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We have reiterated our Neutral recommendation on DDR Corp. (DDR - Analyst Report), a real estate investment trust (REIT), as we expect the stock to perform in line with the broader market.

The company reported first quarter 2012 FFO (funds from operations) of $59.7 million or 21 cents per share compared with $93.0 million or 27 cents per share in the year-earlier quarter. Funds from operations, 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.

DDR acquires, owns, develops, leases and manages shopping centers and business centers across 39 states in the U.S., along with Puerto Rico and Brazil. It has a well-diversified portfolio concentrated mostly in the high growth areas of the country, including Florida, California, Texas and North Carolina. With a focus on best-in-class retailers in strategic locations, the portfolio drives value and mitigates operating risks by generating a relatively steady revenue stream.

The company continues to minimize ground-up development spending in its domestic portfolio, and instead allocates capital to the lease-up of existing projects as it believes there may be opportunities to redevelop many of its existing assets. These redevelopments should create a growth opportunity for the company’s existing assets and create future value without the level of risk or capital required for a new development.

However, the possibility of store closings at many DDR centers due to lease terminations adds uncertainty to the earnings, and it might have to re-let large big box spaces at significantly lower rents in a tough leasing environment.

This in turn would affect the top-line growth of the company and put considerable pressure on its sustainability. The company has a significant development pipeline, which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays, and lease-up risk.

DDR currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. One of its competitors, Kimco Realty Corporation (KIM - Analyst Report) also holds a Zacks #3 Rank.

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