How much did Realty Income pay for Spirit Realty Capital?

The estimated preliminary purchase price is about $6.2 billion. This consists primarily of roughly 107.3 million Realty Income common shares (about $6.0 billion at a $55.80 reference price), about $167 million of Series A preferred stock issued in exchange for Spirit's preferred, and smaller adjustments for equity awards. Spirit's common shareholders received 0.762 Realty Income shares for each Spirit share, so the value of the consideration depends on Realty Income's share price at closing.

Will the acquisition increase or decrease Realty Income's per-share earnings?

On a pro forma basis, the deal is dilutive to net income per share in the presented periods. Pro forma net income per share is $0.95 for the nine months ended September 30, 2023 compared with $0.96 historically, and $1.22 for fiscal 2022 compared with $1.42 historically. The main drivers are the roughly 108 million new shares issued, higher interest and depreciation/amortization from the fair-valued assets and assumed debt, and one-time merger costs. These pro forma figures are illustrative and exclude synergies, so they are not a forecast of future results.

How much debt did Realty Income take on in the merger?

Realty Income assumed about $4.1 billion of Spirit's historical-cost debt as of September 30, 2023, with a weighted average interest rate of 5.8% and roughly 4.3 years of remaining term. The debt was recorded at fair value, which produced adjustments to the term loan and notes payable. Spirit also drew an additional $200 million on its term loan in December 2023 before the merger, and the filing shows about $2.6 billion of term loans and $20.0 billion of notes payable on a pro forma basis.

Why does the 8-K/A matter if the deal already closed?

The Original Form 8-K, filed January 24, 2024, reported the closing but did not include the required pro forma financial information. Realty Income committed to file it within 71 days of the original due date, and this amendment fulfills that commitment. It gives investors a standardized view of the combined balance sheet and the statements of operations for the nine months ended September 30, 2023 and for fiscal 2022, which is the basis for evaluating the deal's financial impact.

Are the purchase accounting figures final?

No. The filing states that the purchase price allocation is preliminary and based on management's estimates as of September 30, 2023. Final fair values for the real estate, lease intangibles, and debt are expected in the first quarter of 2024 and must be completed no later than one year after closing. Changes could shift the amount of goodwill (currently about $947 million), alter depreciation and amortization, and affect future reported results.

O 8-K SEC Disclosure — Feb 16, 2024

01—Abstract

Summary

Summary of the 8-K/A filed February 16, 2024. Cited figures are marked; the original filing is the authoritative source.

Realty Income (O) filed this Form 8-K/A on February 16, 2024 to amend its January 24, 2024 Original Form 8-K, which reported the closing of its all-stock acquisition of Spirit Realty Capital (SRC).

The amendment's purpose is to supply the previously promised unaudited pro forma condensed combined financial statements (Item 9.01(b)), which show how the combined company would have looked on a pro forma basis. Under the merger, each Spirit common share converted into 0.762 Realty Income common shares, and Spirit's Series A preferred stock converted one-for-one into new Realty Income Series A preferred. The preliminary purchase price is about $6.2 billion^a, of which roughly $6.0 billion is Realty Income common stock issued (about 107.3 million shares at a $55.80 reference price).

On a pro forma basis, total assets would rise from $55.3 billion^b to about $65.5 billion, and total liabilities from $23.5 billion to about $27.6 billion. Pro forma net income available to common stockholders for the nine months ended September 30, 2023 would be about $747.7 million, or $0.95 per share, versus Realty Income's historical $0.96 on a standalone basis. For fiscal 2022, pro forma net income to common would be about $875.5 million, or $1.22 per share, compared with a historical $1.42.

The per-share declines reflect the roughly 108 million new shares, which increase the weighted share count by about 16%^c (basic shares go from 681 million to 790 million for the nine-month period). Pro forma interest expense rises meaningfully, and merger-related costs are sizable. For investors, the key takeaways are that the deal is materially dilutive to near-term per-share earnings on a pro forma basis, while it greatly expands the asset base and scale of the portfolio.

