DDR CORP BEACHWOOD, Ohio, Nov. 2, 2017 /PRNewswire/ -- DDR Corp. (NYSE: DDR) today announced operating results for the quarter ended September 30, 2017.
"Our third quarter results were characterized by better than expected operations in our Continental U.S. portfolio, ongoing improvement to our balance sheet, and an intensive recovery effort in Puerto Rico. All of DDR is working to support our Puerto Rico team, whose dedication amid very difficult conditions has allowed us to achieve reopening of roughly 67% of our leased GLA on the island. Continental U.S. same store performance was above our expectations due to improved operating margins backed up by steady leasing progress. Finally, our recent bond issuance and expanded line of credit significantly improved our liquidity and maturity schedule," commented David R. Lukes, president and chief executive officer.
Financial Highlights
-- Third quarter net loss attributable to common shareholders was $7.4
million, or $0.02 per diluted share as compared to a net loss of $66.0
million, or $0.18 per diluted share, in the year ago-period. The
year-over-year increase in net income attributable to common
shareholders is primarily attributable to reduction of $15.4 million in
the valuation allowance recorded in the first quarter of 2017 on the
Company's preferred investment in two joint ventures, lower impairment
charges and a higher gain on sale of real estate assets, partially
offset by loss on debt retirement of $65.8 million and hurricane
casualty and impairment loss.
-- Third quarter operating funds from operations attributable to common
shareholders ("Operating FFO" or "OFFO") was $111.2 million or $0.30 per
diluted share, compared to $120.6 million or $0.33 per diluted share in
the year ago-period. The year-over-year decrease in OFFO is primarily
attributable to the dilutive impact of deleveraging asset sales.
Significant Third Quarter Activity
Asset Sales
-- Sold 16 shopping centers and land parcels for an aggregate sales price
of $392.1 million, totaling $173.1 million at DDR's share
Capital Markets
-- Issued $350 million aggregate principal amount of 3.900% senior
unsecured notes due 2024
-- Extended the maturity of the Company's revolving credit facilities and
increased borrowing capacity to $1.0 billion
-- Extended the maturity of $200 million of $400 million unsecured term
loan
-- Repaid $300 million 7.875% senior unsecured notes due September 2020
-- Repaid $300 million 4.75% senior unsecured notes due April 2018
-- Repaid $200 million secured term loan with 2018 maturity date
Key Operating Results
-- Reported flat same store net operating income on a prorata basis,
excluding Puerto Rico; including Puerto Rico same store net operating
income decreased -0.9% on a pro rata basis; presentation has been
adjusted to include bad debt expense on a comparable basis and exclude
hurricane-related activity
-- Executed 315 new leases and renewals for 1.8 million square feet
-- Generated new leasing spreads of 6.8% and renewal leasing spreads of
6.1%, both on a pro rata basis and including Puerto Rico for the
quarter, and new leasing spreads of 7.3% and renewal leasing spreads of
6.1%, both on a pro rata basis and including Puerto Rico for the
trailing twelve-month period
-- Reported a portfolio leased rate of 93.4% at September 30, 2017,
compared to 95.4% at September 30, 2016, on a pro rata basis
-- Annualized base rent per occupied square foot on a pro rata basis was
$16.16 at September 30, 2017, compared to $15.36 at September 30, 2016
-- Reported a non-cash lease termination fee of $8.2 million related to the
receipt of a 132,700 square foot building triggered by Sears not
exercising its option of a ground lease at the Riverdale Village
shopping center in Coon Rapids, MN
-- Recognized a $65.8 million loss on extinguishment of debt included in
Other income (expense), net. The charge is primarily related to the
repayment of the April 2018 and September 2020 unsecured notes in the
third quarter
Hurricane casualty, operating and impairment loss
-- The Company's 12 shopping centers in Puerto Rico were impacted by
Hurricane Maria and to a lesser extent Hurricane Irma in September 2017.
The physical damage and revenue loss related to Hurricane Irma was
minor. However, the impact of Hurricane Maria was more significant.
