Retail real estate investment trust (REIT) -
) - received a rating upgrade from Moody's Investors Service, the
rating unit of
). The company now enjoys senior unsecured and preferred equity
ratings of Baa2 and Baa3, which were raised from Baa3 and Ba1,
respectively. Further, the rating outlook was revised to stable
The uptick in the rating is an acknowledgement of DDR's high
quality property portfolio and its efforts towards enhancing its
value. The company aims for open air community retail shopping
centers, majority of which boasts big box and supercenter
Moreover, the company shares a long-standing anchor tenant
relationship, enjoy high occupancy levels and positive same-store
net operating income growth. DDR is also focused on strengthening
its balance sheet, increasing its unencumbered asset pool and
enhancing its quality and value, as well as lowering its secured
Yet, DDR faces credit challenges. While its fixed charge coverage
is improving, it is yet to reach the levels of other REITs with
mid-Baa ratings. Also, leverage improvement has moderated and
rise in Internet sales continue to pose a challenge for
The rating upgrade of DDR is encouraging. In fact, this plays a
major role in preserving investor confidence in the stock and
helps boost its creditworthiness in the market.
Earlier this month, DDR reported third-quarter 2013 operating FFO
(funds from operations) per share of 28 cents, in line with the
Zacks Consensus Estimate and up nearly 4% from 27 cents reported
in the year-ago quarter. The year-over-year increase was mainly
aided by organic growth and investments in shopping center
acquisitions, but was partly dwarfed by asset sales.
Going forward, we believe that for DDR, which boasts a cluster of
industry leading retailers such as
Wal-Mart Stores Inc.
), Lowe's and
), the addition of upscale assets to its high-end asset portfolio
along with strengthening of balance sheet promises strong growth
prospects. However, stiff competition from other players in the
market and an elevation in Internet sales that adversely affect
the demand for retail space remain our concerns.
DDR currently has a Zacks Rank #3 (Hold).
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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