DDR Reports Third Quarter 2016 Operating Results

Oct 26, 2016

DDR Reports Third Quarter 2016 Operating Results

BEACHWOOD, Ohio, Oct. 26, 2016 /PRNewswire/ -- DDR Corp. (NYSE: DDR) today announced operating results for the third quarter ended September 30, 2016.

DDR Logo.

Financial Highlights

  • Third quarter net loss attributable to common shareholders was $66.0 million , or $0.18 per diluted share, compared to net income of $54.0 million , or $0.15 per diluted share, for the prior-year comparable period.
  • Third quarter operating funds from operations attributable to common shareholders ("Operating FFO") increased $7.1 million , or 6.3%, to $120.6 million or $0.33 per diluted share, compared to $113.5 million , or $0.31 per diluted share, for the prior-year comparable period.

Significant Quarterly Activity

  • Generated same store net operating income growth of 3.4% on a pro rata basis
  • Executed 310 new leases and renewals for 2.9 million square feet
  • Generated new leasing spreads of 21.1% and renewal leasing spreads of 8.0%, both on a pro rata basis
  • The portfolio leased rate was 95.4% at September 30, 2016, compared to 96.0% at December 31, 2015, on a pro rata basis
  • Increased the annualized base rent per occupied square foot by 5.6% on a pro rata basis to $15.36 at September 30, 2016, from $14.54 at September 30, 2015
  • Sold seven operating assets for $61 million during the quarter, totaling $55 million at DDR's share
  • Sold an additional 17 properties for $402 million in October at DDR's share

"I am pleased to report that we continue to show strong operating and transactional performance as well as remain firmly on track toward our goal of significantly reduced leverage. Fundamentals are sound, and I am proud of our team's execution this quarter as we make great strides toward our corporate and portfolio objectives," commented Thomas F. August, President and Chief Executive Officer.   

2016 Guidance
The Company is revising its 2016 Operating FFO and NAREIT defined FFO guidance estimate to a range of $1.26 to $1.28 per diluted share from a range of $1.23 to $1.26 per diluted share primarily driven by the impact of disposition timing. The Company is also revising its full year disposition guidance estimate to a range of $700 million to $900 million at DDR's pro rata share from $600 million to $800 million at DDR's share.

About DDR Corp.
DDR is an owner and manager of 327 value-oriented shopping centers representing 107 million square feet in 36 states and Puerto Rico.  The Company's assets are concentrated in high barrier-to-entry markets with stable population and high growth potential and its portfolio is actively managed to create 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 tomorrow, October 27, 2016, at 10:00 a.m. Eastern Time. To participate, please dial 877-249-1119 (domestic) or 412-542-4143 (international) at least ten minutes prior to the scheduled start of the call.  The conference call webcast will be recorded and available for replay through the Investors portion of DDR's website, http://ir.ddr.com/events-and-presentations.cfm. A copy of the Company's Supplemental package is available on the Company's website at www.ddr.com.

Non-GAAP Disclosures
FFO is a supplemental non-GAAP financial measure used as a standard in the real estate industry and 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, expense recovery adjustments and provisions for uncollectible amounts and/or recoveries thereof. SSNOI also excludes activity associated with development and major redevelopment and includes assets owned in comparable periods (15 months for quarter comparisons). The SSNOI calculation for the three-month period ended September 30, 2016, also excludes a portfolio of 16 assets sold on October 7, 2016, given the significance of the sale and transaction closing proximity to the quarter end. 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, 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 capital recycling strategy; any impact on strategy or results from the transition in leadership; and the finalization of the financial statements for the period ended September 30, 2016.  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, 2015.  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





3Q16


3Q15


9M16


9M15

Revenues:








Minimum rents (1)

$177,844


$180,523


$533,275


$540,583

Percentage rent

1,193


835


4,783


3,592

Recoveries

59,743


61,915


182,718


188,016

Other property revenues (2)

6,458


5,614


16,563


16,379


245,238


248,887


737,339


748,570

Expenses (3):








Operating and maintenance

31,269


35,963


102,365


110,718

Real estate taxes

36,900


37,385


110,710


112,811


68,169


73,348


213,075


223,529









Net operating income

177,069


175,539


524,264


525,041









Other income (expense):








Fee income

8,562


8,248


28,205


24,713

Interest income

9,304


7,331


27,800


21,703

Interest expense (4)

(53,940)


(58,217)


(165,849)


(182,524)

Depreciation and amortization

(95,451)


(97,155)


