintenance expenses for the year ended December 31, 1997
increased $3.6 million, or 28.7%, to $16.0 million as compared to $12.4 million
in 1996. An increase of $2.6 million was attributable to the 16 shopping centers
acquired and developed in 1997 and 1996 and an increase of $1.0 million was
related to the Core Portfolio Properties generally associated with increased
maintenance activities at a majority of the Company's shopping centers.
Real estate taxes increased $5.4 million, or 37.1%, to $20.0 million for the
year ended December 31, 1997 as compared to $14.6 million in 1996. This increase
was primarily attributable to the growth related to the 16 shopping centers
acquired and developed in 1997 and 1996 which contributed $5.1 million of the
increase and $0.3 million generally related to expansions associated with the
Core Portfolio Properties.
General and administrative expenses increased $2.9 million, or 35.9%, to $11.0
million for the year ended December 31, 1997 as compared to $8.1 million in
1996. The increase was primarily attributable to the growth of the Company
associated with the 1997 and 1996 acquisitions, expansions and developments and
increases in various incentive and deferred compensation costs. The Company
continues to maintain a conservative policy with regard to the expensing of all
internal leasing salaries, legal salaries and related expenses associated with
the leasing and re-leasing of existing space. In addition, the Company continues
to expense all internal costs associated with acquisitions. Total general and
administrative expenses were approximately 4.4% and 4.2% of total revenues,
including revenues of joint ventures, for the years ended December 31, 1997 and
1996, respectively.
Depreciation and amortization expense increased $7.2 million, or 28.9%, to $32.3
million for the year ended December 31, 1997 as compared to $25.1 million in
1996. The increase was primarily attributable to the growth related to the 16
shopping centers acquired and developed in 1997 and 1996 which contributed $6.7
million of the increase and $1.1 million primarily related to the expansions and
improvements associated with the Core Portfolio Properties. The above increases
were offset by the contribution of two properties to a joint venture in
September 1996 which reduced depreciation expense by $0.6 million.
Interest expense, net of amounts capitalized, increased $5.7 million, or 19.0%,
to $35.6 million for the year ended December 31,
-25-
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1997 as compared to $29.9 million in 1996. The overall increase in interest
expense was primarily related to the acquisition and development of shopping
centers during 1997 and 1996. The weighted average debt outstanding and related
weighted average interest rate during 1997 was $510.5 million and 7.7%,
respectively, as compared to $426.5 million and 7.8%, respectively, during 1996.
Interest capitalized, in conjunction with development and expansion projects,
was $4.0 million for the year ended December 31, 1997 as compared to $3.3
million in 1996.
OTHER
Equity in net income of joint ventures increased $2.2 million, or 25.1%, to
$10.9 million in 1997 as compared to $8.7 million in 1996. An increase of $0.8
million was attributable to the Community Center Joint Ventures primarily
associated with the completion of construction at three of the ten shopping
centers which were under construction at the date of acquisition and a gain on
sale of land. The aforementioned increases were offset by an increase in
interest costs associated with the refinancing of variable rate bridge financing
to long term fixed rate financing in May 1997. An increase of $0.8 million was
related to the formation of a joint venture with Ohio State Teachers Retirement
Systems ("OSTRS") in September 1996. An increase of $0.4 million was related to
the formation of a joint venture in January 1997 which acquired a shopping
center in San Antonio, Texas. An increase of $0.2 million was related to the
expansion and redevelopment of Liberty Fair Mall in the Martinsville, Virginia
joint venture.
The minority equity interest expense of $1.0 million for the year ended December
31, 1997 related to the minority equity in three shopping center properties
acquired by the Company during 1997. The charge to income represents the
priority distributions associated with the minority equity interests.
Gain on sales of real estate aggregated $3.5 million for the year ended December
31, 1997. In March 1997, the Company sold two business centers in Highland
Heights, Ohio aggregating approximately 113,000 square feet for approximately
$5.7 million. The two business centers had been vacant for approximately 18
months.
NET INCOME
Net income increased $18.0 million to $67.5 million for the year ended December
31, 1997 as compared to $49.5 million in 1996. The increase in net income was
attributable to increased net operating revenues (total revenues less operating
and maintenance expenses, real estate taxes and general and administrative
expense) aggregating $26.2 million, resulting from new leasing, retenanting and
expansion of Core Portfolio Properties, and the 16 shopping centers acquired and
developed in 1997 and 1996. An additional increase of $2.2 million related to
increased equity income of joint ventures and an increase of $3.5 million
related to the gain on sale of real estate. The increase in net operating
revenues, equity income from joint ventures and gain on sale of real estate was
offset by increases in depreciation, interest expense and minority equity
interest of $7.2 million, $5.7 million and $1.0 million, respectively.
COMPARISON OF 1996 TO 1995 RESULTS OF OPERATIONS
REVENUES FROM OPERATIONS
Total revenues increased $23.1 million, or 21.4%, to $130.9 million for the year
ended December 31, 1996 as compared to $107.8 million in 1995. Base and
percentage rents for 1996 increased $13.7 million, or 16.3%, to $98.1 million as
compared to $84.4 million in 1995. Approximately $2.4 million of the increase in
base and percentage rental income was the result of new leasing, retenanting and
expansion of the Core Portfolio Properties (shopping center properties owned as
of January 1, 1995) an increase of 3.3% over 1995 revenues from Core Portfolio
Properties. The 15 shopping centers acquired by the Company in 1996 and 1995
contributed $10.5 million of additional revenue and the three new shopping
center developments contributed $2.3 million. The above increases were offset by
the contribution of two properties to a joint venture in September 1996, which
reduced base and percentage rental revenue by $0.8 million and a decrease in
business center base rents of $0.7 million.
At December 31, 1996, the occupancy rate of the Company's shopping centers
aggregated 94.8% as compared to 96.3% at December 31, 1995. Contributing to the
decrease in occupancy was the Company's decision to terminate the leases of two
Wal-Mart stores in Winchester and Martinsville, Virginia at the end of June
1996. The former Wal-Mart space in each center was leased to a variety of
tenants at higher rents commencing in the fourth quarter of 1996 and first half
of 1997. At December 31, 1996, the Company had entered into additional leases
with anchor tenants aggregating in excess of 240,000 square feet of vacant
space, including the above mentioned Wal-Mart space, which effectively adjusts
the December 31, 1996 occupancy rate to 96.0%. The average annualized base rent
per leased square foot, including those properties owned through joint ventures,
was $7.85 at December 31, 1996 as compared to $7.61 at December 31, 1995. During
1996, same store sales, for those tenants required to report sales, increased
3.9% to $225.18 per square foot as compared to $216.70 per square foot in 1995.
The increase in recoveries from tenants of $4.9 million was directly related to
the increase in operating and maintenance expenses and real estate taxes and was
primarily associated with the 1996 and 1995 shopping center acquisitions and
developments. Recoveries were approximately 89.4% of operating and maintenance
expenses and real estate taxes as compared to 88.1% in 1995.
Management fee income and other income increased by approximately $4.5 million
which generally related to an increase in management fee income of approximately
$2.1 million associated with the formation of the Community Center Joint
Ventures in November 1995, and the OSTRS Joint Venture in September 1996, and an
increase in lease termination income of approximately $2.4 million.
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EXPENSES FROM OPERATIONS
Rental operating and maintenance expenses for the year ended December 31, 1996
increased $3.1 million, or 34.0%, to $12.4 million as compared to $9.3 million
in 1995. An increase of $2.3 million was attributable to the 18 shopping centers
acquired and developed in 1996 and 1995 and an increase of $0.8 million in the
Core Portfolio Properties, primarily attributed to higher repair and maintenance
costs and snow removal costs in 1996 as compared to 1995.
Real estate taxes increased $2.0 million, or 16.0%, to $14.6 million for the
year ended December 31, 1996 as compared to $12.6 million in 1995. This increase
was related to the 18 shopping centers acquired and developed in 1996 and 1995.
General and administrative expenses increased $1.9 million, or 30.7%, to $8.1
million for the year ended December 31, 1996 as compared to $6.2 million in
1995. The increase was attributable to the growth of the Company related to the
1996 and 1995 acquisitions, joint ventures, expansions and developments. During
the fourth quarter of 1995, the Company expanded its leasing staff and added
three regional vice presidents of leasing, and throughout 1996, opened seven new
regional leasing and operations offices in various cities throughout the
country. Total general and administrative expenses were approximately 4.2% and
5.3% of total revenues, including revenues of joint ventures, for the years
ended December 31, 1996 and 1995, respectively.
Depreciation and amortization expense increased $3.2 million, or 14.6%, to $25.1
million for the year ended December 31, 1996 as compared to $21.9 million in
1995. The increase was primarily attributable to the growth related to the 18
shopping centers acquired and developed in 1996 and 1995 which contributed $2.9
million of the increase. The remaining $0.3 million related to the expansions
and improvements associated with the Core Portfolio Properties.
Interest expense increased $0.3 million, or 1.0%, to $29.9 million for the year
ended December 31, 1996 as compared to $29.6 million for the year ended December
31, 1995. The overall increase in interest expense was primarily related to the
acquisition and development of shopping centers during 1996. The weighted
average debt outstanding and related weighted average interest rate during 1996
was $426.5 million and 7.8%, respectively, as compared to $394.8 million and
8.1%, respectively, during 1995. Interest capitalized, in conjunction with
development and expansion projects, was $3.3 million for the year ended December
31, 1996 as compared to $2.5 million in 1995.
OTHER
Equity in net income of joint ventures increased $8.2 million to $8.7 million in
1996 as compared to $0.5 million in 1995. The increase was attributable to the
formation of the Community Center Joint Ventures during the fourth quarter of
1995 and the OSTRS Joint Venture in the third quarter of 1996 which contributed
$8.1 million and $0.3 million of equity in net income of joint ventures,
respectively. This increase was offset by a $0.2 million increase in the equity
in net loss from the Martinsville, Virginia joint venture. The increase in this
joint venture's net loss was the result of the election to terminate its
Wal-Mart lease. The former Wal-Mart space was released to two major tenants at
higher rents commencing during the fourth quarter of 1996 and the first half of
1997.
The extraordinary item, which aggregated $3.6 million for the year ended
December 31, 1995, was primarily related to the write-off of unamortized
deferred finance costs.
NET INCOME
Net income increased $24.0 million to $49.5 million for the year ended December
31, 1996 as compared to net income of $25.5 million in 1995. The increase in net
income was attributable to increased net operating revenues (total revenues less
operating and maintenance expenses, real estate taxes and general and
administrative expense) aggregating $16.0 million, resulting from new leasing,
retenanting and expansion of Core Portfolio Properties, and the 18 shopping
centers acquired and developed in 1995 and 1996. An additional increase of $8.2
million related to the formation of the Community Center Joint Ventures and the
OSTRS joint venture and an increase of $3.6 million related to a decrease in
extraordinary charges. The increase in net operating revenues and equity income
from joint ventures and reduction in extraordinary charges was offset by
increases in depreciation and interest expense of $3.2 million and $0.3 million,
respectively, and a decrease in gain on sales of land of $0.3 million.
FUNDS FROM OPERATIONS
Management believes that Funds From Operations ("FFO") provides an additional
indicator of the financial performance of a Real Estate Investment Trust. FFO is
defined generally as net income applicable to common shareholders excluding
gains (losses) on sales of real estate, non-recurring charges and extraordinary
items, adjusted for certain non-cash items, principally real property
depreciation and equity income (loss) from its joint ventures and adding the
Company's proportionate share of FFO of its unconsolidated joint ventures,
determined on a consistent basis. The Company calculates FFO in accordance with
the foregoing definition, which is currently used by the National Association of
Real Estate Investment Trusts ("NAREIT"). Certain other real estate companies
may calculate Funds From Operations in a different manner.
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In 1997, FFO increased $22.3 million, or 34.5%, to $86.9 million as compared to
$64.6 million and $50.1 million in 1996 and 1995, respectively. The increases in
each year were attributable to the continuing increases in revenues from Core
Portfolio Properties, acquisitions and developments. The Company's calculation
of FFO is as follows (in thousands):
Year ended December 31,
1997 1996 1995
------- ------- -------
Net income applicable to
common shareholders(1) $53,322 $35,342 $24,250
Depreciation of real property 31,955 24,832 21,706
Equity in net income of joint
ventures (10,893) (8,710) (486)
Joint ventures' FFO(2) 16,077 13,172 1,364
Minority interest expense (OP Units) 10 - -
Gain on sales of real estate (3,526) - (300)
Extraordinary item - - 3,557
------- ------- -------
$86,945 $64,636 $50,091
======= ======= =======
(1) Includes straight line rental revenues of approximately $2.0 million, $0.7
million and $0.1 million in 1997, 1996 and 1995, respectively, primarily related
to recent acquisitions and new developments.
(2)Joint ventures funds from operations are summarized as follows
(in thousands):
Year ended December 31,
1997 1996 1995
------- ------- -------
Net income(a) $22,132 $17,419 $ 972
Depreciation of real property 11,658 8,924 1,756
Gain on sale of land (1,085) - -
------- ------- -------
$32,705 $26,343 $ 2,728
======= ======= =======
DDRC ownership interests(b) $16,077 $13,172 $ 1,364
======= ======= =======
(a) Includes straight-line rental revenue of approximately $2.9 million, $2.3
million and $0.4 million in 1997, 1996 and 1995, respectively. The Company's
proportionate share of straight-line rental revenues was $1.4 million, $1.1
million and $0.2 million in 1997, 1996 and 1995, respectively.
(b) At December 31, 1997, the Company owned a 50% joint venture interest
relating to 13 operating shopping center properties and a 35% joint
venture interest in one shopping center property. At December 31, 1996, the
Company owned a 50% joint venture interest in 13 operating shopping center
properties. At December 31, 1995, the Company owned a 50% joint venture interest
in 11 shopping center properties, ten of which were acquired during the fourth
quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash flow from operating activities will continue
to provide adequate capital for all principal payments, recurring tenant
improvements, as well as dividend payments in accordance with REIT requirements
and that cash on hand, borrowings under its existing revolving credit
facilities, as well as other debt and equity alternatives will provide the
necessary capital to achieve continued growth. Cash flow from operating
activities for 1997 increased to $94.4 million as compared to $75.8 million in
1996. The increase was attributable to the 16 shopping center acquisitions and
developments completed in 1997 and 1996, new leasing, expansion and retenanting
of the Core Portfolio Properties and the equity offerings completed in 1997 and
1996.
The Company satisfied its REIT requirement of distributing at least 95% of
ordinary taxable income with declared common and preferred share dividends of
$79.7 million in 1997 as compared to $66.0 million and $41.8 million in 1996 and
1995, respectively. Accordingly, federal income taxes were not incurred at the
corporate level. The Company's common share dividend payout ratio for the year
approximated 75.3% of its 1997 FFO as compared to 80.3% and 81.5% in 1996 and
1995, respectively.
An increase in the 1998 quarterly dividend per common share to $0.655 from $0.63
was approved in December 1997 by the Company's Board of Directors. It is
anticipated that the new dividend level will result in a more conservative
payout ratio as compared to prior years. A lower payout ratio will enable the
Company to retain more capital which will be utilized towards attractive
investment opportunities in the development, acquisition and expansion of
portfolio properties.
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ACQUISITIONS, DEVELOPMENTS AND EXPANSIONS
During the three year period ended December 31, 1997, the Company and its joint
ventures expended $1.3 billion, net, to acquire, develop, expand, improve and
retenant its properties as follows (in millions):
1997 1996 1995
------ ------ ------
COMPANY:
Acquisitions $267.9 $113.9 $ 81.6
Completed expansions 29.8 24.6 25.8
Developments and
construction in progress 41.1 48.2 58.6
Tenant improvements, building
renovations and furniture
and fixtures 4.2 1.1 1.1
Other real estate investments 72.1 - -
------ ------ ------
415.1 187.8 167.1
Less real estate sales and property
contributed to joint ventures (8.9) (44.5) (5.6)
------ ------ ------
Company Total 406.2 143.3 161.5
------ ------ ------
JOINT VENTURES:
Acquisitions / Contributions 38.8 42.8 450.5
Completed expansions 9.2 - -
Developments and
construction in progress 31.9 47.1 4.5
Tenant improvements and
building renovations 0.2 - -
80.1 89.9 455.0
Less real estate sales (6.1) - -
------ ------ ------
Joint Ventures Total 74.0 89.9 455.0
------ ------ ------
$480.2 $233.2 $616.5
====== ====== ======
During 1997, the Company acquired seven shopping centers aggregating 2.4 million
square feet of Company owned gross leasable area (GLA) for an aggregate
investment of approximately $267.9 million. In addition, in January 1997, the
Company entered into a joint venture with certain institutional investors which
are advised by DRA Advisors, Inc. to acquire a 0.3 million square foot shopping
center located in San Antonio, Texas. The aggregate cost of the shopping center
was approximately $38.3 million of which the Company's proportionate ownership
share is 35%. The Company also contributed approximately $0.5 million of
additional assets to the OSTRS Joint Venture during 1997.
During 1997, the Company and its joint ventures completed expansions and
redevelopments aggregating approximately 0.8 million square feet at an aggregate
cost of approximately $39.0 million at 13 of its shopping centers. The Company
is currently expanding seven shopping centers and will continue to pursue
additional expansion opportunities. The Company and its joint ventures currently
have approximately 175 acres of undeveloped land consisting of 70 parcels,
primarily adjacent to its existing shopping centers, available for development,
expansion or sale.
During 1997, the Company substantially completed the construction
of four shopping centers which included: (i) a 235,000 square foot Phase II
development of the Canton, Ohio shopping center; (ii) a 500,000 square foot
shopping center in Boardman, Ohio; (iii) a 475,000 square foot shopping center
in Stow, Ohio and (iv) an 84,000 square foot shopping center in Aurora, Ohio.
Development activity was completed at two of the Company's joint venture
shopping centers located in Atlanta, Georgia and Framingham, Massachusetts which
were acquired in connection with the Community Center Joint Ventures in November
1995.
