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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) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01 Financial Statements and Exhibits |
(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 year ended December 31, 2007 | ||
| Estimated twelve-month pro forma statement of taxable net operating income and operating funds available for the period ended December 31, 2007 |
Page | ||
(Pro Forma unaudited):
|
||
Condensed Consolidated Statement of Operations for the year ended December 31, 2007
|
F-3 | |
Estimated Twelve-Month Pro Forma Statement of Taxable Net Operating Income and Operating Funds Available
|
F-10 |
F-1
F-2
Pro Forma Adjustments | |||||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||||
Fund and | DDR | ||||||||||||||||||||||||||
Company | IRRETI | TIAA-CREF | IRRETI | Other | MDT | Company | |||||||||||||||||||||
Historical | Historical(a) | Joint Venture | Merger | Dispositions | Fund | Pro Forma | |||||||||||||||||||||
Revenues from rental
properties
|
$ | 860,644 | $ | 77,565 | $ | (38,461 | )(b) | $ | | $ | (49,588 | )(j) | $ | (3,227 | )(n) | $ | 846,933 | ||||||||||
Management fee and other
fee related income
|
54,286 | | | 2,048 | (c) | 3,644 | (k) | 130 | (o) | 60,108 | |||||||||||||||||
Other income
|
29,921 | 1,332 | (226 | )(b) | | (310 | )(j) | (13 | )(n) | 30,704 | |||||||||||||||||
|
|||||||||||||||||||||||||||
|
944,851 | 78,897 | (38,687 | ) | 2,048 | (46,254 | ) | (3,110 | ) | 937,745 | |||||||||||||||||
|
|||||||||||||||||||||||||||
Operating and
maintenance
|
133,334 | 9,871 | (4,182 | )(b) | | (8,056 | )(j) | (947 | )(n) | 130,020 | |||||||||||||||||
Real estate taxes
|
108,977 | 8,525 | (4,312 | )(b) | | (6,555 | )(j) | (394 | )(n) | 106,241 | |||||||||||||||||
General and
administrative
|
81,244 | 48,252 | | | (d) | | | 129,496 | |||||||||||||||||||
Depreciation and
amortization
|
219,101 | 25,057 | (11,825 | )(b) | 429 | (e) | (5,990 | )(j) | (214 | )(n) | 226,069 | ||||||||||||||||
|
(489 | )(f) | | | |||||||||||||||||||||||
|
|||||||||||||||||||||||||||
|
542,656 | 91,705 | (20,319 | ) | (60 | ) | (20,601 | ) | (1,555 | ) | 591,826 | ||||||||||||||||
|
|||||||||||||||||||||||||||
Other income (expense):
|
|||||||||||||||||||||||||||
Interest income
|
8,808 | 558 | | | | | 9,366 | ||||||||||||||||||||
Interest expense
|
(261,318 | ) | (19,199 | ) | | 2,862 | (g) | 6,079 | (j) | 322 | (n) | (253,993 | ) | ||||||||||||||
|
15,388 | (l) | 1,873 | (p) | |||||||||||||||||||||||
Other expense
|
(3,019 | ) | | (9 | )(b) | | | | (3,028 | ) | |||||||||||||||||
|
|||||||||||||||||||||||||||
|
(255,529 | ) | (18,641 | ) | (9 | ) | 2,862 | 21,467 | 2,195 | (247,655 | ) | ||||||||||||||||
Income before equity in
net income of joint
ventures, income tax of
taxable REIT
subsidiaries and
franchise taxes, and
minority interests
|
146,666 | (31,449 | ) | (18,377 | ) | 4,970 | (4,186 | ) | 640 | 98,264 | |||||||||||||||||
Equity in net income of
joint ventures
|
43,229 | (54 | ) | | (271 | )(h) | (1,257 | )(m) | (48 | )(q) | 41,599 | ||||||||||||||||
Tax benefit of taxable
REIT subsidiaries and
franchise taxes
|
14,642 | | | | 4 | (j) | 1 | (n) | 14,647 | ||||||||||||||||||
Minority
equity interests
|
(17,783 | ) | | | (7,683 | )(i) | 17,373 | (l) | | (8,093 | ) | ||||||||||||||||
|
|||||||||||||||||||||||||||
Income from continuing
operations
|
186,754 | (31,503 | ) | (18,377 | ) | (2,984 | ) | 11,934 | 593 | 146,417 | |||||||||||||||||
Preferred dividends
|
(50,934 | ) | | | | | | (50,934 | ) | ||||||||||||||||||
|
|||||||||||||||||||||||||||
Income applicable to
common shareholders
from continuing
operations
|
$ | 135,820 | $ | (31,503 | ) | $ | (18,377 | ) | $ | (2,984 | ) | $ | 11,934 | $ | 593 | $ | 95,483 | ||||||||||
|
|||||||||||||||||||||||||||
Per share data:
|
|||||||||||||||||||||||||||
Basic earnings per share
data:
|
|||||||||||||||||||||||||||
Income applicable to
