While the merger is seen as good for the industry, there are questions about how the combined company will grow.
Yesterday’s announcement that Realty Income Corporation will acquire VEREIT to create a combined company with an enterprise value of approximately $50 billion sent waves through the net lease space.
“I think it’s great for the sector because now you’re going to have a major market cap REIT,” says Randy Blankstein, president of The Boulder Group. “It’s great to have a $50 billion company because it draws attention to the space.”
Matt Berres, executive managing director for Newmark, says the proposed merger will shift the landscape of the net lease sector given the size and scale of the deal.
“Realty Income’s merger with VEREIT comes as a monumental announcement to further enhance its reputation as a leader in the net lease industry with its low cost of capital, strong balance sheet and credit rating amongst its peers,” he says.
The deal also has significant ramifications for the REIT market, according to Scott Merkle, managing partner for SLB Capital Advisors.
“This is a huge game-changer for the REIT market,” said Merkle in a prepared statement. “It creates the sixth largest REIT, makes Realty Income multiples larger than the nearest net lease competitor, and allows them to become even more competitive for scarce assets and/or large sale-leasebacks.”
The Realty Income-VEREIT deal could open the door for other mergers in the net lease space, which features many companies in the $1 billion to $5 billion market cap range. “I think this will force other acquisitions/mergers in the net lease space as these existing REITs look to grow market share,” says Jonathan Hipp, head of US Net Lease Group at Avison Young.