Realty Income (O) reported excellent second quarter results. The firm deployed $1.1B of capital in the quarter alone, and $1.6B year to date, on acquisitions. The firm raised $1B through equity issuance and has $3B fully available on a line of credit. US acquisition cash cap rates were high at 6.9% driven by mix (theatre assets). Management hasn't seen any movement in cap rates, which is consistent with other company reports, and the range is between 5%-8%.

The Sainsbury acquisition done at a cash cap rate of 5.3% is Realty Income's first international acquisition. More important than deal specifics are the establishment of Realty Income as a legitimate player in the UK. The $549M sale leaseback was funded with about 30% equity and 70% debt. The debt ($315M) portion was funded through a private GBP-denominated debt placement at 2.73% with a 15 year term that matches the lease term. Last week Realty Income amended its credit line, which is now available in multiple currencies. On the 2019 Q1 call CEO Sumit Roy stated the total addressable market is now $12 trillion up from $4 trillion. This expands the pool of potential acquisitions, and should increase the deal flow that Realty Income sees. As the firm gets larger, increasing amounts of acquisitions are necessary for Realty Income to grow.

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