Published:
Developers Diversified Realty Reports Diluted FFO Per Share of $0.78 for the Quarter Ended March 31, 2006
Developers Diversified Realty Corporation
(NYSE: DDR), the nation's leading owner, manager and developer of
market-dominant community centers, today reported operating results for the
first quarter ended March 31, 2006.
-- Funds From Operations ("FFO") per diluted share was $0.78 and net
income per diluted share was $0.33
-- Core portfolio leased percentage increased 40 basis points over the
prior year to 95.9%
-- Executed leases during the first quarter totaled approximately 1.4
million square feet, including 96 new leases and 177 renewals
-- Base rents increased 28.4% on new leases, 11.3% on renewals and 16.2%
on a blended basis
-- Same store net operating income ("NOI") increased 2.3% over the prior
period
Scott Wolstein, Developers Diversified's Chairman and Chief Executive
Officer stated, "I'm pleased to report this quarter's financial results.
We continue to see intense tenant demand for space, which is reflected in
our operating portfolio metrics and in leasing activity at our development
projects. In addition, our proactive balance sheet management continues to
reduce financial risk and improve our liquidity and flexibility."
Financial Results:
FFO, a widely accepted measure of REIT performance, on a diluted and basic
per share basis was $0.78 as compared to $0.90 for the same period in the
previous year, a decrease of 13.3%. FFO available to common shareholders
was $86.2 million for the quarter ended March 31, 2006, as compared to
$99.1 million for the first quarter of 2005, a decrease of 13.0%. Net
income available to common shareholders for the three months ended March
31, 2006 was $35.9 million or $0.33 per share (diluted and basic) compared
to first quarter 2005 net income of $91.8 million, or $0.84 per share
(diluted) and $0.85 per share (basic). The decrease in net income and FFO
for the quarter ended March 31, 2006 is primarily related to a decrease in
gain on sale of real estate assets as compared to 2005.
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 more 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, is not necessarily indicative of
cash available to fund cash needs and should not be considered as an
alternative to net income computed in accordance with GAAP as an indicator
of the Company's operating performance or as an alternative to cash flow as
a measure of liquidity. FFO is defined and calculated by the Company as
net income, adjusted to exclude: (i) preferred dividends, (ii) gains (or
losses) from sales of depreciable real estate property, except for those
sold through the Company's merchant building program, (iii) sales of
securities, (iv) extraordinary items, (v) cumulative effect of changes in
accounting standards and (vi) certain non-cash items. These non-cash items
principally include real property depreciation and amortization of
intangibles, equity income from joint ventures and equity income from
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 first quarter of 2006, the Company executed 96 new leases aggregating
685,421 square feet and 177 renewals aggregating 676,720 square feet.
Rental rates on new leases increased by 28.4% and rental rates on renewals
increased by 11.3%. On a blended basis, rental rates for new leases and
renewals increased by 16.2%. At March 31, 2006, the average annualized base
rent per occupied square foot, including those properties owned through
joint ventures, was $11.50, as compared to $11.27 at March 31, 2005.
At March 31, 2006, the portfolio, including those properties owned through
joint ventures, was 96.1% leased. Excluding the impact of the properties
acquired from Mervyns, the portfolio was 95.9% leased, as compared to 95.5%
at March 31, 2005. 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 March 31, 2006, the
portfolio was 95.2% occupied. Excluding the impact of the properties
acquired from Mervyns, the portfolio was 95.0% occupied, as compared to
94.9% at March 31, 2005.
Strategic Real Estate Transactions:
MDT Joint Venture
In March 2006, the Company sold newly developed expansion areas located in
Birmingham, Alabama and Monaca, Pennsylvania, aggregating 0.6 million
square feet to the MDT Joint Venture for approximately $14.6 million. The
Company recognized an aggregate merchant build gain of $5.5 million, and
deferred gains of approximately $1.0 million relating to the Company's
effective 14.5% ownership interest in the venture. These expansion areas
are adjacent to shopping centers currently owned by the MDT Joint Venture.
Acquisitions
In January 2006, the Company acquired its partner's 75% ownership interest
in a shopping center located in Pasadena, California for $55.9 million in
addition to assuming the partner's proportionate share of the $85 million
of existing mortgage debt (or $63.75 million) which was repaid following
the acquisition. The total shopping center was valued at approximately
$175 million, and DDR earned a promoted interest of approximately $13
million which has not been included in earnings but as an adjustment to the
Company's cost basis in the asset.
Following the date of acquisition, this previously unconsolidated joint
venture is consolidated into the Company's consolidated financial
statements.
