DDR Ddr Corp.

DDR Corp. (NYSE: DDR) today announced operating results for the quarter ended June 30, 2018.

“I am pleased with our results, highlighted by the completion of the spin-off of Retail Value Inc., allowing DDR to retain a focused, high quality, and growth-oriented portfolio of 78 wholly-owned assets,” commented David R. Lukes, president and chief executive officer. “Our operating performance in the quarter was also excellent, with strong leasing volumes and spreads, including notable leases with new portfolio tenants, and better than expected same store net operating income.”

Results for the Quarter

• Second quarter net loss attributable to common shareholders was $11.7 million, or $0.07 per diluted share, as compared to net income of $23.2 million, or $0.13 per diluted share, in the year ago-period. The year-over-year increase in net loss is primarily attributable to spin-off transaction costs of $31.4 million and lower gain on sale of assets partially offset by lower impairment charges.
• Second quarter operating funds from operations attributable to common shareholders (“Operating FFO” or “OFFO”) was $90.5 million, or $0.49 per diluted share, compared to $108.8 million, or $0.59 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 Second Quarter Activity

• On July 1, 2018, completed the previously announced spin-off of Retail Value Inc. (“RVI”), an independent company on the New York Stock Exchange under the ticker symbol RVI. RVI owned a portfolio of 48 assets that included 36 continental U.S. assets and all 12 of DDR’s previously owned Puerto Rico assets at the time of the spin-off. DDR has retained a preferred stock investment of $190 million and will continue to manage the RVI assets.
• Sold 17 shopping centers and land parcels for an aggregate sales price of $421.1 million, totaling $202.7 million at DDR’s share, including $10.3 million from the repayment of the Company’s preferred equity investment in its two joint ventures with Blackstone. Includes two RVI shopping centers sold prior to completion of the spin-off at an aggregate sales price of $105.8 million.
• Executed a one-for-two reverse stock split of the Company’s common shares in May 2018. All prior period per share information has been restated to reflect the impact of the reverse stock split.

Key Quarterly Operating Results

• Reported 1.4% same store net operating income growth on a pro rata basis for New DDR. The results of “New DDR” represent the results of the assets as of July 1, 2018 that remain in DDR after the completion of the spin-off of RVI.
• Generated new leasing spreads of 24.7% and renewal leasing spreads of 5.7%, both on a pro rata basis for New DDR for the quarter, and new leasing spreads of 21.9% and renewal leasing spreads of 6.5%, both on a pro rata basis for New DDR for the trailing twelve-month period.
• Reported a leased rate of 93.1% at June 30, 2018 for New DDR on a pro rata basis, compared to 93.2% at June 30, 2017.
• Annualized base rent per occupied square foot on a pro rata basis was $17.36 at June 30, 2018 for New DDR, compared to $17.08 at June 30, 2017.

Guidance

There has been no change in the Company’s Operating FFO per share guidance since the update provided on June 4, 2018, for the effect of the reverse stock split. The Company continues to estimate Operating FFO for the third quarter of 2018 to be at least $0.30 per diluted share. Disposition fees from RVI are excluded from Operating FFO guidance.

Reconciliation of Net Income Attributable to DDR to FFO and Operating FFO Estimate:

    3Q2018E Per Share - Diluted Net income attributable to Common Shareholders $0.04 - $0.06 Depreciation and amortization of real estate 0.23 - 0.26 Equity in net income of JVs (0.02) JVs' FFO 0.04 FFO (NAREIT) $0.29 Transaction costs 0.01 Operating FFO $0.30  

About DDR Corp.

DDR is an owner and manager of open-air shopping centers that provide a highly-compelling shopping experience and merchandise mix for retail partners and consumers. The Company 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 5:00 p.m. Eastern Time. To participate with access to the slide presentation, please visit the Investors portion of DDR's website, ir.ddr.com, or for audio only, dial 888-317-6003 (U.S.), 866-284-3684 (Canada) or 412-317-6061 (international) using pass code 1536254 at least ten minutes prior to the scheduled start of the call. A replay of the conference call will also be available at ir.ddr.com for one year after the call. A copy of the Company’s Supplemental package is available on the Company’s website.

