DDR Reports Less Loss, Positive Same-Store NOI

CLEVELAND-Developers Diversified Realty said during a Q2 conference call report Tuesday that retailers are succeeding despite grumpy consumer demand, and therefore malls are doing better than expected. The company posted an FFO loss, but said same-store NOI was up 1.5% for the quarter.

The FFO loss for Q2 2010 was $32.8 million, or 13 cents per share, compared to a loss of $166.5 million, or $1.15 per share a year ago. The net loss for the quarter was $97.1 million, or 39 cents per share, compared to a net loss of $237.2 million, or $1.64 per share, in Q2 2009.

However, President and CEO Dan Hurwitz said this past quarter featured the first evidence of positive leasing spreads and positive same-store NOI growth since the beginning of the financial crisis. On the asset sales front, DDR sold $100 million of non-prime assets since March 31. “We continue to focus on pruning the portfolio of underperforming properties and enhancing the overall quality of our prime portfolio,” Hurwitz said. “We believe that current environment provides a unique opportunity to sell into the market at more favorable terms, and therefore we will continue to accelerate non-prime asset sales where prudent even though dilutive to near term FFO and therefore also expect to exceed our year-end budget of $150 million of dispositions.

He also said that the company will end the year with flat to slightly positive same-store NOI, overcoming negative NOI in the first quarter with positive NOI for the balance of the year. “While consumer confidence may be generally low and has been for many quarters, tenant balance sheets are strong and major bankruptcies have not been nonexistent for over a year. While rents in certain cases are still below long-term averages and bad debt remains a concern, property level momentum is real,” Hurwitz said during the call.

Paul Freddo, senior EVP, leasing and development for the company, said the firm is seeing more tenants exercise their renewal options at their contractual rent. “While there are some exceptions, we have seen far fewer situations where the tenant has a viable or economically reasonable opportunity to relocate,” he said.

Freddo said retail sales in Brazil remained strong resulting in many US based retailers such as Wal-Mart and Cinemark actively seeking to expand their store base there. A new development in Uberlandia is progressing as planned and is expected to open in late 2011. The project is anchored by Wal-Mart and Cinemark and is on schedule to open at 90% leased. The firm is also renovating and expanding two other Brazil properties, the Parque Dom Pedro and the Shopping Metropole in Sao Paulo. The company has 630 retail operating and development properties in 43 states, Brazil, Canada and Puerto Rico.