DDR Inc. (DDR) is following an aggressive capital-recycling program through strategic asset management, which is aimed at reducing currency and development risk and aid in expansion in premium U.S. markets. Also, the company’s store space recapturing efforts are expected to enhance its portfolio.
Earlier this month, DDR collaborated with an affiliate of The Blackstone Group L.P. (BX) to buy 76 shopping centers for $1.975 billion. Spanning 16.4 million square foot, the assets are mainly prime power centers positioned in Los Angeles, Houston, Denver, Chicago, Atlanta, Washington D.C. and Phoenix. These power centers are occupied by high-quality retailers and are currently 95.1% leased (read: DDR, Blackstone Form JV for $2 Billion Shopping Centers Buy).
Also, last month, in order to gain control of its premium anchor store locations in its portfolio, DDR disclosed the start of the multi-year proactive lease termination initiative. The move was aimed at re-letting these spaces to well performing tenants and enjoy mark-to-market rent appreciation of 30–40% (read: DDR Gaining Control of Premium Anchor Locations).
In May, DDR reported first-quarter 2014 operating FFO per share of 28 cents, in line with the Zacks Consensus Estimate and a penny above the year-ago quarter figure. Organic growth and premium assets buyout were the major positives. However, non-prime property divestitures hurt the results to some extent.
Going forward, we believe that the company’s portfolio repositioning efforts and capital allocation strategies would help it to ride on the growth trajectory,
Though the company is enhancing its portfolio mix through continued divestitures, the near-term dilution effect of such moves is unavoidable. Furthermore, rising online sales that adversely affect the demand for retail space remains a concern and an anticipated increase in the interest rate in the long term may dent its financial results, going forward.
To gain deeper insight into DDR, you can refer to our updated research report, which was issued on Jun 26, 2014.
Over the last 30 days, the Zacks Consensus Estimate for 2014 and 2015 FFO per share remained stable at $1.16 and $1.26, respectively. The stock currently has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Better-ranked stocks in the REIT industry include Retail Properties of America, Inc. (RPAI) and Rouse Properties, Inc. (RSE). Both stocks carry 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.
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