Developers Diversified Realty Corp. (DDR), a real estate investment trust (REIT), reported fourth quarter 2010 FFO (fund from operations) loss of $43.9 million or 17 cents per share compared to a FFO loss of $28.0 million or 14 cents per share in the year-earlier quarter.

FFO or 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 $114.8 million primarily related to non-cash impairment charges, FFO in the fourth quarter of 2010 was $70.9 million or 27 cents per share. The recurring quarterly FFO marginally beat the Zacks Consensus Estimate by a penny.

For full year 2010, Developers Diversified reported FFO loss of $11.3 million or 5 cents per share compared to a FFO loss of $144.6 million or 90 cents per share in the previous year. Excluding non-recurring charges of $275.6 million primarily related to non-cash impairment charges, FFO in the reported fiscal was $264.3 million or $1.04 per share.

Total revenues during fourth quarter 2010 were $203.5 million compared with $203.6 million in the year-ago quarter. Total revenues during the quarter exceeded the Zacks Consensus Estimate of $197 million. For full year 2010, the company reported total revenues of $803.1 million compared to $797.4 million in 2009.

Developers Diversified executed strong leasing activities during the quarter. The company signed 161 new leases and 235 renewal leases spanning 1.0 million square feet and 1.6 million square feet, respectively. The core portfolio of the company was 92.3% leased at the end of the quarter, compared to 91.2% in the prior-year quarter.

Overall rental rates (including Brazil) increased 5.4% on cash basis year-over-year. Rental rates for new leases increased by 8.3% (cash) over prior rents and renewals increased by 4.8% during the quarter.

Average annualized base rents in the company’s portfolio (including Brazil) reached $13.36 per square foot at the end of the quarter, up from $13.01 in the year-ago quarter. Same-store net operating income (NOI) increased 3.6% during the reported quarter on a year-over-year basis.

Developers Diversified sold non-strategic assets to improve portfolio demographics and increase liquidity. The company sold 8 shopping centers totaling 0.8 million square feet generating gross proceeds of $33.8 million and realized a net gain of $8.4 million. The company also sold 10 joint venture assets spanning approximately 0.9 million square feet for a net loss of approximately $1.4 million.

Developers Diversified sold over 50 non-core assets for $791 million in 2010, of which its pro-rata share was $250 million. The company is continuing with its strategy of minimizing ground-up development spending in its domestic portfolio and diverting its capital for the lease-up of existing projects, as it believes there may be opportunities to redevelop many of its existing assets.

These redevelopments should create a growth opportunity for the company’s existing assets and create future value while reducing the level of risks and capital requirements that a new development entails. The company reduced its total development expenditures by 56% in 2010 on a year-over-year basis.

During the quarter, Developers Diversified issued $350 million of 1.75% convertible senior notes due November 2040. At the same time, 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. Consequently, Developers Diversified was able to reduce its consolidated debt in 2010 from $5.2 billion to $4.3 billion. At quarter-end, the company had $19.4 million of cash and cash equivalents compared to $26.2 million in the year-ago quarter.

For full year 2011, the company expects recurring FFO in the range of $0.90 to $1.05 per share. We maintain our ‘Neutral’ rating on the stock, which presently has a Zacks #3 Rank, translating into a short-term ‘Hold’ rating.

 
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