San Diego and Phoenix — Realty Income Corp. (NYSE: O), a San Diego-based real estate investment trust active in the net lease sector, has agreed to acquire VEREIT (NYSE: VER), a Phoenix-based real estate investment trust in the single-tenant net lease sector.
The all-stock transaction will create a combined company dominant in the net lease space with an enterprise value of approximately $50 billion, making it one of the largest real estate investment trusts. VEREIT shareholders will receive 0.705 shares of Realty Income stock for every share of VEREIT stock they own.
After the merger agreement closes, the combined company — operating as Realty Income — plans to create a taxable spin-off of substantially all of the office properties of both companies into a new, self-managed, publicly traded REIT known as SpinCo. Realty Income and former VEREIT shareholders are expected to own about 70 percent of Realty Income and 30 percent of SpinCo.
“This is a huge game changer for the REIT market,” says Scott Merkle, managing partner of SLB Capital Advisors. “It creates the sixth largest REIT, makes Realty Income multiples larger than the nearest net lease competitor, and allows them to become even more competitive for scarce assets and/or large sale-leasebacks.”
Realty Income’s growth strategy will remain focused on single-tenant, net-lease retail and industrial properties in the United States and United Kingdom.
The merger will allow Realty Income to refinance VEREIT’s upcoming debt maturities at lower rates across several different currencies. In addition, Realty Income expects to achieve yearly corporate cost synergies of $45 to $55 million inclusive of stock-based compensation and an approximately $35 to $40 million of yearly synergies on a cash basis. Closing for the merger is expected in the fourth quarter of this year.
Realty Income owns over 6,500 commercial properties in the United States and the United Kingdom, totaling about 110.7 million square feet. About 84.4 percent of those assets are retail, while 10.9 percent are industrial properties and 3.1 percent are office properties. Major tenants in Realty Income’s portfolio include Walgreens, 7-Eleven, Dollar General, Dollar Tree/Family Dollar, Circle K and Speedway.
VEREIT owns about 3,800 commercial properties with a total of 89.5 million square feet, with approximately 45.4 percent of the assets in retail, 20.3 percent in restaurants, 17.7 percent in industrial and 16.5 percent in office. Major tenants include Red Lobster, Dollar Tree/Family Dollar, Dollar General, Walgreens and CVS/pharmacy.
“We believe the merger with VEREIT will generate immediate earnings accretion and value creation for Realty Income’s shareholders while enhancing our ability to execute on our ambitious growth initiatives,” says Sumit Roy, president and CEO of Realty Income, who will continue to lead the company post-merger. “Together, our company will enjoy increased size, scale, and diversification, continuing to distance Realty Income as the leader in the net lease industry. VEREIT’s real estate portfolio is highly complementary to ours, which we expect to further enhance the consistency and durability of our cash flows.”
The stock price for Realty Income Corp. opened at $68.82 per share on Friday, April 30, up from $54.01 one year ago. VEREIT’s stock price opened at $47.39 per share, up from $28.05 one year ago.