common
shareholders from
continuing
operations
|
$ | 1.69 | $ | 1.33 | (r) | ||||||||||||||||||||||
|
|||||||||||||||||||||||||||
Diluted earnings per share
data:
|
|||||||||||||||||||||||||||
Income applicable to
common shareholders from continuing operations
|
$ | 1.68 | $ | 1.32 | (r) | ||||||||||||||||||||||
|
|||||||||||||||||||||||||||
Weighted average number
of common shares:
|
|||||||||||||||||||||||||||
Basic
|
120,879 | 123,590 | |||||||||||||||||||||||||
|
|||||||||||||||||||||||||||
Diluted
|
121,497 | 124,208 | |||||||||||||||||||||||||
|
F-3
(a) | Represents the IRRETI historical results for the period January 1, 2007 to the date of acquisition. | |
(b) | Represents the adjustments associated with the formation of the TIAA-CREF Joint Venture which acquired 66 properties previously consolidated by IRRETI. The Company owns an effective 15% interest in this joint venture. All historical 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 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. | |
(d) | There has been no adjustment to IRRETIs historical general and administrative expenses, which include severance charges and other merger related costs. 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 such anticipated costs savings. | |
(e) | To reflect depreciation expense utilizing a 31.5 year life for buildings. Depreciation expense is calculated based on the Company's purchase price allocation. The adjustment is calculated as follows: |
Fair market value of tangible real estate assets
|
$ | 3,054,445 | ||
Less: Non-depreciable real estate assets
|
(907,644 | ) | ||
|
||||
Depreciable buildings and improvements
|
$ | 2,146,801 | ||
|
||||
|
||||
Depreciation expense based on 31.5 year life
|
$ | 11,284 | ||
Less: Depreciation expense recorded by IRRETI
|
(10,855 | ) | ||
|
||||
Depreciation expense adjustment through the date of acquisition
|
$ | 429 | ||
|
F-4
(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 average
seven-year life
|
$ | 1,887 | ||
Less: Amortization expense recorded by IRRETI
|
(2,376 | ) | ||
|
||||
|
$ | (489 | ) | |
|
(g) | To reflect the decrease in interest expense as follows: |
The acquisition cost with respect to IRRETI was partially funded by $750,000 in the bridge facility borrowing which bore interest at LIBOR plus 75 basis points. The bridge facility was repaid in June 2007 with proceeds from the sale of assets to third parties or equity affiliates (see Note l). 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 $483,283 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, which is not reflected in this pro forma statement, and the sale of assets to third parties and equity affiliates, to refinance the above borrowings. |
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 $150,002)
|
1,480 | |||
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 | ) | ||
|
$ | (2,862 | ) | |
|
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 increased or decreased 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 increased 12.5 basis points | $ | 1,542 | ||
Adjustment to interest expense if rate decreased 12.5 basis points | $ | (1,542 | ) |
(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)
|
$ | 38,687 | ||
Rental operation expenses (historical results)
|
(10,056 | ) | ||
Depreciation and amortization expense
|
(13,110 | ) | ||
Asset management fee
|
(509 | ) | ||
Interest expense
|
(16,822 | ) | ||
|
||||
Net loss
|
$ | (1,810 | ) | |
|
||||
Companys proportionate share of net loss
|
$ | (271 | ) | |
|
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 increased or decreased 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 increased 12.5 basis points
|
$ | 281 | ||
Adjustment
to interest expense if rate decreased 12.5 basis points
|
$ | (281 | ) |
