DDR
DEVELOPERS DIVERSIFIED REALTY CORP (Form: 8-K, Received: 02/18/2011 06:01:58)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 17, 2011
DEVELOPERS DIVERSIFIED REALTY CORPORATION
 
(Exact name of registrant as specified in its charter)
         
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)
Registrant’s telephone number, including area code (216) 755-5500
 
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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))
 
 

 


TABLE OF CONTENTS

Item 2.02 Results of Operations and Financial Condition.
Item 9.01 Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
EX-99.1
EX-99.2


Table of Contents

Item 2.02 Results of Operations and Financial Condition.
On February 17, 2011, Developers Diversified Realty Corporation (the “Company”) issued a News Release containing financial results of the Company (the “News Release”) and a quarterly financial supplement containing financial and property information of the Company (“Quarterly Financial Supplement”) for the three months and year ended December 31, 2010. Among other things, the News Release reports a net loss of $0.37 and $1.03 per diluted share for the three months and year ended December 31, 2010, respectively, as compared to a net loss of $0.46 and $2.51 per diluted share for the three months and year ended December 31, 2009, respectively. A copy of the News Release is attached hereto as Exhibit 99.1 and a copy of the Quarterly Financial Supplement is attached hereto as Exhibit 99.2 and are each incorporated herein by reference. This information shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except as shall be set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits .
     (d) Exhibits.
     
Exhibit    
No.   Description
99.1
  News release dated as of February 17, 2011.
99.2
  Quarterly financial supplement dated as of December 31, 2010.

 


Table of Contents

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  Developers Diversified Realty Corporation
(Registrant)
 
 
 
Date: February 17, 2011  /s/ Christa A. Vesy    
  Christa A. Vesy   
  Senior Vice President and Chief Accounting Officer   
 

 


Table of Contents

EXHIBIT INDEX
     
Exhibit    
No.   Description
99.1
  News release dated as of February 17, 2011.
99.2
  Quarterly financial supplement dated as of December 31, 2010.

 

Exhibit 99.1
DEVELOPERS DIVERSIFIED REALTY CORPORATION
For Immediate Release :
             
 
  Media Contact:   Investor Contact:    
 
  Marty Richmond   Kate Deck    
 
  216-755-5500   216-755-5500    
 
  mrichmond@ddr.com   kdeck@ddr.com    
DEVELOPERS DIVERSIFIED REALTY REPORTS OPERATING FFO PER
DILUTED SHARE OF $0.27 FOR THE QUARTER ENDED
DECEMBER 31, 2010
BEACHWOOD, OHIO, February 17, 2011 - Developers Diversified Realty Corporation (NYSE: DDR) today announced operating results for the fourth quarter and year ended December 31, 2010.
SIGNIFICANT FOURTH QUARTER ACTIVITY
    Reported operating FFO of $0.27 per diluted share, which excludes certain non-operating items
 
    Executed 396 total leases for 2.6 million square feet
 
    Increased the core portfolio leased rate to 92.3% at December 31, 2010 from 92.0% at September 30, 2010 and 91.2% at December 31, 2009
 
    Improved the spread on new leases to +8.3% and renewals to +4.8% for a blended overall spread of +5.4%, which compares to a blended spread of +5.0% in the third quarter of 2010 and -4.4% in the fourth quarter of 2009
 
    Reported Same Store Net Operating Income growth of 3.6% as compared to an increase of 2.0% in the third quarter of 2010 and a decrease of 3.5% in the fourth quarter of 2009
 
    Refinanced two senior unsecured revolving credit facilities providing $1.015 billion of borrowing capacity through February 2014
 
    Completed $163.4 million of asset sales, of which the Company’s pro-rata share was $62.8 million
 
    Issued $350 million aggregate principal amount of 1.75% convertible senior notes due November 2040
 
    Reduced consolidated indebtedness by nearly $100 million to $4.3 billion at December 31, 2010
“We are pleased to report continued positive operational trends within our portfolio, specifically as it relates to leasing momentum and rental rates, and the resulting growth in same store net operating income. Furthermore, the continued execution of our strategic objectives in the capital markets continues to improve our credit metrics, and we are keenly focused on delivering additional progress throughout 2011,” commented Developers Diversified’s president and chief executive officer, Daniel B. Hurwitz.

 


 

FINANCIAL HIGHLIGHTS
The Company’s fourth quarter operating Funds From Operations (“FFO”) was $70.9 million, or $0.27 per diluted share, before $114.8 million of net charges. The Company’s operating FFO for the year was $264.3 million, or $1.04 per diluted share, before $275.6 million of net charges.
The charges and gains, primarily non-cash, for the periods ended December 31, 2010, are summarized as follows (in millions):
                 
    Three Months     Year  
Non-cash impairment charges — consolidated assets
  $ 28.9     $ 116.5  
Charges related to employee separations
    3.5       5.6  
Gain on debt retirement, net
    (0.2 )     (0.5 )
Non-cash loss on equity derivative instruments (Otto Family warrants)
    25.5       40.2  
Other expense, net (1)
    6.0       22.0  
Equity in net loss of joint ventures — loss on asset sales and impairment charges
    0.4       6.8  
Loss on change in control of interests
          0.4  
Tax expense — deferred tax assets reserve
    49.9       49.9  
Discontinued operations — non-cash consolidated impairment charges and loss on sales
    1.3       67.1  
Discontinued operations — FFO associated with Mervyns Joint Venture, net of non-controlling interest
          4.8  
Discontinued operations — gain on deconsolidation of Mervyns Joint Venture
          (5.6 )
Gain on disposition of real estate (land)
    (0.5 )     (0.4 )
Less non-controlling interests — portion of impairment charges allocated to outside partners
          (31.2 )
 
           
 
  $ 114.8     $ 275.6  
 
           
 
(1)   Amounts included in Other expense are detailed as follows:
                 
    Three Months     Year  
Lease liability reserve — primarily for cancelled development project
  $ 3.3     $ 3.3  
Litigation expenditures, net of tax benefit
    1.0       12.2  
Debt extinguishment costs
    0.5       3.7  
Other
    1.2       2.8  
 
           
 
  $ 6.0     $ 22.0  
 
           
Included in the non-operating items detailed above is a $22.3 million non-cash charge recognized in the fourth quarter of 2010 associated with a development project the Company no longer plans to pursue. A subsidiary of the Company’s taxable REIT subsidiary (“TRS”) acquired a leasehold interest in the development located in Norwood, Massachusetts as part of a portfolio acquisition in 2003, and no longer expects to fund the ground rent expense. The aggregate charge includes a $19.3 million impairment and a $3.0 million lease liability associated with the ground lease. The Company also incurred fourth quarter non-cash income tax expense of $49.9 million recognized due to the establishment of a reserve against certain deferred tax assets within its TRS. Based upon the continued loss activity recognized by the TRS, including the $22.3 million charge associated with the abandoned development project described above, it was determined that it was more likely than not that the deferred tax assets would not be utilizable, thus requiring a current reserve.
FFO applicable to common shareholders for the three-month period ended December 31, 2010, including the above net charges, was a loss of $43.9 million, or $0.17 per diluted share, which compares to a FFO loss of $28.0 million, or $0.14 per diluted share, for the prior-year comparable period. The increased FFO loss for the three-month period ended December 31, 2010, is primarily the result of the establishment of a reserve against certain deferred tax assets and an increase in expense

 


 

recorded for the equity derivative instruments associated with the Otto investment, partially offset by a decrease in impairment-related charges.
FFO applicable to common shareholders for the year ended December 31, 2010, including the above net charges, was a loss of $11.3 million, or $0.05 per diluted share, which compares to a FFO loss of $144.6 million, or $0.90 per diluted share, for the prior-year comparable period. The increase in FFO for the year ended December 31, 2010, is primarily the result of a decrease in impairment-related charges and lower expense associated with the equity derivative instruments partially offset by the establishment of a reserve against certain deferred tax assets in 2010 and lower gain on debt retirement.
Net loss applicable to common shareholders for the three-month period ended December 31, 2010, was $94.8 million, or $0.37 per diluted share, which compares to a net loss of $90.1 million, or $0.46 per diluted share, for the prior-year comparable period.
Net loss applicable to common shareholders for the year ended December 31, 2010, was $251.6 million, or $1.03 per diluted share, which compares to a net loss of $398.9 million, or $2.51 per diluted share, for the prior-year comparable period. The decrease in net loss for the year ended December 31, 2010, is primarily due to the same factors impacting FFO.
LEASING & PORTFOLIO OPERATIONS
The following results for the three-month period ended December 31, 2010, highlight continued strong leasing activity throughout the portfolio:
    Executed 161 new leases aggregating approximately 1.0 million square feet and 235 renewals aggregating approximately 1.6 million square feet. In total, the Company executed approximately 2.6 million square feet of leases for the quarter and 11.3 million for the full year of 2010.
 
    Total portfolio average annualized base rent per occupied square foot as of December 31, 2010 was $13.36, as compared to $13.01 at December 31, 2009. Excluding the Brazil portfolio, total portfolio average annualized base rent per occupied square foot as of December 31, 2010 was $12.46, as compared to $12.27 at December 31, 2009.
 
    The core portfolio leased rate was 92.3% as of December 31, 2010, as compared to 91.2% at December 31, 2009. The core portfolio and the Brazil portfolio blended leased rate was 92.6% at December 31, 2010.
 
    On a cash basis, rental rates for new leases increased by 8.3% over prior rents and renewals increased by 4.8%. For the U.S.-portion of the portfolio, rental rates increased 6.5% for new leases and 3.1% for renewals. On a blended basis, leasing spreads increased by 5.4% during the quarter for the total portfolio and 3.5% for the U.S.-portion of the portfolio. The increase in the overall leasing spreads marks an improvement from the increase of 5.0% for the portfolio reported in the third quarter of 2010 and an improvement from the decrease of 4.4% for the portfolio reported in the fourth quarter of 2009. Total blended leasing spreads for the full year of 2010 increased 3.7%.
 
    Same store net operating income (“NOI”) increased 3.6% for the three-month comparable period and 1.1% for the full year 2010 as compared to 2009.

 


 

DISPOSITIONS
The Company sold eight consolidated shopping centers, aggregating approximately 0.8 million square feet, in the fourth quarter of 2010, generating gross proceeds of approximately $33.8 million. The Company recorded an aggregate net gain of approximately $8.4 million related to asset sales in the fourth quarter. The Company also sold $9.4 million in non-income producing assets.
In the fourth quarter of 2010, five of the Company’s joint ventures sold ten shopping centers, aggregating approximately 0.9 million square feet, generating gross proceeds of approximately $120.2 million. The joint ventures recorded an aggregate net loss of approximately $1.4 million related to these asset sales, of which the Company’s proportionate share was a net gain of approximately $4.9 million as a result of an approximate $2.0 million promoted interest recorded related to one asset.
CAPITAL MARKETS ACTIVITIES
In November 2010, the Company issued $350 million aggregate principal amount of 1.75% convertible senior notes due November 2040. The notes have an initial conversion rate of approximately 61 common shares per $1,000 principal amount of the notes, representing a conversion price of approximately $16.38 per common share. The initial conversion rate is subject to adjustment under certain circumstances. The Company may redeem the notes anytime on or after November 15, 2015 in whole or in part for cash equal to 100% of the principal amount of the notes plus accrued and unpaid interest. The adjusted effective interest rate for the liability component of the convertible notes for GAAP purposes is 5.3%.
In October 2010, the Company refinanced its unsecured credit facility arranged by JP Morgan Chase Bank, N.A. and Wells Fargo Bank, N.A. The size of the facility was reduced to $950 million with an accordion feature up to $1.2 billion. In addition, the Company also entered into a new $65 million unsecured credit facility with PNC Bank, N.A. Both facilities mature in February 2014. The Company’s borrowings under these facilities bear interest at variable rates based on LIBOR plus 275 basis points, subject to adjustment based on the Company’s current corporate credit ratings from Moody’s and S&P.
In October 2010, the Company amended its secured term loan with KeyBank National Association to conform the covenants to the new revolving credit facility covenants and repaid $200 million of the outstanding balance.
2011 GUIDANCE
There has been no change in guidance since the last update provided on January 10, 2011. The Company continues to estimate operating FFO for 2011 between $0.90-$1.05 per diluted share.

 


 

NON-GAAP DISCLOSURES
FFO is a supplemental non-GAAP financial measurement used as a standard in the real estate industry and a widely accepted measure of real estate investment trust (“REIT”) performance. Management believes that FFO and operating FFO provide additional indicators of the financial performance of a REIT. The Company also believes that FFO and operating FFO more appropriately measure the core operations of the Company and provide benchmarks to its peer group. Neither FFO nor operating FFO represents cash generated from operating activities in accordance with generally accepted accounting principles (“GAAP”), is necessarily indicative of cash available to fund cash needs and should be considered as an alternative to net income computed in accordance with GAAP as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of liquidity. FFO is defined and calculated by the Company as net income, adjusted to exclude: (i) preferred share dividends, (ii) gains from disposition of depreciable real estate property, except for gains generated from merchant build asset sales, which are presented net of taxes, and those gains that represent the recapture of a previously recognized impairment charge, (iii) extraordinary items and (iv) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income from joint ventures and equity income from non-controlling interests and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. The Company calculates operating FFO by excluding the non-operating charges and gains described above. Other real estate companies may calculate FFO and operating FFO in a different manner. FFO excluding the net non-operating items detailed above is useful to investors as the Company removes these charges and gains to analyze the results of its operations and assess performance of the core operating real estate portfolio. A reconciliation of net (loss) income to FFO and operating FFO is presented in the financial highlights section.
SAFE HARBOR
Developers Diversified Realty Corporation considers portions of the information in this press release to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company’s expectation 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 historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, local conditions such as 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; the loss of, significant downsizing of or bankruptcy of a major tenant; constructing properties or expansions that produce a desired yield on investment; our ability to sell assets on commercially reasonable terms; our ability to secure equity or debt financing on commercially acceptable terms or at all; our ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements; and the finalization of the financial statements for the year ended December 31, 2010. For additional factors that could cause the results of the Company to differ materially from these indicated in the forward-looking statements, please refer to the Company’s Form 10-K as of December 31, 2009. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

 


 

ABOUT DEVELOPERS DIVERSIFIED REALTY
Developers Diversified owns and manages approximately 570 retail operating and development properties in 41 states, Brazil, Canada and Puerto Rico. Totaling approximately 132 million square feet, the Company’s shopping center portfolio features open-air, value-oriented neighborhood and community centers, mixed-use centers and lifestyle centers located in prime markets with stable populations and high-growth potential. Developers Diversified is the largest landlord in Puerto Rico and owns a premier portfolio of regional malls primarily clustered around Sao Paulo, Brazil. Developers Diversified is a self-administered and self-managed REIT operating as a fully integrated real estate company. Additional information about the Company is available on the Company’s website at www.ddr.com.
CONFERENCE CALL INFORMATION & SUPPLEMENTAL MATERIALS
A copy of the Company’s Supplemental Financial/Operational package is available to all interested parties upon request at the Company’s corporate office to Kate Deck, Investor Relations Director, Developers Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122 or at www.ddr.com.
The Company will hold its quarterly conference call tomorrow, February 18, 2011 at 10:00 a.m. Eastern Daylight Time. To participate, please dial 866.831.6267 (domestic), or 617.213.8857 (international) at least ten minutes prior to the scheduled start of the call. When prompted, provide the passcode: 33462177. Access to the live call and replay will also be available through the Company’s website. The replay will be available through March 18, 2011.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Revenues:
                               
Minimum rents (A)
  $ 134,645     $ 133,831     $ 535,284     $ 528,230  
Percentage and overage rents (A)
    2,653       3,413       6,299       7,751  
Recoveries from tenants
    42,041       43,823       175,309       174,826  
Ancillary and other property income
    6,825       6,931       21,941       21,610  
Management, development and other fee income
    13,312       14,489       53,434       57,683  
Other (B)
    4,000       1,128       10,802       7,299  
 
                       
 
    203,476       203,615       803,069       797,399  
 
                       
 
                               
Expenses:
                               
Operating and maintenance (C)
    33,996       36,191       137,862       135,153  
Real estate taxes
    25,843       25,623       108,299       102,391  
Impairment charges (D)
    28,877             116,462       12,745  
General and administrative (E)
    23,028       20,896       85,573       94,365  
Depreciation and amortization
    57,506       54,362       222,862       217,841  
 
                       
 
    169,250       137,072       671,058       562,495  
 
                       
 
                               
Other income (expense):
                               
Interest income
    2,873       2,564       7,346       11,984  
Interest expense (F)
    (59,776 )     (59,805 )     (226,464 )     (221,334 )
Gain on debt retirement, net (F)
    152       2,690       485       145,050  
Loss on equity derivative instruments (G)
    (25,539 )     (1,597 )     (40,157 )     (199,797 )
Other expense (H)
    (5,954 )     (19,888 )     (24,346 )     (29,192 )
 
