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Realty Income Corp. (O), a commercial real estate investment trust (REIT), said it would acquire a single-tenant specialized REIT, Spirit Realty Capital (SRC), in an all-stock transaction valued at about $9.3 billion.
A well-known REIT is buying out Spirit Realty. Realty Income says it will add 2.5% annually to its adjusted funds from operations.
Realty Income Corporation is merging with Spirit Realty Capital, Inc. in a $9.3 billion all-stock deal, accounting for 15% of Realty Income's market cap. The deal poses theoretical risks for Realty Income, including paying above the fair value of the joint business and the challenge of integrating large portfolios. Yet, the merger is expected to have positive immediate effects on Realty Income's organic AFFO on a per share basis. The bar for immediate synergies is low.
Spirit Realty Capital (NYSE: SRC ) stock is taking off on Monday as investors react to a $9.3 billion acquisition deal with Realty Income (NYSE: O ). Investors will note that the acquisition agreement between these two companies will result in Realty Income acquiring Spirit Realty Capital in an all-stock transaction.
Realty Income Corporation has thrown a curveball in acquiring Spirit Realty Capital, Inc., diluting current shareholders, but this is expected to be accretive on a leverage-neutral basis. The merger will result in increased diversification and lower rent concentration for Realty Income. Following the merger, Realty Income will become the 4th largest REIT in the S&P 500 by enterprise value.
High-quality REITs at deep discounts are excellent buys for a rate-agonistic income portfolio. Spirit Realty Capital, Inc. has no near-term debt maturities, ample liquidity, and a solid portfolio composition, making it an attractive investment opportunity. The safest dividend is the one that was just raised.
Net lease REIT sector is down 13.6% in 2023 with a dividend yield average of 7.3%. I have avoided Gladstone Commercial and Global Net Lease due to unsustainable dividends. Spirit Realty is down 15% year-to-date and trading at a cheap valuation of 9.4x, making it a potential M&A target.
DALLAS--(BUSINESS WIRE)--Spirit Realty Capital, Inc. Schedules Third Quarter 2023 Earnings Release and Conference Call.
Spirit Realty offers investors a safe, and secure 7% yield currently. I have a price target of $45.50 offering investors more than 25% upside from current price. SRC's portfolio is geographically diversified with most of its properties in two of the fastest growing states in the U.S.
Spirit Realty Capital had a scintillating run-up post our late 2021 article, but has since given back all gains. The diverse portfolio with long lease terms is offset by a lower quality tenant profile. Applying last 10-year valuation metrics is a recipe for disaster as Elvis has left the ZIRP building.