Business context and reporting period
This is DDR Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The filing identifies the registrant as DDR Corp.; it does not identify SITE Centers Corp., so the company identity should be verified against the intended filing. DDR operated 378 shopping centers, including 175 held through joint ventures, with approximately 116 million square feet of GLA.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $257.1 million | $245.4 million | $773.3 million | $728.9 million |
| Net income (loss) attributable to common shareholders | $54.0 million | $63.0 million | $(182.4) million | $107.6 million |
| Diluted EPS | $0.15 | $0.17 | $(0.51) | $0.30 |
| FFO attributable to common shareholders | $113.4 million | $110.8 million | $231.7 million | $278.7 million |
| Operating FFO attributable to common shareholders | $113.5 million | $106.2 million | $332.1 million | $308.2 million |
For the first nine months, operating cash flow was $300.9 million, compared with $315.4 million a year earlier. Investing used $54.5 million, versus providing $310.4 million in 2014; financing used $246.4 million, versus $577.7 million. Period-end cash was $21.0 million.
Total debt was $5.224 billion at September 30, 2015, versus $5.235 billion at year-end 2014. Debt was approximately 81% fixed-rate and 19% variable-rate. The company reported $403.9 million of available revolving borrowing capacity, after $395.0 million drawn and $1.1 million of letters of credit. It stated that it was compliant with debt covenants. Debt to total market capitalization was 0.47, compared with 0.45 at September 30, 2014.
Material changes versus prior periods
- Revenue increased 4.8% in Q3 and 6.1% for the nine-month period. Portfolio occupancy was 92.8%, unchanged year over year; average annualized base rent per occupied square foot rose to $14.23 from $13.65.
- Nine-month GAAP results swung to a common-shareholder loss, primarily reflecting $279.0 million of impairment charges, versus $18.1 million in the comparable 2014 period. Charges related mainly to 25 shopping centers identified for disposition and five land parcels no longer planned for development.
- Nine-month FFO declined, reflecting the impairment-related effects in the reported reconciliation; Operating FFO increased, which management attributed mainly to Prime-property acquisitions, organic growth, and lease-up.
- DDR sold 22 properties and other assets for approximately $297.3 million and recorded a $78.2 million net gain. It acquired three Prime assets and an outparcel for a gross purchase price of $160.1 million.
- Comparability is affected by the adoption of revised discontinued-operations accounting in 2015: 2015 property sales were not classified as discontinued operations, while certain 2014 sales were.
Outlook, management commentary, risks, and unusual items
Management described an accelerated portfolio-quality initiative: sell lower-growth assets, recycle capital into Prime properties, and seek to lower leverage and balance-sheet risk. No specific earnings or revenue guidance was provided. Management expected at least $200 million of net development and redevelopment investment to be placed in service during 2015 and said development spending would remain discretionary and subject to close monitoring.
In October 2015, DDR issued $400 million of 4.25% senior notes due 2026 and commenced the repurchase and redemption process for its $350 million of 1.75% convertible notes due 2040. Proceeds could be used for the convertible-note obligations, revolving-facility repayment, and general corporate purposes. Holders could elect conversion; the company said it would deliver shares for any conversion value above principal.
Key risks include retail tenant weakness, economic and consumer-spending changes, interest-rate and refinancing exposure, development execution, joint-venture risks, and the potential for further impairment as assets are marketed for sale. Puerto Rico represented 7.6% of consolidated portfolio annualized revenue; management cited continuing economic and government-debt concerns there. Legal proceedings were not expected by management to have a material adverse effect. Disclosure controls were reported effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm that DDR Corp. is the intended issuer, given the request’s SITE Centers Corp. label.
- Review the composition, valuation assumptions, and potential further impairment exposure of assets identified for sale, including the 25 centers and land parcels.
- Assess underlying operating performance alongside GAAP earnings, FFO, and management-defined Operating FFO; the filing cautions that non-GAAP measures are not cash available for dividends or debt service.
- Verify the final funding and share-delivery impact of the October 2025 convertible-note repurchase, redemption, or conversion process and the use of the new notes’ proceeds.
- Monitor available liquidity, variable-rate debt exposure, covenant headroom, and refinancing needs, as well as Puerto Rico conditions and retail tenant credit quality.