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Nature of Business and Financial Statement Presentation | 3 Months Ended
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Mar. 31, 2015
Organization Consolidation And Presentation Of Financial Statements [Abstract] |
Nature of Business and Financial Statement Presentation |
1. | Nature of Business and Financial Statement Presentation
Nature of Business DDR Corp. and its related consolidated real estate subsidiaries (collectively, the “Company” or “DDR”) and unconsolidated joint ventures are primarily engaged in the business of acquiring, owning, developing, redeveloping, expanding, leasing and managing shopping centers. In addition, the Company engages in the origination and acquisition of loans and debt securities, which are generally collateralized directly or indirectly by shopping centers. Unless otherwise provided, references herein to the Company or DDR include DDR Corp., its wholly-owned and majority-owned subsidiaries and its consolidated joint ventures. The Company’s tenant base primarily includes national and regional retail chains and local retailers. Consequently, the Company’s credit risk is concentrated in the retail industry. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Unaudited Interim Financial Statements These financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, the interim financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the periods presented. The results of operations for the three-month periods ended March 31, 2015 and 2014, are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as amended. Principles of Consolidation The condensed consolidated financial statements include the results of the Company and all entities in which the Company has a controlling interest or has been determined to be the primary beneficiary of a variable interest entity. All significant inter-company balances and transactions have been eliminated in consolidation. Investments in real estate joint ventures and companies in which the Company has the ability to exercise significant influence, but does not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, the Company’s share of the earnings (or loss) of these joint ventures and companies is included in consolidated net income. Deferred Tax Assets and Tax Liabilities – Puerto Rico Tax Restructuring In the first quarter of 2015, in accordance with temporary legislation of the Puerto Rico Internal Revenue Code, the Company restructured the ownership of its 15 assets in Puerto Rico and made a voluntary election to prepay $20.2 million of taxes related to the built-in gains associated with the real estate assets. This election permitted the Company to step-up its tax basis in the Puerto Rican assets to the current estimated fair value while reducing its effective capital gains tax rate from 29% to 12%. Further, the Company converted the ownership to a Puerto Rico Real Estate Investment Trust (“REIT”) structure, which reduced the effective tax on the operational activity from 39% to 10%. The net balance sheet impact to the financial statements related to the restructuring is $16.8 million. The Company recorded a tax expense of $3.4 million related to the 2% effective tax rate spread between the 12% tax payment and the revalued deferred tax asset under the REIT structure using a 10% effective tax rate. Statements of Cash Flows and Supplemental Disclosure of Non-Cash Investing and Financing Information Non-cash investing and financing activities are summarized as follows (in millions):
| Three-Month Periods Ended March 31, |
| 2015 |  |  | 2014 |
Mortgages assumed from acquisitions | $ | 33.7 |  |  | $ | — |
Elimination of the previously held equity interest in unconsolidated joint ventures acquired |  | 1.4 |  |  |  | — |
Accounts payable related to construction in progress |  | 27.3 |  |  |  | 18.3 |
Dividends declared |  | 67.9 |  |  |  | 62.3 |
Fee and Other Income Fee and other income was composed of the following (in millions):
| Three-Month Periods Ended March 31, |
| 2015 |  |  | 2014 |
Management and other fee income | $ | 8.1 |  |  | $ | 8.2 |
Ancillary and other property income |  | 4.2 |  |  |  | 6.2 |
Lease termination fees |  | 0.2 |  |  |  | 1.3 |
Other |  | 0.2 |  |  |  | 0.2 |
Total fee and other income | $ | 12.7 |  |  | $ | 15.9 |
New Accounting Standards Adopted Discontinued Operations In April 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-08 (“ASU 2014-08”), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a final standard that changed the criteria for determining which disposals are presented as discontinued operations. The revised definition of a discontinued operation is “a component or group of components that has been disposed of or is classified as held for sale, together as a group in a single transaction,” and “represents a strategic shift that has (or will have) a major effect on an entity’s financial results.” The FASB agreed that a strategic shift includes “a disposal of (i) a separate major line of business, (ii) a separate major geographical area of operations or (iii) a combination of parts of (i) or (ii) that make up a major part of an entity’s operations and financial results.” A business that, upon acquisition, qualifies as held for sale will also be a discontinued operation. The FASB also reaffirmed its decision to no longer preclude presentation of a disposal as a discontinued operation if (a) there is significant continuing involvement with a component after its disposal, or (b) there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations. Public entities are required to apply the standard in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. The Company adopted the standard effective January 1, 2015, and there was no impact to net income in the current period financial statements. Properties sold prior to January 1, 2015, are not subject to ASU 2014-08 and therefore continue to be classified as discontinued operations using the previous definition. The adoption resulted in most individual property disposals not qualifying for discontinued operations presentation and thus, the results of those disposals remain in Income from Continuing Operations and any associated gains or losses are included in Gain on Disposition of Real Estate. New Accounting Standards Revenue Recognition In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers. The objective of ASU 2014-09 is to establish a single comprehensive five-step model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Most significantly for the real estate industry, leasing transactions are not within the scope of the new standard. A majority of the Company’s tenant-related revenue is recognized pursuant to lease agreements. The new guidance is effective for public companies for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. The Company is assessing the impact, if any, the adoption of this standard will have on its financial statements and has not decided upon the method of adoption. Debt Issuance Costs In April 2015, the FASB issued Accounting Standards Update No. 2015-03 (“ASU 2015-03”), Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The guidance in ASU 2015-03 is limited to the presentation of debt issuance costs. The new guidance is effective for public companies for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years on a retrospective basis. The Company does not believe ASU 2015-03 will have a material impact on its financial statements.

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