I’ve sat down with hundreds of C-suite executives over the last decade…
And one thing I’ve learned is that quality company CEOs are not afraid to answer direct questions.
They know the facts, figures, and fundamentals of their company backwards and forwards. And I don’t have to remind them of what’s on their balance sheet when I’m sitting across the table from them asking about certain line items.
Before every CEO interview, my team and I conduct thorough research into a company. This way, my questions are specific and targeted to draw out the relevant information we need to provide the most in-depth analysis to our subscribers.
And many times this leads to deep discussions with executives that have profound implications for the broader market.
So here at Intelligent Income Daily operate, you can be confident that we’ve thoroughly vetted the income opportunities we share with you.
Today I’ll share with you an excerpt of one interview that led to an industry-wide insight that will have an impact on one of my favorite spaces of the market. I’ll also share with you what my team and I are predicting after looking into this CEO’s claim and one way to profit from it right now.
A Credible Prediction
Last week I interviewed Joey Agree, CEO of Agree Realty (ADC), a dividend-paying real estate investment trust, or REIT.
If you need a refresher, a REIT is company that is required by law to return 90% of its taxable income to shareholders through dividends.
In the middle of my interview with Joey, he dropped a very big prediction that could have massive consequences for the REIT sector.
I won’t beat around the bush. Here’s what Joey said:
“We have way too many REITs. Too many banks and too many sell-side analysts… We’re going to see inefficient companies go away. I don’t see a place for REITs sub $3 billion dollars.”
In other words, Joey believes that 20 to 30 REITs will disappear in the near future.
But this isn’t to say he’s predicting dozens of bankruptcies.
There’s more than one way for a company to cease to be.
But first off – do I believe his prediction is credible?
Diving into the numbers after the call, my team and I determined that it was. But not for small capital sized REITs under $1 billion, but rather for middle capital sized REITs between $1 to $3 billion.
In this current environment where the cost of capital is high in the commercial real estate space and smaller firms are struggling, we do expect to see a surge in deals. And just like the Great Recession wiped out most middle level banks, leaving behind local community banks and big regional banks, we predict the same thing for the REIT sector.
And not only that, based on our research we believe that a large portion of these companies will not be dissolved through bankruptcies… but instead through mergers and acquisitions (M&A).
In general, the primary advantage of an M&A deal is to enhance the value of a company for both the buyer and seller.
The buyer receives a company that will bring them more revenue, and the seller is acquired by a company with a greater bottom line to capitalize on what the company is doing well and make it more efficient.
M&A deals generally involve a company eliminating their competitor by absorbing them.
And there are a lot of REITs out there that are direct competitors of each other with similar business models.
So the cost savings for these companies would be incredible since M&A deals generally eliminate redundant jobs and reduce spending on items that are unnecessary.
So how will this impact the REIT sector as a whole?
How M&A Deals Will Impact the REIT Sector
The elimination of 20 to 30 REITs through M&A deals will make the REIT sector leaner and meaner.
While the number of REITs will be decrease, the strength of those that remain and absorb the others will increase.
This will lead to greater profit margins and more money for shareholders.
It’s already happened to several of my favorite REITs over the past few years and a lot of them I predicted in advance.
For example, I recently predicted an M&A deal between two health care REITs, Healthpeak Properties (PEAK) and Physicians Realty (DOC).
On October 29, I published a research report on PEAK the day before that news broke, predicting that “DOC should be an M&A target IMO [(in my opinion)].”
On October 30 it was announced that PEAK was acquiring DOC in an all-stock merger valued at around $21 billion.
And no, nobody gave me insider information in advance.
But like the CEOs I interview – I take the time to research all the details about the companies I recommend, who their competitors are, and what their best options are for the future.
Because when you know which companies will continue to grow and absorb the others, you know which companies will continue to grow your wealth and dividend income for years to come.
The Company You Should Own as This Prediction Plays Out
If you’ve followed me for a while, you know that Realty Income (O) is my favorite REIT. Branded as “The Monthly Dividend Company”, shareholders receive an income payment from this REIT once of month like clockwork.
Realty Income is also the 4th largest REIT and 150th largest company in the S&P 500 with a total enterprise value of around $70 billion.
So it shouldn’t surprise you that they’re regularly buying up their competitors deals… and that I have predicted quite a few of their M&A deals in advance.
In late August, I predicted that Realty Income (O) would acquire Spirit Realty (SRC). And sure enough, two months later Realty Income announced they were acquiring Spirit Realty for $9.3 billion in a stock-for-stock deal.
The bigger Realty Income grows, the greater its dividend payout will be to shareholders. Those who continue to buy and hold this company will not be disappointed – instead their wealth will be compounded for years to come.
And right now, Realty Income is trading at almost pandemic level lows, which makes it the perfect time to buy. The market will come around, and in the meantime those dividends will keep increasing your bottom line.
If you’re interested in learning more about future M&A deals, please let us know here.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily