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DDR's Sunshine Deal

In late October, Developers Diversified Realty Trust, sprung on the largest retail real estate deal in two years by reaching an agreement to purchase Inland Retail Real Estate Trust Inc., for $6.2 billion.

“This was a very rare opportunity to acquire high-quality assets in attractive markets,” says Scott Wolstein, chairman and CEO. “It enhances our position as the nation's leading owner of properties in the South.”

Inland, headquartered in Oak Brook, Ill., is a public, unlisted REIT that is part of an umbrella of subsidiaries started by the Inland Real Estate Group of Companies. Inland Retail Real Estate controls a portfolio of 307 shopping centers containing 43.6 million square feet in markets including Atlanta, Charlotte, Miami, Orlando and Tampa.

The merger will be split in two pieces. A joint venture with a new, as-yet-unnamed institutional partner will purchase the 67 properties in Inland's portfolio that are 250,000 square feet and larger. That piece is worth about $3 billion, with Developers Diversified contributing 15 percent of the equity and receiving management and leasing fees on the portfolio. The REIT will purchase the balance of the portfolio and own them directly.

The deal will vault Developers Diversified's portfolio — including properties it owns in joint ventures — to more than 160 million square feet.

Analysts lauded the deal. “Operating expense efficiency is increased as shopping center density increases,” says Richard Moore, research analyst for RBC Capital Markets. “Dominating a market provides clout with tenants.”

Under terms of the agreement, which includes the assumption of $2.3 billion of debt, Developers Diversified will pay $14 per share for all outstanding Inland shares. It is scheduled to close during the first quarter of 2007, pending approval by Inland's shareholders.

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