Equity One REIT's Potrero Center. (Photo: Equity One)Equity One REIT's Potrero Center. (Photo: Equity One)

The merger between two US-based retail REITs, Regency Center and Equity One, is unlikely to reignite a merger trend, Fitch Ratings said on 30 November.

Regency Center REIT agreed on 14 November to acquire Equity One REIT for approximately USD5.8 billion. This makes the deal the largest known REIT-to-REIT transaction in the US thus far in 2016, said the agency.

According to Fitch Ratings, the merger does not follow the typical REIT-to-REIT merger script, which typically includes a weaker target REIT with poor property fundamentals, above average speculative exposure, over leveraged balance sheet, and a lack of clear growth strategy.

None of these conditions were present in this particular merger between the two REITs, said Fitch, adding that there was a only a relatively small valuation gap between Regency Center REIT and Equity One REIT.

“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”, said the agency.

“Fitch still believes that public REIT M&A transactions will continue to be a rarity, spurred by unique circumstances and typically on friendly terms” it remarked, adding that REIT consolidations and maturations are likely to differ from most other corporate sectors.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.