DDR Corp. (the filing registrant; 10-Q for quarter ended March 31, 2015)
The supplied filing is for DDR Corp., a shopping-center REIT—not a registrant identified as SITE Centers Corp. The unaudited quarter covers the three months ended March 31, 2015; comparisons are with Q1 2014 unless noted. At quarter-end, DDR reported 407 shopping centers, including 188 held through joint ventures, and more than 117 million square feet of GLA.
Financial results and position
| Metric | Q1 2015 | Q1 2014 or comparison |
|---|---|---|
| Revenue | $258.8 million | $241.5 million; up 7.2% |
| Net loss attributable to common shareholders | $249.4 million; diluted loss per share $0.69 | $23.2 million; diluted loss per share $0.07 |
| FFO attributable to common shareholders | $13.2 million | $85.8 million |
| Operating FFO attributable to common shareholders | $107.1 million | $100.7 million |
| Cash flow from operating activities | $62.7 million | $91.9 million |
| Cash flow from investing activities | $57.6 million | $91.9 million |
| Cash flow used in financing activities | $85.4 million | $106.6 million |
| Total debt at March 31 | $5.247 billion | $5.235 billion at December 31, 2014 |
| Cash and cash equivalents at March 31 | $56.0 million | $20.9 million at December 31, 2014 |
- The $249.4 million common-shareholder loss principally reflects $279.0 million of impairment charges, versus $2.3 million in Q1 2014. The charge included $179.7 million for 25 operating centers identified as sale candidates and $99.3 million for five land parcels no longer intended for development.
- Revenue growth reflected acquisitions and comparable-property rent growth; minimum rents were $180.7 million versus $166.2 million, and tenant recoveries were $64.1 million versus $57.8 million. Fee and other income declined to $12.7 million from $15.9 million.
- Operating FFO increased 6.4%, which management attributed mainly to Prime power-center acquisitions, organic growth, and lease-up. FFO fell substantially, principally due to higher impairment adjustments. Both FFO measures are non-GAAP and are not measures of cash available for dividends or debt service.
- Quarter-end debt comprised $3.272 billion unsecured and $1.975 billion secured. Debt fair value was reported at $5.570 billion, compared with $5.247 billion carrying value. Management reported a 0.42-to-1 debt-to-total-market-capitalization ratio, versus 0.45 a year earlier.
- Available borrowing capacity under revolving facilities was $807.6 million at March 31, after outstanding borrowings and letters of credit; the filing also reported $56.0 million cash. The company said it was in compliance with debt covenants.
Material changes and operating trends
- Occupancy was 93.2%, up from 92.6% a year earlier and down from 93.5% at December 31, 2014. Average annualized base rent per occupied square foot rose to $14.02 from $13.44 a year earlier.
- For comparable leases signed in Q1, reported rental spreads were 26.9% on new leases and 6.7% on renewals. DDR executed 289 leases covering approximately 2.6 million square feet.
- DDR sold nine properties for $103.4 million and recorded a $25.1 million net gain. Under newly adopted discontinued-operations guidance, these 2015 sales remained in continuing operations.
- In January, DDR issued $500 million of 3.625% senior notes due February 2025, using proceeds primarily to repay term loans and revolving borrowings. Debt-extinguishment costs were $3.3 million.
- The Coventry II joint venture settlement was finalized in March: DDR acquired its partner’s 80% interest in one center and transferred its interests in 21 other assets. DDR recorded a $14.3 million gain on change in control.
Outlook, risks, and unusual items
- New management said it was accelerating sales of lower-growth assets to improve portfolio quality and potentially reduce leverage sooner. The filing gives no formal earnings or FFO guidance.
- Management expected at least $200 million of development investment to be placed in service during 2015, net of outlot-sale proceeds. Development and redevelopment spending was described as discretionary and subject to monitoring; no significant joint-venture development spending was anticipated for 2015.
- In April 2015, after quarter-end, DDR extended the primary revolving facility maturity to June 2019, reduced its pricing to LIBOR plus 100 basis points, amended the PNC facility, and entered into a $400 million unsecured term loan. The term loan was unfunded as of May 1 and available to draw for 12 months. The filing states that $153 million of unsecured notes due in 2015 were repaid at maturity in May; $432.4 million of consolidated mortgage debt and $350 million of convertible notes were also identified as 2015 maturities.
- Q1 cash dividends declared were $0.1725 per common share; total dividends declared were $67.9 million. The board said it would continue monitoring dividend policy. Management reported distributions exceeded 100% of taxable income at that point in 2015.
- DDR prepaid $20.2 million of Puerto Rico taxes as part of a restructuring affecting 15 assets; it reported a $16.8 million net balance-sheet impact and $3.4 million tax expense related to the restructuring.
- Key risks include tenant and retail-sector weakness, leasing and occupancy pressures, interest rates and refinancing, the execution and pricing of asset sales, development costs and timing, joint-venture exposure, REIT qualification and distribution requirements, and potential additional impairments. Management said ordinary-course legal proceedings were not expected to have a material adverse effect; the Coventry litigation was dismissed with prejudice following settlement.
Important facts for investors to verify
- Confirm the issuer identity: this filing names DDR Corp., while the request identifies SITE Centers Corp.
- Review the valuation assumptions and likely sale timing for the 25 centers and five land parcels behind the $279.0 million impairment, and whether further impairments or sale losses occur.
- Track actual disposition proceeds and their effect on occupancy, rental income, leverage, and portfolio quality.
- Verify repayment or refinancing of the identified 2015 maturities, use of the new term loan, and continued covenant compliance and liquidity.
- Assess whether Operating FFO growth translates into sustainable operating cash flow and supports the dividend; Q1 operating cash flow declined year over year.
- Monitor joint-venture performance and credit exposure, including the $307.6 million preferred-equity investment bearing 8.5% interest, and the past-due $9.8 million real-estate loan with a $4.8 million reserve.