SAN DIEGO and PHOENIX, April 29,
2021 /PRNewswire/ -- Realty Income Corporation (NYSE: O)
("Realty Income"), The Monthly Dividend Company®, and
VEREIT, Inc. (NYSE: VER) ("VEREIT") today announced that the two
companies have entered into a definitive merger agreement by which
Realty Income will acquire VEREIT in an all-stock transaction,
creating a combined company with an enterprise value of
approximately $50 billion. Under the
terms of the agreement, VEREIT shareholders will receive 0.705
shares of Realty Income stock for every share of VEREIT stock they
own.
Immediately following the closing, the companies expect to
effectuate a taxable spin-off of substantially all of the office
properties of both companies into a new, self-managed, publicly
traded REIT ("SpinCo"). Following the merger and the spin-off,
Realty Income will continue as the surviving public entity. Realty
Income and former VEREIT shareholders are expected to own
approximately 70% and 30%, respectively, of both Realty Income and
SpinCo.
The transactions are expected to be over 10% accretive to Realty
Income's AFFO per share in year one, add meaningful diversification
that further enables new growth avenues, strengthen cash flow
durability, and provide significant financial synergies,
particularly through accretive debt refinancing opportunities.
Realty Income's growth strategy will remain focused primarily on
high-quality, single-tenant net lease retail and industrial
properties in the U.S. and U.K., leased to clients that are leaders
in their respective businesses.
"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," said Sumit
Roy, President and Chief Executive Officer of Realty Income.
"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 objective of our management team from initiation in 2015
was to revitalize VEREIT and increase the value of the enterprise,"
said Glenn Rufrano, Chief Executive
Officer of VEREIT. "We put an excellent team in place, enhanced the
portfolio, created an investment-grade balance sheet and resolved
all legacy issues. The board and management have concluded that a
merger with Realty Income, the premier net lease company, will
enable us to recognize the value created. The combined company
provides all of our constituencies the opportunity to benefit from
the advantageous cost of capital and growth potential generated by
this transaction."
Strategic and Financial Rationale
- Immediate AFFO per share accretion. Relative to the
$3.465 midpoint of Realty Income's
2021 AFFO per share guidance, the transaction is expected to be
over 10% accretive to shareholders on an annualized,
leverage-neutral basis.
- Increased and diversified scale driving growth. The
complementary nature of each company's real estate portfolio
results in greater diversification of client credit, industry, and
geography, providing further runway for Realty Income to grow in
its chosen verticals with best-in-class clients without
compromising prudent concentration metrics.
- Enhanced leadership amongst blue chip
benchmarks. Upon closing of the merger, Realty Income is
expected to become one of the six largest REITs in the MSCI US REIT
Index (RMZ) by equity market capitalization and among the top half
of constituents in the S&P 500, resulting in increased
weighting in major benchmark equity indices and further growing its
net lease industry-leading trading liquidity.
- Dividend stability. Realty Income is one of only three
REITs in the S&P 500 Dividend Aristocrats Index® for
having increased its dividend every year for the last 25
consecutive years and the improved diversification effectuated
through the merger is expected to further enhance the durability of
Realty Income's dividend coverage. VEREIT's shareholders are
expected to experience an immediate increase in the dividend upon
closing of the merger. Dividend payments for both companies are
expected to remain uninterrupted through the close of this
transaction.
- Fortress balance sheet and continued credit rating
leadership in the net lease industry. Realty Income is
currently the only net lease REIT with A3/A- credit ratings from
Moody's and S&P and intends to maintain target leverage (as
defined as Net Debt and Preferred Equity / Adjusted
EBITDAre) in the mid-5x area. Upon closing of the merger,
Realty Income's enhanced scale and diversification are expected to
be credit positives.
- Cost of capital advantages amplified. Realty Income's
cost of capital advantage is driven by its superior credit ratings
in the net lease industry and historical premium to NAV, which
allows it to consistently grow AFFO per share while assembling a
best-in-class real estate portfolio. Post-merger, shareholders are
expected to benefit from this cost of capital advantage applied
towards a broader set of growth opportunities across its combined
investment pipeline.
- Attractive debt refinancing synergies. As one of eight
U.S. REITs with two credit ratings of at least A3/A- by Moody's and
S&P, Realty Income is uniquely positioned to refinance VEREIT's
upcoming debt maturities at materially lower rates in multiple
currencies. Furthermore, Realty Income's accelerating investment
activity in the U.K. further allows for significantly lower all-in
borrowing costs in the high-grade unsecured bond market relative to
the U.S. As of December 31, 2020,
VEREIT had approximately $6 billion
of outstanding debt at a weighted average interest rate of
approximately 4% and a weighted average term to maturity of
approximately 6 years. In addition, pro forma for previously
disclosed activity in January 2021,
VEREIT has approximately $373 million
of outstanding preferred equity at a rate of 6.7%, which is freely
prepayable at par.
