Neutral Stance on DDR - Analyst Blog
April 22 2013 - 12:00PM
Zacks
On Apr 19, 2013, we reiterated our
long-term recommendation on DDR Corp. (DDR) – a
retail real estate investment trust (REIT) – at Neutral. Our
decision is based on DDR’s strong portfolio restructuring activity
in the first quarter of 2013.
Going forward, we expect DDR’s
diversified retail portfolio, along with a strong tenant base to
provide a significant upside potential to the stock. However, the
continuous acquisition spree of the company involves significant
upfront operating expenses, which will limit its near-term
profitability.
Why the
Reiteration?
DDR mainly focuses on best-in-class
retailers at strategic locations and thereby its portfolio drives
value and mitigates operating risks by generating a relatively
steady revenue stream. Moreover, the company boasts a cluster of
industry leading tenants such as Wal-Mart Stores
Inc. (WMT), Home Depot, Lowe’s and Target
Corp. (TGT). This will boost its top-line growth going
forward.
DDR’s fourth-quarter 2012 operating
FFO came in at 27 cents per share, in line with the Zacks Consensus
Estimate. This also compared favorably with 26 cents reported in
the year-ago quarter. The results were attributable to organic
growth and investments related to property acquisitions, partially
offset by asset divesture.
Moreover, DDR’s successful
execution of its long-term strategy of restructuring the portfolio
and improving the balance sheet by reducing leverage are
noteworthy. These provide a significant upside potential for the
company going forward.
However, DDR’s properties consist
primarily of community shopping centers, thereupon making its
performance dependent on general economic conditions of the market
for retail space. Excess retail space in a number of markets and
the increase in consumer purchases through catalogs and the
Internet could hurt the demand for DDR properties. Consequently,
this could adversely affect the top-line growth of the company.
Over the last 60 days, the Zacks
Consensus Estimate for 2013 remained unchanged at $1.10 per share.
On the other hand, the Zacks Consensus Estimate for 2014 has
slightly moved up to $1.18 per share. Consequently, DDR carries a
Zacks Rank #3 (Hold).
Other Stocks to
Consider
REITs that are currently performing
better include Acadia Realty Trust (AKR), which
carries 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.
ACADIA RLTY TR (AKR): Free Stock Analysis Report
DDR CORP (DDR): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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