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S&P affirms, Moody's downgrades DDR on REIT spinoff plan


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S&P affirms, Moody's downgrades DDR on REIT spinoff plan

S&P Global Ratings affirmed DDR Corp. while Moody's downgraded the company's ratings and revised the ratings outlook to stable from negative following an announcement by the company that it intends to spin off certain of its assets, including its entire Puerto Rico portfolio, into a separate publicly traded real estate investment trust.

S&P affirmed its BBB- corporate credit rating on DDR, with a stable outlook. The rating agency also affirmed its BBB- issue-level rating on DDR's unsecured notes and BB issue-level rating on the company's preferred stock.

S&P said the affirmation mirrors its opinion that the proposed spinoff is slightly favorable, improving DDR's asset quality and long-term growth potential, but not adequately so to merit a positive rating action at present.

The stable outlook takes into account the rating agency's expectations for improved portfolio quality, largely offset by a substantial drop in scale, following the planned spinoff.

Meanwhile, Moody's downgraded the company's senior unsecured rating to Baa3 from Baa2, its senior unsecured medium-term note program, or MTN, shelf to (P)Baa3 from (P)Baa2, subordinate MTN shelf to (P)Ba1 from (P)Baa3, preferred stock rating to Ba1 from Baa3, senior unsecured shelf to (P)Baa3 from (P)Baa2, subordinate shelf to (P)Ba1 from (P)Baa3 and preferred stock shelf to (P)Ba1 from (P)Baa3.

Moody's said in a note that the main drivers behind the downgrade are concerns that DDR's remaining portfolio will potentially face leasing pressures, increased tenant bankruptcies and expansion challenges, particularly in areas where the company does not have a dominant presence.

The revised outlook takes into account expected volatility in operating performance as the retail industry continues to face secular headwinds, tempered by maintenance of conservative credit metrics following the spinoff.

Moody's also voiced concern over the lack of clarity in DDR's longer-term growth strategy and said the effect of the spinoff transaction on the company's stock price will potentially be a key variable in determining its future growth avenues.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.