After Kimco buys RPT, further tie-ups await in the world of real estate investment trusts: analyst

By Steve Gelsi

KeyBanc's Todd Thomas projects more deal making as REITS seek to build up scale in the face of tougher financing conditions

Real-estate investment trusts remain under pressure to build scale in the face of more difficult borrowing conditions nowadays, KeyBanc Capital Markets analyst Todd Thomas says.

And, according to Thomas, the fresh $2 billion acquisition of RPT Realty (RPT) by Kimco Realty Corp. (KIM) is likely to be followed by more mergers among REITs.

"The transaction represents another M&A deal in the REIT space, which we suspect may continue given today's relatively challenging capital markets environment," Thomas wrote in a research note late Monday.

Also read: WeWork's roles as owner and tenant collide in San Francisco high-rise as company tries to stay afloat

KimCo Realty's move to buy RPT demonstrates confidence in the ongoing retail real estate recovery as it take aim at the upside potential in RPT's portfolio over time, Thomas said.

Thomas cut KeyBanc's rating on RPT Realty to sector weight from overweight after the stock price surged on the deal announcement.

Kimco's deal for RPT, which owns open-air shopping centers around the U.S., comes after a series of public-to-public REIT mergers such as Kimco's acquisition of Weingarten Realty Investors for about $3.9 billion in stock as well as Kite Realty Group Trust's (KRG)'s $7.5 billion merger with Retail Properties of America Inc., and Prologis Inc.'s (PLD) acquisition of Duke Realty Corp. for $26 billion in stock.

Some REITs have also been taken private such as Monday's agreement for KSL Capital Partners to buy Hersha Hospitality Trust (HT) for about $1.4 billion.

Collectively, the deals highlight "the importance of scale and cost of capital," Thomas said.

The pool of publicly traded REITs remains fairly large for potential deal-making.

Thomas tracks nearly 70 public REITs including larger potential acquirers such as Prologis, American Tower REIT (AMT), Equinix (EQIX), Public Storage (PSA), Crown Castle (CCI) and Simon Property Group (SPG).

Some corporate bonds issued by the major REITs have been drawing fresh capital with positive net flows in the past 10 days, as debt investors turn bullish on select names, according to data from BondCliQ Media Services, as can be seen in the chart above.

Kimco Realty, Prologis, Simon Property Group and Regency Centers Corp. (REG) have all seen inflows in the past 10 days, while Brixmore Property Group Inc. (BRX), Federal Realty Investment Trust (FRT) and Kite Realty Group Trust (KRG) have all seen outflows.

The RPT Realty deal was part of a mini-flurry of merger announcements on Monday as deal-makers predict a rebound in activity from multi-year lows in 2023.

Also read: Goldman Sachs selling Personal Financial Management (PFM) unit in busy day for M&A deals

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-29-23 1453ET

Copyright (c) 2023 Dow Jones & Company, Inc.