DDR
DEVELOPERS DIVERSIFIED REALTY CORP (Form: 8-K, Received: 10/31/2003 06:15:01)
Table of Contents

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) October 30, 2003

DEVELOPERS DIVERSIFIED REALTY CORPORATION


(Exact name of registrant as specified in its charter)
         
Ohio   1-11690   34-1723097

(State or other Jurisdiction
or incorporation)
  (Commission
File Number)
  (IRS Employer
Identification Number)

3300 Enterprise Parkway, Beachwood, Ohio 44122


Registrant’s telephone number, including area code (216) 755-5500

N/A


(Former name of former address, if changed since last report)

 


TABLE OF CONTENTS

Item 12. Results of Operations and Financial Condition
SIGNATURES
EX-99.1 NEWS RELEASE
EX-99.2 QUARTERLY SUPPLEMENT


Table of Contents

Item 12. Results of Operations and Financial Condition

     On October 30, 2003, 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 Supplement”) for the three and nine months ended September 30, 2003. A Copy of the News Release in attached hereto as exhibit 99.1 and a copy of the Quarterly Supplement is attached hereto as Exhibit 99.2. This information is being furnished under Item 9 (Regulation FD Disclosure) and under Item 12 (Results of Operations and Financial Condition), pursuant to SEC Release No. 33-8216.

 


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
         
October 30, 2003   /s/ William H. Schafer    

 
   
Date   William H. Schafer    
    Senior Vice President and Chief Financial Officer    

 

 

Exhibit 99.1

DEVELOPERS DIVERSIFIED REALTY CORPORATION

For Immediate Release:

         
Contact:   Scott A. Wolstein   Michelle A. Mahue
    Chairman   Vice President of Investor Relations
    Chief Executive Officer   216-755-5455
    216-755-5500    

DEVELOPERS DIVERSIFIED REALTY REPORTS A 5.1%
INCREASE IN FFO PER SHARE FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2003

      CLEVELAND, OHIO, October 30, 2003 - Developers Diversified Realty Corporation (NYSE: DDR), a real estate investment trust (“REIT”), today announced that third quarter 2003 Funds From Operations (“FFO”), a widely accepted measure of REIT performance, on a per share basis was $0.58 (diluted) and $0.59 (basic) as compared to $0.61 (diluted) and $0.62 (basic) per share for the same period in the previous year, a per share decrease of 4.9% diluted and 4.8% basic. The figures in 2003 include a $0.07 per share charge relating to the original issuance costs associated with the redemption of preferred shares during the third quarter 2003. Excluding this non-cash charge, FFO, on a per share basis was $0.65 (diluted) and $0.66 (basic), a per share increase of 6.6% diluted and 6.5% basic. FFO reached $51.3 million for the quarter ended September 30, 2003, as compared to $40.6 million for 2002. Net income for the three months ended September 30, 2003 was $42.0 million compared to second quarter 2002 net income of $25.2 million, or $0.28 per share (diluted) and $0.29 (basic) for each quarter.

     On a per share basis, FFO (diluted) was $1.86 and $1.77 for the nine month periods ended September 30, 2003 and 2002, respectively, an increase of 5.1 %. Excluding the non-cash charges associated with the redemption of preferred shares in 2003 and 2002, FFO, on a per share basis was $1.99 diluted in 2003 compared to $1.86 (diluted) in 2002, an increase of 7.0%. FFO for the nine months ended September 30, 2003 was $154.2 million compared to FFO for the nine months ended September 30, 2002 of $116.4 million. Net income for the nine months ended September 30, 2003 was $148.8 million, or $1.32 per share (diluted), compared to net income of $72.4 million, or $0.72 per share (diluted) for the prior comparable period. An increase in net income of $26.2 million is due to the net gain on sale of real estate assets. The remainder of the increase in net income is attributable to the merger with JDN Realty on March 13, 2003, core operations and a reduction in minority interest expense associated with preferred operating partnership units which were redeemed in 2003.

     Scott A. Wolstein, DDR’s chairman and chief executive officer stated, “We are pleased to announce this quarter’s financial results, which demonstrate strong earnings growth and the Company’s continued commitment to improving its balance sheet. Furthermore, property level fundamentals remain stable, driven by strong demand from our key tenants such as Wal*Mart, Target and Kohl’s; plus demand from other tenants migrating from enclosed malls to open air centers. During the quarter, Developers Diversified announced its $730 million joint venture transaction to create an Australian investment entity. Not only does this transaction tap the Australian public market’s overwhelming demand for institutional quality community centers, but it also creates a long-term equity partner.”

 


 

     FFO is a supplemental non-GAAP financial measurement used as a standard in the real estate industry. Management believes that FFO provides an additional indicator of the financial performance of a REIT. The Company also believes that FFO appropriately measures the core operations of the Company and provides a benchmark to its peer group. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of liquidity. FFO available to common shareholders is defined and calculated by the Company as net income, adjusted to exclude: (i) preferred dividends, (ii) gains (or losses) from sales of depreciable real estate property, except for those sold through the Company’s merchant building program, which are presented net of taxes, (iii) sales of securities, (iv) extraordinary items and (v) certain non-cash items. These non-cash items principally include real property depreciation, equity income from joint ventures and equity income from minority equity investments and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and minority equity investments, determined on a consistent basis. Other real estate companies may calculate FFO in a different manner. A reconciliation of net income to FFO is presented in the financial highlights section.

Leasing:

     Leasing activity continues to be strong throughout the portfolio. During the third quarter of 2003, the Company executed 110 new leases aggregating approximately 633,000 square feet and 140 renewals aggregating approximately 494,000 square feet. Rental rates on new leases increased by 15.2% to $11.83 per square foot and rental rates on renewals increased by 7.6% to $11.37 per square foot. On a blended basis, rental rates for new leases and renewals increased by 10.1% to $11.63 per square foot.

     At September 30, 2003, the average annualized base rent per occupied square foot, including those properties owned through joint ventures, was $10.65. Excluding the impact of the properties acquired through the JDN merger, the average annualized base rent per occupied square foot for the portfolio was $10.95, as compared to $10.49 at September 30, 2002.

     As of September 30, 2003, the portfolio was 94.6% leased. Excluding the impact of the properties acquired through the JDN merger, the portfolio was 95.2% leased, as compared to 95.9% at September 30, 2002. These percentages include tenants for which signed leases have been executed and occupancy has not occurred. Based on tenants in place and responsible for paying rent as of September 30, 2003, the portfolio was 94.0% occupied. Excluding the impact of the properties acquired through the JDN merger, the portfolio was 94.6% occupied, as compared to 94.2% at September 30, 2002.

     Same store tenant sales performance over the trailing 12 month period within the Company’s portfolio remained strong at approximately $234 per square foot for those tenants required to report. Aggregate base and percentage rental revenues relating to Core Portfolio Properties (i.e., shopping center properties owned since January 1, 2002, excluding properties under redevelopment) increased approximately $2.9 million (or 2.1%) for the nine month period ended September 30, 2003, compared to the same period in 2002.

Strategic Transactions:

Macquarie DDR Trust

     The Company announced that it intends to form an Australian based Listed Property Trust with Macquarie Bank Limited (ASX: MBL), an international investment bank and leading advisor and manager of specialized real estate funds in Australia. Macquarie DDR Trust (“MDT”) will focus on acquiring ownership interests in institutional-quality community center properties in the U.S. The aggregate purchase value (assuming 100% ownership) of the initial portfolio of eleven assets currently owned by DDR and DDR joint ventures is approximately $730 million and MDT will operate with a targeted leverage ratio of 50%.

 


 

     MDT, which is expected to be listed on the Australian Stock Exchange during the fourth quarter, will own an 81% interest in the 11 asset portfolio. DDR will retain a 14.5% effective ownership interest in the assets and MBL will own the remaining 4.5%. DDR will be responsible for all day-to-day operations of the properties and will receive fees for property management, leasing, construction management, acquisitions, due diligence, dispositions (including outparcel sales), and financing. The Company will also receive base asset management fees and incentive fees based on the performance of MDT.

     It is anticipated that an additional asset in Minneapolis, MN (Coon Rapids — Inner Quadrant) will be sold to MDT after construction and leasing are completed, subject to the satisfaction of MDT’s investment criteria and the availability of financing. MDT will have a two year right of first offer on twenty pre-determined joint venture and wholly owned assets currently in DDR’s portfolio. MDT also is expected to pursue acquisitions of additional stabilized, institutional-quality community center properties.

     DDR is expected to receive approximately $185 million in cash and retain a $53 million equity investment in the joint venture, representing its 14.5% effective ownership interest. The newly formed joint venture is expected to carry approximately $374 million in debt, or approximately 50% of total asset value. The interest rate for this debt will generally be structured with 80% fixed and 20% floating. The new fixed rate financing will have a weighted average interest rate of approximately 4.40% and the floating rate debt will have an estimated initial weighted average interest rate of 3.85%. A portion of the initial outstanding floating rate debt reflects financing to MDT under its anticipated $100 million secured revolving credit facility.

     The aggregate size of the MDT portfolio is approximately 5.4 million square feet of total GLA (of which 4.8 million is owned GLA), and the average size of the eleven properties is approximately 490,000 square feet of total GLA. The Company currently holds seven of the MDT portfolio assets in existing joint ventures. These properties are located in Boston (Framingham), Massachusetts; Chicago (Schaumburg), Illinois; Minneapolis (Coon Rapids), Minnesota; Atlanta, Georgia; Washington, D.C. (Fairfax, Virginia); Atlanta (Marietta), Georgia and Naples, Florida. The remaining four assets are wholly owned by DDR and located in St. Paul, Minnesota; Kansas City (Independence), Missouri; Canton, Ohio and Cleveland (N. Olmsted), Ohio.

     MDT will be governed by a board of directors that include three members from DDR, three members from MBL and two independent members to be selected after the listing of MDT.

Expansions:

     For the nine month period ended September 30, 2003, the Company completed expansions and redevelopments at nine shopping centers located in Birmingham, Alabama; Bayonet Point, Florida; Brandon, Florida; Tucker, Georgia; Fayetteville, North Carolina; North Canton, Ohio; Erie, Pennsylvania; Riverdale, Utah and Taylorsville, Utah at an aggregate cost of approximately $26.8 million. The Company is currently expanding/redeveloping four shopping centers located in North Little Rock, Arkansas; Aurora, Ohio; Tiffin, Ohio and Monaca, Pennsylvania at a projected incremental cost of approximately $22.9 million. The Company is also scheduled to commence two additional expansion projects at the Princeton, New Jersey and Starkville, Mississippi shopping centers.

     For the nine month period ended September 30, 2003, the Company’s joint ventures completed expansions and redevelopments at three shopping centers located in San Ysidro, California; Shawnee, Kansas and North Olmsted, Ohio at an aggregate cost of approximately $9.7 million. The Company’s joint ventures are currently expanding/redeveloping a shopping center located in Deer Park, Illinois at a projected incremental cost of approximately $13.9 million.

 


 

Development (Consolidated):

     During the nine month period ended September 30, 2003, the Company completed the construction of ten shopping centers located in Fayetteville, Arkansas; Aurora, Colorado; Parker, Colorado; Parker South, Colorado; Lithonia, Georgia; McDonough, Georgia; Coon Rapids (Minneapolis) Minnesota; St. John’s, Missouri; Erie, Pennsylvania and Frisco, Texas.

     The Company currently has 15 shopping center projects under construction, 10 of which resulted from the merger with JDN. These projects are located in Meridian, Idaho (Phase II of the existing shopping center); Long Beach, California; Sacramento, California; Fort Collins, Colorado; Overland Park, Kansas; Chesterfield, Michigan; Grandville, Michigan; Lansing, Michigan; St. Louis, Missouri; Apex, North Carolina; Hamilton, New Jersey; Mount Laurel, New Jersey; Pittsburgh, Pennsylvania; Irving, Texas and Mesquite, Texas. These projects are scheduled for completion during 2003 and 2004 and will create an additional 3.6 million square feet of retail space.

     The Company anticipates commencing construction in 2004 on two additional shopping centers located in Norwood, Massachusetts and McKinney, Texas.

Development (Joint Ventures):

     The Company has joint venture development agreements for three shopping center projects. These three projects have an aggregate projected cost of approximately $97.8 million and are currently scheduled for completion during 2003 and 2004. At September 30, 2003, approximately $90.3 million of costs were incurred in relation to these development projects. The projects located in Long Beach, California (City Place) and Austin, Texas are being financed through the Prudential/DDR Retail Value Fund. The other project is located in St. Louis, Missouri.

Dispositions:

     In September 2003, one of the Company’s RVIP joint ventures sold two west coast shopping centers, a 103,000 square foot shopping center located in suburban Sacramento, California for approximately $19.3 million and a 109,000 square foot shopping center located in Fullerton, California for approximately $15.0 million and recognized a gain of approximately $12.5 million of which the Company’s proportionate share was $2.5 million. In October 2003, this joint venture also sold a 208,000 square foot shopping center located in Bellingham, Washington for approximately $23.5 million.

     In September 2003, the Company sold a 57,000 square foot shopping center located in Nacogdoches, Texas for approximately $5.7 million and in October 2003, the Company sold a 123,000 square foot shopping center located in Decatur, Alabama for approximately $6.9 million. The Company acquired both of these properties in the merger with JDN Realty in March 2003. Additionally, in October 2003, the Company sold a 92,000 square foot shopping center located in St. Louis, Missouri for approximately $3.3 million.

Financings:

     In July 2003, the Company sold $205 million of Class H Cumulative Redeemable Preferred Shares with an annual dividend coupon of 7.375%. In addition, the Company called all outstanding shares of its 8.375% Class C Depositary Cumulative Preferred Shares aggregating $100 million in July 2003, all outstanding shares of its 8.68% Class D Depositary Cumulative Preferred Shares aggregating $54 million in August 2003 and all outstanding shares of its 9.375% Voting Preferred Shares aggregating $50 million in September 2003.

 


 

     In July 2003, the Company issued $300 million of seven-year senior unsecured notes with a coupon rate of 4.625%. These notes are due August 1, 2010 and were offered at 99.843% of par. Proceeds from this offering were used to repay borrowings under the Company’s unsecured credit facility and to selectively prepay secured mortgage financing.

