DDR Closes Deals Worth $1.6B in Q4

DDR Corp. (DDR) accomplished transactions worth over $1.64 billion in fourth-quarter 2013. The move comes as part of the company’s asset management efforts and capital recycling program. In particular, this retail real estate investment trust (REIT) closed acquisitions worth $1.46 billion and divestitures of $184 million in the said quarter.

Acquisitions

During the fourth quarter, DDR bought Blackstone's 95% stake in 30 power centers for $1.46 billion. Earlier these properties were held in joint venture. Spanning 11.8 million square feet and 95% leased, these properties boast of high credit quality tenants like Wal-Mart Stores Inc. (WMT), Target Corp. (TGT), Kohl's (KSS), PetSmart (PETM) and Bed Bath & Beyond Inc. (BBBY). DDR financed the deal with funds reaped through the issuance of new common equity and unsecured debt, assumption of mortgage debt and preferred equity repayment.

Divestitures

On the other hand, DDR sold 20 non-prime assets for a total of $184 million. Of this, DDR’s share was $98 million. This was ahead of the company’s prior disclosed guidance. Furthermore, the company is under contract for the sale of another 24 non-prime assets worth $204 million in total ($181 million at DDR's share), including non-income producing properties of $53 million.

Our Take

We believe that the portfolio repositioning efforts would place DDR well on the growth trajectory. While the company continues to expand its asset base with the addition of prime power centers in top MSA's, it is simultaneously offloading lower quality assets in weak markets. These dispositions provide the wherewithal to invest in opportunistic acquisitions.

As part of such efforts, DDR purchased 46 prime shopping centers spanning more than 17 million square feet in 2013 in premium markets. Leased 95%, these centers are occupied by renowned national retailers. We believe that the addition of premium assets to its high-end assets pool, along with strengthening of the tenant base, promises steady rental revenues for DDR in the future.

The company also sold 80 non-prime assets for a total of $433 million. Of this, DDR's share was $296 million. These assets span 5.9 million square feet. With the average trade area household income of $70,000 for these disposed assets being 13% lower than DDR's prime portfolio, the dispositions were a strategic fit.

DDR currently carries a Zacks Rank #3 (Hold).