DDR Corp. has approved to a plan to spin off a portfolio of 50 assets — comprised of 38 continental U.S. assets and the entirety of the Puerto Rico — portfolio into a separate publicly traded REIT to be named Retail Value Trust (RVT). This will be the REIT’s final step in its disposition plan, which launched in 2015.
RVT will focus on realizing value in its portfolio through operations and private market sales of its 38 continental U.S. assets and all 12 of DDR's Puerto Rico assets, with a combined gross book value of approximately $3 billion as of September 30, 2017. The continental U.S. assets are characterized by stable cash flows and measurably-higher quality and demographics than the $1 billion of assets DDR disposed thus far in 2017. RVT will be externally managed by DDR for maximum cost efficiency.
The spin-off and disposition program are expected to improve the REIT's compliance with all debt covenants, highlighted by a larger, higher-quality and unencumbered asset pool.
DDR expects the spin-off to occur during third quarter 2018. RVT is expected to liquidate its entire portfolio within two to three years in order to realize the private market values for the company’s properties.
With the new plan, DDR’s portfolio will be comprised of 236 high-growth continental U.S. assets with top-tier demographics.
During 2017, DDR completed asset dispositions amounting to $651.1 million as of September. The sales included two assets in Puerto Rico, totaling $57.3 million, and 25 U.S. shopping centers and land for $469 million, according to Forbes.
Another firm that created a separate REIT for its underperforming assets was Simon Property Group, which in 2014 created the Washington Prime Group.
Total returns for retail REITs recorded 7.3 percent growth in November, which was driven by a 9.3 percent increase from mall REITs and 6.8 percent growth from shopping center REITs, according to REIT.com. This was triggered by Brookfield Property Partners’ $15 billion takeover offer for GGP.
Total returns of the FTSE NAREIT All REITs Index logged a gain of 2.6 percent in November, after reporting negative returns in prior two months — a 0.2 percent decline in October and 0.6 percent fall in September. The figure, however, lagged the 3.1 percent total return for the S&P 500 Index in November.
And brick-and-mortar retail sales rose 3.7 percent from November 2016, the second-strongest month since late 2015, according to Seeking Alpha.
