Dallas-Based Spirit Realty Capital Acquired in $9.3 Billion Deal

In an all-stock merger transaction, Spirit Realty Capital is being acquired by San Diego-based Realty Income Corporation. Spirit Realty is a leading real estate investment trust with tenants including Life Time Fitness, Invited, At Home, Dave and Buster’s/Main Event, Church's Chicken, Dollar Tree, and other national brands.

If you thought Energy Transfer’s $7.1 billion August acquisition of Crestwood Equity Partners was a big deal, hold onto your hat. A Dallas-based real estate company announced Monday that it has been acquired for stock worth than $2 billion in excess of that.

In an all-stock transaction, Dallas-based Spirit Realty Capital is being acquired by San Diego’s Realty Income Corporation for $9.3 billion via a definitive merger agreement.

Spirit Realty is a leading net-lease real estate investment trust (REIT) that primarily invests in “single-tenant, operationally essential real estate assets” subject to long-term leases. Its top 10 tenants are Life Time Fitness, 21 private golf and country clubs operated by Dallas-based Invited, and businesses including At Home, BJ’s Wholesale Club, Dave and Buster’s/Main Event, Church’s Chicken, Dollar Tree, Circle K, The Home Depot, and GPM convenience stores.

As of June 30, Spirit’s portfolio consisted of 2,064 retail, industrial, and other properties across 49 states, which were leased to 345 tenants operating in 37 industries—with those properties being around 99.8% occupied, the company said in a statement.

Merger will result in an enterprise value ‘of approximately $63 billion’

Once completed, the merger 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,” the companies added.

The leverage-neutral transaction is expected to deliver over 2.5% accretion to Realty Income’s annualized Adjusted Funds from Operations per share, the companies said, adding that no new external capital is expected to be required to finance the transaction.

Jackson Hsieh, president and CEO of Dallas’ Spirit Realty, highlighted a series of “accomplishments” his company has made during the six years he’s been at the helm.

“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,” Hsieh said in a statement. “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.”

Spirit shareholders will own 13% of the combined company

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 companies noted. 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.

“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,” Sumit Roy, president and CEO of Realty Income, said in a statement. “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,” Roy added. “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.”

Roy noted that his company’s technology and infrastructure investments following its 2021 merger with VEREIT—a real estate investment trust headquartered in Phoenix—”have amplified our efficiency in integrating assets and augmented our capabilities in maximizing the value of our properties.”

In the newly announced merger agreement, 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.

Wells Fargo is serving as sole financial advisor and Latham & Watkins is acting as legal advisor to Realty Income.

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