Back to top

Image: Bigstock

Realty Income (O) Taps Equity Market for Funding Acquisitions

Read MoreHide Full Article

Realty Income (O - Free Report) is making efforts to bank on accretive acquisitions and tapping the equity market for the same.

Realty Income recently announced the pricing of 10.5 million shares of common stock at $57.05 per share. The underwriters has also been granted a 30-day option to purchase up to 1.575 million additional shares.The company expects to reap net proceeds of $582.3 million, following underwriting discounts and commissions, but before deduction of other offering expenses.

With the added financial flexibility thanks to the stock offering plus available cash and additional borrowings as required, Realty Income plans to fund its property buyouts. The company has a solid acquisition pipeline and as of Jan 8, 2021, it had entered into agreements or letters of intent to acquire additional U.S. and U.K. properties for a total of $676.8 million.

In fact, since the beginning of the current year through Jan 8, 2021, the company has already purchased properties for $130.7 million. This, combined with properties under agreement or letter of intent as of the same date, results in a total of $807.5 million.

Any amount, not used for this purpose, will be used for other general corporate purposes and working capital. This might include potential expansions, as well as the repayment of borrowings under its $3-billion revolving credit facility and its $1-billion commercial paper program.

Notably, solid property acquisitions volume at decent investment spreads have been aiding the company’s performance. In 2019, the company invested $3.7 billion in 789 properties and properties under development or in expansion, including $797.8 million in 18 properties across the U.K. Continuing with its buyout efforts, during third-quarter 2020, Realty Income invested $658.6 million in 89 properties and properties under development or expansion, including $230 million in seven properties in the U.K., bringing the first-nine month tally to $1.3 billion.

The investments in third-quarter 2020 involved high-quality real estate leased to leading operators in essential and resilient industries, such as grocery, home improvement and convenience store industries. Moreover, Realty Income raised the 2020 acquisition guidance to $2 billion on the company’s robust financial position and continued performance of its business. The acquisitions of well-located commercial properties add to the company’s scale, offering a competitive edge to its net lease industry.

Nevertheless, businesses of physical stores widely depend on customer traffic but consumers are avoiding crowded public spaces due to the pandemic and increasingly opting for online purchases. This, in turn, is taking a huge toll on tenants’ liquidity, thereby making it difficult to meet their rental obligations. As a result, retail REITs, which have already been battling against store closures and bankruptcy issues, are feeling the heat. Apart from Realty Income, this turbulence is affecting other retail REITs, including Macerich (MAC - Free Report) , Simon Property (SPG - Free Report) and Kimco (KIM - Free Report) among others.

For Realty Income too, the company’s tenants from theater as well as health and fitness categories have been affected by the government-mandated closures and the social-distancing wave.

Shares of this Zacks Rank #3 (Hold) company have gained 4.6% over the past six months compared with the industry’s rally of 17.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>