Kimco Realty, one of the largest publicly traded owners of grocery-anchored shopping centers, agreed to acquire a holder of similar properties, RPT Realty, in a $2 billion deal to increase its portfolio in growing Sun Belt and coastal markets.
RPT’s properties are almost 90% grocery-anchored, open-air assets popular with investors for repeat-visit foot traffic that can support the addition of other commercial uses, Kimco said in announcing the deal that includes the assumption of debt.
U.S. retail estate owners have been looking for ways to increase the value of these types of properties with the addition of other uses such as apartments. The Kimco-RPT deal furthers that push into mixed-use projects.
In addition to building its portfolio size, Kimco sees opportunities for growing occupancy and income. The Long Island, New York-based company said the deal also gives it the chance to expand RPT’s joint venture with GIC, one of three sovereign wealth funds that manages the assets of the government of Singapore.
RPT’s three largest tenants in order are TJ Maxx, Dick's Sporting Goods and Regal Cinemas, CoStar data shows. Its largest grocery tenant is Ahold Delhaize, whose brands include such chains as Giant, Stop & Shop, Food Lion and Hannaford.
Kimco’s three largest tenants are TJ Maxx, Home Depot and Whole Foods Market. Other major grocery tenants include Albertsons as well as Ahold Delhaize.
Kimco, a major Albertsons shareholder, has been raising investment capital through the sale of some of those shares since Albertsons and Kroger announced a proposed $25 billion merger last fall. That deal is still awaiting approvals from state and federal governments.
The retail sector just completed another real estate investment trust merger this month. Regency Centers closed on its $1.4 billion acquisition of Urstadt Biddle Properties, linking portfolios of the primarily grocery-anchored shopping centers that have attracted investment even as financing is tight with higher interest rates.
'Strategic Markets'
This isn't the first time Kimco has moved to boost its presence in the Sun Belt. The REIT purchased Weingarten Realty Investors in August 2021 for $3.87 billion.
The Kimco-RPT agreement “is the latest consolidation to take place in retail that we see continuing given dwindling availability and growing landlord leverage,” according to a note to clients Monday from the Piper Sandler investment banking firm. “The transaction provides [Kimco] the opportunity to take advantage of a healthy, about $9 million signed but not yet opened pipeline."
Piper Sandler added that the deal's "cost savings via synergies are expected to be about $34 million.”
Investors view grocery-anchored shopping centers as being buffered from economic headwinds because they offer necessities — food — that consumers need to buy on a regular basis. That translates into frequent visits and higher foot traffic at these types of shopping centers.
And because of their grocer anchor tenants, these properties are also more immune to e-commerce competition than other retailers, according to analysts.
“Approximately 70% of RPT’s portfolio aligns with our key strategic markets,” Conor Flynn, CEO of Kimco, said in a call with analysts Monday discussing the acquisition, adding the deal "will drive higher growth for the combined company.”
Miami Trophy Property
The property expected to provide the most growth is RPT’s Mary Brickell Village in Miami.
“Mary Brickell Village, I would say is the trophy asset that we see a lot of opportunity for densification in the future,” Flynn said.
New York-based RPT bought the three-story, 200,000-square-foot mixed-use complex last fall for $216 million. The center sits on 5.2 acres in the heart of Miami’s booming Brickell neighborhood.
Among the opportunities is the chance to invest in a residential component at the property, Flynn said.
“There's a lot of coordination and timing efforts, and then a lot of entitlements that have to continue to be worked through to really sort of put that asset in a position for future growth,” Flynn said. “So, we do believe that all the opportunities and with all that density that's going up around that asset, there's significant upside that we can harvest in the future.”
Another benefit of acquiring RPT is expanding its partnerships, according to Kimco. Flynn said he expects that RPT’s existing joint venture relationships, the largest of which is GIC, will provide continued growth via investments in grocery-anchored shopping centers and mixed-use developments.
The RPT transaction will add 56 open-air shopping centers, including 43 wholly owned and 13 joint venture assets, comprising 13.3 million square feet of gross leasable area, to Kimco’s existing portfolio of 528 properties. In addition, Kimco will acquire RPT’s 6% stake in a 49-property net lease joint venture.
Kimco has identified a limited group of Midwest properties within RPT’s portfolio that it views as inconsistent with its strategy and expects to divest over time.
Upon the expected closing of the deal early next year, Kimco expects to have a stock market value of about $13 billion and a total enterprise value, which includes debt, of roughly $22 billion.