Now that the dust has settled around Kimco Realty’s announcement of its acquisition of RPT, a deal valued at $2 billion, analysts are taking the measure of the transaction.
Mizuho Americas research analysts called the pricing for the stock-for-stock deal attractive for Kimco at a low-8% implied cap rate and 85% of NAV, offering a number of benefits to shareholders ranging from the increased presence the REIT will gain in several key markets to the immediate accretion via NOI cost synergies. “For RPT shareholders, while the transaction pricing was below our expectations / private market estimate, the deal offers longer-term upside via a better-capitalized company with better long-term growth prospects,” it said.
BTIG Investment Bank noted that the implied valuation of the deal is a 19% premium to the prior close but a 22% discount to consensus NAV. In addition to the equity, Kimco will assume about $850 million of debt with a weighted-average rate of 3.75%. Due to the smaller size of the transaction, Kimco shareholders don’t have to provide approval.
About 70% of the RPT portfolio aligns with Kimco’s current strategic markets including in such large cities as Boston, Atlanta, Miami and Tampa. However, the portfolio also has meaningful exposure to non-core markets like Detroit, and BTIG expects these properties will be a candidate for disposition at some future time, as Kimco noted as well in its own announcement.
Although about 72% of the properties have a grocery-store anchor, which BTIG reported is a positive component, it pointed out that none of RPT’s top tenants are grocers. Instead RPT’s top tenant list includes several challenged operators such as Regal Cinemas, Bed Bath & Beyond, Jo-Ann Fabrics and At Home.
BTIG also thinks there are several key assets in the portfolio that are prime candidates for redevelopment and densification like it has seen Kimco execute at other properties. Among this group is Mary Brickell Village in Miami, a lifestyle center in the city’s Brickell neighborhood. It has become a popular destination through its new stores and restaurants and listed on its directory online with the tagline, A Space to Wander, are an eyewear store, beauty shop, blow dry hair bar, raw juice bar and restaurants, to cite a few. According to the BTIG analysis, “This could be a meaningful source of additional value for shareholders in future years.”