     Developers Diversified Realty Corporation currently owns and manages over 360 retail operating and development properties in 44 states comprising approximately 82 million square feet of real estate. DDR is a self-administered and self-managed real estate investment trust (REIT) operating as a fully integrated real estate company which acquires, develops, leases and manages shopping centers.

     A copy of the Company’s Supplemental Financial/Operational package is available to all interested parties upon written request at our corporate office to Michelle A. Mahue, Vice President of Investor Relations, Developers Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, OH 44122 or on our Website which is located 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 Exchange Act of 1933 and Section 21 E 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 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 or the loss of a major tenant. For more details on the risk factors, please refer to the Company’s Form on 10-K as of December 31, 2002.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

                                         
            Three Month Period   Nine Month Period
            Ended September 30,   Ended September 30,
           
 
            2003(F)   2002   2003(F)   2002
           
 
 
 
Revenues:
                               
 
Minimum rent (A)
  $ 89,894     $ 65,934     $ 255,267     $ 187,198  
 
Percentage and overage rents (A)
    769       812       3,247       2,282  
 
Recoveries from tenants
    24,972       18,446       67,878       50,723  
 
Ancillary income
    537       502       1,333       1,167  
 
Other property related income
    369       615       677       1,189  
 
Management fee income
    2,601       2,427       7,733       7,789  
 
Development fees
    303       1,236       976       2,042  
 
Interest income
    1,133       1,496       3,892       4,056  
 
Other (B)
    3,599       155       9,520       4,895  
 
   
     
     
     
 
 
    124,177       91,623       350,523       261,341  
 
   
     
     
     
 
Expenses:
                               
 
Operating and maintenance
    15,653       10,810       43,962       29,942  
 
Real estate taxes
    15,987       11,294       42,491       32,041  
 
General and administrative (C)
    9,088       6,632       28,001       20,012  
 
Interest
    23,515       19,700       65,620       57,588  
 
Impairment charge (D)
                2,640        
 
Depreciation and amortization
    24,760       18,415       68,840       56,645  
 
   
     
     
     
 
 
    89,003       66,851       251,554       196,228  
 
   
     
     
     
 
Income before equity in net income of joint ventures, minority equity interests, income tax expense, discontinued operations and gain on sales of real estate and real estate investments
    35,174       24,772       98,969       65,113  
Equity in net income of joint ventures (E)
    6,852       4,781       23,748       22,398  
Minority equity interests (F)
    (864 )     (5,570 )     (4,802 )     (16,770 )
Income tax expense of taxable REIT subsidiary
    (130 )           (130 )      
 
   
     
     
     
 
Income from continuing operations
    41,032       23,983       117,785       70,741  
Income (loss) from discontinued operations (G)
    59       1,035       1,848       (1,377 )
 
   
     
     
     
 
Income before gain on sales of real estate and real estate investments
    41,091       25,018       119,633       69,364  
Gain on sales of real estate and real estate investments, net of tax
    897       159       29,142       2,988  
 
   
     
     
     
 
Net income
  $ 41,988     $ 25,177     $ 148,775     $ 72,352  
 
   
     
     
     
 
Net income, applicable to common shareholders (H)
  $ 24,525     $ 18,687     $ 108,175     $ 46,241  
 
   
     
     
     
 
Funds From Operations (“FFO”):
                               
 
Net income applicable to common shareholders (H)
  $ 24,525     $ 18,687     $ 108,175     $ 46,241  
 
Depreciation and amortization of real estate investments
    24,319       18,029       68,013       56,237  
 
Equity in net income of joint ventures
    (6,852 )     (4,781 )     (23,748 )     (22,398 )
 
Joint ventures’ FFO (E)
    8,872       8,794       24,815       32,145  
 
Minority equity interests (OP Units)
    444       342       1,303       1,104  
 
(Gain) loss on sales and impairment charge on depreciable real estate and real estate investments, net
          (468 )     (24,377 )     3,058  
 
   
     
     
     
 
 
FFO available to common shareholders
    51,308       40,603       154,181       116,387  
   
Preferred dividends (H)
    17,463       6,490       40,600       26,111  
 
   
     
     
     
 
 
FFO (H)
  $ 68,771     $ 47,093     $ 194,781     $ 142,498  
 
   
     
     
     
 
 
Per share data: (H)
                               
     
Earnings per common share
                               
       
Basic
  $ 0.29     $ 0.29     $ 1.34     $ 0.73  
 
   
     
     
     
 
       
Diluted
  $ 0.28     $ 0.28     $ 1.32     $ 0.72  
 
   
     
     
     
 
 
Dividends Declared
  $ 0.41     $ 0.38     $ 1.23     $ 1.14  
 
   
     
     
     
 
 
Funds From Operations — Basic (I), (H)
  $ 0.59     $ 0.62     $ 1.89     $ 1.80  
 
   
     
     
     
 
 
Funds From Operations – Diluted (I), (H)
  $ 0.58     $ 0.61     $ 1.86     $ 1.77  
 
   
     
     
     
 
 
Basic – average shares outstanding (thousands)
    80,447       64,712       82,756       63,395  
 
   
     
     
     
 
 
Diluted — average shares outstanding (thousands)
    85,997       65,761       87,066       64,451  
 
   
     
     
     
 

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

(A)   Increases in base and percentage rental revenues for the nine month period ended September 30, 2003 as compared to 2002, aggregated $67.3 million consisting of $2.9 million related to leasing of core portfolio properties (an increase of 2.1% from 2002), $20.2 million from the acquisition of thirteen shopping centers in 2002 and 2003, $49.1 million is attributed to the JDN merger and $2.0 million related to developments and redevelopments. These amounts were offset by a decrease of $0.9 million relating to the business center properties and $6.0 million due to the transfer of eight properties to joint ventures in 2002 and 2003. Included in the rental revenues for the nine month period ended September 30, 2003 and 2002 is approximately $4.8 million and $3.1 million, respectively, of revenue resulting from the recognition of straight line rents.

(B)   Other income for the three month period ended September 30, 2003 and 2002 included approximately $3.7 million and $0.2 million, respectively, in lease termination revenue. Other income for the nine month period ended September 30, 2003 and 2002 included approximately $6.5 million and $3.0 million in lease termination revenue, respectively. Other income for the nine month period ended September 30, 2003 includes approximately $2.4 million of income from the settlement of a call option relating to the MOPPRS debt assumed from JDN. Included in other income for the nine month period ended September 30, 2003 and 2002 was approximately $1.1 million and $2.4 million, respectively, primarily associated with the sale of certain option rights (2003), the sale of development rights to the Wilshire project in Los Angeles, California (2002), financing and other miscellaneous fees. Offsetting these revenues for the nine months ended September 30, 2003 and 2002 was a charge of $0.5 million relating to the write-off of abandoned development projects in each year.

(C)   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 nine month periods ended September 30, 2003 and 2002, general and administrative expenses were approximately 5.1% and 4.4%, respectively, of total revenues, including joint venture revenues, for each period. In addition to increases attributable to the merger with JDN in March 2003, included in the nine month period ended September 30, 2003 general and administrative expense is approximately $2.8 million of non-cash executive management incentive compensation primarily associated with performance unit grants which compares to $1.1 million in 2002. The increase of $1.7 million is attributed to the increase in the Company’s stock price in 2003. Excluding this additional non-cash incentive compensation, general and administrative expense, as a percentage of total revenues, including joint venture revenues, was approximately 4.8%.

(D)   Impairment charge relates to the potential sale of two shopping center assets, aggregating 150,000 square feet of GLA, in 2003 with a projected loss of approximately $2.6 million. One of these properties sold in October 2003.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

(E)   The following is a summary of the Company’s share of the combined operating results relating to its joint ventures (in thousands):
                                   
      Three month period   Nine month period
      ended September 30,   ended September 30,
     
 
      2003 (b)   2002 (b)   2003 (b)   2002 (b)
     
 
 
 
Revenues from operations (a)
  $ 64,933     $ 55,588     $ 190,778     $ 166,498  
 
   
     
     
     
 
Operating expense
    21,526       18,998       68,601       57,883  
Depreciation and amortization of real estate investments
    11,536       7,686       32,226       23,180  
Interest expense
    19,848       16,521       59,777       49,639  
 
   
     
     
     
 
 
    52,910       43,205       160,604       130,702  
 
   
     
     
     
 
Income from operations before gain on sale of real estate and real estate investments and discontinued operations
    12,023       12,383       30,174       35,796  
Gain on sale of real estate and real estate investments
    1,603       2,420       3,935       13,697  
Income from discontinued operations
    (227 )     2,013       396       7,427  
Gain on sale of discontinued operations
    12,446             53,333       15,596  
 
   
     
     
     
 
Net income
  $ 25,845     $ 16,816     $ 87,838     $ 72,516  
 
   
     
     
     
 
DDR Ownership interests (b)
  $ 7,148     $ 4,775     $ 24,678     $ 24,103  
 
   
     
     
     
 
Funds From Operations from joint ventures are summarized as follows:
                               
 
Net income
  $ 25,845     $ 16,816     $ 87,838     $ 72,516  
 
(Gain) loss on sale of real estate and real estate investments, including discontinued operations
    (12,181 )     273       (53,069 )     (15,075 )
 
Depreciation and amortization of real estate investments
    11,627       8,537       33,109       26,822  
 
   
     
     
     
 
 
  $ 25,291     $ 25,626     $ 67,878     $ 84,263  
 
   
     
     
     
 
 
DDRC Ownership interests (b)
  $ 8,872     $ 8,794     $ 24,815     $ 32,145  
 
   
     
     
     
 
 
DDRC Partnership distributions received, net
  $ 19,940     $ 9,700     $ 54,149     $ 47,854  
 
   
     
     
     
 

  (a)   Revenues for the three month periods ended September 30, 2003 and 2002 included approximately $0.9 million and $0.7 million, respectively, resulting from the recognition of straight line rents of which the Company’s proportionate share is $0.3 million and $0.2 million, respectively. Revenues for the nine month periods ended September 30, 2003 and 2002 included approximately $2.5 million in each year resulting from the recognition of straight line rents, of which the Company’s proportionate share is $0.6 million and $0.9 million, respectively.

  (b)   At September 30, 2003 and 2002, the Company owned joint venture interests relating to 52 and 49 shopping center properties, respectively. In addition, at September 30, 2003 and 2002, respectively, the Company owned through its approximately 25% owned joint venture, 75 and 117 shopping center sites formerly owned by Service Merchandise.

    The Company’s share of joint venture net income has been reduced by $0.9 million and $1.9 million for the nine month periods ended September 30, 2003 and 2002, respectively, to reflect additional basis depreciation and the elimination of gain on sale in relation to a property acquired by the Company from a joint venture.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

(F)   Minority Equity Interests are comprised of the following:
                                 
    Three Month Period   Nine Month Period
    Ended September 30,   Ended September 30,
   
 
    2003   2002   2003   2002
   
 
 
 
Minority interests
  $ 420     $ 458     $ 1,263     $ 1,355  
Preferred Operating Partnership Units
          4,770       2,236       14,311  
Operating Partnership Units
    444       342       1,303       1,104  
 
   
     
     
     
 
 
  $ 864     $ 5,570     $ 4,802     $ 16,770  
 
   
     
     
     
 

         The financial statement amounts presented herein do not reflect the adoption of SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”) with respect to minority interests in entities that are considered mandatorily redeemable financial instruments. It is our understanding that the Financial Accounting Standards Board (“FASB”) voted to defer the adoption of the provisions in SFAS 150 that relate to mandatorily redeemable noncontrolling interests at its meeting on October 29, 2003. We will incorporate a discussion in the Company’s Form 10-Q for the period ended September 30, 2003 reflecting the decisions reached in the FASB Staff Position regarding this matter.

(G)   The operating results relating to assets classified as discontinued operations are summarized as follows in thousands):
                                   
      Three Month Period   Nine Month Period
      Ended September 30,   Ended September 30,
     
 
      2003   2002   2003   2002
     
 
 
 
Revenues
  $ 133     $ 1,289     $ 1,351     $ 4,239  
 
   
     
     
     
 
Expenses:
                               
 
Operating
    44       331       178       1,026  
 
Interest
    13       180       209       591  
 
Depreciation
    17       211       322       941  
 
   
     
     
     
 
 
    74       722       709       2,558  
 
   
     
     
     
 
 
    59       567       642       1,681  
Gain on sales of real estate and (impairment charge), net
          468       1,206       (3,058 )
 
   
     
     
     
 
 
  $ 59     $ 1,035     $ 1,848     $ (1,377 )
 
   
     
     
     
 

(H)   As previously announced, DDR has complied with the Security and Exchange Commission (“SEC”) July 31, 2003’s Staff Policy statement that clarifies EITF Topic No. D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” and restated net income available to common shareholders for fiscal year 2002 and recorded the charges related to the 2003 transactions. As a result of this change in accounting principle, the Company has recorded a charge of $5.7 million for the three months ended September 30, 2003 and $10.7 million and $5.5 million for the nine months ended September 30, 2003 and 2002, respectively, to net income available to common shareholders and FFO.

