SEC Filing Summary: Developers Diversified Realty Corporation (10-Q)
Business Context and Reporting Period
Company: Developers Diversified Realty Corporation (DDR)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2002
Business Overview: DDR is a Real Estate Investment Trust (REIT) engaged in acquiring, developing, and operating shopping centers and business centers. As of June 30, 2002, the portfolio included 190 shopping centers (including 51 via joint ventures) and 37 business centers across 38 states.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2002 |
Three Months Ended June 30, 2001 |
Six Months Ended June 30, 2002 |
Six Months Ended June 30, 2001 |
|---|---|---|---|---|
| Total Revenues | $85,797 | $77,940 | $171,744 | $151,019 |
| Net Income | $23,244 | $29,306 | $47,175 | $51,823 |
| Net Income to Common Shareholders | $16,162 | $22,490 | $33,098 | $38,193 |
| Diluted EPS (Common) | $0.25 | $0.40 | $0.52 | $0.69 |
| Funds From Operations (FFO) | $41,208 | $33,212 | $81,328 | $65,608 |
| Cash Flow from Operations | N/A | N/A | $84,244 | $81,220 |
| Total Debt (Consolidated) | $1,336,909 | $1,308,301 | $1,336,909 | $1,308,301 |
| Cash and Equivalents | $11,709 | $19,069 | $11,709 | $19,069 |
Note: FFO is a non-GAAP measure used by REITs to indicate operating performance, excluding depreciation and gains/losses on property sales.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10.1% ($7.9 million) for the quarter and 13.7% ($20.7 million) for the six-month period compared to 2001. This was driven by the merger with American Industrial Properties (AIP), new acquisitions, and development completions.
- Net Income Decline: Net income decreased 20.7% for the quarter and 8.9% for the six-month period. The decline was primarily due to a significant reduction in gains from the disposition of real estate ($9.9 million decrease) and a $3.5 million impairment charge on a property held for sale in Orlando, Florida.
- FFO Increase: Despite lower net income, FFO increased 24.1% for the quarter and 23.9% for the six-month period, reflecting strong core operating performance and excluding non-cash depreciation and one-time asset sale gains.
- Debt Structure: Total indebtedness remained relatively stable. The company issued $100 million in fixed-rate senior notes and $150 million in Class F preferred shares, using proceeds to redeem higher-cost preferred shares and repay revolving credit facilities.
Guidance, Outlook, and Risks
- Dividends: The quarterly common dividend was increased to $0.38 per share (from $0.37). The payout ratio for the first six months of 2002 was approximately 61.3% of FFO.
- Strategic Transactions: DDR formed a joint venture to acquire asset designation rights for the bankrupt estate of Service Merchandise Corporation (approx. 159 sites). The company also acquired two shopping centers in July 2002 (post-period) and five additional centers in July 2002.
- Legal Contingency: A $9.0 million judgment (plus fees) was entered against the company in September 2001 regarding a movie theater lease dispute. Management believes the verdict will likely be reversed on appeal and has not recorded a provision. No assurance can be given regarding the outcome.
- Market Risks: The company faces risks related to tenant bankruptcies (notably Kmart, which filed for Chapter 11 protection in January 2002), interest rate fluctuations, and general economic conditions affecting retail sales.
- Discontinued Operations: The company adopted SFAS No. 144, classifying the sale of individual retail properties as discontinued operations. This resulted in a $3.5 million loss on sale of discontinued operations for the period.
Investor Verification Checklist
- Impairment Charge: Verify the details of the $4.7 million impairment charge on the Orlando, Florida property and the expected closing of its sale.
- Legal Judgment: Monitor the status of the $9.0 million civil judgment appeal and potential liability exposure.
- Kmart Exposure: Assess the impact of Kmart's bankruptcy on the 20 leases (1.8 million sq. ft.) held by DDR and its joint ventures.
- Debt Maturity: Review the maturity schedule of the $1.3 billion debt portfolio, noting the mix of fixed and variable rates and the effectiveness of interest rate swaps.
- Service Merchandise JV: Track the progress and profitability of the joint venture managing the Service Merchandise retail estate.