Market Overview

DDR Reports Second Quarter 2018 Operating Results

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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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