DDR Ddr Corp.

DDR Corp. (DDR) – a real estate investment trust (REIT) – recently provided an update of the portfolio restructuring activities and other transactions in the fourth quarter of 2012. Also, the company announced the completion of acquisitions worth $2.1 billion and disposition worth $347 million in full year 2012.

Acquisition Activity

During the fourth quarter of 2012, the company acquired two California-based prime power centers for $151 million. Both the assets were funded through a combination of proceeds from asset dispositions, new common equity and issuance of unsecured notes.

DDR purchased the first asset – Carolina Pavilion – from Blackstone Real Estate Partners VII for $106 million. Positioned in Charlotte, Carolina Pavilion spans 852,000 square foot and is 94% leased. Poyner Place, the second asset, was acquired for $45 million. The property is based in Raleigh and is currently 96% occupied. Both the properties boast various industry-leading tenants, such as Target Corp. (TGT), Bed Bath & Beyond Inc. (BBBY), Ross Stores Inc. (ROST) and Shoe Carnival Inc. (SCVL).

Disposition Activity

DDR sold seven non-core assets worth $255 million during the quarter. Additionally, the company sold $61 million of non-income producing assets worth $61 million during the quarter and $107 million in 2012. Currently, DDR has around $96 million worth of non-core assets under contract for sale, which include non-income producing assets worth $31 million.

Other Transactions

Sonae Sierra Brasil – a joint venture of DDR – closed the sale of its 10% ownership stake in Patio Brasil, 51% share in Shopping Penha and 30% share in Tivoli Shopping for a total price of $103 million. The joint venture company will continue to manage and lease Shopping Penha and Tivoli Shopping for at least three years.   

In addition, DDR inked a deal with Macy's, Inc. (M) to take back the leased space at its Pasadena-based shopping center – Paseo Colorado.  DDR gained control of the 150,000 square-foot space to facilitate the proposed extensive redevelopment of the shopping center.

In November, DDR issued $150 million worth of unsecured notes at a yield-to-maturity rate of 3.5% through the reopening of its $300 million worth of 10-year senior unsecured notes. In December, the company closed the new long-term financings of $365 million. The company used the proceeds from these financings to pay-off the mortgage loan secured by six core assets, having a maturity date in April 2013.

Our Viewpoint

We remain impressed with the DDR’s long-term strategy of restructuring the overall portfolio, by upgrading the quality of shopping centers and improving the balance sheet by reducing leverage. This will augur well for its earnings going forward. Also, the company continues to spend capital for the redevelopment of existing assets, which will create a growth opportunity for its existing assets and generate future value without the involvement of risk or requirement of capital for a new development.

DDR is expected to release its fourth-quarter 2012 results on February 12, 2013. The Zacks Consensus Estimate for the fourth quarter FFO (fund from operations) is currently pegged at 27 cents per share.

We expect the company to report FFO in line with the Zacks Consensus Estimate, as the earnings ESP (expected surprise prediction) is nil for the stock. DDR currently has a Zacks #3 Rank (implying a short-term Hold rating). However, we maintain our long-term ‘Neutral’ recommendation on the stock.

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.
 

 
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