DDR Corp is to acquire a portfolio of prime power centers from its existing joint venture with Blackstone Real Estate Partners VII. The joint venture between Blackstone and DDR currently owns 44 shopping centers, and DDR has executed a purchase and sale agreement to acquire Blackstone’s 95% common equity ownership interest in 30 of these shopping centers for $1.46 billion.
DDR Corp. (NYSE: DDR) today announced an agreement to acquire a portfolio of prime power centers from its existing joint venture with Blackstone Real Estate Partners VII (Blackstone). The acquisition, which is expected to close in the fourth quarter of 2013 subject to customary closing conditions, will significantly increase DDR’s cash flow generated by very high quality, large format prime power centers located in top MSA’s in the United States.
DDR intends to fund this acquisition through a combination of the assumption of $398 million in existing debt, nearly $150 million from the repayment of preferred equity and mezzanine loans previously funded by DDR and proceeds from the issuance of common equity and unsecured debt. As part of the consideration, DDR has the right, subject to certain conditions, to issue common shares to Blackstone in an amount not to exceed $250 million.
The portfolio being purchased is comprised primarily of market dominant prime power centers located in the top 40 MSA’s of the United States, and includes all ten properties that DDR has a current right of first offer to acquire, such as fortress shopping centers Shoppers World in Boston, Woodfield Village Green in Chicago, Fairfax Towne Center in Washington DC, and Riverdale Village in Minneapolis. The 14 properties not being acquired will remain in the venture owned 95% by Blackstone and 5% by DDR, and DDR will continue to manage and lease those properties pursuant to its existing agreements with Blackstone.
The properties to be acquired include power centers DDR has acquired, developed, leased and managed through various ventures since 1995. The portfolio features very strong trade area demographics with an average household income of $91,000 and population of 543,000 people, 14% and 21%, respectively, above the current DDR prime portfolio. The acquisition greatly improves DDR’s pro rata MSA exposure with approximately 50% of the portfolio value generated by power centers located in top 20 MSA’s in the United States, and approximately 80% of the value coming from the top 40 MSA’s. Average base rent is $13.81 per square foot, 5% below the DDR prime portfolio, which creates organic growth opportunities when rents can be marked to market. The portfolio is comprised of 11.8 million total square feet, is 95% leased, and consists of large format centers with an average size of approximately 400,000 square feet, 20% larger than the average DDR prime power center. In addition to growth opportunities from marking rents to market, DDR intends to leverage its operating platform to create incremental value in the coming years through redevelopment and remerchandising projects, tenant downsizings and center expansions.
Consistent with DDR’s long-term strategic objectives, the acquisition will be prudently capitalized with permanent equity and long-term debt. The $398 million of assumed debt is comprised of mortgage debt with a weighted average interest rate of 5.9% and a weighted average maturity of three years, including a $260 million loan maturing in 2015 with an interest rate of 6.4% secured by four high quality shopping centers with a current LTV of approximately 50%. The acquisition also provides opportunities to unencumber 21 of the 30 assets and to significantly improve the quality and scale of the Company’s portfolio of wholly-owned, unencumbered power centers. As a result of this transaction and strong year-to-date operating metrics, the Company is revising 2013 guidance for Operating FFO at this time to a range between $1.08 and $1.11 per diluted share.
“We are very pleased to add these outstanding assets to our wholly-owned portfolio,” stated Daniel B. Hurwitz , chief executive officer of DDR. “It was our goal to accomplish this upon the initial formation of the venture with Blackstone, and we thank them for being outstanding partners. We look forward to our continued relationship.”
“This acquisition will significantly advance many of our strategic objectives, and is yet another example of our ability to mitigate risk on attractive investment activity through prudent underwriting and funding,” commented David J. Oakes , president and chief financial officer of DDR. “The acquisition will be funded responsibly, and will position us well for strong relative growth in cash flow generated by high quality shopping centers over the long term.”
The shopping centers being acquired include:
Woodfield Village Green
Great Northern Plaza
FlatAcres / Parker Pavilions
Belden Park Crossings
Merriam Town Center
Marketplace of Brown Deer
Marketplace At Towne Center
Overland Pointe Marketplace
Shoppers World Brookfield
Lake Walden Square
Turner Hill Marketplace
Fairfax Towne Center
Lake Brandon Village
Cool Springs Pointe
Shops At Turner Hill
About DDR Corp.
DDR is an owner and manager of 445 value-oriented shopping centers representing 116 million square feet in 39 states, Puerto Rico and Brazil. The Company’s assets are concentrated in high barrier-to-entry markets with stable populations and high growth potential and its portfolio is actively managed to create long-term shareholder value. DDR is a self-administered and self-managed REIT operating as a fully integrated real estate company, and is publicly traded on the New York Stock Exchange under the ticker symbol DDR. Additional information about the Company is available at www.ddr.com.
DDR considers portions of the information in this press release to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company’s expectation for future periods. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. For this purpose, any statements contained herein that are not historical fact may be deemed to be forward-looking statements. There are a number of important factors that could cause our results to differ materially from those indicated by such forward-looking statements, including, among other factors, our ability to successfully complete the proposed acquisition of properties from the Blackstone joint venture, local conditions such as oversupply of space or a reduction in demand for real estate in the area; competition from other available space; dependence on rental income from real property; the loss of, significant downsizing of or bankruptcy of a major tenant; constructing properties or expansions that produce a desired yield on investment; our ability to buy or sell assets on commercially reasonable terms; our ability to complete acquisitions or dispositions of assets under contract; our ability to secure equity or debt financing on commercially acceptable terms or at all, including in connection with the proposed acquisition of properties from the Blackstone joint venture; our ability to enter into definitive agreements with regard to our financing and joint venture arrangements or our failure to satisfy conditions to the completion of these arrangements; and the success of our capital recycling strategy. For additional factors that could cause the results of the Company to differ materially from those indicated in the forward-looking statements, please refer to the Company’s Form 10-K for the year ended December 31, 2012, as amended. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.
SOURCE DDR Corp.