Realty Income refinances with three-year CB
Realty Income secured US$862.5m from the sale of a new convertible bond issue overnight on Monday that refinances straight debt maturing imminently at a lower all-in cost.
Mizuho Securities, Morgan Stanley and Scotia Capital were joint bookrunners on the pricing of US$750m three-year CBs at a 3.5% coupon and 20% conversion premium, the midpoints of the 3.25%–3.75% and 17.5%–22.5% terms marketed overnight.
The banks, which wall-crossed investors ahead of the public launch, exercised their greenshoe option on Thursday to increase the issue to US$862.5m.
The triple net lease REIT smoothed the overnight execution by using US$102.1m of the proceeds raised to buy back 1.8m shares, which it lent to arbs participating in the CB to delta hedge downside exposure.
Realty Income shares fell just 0.7% post-pricing on Tuesday to US$57.42, far less than might have been the case without the concurrent share repurchase.
Realty Income is using the rest of the money raised to prefund the maturity of US$500m principal that matures on Tuesday January 13 as well as to repay a portion of the US$1.9bn in bank loans/commercial paper outstanding as of September 30.
The move to issue CBs is notable, given the multitude of funding options.
Realty Income in September raised US$716m of equity from third-party institutions through an open-end perpetual fund that was backed by a US$1.38bn dedicated credit facility. The fund, which allows it to retain a 60% interest, was used to seed the purchase of 183 properties for US$1.4bn.
Separately, it issued US$2.8bn of straight debt last year, including an US$800m two-part bond offering in September priced at effective annual yields of 4.1% and 4.4%, and raised another US$1.6bn in the first nine months of the year through an at-the-market programme at an average price of US$55.90 per share.
The new CBs are convertible at US$69.42, a level the underlying shares last traded at in early 2022.
After investing US$800m in December through a perpetual preferred equity security into the CityCenter real estate complex in Las Vegas at minimum guaranteed returns, Realty Income hiked the amount of acquisitions expected to have been completed in 2025 to US$6bn.