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Kimco Realty (KIM) to Acquire Weingarten Realty in $3.87B Deal

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Kimco Realty Corp. (KIM - Free Report) has agreed to buy grocery-anchored shopping center owner — Weingarten Realty Investors (WRI - Free Report) — for $3.87 billion in a cash-and-stock deal. The move will strengthen Kimco’s portfolio with high-quality assets in the growing Sun Bet markets and boost future value creation scopes.

The transaction is expected to be immediately accretive to key earnings metrics, while deleveraging the balance sheet. Moreover, the merger will create a national operating portfolio of 559 open-air grocery-anchored shopping centers and mixed-use assets encompassing roughly 100 million square feet of gross leasable area.

With a pro forma equity market capitalization of approximately $12 billion, the combined company is likely to benefit from its increased scale, density in key Sun Belt markets and broader redevelopment pipeline.

Deal Terms

Under the terms of the merger agreement, each Weingarten shareholders will receive 1.408 newly-issued shares of Kimco and $2.89 in cash. This denotes a total consideration of $30.32 per Weingarten share, based on Kimco’s closing stock price on Apr 14. It also indicated a nearly 11% premium to Weingarten’s closing share price on Wednesday.

Following the transaction’s closure, which is currently expected to take place during the second half of 2021, Kimco shareholders will likely own around 71% of the combined company’s equity, while Weingarten shareholders will own the rest 29%.

Deal Benefits

Particularly, the acquisition will enhance asset diversification and quality, adding Weingarten’s collection of 159 high-quality, open-air grocery-anchored shopping centers and mixed-use properties. Also, it will grow Kimco’s presence in key Sun Belt markets, helping the retail REIT to capitalize on positive demographic and migration trends, along with strong growth prospects of the region.

According to Conor Flynn, Kimco’s chief executive officer, “This combination reflects our conviction in the grocery-anchored shopping center category, which 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.”

Moreover, the acquisition will help attain greater tenant diversity. The combined company’s top 10 tenants are essential and includes names like Kroger (KR - Free Report) , Whole Foods and Walmart (WMT - Free Report) and reputed retailers such as TJX Companies (TJX - Free Report) , Ross Stores (ROST - Free Report) and Burlington Stores (BURL - Free Report) .

In addition, the combined entity is anticipated to realize annualized cost synergies of $35-$38 million on a GAAP basis (excluding accounting adjustments) and $31-$34 million on a cash basis. Complementary business operations and substantial regional overlap in high-growth Sun Belt markets where economies of scale can be realized support these expected savings and are likely to be significantly realized in the first full fiscal year post the transaction’s completion.

Further, the merger will fortify Kimco’s balance sheet by reducing net debt plus preferred to EBITDA and it expects to maintain the current dividend level post-closing.

Retail REITs, which have already been battling store closure and bankruptcy issues, are feeling the brunt because of lower footfall due to social-distancing requirements and higher e-commerce adoption due to the coronavirus crisis.

However, the situation is also opening up scope to capitalize upon. Particularly, Kimco’s focus on the grocery-anchored centers, which have been performing well amid this pandemic as well as mixed use assets clustered in strong economic metropolitan statistical areas bode well for long-term growth and hence, the acquisition seems a strategic fit.

Currently, the stock carries a Zacks Rank #3 (Hold). Shares of this retail REIT have gained 21% in three months’ time, outperforming its industry’s increase of 12.8%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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