Realty Income buys Spirit Realty: What does this buyout mean?

Realty Income (NYSE: O) stock price plunged hard on Monday after the company made a big acquisition. The shares crashed to a low of $47.83, the lowest level since July 2020. It has lost over 32% of its value from the highest level this year, giving it a market cap of over $34 billion.

Realty Income buys Spirit Realty

Merger Mondays are becoming popular now. A few weeks ago, ExxonMobil acquired Pioneer Natural Resources in a $59 billion deal. And last week, Chevron placed a bid for Hess, a leading company with vast resources in Guyana.

The latest deal came from an unexpected place as Realty Income merged with Spirit Realty. This all-stock deal comes at a time when REITs are going through their worst periods in years as a wall of maturities near.

The deal is also notable because of its size. Realty Income will pay $9 billion for a company valued at over $4.5 billion. It is also a huge premium because Spirit Realty made $743 million in revenue in 2022 and $285 million in net income. In a statement, the CEO of Realty Income said:

“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.”

Realty Income believes that Spirit Realty will be a good company to own for a number of reasons. For example, it sees an accretive AFFO per share accretion on a leverage-neutral basis. It also believes that the two businesses have complementary real estate portfolios.

In addition, the deal will not lead to additional capital raising and it also preserves the credit rating from key agencies. 

By acquiring Spirit Realty, Realty Income will get 2,115 properties that have 351 tenants in the United States. The annualised base rent stands at over $680 million. The company has over $4.7 billion in debt maturities. Its 2023 maturities stood at $556 million followed by $590 million and $610 million in the next two years straight.

Realty Income stock price forecast

In my last article on Realty Income, I said that it is a good company that has a long track record of performance. It has also paid dividends for over 50 years and has a strong credit rating from the leading agencies.

However, I warned that the stock could drop further for now as interest rates remains at an elevated level. This view was correct, and sadly, the situation has gotten worse since it has dropped below the key support at $52.81, the lowest level on October 10th. 

Realty Income share price remains below the 50-day and 25-day Arnaud Legoux Moving Averages (ALMA). Therefore, I suspect that the shares will continue falling in the coming weeks, with the next level to watch being at $40. In the future, however, I suspect that the stock will bounce back.