DDR Gaining Control of Premium Anchor Store - Analyst Blog

In order to gain control of its premium anchor store locations in its portfolio, DDR Corp. DDR disclosed the start of the multi-year proactive lease termination initiative. The move will help this retail real estate investment trust (REIT) to relet these spaces to well performing tenants and enjoy mark-to-market rent appreciation of 30–40%.

As per its specified criteria of recapturing spaces, DDR has acknowledged 90 anchor locations (3.3 million square feet of prime retail space) and finalized deals for 21 locations (550,000 square feet). These units are situated across Denver, Orlando, Boston, Cleveland, San Antonio and Raleigh.

Moreover, DDR is amid talks with several retailers for filling up the recaptured locations. These are high-end companies such as Whole Foods Market, Inc. WFM, White House Black Market, Five Below, Inc. FIVE, Gap Factory, Marshalls, Carter's, Inc. CRI, Sprouts Farmers Market, Trader Joe's and HomeGoods. DDR will start reaping benefits from the initiative in the second half of 2015.

DDR has been following an aggressive capital-recycling program through strategic asset management, which aids in expansion in premium U.S. markets and boosts the overall portfolio quality. The abovementioned initiative complements this effort of DDR. Particularly, the attainment of below-market leases and their remerchandising efforts offer the prospect for operating income escalations and enhancement of asset-level merchandise mix for DDR. Hence, we are encouraged with this move by the company.

Last month, DDR reported first-quarter 2014 operating funds from operations (FFO) per share of 28 cents, in line with the Zacks Consensus Estimate and a penny above the year-ago quarter figure. Organic growth and the impact from premium assets buyout were the major positives. However, the earnings dilution from asset divestitures partly dwarfed the benefits.

DDR currently holds a Zacks Rank #3 (Hold).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.