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California and the West

REIT Kimco Will Buy Pan Pacific

July 11, 2006|From Reuters

Kimco Realty Corp., a leader in purchasing, developing and operating shopping centers anchored by supermarkets, said Monday that it would buy Pan Pacific Retail Properties Inc. for about $2.9 billion, beefing up its presence in the Western United States.

The deal continues nearly two years of rapid acquisition activity in the U.S. real estate investment trust sector, and came a day after Australia's Centro Properties Group agreed to buy mall owner Heritage Property Investment Trust Inc. for $1.83 billion.

"It's the demographics," UBS analyst Scott Crowe said of the Kimco deal. "Pan Pacific's portfolio was ranked fourth-best based on demand and has one of the fastest-growing populations."

Pan Pacific's portfolio contains 138 properties, encompassing about 22.6 million square feet of space. The Vista, Calif.-based company is the largest neighborhood shopping center REIT focused on the West Coast.

Pan Pacific "has good quality assets," Crowe said, adding that Kimco has about 11% of its assets in California, Arizona, Colorado, Washington, Utah and Nevada -- where Pan Pacific's centers are located.

Kimco may elect to issue as much as $10 a share of the total merger consideration of $70 a share in the form of Kimco common stock. Including debt, the deal's total value is about $4 billion, according to the companies.

The deal represents no premium from Pan Pacific's Friday closing price of $70 a share, but the stock price is 6.2% higher than the price before a marked run-up that began June 28. Pan Pacific shares fell 65 cents Monday to $69.35. Kimco gained 54 cents to $37.41.

Centro's deal represented a 3.3% premium on Heritage's Friday closing price.

The recent deals for retail real estate have commanded lower premiums than recent buyouts of office REITs, such as the 15% premium Blackstone Group and Brookfield Properties Corp. paid for Trizec Properties Inc.

"The biggest thing is that office [property] is in more of a transition stage going from a period of weakness and moderate strength to now there's the expectation of growth," said John Lutzius, president of Green Street Advisors Inc. "The retail side has been strong for sometime. There's not a big recovery in retail."

REITs continue to be acquisition targets because many of them still trade at a discount to what the underlying value of the properties are worth, despite a narrowing gap, Lutzius said.

The Kimco transaction, subject to approval by Pan Pacific shareholders, is expected to close in the fourth quarter, the companies said.

Kimco, a REIT based in New Hyde Park, N.Y., said it had received financing commitments of as much as $3 billion, which it might use to fund all or part of the total merger. J.P. Morgan and Merrill Lynch have agreed to provide the financing.

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