(I)     For purposes of computing FFO per share (basic), the weighted average shares outstanding were adjusted to reflect the conversion, on a weighted average basis of 1.1 million and 0.9 million Operating Partnership Units (OP Units) outstanding at September 30, 2003 and 2002 into 1.1 million and 1.0 million common shares of the Company for the three and nine month periods ended September 30, 2003 and 2002, respectively. The weighted average diluted shares and OP Units outstanding were 88.3 million and 66.9 million for the three month periods ended September 30, 2003 and 2002, respectively, and 82.9 million and 65.6 million for the nine month periods ended September 30, 2003 and 2002, respectively.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)

Selected Balance Sheet Data:

                     
        September 30, 2003 (A)   December 31, 2002
       
 
Assets:
               
Real estate and rental property:
               
   
Land
  $ 843,376     $ 488,292  
   
Buildings
    2,676,442       2,109,675  
   
Fixtures and tenant improvements
    81,863       72,674  
   
Land under development
    71,180       20,028  
   
Construction in progress
    188,148       113,387  
   
 
   
     
 
 
    3,861,009       2,804,056  
Less accumulated depreciation
    (457,610 )     (408,792 )
   
 
   
     
 
Real estate, net
    3,403,399       2,395,264  
Cash
    18,474       16,371  
Advances to and investments in joint ventures
    325,825       258,610  
Notes receivable
    10,985       11,662  
Receivables, including straight line rent
    77,562       60,074  
Other assets
    81,948       34,871  
   
 
   
     
 
 
  $ 3,918,193     $ 2,776,852  
   
 
   
     
 
Liabilities:
               
Indebtedness:
               
 
Revolving credit facilities
  $ 148,500     $ 446,000  
 
Variable rate unsecured term debt
    300,000       22,120  
 
Unsecured debt
    839,822       404,900  
 
Mortgage and other secured debt
    830,454       625,778  
   
 
   
     
 
 
    2,118,776       1,498,798  
 
Dividends payable
    38,688       25,378  
 
Other liabilities
    145,029       92,070  
   
 
   
     
 
 
    2,302,493       1,616,246  
Minority interests
    44,499       215,045  
Shareholders’ equity
    1,571,201       945,561  
   
 
   
     
 
 
  $ 3,918,193     $ 2,776,852  
   
 
   
     
 

(A) See Footnote F on previous page.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(in thousands)

Selected Balance Sheet Data (Continued):

Combined condensed balance sheets relating to the Company’s joint ventures are as follows:

                   
      September 30,   December 31,
      2003   2002
     
 
Land
  $ 442,706       368,520  
Buildings
    1,331,606       1,219,947  
Fixtures and tenant improvements
    29,730       24,356  
Construction in progress
    147,932       91,787  
 
   
     
 
 
    1,951,974       1,704,610  
Accumulated depreciation
    (158,929 )     (153,537 )
 
   
     
 
Real estate, net
    1,793,045       1,551,073  
Receivables, including straight line rent, net
    57,365       64,642  
Investment in joint ventures
    14,283       12,147  
Leasehold interests
    25,472       26,677  
Other assets
    87,705       80,285  
 
   
     
 
 
  $ 1,977,870     $ 1,734,824  
 
   
     
 
Mortgage debt (a)
  $ 1,238,499     $ 1,129,310  
Notes and accrued interest payable to DDRC
    129,627       106,485  
Amounts payable to other partners
    44,533       71,153  
Other liabilities
    78,004       61,898  
 
   
     
 
 
    1,490,663       1,368,846  
 
Accumulated equity
    487,207       365,978  
 
   
     
 
 
  $ 1,977,870     $ 1,734,824  
 
   
     
 

(a)   The Company’s proportionate share of joint venture debt aggregated approximately $396.4 million and $387.1 million at September 30, 2003 and December 31, 2002, respectively.

 

 

EXHIBIT 99.2

(DEVELOPERS DIVERSIFIED REALTY LOGO)

Quarterly Financial Supplement

For the nine months ended
September 30, 2003

Investor Relations Department

3300 Enterprise Parkway • Beachwood, Ohio 44122
(216) 755-5500 • (216) 755-1500 (fax)
www.ddr.com

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003


     Developers Diversified Realty Corporation considers portions of this information to be forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company’s 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 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 or the loss of a major tenant and other matters described in the Management’s Discussion and Analysis section of the Company’s Form 10-K for the year ended December 31, 2002.

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the Nine Months Ended September 30, 2003


TABLE OF CONTENTS

           
Section   Tab


Earnings Release & Financial Statements
    1.0  
Financial Summary
    2.0  
 
• Financial Highlights
    2.1  
 
• Market Capitalization and Financial Ratios
    2.2  
 
• Market Capitalization Summary
    2.3  
 
• Significant Accounting Policies
    2.4  
 
• Non-GAAP Financial Measures
    2.5  
Consolidated and Wholly Owned Financial Operations
    3.0  
 
• Summary of Capital Transactions
    3.1  
 
• Acquisitions, Dispositions, Expansions and Developments
    3.2  
 
• Summary of Consolidated Debt
    3.3  
 
• Summary of Consolidated Mortgage Principal Payments & Corporate Debt Maturities
    3.4  
Joint Venture Summaries
    4.0  
 
• Joint Venture Financials
    4.1  
 
• Joint Venture Partnership Summaries
    4.2  
Joint Venture Financial Operations
    5.0  
 
• Summary of Capital Transactions
    5.1  
 
• Acquisitions, Dispositions, Expansions and Developments
    5.2  
 
• Summary of Joint Venture Debt
    5.3  
 
• Summary of Pro Rata Joint Venture Debt
    5.4  
 
• Summary of Joint Venture Mortgage Principal Payments
    5.5  
Portfolio Statistics
    6.0  
Appendix
    7.0  
 
• Property Listing
    7.1  
 
• Investor Information
    7.2  

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION

For Immediate Release:

         
Contact:   Scott A. Wolstein   Michelle A. Mahue
    Chairman   Vice President of Investor Relations
    Chief Executive Officer   216-755-5455
    216-755-5500    

DEVELOPERS DIVERSIFIED REALTY REPORTS A 5.1%
INCREASE IN FFO PER SHARE FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2003

      CLEVELAND, OHIO, October 30, 2003 - Developers Diversified Realty Corporation (NYSE: DDR), a real estate investment trust (“REIT”), today announced that third quarter 2003 Funds From Operations (“FFO”), a widely accepted measure of REIT performance, on a per share basis was $0.58 (diluted) and $0.59 (basic) as compared to $0.61 (diluted) and $0.62 (basic) per share for the same period in the previous year, a per share decrease of 4.9% diluted and 4.8% basic. The figures in 2003 include a $0.07 per share charge relating to the original issuance costs associated with the redemption of preferred shares during the third quarter 2003. Excluding this non-cash charge, FFO, on a per share basis was $0.65 (diluted) and $0.66 (basic), a per share increase of 6.6% diluted and 6.5% basic. FFO reached $51.3 million for the quarter ended September 30, 2003, as compared to $40.6 million for 2002. Net income for the three months ended September 30, 2003 was $42.0 million compared to second quarter 2002 net income of $25.2 million, or $0.28 per share (diluted) and $0.29 (basic) for each quarter.

     On a per share basis, FFO (diluted) was $1.86 and $1.77 for the nine month periods ended September 30, 2003 and 2002, respectively, an increase of 5.1 %. Excluding the non-cash charges associated with the redemption of preferred shares in 2003 and 2002, FFO, on a per share basis was $1.99 diluted in 2003 compared to $1.86 (diluted) in 2002, an increase of 7.0%. FFO for the nine months ended September 30, 2003 was $154.2 million compared to FFO for the nine months ended September 30, 2002 of $116.4 million. Net income for the nine months ended September 30, 2003 was $148.8 million, or $1.32 per share (diluted), compared to net income of $72.4 million, or $0.72 per share (diluted) for the prior comparable period. An increase in net income of $26.2 million is due to the net gain on sale of real estate assets. The remainder of the increase in net income is attributable to the merger with JDN Realty on March 13, 2003, core operations and a reduction in minority interest expense associated with preferred operating partnership units which were redeemed in 2003.

     Scott A. Wolstein, DDR’s chairman and chief executive officer stated, “We are pleased to announce this quarter’s financial results, which demonstrate strong earnings growth and the Company’s continued commitment to improving its balance sheet. Furthermore, property level fundamentals remain stable, driven by strong demand from our key tenants such as Wal*Mart, Target and Kohl’s; plus demand from other tenants migrating from enclosed malls to open air centers. During the quarter, Developers Diversified announced its $730 million joint venture transaction to create an Australian investment entity. Not only does this transaction tap the Australian public market’s overwhelming demand for institutional quality community centers, but it also creates a long-term equity partner.”

 


 

     FFO is a supplemental non-GAAP financial measurement used as a standard in the real estate industry. Management believes that FFO provides an additional indicator of the financial performance of a REIT. The Company also believes that FFO appropriately measures the core operations of the Company and provides a benchmark to its peer group. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow as a measure of liquidity. FFO available to common shareholders is defined and calculated by the Company as net income, adjusted to exclude: (i) preferred dividends, (ii) gains (or losses) from sales of depreciable real estate property, except for those sold through the Company’s merchant building program, which are presented net of taxes, (iii) sales of securities, (iv) extraordinary items and (v) certain non-cash items. These non-cash items principally include real property depreciation, equity income from joint ventures and equity income from minority equity investments and adding the Company’s proportionate share of FFO from its unconsolidated joint ventures and minority equity investments, determined on a consistent basis. Other real estate companies may calculate FFO in a different manner. A reconciliation of net income to FFO is presented in the financial highlights section.

Leasing:

     Leasing activity continues to be strong throughout the portfolio. During the third quarter of 2003, the Company executed 110 new leases aggregating approximately 633,000 square feet and 140 renewals aggregating approximately 494,000 square feet. Rental rates on new leases increased by 15.2% to $11.83 per square foot and rental rates on renewals increased by 7.6% to $11.37 per square foot. On a blended basis, rental rates for new leases and renewals increased by 10.1% to $11.63 per square foot.

     At September 30, 2003, the average annualized base rent per occupied square foot, including those properties owned through joint ventures, was $10.65. Excluding the impact of the properties acquired through the JDN merger, the average annualized base rent per occupied square foot for the portfolio was $10.95, as compared to $10.49 at September 30, 2002.

     As of September 30, 2003, the portfolio was 94.6% leased. Excluding the impact of the properties acquired through the JDN merger, the portfolio was 95.2% leased, as compared to 95.9% at September 30, 2002. These percentages include tenants for which signed leases have been executed and occupancy has not occurred. Based on tenants in place and responsible for paying rent as of September 30, 2003, the portfolio was 94.0% occupied. Excluding the impact of the properties acquired through the JDN merger, the portfolio was 94.6% occupied, as compared to 94.2% at September 30, 2002.

     Same store tenant sales performance over the trailing 12 month period within the Company’s portfolio remained strong at approximately $234 per square foot for those tenants required to report. Aggregate base and percentage rental revenues relating to Core Portfolio Properties (i.e., shopping center properties owned since January 1, 2002, excluding properties under redevelopment) increased approximately $2.9 million (or 2.1%) for the nine month period ended September 30, 2003, compared to the same period in 2002.

Strategic Transactions:

Macquarie DDR Trust

     The Company announced that it intends to form an Australian based Listed Property Trust with Macquarie Bank Limited (ASX: MBL), an international investment bank and leading advisor and manager of specialized real estate funds in Australia. Macquarie DDR Trust (“MDT”) will focus on acquiring ownership interests in institutional-quality community center properties in the U.S. The aggregate purchase value (assuming 100% ownership) of the initial portfolio of eleven assets currently owned by DDR and DDR joint ventures is approximately $730 million and MDT will operate with a targeted leverage ratio of 50%.

 


 

     MDT, which is expected to be listed on the Australian Stock Exchange during the fourth quarter, will own an 81% interest in the 11 asset portfolio. DDR will retain a 14.5% effective ownership interest in the assets and MBL will own the remaining 4.5%. DDR will be responsible for all day-to-day operations of the properties and will receive fees for property management, leasing, construction management, acquisitions, due diligence, dispositions (including outparcel sales), and financing. The Company will also receive base asset management fees and incentive fees based on the performance of MDT.

     It is anticipated that an additional asset in Minneapolis, MN (Coon Rapids — Inner Quadrant) will be sold to MDT after construction and leasing are completed, subject to the satisfaction of MDT’s investment criteria and the availability of financing. MDT will have a two year right of first offer on twenty pre-determined joint venture and wholly owned assets currently in DDR’s portfolio. MDT also is expected to pursue acquisitions of additional stabilized, institutional-quality community center properties.

     DDR is expected to receive approximately $185 million in cash and retain a $53 million equity investment in the joint venture, representing its 14.5% effective ownership interest. The newly formed joint venture is expected to carry approximately $374 million in debt, or approximately 50% of total asset value. The interest rate for this debt will generally be structured with 80% fixed and 20% floating. The new fixed rate financing will have a weighted average interest rate of approximately 4.40% and the floating rate debt will have an estimated initial weighted average interest rate of 3.85%. A portion of the initial outstanding floating rate debt reflects financing to MDT under its anticipated $100 million secured revolving credit facility.

     The aggregate size of the MDT portfolio is approximately 5.4 million square feet of total GLA (of which 4.8 million is owned GLA), and the average size of the eleven properties is approximately 490,000 square feet of total GLA. The Company currently holds seven of the MDT portfolio assets in existing joint ventures. These properties are located in Boston (Framingham), Massachusetts; Chicago (Schaumburg), Illinois; Minneapolis (Coon Rapids), Minnesota; Atlanta, Georgia; Washington, D.C. (Fairfax, Virginia); Atlanta (Marietta), Georgia and Naples, Florida. The remaining four assets are wholly owned by DDR and located in St. Paul, Minnesota; Kansas City (Independence), Missouri; Canton, Ohio and Cleveland (N. Olmsted), Ohio.

     MDT will be governed by a board of directors that include three members from DDR, three members from MBL and two independent members to be selected after the listing of MDT.

Expansions:

     For the nine month period ended September 30, 2003, the Company completed expansions and redevelopments at nine shopping centers located in Birmingham, Alabama; Bayonet Point, Florida; Brandon, Florida; Tucker, Georgia; Fayetteville, North Carolina; North Canton, Ohio; Erie, Pennsylvania; Riverdale, Utah and Taylorsville, Utah at an aggregate cost of approximately $26.8 million. The Company is currently expanding/redeveloping four shopping centers located in North Little Rock, Arkansas; Aurora, Ohio; Tiffin, Ohio and Monaca, Pennsylvania at a projected incremental cost of approximately $22.9 million. The Company is also scheduled to commence two additional expansion projects at the Princeton, New Jersey and Starkville, Mississippi shopping centers.

