CLEVELAND-Just two weeks after forming a fund to acquire 63 grocery-store anchored properties in a $1.5-billion fund, Developers Diversified Realty Corp. has agreed to sell a separate portfolio of 63 shopping centers for $603 million, with a weighted average cap rate of 7.25%. The centers were sold to Cincinnati-based Phillips Edison & Co., adding to that firm’s current 150 retail properties.

The properties in the sold portfolio have an average size of about 100,000 sf and are in 15 states, with major concentrations in New York, Florida, North Carolina, Ohio and Virginia. The properties are about 93% leased and make up about 5.7 million sf, with tenants such as Publix, Food Lion, Staples and Dollar Tree, said DDR in a statement. A Phillips Edison spokeswoman did not return a phone call for comment.

Michelle Dawson, VP of investor relations for DDR, tells that after the $6.2-billion acquisition of Inland Retail Real Estate Inc. with more than 300 properties in 2006, the company took the opportunity to evaluate the combined portfolio. “Some we decided to keep on the balance sheet, some we put in the fund pool and some we decided to sell outright,” Dawson says.

The centers sold did not meet long-term investment criteria, she says. “If you take a look at the markets, they can be remote, or areas where we don’t have a critical mass of properties and it’s more efficient to sell off assets rather than try to build up more,” Dawson says. “Also, some of the anchor tenants, such as Winn Dixie, are not the most stellar credit tenants. We made our evaluations to sell on a relative basis.”

Scott Wolstein, chairman and CEO of the company, says in the statement that the sale is consistent with a strategy of disposing of assets that no longer fit an investment profile or no longer offer growth. “Consistent with our original financing plans, this strategic disposition, coupled with the recent formation of DDR Domestic Retail Fund I, has enabled us to repay over $1.5 billion of bridge financing associated with the IRRETI acquisition.”

The company closed on the sale of 52 of the properties today for about $449 million, and anticipates it will close on the remaining 11 assets in the near future. A gain of about $20 million will be reflected in the net income during the second and third quarters of 2007, but will not be reflected in FFO, says the company in the statement.

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