North Miami Beach-based Equity One Inc. and Atlanta-based IRT Property Co. have entered into a definitive merger agreement, whereby Equity One will acquire IRT. The combined entity would become one of the largest shopping center REITs in the Southeast with a $1.56 billion total market capitalization, owning 181 properties in 12 states with 18.7 million sq. ft. of space.

In the merger, each IRT shareholder may elect to receive for each share of IRT common stock either $12.15 in cash or 0.9 shares of Equity One common stock, or a combination thereof. The terms of the merger agreement also stipulate that the holders of no more than 50% of IRT's outstanding common stock may receive cash.

Assuming a 50% cash election and yesterday's $13.59 closing price for Equity One common stock, the transaction values IRT at $730 million, including the assumption by Equity One of $297 million of IRT debt and transaction costs.

"IRT and Equity One operate in the same region and focus on the same asset class," said Chaim Katzman, Chairman and CEO of Equity One. "This transaction will more than double our shopping-center portfolio and will create one of the largest retail REITs focused on the southeast, solidifying our leadership in the supermarket-anchored shopping-center sector. IRT has 30 years of experience building a stable portfolio in the southeast, while Equity One has a proven track record developing and managing a growth-oriented portfolio in Florida and Texas through the acquisition and development of properties, as well as the sourcing and integration of major portfolios. We will more than double our equity market float, will expand our equity research coverage and hope to maintain IRT's investment-grade rating, thereby providing both equity and debt investors with a compelling opportunity."

Thomas H. McAuley, chairman and CEO of IRT, added: "This is an opportunity for us to combine our strengths and long-term business relationships in southeastern markets with Equity One's proven ability in the acquisition, development and management of supermarket-anchored shopping centers in Florida and Texas. Moreover, the merger will give IRT shareholders the opportunity to take cash or continue as an investor with a 3.4% increase in their dividend. This transaction creates a much larger company, better tenant diversification and a platform to increase shareholder value."

Analysts, though, had mixed views of the deal. "On a net basis, we take a negative view of the IRT transaction," says Andrew L. Rosivach, senior research analyst with New York-based U.S. Bancorp Piper Jaffray. "Although the merger increases the stock's float and is a logical fit with the company's footprint, the transaction is dilutive from both a portfolio quality and NAV perspective."

But Baltimore-based Legg Mason analyst David Fick sees more positives in the deal. "This deal demonstrates a visionary management with a plan, executing a logical takeover of one of the sector's oldest and more moribund companies."