-- The Company maintains insurance on its assets in Puerto Rico with policy
limits of approximately $330 million for property damage and business
interruption. The Company has been actively working with its insurer
relating to both the property damage and business interruption claims
and has already received an advance. The Company's insurance policies
remain subject to various terms and conditions, including a deductible
of approximately $6 million. The financial impact on the quarterly
results from hurricanes Irma and Maria is summarized as follows:
-- Reported a reduction of revenues from tenants of $2.6 million
related to the period of time in September the Company's tenants
were unable to operate; lost revenue in excess of the approximately
$0.9 million business interruption deductible will be included in
the Company's business interruption claim. Since quarter end, the
Company has received an advance from its insurer for its business
interruption claim in the amount of $2 million, which is expected to
be recorded in the fourth quarter. The Company believes its
insurance policy provides adequate coverage of lost revenue related
to hurricane damage and related store closures.
-- Incurred $1.0 million of Hurricane Irma-related expenses that are
within the insurance deductible included in Hurricane casualty and
impairment loss on the income statement.
-- Recorded a write-off of real estate assets of $64.8 million,
representing the estimated net book value of the damage to shopping
centers; established a corresponding receivable of $59.7 million for
the related estimated insurance recovery. The net charge of a $5.1
million represents the estimated insurance deductible on the
Company's property damage claim included in Hurricane casualty and
impairment loss on the income statement and added back to FFO. These
write-offs are subject to change based on the ongoing damage
assessment and repair process.
-- Recorded a valuation allowance of $8.8 million on a Puerto Rico
related prepaid tax asset.
-- The above losses were excluded from the Operating FFO calculations
and same store net operating income calculations provided later in
this release.
Guidance
The Company's 2017 Continental U.S. operating assumptions are as follows:
-- Revised expected annual growth in same store net operating income range
to (0.5%) - 0.5%,for the Continental U.S. Portfolio at DDR's share from
a previous range of (1.0%) - 0.5%
-- The Company is withdrawing Puerto Rico same store net operating income
guidance due to the uncertainties surrounding the timing of business
interruption insurance payments. Although the Company expects to be
reimbursed under its business interruption insurance policy for its lost
net operating income, there is generally a lag related to the receipt of
insurance recoveries impacting period-over-period comparability.
-- Expected leased rate at year end for the Continental U.S. Portfolio of
93.25% to 93.75%
-- Revised expected General and Administrative expenses of approximately
$72 million from a previous range of $72 to $75 million
-- Expected Fee income of $30 to $33 million
-- Expected Interest income of $26 to $29 million
-- Expected redevelopment activity placed in service of $80 million
(approximately $40 million of incremental same store NOI) weighted
towards the second half of the year at high single-digit yields
About DDR Corp.
DDR is an owner and manager of 286 value-oriented shopping centers representing 97 million square feet in 33 states and Puerto Rico. The Company owns a high-quality portfolio of open-air shopping centers in major metropolitan areas that provide a highly-compelling shopping experience and merchandise mix for retail partners and consumers. The Company actively manages its assets with a focus on creating long-term shareholder value. DDR is a self-administered and self-managed REIT operating as a fully integrated real estate company, and is publicly traded on the New York Stock Exchange under the ticker symbol DDR. Additional information about the Company is available at www.ddr.com.
Conference Call and Supplemental Information
The Company will hold its quarterly conference call today at 8:30 a.m. Eastern Time. To participate with access to the slide presentation, please visit the Investors portion of DDR's website, www.ddr.com/events, or for audio only, dial 888-317-6003 (U.S.), 866-284-3684 (Canada) or 412-317-6061 (international) using pass code 7794199 at least ten minutes prior to the scheduled start of the call. A replay of the conference call will also be available at www.ddr.com/events for one year after the call. A copy of the Company's Supplemental package is available on the Company's website at www.ddr.com.
Non-GAAP Measures
FFO is a supplemental non-GAAP financial measure used as a standard in the real estate industry and is a widely accepted measure of real estate investment trust ("REIT") performance. Management believes that both FFO and Operating FFO provide additional indicators of the financial performance of a REIT. The Company also believes that FFO and Operating FFO more appropriately measure the core operations of the Company and provide benchmarks to its peer group.
FFO is generally defined and calculated by the Company as net income (loss), adjusted to exclude: (i) preferred share dividends, (ii) gains and losses from disposition of depreciable real estate property and related investments, which are presented net of taxes, (iii) impairment charges on depreciable real estate property and related investments and (iv) certain non-cash items. These non-cash items principally include real property depreciation and amortization of intangibles, equity income (loss) from joint ventures and equity income (loss) from non-controlling interests and adding the Company's proportionate share of FFO from its unconsolidated joint ventures and non-controlling interests, determined on a consistent basis. The Company's calculation of FFO is consistent with the NAREIT definition. The Company calculates Operating FFO by excluding certain non-operating charges and gains. Operating FFO is useful to investors as the Company removes non-comparable charges and gains to analyze the results of its operations and assess performance of the core operating real estate portfolio. Other real estate companies may calculate FFO and Operating FFO in a different manner.
The Company also uses net operating income ("NOI"), a non-GAAP financial measure, as a supplemental performance measure. NOI is calculated as property revenues less property-related expenses. The Company believes NOI provides useful information to investors regarding the Company's financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level and, when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and disposition activity on an unleveraged basis.
The Company presents NOI information herein on a same store basis or "SSNOI." The Company defines SSNOI as property revenues less property-related expenses, which exclude straight-line rental income and expenses, lease termination income, management fee expense, fair market value of leases and expense recovery adjustments. The Company presents SSNOI both with and without provisions for uncollectible amounts and/or recoveries thereof. SSNOI also excludes activity associated with development and major redevelopment and single tenant assets and includes assets owned in comparable periods (15 months for quarter comparisons). SSNOI excludes all non-property and corporate level revenue and expenses as well as hurricane-related losses. Other real estate companies may calculate NOI and SSNOI in a different manner. The Company believes SSNOI provides investors with additional information regarding the operating performances of comparable assets because it excludes certain non-cash and non-comparable items as noted above.
FFO, Operating FFO, NOI and SSNOI do not represent cash generated from operating activities in accordance with GAAP, are not necessarily indicative of cash available to fund cash needs and should not be considered as alternatives to net income computed in accordance with GAAP as indicators of the Company's operating performance or as alternatives to cash flow as a measure of liquidity. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in this release and the accompanying financial supplement.
Safe Harbor
DDR Corp. considers portions of the information in this press release to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company's expectation for future periods. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, property damage, expenses related thereto and other business and economic consequences (including the potential loss of rental revenues) resulting from extreme weather conditions in locations where we own properties, and the ability to estimate accurately the amounts thereof; sufficiency and timing of any insurance recovery payments related to damages from extreme weather conditions; local conditions such as supply of space or a reduction in demand for real estate in the area; competition from other available space; dependence on rental income from real property; the loss of, significant downsizing of or bankruptcy of a major tenant; redevelopment and construction activities may not achieve a desired return on investment; our ability to buy or sell assets on commercially reasonable terms; our ability to complete acquisitions or dispositions of assets under contract; our ability to secure equity or debt financing on commercially acceptable terms or at all; our ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements; the success of our deleveraging strategy; any impact or results from the Company's portfolio transition or any change in strategy; and the finalization of the financial statements for the period ended September 30, 2017. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements, please refer to the Company's Form 10-K for the year ended December 31, 2016. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
DDR Corp.