(i) | Represents preferred distributions relating to the $500 million of preferred units assuming the preferred units were outstanding for the period January 1, 2007 to the date of acquisition. The preferred units had an increasing floating distribution rate based upon LIBOR. This rate increased significantly if the preferred units were 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 was no discount if the preferred units were redeemed after 365 days from the date of issuance. As a result, the pro forma adjustment also includes the accretion expense since the preferred units were 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. See adjustment to preferred unit expense in Note (l). |
F-6
(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, the Fund, and 21 IRRETI properties sold to a third party, through the date of acquisition. 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. | ||
(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 revenues for 56 wholly-owned assets contributed to the Fund. An additional 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 through the date of acquisition. The proceeds of $1,039.6 million for the transfer of 56 properties were utilized to repay the $500 million of preferred units (see Note i) and a portion of the bridge facility (see Note g) through the date of acquisition by the Fund. | ||
(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 were calculated pursuant to the contractual rates (see Note k). Interest expense was calculated based upon the fair market value of the assumed indebtedness and the stated interest rate. A summary through the date of acquisition is as follows: |
Revenues from operations (historical results)
|
$ | 56,783 | ||
Rental operation expenses (historical results)
|
(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 | ) | |
Less: equity in net income historically recorded
|
504 | |||
|
||||
Equity in net loss of joint venture adjustment
|
$ | (1,257 | ) | |
|
F-7
(n) | Reflects the elimination of revenues and expenses associated with the sale of three wholly-owned properties to an effectively owned 14.5% non-controlling equity affiliate, DDR MDT Fund, through the date of acquisition. |
(o) | Estimated management fee income assumed to be earned by the Company from an effectively owned 14.5% non-controlling equity affiliate. The management fee is based upon a contractual rate of 4% of revenues for the three properties sold to DDR MDT Fund. |
(p) | Reflects the reduction in interest costs associated with the proceeds from the transfer of three wholly-owned properties to an effectively owned 14.5% non-controlling equity affiliate, DDR MDT Fund, through the date of acquisition. The proceeds of $49.6 million for the transfer of the three properties were utilized to repay a portion of the bridge facility (see Note g). |
(q) | Represents the estimated equity in net income from an effectively owned 14.5% non-controlling equity affiliate that acquired three wholly-owned properties. 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 was calculated pursuant to the contractual rate (see Note o). 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)
|
$ | 3,241 | ||
Rental
operation expenses (historical results)
|
(1,203 | ) | ||
Depreciation and amortization expense
|
(821 | ) | ||
Interest expense
|
(1,548 | ) | ||
|
||||
Net loss
|
$ | (331 | ) | |
|
||||
Companys proportionate share of net loss
|
$ | (48 | ) | |
|
F-8
(r) | 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 (14.6 million shares on a weighted average basis for the year ended December 31, 2007) in conjunction with the merger, of which 5.7 million shares were issued to IRRETI stockholders. The 5.7 million shares equated to 0.021569 of a 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
|
$ | 146,417 | ||
Add: Gain on disposition of real estate (1)
|
68,984 | |||
Less: Preferred stock dividends
|
(50,934 | ) | ||
|
||||
Basic and
diluted Income from continuing operations and
applicable to common shareholders
|
$ | 164,467 | ||
|
||||
|
||||