(290,051)


(299,470)

General and administrative (5)

(18,785)


(17,596)


(55,160)


(55,462)

Other income (expense), net (6)

(384)


(240)


3,470


(1,300)

Impairment charges (7)

(104,877)


0


(104,877)


(279,021)

(Loss) income before earnings from JVs and other

(78,502)


17,910


(32,198)


(246,320)









Equity in net (loss) income of JVs

(1,457)


648


14,081


2,351

(Loss) gain on sale and change in control

(1,087)


0


(1,087)


7,772

Tax expense

(398)


(528)


(1,101)


(6,001)

Gain on disposition of real estate, net

21,368


41,793


47,470


78,154

Net (loss) income

(60,076)


59,823


27,165


(164,044)

Non-controlling interests

(284)


(268)


(894)


(1,590)

Net (loss) income DDR

(60,360)


59,555


26,271


(165,634)

Preferred dividends

(5,594)


(5,594)


(16,781)


(16,781)

Net (loss) income Common Shareholders

(65,954)


53,961


9,490


(182,415)

Depreciation and amortization of real estate

93,334


95,159


283,814


293,265

Equity in net loss (income) of JVs

1,457


(648)


(14,081)


(2,351)

JVs' FFO

6,581


6,595


19,157


21,114

Non-controlling interests

76


69


227


566

Impairment of depreciable real estate

104,877


0


104,877


179,748

Gain on disposition of depreciable real estate, net

(20,234)


(41,734)


(48,484)


(78,282)

FFO Common Shareholders

120,137


113,402


355,000


231,645

Non-operating items, net (8)

499


136


2,306


100,423

Operating FFO

$120,636


$113,538


$357,306


$332,068

FFO per share Diluted (9)

$0.33


$0.31


$0.97


$0.64

Operating FFO per share Diluted (9)

$0.33


$0.31


$0.98


$0.91





DDR Corp.
Balance Sheet:  Consolidated Interests









$ in thousands













At Period End






3Q16


4Q15

Assets:








Land





$2,122,070


$2,184,145

Buildings





6,890,141


6,965,632

Fixtures and tenant improvements





773,664


743,037






9,785,875


9,892,814

Depreciation





(2,174,268)


(2,062,899)






7,611,607


7,829,915

Construction in progress and land





125,557


235,385

Real estate, net





7,737,164


8,065,300









Investments in JVs





58,318


72,576

Receivable – preferred equity interest





402,291


395,156

Cash





20,658


22,416

Restricted cash





12,696


10,104

Notes receivable, net





44,823


42,534

Receivables, net





127,249


129,089

Other assets, net (10)





317,817


359,913

Total Assets





8,721,016


9,097,088









Liabilities and Equity:








Revolving credit facilities





310,000


210,000

Unsecured debt





2,912,247


3,149,188

Unsecured term loan





398,284


397,934

Secured debt





1,345,848


1,382,415






4,966,379


5,139,537

Dividends payable





75,158


68,604

Other liabilities (11)





398,829


425,478

Total Liabilities





5,440,366


5,633,619









Preferred shares





350,000


350,000

Common shares





36,594


36,529

Paid-in capital





5,480,292


5,466,511

Distributions in excess of net income





(2,590,837)


(2,391,793)

Deferred compensation





15,332


15,537

Other comprehensive income





(4,484)


(6,283)

Common shares in treasury at cost





(14,826)


(15,316)

Non-controlling interests





8,579


8,284

Total Equity





3,280,650


3,463,469









Total Liabilities and Equity





$8,721,016


$9,097,088





DDR Corp.
Income Statement:  Unconsolidated Interests at 100%









$ in thousands









3Q16


3Q15


9M16


9M15

Revenues:








Minimum rents

$96,856


$95,218


$290,391


$297,392

Percentage rent

503


383


1,407


1,325

Recoveries

28,875


28,772


89,156


90,234

Other property revenues

1,442


2,325


3,522


8,413


127,676


126,698


384,476


397,364

Expenses:








Operating and maintenance

17,337


18,320


54,980


57,635

Real estate taxes

18,210


17,118


55,196


52,859


35,547


35,438


110,176


110,494









Net operating income

92,129


91,260


274,300


286,870









Other income (expense):








Interest expense

(33,567)


(33,202)


(100,208)


(107,698)

Depreciation and amortization

(47,955)


(49,949)


(146,011)


(158,168)

Impairment charges

(13,598)


0


(13,598)


(448)

Preferred share expense

(8,438)


