The real estate investment trust (REIT), DDR Corp. (DDR) collaborated with an affiliate of The Blackstone Group L.P. (BX) to buy 76 shopping centers for $1.975 billion. In particular, they have formed a joint venture, their third one, to acquire the properties that are currently under American Realty Capital Properties, Inc.’s (ARCP) ownership. In this JV, Blackstone owns 95% stake while an affiliate of DDR owns the rest.
Spanning 16.4 million square foot, the assets are mainly prime power centers positioned in Los Angeles, Houston, Denver, Chicago, Atlanta, Washington D.C. and Phoenix. These power centers are occupied by high-quality retailers like Target Corp. (TGT) and Bed Bath & Beyond Inc. (BBBY) and several other reputed ones and are currently 95.1% leased.
These properties offer DDR scope for growth and their trade area demographics are in-line with DDR's prime average while average base rent per square foot is 6% below DDR's current prime portfolio. It also has more than 30 potential contenders for "Project Accelerate" that calls for bringing back below market spaces from underperforming retailers.
Notably, the purchase price includes assumed debt of $461 million and around $800 million of new financings. Moreover, up to a maximum of $300 million in preferred equity in the joint venture would be invested by DDR and the company has also decided to offer customary leasing and management services.
Similar to the past deals, DDR would enjoy the right of first offer to purchase 10 of the assets under specific conditions. This purchase is expected to be accomplished in the third quarter of 2014 and then disposition of non-prime assets are expected to take place as part of portfolio management measures.
Going forward, we believe that the strategic acquisition of assets along with strengthening of the tenant base promises strong growth prospects for DDR. On the other hand, for American Realty, the divestiture is strategized to finance the recently disclosed buyout of the $1.5 billion Red Lobster real estate portfolio.
DDR currently holds a Zacks Rank #3 (Hold).
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