Kite Realty Group Trust (KRG.N) said it would buy Inland Diversified Real Estate Trust Inc for $1.2 billion in stock to boost its shopping center portfolio and help it enter new markets in the United States.
Shares of Kite Realty rose more than 5 percent in morning trade.
The deal is the latest by a U.S. real estate investment trust (REIT) to shift focus to shopping centers, which are more profitable than other commercial properties, such as those leased to single tenants.
Simon Property Group (SPG.N), the largest owner of U.S. malls and outlet centers, said in December it would spin off its strip center business and smaller enclosed malls to focus on larger retail properties.
Indianapolis, Indiana-based Kite Realty said on Monday the deal would help it enter Las Vegas and expand in new regions in New York and New Jersey among other states.
Kite Realty said the deal, expected to close in the second or third quarter, would also bring more stores of tenants such as Dick's Sporting Goods (DKS.N), Bed Bath & Beyond Inc (BBBY.O) and Lowe's Companies Inc (LOW.N) into its portfolio.
Inland Diversified shareholders could get between 1.650 and 1.707 Kite Realty shares for each Inland share held, based on Kite Realty's average trading price for ten days ending on the third day before Inland Diversified's stockholder meeting.
Based on Kite Realty's closing share price of $6.15 on Friday, each Inland Diversified share would be valued at $10.50.
Kite Realty said it would also assume Inland Diversified's debt of almost $1 billion, giving the deal an enterprise value of about $2.1 billion, net of cash.
Kite Realty said it would pay down some of the debt by selling three of Inland Diversified's multi-family residential units as well as some securities owned by Inland Diversified.
In December, Inland Diversified agreed to sell its single-tenant net-leased portfolio to Realty Income Corp (O.N) for $503 million.
Kite Realty said it expected the deal to be neutral to its estimated funds from operations per share for 2014.
Bank of America Merrill Lynch and Barclays were the financial advisers to Kite Realty, while Wells Fargo Securities was Inland Diversified's adviser.
Kite Realty's legal adviser was Hogan Lovells US LLP and Inland Diversified was advised by Alston & Bird LLP.
Shares of Kite Realty were up 4.3 percent at $6.42 in late morning trade on the New York Stock Exchange.
(Editing by Kirti Pandey and Savio D'Souza)