San Diego Community Power, a public electric power aggregator, brought a new player to the world of prepaid energy bonds.
Realty Income is the first real estate investment trust to be a funding recipient in a municipal-bond financed energy prepay deal.
The $687.2 million revenue bond deal was priced March 10 through the California Community Choice Financing Authority, a conduit specializing in prepaid energy transactions. The deal marks the first time a REIT has taken on the role, which has historically been filled by bulge-bracket banks and insurance companies.
Realty Income, a San Diego-based REIT known for its portfolio of net lease properties — 80% essential retail like 7-Eleven and grocery stores in every state and seven European countries — partnered with SDCP on the prepaid energy transaction that enabled the REIT to access capital at a rate cheaper than its traditional source of public unsecured debt.
The prepaid energy sector is a specialized segment of the municipal bond market in which tax-exempt debt funds the upfront, long-term purchase of natural gas or electricity for municipal utilities. This secures energy at a fixed, often discounted price, ensuring long-term budgetary certainty and savings for the utility.
Prepaid energy deals secured their muni market foothold with deals to acquire natural gas. In California, community choice aggregators
"After record new issue supply in 2025 of $31.4 billion and a 27% compound annual growth rate since 2020, the total size of the Prepaid Gas sector now stands at over $100 billion," according to a
Jonathan Pong, CFO of Realty Income, said the REIT's involvement was driven by a strategic goal to diversify the company's sources of income and capital.
"In the REIT world, we have the most amount of bonds outstanding after Prologis in the REIT sector. We don't want to continue to tap unsecured debt," Pong said.
The company is seeking different pockets of capital to address its growing need for debt and equity, aiming to maintain "a level of scarcity value in all of our securities" and to ensure its bond offerings are easier for investors to digest.
The deal is structured as a 10-year term loan from SDCP, the community choice aggregator
The deal offered a "win-win," opportunity to access a different pocket of capital and secure it at cheaper rates than the REIT typically achieves, Pong said. The REIT would like for the prepay market to become a programmatic debt capital avenue helping the company reduce its reliance on continually tapping the unsecured debt market, Pong said.
In energy prepay deals involving municipal bond financing, the funding recipient receives a portion of the proceeds through a fixed-rate loan from the underwriter, in this case, Goldman Sachs.
These deals have helped achieve reduced prices for ratepayers as energy prices have climbed.
Transactions like this demonstrate how community choice aggregators "can use sophisticated, responsible financial tools to advance our climate goals without sacrificing affordability," Karin Burns, CEO of San Diego Community Power, said in a statement. "It supports our long‑term clean and renewable energy strategy while keeping fiscal responsibility front and center for the communities we serve."
About 59% of energy delivered to SDCP customers was renewable in 2024, said Jeb Spengler, its senior strategic finance manager, as it works toward its goal of powering the San Diego region with 100% renewable energy by 2035.
CCA prepay bonds are generally issued with a green bond label, which the SDCP deal carried, supported by a Kestrel second party opinion.
The first California CCA agency
When the deal priced in early March, the market was experiencing volatility because of the U.S. attack on Iran, but the deal still managed to secure $675 million, which Pong said is a "testament to interest from the investor base."
The transaction was meaningfully oversubscribed and SDCP could have upsized the deal had it wanted, Spengler said.
The deal was originally set to price the week immediately following the start of the war, but was placed on the day-to-day calendar because the market had moved to a place where "investors were not willing to commit without some pretty hefty concessions," Spengler said. "There was a lot of hesitation. It didn't seem like we would be able to get to the level we needed to produce the savings we wanted."
The following week the deal team "found a pocket of stability," Spengler said. "It was 5 to 10 basis point swings every day prior to that. We just needed to see a day with less movement."
It was the third clean energy prepayment bond transaction for SDCP using the municipal prepay structure that allows public agencies to prepay for future electricity deliveries using tax-exempt financing.
Spengler said the March deal through CCCFA was its smallest. Its previous transactions through the JPA were a $1 billion 2024 prepay deal that closed in November 2024 and $929.4 million in gas prepay revenue bonds that closed in March 2025.
The market conditions following the start of the war in Iran threw off the ratios a bit, Spengler said.
Though the deal probably priced at a higher ratio than it would have before the Middle East conflict, the yield environment made up for it, according to the finance team.
The new wrinkle on the deal was having Realty Income as the funding recipient.
"We weren't sure how that would be received by investors, but the bankers thought there would be interest in having a new name," Spengler said.
"It seemed like a neat opportunity to partner with a local company," he said.
As one of California's newer community choice aggregators, SDCP's portfolio is still growing, Spengler said. "If you look at the CCAs up north, a lot of them have been around a lot longer — and have prepaid as much of their portfolios as they can."
Demand for SDCP's power has not been affected by the growth in data centers; it's just been growing steadily, he said.
Realty Income, which spent two years investigating the concept after being approached by Goldman Sachs bankers, would be willing to be involved as the funding recipient in another gas pre-pay transaction, Pong said.
Prior to selecting a funding recipient, Spengler said, the underwriters present SDCP with options showing how much money it would save.
"We were looking to lock in the highest savings for the longest period of time," Spengler said. "Realty's structure gave us the best savings under those circumstances."
At one point, SDCP was looking at a 12-year reset, but settled on 10 years because it provided the best savings, he said.
Now that Goldman has opened the door to REITs as a funding recipient, it presents opportunities for other models that move beyond the traditional insurance company-large bank pick in prepaid energy.
The diversification is likely to be broadly-focused on well-rated, sophisticated users of funding, according to the finance team.
