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DDR-Blackstone JV Buys 7 Shopping Centers

Zacks Equity Research

The real estate investment trust (:REIT), DDR Corp. (DDR) – through a joint venture formed with an affiliate of The Blackstone Group L.P. (BX) – completed the acquisition of a portfolio comprising 7 prime shopping centers for $332 million.  

Spanning 2.4 million square feet, the assets bought from Regency Centers Corp. (REG) are located in supply constrained MSA's (Metropolitan Statistical Areas) such as Los Angeles, San Diego, Washington DC, Portland, and Cincinnati. These shopping centers are occupied by high-quality retailers like Target Corp. (TGT), Wal-Mart Stores Inc and several others and are currently 93% leased.

These properties offer substantial value to the company’s portfolio with favorable trade area demographics (average household income of about $75,000 and population of more than 310,000 people). The purchase price includes assumed debt of $207 million as well as $28 million of new mortgage debt.

Notably, in the JV, Blackstone owns 95% of its common equity while an affiliate of DDR owns the rest 5%. In this JV, DDR possesses several governance arrangements that would permit it to potentially buy 4 assets, which are the most dominant ones in the portfolio. Around $30 million of investments in preferred equity in the venture is made by DDR. Also, leasing and management services will be provided by DDR.

Recently, DDR reported second-quarter 2013 operating FFO (funds from operations) per share of 27 cents, in line with the Zacks Consensus Estimate and up 8% from 25 cents reported in the year-ago quarter. The year-over-year increase was mainly aided by organic growth and investments in shopping center acquisitions, partly dwarfed by asset sales.

Going forward, we believe that the addition of upscale assets to its high-end asset portfolio along with strengthening of the tenant base promises strong growth prospects for DDR.

DDR currently holds a Zacks Rank #3 (Hold).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.

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