A Look at Retail Properties of America’s Newly Added Risk Factors

Retail Properties of America, Inc. (RPAI) is an Illinois-based real-estate company that primarily owns and operates open-air shopping centers across the U.S. Its portfolio currently consists of 100 retail properties.

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Let’s take a look at the company’s latest financial performance, corporate developments, and newly added risk factors. (See Retail Properties of America stock charts on TipRanks).

Retail Properties of America’s Q2 Financial Results

The company reported revenue of $121.24 million for Q2 2021, compared to revenue of $96.80 million in the same quarter last year. Revenue exceeded the consensus estimate of $109.48 million. Funds from operations per share (FFO) of $0.27 beat consensus estimates of $0.21 and came in better than the $0.17 per diluted share reported in the same quarter last year.

The company ended Q2 with $917 million in liquidity and $1.8 billion in debt. It plans to distribute a quarterly dividend of $0.075 per share on October 8 to shareholders of record on October 1.

Retail Properties of America’s Corporate Developments

The company recently closed the acquisition of Arcadia Village for $21 million. Arcadia Village is a neighborhood center in the Phoenix MSA and is 100% leased.

Retail Properties of America is in the process of merging into Kite Realty Group Trust (KRG) in an all-stock deal valued at $7.5 billion. The transaction is expected to close in Q4 2021, subject to regulatory approvals. After the merger, Retail Properties of America will cease to be a publicly-traded company. Instead, its shareholders will receive newly issued Kite shares and own a 60% majority stake in the combined company.

Retail Properties of America’s Risk Factors

The new TipRanks Risk Factors tool shows 60 risk factors for Retail Properties of America. Since June 2021, the company has updated its risk profile with 11 new risk factors, all related to the pending merger.

The company tells shareholders that since the merger is stock-based, the value they will receive will depend on the market price of Kite shares at the time the transaction closes. The value may be higher or lower compared to when the deal was announced. At the time of the merger announcement, the deal valuation represented a 13% premium for Retail Properties of America shareholders.

The company tells investors that the terms of its merger agreement with Kite could prevent it from obtaining a better alternative deal. For example, the company is prohibited from pursuing an alternative merger with a third party while still under the merger agreement with Kite. If it decides to terminate the agreement with Kite and seek an alternative deal that might be better for its shareholders, the company must pay $107 million in termination fees. Additionally, it may have to pay $15 million in expense reimbursements to Kite.

Citing the need to pay a termination fee and reimburse expenses, Retail Properties of America cautions that failure to complete the merger with Kite could adversely impact its business and financials. Further, the company warns that if the merger fails to qualify as a tax-free reorganization, the combined company may face adverse tax consequences.

The majority of Retail Properties of America’s risk factors fall under the Finance and Corporate category, with 60% of the total risks. That is above the sector average of 58%. The company’s shares have gained about 50% year-to-date.

Analysts’ Take on Retail Properties of America

In June, Deutsche Bank analyst Derek Johnston reiterated a Hold rating on Retail Properties of America stock and raised the price target to $14 from $12. Johnston’s new price target suggests 9.12% upside potential. The analyst observed that there was strong demand for high-quality shopping centers.

Consensus among analysts is a Hold based on 1 Hold. The average Retail Properties of America price target of $14 implies 9.12% upside potential to current levels.