Shopping center REIT Kimco Realty Corp. (NYSE: KIM) announced on Mar. 6 that it is participating in a joint venture to purchase grocery chain Safeway Inc.
Under the terms of the agreement with Safeway, AB Acquisition LLC, a group that includes Kimco and Cerberus Capital Management, L.P., would acquire all outstanding shares of the grocer. AB Acquisition owns grocery operator Albertsons, which would merge with Safeway, pending regulatory approval. The transaction is expected to close in the fourth quarter.
Kimco would contribute up to $90 million of new equity and the equity stake that it already owns in Albertsons following transactions in 2006 and 2013 that were made in conjunction with the Cerberus group. Kimco invested more than $70 million last year in the acquisition of SUPERVALU Inc.’s Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market brands. Once the deal is finalized, Kimco, which is based in New Hyde Park, N.Y., would hold a 9.9 percent ownership stake in the new Albertsons-Safeway combination.
Kimco added in a news release that it will provide strategic counsel to the consortium of investors and may also have an opportunity to purchase selective real estate assets for its own account over time.
“We’re pleased to be able to build on the momentum of our Albertsons and SUPERVALU investments as part of the Safeway acquisition,” said Milton Cooper, Kimco’s executive chairman. Cooper added that the Safeway transaction fits with the Kimco’s strategy of “creating additional value through opportunistic investments with real estate rich retailers.”
Paul Morgan, an analyst with MLV & Co., said Kimco’s participation in the Safeway acquisition adds an important West Coast concentration to the company’s strategic investment.
“Investors are more focused on Kimco’s efforts to upgrade the portfolio and grow the redevelopment pipeline, but strong returns from the earlier stage investments with Cerberus should lead the deal to be viewed positively,” Morgan said.
In midday trading on Mar. 7, Kimco shares were trading at $21.96, off from the previous day’s close of $22.38, in lower-than-average trading volume. The 52-week high for Kimco shares is $25.09, with a low of $19.22.