DDR Provides 2014 Outlook, Hikes Dividend

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DDR Corp. (DDR) has provided the outlook for 2014. The company is guiding for an operating FFO (funds from operations) per share of $1.17 to $1.21 in the year, which reflects an uptick of 5.4% to 9.0% over the midpoint of the latest 2013 outlook of $1.10 and $1.12 per share. The outlook is in line with the Zacks Consensus Estimate that stands at $1.20 for 2014.

Apart from this, DDR announced a 15% hike in its quarterly dividend rate to 15.5 cents. It will be paid on Apr 8, to shareholders of record as of the close of business on Mar 13.

This retail real estate investment trust (:REIT), which accomplished $2.33 billion of prime shopping center acquisitions and $433 million of non-prime dispositions, now aims for a same-store net operating income growth of 2.5% to 3.5%, exclusive of significant redevelopment activity. Moreover, DDR guides for at least a 75 basis points increase in the year-end portfolio leased rate.

On the portfolio repositioning front, DDR plans to acquire $250 million of prime shopping centers as well as dispose $200 million of non-prime operating assets and $30 million of non-income producing assets in 2014. Furthermore, the company intends to take at least $100 million of development and redevelopment investment, mainly toward the second half of the year, with a projected cash-on-cost return of at least 10%.

Going forward, we believe that by leveraging on the favorable supply/demand fundamentals, strategic portfolio repositioning efforts and premium power centers, DDR can ride high on the growth trajectory. The company boasts a cluster of industry leading retailers such as Wal-Mart Stores Inc. (WMT), Target Corp. (TGT) and Bed Bath & Beyond Inc. (BBBY), which are well-capitalized retailers and are expected to help in providing a steady rental stream.

The past year remained quite favorable for the company and it leased more than 10 million square feet for the fifth consecutive year. Moreover, it increased the portfolio leased rate to 95.1%, reflecting the maximum level since 2008. Its full year same-store net operating income grew above 3% for the third consecutive year while the amount of unencumbered NOI increased by 17% since year-end 2012.

DDR also acquired the remaining 95% stake in 30 prime power centers from its existing joint venture with Blackstone Real Estate Partners VII for $1.46 billion. 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 carries 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.

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