DDR Opens Discount Stores - Analyst Blog

Developers Diversified Realty Corp. (DDR), a leading real estate investment trust (REIT), has recently announced the introduction of six new discount stores of Five Below in 2010. The retail stores were opened in Ohio, New Jersey, North Carolina and New York.

Since its inception in October 2002, Five Below has operated as a privately-held chain of discount stores in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, West Virginia, North Carolina, Ohio, Massachusetts, Connecticut, Rhode Island and New Hampshire.

The stores offer value-for-money items for teens and pre-teens at an affordable price range of $1.00 to $5.00. The product portfolio includes an assortment of trendy merchandise such as fashion accessories, bath and body, room décor and storage, candy and beverages, stationery and school supplies, books, DVDs, iPhone accessories, sports, games and seasonal items.

Five Below currently operates over 100 discount stores across the country and intends to double its store count by the end of 2011 through a massive expansion spree. Discount stores such as Dollar General Corporation (DG), Dollar Tree Inc. (DLTR) and Family Dollar Stores Inc. (FDO) are increasingly gaining popularity in the U.S. as the customers are focusing on value-for-money items with a reduction in disposable income and lower consumer discretionary spending.

Despite challenging market conditions, Developers Diversified had executed strong leasing activities during third quarter 2010. 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. We remain encouraged by the continued leasing activities of the company.

Developers Diversified acquires, owns, develops, redevelops, leases and manages shopping centers and business centers. The company owns and manages 590 retail operating (including joint ventures) and development properties spanning approximately 134 million square feet of real estate in 41 states in the U.S., Puerto Rico, Brazil and Canada.

Developers Diversified is currently continuing with its strategy of minimizing ground-up development spending in its domestic portfolio and allocating capital to 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 without the level of risk or capital required for a new development.

We maintain our ‘Neutral' rating on Developers Diversified for the long term. The company presently has a Zacks #3 Rank, which translates into a short-term ‘Hold' recommendation.

 
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