San Diego and Dallas — Realty Income Corp. (NYSE: O) and Spirit Realty Capital Inc. (NYSE: SRC) have entered into an all-stock merger agreement valued at $9.3 billion. The combined company, which will operate under the Realty Income banner, is expected to become the fourth largest REIT on the S&P 500 index with a total enterprise value of $63 billion.
Both companies primarily invest in freestanding, net-leased commercial properties. Realty Income boasts a portfolio of 13,100 properties located across the U.S. and Europe, and Spirit Realty owns a portfolio of 2,064 properties across 49 states.
Primary tenants across the combined company’s portfolio include Life Time Fitness, BJ’s Wholesale Club, At Home, Dave & Buster’s, Dollar Tree, The Home Depot, Treasury Wine Estates, Sainsbury’s, 7-Eleven, Lowe’s and Chipotle Mexican Grill.
Under terms of the agreement, each share of Spirit Realty Capital will be converted into 0.762 of a share of newly issued Realty Income stock. At closing, this will result in Realty Income and Spirit owning 87 percent and 13 percent of the combined company, respectively. No external capital is currently being used for the transaction.
Realty Income and Spirit cite the potential for higher earnings, a more competitive cost of capital and broader tenant diversification as key drivers for the merger. “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,” says Sumit Roy, Realty Income’s president and CEO.
The merger is subject to closing conditions, including approval by Spirit shareholders, and is scheduled for completion in 2024.
Wells Fargo served as financial advisor and Latham & Watkins is acting as legal advisor to Realty Income. J.P. Morgan Securities and Morgan Stanley & Co. are serving as financial advisors and Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Spirit.
San Diego-based Realty Income’s stock price closed at $46.22 per share on Monday, Oct. 30, down from $59.46 one year ago. Dallas-based Spirit Realty Capital’s stock price closed at $34.89 per share on Monday, Oct. 30, down from $36.16 one year ago.