DDR, Blackstone Form JV To Buy 76 Shopping Centers From American Realty Capital

(RTTNews) - DDR Corp. (DDR), an owner and manager of 396 value-oriented shopping centers, announced Thursday that it has formed a joint venture with affiliates of Blackstone Real Estate Partners VII, to acquire 76 shopping centers currently owned by American Realty Capital Properties, Inc. (ARCP) in a $1.975 billion cash deal.

On May 21, American Realty Capital had announced its intention to sell substantially all its multi-tenant shopping center portfolio to Blackstone for $1.975 billion in cash.

DDR now said the joint venture has executed a purchase and sale agreement with American Realty Capital to acquire the portfolio. The deal value includes assumed debt of $461 million and approximately $800 million of new financings.

The sale is expected to close by late third quarter 2014, subject to customary closing conditions. DDR said the non-prime asset sales within the portfolio are expected to commence thereafter as a result of active portfolio management within the joint venture.

Announcing the sale of its multi-tenant shopping center portfolio to the joint venture, American Realty Capital President David Kay said, "This sale will allow us to accretively recycle the capital from our multi-tenant business into Red Lobster and our single tenant, self-originated acquisition strategy. By retaining full optionality as we prepared to spin off our multi-tenant portfolio, we were able to identify this transaction, which will allow us to deliver attractive value to our shareholders and further clarify our single-tenant, net lease investment strategy."

In the new joint venture, Blackstone owns 95 percent of the common equity, while an affiliate of DDR owns the remaining 5 percent. DDR will also invest up to a maximum of $300 million in preferred equity in the joint venture with a fixed dividend rate of 8.5 percent. DDR has agreed to provide customary leasing and management services.

DDR further said that it will have the right of first offer to acquire ten of the assets under specified conditions consistent with past transactions.

DDR noted that the 16.4 million square foot portfolio in the acquisition primarily consists of prime power centers located in Los Angeles, Houston, Denver, Chicago, Atlanta, Washington D.C. and Phoenix. The portfolio is 95.1 percent leased.

DDR chief executive officer Daniel Hurwitz said,, "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."

In the transaction, Goldman, Sachs & Co. and KeyBanc Capital Markets served as advisors to DDR.

In mid May, American Realty Capital, which owns and acquires single tenant, freestanding commercial real estate, had said that it intends to use the proceeds from the sale to fund its recently announced Red Lobster sale-leaseback transaction. According to the firm, the properties included in the portfolio are the same properties ARCP previously announced to spun off into American Realty Capital Centers, Inc.

It was in mid March that ARCP had announced its plan to spin off substantially all of its multi-tenant shopping center business into a publicly traded REIT.

DDR shares closed Thursday's trading at $17.26, down $0.10 or 0.58 percent. ARCP stock settled at $11.94, down $0.16 or 1.32 percent.