SOURCE: Developers Diversified

May 14, 2007 09:00 ET

Developers Diversified Realty Announces Formation of Joint Venture to Develop Retail Assets in Russia and Ukraine

CLEVELAND, OH -- (MARKET WIRE) -- May 14, 2007 -- Developers Diversified (NYSE: DDR), the leading owner, manager and developer of market-dominant shopping centers in the U.S., announced it has formed a new joint venture with ECE Projektmanagement G.m.b.H. & Co.KG ("ECE"), a fully integrated international developer, owner and manager of shopping centers based in Hamburg, Germany.

Developers Diversified and ECE have committed to invest approximately $300 million in equity over five years to fund investments in new retail developments located in western Russia and Ukraine. Developers Diversified will contribute 75% of the equity and ECE will contribute 25%. The joint venture will be leveraged at approximately 75% loan-to-value, increasing total funds available for investment to $1.2 billion.

Scott A. Wolstein, Developers Diversified's Chairman and Chief Executive Officer, commented, "We're pleased to announce this exciting joint venture that further expands our international footprint in a prudent manner. Russia and Ukraine provide appealing investment opportunities due to their favorable economic conditions and underserved retail real estate markets. Based on extensive research on emerging markets throughout the world, we believe there is potential for significant value creation through ground-up development projects in both Russia and Ukraine."

"ECE has a proven track record of success in European retail real estate markets and we are pleased to enter the Russian and Ukrainian markets through this strategic joint venture. We look forward to sharing our development expertise with ECE and learning from their experiences as well," said Daniel B. Hurwitz, Developers Diversified's President and Chief Operating Officer.

ECE has spent the last three years in Russia studying the markets with a complete staff of development professionals pursuing and analyzing the various opportunities. Moreover, ECE has recently opened an office in Ukraine. The company has an in-depth knowledge of the markets and an impressive pipeline of new development opportunities.

A powerpoint presentation providing information on the joint venture is available on Developers Diversified's web site, www.ddr.com.

Investment Strategy

Developers Diversified and ECE expect to target primarily urban locations in Russian cities located west of the Ural Mountains and with populations greater than 500,000. In Ukraine, the joint venture will seek opportunities in Kiev and other major cities, targeting city center locations.

Consistent with dominant local and European retail trends, the development assets are expected to be primarily multi-level enclosed malls featuring hypermarket/grocery, general discount merchandise and apparel tenants. The shopping centers will serve middle and upper class consumers, similar to Developers Diversified's existing portfolios in the U.S., Puerto Rico and Brazil.

Russia - Economic Overview

In 2006, inflation in Russia was reduced to 9.7%, which marks the first time in several decades that inflation dropped below 10.0%. Unemployment dropped to 7.5% and GDP of $987 billion (U.S.) made Russia the 10th largest economy in the world. These improvements, combined with an increase in Russian consumer confidence, have led to a growing middle class that is thriving and spending at increasingly higher levels each year. All of these factors are expected to continue to fuel Russia's economic growth and strengthen its position among the world's leading economies.

According to Goldman Sachs Global Research, Russia's economy is expected to be the sixth largest economy in the world by 2050. The predicted growth is based upon positive demographic trends, particularly the tremendous growth of the middle class, and robust economic activity including strong GDP growth, declining inflation and declining unemployment rates.

Ukraine - Economic Overview

Ukraine has experienced exceptional economic growth as its economy has stabilized. In 2006, GDP grew 7.0%, while inflation, unemployment and foreign debt levels all decreased significantly from 2005 levels.

Ukraine's favorable economic conditions have led Ukrainian government officials to forecast that its economy will double in size by 2020. GDP growth is expected to remain at or near 6.0% while unemployment, foreign debt levels and inflation rates are expected to decrease further during the next five years. As the economy continues to expand, economists expect that Ukraine will become a more desirable location for international expansion across all industries.

Russia and Ukraine - Retail Real Estate Market

According to many industry reports, including those published by PMR Publications and AT Kearney, retail real estate in both Russia and Ukraine is expected to experience strong growth during the next several years. Retail sales growth in both countries is expected to exceed 20% annually through 2010. Combined with retail real estate markets that are among the most underserved in all of Europe with retail space per capita significantly below global averages, the countries are poised for substantial retail sales and retail real estate growth. This rapid growth is complemented with increased disposable income levels across a large population, primarily concentrated in and around urban centers. Consumers in Russia and Ukraine, like those throughout Europe, view shopping as an important social event, which will enhance retail sales and retail real estate growth in both countries.

ECE

The Hamburg-based ECE group has been developing, leasing and managing large shopping centers since 1965. With 90 shopping centers under management, ECE is the European market leader in this field. ECE's properties, including those that are managed by third parties, are home to over 9,200 retail businesses comprising 29 million square feet which generate annual sales of $13.7 billion (U.S.) in Germany, Poland, Hungary, Turkey, Greece, the Czech Republic, Austria and Qatar. Another 22 shopping centers are currently under construction or in the planning stage throughout Europe, including Bulgaria, Romania, Lithuania and Switzerland. ECE has been awarded numerous international architecture awards for its malls. Additional information about ECE is available on the Internet at http://www.ece.de.

Developers Diversified

Developers Diversified currently owns and manages approximately 800 retail operating and development properties in 45 states, plus Puerto Rico and Brazil, totaling 162 million square feet. 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. Additional information about Developers Diversified is available on the Internet at http://www.ddr.com.

Developers Diversified 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, the risks of international investment and ownership activities which differ from the risks the Company faces with the Company's domestic operations, such as, adverse effects of changes in exchange rates for foreign currencies; changes in foreign political environments; different lending practices; and obstacles to the repatriation of earnings and cash In addition, the joint venture faces risks associated with real estate generally such as, local conditions, including 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 financing arrangements or 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, 2006.

Contact Information

  • Contact:

    Michelle M. Dawson
    Vice President of Investor Relations
    Developers Diversified
    Ph: 216.755.5500
    Email: Email Contact