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. SSNOI also excludes activity associated with development and major redevelopment and includes assets owned in comparable periods (15 months for quarter comparisons). In addition, due to the impact of Hurricane Maria on its properties in Puerto Rico in 2017, the Company also excludes its Puerto Rico NOI from SSNOI. SSNOI excludes all non-property and corporate level revenue and expenses. 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 termination of any joint venture arrangements or arrangements to manage real property; the impact of the recent spin-off of Retail Value Inc. or the portfolio transition or any change in strategy; the success of our deleveraging strategy; our ability to maintain REIT status; and the finalization of the financial statements for the period ended June 30, 2018. 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 most recent reports on Form 10-K and Form 10-Q. 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 2Q18   2Q17 6M18   6M17 Revenues (1): Minimum rents (2) $141,678 $164,623 $288,565 $331,852 Percentage rent 1,453 1,823 3,261 3,522 Recoveries 50,558 55,633 101,912 113,109 Other property revenues (3) 7,532 5,321 12,440 9,899 Business interruption income 3,100 0 5,100 0 204,321 227,400 411,278 458,382 Expenses (4): Operating and maintenance 31,149 32,150 60,906 65,141 Real estate taxes 30,478 33,744 62,501 68,073 61,627 65,894 123,407 133,214   Net operating income 142,694 161,506 287,871 325,168   Other income (expense): Fee income 7,195 8,787 15,306 18,226 Interest income 5,016 7,166 10,357 15,558 Interest expense (44,913) (48,908) (88,953) (100,735) Depreciation and amortization (72,462) (90,276) (146,886) (181,160) General and administrative (5) (20,187) (22,756) (36,302) (53,828) Other income (expense), net (6) (36,255) (954) (97,862) (958) Impairment charges (18,060) (28,096) (48,504) (50,069) Hurricane property loss (224) 0 (974) 0 Loss before earnings from JVs and other (37,196) (13,531) (105,947) (27,798)   Equity in net income (loss) of JVs 3,821 (717) 12,607 (2,382) Adjustment (reserve) of preferred equity interests 1,625 0 (2,336) (76,000) Tax expense (391) (473) (373) (696) Gain on disposition of real estate, net 29,508 44,599 39,519 82,726 Net (loss) income (2,633) 29,878 (56,530) (24,150) Non-controlling interests (696) (267) (952) (480) Net (loss) income DDR (3,329) 29,611 (57,482) (24,630) Preferred dividends (8,383) (6,399) (16,766) (11,993) Net (loss) income Common Shareholders ($11,712) $23,212 ($74,248) ($36,623)   Weighted average shares – Basic – EPS (7) 184,634 183,493 184,595 183,355 Assumed conversion of diluted securities (7) 0 22 0 0 Weighted average shares – Diluted – EPS (7) 184,634 183,515 184,595 183,355   Earnings per common share – Basic & Diluted (7) ($0.07) $0.13 ($0.41) ($0.20)   Revenue items: (1) Lost revenue related to hurricane ($2,787) $0 ($6,570) $0 (2) Ground lease revenue 9,601 10,796 19,570 21,688 (3) Lease termination fees 2,695 630 3,216 808   (4) Operating expenses: Bad debt expense 198 (332) 101 (1,256)   (5) General and administrative expenses: Separation charges (4,641) (5,081) (4,641) (16,552) Internal leasing expenses (1,382) (1,258) (2,578) (2,850) Construction administrative costs (capitalized) 1,191 1,830 2,561 4,218   (6) Other income (expense), net Transaction costs - spin off (31,431) 0 (36,516) 0 Debt extinguishment costs, net (1,968) (596) (58,400) (596) Transaction and other (income) expense, net (2,856) (358) (2,946) (362) (36,255) (954) (97,862) (958)   (7) Prior periods presented have been adjusted to reflect the Company's one-for-two reverse stock split.       DDR Corp.

