Spirit Realty (NYSE:SRC) shares surged nearly 13% in the pre-market session today after the net-lease REIT agreed to be acquired by Realty Income (NYSE:O) in an all-stock $9.3 billion transaction.
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This acquisition bolsters Realty Income’s size and scale, with expectations of over 2.5% accretion to the company’s annualized adjusted funds from operations (AFFO) per share. As part of the deal, investors in Spirit will receive 0.762 newly-issued Realty Income shares for each Spirit share held by them.
Following the acquisition, Spirit shareholders will own 13% of the combined entity, with Realty Income investors holding the majority. The deal remains subject to closing conditions, including approval from Spirit investors, and is expected to close in the first quarter of 2024.
Importantly, Spirit’s complementary portfolio is anticipated to lead to reduced rent concentration in nine of Realty Income’s top ten industries. Additionally, the annualized contractual rent for the combined portfolio is expected to increase to $4.5 billion from $3.8 billion.
Sumit Roy, President and CEO of Realty Income, expressed optimism about the acquisition, stating, “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.”
What Is the Target Price for O?
The rise in SRC shares today follows a nearly 14.2% decline over the past six months. Meanwhile, Realty Income shares are trending lower today, adding to the nearly 21% slide in the share price over the past six months.
Overall, the Street has a Moderate Buy consensus rating on Realty Income. The average O price target of $52.80 implies a substantial 28.2% potential upside.
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