DDR to Offload Brazilian Assets, Lowers Outlook - Analyst Blog

DDR Corp. DDR penned a letter of intent withMr. Alexander Otto and his affiliates to sell its stake in the Luxembourg-based firm – Sonae Sierra Brazil BV Sarl. The move will mark the total exit of the company from Brazilian market. Including the impact of this deal, DDR lowered its operating FFO per share guidance for 2014.

In Detail

In particular, DDR is offloading its 50% stake in Sonae Sierra Brazil BV Sarl for $343.6 million. The proceeds comprise DDR's share in the Parque Dom Pedro shopping center worth $60.7 million; and R$26.00 per share of Sonae Sierra Brasil worth $283.0 million – which represented a 67% premium to the company's closing price on the IBOVESPA on Mar 7. The deal is anticipated to close in the next 30 days, upon fulfillment of customary closing conditions.

Notably, DDR's stake in Sonae Sierra Brazil signifies its total investment in the Brazilian market. This retail real estate investment trust (REIT) plans to use the generated proceeds from this above market price sale deal for meeting several corporate needs such as reinvestment in premium shopping centers in major U.S. markets.

As a matter of fact, the portfolio of Sonae Sierra Brasil – a joint venture of DDR and Sonae Sierra Brazil BV Sarl – comprised 10 regional malls that span a total of 4.6 million square feet. With the sale of these assets, DDR's net operating income (on pro rata basis) from consolidated assets portfolio is anticipated to rise to 93% from 89%.

Considering the time difference between the above-mentioned sale deal, re-usage of the generated fund and doubled U.S. assets divestiture guidance, DDR cut its 2014 operating FFO per share outlook to the range of $1.14 to $1.18, from $1.17 to $1.21. In particular, DDR now expects to dispose $400 million assets in 2014 (earlier being $200 million), in addition to this Brazilian assets divestiture deal. 

In Conclusion

The divestiture of stake in the Brazilian market is strategic fit and depicts the efficient capital allocation strategy of DDR. It will help in reducing currency and development risk and aid in expansion in premium US market. This will pave way for top line growth in future.

DDR currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the REIT-Equity Trust – Retail industry include Simon Property Group Inc. SPG, General Growth Properties, Inc GGP and National Retail Properties, Inc. NNN. All stocks carry a Zacks Rank #2 (Buy).