Kihei Center owner expands in California
Kimco Realty nearly triples its holdings in the Golden State via a $2.9 billion purchase
SAN DIEGO » Kimco Realty Corp., the largest U.S. owner of community shopping centers, agreed yesterday to buy Pan Pacific Retail Properties Inc. for $2.9 billion to almost triple its holdings in California.
Kimco, based in New Hyde Park, N.Y., will pay $70 a share, matching Pan Pacific's closing price on July 7, the companies said in a statement. Pan Pacific's shares climbed to a record $73.45 in March on speculation it was seeking a buyer.
The purchase gives Kimco Chief Executive Officer Milton Cooper 138 shopping centers, mostly in California, where the population is projected to expand 37 percent by 2030, more than the U.S. average, according to the U.S. Census Bureau. The lack of premium for San Diego-based Pan Pacific may signal a peak in shopping center values.
"You have two CEOs saying 'Guess what? This is as good as it's going to get,'" said James Corl, chief investment officer for real estate securities at Cohen & Steers Inc. in New York, which owns shares of both companies. Still, California is "an area of high population and income growth," he said.
Also yesterday, Centro Properties Group, Australia's No. 2 shopping-center owner, agreed to buy Boston-based Heritage Property Investment Trust for $1.83 billion. Centro will pay 3.3 percent more than Heritage's closing price on July 7.
Pan Pacific, whose properties encompass 22.6 million square feet, went public in 1997 and within eight months increased the number of its shopping centers by about 50 percent to 42. In 2000, the company became the region's largest real estate investment trust that owns shopping centers by buying Western Properties Trust.
The acquisition will expand Kimco's properties in California to 130 from 49, and its total to 1,255, according to data on the companies' Web sites.
Pan Pacific also has properties in Nevada and Arizona, whose populations are expected to double by 2030, as well as in Oregon, New Mexico, Kentucky and Tennessee.
Led by CEO Stuart Tanz, Pan Pacific increased revenue 7.3 percent to $79.4 million in the first quarter, when earnings rose 1.1 percent to $24.3 million.
Kimco's net income in the first quarter rose 11 percent to $96.2 million as revenue increased by 10 percent to $142.7 million.
In the first quarter, Kimco bought 21 shopping centers in California, Nevada and Hawaii, where it owns the 18,000-square-foot Kihei Center on Maui.
Kimco said it plans to include a "substantial" portion of Pan Pacific's assets in real-estate investment joint ventures.
Moody's Investors Service said it may cut the "Baa1" credit rating of Pan Pacific's senior debt because of the plan.
Community shopping centers, also known as strip malls, are usually anchored by a grocery store, pharmacy or other retailer and may also include restaurants, video stores and similar outlets. Some are built around larger retailers.