The Company has commenced construction on two additional shopping centers which
include a 200,000 square foot Phase II development of the Erie, Pennsylvania
center, and a 445,000 square foot shopping center in Merriam, Kansas which is
being developed through a joint venture formed in October 1996, 50% of which is
owned by the Company. These shopping centers are scheduled for completion during
the last half of 1998.
The Company has also commenced the initial development of three additional
shopping centers which include: (i) a 240,000 square foot shopping center in
Toledo, Ohio; (ii) a 170,000 square foot shopping center in Solon, Ohio and
(iii) a 230,000 square foot shopping center in Oviedo, Florida (a suburb of
Orlando). All three centers are scheduled for completion during the fourth
quarter of 1998.
The Company is also involved with, or pursuing, joint venture development
opportunities on eight additional projects with various developers throughout
the country at an aggregate projected cost of approximately $300 million. The
majority of projects should commence development in 1998 and are currently
scheduled for completion in 1999.
In December 1997, the Company acquired 33 retail redevelopment sites, formerly
occupied by Best Products, at a cost of approximately $54.5 million. In February
1998, these assets were contributed to the Retail Value Fund, a joint venture
with Prudential Real Estate Investors. See discussion under "Financing
Activities" below regarding the Retail Value Fund.
In December 1997, the Company acquired a 42.5% ownership interest in a 584,000
square foot shopping center located in Princeton, New Jersey at an initial cost
of approximately $7.7 million. During the first quarter of 1998, the Company
anticipates acquiring the balance of the ownership interest in the property
through the issuance of approximately 11,850 Operating Partnership Units which
will be convertible into equivalent shares of the Company's common stock and the
assumption of debt. Upon completion of the transaction, the Company's aggregate
investment will be approximately $36.4 million, including assumption of debt of
approximately $27.7 million. The Company also acquired a 45.1% ownership
interest in an adjacent development site at an initial cost of approximately
$9.9 million. Upon completion of construction the Company anticipates acquiring
the balance of the ownership interest in exchange for cash and Operating
Partnership Units.
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During 1996, the Company acquired five shopping centers aggregating 1.1 million
square feet of Company owned GLA (Gross Leasable Area) for an aggregate purchase
price of approximately $113.9 million.
In September 1996, the Company entered into a joint venture with OSTRS. In
conjunction with the formation of the joint venture, the Company contributed to
the joint venture two recently developed shopping centers with a net book value
of $41.6 million and non-recourse mortgage debt aggregating $36.4 million. OSTRS
funded initial cash contributions of $11.6 million, which was used to repay a
portion of the non-recourse mortgage debt. In addition to owning a 50% interest
in the joint venture, the Company continues to manage the two properties
pursuant to a management agreement.
During 1996, the Company completed expansions at seven of its shopping centers
aggregating approximately 375,000 square feet for an aggregate cost of
approximately $24.6 million.
During 1996, the Company completed the first phase of a 520,000 square foot
shopping center development in Canton, Ohio for an aggregate cost of $21.2
million. This property was contributed into the joint venture with OSTRS as
discussed above. The Company also completed the development of the initial phase
of a shopping center in Aurora, Ohio aggregating approximately 84,000 square
feet at a total cost of $4.9 million. Construction had also commenced on the
development of four additional shopping centers aggregating approximately 1.7
million square feet for an aggregate projected cost of approximately $117
million. In addition, the Company completed the development of the Independence,
Missouri shopping center, which is one of the three Community Center Joint
Venture properties acquired while under development in 1995 through the Homart
transactions as described below. The remaining two shopping centers under
development, located in Framingham, Massachusetts and Atlanta, Georgia, were in
the final stages of construction. As of December 31, 1996, the majority of
tenants had opened at each of these centers.
During 1995, the Company acquired ten shopping centers aggregating 1.2 million
square feet of Company owned GLA at an aggregate purchase price of approximately
$81.6 million.
On November 17, 1995, the Company formed a joint venture to acquire the Homart
Community Center Division of Sears, Roebuck and Co. ("Sears"). The Homart
Community Center Division included ten power centers, which aggregated in excess
of four million square feet of GLA, and are located in major metropolitan areas
throughout the United States and several outlots and pad sites adjacent to the
ten power centers and certain other power centers previously sold by Sears (the
"Community Center Properties"). Construction of seven of the ten power centers
was complete or substantially complete at the time of acquisition and three of
the power centers were under construction.
The Company, or a wholly owned subsidiary of the Company, and its joint venture
partners each purchased a 50% interest in each Community Center Joint Venture.
The total purchase price for the Community Center Properties aggregated $449.2
million and was funded through $300.1 million of secured indebtedness at the
joint venture level, $3.1 million of assumed net liabilities and $146.0 million
of cash of which one-half each was provided by the Company and its joint venture
partners. In addition, the Company paid cash of approximately $1.3 million
relating to the purchase of certain rights to various development sites.
During 1995, the Company completed over 400,000 square feet of expansions at 12
shopping centers for a total cost of approximately $25.8 million.
During 1995, the Company completed the first phase of a 480,000 square foot
shopping center development in Erie, Pennsylvania; and the first phase of a
245,000 square foot redevelopment in Highland Heights, Ohio. The Company also
completed the development of a 195,000 square foot shopping center in Xenia,
Ohio.
FINANCING ACTIVITIES
The above acquisitions, developments and expansions were financed through cash
provided from operating activities, revolving credit facilities, mortgages
assumed, construction loans and debt and equity offerings. Total debt
outstanding at December 31, 1997 was $668.5 million as compared to $478.4
million and $405.7 million at December 31, 1996 and 1995, respectively. In 1997,
the Company increased total debt by $190.1 million primarily to fund
acquisitions, developments, expansions and other real estate investments.
In January 1997, the Company completed a 3,350,000 common share offering and
received net proceeds of approximately $115.8 million. In June 1997, the Company
completed a 1,300,000 common share offering and received net proceeds of
approximately $49.4 million. In September 1997, the Company completed a 507,960
common share offering with a registered unit investment trust and received net
proceeds of approximately $18.8 million. In December 1997, the Company completed
a 316,800 common share offering with a registered unit investment trust and
received net proceeds of approximately $11.3 million. The proceeds from the four
common share offerings mentioned above were primarily used to retire variable
rate debt. The common share offerings significantly strengthened the Company's
balance sheet and positioned the Company to continue to take advantage of
attractive acquisition, development and expansion opportunities.
In March 1997, the Company issued, through a grantor trust, $75 million of
senior unsecured Pass-Through Asset Trust Securities (PATS). The PATS were
issued at a discount to 99.53%, have a coupon rate of 7.125%, mature on March
15, 2012 and have a put date of March 15, 2002. The effective yield to the put
date, after adjusting for the call premium and debt issue costs, is
approximately 6.9%.
In March 1997, the Company extended its $150 million unsecured revolving credit
facility, agented by the First National Bank of Chicago and Bank of America
NT&SA, for an additional year, through May 2000, and reduced the interest rate
15 basis points. The amendment also introduced a competitive bid feature for up
to $75 million of borrowings. In April 1997, the Company extended its $10
million unsecured revolving credit facility with National City Bank through
November 2000, and reduced the interest rate 15 basis points.
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In March 1997, the Company sold two business centers in Highland Heights, Ohio
aggregating approximately 113,000 square feet for approximately $5.7 million and
recognized a gain of approximately $3.5 million. The net proceeds of
approximately $5.4 million were used to repay revolving credit debt.
In 1997, the Company issued $102 million of senior unsecured fixed rate notes
through its Medium Term Note program with maturities ranging from five to ten
years and coupon interest rates ranging from 6.80% to 7.02%. The proceeds were
used to repay variable rate borrowings on the Company's revolving credit
facilities primarily associated with shopping center acquisitions.
A summary of the aggregate gross proceeds raised of $828.4 million through the
issuance of common shares, preferred shares and senior unsecured notes during
the three year period ended December 31, is as follows (in millions):
1997 1996 1995
EQUITY: ------ ------ -------
Common shares $204.1 $ 75.6 $ 81.2
Class A preferred shares - - 105.4
Class B preferred shares - 4.4 40.0
------ ------ -------
Total Equity 204.1 80.0 226.6
DEBT:
Senior fixed rate notes 102.0 111.7 104.0
------ ------ ------
$306.1 $191.7 $330.6
====== ====== ======
In addition, in May 1997, the Company refinanced $322.5 million of non-recourse
joint venture indebtedness relating to the Community Centers Joint Ventures.
This indebtedness bears interest at a fixed coupon rate of 7.378% and matures in
May 2002. At December 31, 1997, 1996 and 1995, outstanding borrowings associated
with the Community Center Joint Ventures aggregated $322.5 million, $319.5
million and $303.3 million, respectively.
During 1997, Convertible Debentures in the aggregate amount of $13.1 million
had converted into 392,754 common shares. At December 31, 1997, the Company had
$46.9 million of its 7% convertible debentures outstanding with a maturity date
of August 1999 and a conversion price of $33.375 per common share.
In January 1998, the Company issued $100 million of senior unsecured fixed rate
notes through its Medium Term Note program with a ten year maturity and a
6.625% coupon rate. The proceeds were used to repay variable rate borrowings on
the Company's revolving credit facilities.
In December 1997, the Company and Hendon Associates formed a joint venture to
acquire 33 retail sites, formerly occupied by Best Products, from Metropolitan
Life. Under the terms of the joint venture with Hendon Associates, the Company
advanced the capital to fund the purchase price of the assets and it is expected
that the Company will receive (i) a priority return of its capital; (ii) a 15%
compound annual return thereon and (iii) 75% of additional available cash flow.
The 33 retail sites, are located in 13 states with concentrations in Ohio,
California and New Jersey. These sites were acquired at an initial cost of
approximately $54.5 million. It is expected that a majority of the 33 sites will
be redeveloped and retenanted with a few sites being sold.
At the date of acquisition, it was anticipated that the Company's ownership
interest would be transferred to the "Retail Value Fund" ("Fund") with
Prudential Real Estate Investors upon finalization of the joint venture
documents which occurred on February 11, 1998. The Company contributed its
ownership interest in the joint venture formed with Hendon Associates to the
Fund, and in exchange for a 75% ownership interest in this joint venture, was
reimbursed approximately $41.5 million from Prudential Real Estate Investors.
The proceeds of $41.5 million were used to repay variable rate borrowings on the
Company's revolving credit facilities.
The Fund will invest in retail properties within the United States that are in
need of substantial retenanting and market repositioning. This Fund may also
make equity or debt investments in companies owning or managing retail
properties as well as in third party development projects that provide
significant growth opportunities. The retail property investments may include
enclosed malls, neighborhood centers or other potential commercial
redevelopment opportunities. The Company is expected to maintain an ownership
interest of approximately 25% in the Fund. The Company will also own a majority
of the stock of the general partner of the Fund. The general partner will own a
1% interest in the Fund and will receive an incentive participation equal to
33% of cash flow, after the limited partners receive a return of invested
capital plus a cumulative return of 10% thereon. The Fund will have its own
employees and the Company will assume retail management and operating
responsibilities including leasing, redevelopment and accounting and will be
paid fees in consideration of the foregoing services.
CAPITALIZATION
At December 31, 1997, the Company's capitalization consisted of $668.5 million
of debt (excluding the Company's proportionate share of joint venture mortgage
debt aggregating $190.3 million), $149.8 million of preferred stock and $1,059.0
million of market equity (market equity is defined as common shares outstanding
multiplied by the closing price of the common shares on the New York Stock
Exchange at December 31, 1997 of $38.25) resulting in a debt to total market
capitalization ratio of .36 to 1.0 as compared to the ratios of .33 to 1.0 and
.36 to 1.0 at December 31, 1996 and 1995, respectively. At December 31, 1997,
the Company's total debt consisted of $526.0 million of fixed rate debt and
$142.5 million of variable rate debt.
It is management's intention that the Company 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 or debt financing
in a manner consistent with its intention to operate with a conservative debt
capitalization policy and maintain its investment grade ratings with Moody's
Investor Services and Standard and Poor's. In October 1997, the Company filed a
shelf registration statement with the Securities and Exchange Commission under
which $500 million of debt securities, preferred shares or common shares may be
issued. As of December 31, 1997, the Company had $436.0 million available under
its shelf registration statement ($336.0 million as of January 12, 1998). In
addition, as of December 31, 1997, the Company had $20.3 million available under
its $160.0 million of
-31-
32
unsecured revolving credit facilities ($140.0 million as of February,
1998). On December 31, 1997, the Company also had 100 operating properties with
$138.7 million, or 77.7%, of the total revenue for the year ended December 31,
1997 which were unencumbered thereby providing a potential collateral base for
future borrowings.
INFLATION
Substantially all of the Company's long-term leases contain provisions designed
to mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than ten years, which permits the Company to seek to increase rents upon
rerental at market rates. Most of the Company's leases require the tenants to
pay their share of operating expenses, including common area maintenance, real
estate taxes, insurance and utilities, thereby reducing the Company's exposure
to increases in costs and operating expenses resulting from inflation.
At December 31, 1997, approximately 78.7% of the Company's debt (excluding joint
venture debt) bore interest at fixed rates with a weighted average maturity of
approximately 4.6 years and a weighted average interest rate of approximately
7.6%. The remainder of the Company's debt bears interest at variable rates with
a weighted average maturity of approximately 2.6 years and a weighted average
interest rate of approximately 7.8% at December 31, 1997. At December 31, 1997,
the Company's Community Center Joint Ventures had fixed rate debt aggregating
approximately $322.5 million; the OSTRS joint venture had variable rate debt
aggregating $24.2 million; the Company's joint venture in San Antonio, Texas had
fixed rate debt aggregating $28.6 million and the Liberty Fair joint venture had
fixed rate debt aggregating $13.8 million. The Company intends to utilize
variable rate indebtedness available under its revolving credit facilities in
order to initially fund future acquisitions, developments and expansions of
shopping centers. Thus, to the extent that the Company incurs additional
variable rate indebtedness, its exposure to increases in interest rates in an
inflationary period would increase. The Company believes, however, that in no
event would increases in interest expense as a result of inflation significantly
impact the Company's distributable cash flow.
The Company intends to continuously monitor and actively manage interest costs
on its variable rate debt portfolio and may enter into swap positions based on
market fluctuations. In addition, the Company believes that it has the ability
to obtain funds through additional equity and/or debt offerings, including the
issuance of medium term notes. Accordingly, the cost of obtaining such
protection agreements in relation to the Company's access to capital markets
will continue to be evaluated.
ECONOMIC CONDITIONS
Historically, real estate has been subject to a wide range of cyclical
economic conditions which affect various real estate sectors and geographic
regions with differing intensities and at different times. Adverse changes in
general or local economic conditions could result in the inability of some
existing tenants of the Company to meet their lease obligations and could
otherwise adversely affect the Company's ability to attract or retain tenants.
The shopping centers are typically anchored by discount department stores
(usually Wal-Mart, Kmart, Target, or JCPenney), supermarkets and drug stores
which usually offer day-to-day necessities, rather than high-priced luxury
items. Since these merchants typically perform better in an economic recession
than those who market high priced luxury items, the percentage rents received by
the Company have remained relatively stable. 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.
During 1997 and 1996, certain national and regional retailers have experienced
financial difficulties and several have filed for protection under bankruptcy
laws. Although the Company has experienced an increase in the number of tenants
filing for protection under bankruptcy laws, no significant bankruptcies have
occurred through February 24, 1998 with regard to the Company's portfolio of
tenants.
The Company has assessed the Year 2000 Issue and does not believe that it will
have a material affect on future financial results, or cause reported financial
information not to be necessarily indicative of future operating results or
future financial condition. The Company will continue to review, on an ongoing
basis, the need for disclosures concerning this issue.
-32-
33
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in a separate section at the end
of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-33-
34
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference
to the information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Company's Proxy
Statement in connection with its annual meeting of shareholders to be held on
May 11, 1998, and the information under the heading "Executive Officers" in Part
I of this Annual Report on Form 10-K.
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the "Executive Compensation"
section of the Company's Proxy Statement in connection with its annual meeting
of shareholders to be held on May 11, 1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the "Security Ownership of Certain
Beneficial Owners and Management" section of the Company's Proxy Statement in
connection with its annual meeting of shareholders to be held on May 11, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the "Certain Transactions" section
of the Company's Proxy Statement in connection with its annual meeting of
shareholders to be held on May 11, 1998.
-34-
35
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENTS SCHEDULES AND
REPORTS ON FORM 8-K
a) Financial Statements
The following documents are filed as part of this report:
Report of Independent Accountants - Developers
Diversified Realty Corporation
Consolidated Balance Sheets as of December 31, 1997
and 1996.
Consolidated Statements of Operations for the three
years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders Equity for
the years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995.
Notes to Financial Statements
b) Reports on Form 8-K were filed on January 13, June 18, June 19
and November 7, 1997 in which information regarding Items 5 and 7 of
Form 8-K was reported.
c) Exhibits
The following exhibits are filed as part of, or incorporated
by reference into, this Report:
-35-
36
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
2 2.1 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus Corporation for Maple
Grove Crossing Shopping
Center
2 2.2 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus North Corporation for
Highland Grove Shopping
Center
2 2.3 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus South Corporation for
Eastchase Market Shopping
Center
2 2.4 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus Northwest, L.L.C. for
Tanasbourne Town Center
Phase I Shopping Center
2 2.5 Agreement of Purchase and Current Report on Form 8-K
Sale, dated July 2, 1996, (Filed with the SEC on January
between the Company and 14, 1997)
Opus Southwest Corporation
for Arrowhead Crossing
Shopping Center
3 3.1 Amended and Restated Form S-11 Registration No.
