Kite Realty to acquire Retail Properties of America for nearly $3B

Second major open-air shopping center deal this year creates $7.5 billion enterprise value

Kite Realty CEO John Kite and RPAI CEO Steven Grimes (Getty, Kite, RPAI)
Kite Realty CEO John Kite and RPAI CEO Steven Grimes (Getty, Kite, RPAI)

Kite Realty Group has agreed to pay $2.79 billion to add rival Retail Properties of America to its open-air shopping center portfolio, making the real estate investment trust the nation’s fifth-largest and giving it cheaper access to capital for expansion.

If shareholders approve the deal, Oak Brook, Illinois-based Retail Properties of America will become a subsidiary of Kite, based in Indianapolis, with 185 open-air centers and about 32 million square feet of leasable space.

The transaction underscores the staying power of open-air shopping centers and malls that are mainly anchored by grocers. As the shutdowns took effect throughout the country last year, open-air malls with easy access and curbside pick-up thrived while indoor malls suffered as consumers opted to shop from their couches. Owners of open-air centers are emerging from the pandemic relatively stronger and able to pursue acquisitions.

In the all-stock transaction, each RPAI share will be converted into 0.623 of new shares of Kite, the companies said Monday. Kite Chief Executive Officer Steve Kite will lead the combined company, which will have a $7.5 billion enterprise value.

The deal gives Kite a greater presence in New York and introduces it to strategic markets in Washington, D.C. and Seattle as well as Atlanta and Phoenix. The bulk of Kite’s properties are in Florida and Indiana.

The two REITs overlap most in what Kite refers to as “warmer and cheaper markets,” primarily in Texas, which will account for 58 percent of the combined portfolio and 40 percent of revenue. Of that, Dallas, Houston, Austin and San Antonio will contribute 25 percent of the firm’s revenue.

RPAI’s 102 properties will also broaden Kite’s holdings to include community, power, mixed-use, neighborhood and lifestyle centers. Combined, the firm has roughly $28 million in free cash flow and the assets to access capital at lower rates, John Kite said on a conference call.

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Earlier this month, RPAI extended the maturity date on an $850 million unsecured revolving line of credit — much of which was drawn down in 2020 — until January 2026 and increased its borrowing capacity to $1.6 billion. Kite is assuming all RPAI’s debt and said it took a $1.1 billion bridge loan if it fails to renegotiate certain debts before the close, which is expected in the fourth quarter.

“This is a real estate deal above all,” Kite said. “The free cash flow alone will enable us to have a significant amount of firepower that we can reinvest with the cash in the development pipeline and with future acquisitions.”

About 70 percent of the centers have grocery store components, including Albertsons, Ahold Delhaize, Kroger and Publix. Its top tenants include TJX Cos., parent of Home Goods, TJ Maxx and Marshalls; Best Buy; Ross Stores and PetSmart.

The Kite-RPAI deal is also the second major open-air shopping center acquisition this year, following Kimco Realty’s $3.9 billion pact to acquire Weingarten Realty in April. That created the nation’s largest open-air retail REIT with 559 shopping centers.

Though the deal came together relatively quickly, RPAI Chief Executive Steven Grimes said he and John Kite, who have known each other for years, started talking about a merger a year ago. Both Midwest companies have been repositioning their portfolios and cleaning up their balance sheets in recent years.

“As we look to coming out of COVID and the opportunities for both companies, the conversations increased and obviously led us to this point,” Grimes said.

“Over the years, I’ve talked about M&A and I do believe there needs to be fewer players in the space and that scale really does matter,” he added.

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