DDR Corp. (DDR) reported second-quarter 2014 operating funds from operations (:FFO) per share of 28 cents, in line with the Zacks Consensus Estimate and a penny above the year-ago quarter figure. Notable leasing momentum, portfolio strengthening activity and same-store net operating income (:NOI) gains aided the improvement.
Total revenue for the quarter soared 24.4% year over year to $245.8 million but missed the Zacks Consensus Estimate of $252 million.
Quarter in Details
DDR inked 153 new (0.7 million square feet) and 211 renewal (2.4 million square feet) leases. The company’s portfolio generated positive leasing spreads, with new leases climbing 18.8% and renewals up 7.5% on a pro rata basis. Also, same-store NOI increased 3.2% year over year both on a pro rata basis and 100% ownership.
As of Jun 30, 2014, the company’s U.S. portfolio was 95.3% leased, reflecting an improvement of 20 bps (basis point) sequentially and 80 bps on a year-over-year basis. Moreover, as of same date, total portfolio average annualized base rent per occupied square foot was $13.50, up 4.5% on a year-over-year basis.
During the quarter, DDR closed four prime power center acquisitions (spanning 1.2 million square feet) for $264.8 million. Also, the company inked a joint venture deal with The Blackstone Group L.P. (BX) to purchase 76 shopping centers portfolio from American Realty Capital Properties, Inc. (ARCP) for $1.975 billion.
On the other hand, DDR vended 11 operating assets and 6 land parcels of which the company’s share is $51 million. Also, the company accomplished the sale of its 50% ownership stake in Sonae Sierra Brazil BV Sarl for $344 million in gross proceeds, marking the company’s complete exit from the Brazilian market.
Apart from these, the company closed on a $75 million non-recourse mortgage loan secured by a 636,000-square-foot shopping center - Plaza Escorial - in Puerto Rico.
DDR exited second-quarter 2014 with $359.3 million of cash, up from $163.8 million as of Mar 31, 2014.
DDR has reaffirmed its previously issued guidance and expects operating FFO per share in the range of $1.14 to $1.18. The Zacks Consensus Estimate of $1.16 for the same falls within the company’s guided range.
DDR’s solid portfolio of value-oriented shopping centers bode well for its long-term growth. Also, we believe that the company’s portfolio repositioning efforts and capital allocation strategies would help it to ride on the growth trajectory. Specifically, the company intends to remain net sellers this year and redeploy the capital in its prime power centers in top MSAs at opportunistic pricing. Moreover, a strong balance sheet position is a boon for this Zacks Rank #1 (Strong Buy) company.
Investors interested in the REIT industry may consider stocks like General Growth Properties, Inc. (GGP), having a Zacks Rank #2 (Buy).
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.