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Fitch: Regency-Equity One REIT Merger Atypical
November 29, 2016 / 5:00 PM / a year ago

Fitch: Regency-Equity One REIT Merger Atypical

(The following statement was released by the rating agency) NEW YORK, November 29 (Fitch) Regency Centers' announced merger with Equity One this month didn't follow the typical REIT-to-REIT combination script, according to Fitch Ratings. Looking forward, we do not believe that this transaction will reignite a public company merger trend heading into 2017, barring specific conditions being in place. Regency agreed on Nov. 14 to acquire Equity One for approximately $5.8 billion total enterprise value, making it the largest announced US REIT-to-REIT transaction thus far in 2016. M&A activity among US corporate industrials has been rampant this year, while announced or closed US REIT-to-REIT mergers have totaled $17 billion thus far in 2016, consistent with the trailing 3-year average. In typical REIT-REIT mergers, the non-surviving target company is in the midst of transition or vulnerable. These circumstances usually include a combination of poor property-level fundamentals compared to peers, above-average speculative development exposure, an overleveraged balance sheet, no clear growth strategy or management succession plan, activist shareholders pressuring management for change, and, ultimately, a weak stock price multiple compared to the acquiring surviving entity. The transaction is nearly always on friendly terms, with the boards of both companies voting in favor of the merger, as the target acknowledges that its ability to persevere as a standalone publicly-traded entity is impaired. None of these conditions were present in this transaction, other than only a small relative valuation gap between Regency and Equity One and both boards voting in favor of the transaction. Two years ago Equity One put in place a well-respected and relatively young management team who improved portfolio quality by enhancing the company's operational and geographic focus and maintaining an opportunistic redevelopment portfolio. The company grew FFO per share and same-store NOI while reducing leverage, and had positioned itself to be a sector consolidator as opposed to a merger target. Chaim Katzman, Equity One's chairman, has deemed control over entities that beneficially own approximately 34% of the company. Thus it was likely his decision to enter into the merger and negotiate any social considerations such as senior management, board composition and company headquarters. Mr. Katzman will serve as non-executive vice chairman of the combined company. Fitch still believes that public REIT M&A transactions will continue to be a rarity, spurred by unique circumstances and typically on friendly terms. Disagreements over so-called social issues usually thwart most transactions, and synergy savings typically aren't enough to catalyze a transaction. Deals are achievable but episodic, and the industry's consolidation and maturation will likely differ from most other corporate sectors. Contact: Steven Marks Managing Director, Corporates US REITs Sector Head +1 212 908-9161 Fitch Ratings 33 Whitehall Street New York, NY 10004 Kellie Geressy-Nilsen Fitch Wire +1 212 908-9123 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available on The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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