Taxable Spin of Puerto Rican REIT Properties Completes Today, Seek Lower Levels
With the separation of its slow growing retail assets and the transfer of a higher proportion of its existing debt to Retail Value, Inc. (RVI, Spinoff), DDR Corp. (DDR, Parent ex-Spin) will consist of stable cash flows, lower leverage and a high dividend-paying shopping centre REIT. In our view, DDR’s near-term outlook remains weak, but the long-term outlook is positive with the upcoming Spinoff of RVI, given the company’s improving credit profile and business restructuring.What's Interesting? The Edge View...
We believe that DDR (ex-Spin) will be a much better company with regards to its financial parameters relative to its Spinoff entity, RVI. Moreover, we note that its billionaire director, Mr. Alexander Otto, has been accumulating DDR shares leading up to the Spinoff. He recently purchased ~9.4m shares of DDR (combined) since Feb 21, 2018 till date and has become the single largest investor in DDR with a stake of 32m shares (17.3% of outstanding). Having said this, DDR’s (combined) share price has already moved up by +16.8% in the last month, outperforming the S&P total market cap index returns of -0.8% during the same period, which we believe is pricing-in the upcoming transactional benefits.
Looking at the when-issued trading levels, DDR (ex-Spinoff) is trading at $15.10, closer to its fair value of $15.74, leaving a limited upside of +4%. Likewise, RVI in when-issued is trading at $31.25, offering a potential upside of +9% from our one-year target price of $34.12. Looking at the board of RVI, it is packed with executives from DDR and the company will continue to focus on asset dispositions to free up cash, which will be utilized for dividend payment and share buybacks.
DDR is a self-administered and self-managed real estate investment trust (REIT), engaged in the business of acquiring, owning, developing, redeveloping, expanding, leasing, financing and managing shopping centers. As of Dec 31 2017, the company's portfolio consisted of 273 shopping centers (including 137 shopping centers owned through joint ventures). These properties consist of 261 shopping centers owned in the United States and 12 in Puerto Rico. At Dec 31 2017, the company owned and managed approximately 92 million total square feet of gross leasable area through all its properties (wholly-owned and joint venture). The company also owns more than 250 acres of undeveloped land.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
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