- Meaningful corporate cost synergies to further enhance
scalability of platform. On a run-rate basis, Realty Income
expects to achieve estimated annualized corporate cost synergies of
$45 - $55
million inclusive of stock-based compensation, and an
estimated $35 - $40 million of annualized synergies on a cash
basis. An estimated 75% of savings are expected to be achieved in
the first 12 months post-closing. In 2020, Realty Income's G&A
margin as a percentage of revenue (excluding tenant reimbursements)
was approximately 4.7% and its 4Q20 annualized G&A as a
percentage of gross real estate asset value was 0.32%. Both metrics
were the lowest in the public net lease industry.
Realty Income Pro Forma Metrics
After giving pro-forma effect for the closing of the merger and
assuming the anticipated spin-off of the office assets, Realty
Income's shareholders will own a diversified global portfolio of
approximately 10,300 primarily single-tenant, net lease commercial
real estate properties located in 50 U.S. states, Puerto Rico and the U.K. In addition,
utilizing reported portfolio metrics for each company as of
December 31, 2020:
- Total portfolio annualized contractual rent is expected to be
approximately $2.5 billion
- Approximately 83%, 14% and 3% of total portfolio annualized
contractual rent is expected to be generated from retail,
industrial, and other property types, respectively
- Approximately 45% of total portfolio annualized contractual
rent is expected to be generated from investment grade clients
- The 10 largest clients are expected to be Walgreens (5% of
annualized contractual rent), Dollar General (4%), Dollar
Tree/Family Dollar (4%), FedEx (3%), 7-Eleven (3%), LA Fitness,
(3%), Walmart/Sam's Club (2%), CVS Pharmacy (2%), Sainsbury's (2%)
and BJ's Wholesale Clubs (2%)
- The 10 largest industries are expected to be Convenience stores
(9% of annualized contractual rent), Grocery stores (8%), Dollar
stores (8%), Drug stores (8%), Restaurants – casual dining (7%),
Restaurants – quick service (7%), Health & Fitness (5%), Home
improvement (4%), Theaters (4%), and Transportation services
(4%)
- Realty Income expects to maintain leverage (as defined as Net
Debt and Preferred Equity / Adjusted EBITDAre) of
approximately 5.5x, supported by a $3.0
billion unsecured revolving credit facility and $1.0 billion commercial paper program
"SpinCo" Pro Forma Metrics
The planned spin-off of the office portfolio maintains Realty
Income's preferred portfolio mix, consistent with its focused
investment strategy of acquiring high quality real estate leased
primarily to retail clients that have a service, non-discretionary,
and/or low-price-point component to their business, and industrial
clients that are primarily investment grade rated companies and
leaders in their respective industries.
Upon completion of the planned spin-off, shareholders of both
companies are expected to receive a stock distribution in a
separate, publicly traded REIT, subject to customary conditions.
The anticipated spin-off of substantially all of the combined
companies' office properties is expected to result initially in a
pure-play, self-managed portfolio of 97 domestic office
properties.
In addition, utilizing reported portfolio metrics for each
company as of December 31, 2020 and
pro forma for closed transaction activity in 2021:
- Total portfolio annualized contractual rent is expected to be
approximately $183 million
- Approximately 76% of total portfolio annualized contractual
rent is expected to be generated from investment grade clients
- Top five largest clients are expected to be GSA (10% of
annualized contractual rent), Cigna (7%), Merrill Lynch (6%),
HealthNow (4%), and RSA (4%)
- Top five largest industries are expected to be Health care (17%
of annualized contractual rent), Telecommunications (14%),
Insurance (13%), Financial services (11%), and Government services
(11%)
- Pro forma contractual rent collected in 4Q20 was in excess of
99%
Pursuant to the terms of the merger agreement, Realty Income may
also seek to sell some or all of the combined companies' office
properties, subject to certain restrictions. In addition, Realty
Income may elect to retain some or all of the companies' office
properties following the closing of the merger. As such, the pro
forma information described above is subject to change.
Leadership and Governance
Realty Income will continue to be led by President and Chief
Executive Officer Sumit Roy and its
existing senior management team. Michael D.
McKee will remain Realty Income's Non-Executive Chairman of
the Board of Directors. Upon closing, two VEREIT directors will be
appointed to the Realty Income board.
Timing and Approval
The merger is subject to customary closing conditions, including
the approval of both Realty Income and VEREIT shareholders, and is
expected to close during the fourth quarter of 2021. The boards of
directors of both companies have unanimously approved the
transaction.