                       
 
    (88,244 )     (76,036 )     (283,136 )     (293,289 )
 
                       
 
                               
Loss before earnings from equity method investments and other items
    (54,018 )     (9,493 )     (151,125 )     (58,385 )
Equity in net income (loss) of joint ventures (I)
    9,377       (749 )     5,600       (9,733 )
Impairment of joint venture investments (D)
    (227 )     (83,013 )     (227 )     (184,584 )
Gain (loss) on change in control of interests (J)
          23,471       (428 )     23,865  
Tax (expense) benefit of taxable REIT subsidiaries and state franchise and income taxes (K)
    (49,469 )     1,228       (47,992 )     767  
 
                       
Loss from continuing operations
    (94,337 )     (68,556 )     (194,172 )     (228,070 )
Income (loss) from discontinued operations (L)
    8,871       (19,099 )     (54,867 )     (184,697 )
 
                       
Loss before gain on disposition of real estate
    (85,466 )     (87,655 )     (249,039 )     (412,767 )
Gain on disposition of real estate, net of tax
    1,257       905       1,318       9,127  
 
                       
Net loss
    (84,209 )     (86,750 )     (247,721 )     (403,640 )
(Income) loss attributable to non-controlling interests
    (17 )     7,186       38,363       47,047  
 
                       
Net loss attributable to DDR
  $ (84,226 )   $ (79,564 )   $ (209,358 )   $ (356,593 )
 
                       
Net loss applicable to common shareholders
  $ (94,793 )   $ (90,131 )   $ (251,627 )   $ (398,862 )
 
                       
Funds From Operations (“FFO”):
                               
Net loss applicable to common shareholders
  $ (94,793 )   $ (90,131 )   $ (251,627 )   $ (398,862 )
Depreciation and amortization of real estate investments
    55,399       53,970       217,168       224,207  
Equity in net (income) loss of joint ventures (I)
    (9,377 )     749       (5,600 )     9,306  
Joint ventures’ FFO (I)
    15,226       11,113       47,545       43,665  
Non-controlling interests (OP Units)
    8       8       32       175  
Gain on disposition of depreciable real estate
    (10,409 )     (3,718 )     (18,803 )     (23,123 )
 
                       
FFO applicable to common shareholders
    (43,946 )     (28,009 )     (11,285 )     (144,632 )
Preferred dividends
    10,567       10,567       42,269       42,269  
 
                       
FFO
  $ (33,379 )   $ (17,442 )   $ 30,984     $ (102,363 )
 
                       
Per share data:
                               
Earnings per common share
                               
Basic
  $ (0.37 )   $ (0.46 )   $ (1.03 )   $ (2.51 )
 
                       
Diluted
  $ (0.37 )   $ (0.46 )   $ (1.03 )   $ (2.51 )
 
                       
Basic — average shares outstanding
    253,872       196,399       244,712       158,816  
 
                       
Diluted — average shares outstanding
    253,872       196,399       244,712       158,816  
 
                       
Dividends Declared
  $ 0.02     $ 0.02     $ 0.08     $ 0.44  
 
                       
Funds From Operations — Basic (M)
  $ (0.17 )   $ (0.14 )   $ (0.05 )   $ (0.90 )
 
                       
Funds From Operations — Diluted (M)
  $ (0.17 )   $ (0.14 )   $ (0.05 )   $ (0.90 )
 
                       

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
Selected Balance Sheet Data (N)
                 
    December 31, 2010     December 31, 2009  
Assets:
               
Real estate and rental property:
               
Land
  $ 1,837,403     $ 1,971,782  
Buildings
    5,491,489       5,694,659  
Fixtures and tenant improvements
    339,129       287,143  
 
           
 
    7,668,021       7,953,584  
Less: Accumulated depreciation
    (1,452,112 )     (1,332,534 )
 
           
 
    6,215,909       6,621,050  
Land held for development and construction in progress
    743,218       858,900  
Real estate held for sale, net
          10,453  
 
           
Real estate, net
    6,959,127       7,490,403  
 
               
Investments in and advances to joint ventures (O)
    417,223       420,541  
Cash
    19,416       26,172  
Restricted cash
    4,285       95,673  
Notes receivable, net
    120,330       74,997  
Receivables, including straight-line rent, net
    123,259       146,809  
Other assets, net (K)
    124,450       172,011  
 
           
 
  $ 7,768,090     $ 8,426,606  
 
           
 
               
Liabilities & Equity:
               
Indebtedness:
               
Revolving credit facilities
  $ 279,865     $ 775,028  
Unsecured debt
    2,043,582       1,689,841  
Mortgage and other secured debt
    1,978,553       2,713,794  
 
           
 
    4,302,000       5,178,663  
Dividends payable
    12,092       10,985  
Equity derivative liability (G)
    96,237       56,080  
Other liabilities
    223,074       228,542  
 
           
Total liabilities
    4,633,403       5,474,270  
 
               
Preferred shares
    555,000       555,000  
Common shares (M)
    25,627       20,174  
Paid-in-capital
    3,868,990       3,374,528  
Accumulated distributions in excess of net income
    (1,378,341 )     (1,098,661 )
Deferred compensation obligation
    14,318       17,838  
Accumulated other comprehensive income
    25,646       9,549  
Less: Common shares in treasury at cost
    (14,638 )     (15,866 )
Non-controlling interests
    38,085       89,774  
 
           
Total equity
    3,134,687       2,952,336  
 
           
 
  $ 7,768,090     $ 8,426,606  
 
           

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
(A)   Base and percentage rental revenues for the year ended December 31, 2010, as compared to the prior-year comparable period, increased $7.0 million primarily due to the acquisition of three shopping centers, which generated an additional $8.5 million in revenues offset by a net decrease in operating assets of $1.5 million. Included in rental revenues for the years ended December 31, 2010 and 2009, is approximately $2.5 million and $4.3 million, respectively, of revenue resulting from the recognition of straight-line rents, including discontinued operations.
 
(B)   Other revenues were comprised of the following (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Lease termination fees
  $ 3.4     $ 0.6     $ 7.5     $ 4.0  
Financing fees
    0.5       0.2       1.2       1.1  
Other miscellaneous
    0.1       0.3       2.1       2.2  
 
                       
 
  $ 4.0     $ 1.1     $ 10.8     $ 7.3  
 
                       
(C)   Operating and maintenance expense, including discontinued operations, includes the following expenses (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Bad debt expense
  $ 3.2     $ 5.4     $ 13.4     $ 16.1  
Ground rent expense (1)
    1.2       1.3       4.9       4.8  
 
(1)   Includes non-cash expense of approximately $0.5 million for the three-month periods ended December 31, 2010 and 2009, respectively, and approximately $2.0 million and $1.9 million for the years ended December 31, 2010 and 2009, respectively, related to straight-line ground rent expense.
(D)   The Company recorded impairment charges during both the three-month periods and years ended December 31, 2010 and 2009, on the following consolidated assets and investments (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Land held for development (1)
  $     $     $ 54.3     $  
Undeveloped land and CIP
    25.6             30.5       0.4  
Assets marketed for sale
    3.3             31.7       12.3  
 
                       
 
  $ 28.9     $     $ 116.5     $ 12.7  
 
                       
 
                               
Sold assets (2)
          1.3       20.1       73.3  
Assets formerly occupied by Mervyns (3)
          7.8       35.3       68.7  
 
                       
Total discontinued operations
          9.1       55.4       142.0  
 
                       
 
                               
Joint venture investments
    0.2       83.0       0.2       184.6  
 
                       
Total impairment charges
  $ 29.1     $ 92.1     $ 172.1     $ 339.3  
 
                       
 
(1)   Amounts reported relate to land held for development in Togliatti and Yaroslavl, Russia, of which the Company’s proportionate share was $41.9 million after adjusting for the allocation of loss to the non-controlling interest in this consolidated joint venture.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
  (2)   See summary of discontinued operations activity in note (L).
 
  (3)   The Company’s proportionate share of these impairments was $16.5 million and $33.6 million, after adjusting for the allocation of loss to the non-controlling interest in this previously consolidated joint venture for the years ended December 31, 2010 and 2009, respectively. As discussed in note (N), these assets were deconsolidated in the third quarter of 2010 and all operating results have been reclassified as discontinued operations.
(E)   General and administrative expenses include internal leasing salaries, legal salaries and related expenses associated with the releasing of space, which are charged to operations as incurred. For the years ended December 31, 2010 and 2009, general and administrative expenses were approximately 5.2% and 5.4% of total revenues, respectively, including joint venture and managed property revenues.
 
    During the year ended December 31, 2010, the Company incurred $5.3 million in employee separation charges. During the year ended December 31, 2009, the Company recorded a non-cash charge of $15.4 million as a result of the change in control provisions included in the Company’s equity-based award plans. Excluding these charges, general and administrative expenses were 4.9% and 4.5% of total revenues for the years ended December 31, 2010 and 2009, respectively.
 
(F)   The Company recorded the following in connection with its outstanding convertible debt (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Non-cash interest expense related to amortization of the debt discount
  $ 3.0     $ 2.5     $ 8.2     $ 12.2  
Non-cash adjustment to gain on repurchase
    0.1       3.9       4.9       20.9  
(G)   Represents the non-cash impact of the valuation adjustments of the equity derivative instruments (warrants) issued as part of the share purchase transaction with the Otto Family completed in 2009, as a result of changes in the Company’s stock price. The liability will be reclassified into equity upon ultimate exercise or expiration of the warrants.
 
(H)   Other (expenses) income were comprised of the following (in millions):
                                 
    Three-Month Periods Ended     Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Litigation-related expenses (1)
  $ (1.0 )   $ (2.1 )   $ (14.6 )   $ (6.4 )
Lease liability reserve (2)
    (3.3 )           (3.3 )      
Debt extinguishment costs
    (0.5 )     (13.9 )     (3.7 )     (14.2 )
Note receivable reserve
                0.1       (5.4 )
Sale of MDT units
                      2.8  
Abandoned projects and other expenses
    (1.2 )     (3.9 )     (2.8 )     (6.0 )
 
                       
 
  $ (6.0 )   $ (19.9 )   $ (24.3 )   $ (29.2 )
 
                       
 
(1)   The year ended December 31, 2010 includes a $5.1 million reserve recorded in connection with a legal matter at a property in Long Beach, California. This reserve was offset by a tax benefit of approximately $2.4 million, classified in the tax expense (benefit) line item in the consolidated statements of operations, because the asset is owned through the Company’s TRS. Total litigation-related expenditures, net of the tax benefit, were $1.0

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
      million and $12.2 million for the three-month period and year ended December 31, 2010, respectively.
 
  (2)   Represents the liability recorded pursuant to ASC 420, Exit or Disposal Cost Obligations, primarily relating to the contractual obligations associated with the ground lease for an abandoned development project in Norwood, Massachusetts.
(I)   At December 31, 2010 and 2009, the Company owned joint venture interests, excluding consolidated joint ventures, in 236 and 274 shopping center properties, respectively. See below for a summary of the combined condensed operating results and select balance sheet data of the Company’s unconsolidated joint ventures.
 
(J)   In October 2009, the Company’s approximate 14.5% interest in the MDT US LLC joint venture was redeemed in exchange for a 100% interest in three shopping center assets and a cash payment of $1.6 million. The Company accounted for this transaction as a step acquisition and, as a result, recognized a $23.5 million gain.
 
(K)   The Company incurred a fourth quarter non-cash income tax expense of $49.9 million recognized due to the establishment of a reserve against certain deferred tax assets within its TRS. Based upon the continued loss activity recognized by the TRS, including a fourth quarter impairment and lease liability charge of $22.3 million associated with an abandoned development project, it was determined that it was more likely than not that the deferred tax assets would not be utilizable, thus requiring a current reserve. Net deferred tax assets are classified within Other assets on the consolidated balance sheet at December 31, 2009.
 
(L)   The operating results relating to assets classified as discontinued operations are summarized as follows:
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Revenues from operations
  $ 892     $ 6,666     $ 12,015     $ 45,910  
 
                       
 
                               
Operating expenses
    70       4,844       8,535       24,915  
Impairment charges
          9,055       55,438       141,973  
Interest, net
    134       5,583       9,892       23,566  
Depreciation and amortization
    194       2,222       4,441       16,126  
 
                       
Total expenses
    398       21,704       78,306       206,580  
 
                       
Loss before disposition of real estate
    494       (15,038 )     (66,291 )     (160,670 )
Gain on deconsolidation of interests
                5,649        
Gain (loss) on disposition of real estate, net
    8,377       (4,061 )     5,775       (24,027 )
 
                       
Net income (loss)
  $ 8,871     $ (19,099 )   $ (54,867 )   $ (184,697 )
 
                       
    Discontinued operations for all periods presented include the activity associated with the 50% owned joint venture, DDR MDT MV LLC (“MV LLC” or the “Mervyns Joint Venture”), which was deconsolidated during the third quarter of 2010. See further discussion in note (N).

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
(M)   For purposes of computing FFO and operating FFO per share, the following share information was utilized (in millions):
                 
    At December 31,  
    2010     2009  
Common shares outstanding
    256.2       201.6  
OP Units outstanding (“OP Units”)
    0.4       0.4  
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Weighted average common shares outstanding
    256.2       197.9       246.6       159.7  
 
                       
Assumed conversion of OP Units
    0.4       0.4       0.4       0.4  
 
                       
FFO Weighted average common shares and OP Units — Basic and Diluted
    256.6       198.3       247.0       160.1  
 
                       
Assumed conversion of dilutive securities
    8.2       5.2       7.4       3.1  
 
                       
Operating FFO Weighted average common shares and OP Units —Diluted
    264.8       203.5       254.4       163.2  
 
                       
(N)   The December 31, 2009 balance sheet reflects the consolidation of a 50% owned joint venture, MV LLC, which as of that date owned 31 sites formerly occupied by Mervyns.
         
    December 31, 2009  
Real estate, net
  $ 218.7  
Restricted cash
  $ 50.5  
Mortgage debt
  $ 225.4  
Non-controlling interests
  $ 22.4  
    The 25 assets owned by MV LLC in August 2010 were placed in the control of a court appointed receiver and as a result, the entity that holds the assets and nonrecourse mortgage loan was deconsolidated for accounting purposes pursuant to the provisions of Accounting Standards Codification No. 810, “Consolidation” (“ASC 810”). Upon deconsolidation in the third quarter of 2010, the Company recorded a gain of approximately $5.6 million because the carrying value of the nonrecourse debt exceeded the carrying value of the collateralized assets. Following the deconsolidation, the Company no longer has any economic rights or obligations in MV LLC. The revenues and expenses associated with MV LLC for the current and prior periods, including the $5.6 million gain, are classified within discontinued operations in the statements of operations.
 
(O)   Included in the Company’s balance sheet as of December 31, 2009, was $28.5 million of assets owned by a consolidated joint venture that was deconsolidated in accordance with the adoption of ASC 810 as of January 1, 2010.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Summary Results of Combined Unconsolidated Joint Ventures
(In thousands)
Combined condensed income statements
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Revenues from operations (A)
  $ 171,846     $ 172,531     $ 668,946     $ 778,770  
 
                       
 
Operating expenses
    61,309       67,630       256,380       301,637  
Impairment charges (B)
    1,304       218,479       12,291       218,479  
Depreciation and amortization of real estate investments
    47,752       49,619       187,876       218,547  
Interest expense
    59,285       63,440       230,649       280,345  
 
                       
 
    169,650       399,168       687,196       1,019,008  
 
                       
Income (loss) from operations before tax expense and discontinued operations
    2,196       (226,637 )     (18,250 )     (240,238 )
Income tax expense
    (6,502 )     (2,948 )     (20,449 )     (10,013 )
Income (loss) from discontinued operations, net of tax (C)
    219       (172,417 )     (9,674 )     (206,436 )
(Loss) gain on disposition of discontinued operations, net of tax (D)
    (1,371 )     64       (26,674 )     (19,448 )
Gain (loss) on disposition of assets (E)
          843       17       (25,973 )
Other, net (F)
                      7,153  
 
                       
Net loss
  $ (5,458 )   $ (401,095 )   $ (75,030 )   $ (494,955 )
 
                       
Net gain (loss) at DDR ownership interests (G)
  $ 10,676     $ (22,147 )   $ 6,319     $ (34,522 )
 
                       
FFO at DDR’s ownership interests (H)
  $ 15,226     $ 11,113     $ 47,545     $ 43,665  
 
                       
Combined condensed balance sheets
                 
    December 31, 2010     December 31, 2009  
Land
  $ 1,566,682     $ 1,782,431  
Buildings
    4,783,841       5,207,234  
Fixtures and tenant improvements
    154,292       146,716  
 
           
 
    6,504,815       7,136,381  
Less: Accumulated depreciation
    (726,291 )     (636,897 )
 
           
 
    5,778,524       6,499,484  
Land held for development and construction in progress (I)
    174,237       130,410  
 
           
Real estate, net
    5,952,761       6,629,894  
Receivables, including straight-line rent, net
    111,569       113,630  
Leasehold interests
    10,296       11,455  
Other assets, net
    303,826       342,192  
 
           
 
  $ 6,378,452     $ 7,097,171  
 
           
 
Mortgage debt (J)
  $ 3,950,794     $ 4,547,711  
Notes and accrued interest payable to DDR
    87,282       73,477  
Other liabilities
    186,728       194,065  
 
           
 
    4,224,804       4,815,253  
Accumulated equity
    2,153,648       2,281,918  
 
           
 
  $ 6,378,452     $ 7,097,171  
 
           

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Summary Results of Combined Unconsolidated Joint Ventures
(In thousands)
(A)   Revenues for the three-month periods and years ended reflect the following (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Straight-line rents
  $ 1.0     $ (0.3 )   $ 3.9     $ 2.7  
DDR’s proportionate share
    0.2             0.6       0.2  
    The 2009 combined condensed income statement includes the results of operation of the EDT joint venture. In October 2009, the Company redeemed its ownership interest in this joint venture and are not reflected in discontinued operations.
 
