San Diego-based Realty Income has signed a definitive agreement to acquire up to 415 single-tenant convenience store properties located in the U.S. from EG Group, a leading independent convenience retailer based in the United Kingdom.
The sale-leaseback deal, announced earlier this month, is valued at $1.5 billion.
EG Group’s portfolio is expected to be acquired at an estimated cap rate of approximately 6.9% and have a 20-year weighted average initial lease term.
Following completion of the transaction, which is expected to close in the second quarter of 2023, EG will pay an initial rent of $103 million per year on the assets included in the transaction.
Approximately 80% of the total portfolio annualized contractual rent is expected to be generated from properties in the Northeast U.S., including approximately 116 properties in Massachusetts, 87 properties in New York, and 74 in Florida, which are the top three representative states in the portfolio.
Over 80% of the total portfolio annualized contractual rent is expected to be generated from properties operated under the Cumberland Farms brand. Other representative EG Group brands in the portfolio include Tom Thumb, Fastrac and Sprint. Realty Income officials said the average size of the properties in the portfolio is approximately 3,700 square feet.
When the deal is finalized, the convenience store industry and the EG Group are expected to represent approximately 11.3% and 2.9%, respectively, of Realty Income’s total portfolio annualized contractual rent.
Partnering with Leading Operators
“Our core investment philosophy is to partner with leading operators in industries that have demonstrated an ability to deliver favorable risk-adjusted returns over the long term,” said Sumit Roy, Realty Income’s president and chief executive officer.
“We believe this portfolio includes brands that are among the most recognizable convenience store brands on the east coast, and the convenience store industry has long been a well-performing staple in our real estate portfolio,” Roy added. “We are pleased with the portfolio’s attractive real estate quality, store-level cash flow coverage, and average property size.”
Realty Income, also known as ‘the Monthly Dividend Company,’ is an S&P 500 company and member of the S&P 500 Dividend Aristocrats index. The company’s shares, which currently trade around $62, are down less than 2 percent year-to-date, trading in a 52-week range between $55 to $75.
The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 12,200 real estate properties primarily owned under long-term net lease agreements with commercial clients.
A REIT is a company that owns property or invests in mortgage-backed securities and distributes at least 90% of its earnings to shareholders as dividends, in return for tax advantages.
In recent years, Realty Income has established itself as one of the country’s leading – and most progressive — REITs. In 2022, for the first time in its history, the company made an investment in the gaming industry, signing a definitive agreement to acquire the Encore Boston Harbor Resort and Casino for $1.7 billion under a long-term net lease agreement with Wynn Resorts, Limited (NASDAQ: WYNN).
Dividend Increased 119 Times
Making savvy real estate investments across a number of industries has allowed the company to declare 632 consecutive common stock monthly dividends throughout its 54-year operating history. The size of those dividends has increased 119 times since Realty Income’s public listing in 1994.
And while the company is among the largest U.S. REITs operating today, Realty Income sprang from humble beginnings when in 1969, Bill and Joan Clark founded the company after buying a Northridge, California, Taco Bell property directly from Taco Bell founder Glen Bell.
EG Group was founded in 2001 by the Issa family. Zuber Issa and Mohsin Issa, founders and co- CEOs, were jointly named the 2018 EY Entrepreneur of the Year in the UK.
Based in the United Kingdom, EG Group is a leading independent convenience retailer, which has established partnerships with global brands, as well as a focused portfolio of proprietary brands.
The company currently employs more than 50,000 working in over 6,600 sites across the UK&I, Europe, Australia and the United States. The business is regularly recognized for innovation and investment in convenience retail assets, employees and systems.
CEO: Sumit Roy
STOCK: O (NYSE)
REVENUE: $3.34 billion (2022)
ASSETS: $44.1 billion
HEADQUARTERS: San Diego
NOTABLE: In November 2021, Realty Income closed a $11 billion merger with VEREIT, creating one of the country’s largest REITs.