Kimco Realty Corp., a leader in developing shopping centers anchored by supermarkets, Monday said it would buy Pan Pacific Retail Properties Inc. for about $2.9 billion, beefing up its presence in the Western United States.The deal continues nearly two years of rapid acquisition activity in the U.S. real estate investment trust sector, and came a day after Australia’s Centro Properties Group agreed to buy mall owner Heritage Property Investment Trust Inc. for about $1.8 billion.

“It’s the demographics,” UBS analyst Scott Crowe said of the Kimco deal. “Pan Pacific’s portfolio was ranked fourth best based on demand and has one of the fastest growing populations.”

Pan Pacific’s (Charts) portfolio contains 138 properties, encompassing about 22.6 million square feet. The Vista, California-based company is the largest neighborhood shopping center REIT focused on the West Coast.

“PNP has good quality assets,” Crowe said, adding that Kimco has only about 11 percent of its assets in California, Arizona Colorado, Washington, Utah and Nevada — where Pan Pacific’s centers are located.

Kimco (Charts) may elect to issue up to $10 per share of the total merger consideration of $70 per share in the form of Kimco common stock. Including debt, the deal’s total value is about $4 billion, according to the companies.

The deal represents no premium from Pan Pacific’s Friday closing price of $70 a share but the stock price is 6.2 percent higher than the price before a marked run-up that began on June 28.

Centro’s deal represented a 3.3 percent premium on Heritage’s Friday closing price.

The recent deals for retail real estate have commanded lower premiums than recent buyouts of office REITs, such as the 15 percent premium The Blackstone Group and Brookfield Properties Corp. paid for Trizec Properties Inc.

“The biggest thing is that office (property) is in more of a transition stage going from a period of weakness and moderate strength to now there’s the expectation of growth,” John Lutzius, president of Green Street Advisors, said. “The retail side has been strong for sometime. There’s not a big recovery in retail.”

REITs continue to be acquisition targets because many of them still trade at a discount to what the underlying value of the properties are worth, despite a narrowing gap, Lutzius said.

In the shopping center category of commercial real estate, New Plan Excel Realty Trust Inc., Ramco-Gershenson Properties Trust and Urstadt Biddle Properties Inc. remain possible takeover targets, said BMO Capital Markets analyst Paul Adornato.

The Kimco deal represents an initial yield, called a capitalization rate or “cap rate,” of about 6.3 percent,

The cap rate is equivalent to the interest rate the buyer is willing to accept on the first year of the investment.

“It make sense,” Crowe of UBS said of the deal.

The Kimco transaction, subject to approval by Pan Pacific shareholders, is expected to close in the fourth quarter, the companies said.

Kimco, a real estate investment trust based in New Hyde Park, New York, said it had received financing commitments of up to $3 billion, which it may use to fund all or a portion of the total merger consideration. J.P. Morgan and Merrill Lynch have agreed to provide the financing.

“We feel very good about the quality and long-term prospects for the neighborhood shopping centers in Pan Pacific’s portfolio,” Kimco Chief Executive Milton Cooper said in a statement.

Kimco plans to contribute the properties to one or more of its joint ventures and keep a small part of the ownership while garnering property management and fund management fees.

The election to issue Kimco common stock may be made up to 15 days prior to the Pan Pacific shareholders’ meeting and may be revoked by Kimco at any time if the revocation would not delay the stockholders’ meeting for more than 10 business days, the companies said.

On the New York Stock Exchange, Kimco’s shares traded at $37.30, up 43 cents, or 1.14 percent.

“A lot of people have been anticipating Kimco announcing something major,” Crowe said. “In some ways you can think about of this as a relief rally.”

Meanwhile, Pan Pacific shares were at $69.48, down about 1 percent, or 52 cents.

“What the market is saying is that they don’t think there’s going to be another bid out there,” Crowe said.

The deal, subject to approval by Pan Pacific shareholders, is expected to close in the fourth quarter, the companies said.