The announcement prompted Fitch Ratings to put DDR on Rating Watch Positive Thursday afternoon, in anticipation of the spinoff's completion next summer. “The proposed transaction will improve the company's portfolio quality by reducing or eliminating exposures to lower-growth geographies and weaker credit-quality tenants,” according to Fitch. “Further, the proposed transaction lowers leverage and improves liquidity via the repayment of near-term debt maturities, such that the company will have no material maturities until 2021.”

New DDR plans to capitalize RVT with committed mortgage financing of $1.35 billion expected to fund in early 2018. Proceeds are expected to be used to repay debt at DDR, positioning New DDR to achieve 6.0x net debt/adjusted EBITDA in 2018.

Fitch says that DDR's Puerto Rico holdings have tended to lag the performance of the broader portfolio. “In addition to removing Puerto Rico assets from the portfolio, the company will also reduce or eliminate exposure to at-risk tenants like Sears/Kmart while increasing exposure to stronger tenants like TJX Cos. and Bed Bath & Beyond.” Following the spin-off, no single tenant will represent more than 6% of DDR's overall annualized base rent, says Fitch.

At present, says Fitch, DDR's portfolio demographics are below average compared to its shopping center REIT peers, as measured by population density and average household income. Post-transaction, “Fitch expects DDR's remaining portfolio to approach the peer average in categories such as in-place anchor and in-line tenant rents. Further, the company will have a stronger geographic profile upon the elimination of its Puerto Rico exposure.”

Goldman Sachs is acting as lead financial advisor to DDR, while Credit Suisse and Eastdil Secured are also serving as financial advisors to the REIT. Credit Suisse, JP Morgan and Wells Fargo are providing $1.35 billion of committed mortgage financing to support the transaction. Jones Day is serving as legal counsel to DDR.