Regency Centers (REG) and Equity One (EQY) to Merge in $15.6B Deal
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Regency Centers Corporation (NYSE: REG) and Equity One, Inc. (NYSE: EQY) announced that they have entered into a definitive merger agreement under which Equity One will merge with and into Regency, with Regency continuing as the surviving public company and creating the preeminent shopping center Real Estate Investment Trust (“REIT”). The resulting enterprise will have industry-leading operating, development, redevelopment capacities as well as an unparalleled portfolio of primarily grocery-anchored properties uniquely positioned to sustain growth in net operating income (“NOI”) and create value for all of its stakeholders. The combined company is expected to have a pro forma equity market capitalization of approximately $11.7 billion and a total market capitalization of $15.6 billion, making it the largest REIT by equity value in the shopping center 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 Martin E. “Hap” Stein, Jr., Chairman and Chief Executive Officer of Regency. “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 center 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.”
“This merger will be a transformative event for both companies,” said David Lukes, Chief Executive Officer 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.”
Under the terms of the Agreement, each share of Equity One common stock will be converted into 0.45 shares of newly issued shares of Regency common stock. On a pro forma basis, following the closing of the transaction, Regency shareholders are expected to own approximately 62 percent of the combined company’s equity, and former Equity One shareholders are expected to own approximately 38 percent. The merger is subject to customary closing conditions, including the approval of both Regency and Equity One shareholders. The parties currently expect the transaction to close during the first quarter or early second quarter of 2017.
This strategic transaction was unanimously approved by the Board of Directors of both companies. The merger will create a national portfolio of 429 properties encompassing more than 57 million square feet, including co-investment partnerships, and located primarily in high density in-fill and affluent trade areas. The combination will provide increased penetration within key target areas, broader tenant diversity, and meaningful balance sheet capacity. As a result, the combined company will feature the attributes necessary to deliver consistent NOI growth, along with the capabilities to pursue accretive capital deployment opportunities through disciplined development and intense asset management.
Summary of Strategic Benefits
The merger of Regency and Equity One uniquely positions the combined company to enhance shareholder value as the preeminent grocery-anchored shopping center REIT:
- Unparalleled Portfolio of High-Quality Centers: Increased concentration in higher density, in-fill metro areas. The company’s five largest areas of Southern and Northern California; Southeast Florida; New York; and the Washington / Baltimore corridor, which together will represent more than 50 percent of total annualized rent, increases density by more than 30 percent and demographic purchasing power by 15 percent.
- Enhanced NOI Growth Profile: The high quality of the combined platform provides for significant and sustainable embedded NOI and net asset value growth opportunities.
- Expanded Value-Creation Opportunities: The combined best-in-class national development, redevelopment, and leasing platform is positioned to produce industry-leading performance.
- Greater Diversity of High-Quality Tenants: The top 10 tenants of the combined company, which include category-leading grocers and retailers such as Publix, Kroger, Whole Foods, and TJX, will represent approximately 18 percent of total ABR, with no single tenant representing more than approximately three percent.
- Superior Financial Strength and Flexibility: With enhanced size and scale, the combined company will maintain a conservative balance sheet with the flexibility to pursue compelling investment opportunities.
- Annualized Operating Cost Savings: The combined company expects to realize approximately $27 million in annual run-rate cost savings by 2018, primarily related to the elimination of duplicative corporate and property-level operating costs. In addition, the combined company expects to realize additional synergies from economies of scale, increased operational efficiencies and its ability to augment an already-talented team.
Leadership and Organization
Both the Board of Directors of Regency and the Board of Directors of Equity One unanimously approved the transaction. The number of directors on Regency’s Board of Directors will be increased to 12, of which two directors designated by Equity One and one director designated by Gazit-Globe will be appointed to the Regency Board. Mr. Stein will serve as Chairman and Chief Executive Officer of the combined company, and Regency’s President and Chief Financial Officer, Lisa Palmer, Executive Vice President of Development, Mac Chandler, and Executive Vice President of Operations, James Thompson, will continue in their respective roles at the combined company. Chaim Katzman, current Chairman of Equity One and Gazit-Globe’s designee on the Regency Board, will serve as non-executive Vice Chairman of the combined company. Gazit-Globe, which owns approximately 34 percent of the outstanding stock of Equity One, has agreed to vote in favor the transaction. John C. Schweitzer will continue to serve in his role as lead director for Regency.
Upon completion of the merger, the company’s headquarters will remain in Jacksonville, Florida. The company will retain the Regency name and will continue to trade under the ticker symbol REG (NYSE).
Pro Forma Operations and Balance Sheet
Both companies own and operate high-quality grocery-anchored shopping centers located in fundamentally strong areas throughout the country. On a pro forma basis, the combined company will have an increased presence in higher-density, in-fill trade areas and enhanced tenant diversification. Given the complementary assets and operations of the two companies, the combined platform has meaningful opportunities for synergies, and margin improvement is expected. The combined company expects to increase cash flow at the property level by marking rents to market rates, realizing contractual rent increases, growing small shop occupancy and re-merchandising. In addition, the combined company is expected to have greater liquidity, a strong investment-grade balance sheet and a well-staggered debt maturity profile supported by long-standing relationships.
Dividend Policy and Declaration
Each company is expected to continue its ordinary course dividend policy during the pendency of the merger, and will also pay a pro-rated pre-closing dividend, so as to equalize the dividend payment dates and periods for each company.
J.P. Morgan Securities LLC is acting as financial advisor, and Wachtell, Lipton, Rosen & Katz is acting as legal advisor, to Regency. Barclays is acting as lead financial advisor, Citigroup Global Markets Inc. is acting as co-financial advisor, and Kirkland & Ellis LLP is acting as legal advisor to Equity One. ICR, LLC served as communications advisor for the transaction.
The companies will host a joint conference call on Monday, November 14, 2016 at 7:00 pm EST to discuss the proposed merger. Participants will include Mr. Stein, Regency’s Chairman and Chief Executive Officer, Ms. Palmer, Regency’s President and Chief Financial Officer, Mr. Lukes, Equity One’s Chief Executive Officer, and Matthew L. Ostrower, Equity One’s Executive Vice President and Chief Financial Officer. The conference call-in number is 800-289-0487 (Domestic); or 913-312-0844 (International) or interested parties can join the live webcast of the conference call by accessing the Investor Relations section of each company’s website at www.regencycenters.com or www.equityone.com.
A transcript of the call and the conference call replay will be posted when available on the respective companies’ websites under the Investor Relations sections.
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