The Corporate Restructuring Report-DDR Corp (DDR) & Retail Value Inc. (RVI)
On July 1st, 2018, DDR Corp. (NYSE:DDR) is expected to complete the spin-off of a portfolio of 49 assets that includes 37 continental US assets and all 12 of its Puerto Rico assets into a separate publicy traded company, Retail Value Inc. (RVI). The parent will retain the remaining 208 shopping centers. The spin-off is anticipated to be taxable and was announced on December 14th, 2017. The spin-off makes sense as it separates lower growth assets (RVI) from he higher growth assets (DDR). It will also simplify DDR's structure, improve focus, and balance sheet strength.
New DDR will comprise properties in areas with better demographics, including higher household income and higher population. Higher exposure to food component (~70% of portfolio) is a positive, though the retail industry continues to face secular headwinds. Improved balance sheet provides DDR with more flexibility to focus on redeveloping properties in higher growth areas; however, leverage (~6x) remains a concern. The dividend yield of ~6.1% (based on our 2018 dividend estimate of $0.91) is attractive in our view and should limit downside.
RVI will be positioned as an REIT focused on returning value to shareholders primarily via sale of assets. RVI's continental US portfolio is far superior and more liquid than the assets sold to date, though the retail headwinds are likely to weigh on realizations.
Of the two, we prefer DDR owing to better quality portfolio. In our view, both DDR (ex RVI) and RVI are fairly valued.
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.
Retail Value is a self-administered and self-managed real estate investment trust. The company owns and operates a portfolio of assets that compose of continental United States assets and assets in Puerto Rico. These properties consist of retail shopping centers located in various states and Puerto Rico.
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