The transaction will create the nation's largest real estate investment trust (REIT) for local shopping centers, commonly called "strip malls." It also marks renewed interest in the sector, which has lagged the fast-paced consolidation of REITS devoted to office buildings and apartment complexes.

Family-run New Plan is one of the country's oldest and most well-established REITS, but Wall Street had recently questioned its conservative approach and uncertain management succession plan. The bulk of the company's portfolio are shopping centre, although about 35 per cent of its assets are apartments.

The merged company, to be called New Plan Excel Realty Trust Inc, will have a market capitalization of $3.5 billion and will be 65 per cent owned by current New Plan shareholders, the companies said. New Plan will become a subsidiaryof Excel and nine members of the 15-member board will be from New Plan.

New Plan Excel will own 332 properties, including 276 retail properties, in 32 states with more than 34.7 million square feet. It will be headquartered in New York, but operations will be run from San Diego.

Stocks of both companies fell as Wall Street experts expressed concerns about the operations of the new entity.

"There are a number of challenges the company faces," Lee Schalop of J.P. Morgan Securities Inc said.

Analysts noted potential difficulties in running the company out of two different cities, a structure that will not eliminate costs of duplicate operations.

"Operationally, it raises questions for me," said Greg Andrews of Green Street Advisors in Newport Beach, California.

But the transaction ends the critical issue of who will run New Plan in the future. Company chairman and chief executive William Newman is in his 70s and president and chief operating officer Arnold Laubich is in his late 60s.The deal callsfor Newman to be chairman of the new company and Laubich to serve as chief executive. Excel chairman, president and CEO Gary Sabin, who is in his 40s, will serve as president and take over the chief executive spot when Laubich retires.

Reuters reported a few days ago that New Plan was on the brink of a major deal and Excel would likely be the partner.

Industry experts had expressed surprise that 72-year-old New Plan, which has sat on the sidelines as the industry's newest players make aggressive moves, would join forces with the acquisitive Excel.

But company executives downplayed the different management styles in a telephone conference call and said the new company was expected to maintain its aggressive growth strategy.

The pact calls for San Diego-based Excel to declare a 20-per cent stock dividend and then exchange one share of common stock for each share of New Plan.

The last sizable transaction in strip malls came in January when East Coast firm Kimco Realty Corp announced plans to buy PriceREIT Inc for about $800 million.