XML 19 R8.htm IDEA: XBRL DOCUMENT
v3.24.3

Merger with Spirit Realty Capital, Inc | 9 Months Ended
--- | ---
Sep. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Merger with Spirit Realty Capital, Inc | Merger with Spirit Realty Capital, Inc. On October 29, 2023, we entered into an Agreement and Plan of Merger (as amended, or the “Merger Agreement”) with Saints MD Subsidiary, Inc., (“Merger Sub”) a Maryland corporation and direct wholly owned subsidiary of Realty Income and Spirit, a Maryland corporation. On January 23, 2024, we completed our merger with Spirit. Pursuant to the terms and subject to the conditions of the Merger Agreement, Spirit merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Merger”). At the effective time of the Merger (the “Effective Time”), (i) each outstanding share of Spirit common stock, par value $0.05 per share, automatically converted into 0.762 (the “Exchange Ratio”) of a newly issued share of our common stock, subject to adjustments as set forth in the Merger Agreement, and cash in lieu of fractional shares, and (ii) each outstanding share of Spirit’s 6.000% Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share, converted into the right to receive one share of newly issued Realty Income 6.000% Series A Cumulative Redeemable Preferred Stock (“Realty Income Series A preferred stock”), having substantially the same terms as the Spirit Series A Preferred Stock. Immediately prior to the Effective Time, each award of outstanding restricted Spirit common stock and Spirit performance share award was cancelled and converted into Realty Income common stock, using the Exchange Ratio. For more details, see note 16, Series A Preferred Stock. The primary reason for the merger was to expand our size, scale and diversification, in order to further position us as the real estate partner of choice for large net lease transactions. Our merger with Spirit has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Realty Income as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. The fair value of the consideration transferred on the date of the acquisition is as follows (in thousands, except share and per share data):
Shares of Spirit common stock exchanged (1) |  | 142,136,567 |
Exchange Ratio |  | 0.762
Shares of Realty Income common stock issued |  | 108,308,064
Opening price of Realty Income common stock on January 23, 2024 |  | $ | 55.80 |
Fair value of Realty Income common stock issued to the former holders of Spirit common stock |  | $ | 6,043,590 |
Shares of Realty Income Series A preferred stock issued in exchange for Spirit Series A preferred stock |  | 6,900,000 |
Opening price of Realty Income Series A preferred stock on January 23, 2024 |  | $ | 24.26 |
Fair value of Realty Income Series A preferred stock issued to the former holders of Spirit Series A preferred stock |  | $ | 167,394 |
Cash paid for fractional shares |  | $ | 51 |
Less: Fair value of Spirit restricted stock and performance awards attributable to post-combination costs (2) |  | $ | (24,751) |
Consideration transferred |  | $ | 6,186,284 |
(1) Includes 142,136,567 shares of Spirit common stock outstanding as of January 23, 2024, which were converted into Realty Income common stock at the Effective Time at an Exchange Ratio of 0.762 per share of Spirit common stock. The portion of the converted unvested Spirit Restricted Stock Awards related to post-combination expense is removed in footnote (2) below. (2) Represents the fair value of fully vested Spirit restricted stock and performance share awards that were accelerated and converted into Realty Income common stock at the Effective Time, reflecting the value attributable to post-combination services. Spirit restricted stock and performance share awards are included in Spirit's outstanding common stock as of the merger date. The fair value attributable to pre-combination services was $41.7 million and is included in the consideration transferred above. A. Preliminary Purchase Price Allocation The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
|  | At Acquisition Date As Reported March 31, 2024 |  | Measurement Period Adjustments |  | At Acquisition Date As Reported September 30, 2024
ASSETS |  |  |  |  |  |
Land |  | $ | 1,853,895 |  |  | $ | 3,247 |  |  | $ | 1,857,142 |
Buildings and improvements |  | 4,859,162 |  |  | 90,314 |  |  | 4,949,476 |
Total real estate held for investment |  | 6,713,057 |  |  | 93,561 |  |  | 6,806,618 |
Real estate and lease intangibles held for sale |  | 35,650 |  |  | (1,583) |  |  | 34,067 |
Cash and cash equivalents |  | 93,683 |  |  | — |  |  | 93,683 |