Articles of Incorporation 33-54930 (Filed with SEC on
of the Company November 23, 1992; see Exhibit
3.1 therein)
-36-
37
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
3 3.2 Amendments to Amended and Annual Report on Form 10-K
Restated Articles of (Filed with the SEC on March
Incorporation of the Company 30, 1996)
3 3.3 Amendment to Amended and Current Report on Form 8-K
Restated Articles of (Filed with the SEC on January
Incorporation 14, 1997)
3 3.4 Amendment to Amended and Current Report on Form 8-K
Restated Articles of (Filed with the SEC on June
Incorporation of the Company 18, 1997)
3 3.5 Code of Regulations of the Form S-11 Registration No.
Company 33-54930 (Filed with the SEC
on November 23, 1992; see
Exhibit 3.2 therein)
3 3.6 Amendment to Code of Annual Report on Form 10-K
Regulations of the Company (Filed with the SEC on March
30, 1996)
3 3.7 Amendment to Code of Current Report on Form 8-K
Regulations of the Company (Filed with the SEC on January
14, 1997)
4 4.1 Specimen Certificate for Form S-11 Registration No.
Common Shares 33-54930 (Filed with the SEC
on November 23, 1992; see
Exhibit 4.1 therein)
4 4.2 Specimen Certificate for Annual Report on Form 10-K
Depositary Shares Relating (Filed with the SEC on March
to 9.5% Class A Cumulative 30, 1996)
Redeemable Preferred Shares
4 4.3 Specimen Certificate for Annual Report on Form 10-K
9.5% Class A Cumulative (Filed with the SEC on March
Redeemable Preferred Shares 30, 1996)
4 4.4 Specimen Certificate for Annual Report on Form 10-K
Depositary Shares Relating (Filed with the SEC on March
to 9.44% Class B Cumulative 30, 1996)
Redeemable Preferred Shares
-37-
38
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
4 4.5 Specimen Certificate for Annual Report on Form 10-K
9.44% Class B Cumulative (Filed with the SEC on March
Redeemable Preferred Shares 30, 1996)
4 4.6 Credit Agreement dated as Form 10-QA (Filed with the SEC
of May 1, 1995 among the on May 16, 1995; See Exhibit
Company, the First National 4.2 therein)
Bank of Chicago and the
First National Bank of
Boston.
4 4.7 Form of Indemnification Form S-11 Registration
Agreement No. 33-54930 (Filed with the
SEC on November 23, 1992; see
Exhibit 4.2 therein)
4 4.8 Indenture dated as of May Current Report on Form 8-K
1, 1994 by and between the (Filed with the SEC on May
Company and Chemical 27, 1994)
Bank, as Trustee
4 4.9 Indenture dated as of May Current Report on Form 8-K
1, 1994 by and between the (Filed with the SEC on
Company and National City December 5, 1994)
Bank, as Trustee (the "NCB
Indenture")
4 4.10 First Supplement to NCB Annual Report on Form 10-K
Indenture (Filed with the SEC on March
30, 1996)
4 4.11 Specimen 7% Convertible Annual Report on Form 10-K
Subordinated Debentures due (Filed with the SEC on April
1999 1, 1995)
4 4.12 Specimen Senior Note due Annual Report on Form 10-K
2000 (Filed with the SEC on March
30, 1996)
4 4.13 Building and Loan Agreement Annual Report on Form 10-K
dated as of November 17, (Filed with the SEC on March
1995 among Community Center 30, 1996)
Two L.L.C. and certain
other parties named therein
-38-
39
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
4 4.14 Loan Agreement dated as of Annual Report on Form 10-K
November 17, 1995 among (Filed with the SEC on March
Community Center One L.L.C. 30, 1996)
and certain other parties
named therein
4 4.15 Amendment dated June 18, Current Report on Form 8-K
1996, to the Credit (Filed with the SEC on January
Agreement, dated as of May 14, 1997)
1, 1995, among the Company,
the First National Bank of
Chicago and the First
National Bank of Boston
4 4.16 Revolving Credit Facility, Annual Report on Form 10-K
dated as of November 13, (Filed with the SEC on March
1996, among the Company and 31, 1997
National City Bank
4 4.17 Loan Agreement dated as of Current Report on Form 8-K
May 15, 1997, between (Filed with the SEC on June
Community Centers One 18, 1997
L.L.C., Community Centers
Two L.L.C., Shoppers World
Community Center, L.P. and
Lehman Brothers Holdings
Inc., d/b/a/ Lehman
Capital, a Division of
Lehman Brothers Holdings,
Inc.
4 4.18 Amended and Restated Current Report on Form 8-K
Promissory Note, dated as (Filed with the SEC on June
of May 15, 1997, between 18, 1997
Community Centers Two
L.L.C. and Shoppers World
Community Center L.P. and
Lehman Brothers Holdings
Inc., d/b/a/ Lehman
Capital, a Division of
Lehman Brothers Holdings,
Inc.
-39-
40
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
4 4.19 Amended and Restated Current Report on Form 8-K
Promissory Note, dated as (Filed with the SEC on June
of May 15, 1997, between 18, 1997
Community Centers One
L.L.C. and Lehman Brothers
Holdings Inc., d/b/a/
Lehman Capital, a Division
of Lehman Brothers
Holdings, Inc.
4 4.20 Amended and Restated Current Report on Form 8-K
Promissory Note, dated as (Filed with the SEC on June
of May 15, 1997, between 18, 1997
Community Centers One
L.L.C. and Lehman Brothers
Holdings Inc., d/b/a/
Lehman Capital, a Division
of Lehman Brothers
Holdings, Inc.
4 4.21 Second Amendment, dated Quarterly Report on
March 31, 1997, to the Form 10-Q (Filed with the
Credit Agreement, dated SEC on May 15, 1997)
as of May 1, 1995, among
the Company, the First
National Bank of Chicago
and the First National
Bank of Boston
4 4.22 Amended and Restated Credit Exhibit 4.22 filed herewith
Agreement, dated as of
February 24, 1998, among
the Company and The First
National Bank of Chicago
4 4.23 Form of Fixed Rate Senior Current Report on Form 8-K
Medium-Term Note (Filed with the SEC on
November 7, 1997)
4 4.24 Form of Floating Rate Current Report on Form 8-K
Senior Medium-Term Note (Filed with the SEC on
November 7, 1997)
4 4.25 Form of Fixed Rate Current Report on Form 8-K
Subordinated Medium-Term (Filed with the SEC on
Note November 7, 1997)
4 4.26 Form of Floating Rate Current Report on Form 8-K
Subordinated Medium-Term (Filed with the SEC on
Note November 7, 1997)
10 10.1 Registration Rights Form S-11 Registration No.
Agreement 33-54930 (Filed with the SEC
on November 23, 1992; see
Exhibit 10.1 therein)
10 10.2 Stock Option Plan Form S-8 Registration
No. 33-74562 (Filed with the
SEC on January 28, 1994; see
Exhibit 4(a) therein)
10 10.3 Employment Agreement Form S-11 Registration
between the Company and No. 33-54930 (Filed with the
Scott A. Wolstein SEC on November 23, 1992; see
Exhibit 10.3 therein)
-40-
41
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
10 10.4 Employment Agreement Form S-11 Registration No.
between the Company and 33-54930 (Filed with the SEC
James A. Schoff on November 23, 1992; see
Exhibit 10.4 therein)
10 10.5 Limited Partnership Annual Report on Form 10-K
Agreement dated as of (Filed with the SEC on March
November 16, 1995 among DD 30, 1996)
Community Centers Three,
Inc. and certain other
parties named therein
10 10.6 Amended and Restated Annual Report on Form 10-K
Limited Liability Company (Filed with the SEC on March
Agreement dated as of 30, 1996)
November 17, 1995 among DD
Community Centers One, Inc.
and certain other parties
named therein
10 10.7 Amended and Restated Annual Report on Form 10-K
Limited Liability Company (Filed with the SEC on March
Agreement dated as of 30, 1996)
November 17, 1995 among DD
Community Centers Two, Inc.
and certain other parties
named therein
10 10.8 Limited Liability Company Annual Report on Form 10-K
Agreement dated as of (Filed with the SEC on March
November 17, 1995 among the 30, 1996)
Company and certain other
parties named therein
10 10.9 Purchase and Sale Agreement Annual Report on Form 10-K
dated as of October 16, (Filed with the SEC on March
1995 among the Company and 30, 1996)
certain other parties named
therein
-41-
42
Exhibit No. Filed Herewith or
Under Reg. S-K Form 10-K Incorporated Herein by
Item 601 Exhibit No. Description Reference
---------- ----------- ----------- ---------
10 10.10 Directors' Deferred Annual Report on Form 10-K
Compensation Plan (Filed with the SEC on April
1, 1995)
10 10.11 Elective Deferred Annual Report on Form 10-K
Compensation Plan (Filed with the SEC on April
1, 1995)
10 10.12 Developers Diversified Current Report on Form 8-K
Realty Corporation (Filed with the SEC on January
Equity-Based Award Plan 14, 1997)
10 10.13 Restricted Shares Current Report on Form 8-K
Agreement, dated July 17, (Filed with the SEC on June
1996, between the Company 18, 1997)
and Scott A. Wolstein.
10 10.14 Performance Units Current Report on Form 8-K
Agreement, dated July 17, (Filed with the SEC on June
1996, between the Company 18, 1997)
and Scott A. Wolstein.
10 10.15 Program Agreement for Exhibit 10.15 filed herewith
Retail Value Investment
Program, dated as of
February 11, 1998, among
Retail Value Management,
Ltd., the Company and The
Prudential Insurance
Company of America
10 10.16 Share Option Agreement, Exhibit 10.16 filed herewith
dated April 15, 1997,
between the Company and
Scott A. Wolstein
10 10.17 Share Option Agreement, Exhibit 10.17 filed herewith
dated May 12, 1997,
between the Company and
Scott A. Wolstein
12 12.1 Computation of Ratio of Form S-3 Registration No.
Earnings to Fixed Charges 33-94182 (Filed with the SEC
on June 30, 1995; see Exhibit
12 therein)
22 22.1 List of subsidiaries Exhibit 21.1 filed herewith
23 23.1 Consent of Price Waterhouse Exhibit 23.1 filed herewith
-42-
43
SIGNATURES
---------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Scott A. Wolstein
---------------------------------------
Scott A. Wolstein, Chairman, President and Chief Executive
Officer
Date: March 31, 1998
---------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 31st day of March, 1998.
/s/ Scott A. Wolstein Chairman, President, Chief Executive Officer
- --------------------------- and Director
Scott A. Wolstein (principal executive officer)
/s/ James A. Schoff Executive Vice President, Chief Operating
- --------------------------- Officer and Director
James A. Schoff
/s/ William H. Schafer Vice President and Chief Financial Officer
- --------------------------- (principal financial and accounting officer)
William H. Schafer
/s/ William N. Hulett III Director
- ---------------------------
William N. Hulett III
/s/ Walter H. Teninga Director
- ----------------------------
Walter H. Teninga
/s/ Albert T. Adams Director
- ----------------------------
Albert T. Adams
/s/ Ethan Penner Director
- -----------------------------
Ethan Penner
/s/ Dean S. Adler Director
- ------------------------------
Dean S. Adler
-43-
44
INDEX TO FINANCIAL STATEMENTS
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Page
Financial Statements: ------
Report of Independent Accountants ..................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1996 ............. F-3
Consolidated Statements of Operations for the three years ended
December 31, 1997 .................................................. F-4
Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 1997 ...................................... F-5
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997 .................................................. F-6
Notes to Consolidated Financial Statements ............................ F-7
Financial Statement Schedules:
II - Valuation and Qualifying Accounts and reserves for the
three years ended December 31, 1997 ...................... F-21
III - Real Estate and Accumulated Depreciation at
December 31, 1997 ........................................ F-22
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
F-1
45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Developers Diversified Realty Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Developers Diversified Realty Corporation ("Company") and its subsidiaries at
Decembers 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Cleveland, Ohio
February 12, 1998
F-2
46
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
ASSETS 1997 1996
Real estate rental property: ------------ --------------
Land $ 183,809 $ 122,696
Land under development 23,668 27,305
Construction in progress 28,130 28,364
Buildings 1,071,717 798,477
Fixtures and tenant improvements 18,418 14,805
------------ --------------
1,325,742 991,647
Less accumulated depreciation (171,737) (142,039)
------------ --------------
Real estate, net 1,154,005 849,608
Other real estate investments 72,149 --
Cash and cash equivalents 18 13
Accounts receivable, net 16,282 11,439
Notes receivable 4,081 --
Advances to and investments in joint ventures 136,267 106,796
Deferred charges, net 4,668 4,296
Other assets 4,448 2,974
------------ --------------
$ 1,391,918 $ 975,126
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured indebtedness:
Fixed rate senior notes $ 392,254 $ 215,493
Revolving credit facilities 139,700 95,500
Subordinated convertible debentures 46,891 60,000
------------ --------------
578,845 370,993
Mortgage indebtedness 89,676 107,439
------------ --------------
Total indebtedness 668,521 478,432
Accounts payable and accrued expenses 28,601 20,921
Other liabilities 9,100 6,437
Minority equity interest 16,293 --
Operating partnership minority interests 353 --
------------ --------------
Total liabilities and minority interests 722,868 505,790
------------ --------------
Commitments and contingencies (Note 14)
Shareholders' equity:
Class A 9.5% cumulative redeemable preferred shares, without par value, $250
liquidation value; 1,500,000 shares authorized; 421,500 shares
issued and outstanding at December 31, 1997 and 1996 105,375 105,375
Class B 9.44% cumulative redeemable preferred shares, without par value,
$250 liquidation value; 1,500,000 shares authorized; 177,500 shares
issued and outstanding at December 31, 1997 and 1996 44,375 44,375
Common shares, without par value, $.10 stated value; 50,000,000 shares authorized;
27,687,576 and 21,682,917 shares issued and outstanding at December 31,
1997 and 1996, respectively 2,769 2,168
Paid-in-capital 580,509 369,417
Accumulated dividends in excess of net income (63,517) (51,384)
------------ --------------
669,511 469,951
Less: Unearned compensation - restricted stock (461) (615)
------------ --------------
669,050 469,336
------------ --------------
$ 1,391,918 $ 975,126
============ ==============
The accompanying notes are an integral part of these financial statements
F-3
47
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Year Ended December 31,
1997 1996 1995
-------- --------- ---------
Revenues from operations:
Minimum rents $123,998 $ 96,285 $ 82,722
Percentage and overage rents 2,343 1,862 1,663
Recoveries from tenants 32,377 24,128 19,255
Management fee income 2,914 2,632 556
Other 7,408 5,998 3,609
-------- --------- ---------
169,040 130,905 107,805
-------- --------- ---------
Rental operation expenses:
Operating and maintenance 15,961 12,399 9,253
Real estate taxes 20,001 14,589 12,593
General and administrative 11,055 8,135 6,223
Interest 35,558 29,888 29,595
Depreciation and amortization 32,313 25,062 21,865
-------- --------- ---------
114,888 90,073 79,529
-------- --------- ---------
Income before equity in net income of joint ventures, gain on sales
of real estate, allocation to minority interests and extraordinary item 54,152 40,832 28,276
Equity in net income of joint ventures 10,893 8,710 486
Gain on sales of real estate 3,526 - 300
-------- --------- ---------
Income before allocation to minority interests and extraordinary item 68,571 49,542 29,062
Income allocated to minority interests (1,049) - -
Extraordinary item - extinguishment of debt-deferred
finance costs written off - - (3,557)
-------- --------- ---------
Net income $ 67,522 $ 49,542 $ 25,505
-------- --------- ---------
Net income applicable to common shareholders $ 53,322 $ 35,342 $ 24,250
======== ========= =========
Per share data:
Earnings per common share - basic:
Income before extraordinary item $2.06 $1.67 $1.48
Extraordinary item - - (0.19)
-------- --------- ---------
Net income $2.06 $1.67 $1.29
======== ========= =========
Earnings per common share - diluted:
Income before extraordinary item $2.05 $1.67 $1.47
Extraordinary item - - (0.19)
-------- --------- ---------
Net income $2.05 $1.67 $1.28
======== ========= =========
The accompanying notes are an integral part of these financial statements
F-4
48
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Class A Class B Common
Preferred Preferred Shares Accumulated Unearned
Shares ($250 Shares (250 ($.10 Dividends in Compensation-
stated stated stated Paid-in Excess of Restricted
value) value) value) Capital Net Income Stock Total
--------------------------------------------------------------------------------------
Balance, December 31, 1994 $ -- $ -- $ 1,608 $ 220,608 $ (18,708) $ -- $ 203,508
Issuance of 15,850 common shares for
cash related to exercise of stock options,
employee 401(k) plan and dividend
reinvestment plan -- -- 1 367 -- -- 368
Issuance of 2,875,000 common shares for
cash - underwritten offering -- -- 288 76,219 -- -- 76,507
Issuance of 421,500 Class A preferred shares
for cash - underwritten offering 105,375 -- -- (3,884) -- -- 101,491
Issuance of 160,000 Class B preferred shares
for cash - underwritten offering -- 40,000 -- (1,467) -- -- 38,533
Net income -- -- -- -- 25,505 -- 25,505
Dividends declared - common shares -- -- -- -- (40,959) -- (40,959)
Dividends declared - preferred shares -- -- -- -- (792) -- (792)
------------------------------------------------------------------------------------
Balance, December 31, 1995 105,375 40,000 1,897 291,843 (34,954) -- 404,161
Issuance of 77,474 common shares for cash
related to exercise of stock options,
employee 401(k) plan and dividend
reinvestment plan -- -- 7 1,873 -- -- 1,880
Issuance of 25,000 common shares related
to restricted stock plan (5,000 vested
in 1996) -- -- 3 766 -- (615) 154
Issuance of 2,611,500 common shares for
cash - underwritten offering -- -- 261 75,128 -- -- 75,389
Issuance of 17,500 Class B preferred shares
for cash - underwritten offering -- 4,375 -- (193) -- -- 4,182
Net income -- -- -- -- 49,542 -- 49,542
Dividends declared - common shares -- -- -- -- (51,889) -- (51,889)
Dividends declared - preferred shares -- -- -- -- (14,083) -- (14,083)
------------------------------------------------------------------------------------
Balance, December 31, 1996 105,375 44,375 2,168 369,417 (51,384) (615) 469,336
Issuance of 137,145 common shares for cash
related to exercise of stock options,
employee 401(k) plan and dividend
reinvestment plan -- -- 14 3,495 -- -- 3,509
Issuance of 5,474,760 common shares for
cash - underwritten offerings -- -- 548 194,713 -- -- 195,261
Vesting of restricted stock -- -- -- -- -- 154 154
Conversion of debentures into 392,754
common shares -- -- 39 12,884 -- -- 12,923
Net income -- -- -- -- 67,522 -- 67,522
Dividends declared - common shares -- -- -- -- (65,455) -- (65,455)
Dividends declared - preferred shares -- -- -- -- (14,200) -- (14,200)
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 105,375 $ 44,375 $ 2,769 $ 580,509 $ (63,517) $ (461) $ 669,050
========= ========= ========= ========= ========= =========== =========
The accompanying notes are an integral part of these financial statements
F-5
49
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
Cash flow operating activities:
Net income $ 67,522 $ 49,542 $ 25,505
Adjustments to reconcile net income to net cash flow provided by
operating activities:
Depreciation and amortization 32,313 25,062 21,865
Amortization of deferred finance costs 1,399 1,686 1,749
Write-off of deferred finance costs -- -- 3,513
Equity in net income of joint ventures (10,893) (8,710) (486)
Cash distributions from joint ventures 10,185 8,646 --
Gain on sales of real estate (3,526) -- (300)
Net change in accounts receivable (4,907) (4,478) (2,835)
Net change in accounts payable and accrued expenses 1,369 1,061 2,699
Net change in other operating assets and liabilities 921 3,011 (2,671)
--------- --------- ---------
Total adjustments 26,861 26,278 23,534
--------- --------- ---------
Net cash flow provided by operating activities 94,383 75,820 49,039
--------- --------- ---------
Cash flow from investing activities:
Real estate developed or acquired (391,798) (185,667) (149,096)
Equity contributions to joint ventures (8,093) (14,870) (74,277)
Repayments from (advances to) joint ventures, net (22,085) (855) 283
Issuance of notes receivable (4,081) -- --
Proceeds from sale of real estate 9,837 1,722 5,892
--------- --------- ---------
Net cash flow used for investing activities (416,220) (199,670) (217,198)
--------- --------- ---------
Cash flow from financing activities:
Proceeds from (repayment of) revolving credit facilities, net 44,200 26,600 (2,138)
Repayment of Floating Rate Senior Notes -- -- (100,000)
Repayment of construction loans -- -- (14,682)
Principal payments on rental property debt (17,764) (32,204) (9,291)
Proceeds from construction loans -- 2,924 17,938
Proceeds from issuance of Medium Term Notes, net of underwriting commissions
and $200, $300 and $30 of offering expenses paid
in 1997, 1996 and 1995, respectively 101,234 110,898 3,968
Proceeds from issuance of Fixed Rate Senior Notes, net of
underwriting commissions and discounts and $500 and $400 of
offering expenses paid in 1997 and 1995, respectively 74,147 -- 98,543
Proceeds from call premium of Fixed Rate Senior Notes 1,430 -- --
Payment of deferred finance costs (bank borrowings) (674) -- (2,233)
Proceeds from issuance of common shares, net of underwriting commissions and
$900, $300 and $400 of offering expenses paid
in 1997, 1996 and 1995, respectively 195,261 75,389 76,506
Proceeds from issuance of Class A preferred shares, net of
underwriting commissions and $500 of offering expenses paid -- -- 101,491
Proceeds from issuance of Class B preferred shares, net of
underwriting commissions and $200 of offering expenses paid
in 1996 and 1995 -- 4,182 38,533
Proceeds from issuance of common shares in conjunction with
exercise of stock options, 401(k) plan and dividend reinvestment plan 3,663 2,034 368
Dividends paid (79,655) (65,972) (41,751)
--------- --------- ---------
Net cash provided by financing activities 321,842 123,851 167,252
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 5 1 (907)
Cash and cash equivalents, beginning of year 13 12 919
--------- --------- ---------
Cash and cash equivalents, end of year $ 18 $ 13 $ 12
========= ========= =========
The accompanying notes are an integral part of these financial statements
F-6
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
NATURE OF BUSINESS
Developers Diversified Realty Corporation, subsidiaries and related real estate
joint ventures (the "Company" or "DDR") are engaged in the business of
acquiring, expanding, owning, developing, managing and operating neighborhood
and community shopping centers, enclosed malls and business centers. The
Company's centers are typically anchored by discount department stores (usually
Wal-Mart, Kmart, Target or JCPenney), supermarkets and drug stores which usually
offer day-to-day necessities. The tenant base includes primarily national and
regional retail chains and local retailers, consequently, the Company's credit
risk is concentrated in the retail industry.
