DDR Corp. (DDR) has agreed to buy 30 of 44 shopping centers from its existing joint venture (:JV) with The Blackstone Group L.P. (BX) for $1.46 billion. The deal, which is expected to close in the fourth quarter of 2013 subject to customary closing conditions, is projected to substantially enhance DDR’s cash flow.
As a matter of fact, the Blackstone – DDR JV currently owns 44 shopping centers. Blackstone has a 95% stake in these properties while the rest of the stake is held by DDR. Following this deal via which DDR will acquire Blackstone's 95% common equity ownership interest in 30 of these shopping centers, 14 properties will remain under the JV.
The 30 centers in which DDR will gain complete ownership include Riverdale Village in Minneapolis, Shoppers World in Boston, Woodfield Village Green in Chicago and Fairfax Towne Center in Washington DC.
The rest of the 14 properties are owned 95% by Blackstone and 5% by DDR. DDR will carry on managing and leasing these properties as per the terms of its existing agreements with Blackstone.
DDR plans to pay for the acquisition through the assumption of $398 million in existing debt, around $150 million from the repayment of preferred equity and mezzanine loans previously funded by DDR, as well as proceeds generated from issuance of common equity and unsecured debt. Under the deal terms, DDR possesses the right, under specific conditions, to issue common shares to Blackstone up to $250 million.
A Strategic fit
The deal is a strategic fit for both Blackstone and DDR. For Blackstone, the deal helps reap decent gains while the addition of these properties to DDR’s wholly owned portfolio is expected to significantly enhance the company’s bottom line going forward.
The portfolio consists of a total of 11.8 million square feet and is 95% occupied. These properties exhibit solid trade area demographics with an average household income of $91,000 and population of 543,000 people, 14% and 21%, respectively, ahead of the current DDR prime portfolio.
Going forward, DDR has growth opportunities from marking rents to market (with average base rent of $13.81 per square foot, 5% below the DDR prime portfolio) as well as add value through redevelopment and remerchandising projects, tenant downsizing and center expansions.
DDR currently holds a Zacks Rank #2 (Buy). Two other REIT stocks that are also performing well and deserve a look include HCP Inc. (HCP) and Ventas Inc. (VTR), both carrying a Zacks Rank #2.
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