     For the nine month period ended September 30, 2003, the Company’s joint ventures completed expansions and redevelopments at three shopping centers located in San Ysidro, California; Shawnee, Kansas and North Olmsted, Ohio at an aggregate cost of approximately $9.7 million. The Company’s joint ventures are currently expanding/redeveloping a shopping center located in Deer Park, Illinois at a projected incremental cost of approximately $13.9 million.

 


 

Development (Consolidated):

     During the nine month period ended September 30, 2003, the Company completed the construction of ten shopping centers located in Fayetteville, Arkansas; Aurora, Colorado; Parker, Colorado; Parker South, Colorado; Lithonia, Georgia; McDonough, Georgia; Coon Rapids (Minneapolis) Minnesota; St. John’s, Missouri; Erie, Pennsylvania and Frisco, Texas.

     The Company currently has 15 shopping center projects under construction, 10 of which resulted from the merger with JDN. These projects are located in Meridian, Idaho (Phase II of the existing shopping center); Long Beach, California; Sacramento, California; Fort Collins, Colorado; Overland Park, Kansas; Chesterfield, Michigan; Grandville, Michigan; Lansing, Michigan; St. Louis, Missouri; Apex, North Carolina; Hamilton, New Jersey; Mount Laurel, New Jersey; Pittsburgh, Pennsylvania; Irving, Texas and Mesquite, Texas. These projects are scheduled for completion during 2003 and 2004 and will create an additional 3.6 million square feet of retail space.

     The Company anticipates commencing construction in 2004 on two additional shopping centers located in Norwood, Massachusetts and McKinney, Texas.

Development (Joint Ventures):

     The Company has joint venture development agreements for three shopping center projects. These three projects have an aggregate projected cost of approximately $97.8 million and are currently scheduled for completion during 2003 and 2004. At September 30, 2003, approximately $90.3 million of costs were incurred in relation to these development projects. The projects located in Long Beach, California (City Place) and Austin, Texas are being financed through the Prudential/DDR Retail Value Fund. The other project is located in St. Louis, Missouri.

Dispositions:

     In September 2003, one of the Company’s RVIP joint ventures sold two west coast shopping centers, a 103,000 square foot shopping center located in suburban Sacramento, California for approximately $19.3 million and a 109,000 square foot shopping center located in Fullerton, California for approximately $15.0 million and recognized a gain of approximately $12.5 million of which the Company’s proportionate share was $2.5 million. In October 2003, this joint venture also sold a 208,000 square foot shopping center located in Bellingham, Washington for approximately $23.5 million.

     In September 2003, the Company sold a 57,000 square foot shopping center located in Nacogdoches, Texas for approximately $5.7 million and in October 2003, the Company sold a 123,000 square foot shopping center located in Decatur, Alabama for approximately $6.9 million. The Company acquired both of these properties in the merger with JDN Realty in March 2003. Additionally, in October 2003, the Company sold a 92,000 square foot shopping center located in St. Louis, Missouri for approximately $3.3 million.

Financings:

     In July 2003, the Company sold $205 million of Class H Cumulative Redeemable Preferred Shares with an annual dividend coupon of 7.375%. In addition, the Company called all outstanding shares of its 8.375% Class C Depositary Cumulative Preferred Shares aggregating $100 million in July 2003, all outstanding shares of its 8.68% Class D Depositary Cumulative Preferred Shares aggregating $54 million in August 2003 and all outstanding shares of its 9.375% Voting Preferred Shares aggregating $50 million in September 2003.

 


 

     In July 2003, the Company issued $300 million of seven-year senior unsecured notes with a coupon rate of 4.625%. These notes are due August 1, 2010 and were offered at 99.843% of par. Proceeds from this offering were used to repay borrowings under the Company’s unsecured credit facility and to selectively prepay secured mortgage financing.

     Developers Diversified Realty Corporation currently owns and manages over 360 retail operating and development properties in 44 states comprising approximately 82 million square feet of real estate. DDR is a self-administered and self-managed real estate investment trust (REIT) operating as a fully integrated real estate company which acquires, develops, leases and manages shopping centers.

     A copy of the Company’s Supplemental Financial/Operational package is available to all interested parties upon written request at our corporate office to Michelle A. Mahue, Vice President of Investor Relations, Developers Diversified Realty Corporation, 3300 Enterprise Parkway, Beachwood, OH 44122 or on our Website which is located 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 Exchange Act of 1933 and Section 21 E 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 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 or the loss of a major tenant. For more details on the risk factors, please refer to the Company’s Form on 10-K as of December 31, 2002.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

                                         
            Three Month Period   Nine Month Period
            Ended September 30,   Ended September 30,
           
 
            2003(F)   2002   2003(F)   2002
           
 
 
 
Revenues:
                               
 
Minimum rent (A)
  $ 89,894     $ 65,934     $ 255,267     $ 187,198  
 
Percentage and overage rents (A)
    769       812       3,247       2,282  
 
Recoveries from tenants
    24,972       18,446       67,878       50,723  
 
Ancillary income
    537       502       1,333       1,167  
 
Other property related income
    369       615       677       1,189  
 
Management fee income
    2,601       2,427       7,733       7,789  
 
Development fees
    303       1,236       976       2,042  
 
Interest income
    1,133       1,496       3,892       4,056  
 
Other (B)
    3,599       155       9,520       4,895  
 
   
     
     
     
 
 
    124,177       91,623       350,523       261,341  
 
   
     
     
     
 
Expenses:
                               
 
Operating and maintenance
    15,653       10,810       43,962       29,942  
 
Real estate taxes
    15,987       11,294       42,491       32,041  
 
General and administrative (C)
    9,088       6,632       28,001       20,012  
 
Interest
    23,515       19,700       65,620       57,588  
 
Impairment charge (D)
                2,640        
 
Depreciation and amortization
    24,760       18,415       68,840       56,645  
 
   
     
     
     
 
 
    89,003       66,851       251,554       196,228  
 
   
     
     
     
 
Income before equity in net income of joint ventures, minority equity interests, income tax expense, discontinued operations and gain on sales of real estate and real estate investments
    35,174       24,772       98,969       65,113  
Equity in net income of joint ventures (E)
    6,852       4,781       23,748       22,398  
Minority equity interests (F)
    (864 )     (5,570 )     (4,802 )     (16,770 )
Income tax expense of taxable REIT subsidiary
    (130 )           (130 )      
 
   
     
     
     
 
Income from continuing operations
    41,032       23,983       117,785       70,741  
Income (loss) from discontinued operations (G)
    59       1,035       1,848       (1,377 )
 
   
     
     
     
 
Income before gain on sales of real estate and real estate investments
    41,091       25,018       119,633       69,364  
Gain on sales of real estate and real estate investments, net of tax
    897       159       29,142       2,988  
 
   
     
     
     
 
Net income
  $ 41,988     $ 25,177     $ 148,775     $ 72,352  
 
   
     
     
     
 
Net income, applicable to common shareholders (H)
  $ 24,525     $ 18,687     $ 108,175     $ 46,241  
 
   
     
     
     
 
Funds From Operations (“FFO”):
                               
 
Net income applicable to common shareholders (H)
  $ 24,525     $ 18,687     $ 108,175     $ 46,241  
 
Depreciation and amortization of real estate investments
    24,319       18,029       68,013       56,237  
 
Equity in net income of joint ventures
    (6,852 )     (4,781 )     (23,748 )     (22,398 )
 
Joint ventures’ FFO (E)
    8,872       8,794       24,815       32,145  
 
Minority equity interests (OP Units)
    444       342       1,303       1,104  
 
(Gain) loss on sales and impairment charge on depreciable real estate and real estate investments, net
          (468 )     (24,377 )     3,058  
 
   
     
     
     
 
 
FFO available to common shareholders
    51,308       40,603       154,181       116,387  
   
Preferred dividends (H)
    17,463       6,490       40,600       26,111  
 
   
     
     
     
 
 
FFO (H)
  $ 68,771     $ 47,093     $ 194,781     $ 142,498  
 
   
     
     
     
 
 
Per share data: (H)
                               
     
Earnings per common share
                               
       
Basic
  $ 0.29     $ 0.29     $ 1.34     $ 0.73  
 
   
     
     
     
 
       
Diluted
  $ 0.28     $ 0.28     $ 1.32     $ 0.72  
 
   
     
     
     
 
 
Dividends Declared
  $ 0.41     $ 0.38     $ 1.23     $ 1.14  
 
   
     
     
     
 
 
Funds From Operations — Basic (I), (H)
  $ 0.59     $ 0.62     $ 1.89     $ 1.80  
 
   
     
     
     
 
 
Funds From Operations – Diluted (I), (H)
  $ 0.58     $ 0.61     $ 1.86     $ 1.77  
 
   
     
     
     
 
 
Basic – average shares outstanding (thousands)
    80,447       64,712       82,756       63,395  
 
   
     
     
     
 
 
Diluted — average shares outstanding (thousands)
    85,997       65,761       87,066       64,451  
 
   
     
     
     
 

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

(A)   Increases in base and percentage rental revenues for the nine month period ended September 30, 2003 as compared to 2002, aggregated $67.3 million consisting of $2.9 million related to leasing of core portfolio properties (an increase of 2.1% from 2002), $20.2 million from the acquisition of thirteen shopping centers in 2002 and 2003, $49.1 million is attributed to the JDN merger and $2.0 million related to developments and redevelopments. These amounts were offset by a decrease of $0.9 million relating to the business center properties and $6.0 million due to the transfer of eight properties to joint ventures in 2002 and 2003. Included in the rental revenues for the nine month period ended September 30, 2003 and 2002 is approximately $4.8 million and $3.1 million, respectively, of revenue resulting from the recognition of straight line rents.

(B)   Other income for the three month period ended September 30, 2003 and 2002 included approximately $3.7 million and $0.2 million, respectively, in lease termination revenue. Other income for the nine month period ended September 30, 2003 and 2002 included approximately $6.5 million and $3.0 million in lease termination revenue, respectively. Other income for the nine month period ended September 30, 2003 includes approximately $2.4 million of income from the settlement of a call option relating to the MOPPRS debt assumed from JDN. Included in other income for the nine month period ended September 30, 2003 and 2002 was approximately $1.1 million and $2.4 million, respectively, primarily associated with the sale of certain option rights (2003), the sale of development rights to the Wilshire project in Los Angeles, California (2002), financing and other miscellaneous fees. Offsetting these revenues for the nine months ended September 30, 2003 and 2002 was a charge of $0.5 million relating to the write-off of abandoned development projects in each year.

(C)   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 nine month periods ended September 30, 2003 and 2002, general and administrative expenses were approximately 5.1% and 4.4%, respectively, of total revenues, including joint venture revenues, for each period. In addition to increases attributable to the merger with JDN in March 2003, included in the nine month period ended September 30, 2003 general and administrative expense is approximately $2.8 million of non-cash executive management incentive compensation primarily associated with performance unit grants which compares to $1.1 million in 2002. The increase of $1.7 million is attributed to the increase in the Company’s stock price in 2003. Excluding this additional non-cash incentive compensation, general and administrative expense, as a percentage of total revenues, including joint venture revenues, was approximately 4.8%.

(D)   Impairment charge relates to the potential sale of two shopping center assets, aggregating 150,000 square feet of GLA, in 2003 with a projected loss of approximately $2.6 million. One of these properties sold in October 2003.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

(E)   The following is a summary of the Company’s share of the combined operating results relating to its joint ventures (in thousands):
                                   
      Three month period   Nine month period
      ended September 30,   ended September 30,
     
 
      2003 (b)   2002 (b)   2003 (b)   2002 (b)
     
 
 
 
Revenues from operations (a)
  $ 64,933     $ 55,588     $ 190,778     $ 166,498  
 
   
     
     
     
 
Operating expense
    21,526       18,998       68,601       57,883  
Depreciation and amortization of real estate investments
    11,536       7,686       32,226       23,180  
Interest expense
    19,848       16,521       59,777       49,639  
 
   
     
     
     
 
 
    52,910       43,205       160,604       130,702  
 
   
     
     
     
 
Income from operations before gain on sale of real estate and real estate investments and discontinued operations
    12,023       12,383       30,174       35,796  
Gain on sale of real estate and real estate investments
    1,603       2,420       3,935       13,697  
Income from discontinued operations
    (227 )     2,013       396       7,427  
Gain on sale of discontinued operations
    12,446             53,333       15,596  
 
   
     
     
     
 
Net income
  $ 25,845     $ 16,816     $ 87,838     $ 72,516  
 
   
     
     
     
 
DDR Ownership interests (b)
  $ 7,148     $ 4,775     $ 24,678     $ 24,103  
 
   
     
     
     
 
Funds From Operations from joint ventures are summarized as follows:
                               
 
Net income
  $ 25,845     $ 16,816     $ 87,838     $ 72,516  
 
(Gain) loss on sale of real estate and real estate investments, including discontinued operations
    (12,181 )     273       (53,069 )     (15,075 )
 
Depreciation and amortization of real estate investments
    11,627       8,537       33,109       26,822  
 
   
     
     
     
 
 
  $ 25,291     $ 25,626     $ 67,878     $ 84,263  
 
   
     
     
     
 
 
DDRC Ownership interests (b)
  $ 8,872     $ 8,794     $ 24,815     $ 32,145  
 
   
     
     
     
 
 
DDRC Partnership distributions received, net
  $ 19,940     $ 9,700     $ 54,149     $ 47,854  
 
   
     
     
     
 

  (a)   Revenues for the three month periods ended September 30, 2003 and 2002 included approximately $0.9 million and $0.7 million, respectively, resulting from the recognition of straight line rents of which the Company’s proportionate share is $0.3 million and $0.2 million, respectively. Revenues for the nine month periods ended September 30, 2003 and 2002 included approximately $2.5 million in each year resulting from the recognition of straight line rents, of which the Company’s proportionate share is $0.6 million and $0.9 million, respectively.

  (b)   At September 30, 2003 and 2002, the Company owned joint venture interests relating to 52 and 49 shopping center properties, respectively. In addition, at September 30, 2003 and 2002, respectively, the Company owned through its approximately 25% owned joint venture, 75 and 117 shopping center sites formerly owned by Service Merchandise.

