DDR Corp. announced an agreement to acquire a portfolio of power centers from its existing joint venture with Blackstone Real Estate Partners VII. The acquisition, which is expected to close in the fourth quarter of 2013 subject to customary closing conditions, will significantly increase DDR's cash flow generated by large-format power centers located in top MSA's in the United States.
The joint venture between Blackstone and DDR currently owns 44 shopping centers, and DDR has executed a purchase and sale agreement to acquire Blackstone's 95 percent common equity ownership interest in 30 of these shopping centers for $1.46 billion. DDR intends to fund this acquisition through a combination of the assumption of $398 million in existing debt, nearly $150 million from the repayment of preferred equity and mezzanine loans previously funded by DDR and proceeds from the issuance of common equity and unsecured debt. As part of the consideration, DDR has the right, subject to certain conditions, to issue common shares to Blackstone in an amount not to exceed $250 million.
The portfolio being purchased is comprised primarily of power centers located in the top 40 MSA's of the United States, and includes all 10 properties that DDR has a current right of first offer to acquire, such as Shoppers World in Boston, Woodfield Village Green in Chicago, Fairfax Towne Center in Washington, D.C., and Riverdale Village in Minneapolis.
The 14 properties not being acquired will remain in the venture owned 95 percent by Blackstone and 5 percent by DDR, and DDR will continue to manage and lease those properties pursuant to its existing agreements with Blackstone.
The properties to be acquired include power centers DDR has acquired, developed, leased and managed through various ventures since 1995. The portfolio features very strong trade area demographics with an average household income of $91,000 and population of 543,000 people, 14 percent and 21 percent, respectively, above the current DDR prime portfolio.
Average base rent is $13.81 per sq. ft., 5 percent below the DDR prime portfolio, which creates organic growth opportunities when rents can be marked to market. The portfolio is comprised of 11.8 million total sq. ft., is 95 percent leased, and consists of large format centers with an average size of approximately 400,000 sq. ft., 20 percent larger than the average DDR prime power center. In addition to growth opportunities from marking rents to market, DDR intends to leverage its operating platform to create incremental value in the coming years through redevelopment and remerchandising projects, tenant downsizings and center expansions.
The acquisition will be capitalized with permanent equity and long-term debt. The $398 million of assumed debt is comprised of mortgage debt with a weighted average interest rate of 5.9 percent and a weighted average maturity of three years, including a $260 million loan maturing in 2015 with an interest rate of 6.4 percent secured by four high-quality shopping centers with a current LTV of approximately 50 percent.
The acquisition also provides opportunities to unencumber 21 of the 30 assets and to significantly improve the quality and scale of DDR's portfolio of wholly-owned, unencumbered power centers. As a result of this transaction and strong year-to-date operating metrics, DDR is revising 2013 guidance for operating FFO at this time to a range between $1.08 and $1.11 per diluted share.