Income Statement: Consolidated Interests
$ in thousands, except per share
3Q17 3Q16 9M17 9M16
---- ---- ---- ----
Revenues (1):
Minimum rents (2) $153,925 $177,844 $485,777 $533,275
Percentage rent 1,016 1,193 4,538 4,783
Recoveries 51,368 59,743 164,477 182,718
Other property revenues (3) 13,824 6,458 23,723 16,563
------ ----- ------ ------
220,133 245,238 678,515 737,339
Expenses (4):
Operating and maintenance 28,950 32,012 94,091 104,600
Real estate taxes 30,618 36,157 98,691 108,475
------ ------ ------ -------
59,568 68,169 192,782 213,075
Net operating income 160,565 177,069 485,733 524,264
Other income (expense):
Fee income 7,291 8,562 25,517 28,205
Interest income 6,807 9,304 22,365 27,800
Interest expense (46,296) (53,940) (147,031) (165,849)
Depreciation and amortization (85,210) (95,451) (266,370) (290,051)
General and administrative (5) (16,425) (18,785) (70,253) (55,160)
Other income (expense), net (64,340) (384) (65,298) 3,470
Impairment charges (10,284) (104,877) (60,353) (104,877)
Hurricane casualty and impairment loss (6) (6,089) 0 (6,089) 0
------ --- ------ ---
Loss before earnings from JVs and other (53,981) (78,502) (81,779) (32,198)
Equity in net income (loss) of JVs 4,811 (1,457) 2,429 14,081
Adjustment (reserve) of preferred equity
interests 15,377 0 (60,623) 0
Loss on sale and change in control 0 (1,087) 0 (1,087)
Valuation allowance of prepaid tax asset (8,777) 0 (8,777) 0
Tax expense (490) (398) (1,186) (1,101)
Gain on disposition of real estate, net 44,291 21,368 127,017 47,470
------ ------ ------- ------
Net income (loss) 1,231 (60,076) (22,919) 27,165
Non-controlling interests (248) (284) (728) (894)
---- ---- ---- ----
Net income (loss) DDR 983 (60,360) (23,647) 26,271
Preferred dividends (8,383) (5,594) (20,376) (16,781)
------ ------ ------- -------
Net (loss) income Common Shareholders ($7,400) ($65,954) ($44,023) $9,490
Weighted average shares - Basic - EPS 367,686 365,508 367,039 365,062
Assumed conversion of dilutive securities 0 0 0 320
--- --- --- ---
Weighted average shares - Diluted - EPS 367,686 365,508 367,039 365,382
Earnings per common share - Basic &
Diluted ($0.02) ($0.18) ($0.12) $0.02
Revenue items:
(1) Lost revenue related to hurricanes ($2,558) $0 ($2,558) $0
(2) Ground lease revenue 10,625 10,267 32,314 30,607
(3) Lease termination fees 9,380 1,684 10,188 3,129
(4) Operating expenses:
Recoverable expenses (54,001) (62,802) (176,355) (193,949)
Non-recoverable expenses (4,232) (4,961) (13,836) (16,493)
Bad debt expense (1,335) (406) (2,591) (2,633)
(5) General and administrative expenses:
Separation charges 0 0 (16,552) 0
Internal leasing expenses (1,190) (1,992) (4,040) (6,053)
Construction administrative costs
(capitalized) 1,681 1,773 5,899 5,673
(6) Hurricane casualty and impairment loss
Impairment charge (property damage
deductible) (5,100) 0 (5,100) 0
Clean up costs and other expenses (989) 0 (989) 0
---- --- ---- ---
(6,089) 0 (6,089) 0
DDR Corp.
