SOURCE: Developers Diversified Realty

August 08, 2005 19:36 ET

Developers Diversified Realty and Macquarie DDR Trust Announce Acquisition of Mervyns Real Estate Portfolio

CLEVELAND, OH -- (MARKET WIRE) -- August 8, 2005 -- Developers Diversified Realty (NYSE: DDR) and Macquarie DDR Trust ("MDT") announced the formation of a new joint venture to purchase the real estate underlying 36 open and operating Mervyns stores. The joint venture will acquire the assets for $396.2 million and subsequently lease the assets to Mervyns for 15 years at an annual rent of $30.5 million, which equates to a weighted average rent of $11.12 per square foot. The pricing equates to a 7.7% initial cash cap rate and an 8.9% cap rate on a GAAP basis. The Purchase and Sale Agreement contains a contingent purchase price adjustment secured by a $25 million letter of credit from the seller payable in certain circumstances including a termination of all of the Mervyns leases. Individual, triple net leases will encumber each property and the tenant will be responsible for all property level maintenance. The leases will provide for 2% annual rent increases and will generally include four five-year renewal options. The leases will be cross-defaulted. The transaction is expected to close in mid-September.

MDT is an Australian Listed Property Trust jointly managed by Developers Diversified and Macquarie Bank Limited (ASX: MBL), an international investment bank and leading advisor and manager of specialized real estate funds. In previous transactions with MDT, Developers Diversified has owned a 14.5% ownership interest in the joint venture. In this joint venture, Developers Diversified and MDT each own a 50% interest.

Scott Wolstein, Developers Diversified's Chairman and Chief Executive Officer, commented, "I'm pleased to announce this transaction because it represents another example of our ability to identify and successfully execute creative and opportunistic acquisitions. The structure of the transaction provides us with a long-term, accretive income stream with limited operating risk. In addition, there will be virtually no G&A impact and no additional capital investment."

Mr. Wolstein continued, "We are particularly excited to have structured this transaction with MDT, providing additional diversity to its portfolio and investment strategy. MDT continues to be a highly beneficial joint venture partner, providing us with an efficient means of accessing capital."

Richard Sheppard, Chairman of Macquarie DDR Management Limited, the manager of MDT, noted, "This is an exciting transaction for MDT unitholders. The acquisition provides a diversified exposure to high quality real estate focused in California and a rental income profile with internal growth potential above that of our existing portfolio. The transaction underscores the value to MDT unitholders of the relationship with Developers Diversified."

The new joint venture agreement provides Developers Diversified with the same fee schedule that it receives from its MDT joint venture, including a one-time acquisition and advisory fee in relation to capital structuring and debt financing.

The joint venture expects to place cross-collateralized mortgage financing on the portfolio at a loan-to-value ratio of approximately 65%. The remaining equity contribution will be allocated on a 50% / 50% basis to Developers Diversified and MDT. Developers Diversified intends to fund its portion of the equity with proceeds generated from the sale of a substantial portion of its office and industrial portfolio, which was also announced today.

Daniel Hurwitz, Developers Diversified's Senior Executive Vice President and Chief Investment Officer, commented, "This transaction is an important step toward expanding our footprint in the West, adding nearly two million square feet of California real estate, which includes one million square feet in the Los Angeles metropolitan area."

Mr. Hurwitz added, "These assets are located in high quality market dominant community centers and enclosed regional malls where retail sites are extremely difficult to acquire at the pricing levels achieved."

The portfolio aggregates 2.74 million square feet and is 100% occupied by Mervyns. Approximately 70% of the assets (25) are based in California, including nearly 1.0 million square feet in the Los Angeles metropolitan area and over 500,000 square feet in the San Francisco area. Additional stores are located in Arizona (5), Nevada (5) and Texas (1).

Approximately 85% of the properties (31) are owned in fee. Of the remaining assets, four are subject to a groundlease and one is a leasehold interest. Over 70% of the assets (26) are located in open-air shopping centers, with the balance of the portfolio either attached to an enclosed mall or located as a freestanding building associated with an enclosed mall.

A powerpoint presentation providing additional details on the transaction is available on Developers Diversified's website at www.ddr.com, and a detailed property list is attached to this announcement.

Developers Diversified will conduct a conference call and an audio webcast on Tuesday, August 9, 2005 at 10:30 a.m. EDT. To access the conference call, dial 888-396-2356 at least ten minutes prior to the scheduled start of the call. When prompted, provide the access code: 16504431. The conference call will be recorded and available for replay beginning at 12:30 p.m., August 9, 2005 and will be available until 11:59 p.m., September 8, 2005. To access the conference call recording, please call 888-286-8010 and use the access code: 58450771. The conference call will be webcast by CCBN, www.ccbn.com , and can be accessed via the DDR web site, www.ddr.com.