Revenues derived from the Company's two largest tenants, Wal-Mart and Kmart,
aggregated 12.3%, 15.6% and 19.7% of total revenues, including joint venture
revenues, for the years ended December 31, 1997, 1996 and 1995, respectively, as
follows:
Year Wal-Mart Kmart
---- -------- -----
1997 7.1% 5.2%
1996 9.3% 6.3%
1995 12.3% 7.4%
The total percentage of Company owned gross leasable area, including joint
venture gross leasable area, attributed to Wal-Mart and Kmart was 11.4% and
9.7%, respectively, at December 31, 1997. The Company's ten largest tenants
comprised 25.6%, 32.2% and 34.0% of total revenues for the years ended December
31, 1997, 1996 and 1995, respectively. Management believes the Company's
portfolio is diversified in terms of location of its shopping centers and its
tenant profile. Adverse changes, in general or local economic conditions, could
result in the inability of some existing tenants to meet their lease obligations
and could otherwise adversely affect the Company's ability to attract or retain
tenants. During 1997 and 1996, certain national and regional retailers
experienced financial difficulties and several filed for protection under
bankruptcy laws. Although the Company has experienced an increase in the number
of tenants filing for protection under bankruptcy laws, no significant
bankruptcies have occurred affecting the Company's portfolio of tenants.
PRINCIPLES OF CONSOLIDATION
All majority owned subsidiaries are included in the consolidated financial
statements and all significant intercompany balances and transactions have been
eliminated in consolidation. At December 31, 1997, the Company owned, through
various joint ventures and limited liability corporations, a 50% interest in 13
operating shopping centers (13 in 1996 and 11 in 1995) and a 35% interest in one
shopping center which was acquired in 1997. These investments are presented
using the equity method of accounting and are discussed in Note 2.
STATEMENT OF CASH FLOWS AND SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND
FINANCING INFORMATION
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Non-cash investing and financing activities are summarized as follows (in
millions):
For the year
ended December 31,
1997 1996 1995
------ ----- -----
Conversion of debentures and related
deferred finance costs $ 12.9 $ -- $ --
Issuance of minority interest and operating
partnership units relating to shopping
center acquisitions 16.6 -- --
Contribution of net assets to joint ventures 0.5 5.2 --
Mortgages assumed, shopping center
acquisitions -- -- 15.7
Other liabilities assumed, shopping
center acquisitions 6.2 1.1 0.8
Accounts payable related to construction
in progress 0.2 5.3 2.8
Note receivable exchanged in partial
consideration of property acquisition -- -- 1.9
The foregoing transactions did not provide or use cash and, accordingly, they
are not reflected in the statements of cash flows.
REAL ESTATE
Real estate assets are stated at cost less accumulated depreciation, which, in
the opinion of management, is not in excess of the
individual property's estimated undiscounted future cash flows, including
estimated proceeds from disposition.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the assets as follows:
- ----------------------------------------------------------------
Buildings 18 to 31 years
- --------------------------- ----------------------------------
Furniture / Fixtures and Useful lives, which approximate
Tenant Improvements lease terms, where applicable
- -------------------------- ----------------------------------
Depreciation expense was $32.3 million, $25.1 million and $21.9 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Expenditures for
maintenance and repairs are charged to operations as incurred. Renovations which
improve or extend the life of the asset are capitalized.
Included in land at December 31, 1997 was undeveloped real estate, generally
outlots or expansion pads adjacent to the shopping centers and enclosed malls
owned by the Company (excluding shopping centers owned through joint
ventures)which aggregated approximately 167 acres at 65 sites.
F-7
51
Construction in progress includes shopping center developments and significant
expansions and re-developments. The Company capitalizes interest on funds used
for the construction or expansion of shopping centers. Capitalization of
interest ceases when construction activities are completed and the property is
available for occupancy by tenants. For the years ended December 31, 1997, 1996
and 1995, the Company capitalized interest of $4.0 million, $3.3 million, and
$2.5 million, respectively. In addition, the Company capitalized certain
construction administration costs of $1.3 million, $1.1 million and $0.6 million
in 1997, 1996 and 1995, respectively.
DEFERRED FINANCING COSTS
Costs incurred in obtaining long-term financing are included in deferred charges
in the accompanying balance sheets and are amortized over the terms of the
related debt agreements; such amortization is reflected as interest expense in
the consolidated statements of operations.
REVENUE RECOGNITION
Minimum rents from tenants are recognized monthly using the straight-line
method. Percentage and overage rents are recognized after the tenants reported
sales have exceeded the applicable sales breakpoint. Revenues associated with
tenant reimbursements are recognized in the period in which the expenses are
incurred based upon the provision of tenant leases. Lease termination fees are
included in other income and recognized upon termination of a tenant's lease,
which generally coincides with the receipt of cash.
ACCOUNTS RECEIVABLE
Accounts receivable, other than straight-line rents receivable, are expected to
be collected within one year and are net of estimated unrecoverable amounts of
approximately $2.4 million and $1.8 million at December 31, 1997 and 1996,
respectively. At December 31, 1997 and 1996 straight-line rent receivables, net
of a provision for uncollectible amounts, aggregated $2.8 million and $0.8
million, respectively.
GAIN ON SALES OF REAL ESTATE
Gain on sales of real estate generally relates to the sale of outlots and land
adjacent to existing shopping centers and are recognized at closing when the
earnings process is deemed to be complete. During 1997, the Company sold two
business centers and a shopping center and recognized an aggregate gain of $3.5
million.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include internal leasing and legal salaries
and related expenses which are charged to operations as incurred. All internal
personnel costs associated with the acquisition of real estate are expensed as
incurred.
INTEREST AND REAL ESTATE TAXES
Interest and real estate taxes incurred during the construction period are
capitalized and depreciated over the life of the building. Interest paid during
the years ended December 31, 1997, 1996 and 1995 aggregated $36.2 million, $31.2
million and $29.6 million, respectively.
FEDERAL INCOME TAXES
The Company has elected to be taxed as a qualified Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended. As a REIT, the
Company is entitled to a tax deduction for the amount of dividends paid its
shareholders, thereby effectively subjecting the distributed net income of the
Company to taxation at the shareholder level only, provided it distributes at
least 95% of its taxable income and meets certain other REIT qualification
requirements. As the Company distributed sufficient taxable income for the years
ended December 31, 1997, 1996 and 1995, no U.S. Federal income or excise taxes
were incurred.
The tax basis of assets and liabilities exceeds the amounts reported in the
accompanying financial statements by approximately $111 million, $108 million
and $104 million at December 31, 1997, 1996 and 1995, respectively.
NEW ACCOUNTING STANDARDS
Effective December 31, 1997, the Company implemented Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings per Share (See Note 17).
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses during the year. Actual results could differ from those estimates.
F-8
52
2. EQUITY INVESTMENTS IN JOINT VENTURES
- ---------------------------------------
The Company's equity investments in joint ventures at December 31, 1997 was
comprised of (i) a 50% joint venture interest in each of four joint ventures
(collectively, the "Community Center Joint Ventures") comprised of ten shopping
center properties (aggregating approximately 4.0 million square feet) and
several outparcels, formed in November 1995; (ii) a 50% joint venture interest,
formed in September 1996, with the Ohio State Teachers Retirement System (OSTRS)
relating to two shopping center properties aggregating approximately 0.5 million
square feet; (iii) a 50% joint venture interest, formed in October 1996, in
conjunction with the development of a shopping center in Merriam, KS,
aggregating approximately 0.4 million square feet; (iv) a 50% joint venture
interest in a partnership that owns a 0.4 million square foot shopping center
located in Martinsville, VA, which was formed in January 1993 and (v) a 35%
joint venture interest in a limited partnership that owns a 0.3 million square
foot shopping center located in San Antonio, TX, which was formed in January
1997.
Combined condensed financial information of the Company's joint venture
investments is summarized as follows (in thousands):
COMBINED BALANCE SHEETS December 31,
1997 1996
-------- --------
Real estate, net $623,993 $561,625
Other assets 25,817 16,012
-------- --------
$649,810 $577,637
======== ========
Mortgage debt $389,160 $360,114
Amounts payable to DDR 32,667 10,747
Other liabilities 9,549 7,782
-------- --------
431,376 378,643
Accumulated equity 218,434 198,994
-------- --------
$649,810 $577,637
======== ========
COMBINED STATEMENTS OF OPERATIONS For the years ended December 31,
1997 1996 1995
-------- -------- --------
Revenues from operations $ 82,434 $ 63,681 $ 9,356
-------- -------- --------
Rental operation expenses 20,189 16,192 2,377
Depreciation and amortization expense 11,658 8,924 1,755
Interest expense 29,540 21,146 4,252
-------- -------- --------
61,387 46,262 8,384
-------- -------- --------
Income before gain on sale of land 21,047 17,419 972
Gain on sale of land 1,085 -- --
-------- -------- --------
Net income $ 22,132 $ 17,419 $ 972
======== ======== ========
At December 31, 1997 and 1996, advances to and investments in joint ventures
include acquisition, transaction and other capitalizable costs, including
interest, related to the Community Center Joint Ventures of approximately $1.5
million and $2.7 million, respectively, and the Merriam joint venture of
approximately $1.4 million and $0.7 million, respectively. At December 31, 1997
and 1996, deferred development fees of approximately $1.0 million and a deferred
gain of approximately $5.9 million related to the contribution of property upon
formation of the OSTRS joint venture. In addition, the Company capitalized
interest of $0.5 million in 1997 and none in 1996 associated with its investment
in the Merriam joint venture which has been under construction since its
formation.
The Company provides property management services to the joint ventures.
Included in management fee income is $2.7 million, $2.1 million and $0.2 million
for the years ended December 31, 1997, 1996 and 1995, respectively, related to
these services. Other income includes development fee income from the joint
ventures of $0.6 million, $0.7 million and $0.5 million in 1997, 1996 and 1995,
respectively. Cash distributions are made from the joint ventures to the extent
that "net cash flows", as defined in the joint venture agreements, are
generated. During 1997, 1996 and 1995, the joint ventures distributed an
aggregate of $10.2 million, $8.6 million and $0.2 million, respectively, to its
joint venture partners.
On November 17, 1995, the Company, in conjunction with certain joint venture
partners described below, acquired the Homart Community Center Division of Sears
from an affiliate of General Growth Properties, Inc. General Growth Properties,
Inc. had contracted to purchase the Homart Community Center Division as part of
its acquisition of Homart Development Co., a subsidiary of Sears. The Homart
Community Center Division included ten power centers, aggregating in excess of
four million square feet of Gross Leaseable Area ("GLA"), located in major
metropolitan areas throughout the United States and several outlots and pad
sites adjacent to the ten power centers and certain
F-9
53
other power centers previously sold by Sears (the "Community Center
Properties"). At the date of acquisition, construction of seven of the ten power
centers was complete or substantially complete and three of the power centers
were under construction. Construction of the three centers was substantially
completed during 1997 and 1996.
The Community Center Properties are owned by the Community Center Joint
Ventures. The Company, or a wholly owned subsidiary of the Company, and its
joint venture partners each purchased a 50% interest in each Community Center
Joint Venture. The Company's joint venture partners are a consortium of third
party investors, including a private REIT, owned by institutional investors
advised by DRA Advisors, Inc. ("DRA"), three limited partnerships whose
respective limited partners are pension funds and whose general partners are
affiliates of DRA and one corporation whose owners are affiliates of DRA. In
addition to owning a 50% interest in each Community Center Joint Venture, the
Company manages the Community Center Properties and related developments
pursuant to management and development agreements with each of the Community
Center Joint Ventures.
The joint venture agreements with DRA include provisions whereby each partner
has the right to trigger a purchase or sale of its interest in the joint
ventures (Reciprocal Purchase Rights) or to initiate a purchase and sale of the
properties (Property Purchase Rights). These rights become effective after
November 17, 1999 or if either party is in default of the joint venture
agreements.
In addition, at any time after November 17, 1998, the Company's joint venture
partners may convert all, or a portion of, their respective interests in such
joint ventures into common shares of the Company. The terms of the conversion
are set forth in the governing documents of such joint ventures. However, if the
joint venture partners elect to convert their respective interest into common
shares, the Company will have the sole option to pay cash instead of issuing
common shares. If the Company agrees to the issuance of common shares, the
agreement provides that the converting joint venture partner will execute a
lock-up arrangement acceptable to the Company.
In October 1997, the Company advanced $12.5 million to the Community Centers
Joint Ventures. The Company's advance is evidenced by a note requiring monthly
payments of interest calculated at LIBOR plus 1.1%. Principal is due from
capital proceeds, as defined in the joint venture agreement. All outstanding
principal and interest is due on the tenth anniversary of the joint venture
agreement. The Company recorded interest income of $0.2 million in 1997 relating
to this advance.
In September 1996, the Company entered into a joint venture with OSTRS. In
conjunction with the formation of the joint venture, the Company transferred
two shopping centers with a net book value of $41.6 million and non-recourse
mortgage debt aggregating $36.4 million in exchange for a 50% interest in the
joint venture. At the date of transfer, the contribution made by the Company
had a net fair value of $11.6 million and OSTRS funded an initial cash
contribution of $11.6 million for its 50% interest. The cash contribution was
used to repay a portion of the non-recourse mortgage debt. The Company
continues to manage the two properties pursuant to a management agreement.
