Realty Income To Buy ARCT for $2.95 Bil.
Deal Will Make Realty Income Twice as Large as Next Largest Net Lease REIT
September 6, 2012
Realty lncome Corp. plans to acquire American Realty Capital Trust (ARCT) in a transaction valued at $2.95 billion.
The board of directors of both companies have unanimously approved the agreement.
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Upon completion, it is anticipated that Realty lncome will be the 18 largest RElT in the U.S., based on total pro forma equity market capitalization, and twice as large as the next largest net lease REIT.
The acquisition will be financed by Realty lncome directly issuing $1.9 billion of its common stock to American Realty Capital Trust shareholders, the assumption of approximately $526 million of debt, and the immediate repayment of approximately $574 million of outstanding debt and transaction expenses.
"This acquisition comprehensively advances Realty lncome's strategic objectives of increasing its revenue generated by investment grade tenants and further diversifying its portfolio outside of the retail industry," said Tom A. Lewis, CEO of Realty lncome.
Approximately 75% of the rental revenue Realty Income will add in this transaction will be generated by investment-grade tenants including: FedEx, Walgreen's, CVS, the GSA, Dollar General, Express Scripts, PNC Bank, and Whirlpool. The addition of these tenants to Realty lncome's existing portfolio increases the company's revenue generated by investment-grade tenants from approximately 19% to 34% of pro forma total revenue.
With the addition of these properties to the portfolio, the pro forma rental revenue generated by Realty lncome's 10 largest industries declines from 73% to 64%, its largest 15 tenants declines from 49% to 42%, and its revenue from retail properties declines from 86% to 77%. This added diversification further strengthens the sources of the lease revenue supporting the payment of monthly dividends.
Based on June 30, 2012, data, the overall occupancy of the combined real estate portfolio will increase to 97.7% from 97.3%, pre-transaction. The average remaining lease term, after the transaction, will increase to 11.4 years as compared to 11.1 years, pre-transaction. In addition, Realty lncome will also reduce its exposure to near-term lease expirations, with no significant lease rollover occurring until 2020.
Upon closing of the transaction, based on current prices, Realty lncome would have a pro forma enterprise value of $11.4 billion, a pro forma total equity market capitalization of $7.6 billion, and will be the largest publicly traded net lease RElT by a factor of two times.
Realty lncome's management said they believe the increased size and scale resulting from the transaction further enhances Realty lncome's ability to execute large transactions and strengthens its position as an industry consolidator in the relatively fragmented market of net leased real estate.
All of the properties owned by American Realty Capital Trust are net leased properties similar to Realty lncome's existing property portfolio. As such, Realty lncome said it believes any integration, additional resources or ongoing expenses will be minimal in order to integrate the American Realty Capital Trust properties into Realty Income.
None of the employees of American Realty Capital Trust will remain with Realty Income, and Realty lncome anticipates hiring only four to six additional employees as a result of the transaction. In addition, Realty Income, upon closing, will maintain its current board membership and structure.