Including this portfolio acquisition, Developers Diversified owns or manages over 500 operating and development retail properties in 44 states, plus Puerto Rico, comprising approximately 114 million square feet. Developers Diversified is a self-administered and self-managed real estate investment trust (REIT) operating as a fully integrated real estate company which develops, leases and manages shopping centers. You can learn more about Developers Diversified on the Internet at www.ddr.com.

Macquarie DDR Trust is a listed property trust with assets of approximately $2.5 billion (as at 30 June 2005). More than $A23 billion in property assets is managed under the Macquarie brand across a portfolio of listed and unlisted property trusts, unlisted development funds and property investment syndicates, globally.

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, 2004.

                MERVYNS PORTFOLIO PROPERTY LIST
                                                 MALL /
      PROPERTY                         CITY /   SHOPPING  OWNERSHIP
        NAME          STATE             GLA      CENTER   INTEREST
1  Mervyn's Plaza   Phoenix, AZ        74,862      SC       Owned
                     (Chandler)
2  Superstition     Phoenix, AZ        86,858     Mall      Owned
   Springs           (Mesa)
   Regional Mall
3  Deer Valley      Phoenix, AZ        81,009      SC       Owned
   Center
4  Silver Creek     Phoenix, AZ        76,214      SC       Owned
   Place
5  Santa Cruz Plaza Tucson, AZ         76,126      SC       Owned
6  Anaheim Hills    Los Angeles, CA    77,883      SC       Owned
   Festival Center   (Anaheim)
7  The County East  San Francisco, CA  75,339     Mall      Owned
   Shopping Center   (Antioch)
8  Burbank          Los Angeles, CA    89,182     Mall   Ground Lease
   Town Center       (Burbank)
9  Chino Town       Los Angeles, CA    81,282      SC       Owned
   Square Shopping   (Chino)
   Center
10 Sierra Vista     Fresno, CA         77,561     Mall   Ground Lease
   Mall              (Clovis)
11 Westfield        San Diego, CA      85,744     Mall   Ground Lease
   Shoppingtown      (El Cajon)
   Parkway
12 Westfield        San Francisco, CA  89,223     Mall      Owned
   Solano Mall       (Fairfield)
13 Folsom Square    Sacramento, CA     79,080      SC       Owned
                     (Folsom)
14 Foothills Ranch  Los Angeles, CA    77,934      SC       Owned
   Town Centre       (Foothill Ranch)
15 Unnamed Center   Los Angeles, CA    76,360      SC       Owned
                     (Fullerton)
16 Garden Grove     Los Angles, CA     83,746      SC       Owned
   Center            (Garden Grove)
17 Albertson's      Los Angeles, CA    62,523      SC       Owned
   Shopping Center   (Lompoc)
18 Unnamed Center   San Francisco, CA  59,720      SC       Owned
                     (Madera)
19 Northridge       Los Angeles, CA    75,455      SC     Leasehold
   Shopping Center   (Northridge)
20 Antelope Valley  Los Angeles, CA    76,550     Mall      Owned
   Mall              (Palmdale)
21 Porterville      Los Angeles, CA    76,378      SC       Owned
   Market Place      (Porterville)
   Shopping Center
22 Freestanding     San Francisco, CA  61,363      SC       Owned
   Unnamed           (Redding)
23 Southland Plaza  San Diego, CA      75,207      SC       Owned
   Shopping Center
24 Town Center West Los Angeles, CA    84,886      SC       Owned
   Shopping Center   (Santa Maria)
25 Santa Rosa Plaza San Francisco, CA  90,348     Mall      Owned
                     (Santa Rosa)
26 Slatten Ranch    San Francisco, CA  78,819      SC       Owned
   Shopping Center   (Slatten Ranch)
27 Sonora           Saramento, CA      62,214      SC       Owned
   Crossroads        (Sonora)
   Shopping Center
28 Arbor Faire      Bakersfield, CA    62,947      SC       Owned
   Shopping Center   (Tulare)
29 Freestanding     San Francisco, CA  58,841      SC       Owned
   Unnamed           (Ukiah)
30 West Covina      Los Angeles, CA    82,028      SC    Ground Lease
   Shopping Center   (West Covina)
31 Eagle Station    Reno, NV           60,494      SC       Owned
                     (Carson City)
32 Nellis Crossing  Las Vegas, NV      76,016      SC       Owned
   Shopping Center
33 Grand Canyon     Las Vegas, NV      79,294      SC       Owned
   Parkway Shopping
   Center
34 Loma Vista       Las Vegas, NV      75,687      SC       Owned
   Shopping Center
35 Sierra Center    Reno, NV           79,239      SC       Owned
36 Ingram Park      San Antonio, TX    76,597      SC       Owned

Contact Information

  • Contact:
    Michelle M. Dawson
    Vice President - Investor Relations
    Developers Diversified Realty
    216.755.5455