Shares of Indianapolis-based Kite Realty Group Trust jumped nearly 5 percent in late-morning trading after the company announced Monday that it would purchase Inland Diversified Real Estate Trust for $1.2 billion in an all-stock deal.
Kite’s purchase of Oak Brook, Ill.-based Inland Diversified would nearly double the company’s portfolio of shopping centers. The combined holdings would amount to 131 properties with more than 20 million square feet in 26 states, with a combined value of $3.9 billion.
Giving Kite access to such new markets as Las Vegas; Virginia Beach, Va.; and Salt Lake City is an integral part of the deal, Kite CEO John A. Kite told analysts during a Monday morning conference call.
Inland’s properties are 95-percent leased and on average total 180,000 square feet, much larger than the average square footage of Kite’s properties.
“What that tells you is that they are power regional properties,” Kite said.
Some of the properties boast high-end demographics. One of the shopping centers, City Center in downtown White Plains, N.Y., for instance, boasts a population of 106,000 people within three miles with an average annual income of $130,000.
The merged portfolio will include six Inland properties in Las Vegas, giving Kite the “dominant portfolio” in the city, Kite said.
The combined company, which would have a market value of more than $2 billion, plans to retain the Kite name, its New York Stock Exchange listing, and its headquarters in Indianapolis, along with John A. Kite as CEO.
The merger is expected to close late in the second quarter or in the third quarter of this year, subject to the approval of shareholders of both companies.
Kite’s number of board members will increase from six to nine, with three coming on board from Inland.
In terms of property quality, John A. Kite said the purchase is similar to the one the company made a few months ago. In November, Kite paid $370 million in cash for nine Southern retail properties, bumping its portfolio by about 20 percent in size and value. The properties total 2 million square feet and are mostly in Florida, Georgia and Texas, as well as in Birmingham, Ala.
“This is just a very, very unique opportunity for us,” John A. Kite said of the Inland deal. “It’s clearly a great deal.”
The all-stock transaction values Inland Diversified at about $10.50 a share, Kite said in a statement Monday. Inland is a real estate investment trust that isn’t traded on exchanges.
Kite shares hit a high of $6.48 on Monday morning after starting at $6.15 per share.
The firm would save $6 million to $8 million per year, due to merged operations, Kite officials said.
Meanwhile, Kite on Monday also reported its latest earnings. The firm saw a smaller loss in the fourth quarter as revenue soared 41 percent.
The company said it lost $1.7 million in the quarter compared with a loss of $6.5 million during the same period of 2012.
Revenue jumped to $36 million, from $25.5 million in the year-ago period, partly due to the acquisition of properties and the completion of developments.
Kite saw funds from operations, or FFO, of $12.1 million, or 10 cents per share, compared with $8.5 million, which also translated to 10 cents per share, in the fourth quarter of 2012.
Kite, which owns interests in 68 retail properties totaling 11.9 million square feet, said the properties were 95.3-percent leased as of Dec. 31 compared with 95.2 percent in the year-ago period.
For the entire year, Kite said it lost $11.3 million, or 12 cents per share, compared with $12.3 million, or 18 cents per share, in 2012. Kite attributed much of last year’s loss to a non-cash impairment charge and acquisition-related costs.
Revenue increased 34 percent, to $129.5 million.
Funds from operations increased to $47.6 million, or 47 cents per share, compared with $30.5 million, or 41 cents per share, in 2012.