Rating Upgrade at DDR - Analyst Blog
22 November 2013 - 3:00AM
Zacks
Retail real estate investment trust (REIT) - DDR
Corp. (DDR) - received a rating upgrade from Moody’s
Investors Service, the rating unit of Moody's
Corporation (MCO). 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 from positive.
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
tenants.
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
debt levels.
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 storefront
retail.
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. (WMT), Lowe’s and Target Corp.
(TGT), 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).
Note: 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.
DDR CORP (DDR): Free Stock Analysis Report
MOODYS CORP (MCO): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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