DDR Corp. (not SITE Centers Corp.) — FY 2012 Form 10-K
Period and business: The filing is DDR Corp.’s annual report for the fiscal year ended December 31, 2012. DDR was a self-managed REIT focused on owning, leasing, developing and managing shopping centers, with additional shopping-center lending and international investments. At year-end it reported 452 centers, including 206 held through unconsolidated joint ventures, and 91.5% portfolio occupancy. The supplied filing does not identify the registrant as SITE Centers Corp.; verify the intended issuer before relying on this summary.
Financial and operating performance
| Metric | 2012 | 2011 | Change / context |
|---|---|---|---|
| Revenue | $800.4 million | $749.8 million | Up $50.5 million (6.7%), mainly acquisitions and comparable-property growth |
| Net loss attributable to DDR common shareholders | $60.3 million loss; $0.21 loss per share | $53.8 million loss; $0.20 loss per share | Loss widened; 2012 included higher impairments, debt-retirement loss and preferred-share issuance-cost write-off |
| Funds from Operations (FFO), common shareholders | $312.4 million | $227.6 million | Up 37%; non-GAAP measure |
| Operating FFO, common shareholders | $305.3 million | $267.1 million | Up 14%; non-GAAP measure |
| Net operating income (segment measure) | $461.9 million | $455.7 million | Up $6.2 million; calculated NOI/revenue was approximately 57.7% versus 60.8% |
| Cash from operating activities | $304.2 million | $273.2 million | Up $31.0 million |
| Cash used for investing activities | $588.4 million | Cash provided: $200.7 million | Reflects higher acquisitions and joint-venture investment |
| Cash from / (used for) financing activities | $274.8 million | $(451.9) million | 2012 included significant debt and equity issuance |
| Consolidated debt at year-end | $4.32 billion | $4.10 billion | Debt / total market capitalization was 0.45, down from 0.52 |
| Cash and available revolver capacity at year-end | $31.2 million cash; $638.9 million available | Availability is after $147.9 million drawn and $28.2 million of letters of credit |
About 90% of consolidated debt was fixed-rate, including debt swapped to fixed rates. The company reported a 5.1-year weighted-average consolidated debt maturity and a 4.8% contractual weighted-average rate at year-end. Its $4.32 billion consolidated debt excludes joint-venture mortgage debt; DDR’s proportionate share of that debt was approximately $724.9 million. The filing reports joint-venture debt of about $4.2 billion in aggregate.
Portfolio occupancy improved to 91.5% from 89.1%. Average annualized base rent per occupied square foot declined to $13.66 from $13.81, primarily reflecting Brazilian currency movements, asset sales and the addition of BRE DDR Retail Holdings assets. DDR executed 1,958 leases and renewals covering 11.3 million square feet. Common dividends declared rose to $0.48 per share from $0.22.
Material changes and transactions
- DDR and Blackstone formed BRE DDR Retail Holdings, which acquired 46 centers valued at $1.4 billion. DDR invested $17 million in common equity and $150 million in preferred equity bearing a 10% fixed distribution; Blackstone held 95% of the joint venture’s common equity.
- DDR issued $510.7 million of common shares and $200 million of 6.5% Class J preferred shares; the preferred issuance funded redemption of the 7.5% Class I preferred shares.
- DDR issued $450 million of 4.625% senior notes due 2022 and entered into a $350 million unsecured term loan. It also completed $368 million of mortgage financing and reported extending consolidated debt’s weighted-average maturity from 4.3 to 5.1 years.
- DDR acquired nine centers in 2012, including five acquired from joint-venture partners, and sold 24 centers and five office properties. Continuing-operations impairment charges were $105.4 million; discontinued operations included a further $21.1 million. Joint-venture investment impairments were $26.7 million.
Outlook, risks and unusual items
- Outlook: Management cited demand for quality retail locations, active retailer leasing plans and expected growth from leasing, acquisitions and asset management. It aimed to acquire prime assets, sell non-prime assets, reduce leverage and preserve financial flexibility. No specific full-year 2013 earnings or FFO guidance is provided. The board declared a first-quarter 2013 common dividend of $0.135 per share.
- Debt and liquidity: Management said it expected to remain in covenant compliance and considered scheduled maturities manageable. The filing nevertheless notes refinancing, interest-rate, covenant and capital-market risks. A 100-basis-point increase in short-term rates was estimated to increase annual interest expense by $4.3 million for DDR and $2.1 million for its proportionate share of joint ventures.
- Joint ventures and credit exposure: Joint-venture debt past due at year-end was $118.4 million gross ($14.7 million DDR share); 2013 maturities were $275.2 million gross ($42.1 million DDR share). Certain Coventry II assets were in default or lender-managed. DDR had provided loans, advances and guarantees, including an overdue $66.9 million Bloomfield advance reserved in full.
- Litigation: Coventry sought at least $500 million plus punitive damages in a continuing New York lawsuit. DDR disputed the claims; no loss provision was recorded because loss was not deemed probable or estimable. The filing says management did not expect a material adverse outcome, but the result remained uncertain.
- Subsequent event: In January 2013, DDR learned that Oxford Building Services had allegedly diverted approximately $11 million remitted for vendors to repay its own financing. DDR terminated the agreement and denied Oxford’s asserted approximately $5 million unpaid-vendor claim. Oxford filed for Chapter 11 in February 2013; related claims and liabilities remained disputed.
- Other notable item: DDR recorded a $1.5 million out-of-period adjustment in 2012 for a prior-year purchase-price-allocation and amortization error, which it concluded was not material to 2012 or prior periods.
- Controls and audit: Management and the independent auditor reported effective internal control over financial reporting at December 31, 2012. The auditor gave an unqualified opinion on the consolidated financial statements.
Key facts for investors to verify
- Confirm the issuer identity: this filing is for DDR Corp., despite the request naming SITE Centers Corp.
- Review the full financial statements and notes for the composition and recurring cash impact of impairments, acquisition gains, and FFO adjustments; FFO and Operating FFO are non-GAAP and are not cash available for dividends.
- Assess consolidated and joint-venture debt maturities, covenant headroom, refinancing needs and the extent of DDR’s actual recourse under guarantees.
- Track BRE DDR Retail Holdings’ preferred-equity payments, redemption terms, leverage and DDR’s management role and purchase rights.
- Monitor Coventry litigation, defaulted joint-venture loans and guarantees, and the Oxford bankruptcy and vendor claims for developments or recorded provisions.
- Evaluate whether improved occupancy and leasing translate into comparable-property rent and cash-flow growth, given the decline in average rent per occupied square foot and the higher 2012 impairment burden.