Reconciliation: Net (Loss) Income to FFO and Operating FFO

and Other Financial Information

  $ in thousands, except per share 2Q18   2Q17 6M18   6M17 Net (loss) income attributable to Common Shareholders ($11,712) $23,212 ($74,248) ($36,623) Depreciation and amortization of real estate 70,895 88,423 143,755 177,073 Equity in net (income) loss of JVs (3,821) 717 (12,607) 2,382 JVs' FFO 6,641 6,212 13,811 12,794 Non-controlling interests 506 76 559 152 Impairment of depreciable real estate 18,060 19,010 48,504 40,982 Gain on disposition of depreciable real estate, net (28,997) (44,525) (38,685) (81,423) FFO attributable to Common Shareholders $51,572 $93,125 $81,089 $115,337   (Adjustment) reserve of preferred equity interests (1,625) 0 2,336 76,000 Hurricane property loss (1) (89) 0 2,445 0 Impairment charges – non-depreciable assets 0 9,086 0 9,086 Separation charges 4,641 5,081 4,641 16,552 Debt extinguishment, transaction, other, net 36,255 948 97,862 947 Joint ventures - debt extinguishment, transaction, other 249 604 703 684 Gain on disposition of non-depreciable real estate, net (511) (74) (834) (1,303) Total non-operating items, net 38,920 15,645 107,153 101,966 Operating FFO attributable to Common Shareholders $90,492 $108,770 $188,242 $217,303   Weighted average shares & units – Basic: FFO & OFFO (2) 184,786 183,741 184,760 183,615 Assumed conversion of dilutive securities (2) 6 22 7 33 Weighted average shares & units – Diluted: FFO & OFFO (2) 184,792 183,763 184,767 183,648   FFO per share – Basic & Diluted (2) $0.28 $0.51 $0.44 $0.63 Operating FFO per share – Basic & Diluted (2) $0.49 $0.59 $1.02 $1.18 Common stock dividends declared, per share (2) $0.38 $0.38 $0.76 $0.76   Certain non-cash items (DDR share): Straight-line rent, net $277 $223 ($91) $657 Amortization of (above)/below-market rent, net (1,317) 4,383 526 8,233 Straight-line ground rent (expense) income (25) (53) (76) 216 Debt fair value and loan cost amortization (2,575) (1,131) (5,274) (2,118) Capitalized interest expense 345 478 668 876 Stock compensation expense (1,392) (1,584) (3,084) (3,492) Non-real estate depreciation expense (1,525) (1,807) (3,048) (3,942) Non-cash interest income 0 0 0 1,283   Capital expenditures (DDR share): Development and redevelopment costs 13,043 9,865 33,517 19,520 Maintenance capital expenditures 3,049 3,200 3,570 4,024 Tenant allowances and landlord work 10,460 11,058 19,878 29,182 Leasing commissions 943 864 1,840 1,723   (1) Hurricane property loss (DDR Share): Lost tenant revenue (2,787) 0 (6,570) 0 Business interruption income 3,100 0 5,100 0 Clean up costs and other expenses, net (224) 0 (975) 0 89 0 (2,445) 0   (2) Prior periods presented have been adjusted to reflect the Company's one-for-two reverse stock split.         DDR Corp.