Reconciliation: Net (Loss) Income to FFO and Operating FFO
and Other Financial Information
$ in thousands, except per share
3Q17 3Q16 9M17 9M16
---- ---- ---- ----
Net (loss) income attributable to Common
Shareholders ($7,400) ($65,954) ($44,023) $9,490
Depreciation and amortization of real
estate 81,064 93,334 258,137 283,814
Equity in net (income) loss of JVs (4,811) 1,457 (2,429) (14,081)
JVs' FFO 8,268 6,581 21,062 19,157
Non-controlling interests 76 76 227 227
Impairment of depreciable real estate (1) 13,620 104,877 54,603 104,877
Gain on disposition of depreciable real
estate, net (44,477) (20,234) (125,900) (48,484)
------- ------- -------- -------
FFO attributable to Common Shareholders $46,340 $120,137 $161,677 $355,000
(Adjustment) reserve of preferred equity
interests (15,377) 0 60,623 0
Hurricane casualty loss (2) 3,616 0 3,616 0
Impairment charges -non-depreciable assets 1,764 0 10,850 0
Separation charges 0 0 16,552 0
Transaction, debt extinguishment, other,
net 65,835 540 66,782 179
Joint ventures -debt extinguishment,
transaction, other 95 6 778 26
Valuation allowance of Puerto Rico prepaid
tax asset 8,777 0 8,777 0
Loss (gain) on disposition of non-
depreciable real estate, net 186 (47) (1,117) 2,101
--- --- ------ -----
Total non-operating items, net 64,896 499 166,861 2,306
------ --- ------- -----
Operating FFO attributable to Common
Shareholders $111,236 $120,636 $328,538 $357,306
Weighted average shares and units - Basic
- FFO & OFFO 368,160 366,220 367,544 365,924
Assumed conversion of dilutive securities 36 267 56 320
--- --- --- ---
Weighted average shares and units -
Diluted - FFO & OFFO 368,196 366,487 367,600 366,244
FFO per share - Basic & Diluted $0.13 $0.33 $0.44 $0.97
Operating FFO per share - Basic & Diluted $0.30 $0.33 $0.89 $0.98
Common stock dividends declared, per share $0.19 $0.19 $0.57 $0.57
Certain non-cash items (DDR share):
Straight-line rent, net ($864) $1,149 ($207) $3,802
Amortization of (above)/below-market
rent, net 2,369 2,293 10,603 3,849
Straight-line ground rent income (expense) (53) (89) 162 (365)
Debt fair value and loan cost amortization (1,096) (546) (3,221) (1,840)
Capitalized interest expense 529 672 1,405 2,619
Stock compensation expense (1,561) (1,394) (5,053) (4,692)
Non-real estate depreciation expense (4,101) (2,067) (8,043) (6,092)
Non-cash interest income 0 1,985 1,283 5,884
Capital expenditures (DDR share):
Development and redevelopment costs 20,315 25,737 50,280 76,624
Maintenance capital expenditures 5,841 7,881 9,865 14,929
Tenant allowances and landlord work 5,874 7,844 24,957 21,935
Leasing commissions 589 924 1,966 3,079
(1) Impairment charges:
Hurricane impairment charge (property
damage deductible) 5,100 0 5,100 0
Impairment charge on shopping centers
marketed for sale 8,520 104,877 49,503 104,877
----- ------- ------ -------
13,620 104,877 54,603 104,877
(2) Hurricane casualty loss (DDR Share):
Lost tenant revenue 2,571 0 2,571 0
Clean up costs and other expenses 1,045 0 1,045 0
----- --- ----- ---
3,616 0 3,616 0
DDR Corp.
Balance Sheet: Consolidated Interests
$ in thousands
At Period End
3Q17 4Q16
---- ----
Assets:
Land $1,903,805 $1,990,406
Buildings 6,002,788 6,412,532
Fixtures and tenant improvements 673,738 735,685
------- -------
8,580,331 9,138,623
Depreciation (1,942,051) (1,996,176)
---------- ----------
6,638,280 7,142,447
Construction in progress and land 116,746 105,435
------- -------
Real estate, net 6,755,026 7,247,882
Investments in JVs 107,643 60,793
Receivable - preferred equity interests,
net 327,309 393,338
Cash 18,268 30,430
Restricted cash 1,826 8,795
Notes receivable, net 19,591 49,503
Receivables, net (1) 176,561 121,367
Intangible assets, net 199,486 241,598
Other assets, net 34,987 43,812
------ ------
Total Assets 7,640,697 8,197,518
Liabilities and Equity:
Revolving credit facilities 60,000 0
Unsecured debt 2,809,404 2,913,217
Unsecured term loan 397,858 398,399
Secured debt 750,269 1,182,352
------- ---------
4,017,531 4,493,968
Dividends payable 78,419 75,245
Other liabilities (2) 355,731 382,293
------- -------
Total Liabilities 4,451,681 4,951,506
Preferred shares 525,000 350,000
Common shares 36,782 36,630
Paid-in capital 5,505,855 5,487,212
Distributions in excess of net income (2,886,547) (2,632,327)
Deferred compensation 10,381 15,149
Other comprehensive income (1,471) (4,192)
Common shares in treasury at cost (9,907) (14,957)
Non-controlling interests 8,923 8,497
----- -----
Total Equity 3,189,016 3,246,012
Total Liabilities and Equity $7,640,697 $8,197,518
(1) Straight-line rents receivable, net $61,158 $65,072
(2) Below-market leases, net 132,850 147,941
DDR Corp.