(6,518)


(25,007)


(19,248)

Other (expense) income, net

(5,829)


(6,309)


(17,959)


(18,503)


(17,258)


(4,718)


(28,483)


(17,195)

Gain (loss) on disposition of real estate, net

658


(2,626)


54,255


(4,197)

Net (loss) income attributable to unconsolidated JVs

(16,600)


(7,344)


25,772


(21,392)

Depreciation and amortization

47,955


49,949


146,011


158,168

Impairment of depreciable real estate

13,598


0


13,598


448

(Gain) loss on disposition of depreciable real estate, net

(658)


2,626


(54,255)


4,197

FFO

44,295


45,231


131,126


141,421

FFO at DDR's ownership interests

6,581


6,595


19,157


21,114

Operating FFO at DDR's ownership interests (8)

$6,587


$6,639


$19,183


$21,162











DDR Corp.
Balance Sheet:
  Unconsolidated Interests at 100%


$ in thousands











At Period End






3Q16


4Q15

Assets:








Land





$1,296,413


$1,343,889

Buildings





3,398,184


3,551,227

Improvements





198,657


191,581






4,893,254


5,086,697

Depreciation





(854,821)


(817,235)






4,038,433


4,269,462

Land held for development and construction in progress





51,967


52,390

Real estate, net





4,090,400


4,321,852

Cash and restricted cash





76,447


58,916

Receivables, net





50,461


52,768

Other assets, net





268,726


318,546

Total Assets





4,486,034


4,752,082









Liabilities and Equity:








Mortgage debt





3,095,354


3,177,603

Notes and accrued interest payable to DDR





2,481


1,556

Other liabilities





216,229


219,799

Total Liabilities





3,314,064


3,398,958









Redeemable preferred equity





402,291


395,156

Accumulated equity





769,679


957,968

Total Liabilities and Equity





$4,486,034


$4,752,082



DDR Corp.
Financial Statements:
  Footnotes


$ in millions, except per share





3Q16


3Q15


9M16


9M15










(1)

Minimum rents:









Straight-line rent, net

$1.1


$1.6


$3.7


$3.8


Below-market rent, net

2.2


1.0


3.6


2.2


Ground lease revenue

10.3


9.5


30.6


27.9










(2)

Other property revenues:









Lease termination fees

1.7


0.7


3.2


2.3










(3)

Operating expenses:









Recoverable expenses

(62.8)


(66.9)


(194.0)


(204.1)


Non-recoverable expenses

(5.4)


(6.4)


(19.1)


(19.4)


Straight-line ground rent expense

(0.1)


(0.1)


(0.3)


(0.4)


Expensed costs of suspended developments

(0.1)


(0.1)


(0.3)


(0.4)










(4)

Non-cash interest expense:









Debt fair value amortization

1.6


3.0


4.7


12.7


Loan cost amortization

(2.1)


(2.4)


(6.3)


(7.3)


Interest expense (capitalized)

0.7


1.9


2.6


5.1










(5)

General and administrative expenses:









Executive separation charges

(0.0)


(0.0)


(0.0)


(2.3)


Stock compensation expenses

(1.4)


(1.5)


(4.7)


(5.2)


Internal leasing expenses

(2.0)


(1.8)


(6.1)


(5.5)


Construction administrative costs (capitalized)

1.8


2.3


5.7


7.0










(6)

Other income (expense):









Other income (primarily insurance recovery in 2016), net

0.0


(0.2)


3.9


(0.4)


Debt extinguishment, net

(0.4)


(0.0)


(0.4)


(0.9)










(7)

Impairment charges:









Assets marketed for sale

(104.9)


(0.0)


(104.9)


(179.7)


Land previously held for development

(0.0)


(0.0)


(0.0)


(99.3)










(8)

Non-operating items excluded from Operating FFO:









Impairment charges – non-depreciable assets

0.0


0.0


0.0


99.3


Executive separation charges

0.0


0.0


0.0


2.3


Transaction, debt extinguishment, litigation, other, net

0.5


0.1


0.5


1.6


Gain on sale and change in control of interests, net

0.0


0.0


0.0


(7.8)


Tax expense (primarily Puerto Rico restructuring), net

0.0


0.0


(0.3)


4.4


Loss on disposition of non-depreciable real estate, net

0.0


0.0


2.1


0.6



0.5


0.1


2.3


100.4












DDR Corp.
Financial Statements:
  Footnotes


$ in millions, except per share


3Q16


3Q15


9M16


9M15










(9)