Expansions:
During the three month period ended March 31, 2006, the Company completed
two expansions and redevelopment projects located in Ocala, Florida and
Rome, New York at an aggregate cost of $6.1 million. The Company is
currently expanding/redeveloping eight shopping centers located in Gadsden,
Alabama; Lakeland, Florida; Stockbridge, Georgia; Ottumwa, Iowa; Gaylord,
Michigan; Olean, New York; Mooresville, North Carolina and Bayamon, Puerto
Rico at a projected aggregate cost of approximately $40.5 million. The
Company anticipates commencing construction on three additional expansion
and redevelopment projects at shopping centers located in Birmingham,
Alabama; Hamilton, New Jersey and Amherst, New York.
Three of the Company's joint ventures are currently expanding/redeveloping
their shopping centers located in Phoenix, Arizona; Lancaster, California
and Kansas City, Missouri at a projected incremental cost of approximately
$58.1 million. Two of the Company's joint ventures anticipate commencing
expansion/redevelopment projects at their shopping centers located in Deer
Park, Illinois and Kirkland, Washington.
Development (Consolidated):
As of March 31, 2006, the Company has substantially completed the
construction of the Freehold, New Jersey shopping center, which has an
aggregate cost of $25.4 million.
The Company currently has eight shopping center projects under
construction. These projects are located in Miami, Florida; Nampa, Idaho;
McHenry, Illinois; Chesterfield, Michigan; Horseheads, New York; Apex,
North Carolina (Beaver Creek Crossings -- Phase I); Pittsburgh,
Pennsylvania and San Antonio, Texas. These projects are scheduled for
completion during 2006 through 2007 at a projected aggregate cost of
approximately $480.7 million and will create an additional 4.3 million
square feet of gross leasable retail space. At March 31, 2006,
approximately $204.2 million of costs were incurred in relation to these
development projects.
The Company anticipates commencing construction in 2006 on four additional
shopping centers located in Homestead, Florida; Norwood, Massachusetts;
Seabrook, New Hampshire and McKinney, Texas.
Development (Joint Ventures):
Three of the Company's joint ventures currently have shopping center
projects under construction. These projects have an aggregate projected
cost of approximately $117.2 million. These projects are located in
Merriam, Kansas; Apex, North Carolina (Beaver Creek Crossings -- Phase II,
adjacent to a wholly-owned development project) and San Antonio, Texas.
The projects located in Merriam, Kansas and San Antonio, Texas are being
developed through the Coventry II program. The majority of the project
located in San Antonio, Texas was substantially completed during 2005. The
remaining projects are scheduled for completion during 2007. At March 31,
2006, approximately $57.7 million of costs were incurred in relation to
these development projects.
Financing:
In March 2006, the Company executed the accordion feature of the secured
term loan agreement with KeyBank Capital Markets and Banc of America
Securities LLC (Joint Arrangers), that provided for the increase of the
secured term loan to $400 million from $220 million.
Developers Diversified Realty Corporation currently owns and manages
approximately 500 retail operating and development properties in 44 states,
plus Puerto Rico, comprising approximately 114 million square feet of real
estate. Developers Diversified Realty 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 request at our corporate office to
Michelle M. Dawson, 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 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, the loss of a major tenant, constructing properties or
expansions that produce a desired yield on investment or inability to enter
into definitive agreements with regard to our financing arrangements or our
failure to satisfy conditions to the completion of these arrangements. For
more details on the risk factors, please refer to the Company's Form on
10-K as of December 31, 2005.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
Three Month Period
Ended March 31
Revenues: 2006 2005
--------- ---------
Minimum rents (A) $ 139,992 $ 123,105
Percentage and overage rents (A) 2,241 2,006
Recoveries from tenants 42,059 37,055
Ancillary income 2,995 1,777
Other property related income 2,297 1,056
Management fee income 5,694 4,292
Development fees 666 488
Other (B) 6,582 2,133
--------- ---------
202,526 171,912
--------- ---------
Expenses:
Operating and maintenance 25,914 23,507
Real estate taxes 23,124 20,587
General and administrative (C) 15,410 13,330
Depreciation and amortization 46,943 39,451
--------- ---------
111,391 96,875
--------- ---------
Other income (expense):
Interest income 3,121 1,009
Interest expense (54,000) (40,650)
Other expense (D) (500) (613)
--------- ---------
(51,379) (40,254)
--------- ---------
Income before equity in net income of joint ventures,
minority equity interests, income tax of taxable REIT
subsidiaries and franchise taxes, discontinued
operations and gain on sales of real estate 39,756 34,783
Equity in net income of joint ventures (E) 5,469 6,510
Minority equity interests (F) (2,274) (1,420)
Income tax of taxable REIT subsidiaries and franchise
taxes (449) (167)