    The Company’s share of joint venture net income has been reduced by $0.9 million and $1.9 million for the nine month periods ended September 30, 2003 and 2002, respectively, to reflect additional basis depreciation and the elimination of gain on sale in relation to a property acquired by the Company from a joint venture.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands — except per share data)

(F)   Minority Equity Interests are comprised of the following:
                                 
    Three Month Period   Nine Month Period
    Ended September 30,   Ended September 30,
   
 
    2003   2002   2003   2002
   
 
 
 
Minority interests
  $ 420     $ 458     $ 1,263     $ 1,355  
Preferred Operating Partnership Units
          4,770       2,236       14,311  
Operating Partnership Units
    444       342       1,303       1,104  
 
   
     
     
     
 
 
  $ 864     $ 5,570     $ 4,802     $ 16,770  
 
   
     
     
     
 

         The financial statement amounts presented herein do not reflect the adoption of SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”) with respect to minority interests in entities that are considered mandatorily redeemable financial instruments. It is our understanding that the Financial Accounting Standards Board (“FASB”) voted to defer the adoption of the provisions in SFAS 150 that relate to mandatorily redeemable noncontrolling interests at its meeting on October 29, 2003. We will incorporate a discussion in the Company’s Form 10-Q for the period ended September 30, 2003 reflecting the decisions reached in the FASB Staff Position regarding this matter.

(G)   The operating results relating to assets classified as discontinued operations are summarized as follows in thousands):
                                   
      Three Month Period   Nine Month Period
      Ended September 30,   Ended September 30,
     
 
      2003   2002   2003   2002
     
 
 
 
Revenues
  $ 133     $ 1,289     $ 1,351     $ 4,239  
 
   
     
     
     
 
Expenses:
                               
 
Operating
    44       331       178       1,026  
 
Interest
    13       180       209       591  
 
Depreciation
    17       211       322       941  
 
   
     
     
     
 
 
    74       722       709       2,558  
 
   
     
     
     
 
 
    59       567       642       1,681  
Gain on sales of real estate and (impairment charge), net
          468       1,206       (3,058 )
 
   
     
     
     
 
 
  $ 59     $ 1,035     $ 1,848     $ (1,377 )
 
   
     
     
     
 

(H)   As previously announced, DDR has complied with the Security and Exchange Commission (“SEC”) July 31, 2003’s Staff Policy statement that clarifies EITF Topic No. D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” and restated net income available to common shareholders for fiscal year 2002 and recorded the charges related to the 2003 transactions. As a result of this change in accounting principle, the Company has recorded a charge of $5.7 million for the three months ended September 30, 2003 and $10.7 million and $5.5 million for the nine months ended September 30, 2003 and 2002, respectively, to net income available to common shareholders and FFO.

(I)     For purposes of computing FFO per share (basic), the weighted average shares outstanding were adjusted to reflect the conversion, on a weighted average basis of 1.1 million and 0.9 million Operating Partnership Units (OP Units) outstanding at September 30, 2003 and 2002 into 1.1 million and 1.0 million common shares of the Company for the three and nine month periods ended September 30, 2003 and 2002, respectively. The weighted average diluted shares and OP Units outstanding were 88.3 million and 66.9 million for the three month periods ended September 30, 2003 and 2002, respectively, and 82.9 million and 65.6 million for the nine month periods ended September 30, 2003 and 2002, respectively.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)

Selected Balance Sheet Data:

                     
        September 30, 2003 (A)   December 31, 2002
       
 
Assets:
               
Real estate and rental property:
               
   
Land
  $ 843,376     $ 488,292  
   
Buildings
    2,676,442       2,109,675  
   
Fixtures and tenant improvements
    81,863       72,674  
   
Land under development
    71,180       20,028  
   
Construction in progress
    188,148       113,387  
   
 
   
     
 
 
    3,861,009       2,804,056  
Less accumulated depreciation
    (457,610 )     (408,792 )
   
 
   
     
 
Real estate, net
    3,403,399       2,395,264  
Cash
    18,474       16,371  
Advances to and investments in joint ventures
    325,825       258,610  
Notes receivable
    10,985       11,662  
Receivables, including straight line rent
    77,562       60,074  
Other assets
    81,948       34,871  
   
 
   
     
 
 
  $ 3,918,193     $ 2,776,852  
   
 
   
     
 
Liabilities:
               
Indebtedness:
               
 
Revolving credit facilities
  $ 148,500     $ 446,000  
 
Variable rate unsecured term debt
    300,000       22,120  
 
Unsecured debt
    839,822       404,900  
 
Mortgage and other secured debt
    830,454       625,778  
   
 
   
     
 
 
    2,118,776       1,498,798  
 
Dividends payable
    38,688       25,378  
 
Other liabilities
    145,029       92,070  
   
 
   
     
 
 
    2,302,493       1,616,246  
Minority interests
    44,499       215,045  
Shareholders’ equity
    1,571,201       945,561  
   
 
   
     
 
 
  $ 3,918,193     $ 2,776,852  
   
 
   
     
 

(A) See Footnote F on previous page.

 


 

DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(in thousands)

Selected Balance Sheet Data (Continued):

Combined condensed balance sheets relating to the Company’s joint ventures are as follows:

                   
      September 30,   December 31,
      2003   2002
     
 
Land
  $ 442,706       368,520  
Buildings
    1,331,606       1,219,947  
Fixtures and tenant improvements
    29,730       24,356  
Construction in progress
    147,932       91,787  
 
   
     
 
 
    1,951,974       1,704,610  
Accumulated depreciation
    (158,929 )     (153,537 )
 
   
     
 
Real estate, net
    1,793,045       1,551,073  
Receivables, including straight line rent, net
    57,365       64,642  
Investment in joint ventures
    14,283       12,147  
Leasehold interests
    25,472       26,677  
Other assets
    87,705       80,285  
 
   
     
 
 
  $ 1,977,870     $ 1,734,824  
 
   
     
 
Mortgage debt (a)
  $ 1,238,499     $ 1,129,310  
Notes and accrued interest payable to DDRC
    129,627       106,485  
Amounts payable to other partners
    44,533       71,153  
Other liabilities
    78,004       61,898  
 
   
     
 
 
    1,490,663       1,368,846  
 
Accumulated equity
    487,207       365,978  
 
   
     
 
 
  $ 1,977,870     $ 1,734,824  
 
   
     
 

(a)   The Company’s proportionate share of joint venture debt aggregated approximately $396.4 million and $387.1 million at September 30, 2003 and December 31, 2002, respectively.

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the Nine Months Ended September 30, 2003


FINANCIAL HIGHLIGHTS
(In Thousands Except Per Share Information)

                                                     
        Nine Month     Nine Month        
        Period Ended     Period Ended     Year Ended December 31  
        30-Sep     30-Sep    
 
        2003     2002     2002     2001     2000     1999  
       
   
   
   
   
   
 
FUNDS FROM OPERATIONS:
                                               
 
Net Income Applicable to Common Shareholders
  $ 108,175 (7)   $ 46,241 (7)   $ 69,368 (7)   $ 65,111     $ 73,571     $ 60,135  
 
Depreciation and Amortization of Real Estate Investments
  $ 68,013     $ 56,237     $ 76,462     $ 63,200     $ 52,975     $ 51,497  
 
Equity in Net Income From Joint Ventures
    ($23,749 )     ($22,398 )     ($32,769 )     ($17,010 )     ($17,072 )     ($20,621 )
 
Equity in Net Income From Minority Equity Investment
  $ 0     $ 0     $ 0       ($1,550 )     ($6,224 )     ($6,453 )
 
Joint Venture Funds From Operations
  $ 24,815     $ 32,145     $ 44,473     $ 31,546     $ 30,512     $ 32,317  
 
Minority Equity Investment Funds From Operations
  $ 0     $ 0     $ 0     $ 6,448     $ 14,856     $ 12,965  
 
Operating Partnership Minority Interest Expense
  $ 1,303     $ 1,104     $ 1,450     $ 1,531     $ 4,126     $ 6,541  
 
Non-Recurring & Extraordinary Charges
  $ 0     $ 0     $ 0     $ 2,895     $ 0     $ 0  
 
Loss (Gain) on Sales of Real Estate
    ($24,377 )   $ 3,058     $ 454       ($16,688 )     ($23,440 )   $ 1,664  
 
 
 
   
   
   
   
   
 
FUNDS FROM OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS
  $ 154,181     $ 116,387     $ 159,439     $ 135,482     $ 129,303     $ 138,044  
PREFERRED DIVIDENDS
  $ 40,600 (7)   $ 26,111 (7)   $ 32,602 (7)   $ 27,262     $ 27,262     $ 27,262  
 
 
 
   
   
   
   
   
 
FUNDS FROM OPERATIONS
  $ 194,781     $ 142,498     $ 192,041     $ 162,744     $ 156,565     $ 165,306  
 
 
 
   
   
   
   
   
 
PER SHARE INFORMATION:
                                               
 
Funds From Operations — Diluted
  $ 1.86     $ 1.77     $ 2.42     $ 2.38     $ 2.19     $ 2.05  
 
Net Income — Diluted
  $ 1.32     $ 0.72     $ 1.07     $ 1.17     $ 1.31     $ 0.95  
 
Cash Dividends
  $ 1.23     $ 1.14     $ 1.52     $ 1.48     $ 1.44     $ 1.40  
WEIGHTED AVERAGE SHARES AND OPERATING PARTNERSHIP UNITS, FFO
    82,888       65,577       65,910       56,957       59,037       68,412  
TOTAL MARKET CAPITALIZATION (1)
  $ 5,260,664     $ 3,461,981     $ 3,460,243     $ 2,982,461     $ 2,490,917     $ 2,392,455  
DEBT TO TOTAL MARKET CAPITALIZATION (1)
    40.15 %     43.13 %     43.10 %     43.87 %     49.28 %     48.15 %
DEBT TO TOTAL UNDEPRECIATED ASSETS, INVESTMENTS, CASH & NOTES REC
    50.09 %     48.41 %     48.26 %     47.18 %     47.82 %     45.78 %
DIVIDEND PAYOUT RATIO (1)
    64.67% (8)     61.41 %     60.93 %     62.53 %     65.19 %     66.45 %
GEN. & ADMIN. EXPENSES AS A PERCENTAGE OF TOTAL REVENUES (2)
    5.09 %     4.39 %     4.80 %     4.25 %     4.27 %     4.09 %
GENERAL AND ADMINISTRATIVE EXPENSES
  $ 28,001     $ 20,012     $ 29,392     $ 24,175     $ 20,449     $ 17,774  
REVENUES:
                                               
 
DDR Revenues
  $ 355,532     $ 265,728     $ 360,778     $ 324,148     $ 285,416     $ 263,932  
 
Joint Venture Revenues
  $ 194,803     $ 189,651     $ 251,905     $ 244,663     $ 193,275     $ 170,714  
 
 
 
   
   
   
   
   
 
   
TOTAL REVENUES (3)
  $ 550,335     $ 455,379     $ 612,683     $ 568,811     $ 478,691     $ 434,646  
 
 
 
   
   
   
   
   
 
NET OPERATING INCOME:
                                               
 
DDR Net Operating Income
  $ 268,901     $ 185,547     $ 272,764     $ 248,838     $ 225,371     $ 212,037  
 
Joint Venture Net Operating Income
  $ 124,898     $ 124,062     $ 167,573     $ 166,545     $ 136,440     $ 119,544  
 
 
 
   
   
   
   
   
 
   
TOTAL NET OPERATING INCOME (4)
  $ 393,799     $ 309,608     $ 440,337     $ 415,383     $ 361,811     $ 331,581  
 
 
 
   
   
   
   
   
 
REAL ESTATE AT COST:
                                               
 
DDR Real Estate at Cost
  $ 3,861,010     $ 2,810,381     $ 2,804,056     $ 2,493,665     $ 2,161,810     $ 2,068,274  
 
Joint Venture Real Estate at Cost (5)
  $ 2,039,698     $ 1,814,829     $ 1,785,165     $ 1,862,515     $ 1,522,493     $ 1,441,322  
 
 
 
   
   
   
   
   
 
   
TOTAL REAL ESTATE AT COST (6)
  $ 5,900,708     $ 4,625,210     $ 4,589,221     $ 4,356,179     $ 3,684,302     $ 3,509,596  
 
 
 
   
   
   
   
   
 

(1)   See Market Capitalization and Financial Ratio section for detail calculation.
 
(2)   The calculation includes joint venture revenues.
 
(3)   Includes revenues from discontinued operations.
 
(4)   Includes NOI associated with acquisitions, expansions and developments from completion date of said capital transactions.
 
(5)   Includes FMV purchase price gross up of assets shown as equity investment in joint ventures.
 
(6)   Includes construction in progress (CIP) at September 30, 2003 of $423.2 million (includes $163.8 million of CIP included in joint ventures, of which $88.7 million represents the Company’s proportionate share), and at December 31, 2002, 2001, 2000, 1999 CIP aggregated $237.8 million, $287.7 million, $305.4 million and $308.2 million, respectively.
 
(7)   Amounts were adjusted to include original issuance costs associated with the redemption of Preferred Operating Partnership Units and preferred stock of $10,710,000 for the nine months ended September 30, 2003 and $5,543,734 for the nine months ended September 30, 2002 and the year ended December 31, 2002 pursuant to EITF topic NO. D-42..
 
(8)   Includes the full dividend for shares issued in conjunction with the JDN merger during Q-1 2003, however, JDN operating results are only included in FFO subsequent to the merger date of 3/13/03. The recurring quarterly payout ratio is expected to approximate 60% for the remainder of 2003.

