Kite Realty To Buy Inland Diversified For $1.2 Bln; Q4 Loss Narrows

(RTTNews) - Kite Realty Group Trust (KRG), an operator of community shopping centers, said Monday that it has agreed to acquire non-listed real estate investment trust Inland Diversified Real Estate Trust, Inc. for about $1.2 billion in stock. Separately, Kite Realty reported a loss for the fourth quarter that narrowed from last year.

Under the terms of the deal, Inland Diversified will merge with a wholly-owned subsidiary of Kite Realty in a stock-for-stock deal with a transaction value of about $2.1 billion and an equity value of about $1.2 billion. The deal is expected to close late in the second quarter or in the third quarter of 2014, subject to the approval of shareholders of both companies.

Inland Diversified noted that the merger with Kite Realty values the company at about $2.5 billion. This includes the sale of its single-tenant net lease portfolio to Realty Income Corp. for $503 million, which is expected to close prior to closing of the merger with Kite Realty.

Further, Inland Diversified said it will use all or the majority of the net proceeds from the net-leased portfolio sale to pay down debt on existing properties of the combined company, which will facilitate a single, all-stock transaction for Inland Diversified stockholders and allow for individual stockholders to make decisions regarding liquidity.

Kite Realty expects to dispose of three multi-family assets owned by Inland Diversified as well as its securities portfolio, and use the proceeds from these sales to further repay debt.

Under the terms of the merger deal, each outstanding share of Inland Diversified will be converted into the right to receive between 1.707 and 1.65 Kite Realty common shares, based on the per share price of the Kite Realty common shares prior to the special meeting of Inland Diversified stockholders to approve the merger.

Based on Kite Realty's closing share price of $6.15 on Friday, February 7, 2014, this represents an implied price per share of $10.50 for each share of Inland Diversified common stock.

Based on the maximum and minimum exchange ratios of 1.707 and 1.650, Kite Realty's shareholders are expected to own between 40.6 percent and 41.4 percent of the combined company's diluted common equity.

Kite Realty noted that the deal will increase its shopping center retail portfolio to 131 properties totaling more than 20 million owned square feet in 26 states with a combined enterprise value of about $3.9 billion. Inland Diversified's portfolio is comprised of 57 retail properties that are 95.3 percent leased as of December 31, 2013.

The deal will also provide Kite Realty entry into attractive new markets, including Westchester, Bayonne, Las Vegas, Virginia Beach and Salt Lake City. It will also increase the company's equity market capitalization to $2.1 billion as well as improve its leverage and credit profile.

Upon completion of the merger, the combined company will retain the Kite Realty name and will continue to trade under the NYSE ticker symbol 'KRG.' Kite Realty's management will continue to run the combined platform from its Indianapolis headquarters.

Following the closing, Kite Realty's board of trustees will consist of nine members, six of whom will be current trustees of Kite Realty and three of whom will be designated by Inland Diversified.

John Kite, Kite Realty's chairman and CEO, will serve as CEO and chairman of the combined company. In addition, Kite Realty's President and COO Thomas McGowan as well as Executive Vice President and CFO Daniel Sink, will continue in their same positions in the combined company.

Kite Realty expects the transaction to be neutral to its fiscal 2014 estimated FFO per share after taking into account the significant deleveraging.

In a separate statement, Kite Realty reported loss for the fourth quarter that narrowed from last year on strong revenue growth. Net loss attributable to shareholders for the fourth quarter was $1.66 million or $0.01 per share, compared to net loss of $6.47 million or $0.09 per share in the prior-year period.

The company's funds from operations or FFO for the quarter was $12.11 million or $0.10 per share. Adjusted FFO per share of the Kite Portfolio was $0.11 for the quarter. On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.11 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenue for the quarter grew 41 percent to $35.98 million from $25.52 million in the year-ago period. Analysts had a consensus revenue estimate of $32.97 million for the quarter.

Looking ahead to fiscal 2014, Kite Realty expects FFO in a range of $0.48 to $0.52 per share, and net income in a range of $0.00 to $0.04 per share. Analysts expect the company to report earnings of $0.50 per share for the year.

KRG closed Friday's trading at $6.15. In Monday's pre-market, the stock is adding $0.35 or 5.69 percent to $6.50.