DDR Corp. plans to spin off 38 of its continental U.S. assets and its entire 12-asset Puerto Rico portfolio into a separate publicly traded real estate investment trust to be called Retail Value Trust.
To maximize cost efficiency, DDR said it will externally manage the new REIT, which will focus on operations and private market sales of its continental U.S. and Puerto Rico assets. Those assets have a combined gross book value of about $3 billion as of Sept. 30. The portfolio of the remaining company will comprise properties selected based on performance and growth characteristics and will be entirely in the continental U.S.
DDR said the continental U.S. assets in the new REIT offer stable cash flows and have "measurably higher quality and demographics" than the $1.0 billion of assets it sold so far in 2017. It plans to capitalize the REIT with committed mortgage financing of $1.35 billion, which is anticipated to fund in early 2018. It expects to use the proceeds to repay debt and position DDR to meet its 6.0x net debt/adjusted EBITDA target in 2018, the company said.
The new REIT anticipates confidentially filing its initial Form 10 registration statement with the SEC during the first quarter of 2018, and the spinoff is likely to be finalized in the summer of 2018. Upon completion of the spinoff, three of DDR's current directors will leave the company to join the new REIT's board, which is expected to have a majority of independent members.
Retail Value Trust aims to elect to be treated as a REIT, and DDR shareholders will receive shares of the new REIT via a taxable pro rata stock distribution. DDR does not plan to modify its recurring quarterly dividend before the spinoff.
The company noted that the board-approved spinoff plan rounds out its portfolio transformation, while maintaining scale and balance sheet strength. The transaction is not contingent on shareholder approval but is subject to certain conditions, including the effectiveness of the new REIT's Form 10 registration statement and the board's final approval and declaration of the distribution.
Goldman Sachs & Co. LLC is DDR's lead financial adviser on the transaction, with Credit Suisse and Wells Fargo Securities LLC/Eastdil Secured LLC also serving as financial advisers. Jones Day is the company's legal counsel.
The $1.35 billion of committed mortgage financing is being provided by Credit Suisse, JP Morgan and Wells Fargo.