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DDR To Spin Off $3 Billion of Properties into New REIT


DDR To Spin Off Billion of Properties into New REIT

Silver Spring Square in Harrisburg, PA, is the largest of the properties DDR is spinning off.

DDR Corp. (NYSE: DDR), a Cleveland-based shopping center REIT, plans to spin off a portfolio of 50 assets, including all of its Puerto Rico portfolio, into a separate publicly-traded REIT to be named Retail Value Trust.

The new REIT will work to realize value by operating and eventually selling its 38 continental U.S. properties and all 12 of DDR’s Puerto Rico holdings with a combined gross book value of approximately $3 billion as of Sept. 30, 2017. It expects to sell the properties over the next two to three years.

Retail Value Trust will be externally managed by DDR.

Retail Value Trust’s Continental U.S. assets are characterized by stable cash flows and measurably higher quality and demographics than the $1 billion of assets DDR disposed so far in 2017, the company said.

Included in the portfolio are:
The 343,000-square-foot Silver Spring Square in Harrisburg, PA;
The 342,000-square-foot Gresham Station in Portland, OR;
The 321,000-square-foot Beaver Creek Crossings in Raleigh, NC;
The 175,000-square-foot Seabrook Commons in Boston; and
The 174,000-square-foot Marketplace at Towne Center in Dallas.

“DDR has made enormous strides to-date improving portfolio quality through an industry-leading disposition program,” said David Lukes, president and CEO of DDR. “This transaction represents a final, decisive step in our transformation process, resulting in top-tier demographics and much greater exposure to long-term redevelopment opportunities. We strongly believe that providing investors the choice of compelling growth opportunities at New DDR and value realization at Retail Value Trust will be accretive to DDR shareholders.”

DDR’s management team selected the properties to remain with (New DDR) based on performance and growth characteristics, resulting in the creation of a high-quality, high-growth, portfolio located entirely in the Continental U.S. It will hold 236 properties, 70% of which will be anchored by food- or grocery-related tenants. The portfolio will have a book value of about $6.3 billion.

The New DDR expects to pursue a strategy of maximizing earnings and net asset value per share growth through releasing, redevelopment and opportunistic investment.

Retail Value Trust will be capitalized with committed mortgage financing of $1.35 billion expected to fund in early 2018. Proceeds are expected to be used to repay debt at DDR, positioning New DDR to achieve the previously stated goal of 6.0x Net Debt/Adjusted EBITDA in 2018.

Retail Value Trust expects to confidentially file its initial registration statement with the U.S. Securities and Exchange Commission in the first quarter of 2018, and the spin-off is expected to be completed during the summer of 2018.

The spin-off makes math sense if executed correctly, said Richard Hill and Ronald Kamdem, analysts with Morgan Stanley & Co.

“We continue to see DDR as having the most upside from self-help potential in our coverage given a strong management team and the quality of the top 75 assets in the portfolio,” the analysts said. “While we were initially underwhelmed by their $900 million disposition program announcement in 2Q17, we are incrementally more positive as we view the Retail Value Trust spinoff as the right step forward to unlocking the value of the U.S. assets with a free call option on assets in Puerto Rico.”

Goldman Sachs & Co. is acting as lead financial advisor to DDR. Credit Suisse and Wells Fargo Securities / Eastdil Secured are also serving as financial advisors to DDR. Credit Suisse, JP Morgan, and Wells Fargo are providing $1.35 billion of committed mortgage financing to support the transaction. Jones Day is serving as legal counsel to DDR.

Source: DDR To Spin Off Billion of Properties into New REIT

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