- Over 2.5% Accretion to Annualized AFFO per
Share in All Stock, Leverage-Neutral Transaction
- Complementary Real Estate Portfolio Enhances
Size, Scale and Diversification to Expand Runway for Future
Growth
- No Reliance on Capital Markets to Complete
Transaction; Realty Income to Assume Existing Debt with Low
In-Place Rates
SAN
DIEGO and DALLAS,
Oct. 30,
2023 /PRNewswire/ -- Realty Income Corporation
(Realty Income, NYSE: O), The Monthly Dividend Company®,
and Spirit Realty Capital, Inc. (Spirit, NYSE: SRC), announced
today that the two companies have entered into a definitive merger
agreement by which Realty Income will acquire Spirit in an
all-stock transaction valued at an enterprise value of
approximately $9.3 billion. The
leverage-neutral transaction is expected to deliver over 2.5%
accretion to Realty Income's annualized Adjusted Funds from
Operations (AFFO) per share. Additionally, no new external capital
is expected to be required to finance the transaction. 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, and is expected to close during the first quarter of
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. No approval of Realty Income
shareholders will be required in connection with the merger.
"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 Chief Executive Officer 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
Chief Executive Officer of Spirit Realty said, "Since the board
appointed me CEO in 2017, our leadership team and dedicated
associates have effectuated numerous accomplishments, including
improved tenant quality and asset diversification, implementation
of advanced analytical tools and processes, and an excellent
balance sheet with well-laddered maturities and below-market fixed
debt costs. This transaction is the culmination of these
accomplishments, and 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."
Investment Rationale
- Significant anticipated AFFO per share accretion on a
leverage-neutral basis with meaningful cost synergies. Relative
to its standalone annualized AFFO per share run rate, Realty Income
estimates the transaction to be over 2.5% accretive while
maintaining a combined leverage ratio of approximately 5.5x (based
on Net Debt and Preferred Equity / Annualized Adjusted EBITDAre as
of June 30, 2023). As of June 30, 2023, Realty Income and Spirit
maintained leverage ratios of 5.4x and 5.5x, respectively. The
estimated earnings accretion assumes approximately $50 million of annualized G&A synergies (or
approximately $30 million of
annualized G&A synergies excluding stock-based
compensation).
- Complementary real estate portfolio improves diversification
and enhances runway for future growth. The combined portfolio
is expected to 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. Convenience stores are
expected to remain the combined company'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 Industrial property type is expected to represent 15.1%
of annualized contractual rent for the combined portfolio, compared
to 13.1% of annualized contractual rent of Realty Income on a
standalone basis. The enhanced size, scale, and diversification of
the portfolio further positions Realty Income as the real estate
partner of choice for large net lease transactions, particularly
given the current interest rate environment.
- Public capital not expected to be required to finance
transaction, low in-place rates on existing debt. Earnings
accretion is supported by approximately $4.1
billion of existing Spirit debt at a weighted average
interest rate of 3.48% and weighted average term to maturity of
approximately 4.9 years. In addition, Realty Income intends to
assume approximately $173 million of
Spirit's outstanding Series A Preferred Stock at an annual cash
dividend of 6.0%, which is redeemable at par and is expected to
remain publicly traded on the New York Stock Exchange.
- Prudent investment underwriting bolstered by proprietary
credit research and predictive analytics platform. Realty
Income's longstanding investment track record over multiple decades
is supported by historical outcomes, insights and data analytics
gleaned from its net lease real estate portfolio. We believe our
comprehensive and conservative underwriting approach positions the
investment to retain potentially meaningful earnings and value
upside over the long-term.
- Preserves quality of key credit metrics for best-in-class
balance sheet. Realty Income remains one of only eight U.S.
REITs with at least two A3 / A- credit ratings by Moody's and
S&P and is committed to maintaining its conservative credit
metrics while executing on its growth strategy. In addition to the
transaction resulting in leverage neutrality, Realty Income is
expected to maintain or improve several key credit metrics as a
result of this transaction, including with respect to fixed charge
coverage, unsecured assets / unsecured debt, secured debt / gross
assets and total debt / gross assets.
- 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. Further, after giving
effect to the merger agreement's fixed exchange ratio and the
company's current 3-month average daily trading volume, the
resulting Realty Income stock is expected to trade approximately
$300 million of value on a daily
basis. We believe the company's highly liquid share currency and
increasing representation in key benchmark equity indices will
create natural demand for the stock and provide Realty Income with
meaningful flexibility to continue to effectively and efficiently
access the capital markets.