(B)   For the three months and year ended December 31, 2010, impairment charges were recorded by two of the Company’s unconsolidated joint ventures relating to three assets, of which the Company’s proportionate share of these impairment charges for the year ended was approximately $0.5 million. The Company’s proportionate share of the fourth quarter charge was immaterial. For the three months and year ended December 31, 2009, an impairment charge of $218.5 million was recorded by one of the Company’s unconsolidated joint ventures related to a suspended development project. The Company’s proportionate share of the loss was zero as the Company had written off its basis in the investment in the second quarter of 2009.
 
(C)   Impairment charges reclassified to discontinued operations relating to assets sales were $8.8 million for the year ended December 31, 2010 and $170.9 million and $204.8 for the three months and year ended December 31, 2009, respectively. The Company’s proportionate share of these impairment charges was $0.3 million for the year ended December 31, 2010 and $2.6 million and $8.1 million for the three months and year ended December 31, 2009, respectively.
 
(D)   For the three months ended December 31, 2010, a $4.9 million net gain was recorded for the Company’s proportionate share of the assets sold during that period as a result of promoted interests from one of the asset sales. For the year ended December 31, 2010, loss on disposition of discontinued operations includes the sale of 35 properties by five separate unconsolidated joint ventures. In 2009, $170.9 million of impairment charges were recorded by these joint ventures in anticipation of the sales transactions as noted in (C) above. The Company’s proportionate share of the aggregate loss for the assets sold for the year ended December 31, 2010 was a gain of approximately $0.8 million.
 
    For the year ended December 31, 2009, loss on disposition of discontinued operations included the sale of 12 properties by three separate unconsolidated joint ventures resulting in a loss of $19.4 million of which the Company’s proportionate share was $1.4 million.
 
(E)   In the first quarter of 2009, an unconsolidated joint venture disposed of a property resulting in a loss of $26.7 million, of which the Company’s proportionate share was $5.8 million.
 
(F)   Activity related to the Company’s investment in the MDT units that were liquidated in 2009.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Summary Results of Combined Unconsolidated Joint Ventures
(In thousands)
(G)   Adjustments to the Company’s share of joint venture equity in net loss is related primarily to basis differences impacting amortization and depreciation, impairment charges and (loss) gain on dispositions as follows (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
(Loss) income, net
  $ (1.2 )   $ 21.4     $ (0.7 )   $ 24.8  
 
(H) FFO from unconsolidated joint ventures are summarized as follows:
 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Net loss
  $ (5,458 )   $ (401,095 )   $ (75,030 )   $ (494,955 )
Loss on sale of real estate
    (24,687 )     (843 )     (24,734 )     (843 )
Depreciation and amortization of real estate investments
    48,508       55,528       198,323       245,000  
 
                       
FFO
  $ 18,363     $ (346,410 )   $ 98,559     $ (250,798 )
 
                       
FFO at DDR’s ownership interests
  $ 15,226     $ 11,113     $ 47,545     $ 43,665  
 
                       
Operating FFO at DDR’s ownership interests (1)
  $ 15,721     $ 13,722     $ 54,433     $ 62,690  
 
                       
DDR joint venture distributions received, net (2)
  $ 24,470     $ 7,963     $ 53,768     $ 31,455  
 
                       
 
(1)   Excluded from operating FFO is the Company’s pro rata share of net charges primarily related to impairment charges and losses on the disposition of assets as disclosed on page 2 of this press release.
 
(2)   Distributions for 2009 included $2.5 million from a foreign investment that have yet to be expatriated to the United States.
(I)   The Company’s proportionate share of joint venture land held for development and construction in progress aggregated approximately $71.7 million and $37.6 million at December 31, 2010 and December 31, 2009, respectively.
 
    The combined condensed balance sheet at December 31, 2010 included a joint venture under development that was deconsolidated by the Company as of January 1, 2010 due to the adoption of ASC 810 (Footnote O in this release).
 
(J)   The Company’s proportionate share of joint venture debt aggregated approximately $835.8 million and $917.0 million at December 31, 2010 and December 31, 2009, respectively.

 

Exhibit 99.2
• Quarterly Financial Supplement Investor Relations Department • 3300 Enterprise Parkway Beachwood, Ohio 44122 • (216) 755-5500 f. (216) 755-1500 • www.ddr.com For the year ended December 31, 2010

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Table of Contents
         
Section   Page  
Earnings Release & Financial Statements
       
Press Release
    1-15  
 
       
Financial Summary
       
Financial Highlights
    16  
Financial Ratios
    17  
Total Market Capitalization Summary
    18  
Debt to EBITDA Calculation
    19  
Significant Accounting Policies
    20-21  
Other Real Estate Information
    22  
Reconciliation of Non-GAAP Financial Measures
    23-26  
 
       
Joint Venture Financial Summary
       
Joint Venture Investment Summary
    27  
Joint Venture Combining Financial Statements
    28  
 
       
Investment Summary
       
Acquisitions and Dispositions
    29  
Developments and Redevelopments
    30-31  
Projects Primarily on Hold
    32  
 
       
Portfolio Summary
       
Portfolio Characteristics
    33  
Brazil and Puerto Rico Portfolio Characteristics
    34  
Leased Rate and Average Annualized Base Rental Rates
    35  
Leasing Summary
    36  
Leasing Summary of Formerly Vacant Spaces
    37  
Net Effective Rents
    38  
Lease Expirations
    39  
Largest Tenants by Owned and Managed GLA
    40  
Largest Tenants by GLA and Base Rental Revenues
    41  
 
       
Debt Summary
       
Summary of Consolidated Debt
    42  
Summary of Joint Venture Debt
    43  
Consolidated Debt Detail
    44-46  
Joint Venture Debt Detail
    47-49  
 
       
Investor Contact Information
       
Investor Information
    50  
Property list available online at http://www.ddr.com
Developers Diversified Realty Corporation considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the 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 historical fact may be deemed to be 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 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; the loss of, significant downsizing of or bankruptcy of a major tenant; constructing properties or expansions that produce a desired yield on investment; ability to sell assets on commercially reasonable terms; ability to secure equity or debt financing on commercially acceptable terms or at all; or ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements; and the finalization of the financial statements for the year ended December 31, 2010. For additional factors that could cause the results of the Company to differ materially from these indicated in the forward-looking statements, please refer to the Company’s Form 10-K as of December 31, 2009. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
For Immediate Release :
             
 
  Media Contact:   Investor Contact:    
 
  Marty Richmond   Kate Deck    
 
  216-755-5500   216-755-5500    
 
  mrichmond@ddr.com   kdeck@ddr.com    
DEVELOPERS DIVERSIFIED REALTY REPORTS OPERATING FFO PER
DILUTED SHARE OF $0.27 FOR THE QUARTER ENDED
DECEMBER 31, 2010
BEACHWOOD, OHIO, February 17, 2011 - Developers Diversified Realty Corporation (NYSE: DDR) today announced operating results for the fourth quarter and year ended December 31, 2010.
SIGNIFICANT FOURTH QUARTER ACTIVITY
    Reported operating FFO of $0.27 per diluted share, which excludes certain non-operating items
 
    Executed 396 total leases for 2.6 million square feet
 
    Increased the core portfolio leased rate to 92.3% at December 31, 2010 from 92.0% at September 30, 2010 and 91.2% at December 31, 2009
 
    Improved the spread on new leases to +8.3% and renewals to +4.8% for a blended overall spread of +5.4%, which compares to a blended spread of +5.0% in the third quarter of 2010 and -4.4% in the fourth quarter of 2009
 
    Reported Same Store Net Operating Income growth of 3.6% as compared to an increase of 2.0% in the third quarter of 2010 and a decrease of 3.5% in the fourth quarter of 2009
 
    Refinanced two senior unsecured revolving credit facilities providing $1.015 billion of borrowing capacity through February 2014
 
    Completed $163.4 million of asset sales, of which the Company’s pro-rata share was $62.8 million
 
    Issued $350 million aggregate principal amount of 1.75% convertible senior notes due November 2040
 
    Reduced consolidated indebtedness by nearly $100 million to $4.3 billion at December 31, 2010
“We are pleased to report continued positive operational trends within our portfolio, specifically as it relates to leasing momentum and rental rates, and the resulting growth in same store net operating income. Furthermore, the continued execution of our strategic objectives in the capital markets continues to improve our credit metrics, and we are keenly focused on delivering additional progress throughout 2011,” commented Developers Diversified’s president and chief executive officer, Daniel B. Hurwitz.

1


 

FINANCIAL HIGHLIGHTS
The Company’s fourth quarter operating Funds From Operations (“FFO”) was $70.9 million, or $0.27 per diluted share, before $114.8 million of net charges. The Company’s operating FFO for the year was $264.3 million, or $1.04 per diluted share, before $275.6 million of net charges.
The charges and gains, primarily non-cash, for the periods ended December 31, 2010, are summarized as follows (in millions):
                 
    Three Months     Year  
Non-cash impairment charges — consolidated assets
  $ 28.9     $ 116.5  
Charges related to employee separations
    3.5       5.6  
Gain on debt retirement, net
    (0.2 )     (0.5 )
Non-cash loss on equity derivative instruments (Otto Family warrants)
    25.5       40.2  
Other expense, net (1)
    6.0       22.0  
Equity in net loss of joint ventures — loss on asset sales and impairment charges
    0.4       6.8  
Loss on change in control of interests
          0.4  
Tax expense — deferred tax assets reserve
    49.9       49.9  
Discontinued operations — non-cash consolidated impairment charges and loss on sales
    1.3       67.1  
Discontinued operations — FFO associated with Mervyns Joint Venture, net of non-controlling interest
          4.8  
Discontinued operations — gain on deconsolidation of Mervyns Joint Venture
          (5.6 )
Gain on disposition of real estate (land)
    (0.5 )     (0.4 )
Less non-controlling interests — portion of impairment charges allocated to outside partners
          (31.2 )
 
           
 
  $ 114.8     $ 275.6  
 
           
 
(1)   Amounts included in Other expense are detailed as follows:
                 
    Three Months     Year  
Lease liability reserve — primarily for cancelled development project
  $ 3.3     $ 3.3  
Litigation expenditures, net of tax benefit
    1.0       12.2  
Debt extinguishment costs
    0.5       3.7  
Other
    1.2       2.8  
 
           
 
  $ 6.0     $ 22.0  
 
           
Included in the non-operating items detailed above is a $22.3 million non-cash charge recognized in the fourth quarter of 2010 associated with a development project the Company no longer plans to pursue. A subsidiary of the Company’s taxable REIT subsidiary (“TRS”) acquired a leasehold interest in the development located in Norwood, Massachusetts as part of a portfolio acquisition in 2003, and no longer expects to fund the ground rent expense. The aggregate charge includes a $19.3 million impairment and a $3.0 million lease liability associated with the ground lease. The Company also incurred fourth quarter non-cash income tax expense of $49.9 million recognized due to the establishment of a reserve against certain deferred tax assets within its TRS. Based upon the continued loss activity recognized by the TRS, including the $22.3 million charge associated with the abandoned development project described above, it was determined that it was more likely than not that the deferred tax assets would not be utilizable, thus requiring a current reserve.
FFO applicable to common shareholders for the three-month period ended December 31, 2010, including the above net charges, was a loss of $43.9 million, or $0.17 per diluted share, which compares to a FFO loss of $28.0 million, or $0.14 per diluted share, for the prior-year comparable period. The increased FFO loss for the three-month period ended December 31, 2010, is primarily the result of the establishment of a reserve against certain deferred tax assets and an increase in expense


 

recorded for the equity derivative instruments associated with the Otto investment, partially offset by a decrease in impairment-related charges.
FFO applicable to common shareholders for the year ended December 31, 2010, including the above net charges, was a loss of $11.3 million, or $0.05 per diluted share, which compares to a FFO loss of $144.6 million, or $0.90 per diluted share, for the prior-year comparable period. The increase in FFO for the year ended December 31, 2010, is primarily the result of a decrease in impairment-related charges and lower expense associated with the equity derivative instruments partially offset by the establishment of a reserve against certain deferred tax assets in 2010 and lower gain on debt retirement.
Net loss applicable to common shareholders for the three-month period ended December 31, 2010, was $94.8 million, or $0.37 per diluted share, which compares to a net loss of $90.1 million, or $0.46 per diluted share, for the prior-year comparable period.
Net loss applicable to common shareholders for the year ended December 31, 2010, was $251.6 million, or $1.03 per diluted share, which compares to a net loss of $398.9 million, or $2.51 per diluted share, for the prior-year comparable period. The decrease in net loss for the year ended December 31, 2010, is primarily due to the same factors impacting FFO.
LEASING & PORTFOLIO OPERATIONS
The following results for the three-month period ended December 31, 2010, highlight continued strong leasing activity throughout the portfolio:
    Executed 161 new leases aggregating approximately 1.0 million square feet and 235 renewals aggregating approximately 1.6 million square feet. In total, the Company executed approximately 2.6 million square feet of leases for the quarter and 11.3 million for the full year of 2010.
 
    Total portfolio average annualized base rent per occupied square foot as of December 31, 2010 was $13.36, as compared to $13.01 at December 31, 2009. Excluding the Brazil portfolio, total portfolio average annualized base rent per occupied square foot as of December 31, 2010 was $12.46, as compared to $12.27 at December 31, 2009.
 
    The core portfolio leased rate was 92.3% as of December 31, 2010, as compared to 91.2% at December 31, 2009. The core portfolio and the Brazil portfolio blended leased rate was 92.6% at December 31, 2010.
 
    On a cash basis, rental rates for new leases increased by 8.3% over prior rents and renewals increased by 4.8%. For the U.S.-portion of the portfolio, rental rates increased 6.5% for new leases and 3.1% for renewals. On a blended basis, leasing spreads increased by 5.4% during the quarter for the total portfolio and 3.5% for the U.S.-portion of the portfolio. The increase in the overall leasing spreads marks an improvement from the increase of 5.0% for the portfolio reported in the third quarter of 2010 and an improvement from the decrease of 4.4% for the portfolio reported in the fourth quarter of 2009. Total blended leasing spreads for the full year of 2010 increased 3.7%.
 
    Same store net operating income (“NOI”) increased 3.6% for the three-month comparable period and 1.1% for the full year 2010 as compared to 2009.


 

DISPOSITIONS
The Company sold eight consolidated shopping centers, aggregating approximately 0.8 million square feet, in the fourth quarter of 2010, generating gross proceeds of approximately $33.8 million. The Company recorded an aggregate net gain of approximately $8.4 million related to asset sales in the fourth quarter. The Company also sold $9.4 million in non-income producing assets.
In the fourth quarter of 2010, five of the Company’s joint ventures sold ten shopping centers, aggregating approximately 0.9 million square feet, generating gross proceeds of approximately $120.2 million. The joint ventures recorded an aggregate net loss of approximately $1.4 million related to these asset sales, of which the Company’s proportionate share was a net gain of approximately $4.9 million as a result of an approximate $2.0 million promoted interest recorded related to one asset.
CAPITAL MARKETS ACTIVITIES
In November 2010, the Company issued $350 million aggregate principal amount of 1.75% convertible senior notes due November 2040. The notes have an initial conversion rate of approximately 61 common shares per $1,000 principal amount of the notes, representing a conversion price of approximately $16.38 per common share. The initial conversion rate is subject to adjustment under certain circumstances. The Company may redeem the notes anytime on or after November 15, 2015 in whole or in part for cash equal to 100% of the principal amount of the notes plus accrued and unpaid interest. The adjusted effective interest rate for the liability component of the convertible notes for GAAP purposes is 5.3%.
In October 2010, the Company refinanced its unsecured credit facility arranged by JP Morgan Chase Bank, N.A. and Wells Fargo Bank, N.A. The size of the facility was reduced to $950 million with an accordion feature up to $1.2 billion. In addition, the Company also entered into a new $65 million unsecured credit facility with PNC Bank, N.A. Both facilities mature in February 2014. The Company’s borrowings under these facilities bear interest at variable rates based on LIBOR plus 275 basis points, subject to adjustment based on the Company’s current corporate credit ratings from Moody’s and S&P.
In October 2010, the Company amended its secured term loan with KeyBank National Association to conform the covenants to the new revolving credit facility covenants and repaid $200 million of the outstanding balance.
2011 GUIDANCE
There has been no change in guidance since the last update provided on January 10, 2011. The Company continues to estimate operating FFO for 2011 between $0.90-$1.05 per diluted share.


