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Tickers in this Article: DDR, HD, TGT, TFM
One of the leading retail real estate investment trusts (REITs) – DDR Corp. (DDR) – recently provided an update on its portfolio repositioning activities carried on in the second-quarter 2013. In consistence with its capital-recycling program, the company completed strategic transactions worth $175 million.

Acquisitions

During the quarter, DDR acquired one of its joint venture (JV) partners’ 85% interest in 5 chief power centers in Atlanta, Tampa and Richmond – among the top 50 MSAs (Metropolitan Statistical Areas) of the U.S. The premium assets – The Walk at Highwoods Preserve, Douglasville Pavilion, Commonwealth Center, Chesterfield Crossing and Jefferson Plaza – were bought for $94 million. These centers were managed and leased by DDR over the past six years.

The portfolio that spans 1.3 million square feet is currently 98% occupied by industry leading global retailers –including T.J. Maxx, Target Corp. (TGT), Wal-Mart, The Home Depot, Inc. (HD) and The Fresh Market, Inc. (TFM). On the other hand, the small shop space represents only 13% of total gross leasable area.

The unencumbered acquired properties can benefit from a population of over 330,000 with an average trade area household income of $74,000. The above-mentioned buyouts were financed through proceeds from asset divestitures and new common equity. In particular, DDR issued 2.5 million new shares during the quarter at an average price of $17.83 and generated gross proceeds of $45 million through the offering.

Dispositions

During the quarter, the company divested 11 non-core and 4 non-income generating assets and obtained gross proceeds of $64 million, of which DDR’s share was $60 million. Currently, DDR has around $118 million worth of non-core assets under contracts for sale, which include non-income producing properties of $48 million.

Our Take

We are encouraged with DDR’s long-term strategy of repositioning its overall portfolio by upgrading the quality of shopping centers and improving the balance sheet by reducing leverage. In particular, the addition of upscale assets and mortgage free 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 is expected to release its second-quarter 2013 results on Jul 31, 2013. The Zacks Consensus Estimate for second-quarter funds from operations (FFO) is currently pegged at 27 cents per share, depicting an estimated year-over-year growth of 7.27%.

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

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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