Advisors
Wells Fargo is serving as sole
financial advisor and Latham & Watkins is acting as legal
advisor to Realty Income.
J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are
serving as financial advisors and Wachtell, Lipton, Rosen &
Katz is acting as legal advisor to Spirit.
Webcast and Conference Call Information
Realty Income and Spirit will conduct a joint conference call
for investors and analysts on October 30,
2023 at 8:00 am ET to discuss
the transaction.
To access the conference call, dial (833) 816-1264 (United States) or (412) 317-5632
(International). When prompted, ask to join into the Realty Income
call.
A live webcast will be available in listen-only mode by clicking
on the webcast link on Realty Income or Spirit's home page or in
the investors section at www.realtyincome.com or
www.spiritrealty.com. A replay of the conference call webcast will
be available approximately one hour after the conclusion of the
live broadcast. No access code is required for this replay.
Investor Presentation
An investor presentation regarding the transaction will be
available in the investors section of each company's website.
About Realty Income
Realty Income, The Monthly Dividend Company®, is an S&P 500
company and member of the S&P 500 Dividend Aristocrats® index.
We invest in people and places to deliver dependable monthly
dividends that increase over time. The company is structured as a
REIT, and its monthly dividends are supported by the cash flow from
over 13,100 real estate properties primarily owned under long-term
net lease agreements with commercial clients. To date, the company
has declared 640 consecutive common stock monthly dividends
throughout its 54-year operating history and increased the dividend
122 times since Realty Income's public listing in 1994 (NYSE: O).
Additional information about the company can be obtained from the
corporate website at www.realtyincome.com.
About Spirit Realty
Spirit Realty Capital, Inc. (NYSE: SRC) is a premier net-lease
REIT that primarily invests in single-tenant, operationally
essential real estate assets, subject to long-term leases. As of
June 30, 2023, our diverse portfolio
consisted of 2,064 retail, industrial and other properties across
49 states, which were leased to 345 tenants operating in 37
industries. As of June 30, 2023, our
properties were approximately 99.8% occupied. More information
about Spirit Realty Capital can be found on the investor relations
page of the Company's website at www.spiritrealty.com.
Cautionary Note Regarding Forward-Looking Statements
This communication may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, Section 21E of the Securities Exchange Act of 1934, as
amended, the Private Securities Litigation Reform Act of 1995 and
other federal securities laws. These forward-looking statements can
be identified by the use of words and phrases such as
"preliminary," "expect," "plan," "will," "estimate," "project,"
"intend," "believe," "guidance," "approximately," "anticipate,"
"may," "should," "seek," or the negative of these words and phrases
or similar words or phrases that are predictions of or indicate
future events or trends and that do not relate to historical
matters but are meant to identify forward-looking statements. You
can also identify forward-looking statements by discussions of
strategy, plans or intentions of management. These forward-looking
statements are subject to known and unknown risks and uncertainties
that you should not rely on as predictions of future events.
Forward-looking statements depend on assumptions, data and/or
methods which may be incorrect or imprecise, and Realty Income
Corporation ("Realty Income") and/or Spirit Realty Capital, Inc.
("Spirit") may not be able to realize them. Neither Realty Income
nor Spirit guarantee that the events described will happen as
described (or that they will happen at all). The following risks
and uncertainties, among others, could cause actual results and
future events to differ materially from those set forth or
contemplated in the forward-looking statements: Realty Income's or
Spirit's continued qualification as a REIT under the Internal
Revenue Code of 1986, as amended; general domestic and foreign
business, industry, economic, or financial conditions; competition;
fluctuating interest and currency rates; inflation, including
potential fluctuations in the Consumer Price Index, access to debt
and equity capital markets and other sources of funding, and
fluctuations in the available terms thereof; continued volatility
and uncertainty in the credit markets and broader financial
markets; other risks inherent in the real estate business,
including client defaults under leases, increased client
bankruptcies, potential liability relating to environmental
matters, illiquidity of real estate investments, re-leasing
uncertainties, and potential damages from natural disasters;
competition, impairments in the value of real estate assets;
changes in domestic and foreign income tax laws and rates;
Realty Income's or Spirit's success in implementing its business
strategy and its ability to identify, underwrite, finance,
consummate, integrate and manage diversified acquisitions or
investments; the impact of any financial, accounting, legal or
regulatory issues or litigation that may affect Realty Income or
Spirit or their major tenants, respectively; risks that the
proposed transaction (the "Transaction") between Realty Income and
Spirit disrupts current plans and operations; the outcome of any
legal proceedings related to the Transaction; the ability of Realty
Income and Spirit to consummate the Transaction on a timely
basis or at all; the impacts of the announcement or consummation of
the Transaction on business relationships of Realty Income or
Spirit; the satisfaction of the conditions precedent to
consummation of the Transaction; the anticipated cost related to
the Transactions; and the ability for the combined company to
realize the anticipated synergies, or at all.
These risks, as well as other risks related to the Transaction,
will be included in the registration statement on Form S-4 and
proxy statement/prospectus that will be filed with the Securities
and Exchange Commission ("SEC") in connection with the proposed
transaction. While the list of factors presented here is, and
the list of factors to be presented in the registration statement
on Form S-4 are, considered representative, no such list should be
considered to be a complete statement of all potential risks and
uncertainties. For additional information about other factors that
could cause actual results to differ materially from those
described in the forward-looking statements, please refer to
Spirit's and Realty Income's respective periodic reports and other
filings with the SEC, including the risk factors identified in
Realty Income's and Spirit's most recent Quarterly Reports on Form
10-Q and Annual Reports on Form 10-K. The forward-looking
statements included in this communication are made only as of the
date hereof. Neither Realty Income nor Spirit undertakes any
obligation to update any forward-looking statements to reflect
subsequent events or circumstances, except as required by law.
Additional Information about the Proposed Transactions and
Where to Find It
In connection with the proposed transaction, Realty Income
intends to file with the SEC a registration statement on Form S-4
that will include a proxy statement of Spirit that also constitutes
a prospectus of Realty Income. Each of Spirit and Realty
Income may also file other relevant documents with the SEC
regarding the proposed transaction. This document is not a
substitute for the proxy statement/prospectus or registration
statement or any other document that Spirit or Realty Income may
file with the SEC. The definitive proxy statement/prospectus
(if and when available) will be mailed to stockholders of
Spirit. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE
REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS AND ANY OTHER
RELEVANT DOCUMENTS THAT MAY BE FILED WITH THE SEC, AS WELL AS ANY
AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN
THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY
CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. Investors and security holders will be able to
obtain free copies of the registration statement and proxy
statement/prospectus (if and when available) and other documents
containing important information about Spirit, Realty Income and
the proposed transaction, once such documents are filed with the
SEC, through the website maintained by the SEC at
http://www.sec.gov. Copies of the documents filed with the
SEC by Realty Income will be available free of charge on Realty
Income' website at www.realtyincome.com/investors or by contacting
Realty Income' Investor Relations department at 858-284-5000.
Copies of the documents filed with the SEC by Spirit will be
available free of charge on Spirit' website at
investors.spiritrealty.com or by contacting Spirit's Investor
Relations department by mail at Investor Relations, 2727 North
Harwood Street, Suite 300, Dallas,
TX.
Participants in the Solicitation
Realty Income, Spirit and certain of their respective directors
and executive officers may be deemed to be participants in the
solicitation of proxies in respect of the proposed
transaction. Information about the directors and executive
officers of Realty Income, including a description of their direct
or indirect interests, by security holdings or otherwise, is set
forth in Realty Income's proxy statement for its 2023 Annual
Meeting of Stockholders, which was filed with the SEC on
March 31, 2023, and Realty Income's
Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC
on February 22, 2023. Information
about the directors and executive officers of Spirit, including a
description of their direct or indirect interests, by security
holdings or otherwise, is set forth in Spirit's proxy statement for
its 2023 Annual Meeting of Stockholders, which was filed with the
SEC on March 23, 2023, and Spirit's
Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC
on February 28, 2023. Other
information regarding the participants in the proxy solicitations
and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the proxy
statement/prospectus and other relevant materials to be filed with
the SEC regarding the proposed transaction when such materials
become available. Investors should read the proxy
statement/prospectus carefully when it becomes available before
making any voting or investment decisions. You may obtain
free copies of these documents from Spirit or Realty Income using
the sources indicated above.
No Offer or Solicitation
This communication and the information contained herein is not
intended to and shall not constitute an offer to buy or sell or the
solicitation of an offer to buy or sell any securities, or a
solicitation of any vote or approval, nor shall there be any sale
of securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such jurisdiction. No
offering of securities shall be made, except by means of a
prospectus meeting the requirements of Section 10 of the U.S.
Securities Act of 1933, as amended.
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SOURCE Realty Income Corporation