Blackstone, DDR Strike $332M Deal
- Aug 15, 2013
A joint venture of retail REIT DDR Corp. and a Blackstone Group fund has acquired seven shopping centers with a total of 2.4 million square feet in major U.S. cities from a Regency Centers Corp. fund for $332 million, including $207 million of assumed mortgage debt and $28 million of new mortgage debt.
The affiliate of Blackstone Real Estate Partners VII L.P., a $13.3 billion fund, owns 95 percent of the common equity of the JV and an affiliate of DDR owns the remaining 5 percent. DDR, which also invested $30 million in the venture with a fixed dividend rate of 9 percent, will provide leasing and management services at the shopping centers. DDR said it will fund its investment through asset sales. Similar to a previous DDR/Blackstone JV, DDR may eventually acquire four of the most dominant assets in the portfolio, which contribute more than 80 percent of the total net operating income.
“We are pleased to advance our relationship with Blackstone and further our strategic objective to creatively source acquisition opportunities,” Daniel Hurwitz, DDR CEO, said in a news release. “The partnership structure will enhance our cash flow and provide proprietary access to prime assets for potential acquisition at a future date. The assets fit nicely into our operating platform and we look forward to creating value for our partner and our shareholders.”
The shopping centers are occupied by top retailers including Target, Wal-Mart, Ross Dress for Less, Dick’s Sporting Goods, Petco, Best Buy, Wegmans and The Fresh Market. They are located in supply-constrained major markets and feature populations of more than 310,000 with average household incomes of $75,000.
The assets are: Silver Spring Square, 573,000 square feet, Harrisburg, Pa.; Falcon Ridge Town Center, 423,000 square feet, Los Angeles; Sycamore Crossing, 391,000 square feet, and Indian Springs, 349,000 square feet, both in Cincinnati; Fortuna Center, 232,000 square feet, Washington, D.C.; Orchards Market Center, 223,000 square feet, Portland; and Vista Village, 213,000 square feet in San Diego.
Regency, also a REIT and a leading national owner, operator and developer of grocery-anchored and community shopping centers, said the portfolio was owned by Regency Retail Partners, L.P. Since Regency owned 20 percent of the fund, the company’s share of net sales from the transaction was approximately $38 million. Regency said the fund will be dissolved.
The Jacksonville, Fla.-based company is known for what it calls its “capital recycling model.” In its second-quarter earnings report released July 31, Regency noted that during second quarter that it had sold four wholly owned properties at a gross sales price of $85.3 million and a co-investment property at a gross sales price of $11.2 million, of which it received $4.5 million. It also sold three outparcels during the second quarter for $2.1 million. Regency recently acquired the Shoppes at Burnt Mills in Silver Spring, Md., with an undisclosed co-investment partner. The total price for the 31,316-square-foot neighborhood center anchored by Trader Joe’s was $13.6 million with Regency contributing $2.7 million. As of June 30, Regency owned 343 retail properties, including those in co-investment partnerships, for a total of 45.9 million square feet.
This is not the first deal for Regency and New York-based investment giant Blackstone. In July 2012, Regency sold 15 shopping centers to an affiliate of the Blackstone Real Estate Partners VII fund for $321 million. Regency wholly owned that portfolio which totaled 2.1 million square feet and featured prominent chains like Publix, Kroger, Walgreens, Home Depot and Lowes. Six of those centers were in Florida, three in California, two in Dallas and one each in Chicago; Nashville; Akron, Ohio; and Raleigh, N.C.
It is also not the first time DDR, an Ohio-based owner and manager of 435 shopping centers, and Blackstone have teamed up. Blackstone’s flagship real estate fund and DDR acquired 44 shopping centers from EPN Group for $1.43 billion in June 2012. Under that JV, Blackstone owned 95 percent of the assets, while DDR had 5 percent ownership, the leasing and management contracts and right of first refusal to acquire some of the assets. The joint venture announced in May that DDR is buying 30 of the 44 centers for $1.46 billion and the assumption of $398 million in existing debt, nearly $150 million from the repayment of preferred equity and mezzanine loans and from issuance of common equity and unsecured debt. DDR also has the right to issue common shares to Blackstone up to $250 million. The 12 million-square-foot portfolio DDR is purchasing is comprised of prime power centers in the top 40 MSAs in the U.S., including Shoppers World in Boston, Woodfield Village Green in Chicago, Fairfax Towne Center in Washington, D.C., and Riverdale Village in Minneapolis.
That deal is expected to close in the fourth quarter. DDR will continue to own 5 percent of the 14 centers remaining in the original joint venture with Blackstone as well as continue to lease and manage the properties. A Jones Day team led by Cleveland partners Michael Haas and Zack Paris is advising DDR on that acquisition.