DDR Ddr Corp.

DDR Corp. (DDR), a real estate investment trust (REIT), has recently announced its plans to redevelop four shopping centers in Puerto Rico as part of its long-term strategy to follow a significant redevelopment program to fuel its growth engine. The projects will be funded with retained cash flow and recycled capital from the continued sale of non-core assets.

The properties that would be redeveloped by DDR include Plaza del Sol – a 676,000 square-foot enclosed mall in the city of Bayamon; Plaza del Norte – a 671,000 square-foot enclosed mall in Hatillo; Rexville Plaza – a 132,309 square-foot retail property in Bayamon; and Plaza Escorial – a 636,415 square-foot shopping center in Carolina.

DDR intends to start the redevelopment work at Plaza del Sol in early 2012, which would include the relocation of the existing food court and converting the former food court into approximately 25,000 square feet of in-line space in the highly-trafficked central corridor of the mall. The renovation is expected to increase the productivity of the shopping center by generating sales of over $500 per square foot. 

Redevelopment in Plaza del Norte would feature a 30,000 square-foot expansion and renovation of an existing store anchored by J. C. Penney Company, Inc. (JCP). The project, including a significant interior and exterior renovation, is scheduled to be completed in early 2013.

At RexvillePlaza, DDR will add new retail stores anchored by CVS Caremark Corporation (CVS) and Marshalls, Inc. – a chain of department stores owned by The TJX Companies, Inc. (TJX). The redevelopment, scheduled to be completed in summer 2012, is expected to enhance property level cash flow and significantly upgrade the physical components of the asset. In Plaza Escorial, DDR will add a new PetSmart, Inc. (PETM) store as part of its redevelopment initiative.

With limited new construction on anvil in Puerto Rico, the redeveloped properties are expected to meet the increased demand of high-quality space in the island for large retailers. DDR is expected to invest approximately $50 million for the redevelopment of these assets. The company expects the redevelopment projects to yield a return on investment of over 10%.

DDR has long been minimizing ground-up development spending in its domestic portfolio, and instead started allocating capital to the lease-up of existing projects. These redevelopments have created a growth opportunity for the company’s existing assets without the level of risk or capital required for new development. This in turn has enabled DDR to de-lever the balance sheet and generate considerable cash flow for portfolio reinvestment as well as increase the cash distribution to its shareholders.

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

 
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