DDR Reports Third Quarter 2017 Operating Results

BEACHWOOD, Ohio, Nov. 2, 2017 /PRNewswire/ -- DDR Corp. 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.

 

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SOURCE DDR Corp.