DDR Reports in Sync with Estimates

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DDR Corp. (DDR), a real estate investment trust (:REIT), reported fourth quarter 2011 FFO (fund from operations) of $47.4 million or 17 cents per share compared to a FFO loss of $37.0 million or 14 cents per share in the year-earlier quarter. Fund from operations, 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.

Excluding non-recurring items totaling $24.7 million primarily related to non-cash impairment charges, FFO in the fourth quarter of 2011 was $72.1 million or 26 cents per share. The recurring FFO was in line with the Zacks Consensus Estimate.

For full year 2011, DDR reported FFO of $227.6 million or 75 cents per share compared to $76.3 million or 30 cents per share in the previous year. Excluding non-recurring items totaling $39.5 million primarily related to non-cash impairment charges, FFO for fiscal 2011 was $267.1 million or 97 cents per share. The recurring FFO for full year 2011 was also in line with the Zacks Consensus Estimate.

Total revenues during fourth quarter 2011 were $194.5 million compared with $193.5 million in the year-ago quarter. Total revenues during the quarter exceeded the Zacks Consensus Estimate of $192 million. For full year 2011, total revenues were $771.0 million compared with $763.1 million in the prior year.

DDR executed strong leasing activities during the quarter. The company signed 239 new leases and 304 renewal leases spanning 1.1 million square feet and 1.8 million square feet, respectively. The core portfolio of the company was 93.6% leased at the end of the quarter, compared with 92.6% in the prior-year quarter. During fiscal 2011, DDR signed 876 new leases and 1,232 renewal leases spanning 4.0 million square feet and 7.7 million square feet, respectively.

Rental rates for new leases increased by 9.6% (cash) over prior rents and renewals increased by 4.5% during the reported quarter, resulting in an overall blended spread of 5.8%. For full year 2011, rental rates for new leases increased by 11.2% (cash) over prior rents and renewals increased by 5.0%, resulting in an overall blended spread of 6.1%.

Average annualized base rents in the company’s portfolio reached $13.81 per square foot at the end of the quarter, up from $13.36 in the year-ago quarter. Same-store net operating income (:NOI) increased 2.9% during the reported quarter on a year-over-year basis.

During fourth quarter 2011, DDR acquired a shopping center named ‘PolarisTowneCenter’ in Ohiofor $80 million. The acquisition of the 700,000 square feet center consolidates DDR's position as the major owner and operator of prime shopping centers in the Columbusmetropolitan area. The acquisition was part of the asset swap transaction (to better align the portfolio with the operating platform) that was announced earlier in September 2011 with one of its peers Glimcher Realty Trust (GRT).

Subsequent to the quarter-end, DDR formed a joint venture to acquire a portfolio of 46 shopping centers valued at approximately $1.4 billion, including an assumed debt of $640 million and about $305 million of new financings.

During the fourth quarter 2011, the company divested 13 shopping centers spanning 1.2 million square feet for aggregate proceeds of $164.7 million. In addition, DDR sold $30.6 million worth of non-strategic assets to improve portfolio demographics and increase its liquidity. Simultaneously, two of the company's joint ventures sold 4 shopping centers, spanning 0.7 million square feet, generating gross proceeds of $51.3 million.

In tune with its long-term strategic objectives of restructuring the overall portfolio by upgrading the quality of shopping centers and improving the balance sheet by reducing leverage, DDR completed approximately $2.8 billion of capital transactions and financing activities during 2011. These included $270 million worth of acquisitions of prime shopping centers and $461 million worth of asset sale, out of which DDR’s share was $230 million and $371 million, respectively.

The company refinanced a $550 million senior secured term loan scheduled to mature in February 2012 with a new $500 million senior secured term loan scheduled to mature in September 2015, thereby extending the debt duration.

At the same time, DDR extended the term of each of the two senior unsecured revolving credit facilities to February 2016. These enabled the company to extend the weighted average maturity of consolidated debt from 3.9 years to 4.3 years and also reduce the aggregate amount from $4.3 billion to $4.1 billion in 2011.

During 2011, DDR sold 9.5 million common shares generating net proceeds of about $130 million, the bulk of which was utilized to reduce debt. The company also issued $300 million worth of 4.75% seven-year unsecured notes. At year-end 2011, DDR had $41.2 million of cash and cash equivalents compared with $19.4 million in the year-ago quarter.

For full year 2011, DDR paid cash dividends of $0.22 per share – an increase of 175% from 2010. Furthermore, the company hiked its quarterly dividend by 50% to 12 cents per share for the first quarter of 2012.

For fiscal 2012, DDR expects a recurring FFO of $0.98 - $1.04 per share. The initial FFO guidance is based on the assumptions that same-store NOI growth would be 2% - 3%, core portfolio lease rate at year-end would be above 94.5%, and about $100 million worth of non-core assets would be divested during the year with the proceeds mostly being invested in the acquisition of prime shopping centers.

We maintain our long-term ‘Neutral’ recommendation on DDR, which currently retains a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

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