Business context and reporting period
The supplied filing identifies the registrant as DDR Corp., not SITE Centers Corp. It is an unaudited Form 10-Q for the quarter ended March 31, 2012; comparisons are with the three months ended March 31, 2011 unless otherwise noted. DDR operated shopping centers and related properties, with 420 shopping centers and four office properties, and reported 119 million-plus square feet owned or managed.
Key financial metrics
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Revenue | $195.4 million | $192.3 million; up 1.6% |
| Net income (loss) attributable to DDR common shareholders | $(22.0) million; $(0.08) per share | $24.7 million; $0.10 basic and $0.01 diluted per share as reported |
| FFO attributable to common shareholders (non-GAAP) | $59.7 million | $93.0 million |
| Operating FFO attributable to common shareholders (non-GAAP) | $66.8 million | $63.2 million |
| Cash from operating activities | $33.9 million | $57.6 million |
| Cash used in investing activities | $(64.7) million | $(3.5) million |
| Cash from (used in) financing activities | $6.2 million | $(52.6) million |
| Cash and cash equivalents | $16.1 million | $41.2 million at December 31, 2011 |
| Total indebtedness | $4.137 billion | $4.105 billion at December 31, 2011 |
Operating performance improved in several portfolio indicators: shopping-center occupancy was 89.8%, versus 88.1% a year earlier, and annualized base rent per occupied square foot was $14.08, versus $13.16. Operating cash flow fell year over year; the company attributed the change primarily to accounts payable and accrued expenses. No consolidated profit margin is specified in the filing.
Material changes versus the prior period
- Revenue increased modestly, with base and percentage rents up 3.9%; fee and other income fell 6.2% and tenant recoveries fell 1.5%.
- Net loss replaced prior-year net income. The comparison was affected by prior-year gains on a change in control of interests ($21.7 million) and equity derivative valuation ($21.9 million), as well as the 2012 $5.6 million loss on retiring debt. The 2011 period also included a $10.7 million executive separation charge.
- Operating impairment charges rose to $13.5 million from $3.9 million. Total impairment charges, including discontinued operations and joint-venture investments, were $17.9 million versus $5.8 million.
- FFO declined to $59.7 million, while Operating FFO rose to $66.8 million. Management attributed the Operating FFO increase mainly to acquisitions, partly offset by dispositions.
- DDR acquired a Chicago shopping center for $47.4 million, sold six shopping centers and other assets, and completed $353 million of long-term financings. Common dividends declared increased to $0.12 per share from $0.04.
Liquidity, debt, outlook, and risks
- At March 31, cash was $16.1 million and revolving-credit borrowing capacity was $726.7 million. DDR reported compliance with debt covenants.
- Debt included $3.5 billion of fixed-rate debt (including debt swapped to fixed rates) and $615.4 million of variable-rate debt. A 100-basis-point increase in short-term rates was estimated to raise quarterly interest expense by about $1.5 million for DDR and $0.5 million for its proportionate share of joint ventures.
- Unsecured notes of $223.5 million mature in October 2012, with about $12.6 million of mortgage maturities also due in 2012. Management expected to repay or refinance these obligations using revolver borrowings or new long-term debt; it cautioned that refinancing was not assured.
- Management’s strategy was to recycle non-prime assets into prime properties, reduce leverage, extend debt duration, and preserve financing flexibility. No specific earnings or FFO guidance was provided. Planned remaining-2012 net spending was about $45.3 million for consolidated development and redevelopment; additional joint-venture project spending was projected, primarily in Brazil.
- A proposed Blackstone joint venture was expected to acquire 46 managed shopping centers for approximately $1.4 billion, including assumed debt and planned new financing. DDR expected to invest $150 million in preferred equity at a fixed 10% dividend rate; completion was not assured.
- Material exposures include retail tenant and occupancy risks, interest rates, refinancing and covenant risks, development spending and impairment risk, foreign currency exposure, and joint-venture funding obligations. Coventry litigation sought at least $500 million plus punitive damages; DDR disputed the claims, had recorded no loss provision, and said the outcome was uncertain. The Ohio court ruling barring a “for cause” termination of certain management agreements was affirmed on appeal in March 2012.
Important facts for investors to verify
- Confirm the issuer identity: the filing names DDR Corp., whereas the request metadata names SITE Centers Corp.
- Review the basis and exclusions in FFO and Operating FFO; these are non-GAAP measures and are not substitutes for cash flow or amounts available for dividends.
- Assess how the October 2012 notes and other maturities were ultimately refinanced or repaid, and the effect of the planned forward equity issuance of 18.975 million shares.
- Track the Blackstone transaction, the expected preferred-equity investment, and associated financing and execution conditions.
- Monitor Coventry-related joint-venture debt in default or past due, DDR’s guarantees and advances, and the litigation’s status and potential exposure.
- Check subsequent occupancy, rent growth, asset-sale outcomes, impairments, and actual development and redevelopment spending against management’s stated plans.