Continuing with the trend of reporting in-line results, DDR Corp. (DDR) reported third-quarter 2014 operating funds from operations (FFO) per share of 29 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 23.9% year over year to $242.9 million but missed the Zacks Consensus Estimate of $253 million.
Quarter in Details
DDR inked 148 new (0.7 million square feet) and 194 renewal (2.0 million square feet) leases. The company’s portfolio generated positive leasing spreads, with new leases climbing 23.6% and renewals up 8.2% on a pro rata basis. Also, same-store NOI increased 3.1% year over year both on a pro rata basis and 100% ownership.
As of Sep 30, 2014, the company’s U.S. portfolio was 95.6% leased, reflecting an improvement of 30 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 $13.65, up 3.5% on a year-over-year basis.
During the quarter, DDR closed seven prime power center acquisitions (spanning 2.3 million square feet) for $377 million from a joint venture with Blackstone. Also, the company bought one prime power center (stretching 0.2 million square feet) for $31.5 million.
On the other hand, DDR vended seven operating assets and two land parcels for $263 million. With the divestiture of land parcels, the company exited the Russian market.
Subsequent to quarter-end, DDR in collaboration with an affiliate of The Blackstone Group L.P. (BX) completed the acquisition of 71 shopping centers situated across the U.S (read more:DDR Completes $1.93B Shopping Centers Buy).
In the quarter, DDR’s board of directors decided that the employment agreement of the company’s Chief Executive Officer (CEO), which expires Dec 31, 2015, will not be renewed.
DDR exited third-quarter 2014 with $134.3 million of cash, as compared to $359.3 million as of Jun 30, 2014.
2014 Outlook Revised
DDR revised its 2014 operating FFO per share guidance and now expects it to be in the range of $1.15 to $1.17 (previously being $1.14 to $1.18). The Zacks Consensus Estimate of $1.17 for the same falls within the new range.
In Conclusion
DDR’s solid portfolio of value-oriented shopping centers bodes well for its long-term growth. Also, we believe that the company’s long-term strategy of repositioning its overall portfolio by upgrading the quality of shopping centers strengthens its position in top MSAs of the U.S. In particular, the successful execution of the company’s capital recycling efforts bodes well. Moreover, the addition of premium assets to its high-end assets pool, along with strengthening of the tenant base, promises steady rental revenues for this Zacks Rank #2 (Buy) stock.
Investors interested in the REIT industry may consider stocks like The Macerich Company (MAC) and Regency Centers Corporation (REG) having a Zacks Rank #2.
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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