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Balanced View on DDR

Zacks Equity Research

On Jul 11, 2013, we reiterated our long-term recommendation on DDR Corp. (DDR) – a retail real estate investment trust (:REIT) – ­­at Neutral. The decision is based on its strong fundamentals and successful portfolio repositioning activity in the past quarters. However, DDR’s significant development pipeline and its reliance on few tenants remains our matter of concern.

Why the Reiteration?

DDR has a well-diversified portfolio, concentrated mostly in prosperous regions. This drives value and mitigates operating risks by generating relatively steady revenues over the past years. In addition, its ongoing aggressive capital recycling program through strategic asset management is expected to be accretive to its earnings going forward. Also, the company has a healthy balance sheet with adequate liquidity.

However, DDR’s active development pipeline exposes it to various risks such as rising construction costs, entitlement delays and lease-ups. This remains a plausible concern for the company, going forward. In addition, DDR relies only on a few chief tenants – such as Wal-Mart Stores Inc. (WMT) and The TJX Companies, Inc. (TJX) – for annualized rental revenue generation. Therefore, it is subject to risks resulting from any changes in these tenants’ business and financial condition. 

Over the last 60 days, the Zacks Consensus Estimate for 2013 FFO (funds from operations) per share remained unchanged at $1.10. On the other hand, for 2014, it nudged up 0.8% to $1.19. Consequently, DDR now carries a Zacks Rank #3 (Hold).

DDR is scheduled to report its second-quarter 2013 earnings on Jul 31, 2013, after the closing bell. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 27 cents per share. The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for DDR is 0.00% for the second quarter. This, along with its Zacks Rank #3 (Hold), reduces the chances of a positive earnings surprise.

Other Stock to Consider

Another Retail REIT that is currently performing better is The Macerich Company (MAC), which has a Zacks Rank #2 (Buy).

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.

Read the Full Research Report on WMT

Read the Full Research Report on DDR

Read the Full Research Report on TJX

Read the Full Research Report on MAC

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