DDR Ddr Corp.

We reiterate our Neutral recommendation on Developer Diversified Realty Corp. (DDR) as we expect the stock to perform in line with the broader market. The company reported first quarter 2011 FFO (fund from operations) of $89.1 million or 25 cents per share compared with a loss of $28.4 million or 12 cents per share in the year-earlier quarter. The reported FFO beat the Zacks Consensus Estimate by 4 cents. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Headquartered in Beachwood, Ohio, Developers Diversified is a real estate investment trust (REIT), which acquires, owns, develops, leases and manages shopping centers and business centers across 41 states in the U.S., along with Puerto Rico, Brazil and Canada. The company has initiated a strategic shift from neighborhoods (non-anchor type strip malls) to community centers, which have begun to blur the line between traditional malls and strip retail centers.

Developers Diversified boasts a diverse portfolio, concentrated mostly in the high growth areas of the country, including Florida, California, Texas and North Carolina. With a focus on best-in-class retailers in strategic locations, the company’s portfolio drives value and mitigates operating risks by generating a relatively steady revenue stream.

The company’s top tenants are large discount chains, including Wal-Mart, Home Depot, Lowe’s and Target, which provide value-for-money items. These companies are expected to fare relatively better than specialty retailers as consumers become more and more price conscious following the recession. This is expected to drive significant upside in the company’s top line.

However, Developers Diversified has a significant development pipeline, which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays and lease-up risk.

Developer Diversified currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Kimco Realty Corporation (KIM) currently holds a Zacks #3 Rank, which translates into a short-term Hold rating

 
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