 

NON-GAAP DISCLOSURES
FFO is a supplemental non-GAAP financial measurement used as a standard in the real estate industry and a widely accepted measure of real estate investment trust (“REIT”) performance. Management believes that FFO and operating FFO provide additional indicators of the financial performance of a REIT. The Company also believes that FFO and operating FFO more appropriately measure the core operations of the Company and provide benchmarks to its peer group. Neither FFO nor operating FFO represents cash generated from operating activities in accordance with generally accepted accounting principles (“GAAP”), is necessarily indicative of cash available to fund cash needs and should be considered as an alternative to net income computed in accordance with GAAP as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of liquidity. FFO is defined and calculated by the Company as net income, adjusted to exclude: (i) preferred share dividends, (ii) gains from disposition of depreciable real estate property, except for gains generated from merchant build asset sales, which are presented net of taxes, and those gains that represent the recapture of a previously recognized impairment charge, (iii) extraordinary items and (iv) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income from joint ventures and equity income from non-controlling interests and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. The Company calculates operating FFO by excluding the non-operating charges and gains described above. Other real estate companies may calculate FFO and operating FFO in a different manner. FFO excluding the net non-operating items detailed above is useful to investors as the Company removes these charges and gains to analyze the results of its operations and assess performance of the core operating real estate portfolio. A reconciliation of net (loss) income to FFO and operating FFO is presented in the financial highlights section.
SAFE HARBOR
Developers Diversified Realty Corporation considers portions of the information in this press release to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company’s expectation 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 historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, local conditions such as 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; the loss of, significant downsizing of or bankruptcy of a major tenant; constructing properties or expansions that produce a desired yield on investment; our ability to sell assets on commercially reasonable terms; our ability to secure equity or debt financing on commercially acceptable terms or at all; our ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements; and the finalization of the financial statements for the year ended December 31, 2010. For additional factors that could cause the results of the Company to differ materially from these indicated in the forward-looking statements, please refer to the Company’s Form 10-K as of December 31, 2009. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

5


 

ABOUT DEVELOPERS DIVERSIFIED REALTY
Developers Diversified owns and manages approximately 570 retail operating and development properties in 41 states, Brazil, Canada and Puerto Rico. Totaling approximately 132 million square feet, the Company’s shopping center portfolio features open-air, value-oriented neighborhood and community centers, mixed-use centers and lifestyle centers located in prime markets with stable populations and high-growth potential. Developers Diversified is the largest landlord in Puerto Rico and owns a premier portfolio of regional malls primarily clustered around Sao Paulo, Brazil. Developers Diversified is a self-administered and self-managed REIT operating as a fully integrated real estate company. Additional information about the Company is available on the Company’s website at www.ddr.com.
CONFERENCE CALL INFORMATION & SUPPLEMENTAL MATERIALS
A copy of the Company’s Supplemental Financial/Operational package is available to all interested parties upon request at the Company’s corporate office to Kate Deck, Investor Relations Director, Developers Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, Ohio 44122 or at www.ddr.com.
The Company will hold its quarterly conference call tomorrow, February 18, 2011 at 10:00 a.m. Eastern Daylight Time. To participate, please dial 866.831.6267 (domestic), or 617.213.8857 (international) at least ten minutes prior to the scheduled start of the call. When prompted, provide the passcode: 33462177. Access to the live call and replay will also be available through the Company’s website. The replay will be available through March 18, 2011.

6


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Revenues:
                               
Minimum rents (A)
  $ 134,645     $ 133,831     $ 535,284     $ 528,230  
Percentage and overage rents (A)
    2,653       3,413       6,299       7,751  
Recoveries from tenants
    42,041       43,823       175,309       174,826  
Ancillary and other property income
    6,825       6,931       21,941       21,610  
Management, development and other fee income
    13,312       14,489       53,434       57,683  
Other (B)
    4,000       1,128       10,802       7,299  
 
                       
 
    203,476       203,615       803,069       797,399  
 
                       
 
                               
Expenses:
                               
Operating and maintenance (C)
    33,996       36,191       137,862       135,153  
Real estate taxes
    25,843       25,623       108,299       102,391  
Impairment charges (D)
    28,877             116,462       12,745  
General and administrative (E)
    23,028       20,896       85,573       94,365  
Depreciation and amortization
    57,506       54,362       222,862       217,841  
 
                       
 
    169,250       137,072       671,058       562,495  
 
                       
 
                               
Other income (expense):
                               
Interest income
    2,873       2,564       7,346       11,984  
Interest expense (F)
    (59,776 )     (59,805 )     (226,464 )     (221,334 )
Gain on debt retirement, net (F)
    152       2,690       485       145,050  
Loss on equity derivative instruments (G)
    (25,539 )     (1,597 )     (40,157 )     (199,797 )
Other expense (H)
    (5,954 )     (19,888 )     (24,346 )     (29,192 )
 
                       
 
    (88,244 )     (76,036 )     (283,136 )     (293,289 )
 
                       
 
                               
Loss before earnings from equity method investments and other items
    (54,018 )     (9,493 )     (151,125 )     (58,385 )
Equity in net income (loss) of joint ventures (I)
    9,377       (749 )     5,600       (9,733 )
Impairment of joint venture investments (D)
    (227 )     (83,013 )     (227 )     (184,584 )
Gain (loss) on change in control of interests (J)
          23,471       (428 )     23,865  
Tax (expense) benefit of taxable REIT subsidiaries and state franchise and income taxes (K)
    (49,469 )     1,228       (47,992 )     767  
 
                       
Loss from continuing operations
    (94,337 )     (68,556 )     (194,172 )     (228,070 )
Income (loss) from discontinued operations (L)
    8,871       (19,099 )     (54,867 )     (184,697 )
 
                       
Loss before gain on disposition of real estate
    (85,466 )     (87,655 )     (249,039 )     (412,767 )
Gain on disposition of real estate, net of tax
    1,257       905       1,318       9,127  
 
                       
Net loss
    (84,209 )     (86,750 )     (247,721 )     (403,640 )
(Income) loss attributable to non-controlling interests
    (17 )     7,186       38,363       47,047  
 
                       
Net loss attributable to DDR
  $ (84,226 )   $ (79,564 )   $ (209,358 )   $ (356,593 )
 
                       
Net loss applicable to common shareholders
  $ (94,793 )   $ (90,131 )   $ (251,627 )   $ (398,862 )
 
                       
Funds From Operations (“FFO”):
                               
Net loss applicable to common shareholders
  $ (94,793 )   $ (90,131 )   $ (251,627 )   $ (398,862 )
Depreciation and amortization of real estate investments
    55,399       53,970       217,168       224,207  
Equity in net (income) loss of joint ventures (I)
    (9,377 )     749       (5,600 )     9,306  
Joint ventures’ FFO (I)
    15,226       11,113       47,545       43,665  
Non-controlling interests (OP Units)
    8       8       32       175  
Gain on disposition of depreciable real estate
    (10,409 )     (3,718 )     (18,803 )     (23,123 )
 
                       
FFO applicable to common shareholders
    (43,946 )     (28,009 )     (11,285 )     (144,632 )
Preferred dividends
    10,567       10,567       42,269       42,269  
 
                       
FFO
  $ (33,379 )   $ (17,442 )   $ 30,984     $ (102,363 )
 
                       
Per share data:
                               
Earnings per common share
                               
Basic
  $ (0.37 )   $ (0.46 )   $ (1.03 )   $ (2.51 )
 
                       
Diluted
  $ (0.37 )   $ (0.46 )   $ (1.03 )   $ (2.51 )
 
                       
Basic — average shares outstanding
    253,872       196,399       244,712       158,816  
 
                       
Diluted — average shares outstanding
    253,872       196,399       244,712       158,816  
 
                       
Dividends Declared
  $ 0.02     $ 0.02     $ 0.08     $ 0.44  
 
                       
Funds From Operations — Basic (M)
  $ (0.17 )   $ (0.14 )   $ (0.05 )   $ (0.90 )
 
                       
Funds From Operations — Diluted (M)
  $ (0.17 )   $ (0.14 )   $ (0.05 )   $ (0.90 )
 
                       

7


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
Selected Balance Sheet Data (N)
                 
    December 31, 2010     December 31, 2009  
Assets:
               
Real estate and rental property:
               
Land
  $ 1,837,403     $ 1,971,782  
Buildings
    5,491,489       5,694,659  
Fixtures and tenant improvements
    339,129       287,143  
 
           
 
    7,668,021       7,953,584  
Less: Accumulated depreciation
    (1,452,112 )     (1,332,534 )
 
           
 
    6,215,909       6,621,050  
Land held for development and construction in progress
    743,218       858,900  
Real estate held for sale, net
          10,453  
 
           
Real estate, net
    6,959,127       7,490,403  
 
               
Investments in and advances to joint ventures (O)
    417,223       420,541  
Cash
    19,416       26,172  
Restricted cash
    4,285       95,673  
Notes receivable, net
    120,330       74,997  
Receivables, including straight-line rent, net
    123,259       146,809  
Other assets, net (K)
    124,450       172,011  
 
           
 
  $ 7,768,090     $ 8,426,606  
 
           
 
               
Liabilities & Equity:
               
Indebtedness:
               
Revolving credit facilities
  $ 279,865     $ 775,028  
Unsecured debt
    2,043,582       1,689,841  
Mortgage and other secured debt
    1,978,553       2,713,794  
 
           
 
    4,302,000       5,178,663  
Dividends payable
    12,092       10,985  
Equity derivative liability (G)
    96,237       56,080  
Other liabilities
    223,074       228,542  
 
           
Total liabilities
    4,633,403       5,474,270  
 
               
Preferred shares
    555,000       555,000  
Common shares (M)
    25,627       20,174  
Paid-in-capital
    3,868,990       3,374,528  
Accumulated distributions in excess of net income
    (1,378,341 )     (1,098,661 )
Deferred compensation obligation
    14,318       17,838  
Accumulated other comprehensive income
    25,646       9,549  
Less: Common shares in treasury at cost
    (14,638 )     (15,866 )
Non-controlling interests
    38,085       89,774  
 
           
Total equity
    3,134,687       2,952,336  
 
           
 
  $ 7,768,090     $ 8,426,606  
 
           

8


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
(A)   Base and percentage rental revenues for the year ended December 31, 2010, as compared to the prior-year comparable period, increased $7.0 million primarily due to the acquisition of three shopping centers, which generated an additional $8.5 million in revenues offset by a net decrease in operating assets of $1.5 million. Included in rental revenues for the years ended December 31, 2010 and 2009, is approximately $2.5 million and $4.3 million, respectively, of revenue resulting from the recognition of straight-line rents, including discontinued operations.
 
(B)   Other revenues were comprised of the following (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Lease termination fees
  $ 3.4     $ 0.6     $ 7.5     $ 4.0  
Financing fees
    0.5       0.2       1.2       1.1  
Other miscellaneous
    0.1       0.3       2.1       2.2  
 
                       
 
  $ 4.0     $ 1.1     $ 10.8     $ 7.3  
 
                       
(C)   Operating and maintenance expense, including discontinued operations, includes the following expenses (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Bad debt expense
  $ 3.2     $ 5.4     $ 13.4     $ 16.1  
Ground rent expense (1)
    1.2       1.3       4.9       4.8  
 
(1)   Includes non-cash expense of approximately $0.5 million for the three-month periods ended December 31, 2010 and 2009, respectively, and approximately $2.0 million and $1.9 million for the years ended December 31, 2010 and 2009, respectively, related to straight-line ground rent expense.
(D)   The Company recorded impairment charges during both the three-month periods and years ended December 31, 2010 and 2009, on the following consolidated assets and investments (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Land held for development (1)
  $     $     $ 54.3     $  
Undeveloped land and CIP
    25.6             30.5       0.4  
Assets marketed for sale
    3.3             31.7       12.3  
 
                       
 
  $ 28.9     $     $ 116.5     $ 12.7  
 
                       
 
                               
Sold assets (2)
          1.3       20.1       73.3  
Assets formerly occupied by Mervyns (3)
          7.8       35.3       68.7  
 
                       
Total discontinued operations
          9.1       55.4       142.0  
 
                       
 
                               
Joint venture investments
    0.2       83.0       0.2       184.6  
 
                       
Total impairment charges
  $ 29.1     $ 92.1     $ 172.1     $ 339.3  
 
                       
 
(1)   Amounts reported relate to land held for development in Togliatti and Yaroslavl, Russia, of which the Company’s proportionate share was $41.9 million after adjusting for the allocation of loss to the non-controlling interest in this consolidated joint venture.

9


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
  (2)   See summary of discontinued operations activity in note (L).
 
  (3)   The Company’s proportionate share of these impairments was $16.5 million and $33.6 million, after adjusting for the allocation of loss to the non-controlling interest in this previously consolidated joint venture for the years ended December 31, 2010 and 2009, respectively. As discussed in note (N), these assets were deconsolidated in the third quarter of 2010 and all operating results have been reclassified as discontinued operations.
(E)   General and administrative expenses include internal leasing salaries, legal salaries and related expenses associated with the releasing of space, which are charged to operations as incurred. For the years ended December 31, 2010 and 2009, general and administrative expenses were approximately 5.2% and 5.4% of total revenues, respectively, including joint venture and managed property revenues.
 
    During the year ended December 31, 2010, the Company incurred $5.3 million in employee separation charges. During the year ended December 31, 2009, the Company recorded a non-cash charge of $15.4 million as a result of the change in control provisions included in the Company’s equity-based award plans. Excluding these charges, general and administrative expenses were 4.9% and 4.5% of total revenues for the years ended December 31, 2010 and 2009, respectively.
 
(F)   The Company recorded the following in connection with its outstanding convertible debt (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Non-cash interest expense related to amortization of the debt discount
  $ 3.0     $ 2.5     $ 8.2     $ 12.2  
Non-cash adjustment to gain on repurchase
    0.1       3.9       4.9       20.9  
(G)   Represents the non-cash impact of the valuation adjustments of the equity derivative instruments (warrants) issued as part of the share purchase transaction with the Otto Family completed in 2009, as a result of changes in the Company’s stock price. The liability will be reclassified into equity upon ultimate exercise or expiration of the warrants.
 
(H)   Other (expenses) income were comprised of the following (in millions):
                                 
    Three-Month Periods Ended     Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Litigation-related expenses (1)
  $ (1.0 )   $ (2.1 )   $ (14.6 )   $ (6.4 )
Lease liability reserve (2)
    (3.3 )           (3.3 )      
Debt extinguishment costs
    (0.5 )     (13.9 )     (3.7 )     (14.2 )
Note receivable reserve
                0.1       (5.4 )
Sale of MDT units
                      2.8  
Abandoned projects and other expenses
    (1.2 )     (3.9 )     (2.8 )     (6.0 )
 
                       
 
  $ (6.0 )   $ (19.9 )   $ (24.3 )   $ (29.2 )
 
                       
 
(1)   The year ended December 31, 2010 includes a $5.1 million reserve recorded in connection with a legal matter at a property in Long Beach, California. This reserve was offset by a tax benefit of approximately $2.4 million, classified in the tax expense (benefit) line item in the consolidated statements of operations, because the asset is owned through the Company’s TRS. Total litigation-related expenditures, net of the tax benefit, were $1.0

10


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
      million and $12.2 million for the three-month period and year ended December 31, 2010, respectively.
 
  (2)   Represents the liability recorded pursuant to ASC 420, Exit or Disposal Cost Obligations, primarily relating to the contractual obligations associated with the ground lease for an abandoned development project in Norwood, Massachusetts.
(I)   At December 31, 2010 and 2009, the Company owned joint venture interests, excluding consolidated joint ventures, in 236 and 274 shopping center properties, respectively. See pages 13-15 of this press release for a summary of the combined condensed operating results and select balance sheet data of the Company’s unconsolidated joint ventures.
 
(J)   In October 2009, the Company’s approximate 14.5% interest in the MDT US LLC joint venture was redeemed in exchange for a 100% interest in three shopping center assets and a cash payment of $1.6 million. The Company accounted for this transaction as a step acquisition and, as a result, recognized a $23.5 million gain.
 
