Real-estate investment trusts (REITs) are facing increasing pressure in the current borrowing climate, according to KeyBanc analyst Todd Thomas. To combat these challenges, Thomas predicts that more mergers will take place among REITs following the recent $2 billion acquisition of RPT Realty by Kimco Realty Corp.

A Trend of Mergers in the REIT Space

In a research note, Thomas states that the transaction between Kimco Realty and RPT Realty is just one example of a growing trend in the REIT space. Given the difficult capital markets environment, Thomas believes that more mergers are likely to occur in the future.

Confidence in Retail Real Estate Recovery

Thomas highlights that Kimco Realty's decision to acquire RPT Realty demonstrates confidence in the ongoing recovery of the retail real estate market. The deal also reflects their belief in the potential for significant growth in RPT's portfolio over time.

Rating Adjustments

As a result of the deal announcement, KeyBanc's Thomas downgraded RPT Realty's rating from overweight to sector weight. This change in rating was made after RPT Realty's stock price surged following the news.

A Flurry of Merger Announcements

The Kimco Realty and RPT Realty deal was just one of several merger announcements made on Monday, suggesting a rebound in M&A activity from multi-year lows in 2023.

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Kimco’s Acquisition of RPT: A Game-Changer in the REIT Market

Kimco's recent agreement to acquire RPT is a significant move in the real estate investment trust (REIT) market. RPT, known for its ownership of open-air shopping centers across the United States, will now become a part of Kimco's growing portfolio. This deal follows a series of public-to-public REIT mergers that have taken place in recent times. Notable among them is Kimco's acquisition of Weingarten Realty Investors for approximately $3.9 billion in stock. Another significant merger was the $7.5 billion union between Kite Realty Group Trust and Retail Properties of America Inc. Additionally, Prologis Inc. acquired Duke Realty Corp. for $26 billion in stock.

Some REITs have made a move in the opposite direction and have been taken private. In line with this trend, KSL Capital Partners recently agreed to purchase Hersha Hospitality Trust for around $1.4 billion.

These deals underscore the significance of scale and cost of capital in the REIT market, as stated by industry expert Thomas.

The potential for further deal-making remains considerable, given the number of publicly traded REITs available. Thomas focuses on monitoring nearly 70 public REITs, including well-established market players like Prologis, American Tower REIT, Equinix, Public Storage, Crown Castle, Simon Property Group, and Weyerhaeuser.

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