Advisors
Moelis & Company LLC is serving as lead financial advisor,
Wells Fargo Securities is serving as financial advisor, and Latham
& Watkins LLP is acting as legal advisor to Realty Income. J.P.
Morgan Securities LLC is serving as exclusive financial advisor and
Wachtell, Lipton, Rosen & Katz is acting as legal advisor to
VEREIT.
Webcast and Conference Call Information
Realty Income and VEREIT will conduct a joint conference call
for investors and analysts on April 29,
2021 at 8:00 am ET to discuss
the transaction.
To access the conference call, please register using the
following link:
https://www.incommglobalevents.com/registration/client/7516/investor-call/
A live webcast will be available in listen-only mode by clicking
on the webcast link on Realty Income or VEREIT's home page or in
the investors section at www.realtyincome.com or
www.vereit.com. A replay of the conference call webcast will be
available approximately one hour after the conclusion of the live
broadcast. No access code is required for this replay.
Investor Presentation
An investor presentation regarding the transaction will be
available in the investors section of each company's website.
About Realty Income
Realty Income, The Monthly Dividend Company®, is an
S&P 500 company dedicated to providing stockholders with
dependable monthly income. The company is structured as a REIT, and
its monthly dividends are supported by the cash flow from over
6,500 real estate properties owned under long-term lease agreements
with commercial clients. To date, the company has declared 610
consecutive common stock monthly dividends throughout its 52-year
operating history and increased the dividend 110 times since Realty
Income's public listing in 1994 (NYSE: O). The company is a member
of the S&P 500 Dividend Aristocrats® index.
Additional information about the company can be obtained from the
corporate website at www.realtyincome.com.
About VEREIT
VEREIT is a full-service real estate operating company which
owns and manages one of the largest portfolios of single tenant
commercial properties in the U.S. The Company has total real estate
investments of $14.6 billion
including approximately 3,800 properties and 89.5 million square
feet. VEREIT's business model provides equity capital to
creditworthy corporations in return for long-term leases on their
properties. VEREIT is a publicly traded Maryland corporation listed on the New York
Stock Exchange. VEREIT uses, and intends to continue to use, its
Investor Relations website, which can be found at www.VEREIT.com,
as a means of disclosing material nonpublic information and for
complying with its disclosure obligations under Regulation FD.
Additional information about VEREIT can be found through social
media platforms such as Twitter and LinkedIn.
Cautionary Note Regarding Forward-Looking Statements
This communication may include "forward-looking statements"
within the meaning of the Private Securities Litigation Reform
Act. All statements other than statements of historical fact
are "forward-looking statements" for purposes of federal and state
securities laws. These forward-looking statements, which are based
on current expectations, estimates and projections about the
industry and markets in which Realty Income Corporation ("Realty
Income") and VEREIT, Inc. ("VEREIT") operate and beliefs of and
assumptions made by Realty Income management and VEREIT management,
involve uncertainties that could significantly affect the financial
or operating results of Realty Income, VEREIT, the combined company
or any company spun-off by the combined company. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "will," and variations of such words and similar
expressions are intended to identify such forward-looking
statements. Such forward-looking statements include, but are not
limited to, statements about the benefits of the proposed
transactions involving Realty Income and VEREIT, including future
financial and operating results, plans, objectives, expectations
and intentions. All statements that address operating performance,
events or developments that we expect or anticipate will occur in
the future — including statements relating to creating value for
stockholders, benefits of the proposed transactions to clients,
employees, stockholders and other constituents of the combined
company, integrating our companies, cost savings and the expected
timetable for completing the proposed transactions — are
forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Although we believe the
expectations reflected in any forward-looking statements are based
on reasonable assumptions, we can give no assurance that our
expectations will be attained and, therefore, actual outcomes and
results may differ materially from what is expressed or forecasted
in such forward-looking statements. For example, these
forward-looking statements could be affected by factors including,
without limitation, risks associated with the ability to consummate
the proposed merger and the timing of the closing of the proposed
merger; the ability to secure favorable interest rates on any
borrowings incurred in connection with the proposed transactions;
the impact of indebtedness incurred in connection with the proposed
transactions; the ability to successfully integrate our operations
and employees; the ability to realize anticipated benefits and
synergies of the proposed transactions as rapidly or to the extent
anticipated by financial analysts or investors; the potential
liability for a failure to meet regulatory or tax-related
requirements, including the maintenance of REIT status; material
changes in the dividend rates on securities or the ability to pay
dividends on common shares or other securities; potential changes
to tax legislation; changes in demand for developed properties;
adverse changes in the financial condition of joint venture
