Kimco Realty Corp . (NYSE: KIM) said April 15 it will merge with Weingarten Realty Investors (NYSE: WRI) in an approximately $3.9 billion cash and stock deal, creating a major player in the open-air shopping center segment that has held up well during the pandemic.
The merger will create a national operating portfolio of 559 open-air grocery-anchored shopping centers and mixed-use assets, with properties mainly concentrated in the top major metro markets.
The combined company is expected to have a pro forma equity market capitalization of approximately $12 billion and a pro forma total enterprise value of approximately $20.5 billion.
Under the agreement, each Weingarten common share will be converted into 1.408 newly issued Kimco common stock, plus $2.89 in cash. Based on the closing stock price for Kimco on April 14, this represents a total value of approximately $30.32 per Weingarten share. Kimco shareholders are expected to own approximately 71% of the combined company’s equity, with Weingarten shareholders owning approximately 29%.
“This business combination is highly strategic, creating a stronger platform that is even more capable of delivering long-term growth and value creation,” said Conor Flynn, Kimco CEO.
Flynn said the transaction, which is expected to be completed in the second half of this year, reflects a strong conviction in grocery-anchored shopping centers. The category, he said, has performed well throughout the pandemic and provides last-mile locations that are “more valuable than ever due to their hybrid role as both shopping destinations and omnichannel fulfillment epicenters.”
The combined company is expected to benefit from increased scale and density in key Sun Belt markets, enhanced asset quality, tenant diversity, a larger redevelopment pipeline, and a deleveraged balance sheet.
Drew Alexander, chairman, president, and CEO of Weingarten, said the combined company’s increased size and scale, together with its financial strength, “should drive an advantageous cost of capital, allowing the combined company to more readily pursue value creation opportunities.”
Meanwhile, Haendel St. Juste, managing director and senior REITs analyst at Mizuho Securities, described the deal pricing as a “good read-through for the sector…it gives clarity on asset values.”
At the same time, St. Juste does not see the deal as necessarily providing an impetus for further M&A activity. Institutional capital had been buying shopping center assets before the pandemic, he said, but has since pulled back. “There’s some post-COVID euphoria…but there’s also a reality that it’s still a pretty challenged business and do you want to be buying portfolios?”