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Realty Income (O) Expands With Spirit Realty Capital Merger
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Realty Income (O - Free Report) has completed its all-stock merger transaction with Spirit Realty Capital, Inc. The transaction is immediately accretive on a leverage-neutral basis and adds to Realty Income's size, scale and diversification, enabling it to expand its scope for future growth.
Per the merger agreement terms, at the closing of the merger, Spirit common stockholders were entitled to receive 0.762 shares of Realty Income common stock for each Spirit common stock they held.
According to Realty Income’s October press release regarding the acquisition, the transaction is likely to deliver more than 2.5% accretion to Realty Income's annualized adjusted funds from operations (AFFO) per share. The REIT also noted that at closing, Realty Income and Spirit shareholders will own around 87% and 13% of the combined company, respectively.
Further, from the combined portfolio, Realty Income will benefit in terms of reduced rent concentration for nine of its current top 10 industries and 18 of its current top 20 clients. The combined portfolio's annualized contractual rent will increase from $3.8 billion to $4.5 billion.
Realty Income has been focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisitions volume at decent investment spreads has aided the company’s performance so far.
In November 2023, Realty Income entered into a JV with Digital Realty (DLR - Free Report) to facilitate the development of two build-to-suit data centers in Northern Virginia. The move marked the retail REIT’s maiden foray into the data center sector and further diversified its portfolio. It invested approximately $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest.
Moreover, during the nine months ended Sep 30, 2023, Realty Income invested $6.8 billion in 1,187 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%. This included properties in the United States and Europe. In 2022, Realty Income invested $8.9 billion in 1,301 properties and properties under development or expansion.
Going forward, Realty Income’s accretive buyouts, backed by a healthy balance sheet, bode well for long-term growth. The company’s portfolio comprises a significant portion of top industries selling essential goods and services. It enjoys a well-diversified tenant base and derives the majority of its annualized contractual rents from tenants with a service, non-discretionary and/or a low-price-point component to their business, assuring stable revenue generation. Higher macroeconomic uncertainty and high interest rates add to the company’s concerns.
Shares of this currently Zacks Rank #2 (Buy) company have risen 13.6% over the past three months compared with the industry’s growth of 19.7%.
The Zacks Consensus Estimate for Tanger Inc.’s 2023 FFO per share has been raised 1.6% in the past three months to $1.94.
The Zacks Consensus Estimate for Urban Edge Properties’ 2023 FFO per share has moved 5% upward in the past two months to $1.25.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Realty Income (O) Expands With Spirit Realty Capital Merger
Realty Income (O - Free Report) has completed its all-stock merger transaction with Spirit Realty Capital, Inc. The transaction is immediately accretive on a leverage-neutral basis and adds to Realty Income's size, scale and diversification, enabling it to expand its scope for future growth.
Per the merger agreement terms, at the closing of the merger, Spirit common stockholders were entitled to receive 0.762 shares of Realty Income common stock for each Spirit common stock they held.
According to Realty Income’s October press release regarding the acquisition, the transaction is likely to deliver more than 2.5% accretion to Realty Income's annualized adjusted funds from operations (AFFO) per share. The REIT also noted that at closing, Realty Income and Spirit shareholders will own around 87% and 13% of the combined company, respectively.
Further, from the combined portfolio, Realty Income will benefit in terms of reduced rent concentration for nine of its current top 10 industries and 18 of its current top 20 clients. The combined portfolio's annualized contractual rent will increase from $3.8 billion to $4.5 billion.
Realty Income has been focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisitions volume at decent investment spreads has aided the company’s performance so far.
In November 2023, Realty Income entered into a JV with Digital Realty (DLR - Free Report) to facilitate the development of two build-to-suit data centers in Northern Virginia. The move marked the retail REIT’s maiden foray into the data center sector and further diversified its portfolio. It invested approximately $200 million, securing an 80% equity interest in the venture, while Digital Realty maintains a 20% interest.
Moreover, during the nine months ended Sep 30, 2023, Realty Income invested $6.8 billion in 1,187 properties and properties under development or expansion at an initial weighted average cash lease yield of 6.9%. This included properties in the United States and Europe. In 2022, Realty Income invested $8.9 billion in 1,301 properties and properties under development or expansion.
Going forward, Realty Income’s accretive buyouts, backed by a healthy balance sheet, bode well for long-term growth. The company’s portfolio comprises a significant portion of top industries selling essential goods and services. It enjoys a well-diversified tenant base and derives the majority of its annualized contractual rents from tenants with a service, non-discretionary and/or a low-price-point component to their business, assuring stable revenue generation. Higher macroeconomic uncertainty and high interest rates add to the company’s concerns.
Shares of this currently Zacks Rank #2 (Buy) company have risen 13.6% over the past three months compared with the industry’s growth of 19.7%.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Tanger Inc. (SKT - Free Report) and Urban Edge Properties (UE - Free Report) . While Urban Edge Properties sports a Zacks Rank #1 (Strong Buy), Tanger Inc. carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tanger Inc.’s 2023 FFO per share has been raised 1.6% in the past three months to $1.94.
The Zacks Consensus Estimate for Urban Edge Properties’ 2023 FFO per share has moved 5% upward in the past two months to $1.25.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.