Kimco (KIM) to Buy RPT Realty in a $2B Deal, Bolster Growth
Kimco Realty KIM recently entered into a definitive merger agreement to acquire RPT Realty RPT, which owns and operates a national portfolio of open-air shopping center destinations located mainly in the top markets of the United States, in an all-stock transaction valued at roughly $2 billion. The amount is inclusive of the assumption of debt and preferred stock.
Shares of KIM witnessed a marginal gain on Aug 28 normal trading session on the NYSE following the announcement, while RPT shares soared 17.35%.
With the buyout, Kimco will add 56 open-air shopping centers encompassing 13.3 million square feet of gross leasable area to its existing portfolio of 528 properties. The to-be-acquired centers include 43 wholly-owned and 13 joint venture assets. It will also purchase RPT’s 6% stake in a 49-property net lease joint venture. The deal is expected to be accretive to Kimco’s key financial and operating metrics on an immediate basis and enhance its growth prospects, tenant mix and balance sheet strength.
The Jericho, NY-based retail real estate investment trust (REIT) anticipates a pro forma equity market capitalization of around $13 billion and a total enterprise value of roughly $22 billion once the transaction closes.
Deal Terms
Per the agreement terms, RPT shareholders will receive 0.6049 of the newly issued Kimco share for each RPT share held. This is about $11.34 per RPT share based on KIM’s Aug 25, 2023, closing share price and represents a 19% premium to RPT’s closing share price as of the same date.
Post the completion of the deal, Kimco stockholders are expected to enjoy 92% ownership of the combined company while the remaining 8% will be held by RPT shareholders. The buyout is expected to materialize at the beginning of 2024, subject to the approval of RPT shareholders and other customary closing conditions.
Deal Benefits
The buyout seems a strategic fit for Kimco as it is likely to be accretive to its key financial and operating metrics on an immediate basis, including initial cost savings synergies estimated at $34 million. The retail REIT will benefit in terms of increased portfolio occupancy and marking leases to market. Also, capitalizing on RPT’s 330-basis point spread on its existing signed, not open lease pipeline, Kimco is expected to fuel net operating income (NOI) growth in the future by creating value through redevelopment opportunities.
Moreover, based on RPT’s pro-rata annual base rent, the assets that align with Kimco’s key target markets are nearly 90% grocery-anchored, paving the way for a strong NOI growth profile. In addition, the buyout complements KIM’s high-quality, first-ring suburban grocery-anchored & mixed-use shopping center portfolio in major Sun Belt & Coastal markets, enhancing its scale in high-growth target markets.
Notably, the addition of Mary Brickell Village in Miami will bring about significant value creation opportunities through leasing and tenant remerchandising, mixed-use redevelopment and the expansion of Kimco’s Signature Series® portfolio.
Furthermore, the transaction, expected to be leverage neutral upon closing, preserves Kimco’s financial flexibility and investment capacity for future growth opportunities while simultaneously creating additional value.
Conclusion
Kimco’s latest move marks a decisive step in its pursuit of expanding its grocery-anchored shopping center portfolio. The move will likely aid the company in inching closer to its target of achieving 85% of its annual base rent from its grocery-anchored centers by 2025.
Shares of this Zacks Rank #3 (Hold) company have gained 3.4% in the past three months compared with the industry's growth of 5.1%.
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Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Regency Centers REG and Tanger Factory Outlet Centers SKT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Regency Centers’ 2023 FFO per share has moved marginally upward in the past week to $4.15.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past week to $1.88.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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RPT Realty (RPT) : Free Stock Analysis Report