Financial Highlights 2.1

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the Nine Months Ended September 30, 2003


MARKET CAPITALIZATION & FINANCIAL RATIOS

                                           
      Nine Month        
      Period Ended     Year Ended December 31  
      30-Sep    
 
      2003     2002     2001     2000     1999  
     
   
   
   
   
 
DDR RATIO OF DEBT TO TOTAL MARKET CAP:
                                       
 
Total Debt
  $ 2,112,039     $ 1,491,481     $ 1,308,301     $ 1,227,575     $ 1,152,051  
 
Total Market Capitalization *
  $ 5,260,664     $ 3,460,243     $ 2,982,461     $ 2,490,917     $ 2,392,455  
 
 
 
   
   
   
   
 
 
    40.15 %     43.10 %     43.87 %     49.28 %     48.15 %
DDR DEBT TO UNDEPRECIATED REAL ESTATE ASSETS, INVESTMENTS AND NOTES RECEIVABLE
    50.09 %     48.26 %     47.18 %     47.82 %     45.78 %
DDR, INCLUDING PROPORTIONATE SHARE OF JV DEBT, TOTAL MARKET CAPITALIZATION:
                                       
 
Total Debt *
  $ 2,508,442     $ 1,878,575     $ 1,688,904     $ 1,550,398     $ 1,618,685  
 
Total Market Capitalization *
  $ 5,657,067     $ 3,847,336     $ 3,363,064     $ 2,813,740     $ 2,859,088  
 
 
 
   
   
   
   
 
 
    44.34 %     48.83 %     50.22 %     55.10 %     56.62 %
DDR & JV DEBT TO UNDEPRECIATED REAL ESTATE ASSETS, INVESTMENTS & NOTES RECEIVABLE
    54.67 %     54.20 %     53.85 %     54.54 %     54.12 %
INTEREST COVERAGE RATIO:
                                       
 
Interest Expense
  $ 65,829     $ 77,208     $ 81,770     $ 77,030     $ 68,023  
 
FFO Before Interest and Preferred Dividends *
  $ 260,610     $ 287,586     $ 263,595     $ 248,896     $ 238,486  
 
 
 
   
   
   
   
 
 
    3.98       3.72       3.22       3.23       3.51  
DEBT SERVICE COVERAGE RATIO:
                                       
 
Debt Service *
  $ 73,942     $ 83,958     $ 88,764     $ 82,103     $ 73,022  
 
FFO Before Interest and Preferred Dividends *
  $ 260,610     $ 287,586     $ 263,595     $ 248,896     $ 238,486  
 
 
 
   
   
   
   
 
 
    3.54       3.43       2.97       3.03       3.27  
FIXED CHARGES (INCLUDING PREFERRED DIVIDENDS) COVERAGE RATIO
                                       
 
Fixed Charges
  $ 105,135     $ 129,353     $ 135,107     $ 124,666     $ 105,440  
 
FFO Before Interest and Preferred Dividends *
  $ 260,610     $ 287,586     $ 263,595     $ 248,896     $ 238,486  
 
 
 
   
   
   
   
 
 
    2.49       2.22       1.95       2.00       2.26  
DIVIDEND PAYOUT RATIO
                                       
 
Common Share Dividends and Operating Partnership Interest
  $ 106,639     $ 100,531     $ 84,721     $ 84,297     $ 91,736  
 
Funds From Operations exclusive of preferred dividend arising from preferred stock redemption
  $ 164,891     $ 164,983     $ 135,482     $ 129,303     $ 138,044  
 
 
 
   
   
   
   
 
 
    0.65 (1)     0.61       0.63       0.65       0.66  

*   See Attached for Detail Calculation
 
(1)   Includes the full dividend for shares issued in conjunction with the JDN merger during Q-1 2003, however, JDN operating results are only included in FFO subsequent to the merger date of 3/13/03. The recurring quarterly payout ratio is expected to approximate 60% for the remainder of 2003.

Market Capitalization and Financial Ratios 2.2

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the Nine Months Ended September 30, 2003


                                               
          Nine Month        
          Period Ended     Year Ended December 31  
          30-Sep    
 
          2003     2002     2001     2000     1999  
         
   
   
   
   
 
DDR TOTAL MARKET CAPITALIZATION
                                       
 
Common Shares Outstanding
    86,371       66,609       59,455       54,880       59,504  
 
Operating Partnership Units Outstanding
    1,129       911       1,038       1,051       4,702  
 
 
 
   
   
   
   
 
   
Total
    87,500       67,520       60,493       55,932       64,206  
 
Share Price
  $ 29.8700     $ 21.9900     $ 19.1000     $ 13.3125     $ 12.8750  
 
 
 
   
   
   
   
 
 
Market Value of Common Shares
  $ 2,613,625     $ 1,484,762     $ 1,155,410     $ 744,592     $ 826,654  
 
Preferred Shares at Book Value
  $ 535,000     $ 304,000     $ 303,750     $ 303,750     $ 303,750  
 
Preferred Units and Warrant
  $ 0     $ 180,000     $ 215,000     $ 215,000     $ 110,000  
 
Total Debt
  $ 2,112,039     $ 1,491,481     $ 1,308,301     $ 1,227,575     $ 1,152,051  
 
 
 
   
   
   
   
 
     
TOTAL MARKET CAPITALIZATION
  $ 5,260,664     $ 3,460,243     $ 2,982,461     $ 2,490,917     $ 2,392,455  
 
 
 
   
   
   
   
 
DDR TOTAL MARKET CAPITALIZATION — INCLUDING PROPORTIONATE SHARE OF JV DEBT
                                       
 
Common Shares Outstanding
    86,371       66,609       59,455       54,880       59,504  
 
Operating Partnership Units Outstanding
    1,129       911       1,038       1,051       4,702  
 
 
 
   
   
   
   
 
   
Total
    87,500       67,520       60,493       55,932       64,206  
 
Share Price
  $ 29.8700     $ 21.9900     $ 19.1000     $ 13.3125     $ 12.8750  
 
 
 
   
   
   
   
 
 
Market Value of Common Shares
  $ 2,613,625     $ 1,484,762     $ 1,155,410     $ 744,592     $ 826,654  
 
Preferred Shares at Book Value
  $ 535,000     $ 304,000     $ 303,750     $ 303,750     $ 303,750  
 
Preferred Units and Warrant
  $ 0     $ 180,000     $ 215,000     $ 215,000     $ 110,000  
 
Total Debt
  $ 2,112,039     $ 1,491,481     $ 1,308,301     $ 1,227,575     $ 1,152,051  
 
Proportionate Share of JV Debt
  $ 396,403     $ 387,094     $ 380,604     $ 322,823     $ 466,633  
 
 
 
   
   
   
   
 
     
TOTAL MARKET CAPITALIZATION
  $ 5,657,067     $ 3,847,336     $ 3,363,064     $ 2,813,740     $ 2,859,088  
 
 
 
   
   
   
   
 

Market Capitalization and Financial Ratios 2.2

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the Nine Months Ended September 30, 2003


                                             
        Nine Month        
        Period Ended     Year Ended December 31  
        30-Sep    
 
        2003     2002     2001     2000     1999  
       
   
   
   
   
 
UNDEPRECIATED REAL ESTATE ASSETS, CASH, INVESTMENTS & NOTES RECEIVABLE
                                       
 
Undepreciated Real Estate Assets
  $ 3,861,010     $ 2,804,056     $ 2,493,665     $ 2,161,810     $ 2,068,274  
 
Cash and Cash Equivalents
  $ 18,474     $ 16,371     $ 19,070     $ 4,243     $ 5,992  
 
Notes Receivable
  $ 10,985     $ 11,662     $ 5,221     $ 4,824     $ 5,590  
 
Advances and Investments in Joint Ventures
  $ 325,825     $ 258,611     $ 255,327     $ 260,927     $ 299,176  
 
Minority Equity Investment
  $ 0     $ 0     $ 0     $ 135,028     $ 137,234  
 
 
 
   
   
   
   
 
 
  $ 4,216,294     $ 3,090,699     $ 2,773,281     $ 2,566,831     $ 2,516,266  
 
 
 
   
   
   
   
 
DDR & JV UNDEPRECIATED REAL ESTATE ASSETS, INVESTMENTS & NOTES RECEIVABLE
                                       
 
Undepreciated Real Estate Assets
  $ 3,861,010     $ 2,804,056     $ 2,493,665     $ 2,161,810     $ 2,068,274  
 
Notes Receivable or Proportionate Share Thereof
  $ 57,641     $ 50,521     $ 22,000     $ 42,187     $ 70,025  
 
Minority Equity Investment
  $ 0     $ 0     $ 0     $ 135,028     $ 137,234  
 
Proportionate Share of JV Undepreciated Real Estate Assets
  $ 669,444     $ 611,224     $ 620,688     $ 503,902     $ 715,118  
 
 
 
   
   
   
   
 
 
  $ 4,588,095     $ 3,465,801     $ 3,136,353     $ 2,842,926     $ 2,990,652  
 
 
 
   
   
   
   
 
FUNDS FROM OPERATIONS BEFORE INTEREST AND PREFERRED DIVIDENDS
                                       
 
FFO
  $ 154,181     $ 159,439     $ 135,482     $ 129,303     $ 138,044  
 
Interest Expense
  $ 65,829     $ 77,208     $ 81,770     $ 77,030     $ 68,023  
 
Preferred Dividends, Including Preferred Operating Minority Interest & D-42 Dividend
  $ 40,600     $ 50,939     $ 46,343     $ 42,563     $ 32,419  
 
 
 
   
   
   
   
 
 
  $ 260,610     $ 287,586     $ 263,595     $ 248,896     $ 238,486  
 
 
 
   
   
   
   
 
DEBT SERVICE
                                       
 
Interest Expense
  $ 65,829     $ 77,208     $ 81,770     $ 77,030     $ 68,023  
 
Recurring Principal Amortization
  $ 8,113     $ 6,750     $ 6,994     $ 5,073     $ 4,999  
 
 
 
   
   
   
   
 
 
  $ 73,942     $ 83,958     $ 88,764     $ 82,103     $ 73,022  
 
 
 
   
   
   
   
 
FIXED CHARGES
                                       
 
Debt Service
  $ 73,942     $ 83,958     $ 88,764     $ 82,103     $ 73,022  
 
Preferred Dividends, Including Preferred Operating Minority Interest and excluding non-cash
  $ 29,890     $ 45,395     $ 46,343     $ 42,563     $ 32,419  
 
 
 
   
   
   
   
 
   
D-42 dividend
  $ 103,832     $ 129,353     $ 135,107     $ 124,666     $ 105,440  
 
 
 
   
   
   
   
 

Market Capitalization and Financial Ratios 2.2

 


 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003


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 provision 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.

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. All indirect internal costs associated with acquisitions are expensed as incurred.

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
Furniture/Fixtures
and Tenant Improvements
  18 to 31 years
Useful lives, which approximate lease
terms, where applicable

Significant Accounting Policies 2.4

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003


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.

  Included in land is undeveloped real estate, generally outlots or expansion pads adjacent to the shopping centers and enclosed malls owned by the Company.

  Construction in progress includes shopping center developments and significant expansions and re-developments.

Capitalization

  The Company capitalizes interest on funds used for the construction or expansion of shopping centers. Capitalization of interest ceases when construction activities are completed and the property is available for occupancy by tenants.

  For the nine month period ended September 30, 2003 and the years ended December 31, 2002, 2001, 2000 and 1999, the Company capitalized interest of $7.9 million, $9.5 million, $12.9 million, $18.2 million and $13.4 million, respectively.

  In addition, the Company capitalized certain construction administration costs of $ 3.7 million for the nine month period ended September 30, 2003 and $4.5 million, $3.3 million, $3.2 million, $2.4 million for the years ended December 31, 2002, 2001, 2000 and 1999, respectively.

  Interest and real estate taxes incurred during the construction period are capitalized and depreciated over the building life.

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.

Significant Accounting Policies 2.4

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003

Reconciliation of Supplemental
Non-GAAP Financial Measures

(Dollars in thousands)
(Unaudited)

Table 1 — Developers Diversified Realty Corporation and the Company’s Joint Ventures Combined

Reconciliation of Same Store Net Operating Income (NOI) to Total Revenues and Certain Expenses

                         
    Nine Month Period        
    Ended September 30        
   
       
    2003   2002        
   
 
       
Total Revenues DDR
  $ 350,523     $ 261,341          
Total Revenues DDR Combined Joint Ventures
    190,778       166,498          
Operating and Maintenance — DDR
    (43,962 )     (29,942 )        
Real Estate Taxes — DDR
    (42,491 )     (32,041 )        
Operating and Maintenance — DDR Combined Joint Ventures
    (68,601 )     (57,883 )        
 
   
     
         
Combined NOI
  $ 386,247     $ 307,973          
 
   
     
         
Total Same Store NOI
  $ 205,520     $ 201,764       1.9 %
Property NOI from other operating segments
    180,727       106,209          
 
   
     
         
Combined NOI
  $ 386,247     $ 307,973          
 
   
     
         

Other Non-GAAP Financial Measures     2.5


 

Developers Diversified Realty
Quarterly Financial Supplement
For the three and nine months ended September 30, 2003

Reconciliation of Supplemental
Non-GAAP Financial Measures

(Dollars in thousands)
(Unaudited)

Table 2 — Developers Diversified Realty Corporation

Reconciliation of Funds From Operations (FFO) to reflect the adjustment of preferred dividend charges in accordance with EITF Topic No. D-42

                                   
      Three Month Period   Nine Month Period
      Ended September 30   Ended September 30
     
 
      2003   2002   2003   2002
     
 
 
 
FUNDS FROM OPERATIONS:
                               
 
Net Income Applicable to Common Shareholders
  $ 24,525     $ 18,687     $ 108,175     $ 46,241  
 
Depreciation and Amortization of Real Estate Investments
    24,319       18,029       68,013       56,237  
 
Equity in Net Income From Joint Ventures
    (6,852 )     (4,781 )     (23,749 )     (22,398 )
 
Joint Venture Funds From Operations
    8,872       8,794       24,815       32,145  
 
Operating Partnership Minority Interest Expense
    444       342       1,303       1,104  
 
(Gain) Loss on Sales of Real Estate
          (468 )     (24,377 )     3,058  
 
 
   
     
     
     
 
FUNDS FROM OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS
  $ 51,308     $ 40,603     $ 154,181     $ 116,387  
 
 
   
     
     
     
 
Preferred dividend charges in accordance with EITF Topic No. D-42
    5,720             10,710       5,544  
 
 
   
     
     
     
 
ADJUSTED FUNDS FROM OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS
  $ 57,028     $ 40,603     $ 164,891     $ 121,931  
 
 
   
     
     
     
 

Other Non-GAAP Financial Measures     2.5


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003


Summary of Wholly Owned and Consolidated Capital Transactions

Acquisitions, Dispositions, Developments & Expansions
for the Nine Month Period Ended September 30, 2003

                                         
    Nine Months                
    Ended   Year Ended   Year Ended   Year Ended   Year Ended
    September 30,   December 31,   December 31,   December 31,   December 31,
    2003   2002   2001   2000   1999
   
 
 
 
 
Acquisitions/Transfers
  $ 1,173.0 (2)   $ 298.6 (4)   $ 289.3 (6)   $ 81.1 (7)   $ 78.3 (8)
Completed Expansions
    26.8       8.0       13.7       13.6       43.3  
Developments & Construction in Progress
    62.6       66.4       72.9       81.2       75.6  
Tenant Improvements & Building Renovations (1)
    5.9       7.3       6.1       6.3       6.6  
Furniture Fixtures & Equipment
    1.5       2.3       2.5       0.4       5.3  
 
    1,269.8     $ 382.6     $ 384.5     $ 182.6     $ 209.1  
Less: Real Estate Sales & Joint Venture Transfers
    (212.8 )(3)     ($72.2 )(5)     ($52.7 )     ($89.1 )     ($37.6 )

Total DDR Additions (Millions)
  $ 1,057.0     $ 310.4     $ 331.8     $ 93.5     $ 171.5  

(1)   The Company anticipates recurring capital expenditures, including tenant improvements, of approx. $7.5 million associated with its wholly owned and consolidated portfolio during 2003.
 