(K)   The Company incurred a fourth quarter non-cash income tax expense of $49.9 million recognized due to the establishment of a reserve against certain deferred tax assets within its TRS. Based upon the continued loss activity recognized by the TRS, including a fourth quarter impairment and lease liability charge of $22.3 million associated with an abandoned development project, it was determined that it was more likely than not that the deferred tax assets would not be utilizable, thus requiring a current reserve. Net deferred tax assets are classified within Other assets on the consolidated balance sheet at December 31, 2009.
 
(L)   The operating results relating to assets classified as discontinued operations are summarized as follows:
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Revenues from operations
  $ 892     $ 6,666     $ 12,015     $ 45,910  
 
                       
 
                               
Operating expenses
    70       4,844       8,535       24,915  
Impairment charges
          9,055       55,438       141,973  
Interest, net
    134       5,583       9,892       23,566  
Depreciation and amortization
    194       2,222       4,441       16,126  
 
                       
Total expenses
    398       21,704       78,306       206,580  
 
                       
Loss before disposition of real estate
    494       (15,038 )     (66,291 )     (160,670 )
Gain on deconsolidation of interests
                5,649        
Gain (loss) on disposition of real estate, net
    8,377       (4,061 )     5,775       (24,027 )
 
                       
Net income (loss)
  $ 8,871     $ (19,099 )   $ (54,867 )   $ (184,697 )
 
                       
    Discontinued operations for all periods presented include the activity associated with the 50% owned joint venture, DDR MDT MV LLC (“MV LLC” or the “Mervyns Joint Venture”), which was deconsolidated during the third quarter of 2010. See further discussion in note (N).

11


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
(M)   For purposes of computing FFO and operating FFO per share, the following share information was utilized (in millions):
                 
    At December 31,  
    2010     2009  
Common shares outstanding
    256.2       201.6  
OP Units outstanding (“OP Units”)
    0.4       0.4  
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Weighted average common shares outstanding
    256.2       197.9       246.6       159.7  
 
                       
Assumed conversion of OP Units
    0.4       0.4       0.4       0.4  
 
                       
FFO Weighted average common shares and OP Units — Basic and Diluted
    256.6       198.3       247.0       160.1  
 
                       
Assumed conversion of dilutive securities
    8.2       5.2       7.4       3.1  
 
                       
Operating FFO Weighted average common shares and OP Units —Diluted
    264.8       203.5       254.4       163.2  
 
                       
(N)   The December 31, 2009 balance sheet reflects the consolidation of a 50% owned joint venture, MV LLC, which as of that date owned 31 sites formerly occupied by Mervyns.
         
    December 31, 2009  
Real estate, net
  $ 218.7  
Restricted cash
  $ 50.5  
Mortgage debt
  $ 225.4  
Non-controlling interests
  $ 22.4  
    The 25 assets owned by MV LLC in August 2010 were placed in the control of a court appointed receiver and as a result, the entity that holds the assets and nonrecourse mortgage loan was deconsolidated for accounting purposes pursuant to the provisions of Accounting Standards Codification No. 810, “Consolidation” (“ASC 810”). Upon deconsolidation in the third quarter of 2010, the Company recorded a gain of approximately $5.6 million because the carrying value of the nonrecourse debt exceeded the carrying value of the collateralized assets. Following the deconsolidation, the Company no longer has any economic rights or obligations in MV LLC. The revenues and expenses associated with MV LLC for the current and prior periods, including the $5.6 million gain, are classified within discontinued operations in the statements of operations.
 
(O)   Included in the Company’s balance sheet as of December 31, 2009, was $28.5 million of assets owned by a consolidated joint venture that was deconsolidated in accordance with the adoption of ASC 810 as of January 1, 2010.

12


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Summary Results of Combined Unconsolidated Joint Ventures
(In thousands)
Combined condensed income statements
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Revenues from operations (A)
  $ 171,846     $ 172,531     $ 668,946     $ 778,770  
 
                       
 
Operating expenses
    61,309       67,630       256,380       301,637  
Impairment charges (B)
    1,304       218,479       12,291       218,479  
Depreciation and amortization of real estate investments
    47,752       49,619       187,876       218,547  
Interest expense
    59,285       63,440       230,649       280,345  
 
                       
 
    169,650       399,168       687,196       1,019,008  
 
                       
Income (loss) from operations before tax expense and discontinued operations
    2,196       (226,637 )     (18,250 )     (240,238 )
Income tax expense
    (6,502 )     (2,948 )     (20,449 )     (10,013 )
Income (loss) from discontinued operations, net of tax (C)
    219       (172,417 )     (9,674 )     (206,436 )
(Loss) gain on disposition of discontinued operations, net of tax (D)
    (1,371 )     64       (26,674 )     (19,448 )
Gain (loss) on disposition of assets (E)
          843       17       (25,973 )
Other, net (F)
                      7,153  
 
                       
Net loss
  $ (5,458 )   $ (401,095 )   $ (75,030 )   $ (494,955 )
 
                       
Net gain (loss) at DDR ownership interests (G)
  $ 10,676     $ (22,147 )   $ 6,319     $ (34,522 )
 
                       
FFO at DDR’s ownership interests (H)
  $ 15,226     $ 11,113     $ 47,545     $ 43,665  
 
                       
Combined condensed balance sheets
                 
    December 31, 2010     December 31, 2009  
Land
  $ 1,566,682     $ 1,782,431  
Buildings
    4,783,841       5,207,234  
Fixtures and tenant improvements
    154,292       146,716  
 
           
 
    6,504,815       7,136,381  
Less: Accumulated depreciation
    (726,291 )     (636,897 )
 
           
 
    5,778,524       6,499,484  
Land held for development and construction in progress (I)
    174,237       130,410  
 
           
Real estate, net
    5,952,761       6,629,894  
Receivables, including straight-line rent, net
    111,569       113,630  
Leasehold interests
    10,296       11,455  
Other assets, net
    303,826       342,192  
 
           
 
  $ 6,378,452     $ 7,097,171  
 
           
 
Mortgage debt (J)
  $ 3,950,794     $ 4,547,711  
Notes and accrued interest payable to DDR
    87,282       73,477  
Other liabilities
    186,728       194,065  
 
           
 
    4,224,804       4,815,253  
Accumulated equity
    2,153,648       2,281,918  
 
           
 
  $ 6,378,452     $ 7,097,171  
 
           

13


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Summary Results of Combined Unconsolidated Joint Ventures
(In thousands)
(A)   Revenues for the three-month periods and years ended reflect the following (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Straight-line rents
  $ 1.0     $ (0.3 )   $ 3.9     $ 2.7  
DDR’s proportionate share
    0.2             0.6       0.2  
    The 2009 combined condensed income statement includes the results of operation of the EDT joint venture. In October 2009, the Company redeemed its ownership interest in this joint venture and are not reflected in discontinued operations.
 
(B)   For the three months and year ended December 31, 2010, impairment charges were recorded by two of the Company’s unconsolidated joint ventures relating to three assets, of which the Company’s proportionate share of these impairment charges for the year ended was approximately $0.5 million. The Company’s proportionate share of the fourth quarter charge was immaterial. For the three months and year ended December 31, 2009, an impairment charge of $218.5 million was recorded by one of the Company’s unconsolidated joint ventures related to a suspended development project. The Company’s proportionate share of the loss was zero as the Company had written off its basis in the investment in the second quarter of 2009.
 
(C)   Impairment charges reclassified to discontinued operations relating to assets sales were $8.8 million for the year ended December 31, 2010 and $170.9 million and $204.8 for the three months and year ended December 31, 2009, respectively. The Company’s proportionate share of these impairment charges was $0.3 million for the year ended December 31, 2010 and $2.6 million and $8.1 million for the three months and year ended December 31, 2009, respectively.
 
(D)   For the three months ended December 31, 2010, a $4.9 million net gain was recorded for the Company’s proportionate share of the assets sold during that period as a result of promoted interests from one of the asset sales. For the year ended December 31, 2010, loss on disposition of discontinued operations includes the sale of 35 properties by five separate unconsolidated joint ventures. In 2009, $170.9 million of impairment charges were recorded by these joint ventures in anticipation of the sales transactions as noted in (C) above. The Company’s proportionate share of the aggregate loss for the assets sold for the year ended December 31, 2010 was a gain of approximately $0.8 million.
 
    For the year ended December 31, 2009, loss on disposition of discontinued operations included the sale of 12 properties by three separate unconsolidated joint ventures resulting in a loss of $19.4 million of which the Company’s proportionate share was $1.4 million.
 
(E)   In the first quarter of 2009, an unconsolidated joint venture disposed of a property resulting in a loss of $26.7 million, of which the Company’s proportionate share was $5.8 million.
 
(F)   Activity related to the Company’s investment in the MDT units that were liquidated in 2009.

14


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Summary Results of Combined Unconsolidated Joint Ventures
(In thousands)
(G)   Adjustments to the Company’s share of joint venture equity in net loss is related primarily to basis differences impacting amortization and depreciation, impairment charges and (loss) gain on dispositions as follows (in millions):
                                 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
(Loss) income, net
  $ (1.2 )   $ 21.4     $ (0.7 )   $ 24.8  
 
(H) FFO from unconsolidated joint ventures are summarized as follows:
 
    Three-Month Periods     Year Ended  
    Ended December 31,     December 31,  
    2010     2009     2010     2009  
Net loss
  $ (5,458 )   $ (401,095 )   $ (75,030 )   $ (494,955 )
Loss on sale of real estate
    (24,687 )     (843 )     (24,734 )     (843 )
Depreciation and amortization of real estate investments
    48,508       55,528       198,323       245,000  
 
                       
FFO
  $ 18,363     $ (346,410 )   $ 98,559     $ (250,798 )
 
                       
FFO at DDR’s ownership interests
  $ 15,226     $ 11,113     $ 47,545     $ 43,665  
 
                       
Operating FFO at DDR’s ownership interests (1)
  $ 15,721     $ 13,722     $ 54,433     $ 62,690  
 
                       
DDR joint venture distributions received, net (2)
  $ 24,470     $ 7,963     $ 53,768     $ 31,455  
 
                       
 
(1)   Excluded from operating FFO is the Company’s pro rata share of net charges primarily related to impairment charges and losses on the disposition of assets as disclosed on page 2 of this press release.
 
(2)   Distributions for 2009 included $2.5 million from a foreign investment that have yet to be expatriated to the United States.
(I)   The Company’s proportionate share of joint venture land held for development and construction in progress aggregated approximately $71.7 million and $37.6 million at December 31, 2010 and December 31, 2009, respectively.
 
    The combined condensed balance sheet at December 31, 2010 included a joint venture under development that was deconsolidated by the Company as of January 1, 2010 due to the adoption of ASC 810 (Footnote O in this release).
 
(J)   The Company’s proportionate share of joint venture debt aggregated approximately $835.8 million and $917.0 million at December 31, 2010 and December 31, 2009, respectively.

15


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
FINANCIAL HIGHLIGHTS
(In Millions Except Per Share Information)
                         
    Year Ended December 31,  
    2010     2009     2008  
FUNDS FROM OPERATIONS:
                       
Net Loss Applicable to Common Shareholders
  $ (251.6 )   $ (398.9 )   $ (114.2 )
Depreciation and Amortization of Real Estate Investments
    217.2       224.2       236.3  
Equity in Net (Income) Loss From Joint Ventures
    (5.6 )     9.3       (17.7 )
Joint Venture Funds From Operations
    47.5       43.7       68.4  
Non-Controlling Interests (OP Units)
          0.2       1.1  
Gain on Disposition of Real Estate
    (18.8 )     (23.1 )     (4.2 )
 
                 
FUNDS FROM OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS
    (11.3 )     (144.6 )     169.7  
PREFERRED DIVIDENDS
    42.3       42.3       42.3  
 
                 
FUNDS FROM OPERATIONS
  $ 31.0     $ (102.3 )   $ 212.0  
 
                 
 
                       
Net non-operating charges excluded from FFO (1)
    275.6       442.8       217.8  
OPERATING FFO AVAILABLE TO COMMON SHAREHOLDERS
  $ 264.3     $ 298.2     $ 387.5  
 
                 
 
                       
PER SHARE INFORMATION:
                       
Funds From Operations — Diluted
  $ (0.05 )   $ (0.90 )   $ 1.40  
Operating FFO — Diluted
  $ 1.04     $ 1.83     $ 3.20  
Net Loss — Diluted
  $ (1.03 )   $ (2.51 )   $ (0.96 )
Dividends
  $ 0.08     $ 0.44     $ 2.07  
 
                       
COMMON SHARES & OP UNITS:
                       
Outstanding
    256.6       202.0       129.0  
Weighted average — Diluted (FFO)
    247.0       160.1       121.0  
Weighted average — Diluted (Operating FFO)
    254.4       163.2       121.0  
 
                       
GEN. & ADMIN. EXPENSES
  $ 85.6     $ 94.4     $ 97.7  
 
                       
REVENUES:
                       
DDR Revenues
  $ 815.1     $ 843.3     $ 943.7  
Joint Venture & Managed Revenues
    840.6       902.0       946.3  
 
                 
TOTAL REVENUES (2)
  $ 1,655.7     $ 1,745.3     $ 1,890.0  
 
                 
 
                       
GEN. & ADMIN. EXPENSES AS A PERCENTAGE OF TOTAL REVENUES (3)
    5.2 %     5.4 %     5.2 %
 
                       
NET OPERATING INCOME:
                       
DDR Net Operating Income
  $ 560.9     $ 581.6     $ 682.6  
Joint Venture Net Operating Income
    428.1       532.3       617.5  
 
                 
TOTAL NET OPERATING INCOME (2)
  $ 989.0     $ 1,113.9     $ 1,300.1  
 
                 
 
                       
REAL ESTATE AT COST:
                       
DDR Real Estate at Cost
  $ 8,411.2     $ 8,823.7     $ 9,109.6  
Joint Venture Real Estate at Cost (4)
    6,679.1       7,266.8       9,276.0  
 
                 
TOTAL REAL ESTATE AT COST
  $ 15,090.3     $ 16,090.5     $ 18,385.6  
 
                 
 
(1)   See Reconciliation of Non-GAAP Financial Measures for detail of net non-operating charges.
 
(2)   Includes activities from discontinued operations.
 
(3)   The 2010 results include an employee separation charge of $5.3 million. Excluding this charge, general and administrative expenses were approximately 4.9% of total revenues for the year ended December 31, 2010. The 2009 results include $15.4 million related to a non-cash change in control charge. Excluding this charge, general and administrative expenses were approximately 4.5% of total revenues. The 2008 results include $15.8 million for a non-cash charge related to the termination of an equity award plan. Excluding this charge, general and administrative expenses were approximately 4.3% of total revenues.
 
(4)   Periods after October 2009 include the impact of the redemption of the Company’s interest in the MDT US LLC joint venture which reduced the joint venture real estate at cost by $1.6 billion. DDR’s consolidated real estate at cost increased by $113.3 million in the fourth quarter of 2009 related to the three assets transferred to the Company in connection with the redemption.

16


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
FINANCIAL RATIOS
(In Millions, Except Ratios)
         
        Actual Covenants
        Year Ended
    Covenant   December 31,
    Threshold   2010
PUBLIC DEBT COVENANTS:
       
Total Debt to Real Estate Assets Ratio
  not to exceed 65%   49%
 
       
Secured Debt to Assets Ratio
  not to exceed 40%   22%
 
       
Value of Unencumbered Assets to Unsecured Debt
  at least 135%   217%
 
       
Fixed Charge Coverage Ratio
  at least 1.5x   1.8x
                         
    Year Ended December 31,  
    2010     2009     2008  
DIVIDEND PAYOUT RATIO:
                       
Common Share Dividends and Operating Partnership Interests
  $ 20.2     $ 64.7 (1)   $ 249.8  
Operating FFO Available to Common Shareholders
  $ 264.3     $ 298.2     $ 387.5  
 
                 
 
    7.7 %     21.7 %(1)     64.6 %
         
    Rating   Outlook
CREDIT RATINGS:
       
Moody’s
  Baa3   negative
Fitch
  BB   stable
S&P
  BB   negative
 
(1)   Includes issuance of common shares with an aggregate value of $50.8 million resulting in an actual cash payout ratio of 3.1% in 2009.

17


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Total Market Capitalization as of December 31, 2010
(In Millions)
                                 
    December 31, 2010     December 31, 2009  
            Percentage of             Percentage of  
    Amount     Total     Amount     Total  
 
                               
Common Shares Equity
  $ 3,614.9       42 %   $ 1,870.9       25 %
Perpetual Preferred Stock
    555.0       7 %     555.0       7 %
Fixed-Rate Senior Convertible Notes, Face Value
    638.0       7 %     428.3       6 %
Fixed-Rate Unsecured Debt
    1,463.6       17 %     1,279.1       17 %
Fixed-Rate Mortgage Debt
    1,234.5       14 %     1,594.2       21 %
Variable-Rate Mortgage Debt
    144.0       2 %     319.7       4 %
Variable-Rate Revolving Credit and Term Debt
    729.9       9 %     1,175.0       15 %
Fixed-Rate Revolving Credit and Term Debt
    150.0       2 %     400.0       5 %
 
                               
 
                       
Total
  $ 8,529.9       100 %   $ 7,622.2       100 %
 
                       
 
                               
Debt to Market Capitalization
         51.1%            68.2%  
  Market value ($14.09 per share as of December 31, 2010 and $9.26 per share as of December 31, 2009) includes common shares outstanding (256.2 million as of December 31, 2010 and 201.6 million as of December 31, 2009) and operating partnership units equivalent to approximately 0.4 million of the Company’s common shares in each year.
 