In 1993, the Company advanced $9.0 million to the Martinsville, Virginia joint
venture which utilized these funds to repay a portion of its first mortgage
debt. The Company's advance is evidenced by a note requiring monthly payments of
principal and interest at the rate of 9.25% per annum with a final maturity of
1999. In addition, in 1997 and 1996, the Company had advanced a total of $6.1
million and $1.1 million, respectively, to the joint venture for the
construction and re-tenanting of vacant space. The Company's advances are
evidenced by notes with interest calculated at prime plus 1% (9.5% at December
31, 1997). In accordance with the joint venture agreement, construction or
operating advances must be repaid before any capital distributions can be made.
The Company recorded interest income of $1.0 million in 1997 and $0.8 million
for each of the years ended December 31, 1996 and 1995, relating to these
advances.
In October 1996, the Company formed a joint venture with DD Merriam, L.P., which
is advised by DRA Advisors, Inc., to develop and manage a shopping center in
Merriam, Kansas. This project was one of the development sites acquired in
conjunction with the acquisition of the Homart Community Center Division. The
joint venture is 50% owned by the Company and 50% owned by DD Merriam, L.P. The
Company manages the shopping center and related development pursuant to
management and development agreements. At December 31, 1997 and 1996, the
Company had advanced $5.8 million and $1.1 million, respectively, to pay for
certain construction related costs. The advances accrue interest at 8% per annum
and are to be repaid from the proceeds of construction financing, scheduled to
close in 1998. Total interest earned by the Company relating to these advances
aggregated $0.3 million in 1997 (none in 1996).
In January 1997, the Company formed a joint venture with certain institutional
investors, which are advised by DRA Advisors, Inc., to acquire a 0.3 million
square foot shopping center located in San Antonio, Texas. The aggregate cost of
the shopping center, including the assumption of approximately $26.7 million of
debt, was approximately $38.3 million of which the Company's proportionate
ownership share is 35%. The Company contributed approximately $3.5 million of
equity and manages the shopping center pursuant to a management agreement.
DRA and the Company each have the right (Reciprocal Purchase Rights) to trigger
a purchase or sale of its interest in the Merriam and San Antonio joint ventures
after one and three years, respectively, subsequent to the acquisition of each
respective property. The Reciprocal Purchase Rights give both Managers the
rights, under certain circumstances, to establish a price, following which the
other party has the right to purchase the interest of the other party, or sell
its interest to the other party, at that price. In addition, any time after two
and three years from the date of the San Antonio and Merriam agreements,
respectively, DRA may convert all or a portion of its respective interest in
each joint venture into common shares of the Company. If DRA elects to convert
its respective interest into common shares of the Company, the Company will have
the sole option to pay cash instead of issuing common shares.
F-10
54
3. Acquisitions and Pro Forma Financial Information
- ---------------------------------------------------
During the years ended December 31, 1997, 1996 and 1995, the Company completed
the acquisition of 22 shopping centers, excluding those acquired through joint
ventures as discussed in Note 2, (7 in 1997, 5 in 1996 and 10 in 1995) with an
aggregate of 4.9 million Company owned gross leasable square feet (GLA) at a
total purchase price of $463.4 million. These acquisitions were accounted for
using the purchase method of accounting. These properties are summarized as
follows:
Acquisition Effective Date Year Company
Center Location of Acquisition Built GLA
- --------------------------------- -------------------------------- -------------- ----- ---------
1997 Acquisitions:
GREAT NORTHERN PLAZA NORTH &SOUTH CLEVELAND, (NORTH OLMSTED) OH JANUARY, 1997 1958 619,327
FOOTHILLS TOWNE CENTER AHWATUKEE, AZ MARCH, 1997 1996 491,689
EAGAN PROMENADE EAGAN, MN JULY, 1997 1997 243,282
MIDWAY MARKETPLACE ST. PAUL, MN JULY, 1997 1997 313,781
COOKS CORNER BRUNSWICK, ME AUGUST, 1997 1965 290,784
CENTENNIAL PROMENADE DENVER, CO OCTOBER, 1997 1997 336,944
SPRING CREEK CENTRE FAYETTEVILLE, AR NOVEMBER, 1997 1997 139,277
---------
TOTAL 1997 ACQUISITIONS 2,435,084
1996 Acquisitions: =========
Arrowhead Crossing Phoenix (Peoria), AZ July, 1996 1995 346,680
Maple Grove Crossing Minneapolis (Maple Grove), MN July, 1996 1995 250,436
Highland Grove Highland, IN July, 1996 1995 294,115
Eastchase Market Fort Worth, TX July, 1996 1995 205,027
Tanasbourne Town Center Portland, OR August, 1996 1995 151,970
---------
Total 1996 Acquisitions 1,248,228
=========
1995 ACQUISITIONS:
Airport Square Shopping Center Toledo, OH February, 1995 1993 187,674
North Road Plaza Orangeburg, SC March, 1995 1994 22,200
Northtowne Shopping Center Anderson, SC March, 1995 1993 14,250
Wando Crossing Shopping Center Mt. Pleasant, SC March, 1995 1992 205,032
Jacksonville Regional Shopping Center Jacksonville, FL March, 1995 1988 219,073
The Shoppes of Boot Ranch Palm Harbor, FL May, 1995 1990 52,395
East Forest Plaza Columbia, SC November, 1995 1995 46,700
Eastwood Festival Centre Birmingham, AL November, 1995 1989 284,475
Enterprise Plaza Huntsville, AL December, 1995 1995 41,000
Green Ridge Square Shopping Center Walker, MI December, 1995 1989 133,981
---------
Total 1995 Acquisitions 1,206,780
---------
Total Acquisitions 4,890,092
=========
The operating results of the acquired shopping centers are included in the
results of operations of the Company from the date of purchase, including the
acquisition of properties owned through joint ventures, discussed in Note 2. The
properties owned through joint ventures are included in equity in net income of
joint ventures in the statements of operations for the years ended December 31,
1997, 1996 and 1995.
F-11
55
The following unaudited supplemental proforma information is presented to
reflect the effects of the common share offerings, preferred share offerings,
debt offerings and the property acquisitions consummated through December 31,
1997, including the joint venture acquisitions (Note 2), as if all such
transactions had occurred on January 1, 1996 with regard to the 1997 and 1996
acquisitions and as if all such transactions relating to the 1995 and 1996
acquisitions had occurred on January 1, 1995. 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):
For the years ended
December 31,
(Unaudited)
1997(a) 1996(b) 1995(c)
-------- -------- --------
Pro forma revenues $172,113 $140,544 $114,016
======== ======== ========
Pro forma income before
extraordinary item $ 69,521 $ 53,273 $ 47,106
======== ======== ========
Pro forma net income applicable
to common shareholders $ 55,321 $ 39,074 $ 29,349
======== ======== ========
Pro forma net income applicable
to common shareholders:
Basic $ 2.12 $ 1.70 $ 1.37
======== ======== ========
Diluted $ 2.10 $ 1.70 $ 1.36
======== ======== ========
(a) Reflects revenues and expenses of the properties acquired in 1997 for the
period January 1, 1997 through the effective date of acquisition. Operating
results for the Company's acquired properties located in San Antonio, TX;
Ahwatukee, AZ; Eagan, MN; St. Paul, MN and Denver, CO are not reflected in the
1997 pro forma information prior to their respective acquisition dates because
these shopping centers were either under development or in the lease-up phase
and, accordingly, the related operating information for such centers either does
not exist or would not be meaningful.
(b) Reflects revenues and expenses of the properties acquired in 1997 and 1996
for the period January 1, 1996 through the effective date of acquisition.
Operating results for the Company's acquired properties located in Phoenix, AZ;
Maple Grove, MN; Highland, IN; Fort Worth, TX; Portland, OR; San Antonio, TX;
Ahwatukee, AZ; Eagan, MN; St. Paul, MN and Denver, CO are not reflected in the
1996 pro forma information prior to their respective acquisition dates because
these shopping centers were either under development or in the lease-up phase
and, accordingly, the related operating information for such centers either does
not exist or would not be meaningful.
(c) Reflects revenues and expenses of the properties acquired in 1996 and 1995
for the period January 1, 1995 through the dates of acquisition. Operating
results for all five of the Company's 1996 acquired properties and 1995 acquired
properties located in Orangeburg, SC; Anderson, SC; Columbia, SC and Huntsville,
AL and with regard to the acquisition of the Community Center Properties the
shopping centers located in Durham, NC; Marietta, GA; Independence, MO; Atlanta,
GA and Phase II of Framingham, MA are not reflected in the 1995 pro forma
information prior to their respective acquisition dates because these shopping
centers were either under development or in the lease-up phase and, accordingly,
the related operating information for such centers either does not exist or
would not be meaningful.
4. OTHER REAL ESTATE INVESTMENTS
In December 1997, the Company and Hendon Associates formed a joint venture to
acquire 33 retail sites, formerly occupied by Best Products, from Metropolitan
Life. Under the terms of the joint venture with Hendon Associates, the Company
advanced the capital to fund the purchase price of the assets. The 33 retail
sites, are located in 13 states with concentrations in Ohio, California and New
Jersey. These sites were acquired at an initial cost of approximately $54.5
million. In February 1998, the Company's joint venture interest was contributed
to the Retail Value Fund, a joint venture with Prudential Real Estate Investors
(Note 18).
Additionally, in December 1997, the Company acquired a 42.5% ownership interest
in a 584,000 square foot shopping center, located in Princeton, NJ for an
initial cost of approximately $7.7 million. During the first quarter of 1998,
the Company anticipates acquiring the balance of the ownership interest in the
property through the issuance of approximately 11,850 operating partnership
units and the assumption of approximately $27.7 million of debt. The total
purchase price of the shopping center, including liabilities assumed, is
expected to be approximately $36.4 million. The Company also acquired a 45.1%
ownership interest in an adjacent development site at an initial cost of
approximately $9.9 million. Upon completion of construction, the Company
anticipates acquiring the remaining ownership interest for cash and operating
partnership units. The Company is awaiting the mortgagor's final consent prior
to acquiring the remaining interest. In the event that final approval is not
received, the purchase can be rescinded.
5. NOTES RECEIVABLE
At December 31, 1997, notes receivable aggregated $4.1 million and was comprised
of two notes. The Company acquired a 50% participating interest together with
Bank of America National Trust in a construction loan receivable secured by a
first mortgage on certain real estate relating to a 0.5 million square foot
shopping center development in Phoenix, AZ. The note, aggregating approximately
$3.1 million at December 31, 1997, bears interest at the rate of 8.5% per annum
and is due in July 1999. The Company has committed to fund up to $10.5 million,
or 50%, of the aggregate construction loan and has received a first right of
refusal on the purchase of the property upon completion of construction. In
addition, the Company provided an advance of $1.0 million to a west coast
developer in accordance with a master partnership agreement. The note is secured
by certain rights in future development projects and a personal guaranty. The
note bears interest at 10.5% and is due in March 1999. The Company is committed
to advance a total of $1.2 million.
F-12
56
6. DEFERRED CHARGES
Deferred charges consist of the following (in thousands):
December 31,
1997 1996
------- -------
Deferred financing costs $ 9,056 $ 7,301
Organization costs 146 144
------- -------
9,202 7,445
Less-accumulated amortization (4,534) (3,149)
------- -------
$ 4,668 $ 4,296
======= =======
The Company incurred deferred finance costs aggregating $1.9 million and $1.0
million in 1997 and 1996, respectively, primarily relating to the Company's
issuance of Senior Notes (Note 8) and unsecured revolving credit agreements
(Note 7). Amortization of deferred charges was $1.4 million, $1.5 million and
$1.7 million for the years ended December 1997, 1996 and 1995, respectively.
During 1995, the Company wrote off $3.6 million (none in 1996 and 1997) of
unamortized deferred finance costs in conjunction with the repayment of certain
secured indebtedness.
7. REVOLVING CREDIT FACILITIES
In May 1995, the Company obtained a three year $150 million unsecured revolving
credit facility from a syndicate of financial institutions for which the First
National Bank of Chicago serves as agent (the "Unsecured Credit Facility"). In
June 1996, the Company renegotiated the terms of this facility to extend the
agreement one year, to May 1999, reduce the specified spread over LIBOR and
reduced the unused commitment fees. In March 1997, the Company again
renegotiated the terms for this facility to extend the agreement an additional
year, through May 2000, and reduced the interest rate 15 basis points. The
amendment also introduced a competitive bid feature for up to $75 million of
borrowings. Borrowings under this facility bear interest at variable rates based
on LIBOR plus a specified spread, (1.10% at December 31, 1997). The spread is
dependent on the Company's long term senior unsecured debt rating from Standard
and Poor's and Moody's Investors Service. The Company is required to comply with
certain covenants relating to total outstanding indebtedness, secured
indebtedness, net worth, maintenance of unencumbered real estate assets and debt
service coverage. The facility also provides for commitment fees of 0.20% on the
unused credit amount. The Unsecured Credit Facility is used to finance the
acquisition of real estate, to provide working capital and for general corporate
purposes. At December 31, 1997 and 1996, total borrowings under this facility
aggregated $138.2 million and $88.5 million, respectively, with a weighted
average interest rate of 7.9% and 6.9%, respectively.
In September 1996, the Company entered into a three year, $10 million unsecured
revolving credit facility with National City Bank. In April 1997, the Company
renegotiated the terms of this facility to extend the agreement through November
2000 and reduce the interest rate 15 basis points. Borrowings under this
facility bear interest at variable rates based on the prime rate or LIBOR plus a
specified spread (1.10% at December 31, 1997). The spread is dependent on the
Company's long term senior unsecured debt rating from Standard and Poor's and
Moody's Investors Service. The Company is required to comply with certain
covenants relating to total outstanding indebtedness, secured indebtedness, net
worth, maintenance of unencumbered real estate assets and debt service coverage.
The facility also provides for commitment fees of 0.20% on the unused credit
amount. At December 31, 1997 and 1996, total borrowings under this facility
aggregated $1.5 million and $7.0 million, respectively, with a weighted average
interest rate of 7.1% and 6.8%, respectively.
In January 1995, the Company terminated a $25 million secured revolving credit
facility in conjunction with the successful completion of a 2,875,000 common
share offering and recognized an extraordinary charge of $0.3 million in the
first quarter of 1995 primarily relating to the write-off of unamortized
deferred finance costs. In the second quarter of 1995, the Company terminated a
$150 million secured revolving credit facility with Nomura Asset Capital
Corporation. As a result, the Company recognized a non-cash extraordinary charge
of $3.3 million relating to the unamortized deferred finance costs written off.
Total commitment fees paid by the Company on its revolving credit facilities in
1997, 1996 and 1995 aggregated approximately $0.3 million, $0.3 million and $0.4
million, respectively.
8. FIXED RATE SENIOR NOTES
In May 1995, the Company issued, through an underwritten offering, $100 million
of unsecured Fixed Rate Senior Notes at a discount to 99.693% which mature on
May 15, 2000. The Fixed Rate Senior Notes bear a coupon interest rate of 7.625%
per annum. Interest is paid semi-annually in arrears on May 15 and November 15.
In 1995, through its Medium Term Note (MTN) program, the Company issued $4
million of unsecured Fixed Rate Senior Notes at interest rates of 7.15% and
7.28% and maturities of seven and ten years, respectively. In 1996, the Company
issued $111.7 million of MTN's at interest rates ranging from 6.58% to 7.42% and
maturities of five to seven years. In 1997, the Company issued $102 million of
MTN's at interest rates ranging from 6.80% to 7.02% and maturities of five to
ten years. Interest is paid semi-annually in arrears on May 15 and November 15.
The above Fixed Rate Senior Notes may not be redeemed by the Company prior to
maturity and will not be subject to any sinking fund. The Fixed Rate Senior
Notes were issued pursuant to an indenture dated May 1, 1994 which contains
certain covenants including limitation on incurrence of debt, maintenance of
unencumbered real estate assets and debt service coverage.
In March 1997, the Company issued, through a grantor trust, $75 million of
Pass-Through Asset Trust Securities (PATS), due March 2002, at a discount to
99.53%. These certificates are secured by fifteen year notes ("Notes") maturing
March 2012, issued by the Company to the trust. The trust sold an option which
enables the option holder to remarket the Notes upon maturity of the
certificates in March 2002. Simultaneously with the sale of the certificates,
the trust purchased the Notes from the Company for a premium in the amount of
the option payment.
F-13
57
This premium, $1.4 million at December 31, 1997, is being amortized over the
fifteen year life of the notes and is included in other liabilities. If the
option holder does not elect to remarket the notes, then they become due and
payable in March 2002. These notes are Fixed Rate Senior Notes with a coupon
interest rate of 7.13% per annum. Interest is paid semi-annually in arrears on
March 15 and September 15.
9. SUBORDINATED CONVERTIBLE DEBENTURES
In August 1994, the Company issued, through an underwritten offering, $60
million of unsecured subordinated convertible debentures ("Debentures") which
mature on August 15, 1999. The Debentures bear interest at 7% per annum.
Interest is paid semi-annually in arrears on February 15 and August 15. The
Debentures were issued pursuant to an indenture dated May 1, 1994. The
Debentures are non-callable by the Company and are convertible at anytime prior
to maturity into common shares at a conversion price of $33-3/8 per share,
subject to adjustment under certain conditions. The Debentures are unsecured and
subordinate to present and future senior indebtedness, as defined in the
indenture.
During 1997, Debentures in the principal amount of $13.1 million were converted
into 392,754 common shares. In accordance with the indenture, the related
accrued but unpaid interest was forfeited by the holders. In addition, upon
conversion of the debentures, approximately $0.2 million of unamortized
debenture issue costs were charged to additional paid-in-capital.
10. MORTGAGES PAYABLE AND SCHEDULED PRINCIPAL REPAYMENTS
At December 31, 1997, mortgages payable, collateralized by real estate with a
net book value of approximately $143.6 million and related tenants leases, are
generally due in monthly installments of principal and/or interest and mature at
various dates through 2019. Interest rates ranged from approximately 5.3% to
10.9% (averaging 8.6% at December 31, 1997 and 1996).
