Developers Diversified (DDR) is a real estate investment trust (REIT) which specializes in the acquisition, ownership, development, redevelopment, leasing, and management of shopping centers and business centers.
The company reported FFO [funds from operations] of $0.82 per share during the 2nd quarter, in line with the company guidance, but $0.12 per share below our estimates. The miss was due to lower than expected transactional income. Overall 2nd quarter results were good as the company is still increasing rents on new/renewal rents.
We are maintaining our Hold rating due to uncertainty in the retail environment. At 8.1x our 2008 FFO estimate of $3.95 per share, DDR is trading at a 38% discount to its peer group average. Overall operations are holding up relatively well, and we think the company will post positive overall FFO growth in 2008. The company's discount to its peer group provides good downside protection in the event of a pullback in the sector.
On the other hand, consumer spending patterns will continue to weaken this year, and we expect new store expansion to be slow, thus, retail focused companies will have a difficult time increasing rents and maintaining occupancies. DDR also has exposure to some bankrupt or near bankrupt retailers, which could pull down full-year 2008 earnings as the company tries to release dark space. We recommend investors Hold the shares for the above-average yield. We are setting our price target at $32.00 per share.
Read the full analyst report on DDR
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