Kimco Realty, a real estate investment trust (REIT) has acquired Weingarten Realty Investors in a cash and stock deal valued at $3.87 billion. Weingarten Realty is a REIT that primarily invests in shopping centers in the Southern US. The combined company is expected to have a pro forma total enterprise value of around $20.5 billion and a pro forma equity market capitalization of $12.0 billion.
Shares of Weingarten Realty Investors (WRI) jumped 11% in morning trading. The acquisition is expected to close in the second half of this year and will result in Kimco being the surviving public company.
Kimco Realty’s (KIM) CEO, Conor Flynn said, “This business combination is highly strategic, creating a stronger platform that is even more capable of delivering long-term growth and value creation. Not only will the merged company and its shareholders enjoy a larger, higher quality, more diversified portfolio with significant embedded growth opportunities, the transaction also reduces the combined company’s leverage, creating a stronger financial profile.”
According to the terms of the merger, each WRI share will get converted into 1.408 newly issued shares of KIM common stock in addition to $2.89 per share in cash. As a result, based on Kimco’s closing stock price on April 14, KIM will pay approximately $30.32 for each WRI share.
The completion of this transaction will result in Kimco shareholders owning around 71% of the combined company while Weingarten shareholders would own the remaining 29%.
The merger of WRI with Kimco Realty will result in the addition of 159 high-quality assets including “open-air grocery-anchored shopping centers and mixed-use properties” and could also result in an increase in KIM’s market share in markets including Miami, Houston, Atlanta, Phoenix and Orlando.
Top grocery retailers like Kroger (KR) and Whole Foods (WFM) will represent 19.3% of the combined company’s total annualized base rent (ABR) with no single tenant representing more than 4%. (See Kimco Realty stock analysis on TipRanks)
The combination of WRI with Kimco Realty is expected to realize annualized cost synergy on a GAAP basis of between $35 million and $38 million. The acquisition is expected to be immediately accretive on closing and will strengthen KIM’s balance sheet by reducing net debt.
Kimco also provided a business update for the first quarter and said that the company executed 358 leases including 121 new leases that totaled an area of 2.8 million square feet. The company had a pro-rata occupancy of 93.5% at the end of 1Q with small shop occupancy at 85.8% and anchor shop occupancy at 96.2%. KIM collected 94% of its pro-rata billed base rents in total at the end of 1Q.
Today, Deutsche Bank analyst Derek Johnson raised the price target from $17 to $21 and reiterated a Buy rating on KIM. Johnson viewed REITs as “core holdings” even after a considerable rise in share price following last year’s lows.
Overall, the Street is cautiously optimistic on KIM with a Moderate Buy consensus rating based on 7 Buys and 3 Holds. The average analyst price target of $19.83 implies 1.6% upside potential from current levels.