partner(s) or major tenants; risks associated with the acquisition,
development, expansion, leasing and management of properties; risks
associated with the ability to consummate the proposed spin-off of
a company holding the office property assets of Realty Income and
VEREIT ("SpinCo") and the terms thereof, and the timing of the
closing of the proposed spin-off; the risks associated with the
ability to list the common stock of SpinCo on a national stock
exchange following the proposed spin-off; risks associated with the
ability to consummate any sales of the office property assets of
Realty Income and VEREIT and the impact of such sales on SpinCo or
the combined company; risks associated with the ability to
consummate the spin-off on terms contemplated by Realty Income and
VEREIT; the failure to obtain debt financing to capitalize SpinCo,
risks associated with the geographic concentration of Realty
Income, VEREIT or SpinCo; risks associated with the industry
concentration of tenants; the potential impact of announcement of
the proposed transactions or consummation of the proposed
transactions on relationships, including with clients, employees,
customers and competitors; the unfavorable outcome of any legal
proceedings that have been or may be instituted against Realty
Income, VEREIT or any company spun-off by the combined company;
significant costs related to uninsured losses, condemnation, or
environmental issues; the ability to retain key personnel; the
amount of the costs, fees, expenses and charges related to the
proposed transactions and the actual terms of the financings that
may be obtained in connection with the proposed transactions;
changes in local, national and international financial market,
insurance rates and interest rates; general adverse economic and
local real estate conditions; the inability of major tenants to
continue paying their rent obligations due to bankruptcy,
insolvency or a general downturn in their business; foreign
currency exchange rates; increases in operating costs and real
estate taxes; changes in the dividend policy for Realty Income's or
VEREIT's common stock or preferred stock or Realty Income's or
VEREIT's ability to pay dividends; impairment charges;
unanticipated changes in Realty Income's or VEREIT's intention or
ability to prepay certain debt prior to maturity and/or hold
certain securities until maturity; pandemics or other health
crises, such as coronavirus (COVID-19); and those additional risks
and factors discussed in reports filed with the U.S. Securities and
Exchange Commission ("SEC") by Realty Income and VEREIT. Moreover,
other risks and uncertainties of which Realty Income or VEREIT are
not currently aware may also affect each of the companies'
forward-looking statements and may cause actual results and the
timing of events to differ materially from those anticipated.
The forward-looking statements made in this communication are made
only as of the date hereof or as of the dates indicated in the
forward-looking statements, even if they are subsequently made
available by Realty Income or VEREIT on their respective websites
or otherwise. Neither Realty Income nor VEREIT undertakes any
obligation to update or supplement any forward-looking statements
to reflect actual results, new information, future events, changes
in its expectations or other circumstances that exist after the
date as of which the forward-looking statements were made.
Additional Information about the Proposed Transactions and
Where to Find It
In connection with the proposed transaction, Realty Income
intends to file with the SEC a registration statement on Form S-4
that will include a joint proxy statement of Realty Income and
VEREIT that also constitutes a prospectus of Realty Income.
Investors and security holders are urged to read the joint proxy
statement/prospectus and other relevant documents filed with the
SEC, when they become available, because they will contain
important information about the proposed transaction. Investors and
security holders may obtain free copies of these documents, when
they become available, and other documents filed with the SEC at
www.sec.gov. In addition, investors and security holders may obtain
free copies of the documents filed with the SEC by Realty Income by
contacting Realty Income Investor Relations at 877-924-6266.
Investors and security holders may obtain free copies of the
documents filed with the SEC by VEREIT by contacting VEREIT
Investor Relations at 877-405-2653.
Participants in the Solicitation
Realty Income and VEREIT and their respective directors and
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. Information about Realty
Income' directors and executive officers is available in Realty
Income's proxy statement for its 2021 Annual Meeting, which was
filed with the SEC on April 1, 2021.
Information about directors and executive officers of VEREIT is
available in the proxy statement for its 2021 Annual Meeting, which
was filed with the SEC on April 15,
2021. Other information regarding the participants in the
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the definitive joint proxy statement/prospectus and other relevant
materials filed with the SEC regarding the merger when they become
available. Investors should read the definitive joint proxy
statement/prospectus carefully before making any voting or
investment decisions when it becomes available before making any
voting or investment decisions. You may obtain free copies of these
documents from Realty Income or VEREIT using the sources indicated
above.
No Offer or Solicitation
This communication and the information contained herein shall
not constitute an offer to sell or the solicitation of an offer to
buy any securities, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the U.S. Securities Act of 1933, as
amended.
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SOURCE Realty Income Corporation; VEREIT, Inc.