Affiliates of Blackstone and DDR Corp. formed a joint venture to acquire a portfolio of 46 shopping centers currently owned by EPN Group.
The joint venture has executed a purchase and sale agreement to acquire the majority of the EDT Retail Portfolio in a transaction valued at $1.43 billion, including assumed debt of $640 million and at least $305 million of new financings. Blackstone Real Estate Partners VII, a real estate fund managed by Blackstone on behalf of its investors, will own 95 percent of the common equity of the joint venture and an affiliate of DDR will own the remaining 5 percent. DDR will also invest $150 million in preferred equity in the venture with a fixed dividend rate of 10 percent, and will continue to provideand management services. In addition, DDR will have the right of first offer to acquire 10 of the assets under specified conditions.
The 46 shopping centers being acquired by the joint venture are open-air, value-oriented power centers located in 20 states, representing 10.6 million sq. ft. and are currently 90 percent leased. The top ten tenants by base rent include the TJX companies, Kohl's, PetSmart, Dick's Sporting Goods, Best Buy, Bed Bath & Beyond, JoAnn's, Old Navy, Walmart and Home Depot. More than 94 percent of the net operating income (NOI) is generated from prime assets, with 50 percent of such NOI derived from properties in the top 25 MSAs. The portfolio features average household income of approximately $88,000 and average population of over 300,000in a seven-mile trade area.
The assets, currently owned by EPN, were previously owned by EDT Retail Trust, which was originally listed on the Australian Stock Exchange in 2003 as the Macquarie DDR Trust. In 2010, the Trust undertook a recapitalization in which EPN acquired a majority stake and became the joint manager along with DDR. In 2011, EPN purchased the remainder of the units and privatized the Trust, at which point it became a wholly owned subsidiary. Since the inception of the Trust, DDR has leased and managed all the assets in the portfolio, with involvement in certain assets dating back to 1995.
"We are very pleased to establish a partnership with Blackstone, one of the most successful and respected real estate investors in the world," DDR President and CEO Daniel B. Hurwitz said in a statement. "Moreover, this transaction illustrates our access to off market opportunities while creative structuring enables risk mitigation and non-dilutive deleveraging. Lastly, this transaction enables the retention of significant fee income, and enhances our current ownership and future access to prime assets."
"In addition to DDR's history and performance with these shopping centers over many years, the company's impressive operating platform makes them an outstanding partner for this portfolio," Nadeem Meghji, principal in Blackstone's real estate group, said in a statement. "We are very pleased to establish a relationship with DDR and look forward to working with them in a successful venture."
Goldman, Sachs & Co. served as advisor to DDR on the acquisition. Citigroup GlobalInc. and Eastdil Secured, a subsidiary of Wells Fargo & Company, served as advisors to Blackstone and JP Morgan served as advisor to EPN.
This is the third major retail real estate acquisition by Blackstone in less than 12 months. Last February, another fund run by Blackstone agreed to purchase Centro Properties Group’s 588 U.S. shopping centers in a $9.4 billion . And in September, the same fund that is participating in the EPN deal acquired 36 shopping centers from Equity One Inc. in a $473.1 million deal.