Shares of mall owner Developers Diversified Realty Corp. soared 54 percent Tuesday, a day after the real estate investment trust announced an investment by a German developer.
The stock rose $1.35 to close at $3.85 as the company found an escape hatch for its $1.7 billion debt load, which matures in the next two years.
On Monday, Developers Diversified it would sell 30 million shares to owners of a German-based shopping center developer ECE Projektmanagement for about $112.5 million, making Alexander Otto and his relatives Developers Diversified's largest individual shareholder with more than 20 percent of common shares outstanding.
"The cash infusion from Otto should enable the company to address all debt maturities for the next two years," wrote RBC Capital Markets analyst Rich Moore. "The recapitalization may have breathed life back into a company on the brink, but the cost is extremely high."
In the agreement, the company would also receive a $60 million secured mortgage loan from an affiliate of the Ottos. The Ottos also have a 5-year warrant to purchase an additional 10 million shares.
Developers Diversified also said it would obtain debt financing equivalent to the Ottos' investment.
Shopping center REITs have been struggling to stay on top of debts amid a massive retail downturn.
Also on Monday, Developers Diversified declared a funds from operations loss of $114.9 million, or 95 cents per share, for the fourth quarter, compared with FFO income of $100 million, or 82 cents per share, in the same period a year earlier. Analysts polled by Thomson Reuters expected FFO of 76 cents per share.
FFO, which adds such items as amortization and depreciation back to net income, is considered a key measure of strength for real estate investment trusts because it provides a more accurate picture of cash performance.
Moore cut his price target on the stock to $6 from $13 and cut 2009 FFO per share guidance to $2.14 from $2.92.
Feb 25, 2009
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