  Debt outstanding excludes accretion adjustment of $58.0 million and $17.6 million recorded at December 31, 2010 and 2009, respectively, for the outstanding convertible notes as required by accounting standards due to the initial value of the equity conversion feature.
 
  Consolidated debt includes 100% of consolidated joint venture debt of which the joint venture partners’ share is $22.1 million and $142.3 million at December 31, 2010 and December 31, 2009, respectively.
 
  Does not include proportionate share of unconsolidated joint venture debt aggregating $835.8 million and $917.0 million at December 31, 2010 and December 31, 2009, respectively.
 
  During 2010, 25 assets formerly occupied by Mervyns which are owned by the MDT MV LLC joint venture were placed in the control of a court appointed receiver. The entities that hold the assets and nonrecourse mortgage loans were deconsolidated for accounting purposes. This deconsolidation resulted in a decrease of consolidated debt of $154.1 million from December 31, 2010 as compared to December 31, 2009 of which the joint partners’ share was $112.7 million.

18


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
                 
    Quarter ended     Quarter ended  
(In Millions)   December 31, 2010     December 31, 2009  
Debt to EBITDA — consolidated
               
EBITDA:
               
Net loss attributable to DDR
  $ (84.2 )   $ (79.6 )
 
               
Adjustments:
               
Impairment charges
    28.9       9.1  
Employee separation charges
    3.2        
Depreciation and amortization
    57.5       56.5  
Depreciation attributable to non-controlling interests
    (0.1 )     (0.5 )
Interest expense
    59.8       64.9  
Interest expense attributable to non-controlling interests
    (0.1 )     (2.0 )
Gain on change in control of interests
          (23.5 )
Loss on equity derivative instruments
    25.5       1.6  
Other expenses, net
    6.0       19.9  
Equity in net (income) loss of joint ventures
    (9.4 )     0.7  
Impairment of joint venture investments
    0.2       83.0  
Gain on debt retirement, net
    (0.2 )     (2.7 )
Income tax expense (benefit)
    49.5       (1.2 )
EBITDA adjustments from discontinued operations (1)
    (8.0 )     4.8  
Gain on disposition of real estate, net
    (1.3 )     (0.9 )
Impairment charges applicable to non-controlling interests
          (3.9 )
 
           
EBITDA before JVs
  $ 127.3     $ 126.2  
Pro rata share of JV FFO
    15.2       11.1  
Pro rata share of JV impairments and loss on disposition of assets
    0.5       2.6  
 
           
 
               
EBITDA Consolidated
  $ 143.0     $ 139.9  
EBITDA Consolidated — annualized
  $ 572.0     $ 559.6  
 
               
Consolidated indebtedness
  $ 4,302.0     $ 5,178.7  
Non-controlling interests’ share of consolidated debt
    (22.1 )     (142.4 )
Adjustment to reflect convertible debt at face value
    58.0       17.6  
 
           
Total consolidated indebtedness
  $ 4,337.9     $ 5,053.9  
Cash and restricted cash
    (23.7 )     (96.2 )
 
           
Total consolidated indebtedness, net of cash
  $ 4,314.2     $ 4,957.7  
 
               
 
           
Gross Debt/EBITDA — consolidated
    7.54       8.86  
 
           
Ratio reflects Company’s consolidated EBITDA and pro rata share of JV FFO. The JV FFO, which is net of interest expense, reflects the earnings available to the Company to service consolidated debt. In addition, the JV debt is generally non-recourse to the Company. Operations from September 1, 2010 and debt for the year ended December 31, 2010 relating to the Mervyns joint venture have been excluded from this calculation due to the deconsolidation of the joint venture and valuation of the Company’s retained interest at zero.
                 
Debt to EBITDA — pro rata
               
 
               
EBITDA before JVs
  $ 127.3     $ 126.2  
Pro rata share of JV EBITDA
    30.4       29.8  
 
           
 
               
EBITDA including pro rata share of JVs
  $ 157.7     $ 156.0  
EBITDA including pro rata share of JVs — annualized
  $ 630.8     $ 624.0  
 
               
Total consolidated indebtedness, net of cash
  $ 4,314.2     $ 4,957.7  
Pro rata share of JV debt (2)
    835.8       917.0  
 
           
Total pro rata indebtedness
  $ 5,150.0     $ 5,874.7  
Pro rata share of cash and restricted cash
    (32.6 )     (40.4 )
 
           
Pro rata indebtedness, net of cash
  $ 5,117.4     $ 5,834.3  
 
               
 
           
Gross Debt/EBITDA — pro rata
    8.11       9.35  
 
           
Ratio includes Company’s pro rata share of JV EBITDA and the Company’s pro rata share of JV debt outstanding. Operations from September 1, 2010 and debt for the year ended December 31, 2010 relating to the Mervyns joint venture have been excluded from this calculation due to the deconsolidation of the joint venture and valuation of the Company’s retained interest at zero.
Notes:
                 
(1)  Discontinued operations includes the following EBITDA adjustments:
               
  Interest expense, net
  $ 0.2     $ 0.6  
  Depreciation and amortization
    0.2       0.1  
  (Gain) loss on disposition of real estate, net
    (8.4 )     4.1  
 
           
 
  $ (8.0 )   $ 4.8  
 
           
(2)   Includes $52.7 million representing the Company’s proportionate share of non recourse debt associated with equity method joint ventures for which the Company has written its investment down to zero and is receiving no allocation of income.

19


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Significant Accounting Policies
Revenues
  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 provisions of tenants’ 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.
  Base rental revenue includes income from ground leases of $19.8 million for the year ended December 31, 2010.
General and Administrative Expenses
  General and administrative expenses include internal leasing salaries, legal salaries and related expenses associated with the leasing of space which are charged to operations as incurred. For the year ended December 31, 2010, the Company expensed $8.6 million in internal leasing costs. All internal and external costs associated with acquisitions are expensed as incurred. The Company does not capitalize any executive officer compensation.
Deferred Financing Costs
  Costs incurred in obtaining long-term financing are included in deferred charges and are amortized over the terms of the related debt agreements; such amortization is reflected as interest expense in the consolidated statements of operations.
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
  15 to 31 years
Furniture/Fixtures and Tenant Improvements
  Useful lives, which approximate lease terms, where applicable

20


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Significant Accounting Policies (Continued)
  Expenditures for maintenance and repairs are charged to operations as incurred. Renovations that improve or extend the life of the asset are capitalized.
  Construction in progress includes shopping center developments and significant expansions and redevelopments.
Capitalization
  The Company capitalizes interest on funds used for the construction or expansion of shopping centers and certain construction administration costs. Capitalization of interest and administration costs ceases when construction activities are completed and the property is available for occupancy by tenants or when activities are suspended.
                         
    Year Ended December 31,
Capitalized Costs (In Millions)   2010   2009   2008
Interest expense
  $ 12.2     $ 21.8     $ 41.1  
Construction administration costs
  $ 8.8     $ 10.9     $ 13.9  
  Interest and real estate taxes incurred during the construction period are capitalized and depreciated over the building life.
  During the year ended December 31, 2010, the Company expensed $6.0 million in operating costs relating to development projects that have been suspended.
Gain on Sales of Real Estate
  Gain on sales of real estate generally related to the sale of outlots and land adjacent to existing shopping centers is recognized at closing when the earnings process is deemed to be complete.
  Gains or losses on the sale of operating shopping centers are reflected as discontinued operations.

21


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Other Real Estate Information
Total Capital Expenditures
  The Company incurred the following estimated leasing and maintenance capital expenditures including costs associated with anchor store re-tenanting related to major tenant bankruptcies.
                 
            Unconsolidated  
    Consolidated     at Prorata  
    Year     Year  
    Ended     Ended  
Capital Expenditures (In Millions)   December 31, 2010     December 31, 2010  
Leasing
  $ 49.4     $ 4.8  
Maintenance
    7.1       0.7  
 
           
Total Capital Expenditures
  $ 56.5     $ 5.5  
 
           
Per Square Foot of Owned GLA
               
Leasing
  $ 1.03     $ 0.56  
Maintenance
    0.15       0.08  
 
           
Total Capital Expenditures
  $ 1.18     $ 0.64  
 
           
Undeveloped Land
  Included in Land is undeveloped real estate, comprised primarily of outlots or expansion pads adjacent to the shopping centers owned by the Company.
  At December 31, 2010, the Company estimated the value of its consolidated and proportionate share of joint venture undeveloped land adjacent to existing shopping centers to be approximately $35 million.
Non-Income Producing Assets
  There are twelve consolidated shopping centers and the Company’s corporate headquarters, which total 0.8 million square feet with a land and building cost basis of approximately $100 million, considered non-incoming producing at December 31, 2010.

22


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Same Store NOI
(In Millions)
Same Store Net Operating Income (NOI) represents shopping center assets owned for comparable periods (15 months for quarter comparison and 24 months for full year comparison). Same Store NOI excludes the following:
    Assets under development or redevelopment
 
    Straight-line rental income and expense
 
    Income related to lease terminations
 
    Provisions for uncollectible amounts and/or recoveries thereof
                                                 
    Three Months Ended             Year Ended          
    December 31,             December 31,          
    2010     2009             2010     2009          
Total Same Store NOI
  $ 226.1     $ 218.2 (1)     3.6 %   $ 880.0     $ 870.0 (1)     1.1 %
Property NOI from other operating segments
    (28.1 )     (28.5 )             (89.5 )     (167.0 )        
 
                                       
 
                                               
Combined NOI — DDR & Joint Ventures
  $ 254.2     $ 246.7             $ 969.5     $ 1,037.0          
 
                                       
Reconciliation to Income Statement
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Total Revenues — DDR
  $ 203.5     $ 203.6     $ 803.1     $ 797.4  
Total Revenues — Combined Joint Ventures
    171.8       172.5 (1)     668.9       778.8 (1)
Operating and Maintenance — DDR
    (34.0 )     (36.2 )     (137.9 )     (135.2 )
Real Estate Taxes — DDR
    (25.8 )     (25.6 )     (108.3 )     (102.4 )
Operating and Maintenance and Real Estate Taxes — Combined Joint Ventures
    (61.3 )     (67.6 ) (1)     (256.3 )     (301.6 ) (1)
 
                       
 
                               
Combined NOI — DDR & Joint Ventures  
  $ 254.2     $ 246.7     $ 969.5     $ 1,037.0  
 
                       
 
(1)   The actual combined joint venture results for the three months and year ended December 31, 2009 include the activity of the MDT US LLC joint venture through October 2009. However, for purposes of calculating the Same Store NOI, the results of the assets within the MDT US LLC joint venture not retained by the Company after the redemption were excluded for 2009.

23


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
(In Millions)
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
 
                               
FUNDS FROM OPERATIONS:
                               
Net Loss Applicable to Common Shareholders
  $ (94.8 )   $ (90.1 )   $ (251.6 )   $ (398.9 )
Depreciation and Amortization of Real Estate Investments
    55.5       54.0       217.2       224.2  
Equity in Net (Income) Loss From Joint Ventures
    (9.4 )     0.7       (5.6 )     9.3  
Joint Venture Funds From Operations
    15.2       11.1       47.5       43.7  
Non-Controlling Interests (OP Units)
                      0.2  
Gain on Dispostion of Real Estate
    (10.4 )     (3.7 )     (18.8 )     (23.1 )
 
                       
FUNDS FROM OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS
  $ (43.9 )   $ (28.0 )   $ (11.3 )   $ (144.6 )
 
                       
Preferred Dividends
    10.6       10.6       42.3       42.3  
 
                       
FUNDS FROM OPERATIONS
  $ (33.3 )   $ (17.4 )   $ 31.0     $ (102.3 )
 
                       
 
                               
OPERATING FFO:
                               
Non-cash impairment charges — consolidated assets
  $ 28.9     $     $ 116.5     $ 12.7  
Employee separations and related compensation and benefit charges
    3.5             5.6       15.4  
Gain on debt retirement, net
    (0.2 )     (2.7 )     (0.5 )     (145.1 )
Non-cash loss on equity derivative instruments
    25.5       1.6       40.2       199.8  
Other expense, net — litigation, net of tax, debt extinguishment costs, loss on sale of MDT units, net loan loss reserve, lease liabilities and other expenses
    6.0       20.0       22.0       30.0  
Equity in net loss of joint ventures — loss on asset sales, impairment charges and derivative losses (MDT)
    0.2       2.6       6.6       19.0  
Impairment of joint venture interests
    0.2       83.0       0.2       184.6  
(Gain) loss on change in control of interests
          (23.5 )     0.4       (23.9 )
Tax expense — deferred tax assets reserve
    49.9             49.9        
Discontinued operations — non-cash consolidated impairment charges and loss on sales
    1.3       13.7       67.1       185.5  
Discontinued operations — FFO associated with Mervyns Joint Venture, net of non-controlling interest
                4.8        
Discontinued operations — gain on deconsolidation of Mervyns Joint Venture
                (5.6 )      
Gain on disposition of real estate
    (0.5 )           (0.4 )      
Less non-controlling interest — portion of impairment charges allocated to outside partners
          (3.9 )     (31.2 )     (35.2 )
 
                       
TOTAL NON-OPERATING ITEMS
  $ 114.8     $ 90.8     $ 275.6     $ 442.8  
FUNDS FROM OPERATIONS AVAILABLE TO COMMON
                               
SHAREHOLDERS
    (43.9 )     (28.0 )     (11.3 )     (144.6 )
 
                       
OPERATING FFO AVAILABLE TO COMMON SHAREHOLDERS
  $ 70.9     $ 62.8     $ 264.3     $ 298.2  
 
                       
                                 
    Three Months Ended   Year Ended
    December 31,   December 31,
    2010   2009   2010   2009
    (Income)/Expense   (Income)/Expense
ADDITIONAL NON-CASH DISCLOSURES:
                               
Below Market Rent Revenue*
  $     $ (0.1 )   $ (0.3 )   $ (0.5 )
Debt Premium Amortization Revenue*
    (0.6 )     (0.8 )     (2.9 )     (3.5 )
Convertible Debt Accretion Expense
    3.0       2.5       8.2       12.2  
Straight-Line Rent Revenue
    0.8       1.8       2.5       4.3  
Straight-Line Ground Rent Expense*
    0.5       0.5       2.0       1.9  
Joint Venture Straight-Line Rent Revenue
    1.0       (0.3 )     3.9       2.7  
DDR’s Proportionate Share of Straight-Line Rent Revenue
    0.2       (0.1 )     0.6       0.2  
 
*   Prorata share of joint venture is deminis

24


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Consolidated Transactional Income
(In Thousands)
                                         
    Three Months Ended     Year Ended          
    December 31,     December 31,          
    2010     2009     2010     2009          
 
                                       
Included in FFO:
                                       
Gain (Loss) on Dispositions, Net of Tax
  $ (31 )   $ 27     $ (598 )   $ 529          
Loss on Sales from Discontinued Operations
    (1,329 )     (4,401 )     (12,071 )     (43,356 )        
Land Sale Gain (Loss)
    585       (2,500 )     959       4,804          
 
                               
 
  $ (775 )   $ (6,874 )   $ (11,710 )   $ (38,023 )        
 
                               
 
                                       
NOT Included in FFO:
                                       
Gain (Loss) on Dispositions, Net of Tax
  $ 703     $ 3,378     $ 957     $ 3,794          
Gain on Sales from Discontinued Operations
    9,706       340       17,846       19,329          
 
                               
 
  $ 10,409     $ 3,718     $ 18,803     $ 23,123     FFO Reconciliation
 
                               
 
                                       
Reconciliation to Income Statement
                                       
 
                                       
Gain on Disposition of Real Estate, Net of Tax
                                       
Gain (Loss) on Dispositions, Net of Tax
  $ (31 )   $ 27     $ (598 )   $ 529          
Land Sale Gain (Loss)
    585       (2,500 )     959       4,804          
Gain (Loss) on Dispositions, Net of Tax
    703       3,378       957       3,794          
 
                               
 
  $ 1,257     $ 905     $ 1,318     $ 9,127     Consolidated Income Statement
 
                               
 
                                       
Gain (Loss) on Disposition of Real Estate From Discontinued Operations, Net of Tax
                                       
Gain (Loss) on Sales from Discontinued Operations
  $ 8,377     $ (4,061 )   $ 5,775     $ (24,027 )   (Footnote L to the Press Release)
 
                               

25


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Joint Venture Transactional Income
(In Thousands)
                                         
    Three Months Ended     Year Ended          
    December 31,     December 31,          
    2010     2009     2010     2009          
 
                                       
Included in FFO:
                                       
Loss on Sales from Discontinued Operations
  $ (26,058 )   $ 64     $ (51,408 )   $ (19,448 )        
Land Sale Gains and Loss on Disposition of Real Estate
                17       (26,816 ) (1)        
 
                               
 
  $ (26,058 )   $ 64     $ (51,391 )   $ (46,264 )        
 
                               
DDR’s Proportionate Share (1)
  $ (2,080 )   $     $ (6,216 )   $ (1,429 )        
 
                               
 
                                       
NOT Included in FFO:
                                       
Gain (Loss) on Dispositions, Net of Tax
        $ 843           $ 843          
Gain on Sales from Discontinued Operations
    24,687             24,734                
 
                               
 
  $ 24,687     $ 843     $ 24,734     $ 843          
 
                               
DDR’s Proportionate Share
  $ 6,997     $ 177     $ 6,997     $ (5,186 )        
 
                               
 
                                       
Reconciliation to Income Statement
                                       
 
                                       
Gain on Sales of Real Estate, Net of Tax
                                       
Land Sale Gains and Loss on Disposition of Real Estate
  $     $     $ 17     $ (26,816 ) (1)        
Gain (Loss) on Dispositions, Net of Tax
          843             843          
 
                               
 
  $     $ 843     $ 17     $ (25,973 )   Loss on Disposition of Assets
 
                               
 
                                       
Gain (Loss) on Disposition of Real Estate From Discontinued Operations, Net of Tax
                                       
 
                                       
Gain (Loss) on Sales from Discontinued Operations
  $ (1,371 )   $ 64     $ (26,674 )   $ (19,448 )   Loss on Disposition of Discontinued Operations, Net of Tax
 
                               
 
(1)   Included in loss of disposition of assets for the year ended December 31, 2009 is the Company’s transfer of its interest in a Coventry II Fund asset.