Variable rate debt obligations, reflected in mortgages payable at December 31,
1997 and 1996, totaled approximately $2.8 million and $3.1 million,
respectively. Interest rates on the variable rate debt averaged 5.3% and 6.1% at
December 31, 1997 and 1996, respectively.
As of December 31, 1997, the scheduled principal payments of mortgages payable,
senior notes, revolving credit facilities and Debentures for the next five years
and thereafter are as follows:
Year Amount
---- ------
1998 $ 4,580
1999 81,673
2000 141,443
2001 88,725
2002 104,874
Thereafter 247,226
--------
$668,521
========
Principal payments in the year 2000 include $39.7 million maturing on the
revolving credit facilities.
Principal payments in the year 2002 assume that the option holder (Note 8)will
not exercise the option to remarket the Notes and the trust will therefore put
the Notes to the Company to finance the reacquisition of the PATS at their
maturity.
The maturities have been adjusted to reflect the issuance of a $100 million,
ten-year MTN issued in January 1998. The proceeds were used to reduce amounts
outstanding on the revolving credit facilities at December 31, 1997.
11. FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures of financial instruments:
Cash and cash equivalents, accounts receivable, accounts payable, accruals and
other liabilities:
The carrying amounts reported in the balance sheet for these financial
instruments approximated fair value because of their short maturities. The
carrying amount of straight-line rents receivable does not materially differ
from their fair market value.
Notes receivable and advances to affiliates:
The fair value is estimated by discounting the current rates at which similar
loans would be made. At December 31, 1997 and 1996, the carrying amounts
reported in the balance sheet approximate fair value.
Debt:
The carrying amounts of the Company's borrowings under its revolving credit
facilities approximate fair value because such borrowings are at variable rates.
The fair value of Fixed Rate Senior Notes was based on the Company's estimated
interest rate spread over the applicable treasury rate with a similar remaining
maturity. Fair value of the mortgage debt was estimated using a discounted cash
flow analysis, based on the Company's incremental borrowing rates for similar
types of borrowing arrangements with the same remaining maturities. Fair value
of the Debentures was determined based on their closing price as of December 31,
1997 and 1996, as reported by the New York Stock Exchange.
Considerable judgment is necessary to develop estimated fair values of financial
instruments. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize on disposition of the
financial instrument.
F-14
58
Financial instruments at December 31, 1997 and 1996, with carrying values that
are different than estimated fair values are summarized as follows (in
thousands):
1997 1996
---------------------------------- ---------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
Debentures $ 46,891 $ 52,049 $ 60,000 $ 63,000
Fixed Rate Senior Notes 392,254 400,862 215,493 218,828
Mortgage debt 89,676 93,943 107,440 112,085
-------- -------- -------- --------
$528,821 $546,854 $382,933 $393,913
======== ======== ======== ========
The Company intends to continuously monitor and actively manage interest costs
on its variable rate debt portfolio. The Company may, from time to time, enter
into interest rate hedge agreements to manage interest costs and risks
associated with changing interest rates. In addition, the Company believes that
it has the ability to obtain funds through additional equity and/or debt
offerings and the cost of obtaining such protection agreements in relation to
the Company's access to capital markets will continue to be evaluated.
12. MINORITY EQUITY INTEREST, OPERATING PARTNERSHIP
MINORITY INTERESTS, PREFERRED SHARES AND COMMON SHARES:
MINORITY EQUITY INTEREST
In 1997, the Company acquired, through a subsidiary partnership, a majority
ownership interest in two adjacent shopping centers located in North Olmsted,
Ohio. At the date of acquisition the shopping centers were valued at $56.7
million. The Company contributed cash and assumed liabilities aggregating $40.4
million and the balance of $16.3 million was retained by the seller as a
minority equity interest. The minority equity interest is convertible by the
minority equity interest owner, after February 28, 1998, into approximately
397,000 non-registered and non-transferrable common shares of the Company or for
cash at the fair market value of the common shares on the date of conversion,
not to aggregate less than $16.3 million. The minority equity interest owners
are entitled to a priority cash return of 6.5% per annum on its partnership
capital account balance, as defined in the partnership agreement. The priority
cash return during 1997 aggregated $1.0 million and has been reflected as a
charge to minority equity interest in the consolidated statements of operations.
The Company also has the right to acquire the minority equity interest, any time
after December 31, 1998, based upon the fair value of the shopping center, as
defined in the partnership agreement.
OPERATING PARTNERSHIP MINORITY INTERESTS
During 1997, the Company acquired, through subsidiary partnerships, a majority
ownership interest in two shopping centers. In conjunction with these
acquisitions, the Company issued 8,942 operating partnership units which are
convertible into common shares of the Company on a one for one basis. The
unitholders are entitled to receive distributions per operating partnership unit
equal to the per share distributions on the Company's common shares. During
1997, the unitholders received distributions aggregating approximately $.01
million which has been reflected as a charge to operating partnership minority
interest in the consolidated statements of operations.
PREFERRED SHARES
In November and December 1995, the Company sold 4,215,000 depositary shares of
9.5% Class A Cumulative Redeemable Preferred Stock at $25 per depositary share.
In December 1995, the Company sold 1,600,000 depositary shares of 9.44% Class B
Cumulative Redeemable Preferred Stock at $25 per share. An additional 175,000 of
Class B depositary shares were sold in January 1996, in conjunction with the
underwriters' over allotment option. Both the Class A and B depositary shares
represent 1/10 of a share of their respective preferred class of shares. The
Class A and Class B depositary shares are not redeemable by the Company prior to
November 15, 2000 and December 26, 2000, respectively, except in certain
circumstances relating to the preservation of the Company's status as a REIT.
The aggregate net proceeds of approximately $144 million were used in part to
fund the Company's equity investment relating to the acquisition of the
Community Center Properties (Note 2) and to retire variable rate indebtedness,
primarily Floating Rate Senior Notes.
On April 29, 1996, the Company's shareholders authorized (i) 1,500,000 Class C
Cumulative Preferred Shares, without par value, (ii) 1,500,000 Class D
Cumulative Preferred Shares, without par value; (iii) 1,500,000 Class E
Cumulative Preferred Shares, without par value and (iv) the reduction of the
number of authorized Class A Cumulative Preferred Shares, without par value,
Class B Cumulative Preferred Shares, without par value and Noncumulative
Preferred Shares, without par value from 3,000,000 to 1,500,000 each. All of the
aforementioned Class C, Class D, Class E and Noncumulative Preferred Shares are
unissued at December 31, 1997. The Company has issued 421,500 and 177,500 of
Class A and Class B Cumulative Preferred Shares, respectively, at December 31,
1997 and 1996.
F-15
59
COMMON SHARES
Common share issuances over the three year period ended December 31, 1997 are as
follows:
Net
Issuance Number of Price Per Proceeds
Date Shares Share (in millions)
- ------------- --------- -------- ------------
January 1995 2,875,000 $28.25 $ 76.5
March 1996 2,611,500 $28.95 75.4
January 1997 3,350,000 $36.625 115.8
June 1997 1,300,000 $38.145 49.4
September 1997 507,960 $39.1875 18.8
December 1997 316,800 $37.75 11.3
The aggregate net proceeds of $347.2 million from the above offerings were
primarily used to repay amounts outstanding on revolving credit facilities and
for general corporate purposes.
13. TRANSACTIONS WITH RELATED PARTIES
In April 1995, the Company acquired from a partnership owned by the former
chairman of the board of directors and an officer of the Company, two outparcels
and approximately eight acres of land adjacent to a shopping center purchased by
the Company in 1994 at a purchase price of approximately $3 million. The two out
parcels were pre-leased and an 81,000 square foot Kohl's Department store was
constructed on the eight acres of land. During 1996, this shopping center was
contributed into a joint venture with OSTRS (Note 2) at a fair market value of
approximately $24.6 million. At the date of transfer, the net book value of the
transferred property was approximately $20.3 million.
The Company has agreed to acquire, from the affiliates previously referred to,
additional land parcels and expansion areas which are located adjacent to the
properties previously acquired. The Company's purchase price has not yet been
determined since it is subject to the leasing and/or construction of vacant
space and resolution of various other contingencies.
The Company entered into a lease for office space owned by one of its principal
partners/shareholders. General and administrative rental expense associated with
this office space, for the years ended December 31, 1997, 1996 and 1995
aggregated $0.6 million, $0.5 million, and $0.3 million, respectively. The
increase in rental expense was primarily related to the leasing of additional
space to accommodate the Company's growth.
The Company also entered into a management agreement in 1993 with a partnership,
owned in part by a related party, in which management fee and leasing fee income
of $0.1 million was earned in 1997, 1996 and 1995. Transactions with the
Company's equity affiliates have been described in Note 2.
14. COMMITMENTS AND CONTINGENCIES
The Company is engaged in the operation of shopping centers/ malls and business
centers which are either owned or, with respect to seven shopping centers,
operated under long-term ground leases which expire at various dates through
2097. Space in the shopping centers is leased to tenants pursuant to agreements
which provide for terms ranging generally from one to 30 years and, in some
cases, for annual rentals which are subject to upward adjustments based on
operating expense levels, sales volume, or contractual increases as defined in
the lease agreements.
The scheduled future minimum revenues from rental properties under the terms of
all noncancelable tenant leases, assuming no new or renegotiated leases or
option extensions for such premises, for the subsequent five years ending
December 31, are as follows (in thousands):
1998 $ 133,748
1999 125,670
2000 115,945
2001 107,209
2002 98,602
Thereafter 827,943
----------
$1,409,117
==========
Scheduled minimum rental payments under the terms of all non-cancelable
operating leases in which the Company is the lessee, principally for office
space and ground leases, for the subsequent five years ending December 31, are
as follows (in thousands):
1998 $ 1,465
1999 1,547
2000 1,577
2001 1,577
2002 1,577
Thereafter 65,882
----------
$ 73,625
==========
In conjunction with the development and expansion of various shopping centers as
of December 31, 1997, the Company has entered into agreements for the
construction of the shopping centers and acquisition of land aggregating
approximately $4.7 million.
15. OTHER INCOME
Other income was comprised of the following (in thousands):
For the years ended
December 31,
1997 1996 1995
---- ---- ----
Interest $2,083 $1,213 $1,227
Temporary tenant rentals (kiosks) 830 689 636
Lease termination fees 2,830 3,007 624
Development fees 1,003 672 804
Other 662 417 318
------ ------ ------
$7,408 $5,998 $3,609
====== ====== ======
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60
16. BENEFIT PLANS
STOCK OPTION AND OTHER EQUITY BASED PLANS
Effective January 31, 1993, the Company established an incentive and
non-qualified stock option plan under which 2,056,903 of the Company's common
shares at December 31, 1997 were reserved for issuance to eligible employees.
Options may be granted at per share prices not less than fair market value at
the date of grant, and in the case of incentive options, must be exercisable
within ten years thereof (or, with respect to options granted to certain
shareholders, within five years thereof). Options granted under the plan
generally become exercisable on the year after the date of grant as to one third
of the optioned shares, with the remaining options being exercisable over the
following two-year period. As of December 31, 1997, 1996 and 1995, 742,540,
555,057 and 381,193 options, respectively, were exercisable. Option prices range
from $22 to $46.5625 per share.
In addition to the stock option plan described above, the Company granted
options for a total of 470,000 shares to its directors and certain officers who
are not employees of the Company. Such options were granted at the fair market
value on the date of grant. Options with respect to 25,000 shares were
exercisable one year from the date of grant, and options with respect to the
remaining 445,000 shares become exercisable one year after the date of grant as
to one third of the 445,000 shares with the remaining options being exercisable
over the following two-year period. As of December 31, 1997, 1996 and 1995,
options aggregating 355,000, 253,333 and 158,334, respectively, were
exercisable, of which, 5,000 were exercised during each of 1997 and 1996. Option
prices range from $22 to $37.125 per share.
The following table reflects the stock option activity described above (in
thousands):
Number of Options Price
Employees Directors Range
--------- --------- -----
Balance
December 31, 1994 700 325 $22.00 - $31.75
Granted 179 - 26.75 - 31.75
Exercised (11) - 22.00 - 29.25
Canceled (41) - 22.00 - 31.75
------ ----- ---------------
Balance
December 31, 1995 827 325 22.00 - 31.75
Granted 533 120 28.88 - 34.00
Exercised (66) (5) 22.00 - 30.75
Canceled (29) - 22.00 - 31.75
------ ----- ---------------
Balance
December 31, 1996 1,265 440 22.00 - 34.00
Granted 501 25 35.63 - 46.56
Exercised (127) (5) 22.00 - 31.50
Canceled (31) - 27.75 - 39.44
------ ----- ---------------
Balance
December 31, 1997 1,608 460 $22.00 - $46.56
====== ===== ===============
In April 1996, the shareholders approved an equity-based award plan which
provides for the grant, to key employees of the Company, of options to purchase
common shares of the Company, rights to receive the appreciation in value of
common shares, awards of common shares subject to restrictions on transfer,
awards of common shares issuable in the future upon satisfaction of certain
conditions, rights to purchase common shares and other awards based on common
shares. Under the terms of the Award Plan, awards may be granted with respect to
an aggregate of not more than 600,000 common shares.
In 1997, the Board of Directors approved the issuance of 450,000 stock options
at option prices ranging from $36.50 to $40.25 to the Company's Chief Executive
Officer which vested upon issuance. Of the options granted, 350,000 were issued
outside of a qualified plan. In 1996, the Board of Directors approved a grant of
25,000 restricted shares of common stock and 15,000 Participation Units to the
Company's Chief Executive Officer. The 25,000 shares of restricted stock vest in
equal annual amounts of 5,000 shares per year through the year 2000. The 15,000
Participation Units will be converted into common shares, ranging from 15,000
common shares to 100,000 common shares at the end of five years depending upon
achievement of performance objectives. The actual number of shares issued will
be based upon the average annual total shareholder return during the five year
period. During 1997 and 1996, approximately $1.3 million and $0.5 million,
respectively, was charged to expense associated with awards under the equity
based award plan relating to restricted stock and participation units.
The Company applies APB 25, "Accounting for Stock Issued to Employees" in
accounting for its plans. Accordingly, the Company does not recognize
compensation cost for stock options when the option exercise price equals or
exceeds the market value on the date of the grant. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
values of the options granted at the grant dates, consistent with the method set
forth in the Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation", the Company's net income and earnings per share
would have been as follows (dollars in thousands, except per share data):
1997 1996 1995
---- ---- ----
Net income
applicable to As reported $53,322 $35,342 $24,250
common shareholders Pro forma $47,515 $33,905 $22,640
Basic earnings As reported $2.06 $1.67 $1.29
per share Pro forma $1.84 $1.60 $1.21
Diluted earnings As reported $2.05 $1.67 $1.28
per share Pro forma $1.82 $1.60 $1.20
The fair value of each option grant was estimated on the date of grant using the
Black-Sholes options pricing model using the following assumptions:
For the years ended
December 31,
1997 1996 1995
---------- ---------- ----------
Risk free interest
rate (range) 5.8%-7.9% 6.5%-6.8% 5.6%-7.4%
Dividend yield 6.8%-7.1% 7.8% 7.7%-7.8%
Expected life
(range) 8.1-10 years 8.3-10 years 8.3-10 years
Expected volatility
(range) 22.5%-31.7% 17.1%-24.4% 15.4%-24.4%
F-17
61
401(k) PLAN
Effective July 1, 1994, the Company adopted a 401(k) defined contribution plan
covering substantially all of the officers and employees of the Company which
permits participants to defer up to a maximum of 15%of their compensation. The
Company will match 25%of the employee's contributions up to a maximum of 6% of
an employee's annual compensation. The Company may also make additional
discretionary contributions. Employees' contributions are fully vested and the
Company's matching contributions vest 20%per year, including service prior to
the plan's effective date. Once an employee has been with the Company five
years, all matching contributions are fully vested. The Company's contributions
to the plan for the years ended December 31, 1997, 1996 and 1995 were made by
the issuance of Company stock with a market value of $.04 million, $.03 million
and $.02 million, respectively. The 401(k)plan is fully funded at December 31,
1997.
ELECTIVE DEFERRED COMPENSATION PLAN
Effective October 15, 1994, the Company adopted a non-qualified elective
deferred compensation plan for certain key executives which permits eligible
employees to defer up to 25% of their compensation. The Company will match 25%
of an employee's contributions up to a maximum of 6% of an employee's annual
compensation, after deducting contributions, if any, made in conjunction with
the Company's 401(k) plan. Both the deferred and matching contributions are made
in Company performance units with the gains and losses being related to the
Company's quoted share price. Deferred compensation charged to expense related
to an employee's contribution is fully vested and the Company's matching
contribution vests 20% per year, including service prior to the plan's effective
date. Once an employee has been with the Company five years, all matching
contributions are fully vested. The Company's contribution, including plan
earnings for the years ended December 31, 1997, 1996 and 1995 was $.04 million,
$.05 million and $.02 million, respectively. At December 31, 1997, 1996 and
1995, deferred compensation under this plan aggregated $0.3 million, $0.2
million and $0.1 million, respectively. The plan is not funded.
17. EARNINGS AND DIVIDENDS PER SHARE
Earnings per Share (EPS) have been computed pursuant to the provisions of
Statement of Financial Accounting Standards No. 128 which became effective for
all financial statements issued after December 15, 1997. All periods prior
thereto have been restated to conform with the provisions of this Statement.
The following table provides a reconciliation of both income before
extraordinary item and the number of common shares used in the computations of
"basic" EPS, which utilized the weighted average number of common shares
outstanding without regard to dilutive potential common shares, and "diluted"
EPS, which includes all such shares.
