Kite and RPAI merge; become a top five retail center REIT

Kite Realty Group and Retail Properties of America announced a merger in which RPAI will become a subsidiary of KRG. The combined company will have a total enterprise value of approximately $7.5 billion, making it a top five shopping center REIT.

Together, the companies will own and manage a total of 185 open-air shopping centers comprising 32 million sq. ft. of gross leaseable area. In a conference call this morning, KRG chairman and CEO John Kite cited a long relationship and common values with RPAI CEO Steven Grimes and described the combination not as one of bigger is better, but as one of “better is better.”

“This combination is what we need in terms of what our customer wants,” Kite said. “We have complementary portfolios. This is a real estate deal, after all.”

More than 100 of the properties owned by the new company are currently in the RPAI portfolio, which is stronger in expanding metros such as Washington, D.C., and Seattle. Forty percent of Kite’s portfolio is in Texas and Florida, the “warmer and cheaper” markets upon which Kite has focused.

In the 100% stock-for-stock transaction, current RPAI shareholders will own approximately 60% of the new company.

“We’re thrilled to be part of this merger,” said Grimes. “We will be a company in some of the best, high-growth markets in the United States, and we will have access to lower cost capital.”

KRG’s top management team will lead the combined company, with John Kite continuing as CEO, Thomas McGowan as president and chief operating officer, and Heath Fear as chief financial officer. The combined company’s headquarters will remain in Indianapolis and it will retain the Kite Realty Group name.

Grimes’s role in the new company was not made clear, though Kite assured he would continue with the new entity in an important role.

“Steve and his team have done a phenomenal job of harvesting future value,” Kite said. “Over time we will do development in a measured way and be careful. It’s an excellent growth alternative to buying something at low yield.”