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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180725005691/en/
DDR Corp.Matthew Ostrower, 216-755-5500EVP and Chief Financial
Officer
Developers Realty (NYSE:DDR)
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