DDR Ddr Corp.

DDR Corp. (DDR), a real estate investment trust (REIT), has recently provided an update of its achievements in 2011, which marked a significant improvement in its portfolio performance despite a challenging macroeconomic environment.

The company has also provided an initial FFO (funds from operations) guidance for fiscal 2012 based on certain assumptions. Funds from operations, 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.

During fiscal 2011, DDR leased approximately 11.7 million square feet of retail space, bringing its core portfolio lease rate for the year to 93.6% – up from 92.6% at year-end 2010. Total portfolio average annualized base rent per occupied square foot rose by 3.4% for the year, while aggregate annual net operating income (NOI) increased by over 3%.

In tune with its long-term strategic objectives of restructuring the overall portfolio by upgrading the quality of shopping centers and improving the balance sheet by reducing leverage, DDR completed approximately $2.8 billion of capital transactions and financing activities during 2011. These included $270 million worth of acquisitions of prime shopping centers and $461 million worth of asset sale, out of which DDR’s share was $230 million and $371 million, respectively.

The company refinanced a $550 million senior secured term loan scheduled to mature in February 2012 with a new $500 million senior secured term loan scheduled to mature in September 2015, thereby extending the debt duration.

At the same time, DDR extended the term of each of the two senior unsecured revolving credit facilities to February 2016. These enabled the company to extend the weighted average maturity of consolidated debt from 3.9 years to 4.3 years and also reduce the aggregate amount from $4.3 billion to $4.1 billion in 2011.

During 2011, DDR sold 9.5 million common shares generating net proceeds of about $130 million, the bulk of which was utilized to reduce debt. The company also issued $300 million worth of 4.75% seven-year unsecured notes.

For full year 2011, DDR paid cash dividends of $0.22 per share – an increase of 175% from 2010. Furthermore, the company hiked its quarterly dividend by 50% to $0.12 per share for the first quarter of 2012.

For fiscal 2012, DDR expects a recurring FFO of $0.98 - $1.04 per share. The initial FFO guidance is based on the assumptions that same-store NOI growth would be 2% - 3%, core portfolio lease rate at year-end would be above 94.5%, and about $100 million worth of non-core assets would be divested during the year with the proceeds mostly being invested in the acquisition of prime shopping centers.

Headquartered in Beachwood, Ohio, DDR acquires, owns, develops, leases and manages shopping centers and business centers across 41 states in the U.S., along with Puerto Rico and Brazil. At the end of fourth quarter 2011, DDR owned and managed 538 retail operating (primarily open-air, value-oriented shopping centers) and development properties spanning approximately 134 million square feet.

We maintain our Neutral recommendation on DDR for the long term. The company presently has a Zacks #4 Rank, which translates into a short-term Sell rating. We also have a Neutral recommendation and a Zacks #3 Rank (short-term Hold) for Kimco Realty Corporation (KIM), one of the competitors of DDR.

 
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