DDR Reports Second Quarter 2017 Operating Results

BEACHWOOD, Ohio, July 26, 2017 /PRNewswire/ -- DDR Corp. (NYSE: DDR) today announced operating results for the quarter ended June 30, 2017.

"Our second quarter results were characterized by strong financial and operational execution. We made progress reducing leverage and lengthening our average debt maturity by selling assets and accessing the capital markets. Our operations were ahead of plan and we completed our portfolio review and strategic planning process over a compressed time-period. I am excited about continuing to execute on these plans, which should position the company for strong future growth," commented David R. Lukes, president and chief executive officer.

Financial Highlights

Second quarter net income attributable to common shareholders was $23.2 million, or $0.06 per diluted share, as compared to net income of $35.5 million, or $0.10 per diluted share, in the year ago-period. The year-over-year decline in net income attributable to common shareholders is primarily attributable to impairment charges aggregating $28.1 million recorded on one shopping center and two parcels of undeveloped land.
Second quarter operating funds from operations attributable to common shareholders ("Operating FFO" or "OFFO") was $108.8 million, or $0.30 per diluted share, compared to $122.4 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 Second Quarter Activity

Asset Sales

Generated total asset sales and loan repayment proceeds of $237.5 million, totaling $225.7 million at DDR's share
Sold two shopping centers in Puerto Rico for an aggregate sales price of $57.3 million
Sold nine shopping centers in the U.S. for an aggregate sales price of $149.2 million, totaling $137.5 million at DDR's share

Capital Markets and Investments

Issued $450 million aggregate principal amount of 4.700% senior unsecured notes due 2027
Issued $175 million aggregate principal amount of 6.375% Class A Cumulative Redeemable Preferred Shares
Repaid in July 2017, $300 million 4.75% senior unsecured notes due April 2018
Recapitalized the DDR Domestic Retail Fund I joint venture which included a new $707 million mortgage loan on 52 assets to repay all of the joint venture's outstanding mortgage debt

Key Operating Results

Reported a decrease in same store net operating income, including Puerto Rico, of -0.1% on a pro rata basis; and excluding Puerto Rico, same store net operating income was flat on a pro rata basis; presentation has been adjusted to include bad debt expense on a comparable basis
Executed 258 new leases and renewals for 1.9 million square feet
Generated new leasing spreads of 10.0% and renewal leasing spreads of 5.7%, both on a pro rata basis and including Puerto Rico for the quarter, and new leasing spreads of 10.4% and renewal leasing spreads of 6.5%, both on a pro rata basis and including Puerto Rico for the trailing twelve-month period
Reported a portfolio leased rate of 93.7% at June 30, 2017, compared to 96.1% at June 30, 2016, on a pro rata basis
Annualized base rent per occupied square foot on a pro rata basis was $16.09 at June 30, 2017, compared to $14.92 at June 30, 2016

Other Significant Activity

Completed the previously announced portfolio review and strategic planning process.
As a result of a full portfolio review and subsequent decision on asset sales, the Company recorded impairment charges on one shopping center and two parcels of undeveloped land aggregating $28.1 million in the second quarter.

Guidance

The Company's 2017 operating assumptions remain as follows:

Expected annual growth in same store net operating income range as follows:

	DDR Share
U.S. Portfolio	(1.0%) – 0.5%
Total Portfolio	(1.5%) – 0.0%

Expected leased rate at year end of 93.0% to 93.5%
Expected General and Administrative expenses of $72 million to $75 million
Expected Fee income of $30 million to $33 million
Expected Interest income of $26 million 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 298 value-oriented shopping centers representing 100 million square feet in 34 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 877-249-1119 (U.S.), 855-669-9657 (Canada) or 412-542-4143 (international) 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. In addition, the Company presents SSNOI both with and without the results of its Puerto Rico portfolio. 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. 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 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 June 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.

	DDR Corp. Income Statement: Consolidated Interests

	$ in thousands, except per share
		2Q17	2Q16	6M17	6M16
	Revenues:
	Minimum rents (1)	$164,623	$178,064	$331,852	$355,431
	Percentage rent	1,823	1,654	3,522	3,590
	Recoveries	55,633	61,376	113,109	122,975
	Other property revenues (2)	5,321	4,762	9,899	10,105
		227,400	245,856	458,382	492,101
	Expenses (3):
	Operating and maintenance	32,150	35,330	65,141	72,588
	Real estate taxes	33,744	36,534	68,073	72,318
		65,894	71,864	133,214	144,906