--------- ---------
Income from continuing operations 42,502 39,706
Income from discontinued operations (G) - 1,185
--------- ---------
Income before gain on sales of real estate 42,502 40,891
Gain on sales of real estate, net of tax 7,225 64,659
--------- ---------
Net income $ 49,727 $ 105,550
========= =========
Net income, applicable to common shareholders $ 35,935 $ 91,758
========= =========
Funds From Operations ("FFO"):
Net income applicable to common shareholders $ 35,935 $ 91,758
Depreciation and amortization of real estate
investments 45,032 40,842
Equity in net income of joint ventures (E) (5,469) (6,510)
Joint ventures' FFO (E) 9,940 11,315
Minority equity interests (OP Units) (F) 534 729
(Gain) loss on sales of depreciable real estate, net 220 (39,063)
--------- ---------
FFO available to common shareholders 86,192 99,071
Preferred dividends 13,792 13,792
--------- ---------
FFO $ 99,984 $ 112,863
========= =========
Per share data:
Earnings per common share
Basic $ 0.33 $ 0.85
========= =========
Diluted $ 0.33 $ 0.84
========= =========
Dividends Declared $ 0.59 $ 0.54
========= =========
Funds From Operations - Basic (H) $ 0.78 $ 0.90
========= =========
Funds From Operations - Diluted (H) $ 0.78 $ 0.90
========= =========
Basic - average shares outstanding (thousands) (H) 108,962 108,005
========= =========
Diluted - average shares outstanding (thousands) (H) 109,609 110,244
========= =========
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
(A) Increases in base and percentage rental revenues for the three month
period ended March 31, 2006 as compared 2005, aggregated $16.0 million
consisting of $2.3 million related to leasing of core portfolio
properties, including the Puerto Rican assets for two months (an
increase of 2.1% from 2005), $16.3 million from the acquisition of
assets, $1.4 million related to developments and redevelopments and
$1.1 million due to the consolidation of a joint venture asset. These
amounts were offset by a decrease of $0.9 million primarily related to
one business center under redevelopment and $4.2 million due to the sale
of properties in 2005 and 2006 to joint ventures. Included in the rental
revenues for the three month periods ended March 31, 2006 and 2005 is
approximately $3.6 million and $2.6 million, respectively, of revenue
resulting from the recognition of straight line rents.
Pursuant to the adoption of EITF 04-05 in January 2006, the Company
consolidated a 67% owned joint venture located in Phoenix, Arizona,
into its consolidated financial statements.
(B) Other income for the three month periods ended March 31, 2006 and 2005
was comprised of the following (in millions):
Three Month Period
Ended March 31,
2006 2005
---- ----
Lease termination fees $ 6.5 $ 0.5
Financings fees - 1.4
Other miscellaneous 0.1 0.2
------ ------
$ 6.6 $ 2.1
====== ======
(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 three
month periods ended March 31, 2006 and 2005, general and
administrative expenses were approximately 5.0% and 4.8%, respectively,
of total revenues, including joint venture revenues, for each period.
(D) Other expense is comprised of abandoned acquisition and development
project costs and certain litigation costs.
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
Ended March 31,
2006 2005
--------- ---------
Revenues from operations (a) $ 105,811 $ 102,487
--------- ---------
Operating expense 36,136 35,768
Depreciation and amortization of real estate
investments 20,188 19,075
Interest expense 29,085 25,432
--------- ---------
85,409 80,275
--------- ---------
Income from operations before gain on sales of real
estate and discontinued operations 20,402 22,212
Gain on sales of real estate 38 303
Income from discontinued operations, net of tax 309 169
Gain on sales of discontinued operations, net of tax 212 1,001
--------- ---------
Net income $ 20,961 $ 23,685
========= =========
DDR Ownership interests (b) $ 5,315 $ 6,494
========= =========
Funds From Operations from joint ventures are
summarized as follows:
Net income $ 20,961 $ 23,685
Gain on sales of real estate, including discontinued
operations (30) (330)
Depreciation and amortization of real estate
investments 20,204 19,882
--------- ---------
$ 41,135 $ 43,237
========= =========
DDRC Ownership interests (b) $ 9,940 $ 11,315
========= =========
DDRC Partnership distributions received (c) $ 8,024 $ 11,141
========= =========
(a) Revenues for the three month periods ended March 31, 2006 and 2005
included approximately $1.4 million in each period, resulting from
the recognition of straight line rents of which the Company's
proportionate share is $0.3 million and $0.2 million, respectively.
(b) The Company's share of joint venture net income has been increased
by $0.1 million for the three month period ended March 31, 2006, to
reflect additional basis depreciation and adjustments to gain on
sales.
(c) At March 31, 2006 and 2005, the Company owned joint venture
interests, excluding consolidated joint ventures, relating to 107
and 111 shopping center properties, respectively. In addition, at
March 31, 2006 and 2005, respectively, the Company, through a joint
venture, owned an interest of approximately 25% in 52 and 60 shopping
center sites formerly owned by Service Merchandise, respectively.