26


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Joint Venture Investment Summary (1)
                                                     
                        All Values at 100%  
                        (In Millions)  
                        Gross     Total              
        DDR     Number of     Leasable     Annualized     Gross Asset        
Legal Name   Partner(s)   Ownership %     Properties     Area     Rent     Book Value     Debt  
Unconsolidated Joint Ventures
                                                   
DDRTC Core Retail Fund, LLC
  An Affiliate of TIAA-CREF     15 %     43       11.7     $ 135.3     $ 2,286.1     $ 1,222.7  
DDR Domestic Retail Fund I
  Various Institutional Investors     20 %     63       8.3       91.9       1,472.4       965.5  
Sonae Sierra Brasil BV Sarl
  Sonae Sierra, SGPS, SA     47.9 %     10       3.9       113.1       670.4       109.7  
DDRA Community Centers Five, L.P.
  DRA Advisors     50 %     5       1.8       26.3       243.4       278.9  
Coventry II Joint Ventures
  Coventry II Fund     10% - 20 %     47 (2)     5.4       55.4       854.5       638.0  
RVIP Structures/DPG Realty Holdings LLC
  Prudential RE Advisors/Prudential Insurance     10% - 25.75 %     4       0.7       13.9       142.0       81.0  
DDR-SAU Retail Fund, LLC
  Special Account-U, L.P. (State of Utah)     20 %     27       2.4       23.2       304.5       183.1  
DDR Markaz II LLC
  Kuwait Financial Centre     20 %     13       1.6       15.5       206.3       150.5  
TRT DDR Venture I General Partnership
  TRT-DDR Joint Venture I Owner LLC     10 %     3       0.5       9.5       160.2       110.0  
Other Unconsolidated JV Interests
  Various   Various     22       3.0       27.9       339.3       211.4  
 
                                         
Total Unconsolidated Joint Ventures
                237       39.3     $ 512.0     $ 6,679.1     $ 3,950.8  
 
                                         
 
(1)   DDR’s investment in joint ventures may be recorded at different amounts than the proportionate equity on the joint ventures’ balance sheet.
 
(2)   Includes one asset in which development was suspended.

27


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Joint Venture Combining Financial Statements
(In Millions)
Combining Balance Sheets
                         
    Total Unconsolidated JVs     DDR’s Proportionate Share          
Real estate assets
  $ 6,679.1     $ 1,483.6          
Accumulated depreciation
    (726.3 )     (184.3 )        
 
                   
Real estate, net
    5,952.8       1,299.3          
 
                   
Receivables, net
    111.5       33.1          
Other assets, net
    314.1       89.3          
Disproportionate share of equity
          (32.8 ) (1)      
 
                   
 
  $ 6,378.4     $ 1,388.9          
 
                   
 
                       
Mortgage debt (2)
  $ 3,950.8     $ 835.8          
Amounts payable to DDR
    87.3       10.6          
Other liabilities
    186.7       51.7          
 
                   
 
    4,224.8       898.1          
Accumulated equity
    2,153.6       523.6          
Disproportionate share of equity
          (32.8 ) (1)      
 
                   
 
  $ 6,378.4     $ 1,388.9          
 
                   
Combining Statements of Operations
                         
    Total Unconsolidated JVs     DDR’s Proportionate Share  
    Year Ended     Three-Month Period     Three-Month Period  
    December 31, 2010     Ended December 31, 2010     Ended December 31, 2010  
Revenues from operations
  $ 668.9     $ 171.8     $ 44.7  
Rental operation expenses
    (256.3 )     (61.3 )     (14.2 )
Impairment charges
    (12.3 )     (1.3 )     (0.2 )
 
                 
Net operating income
    400.3       109.2       30.3  
Depreciation and amortization expense
    (187.9 )     (47.7 )     (10.2 )
Interest expense
    (230.6 )     (59.3 )     (11.5 )
 
                 
(Loss) income before gain on sale of real estate
    (18.2 )     2.2       8.6  
Income tax expense
    (20.4 )     (6.5 )     (3.3 )
Discontinued operations
    (9.7 )     0.2        
Loss on disposition of discontinued operations
    (26.7 )     (1.4 )     1.3  
Gain (loss) on sale of real estate
                 
Disproportionate share of income
                4.1 (1)
 
                 
Net (loss) income
  $ (75.0 )   $ (5.5 )   $ 10.7  
 
                       
DDR ownership interests
  $ 6.3     $ 10.7     $ 10.7  
Amortization of basis differential
    (0.7 )     (1.2 )      
 
                 
 
  $ 5.6     $ 9.5     $ 10.7  
 
                 
 
                       
Funds From Operations
                       
 
                       
Net (loss) income
  $ (75.0 )   $ (5.5 )   $ 10.7  
Depreciation of real property
    198.3       48.5       9.8  
Gain on sale of real estate
    (24.7 )     (24.7 )     (5.2 )
Disproportionate share of income
                (0.1 ) (1)
 
                 
 
  $ 98.6     $ 18.3     $ 15.2  
 
                 
 
                       
DDR ownership interests
  $ 47.5     $ 15.2          
 
                   
 
(1)   Adjustments represent the effect of promoted equity structures and minority interests.
 
(2)   Includes approximately $308.5 million of non recourse debt of which the Company’s proportionate share is $52.7 million associated with joint ventures for which the Company has written its investment down to zero and is receiving no allocation of income.

28


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Property Acquisitions
There were no third party acquisitions for the year ended December 31, 2010.
Property Dispositions
                                             
                        (In Thousands)     (In Millions)  
            DDR’s                        
Disposition           Effective         Total     Gross        
Date   Location   Property Name   Ownership     Joint Venture   GLA     Sales Price     Relinquished Debt  
01/10
  Carson City, NV   Former Mervyns     50 %   MDT MV     60.5     $ 4.0     $ 4.0  
01/10
  Lynchburg, VA   Candlers Station     100 %       270.8       16.2        
01/10
  Tampa, FL   Town ‘N Country Promenade     100 %       134.5       7.8        
02/10
  Covington, LA   Covington Corners     100 %       15.6       2.4        
03/10
  Detroit, MI   Bel-Air Centre     100 %       445.3       0.6        
03/10
  Various   Portfolio of 16 assets     15 %   DDRTC Core     3,588.7       424.3       386.4  
04/10
  Macon, GA   Former Kmart     100 %       102.1       1.5        
04/10
  Baton Rouge, LA   Former Service Merchandise     20 %   Coventry II     90.0       1.3       1.7  
04/10
  Burbank, IL   Former Service Merchandise     20 %   Coventry II     27.2       0.2       1.0  
05/10
  Lexington, KY   South Farm Marketplace     100 %       17.8       2.3        
05/10
  Niagara Falls, NY   Regal Cinemas     100 %       43.2       5.6        
06/10
  Various   Portfolio of six assets     10 %   Prudential     703.2       42.6       4.6  
06/10
  San Diego, CA   Former Mervyns     50 %   MDT MV     75.2       7.0       7.0  
06/10
  Fairfield, CA   Former Mervyns     50 %   MDT MV     89.2       7.0       7.0  
06/10
  W. Covina, CA   Former Mervyns     50 %   MDT MV     79.8       9.0       9.0  
06/10
  Dansville, NY   Tops Plaza     100 %       74.0       4.7        
07/10
  Salt Lake City, UT   Family Place at 3300 South     100 %       34.2       1.5        
07/10
  El Cajon, CA   Former Mervyns     50 %   MDT MV     85.7       3.0       3.0  
07/10
  Schertz, TX   Undeveloped Land     100 %             7.9        
08/10
  Various   Portfolio of five assets     100 %       59.0       12.7        
08/10
  Steubenville, OH   Lowe’s     100 %       130.5       9.4        
08/10
  Berlin, VT   Berlin Mall     100 %       174.6       13.7        
08/10
  Lancaster, CA   Valley Central     21 %   Prudential     370.9       27.2       17.4  
08/10
  Las Vegas, NV   Former Mervyns     50 %   MDT MV     75.7       5.6       5.6  
08/10
  Union City, GA   Shannon Square     100 %       100.0       3.1        
10/10
  High Ridge, MO   Gravois Village Plaza     100 %       115.0       2.6        
10/10
  Marietta, GA   Former Blockbuster     20 %   SAU     6.5       1.3       1.0  
10/10
  Hendersonville, TN   Exxon Outparcel     100 %       4.1       1.5        
10/10
  Dickinson, ND   Prairie Hills Mall     100 %       267.5       7.3        
11/10
  Southern Pines, NC   Southern Pines Marketplace     15 %   DDRTC Core     57.4       4.6       2.7  
11/10
  Fort Worth, TX   Former CVS     100 %       9.5       1.2        
11/10
  Columbia, SC   Target Center     15 %   DDRTC Core     83.4       2.0       1.9  
11/10
  Pleasant Hill, CA   Downtown Pleasant Hill     21 %   Prudential     345.7       81.0       48.8  
11/10
  Conway, SC   Gateway Plaza     100 %       62.4       3.9        
12/10
  Culver City, CA   Sprouts Farmer’s Market     100 %       32.9       11.8        
12/10
  Phoenix, AZ   Silver Creek Plaza     50 %   MDT MV     76.0       6.5       6.5  
12/10
  Lebanon, OH   Countryside Place     100 %       17.0       0.2        
12/10
  Lansing, Il   Former Service Merchandise     20 %   Coventry II     51.2       2.0       2.6  
12/10
  Columbia, TN   Columbia Square     10 %   Prudential     68.9       4.2        
12/10
  Various   Porfolio of three assets     15 %   DDRTC Core     264.6       21.3       2.2  
12/10
  Anderson, SC   North Hill Commons     15 %   DDRTC Core     43.1       3.8        
12/10
  Rowlett, TX   Rowlett Plaza     100 %       63.1       0.9        
12/10
  Watertown, SD   Watertown Mall     100 %       240.3       6.1        
Various
  Various   Outparcels     100 %             8.5        
 
                                     
Total Dispositions
                    8,656.3     $ 791.3     $ 512.4  
 
                                     

29


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
($ in millions, GLA in thousands)
Summary of Wholly-Owned and Consolidated Land Held for Development and Construction in Progress
                                                         
    As of December 31, 2010     2010 Activity     Projected 2011 Activity  
                            Net     Placed     Net     To Be Placed  
    Land     CIP     Total     Expenditures (1)     In Service     Expenditures (1)     In Service  
Ground up Development Projects in Progress
  $ 39.0     $ 64.5     $ 103.5     $ 16.2     $ 30.4     $ 8.6     $ 38.2  
Ground up Development Projects Primarily on Hold
    362.1       175.4       537.5       (5.2 )     3.0       (72.1 )      
Substantially Completed Projects Pending Lease up
    30.1       28.4       58.5       11.6       30.6       4.7       27.8  
Expansion, Redevelopment, and Retenanting Projects
    1.5       42.2       43.7       80.1       87.1       80.4       76.5  
 
                                         
Total
  $ 432.7     $ 310.5     $ 743.2     $ 102.7     $ 151.1     $ 21.6     $ 142.5  
 
                                         
Summary of Significant Wholly-Owned and Consolidated Development Projects in Progress
                                                                 
                                    Cost     Assets     Initial        
            Total     Owned     Estimated     Incurred     Placed in     Anchor        
Location   Project Name     GLA     GLA     Net Cost (2)     To Date     Service     Opening     Major Anchors  
Boise (Nampa), ID
  Nampa Gateway Center     830.9       419.3     $ 126.7     $ 127.0     $ 70.3       2H 07     JC Penney, Macy’s, The
Sports Authority, Idaho
Athletic Club, Regal
Cinemas
Austin (Kyle), TX (3)
  Kyle Marketplace     805.6       443.1       77.3       61.1       14.3       2H 09     Target, Kohl’s
 
                                                     
 
            1,636.5       862.4     $ 204.0     $ 188.1     $ 84.6                  
 
                                                     
Total Land Held for Development and CIP for ground up development projects in progress at December 31, 2010:
                                          $ 103.5                  
 
                                                             
Summary of Significant Wholly-Owned and Consolidated Expansion, Redevelopment, and Retenanting Projects
                                                                 
                                    Cost     Assets     Initial        
            Total     Owned     Estimated     Incurred     Placed in     Anchor        
Location   Project Name     GLA     GLA     Net Cost (2)     To Date     Service     Opening     Major Anchors
Miami (Plantation), FL
  The Fountains     273.4       273.4     $ 51.4     $ 44.0     $ 29.2       2H 09     Kohl’s, Dick’s Sporting Goods, Marshalls/HomeGoods
CIP for Plantation, FL:
                                          $ 14.8                  
CIP for other expansion, redevelopment, and retenanting projects:
                          28.9                  
 
                                                             
Total amount included in CIP at December 31, 2010 for expansion, redevelopment, and retenanting projects:
    $ 43.7                  
 
                                                             
 
(1)   Net expenditures include receipts from land sales and reimbursements.
 
(2)   Estimated Net Cost includes reductions for land sales and reimbursements.
 
(3)   Consolidated 50% Joint Venture

30


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
($ in millions, GLA in thousands)
Summary of Joint Venture Land Held for Development and Construction in Progress
                                                         
    As of December 31, 2010     2010 Activity     Projected 2011 Activity  
                            Net     Placed     Net     To Be Placed  
    Land     CIP     Total     Expenditures (1)     In Service     Expenditures (1)     In Service  
Ground up Development Projects in Progress
  $ 13.0     $ 47.3     $ 60.3     $ 34.0     $     $ 107.7     $ 111.4  
Land Held for Development
    20.0       7.9       27.9       2.1             41.3        
Ground up Development Projects Primarily on Hold
    23.3       2.0       25.3       0.4             1.1        
Substantially Completed Projects Pending Lease up
    2.1       37.0       39.1       16.8       28.5       7.0       22.9  
Expansion, Redevelopment, and Retenanting Projects
          21.6       21.6       44.2       28.8       81.7       70.7  
 
                                         
Total
  $ 58.4     $ 115.8     $ 174.2     $ 97.5     $ 57.3     $ 238.8     $ 205.0  
 
                                         
 
                                                       
Summary of Significant Joint Venture Development Projects in Progress
                                                                         
            DDR’s                             Cost     Assets     Initial        
            Effective     Total     Owned     Estimated     Incurred     Placed in     Anchor        
Location   Project Name     Ownership     GLA     GLA     Net Cost (2)     To Date     Service     Opening     Major Anchors
Uberlandia, Brazil
  Patio Uberlandia     47.8 %     469.8       469.8     $ 101.5     $ 46.2     $           Walmart, Cinemark, Centuaro, Leroy Merlin,
 
                                                                  Renner,Magic Games, Fast Shop, Luiggi
 
                                                                  Bertolli, Kalunga
 
                                                                       
Londrina, Brazil
  Boulevard Londrina     40.4 %     514.9       514.9       127.0       14.1                 Walmart, Cinemark, Centuaro, Etna, Magazine
 
                                                                  Luiza, Kalunga, Luiggi Bertolli
 
                                                                       
 
                                                     
 
                    984.7       984.7     $ 228.5     $ 60.3                        
 
                                                               
 
                                                                       
Total Land Held for Development and CIP for ground up development projects in progress at December 31, 2010:
                                $ 60.3  
 
                                                                     
Summary of Significant Joint Venture Expansion, Redevelopment and Retenanting Projects
                                                                         
            DDR’s                     Estimated     Cost     Assets     Initial        
            Effective     Total     Owned     Net Cost     Incurred     Placed in     Anchor        
Location   Project Name     Ownership     GLA     GLA     (2)     To Date     Service     Opening     Major Anchors
Casselberry, FL
  Casselberry Commons     20.0 %     90.4       90.4     $ 8.7     $ 6.1     $ 4.8       2H 10     Publix Supermarket, TJ Maxx
Sao Bernardo do Campo, Brazil
  Metropole Shopping Center     47.8 %     93.7       93.7       26.3       6.9             2H 11     Etna, Fast Shop, PlayArte,
Outback, Lojas Americanas, Renner
Campinas, Brazil
  Parque Dom Pedro Shopping Center     37.3 %     58.7       58.7       12.0       10.3       10.3       2H 10     Fast Shop, Luiggi Bertolli, Siberian, Crawford, Nike, Adidas
 
                                                                       
 
                                                             
 
                    242.8       242.8     $ 47.0     $ 23.3     $ 15.1                  
 
                                                             
 
                                                                       
CIP for projects listed above:
                                                  $ 8.2                  
CIP for other expansion, redevelopment, and retenanting projects:
                                  13.4                  
 
                                                                     
Total amount included in CIP at December 31, 2010 for expansion, redevelopment, and retenanting projects:
            $ 21.6                  
 
                                                                     
 
(1)   Net expenditures include receipts from land sales and reimbursements.
 