Accounts receivable |  | 12,959 |  |  | (145) |  |  | 12,814 |
Lease intangible assets (1) |  | 2,214,615 |  |  | (32,804) |  |  | 2,181,811 |
Goodwill |  | 1,259,864 |  |  | (59,143) |  |  | 1,200,721 |
Other assets (2) |  | 174,672 |  |  | (1,881) |  |  | 172,791 |
Total assets acquired |  | $ | 10,504,500 |  |  | $ | (1,995) |  |  | $ | 10,502,505 |
LIABILITIES |  |  |  |  |  |
Accounts payable and accrued expenses |  | $ | 56,407 |  |  | $ | (1,934) |  |  | $ | 54,473 |
Lease intangible liabilities (3) |  | 378,369 |  |  | (203) |  |  | 378,166 |
Other liabilities |  | 101,954 |  |  | 142 |  |  | 102,096 |
Term loans |  | 1,300,000 |  |  | — |  |  | 1,300,000 |
Notes payable |  | 2,481,486 |  |  | — |  |  | 2,481,486 |
Total liabilities assumed |  | $ | 4,318,216 |  |  | $ | (1,995) |  |  | $ | 4,316,221 |
Net assets acquired, at fair value |  | $ | 6,186,284 |  |  | $ | — |  |  | $ | 6,186,284 |
Total purchase price |  | $ | 6,186,284 |  |  | $ | — |  |  | $ | 6,186,284 |
(1) The weighted average amortization period for acquired lease intangible assets is 10.8 years. (2) Includes $53.9 million of gross contractual loans receivable, the fair value of which was $47.1 million, and we expect to collect substantially all of the loans receivable as of the acquisition date. (3) The weighted average amortization period for acquired lease intangible liabilities is 8.2 years. The assessment of fair value is considered preliminary and is based on a valuation prepared by the Company with assistance of a third-party valuation specialist. We are in the process of finalizing our review of the inputs used in the valuation to ensure accuracy and procedures are performed within our policy. Accordingly, certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, loss contingencies, and goodwill are subject to change. We expect to complete our purchase accounting assessment in the fourth quarter of 2024. Measurement period adjustments are recorded in the period in which they are determined, as if they had been completed at the acquisition date. The measurement period adjustments recorded in the nine months ended September 30, 2024 resulted from updated valuations related to real estate assets and liabilities, in addition to loans receivable. The adjustments were determined based on additional information that existed at the acquisition date but was not contemplated in our initial fair value assessment and resulted in a decrease to goodwill of $59.1 million. A preliminary estimate of approximately $1.20 billion has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the merger transaction, including anticipated financing and corporate overhead cost savings. None of the goodwill recognized is expected to be deductible for tax purposes. B. Merger, transaction, and other costs In conjunction with our merger with Spirit, we incurred $2.9 million and $99.8 million of merger-related transaction costs during the three and nine months ended September 30, 2024, respectively, primarily consisting of employee severance, post-combination share-based compensation, transfer taxes, and various professional fees directly attributable to the Merger. C. Unaudited Pro Forma Financial Information The following unaudited pro forma information presents a summary of our combined results of operations for the nine months ended September 30, 2024 and three and nine months ended September 30, 2023, respectively, as if our merger with Spirit had occurred on January 1, 2023 (in millions, except per share data). The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.
|  |  | Three months ended September 30, |  | Nine months ended September 30, |  |
|  |  | 2023 |  | 2024 |  | 2023 |  |
Total revenues |  |  | $ | 1,239.3 |  |  | $ | 3,978.8 |  |  | $ | 3,595.3 |  |  |
Net income |  |  | $ | 250.5 |  |  | $ | 759.4 |  |  | $ | 673.3 |  |  |
Basic and diluted earnings per share |  |  | $ | 0.31 |  |  | $ | 0.88 |  |  | $ | 0.85 |  |  |
Our consolidated results of operations for the three and nine months ended September 30, 2024 include $202.8 million and $563.8 million of revenues, respectively, and $40.2 million and $96.0 million of net income, respectively, associated with the results of operations of Spirit from the merger closing date of January 23, 2024 to September 30, 2024.

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationAndAssetAcquisitionAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/205-20/tableOfContent + Details
Name: | us-gaap_MergersAcquisitionsAndDispositionsDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration