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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Ddr Corp. | NYSE:DDR | NYSE | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 11.99 | 0.00 | 01:00:00 |
Ohio | 1-11690 | 34-1723097 | ||
(State or other jurisdiction
of incorporation) |
(Commission
File Number) |
(IRS Employer
Identification No.) |
3300 Enterprise Parkway, Beachwood, Ohio | 44122 | |
(Address of principal executive offices) | (Zip Code) |
Item 9.01 Financial Statements and Exhibits | ||||||||
SIGNATURES |
(b) | Pro Forma Financial Information | ||
Unaudited pro forma financial information for the Company is presented as follows: |
| Pro forma condensed consolidated statement of operations for the six months ended June 30, 2007 | ||
| Pro forma condensed consolidated statement of operations for the year ended December 31, 2006 | ||
| Estimated twelve-month pro forma statement of taxable net operating income and operating funds available for the twelve months ended December 31, 2006 |
Condensed Consolidated Statement of Operations for the Six Months ended
June 30, 2007
|
F-3 | |
Condensed Consolidated Statement of Operations for the Year ended
December 31, 2006
|
F-9 | |
Estimated Twelve-Month Pro Forma Statement of Taxable Net Operating
Income and Operating Funds Available
|
F-15 |
F-1
F-2
Pro Forma Adjustments | |||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
Fund and | |||||||||||||||||||||||||
Company | IRRETI | TIAA-CREF | IRRETI | Other | Company | ||||||||||||||||||||
Historical | Historical | Joint Venture | Merger | Dispositions | Pro Forma | ||||||||||||||||||||
Revenues from rental
properties
|
$ | 434,820 | $ | 77,565 | $ | (38,461 | )(a) | $ | | $ | (48,807 | )(i) | $ | 425,117 | |||||||||||
Management fee and other
fee related income
|
21,078 | | | 2,048 | (b) | 3,644 | (j) | 26,770 | |||||||||||||||||
Other income
|
20,450 | 1,332 | (226 | )(a) | | (308 | )(i) | 21,248 | |||||||||||||||||
|
|||||||||||||||||||||||||
|
476,348 | 78,897 | (38,687 | ) | 2,048 | (45,471 | ) | 473,135 | |||||||||||||||||
|
|||||||||||||||||||||||||
Operating and
maintenance
|
62,720 | 9,871 | (4,182 | )(a) | | (8,022 | )(i) | 60,387 | |||||||||||||||||
Real estate taxes
|
56,952 | 8,525 | (4,312 | )(a) | | (6,473 | )(i) | 54,692 | |||||||||||||||||
General and
administrative
|
40,678 | 48,252 | | | (c) | (40 | )(i) | 88,890 | |||||||||||||||||
Depreciation and
amortization
|
107,225 | 25,057 | (11,825 | )(a) | 415 | (d) | (6,331 | )(i) | 114,338 | ||||||||||||||||
|
(203 | )(e) | |||||||||||||||||||||||
|
|||||||||||||||||||||||||
|
267,575 | 91,705 | (20,319 | ) | 212 | (20,866 | ) | 318,307 | |||||||||||||||||
|
|||||||||||||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||
Interest income
|
6,182 | 558 | | | (3 | )(i) | 6,737 | ||||||||||||||||||
Interest expense
|
(135,452 | ) | (19,199 | ) | | 2,893 | (f) | 6,543 | (i) | (125,644 | ) | ||||||||||||||
|
19,571 | (k) | |||||||||||||||||||||||
Other income (expense)
|
(450 | ) | | (9 | )(a) | | | (459 | ) | ||||||||||||||||
|
|||||||||||||||||||||||||
|
(129,720 | ) | (18,641 | ) | (9 | ) | 2,893 | 26,111 | (119,366 | ) | |||||||||||||||
Income before equity in
net income of joint
ventures, income tax of
taxable REIT
subsidiaries and
franchise taxes, and
minority interests
|
79,053 | (31,449 | ) | (18,377 | ) | 4,729 | 1,506 | 35,462 | |||||||||||||||||
Equity in net income of
joint ventures
|
27,883 | (54 | ) | | (280 | )(g) | (1,257 | )(l) | 26,292 | ||||||||||||||||
Income tax of taxable
REIT subsidiaries and
franchise taxes
|
15,770 | | | | 15,770 | ||||||||||||||||||||
Minority interests
|
(13,715 | ) | | | (7,683 | )(h) | 17,373 | (k) | (4,025 | ) | |||||||||||||||
|
|||||||||||||||||||||||||
Income from continuing
operations
|
108,991 | (31,503 | ) | (18,377 | ) | (3,234 | ) | 17,622 | 73,499 | ||||||||||||||||
Preferred dividends
|
(29,800 | ) | | | | | (29,800 | ) | |||||||||||||||||
|
|||||||||||||||||||||||||
Income applicable to
common shareholders
from continuing
operations
|
$ | 79,191 | $ | (31,503 | ) | $ | (18,377 | ) | $ | (3,234 | ) | $ | 17,622 | $ | 43,699 | ||||||||||
|
|||||||||||||||||||||||||
Per share data:
|
|||||||||||||||||||||||||
Basic earnings per share
data:
|
|||||||||||||||||||||||||
Income applicable to
common
shareholders from
continuing
operations
|
$ | 1.16 | $ | 0.83 | (m) | ||||||||||||||||||||
|
|||||||||||||||||||||||||
Diluted earnings per share
data:
|
|||||||||||||||||||||||||
Income applicable to
common shareholders from continuing operations
|
$ | 1.16 | $ | 0.82 | (m) | ||||||||||||||||||||
|
|||||||||||||||||||||||||
Weighted average number
of common shares:
|
|||||||||||||||||||||||||
Basic
|
119,681 | 125,149 | |||||||||||||||||||||||
|
|||||||||||||||||||||||||
Diluted
|
121,317 | 125,923 | |||||||||||||||||||||||
|
F-3
(a) | Represents the formation of the effective 15% Company owned TIAA-CREF Joint Venture which acquired 66 properties previously consolidated by IRRETI. All historic operating activity for the 66 properties has been eliminated due to the sale of the properties to the TIAA-CREF Joint Venture. | |
(b) | Estimated management fee and asset management fee income assumed to be earned by the Company from the TIAA-CREF Joint Venture. The management fee is based upon a contractual rate of 4% of IRRETI historical property revenues from the properties sold to the TIAA-CREF Joint Venture. The asset management fee is based upon a contractual rate of 25 basis points of joint venture equity. | |
(c) | There has been no adjustment to IRRETIs historical general and administrative expenses, which includes severance charges. However, Company management believes there will be a reduction in such expenses. There can be no assurance that the Company will be successful in realizing anticipated costs savings. | |
(d) | To reflect depreciation expense utilizing a 31.5 year life for buildings. Depreciation expense is calculated based on a preliminary purchase price allocation. The adjustment is calculated as follows: |
Fair market value of tangible real estate assets
|
$ | 2,982,115 | ||
Less: Non-depreciable real estate assets
|
(821,603 | ) | ||
|
||||
Depreciable buildings and improvements
|
$ | 2,160,512 | ||
|
||||
|
||||
Depreciation expense based on 31.5 year life
|
$ | 11,271 | ||
Less: Depreciation expense recorded by IRRETI
|
(10,856 | ) | ||
|
||||
Depreciation expense adjustment through the date of acquisition
|
$ | 415 | ||
|
The allocation of the fair market value of real estate assets between buildings and improvements and non-depreciable real estate, principally land, is preliminary and based upon certain estimates. |
F-4
(e) | To reflect amortization expense for intangible assets, primarily in-place lease values and tenant relationship values, as follows: |
Amortization expense estimated based upon a weighted
seven-year life
|
$ | 2,173 | ||
Less: Amortization expense recorded by IRRETI
|
(2,376 | ) | ||
|
||||
|
$ | (203 | ) | |
|
(f) | To reflect the decrease in interest expense as follows: |
Eliminate historical interest expense reported by
IRRETI
|
$ | (19,199 | ) | |
Record interest expense relating to the bridge facility (principal $750,000)
|
7,587 | |||
Record interest expense associated with the TIAA- CREF
Joint Venture investment borrowed under the Companys
revolving credit facility (principal $183,281)
|
1,808 | |||
Record interest expense on the Companys revolving
credit facility (principal $146,893)
|
1,449 | |||
Record interest expense on the Companys term loan (principal $150,000)
|
1,505 | |||
Record interest at fair market value for assumed
secured indebtedness (principal $446,542)
|
3,997 | |||
Amortization of deferred financing costs relating to the
bridge facility
|
242 | |||
Capitalized
interest on estimated assumed construction in progress
|
(282 | ) | ||
|
$ | (2,893 | ) | |
|
The acquisition cost with respect to IRRETI was partially funded by $750,000 in the bridge facility borrowing which bears interest at LIBOR plus 75 basis points. The bridge facility was repaid in June 2007 through the sale of assets to third parties or equity affiliates. Approximately $446,542 of existing secured indebtedness was assumed at a weighted average market interest rate of approximately 5.4%. The remaining estimated funding of $480,174 was borrowed against the Companys existing revolving credit facility and term loan which bore interest at LIBOR plus 60 basis points and 70 basis points, respectively. The Company subsequently entered into alternate financing arrangements, including a long-term debt financing and the sale of assets to third parties and equity affiliates, to refinance the above borrowings. |
F-5
Since the interest rates on the bridge facility, revolving credit facility and Term Loan are based on a spread over LIBOR, the rates will periodically change. If the interest rates on the incremental borrowings under these credit facilities increases or decreases by 12.5 basis points, the following adjustment would be made to interest expense for the twelve month period: |
Adjustment to interest expense if rate increases 12.5 basis points | $ | 1,538 | ||
Adjustment to interest expense if rate decreases 12.5 basis points | $ | (1,538 | ) |
(g) | Represents the estimated equity in net income from the TIAA-CREF Joint Venture. The amount was calculated using the historical property revenues, operating and maintenance expenses, real estate taxes, general and administrative expenses and other income. Depreciation and amortization expense was calculated based upon the estimated fair market value of the related assets and the estimated useful lives. The property management and asset management fees were calculated pursuant to the contractual rates (see note b). Interest expense was calculated based upon the fair market value of the assumed indebtedness and the stated fixed interest rates of the joint venture financing. A summary is as follows: |
Revenues from operations (historical results)
|
$ | 38,687 | ||
Rental operation expenses
|
(10,056 | ) | ||
Depreciation and amortization expense
|
(13,169 | ) | ||
Asset management fee
|
(509 | ) | ||
Interest expense
|
(16,822 | ) | ||
|
||||
Net loss
|
$ | (1,869 | ) | |
|
||||
Companys proportionate share of net loss
|
$ | (280 | ) | |
|
Since the interest rate on the TIAA-CREF revolving credit facility is based on a spread over LIBOR, the rate will periodically change. If the interest rate on the incremental borrowing under this credit facility increases or decreases by 12.5 basis points, the following adjustment would be made to interest expense for the TIAA-CREF Joint Venture for the twelve month period: |
Adjustment to interest expense if rate increases 12.5 basis points
|
$ | 281 | ||
Adjustment to interest expense if rate decreases 12.5 basis points
|
$ | (281 | ) |
(h) | Represents preferred distributions relating to the $500 million of preferred units assuming the preferred units are outstanding for the period January 1, 2007 to the date of acquisition. The preferred units have an increasing floating distribution rate based upon LIBOR. This rate increases significantly if the preferred units are still outstanding after 180 days. The Company had the right to redeem the preferred units at any time at a redemption price equal to the aggregate liquidation preference of the preferred units plus any accumulated unpaid distributions, subject to a discount of up to 3%. There is no discount if the preferred units are redeemed after 365 days from the date of issuance. As a result, the pro forma adjustment also includes the accretion expense associated with the full amount of the $15,750 in issuance costs since the preferred units are assumed to be outstanding through the period ended June 21, 2007. The Company redeemed the preferred units in June 2007 with proceeds from the sale of assets to third parties and contribution of assets to equity affiliates. |
F-6
(i) | Reflects the elimination of revenues and expenses associated with the transfer of 56 wholly-owned properties, of which 54 properties were acquired from IRRETI, to an effectively owned 20% non-controlling equity affiliate, DDR Domestic Retail Fund I and 17 IRRETI properties sold to a third party in June 2007, for the six months ended June 30, 2007. The pro forma adjustments for the contribution of assets associated with the transfer of three wholly-owned properties to an effectively owned 10% non-controlling equity affiliate, Dividend Capital Total Realty Trust Joint Venture, are not reflected herein as these assets were under development or in the lease-up phase during 2006 and, therefore, the 2007 operating results are not reflective of the future operations of the properties in the aggregate. | ||
(j) | Estimated management fee and asset management fee income assumed to be earned by the Company from an effectively owned 20% non-controlling equity affiliate. The management fee is based upon a contractual rate of 4% of historical revenues for 56 wholly-owned assets contributed to the Fund. The other seven assets were transferred from an equity affiliate and as such, the Companys management fee income from these assets is already included in the historical results of operations. The asset management fee is based upon a contractual rate of 0.75% of the Fund equity. | ||
(k) | Reflects the reduction in interest costs associated with the proceeds from the transfer of 56 wholly-owned properties to the Fund for the six months ended June 30, 2007. It is assumed that proceeds of $1,231.3 million for the transfer of 56 properties were utilized to repay $500 million of preferred units (see Note h) and the bridge facility (see Note f) through the date of acquisition by the Fund. | ||
(l) | Represents the estimated equity in net loss from the Fund. The amount was calculated using the historical property revenues, operating and maintenance expenses and real estate taxes. Depreciation and amortization expense was calculated based upon the estimated fair market value of the related assets and the estimated useful lives. The management fee and asset management fee was calculated pursuant to the contractual rate (see Note j). Interest expense was calculated based upon the fair market value of the assumed indebtedness and the stated variable interest rate. A summary through the date of acquisition is as follows: |
Revenues from operations (historical results)
|
$ | 56,783 | ||
Rental operation expenses
|
(18,982 | ) | ||
Depreciation and amortization expense
|
(16,410 | ) | ||
Asset management fees
|
(1,762 | ) | ||
Interest expense
|
(23,393 | ) | ||
|
||||
Net loss
|
$ | (3,764 | ) | |
|
||||
Companys proportionate share of net loss
|
(753 | ) | ||
Equity in net income historically recorded
|
504 | |||
|
||||
Equity in net loss of joint venture adjustment
|
$ | (1,257 | ) | |
|
F-7
(m) | Pro forma income per common share is based upon the weighted-average number of the Companys common shares assumed to be outstanding during 2007 and includes 17.3 million shares issued (5.5 million shares on a weighted average basis for the six months ended June 30, 2007) in conjunction with the merger, of which 5.7 million shares were issued to IRRETI stockholders. The 5.7 million shares equate to a 0.021569 common share of the Company per share of IRRETI common stock in satisfaction of $1.50 of the per share merger consideration. The number of common shares issued was based upon a market value issuance price of $69.54 per share. Of the total 5.7 million shares issued to IRRETI stockholders, 0.3 million shares were issued out of the Companys treasury shares. |
In accordance with SFAS No. 128, Earnings Per Share, basic and diluted earnings per share from continuing operations is calculated as follows: |
Income from continuing operations
|
$ | 73,499 | ||
Add: Gain on disposition of real estate (1)
|
60,155 | |||
Less: Preferred stock dividends
|
(29,800 | ) | ||
|
||||
Basic and
diluted Income from continuing operations and
applicable to common shareholders
|
$ | 103,854 | ||
|
||||
|
||||
Number of shares:
|
||||
Basic average shares outstanding
|
125,149 | |||
Effect of dilutive securities:
|
||||
Stock options
|
575 | |||
Restricted stock
|
199 | |||
|
||||
Diluted average shares outstanding
|
125,923 | |||
|
||||
|
||||
Per share data:
|
||||
Basic earnings:
|
||||
Income applicable to common shareholders from
continuing operations
|
$ | 0.83 | ||
Diluted earnings:
|
||||
Income applicable to common shareholders from
continuing operations
|
$ | 0.82 |
(1) Amount represents actual gain on sale of assets from the Company ($60,022) and IRRETI ($133) for the six months ended June 30, 2007, which are not presented in the accompanying pro forma condensed consolidated statement of operations. |
F-8
Pro Forma Adjustments | ||||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||
Fund and | ||||||||||||||||||||||||||||||||||||
Company | IRRETI | Reclassifications | IRRETI | TIAA-CREF | IRRETI | Other | Company | |||||||||||||||||||||||||||||
Historical | Historical | (a) | Adjusted | Joint Venture | Merger | Dispositions | Pro Forma | |||||||||||||||||||||||||||||
Revenues from rental properties
|
$ | 715,449 | $ | 492,654 | $ | | $ | 492,654 | $ | (245,068 | )(b) | $ | | $ | (118,499 | )(j) | $ | 844,536 | ||||||||||||||||||
Management fee and other fee related
income
|
30,294 | | | | | 19,163 | (c) | 8,332 | (k) | 57,789 | ||||||||||||||||||||||||||
Other income
|
34,441 | 10,687 | 6,293 | 16,980 | (5,850 | )(b) | | (2,306 | )(j) | 43,265 | ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
780,184 | 503,341 | 6,293 | 509,634 | (250,918 | ) | 19,163 | (112,473 | ) | 945,590 | ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Operating and maintenance
|
108,013 | 73,369 | | 73,369 | (32,447 | )(b) | | (17,625 | )(j) | 131,310 | ||||||||||||||||||||||||||
Real estate taxes
|
91,076 | 56,028 | | 56,028 | (29,855 | )(b) | | (15,300 | )(j) | 101,949 | ||||||||||||||||||||||||||
General and administrative
|
60,679 | 14,590 | | 14,590 | | | (d) | (169 | )(j) | 75,100 | ||||||||||||||||||||||||||
Depreciation and amortization
|
183,171 | 145,372 | | 145,372 | (71,344 | )(b) | 4,028 | (e) | (36,535 | )(j) | 227,300 | |||||||||||||||||||||||||
|
2,608 | (f) | | |||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
442,939 | 289,359 | | 289,359 | (133,646 | ) | 6,636 | (69,629 | ) | 535,659 | ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Other income (expense):
|
||||||||||||||||||||||||||||||||||||
Interest income
|
9,053 | | 4,906 | 4,906 | | | (20) | (j) | 13,939 | |||||||||||||||||||||||||||
Interest expense
|
(211,132 | ) | (121,419 | ) | | (121,419 | ) | | 26,380 | (g) | 30,910 | (j) | (231,659 | ) | ||||||||||||||||||||||
|
43,602 | (l) | ||||||||||||||||||||||||||||||||||
Other income (expense)
|
(446 | ) | 13,965 | (13,965 | ) | | 50 | (b) | | | (396 | ) | ||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
(202,525 | ) | (107,454 | ) | (9,059 | ) | (116,513 | ) | 50 | 26,380 | 74,492 | (218,116 | ) | |||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Income before equity in net income of
joint ventures, income tax of
taxable REIT subsidiaries and
franchise taxes, and minority
interests
|
134,720 | 106,528 | (2,766 | ) | 103,762 | (117,222 | ) | 38,907 | 31,648 | 191,815 | ||||||||||||||||||||||||||
Equity in net income of joint ventures
|
30,337 | | (455 | ) | (455 | ) | | (646 | )(h) | (2,143 | )(m) | 27,093 | ||||||||||||||||||||||||
Income tax of taxable REIT
subsidiaries and franchise taxes
|
2,497 | | | | | | | 2,497 | ||||||||||||||||||||||||||||
Minority interests
|
(8,453 | ) | | | | | (58,339 | )(i) | 58,339 | (l) | (8,453 | ) | ||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Income from continuing operations
|
159,101 | 106,528 | (3,221 | ) | 103,307 | (117,222 | ) | (20,078 | ) | 87,844 | 212,952 | |||||||||||||||||||||||||
Preferred dividends
|
(55,169 | ) | | | | | | | (55,169 | ) | ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Income applicable to common
shareholders
from continuing
operations
|
$ | 103,932 | $ | 106,528 | $ | (3,221 | ) | $ | 103,307 | $ | (117,222 | ) | $ | (20,078 | ) | $ | 87,844 | $ | 157,783 | |||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Per share data:
|
||||||||||||||||||||||||||||||||||||
Basic earnings per share data:
|
||||||||||||||||||||||||||||||||||||
Income applicable to common
shareholders from
continuing operations
|
$ | 1.62 | $ | 1.85 | (n) | |||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Diluted earnings per share data:
|
||||||||||||||||||||||||||||||||||||
Income applicable to common
shareholders from
continuing operations
|
$ | 1.61 | $ | 1.84 | (n) | |||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Weighted average number of common
shares:
|
||||||||||||||||||||||||||||||||||||
Basic
|
109,002 | 126,268 | ||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Diluted
|
109,613 | 126,879 | ||||||||||||||||||||||||||||||||||
|
F-9
(a) | Represents reclassifications of IRRETI historical results to break out other income and interest income in accordance with S-X rules and to conform to the Companys financial statement presentation. The IRRETI income applicable to common shareholders from continuing operations of $3,221 represents gain on disposition of real estate. | |
(b) | Represents the formation of the effective 15% Company owned TIAA-CREF Joint Venture which acquired 66 properties previously consolidated by IRRETI. All historic operating activity for the 66 properties has been eliminated due to the sale of the properties to the TIAA-CREF Joint Venture. | |
(c) | Estimated management fee and asset management fee income assumed to be earned by the Company from the TIAA-CREF Joint Venture. The management fee is based upon a contractual rate of 4% of IRRETI historical property revenues from the properties sold to the TIAA-CREF Joint Venture. The asset management fee is based upon a contractual rate of 25 basis points of joint venture equity. The acquisition fee is based upon a contractual rate of 25 basis points of the acquisition value of which the Company only recognizes revenue relating to the outside partner ownership interest of 85%. | |
(d) | There has been no adjustment to IRRETIs historical general and administrative expenses. However, Company management believes there will be a reduction in such expenses. There can be no assurance that the Company will be successful in realizing anticipated costs savings. | |
(e) | To reflect depreciation expense utilizing a 31.5 year life for buildings. Depreciation expense is calculated based on a preliminary purchase price allocation. The adjustment is calculated as follows: |
Fair market value of tangible real estate assets
|
$ | 2,982,115 | ||
Less: Non-depreciable real estate assets
|
(821,603 | ) | ||
|
||||
Depreciable buildings and improvements
|
$ | 2,160,512 | ||
|
||||
|
||||
Depreciation expense based on 31.5 year life
|
$ | 67,622 | ||
Less: Depreciation expense recorded by IRRETI
|
(63,594 | ) | ||
|
||||
Depreciation expense adjustment
|
$ | 4,028 | ||
|
The allocation of the fair market value of real estate assets between buildings and improvements and non-depreciable real estate, principally land, is preliminary and based upon certain estimates. |
F-10
(f) | To reflect amortization expense for intangible assets, primarily in-place lease values and tenant relationship values, as follows: |
Amortization expense estimated based upon a weighted
seven-year life
|
$ | 13,042 | ||
Less: Amortization expense recorded by IRRETI
|
(10,434 | ) | ||
|
||||
|
$ | 2,608 | ||
|
(g) | To reflect the decrease in interest expense as follows: |
Eliminate historical interest expense reported by
IRRETI
|
$ | (121,419 | ) | |
Record interest expense relating to the bridge facility (principal $750,000)
|
43,819 | |||
Record interest expense associated with the TIAA-CREF
Joint Venture investment borrowed under the Companys
revolving credit facility (principal $183,281)
|
10,433 | |||
Record interest expense on the Companys revolving
credit facility (principal $146,893)
|
8,362 | |||
Record interest expense on the Companys term loan (principal $150,000)
|
8,689 | |||
Record interest at fair market value for assumed
secured indebtedness (principal $446,542)
|
23,979 | |||
Amortization of deferred financing costs relating to the
bridge facility
|
1,450 | |||
Capitalized
interest on estimated assumed construction in progress
|
(1,693 | ) | ||
|
$ | (26,380 | ) | |
|
The acquisition cost with respect to IRRETI was partially funded by $750,000 in the bridge facility borrowing which bears interest at LIBOR plus 75 basis points. The bridge facility was repaid in June 2007 through the sale of assets to third parties or equity affiliates. Approximately $446,542 of existing secured indebtedness was assumed at a weighted average market interest rate of approximately 5.4%. The remaining estimated funding of $480,174 was borrowed against the Companys existing revolving credit facility and term loan which bore interest at LIBOR plus 60 basis points and 70 basis points, respectively. The Company subsequently entered into alternate financing arrangements, including a long-term debt financing and the sale of assets to third parties and equity affiliates, to refinance the above borrowings. |
F-11
Since the interest rates on the bridge facility, revolving credit facility and term loan are based on a spread over LIBOR, the rates will periodically change. If the interest rates on the incremental borrowings under these credit facilities increases or decreases by 12.5 basis points, the following adjustment would be made to interest expense: |
Adjustment to interest expense if rate increases 12.5
basis points
|
$ | 1,538 | ||
Adjustment to interest expense if rate decreases 12.5
basis points
|
$ | (1,538 | ) |
(h) | Represents the estimated equity in net income from the TIAA-CREF Joint Venture. The amount was calculated using the historical property revenues, operating and maintenance expenses, real estate taxes, general and administrative expenses and other income. Depreciation and amortization expense was calculated based upon the estimated fair market value of the related assets and the estimated useful lives. The property management and asset management fees were calculated pursuant to the contractual rates (see note c). Interest expense was calculated based upon the fair market value of the assumed indebtedness and the stated fixed interest rates of the joint venture financing. A summary is as follows: |
Revenues from operations (historical results)
|
$ | 250,918 | ||
Rental operation expenses
|
(72,225 | ) | ||
Depreciation and amortization expense
|
(79,013 | ) | ||
Asset management fee
|
(3,055 | ) | ||
Interest expense
|
(100,932 | ) | ||
|
||||
Net loss
|
$ | (4,307 | ) | |
|
||||
