ARCP Exits Multi-Tenant Retail with $2B Deal

NEW YORK CITY—American Realty Capital Properties Inc., DDR and a Blackstone Group affiliate announced separately on Monday that they had closed on ARCP's sale of 71 grocery-anchored shopping centers to a DDR/Blackstone joint venture for $1.93 billion. The deal, marking the third JV between DDR and Blackstone, was first reported in June. Separately, ARCP has entered into a letter of intent with an unrelated third party to sell five multi-tenant properties for $52.8 million, effectively marking its exit from the multi-tenant retail business that it had inherited as part of its merger with Cole Real Estate Investments.

"With the sale of our multi-tenant properties, we continue to focus on reducing complexity while strengthening the ARCP story as the leading, solely-focused net lease REIT,” says David S. Kay, ARCP's CEO. “The disposition to Blackstone and DDR provides approximately $1.34 billion of net proceeds that will be used to reduce leverage by paying down our line of credit as we look towards additional options to further term-out our debt.”

Blackstone Real Estate Partners VII, a fund managed by Blackstone on behalf of its investors, owns 95% of the common equity of the joint venture, while a DDR affiliate owns the remaining 5%. Beachwood, OH-based DDR will provide leasing and management services and has the right of first offer to acquire 10 of the assets, under certain conditions, as GlobeSt.com reported in June.

From the standpoint of the JV, the acquisition adds 11.3 million square feet of primarily grocery-anchored retail across 25 states. The portfolio primarily consists of prime power centers located in the Los Angeles, Houston, Denver, Chicago, Atlanta, Phoenix and Washington, DC markets, with a tenant roster including Whole Foods, Trader Joe's, The Fresh Market, Costco, Target, Walmart, Kohl's, PetSmart, Dick's Sporting Goods, Bed Bath & Beyond, and the TJX Cos.

Trade area demographics for the portfolio are in-line with DDR's Prime portfolio, with average household income of about $75,000 per year and a population of approximately 400,000 people. The average base rent per square foot of the portfolio is 6% below DDR's current prime average, representing upside for the future.

The JV has assumed approximately $437 million of senior non-recourse debt, with a weighted average term of 7.1 years and an interest rate of 4.45%. The venture has also originated an additional $800 million, five-year non-recourse loan facility, which has an interest rate of Libor plus 160 basis points.