DDR Q2 FFO In Line, Guides Same
Real estate investment trust - DDR Corp. (DDR) - reported second-quarter 2013 operating FFO (funds from operations) per share of 27 cents, in line with the Zacks Consensus Estimate and up 8% from 25 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.
Including non-recurring items, DDR reported second-quarter 2013 FFO of $80.0 million or 25 cents per share, compared with $78.1 million or 27 cents per share in the year-ago quarter.
Total revenue for the quarter increased 13.8% to $217.1 million from $190.7 million reported in the year-ago quarter. Moreover, total revenue also outpaced the Zacks Consensus Estimate of $206 million.
Leasing and Operating Activity
DDR executed strong leasing activities during the quarter under review. The company signed 190 new leases (0.9 million square feet) and 271 renewal leases (1.9 million square feet). As of Jun 30, 2013, the company’s core portfolio was 94.6% leased – a sequential expansion of 20 bps (basis point) and 90 bps year over year.
DDR’s portfolio generated positive leasing spreads, with new leases climbing 12.0% and renewals up 7.0% while blended spreads escalated 7.9% at 100% ownership. Also, same-store net operating income (:NOI) increased 3.1% on a year-over-year basis.
DDR opened Belgate Shopping Center in Charlotte, N.C. in May. Spanning 900,000-square-foot, the property is 100% leased and anchored by IKEA, Wal-Mart Stores Inc. (WMT) and several others.
Portfolio Restructuring Activity
In tune with its long-term strategic objectives of restructuring the overall portfolio by upgrading the quality of shopping centers, DDR acquired $106 million of prime assets and disposition of $64 million of non-prime assets. DDR’s pro rata share of the gross proceeds from dispositions was $60 million.
Notably, in May DDR inked a deal to buy 30 shopping centers from its existing joint venture (:JV) with an affiliate of The Blackstone Group L.P. (BX). Expected to close in the fourth quarter of 2013, subject to customary closing conditions, the deal is projected to substantially enhance DDR’s cash flow.
Situated in top 40 MSA's (Metropolitan Statistical Areas), the portfolio includes Riverdale Village in Minneapolis and Shoppers World in Boston among many, and consists of a total of 11.8 million square feet. Leased 95%, these properties include large format centers with an average size of around 400,000 square feet, well ahead (20% larger) of the current DDR prime portfolio.
Moreover, in April, DDR acquired one of its JV partners’ 85% interest in 5 unencumbered power centers for $94 million. Positioned in Atlanta, Tampa and Richmond and Newport News, these 98% leased premium assets span 1.3 million square feet and are anchored by industry leading global retailers –including WalMart, Target Corp. (TGT) and several others.
Liquidity
As of Jun 30, 2013, DDR had $41.7 million of cash, compared with $18.9 million as of Mar 31, 2013 and $31.2 million as of Dec 31, 2012.
During the quarter, DDR reaped $45 million by issuing 2.5 million common shares for funding investments in prime assets. Moreover, to finance the Blackstone deal, DDR issued $300 million worth of senior unsecured notes due May 2023 and penned forward sale agreements to sell 39.1 million common shares for gross proceeds of $739 million.
2013 Guidance Reaffirmed
DDR has reiterated its operating FFO forecast at $1.08–$1.11 per share. Notably, it was on May 15, 2013 that the company updated the guidance and raised the lower end of the range to $1.08 from $1.07.
Our Viewpoint
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, the company has a significant development pipeline, which increases its operational risks. Additionally, the rise in consumer purchases through catalogs and the Internet could hurt the demand for DDR’s properties.
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.
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