We maintain our Neutral rating on
), a real estate investment trust (REIT) that primarily focuses on
open-air value-oriented shopping centers.
Headquartered in Beachwood, Ohio, DDR acquires, owns, develops,
leases and manages shopping centers and business centers across 39
states in the U.S., along with Puerto Rico and Brazil. By the end
of the second quarter of 2012, DDR owned and managed 459 retail
operating and development properties spanning approximately 117
million square feet.
DDR reported second quarter 2012 FFO (fund from operations) of
$78.1 million or $0.27 per share compared to $52.6 million or $0.19
per share in the year-earlier quarter. The increase in year over
year FFO was primarily due to the accretive effect of acquisition
of two assets from an unconsolidated joint venture and partially
offset by the loss on debt extinguishment charges.
Excluding non-recurring items, FFO in the second quarter of 2012
was $71.6 million or $0.25 per share compared to $64.4 million or $
0.23 per share in the year-ago quarter. The increase in operating
FFO was primarily due to the acquisition of nine shopping center
assets in 2011 and year to date, partially offset by asset
disposals. The recurring FFO beat the Zacks Consensus Estimate by
DDR is currently repositioning its portfolio to upgrade the overall
quality and improve the balance sheet by reducing leverage. In tune
with this long-term strategic objective, DDR completed
approximately $1.6 billion of acquisitions and asset sale
transactions in the second quarter. These include the acquisition
of the EDT Retail Portfolio for $1.4 billion; acquisition of a 50%
ownership interest in two prime shopping centers in Portland and
Phoenix for $140 million; and non-core asset sale of $81 million.
The EDT Retail Portfolio comprised of 46 open-air value-oriented
shopping centers (90% leased) spanning 10.6 million square feet of
gross leasable area. The property was acquired through a joint
venture formed by DDR and the flagship real estate fund of
The Blackstone Group LP
DDR also acquired its joint venture partner's 50% ownership
interests in Tanasbourne Town Center - a 566,000 square foot prime
power center in Portland, Oregon, and Arrowhead Crossing - a
412,000 square foot prime power center in Phoenix, Arizona. The
properties were 95% leased to a host of leading retailers in the
The company sold 24 non-core assets during the quarter for total
proceeds of $81 million to bring the tally for the first half of
2012 to $126 million. DDR presently has an additional $18 million
worth of wholly owned assets under contract for sale.
However, the possibility of store closings at many DDR Corp.
centers due to lease terminations adds uncertainty to the earnings,
and it might have to re-let large big box spaces at significantly
lower rents in a tough leasing environment. This in turn would
affect the top-line growth of the company and put considerable
pressure on its sustainability.
Note: FFO, a widely used metric to gauge the performance of
REITs, is obtained after adding depreciation and amortization and
other non-cash expenses to net income.
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DDR CORP (DDR): Free Stock Analysis Report
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