Fitch Ratings upgraded the Issuer Default Rating (IDR) of DDR Corp. (DDR) to 'BBB-' from 'BB+'. The outlook was changed to 'Stable' from 'Positive.' The rating upgrade follows the company’s recent disclosure regarding the acquisition of a portfolio of shopping centers from its existing joint venture (JV) with The Blackstone Group LP (BX).
DDR, in particular, agreed to buy Blackstone’s stake in 30 of 44 shopping centers of the JV for $1.46 billion. The deal, which is expected to close in the fourth quarter of 2013 subject to customary closing conditions, is projected to substantially enhance DDR’s cash flow.
According to Fitch, the deal would help generate recurring cash flow in excess of fixed-charges at a level consistent with an investment-grade rating. Moreover, the rating agency noted management’s prudent focus on improving its credit profile, decent liquidity and solid access to capital. The rating may be further adjusted — upward or downward — based on the company’s leverage and fixed-charge coverage.
The rating upgrade of DDR is encouraging. In fact, this plays a major role in preserving investor confidence in the stock and helps boost its creditworthiness in the market.
As a matter of fact, this Blackstone portfolio deal adds premium properties to DDR’s wholly-owned portfolio, which are located in regions with higher household income and greater population density than DDR’s current portfolio. These would include Riverdale Village in Minneapolis, Shoppers World in Boston, Woodfield Village Green in Chicago and Fairfax Towne Center in Washington DC.
Moreover, going forward, DDR has growth opportunities from marking rents to market (with average base rent of $13.81 per square foot, 5% below the DDR prime portfolio) as well as the chance to add value through redevelopment and remerchandising projects, tenant downsizing and center expansions.
DDR currently holds a Zacks Rank #3 (Hold). Two other retail REIT stocks that are performing well and deserve a look include Acadia Realty Trust (AKR) and The Macerich Company (MAC), both carrying a Zacks Rank #2 (Buy).
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