Lamar's Acquisition Prowess Outshines Realty Income

Lamar Advertising demonstrates elite acquisition execution, using UPREIT structures to create value and drive consistent AFFO/share growth. LAMR leverages operational advantages and innovative deal structuring to achieve accretive transactions, evidenced by long-term performance and reduced leverage. Realty Income relies on standard spread investing, with large, often sloppy, M&A deals leading to slow AFFO/share growth and diminished premium multiples. I maintain a long position in LAMR, favoring its value-creating acquisitions over O's minimal value-add approach.

Every REIT buys properties, but the way in which they go about it can separate the wheat from the chaff. Our analysis of acquisition execution reveals Lamar Advertising Company ( LAMR ) as an elite operator, while Realty Income ( O ) is on the weaker side. This article will discuss subtleties of property acquisitions that often go unnoticed by REIT investors.

Splitting The Pie Versus Expanding The Pie In any negotiated transaction there is something called a ZOPA, or Zone of Possible Agreement. Real estate buyers want to buy at as high of a cap rate as possible (low price) and sellers at as low of a cap rate as possible. For the sake of illustration, we shall say the buyer is willing to buy a given property at any cap rate north of 5.5% and the seller is willing to sell at any cap rate south of 6.0%. Thus, in this instance, the ZOPA would be cap rates ranging from 5.5% to 6.0%. In that range, both parties benefit from the transaction. Such a ZOPA will often exist when REITs buy properties, because the REIT will usually have a lower cost of capital than the smaller entity from which they are buying. So while selling at a 5.75% cap rate might be the best way for the seller to access capital, the REIT can finance the purchase at a 5.0% cost of capital and grow earnings on the spread. That sort of purchase where WACC is less than ROIC is the bare minimum a REIT should execute. Both seller and buyer benefit, but not by very much.

Stronger REIT acquisition teams will find ways to expand the pie. They can bring extra value to the property or in the transaction such that there is more accretion to be had. Consider a REIT buying a mismanaged property. They might buy it at a 5.75% cap rate, but through improving operations to institutional standards, they can raise the NOI significantly and turn it into a 7% cap rate. We watch the REIT market every day and analyze property transactions as they are executed. In so doing, we notice patterns about which REITs are buying with a high degree of expertise and which are just buying through the standard ZOPA. Over the long run, the REITs creating extra value in transactions will outperform. There are dozens of REITs one could point to on each side of the spectrum, but today I want to highlight Lamar as one of the best acquisition teams and O as one of the weaker side.

Lamar: Bringing Extra Value To Purchases On August 12, '26, Lamar bought 230 billboards in Louisiana through a UPREIT transaction. While pricing was not disclosed, there are multiple reasons to believe it was a really good deal for LAMR. The UPREIT structure of the deal expands the pie. When the seller receives cash for a property sale, they have to pay taxes on the capital gains. The capital gains are measured against the depreciated value of the asset, so if the seller was a long-time owner, they could be taxed on the entire sale value. The UPREIT structure Lamar used for this transaction paid the seller in OP units instead of cash, which allows the seller to defer taxation indefinitely (until they sell the LAMR shares) while also preserving an income stream in the form of LAMR dividends. We really like this deal structuring because while it greatly benefits t...