(d) Distributions include funds received from asset sales and
refinancings in addition to ongoing operating distributions.
(F) Minority equity interests are comprised of the following (in thousands):
Three Month Period
Ended March 31,
2006 2005
------- ------
Minority interests $ 1,740 $ 691
Operating partnership units 534 729
------- ------
$ 2,274 $1,420
======= ======
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands - except per share data)
(G) The operating results relating to assets classified as discontinued
operations are summarized as follows (in thousands):
Three Month
Period Ended
March 31, 2005
---------------
Revenues $ 7,136
---------------
Expenses:
Operating 2,704
Interest, net 1,315
Depreciation 1,946
Minority interests (14)
---------------
Total expenses 5,951
---------------
Net income $ 1,185
===============
(H) For purposes of computing FFO per share (basic), the weighted average
shares outstanding were adjusted to reflect the conversion of
approximately 0.9 million and 1.3 million of Operating Partnership
Units (OP Units) outstanding at March 31, 2006 and 2005, respectively,
into 1.2 million and 1.3 million common shares of the Company for the
three month periods ended March 31, 2006 and 2005, respectively, on a
weighted average basis. The weighted average diluted shares and OP
Units outstanding, for purposes of computing FFO, were approximately
111.0 million and 110.5 million for the three month periods ended
March 31, 2006 and 2005, respectively.
In February 2006, the Company issued 0.4 million common shares in
exchange for OP Units issued in conjunction with assets acquired
from Benderson Development Company.
DEVELOPERS DIVERSIFIED REALTY CORPORATION
Financial Highlights
(In thousands)
Selected Balance Sheet Data:
March 31, December 31,
2006(A) 2005(A)
----------- -----------
Assets:
Real estate and rental property:
Land $ 1,776,894 $ 1,721,321
Buildings 4,956,509 4,806,373
Fixtures and tenant improvements 169,870 152,958
Construction in progress 393,696 348,685
----------- -----------
7,296,969 7,029,337
Less accumulated depreciation (743,872) (692,823)
----------- -----------
Real estate, net 6,553,097 6,336,514
Cash 39,967 30,655
Advances to and investments in joint
ventures (B) 247,944 275,136
Notes receivable 24,345 24,996
Receivables, including straight line rent, net 99,954 112,464
Other assets, net 80,347 83,212
----------- -----------
$ 7,045,654 $ 6,862,977
=========== ===========
Liabilities:
Indebtedness:
Revolving credit facilities $ 150,000 $ 150,000
Variable rate unsecured term debt 200,000 200,000
Unsecured debt 1,966,505 1,966,268
Mortgage and other secured debt 1,757,241 1,574,733
----------- -----------
4,073,746 3,891,001
Dividends payable 71,651 65,799
Other liabilities 197,024 204,447
----------- -----------
4,342,421 4,161,247
Minority interests 124,214 131,449
Shareholders’ equity 2,579,019 2,570,281
----------- -----------
$ 7,045,654 $ 6,862,977
=========== ===========
(A) Amounts include the consolidation of the Mervyns, 50% owned joint
venture, formed in September 2005, which includes $405.8 million and
$394.7 million of real estate assets at March 31, 2006 and December 31,
2005, respectively, $258.5 million of mortgage debt in each period and
$79.9 million and $75.1 million of minority interests at March 31, 2006
and December 31, 2005, respectively.
(B) Includes $90.5 million and $91.6 million of advances to the Service
Merchandise Joint Venture at March 31, 2006 and December 31, 2005,
respectively, funded in the second quarter of 2005.
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:
March 31, December 31,
2006 2005
----------- -----------
Land $ 870,056 $ 894,477
Buildings 2,378,266 2,480,025
Fixtures and tenant improvements 64,081 58,060
Construction in progress 37,913 37,550
----------- -----------
3,350,316 3,470,112
Accumulated depreciation (198,560) (195,708)
----------- -----------
Real estate, net 3,151,756 3,274,404
Receivables, including straight line rent, net 68,464 76,744
Leasehold interests 22,818 23,297
Other assets 104,068 109,490
----------- -----------
$ 3,347,106 $ 3,483,935
=========== ===========
Mortgage debt (a) $ 2,082,424 $ 2,173,401
Notes and accrued interest payable to DDR 107,739 108,020
Other liabilities 73,856 78,406
----------- -----------
2,264,019 2,359,827
Accumulated equity 1,083,087 1,124,108
----------- -----------
$ 3,347,106 $ 3,483,935
=========== ===========
(a) The Company’s proportionate share of joint venture debt aggregated
approximately $478.6 million and $510.5 million at March 31, 2006 and
December 31, 2005, respectively.
Distributed by Market Wire
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Daily NewsTags: ,RealEstate and Construction:CommercialRealEstate, ,NYSE0001,NYSE0001,OH,CLEVELAND, OH
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