On Apr 19, 2013, we reiterated our long-term recommendation on
) - a retail real estate investment trust (REIT) - at Neutral.
Our decision is based on DDR's strong portfolio restructuring
activity in the first quarter of 2013.
Going forward, we expect DDR's diversified retail portfolio,
along with a strong tenant base to provide a significant upside
potential to the stock. However, the continuous acquisition spree
of the company involves significant upfront operating expenses,
which will limit its near-term profitability.
Why the Reiteration?
DDR mainly focuses on best-in-class retailers at strategic
locations and thereby its portfolio drives value and mitigates
operating risks by generating a relatively steady revenue stream.
Moreover, the company boasts a cluster of industry leading
tenants such as
Wal-Mart Stores Inc.
), Home Depot, Lowe's and
). This will boost its top-line growth going forward.
DDR's fourth-quarter 2012 operating FFO came in at 27 cents
per share, in line with the Zacks Consensus Estimate. This also
compared favorably with 26 cents reported in the year-ago
quarter. The results were attributable to organic growth and
investments related to property acquisitions, partially offset by
Moreover, DDR's successful execution of its long-term strategy
of restructuring the portfolio and improving the balance sheet by
reducing leverage are noteworthy. These provide a significant
upside potential for the company going forward.
However, DDR's properties consist primarily of community
shopping centers, thereupon making its performance dependent on
general economic conditions of the market for retail space.
Excess retail space in a number of markets and the increase in
consumer purchases through catalogs and the Internet could hurt
the demand for DDR properties. Consequently, this could adversely
affect the top-line growth of the company.
Over the last 60 days, the Zacks Consensus Estimate for 2013
remained unchanged at $1.10 per share. On the other hand, the
Zacks Consensus Estimate for 2014 has slightly moved up to $1.18
per share. Consequently, DDR carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
REITs that are currently performing better include
Acadia Realty Trust
), which carries a Zacks Rank #2 (Buy).
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.
ACADIA RLTY TR (AKR): Free Stock Analysis
DDR CORP (DDR): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
To read this article on Zacks.com click here.