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Kite Realty Group Trust (KRG) Stock Trends Lower Despite Merger Announcement with RPAI

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Kite Realty Group Trust (KRG) stock prices were down 9.84% shortly after market trading commenced on July 19th, 2021, bringing the price per share down to USD$18.78 early on in the trading day.

Merger Agreement with RPAI

July 19th, 2021 saw the company announce having entered into a definitive merger agreement with Retail Properties of America, which would see the conversion of RPAI into a subsidiary of KRG, with the latter continuing forth as the sole surviving public company. The strategic transaction facilitates the merging of two stellar product portfolios and complementary geographic footprints, thereby facilitating the creation of a top-five shopping REIT, according to enterprise value.

Combined Scope

The merged company is expected to have a massive market cap of almost USD$4.6 billion, with a total enterprise value of roughly USD$7.5 billion, following the closing of the transaction. These forecasts are based on the closing price of KRG shares as of the end of July 16th, 2021, which saw each share have a price of USD$20.83. The combination of the accretive transaction with a strong balance sheet and a vast scope of value creation opportunities is expected to result in sustained increases in shareholder value over the long term.

Details of the Merger

As per the agreement, each common share of the partnering company will be converted into 0.623 newly issued shares of KRG common stock as a part of the 100% stock-for-stock transaction. As of the closing price of KRG stock on July 16th, 2021, the conversion rate represents a 13% premium to the closing price of RPAI at the same time. Shareholders of KRG are expected to retain ownership of roughly 40% of the combined company’s equity, while the other 60% will be held by RPAI shareholders.

Assuming RPAI’s Debt

The company will assume the entirety of RPAI’s debt and has accordingly secured a financing commitment that will give it access to USD$1.1 billion in a term loan bridge facility, in the case of debt consents failing to be obtained prior to the closing of the transaction. The closing of the transaction is expected for the fourth quarter of fiscal 2021.

Future Outlook for KRG

Armed with a massive strategic acquisition in the works, KRG is poised to capitalize on the significantly expanded scope of the resources it finds at its disposal. Current and potential investors are hopeful that management will continue to leverage the resources at their disposal and will facilitate a smooth transition through to the closing of the merger agreement.

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