Realty Income Corp. and Spirit Realty Capital Inc.—real estate investment trusts (REITs) with sizeable convenience-store retail portfolios—have entered into a definitive merger agreement by which Realty Income will acquire Spirit in an all-stock transaction with an enterprise value of approximately $9.3 billion.
The companies expect convenience stores to remain the combined entity’s largest industry, at 10.2% of annualized contractual rent for the combined portfolio as of June 30, 2023, compared to 11.1% of annualized contractual rent of Realty Income on a standalone basis.
The merger, once completed, will result in an enterprise value of approximately $63 billion for the combined company, enhancing Realty Income’s size, scale and diversification to expand its runway for future growth.
Under the terms of the merger agreement, Spirit shareholders will receive 0.762 newly issued Realty Income common shares for each Spirit common share they own. At closing, this will result in Realty Income and Spirit shareholders owning approximately 87% and 13%, respectively, of the combined company.
The merger is subject to customary closing conditions, including the approval of Spirit shareholders. The companies expect the transaction to close during first-quarter 2024. Additionally, from the date of the merger agreement through the closing of the transaction, Spirit may declare and pay regular, quarterly cash dividends to holders of its common stock and to holders of its preferred stock. The deal does not require the approval of Realty Income shareholders.
“The merger with Spirit is yet another example of how our size, scale and unique platform value continue to create substantial value for our shareholders,” said Sumit Roy, president and CEO of Realty Income. “We expect that this transaction will create immediate and meaningful earnings accretion, while enhancing the diversification and depth of our high-quality real estate portfolio. Spirit’s assets are highly complementary to our existing portfolio, extending our investments in industries that have proven to generate durable cash flows over several economic cycles. We also believe this merger will strengthen our longstanding relationships with existing clients and allow us to curate new ones with partners whose growth ambitions can accelerate alongside Realty Income. Moreover, our technology and infrastructure investments following the VEREIT merger in 2021 have amplified our efficiency in integrating assets and augmented our capabilities in maximizing the value of our properties.”
Jackson Hsieh, president and CEO of Spirit Realty, said, “Merging with Realty Income offers Spirit’s shareholders immediate value by providing a more competitive cost of capital, an A-rated balance sheet, broader tenant diversification and the ability to leverage economies of scale.”
The complementary real estate portfolios improve diversification and enhance the runway for future growth, the companies said.
They expect that the combined portfolio will result in reduced rent concentration for nine of Realty Income’s current top 10 industries and 18 of its current top 20 clients, while increasing the combined portfolio’s annualized contractual rent from $3.8 billion to $4.5 billion.
Benefits of scale extends to capital markets as Realty Income solidifies position as one of the largest real estate companies in the S&P 500. Pro forma for the merger, Realty Income expects to remain in the top 200 of the S&P 500 index and become the 4th largest REIT in the index, by enterprise value, with a total enterprise value of approximately $63 billion.
San Diego-based Realty Income is structured as a REIT, and its monthly dividends are supported by the cash flow from more than 13,100 real estate properties primarily owned under long-term net lease agreements with commercial clients.
Dallas-based Spirit is a net-lease REIT that primarily invests in single-tenant, operationally essential real estate assets, subject to long-term leases. Its portfolio consists of 2,064 retail, industrial and other properties across 49 states, which were leased to 345 tenants operating in 37 industries.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.