Realty Income Is Hunting for Elephants

Real estate investment trust (REIT) Realty Income (NYSE: O) recently consummated the huge $11 billion or so acquisition of peer VEREIT. The complementary acquisition has a lot of benefits, but one that investors should pay particular attention to is scale. Simply put, being materially bigger than its peers means that Realty Income can do things that others can't. And that could matter a lot.

Realty Income is a net lease REIT. That means that it owns single-tenant properties, but its tenants are responsible for most of the operating costs of those assets. With a large enough portfolio, this winds up being a fairly low-risk approach in the REIT sector. VEREIT, though a bit smaller, used the same approach. Notably, both REITs had exposure to similar business sectors, including retail, industrial, and office. The combination was a fairly good fit.

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Source Fool.com