Equity One and Regency Centers agree $5bn merger

January 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Shopping centre investor and developer Regency Centers Corp. announced that it is to acquire rival New York-based Equity One Inc. in an all-stock deal worth around $5bn.

Under the terms of the deal, each share of Equity One common stock will be converted into 0.45 shares of newly issued shares of Regency common stock. Following the closing of the transaction, which is expected to occur in the first two quarters of 2017, Regency shareholders will hold around 62 percent of the combined company’s equity, and former Equity One shareholders will own the remaining 38 percent.

The merger has been approved by the boards of both companies and once the deal has been completed Regency’s chairman and chief executive Martin Stein, Jr. will lead the combined firm. In total, the REIT will increase the size of its board of directors to 12 members. Equity One will designate two directors, and a third will be designated by Gazit-Globe, a 34 percent Equity One stakeholder.

Regency’s stock ended trading at $69.86 on Monday 14 November, the day before the deal was announced. As such, the deal was worth $31.44 per Equity One share at the time of the deal announcement. That price represents a premium of $3.57 or 12.8 percent over Equity One’s closing share price of $27.87 on 14 November.

According to a statement announcing the deal, the newly combined company is expected to have a pro forma equity market capitalisation of approximately $11.7bn and a total market capitalisation of $15.6bn. As a result of the merger, the newly combined company will be the largest REIT by equity value in the shopping centre index.

“Bringing together these two highly complementary businesses creates a best-in-class platform capable of delivering sustained growth and value creation over the long-term,” said Mr Stein, Jr. “Shareholders of both companies are poised to benefit from an expanded presence in top metro areas, a higher organic growth profile, expanded development and redevelopment program, and greater tenant diversity. Through this transaction we are creating the nation’s preeminent shopping centre REIT with excellent embedded growth potential. Importantly, we expect the transaction to be accretive to core FFO per share while preserving a sector-leading balance sheet, with greater financial flexibility to support growth initiatives.”

The companies have confirmed that the combined REIT will hold onto the Regency Centers name and New York Stock Exchange symbol, and also retain its Florida headquarters upon completion of the transaction. The amalgamated business will hold a national portfolio of 429 properties featuring more than 57 million square feet, including co-investment partnerships, which are primarily located in high-density in-fill and affluent trade areas, according to the statement.

“This merger will be a transformative event for both companies,” said David Lukes, chief executive of Equity One. “The alignment of our respective portfolios, development/redevelopment pipelines, industry-leading operations, and access to a lower cost of capital, opens us to new avenues of growth that will benefit all shareholders. Equity One shareholders are receiving an attractive valuation for the company’s assets, and have the opportunity to participate in the future growth prospects of a powerful new company led by a best-in-class management team.”

The merger between Regency and Equity One came at the end of a year in which the REIT industry had expected to see a number of major deals. Indeed, up to the beginning of November there had been $9.2bn worth of REIT mergers in the US and Canada in 2016, according to data from SNL. This dearth of activity put the industry on track to record its lowest annual merger volume since 2012. However, activity did pick up somewhat towards the end of the year. Chinese insurance firmTaikang Insurance Group announced plans in November to take a $1bn stake in the healthcare real estate portfolio of NorthStar Realty Finance Corp. as part of a joint venture agreement. Elsewhere, Vornado Realty Trust revealed its plan to spin off its Washington, DC-focused business and merge the unit with the real estate assets of The JBG Companies.

Fraser Tennant