DDR Corp. (DDR)
reported first quarter 2013 operating FFO (funds from operations)
per share of 27 cents, in line with the Zacks Consensus Estimate.
This comfortably surpassed the year- ago operating FFO of 24 cents.
The year-over–year increase was mainly aided by organic growth and
investments related to property acquisitions.
Including non-recurring items, DDR
reported first quarter 2013 FFO of $82.5 million or 26 cents per
share, compared with $59.7 million or 21 cents per share in the
year-ago quarter.
Inside the
Headlines
Total revenue for the quarter
increased 10.6% to $210.8 million from $190.6 million reported in
the year-ago quarter. Moreover, total revenue also outpaced the
Zacks Consensus Estimate of $206 million.
Leasing and Operating
Activity
DDR executed strong leasing
activities during the quarter under review. The company signed 198
new leases and 233 renewal leases spanning 0.9 million square feet
and 1.2 million square feet, respectively.
As of March 31, 2013, the company’s
core portfolio was 94.4% leased – a 70 bps (basis point) expansion
over the prior-year end figure of 93.7%.
During the quarter under review,
rental rates for new leases increased 10.7% (cash) over prior rents
and renewals increased 7.0%, resulting in an overall blended spread
of 7.6%. Also, same-store net operating income (NOI) increased 3.3%
on a year-over-year basis.
Portfolio Restructuring
Activity
In tune with its long-term
strategic objectives of restructuring the overall portfolio by
upgrading the quality of shopping centers, DDR acquired two premium
assets in the 4th and 11th largest MSA (Metropolitan
Statistical Areas) of U.S.; in Texas and Calif. – for $81 million.
Both the assets were funded through a combination of proceeds from
asset dispositions and new common equity.
DDR purchased the first asset –
Marketplace at Highland Village – for $40 million. Strategically
positioned in Dallas, the property (spanning 400,000 square feet
and 90% leased) boasts industry-leading tenants such as,
Wal-Mart Stores, Inc. (WMT), T.J. Maxx and
Office Depot Inc. (ODP). With this upscale asset
acquisition, DDR now boasts a solid portfolio of 6 major power
centers comprising 1.8 million square feet in Dallas.
Whole Foods at Bay Place, the
second asset, was acquired for $41 million. The property (spanning
57,000 square feet) is based in downtown Oakland and features
WholeFoods Market Inc.’s (WFM) property, operating
in a thickly populated high barrier-to-entry urban infill
location.
Also, during the quarter, DDR sold
7 operating shopping centers (spanning around 0.4 million square
feet) for a gross proceed of roughly $24.7 million. Moreover, the
company also divested $7.3 million worth of non-income producing
assets. With this, the company generated an aggregate net gain of
about $0.5 million from assets divesture in the first quarter of
2013.
In addition, DDR’s unconsolidated
joint ventures sold 15 assets and generated gross proceeds of
approximately $14.5 million (of which DDR's proportionate share was
$2.9 million).
Subsequent to the quarter-end, in
April 2013, DDR bought 85% interest of its partner in five major
shopping centers for $94 million.
Liquidity
As of Mar 31, 2013, DDR had $18.9 million of cash compared to $31.2
million as of Dec 31, 2012.
During the first quarter, DDR
refinanced its 2 unsecured revolving credit facilities (having a
total availability of $815 million) and a secured term loan worth
$400 million. The refinanced primary unsecured revolving credit
facility worth $750 million has an initial maturity in April 2017
with one year extension option. Also, it contains an important
feature that provides it with a potential availability of $1.25
billion. On the other hand, the refinanced secured term loan also
has an initial maturity in April 2017 with one year extension
option. Such measures led to a reduction in interest expenses of
DDR.
During the quarter, DDR issued 2.3
million new common shares under its at-the-market (ATM) common
equity program at an average price of $17.57 per share. It helped
the company to generate gross proceeds of $40 million, which DDR
partially utilized to finance the acquisition of upscale
assets.
2013 Guidance
Reaffirmed
For full year 2013, DDR reiterated
its operating FFO guidance of $1.07–$1.11 per share.
Our Viewpoint
We are impressed with the DDR’s
quarterly results on the back of its consistent strong portfolio
restructuring activity. Moreover, DDR’s long-term strategy of
improving the balance sheet by reducing leverage also added to the
bliss. In particular, the addition of upscale assets to its
high-end assets kitty along with strengthening of the tenant base
promises steady rental revenue.
However, DDR has a significant
development pipeline, which increases its operational risks. In
addition, excess retail space in a number of its markets and the
rise in consumer purchases through catalogs and the Internet could
hurt the demand for it’s properties.
DDR currently holds a Zacks Rank #2
(Buy).
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.
DDR CORP (DDR): Free Stock Analysis Report
OFFICE DEPOT (ODP): Free Stock Analysis Report
WHOLE FOODS MKT (WFM): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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