Outstanding per share information:









Common shares (at quarter end)

365.9


362.1


365.9


362.1


OP units (at quarter end)

0.4


0.4


0.4


0.4


Total shares and units (at quarter end)

366.3


362.5


366.3


362.5


Weighted average shares and units – Basic – EPS

365.5


361.1


365.1


360.3


Assumed conversion of dilutive securities

0.0


2.5


0.3


0.0


Weighted average shares and units – Diluted – EPS

365.5


363.6


365.4


360.3


Weighted average shares and units – Basic – FFO & OFFO

366.2


362.5


365.9


362.4


Assumed conversion of dilutive securities

0.3


0.4


0.3


0.5


Weighted average shares and units – Diluted – FFO & OFFO

366.5


362.9


366.2


362.9


Earnings per common share – Basic & Diluted

$(0.18)


$0.15


$0.02


$(0.51)


FFO per share – Basic & Diluted

$0.33


$0.31


$0.97


$0.64


Operating FFO per share – Diluted

$0.33


$0.31


$0.98


$0.91


Common stock dividends declared, per share

$0.19


$0.1725


$0.57


$0.5175










(10)

Intangible assets, net (at quarter and year end)





265.6


311.0










(11)

Below-market leases, net (at quarter and year end)





151.7


155.3










Additional financial information:


















Capital expenditures (DDR share):









Retenanting

$8.8


$13.4


$25.0


$36.1


Maintenance – reimbursable and non reimbursable

7.9


7.4


14.9


13.3


Maintenance PSF of owned GLA – non reimbursable





0.10


0.09











Miscellaneous (DDR share):









Est. value of land owned adjacent to existing centers





$24




Cost basis of headquarters (non-income producing)





40












Guidance Reconciliation:

2016E


2016E

(Per Share – Diluted)


Net income Common Shareholders

$19 - $24 


$0.05 - $0.06 


Depreciation and amortization of real estate

372 - 375 


1.01 -1.02 


Equity in net income of JVs

(14) -(16)


(0.04)


JVs' FFO

25 - 27 


0.07


Impairment of depreciable real estate

105


0.29


Gain on disposition of real estate, net

(48)


(0.13)


Loss on disposition of non-depreciable real estate, net

2


0.01


Operating FFO

$461 - $469 


$1.26 - $1.28 




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


$ in millions













At DDR Share


3Q16


3Q15


3Q16


3Q15

GAAP Reconciliation:








Net income attributable to DDR

($60.4)


$59.6


($60.4)


$59.6

Fee income

(8.6)


(8.3)


(8.6)


(8.3)

Interest income

(9.3)


(7.3)


(9.3)


(7.3)

Interest expense

53.9


58.2


53.9


58.2

Depreciation and amortization

95.5


97.2


95.5


97.2

General and administrative

18.8


17.6


18.8


17.6

Other expense

0.4


0.2


0.4


0.2

Impairment charges

104.9


0.0


104.9


0.0

Equity in net income of joint ventures

1.4


(0.7)


1.4


(0.7)

Loss on sale and change in control

1.1


0.0


1.1


0.0

Tax expense

0.4


0.5


0.4


0.5

Gain on disposition of real estate

(21.3)


(41.8)


(21.3)


(41.8)

Income from non-controlling interests

0.3


0.3


0.3


0.3

Consolidated NOI

177.1


175.5


177.1


175.5

DDR's consolidated JV

0.0


0.0


(0.4)


(0.4)

Consolidated NOI, net of non-controlling interests

177.1


175.5


176.7


175.1









Net income from unconsolidated joint ventures

(16.6)


(7.3)


(1.8)


0.3

Interest expense

33.6


33.2


5.3


5.5

Depreciation and amortization

48.0


49.9


5.6


6.2

Impairment charges

13.6


0.0


2.7


0.0

Preferred share expense

8.4


6.5


0.4


0.3

Other expense, net

5.8


6.4


1.0


1.1

(Gain) loss on disposition of real estate, net

(0.7)


2.6


0.0


0.1

Unconsolidated NOI

92.1


91.3


13.2


13.5









Total Consolidated + Unconsolidated NOI

269.2


266.8


189.9


188.6

Less:  Non-Same Store NOI adjustments

29.9


35.2


24.6


28.8

Total SSNOI

$239.3


$231.6


$165.3


$159.8

SSNOI % Increase

3.3%




3.4%





(1)

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

 

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SOURCE DDR Corp.

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