Companys proportionate share of net loss
|
$ | (646 | ) | |
|
Since the interest rate on the TIAA-CREF revolving credit facility is based on a spread over LIBOR, the rate will periodically change. If the interest rate on the incremental borrowing under this credit facility increases or decreases by 12.5 basis points, the following adjustment would be made to interest expense for the TIAA-CREF Joint Venture: |
Adjustment to interest expense if rate increases 12.5 basis points
|
$ | 281 | ||
Adjustment to interest expense if rate decreases 12.5 basis points
|
$ | (281 | ) |
(i) | Represents preferred distributions relating to the $500 million of preferred units assuming the preferred units are outstanding for the full 12 months in 2006. The preferred units have an increasing floating distribution rate based upon LIBOR. This rate increases significantly if the preferred units are still outstanding after 180 days. The Company had the right to redeem the preferred units at any time at a redemption price equal to the aggregate liquidation preference of the preferred units plus any accumulated unpaid distributions, subject to a discount of up to 3%. There is no discount if the preferred units are redeemed after 365 days from the date of issuance. As a result, the pro forma adjustment also includes the accretion expense associated with the full amount of the $15,750 in issuance costs since the preferred units are assumed to be outstanding throughout 2006. The Company redeemed the preferred units in June 2007 with proceeds from the sale of assets to third parties and contribution of assets to equity affiliates. |
F-12
(In thousands, except share and per share data)
(Unaudited) |
(j) | Reflects the elimination of revenues and expenses associated with the transfer of 56 wholly-owned properties, of which 54 properties were acquired from IRRETI, to an effectively owned 20% non-controlling equity affiliate, DDR Domestic Retail Fund I and 17 IRRETI properties sold to a third party in June 2007, for the year ended December 31, 2006. The pro forma adjustments for the contribution of assets associated with the transfer of three wholly-owned properties to an effectively owned 10% non-controlling equity affiliate, Dividend Capital Total Realty Trust Joint Venture, are not reflected herein as these assets were under development or in the lease-up phase during 2006 and, therefore, the 2006 operating results are not reflective of the future operations of the properties in the aggregate. | ||
(k) | Estimated management fee and asset management fee income assumed to be earned by the Company from an effectively owned 20% non-controlling equity affiliate. The management fee is based upon a contractual rate of 4% of historical revenues for 56 wholly-owned assets contributed to the Fund. The other seven assets were transferred from an equity affiliate and as such, the Companys management fee income from these assets is already included in the historical results of operations. The asset management fee is based upon a contractual rate of 0.75% of the Fund equity. | ||
(l) | Reflects the reduction in interest costs associated with the proceeds from the transfer of 56 wholly-owned properties to the Fund for the year ended December 31, 2006. It is assumed that proceeds of $1,231.3 million for the transfer of 56 properties were utilized to repay $500 million of preferred units (see Note i) and the bridge facility (see Note g) for the year ended December 31, 2006. | ||
(m) | Represents the estimated equity in net loss from the Fund. The amount was calculated using the historical property revenues, operating and maintenance expenses and real estate taxes. Depreciation and amortization expense was calculated based upon the estimated fair market value of the related assets and the estimated useful lives. The management fee and asset management fee was calculated pursuant to the contractual rate (see Note k). Interest expense was calculated based upon the fair market value of the assumed indebtedness and the stated variable interest rate. A summary for the year ended December 31, 2006 is as follows: |
Revenues from operations (historical results)
|
$ | 129,314 | ||
Rental operation expenses
|
(38,858 | ) | ||
Depreciation and amortization expense
|
(37,670 | ) | ||
Asset management fees
|
(4,046 | ) | ||
Interest expense
|
(53,701 | ) | ||
|
||||
Net loss
|
$ | (4,961 | ) | |
|
||||
Companys proportionate share of net loss
|
(992 | ) | ||
Equity in net income historically recorded
