Shopping center owner Kimco Realty Corp. (NYSE: KIM) on Thursday agreed to pay approximately $3.87 billion in cash and stock for smaller peer Weingarten Realty Investors (NYSE: WRI), creating a company with a pro forma enterprise value of around $20.5 billion. The combined company’s market cap is around $12 billion.

Once the merger is completed, Kimco will own and operate 559 open-air grocery-focused shopping centers, “one of the better performing parts of the commercial real estate sector during the pandemic as people rushed to stores to stock up on essential items.” Tenants will include some of the best-known U.S. brands, including Kroger, T.J. Maxx, Walmart and Whole Foods.

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Coincidentally, on Tuesday, Baird analyst Wesley Golladay issued a note on shopping center real estate companies including Kimco and Weingarten. Both are real estate investment trusts (REITs) and both earned Outperform ratings from Baird, even though “COVID was a large setback, [and] we expect the REITs to work through the near-term issues.” For the sector overall, however, Baird remains neutral.

What are those issues? First, getting same-store net operating income (SSNOI) back to pre-pandemic levels. According to Golladay, the “near-term outlook has a lot of moving parts.” SSNOI tumbled by an average of 8.6% on the seven shopping center REITs in Baird’s coverage. Bankruptcies, early move-outs and unpaid rent were common, and it is not clear to Golladay “how many of the cash basis and non-paying tenants will return to paying full rent.”

Baird was encouraged by accelerated leasing demand in the fourth quarter of last year, but the analysts “expect some delays for lease commencements due to COVID and believe TI [tenant improvement] packages will be higher due to the retailers having the upper hand at the moment.”

For Golladay and Baird, though, there may be a long-lasting benefit to shopping center owners from the pandemic:

Consumers and retailers were forced to adapt to a new retail environment. A large share of consumers used mobile ordering for the first time, which led to increased online sales. We believe the pandemic has shown the value of a well-located physical location with many leading retailers commenting on how the store was a critical component of fulfilling online orders.

How landlords take advantage of the newly discovered productivity of their locations remains to be seen, but Baird believes “landlords that are in densely populated locations stand to benefit the most and view the REITs in our coverage well-positioned on this front.”

Baird assumed coverage on Kimco with a price target of $21 and an Outperform rating. Weingarten also earned an Outperform rating and a price target of $29. The third of the seven firms in Baird’s coverage to get an Outperform rating was Retail Opportunity Investments Corp. (NASDAQ: ROIC), another grocery-anchored shopping center REIT. Its price target is set at $18.

Kimco’s stock traded flat just before noon Thursday, at $19.49 in a 52-week range of $8.03 to $19.96. The consensus price target on the stock is $19.54, and Kimco pays an annual dividend of $0.71 (yield of 3.64%). Kimco said it plans to maintain its dividend policy following the closing of its acquisition of Weingarten, currently expected in the second half of this year.

Weingarten shares traded up at a new 52-week high of $30.84, up about 11%, following Thursday morning’s announcement. The stock’s 52-week low is $13.28, and the company pays an annual dividend of $1.20 (yield of 4.39%).

ROIC shares traded up about 2.8% to $16.85, and the stock’s 52-week range is $7.43 to $17.13. The company pays an annual dividend of $0.31 (yield of 1.89%).

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