Number of shares:
|
||||
Basic average shares outstanding
|
123,590 | |||
Effect of dilutive securities:
|
||||
Stock options
|
456 | |||
Restricted stock
|
162 | |||
|
||||
Diluted-average shares outstanding
|
124,208 | |||
|
||||
|
||||
Per share data:
|
||||
Basic earnings:
|
||||
Income applicable to common shareholders from
continuing operations
|
$ | 1.33 | ||
Diluted earnings:
|
||||
Income applicable to common shareholders from
continuing operations
|
$ | 1.32 |
(1) Amount represents actual gain on sale of assets from the Company ($68,851) and IRRETI ($133) for the year ended December 31, 2007, which are not presented in the accompanying pro forma condensed consolidated statement of operations. |
F-9
F-10
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)
|
$ | 405,855 | ||
IRRETI historical income from continuing operations before
extraordinary item, exclusive of property depreciation
and amortization (Note 2)
|
(6,446 | ) | ||
TIAA-CREF Joint Venture historical earnings from
continuing operations, as adjusted, exclusive of
depreciation and amortization (Note 2)
|
(30,202 | ) | ||
Merger with IRRETI historical earnings from continuing
operations, as adjusted, exclusive of depreciation and
amortization (Note 2)
|
(3,044 | ) | ||
Issuance of $600 million of convertible notes in March 2007
|
| |||
Fund and Other Dispositions historical earnings from
continuing operations before extraordinary item, exclusive
of property depreciation and amortization (Note 2)
|
5,944 | |||
DDR MDT Fund historical income from continuing operations
before extraordinary item, exclusive of property
depreciation and amortization (Note 2)
|
379 | |||
Estimated 2007 tax depreciation and amortization (Note 3)
|
(180,075 | ) | ||
Pro forma tax depreciation of the merger with IRRETI
|
(30,223 | ) | ||
|
||||
Pro forma taxable income before dividends deduction
|
162,188 | |||
Estimated dividends deduction (Note 4)
|
(372,417 | ) | ||
|
||||
|
$ | | ||
|
||||
Pro forma taxable net operating income
|
$ | | ||
|
||||
Estimate of Operating Funds Available (in thousands):
|
||||
Pro forma taxable operating income before dividend deduction
|
$ | 162,188 | ||
Add: pro forma depreciation
|
210,298 | |||
|
||||
Estimated pro forma operating funds available (Note 5)
|
$ | 372,486 | ||
|
F-11
Note 1
|
The historical earnings from operations represents the Companys earnings from operations for the twelve months ended December 31, 2007, as reflected in the Companys historical financial statements. | |
|
||
Note 2
|
The historical earnings from operations represent the revenues and certain expenses as referred to in the pro forma condensed consolidated statement of operations for the year ended December 31, 2007, included elsewhere herein. | |
|
||
Note 3
|
Tax depreciation for the Company is based upon the Companys historical cost basis, as reflected in the Companys financial statements in accordance with generally accepted accounting principles. At December 31, 2007, the tax cost basis of assets was approximately $8.8 billion. The costs consist primarily of land or depreciable assets that are generally depreciated on a straight-line method over a 40-year life for tax purposes. | |
|
||
Note 4
|
Estimated dividends deduction is calculated as follows: |
Common share dividend (123,590,000 shares x $2.64 per share)
|
$ | 326,278 | ||
Class F Preferred shares
|
3,870 | |||
Class G Preferred shares
|
14,400 | |||
Class H Preferred shares
|
15,119 | |||
Class I Preferred shares
|
12,750 | |||
|
||||
|
$ | 372,417 | ||
|
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-12
|
Developers Diversified Realty Corporation
(Registrant)
|
|||
Date July 2, 2008
|
||||
|
/s/ Christa A. Vesy | |||
|
||||
|
Christa A. Vesy | |||
|
Senior Vice President and Chief Accounting Officer |
F-13
1 Year Developers Realty Chart |
1 Month Developers Realty Chart |
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