(2)   Includes the merger of JDN and the transfer from joint ventures of the Leawood, KS and Suwanee, GA shopping centers.
 
(3)   In addition to the sales listed in the disposition section, this balance includes the transfer of seven assets with an aggregate cost of $153.6 million to the joint venture with DDR Markaz LLC (Kuwait Financial Centre), these assets are shopping centers located in Richmond, CA, Winchester, VA, Tampa, FL, Toledo, OH, Highland, IN, Oviedo, FL and Grove City, OH and the sale of several outparcels.
 
(4)   Includes transfers from joint ventures of the Independence, MO shopping center, Phase IV of the Salisbury, MD shopping center, Canton, OH shopping center, Plainville, CT shopping center, and San Antonio, TX shopping center to DDR.
 
(5)   Includes a transfer to joint ventures for the newly developed shopping center in Kildeer, Illinois, the sales of shopping centers located in Cape Coral, Florida, Huntsville, Alabama, Ocala, Florida, Orlando, Florida and St. Louis, Missouri, the sale of three outlots, and a write-off of $5.0 million relating to the former K-mart space at North Little Rock, Arkansas which is being redeveloped.
 
(6)   The balance reflects the consolidation of the assets formerly owned by American Industrial Properties (AIP) which was merged during 2nd quarter 2001.
 
(7)   Includes transfers to DDR in the aggregate amount of $76.7 million relating to the Nassau Pavilion development project, two former DDR/Oliver McMillan projects, and Phase II of the Salisbury, MD development project. All of which were previously accounted for through joint ventures.
 
(8)   Includes a transfer of the Everett development project to DDR and the Salem development project to DD Development Co.

Summary of Wholly Owned Capital Transactions 3.1

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003


Wholly Owned and Consolidated Acquisitions
for the Nine Month Period Ended September 30, 2003

                                 
            Cost   Acquisition    
Property Location   GLA (1)   (Millions)   Date   Major Tenants

 
 
 
 
Gulfport, Mississippi     539,433     $ 45.0       01/31/03     TJ Maxx, Old Navy, Cinemark, Barnes & Noble, Office Depot, Circuit City, Goody's, Academy Sports, Kirschman's Furniture and PetSmart.
 
JDN Realty Corporation (2)     23,036,437     $ 1,047.1       03/13/03     Portfolio of 102 operating and development properties located in 15 states.
 
Leawood, KS (3)     412,879     $ 80.9       04/25/2003     Coldwater Creek, The Gap, J. Jill, Sharper Image, The Limited, Ann Taylor, Pottery Barn, American Eagle, Restoration Hardware,

Total
    23,988,749     $ 1,173.0                  

(1)   GLA may include property managed, but not owned.
 
(2)   Includes the transfer from joint venture of the Suwanee, GA shopping center.
 
(3)   The Company previously owned a 50% joint venture interest in this asset, which was accounted for using the equity method of accounting.

Wholly Owned and Consolidated Dispositions
for the Nine Month Period Ended September 30, 2003

                         
            Gross Sale    
            Proceeds    
Property Location   GLA   (Millions)   Sale Date

 
 
 
Fayetteville, GA
    10,908     $ 3.1       3/27/2003  
Buford, GA
    27,806     $ 3.5       4/1/2003  
Three Business Centers
    395,277     $ 14.0       4/8/2003  
Lilburn, GA
    132,847     $ 14.0       5/1/2003  
Gulf Breeze, FL
    14,490     $ 3.5       5/12/2003  
Andersen, SC
    14,250     $ 1.4       6/20/2003  
Fayetteville, GA
    15,335     $ 3.0       6/27/2003  
Nacogdoches, TX
    57,413     $ 5.7       8/29/2003  

Total
    668,326     $ 48.2          

Wholly Owned Acquisitions and Dispositions 3.2

 


 

Developers Diversified Realty
Quarterly Financial Supplement
For the nine months ended September 30, 2003


Wholly Owned and Consolidated
Expansion and Redevelopment Projects
for the Nine Month Period Ended September 30, 2003

     
Projects Completed    

Birmingham, AL   Retenanted the former Wal-Mart space with Lowe’s Home Improvement (opened 3/03) and added a 45,600 sf expansion, which includes a Ross Dress for Less (opened 2/03) and Petco (opened 4/03)
 
Bayonet Point, FL   Relocation of three small shops for the expansion of existing Beall’s space by approximately 15,700 sf (opened 7/03)
 
Brandon, FL   Retenanted the former Scotty’s with 66,000 sf two story Kanes Furniture store (opened 4/03)
 
Tucker, GA   Expansion of existing center to include Washington Mutual Bank, EB Gameworks (opened 8/03) and an additional 5,600 sf of retail space
 
N. Canton, OH   Expansion of existing Kohl’s space by approximately 20,000 sf (opened 9/02) and the addition of 7,000 sf of retail space.
 
Fayetteville, NC   Expansion of existing center to include a Bed, Bath & Beyond (opened 7/03) and the creation of an additional 19,672 sf of retail space.
 
Erie, PA   Expansion of the existing Kohl’s store by approximately 20,250 sf.
 
Riverdale, UT (North)   Retenanting the former Wal-Mart space with a Meier and Frank Department Store (opened in 8/03)
 
Taylorsville, UT   Redevelopment of the center, including the demolition of the former theater to construct a 35,000 sf 24 Hour Fitness (opened 12/02), and the relocation of several small retailers to accommodate a 30,200 sf Ross Dress for Less (opened 6/03)
 

Total Net Cost (Millions)           $26.8
 
Projects in Progress    

N. Little Rock, AR   Demolished the former Kmart space to construct a Bed, Bath & Beyond (opened 9/02), Sports Authority (opened 8/03), and Michael’s (scheduled to open 1st quarter 2004)
 
Aurora, OH   Expansion of the existing center to create a 38,000 sf Marquee Theatre (scheduled to open in 12/03)
 
Tiffin, OH   Retenanting the former Kmart with Marquee Theatre (scheduled to open 12/03) and 15,000 sf of additional retail space.
 
Monaca, PA   Expansion of the existing center to create 38,000 sf Cinemark Theater and 6,160 sf of retail space
 

Total Net Cost (Millions)           $22.9
 
Projects to Commence Construction    

Starksville, MS   Retenanting of former Wal-Mart with Lowe’s Home Improvments.
 
Princeton, NJ   Expansion of the existing center to create an additional 76,800 sf of retail space.

Wholly Owned Expansions and Redevelopments 3.2

 


 

Developers Diversified Realty
Quarterly Financial Supplement

For the nine months ended September 30, 2003

Summary of Wholly Owned and Consolidated Development Projects
for the Nine Month Period Ended September 30, 2003

                         
                    Substantial    
            Net Cost   Completion    
    GLA   (Millions)   Date   Major Tenants
   
 
 
 
Projects Substantially Completed                      

Fayetteville, AR     137,033     $ 8.8     1st Half
2003
  PetsMart, Kohl’s, Radio Shack, EB Game World, Cingular Wireless
 
Aurora, CO     147,465     $ 24.1     1st Half
2003
  Wal-Mart, Home Depot, Bed, Bath & Beyond, Office Depot, PetsMart, and 73,000 sq. ft of retail space
 
Parker, CO     100,536     $ 16.8     1st Half
2003
  Office Depot, PetsMart, Hollywood Video, Starbucks, Noodles, Wal-Mart, Home Depot, Panda Express, Fantastic Sam’s
 
Parker South, CO (Phase I)     137,283     $ 15.1     2nd Half
2003
  Kohl’s, Bed, Bath & Beyond, Gart Sports, Michael’s, Famous Footwear, Lane Bryant
 
Lithonia, GA     160,675     $ 14.7     2nd Half
2003
  Sam’s Club, Best Buy, Toys ’R Us, Bed, Bath & Beyond and an additional 39,900 sf of retail space
 
McDonough, GA     61,000     $ 5.5     2nd Half
2003
  Wal-Mart, Lowe’s, Cracker Barrel and 50,500 sf of retail space
 
Meridian (Boise), ID Phase I & II     733,051 (1)(2)   $ 66.7 (1)   2000
(Phase I)
  Phase I: Wal*Mart Supercenter, Shopko, Shepler’s, Bed Bath & Beyond, Office Depot, Old Navy, Sportsman’s Warehouse, Ross Dress for Less, Marshalls, additional small retailers and restaurants
 
                    2nd Half 2003
(Phase II)
  Phase II: Craft Warehouse, Babies ’R Us, PetsMart and 24,800 square feet of additional retail space
 
Coon Rapids (Minneapolis), MN (Central Quadrant, adjacent to DDR’s existing property)     293,520     $ 36.9     1st Half
2003
(Phase I)
  Phase I: Ulta 3 Cosmetics, Border’s, Maurice’s, Lane Bryant, Sprint, PetsMart, additional small retailers and restaurants
 
                    2004
(Phase II)
  Phase II: Casual Corner, Pier One, J.C. Penney
 
St. John’s, MO     92,019     $ 10.9     1st Half
2003
  Shop ’N Save
 
Erie, PA     113,363     $ 8.9     2nd Half
2003
  Target, Marshall’s, Bed, Bath & Beyond, Babies ’R Us, H&R Block
 
Frisco, TX     120,884     $ 8.7     1st Half
2003
  Kohl’s, Great Clips
 
Projects in Progress                      

Long Beach, CA (The Pike at Rainbow Harbor) Phase I     405,509     $ 126.8     2nd Half
2003
and 2004
  CinemarkTheater, Gameworks, Carnival Club, Gladstones, Outback Steakhouse, Island Burgers, Bubba Gump Shrimp, California Pizza Kitchen
 
Sacramento, CA     6,728     $ 1.8     2nd Half
2003
  Pick Up Stix, City Financial, UPS Store, GameStop and 3,200 sq. ft. of retail space
 
                     

Wholly Owned Developments 3.2

 


 

                         
                    Substantial    
            Net Cost   Completion    
    GLA   (Millions)   Date   Major Tenants
   
 
 
 
Projects in Progress — cont’d                      

Fort Collins, CO     18,540     $ 3.7     2004   Wal-Mart, Home Depot and additional small shops
 
Overland Park, KS     91,845     $ 9.6     2004   Home Depot, Sam’s Club, Aldi’s Grocery, Party City, Goodyear Tire, Bank of America
 
Chesterfield, MI     130,245     $ 13.0     2004   Petco and additional retail to be announced
 
Grandville, MI     212,891     $ 25.9     2004   Lowe’s, PetsMart, Shoe Carnival, Gander Mountain, Circuit City, Linens ’N Things, Party City, Cost Plus
 
Lansing, MI     165,869     $ 15.0     2004   Wal-Mart, Lowe’s, Michael’s, Gander Mountain, Subway, Hallmark
 
St. Louis, MO     99,927     $ 13.1     2004   PetsMart, Office Max and other retail tenants to be announced
 
Apex, NC     461,211     $ 25.6     2004   Target, Lowe’s, Office Max and other retail tenants to be announced
 
Hamilton, NJ     506,320     $ 76.8     2nd Half
2003
  Wal-Mart, Lowe’s, BJ’s Wholesale, Kohl’s, Michaels, PetsMart, Famous Footwear, Ross Dress for Less, Pier One, Linens ’N Things, Shop-Rite
 
Mt. Laurel, NJ     720,625     $ 42.3     2004   Target, Wegman’s, Bed, Bath & Beyond
 
Pittsburgh, PA     340,971     $ 32.9     2005   Target, Sportsman Warehouse and 169,000 sf of retail shops
 
Irving, TX     319,976     $ 27.9     2004   Wal-Mart, Sam’s Club, Kohl’s, PetsMart, Marquee Theater, Office Max
 
Mesquite, TX     197,460     $ 26.8     2nd Half
2003
  Michael’s, Linens ’N Things, Ross Dress for Less, Ultimate Electronics, Dress Barn, Famous Footwear
 
Projects to Commence Construction                      

Norwood, MA     115,147     $ 8.6     2004   Lowe’s
 
McKinney, TX (Phase II)     98,000     $ 8.0     2004   To be announced
 
   
     
         
Wholly Owned Development Totals
    5,988,093     $ 674.9          
 
   
     
         

Notes:

(1)  Meridian project costs and square footage are aggregated for Phase I and Phase II.

(2)  Includes square footage which will not be Company owned.

