Business context and reporting period
DDR Corp. (the registrant named in this filing; the request metadata identifies SITE Centers Corp.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2015. DDR was a shopping-center REIT, with 401 centers, including joint-venture properties, and more than 118 million square feet of gross leasable area. The filing does not explain the difference between the metadata company name and the registrant name.
Key financial metrics
Unless noted otherwise, amounts are in U.S. dollars; financial statement figures below are in millions.
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $257.3 | $242.0 | $516.1 | $483.6 |
| Net income (loss) attributable to common shareholders | $13.0 | $67.8 | $(236.4) | $44.6 |
| Diluted EPS | $0.03 | $0.19 | $(0.66) | $0.12 |
| FFO attributable to common shareholders (non-GAAP) | $105.0 | $82.2 | $118.2 | $168.0 |
| Operating FFO attributable to common shareholders (non-GAAP) | $111.4 | $101.3 | $218.5 | $202.0 |
- Q2 revenue rose about 6.3% year over year. Shopping-center net operating income was $183.5 million versus $158.6 million; as a share of revenue, approximately 71.3% versus 65.5%.
- First-half results included $279.0 million of impairment charges, versus $16.7 million in the prior-year period. The charges drove the GAAP net loss and included $179.7 million related to 25 operating centers and $99.3 million on five land parcels.
- Six-month operating cash flow was $208.9 million, compared with $201.1 million. Investing activities used $63.7 million, versus providing $261.9 million; financing activities used $141.1 million, versus $190.3 million. Cash and cash equivalents were $25.3 million at June 30.
- Total debt was $5.26 billion at June 30, versus $5.23 billion at December 31, 2014. Debt to total market capitalization was 0.47 to 1.0, compared with 0.44 to 1.0 at June 30, 2014. Fixed-rate debt was 84% of consolidated debt; variable-rate debt was 16%.
- Liquidity included $557.4 million of available borrowing capacity under $800 million of revolving facilities, after outstanding borrowings and letters of credit. Preferred shares totaled $350 million. Common dividends declared were $0.1725 per share in each of the first two quarters.
Material changes versus comparable periods
- First-half GAAP results moved from $44.6 million of common-shareholder income to a $236.4 million loss, primarily because of the substantially higher impairments. Q2 alone remained profitable, but common-shareholder income and diluted EPS were below Q2 2014.
- First-half revenue increased $32.6 million, with contributions from acquisitions and comparable-property growth; fee and other income declined $4.6 million. Comparable wholly owned property occupancy was 93.5% versus 93.1% a year earlier, and total portfolio occupancy was 92.8% in both periods.
- Average annualized base rent per occupied square foot for the combined portfolio increased to $14.09 from $13.50. Q2 leasing spreads were 25.4% on new leases and 7.2% on renewals.
- First-half FFO declined $49.8 million, while Operating FFO increased $16.5 million. These are non-GAAP measures; management cautions they are not cash flow or amounts available for dividends or debt service.
- Debt and liquidity management actions included issuing $500 million of 3.625% senior notes due 2025, amending revolving facilities, and entering a $400 million unsecured term loan. The company also acquired three Prime assets and an outparcel for a combined gross purchase price of $160.1 million and sold 13 centers and three land parcels for $161.3 million.
Outlook, commentary, risks and unusual items
- No specific earnings or revenue guidance was provided. Management said it was accelerating sales of lower-growth assets to improve portfolio quality and potentially reduce leverage sooner, while focusing new investment on Prime properties. It expected to place at least $200 million of development and redevelopment investments in service during 2015, net of outlot sales, and said development spending remained discretionary.
- Management reported strong leasing demand, positive rent spreads, and occupancy of 92.8%. It described retail tenant credit and economic conditions as key exposures, including possible tenant closures, bankruptcies, and competition from online retail.
- At June 30, the company had $350 million of convertible notes maturing in 2015; holders could require repurchase on specified dates, beginning November 15, 2015, subject to the note terms. Management expected to fund repayment through debt offerings, revolver capacity and/or operating cash flow, but gave no assurance refinancing would be available. It reported $175 million of mortgage maturities at June 30, of which $0.2 million remained outstanding at August 3.
- Other material commitments included $55.2 million of construction-contract obligations and $37.5 million of letters of credit. Management stated it was in compliance with debt covenants at June 30 and expected to remain compliant.
- Puerto Rico represented 7.5% of consolidated and proportionate joint-venture annualized revenue. Management identified continuing recessionary and government-debt concerns there. A Puerto Rico tax restructuring included a $20.2 million tax prepayment and a $3.4 million first-quarter tax expense.
- Interest-rate exposure is material: management estimated a 100-basis-point increase in short-term rates would raise annual interest expense by approximately $4.2 million for DDR and $0.5 million for its proportionate share of joint ventures, based on period-end variable debt. One effective company swap had a $79.3 million notional amount; management expected approximately $2.7 million of higher interest expense over the next 12 months from hedge reclassifications and amortization.
- The company said pending legal matters were not expected to have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the registrant/entity identity: this source is a DDR Corp. filing, not a filing naming SITE Centers Corp.
- Review impairment assumptions and the planned disposition timeline and sale values for the 25 centers and five land parcels identified for disposal.
- Assess refinancing and repayment plans for the $350 million convertible notes, including the November 2015 holder repurchase provision and available liquidity.
- Track occupancy, comparable-property rent growth, leasing spreads, tenant credit and the concentration of revenue in retail tenants.
- Monitor Puerto Rico operating conditions, variable-rate debt exposure, covenant compliance, and the funding and returns of development and redevelopment commitments.