Transaction Would Create Market's Largest Publicly Traded Single-Tenant Lease REIT
In a bid to create the largest publicly REIT in the net-lease property sector, American Realty Capital Properties, Inc. (Nasdaq: ARCP
) on Wednesday went public with an offer to acquire Cole Credit Property Trust III (CCPT III) for $5.7 billion, or more than $9 billion including assumed debt.
ARCP's unsolicited offer comes two weeks after CCPT III announced its own deal to buy-out its external adviser, Cole Holdings Corp, and pursue a listing on the New York Stock Exchange.
In a letter sent to Cole Credit’s board of directors, ARCP offered to acquire all of the Phoenix-based non-traded REIT’s outstanding common for at least $12 per share, or 0.80 of its common stock, for each Cole Credit share, for a minimum price of $5.74 billion. The $12-a-share consideration represents a 20% premium to Cole’s original offer price. Debt assumed by ARCP would value the deal at over $9 billion.
The deal would bring considerable integration and operating savings for the companies estimated by ARCP at a minimum of $30 million annually. The majority of CCPT III’s real estate assets are net lease properties similar to ARCP’s existing portfolio, resulting in "seamless integration and minimal additional resources or ongoing expense requirements."
In the pitch letter to the CCPT III board of directors, ARCP Chairman and CEO Nicholas Schorsch said the offer is designed to provide shareholders with instant tax-free liquidity and no lockup of shares, as all ARCP shares will be immediately tradable on the NASDAQ Stock Market.
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The deal provides shareholders with "certainty of execution, timing and value," since the cash portion is fully funded by cash on hand and existing borrowing capacity under ARCP’s line of credit.
The transaction calls for CCPT III to put off consideration of the March 6 offer to buy its adviser and sponsor, Cole Holdings, in an internalization transaction earlier this month. In the letter, Schorsch said its own offer would provide a higher level of consideration delivered sooner and with greater certainty to Cole Credit shareholders.
Schorsch said ARCP had communicated its interest in potentially buying CCPT III prior to the announcement of CCPT III’s proposed acquisition of Cole Holdings, but was "surprised to not have received any response."
Schorsch further contends that Cole's internalization transaction raises "significant conflict issues." Under the terms of that deal, CCPT III would make an upfront payment to management and Cole Holdings founder Chris Cole of $127 million in cash and stock.
Schorsch said the internalization deal compares unfavorably to other recent market transactions, including the announced merger between another Cole Holdings non-traded REIT, Cole Credit Property Trust II, Inc. (CCPT II) and Spirit Realty Capital, Inc., as well as the successful merger of American Realty Capital Trust III, Inc. with ARCP, and American Realty Capital Trust, Inc.’s merger with Realty Income Corp.
In the Cole/Spirit deal announced in January, the boards of Spirit Realty Capital Inc. and Cole Credit Property Trust II approved a merger of their companies
that would create the second-largest publicly traded triple-net-lease REIT in the U.S. That deal is scheduled to close in the third quarter.
The heavy property and M&A activity among non-traded REITs reflected efforts by those entities to provide returns to their investors on previously illiquid assets. Many of the non-traded players entered the marketplace as active buyers during the last real estate boom and are now nearing deadlines to launch liquidity events for their investors.
ARCP has engaged Barclays Capital Inc. and RCS Capital, a division of Realty Capital Securities, LLC, as financial advisors and Proskauer Rose LLP and Weil, Gotshal & Manges LLP as its legal advisors in the Cole Credit transaction.