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Realty Income, VEREIT Agree to Merge; Office Assets to be Spun Off

Realty Income Corp . (NYSE: O) said April 29 that it has agreed to acquire VEREIT, Inc. (NYSE: VER) in an all-stock transaction, creating a combined company with an enterprise value of approximately $50 billion.

In addition, the two REITs plan to spin-off 97 office properties into a new, self-managed, publicly traded REIT (SpinCo), saying that office real estate does not play a role in the company’s long-term acquisition strategy.

Under the terms of the agreement, VEREIT shareholders will receive 0.705 shares of Realty Income stock for every share of VEREIT stock, representing a 17% premium to the previous day’s closing price.

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.

During a conference call, Realty Income President and CEO Sumit Roy said the merger would be immediately accretive to adjusted funds from operations (AFFO) and would provide value creation for Realty Income’s shareholders—while enhancing the REIT’s ability to execute on its ambitious growth initiatives.

As a combined entity, the merged company will benefit from increased size, scale, and diversification, continuing to distance itself as the leader in the net lease industry, Roy said. He noted that VEREIT’s real estate portfolio is “highly complementary,” which is expected to further enhance the consistency and durability of cash flows.

Glenn Rufrano, CEO of VEREIT, said the merger recognizes the value created in VEREIT, which had been the objective of the management team since 2015. “We put an excellent team in place, enhanced the portfolio, created an investment-grade balance sheet, and resolved all legacy issues,” he said.

Meanwhile, Roy described the net lease market as “incredibly fragmented.” While acknowledging the company’s global goals, he noted that “we have to walk before we can run.” Realty Income’s growth strategy is expected to 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.

Original Article by Sarah Borchersen-Keto @ Nareit

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