Balance Sheet: Consolidated Interests

  $ in thousands At Period End 2Q18 4Q17 Assets: Land $1,667,258 $1,738,792 Buildings 5,439,822 5,733,451 Fixtures and tenant improvements 701,439 693,280 7,808,519 8,165,523 Depreciation (1,970,100) (1,953,479) 5,838,419 6,212,044 Construction in progress and land 83,348 82,480 Real estate, net 5,921,767 6,294,524   Investments in JVs 93,027 106,037 Receivable – preferred equity interests, net 228,077 277,776 Cash 32,067 92,611 Restricted cash 74,730 2,113 Notes receivable, net 19,670 19,675 Receivables, net (1) 103,781 108,695 Property insurance receivable 49,202 58,583 Intangible assets, net 149,896 182,407 Other assets, net 32,172 27,652 Total Assets 6,704,389 7,170,073   Liabilities and Equity: Revolving credit facilities 45,000 0 Unsecured debt 1,918,263 2,810,100 Unsecured term loan 198,461 398,130 Secured debt 1,428,025 641,082 3,589,749 3,849,312 Dividends payable 78,690 78,549 Other liabilities (2) 343,612 344,774 Total Liabilities 4,012,051 4,272,635   Preferred shares 525,000 525,000 Common shares 18,465 18,426 Paid-in capital 5,543,006 5,531,249 Distributions in excess of net income (3,397,993) (3,183,134) Deferred compensation 7,718 8,777 Other comprehensive income (1,457) (1,106) Common shares in treasury at cost (7,304) (8,280) Non-controlling interests 4,903 6,506 Total Equity 2,692,338 2,897,438     Total Liabilities and Equity $6,704,389 $7,170,073   (1) Straight-line rents receivable, net $56,354 $59,439   (2) Below-market leases, net 110,268 127,513          

DDR Corp.

Reconciliation of Net Income Attributable to DDR to Same Store NOI (1)

 

  $ in thousands At DDR Share (Non-GAAP) 2Q18 2Q17 2Q18 2Q17 GAAP Reconciliation:

Net (loss) income attributable to DDR

($3,329) $29,611 ($3,329) $29,611 Fee income (7,195) (8,787) (7,195) (8,787) Interest income (5,016) (7,166) (5,016) (7,166) Interest expense 44,913 48,908 44,913 48,908 Depreciation and amortization 72,462 90,276 72,462 90,276 General and administrative 20,187 22,756 20,187 22,756 Other expense, net 36,255 954 36,255 954 Impairment charges 18,060 28,096 18,060 28,096 Hurricane property loss 224 0 224 0 Equity in net (income) loss of joint ventures (3,821) 717 (3,821) 717 (Adjustment) reserve of preferred equity interests (1,625) 0 (1,625) 0 Tax expense 391 473 391 473 Gain on disposition of real estate (29,508) (44,599) (29,508) (44,599) Income from non-controlling interests 696 267 696 267 Consolidated NOI 142,694 161,506 142,694 161,506 DDR's consolidated JV 0 0 (383) (396) Consolidated NOI, net of non-controlling interests 142,694 161,506 142,311 161,110   Net income (loss) from unconsolidated joint ventures 12,623 (33,702) 3,529 (1,163) Interest expense 24,946 29,004 3,806 4,606 Depreciation and amortization 37,299 47,589 4,957 5,747 Impairment charges 0 27,850 0 1,392 Preferred share expense 6,317 8,239 316 412 Other expense, net 6,616 9,054 1,044 1,611 (Gain) loss on disposition of real estate, net (12,356) 803 (1,877) 40 Unconsolidated NOI 75,445 88,837 11,775 12,645   Total Consolidated + Unconsolidated NOI 218,139 250,343 154,086 173,755 Less: Non-Same Store NOI adjustments including Puerto Rico NOI (34,276) (68,246) (31,429) (52,363) Total SSNOI $183,863 $182,097 $122,657 $121,392 Less: RVI – continental U.S. and disposition assets (33,664) (33,664) (33,664) (33,664) Total New DDR SSNOI $150,199 $148,433 $88,993 $87,728   SSNOI % Change – DDR at share (excluding Puerto Rico) 1.0% 1.0% SSNOI % Change – New DDR at share 1.2% 1.4%  

(1) Excludes major redevelopment activity; see Investments section for additional detail. See calculation definition in the Non-GAAP Measures section.

 

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DDR Corp.Matthew Ostrower, 216-755-5500EVP and Chief Financial Officer