Realty Income's (O) deal to acquire 84 single-tenant net-leased properties from Inland Diversified for about $503M doesn't change Morningstar's Todd Lukasik's "narrow moat" rating or his $44 fair value estimate for the stock.
The deal looks to be consistent with prior acquisitions, says Lukasik, reasonably diversified across geography and industry - and importantly includes industrial and distribution properties. Although, Realty Income didn't disclose the yield, Lukasik expects it to be consistent with the 7% seen in recent deals, though there is a risk the initial yield is lower.
With the 30-year tailwind of falling interest rates maybe over, the company, says Lukasik is repositioning its portfolio - with a greater focus on investment-grade tenants and nonretail assets. "If any management team can build a moat around these nonretail property types, Realty Income's is probably it. But we don't think these nonretail assets are obviously moaty, so we'll wait for management to demonstrate success."