Eight of the nine centers in the Cedar/Homburg JV are in Pennsylvania and the other is in Massachusetts. The portfolio is valued at $169.5 million, which represents a cap rate of approximately 7%, and the properties are subject to about $106 million in first-mortgage financing. Cedar retains a 20% interest and obtains $53.2 million in net cash proceeds from Homburg's 80% interest.
All of the centers are anchored by a Giant or Stop & Shop supermarket. The Pennsylvania properties are 110,000-sf Pennsboro Commons in Enola, 90,000-sf Stonehedge Square in Carlisle, 86,000-sf Meadows Marketplace in Hershey, 55,000-sf Aston Center in Aston, 56,000-sf Ayr Town Center in McConnellsburg, 107,000-sf Parkway Plaza in Mechanicsburg, 68,000-sf Scott Town Center in Bloomsburg, and 68,000-sf Spring Meadow Shopping Center in Wyomissing. The ninth property is the 194,000-sf Fieldstone Marketplace in New Bedford, MA.
Under the agreement, Cedar receives fees for property management, leasing and other operational functions. In addition, it is entitled to a "promote," applicable to each property, which allows it to increase ownership to 40% based on a look-back leveraged cash internal rate of return of nearly 9.3% and to 50% when the leveraged cash internal rate of return reaches 10.5%. The JV expects to hold the properties for between five and seven years, but, under a buy-sell arrangement, either party can sell properties 18 months after the close of the deal.
The "promote" structure provides Cedar with potentially 40% or more of the income from these properties, "even after selling 80% interests on favorable terms," Leo Ullman, Cedar's CEO, explains in a statement. "We hope to conclude other such attractive strategic transactions with Homburg Invest and others as valued equity partners."
Meanwhile, Cedar paid Paragon approximately $31.9 million for the 184,000-sf Timpany Plaza in Gardner, MA and the 130,000-sf Carll's Corner in Bridgeton, NJ. A 60,000-sf Stop & Shop anchors Timpany Plaza, and a 55,000-sf Acme supermarket anchors Carll's.
Mike Winters, Cedar's VP of acquisitions, says the supermarket-anchored properties "enhance our existing positions in Massachusetts and New Jersey in communities with high barriers to entry and with stores that have a history of solid sales. We believe these transactions reinforce our low-risk profile."
Cedar assumed approximately $14.6 million of existing first-mortgage financing on the two centers at an average interest rate just shy of 5.9%. The balance was funded by the company's credit facility. Paragon will continue to provide certain management and leasing functions.
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