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Realty Income (O) Signs $1.5B Sale-Leaseback With EG Group

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Realty Income Corporation (O - Free Report) recently unveiled that it has signed a definitive agreement with EG Group, a leading independent convenience retailer based in the United Kingdom, to acquire up to 415 single-tenant convenience store properties in the United States. The move is in sync with the company’s expansion efforts in key markets to enhance portfolio quality and scale.

Reflecting broader market concerns, shares of O witnessed a marginal loss on Mar 7 normal trading session at the NYSE.

The cap rate for the total portfolio to be acquired is estimated to be around 6.9%, with a weighted average initial lease term of 20 years. The acquisition is expected to be completed in second-quarter 2023, subject to various customary closing conditions, approvals and completion of due diligence.

The properties situated in the Northeast United States are expected to contribute around 80% of the total portfolio annualized contractual rent. This includes roughly 116 properties in Massachusetts, 87 properties in New York and 74 in Florida, which are the top three representative states in the portfolio.

Moreover, properties operated under the Cumberland Farms brand are anticipated to be generated more than 80% of the total portfolio annualized contractual rent. Hence, the Monthly Dividend Company’s latest move seems prudent.

Furthermore, the convenience store industry and the EG Group are anticipated to represent 11.3% and 2.9%, respectively, of Realty Income's total portfolio annualized contractual rent, pro forma for the completion of the transaction.

Per Sumit Roy, president & CEO of Realty Income, “We believe this portfolio includes brands that are among the most recognizable convenience store brands on the east coast, and the convenience store industry has long been a well-performing staple in our real estate portfolio. We are pleased with the portfolio's attractive real estate quality, store-level cash flow coverage, and average property size.”

The increase in consumers’ preference for in-person shopping experiences following the pandemic downtime has been driving the recovery in the retail real estate industry. Given this backdrop, this retail REIT is well-poised to benefit from its portfolio comprising major industries that sell essential goods and services.

Realty Income’s accretive buyouts and development initiatives seem encouraging for its external growth. In 2022, the company acquired 1,084 properties having a total investment amount of $8.2 billion. This included 990 properties in the United States and 94 properties in Europe. Management expects to incur more than $5 billion in acquisitions in 2023.

Moreover, its capital-recycling efforts highlight the company’s prudent capital management practices alongside relieving the pressure on its balance sheet.

With a solid balance-sheet position and ample financial flexibility, Realty Income is well-positioned to capitalize on long-term future growth opportunities.

Nonetheless, higher e-commerce adoption, stiff competition from industry peers and rising interest rates remain key concerns for the company.

Shares of this Zacks Rank #3 (Hold) company have lost 0.6% in the past three months against the industry’s growth of 0.1%.

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Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Federal Realty Investment Trust (FRT - Free Report) , Essential Properties Realty Trust (EPRT - Free Report) and EPR Properties (EPR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Federal Realty’s current-year FFO per share is pegged at $6.43.

The Zacks Consensus Estimate for Essential Properties Realty Trust’s 2023 FFO per share is pegged at $1.64.

The Zacks Consensus Estimate for EPR Properties’ ongoing year’s FFO per share stands at $4.86.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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