Dive Brief:

• Convenience store retailer EG Group has entered into a $1.5 billion sale-leaseback agreement with Realty Income Corporation under which the real estate investment trust will purchase up to 415 c-store properties, according to a Monday morning announcement. 
• The store portfolio includes Cumberland Farms, Tom Thumb, Fastrac and Sprint stores. EG Group will pay $103 million in rent at the outset, with stores carrying an average lease term of 20 years. The companies expect the deal to close in the second quarter of this year.
• The deal, which covers around 15% of EG’s overall c-store holdings in 10 markets, allows the company to pay down debt while still operating stores. 

Dive Insight:

In January, initial reports noted that if EG were to sell its U.S. assets, any sales would likely be structured as sale-and-leaseback deals. In this scenario, nothing about the stores would change besides the fact that EG wouldn’t own them anymore.

At the time of the initial rumors, experts said sale-leaseback deals would allow EG Group to reduce debt and gain the financial flexibility to reinvest in and expand its business.

This is the case with EG’s 415-store agreement with Realty Income. EG said the move is in line with its commitment to reduce total net leverage through debt reduction and free cash flow generation. 

EG will continue to operate these 415 locations, and when the transaction closes, it will use the net proceeds to repay debt, according to the announcement. EG has about $8.6 billion of debt falling due in 2025.

“Today’s announcement demonstrates the progress we continue to make to put in place a robust capital structure for the medium term that will underpin our long-term strategy and represents an important first step in this process,” Zuber Issa, co-CEO of EG Group, said in the announcement.

EG isn’t the first c-store chain to have sold a number of its assets to Realty Income. In 2016, the real estate investment firm completed sale-leaseback transactions for over 100 7-Eleven c-stores. Since then, Realty has made several additional acquisitions with 7-Eleven, according to its website. 

Realty Income was drawn to EG’s U.S. assets due to its real estate quality, store-level cash flow coverage and average property size, Sumit Roy, president and CEO of Realty Income, said in an announcement.

"We believe this portfolio includes brands that are among the most recognizable convenience store brands on the east coast, and the convenience store industry has long been a well-performing staple in our real estate portfolio,” he said.

Only two months into 2023, consolidation has become one of the main talking points around the c-store industry. Challenges like inflation, digital transformations, electrification and tight labor pools have made running a c-store business more difficult than in the past, which has created more question marks for how the future will unfold. These headwinds have made the current landscape an opportune time for c-store M&A, experts say.