Realty Income: Future Beyond The Merger

Realty Income: Future Beyond The Merger


It is becoming increasingly difficult to find a lot of better REIT investment opportunities than Realty Income.

The developments of late have only solidified the position of the company as a triple net lease retail powerhouse.

With a successful merger and a subsequent spin-off behind us, the future seems bright for the monthly dividend company investors.

Indysystem/iStock via Getty Images If one plans to invest in a REIT, it would be difficult to find a lot of better investments than Realty Income ( O ).

The Monthly Dividend Company has proven time and time again that its one of the best investment opportunities both among REITs and Dividend Aristocrats alike. The company managed to produce a 15% CAGR and a dividend CAGR of 4.33% since its listing in 1994.

The recent successful merger with VEREIT has only solidified the companies position as a triple net lease retail dividend powerhouse. The merger is now behind us.

On the 29th of April of this year, it was announced that Realty Income Corporation will acquire VEREIT, combining the two largely triple net lease portfolios into a retail REIT powerhouse. With no long-term plans for the real estate office industry, management spun off its office real estate into a new publicly traded REIT: Orion Office ( ONL ).

The Orion Office spin-off was distributed on the 12th of November to all Realty Income shareholders via a special dividend. Shareholders have received one share of Orion stock for every ten shares of Realty Income stock they held on the 2nd of November, the record date for the distribution. source: April Merger Presentation Highlights of the merger:

The transaction is going to have multiple positive effects on Realty’s business performance including an expected over 10% accretive to Realty Income’s AFFO per share in the first year.

VEREIT shareholders have received 0.705 shares of Realty Income for every single VEREIT stock they own.

The two companies are going to spin off all of their office properties into a new, self-managed, publicly-traded REIT, now known as Orion Office. The new company will be owned 70% by Realty Income shareholders and 30% by VEREIT shareholders.

Realty Income shareholders are getting 1 stock of Orion Office for every 10 shares of Realty Income they own. The stock of the new company is expected to be distributed on Nov 12th and start public trading on Nov 15th.

Sumit Roy is to remain as CEO of Realty Income, while Paul H. McDowell, a former VEREIT board member will take the helm as the CEO of the newly formed company.

The immediate effects of the merger

Immediately after the merger has been closed down, with the current market cap of $39 billion, Realty Income has been made the 7th largest REIT by market cap, shortly trailing Digital Realty( DLR ) valued at $47.16 billion.

In the same manner, already being one of the few REITs in the S&P 500 index, with Real Estate weighing only 3% of the index, O has managed to become the 206th largest company. source: April Merger Presentation

As a result of the merger, guidance has been increased in their latest Q3 earnings report. They have increased their 2021 AFFO per share guidance expecting a 5.5% annual growth while introducing a 2022 AFFO guidance with an expected 9.2% annual. Q3 $0.91 FFO was delivered in line, while revenue has grown 21.6% y/y beating expectations by $35.45 million. The closing of the merger with VEREIT and our anticipated subsequent spin-off of substantially all of the combined companies’ office properties allows us to provide enhanced clarity on our anticipated near-term earnings run rate, demonstrating what we believe is a compelling risk/reward proposition for investors. To that end, assuming the consummation of the spin-off as anticipated on November 12th, we are increasing our 2021 AFFO per share guidance to $3.55 – $3.60, representing 5.5% annual growth based on the midpoint, which includes increased acquisition guidance of over $5 billion, as well as introducing 2022 AFFO per share guidance of $3.84 – $3.97, representing 9.2% annual growth based on the midpoint. Sumit Roy, Chief Executive Officer. We can see that the merger has played into both the top industries and top tenants diversifications for Realty Income. It remains a goal for the company to continuously diversify its client base in order to ensure long-term stability. As a direct result of the merger synergies being played out, there is not a single client industry anymore carrying more than 10% of the rent. Similarly, not […]

source Realty Income: Future Beyond The Merger

Leave a Reply