Business context and reporting period
The filing is DDR Corp.’s Form 10-K for the fiscal year ended December 31, 2013; the registrant named in the filing is DDR Corp., not SITE Centers Corp. DDR was a self-managed REIT focused on owning, leasing, developing and managing shopping centers, with additional lending and debt-investment activities. At year-end it had an economic interest in 416 shopping centers, including 173 joint-venture centers, and reported more than 115 million square feet of total GLA.
Financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $888.8 million | $761.5 million |
| Net loss attributable to common shareholders | $43.1 million; diluted loss per share $0.14 | $60.3 million; diluted loss per share $0.21 |
| FFO attributable to common shareholders | $372.5 million | $312.4 million |
| Operating FFO attributable to common shareholders | $366.7 million | $305.3 million |
| Cash flow from operations | $374.0 million | $304.2 million |
| Cash flow from investing activities | $(897.9) million | $(588.4) million |
| Cash flow from financing activities | $579.3 million | $274.8 million |
| Cash and cash equivalents at year-end | $86.7 million | $31.2 million |
| Total consolidated debt at year-end | $5.295 billion | $4.319 billion |
Net loss attributable to DDR itself was $10.2 million, versus $25.8 million in 2012. The filing does not provide a single comparable GAAP operating-margin figure; property-level net operating income was $588.4 million. FFO and Operating FFO are non-GAAP measures and are not measures of cash available for dividends or debt service.
Portfolio occupancy rose to 92.2% from 91.5%; average annualized base rent per occupied square foot increased to $14.18 from $13.66. The company leased approximately 10.3 million square feet in 1,719 new and renewal leases; reported leasing spreads were 14.9% for new leases and 7.6% for renewals.
Material changes versus prior year
- Revenue increased 16.7%, while FFO and Operating FFO attributable to common shareholders increased about 19% and 20%, respectively. Common-share net loss narrowed, but remained a loss.
- Debt increased by approximately $976 million. Debt to total market capitalization rose to 0.47 from 0.45. Cash from operations increased, while investing outflow expanded with acquisition activity.
- The company issued $827.3 million of common equity and $600 million of senior unsecured notes, and assumed substantial mortgage debt in acquisitions. It acquired Blackstone’s 95% interest in 30 assets in October for a transaction valued at $1.55 billion at 100%.
- Impairment charges in continuing operations declined to $45.0 million from $58.8 million; total impairment charges, including discontinued operations and joint-venture investments, were $73.6 million versus $153.2 million.
Outlook, risks, contingencies and unusual items
- Outlook: Management described demand for quality retail space as favorable and cited strong retailer leasing plans. It expected at least $100 million of net consolidated development and redevelopment investment to be placed in service in 2014. No specific earnings or FFO guidance was provided.
- Capital and dividends: The company reported $775 million of available revolver borrowing capacity and said it was focused on refinancing $331.4 million of consolidated mortgage debt maturing in 2014. It declared $0.54 per common share for 2013 and announced a first-quarter 2014 dividend of $0.155, up 14.8% from the year-earlier quarter. Future dividends remain subject to Board discretion and financial conditions.
- Debt and interest-rate exposure: 93.8% of consolidated debt was fixed-rate or effectively fixed through swaps. Management estimated a 100-basis-point short-term rate increase would add approximately $3.8 million to its annual interest expense, plus $1.8 million for its proportionate share of joint-venture variable-rate debt.
- Litigation: Coventry sought at least $500 million plus punitive damages in a joint-venture dispute. The court dismissed most claims in 2013; appeals were pending. DDR recorded no loss provision because a loss was not deemed probable or estimable and management did not expect a material adverse effect. Separately, a former service provider allegedly diverted about $11 million intended for vendors; the provider’s bankruptcy filings asserted about $5 million was owed, which DDR disputed.
- Joint ventures and credit: Joint ventures had $3.3 billion of third-party debt, of which DDR’s proportionate share was reported as $630.1 million in the risk disclosures. Certain joint-venture loans were past due, in default or fully reserved; the Coventry II-related financing and partner funding needs remain potential exposures.
- Other unusual items: A $19.9 million gain on change in control and sale of interests contributed to results; the Blackstone acquisition and related step-acquisition accounting were significant. Results also included $45.0 million of continuing-operations impairments and $27.6 million of discontinued-operations impairments.
- Key business risks: Tenant failures or non-renewals, retail-sector competition and online shopping, refinancing and covenant risks, development execution, impairment estimates, foreign currency and international operations, REIT qualification, and environmental or weather-related losses.
Most important facts for investors to verify
- Reconcile the substantial 2013 acquisition-related growth, equity issuance and assumed debt with the company’s pro forma results and ongoing per-share performance.
- Review the debt maturity schedule, 2014 mortgage refinancing progress, covenant headroom and the full scope of joint-venture debt and guarantees.
- Assess recurring property cash flow and leasing trends separately from impairments, step-acquisition gains, discontinued operations and other non-recurring adjustments; do not treat FFO as cash flow.
- Track the Coventry litigation appeal, the disputed vendor-related claims, and any changes to recorded loss contingencies.
- Evaluate whether occupancy and rental-rate gains persist as leases expire, including the scheduled 2014–2018 expirations and the ability to re-lease space at favorable rents.
- Confirm the 2014 dividend policy and funding capacity alongside development spending, capital requirements and refinancing needs.