Business context and reporting period
This is an annual Form 10-K for the fiscal year ended December 31, 2010, not a standalone fourth-quarter filing. The filing identifies the registrant as Developers Diversified Realty Corporation (DDR), whereas the request metadata names SITE Centers Corp.; verify the intended issuer. DDR was a self-managed REIT owning, managing and developing shopping centers, with a smaller office-property portfolio. At year-end it reported 525 shopping centers and six office properties, including joint-venture assets.
Key financial and operating metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $803.1 million | $797.4 million |
| Net loss attributable to DDR | $209.4 million loss; $1.03 loss per diluted share | $356.6 million loss; $2.51 loss per diluted share |
| Cash from operating activities | $278.1 million | $228.9 million |
| FFO applicable to common shareholders, non-GAAP | $11.3 million loss | $144.6 million loss |
| Operating FFO applicable to common shareholders, non-GAAP | $264.3 million | $298.2 million |
| Year-end consolidated debt | $4.302 billion | $5.179 billion |
| Shopping-center occupancy | 88.4% | 86.9% |
| Average annualized base rent per occupied square foot | $13.36 | $12.75 |
Year-end cash and cash equivalents were $19.4 million; reported borrowing capacity under revolving facilities was $722.5 million. Debt to total market capitalization improved to 0.51 from 0.68. These capitalization figures exclude DDR’s proportionate share of unconsolidated joint-venture debt, reported separately as approximately $835.8 million.
Material changes versus the prior comparable period
- Revenue increased 0.7%, while occupancy improved 1.5 percentage points. Management attributed leasing progress partly to re-leasing space vacated after retailer bankruptcies.
- Net loss narrowed by $147.2 million, principally because joint-venture impairment charges and equity-derivative losses were lower than in 2009. The improvement was partly offset by higher consolidated impairment charges, a $49.9 million deferred-tax valuation-allowance expense, and a much smaller gain on debt retirement.
- Consolidated debt declined by nearly $0.9 billion. DDR raised $454.4 million gross from common-share issuance, issued $950 million of senior and convertible notes, sold assets and repurchased approximately $259.1 million of senior notes.
- Common dividends declared fell to $0.08 per share from $0.44. Shares issued for cash increased substantially; 53.0 million shares were issued in 2010.
- Reported impairment charges were significant: $116.5 million in continuing operations and $55.4 million in discontinued operations. The continuing-operations total included impairments on Russian development land and other development or marketed assets.
Outlook, commentary, risks and unusual items
- Management emphasized deleveraging, liquidity, leasing and focus on its prime portfolio. It reported 1,798 leases executed in 2010 covering 11.3 million square feet and positive leasing spreads of approximately 3.7%. It expected large-box lease-ups to contribute as tenants took possession and began paying rent in 2011.
- The board’s 2011 dividend policy was expected to keep distributions near the minimum needed for REIT qualification, with retained cash flow primarily directed toward debt reduction. The first-quarter 2011 dividend was declared at $0.04 per share. No specific earnings or FFO guidance is provided in the supplied filing text.
- DDR projected approximately $21.6 million of net 2011 spending on development, expansion, improvement and re-tenanting activities. It reported $537.5 million of recorded costs on land and projects where construction had ceased or not commenced; management cautioned that current-market dispositions could result in potentially material losses.
- Approximately $993.7 million of consolidated debt was scheduled to mature in 2011, including a $600 million term loan. The company exercised a one-year extension in February 2011, moving that loan’s maturity to February 2012; refinancing remained subject to market availability and acceptable terms. A 100-basis-point increase in short-term rates was estimated to raise annual interest expense by about $8.7 million for DDR and $1.3 million for its proportionate share of joint ventures.
- Joint-venture risks include past-due or defaulted loans, near-term maturities and guarantees. Coventry II-related assets included loans in default and the company had provided guarantees; the filing describes a $66.9 million Bloomfield loan as fully reserved. Coventry also sought at least $500 million in damages in litigation against DDR. DDR disputed the claims, recorded no loss provision because the contingency was not deemed probable or estimable, and said it did not expect a material adverse outcome.
- Other unusual items include the Mervyns joint venture deconsolidation after a receiver took control, producing a $5.6 million gain while the related operations were classified as discontinued; a full $58.3 million valuation allowance against taxable-subsidiary deferred tax assets; and a Long Beach tenant judgment paid in November 2010.
- Subsequent events include Executive Chairman Scott Wolstein’s announced departure. The filing estimated approximately $8 million in contractual payments and benefits plus equity awards valued at approximately $8 million at a February 2011 share price. The company also received a $22.4 million distribution following Sonae Sierra Brasil’s February 2011 IPO, while its ownership interest fell from about 48% to about 34%.
Most important facts for investors to verify
- Confirm issuer identity and whether this DDR 2010 10-K is the filing intended by the SITE Centers metadata.
- Review the financial statements and notes for the scale and assumptions behind impairments, deferred-tax reserves, discontinued operations and non-GAAP FFO measures.
- Verify refinancing and repayment progress for 2011 maturities, including the extended term loan, and assess joint-venture debt, defaults and guarantees.
- Track occupancy, new-lease commencement, leasing spreads and rent collections to determine whether operating recovery translates into cash flow.
- Assess potential cash, dilution and governance effects of the reduced dividend policy, 2010 share issuance, chairman separation obligations and material Coventry litigation.