Aerial - DDR Corp. Deer Park Town Center - IL.jpg
DDR Corp. owns and manages 390 shopping centers, including Deer Park Town Center in Illinois. The Beachwood-based company is looking for a new chief executive officer, after announcing that the current CEO won't stay after his employment agreement ends in late 2015.
(DDR Corp.; Mark Remaley)
BEACHWOOD, Ohio -- When DDR Corp. announced this month that its chief executive officer was headed out the door, some analysts claimed there was little reason for surprise.
After all, they said, Daniel Hurwitz had accomplished what he set out to do, leading the Beachwood retail landlord through a post-recession rebound. And the Connecticut native had expressed a hankering to get back to the East Coast.
Rich Moore, a Solon analyst who tracks DDR, believes all those things are true. But that didn't blunt the shock.
"I was stunned," said Moore, who covers real estate investment trusts for RBC Capital Markets. "And I think the street was stunned. Dan is an incredibly popular CEO with both analysts and investors."
Hurwitz isn't leaving right away. DDR, which owns and manages 390 shopping centers anchored by tenants such as Walmart and PetSmart, said he plans to stay through the end of his employment agreement, which expires Dec. 31, 2015.
Daniel Hurwitz has been DDR's chief executive officer since Jan. 1, 2010.
But he and the company's board of directors said Sept. 11 that they won't be renewing that agreement. Now a well-known local company is in leadership limbo, to a degree, as the board sifts through potential successors and investors look on.
DDR's stock price dipped after the announcement and, as of Friday's close, was at $16.55, down 7.1 percent from earlier in the month. A few analysts downgraded the company soon after the Hurwitz disclosure, but most kept their ratings the same.
Speculation quickly started about the next chief executive, with many onlookers pointing to David Oakes, the company's relatively young but well-respected president and chief financial officer.
The company, meanwhile, has kept quiet. A spokesman declined to discuss the transition, and DDR wouldn't make executives or board members available for interviews. For now, the only public statements from Hurwitz and Terrance Ahern, the board's chairman, are from a short news release.
"For more than 15 years, Dan has played key roles in DDR's strategy of building a high-quality operating platform, prime portfolio and strong balance sheet," Ahern said in the news release, distributed after markets closed on Sept. 11. "We thank him for his many contributions."
The board, he added, would hire an executive search firm and consider internal and external candidates for the top job.
"I couldn't be prouder of what our team accomplished at DDR over the past several years" Hurwitz, who has led the company since Jan. 1, 2010, said in the news release. "Together, we have made great strides toward becoming an industry leader. DDR's next CEO will inherit a high-quality portfolio of assets operated by even higher-quality people. I am confident that DDR's best days are yet to come."
Analysts laud Hurwitz for tough turnaround
Hurwitz took the helm at DDR after a rough run for the company and the real estate industry, in general.
The company's shares dove from a pre-recession peak of more than $70 to less than $1.50 by March 2009, as the stock market cratered from the collapse of the nation's housing market and the demise of Wall Street titans like Lehman Bros.
Real estate development stalled and financing dried up. Retailers cut back. Shopping-center anchors - DDR tenants such as Circuit City and Linens 'n Things among them - went bankrupt. Analysts were on deathwatch as the company, then called Developers Diversified Realty Corp., struggled with heavy debt and a cash crunch.
DDR, a publicly traded real estate investment trust, has its headquarters on Richmond Road in Beachwood.
Under then-CEO Scott Wolstein, who founded the business with his father in 1992, Developers Diversified curtailed construction, shelved international development plans and found a savior - German billionaire Alexander Otto, whose family became the company's largest individual shareholder, bringing DDR much-needed money and some stability.
Hurwitz replaced Wolstein in early 2010. The handoff followed the company's succession plan but also continued the company's rebuilding into a new, somewhat chastened Developers Diversified that it needed. Prior to that, Hurwitz had been the company's president and chief operating officer, after climbing the ranks from executive vice president of leasing.
"He's been an absolutely sensational CEO," Moore said. "He picked the company up after it almost went away. He had a terrific strategic plan, and he executed on that strategic plan."
Fast-forward nearly five years, and DDR is a company changed. Executives have trimmed the real estate portfolio by more than 40 percent, from upwards of 660 shopping centers. The remaining properties, and recent acquisitions, generally are bigger, with better locations and higher occupancy levels.
The company has sold off far-flung investments, such as its stake in Brazilian malls, and built new domestic relationships, including joint ventures with the Blackstone Group, a New York investment giant with an appetite for commercial real estate.
And DDR has slashed its debt and crafted a more gradual, manageable loan-repayment schedule. Credit-rating agencies took note. So did analysts, who laud Hurwitz and his team for the transformation.
"In less than five years, Mr. Hurwitz presided over one of the ... industry's most impressive portfolio and balance sheet turnarounds," analysts at Green Street Advisors wrote in a research note earlier this month. "During this time frame, the company delivered peer-leading total shareholder returns.
"Mr. Hurwitz is leaving on a high note and handing a well-run machine to his successor," they added. "His future plans appear uncertain, but he will likely command a lot of interest from retailer and [real estate investment trust] board rooms."
Chief financial officer identified as potential candidate
In an industry where executives tend to stick around, DDR now runs the risk of looking rudderless. Hurwitz, who is 50, has agreed to stay through the end of next year. But he has an expiration date.
Investors will be wondering what - and who - is next.
David Oakes, the company's president and chief financial officer, is viewed by analysts as a likely pick to fill the CEO post.
Oakes, the chief financial officer, came up as a potential successor in analyst notes and interviews shortly after the DDR announcement.
At 36, he has spent seven and a half years with DDR, starting out as executive vice president of finance and chief investment officer. Before that, he worked as a portfolio manager and a financial analyst.
Analysts at SunTrust Robinson Humphrey, Inc. described Oakes as the "logical choice" to succeed Hurwitz. "We always viewed David as a smart, open and honest person," they wrote in a mid-September response to the DDR's announcement.
Similarly, analysts at Sandler O'Neill + Partners advocated for Oakes, describing him, as an instrumental cog in the company's recovery. They also applauded the board's strategy of openly pursuing candidates for the top job.
DDR hasn't publicly set a timeline for picking Hurwitz's replacement. Executives are likely to field questions about the subject in October, when the company is scheduled to hold a conference call after reporting on its third-quarter performance.
"Anytime you lose a person of that stature and that success level, it throws into question whether the successor will be as good," Moore said. "At this point, they haven't identified a successor. How they communicate that is going to be very important.
"Until they resolve who the CEO is, it creates a sense of uncertainty," he added. "And the stock market hates uncertainty. So the sooner they find their pick, the better."