For the year ended December 31,
(In thousands, except per share amounts)
1997 1996 1995
-------- -------- --------
Income before extraordinary item $ 67,522 $ 49,542 $ 29,062
Less: Preferred stock dividend (14,200) (14,200) (1,255)
-------- -------- --------
Basic EPS - Income before
extraordinary item applicable to
common shareholders 53,322 35,342 27,807
Effect of dilutive securities:
Operating partnership minority
interests 10 -- --
-------- -------- --------
Diluted EPS - Income before
extraordinary item applicable to
common shareholders plus
assumed conversions $ 53,332 $ 35,342 $ 27,807
======== ======== ========
NUMBER OF SHARES:
Basic - average shares outstanding 25,880 21,147 18,780
Effect of dilutive securities:
Operating partnership minority
interests 3 -- --
Stock options 176 36 129
Restricted stock 3 3 --
-------- -------- --------
Diluted - average shares
outstanding 26,062 21,186 18,909
======== ======== ========
PER SHARE AMOUNT:
Income before extraordinary item
Basic $ 2.06 $ 1.67 $ 1.48
Diluted $ 2.05 $ 1.67 $ 1.47
Options to purchase 2,067,706, 1,704,634, and 1,151,923 shares of common stock
were outstanding at December 31, 1997, 1996 and 1995, respectively (Note 16), a
portion of which has been reflected above using the treasury stock method.
Restricted shares totaling 15,000 and 20,000, respectively, were not vested at
December 31, 1997 and 1996 (none in 1995) and consequently, were not included in
the computation of basic EPS (Note 16).
Performance Units issued in 1996, convertible into 15,000 to 100,000 common
shares of the Company, were not included in the computation of diluted EPS in
1997 and 1996 because the effect was antidilutive (Note 16).
Debentures which are convertible into common shares of the Company at a price of
$33-3/8, were not included in the computation of diluted EPS in 1997, 1996 and
1995 because the effect was antidilutive (Note 9).
The conversion of DRA's interest in the Merriam, San Antonio and Community
Center Joint Ventures were not included in the computation of diluted EPS
because the effect was antidilutive, for all years presented, where applicable
(Note 2).
The conversion into common stock of the Minority Equity Interest were not
included in the computation of diluted EPS in 1997 because the effect of
assuming conversion was antidilutive (Note 12).
F-18
62
Dividends declared per share for the years ended December 31, 1997, 1996 and
1995 are summarized as follows:
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL
1997 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS
- --------------------------------------------------------------------------------------------------------------------------------
1st quarter 03/31/97 $0.50 $0.11 $0.02 $ .63
2nd quarter 06/30/97 0.52 0.11 - .63
3rd quarter 09/30/97 0.52 0.11 - .63
4th quarter 12/30/97 0.50 0.11 0.02 .63
----- ----- ----- -----
$2.04 $0.44 $0.04 $2.52
===== ===== ===== =====
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL
1996 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS
- --------------------------------------------------------------------------------------------------------------------------------
1st quarter 04/01/96 $0.475 $0.12 $.005 $ .60
2nd quarter 07/01/96 0.475 0.12 .005 .60
3rd quarter 09/30/96 0.475 0.12 .005 .60
4th quarter 12/30/96 0.475 0.12 .005 .60
------ ----- ----- -----
$1.90 $0.48 $.02 $2.40
====== ===== ===== =====
GROSS ORDINARY NON-TAXABLE CAPITAL GAIN TOTAL
1995 DIVIDENDS DATE PAID INCOME RETURN OF CAPITAL DISTRIBUTIONS DIVIDENDS
- --------------------------------------------------------------------------------------------------------------------------------
1st quarter 03/31/95 $0.43 $0.11 $ - $ .54
2nd quarter 06/30/95 0.43 0.11 - .54
3rd quarter 09/29/95 0.43 0.11 - .54
4th quarter 12/29/95 0.43 0.11 - .54
----- ----- ----- -----
$1.72 $0.44 $ - $2.16
===== ===== ===== =====
18. SUBSEQUENT EVENTS
In January 1998, the Company issued $100 million of senior unsecured fixed rate
notes through its Medium Term Note program with a ten year maturity and a 6.625%
coupon rate. The proceeds were used to repay variable rate borrowings on the
Company's revolving credit facilities.
On February 11, 1998, the Company entered into a joint venture with Prudential
Real Estate investors and established the Retail Value Fund ("Fund"). The Fund
will invest in retail properties within the United States that are in need of
substantial retenanting and market repositioning. This Fund may also provide
equity or debt investments in companies owning or managing retail properties as
well as in third party development projects that provide significant growth
opportunities. The retail property investments may include enclosed malls,
neighborhood centers or other potential commercial redevelopment opportunities.
The Company is expected to maintain an ownership interest of approximately 25%
in the Fund.
The Fund will have its own employees and the Company will assume retail
management and operating responsibilities including leasing, redevelopment and
accounting and will be paid fees in consideration of the foregoing services.
On February 11, 1998, the Company contributed its ownership interest in the
joint venture formed with Hendon Associates to the Fund and, in exchange for a
75% ownership interest, the Company was reimbursed approximately $41.5 million
from Prudential Real Estate Investors, representing 75%of its invested capital.
The proceeds of $41.5 million were used to repay variable rate borrowings on the
Company's revolving credit facilities.
F-19
63
19. PRICE RANGE OF COMMON SHARES (UNAUDITED)
The high and low sale prices per share of the Company's common shares, as
reported on the New York Stock Exchange Composite tape, and declared dividends
per share for the quarterly periods indicated were as follows:
High Low Dividends
------------------------------------------------------------------------------------
1997:
First $38-5/8 $34-1/4 $ .63
Second 40 35-7/8 .63
Third 40-1/4 38-1/4 .63
Fourth 41-1/4 37-5/16 .63
-------- -------- ------
1996:
First $ 31-3/4 $ 28-1/8 $ .60
Second 32 28-1/8 .60
Third 33-1/8 30-1/2 .60
Fourth 37-1/4 32-1/8 .60
-------- -------- ------
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the quarterly results of operations for the years
ended December 31, 1997 and 1996 (in thousands, except per share amounts):
First Second Third Fourth Total
----- ------ ----- ------ -----
1997:
Revenues $37,453 $40,866 $42,673 $48,048 $169,040
Income before equity in net income of joint ventures,
minority interests and gain on sales of real estate 11,576 13,585 13,807 15,184 54,152
Income before extraordinary item 17,554 15,941 16,747 17,280 67,522
Net income 17,554 15,941 16,747 17,280 67,522
Net income applicable to common shareholders 14,004 12,391 13,197 13,730 53,322
Basic:
Income before extraordinary item per common share $ .57 $ .49 $ .50 $ .50 $ 2.06
Net income per common share $ .57 $ .49 $ .50 $ .50 $ 2.06
Weighted average number of shares 24,515 25,164 26,556 27,297 25,880
Diluted:
Income before extraordinary item per common share $ .56 $ .48 $ .49 $ .49 $ 2.05
Net income per common share $ .56 $ .48 $ .49 $ .49 $ 2.05
Weighted average number of shares 24,937 25,613 27,074 27,802 26,062
First Second Third Fourth Total
----- ------ ----- ------ -----
1996:
Revenues $30,635 $31,904 $34,534 $33,832 $130,905
Income before equity in net income of joint ventures 9,204 11,242 10,788 9,599 40,833
Income before extraordinary item 11,216 13,104 12,926 12,296 49,542
Net income 11,216 13,104 12,926 12,296 49,542
Net income applicable to common shareholders 7,666 9,554 9,376 8,746 35,342
Basic:
Income before extraordinary item per common share $ .39 $ .44 $ .43 $ .40 $ 1.67
Net income per common share $ .39 $ .44 $ .43 $ .40 $ 1.67
Weighted average number of shares 19,705 21,591 21,618 21,637 21,147
Diluted:
Income before extraordinary item per common share $ .39 $ .44 $ .43 $ .40 $ 1.67
Net income per common share $ .39 $ .44 $ .43 $ .40 $ 1.67
Weighted average number of shares 19,849 21,765 21,863 21,958 21,186
F-20
64
SCHEDULE II
DEVELOPERS DIVERSIFIED REALTY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
Balance at Balance at
beginning of Charged end of
year to expense Deductions year
--------------- ----------- ------------- ------------
Year ended December 31, 1997
Allowance for uncollectible accounts..... $1,770 $ 749 $ 136 $2,383
====== ====== ====== ======
Year ended December 31, 1996
Allowance for uncollectible accounts..... $ 990 $1,292 $ 512 $1,770
====== ====== ====== ======
Year ended December 31, 1995
Allowance for uncollectible accounts..... $ 310 $ 721 $ 41 $ 990
====== ====== ====== ======
F-21
65
SCHEDULE III
DEVELOPERS DIVERSIFIED REALTY CORPORATION
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 1997
Initial Cost Total Cost (A)
--------------------------------------- -----------------------------------------
Buildings & Buildings &
Land Improvements Improvements Land Improvements Total
--------------------------------------- ----------------------------------------
BRANDON, FL ............ $0 $4,111,281 $0 $0 $4,111,281 $4,111,281
STOW, OH ............... 1,035,856 9,028,257 0 992,520 14,138,737 15,131,257
FERN PARK, FL(ORLANDO) . 445,852 302,755 97,300 445,852 403,228 849,080
EASTLAKE, OH ........... 40,000 141,000 0 40,000 144,188 184,188
HIGHLAND HTS., OH (DEV). 3,987,052 7,895,991 0 3,987,052 13,302,042 17,289,094
WESTLAKE, OH ........... 424,225 3,802,863 203,235 424,225 4,055,160 4,479,385
WATERBURY, CT .......... 0 3,048,300 0 0 3,048,300 3,048,300
ZANESVILLE, OH ......... 0 619,023 0 0 619,023 619,023
E. NORRITON, PA ........ 80,408 4,697,718 233,380 80,408 6,998,264 7,078,672
PALM HARBOR, FL ........ 1,136,915 4,089,138 0 1,136,915 4,139,699 5,276,614
TARPON SPRINGS, FL ..... 248,067 7,381,640 80,859 248,067 8,292,015 8,540,082
BAYONET PT., FL ........ 2,112,566 8,180,960 127,530 2,124,621 8,318,603 10,443,224
STARKVILLE, MS ......... 819,323 5,253,897 0 1,269,081 9,648,182 10,917,263
STARKVILLE (KROGER) .... 451,758 2,955,317 0 0 0 0
TUPELO, MS ............. 2,282,000 14,978,722 0 2,282,000 15,679,372 17,961,372
JACKSONVILLE, FL ....... 3,005,420 9,425,063 0 3,005,420 9,451,229 12,456,649
STONE MOUNTAIN, GA ..... 460,471 3,018,074 21,890 460,471 3,043,151 3,503,622
BRUNSWICK, MA .......... 3,836,358 15,459,460 0 3,836,358 15,459,460 19,295,818
ATLANTA, GA ............ 475,360 9,373,552 0 475,360 9,549,569 10,024,929
ERIE, PA ............... 7,030,162 19,200,609 0 6,830,163 32,141,922 38,972,085
ERIE, PA ............... 3,850,317 0 0 548,930 0 548,930
ERIE, PA ............... 1 2,563,770 12,990 1 3,081,715 3,081,716
CHILLICOTHE, OH ........ 42,857 2,549,287 2,200 1,266,066 10,183,227 11,449,293
OCALA, FL .............. 26,800 351,065 25,028 26,800 376,093 402,893
TAMPA, FL (WATERS) ..... 4,105,230 6,640,240 324,071 3,905,230 7,264,437 11,169,667
WINCHESTER, VA ......... 618,075 13,903,078 0 618,075 18,694,206 19,312,281
HUBER HEIGHTS, OH ...... 757,422 14,468,512 1,000 757,422 14,499,966 15,257,388
LEBANON, OH ............ 651,025 911,178 30,993 651,025 1,026,666 1,677,691
WILMINGTON, OH ......... 156,975 1,615,646 50,575 156,975 1,676,221 1,833,196
HILLSBORO, OH .......... 79,579 1,984,831 0 79,579 1,984,831 2,064,410
CANTON, OH PHASE II .... 5,672,187 0 0 6,393,685 8,252,702 14,646,387
XENIA, OH .............. 948,202 3,938,138 0 948,202 5,995,219 6,943,421
BOARDMAN, OH ........... 9,025,281 0 0 8,777,281 20,977,237 29,754,518
CINCINNATI, OH ......... 2,399,250 11,238,105 172,198 2,399,250 12,103,901 14,503,151
BEDFORD, IN ............ 706,282 8,424,532 5,750 1,066,655 10,006,816 11,073,471
WATERTOWN, SD .......... 62,712 6,442,712 441,927 62,712 8,037,730 8,100,442
Total Cost,
Net of Depreciable Date of
Accumulated Accumulated Lives Construction (C)
Depreciation Depreciation Encumbrances (Years) (1) Acquisition (A)
------------ ------------ ------------ ----------- ----------------
BRANDON, FL ............ $3,498,512 $612,769 $0 S/L 30 1972 (C)
STOW, OH ............... 1,793,399 13,337,858 0 S/L 30 1969 (C)
FERN PARK, FL(ORLANDO) . 257,783 591,297 0 S/L 30 1970 (C)
EASTLAKE, OH ........... 114,385 69,803 0 S/L 30 1971 (C)
HIGHLAND HTS., OH (DEV). 795,224 16,493,870 0 S/L 31.5 1995 (C)
WESTLAKE, OH ........... 3,002,990 1,476,395 0 S/L 30 1974 (C)
WATERBURY, CT .......... 2,497,483 550,817 0 S/L 30 1973 (C)
ZANESVILLE, OH ......... 147,397 471,626 0 S/L 31.5 1990 (C)
E. NORRITON, PA ........ 3,433,481 3,645,191 0 S/L 30 1975 (C)
PALM HARBOR, FL ........ 357,114 4,919,500 0 S/L 31.5 1995 (A)
TARPON SPRINGS, FL ..... 5,656,260 2,883,822 0 S/L 30 1974 (C)
BAYONET PT., FL ........ 3,463,985 6,979,239 5,327,208 S/L 30 1985 (C)
STARKVILLE, MS ......... 899,237 10,018,026 0 S/L 31.5 1994 (A)
STARKVILLE (KROGER) .... 0 0 2,417,963 S/L 31.5 1994 (A)
TUPELO, MS ............. 1,505,016 16,456,356 0 S/L 31.5 1994 (A)
JACKSONVILLE, FL ....... 824,093 11,632,556 7,904,705 S/L 31.5 1995 (A)
STONE MOUNTAIN, GA ..... 2,509,684 993,938 0 S/L 30 1973 (C)
BRUNSWICK, MA .......... 244,221 19,051,597 0 S/L 30 1973 (C)
ATLANTA, GA ............ 1,173,161 8,851,768 0 S/L 31.5 1994 (A)
ERIE, PA ............... 2,248,850 36,723,235 0 S/L 31.5 1995 (C)
ERIE, PA ............... 0 548,930 0 S/L 31.5 1995 (C)
ERIE, PA ............... 2,041,151 1,040,565 0 S/L 30 1973 (C)
CHILLICOTHE, OH ........ 1,722,760 9,726,533 0 S/L 30 1974 (C)
OCALA, FL .............. 300,935 101,958 0 S/L 30 1974 (C)
TAMPA, FL (WATERS) ..... 1,672,310 9,497,357 0 S/L 31.5 1990 (C)
WINCHESTER, VA ......... 1,877,679 17,434,602 9,294,686 S/L 31.5 1993 (A)
HUBER HEIGHTS, OH ...... 2,030,072 13,227,316 0 S/L 31.5 1993 (A)
LEBANON, OH ............ 190,180 1,487,511 0 S/L 31.5 1993 (A)
WILMINGTON, OH ......... 1,114,365 718,831 0 S/L 30 1977 (C)
HILLSBORO, OH .......... 1,223,927 840,483 0 S/L 30 1979 (C)
CANTON, OH PHASE II .... 113,482 14,532,905 0 S/L 31.5 1995 (A)
