Developers Diversified Realty: Update and Equity

| About: DDR Corp. (DDR)

Developers Diversified Realty (NYSE:DDR) filed an 8k yesterday with an investor update. Here are some of the details:

  • Q4 2009 FFO/sh ($0.15) - ($0.13)
  • FY 2009 FFO/sh: ($2.52) - ($2.49)
  • Q4 2009 Operating FFO/sh: $0.30 - $0.32 (expectations are $0.31)
  • Q4 Operating FFO: $61MM - $64MM
  • FY 2009 FFO: $298MM - $301MM
  • Q4 Net loss/sh ($0.47) - ($0.45)

The difference between operating FFO and FFO are non-operating charges taken. These charges primarily related to the company’s investments in the various Coventry II joint ventures, as described below, and the establishment of a full reserve of $67 million relating to a loan advanced to that joint venture.

The company also gave the following balance sheet stats:

  • total outstanding consolidated debt of approximately $5.2 billion;
  • wholly-owned mortgage debt, excluding loans with extension options, maturing in 2010 of approximately $43 million;
  • approximately $530 million of available borrowings under its revolving credit facilities.

On the portfolio front, they gave the following information:

  • executed leases for approximately 3.0 million square feet in the combined portfolio, including 166 new leases and 306 renewals, however base rental rates on new leases and renewals decreased 4.6% overall; and
  • re-tenanted or sold over 6% of the 7.1 million square feet in the combined portfolio vacated by bankrupt retailers in late 2008 and 2009.

The decline in base rentals and the low re-tenanting numbers are cause for concern (add that to the DDR concern list).

As well, the company announced it has commenced an underwritten public offering to sell 36,000,000 of its common shares. The company intends to use the net proceeds from the offering to repay debt with short-term maturities and reduce balances on the company's revolving credit facilities.

Bottom line: The operating FFO/sh should be in line with analyst estimates, but trends still are not in the company's favor. While the company did hit TALF and should get the equity off (which shows access to the capital market - albeit somewhat limited), the company still has operational issues that will take time to work out of.

The stock is down $0.18 (2.1%), preferred stock is mixed (down marginally on the 8% G's, flat on the 7.375% H's and up marginally on the 7.5% I's), bonds don't trade often and I last saw them quoted around +500 (on a Z or swap spread).


  • Stock: 7.00% ('09 yield, converting shares and using avg share px)
  • DDR G pref: 9.28% (stripped yield)
  • DDR 5.50 '15: 7.60%

Disclosure: Author is long DDR preferreds

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