Wholly Owned Developments 3.2

 


 

Developers Diversified Realty
Quarterly Financial Supplement

For the nine months ended September 30, 2003

Wholly Owned and Consolidated Development
Assets Placed in Service as of September 30, 2003

         
    Assets Placed in
    Service
Date   (Millions)

As of December 31, 2002   $ 200.5  
1st Quarter 2003   $ 14.7  
2nd Quarter 2003   $ 23.0  
3rd Quarter 2003   $ 10.7  
4th Quarter 2003   $ 135.4  
Thereafter   $ 290.6  

Total   $ 674.9  

Wholly Owned and Consolidated Development
Funding Schedule as of September 30, 2003

         
Funded as of September 30, 2003   $ 504.7  
Projected Net Funding During 2003   $ 50.0 (1)
Projected Net Funding Thereafter   $ 120.2 (1)

Total   $ 674.9

(1)  Amount will be reduced by the additional proceeds to be obtained through the construction loans relating to the Aurora, Coon Rapids, Hamilton, Mesquite projects and proceeds from land sales.

Wholly Owned Development Delivery and Funding Schedules     3.2


 

Developers Diversified Realty Corporation

Quarterly Financial Supplement
For the nine months ended September 30, 2003

Summary of Consolidated Debt
as of September 30, 2003

                                           
              Mortgage           Maturity   Interest
              Balance(000's)           Date   Rate (1)
             
         
 
SENIOR DEBT:
                                       
Unsecured Credit Facility:
                                       
 
$650 Million Revolving Credit Facility
            130,000       (2 )     05/05       2.120  
 
$300 Million Term Loan
            300,000               03/04       2.120  
Secured Credit Facility:
                                       
 
$30 Million Revolving Credit Facility
            18,500               06/05       2.120  
 
           
                         
Total Credit Facility Debt
            448,500                          
    
Public Debt:
                                       
Medium Term Notes
    F       10,000               07/04       6.900  
Medium Term Notes
    F       5,000               07/04       6.940  
Medium Term Notes
    F       50,000       (3 )     12/04       6.840  
Medium Term Notes
    F       1,000               11/05       7.280  
Medium Term Notes
    F       95,656       (4 )     03/07       6.840  
Medium Term Notes
    F       10,000               07/07       6.950  
Medium Term Notes
    F       2,000               12/07       7.050  
Medium Term Notes
    F       99,889               01/08       6.625  
Medium Term Notes
    F       299,540               07/10       4.625  
Medium Term Notes
    F       100,000               07/18       7.500  
Unsecured Notes
    F       75,000               08/04       6.800  
Unsecured Notes
    F       85,000               08/07       6.950  
 
           
                         
Total Public Debt
            833,085                          
    
MORTGAGE DEBT:
                                       
Plainville, CT (TIF)
    F       7,260               04/21       7.125  
Bayonet Point, FL
    F       5,327               08/06       9.750  
Tupelo, MS
    F       12,092               03/08       4.410  
Jacksonville, FL
    F       6,938               03/08       4.410  
Denver, CO (Univ Hills)
    F       29,486               06/12       7.300  
Henderson, TN
    F       9,757               01/19       7.660  
Brown Deer, WI
    F       3,361               08/09       7.750  
Allentown, PA
    F       19,383               06/21       6.950  
Erie, PA
    F       25,905               04/11       6.880  
Erie, PA
    F       2,989               04/11       6.880  
Boardman, OH
    F       26,901               04/11       6.880  
Solon, OH
    F       16,750               03/08       4.410  
St. Louis, MO (Sunset)
    F       34,872               04/11       6.880  
St. Louis, MO (Brentwood)
    F       25,905               04/11       6.880  

Summary of Consolidated Debt 3.3


 

Developers Diversified Realty Corporation
Quarterly Financial Supplement
For the nine months ended September 30, 2003


Summary of Consolidated Debt
as of September 30, 2003 (con’t)
                                 
            Mortgage   Maturity   Interest
            Balance   Date   Rate (1)
           
 
 
Denver, CO (Centennial)
    F       38,857       04/11       6.880  
Cedar Rapids, IA
    F       10,422       01/20       9.375  
St. Louis, MO (Olympic)
    F       3,907       08/07       9.150  
St. Louis, MO (Gravois)
    F       2,168       07/12       8.625  
St. Louis, MO (Keller)
    F       1,920       01/10       8.625  
St. Louis, MO (Home Qtrs)
    F       2,947       01/15       8.800  
N. Charleston, SC
    F       11,993       03/08       4.410  
Sault St. Marie, MI
    F       3,614       05/07       8.375  
Walker, MI
    F       8,821       03/08       4.410  
Detroit, MI
    F       6,468       09/05       7.375  
Mt. Pleasant, SC (GS II)
    F       8,127       03/08       4.410  
Meridian, ID (GS II)
    F       26,265       03/08       4.410  
Logan, UT
    F       768       06/12       8.750  
Riverdale, UT (North)
    F       9,274       10/20       9.300  
Salt Lake City, UT (Hermes)
    F       326       08/04       5.900  
Birmingham, AL (GS II)
    F       28,446       03/08       4.410  
Wilmington, NC
    F       21,805       03/08       4.410  
Berlin, VT
    F       4,940       08/07       9.750  
Brainerd, MN
    F       215       02/05       6.800  
Spring Hill, FL
    F       5,503       09/19       9.750  
West Pasco, FL
    F       4,784       02/12       9.625  
Princeton, NJ
    F       26,461       03/27       8.262  
Woodmont — Riverchase
    F       8,132       01/13       5.500  
Leawood, KS
    F       52,721       07/09       7.310  
Durham, NC
    F       7,434       03/08       4.410  
Bellefontaine, OH
    F       2,634       12/16       7.500  
Dublin, OH
    F       9,763       09/06       8.375  
Pickerington, OH
    F       4,548       12/06       8.250  
Dallas, TX (Carpenter)
    F       28,548       01/08       7.250  
Silver Springs, MD (Tech 29-1)
    F       7,060       02/09       7.330  
Silver Springs, MD (Tech 29-2)
    F       3,574       09/06       9.050  
Silver Springs, MD (Tech 29-3)
    F       4,116       11/06       8.580  
Hamilton, NJ
    F       30,000       05/05       2.942  
Princeton, NJ
    V       24,999       09/25       2.620  
Independence, MO
    V       27,500       03/06       2.620  
N Canton, OH
    V       15,185       09/08       2.620  
Coon Rapids, MN
    V       24,323       06/05       2.620  
San Antonio, TX
    V       27,700       07/06       2.620  

Summary of Consolidated Debt 3.3


 

Developers Diversified Realty Corporation
Quarterly Financial Supplement
For the nine months ended September 30, 2003

Summary of Consolidated Debt
as of September 30, 2003 (con’t)

                                         
            Mortgage           Maturity   Interest
            Balance           Date   Rate (1)
           
         
 
Fort Worth, TX; Lewisville, TX; Wichita, KS; Columbia, SC
    V       54,800               01/04       3.250  
Aurora, CO
    V       7,741               09/04       2.470  
St. Louis, MO
    V       4,444               07/04       2.470  
Mesquite, TX
    V       15,239               04/04       2.470  
Hamilton, NJ
    V       15,037               05/05       2.770  
 
           
                         
Total Mortgage Debt
            830,453                          
 
           
                         
Total Debt
          $ 2,112,038                          
Adjustment for Reverse Swap
            6,737       (5 )                
 
          $ 2,118,775                          
 
           
                         
Weighted Average — Total
                          5.09 years     4.9 %
 
                         
       
Weighted Average — Fixed
                          6.43 years     5.9 %
 
                         
       
Weighted Average — Floating
                          2.16 years     2.6 %
 
                         
       


Notes:  
 
F Fixed Rate Debt
 
V Variable Rate Debt
 
1.   Interest rate figures reflect coupon rates of interest and do not include discounts or premiums. Annualized deferred finance cost amortization is approximately $1.8 million, net.
 
2.   Senior debt of $100 million has been converted to a fixed rate of 1.865%. The remaining balance of $30 million is at the stated variable rate.
 
3.   Public debt of $40 million has been converted to a variable rate of 3.655%. The remaining balance of $10 million is at the stated fixed rate.
 
4.   Public debt of $60 million has been converted to a variable rate of 3.196%. The remaining balance of $35.6 million is at the stated fixed rate.
 
5.   Offset included in other assets.

Summary of Consolidated Debt 3.3


 

Developers Diversified Realty Corporation
Quarterly Financial Supplement
For the nine months ended September, 2003


Summary of Consolidated Mortgage Principal Payments
and Corporate Debt Maturities
as of September 30, 2003
(000’s)
                                                                                         
    2003   2004   2005   2006   2007   2008   2009   2010   2011                
    Payments   Payments   Payments   Payments   Payments   Payments   Payments   Payments   Payments   Thereafter   Total
   
 
 
 
 
 
 
 
 
 
 
PROPERTY MORTGAGES
                                                                                       
Plainville, CT (TIF)
                                                                            7,300       7,300  
Bayonet Point, FL
                            5,327                                                       5,327  
Tupelo, MS
    569       806       806       806       806       8,406                                       12,200  
Jacksonville, FL
    326       463       463       463       463       4,823                                       7,000  
Denver, CO (Univ Hills)
    1,960       2,614       2,614       2,614       2,614       2,614       2,614       2,614       2,614       6,841       29,711  
Henderson, TN
    801       1,068       1,068       1,068       1,068       1,068       1,068       1,068       1,068       563       9,911  
Brown Deer, WI
    333       475       513       554       599       647       460                               3,581  
Allentown, PA
    1,424       1,899       1,899       1,899       1,899       1,899       1,899       1,899       1,899       3,038       19,654  
Erie, PA
    135       250       273       293       314       331       360       386       23,659               26,000  
Erie, PA
    15       28       31       33       36       38       41       44       2,734               3,000  
Boardman, OH
    140       259       283       303       325       343       373       400       24,575               27,000  
Solon, OH
    788       1,117       1,117       1,117       1,117       11,644                                       16,900  
St. Louis, MO (Sunset)
    181       335       366       392       421       444       483       518       31,860               35,000  
St. Louis, MO (Brentwood)
    135       250       273       293       314       331       360       386       23,659               26,000  
Denver, CO (Centennial)
    203       374       408       438       469       496       539       578       35,495               39,000  
Cedar Rapids, IA
    261       287       315       346       380       417       458       503       552       7,096       10,615  
St. Louis, MO (Olympic)
    279       306       335       367       2,827                                               4,114  
St. Louis, MO (Gravois)
    243       282       310       355       389       292       115       125       136       72       2,319  
St. Louis, MO (Keller)
    223       243       265       289       315       343       374       33                       2,085  
St. Louis, MO (Home Quarters)
    148       162       177       193       211       230       252       275       300       1,109       3,058  
N. Charleston, SC
    564       800       800       800       800       8,337                                       12,100  
Sault St Marie, MI
    838       911       990       1,079       418                                               4,236  
Walker, MI
    415       588       588       588       588       6,132                                       8,900  
Detroit, MI
    2,855       2,800       2,911                                                               8,566  
Mt. Pleasant, SC
    382       542       542       542       542       5,650                                       8,200  
Merridian, ID
    1,190       1,751       1,751       1,751       1,751       18,304                                       26,500  
Logan, UT
    57       63       68       74       81       89       97       105       115       61       811  
Riverdale, UT (North)
    217       238       261       287       315       345       379       415       456       6,523       9,435  
Salt Lake City, UT
    428       207                                                                       635  
Birmingham, AL
    1,338       1,897       1,897       1,897       1,897       19,775                                       28,700  
Wilmington, NC
    1,026       1,454       1,454       1,454       1,454       15,158                                       22,000  
Berlin, VT
                                    4,940                                               4,940  
Brainerd, MN ( K-Mart)
    135       140       75                                                               350  
Spring Hill, FL
    140       154       170       187       206       227       251       276       304       3,690       5,607  
West Pasco, FL
                                                                            4,784       4,784  
Princeton, NJ
    303       323       358       389       423       454       499       543       590       22,801       26,684  
Hoover, AL (Riverchase)
    96       108       116       122       129       136       145       153       162       7,034       8,200  
Leawood, KS
    645       1,045       1,117       1,201       1,292       1,390       46,435                               53,124  
Durham, NC
    350       496       496       496       496       5,168                                       7,500  

Summary of Consolidated Mortgage Principal Payments Corporate Debt Maturities 3.4


 

Developers Diversified Realty Corporation
Quarterly Financial Supplement
For the nine months ended September, 2003


Summary of Consolidated Mortgage Principal Payments
and Corporate Debt Maturities
as of September 30, 2003 (con’t)
                                                                                               
          2003   2004   2005   2006   2007   2008   2009   2010   2011                
          Payments   Payments   Payments   Payments   Payments   Payments   Payments   Payments   Payments   Thereafter   Total
         
 
 
 
 
 
 
 
 
 
 
Bellefontaine, OH
    114       123       133       143       154       166       179       193       208       1,307       2,718  
Dublin, OH
    229       248       270       9,185                                                       9,933  
Pickerington, OH
    186       202       219       4,079                                                       4,686  
Dallas, TX (Carpenter)
    423       455       489       525       565       26,406                                       28,863  
Silver Springs, MD (Tech 29-1)
    136       145       158       170       183       196       6,173                               7,161  
Silver Springs, MD (Tech 29-2)
    77       85       93       3,376                                                       3,631  
Silver Springs, MD (Tech 29-3)
    443       443       443       2,482                                                       3,810  
Princeton, NJ (Nassau Pav)
                                                                            24,999       24,999  
Independence, MO
                            27,500                                                       27,500  
N. Canton, OH
                                            15,185                                       15,185  
San Antonio, TX
                            27,700                                                       27,700  
Fort Worth, TX; Lewisville, TX;
            54,800                                                                       54,800  
  Wichita, KS;
Columbia, SC
                                                                                       
Payments Made Through 09/30/03     -8,362                                                                               -8,362  
 
   
     
     
     
     
     
     
     
     
     
     
 
     
Total — Property Mortgages
    12,393       81,234       26,913       103,180       30,799       157,484       63,551       10,513       150,385       97,218       733,671  
    
CONSTRUCTION LOANS
                                                                                       
$34.4 Million Construction Loan
                    24,323                                                               24,323  
   
(National City Bank)
Aurora, CO
            7,741                                                                       7,741  
St. John, MO
      <