XENIA, OH .............. 524,122 6,419,299 0 S/L 31.5 1994 (A)
BOARDMAN, OH ........... 491,120 29,263,398 0 S/L 31.5 1997 (A)
CINCINNATI, OH ......... 1,798,535 12,704,616 0 S/L 31.5 1993 (A)
BEDFORD, IN ............ 1,149,938 9,923,533 0 S/L 31.5 1993 (A)
WATERTOWN, SD .......... 4,450,561 3,649,881 0 S/L 30 1977 (C)
F-22
66
CONNERSVILLE, IN ........ 539,720 6,457,710 0 539,720 6,560,191 7,099,911
ASHLAND, OH ............. 209,500 2,272,624 0 209,500 2,375,424 2,584,924
PENSACOLA, FL ........... 1,804,641 4,010,290 273,372 1,804,641 4,334,862 6,139,503
W.65TH CLEVELAND, OH .... 90,120 1,463,076 15,000 90,120 1,538,563 1,628,683
LOS ALAMOS, NM .......... 725,000 3,499,950 30,336 725,000 3,535,058 4,260,058
NORTH OLMSTED, OH ....... 9,499,018 34,186,667 13,971 9,499,018 34,200,638 43,699,656
NORTH OLMSTED, OH ....... 2,710,188 10,821,949 0 2,710,188 10,821,949 13,532,137
TAMPA, FL (DALE) ........ 4,268,673 5,368,147 204,666 4,268,672 6,075,156 10,343,828
WAYNESVILLE, NC ......... 431,910 8,088,668 131,096 431,910 8,238,844 8,670,754
AHOSKIE, NC ............. 269,530 7,775,856 3,168 269,530 7,804,724 8,074,254
PULASKI, VA ............. 528,075 6,395,809 2,000 528,075 6,405,435 6,933,510
TWINSBURG, OH (VSA) ..... 341,025 2,108,098 0 341,025 1,916,716 2,257,741
AURORA, OH .............. 832,436 0 0 832,436 5,439,980 6,272,416
WORTHINGTON, MN ......... 373,943 6,404,291 440,740 373,943 7,644,203 8,018,146
HARRISBURG, IL .......... 550,100 7,619,281 0 550,100 7,815,528 8,365,628
MT. VERNON, IL .......... 1,789,009 9,398,696 111,000 1,789,009 9,755,535 11,544,544
FENTON, MO .............. 413,993 4,243,854 475,714 413,993 6,448,947 6,862,940
MELBOURNE, FL ........... 1 3,084,819 116,638 1 3,204,645 3,204,646
SIMPSONVILLE, SC ........ 430,800 6,563,154 0 430,800 6,567,154 6,997,954
CAMDEN, SC .............. 627,100 7,519,161 6,500 627,100 7,874,094 8,501,194
UNION, SC ............... 684,750 7,629,275 500 684,750 7,648,975 8,333,725
N. CHARLESTON, SC ....... 910,840 11,346,348 1,000 1,081,462 14,911,220 15,992,682
S. ANDERSON, SC ......... 1,365,600 6,117,482 13,170 1,365,600 6,150,152 7,515,752
ANDERSON, SC ............ 204,094 939,733 0 204,094 939,733 1,143,827
ORANGEBURG, SC .......... 317,934 1,692,836 0 317,934 1,717,836 2,035,770
MT. PLEASANT, SC ........ 2,583,887 10,469,891 0 2,583,887 10,469,891 13,053,778
COLUMBIA, SC ............ 600,000 3,262,624 0 600,000 3,262,624 3,862,624
SAULT STE. MARIE, MI .... 1,826,454 13,709,705 0 1,826,454 13,768,735 15,595,189
CHEBOYGAN, MI ........... 126,670 3,612,242 0 126,670 3,612,242 3,738,912
GRAND RAPIDS, MI ........ 1,926,389 8,039,411 0 1,926,389 8,053,836 9,980,225
HOUGHTON, MI ............ 439,589 7,300,952 1,820,772 439,589 9,325,011 9,764,600
BAD AXE, MI ............. 183,850 3,647,330 0 183,850 4,038,246 4,222,096
GAYLORD, MI ............. 269,900 8,727,812 2,250 269,900 9,069,932 9,339,832
HOWELL, MI .............. 331,500 11,938,263 750 331,500 12,083,413 12,414,913
MT. PLEASANT, MI ........ 766,950 7,768,538 20,340 766,950 11,486,554 12,253,504
ELYRIA, OH .............. 352,295 5,692,642 0 352,295 5,692,642 6,044,937
BEMIDJI, MN ............. 442,031 8,228,731 500,161 442,031 8,841,761 9,283,792
CAPE CORAL, FL .......... 1,286,628 2,548,149 149,507 1,286,628 4,692,355 5,978,983
TRINDAD, CO ............. 411,329 2,578,930 197,546 411,329 2,787,426 3,198,755
HAZARD, KY .............. 402,563 3,271,343 296,745 402,563 3,571,954 3,974,517
BIRMINGHAM, AL .......... 3,726,122 13,973,590 0 3,726,122 14,026,891 17,753,013
BIRMINGHAM, AL .......... 10,572,916 26,002,258 0 11,434,040 31,933,621 43,367,661
HUNTSVILLE, AL .......... 600,000 3,058,100 0 600,000 3,069,100 3,669,100
JACKSONVILLE, NC ........ 521,111 3,998,798 172,993 521,111 4,171,791 4,692,902
ORMOND BEACH, FL ........ 1,048,380 15,812,069 3,875 1,048,380 16,158,617 17,206,997
CONNERSVILLE, IN ........ 842,182 6,257,729 0 S/L 31.5 1993 (A)
ASHLAND, OH ............. 1,567,512 1,017,412 0 S/L 30 1977 (C)
PENSACOLA, FL ........... 1,276,899 4,862,604 0 S/L 30 1988 (C)
W.65TH CLEVELAND, OH .... 1,016,896 611,787 0 S/L 30 1977 (C)
LOS ALAMOS, NM .......... 1,261,325 2,998,733 0 S/L 30 1978 (C)
NORTH OLMSTED, OH ....... 1,144,967 42,554,689 0 S/L 31.5 1997 (A)
NORTH OLMSTED, OH ....... 343,954 13,188,183 0 S/L 31.5 1997 (A)
TAMPA, FL (DALE) ........ 1,303,466 9,040,362 0 S/L 31.5 1990 (C)
WAYNESVILLE, NC ......... 1,320,755 7,349,999 0 S/L 31.5 1993 (A)
AHOSKIE, NC ............. 957,081 7,117,173 0 S/L 31.5 1994 (A)
PULASKI, VA ............. 951,758 5,981,752 0 S/L 31.5 1993 (A)
TWINSBURG, OH (VSA) ..... 485,477 1,772,264 0 S/L 31.5 1989 (C)
AURORA, OH .............. 221,721 6,050,695 0 S/L 31.5 1995 (C)
WORTHINGTON, MN ......... 4,034,575 3,983,571 0 S/L 30 1977 (C)
HARRISBURG, IL .......... 928,534 7,437,094 0 S/L 31.5 1994 (A)
MT. VERNON, IL .......... 1,407,261 10,137,283 0 S/L 31.5 1993 (A)
FENTON, MO .............. 2,282,132 4,580,808 0 S/L 30 1983 (A)
MELBOURNE, FL ........... 1,994,706 1,209,940 0 S/L 30 1978 (C)
SIMPSONVILLE, SC ........ 834,675 6,163,279 0 S/L 31.5 1994 (A)
CAMDEN, SC .............. 1,110,915 7,390,279 0 S/L 31.5 1993 (A)
UNION, SC ............... 1,099,771 7,233,954 0 S/L 31.5 1993 (A)
N. CHARLESTON, SC ....... 1,615,622 14,377,060 0 S/L 31.5 1993 (A)
S. ANDERSON, SC ......... 758,275 6,757,477 0 S/L 31.5 1994 (A)
ANDERSON, SC ............ 82,041 1,061,786 0 S/L 31.5 1995 (A)
ORANGEBURG, SC .......... 147,787 1,887,983 0 S/L 31.5 1995 (A)
MT. PLEASANT, SC ........ 913,884 12,139,894 6,889,913 S/L 31.5 1995 (A)
COLUMBIA, SC ............ 224,413 3,638,211 0 S/L 31.5 1995 (A)
SAULT STE. MARIE, MI .... 1,456,597 14,138,592 7,519,794 S/L 31.5 1994 (A)
CHEBOYGAN, MI ........... 467,425 3,271,487 0 S/L 31.5 1993 (A)
GRAND RAPIDS, MI ........ 512,265 9,467,960 0 S/L 31.5 1995 (A)
HOUGHTON, MI ............ 5,839,310 3,925,290 2,798,376 S/L 30 1980 (C)
BAD AXE, MI ............. 545,149 3,676,947 0 S/L 31.5 1993 (A)
GAYLORD, MI ............. 1,254,464 8,085,368 0 S/L 31.5 1993 (A)
HOWELL, MI .............. 1,594,211 10,820,702 7,462,728 S/L 31.5 1993 (A)
MT. PLEASANT, MI ........ 1,328,492 10,925,012 0 S/L 31.5 1993 (A)
ELYRIA, OH .............. 2,228,398 3,816,539 0 S/L 30 1977 (C)
BEMIDJI, MN ............. 4,393,503 4,890,289 0 S/L 30 1977 (C)
CAPE CORAL, FL .......... 1,184,263 4,794,720 0 S/L 30 1985 (C)
TRINDAD, CO ............. 1,078,167 2,120,588 0 S/L 30 1986 (C)
HAZARD, KY .............. 2,116,466 1,858,051 0 S/L 30 1978 (C)
BIRMINGHAM, AL .......... 971,862 16,781,151 0 S/L 31.5 1994 (A)
BIRMINGHAM, AL .......... 2,626,538 40,741,123 0 S/L 31.5 1995 (A)
HUNTSVILLE, AL .......... 246,864 3,422,236 0 S/L 31.5 1995 (A)
JACKSONVILLE, NC ........ 1,122,014 3,570,888 2,664,141 S/L 31.5 1989 (C)
ORMOND BEACH, FL ........ 1,844,727 15,362,270 0 S/L 31.5 1994 (A)
F-23
67
ALAMOSA, CO ............ 161,479 1,034,465 210,958 161,479 1,253,273 1,414,752
WILMINGTON, NC ......... 4,785,052 16,851,571 1,182,775 4,227,212 24,124,566 28,351,778
BERLIN, VT ............. 858,667 10,948,064 23,935 866,217 11,080,244 11,946,461
BRAINERD, MN ........... 703,410 9,104,117 271,802 1,182,018 11,908,835 13,090,853
SPRING HILL, FL ........ 1,083,851 4,816,166 265,762 2,095,973 7,872,052 9,968,025
TIFFIN, OH ............. 432,292 5,907,856 434,761 432,292 6,547,704 6,979,996
TOLEDO, OH ............. 2,490,543 10,582,588 0 2,490,543 10,583,789 13,074,332
TOLEDO, OHIO ........... 5,556,887 0 0 5,556,887 5,556,887
DENVER, CO ............. 7,833,069 35,550,405 0 7,833,069 35,550,405 43,383,474
DICKINSON, ND .......... 57,470 6,864,237 354,820 51,148 7,427,717 7,478,865
WEST PASCO, FL ......... 1,422,383 6,552,470 8,500 1,121,383 6,560,970 7,682,353
MARIANNA, FL ........... 1,496,347 3,499,835 129,855 1,496,347 3,637,290 5,133,637
HUTCHINSON, MN ......... 401,502 5,510,326 656,937 426,502 6,244,921 6,671,423
NEW BERN, NC ........... 780,029 8,204,036 71,587 780,029 11,266,277 12,046,306
MENTOR, OH ............. 184,420 1,148,523 0 184,420 1,148,523 1,332,943
STREETSBORO, OH ........ 50,000 1,298,398 0 50,000 1,560,258 1,610,258
AURORA, OH ............. 100,000 2,909,005 0 100,000 2,937,911 3,037,911
HIGHLAND, IN ........... 4,003,400 20,101,245 0 4,003,400 22,891,664 26,895,064
AHWATUKEE, AZ PHASE I .. 5,302,089 21,521,302 0 5,302,089 21,539,594 26,841,683
AHWATUKEE, AZ PHASE II . 7,762,645 3,443,005 3,188 7,762,645 34,433,193 42,195,838
PHOENIX, AR ............ 1,733,400 6,979,713 0 1,733,400 8,356,783 10,090,183
ARROWHEAD CROSSING ..... 0 2,535 0 0 2,535 2,535
PHOENIX, AR ............ 4,686,600 21,569,807 0 4,686,600 21,569,307 26,255,907
MAPLE GROVE, MN ........ 4,564,278 18,379,324 0 4,564,277 18,410,333 22,974,610
ST. PAUL, MN ........... 4,467,901 18,084,446 0 4,467,901 18,093,315 22,561,216
TANASBOURNE TWN CTR .... 3,780,000 15,991,872 0 3,780,000 18,222,355 22,002,355
EAGAN, MN .............. 4,107,557 22,882,932 0 4,107,557 22,891,801 26,999,358
FORT WORTH, TX ......... 2,325,000 10,275,719 0 2,325,000 21,406,261 23,731,261
RUSSELLVILLE, AR ....... 624,100 13,391,122 0 624,100 13,400,969 14,025,069
N. LITTLE ROCK, AR ..... 907,083 17,159,794 0 907,083 17,187,763 18,094,846
FAYETTEVILLE, AK ....... 2,365,974 9,503,285 0 2,365,974 9,503,285 11,869,259
OTTUMWA, IA ............ 338,125 8,564,280 102,680 321,628 8,757,528 9,079,156
WASHINGTON, NC ......... 990,780 3,118,121 33,690 2,435,459 3,182,676 5,618,135
OVIDEO, FL ............. 6,010,173 0 0 6,010,173 0 6,010,173
ORLANDO, FL ............ 4,792,146 11,673,702 84,343 4,792,146 11,833,171 16,625,317
DURHAM, NC ............. 2,210,222 11,671,268 277,631 2,210,222 11,964,587 14,174,809
CRYSTAL RIVER, FL ...... 1,216,709 5,795,643 364,531 1,219,142 6,182,077 7,401,219
TWINSBURG, OH (HBC) .... 138,204 833,311 692,706 138,204 1,523,792 1,661,996
Portfolio Balance (DDR). 0 20,485,201 1,272,842 0 30,461,155 30,461,155
-------------------------------------------------------------------------------------
$206,034,339 $928,853,555 $13,278,039 $207,477,229 $1,118,265,475 $1,325,742,705
============ ============ =========== ============ ============== ==============
ALAMOSA, CO ............ 578,482 836,270 0 S/L 30 1986 (C)
WILMINGTON, NC ......... 4,500,214 23,851,564 10,075,323 S/L 31.5 1989 (C)
BERLIN, VT ............. 3,861,093 8,085,368 4,940,000 S/L 30 1986 (C)
BRAINERD, MN ........... 1,790,888 11,299,965 935,000 S/L 31.5 1991 (A)
SPRING HILL, FL ........ 1,561,272 8,406,753 6,134,476 S/L 30 1988 (C)
TIFFIN, OH ............. 3,634,980 3,345,016 0 S/L 30 1980 (C)
TOLEDO, OH ............. 951,927 12,122,405 0 S/L 31.5 1995 (A)
TOLEDO, OHIO ........... 0 5,556,887 0 S/L 31.5 1997 (C)
DENVER, CO ............. 206,292 43,177,182 0 S/L 31.5 1997 (C)
DICKINSON, ND .......... 4,819,716 2,659,149 0 S/L 30 1978 (C)
WEST PASCO, FL ......... 2,560,416 5,121,937 4,783,894 S/L 30 1986 (C)
MARIANNA, FL ........... 852,017 4,281,620 0 S/L 31.5 1990 (C)
HUTCHINSON, MN ......... 3,414,210 3,257,213 5,134,849 S/L 30 1981 (C)
NEW BERN, NC ........... 2,523,962 9,522,344 5,392,642 S/L 31.5 1989 (C)
MENTOR, OH ............. 486,148 846,795 0 S/L 31.5 1987 (C)
STREETSBORO, OH ........ 469,108 1,141,150 0 S/L 25 1989 (C)
AURORA, OH ............. 489,487 2,548,424 0 S/L 31.5 1988 (C)
HIGHLAND, IN ........... 855,085 26,039,979 0 S/L 31.5 1997 (A)
AHWATUKEE, AZ PHASE I .. 569,471 26,272,212 0 S/L 31.5 1997 (A)
AHWATUKEE, AZ PHASE II . 873,505 41,322,333 0 S/L 31.5 1997 (A)
PHOENIX, AR ............ 353,204 9,736,979 0 S/L 31.5 1997 (A)
ARROWHEAD CROSSING ..... 34 2,501 0 S/L 31.5 1997 (A)
PHOENIX, AR ............ 1,005,394 25,250,513 0 S/L 31.5 1997 (A)
MAPLE GROVE, MN ........ 876,229 22,098,381 0 S/L 31.5 1997 (A)
ST. PAUL, MN ........... 284,410 22,276,806 0 S/L 31.5 1997 (A)
TANASBOURNE TWN CTR .... 696,291 21,306,064 0 S/L 31.5 1997 (A)
EAGAN, MN .............. 302,088 26,697,270 0 S/L 31.5 1997 (A)
FORT WORTH, TX ......... 551,985 23,179,276 0 S/L 31.5 1997 (A)
RUSSELLVILLE, AR ....... 1,560,024 12,465,045 0 S/L 31.5 1994 (A)
N. LITTLE ROCK, AR ..... 2,038,924 16,055,922 0 S/L 31.5 1994 (A)
FAYETTEVILLE, AK ....... 25,098 11,844,161 0 S/L 31.5 1997 (A)
OTTUMWA, IA ............ 2,412,145 6,667,011 0 S/L 31.5 1990 (C)
WASHINGTON, NC ......... 864,177 4,753,958 0 S/L 31.5 1990 (C)
OVIDEO, FL ............. 0 6,010,173 0 S/L 31.5 1997 (C)
ORLANDO, FL ............ 3,348,143 13,277,174 0 S/L 31.5 1989 (C)
DURHAM, NC ............. 2,704,828 11,469,981 0 S/L 31.5 1990 (C)
CRYSTAL RIVER, FL ...... 2,454,996 4,946,223 0 S/L 30 1986 (C)
TWINSBURG, OH (HBC) .... 425,221 1,236,775 0 S/L 31.5 1989 (C)
Portfolio Balance (DDR). 773,184 29,687,971 0
----------------------------------------
$171,737,359 $1,154,005,346 $89,675,698
============ ============== ===========
(1) S/L refers to straight-line depreciation.
F-24
68
(A) The Aggregate Cost for Federal Income Tax purposes was approximately
$ 1,344.1 million at December 31, 1997
The changes in Total Real Estate Assets for the three years ended
December 31, 1997 are as follows:
1997 1996 1995
------------- ------------- -------------
BALANCE, BEGINNING OF YEAR $991,646,960 $848,373,336 $686,890,098
ACQUISITIONS 267,868,208 114,390,359 81,634,342
IMPROVEMENTS AND EXPANSIONS 78,701,065 64,199,411 84,884,431
CHANGES IN LAND UNDER DEVELOPMENT
AND CONSTRUCTION IN PROGRESS (3,871,141) 9,557,168 2,405,064
SALES AND RETIREMENTS (8,602,387) (44,873,314) (7,440,599)
------------- ------------- -------------
BALANCE, END OF YEAR $1,325,742,705 $991,646,960 $848,373,336
============== ============= =============
The changes in Accumulated Depreciation and Amortization for the three
years ended December 31, 1997 are as follows:
1997 1996 1995
------------- ------------- -------------
BALANCE, BEGINNING OF YEAR $142,039,284 $120,040,503 $100,051,018
DEPRECIATION FOR YEAR 32,208,290 24,872,181 21,838,209
SALES AND RETIREMENTS (2,510,215) (2,873,400) (1,848,724)
------------- ------------- -------------
BALANCE, END OF YEAR $171,737,359 $142,039,284 $120,040,503
============= ============= =============
F-25