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DDR Unveils $1.2B in Refinancing

Zacks Equity Research

DDR Corp. (DDR), a real estate investment trust (:REIT), has acquired funds worth $1.2 billion for refinancing its debt. The move will help the company lower its cost of capital as well as extend the maturities.

DDR, in particular, has obtained a new $750 million unsecured revolving credit facility as well as a $400 million term loan, both of which will mature in 2017. With this, the company refinanced two of its senior unsecured revolving credit facilities scheduled to mature in February 2016 and its senior secured term loan due in September 2014.

The $750 million revolving credit facility, arranged by JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), may be increased to $1.25 billion. The company also refinanced its $65 million unsecured revolving credit facility that was offered by PNC Bank of the PNC Financial Group Inc. (PNC) on similar terms.

In addition to the extension of the maturities, DDR can benefit from cheaper rates of the current facilities. Both the revolving credit lines currently bear interest rate of LIBOR plus 140 basis points (bps), reflecting a decrease of 25 bps from the prior rate.

Moreover, the annual facility fee for both revolving credit lines has been lowered to 30 bps from 35 bps. Also, the new term loan’s interest rate is currently set at LIBOR plus 155 bps, resulting in a decline of 15 bps from the prior rate.

Thus, the move is a strategic fit and provides DDR adequate financial flexibility. Moreover, the company has a well-diversified portfolio concentrated mostly in the high growth areas of the country, including Florida, California, Texas and North Carolina. With a focus on best-in-class retailers in strategic locations, the portfolio drives value and mitigates operating risks by generating a relatively steady revenue stream.

DDR is scheduled to release its fourth-quarter 2012 results on Feb 12, 2013. The Zacks Consensus Estimate for the fourth-quarter FFO (fund from operations) is currently pegged at 27 cents per share.

DDR currently holds a Zacks Rank #4 (Sell). However, we maintain our long-term Neutral recommendation on the stock.

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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