DDR: Doing Well, For Now

It’s nice to see a company like Developers Diversified turn in a good quarter.

Net income came in at $76.8 million, up from $29.6 million during the same year-ago period. Plus, the REIT was able to generate some cash by disposing of seven centers for $67.4 million, and shareholders agreed to sell 30 million shares to the German Otto family, pulling in nearly $113 million,

Plus, executives revealed that even though retailers are asking for rent reductions, they’re not honoring those requests at a rapid rate. This really surprises us: Of the 672 rent-relief requests the firm has gotten, management has only approved 20.

But this brings us to another figure. DDR’s core portfolio is 90.7% leased, down from 95.6% the same period last year. If that number continues to rise, are rent reductions inevitable?

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4 Responses to “DDR: Doing Well, For Now”


  1. 1 James April 27, 2009 at 7:26 am

    In granting rent reductions, one has to be careful not to place a bet on a losing horse! Doing well?? This stock traded in the high sixties to low seventies, now is at $3.90 per share. Not my idea of doing well. They are wise to be reserved in granting rent reductions where they will do no good, why encourage a further erosion of equity. The tenants are making a run on the bank!

    • 2 Alex April 27, 2009 at 9:22 am

      james – would you rather keep an empty storefront for a year or keep someone in there at a lower rent but with the right to bump if someone better comes along? i think the decision is clear!

  2. 3 James April 27, 2009 at 5:04 pm

    Alex,
    If you do that no one better will ever come along and I doubt that DDR would even consider dealing with such a tenant. Any tenant who agrees to such provisions isn’t committed to their business, isn’t worth keeping and probably won’t be there long in any case. I’ll take the empty space and go looking for a real tenant.
    Rent reductions can work when both parties bring something to the table. If the average tenant is paying rent equal to 6-8% of gross sales, how much does a 20% rent reduction really help?? Not much. Even if the tenants occupancy cost ratio is much higher a rent reduction alone is unlikely to save his business. The tenant needs to put real numbers on the table and present a well thoughtout and realistic plan that emphasizes the light at the end of the tunnel. If the tenant wants an accomodation from the landlord then he needs to offer something in return, i.e. extend and blend, or future bumps, or percentage rent, etc.

  3. 4 Jim April 27, 2009 at 5:12 pm

    Alex, nothing is ever “Clear”. One must agree that betting on a losing horse is not the same as trying to keep a center active with operating tenants that will be here in the future (Circuit City, Linens N Things, Rag Shop, Steve & Barry’s, Levits, etc). Look at our 401K’s. While it is easy to look at rent and say it is too high, many requests come in with an occupancy cost percentage in the top of the “acceptable range”. There are a small segment of tenants who legitimately need a reduction and a small segment will actually get one. Most are just trying to take advantage. 1.) All operating costs have gone up, 2.) sales have gone down, but most importantly 3.) the lenders have changed the equation. Why do 10 years of the Bank record profits mean nothing when times get tough? Mr Banker, lend the money YOU are getting for nothing to US at reasonable terms. Of course if WE had these answers, WE’D be getting bailed out!! (With our own money I must add.) To that point of the equation changing, while the sales are not controlled by Wall Street, I feel the Wall Street (moreover financial community) driving the “Market” for both Landlords and Tenants is a major part of the problem. “Somebody*Mart” or “Mega Landlord Properties” does $1 billion in profits last year and ONLY $.8 Billion this year they are worth a lot less??? Hopefully we are here tomorrow to talk about it all……..


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