Why RPT Realty's Merger Deal With Kimco Is A Win-Win: Analyst On AFFO Estimates And Takeout Price

A couple of analysts downgraded RPT Realty RPT following a merger deal announced yesterday.

The company penned a deal to be acquired by Kimco Realty Corp KIM for around $2 billion, including the assumption of debt and preferred stock.

The price represents a consideration of about $11.34 per RPT share based on Kimco's closing share price on August 25, 2023, a 19% premium to RPT's closing share price on August 25, 2023. 

Raymond James analyst RJ Milligan downgraded RPT to Market Perform from Outperform.

The analyst sees the acquisition deal as a hugely positive outcome for RPT as the stock is worth well below the implied takeover price, considering its adjusted funds from operations (AFFO) multiple. 

Based on the analyst's updated RPT FY24 AFFO estimate of $0.47, the takeout price represents a 24x AFFO multiple.

Milligan believes consensus AFFO estimates for RPT significantly understate the capital expenditure requirements through 2024. 

Based on the analyst's updated AFFO estimates, RPT could not cover its dividend in 2024. 

The analyst lowered revenue and AFFO per share estimates to $204 million (from $216 million) and $0.43 (from $0.63) for FY23 and $213 million (from $227 million) and $0.47 (from $0.66) for FY24, respectively. 

Also, KeyBanc Capital Markets analyst Todd M. Thomas downgraded the stock to Sector Weight from Overweight.

The analyst believes the acquisition deal demonstrates KIM's confidence in the ongoing retail real estate recovery and strong potential in RPT's portfolio, including SNO pipeline, occupancy & rent upside, and redevelopment potential.

Given recent interest rate hikes and the challenging capital markets environment, the analyst believes there will be continued consolidation in the near and medium term within the REIT industry.

Thomas estimates AFFO per share of $0.72 in FY23 and $0.80 in FY24. 

Price Action: RPT shares are trading higher by 0.45% at $11.28 on the last check Tuesday.