DDR to Buy Shopping Centers in $1.46 Billion Deal

DDR Corp. (DDR) plans to acquire a portfolio of shopping centers from its joint venture with Blackstone Group L.P. (BX) in a $1.46 billion deal.

Under the proposed deal, the real estate investment trust will acquire Blackstone Real Estate Partners VII's 95% equity ownership stake in 30 of 44 shopping centers owned by the venture.

DDR said the deal, expected to close in the fourth quarter, will significantly increase its cash flow from high-quality shopping centers in markets like Boston, Chicago and Washington, D.C.

The properties acquired in the deal are in trade areas with an average household income of $91,000, and population of 543,000--more favorable than DDR's current portfolio of prime shopping centers. The average base rent is lower, which the company said would create growth opportunities when rents can be raised.

Citing the effects of the deal, DDR raised the bottom end of its full-year guidance for operating funds from operations by a penny a share, now seeing $1.08 to $1.11 a share.

The real-estate investment trust plans to fund the transaction through a combination of debt and share offerings. DDR on Wednesday launched an offering of 32 million shares on a forward basis, expecting to use the proceeds for the acquisition. The company recently had around 320 million shares outstanding.

The deal also gives DDR the right, subject to conditions, to issue up to $250 million in shares to Blackstone.

"We are very pleased to add these outstanding assets to our wholly-owned portfolio," said DDR Chief Executive Daniel B. Hurwitz, adding that "it was our goal to accomplish this upon the initial formation of the venture with Blackstone."

The joint venture was formed in 2012, when DDR and Blackstone acquired shopping centers from private real estate company EPN Group in a roughly $1.43 billion deal, including debt.

The 14 properties not included in the transaction will remain in the joint venture, in which DDR has a 5% stake.

The latest move comes as DDR has been acquiring shopping centers in higher-income areas, allowing it to write new leases and charge its retailer tenants higher rates. The company has struggled to remain profitable since the recession, as beaten-down property values and store closures have taken a toll.

DDR shares fell 4.1% to $18.62 in after-hours trading. Blackstone Group shares were off fractionally at $22.60.

Write to Kristin Jones at [e-mail]

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