Spirit Realty Capital Inc (SRC) has the potential to double in size after its merger with a private REIT, and the company is expected to complete more transactions that will dilute tenant exposure and allow the it to grow, says Alexander D. Goldfarb, Managing Director and Senior REIT Analyst at Sandler O’Neill + Partners, L.P.
“[Spirit] a triple-net company; it’s a company that’s come out of bankruptcy, led by Tom Nolan, who was one of the key people to help turnaround General Growth (GGP), very smart guy. They are in the midst of doing a merger with a private REIT, which will effectively double the size of the company and dilute the tenant exposure,” Goldfarb said.
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Goldfarb expects Mr. Nolan to complete more transactions that will dilute tenant exposure and accelerate the company’s growth, and he points to the stock’s current inexpensive price as a reason behind his recommendation.
“There was a lot of concern about the 30% exposure to Shopko, which is an upper Midwestern retailer; this transaction basically cuts that exposure in half. And Tom’s not done yet. He’ll do more transactions like that, which will dilute tenant exposure, lower the firm’s cost of capital, and continue to grow. If you look on a valuation basis, it’s trading cheap to its two other public peers,” Goldfarb said.
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