Filing summary
Registrant and period: The supplied filing is DDR Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2012. This does not appear to be a SITE Centers Corp. filing; verify the issuer before relying on this summary.
Business context
DDR was a self-managed shopping-center REIT. At quarter-end it reported economic interests in 456 shopping centers and one office property, with approximately 117 million square feet owned or managed. Shopping-center occupancy was 90.5%, up from 89.1% a year earlier; average annualized base rent per occupied square foot was $13.80, up from $13.46.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $194.7 million | $186.9 million | $387.4 million | $376.3 million |
| Net income (loss) attributable to DDR common shareholders | $(44.5) million | $(26.9) million | $(66.5) million | $(2.1) million |
| Basic and diluted loss per share | $(0.16) | $(0.10) | $(0.24) | $(0.01) basic; $(0.09) diluted |
| FFO applicable to common shareholders | $78.1 million | $52.5 million | $137.8 million | $145.5 million |
| Operating FFO applicable to common shareholders | $71.6 million | $64.4 million | $138.4 million | $127.6 million |
Q2 revenue increased 4.2%; six-month revenue increased about 2.9%. The filing attributes rental growth mainly to acquisitions and improved occupancy, partly offset by lower fee income. GAAP losses were heavily affected by impairment charges, debt-retirement losses and other non-operating items. Six-month continuing-operations impairment charges were $82.4 million; total impairment charges, including other categories, were $98.2 million. FFO and Operating FFO are non-GAAP measures and are not substitutes for cash flow or funds available for dividends.
Cash flow, debt and liquidity
- Six-month operating cash flow was $103.6 million, down from $134.3 million. Investing activities used $242.1 million; financing activities provided $116.4 million. Cash and cash equivalents ended the period at $18.5 million.
- Total consolidated debt was $4.096 billion at June 30, versus $4.105 billion at December 31, 2011. Total assets were $7.584 billion. Debt to total market capitalization was 0.46:1, compared with 0.50:1 at June 30, 2011.
- Available borrowing capacity under revolving facilities was reported at $785.9 million, with $5.9 million outstanding and $23.2 million of letters of credit deducted. DDR stated it complied with debt covenants.
- DDR issued $300 million of 4.625% senior notes due 2022, repaid $223.5 million of 5.375% notes due October 2012, and repurchased $60 million of 9.625% notes due 2016 at a premium, recording a $13.5 million loss. It also entered a $250 million unsecured term loan.
- Common-share issuance included 19 million shares settled under forward equity agreements for $231.2 million net and 4.8 million shares generating $70 million gross. Dividends declared were $0.12 per common share in each of Q1 and Q2.
Material developments and outlook
- DDR and Blackstone formed an unconsolidated joint venture that acquired 46 shopping centers valued at approximately $1.4 billion. DDR held 5% of common equity and invested $150 million in preferred equity carrying a 10% fixed distribution, in addition to a $17 million common-equity contribution. The venture assumed $635.6 million of debt and borrowed another $320 million.
- DDR acquired its partners’ interests in two shopping centers for $68.9 million and bought a Chicago shopping center for $47.4 million. The step acquisitions generated a $39.3 million gain from revaluing previously held interests.
- Management described a strategy of selling non-prime assets and recycling proceeds into prime properties, while lowering leverage and extending debt maturities. It expected approximately $53.2 million of net consolidated development and redevelopment spending for the rest of 2012. No formal quantitative earnings guidance is provided in the supplied filing text.
- Management cited stronger leasing and retailer demand, with 2.7 million square feet leased in Q2 and average first-year rent of $16.49 per square foot on new leases. It also noted ongoing economic, tenant-credit, refinancing, interest-rate, joint-venture, development and asset-sale risks.
- Subsequent events included a July acquisition of a partner’s interest in a Phoenix-area center for $70.3 million, with $105.4 million of mortgage debt repaid; DDR expected a $30–$40 million step-acquisition gain. In August, DDR issued $200 million of 6.50% Class J preferred shares, primarily to redeem its 7.50% Class I preferred shares; it expected a $5.8 million non-cash charge on the redemption.
- A Coventry-related lawsuit sought at least $500 million in damages. DDR disputed the claims; the filing says no loss provision was recorded because the contingency was not deemed probable or estimable. The company stated it did not expect a material adverse effect, but acknowledged litigation uncertainty. A separate management-contract ruling in DDR’s favor was affirmed on appeal.
- DDR recorded a $1.5 million out-of-period adjustment in Q2 for a prior-year purchase-price-allocation error, which management said was not material to the current or prior periods. It also reclassified $4.4 million on the balance sheet between land and other assets.
Important facts for investors to verify
- Confirm the issuer: this text identifies DDR Corp., not SITE Centers Corp.
- Review the impairment assumptions and asset-sale plans, including the possible additional losses noted for assets under negotiated sale agreements.
- Assess cash generation and dividend coverage alongside FFO; operating cash flow declined year over year and FFO fell for the first six months.
- Check refinancing exposure in unconsolidated ventures, including past-due Coventry II debt, associated guarantees and the company’s stated intention not to fund partners’ shares.
- Track dilution and capital-allocation effects from common and preferred share issuance, acquisitions, the Blackstone venture, and the planned Class I preferred redemption.