DDR Announces Project Strategy to Recapture Prime-Anchor Store Locations
- May 30, 2014
DDR Corp. has instituted a multi-year proactive lease termination initiative with hopes of recapturing high-quality anchor store locations across its portfolio.
The strategy will find DDR collaborating with retailers in the books, electronics, toys, office and traditional department store categories to right-size their real estate footprints by regaining control of locations in advance of natural lease expiration, where the company can remerchandise its prime assets with market-share-winning tenants while realizing mark-to-market rental upside of 30-40 percent.
“We have made significant progress transforming our portfolio in recent years, and as a result, we’ve increased our overall leased rate to greater than 95 percent,” Joe Tichar, DDR’s senior vice president of corporate operations, told Commercial Property Executive. “However, retail is a constantly evolving landscape, and as many of our top tenants continue to win market share, they are also seeking opportunities for new store growth in power centers that far exceeds current supply. We saw an opportunity to accelerate the remerchandising of anchor store space in prime assets by capitalizing on current demand while achieving significant mark-to-market rental increases.”
In the first phase of the initiative, DDR has identified 90 anchor locations, representing 3.3 million square feet of prime retail space that meet the company’s criteria for accretive recapture. Already 21 locations have been finalized consisting of 550,000 square feet primarily located in Boston, Cleveland, Denver, Orlando, Phoenix, Raleigh, N.C. and San Antonio.
One of those is Westlake Ohio’s West Bay Plaza in the Cleveland MSA, which DDR parted ways with in January.
“We continue to drive the business and actively manage our assets to achieve optimal portfolio growth, and this initiative is an example of our ability to create organic growth opportunities while simultaneously enhancing net asset value,” Tichar added. “We are not willing to wait for market trends to transpire in order to capitalize on the supply-demand dynamic that currently exists.”
DDR remains in active dialogue with its retail partners while also identifying prime anchor store locations in its portfolio that are underutilized with leases well below market. According to Tichar, retailers such as Nordstrom Rack, Sprouts Farmers Market, Ulta, Whole Foods, Five Below, HomeGoods, Fresh Market, Marshalls, Trader Joe’s, White House Black Market, Gap Factory, Shoe Carnival, PetSmart and Carter’s are all among a select group of merchants that the firm is in discussions with to backfill the recaptured locations.
“Ultimately we launched this initiative to further enhance the quality of our portfolio through merchandise upgrades, continued NOI growth, and to drive NAV,” Tichar concluded. “Proactively recapturing and remerchandising prime locations is one of the key growth levers we intend to execute in the current cycle as we continue to pursue our strategic objective to construct a portfolio that can perform well through any economic environment.”