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DDR Corp.: Time To Go Long

Jul. 09, 2017 11:08 AM ETSITE Centers Corp. (SITC)16 Comments


  • Shopping center REITs, particularly lower end ones, have gotten battered recently.
  • DDR Corp. has deep-rooted issues beyond the usual Amazon phobia: leverage, heavy Puerto Rican asset exposure, and continuous management shuffles.
  • New management team in place has worked together in the past and seems to be leading the company on the right path.
  • There is plenty that could go wrong here, but at 8x my estimate of 2017 FFO, the risk is more than reflected in the stock price.

DDR Corp. (DDR), like many shopping center REITs, has suffered from poor market sentiment over the past year. However, there is obviously more to the story, given share price declines have rapidly outpaced that of its peer group, with nearly all of that relative underperformance occurring this year. Yield chasers are out in full force; the distribution (for now) remains intact and is now more than three times what it was back in early 2013. What investor wouldn’t want to pick up a security yielding 8.5%? The question investors have to ask themselves is whether that distribution is safe and whether there is true alpha potential here, or is DDR Corp. just another example of a falling knife in an already troubled sector.

Business Overview, Recent Negative Developments

DDR Corp. is a self-managed REIT that focuses on open air shopping center development and leasing. In total, the company owned 106M square feet of gross leasable area (“GLA”) at the end of 2016, consisting of 317 shopping centers in total (nearly half through joint ventures). As far as asset quality goes, the company has been making a measured shift towards more expensive, higher-grade properties in recent years. Between 2014 and 2017, has disposed of a net of 74 shopping centers (170 sold, 96 acquired), but the purchase price of acquisitions outpaced disposals by $400M. Core tenants include TJX Companies (TJX), Bed, Bath & Beyond (BBBY), PetSmart (PETM), Wal-Mart (WMT), and Kohl’s (KSS), although no one tenant exceeds 4% of aggregate base rent. By and large, most tenants are healthy - or as healthy as one could hope to find within brick and mortar retail.

Issues stem from a couple of factors. The company’s Puerto Rico exposure is off-putting to many, and it isn’t immaterial: 13.6% of property level net operating income at DDR Corp. was generated

This article was written by

Michael Boyd profile picture
Compelling income and growth plays in the energy sector.

Author of Energy Investing Authority

Top 1% Analyst According to TipRanks

I have a decade of experience in both the investment advisory and investment banking spaces, with stints in portfolio management, residential mortgage-backed securities, derivatives, and internal audit at various firms. Today, I am a full-time investor and "independent analyst for hire" here on Seeking Alpha.

Analyst’s Disclosure: I am/we are long DDR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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