Filing summary
Entity and period: The supplied filing is DDR Corp.’s Form 10-K for the fiscal year ended December 31, 2011, filed February 28, 2012. It is not a filing under the name SITE Centers Corp.; investors should verify the issuer and any corporate-name or successor relationship. The filing reports a full fiscal year, not a standalone fourth quarter.
Business context and portfolio
DDR was a self-managed REIT focused on owning, managing and developing shopping centers, with a smaller office-property portfolio. At year-end it reported 432 shopping centers, five office properties and more than 1,600 acres of undeveloped land; shopping centers had 89.1% occupancy, up from 88.4% in 2010. Average annualized base rent per occupied square foot rose to $13.81 from $13.30. The company said roughly 89% of portfolio NOI came from its “Prime Portfolio.”
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $771.0 million | $763.1 million |
| Net loss attributable to DDR common shareholders | $53.8 million; diluted loss per share $0.28 | $251.6 million; diluted loss per share $1.03 |
| FFO applicable to common shareholders | $227.6 million | $76.3 million |
| Operating FFO applicable to common shareholders | $267.1 million | $264.3 million |
| Cash flow from operating activities | $273.2 million | $278.1 million |
| Cash flow from investing activities | $200.7 million | $31.8 million |
| Cash flow used for financing activities | $451.9 million | $317.1 million |
| Consolidated debt at year-end | $4.1 billion | $4.3 billion |
Revenue increased 1.0%. Reported segment net operating income was $433.4 million versus $445.9 million. The company recorded $101.8 million of continuing-operations impairment charges, up from $84.9 million, and $125.8 million of total consolidated real-estate impairment charges including discontinued operations. Interest expense rose 6.7% to $229.7 million; the weighted-average contractual rate at year-end was 5.2%.
Year-end cash and cash equivalents were $41.2 million. Revolving facilities totaled $815.0 million, with $142.4 million drawn and $9.1 million of letters of credit, leaving $663.5 million available. Debt to total market capitalization was 0.52:1.0. In addition to $4.1 billion of consolidated debt, unconsolidated joint ventures had approximately $3.7 billion of mortgage debt, of which DDR’s proportionate share was about $772.9 million.
For the fourth quarter, revenue was $194.5 million and net loss attributable to common shareholders was $1.8 million, or $0.01 per share. The quarter included $47.4 million of impairment charges and a $54.3 million aggregate gain on real-estate sales, including discontinued operations.
Material changes and capital actions
- Occupancy improved 0.7 percentage points and average rent per occupied square foot increased about 3.8% year over year; the company executed leases covering more than 11.7 million square feet, including managed properties.
- Consolidated debt declined approximately $197 million, while weighted-average debt maturity increased from 3.9 to 4.3 years. DDR issued $300 million of 4.75% notes due 2018 and raised $190.2 million through common-share and warrant issuances; proceeds helped redeem $180 million of 8.0% Class G preferred shares.
- DDR acquired six shopping centers and reported $460.9 million of gross asset dispositions; its share of dispositions was $371.5 million. Common dividends declared increased to $0.22 per share from $0.08 in 2010.
- GAAP net loss improved substantially, but FFO’s increase was significantly affected by gains on changes in control and sales of interests, lower tax expense and non-cash warrant valuation adjustments. Operating FFO, a non-GAAP measure, was nearly flat.
Outlook, risks and unusual items
Management emphasized deleveraging, liquidity, leasing and recycling non-prime assets into higher-quality properties. It cited retailer plans for store openings in 2012–2013 and demand from value-oriented retailers, while acknowledging a still-challenged retail environment. No quantified 2012 earnings or FFO guidance is provided in the supplied text.
- In January 2012, DDR entered into a $250 million unsecured term loan and a $103 million mortgage loan, addressing much of its 2012 consolidated maturities. It expected the term-loan proceeds to retire $179.5 million of convertible notes due March 2012. At year-end, scheduled 2012 consolidated debt maturities were $545.9 million.
- Unconsolidated joint-venture mortgage debt maturing in 2012 totaled $1.4 billion, including DDR’s proportionate share of $293.3 million; $39.8 million of JV mortgage debt was already past due, all related to Coventry II Fund assets. Some Coventry II loans were in default or under lender cash management.
- A Coventry-related lawsuit sought at least $500 million in compensatory and consequential damages plus punitive damages. DDR denied the allegations; no loss provision was recorded because a loss was not considered probable or estimable. Management said it did not expect a material adverse effect, but the outcome was uncertain. Separately, a court granted DDR summary judgment against a Coventry “for-cause” management termination; Coventry appealed.
- 2011 included a $12.4 million employee-separation charge, a $5.0 million reserve on a note receivable, and a $6.4 million write-off of preferred-share issuance costs. The company also recognized a $25.2 million gain on changes in control and sales of JV interests.
- For 2012, a proposed Blackstone joint venture was expected to acquire 46 managed properties for approximately $1.4 billion. DDR expected to own 5% of common equity, invest $150 million in preferred equity at a 10% fixed dividend rate, and continue providing management and leasing services. The transaction and related share-forward financing remained subject to completion and settlement.
- Key risks include tenant financial distress and lease renewals, refinancing and interest-rate exposure, covenant compliance, JV partner and default exposure, asset impairments, and international currency and market risks. A 100-basis-point rise in short-term rates was estimated to increase annual interest expense by $6.2 million for DDR and $1.3 million for its proportionate JV share.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for DDR Corp., not SITE Centers Corp., and confirm the relevant corporate history before comparing it with later filings.
- Review the audited statements and FFO reconciliation, especially the effects of impairments, disposition and JV gains, warrant valuation changes, and discontinued operations.
- Check the 2012 consolidated and JV debt maturity/refinancing schedule, the status of past-due or defaulted Coventry II loans, and potential guarantee exposure.
- Verify the closing, financing and DDR capital contribution for the proposed Blackstone venture and the settlement of the forward share agreements.
- Assess the Coventry litigation status and any subsequent change to the company’s contingency assessment, as well as the sustainability of occupancy, rent growth and dividends.