DDR Corp. recently completed the previously-announced spin-off of a portfolio of 48 properties into a new public company — Retail Value Inc. (“RVI”).
RVI will now begin regular-way trading on the NYSE under the ticker symbol of RVI. Its portfolio consists of 36 continental U.S. assets and DDR’s entire Puerto Rico portfolio of 12 assets. Per the press release of RVI, the company has a gross book value of nearly $2.8 billion as of Mar 31, 2018.
DDR shareholders, holding 10 common shares of DDR at the close of business on Jun 26, received one RVI common share. However, since fractional shares of RVI were not distributed, DDR common shareholders will receive cash in lieu of any such fractional shares that would be entitled to receive from the distribution.
RVI will be managed by DDR executives to capitalize on maximum cost efficiencies. Further, the company will be managed to dispose its properties. Nonetheless, the newly-formed company will have a separate board of directors.
The spin-off will transform DDR’s portfolio and offer significant re-leasing opportunities that will accelerate net operating income (NOI) growth. The company’s trimmed portfolio will no longer have exposure to Puerto Rico. This will enable DDR to maintain scale of operations and focus on core assets in the United States.
Per DDR management, the spin-off of RVI will benefit shareholders who can realize higher value through RVI’s operations and disposition. Also, redevelopment, same-store NOI growth and higher investment opportunities will provide additional value for shareholders.
Notably, the split-up is seen as a business strategy to create two companies with distinct strategies. DDR now owns 210 properties exhibiting top-tier demographics, and offering maximum scope for growth and redevelopment. On the other hand, Retail Value 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 which are currently discounted by public markets.
Such significant measures by the company demonstrate its priority to enhance portfolio mix and are accretive for long-term growth as well. However, the predominance of e-retailers over brick-and-mortar sales is a serious concern for this retail REIT. In fact, a number of retail landlords, including The Macerich Company (MAC - Free Report) , Kimco Realty Corporation (KIM - Free Report) and Taubman Centers (TCO - Free Report) , have been affected due to online retail channels increasingly gaining popularity. This has also resulted in widespread store closures and bankruptcy filing by the retailers.
DDR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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