The purchase price allocation is preliminary and subject to change, with final valuations expected in the first quarter of 2024 and no later than one year after closing, so the goodwill of about $947 million^d and the fair value adjustments could move. The pro forma figures also exclude synergies, integration costs, and post-September 2023 acquisitions and dispositions, so they should be read as illustrative rather than as a forecast.

02—Key points

Key Highlights

Pro forma total assets increase to about $65.5 billion from Realty Income's standalone $55.3 billion, reflecting the addition of Spirit's real estate portfolio at fair value.
Realty Income issued about 107.3 million common shares (0.762 exchange ratio), valued at roughly $6.0 billion at a $55.80 reference price, plus 6.9 million Series A preferred shares.
Preliminary total purchase price is about $6.2 billion, with estimated goodwill of $947.3 million and lease intangible assets of about $1.7 billion.
Pro forma net income available to common stockholders is $0.95 per share for the nine months ended September 30, 2023 (vs. $0.96 historical) and $1.22 per share for fiscal 2022 (vs. $1.42 historical), indicating meaningful dilution.
Pro forma debt assumed is about $4.1 billion at a 5.8% weighted average interest rate, and pro forma interest expense rises to about $687 million for the nine months ended September 30, 2023.
Purchase price allocation and fair values are preliminary, with final valuations expected in Q1 2024 and no later than one year after closing, so goodwill and intangibles may change.
The pro forma statements exclude expected synergies and one-time integration costs, and do not reflect real estate transactions after September 30, 2023.

03—Questions

Frequently Asked Questions

How much did Realty Income pay for Spirit Realty Capital?
The estimated preliminary purchase price is about $6.2 billion. This consists primarily of roughly 107.3 million Realty Income common shares (about $6.0 billion at a $55.80 reference price), about $167 million of Series A preferred stock issued in exchange for Spirit's preferred, and smaller adjustments for equity awards. Spirit's common shareholders received 0.762 Realty Income shares for each Spirit share, so the value of the consideration depends on Realty Income's share price at closing.
Will the acquisition increase or decrease Realty Income's per-share earnings?
On a pro forma basis, the deal is dilutive to net income per share in the presented periods. Pro forma net income per share is $0.95 for the nine months ended September 30, 2023 compared with $0.96 historically, and $1.22 for fiscal 2022 compared with $1.42 historically. The main drivers are the roughly 108 million new shares issued, higher interest and depreciation/amortization from the fair-valued assets and assumed debt, and one-time merger costs. These pro forma figures are illustrative and exclude synergies, so they are not a forecast of future results.
How much debt did Realty Income take on in the merger?
Realty Income assumed about $4.1 billion of Spirit's historical-cost debt as of September 30, 2023, with a weighted average interest rate of 5.8% and roughly 4.3 years of remaining term. The debt was recorded at fair value, which produced adjustments to the term loan and notes payable. Spirit also drew an additional $200 million on its term loan in December 2023 before the merger, and the filing shows about $2.6 billion of term loans and $20.0 billion of notes payable on a pro forma basis.
Why does the 8-K/A matter if the deal already closed?
The Original Form 8-K, filed January 24, 2024, reported the closing but did not include the required pro forma financial information. Realty Income committed to file it within 71 days of the original due date, and this amendment fulfills that commitment. It gives investors a standardized view of the combined balance sheet and the statements of operations for the nine months ended September 30, 2023 and for fiscal 2022, which is the basis for evaluating the deal's financial impact.
Are the purchase accounting figures final?
No. The filing states that the purchase price allocation is preliminary and based on management's estimates as of September 30, 2023. Final fair values for the real estate, lease intangibles, and debt are expected in the first quarter of 2024 and must be completed no later than one year after closing. Changes could shift the amount of goodwill (currently about $947 million), alter depreciation and amortization, and affect future reported results.

04—Continue

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