DDR Ddr Corp.

Developers Diversified Realty Corporation (DDR), a real estate investment trust (REIT), has recently announced its plans to demolish two existing shopping malls in Texas and Colorado to allow for the subsequent sale and construction of two new stores for Target Corp. (TGT), a leading general merchandise and food discount stores in the U.S. The strategic move is aimed at redeveloping the non-income producing assets in to prime shopping centers to generate steady revenue for the company, as it continues to focus on redevelopment as a driver of corporate growth.

Developers Diversified will raze the Terrell Plaza shopping center property in San Antonio, Texas, which has a population density of over 540,000 people within a seven-mile trade area. The redeveloped shopping center will feature approximately 90,000 square feet of value-oriented retail space in addition to the new 138,000 square-foot space occupied by Target.

The company will also refurbish a two-story enclosed mall at Tamarac Square in Denver, Colorado. Tamarac Square is presently 90% vacant, despite its in-fill location with access to an attractive, high barrier-to-entry market with population density exceeding 720,000 people within a seven-mile trade area. Upon completion of the 135,000 square-foot store and the renovation of the adjacent 33,000 square-foot convenience center, the project is expected to be 98% leased.

The aggregate gross investment for redeveloping the properties is projected to be $40 million. Developers Diversified’s investment (net of land sales and reimbursements) would total approximately $20 million, with the return on investment (ROI) expected to exceed its 10% return threshold target for redevelopment investments. The company will fund the projects with retained cash flow and recycled capital from the continued sale of non-core assets.

Headquartered in Beachwood, Ohio, Developers Diversified acquires, owns, develops, leases and manages shopping centers and business centers across 41 states in the U.S., along with Puerto Rico, Brazil, Russia, and Canada. At the end of first quarter 2011, Developers Diversified owned and managed 520 retail operating (including joint ventures) and development properties spanning approximately 127 million square feet.

We maintain our ‘Neutral’ recommendation on Developers Diversified for the long term. The company presently has a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

 
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