On Oct 4, 2013, we reinstated our long-term Neutral recommendation on DDR Corp. (DDR - Analyst Report). The decision reflects the company’s strategic transactions in third-quarter 2013 disclosed recently, decent second-quarter performance and an impressive balance sheet position.
Why the Reiteration?
DDR has been following an aggressive capital recycling program through strategic asset management to boost its well-diversified portfolio of premium assets. In tune with this, DDR recently disclosed the completion of strategic transactions worth $729 million in third-quarter 2013. This included acquisitions worth $591 million and divestitures valued at $138 million.
In addition, this retail real estate investment trust (REIT) generally inks long-term leases and has a strong tenant base of well-capitalized, industry leading retailers such as Wal-Mart Stores Inc. (WMT - Analyst Report) and The TJX Companies, Inc. (TJX - Analyst Report). Consequently, the company remains protected from short-term market swings that weighs on other players in the industry.
Moreover, DDR’s second-quarter 2013 core funds from operations (FFO) of 27 cents came 8% higher than the year-ago figure and in line with the Zacks Consensus Estimate. This was aided by organic growth and acquisition of prime assets.
However, stiff competition from other players in the market and rise in interest rates remains a threat for DDR’s profitability. In addition, increase in Internet sales, which can adversely affect the demand for DDR’s retail spaces remain our concern.
Over the last 30 days, the Zacks Consensus Estimate for 2013 and 2014 FFO per share remained unchanged at $1.09 and $1.20, respectively. Consequently, DDR now carries a Zacks Rank #3 (Hold).
DDR is scheduled to report its third-quarter 2013 earnings on Nov 4, 2013, after the closing bell. The Zacks Consensus Estimate for core FFO per share for the upcoming quarter is pegged at 28 cents per share, depicting a year-over-year increase of 3.21%.
Other Stock to Consider
Another retail REIT that is currently performing better is The Macerich Co. (MAC - Analyst Report), which has 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.