	Net operating income	161,506	173,992	325,168	347,195

	Other income (expense):
	Fee income	8,787	11,465	18,226	19,643
	Interest income	7,166	9,446	15,558	18,496
	Interest expense	(48,908)	(54,012)	(100,735)	(111,909)
	Depreciation and amortization	(90,276)	(97,698)	(181,160)	(194,600)
	General and administrative (4)	(22,756)	(18,499)	(53,828)	(36,375)
	Other income (expense), net	(954)	2,081	(958)	3,854
	Impairment charges	(28,096)	0	(50,069)	0
	(Loss) income before earnings from JVs and other	(13,531)	26,775	(27,798)	46,304

	Equity in net (loss) income of JVs	(717)	1,117	(2,382)	15,538
	Reserve of preferred equity interests	0	0	(76,000)	0
	Tax expense	(473)	(245)	(696)	(703)
	Gain on disposition of real estate, net	44,599	13,721	82,726	26,102
	Net income (loss)	29,878	41,368	(24,150)	87,241
	Non-controlling interests	(267)	(310)	(480)	(610)
	Net income (loss) DDR	29,611	41,058	(24,630)	86,631
	Preferred dividends	(6,399)	(5,594)	(11,993)	(11,188)
	Net income (loss) Common Shareholders	$23,212	$35,464	($36,623)	$75,443

	Weighted average shares – Basic – EPS	366,987	364,976	366,710	364,834
	Assumed conversion of dilutive securities	43	342	0	346
	Weighted average shares – Diluted – EPS	367,030	365,318	366,710	365,180

	Earnings per common share – Basic & Diluted	$0.06	$0.10	($0.10)	$0.21

	Revenue items:
(1)	Ground lease revenue	$10,796	$10,240	$21,688	$20,340
(2)	Lease termination fees	630	216	808	1,445

(3)	Operating expenses:
	Recoverable expenses	(60,237)	(65,031)	(122,354)	(131,147)
	Non-recoverable expenses	(5,325)	(5,633)	(9,604)	(11,532)
	Bad debt expense	(332)	(1,200)	(1,256)	(2,227)

(4)	General and administrative expenses:
	Separation charges	(5,081)	0	(16,552)	0
	Internal leasing expenses	(1,258)	(1,979)	(2,850)	(4,061)
	Construction administrative costs (capitalized)	1,830	1,948	4,218	3,900



	DDR Corp. Reconciliation: Net Income (Loss) to FFO and Operating FFO and Other Financial Information
	$ in thousands, except per share
		2Q17	2Q16	6M17	6M16
	Net income (loss) attributable to Common Shareholders	$23,212	$35,464	($36,623)	$75,443
	Depreciation and amortization of real estate	88,423	95,626	177,073	190,480
	Equity in net loss (income) of JVs	717	(1,117)	2,382	(15,538)
	JVs' FFO	6,212	6,426	12,794	12,576
	Non-controlling interests	76	76	152	152
	Impairment of depreciable real estate	19,010	0	40,982	0
	Gain on disposition of depreciable real estate, net	(44,525)	(16,154)	(81,423)	(28,250)
	FFO attributable to Common Shareholders	$93,125	$120,321	$115,337	$234,863

	Reserve of preferred equity interests	0	0	76,000	0
	Impairment charges	9,086	0	9,086	0
	Separation charges	5,081	0	16,552	0
	Transaction, debt extinguishment, other, net	948	(333)	947	(361)
	Joint ventures - debt extinguishment, transaction, other	604	20	684	20
	(Gain) loss on disposition of non-depreciable real estate, net	(74)	2,433	(1,303)	2,148
	Total non-operating items, net	15,645	2,120	101,966	1,807
	Operating FFO attributable to Common Shareholders	$108,770	$122,441	$217,303	$236,670

	Weighted average shares and units – Basic – FFO & OFFO	367,482	365,851	367,231	365,774
	Assumed conversion of dilutive securities	43	341	66	346
	Weighted average shares and units – Diluted – FFO & OFFO	367,525	366,192	367,297	366,120

	FFO per share – Basic & Diluted	$0.25	$0.33	$0.31	$0.64
	Operating FFO per share – Basic & Diluted	$0.30	$0.33	$0.59	$0.65
	Common stock dividends declared, per share	$0.19	$0.19	$0.38	$0.38

	Certain non-cash items (DDR share):
	Straight-line rent, net	$223	$1,298	$657	$2,653
	Amortization of (above)/below-market rent, net	4,383	1,159	8,233	1,556
	Straight-line ground rent income (expense)	(53)	(182)	216	(276)
	Debt fair value and loan cost amortization	(1,131)	(561)	(2,118)	(1,288)
	Capitalized interest expense	478	703	876	1,947
	Stock compensation expense	(1,584)	(1,690)	(3,492)	(3,298)
	Non-real estate depreciation expense	(1,807)	(2,024)	(3,942)	(4,025)
	Non-cash interest income	0	1,954	1,283	3,899

