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DDR Corp (DDR) Q3 FFO Beats Estimates, Stock Up More Than 6%

Zacks Equity Research
Updated

DDR Corp.’s DDR third-quarter 2017 funds from operations (FFO) per share of 30 cents surpassed the Zacks Consensus Estimate of 27 cents. However, the figure declined 3 cents from the prior-year quarter.

Results reflect higher-than-expected business in the company’s Continental U.S. portfolio and balance-sheet improvement efforts. However, the dilutive effect of deleveraging generated through sale of assets was primarily responsible for the decline in FFO from the prior-year quarter.

The company generated revenues of $220.1 million for the third quarter, marginally missing the Zacks Consensus Estimate of $222.2 million. The figure also came in lower than $245.2 million recorded in the year-ago quarter.

Amid these, shares of DDR Corp. climbed 6.68% to $8.30 during regular trading session on Nov 2.

DDR Corp. Price, Consensus and EPS Surprise
 

DDR Corp. Price, Consensus and EPS Surprise | DDR Corp. Quote

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Note: The EPS numbers presented in the above chart represent funds from operations (FFO) per share.

Quarter in Detail

DDR executed 315 new and renewal leases for 1.8 million square feet of space during the reported quarter. On a pro-rata basis and including Puerto Rico, the company generated new leasing spreads of 6.8% and renewal leasing spreads of 6.1% for the quarter. However, same-store net operating income (NOI), including Puerto Rico, edged down 0.9% year over year on a pro-rata basis.

As of Sep 30, 2017, on a pro-rata basis, the company’s portfolio was 93.4% leased, down 200 basis points from the prior-year quarter end. Annualized base rent per occupied square foot increased 5.2% on a pro rata basis to $16.16 as of Sep 30, 2017, from $15.36 at the end of the year-ago quarter.

Notably, during the third quarter, DDR sold 16 shopping centers and land parcels for a total of $392.1 million, aggregating $173.1 million at DDR's share.

Moreover, the company extended the maturity of its revolving credit facilities and enhanced borrowing capacity to $1.0 billion. Also, the company extended the maturity of $200 million of $400-million unsecured term loan.

DDR exited the third quarter with $18.3 million in cash compared with $30.4 million as of Dec 31, 2016.

Outlook

The company revised its expected annual growth in same-store NOI range to -0.5-0.5% for the Continental U.S. Portfolio at DDR's share from the prior range of -1.0-0.5%. Further, the company projects leased rate at year end for the Continental U.S. Portfolio at 93.25-93.75%.

Notably, it withdrew the Puerto Rico same-store NOI guidance. This is due to the uncertainties surrounding the timing of business interruption insurance payments.

Bottom Line

DDR is likely to benefit from its diversified portfolio in prosperous regions and presence of well-capitalized tenants on its roster. In addition to this, aggressive capital-recycling program, balance-sheet improvement efforts, improved liquidity and maturity schedule are likely to drive its growth over the long term. Nevertheless, the choppy retail real estate environment remains a concern while effects of divestitures cannot be ignored. Further, rate hike add to its woes.  

Currently, DDR carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of Welltower Inc. HCN, Mack-Cali Realty Corporation CLI and Lamar Advertising Company LAMR, all of which are expected to report next week.

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.

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