CLEVELAND-Though Developers Diversified Realty reported decreases in FFO per diluted share and net income per diluted share for the third quarter that ended Sept. 30, 2007, as compared to Q3 2006, the company touted increased leases, rents and development pipeline during a conference call Friday. Of note, the firm has 30 developments and expansions in progress, 13 more planned to start by the end of the year, and has identified several additional development opportunities reflecting an aggregate estimated cost of more than $1 billion, said company officials in a press statement.
According to the company, FFO per diluted share decreased 3.6% to 80 cents per share and net income per diluted share decreased 42.2% to 26 cents per share for the three-month period that ended Sept. 30. However, company officials said during the call that the third quarter saw record lease executions, including 179 new leases and 299 renewals, with base rental rates increasing by 13.8% to $12.58 per sf. The company's overall occupancy rate for Q3 was 95.9%, said the executives.
“There's some softening in demand for lower-quality assets, but there's strong demand for well-positioned assets with a visible growth profile,” said David Oakes, the company's EVP of finance and chief investment officer. The company sold 13 shopping center properties in the third quarter, three to its joint venture with Macquarie DDR Trust for $49.8 million and eight as part of a 52-property portfolio sale that carried over from the second quarter, for $86.6 million.
Scott Wolstein, CEO, says in the coming year the company will refine its strategy to focus on further upgrading its portfolio through active portfolio management, including redevelopments and dispositions, which will have a long-term positive impact on internal growth and cash flow; improving the quality of FFO; growing funds management business through execution for existing partners, and by adding new clients; using the current dislocation in the credit market to our advantage by finding broken developments or redevelopments or other unique investment opportunities created by the dramatic change in liquidity and the repricing of the risk; deepening domestic development pipeline and broadening our international investments. “Based on this activity, we expect FFO per share for 2008 to be in the range of $3.95 to $4.05. The key assumptions that drive this guidance are as follows: same-store NOI growth of 2% to 2.5%, which is in line with 2007 and driven by consistent leasing spreads and stable occupancy; anticipated disposition of additional non-core assets; and a consistent level of transactional income,” he says. The company currently owns and manages more than 740 retail operating and development properties in 45 states, plus Puerto Rico, Brazil, Russia and Canada, totaling more than 160 million sf.
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