	Capital expenditures (DDR share):
	Development and redevelopment costs	14,041	26,415	29,965	50,887
	Maintenance capital expenditures	3,200	6,031	4,024	7,048
	Tenant allowances and landlord work	7,007	6,635	19,083	14,091
	Leasing commissions	739	1,251	1,377	2,155



	DDR Corp. Balance Sheet: Consolidated Interests

	$ in thousands
				At Period End
				2Q17	4Q16
	Assets:
	Land			$1,938,589	$1,990,406
	Buildings			6,193,366	6,412,532
	Fixtures and tenant improvements			726,721	735,685
				8,858,676	9,138,623
	Depreciation			(2,001,376)	(1,996,176)
				6,857,300	7,142,447
	Construction in progress and land			113,543	105,435
	Real estate, net			6,970,843	7,247,882

	Investments in JVs			117,304	60,793
	Receivable – preferred equity interests, net			318,181	393,338
	Cash			414,074	30,430
	Restricted cash			61,462	8,795
	Notes receivable, net			19,590	49,503
	Receivables, net (1)			114,449	121,367
	Intangible assets, net			216,602	241,598
	Other assets, net			37,533	43,812
	Total Assets			8,270,038	8,197,518

	Liabilities and Equity:
	Unsecured debt			3,060,345	2,913,217
	Unsecured term loan			398,316	398,399
	Secured debt			1,108,005	1,182,352
				4,566,666	4,493,968
	Dividends payable			76,744	75,245
	Other liabilities (2)			368,412	382,293
	Total Liabilities			5,011,822	4,951,506

	Preferred shares			525,000	350,000
	Common shares			36,715	36,630
	Paid-in capital			5,499,103	5,487,212
	Distributions in excess of net income			(2,809,110)	(2,632,327)
	Deferred compensation			10,254	15,149
	Other comprehensive income			(2,632)	(4,192)
	Common shares in treasury at cost			(9,816)	(14,957)
	Non-controlling interests			8,702	8,497
	Total Equity			3,258,216	3,246,012

	Total Liabilities and Equity			$8,270,038	$8,197,518

(1)	Straight-line rents receivable, net			$63,209	$65,072

(2)	Below-market leases, net			136,638	147,941



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

	$ in thousands
				At DDR Share (Non-GAAP)
		2Q17	2Q16	2Q17	2Q16
	GAAP Reconciliation:
	Net income attributable to DDR	$29,611	$41,058	$29,611	$41,058
	Fee income	(8,787)	(11,465)	(8,787)	(11,465)
	Interest income	(7,166)	(9,446)	(7,166)	(9,446)
	Interest expense	48,908	54,012	48,908	54,012
	Depreciation and amortization	90,276	97,698	90,276	97,698
	General and administrative	22,756	18,499	22,756	18,499
	Other expense	954	(2,081)	954	(2,081)
	Impairment charges	28,096	0	28,096	0
	Equity in net loss (income) of joint ventures	717	(1,117)	717	(1,117)
	Reserve of preferred equity interests	0	0	0	0
	Tax expense	473	245	473	245
	Gain on disposition of real estate	(44,599)	(13,721)	(44,599)	(13,721)
	Income from non-controlling interests	267	310	267	310
	Consolidated NOI	161,506	173,992	161,506	173,992
	DDR's consolidated JV	0	0	(396)	(454)
	Consolidated NOI, net of non-controlling interests	161,506	173,992	161,110	173,538

	Net (loss) income from unconsolidated joint ventures	(33,702)	(4,933)	(1,163)	714
	Interest expense	29,004	33,319	4,606	5,278
	Depreciation and amortization	47,589	49,021	5,747	5,635
	Impairment charges	27,850	0	1,392	0
	Preferred share expense	8,239	8,305	412	415
	Other expense, net	9,054	6,319	1,611	1,011
	Loss (gain) on disposition of real estate, net	803	(114)	40	(22)
	Unconsolidated NOI	88,837	91,917	12,645	13,031

	Total Consolidated + Unconsolidated NOI	250,343	265,909	173,755	186,569
	Less: Non-Same Store NOI adjustments	(16,787)	(32,167)	(16,533)	(29,157)
	Total SSNOI (including Puerto Rico and bad debt expense)	$233,556	$233,742	$157,222	$157,412

	Less: Puerto Rico Same Store NOI	(20,562)	(20,776)	(20,562)	(20,776)
	Total SSNOI excluding Puerto Rico (including bad debt expense)	$212,994	$212,966	$136,660	$136,636

	Add: bad debt expense	1,262	1,729	856	1,250
	Total SSNOI (excluding bad debt expense)	$234,818	$235,471	$158,078	$158,662

	SSNOI % Change (including Puerto Rico and bad debt expense)	(0.1%)		(0.1%)
	SSNOI % Change excluding Puerto Rico	0.0%		0.0%
	SSNOI % Change (excluding bad debt expense)	(0.3%)		(0.4%)

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