DDR Corp and an affiliate of Blackstone Real Estate Partners VII have formed a third joint venture to acquire 76 shopping centres currently owned by American Realty Capital Properties.
The joint venture has executed a purchase and sale agreement to acquire the portfolio in a transaction valued at USD1.975 billion, including assumed debt of USD461 million and approximately USD800 million of new financings.
Blackstone owns 95 per cent of the common equity of the joint venture and an affiliate of DDR owns the remaining five per cent.
DDR will invest up to a maximum of USD300 million in preferred equity in the joint venture with a fixed dividend rate of 8.5 per cent, and has agreed to provide customary leasing and management services. In addition, DDR will have the right of first offer to acquire ten of the assets under specified conditions consistent with past transactions.
This acquisition is anticipated to close in the third quarter of 2014 and non-prime asset sales within the portfolio are expected to commence thereafter as a result of active portfolio management within the joint venture.
The 16.4 million square foot portfolio primarily consists of prime power centres located in Los Angeles, Houston, Denver, Chicago, Atlanta, Washington D.C. and Phoenix and is occupied by high quality retailers such as Whole Foods, Trader Joe's, The Fresh Market, Costco, Target, Walmart, Kohl's, PetSmart, Dick's Sporting Goods, Bed Bath & Beyond, and the TJX Companies.
The portfolio is 95.1 per cent leased and the average base rent per square foot is six per cent below DDR's current prime portfolio representing an opportunity to drive future growth.
Additionally, the portfolio to be acquired contains eight vacant junior anchor boxes, over 100 available small shop units, more than 20 outparcel expansion opportunities, and over 30 potential candidates for "Project Accelerate," the initiative recently announced by DDR that entails recapturing below market spaces from underperforming retailers.
Daniel B Hurwitz, chief executive officer of DDR, says: "We are pleased to once again announce a transaction with our partners at Blackstone, further reinforcing our unique relationship and again highlighting both partners' ability to source and execute efficiently. We expect to generate outsized asset-level growth by leveraging our operating platform, and have appropriately structured our investment to produce attractive risk-adjusted returns while securing access to acquisition opportunities in the future."
Goldman, Sachs & Co and KeyBanc Capital Markets served as advisors to DDR on the transaction.