(2)   Estimated Net Cost includes reductions for land sales and reimbursements.

31


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Ground up Development Projects Primarily on Hold
                 
    DDR’s        
    Effective     Total  
MSA (Location)   Ownership     Acreage  
Ukiah (Mendocino), CA
    50 %     75.7  
New Haven (Guilford), CT
    100 %     26.0  
Orlando (Lee Vista), FL
    100 %     74.3  
Tampa (Brandon), FL
    100 %     46.3  
Tampa (Wesley Chapel), FL
    100 %     10.0  
Atlanta (Douglasville), GA
    100 %     28.5  
Chicago (Grayslake), IL
    50 %     106.0  
Kansas City (Merriam), KS
    100 %     35.1  
Boston, MA (Seabrook, NH)
    100 %     50.9  
Gulfport, MS
    100 %     86.2  
Raleigh (Apex), NC
    100 %     52.6  
Oconomowoc, WI
    50 %     121.6  
Isabela, Puerto Rico
    80 %     11.1  
Toronto (Brampton), CAN
    50 %     43.0  
Toronto (East Gwillimbury — Bayview/Greenlane), CAN
    50 %     39.0  
Toronto (East Gwillimbury — Hwy 404/Greenlane East), CAN
    50 %     44.0  
Toronto (East Gwillimbury — Hwy 404/Greenlane West), CAN
    50 %     29.0  
Toronto (Richmond Hill), CAN
    50 %     52.0  
Togliatti, Russia
    75 %     61.2  
Yaroslavl, Russia
    75 %     8.0  
Other Misc. Land (9 sites)
    100 %   Various
 
             
 
            1,007.6  
 
             
         
    (In Millions)  
Total amount for wholly-owned and consolidated projects included in Land Held for Development and CIP at December 31, 2010:
  $ 537.5 (1)
Total amount for joint venture projects included in Land Held for Development and CIP at December 31, 2010:
    25.3 (2)
 
     
Total Land Held for Development and CIP at December 31, 2010:
  $ 562.8  
 
     
 
(1)     Includes partners’ ownership interest of $122.3 million and minority interest of $27.3 million.
(2)     DDR’s prorata share is $12.7 million.

32


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Total Portfolio Characteristics
         
Shopping Centers and Interests in Retail Assets
    571  
 
       
Business Centers
    6  
 
       
Million Square Feet Owned and Managed (Total)
    132  
 
       
Million Square Feet Owned (Total)
    92  
 
       
Million Square Feet Owned (Pro Rata)
    58  
 
       
Core Portfolio % Leased
    92.3 %
 
       
Core Portfolio % Leased including Brazil
    92.6 %
Prime Portfolio Characteristics
Our Prime portfolio is comprised of market dominant shopping centers with high quality tenants located in attractive markets with strong demographic profiles. It is a subset of the total portfolio.
         
Shopping Centers
    260  
 
       
Million Square Feet (Total)
    80  
 
       
% of Total Portfolio NOI
    83.3 %
 
       
Prime Portfolio % Leased
    93.6 %
 
       
Prime Portfolio % Leased including Brazil
    93.8 %
Total Portfolio GLA Concentration
                         
            GLA   Percentage of
            (in Millions)   Total GLA
       
 
               
  1.    
Georgia
    13.6       10.3 %
  2.    
Florida
    12.5       9.5 %
  3.    
Ohio
    9.2       7.0 %
  4.    
New York
    8.9       6.8 %
  5.    
North Carolina
    7.8       6.0 %
  6.    
Texas
    6.5       4.9 %
  7.    
New Jersey
    5.7       4.3 %
  8.    
Puerto Rico
    5.0       3.8 %
  9.    
Brazil
    4.6       3.5 %
  10.    
South Carolina
    4.5       3.4 %

33


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Sonae Sierra Brasil (SSB) Portfolio Characteristics
Sonae Sierra Brasil is a fully integrated owner, manager, and developer of shopping centers throughout Brazil. The joint venture was established between SSB and DDR in 2007. DDR’s ownership of SSB as of 12/31/10 was 47.9%.
         
Shopping Centers (Development Sites)
    10 (3)
 
       
Million Square Feet Owned and Managed (Total)
    3.9  
 
       
Million Square Feet Owned (Total)
    3.8  
 
       
Million Square Feet Potential Development
    1.8  
 
       
Total Annualized Rent (in millions)
  $ 105.6  
 
       
Average Rent Per Square Foot
  $ 27.25  
 
       
Portfolio % Leased
    97.4 %
 
       
Note: information translated utililzing average exchange rates for respective periods.
Puerto Rico Portfolio Characteristics
         
Shopping Centers
    15  
 
       
Million Square Feet Owned and Managed (Total)
    5.0  
 
       
Million Square Feet Owned (Total)
    4.1  
 
       
Total Annualized Rent (in millions)
  $ 80.2  
 
       
Average Rent Per Square Foot
  $ 16.15  
 
       
Portfolio % Leased
    97.0 %
Trailing 12 Months NOI (DDR Share)
(PIE CHART)

34


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Leased Rate and Average Annualized Base Rental Rates PSF (1)
                                 
    Number of   Core   Total Annualized Base Rent / S.F.
Period Ending   Properties   Leased Rate   Total   Shop Space
 
                               
YE 2010
    476       92.3 %   $ 12.46     $ 18.45  
YE 2009
    534       91.2 %   $ 12.27     $ 18.26  
YE 2008
    611       92.6 %   $ 12.34     $ 18.24  
YE 2007
    619       95.8 %   $ 12.22     $ 17.92  
YE 2006
    370       96.2 %   $ 11.57     $ 17.20  
YE 2005
    379       96.3 %   $ 11.30     $ 16.63  
YE 2004
    373       95.4 %   $ 11.13     $ 16.14  
YE 2003
    274       95.1 %   $ 10.82     $ 15.55  
YE 2002
    189       95.9 %   $ 10.58     $ 15.18  
YE 2001
    192       95.4 %   $ 10.03     $ 14.02  
YE 2000
    190       96.9 %   $ 9.66     $ 13.66  
YE 1999
    186       95.7 %   $ 9.20     $ 12.69  
YE 1998
    159       96.5 %   $ 8.99     $ 12.39  
YE 1997
    123       96.1 %   $ 8.49     $ 11.69  
YE 1996
    112       94.8 %   $ 7.85     $ 10.87  
YE 1995
    106       96.3 %   $ 7.60     $ 10.54  
YE 1994
    84       97.1 %   $ 5.89     $ 9.02  
YE 1993
    69       96.2 %   $ 5.60     $ 8.56  
YE 1992
    53       95.4 %   $ 5.37     $ 8.37  
 
(1)   Figures exclude Brazil, Mervyns, Service Merchandise, development properties and managed but unowned properties.

35


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
(GLA and Total Rent in Thousands)
Leasing spreads are calculated by comparing the prior tenant’s annual base rent in the final year of the lease to the new tenant’s annual base rent in the first year of the new lease. The calculation only includes deals that were executed within one year of the date that the prior tenant vacated.
Leasing Summary for Fourth Quarter 2010 (1)
                                                                         
                                                    Change in        
                                                    Base Rent   Weighted    
    Number           New Rent                           Over Prior   Average   Tenant
    of           Year One   New Rent Year   Prior Rent           Rent in Comp   Lease Term   Improvements
    Leases   GLA   psf   One Total   psf   Prior Rent Total   Space   (in years)   psf
New leases
                                                                       
New leases for spaces vacant less than one year
    57       161     $ 19.21     $ 3,093     $ 17.96     $ 2,892       6.5 %     6.2     $ 13.13  
New leases for spaces vacant more than one year
    93       564     $ 11.09     $ 6,255       N/A       N/A       N/A       7.7     $ 18.44  
Total new leases
    150       725     $ 12.89     $ 9,348     $ 17.96     $ 2,892       6.5 %     7.4     $ 17.26  
Renewals
    220       1,490     $ 13.75     $ 20,488     $ 13.32     $ 19,847       3.1 %     4.6        
Total / Average (new leases + renewals)
    370       2,215     $ 14.28     $ 29,835     $ 13.77     $ 22,738       3.5 %     5.5     $ 5.65  
 
(1)   Excludes 11 new leases aggregating 252,000 square feet and 15 renewals aggregating 85,000 square feet signed on behalf of managed but unowned properties.
Leasing Summary for Full Year 2010 (2)
                                                                         
                                                    Change in        
                                                    Base Rent   Weighted    
    Number           New Rent                           Over Prior   Average   Tenant
    of           Year One   New Rent Year   Prior Rent           Rent in Comp   Lease Term   Improvements
    Leases   GLA   psf   One Total   psf   Prior Rent Total   Space   (in years)   psf
New leases
                                                                       
New leases for spaces vacant less than one year
    260       982     $ 16.57     $ 16,276     $ 16.13     $ 15,844       2.6 %     8.1     $ 16.24  
New leases for spaces vacant more than one year
    425       2,663     $ 11.71     $ 31,186       N/A       N/A       N/A       8.0     $ 10.54  
Total new leases
    685       3,645     $ 13.02     $ 47,461     $ 16.13     $ 15,844       2.6 %     8.0     $ 12.27  
Renewals
    965       5,687     $ 13.35     $ 75,937     $ 13.06     $ 74,268       2.4 %     4.3        
Total / Average (new leases + renewals)
    1,650       9,332     $ 13.83     $ 123,398     $ 13.51     $ 90,111       2.4 %     5.9     $ 4.72  
 
(2)   Excludes 103 new leases aggregating 1.2 million square feet and 87 renewals aggregating 1.0 million square feet signed on behalf of managed but unowned properties.
Figures exclude Brazil, Mervyns and managed but unowned properties.
Weighted Average Lease Term excludes renewal options.

36


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Leasing Summary of Formerly Vacant Spaces Over 20,000 Square Feet (1)
                 
            Lease term  
    GLA     (years)  
Leased in 2008
    110,141       8.2  
Leased in 2009
    1,334,436       9.4  
Leased Q1 2010
    280,125       9.5  
Leased Q2 2010
    470,228       8.2  
Leased Q3 2010
    397,474       11.1  
Leased Q4 2010
    301,899       8.7  
Total Leased 2008 — Q4 2010
    2,894,303       9.3  
Status of Re-Tenanting Spaces Formerly Occupied by Bankrupt Tenants (1)
                                         
    December 31, 2009   March 31, 2010   June 30, 2010   September 30, 2010   December 31, 2010
Sold/Leased
    24 %     30 %     38 %     43 %     49 %
At-Lease
    2 %     3 %     7 %     11 %     9 %
At-LOI
    34 %     30 %     29 %     21 %     22 %
 
                                       
Total Activity
    60 %     63 %     74 %     75 %     80 %
 
(1)   Includes Linens ‘N Things, Circuit City, Goody’s and Steve & Barry’s; excludes Mervyns

37


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Net effective rents are calculated with full consideration for all costs associated with leasing the space rather than prorata costs. Landlord work represents property level improvements associated with the lease transactions; however, those improvements are attributed to the landlord’s property value and typically extend the life of the asset in excess of the lease term.
Net Effective Rents Related to Leased Space (Owned Properties)
                 
    Three Months        
    Ended     YTD Total /  
    12/31/2010     Average  
 
Number of lease transactions executed
    370       1,650  
Rentable square footage leased (in thousands)
    2,215       9,332  
Square footage of renewal deals (in thousands)
    1,490       5,687  
Square footage of new deals (in thousands)
    725       3,645  
Renewed square footage (% of total)
    67.3 %     60.9 %
New leases square footage (% of total)
    32.7 %     39.1 %
 
               
New Deals:
               
Weighted average per rentable square foot over the lease term:
               
Base rent
  $ 13.67     $ 13.23  
Tenant allowance
    (1.94 )     (1.47 )
Landlord work
    (0.90 )     (0.89 )
Third party leasing commissions
    (0.29 )     (0.24 )
Rent concessions
           
 
           
Equivalent net effective rent
  $ 10.54     $ 10.62  
 
           
Weighted average term in years
    7.4       8.0  
 
               
Renewal Deals:
               
Weighted average per rentable square foot over the lease term:
               
Base rent
  $ 13.89     $ 13.46  
Tenant allowance
           
Landlord work
           
Third party leasing commissions
           
Rent concessions
           
 
           
Equivalent net effective rent
  $ 13.89     $ 13.46  
 
           
Weighted average term in years
    4.6       4.3  

38


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Lease Expirations by Year as of December 31, 2010 (1)
                                                                   
    Anchor Base Rent (2)     Shop Space Base Rent
            Revenues           % of Total             Revenues           % of Total
Year   Leases   ($M)   Avg. PSF   Revenue     Leases   ($M)   Avg. PSF   Revenue
2011
    77     $ 23.9     $ 8.82       2.7 %       1,238     $ 68.3     $ 18.42       7.7 %
2012
    117     $ 42.4     $ 8.55       4.8 %       1,198     $ 74.0     $ 18.58       8.3 %
2013
    105     $ 35.3     $ 8.47       4.0 %       1,078     $ 68.2     $ 18.40       7.7 %
2014
    140     $ 50.9     $ 8.58       5.7 %       800     $ 51.8     $ 18.40       5.8 %
2015
    126     $ 49.1     $ 9.25       5.5 %       743     $ 49.4     $ 17.26       5.6 %
2016
    105     $ 42.8     $ 9.49       4.8 %       328     $ 32.8     $ 17.73       3.7 %
2016
    66     $ 33.5     $ 9.75       3.8 %       160     $ 17.4     $ 20.18       2.0 %
2017
    59     $ 26.0     $ 9.07       2.9 %       196     $ 21.7     $ 19.98       2.4 %
2018
    61     $ 32.3     $ 10.37       3.6 %       140     $ 17.7     $ 18.92       2.0 %
2019
    46     $ 21.4     $ 9.56       2.4 %       159     $ 17.6     $ 16.65       2.0 %
2011 - 2020 Subtotal
    902     $ 357.6     $ 9.19       40.3 %       6,040     $ 418.9     $ 18.45       47.2 %
Total Rent Roll
    1,025     $ 438.3     $ 9.28       49.4 %       6,427     $ 449.8     $ 18.44       50.6 %
 
(1)   Excludes Brazil
 
(2)   Anchors are defined as 20,000 and above

39


 

Developers Diversified Realty
Quarterly Financial Supplement
For the year ended December 31, 2010
Largest Tenants by Owned and Managed GLA (1)
                                                     
                Total GLA           Owned GLA   Unowned   Unowned
        Total Units   (msf)   Owned Units   (msf)   Units   GLA (msf)
1.  
Walmart / Sam’s Club
    79       12.4       33       4.9       46       7.5  
2.  
Target
    51       6.4       7       0.9       44       5.5  
3.  
Lowe’s Home Improvement
    28       3.8       12       1.6       16       2.2  
4.  
Home Depot
    33       3.7       8       0.9       25       2.8  
5.  
Kohl’s
    36       3.2       29       2.6       7       0.6  
6.  
Kmart / Sears
    32       2.8       31       2.6       1       0.2  
7.  
Publix Supermarkets
    50       2.3       47       2.1       3       0.2  
8.  
TJX Companies
    77       2.4       77       2.4       0       0.0  
9.  
Kroger
    35       2.0       34       1.9 <