Regency Centers to Merge with Equity One

By Barbra Murray, Contributing Editor

Equity One’s largest asset – Serramonte Center, Daly City, Calif.

Jacksonville, Fla. & New York—Move over, Kimco. Step aside, Federal Realty Investment Trust. Regency Centers Corp. will soon move to the top of the list of the largest U.S. shopping center REITs by equity value, now that the company has committed to a merger with Equity One Inc. The transaction, which values Equity One at $4.6 billion, will give the new Regency a total market capitalization of $15.6 billion.

According to Hoya Capital Real Estate, Kimco and Federal Realty have respective market capitalizations of $12.3 and $11.1 billion.

There are plenty of zeros involved in the Regency-Equity One transaction, but they’re all on paper, as the merger will be an all-stock affair. Per terms of the agreement, 0.45 shares of newly issued Regency common stock will be granted for each share of Equity One common stock, giving Regency shareholders an approximately 62 percent ownership of the merged company, and leaving former Equity One shareholders with the remaining 38 percent stake. Gazit-Globe, the Tel Aviv-based parent company of Equity One, will own the single largest piece of the pie with roughly 13.2 percent of the shares.

“This merger will be a transformative event for both companies,” David Lukes, CEO of Equity One Inc., said in a prepared statement. “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.”

Bringing together Regency’s 307 properties with Equity One’s 122 centers will create a 95.8 percent leased portfolio totaling nearly 57.2 million square feet. Standouts include Regency’s Market Common Clarendon just outside Washington, D.C., and Equity One’s largest asset, the 895,000-square-foot Serramonte Center, located in suburban San Francisco and presently undergoing a $109 million expansion. The Class A group of complementary assets will boost the new REIT’s presence in higher-density, infill locations and increase its footprint in target markets. Tenant diversity will also expand. Additionally, the transaction will leave intact the company’s high level of grocery-anchored properties, which will account for 79 percent of the portfolio.

It’s a big deal—and a good one, some analysts assert. In response to early details that emerged about the agreement Monday evening, financial services firm R.W. Baird & Co. issued a note giving the proposed union a positive review. “We believe on the surface that the merger is a mutually beneficial transaction for both EQY and REG shareholders—REG shareholders are getting a high-quality portfolio with solid embedded growth at a modest premium that should drive more synergies over time (and is expected to be accretive immediately), and EQY shareholders are receiving a quick 13 percent premium, yet will remain invested in a high-quality portfolio run by an accomplished management team,” wrote Baird’s RJ Milligan and William Harman, senior research analyst and research associate, respectively.

If all goes as planned, Regency and Equity One will officially become one in the first or second quarter of 2017. The newly merged REIT will maintain Regency’s original ticker symbol and continue to call Jacksonville, Fla., its headquarters.