$250M Sale-Leaseback Gives Realty Income 136 New Retail Assets

Realty Income's corporate strategy centers on the acquisition of freestanding retail real estate leased by regional and national chains primarily under 15- to 20-year, triple-net lease agreements.

October 7, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user katutaide

Specific details are being kept hush-hush until the anticipated closing, but Realty Income Corporation is officially in line to snap up a 136-property retail portfolio for $250 million.

Realty Income’s corporate strategy centers on the acquisition of freestanding retail real estate leased by regional and national chains primarily under 15- to 20-year, triple-net lease agreements. The production of solid rental revenue over the long haul is its primary goal. However, the category of retail tenants, the locations and the square footage involved in the impending purchase are details that Realty Income is not yet sharing. For now, as per a press release, the retail real estate concern will only say that the assets “are of a type the company already has in its portfolio.”

Given the diversity of Realty Income’s vast group sale-leaseback holdings, the vague information hardly narrows down the dizzying array of possibilities. However, if proportion offers any indication, as of the close of the second quarter, restaurants accounted for 20.8 percent of the company’s total rental revenue, while convenience stores represented 17.2 percent. As for location, there are about 50 options. Realty Income’s current list of 2,350 assets spans the entire country, with the exception of Hawaii. Leading the pack is Texas, which is the site of 214 of the properties, with Florida and Ohio following behind with 166 and 137 properties, respectively.

Realty Income plans to finance the acquisition of the 136 freestanding retail sites with cash on hand and/or borrowings under its credit facility. The transaction is on track to close within the next 90 days, at which point the company will have reached a total of approximately $690 million in investments in 2010. One of its largest deals took place in June, when the company completed $258 million of the approximately $269 million acquisition of Diageo Chateau & Estate Wines’ properties in Napa Valley, California. The group of assets encompasses winery, production, retail and visitor center buildings totaling 394,000 square feet, in addition to 1,690 acres of vineyard properties.

And more acquisition activity is on Realty Income’s agenda. “Relative to the market overall, we continue to see a pretty good volume of transactions in the marketplace and that includes larger transactions to work on,” company CEO Tom A. Lewis said during the second quarter earnings conference call at the end of July. “Obviously we have the vast majority of the line available and the capital markets remain open, so we think we have the capital and this is a pretty good opportunity to go out and acquire.”

There is, of course, competition out there. Last month, Cole Credit Property Trust III Inc. signed a $276 million agreement to acquire and leaseback 33 Albertson’s grocery stores accounting for an aggregate 1.9 million square feet of retail space in Arizona, Colorado, Louisiana, New Mexico and Texas.