|
1,151 | |||
|
||||
Equity in net loss of joint venture adjustment
|
$ | (2,143 | ) | |
|
F-13
(n) | Pro forma income per common share is based upon the weighted-average number of the Companys common shares assumed to be outstanding during 2006 and includes 17.3 million shares issued in conjunction with the merger, of which 5.7 million shares were issued to IRRETI stockholders. The 5.7 million shares equate to a 0.021569 common share of the Company per share of IRRETI common stock in satisfaction of $1.50 of the per share merger consideration. The number of common shares issued was based upon a market value issuance price of $69.54 per share. Of the total 5.7 million shares issued to IRRETI stockholders, 0.3 million shares were issued out of the Companys treasury shares. For purposes of this pro forma presentation, it is assumed that the Company had the necessary amount of shares in treasury available for re-issuance in 2006. |
In accordance with SFAS No. 128, Earnings Per Share, basic and diluted earnings per share from continuing operations is calculated as follows: |
Income from continuing operations
|
$ | 212,952 | ||
Add: Gain on disposition of real estate (1)
|
75,244 | |||
Less: Preferred stock dividends
|
(55,169 | ) | ||
|
||||
Basic and diluted Income from continuing operations and
applicable to common shareholders
|
$ | 233,027 | ||
|
||||
|
||||
Number of shares:
|
||||
Basic average shares outstanding
|
126,268 | |||
Effect of dilutive securities:
|
||||
Stock options
|
546 | |||
Restricted stock
|
65 | |||
|
||||
Diluted average shares outstanding
|
126,879 | |||
|
||||
|
||||
Per share data:
|
||||
Basic earnings:
|
||||
Income applicable to common shareholders from
continuing operations
|
$ | 1.85 | ||
Diluted earnings:
|
||||
Income applicable to common shareholders from
continuing operations
|
$ | 1.84 |
(1) | Amount represents actual gain on sale of assets from the Company and IRRETI for the year ended December 31, 2006, which are not presented in the accompanying pro forma condensed consolidated statement of operations. |
F-14
F-15
Estimate of Taxable Net Operating Income (in thousands):
|
||||
Company historical income from continuing operations before
extraordinary item, exclusive of property depreciation and amortization
(Note 1)
|
$ | 342,272 | ||
IRRETI historical income from continuing operations before extraordinary
item, exclusive of property depreciation and amortization (Note 2)
|
248,679 | |||
TIAA-CREF Joint Venture historical earnings from continuing
operations, as
adjusted, exclusive of depreciation and amortization (Note 2)
|
(188,566 | ) | ||
Merger with
IRRETI historical earnings from continuing operations, as
adjusted, exclusive of depreciation and amortization (Note 2)
|
(13,442 | ) | ||
Issuance of $250 million of convertible notes in August 2006
|
| |||
Issuance of
$600 million convertible notes in March 2007
|
| |||
Fund and Other Dispositions historical income from continuing operations
before extraordinary item, exclusive of property depreciation and
amortization (Note 2)
|
51,309 | |||
Estimated 2006 tax depreciation and amortization (Note 3)
|
(156,726 | ) | ||
Pro forma tax depreciation of the merger with IRRETI
|
(30,944 | ) | ||
|
||||
Pro forma taxable income before dividends deduction
|
252,582 | |||
Estimated dividends deduction (Note 4)
|
(353,161 | ) | ||
|
||||
|
$ | | ||
|
||||
Pro forma taxable net operating income
|
$ | | ||
|
||||
Estimate of Operating Funds Available (in thousands):
|
||||
Pro forma taxable operating income before dividend deduction
|
$ | 252,582 | ||
Add pro forma depreciation
|
187,670 | |||
|
||||
Estimated pro forma operating funds available (Note 5)
|
$ | 440,252 | ||
|
F-16
Common share
dividend (126,268,000 shares x $2.36(a) per share)
|
$ | 297,992 | ||
Class F Preferred shares
|
12,900 | |||
Class G Preferred shares
|
14,400 | |||
Class H Preferred shares
|
15,119 | |||
Class I Preferred shares
|
12,750 | |||
|
||||
|
$ | 353,161 | ||
|
(a) | No pro forma adjustments have been made to the Companys 2006 dividends since the operating results from the Companys acquisition of IRRETI in 2006 are not reflective of the future operating results. |
Note 5 -
|
Operating funds available 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. |
F-17
F-18
Developers Diversified Realty Corporation
/s/ William H. Schafer
Executive Vice President and Chief Financial Officer
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