Developers Diversified Realty Corp. (DDR), a real estate investment trust (REIT), reported third quarter 2010 FFO (fund from operations) of $37.1 million or 14 cents per share compared to a FFO loss of $90.1 million or 54 cents per share in the year-earlier quarter. 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.
Excluding non-recurring charges of $26.1 million primarily related to non-cash impairment charges, FFO in the third quarter of 2010 was $63.2 million or 25 cents per share. The recurring quarterly FFO marginally beat the Zacks Consensus Estimate by a penny. Total revenues during third quarter 2010 were $198.8 million compared with $195.7 million in the year-ago quarter. Total revenues during the quarter exceeded the Zacks Consensus Estimate of $194 million.
Despite challenging market conditions, Developers Diversified executed strong leasing activities during the quarter. The company signed 191 new leases and 312 renewal leases spanning over 1.0 million square feet and 1.9 million square feet, respectively. The core portfolio of the company was 92.0% leased at the end of the quarter, compared to 90.9% in the prior-year quarter.
Overall rental rates (including Brazil) increased 5.0% on cash basis year-over-year. Rental rates for new leases increased by 6.9% (cash) over prior rents and renewals increased by 4.5% during the quarter. Average annualized base rents in the company’s portfolio (including Brazil) reached $13.26 per square foot at the end of the quarter, up from $12.82 in the year-ago quarter. Same-store net operating income (NOI) increased 2.0% during the quarter on a year-over-year basis.
Developers Diversified sold 11 shopping centers totaling 0.7 million square feet generating gross proceeds of $48.9 million and realized a net gain of $0.9 million. The company also sold a joint venture asset spanning approximately 0.4 million square feet for a net loss of approximately $13.3 million. The company’s proportionate share of the loss was approximately $2.8 million.
During the quarter, Developers Diversified issued $300 million worth of 7.88% senior unsecured notes due September 2020, and utilized the proceeds to repay debt under its unsecured credit facilities. The company also sold 5.1 million common shares during the quarter, generating gross proceeds of $58.3 million, all of which were utilized to fund investments in loans secured by prime shopping centers. Developers Diversified reduced consolidated debt by nearly $242.7 million to $4.4 billion at September 30, 2010. At quarter-end, the company had $21.3 million of cash.
Subsequent to the quarter-end, Developers Diversified refinanced two senior revolving credit facilities in two separate transactions. The company replaced a $1.25 billion credit facility maturing in June 2011 with a new $950 million unsecured facility provided by J.P. Morgan Securities LLC, a division of JPMorgan Chase & Co. (JPM), and Wells Fargo Securities, LLC, part of Wells Fargo & Company (WFC). The new facility has an uncommitted accordion feature to increase the credit facility to $1.2 billion and matures in February 2014. The company also obtained a new $65 million unsecured revolving credit facility, which replaced its $75 million facility maturing in June 2011. The credit facility also matures in February 2014.
For full year 2010, the company expects recurring FFO in the range of $1.00 to 1.05 per share. We maintain our Neutral rating on the stock over the long term, which presently has a Zacks #3 Rank that translates into a short-term “Hold” rating.
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