Regency Center Corp., among the largest publicly traded real estate income trusts in the nation, reached an agreement Thursday to buy a much smaller rival whose retail portfolio is focused on demographically strong suburban New York markets.

Regency Centers and Urstadt Biddle Properties, whose market cap is a fraction of Regency's, have agreed to an all-stock merger valued at $1.4B, including debt and preferred stock, according to a press release. Under the agreement, Urstadt Biddle shareholders will get $20.40 per share of newly formed Regency stock in exchange for their holdings. The deal still needs the approval of Urstadt Biddle shareholders.

The combined REITs are expected to have a pro forma market capitalization of some $11B and a total enterprise value of $16B, according to the press release. The combined portfolio will consist of 481 properties in excess of 56M SF. Once combined, the new REIT will realize a cost savings of $9M annually, according to the release.

“The portfolio that Urstadt Biddle has carefully assembled over the more than 50 years offers a highly aligned demographic and merchandising profile to Regency,” Regency Centers CEO Lisa Palmer said in a statement.

The 75 properties Urstadt Biddle owns are extremely attractive to retailers given their affluent suburban locations, Dane Bowler, chief investment officer with 2nd Market Capital Advisory Corp., said in a March analysis posted on Seeking Alpha.

“[Urstadt Biddle] boasts some of the best catchment area metrics among all REITs with supremely high household income,” Bowler said. “While most REITs diversify their properties across the country, UBA is concentrated in the suburbs of New York City. These are already high-income states, but UBA's specific locations are even higher with an average household income of about $150K in their catchment radii.”

On top of strong demographics, Urstadt Biddle's market conditions and inflated construction and labor costs make it difficult for developers to add new supply to the market, Urstadt Biddle Chief Financial Officer John Hayes and Vice President Christopher Perez said in a 2022 annual report.

“Securing a location to profitably build a new grocery store in our market is extremely difficult, given the lack of land available for development, challenging approval processes and increased labor and material costs,” the duo said in the annual report. “Thus, we believe that barriers to new competition exist in our markets that make our portfolio increasingly valuable.”

Last year, Urstadt Biddle saw gross revenues rise 5% to $143M, which is the highest ever for a fiscal year, according to the company's 2022 annual report, with the percentage of occupied space in its portfolio inching upward to 93%.

Regency operates open-air and neighborhood grocery-anchored centers across the U.S. coasts and its midsection. The REIT also is seeing an increase in tenant demand for its spaces, even as some retailers fall into bankruptcy and shutter stores.

“We are seeing more activity related to tenant bankruptcies, most recently with a widely anticipated filing from Bed Bath & Beyond nearly two weeks ago,” Palmer said during a May 5 earnings call. “But none of this activity has been a surprise to us. Our teams have been proactive, and we're seeing strong demand from tenants to backfill the space.”

RBC Capital Markets and Wells Fargo Securities are acting as financial advisers to Regency, while Eastdil Secured and Deutsche Bank are representing Urstadt Biddle. The transaction is expected to close late in the third quarter or early fourth quarter.