Real estate investment trust - DDR Corp. (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.
Yet, the results failed to gain investors’ confidence and the stock was down 2.34% in yesterday’s regular trading session amid increasing yields on the U.S. Treasury 10-year note and soft stock market conditions.
However, including non-recurring items, DDR reported third-quarter 2013 FFO of $89.9 million or 28 cents per share, down from $112.7 million or 37 cents per share in the year-ago quarter, reflecting gain on change in control of interests recorded in 2012.
Total revenue for the quarter increased 11% year over year to $219.4 million and outpaced the Zacks Consensus Estimate of $211 million.
Leasing and Operating Activity
DDR executed strong leasing activities during the quarter under review. The company signed 210 new leases (0.9 million square feet) and 233 renewal leases (2.1 million square feet). As of Sep 30, 2013, the company’s portfolio was 94.8% leased – a sequential expansion of 20 bps (basis point) and 80 bps year over year.
DDR’s portfolio generated positive leasing spreads, with new leases climbing 12.3% and renewals up 7.4% while blended spreads escalated 8.4% at 100% ownership. Also, same-store net operating income (:NOI) increased 3.3% on a year-over-year basis. As of Sep 30, 2013, total portfolio average annualized base rent per occupied square foot was $14.00, up from $13.79 as of Sep 30, 2012.
Portfolio Restructuring Activity
During the reported quarter, DDR acquired $259 million of wholly-owned prime shopping centers and accomplished the disposition of $138 million of non-prime assets of which DDR's pro rata gross proceeds were $104 million.
In particular, during the quarter, DDR bought two premium regional power centers – Winter Garden Village in Orlando and Cumming Town Center in Atlanta – for around $259 million during the quarter. Winter Garden Village spans 1.1 million square foot and Cumming Town Center, which is fully leased, stretches 311,000 square foot.
In addition, DDR – through a joint venture formed with an affiliate of The Blackstone Group L.P. (BX) – completed the acquisition of a portfolio comprising 7 prime shopping centers for $332 million.
Spanning 2.4 million square feet of GLA, the assets are located in supply constrained MSA's (Metropolitan Statistical Areas) such as Los Angeles, San Diego, Washington DC, Portland and Cincinnati. Moreover, the acquired properties are occupied by high-quality retailers like Target Corp. (TGT), Best Buy Co., Inc. (BBY), Dick's Sporting Goods and Petco.
As of Sep 30, 2013, DDR had $35.4 million of cash, compared with $31.2 million as of Dec 31, 2012.
Driven by solid operating trends so far this year, DDR has slightly increased its outlook for full-year 2013. The company now expects operating FFO per share in the range of $1.10 to $1.12, compared to the prior range of $1.08 to $1.11.
Going forward, we believe that the addition of upscale assets to its high-end asset portfolio along with strengthening of the tenant base promises strong growth prospects for DDR.
However, stiff competition from other players in the market, rise in interest rates, dependency on few tenants, and ascend in Internet sales that adversely affect the demand for retail space remain our concerns.
DDR currently holds a Zacks Rank #3 (Hold).
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.