Reconciliation of Net Income Attributable to DDR to Same Store NOI (1)
$ in thousands
At DDR Share
(Non-GAAP)
3Q17 3Q16 3Q17 3Q16
---- ---- ---- ----
GAAP Reconciliation:
--------------------
Net income (loss) attributable to DDR $983 ($60,360) $983 ($60,360)
Fee income (7,291) (8,562) (7,291) (8,562)
Interest income (6,807) (9,304) (6,807) (9,304)
Interest expense 46,296 53,940 46,296 53,940
Depreciation and amortization 85,210 95,451 85,210 95,451
General and administrative 16,425 18,785 16,425 18,785
Other expense, net 64,340 384 64,340 384
Impairment charges 10,284 104,877 10,284 104,877
Hurricane casualty and impairment loss 6,089 0 6,089 0
Equity in net (income) loss of joint
ventures (4,811) 1,457 (4,811) 1,457
(Adjustment) reserve of preferred equity
interests (15,377) 0 (15,377) 0
Loss on sale and change in control 0 1,087 0 1,087
Valuation allowance of prepaid tax asset 8,777 0 8,777 0
Tax expense 490 398 490 398
Gain on disposition of real estate (44,291) (21,368) (44,291) (21,368)
Income from non-controlling interests 248 284 248 284
--- --- --- ---
Consolidated NOI 160,565 177,069 160,565 177,069
DDR's consolidated JV 0 0 (381) (417)
--- --- ---- ----
Consolidated NOI, net of non-controlling
interests 160,565 177,069 160,184 176,652
Net income (loss) from unconsolidated
joint ventures 36,080 (16,600) 3,733 (1,835)
Interest expense 24,276 33,567 3,675 5,322
Depreciation and amortization 45,291 47,955 5,518 5,639
Impairment charges 2,160 13,598 432 2,720
Preferred share expense 8,307 8,438 416 422
Other expense, net 6,577 5,829 892 971
Gain on disposition of real estate, net (31,740) (658) (1,572) (45)
------- ---- ------ ---
Unconsolidated NOI 90,951 92,129 13,094 13,194
Total Consolidated + Unconsolidated NOI 251,516 269,198 173,278 189,846
Less: Non-Same Store NOI adjustments (22,302) (38,249) (17,944) (33,048)
------- ------- ------- -------
Total SSNOI (including Puerto Rico and bad
debt expense) $229,214 $230,949 $155,334 $156,798
Less: Puerto Rico Same Store NOI (20,221) (21,625) (20,221) (21,625)
------- ------- ------- -------
Total SSNOI excluding Puerto Rico
(including bad debt expense) $208,993 $209,324 $135,113 $135,173
Add: bad debt expense 790 610 532 313
--- --- --- ---
Total SSNOI (excluding bad debt expense) $230,004 $231,559 $155,866 $157,111
SSNOI % Change (including Puerto Rico and
bad debt expense) (0.8%) (0.9%)
SSNOI % Change (excluding Puerto Rico) (0.2%) 0.0%
SSNOI % Change (excluding bad debt
expense) (0.7%) (0.8%)
(1) Excludes major redevelopment activity; see Investments section for
additional detail. See calculation definition in the Non-GAAP Measures
section.
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SOURCE DDR Corp.
