DDR Is Moving The Bar But The Yield Is Sub-Par

In an article earlier this week, I wrote about General Growth Properties (NYSE:GGP), a mall-based REIT that was hit hard during the Great Recession and almost went the way of the dinosaur. The Chicago-based REIT made it through the tough times and now has positioned itself as a best-in-class organization.

In the shopping center sector, there's another "rising from the ashes" story and this one can be summed from a 2008 Bloomberg article:

Developers Diversified shares have plummeted 48 percent from Oct. 20 through yesterday and 76 percent since Sept. 19. The company faces more than $3.5 billion in debt payments from 2010 through 2012, S&P said yesterday when it lowered the real estate investment trust's credit rating…

The decision not to make dividend payments in the fourth quarter will add $80 million to the company's balance sheet this year and a total of $230 million this year and next, Developers Diversified said in a statement. The company's 2008 total dividends now will be $2.07 a share and $1.50 a share for all of 2009, paid quarterly, according to the statement.

That was just the beginning of a painful decline for the Cleveland-based REIT. The company's annual dividend plummeted from a high of $2.64 (in 2007) to a pitiful $.08 per share in 2010.

The good news is that the worst is over for DDR and since the official end of the recession (2009), the company has become a much more disciplined and focused company. My article today is not to provide you with the granular details of the challenging times, but instead to determine whether or not DDR is a stock that I can rely on in the future. So let's get started…

Why Is DDR Different from the other Shopping Center REITs?

DDR Corporation (NYSE:DDR) is considered a dominant power center landlord. By definition, a power center is an unenclosed shopping center with a typical range of 250,000 square feet to 600,000 square feet of gross lease area that usually contains three or more big box retailers and various smaller retailers (usually located in strip plazas) with a common parking area shared among the retailers. (Source: Wikipedia)

When you consider the landscape of shopping center REITs today, many of them own and operate grocery-anchored centers and neighborhood centers; however, DDR has positioned itself as a leading owner of the larger, power centers. Here's how DDR and the peers compare based on overall market capitalization:

The Great Recession became the true "category killer," wiping out countless retailers and slowing growth in an industry that seemed invincible. The monstrous "power center" and most other forms of shopping came to a screeching halt (as you can see below):

While many of the so-called "category killers" were killed by tough economic times, the "power center" model survived. Much of the success of the "power" model has been driven by the evolution of the tenants (in the power centers). While many department stores, like J.C. Penney (NYSE:JCP), and Sears (NASDAQ:SHLD) are losing market share, the value store discounters, like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) are gaining ground. (Sears is now unloading assets for a REIT now…are you kidding?).

Continue reading this article here.