DDR Corp. (NYSE: DDR) and an affiliate of Blackstone Real Estate Partners VII said June 12 they have formed a third joint venture that will acquire 76 shopping centers currently owned by American Realty Capital Properties, Inc. (NASDAQ: ARCP) for approximately $2 billion.
Blackstone will hold 95 percent of the joint venture and DDR will hold the remaining 5 percent. DDR will invest up to $300 million in preferred equity at an 8.5 percent yield, and has agreed to provide customary leasing and management services. DDR will also have the right of first offer to fully acquire ten of the highest quality assets in the portfolio.
Daniel Hurwitz, CEO of DDR, said the company expects to generate “outsized asset-level growth by leveraging our operating platform,” adding that the investment will produce “attractive risk-adjusted returns while securing access to acquisition opportunities in the future.”
American Realty Capital Properties president David Kay said proceeds from the sale will be recycled into its Red Lobster restaurant properties, and its single tenant, self-originated acquisitions strategy.
David Harris, senior vice president at Imperial Capital, LLC, said DDR believes “there is some opportunity to more intensively manage these assets , and potentially generate some additional returns, some repositioning , releasing, (and) outparcel development.” He added that DDR and Blackstone were both “in a good position to take advantage of a motivated seller.”
Paul Morgan, senior analyst at MLV & Co. LLC, added that the deal not only provides DDR with an accretive near-term use of proceeds from the sale of its stake in a Brazilian retail center, but also “opens up a window to acquiring direct stakes in high-quality centers from the joint venture down the road.”
The acquisition is anticipated to close in the third quarter of 2014 and non-prime asset sales within the portfolio are expected to follow. Joseph Tichar, DDR senior vice president of corporate operations, said the company is “in the process of evaluating assets within the portfolio that do not meet the joint venture’s investment thesis.”
The 16.4 million square foot portfolio primarily consists of power centers located in Los Angeles, Houston, Denver, Chicago, Atlanta, Washington D.C. and Phoenix.