DDR Corp. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. The filing identifies the registrant as DDR Corp.; the request metadata names SITE Centers Corp.
Business context
DDR was a shopping-center REIT with 298 centers, approximately 100 million square feet of gross leasable area, and properties in the United States and Puerto Rico. At quarter-end, portfolio occupancy was 91.5% and annualized base rent averaged $15.46 per occupied square foot.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $236.2 million | $257.3 million | $476.6 million | $511.7 million |
| Net income (loss) attributable to common shareholders | $23.2 million | $35.5 million | ($36.6 million) | $75.4 million |
| Diluted earnings (loss) per share | $0.06 | $0.10 | ($0.10) | $0.21 |
| FFO attributable to common shareholders | $93.1 million | $120.3 million | $115.3 million | $234.9 million |
| Operating FFO attributable to common shareholders | $108.8 million | $122.4 million | $217.3 million | $236.7 million |
- Six-month operating cash flow was $209.1 million, down from $230.9 million. Investing activities provided $128.2 million; financing activities provided $99.0 million, compared with $343.3 million used in the prior-year period.
- At June 30, total consolidated debt was $4.57 billion, versus $4.49 billion at year-end 2016. Cash and cash equivalents were $414.1 million and restricted cash was $61.5 million. The $800 million revolving facilities had no borrowings and $799.2 million available, after letters of credit.
- Debt to total market capitalization was 0.54:1, versus 0.41:1 at June 30, 2016. Management reported compliance with debt covenants.
- Common dividends were $0.19 per share per quarter. Total assets were $8.27 billion and equity was $3.26 billion at June 30.
Material changes and notable transactions
- Revenue declined year over year, principally reflecting property dispositions; occupancy also fell from 93.5% at June 30, 2016 to 91.5%. Average rent per occupied square foot increased from $14.63 to $15.46.
- First-half results included a $76 million valuation allowance against preferred investments in two Blackstone joint ventures, $50.1 million of property impairments, and $16.6 million of executive-transition and restructuring charges. The joint ventures also recorded $80.5 million of property impairments; DDR’s reported share of those impairments was $4.3 million.
- Net income included $82.7 million of gains on real estate dispositions for the first half, compared with $26.1 million a year earlier. DDR sold 19 shopping centers and land during the period and acquired a Chicago grocery-anchored center for $81 million.
- DDR issued $450 million of 4.70% senior notes due 2027 and $175 million of 6.375% preferred shares. In July, it repaid $300 million of 2018 notes and a $200 million secured term loan, and repaid or addressed mortgage maturities. Management said these actions extended weighted-average debt maturity from 3.7 years at March 31 to 4.7 years after the note repayment.
- A joint venture with Madison was recapitalized: Madison held 80% and DDR retained 20% of the common equity in 52 centers; the venture obtained $706.7 million of new mortgage financing. DDR contributed $46.9 million.
Outlook, commentary and risks
- Management said it aims to reduce leverage, improve liquidity, extend debt maturities, and recycle asset-sale proceeds toward deleveraging. It expected available cash, operating cash flow, asset sales and financing capacity to meet planned spending and debt repayments through 2018, while cautioning that refinancing and funding are not assured.
- The 65-position restructuring was expected to reduce annualized stabilized general and administrative expense by approximately $6 million. DDR expected at least $80 million of development to enter service in 2017, net of outlot sales, and described redevelopment spending as discretionary.
- Management cited positive leasing spreads in the first half: 5.3% for new leases and 5.9% for renewals; excluding one Puerto Rico anchor lease, new-lease spreads were 13.5%. However, occupancy pressure reflected anchor expirations and bankruptcies, including Sports Authority, Golfsmith and hhgregg.
- Key risks include retailer bankruptcies and e-commerce competition, lower occupancy and rent recoveries, asset valuation and disposition uncertainty, Puerto Rico’s economic and fiscal conditions, refinancing and interest-rate exposure, and joint-venture investment recoverability. A 100-basis-point increase in short-term rates was estimated to add approximately $3.0 million of company interest expense for the six-month period, plus $1.1 million at DDR’s proportionate share of joint ventures.
- DDR said ordinary-course legal proceedings were not expected to have a material adverse effect. No formal earnings guidance was provided in the filing. Management said it would continue reviewing the dividend policy.
Important facts for investors to verify
- Whether the $76 million preferred-investment valuation allowance adequately reflects recoverability, timing of asset sales, and capitalization-rate assumptions.
- Whether occupancy and tenant expense recoveries stabilize as vacant space from bankruptcies and anchor departures is re-leased.
- Progress on leverage reduction, asset sales, liquidity, and debt maturities after the July 2017 repayments; refinancing assumptions remain uncertain.
- Whether the expected $6 million annualized cost savings and 2017 development targets are achieved, and how dispositions affect recurring FFO.
- The filing’s registrant identity: it states DDR Corp., while the request metadata identifies SITE Centers Corp.