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Realty Income to Issue Sterling-Denominated Unsecured Notes

Realty Income Corporation O announced its first public offering of British Pound Sterling (GBP) denominated unsecured notes. The offering is for £400 million of 1.625% senior unsecured notes maturing Dec 15, 2030. The notes have been priced at 99.191% of the principal amount and have an effective annual yield to maturity of 1.712%.

The offering is subject to customary closing norms and is anticipated to close on Oct 1, 2020.

The company intends to allocate net proceeds from the offering to repay GBP-denominated debt outstanding under its $3-billion revolving credit facility.

It also plans to use funds for the settlement of an outstanding GBP/USD foreign exchange swap arrangement. The net proceeds generated from the swap settlement will then be utilized for the repayment of outstanding commercial paper.

Moreover, any remaining amount from the notes offering will be used for future investment opportunities and other general corporate needs.

Notably, as per the company’s recent filing, as of Sep 15, it had around $225 million of the outstanding amount under its revolving credit facility. This represents £174.7 million of GBP-denominated debt.

Moreover, the settlement of the GBP/USD foreign exchange swap arrangement is anticipated to generate $300.1 million upon the payment of £224.9 million by the company. Realty Income intends to use this amount to repay borrowings under its $1-billion commercial paper program.

Markedly, the program was initiated this August and the outstanding notes under it are set to mature on Oct 1, 2020, and have an annual interest rate of 0.265%.

Notably, the pandemic caused disruptions in businesses and affected the financial conditions of tenants, impairing their ability to pay rent, thereby, affecting cash flow from operations for landlords. Amid such testing times, Realty Income’s efforts to raise capital indicate its commitment to improve balance-sheet strength and boost liquidity. As of Sep 15, the company had $532.5 million of cash and cash equivalents.

While such efforts boost its near-term liquidity and provide it financial flexibility, it may increase long-term debt.

Moreover, the pandemic and measures undertaken to curb its spread impacted businesses of physical stores, as such outlets widely depend on customer traffic but consumers are avoiding crowded public spaces. This, in turn, resulted in the deterioration in the financial condition and liquidity of the impairing their ability to pay rents. As a result, retail REITs, which have already been battling against store closures and bankruptcy issues, are feeling the heat. In fact, apart from Realty Income, these adverse conditions are affecting other retail REITs, including Macerich MAC, Simon Property SPG and Kimco KIM.

Realty Income carries a Zacks Rank of 3 (Hold) at present. Shares of the company have lost 22.9% compared with the industry’s decline of 28.4% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 


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