American Realty Capital Properties Inc. and Cole Real Estate Investments Inc. signed a definitive agreement to merge the two companies in a deal valued at $11.2 billion. The merger will create the largest net lease REIT in the country, with an enterprise value of $21.5 billion.
Under the terms of the deal, Cole will become a wholly owned subsidiary of ARCP.
This is just one of many recent deals orchestrated by ARCP’s chairman and CEO Nicholas Schorsch, who landed on WealthManagement.com’s list of the Ten to Watch for 2014. So far, he’s lived up to the reputation.
Schorsch surprised many when he purchased independent broker/dealer First Allied in June. Then, earlier this month he announced his intent to acquire liquid alternatives shop Hatteras Funds as well as the 550-advisor IBD Investors Capital. On Oct. 2, WealthManagement.com reported that Schorsch was working on another deal, to be announced in the weeks ahead.
Current Cole stockholders will have the option to receive 1.0929 shares of ARCP common stock or $13.82 in cash for each share of Cole common stock. If the payment in cash will exceed 20 percent of Cole’s outstanding shares, cash elections will be probated. ARCP’s offer is valued at $14.59 per Cole common share, based on a fixed exchange ratio of 1.0929 and ARCP’s closing share price of $13.35 on Oct. 22.
In order to complete the transaction, ARCP secured a $2.75 billion loan from Barclays.
The deal comes six months after American Realty Capital had tried to buy the same entity. Then, American Realty Capital attempted to purchase Cole Credit Property Trust III Inc. (CCPT III) for $9 billion. That offer was rebuffed and instead CCPT III acquired Cole Holdings Corp., a real estate investment management firm, changed its name to Cole Real Estate Investments and announced plans to pursue a listing on the New York Stock Exchange. Cole completed its IPO in late June and its stock has traded in a range of between $9.85 per share and $14.68 per share.
The merger has already been approved by the boards of directors of both companies, but remains subject to stockholder votes. The deal is expected to close in the first half of 2014.
“Today, it is my great pleasure to announce the merger of two leading U.S. real estate companies, American Realty Capital Properties and Cole Real Estate Investments,” said ARCP Chairman and CEO Nicholas S. Schorsch in a statement. “As a result, ARCP will become the largest net lease REIT and the new industry leader. We benefit by uniting not only two exceptional real estate portfolios, but also by joining forces with Cole’s world-class management team.”
According to a statement by Christopher H. Cole, founder and executive chairman of Cole Real Estate Investments, “We are pleased to have reached this agreement with ARCP, which we believe provides compelling value and significant equity upside potential for Cole stockholders at a time when we believe the industry is consolidating. My decision and the decision of our board to merge the companies under Nick’s leadership is entirely forward-thinking, namely, our two companies are far better and more powerful together than apart. Our union provides immediate and obvious benefits of size, scale and diversification.”
ARCP and Cole expect that the merger will help reduce the former’s net debt to EBITDA ratio from 9.1x to 7.7x by the end of 2014 and will result in $70 million of expense synergies within the first year, among other advantages. The merged property portfolio will feature a 99 percent occupancy rate and an average lease term of 11 years, with 47 percent of the tenant base made up of investment grade companies. It will contain a total of 3,732 properties and more than 100 million sq. ft. of space.
The merger may also pave the way for ARCP’s entry into the S&P 500.
This story originally appeared in National Real Estate Investor, a sister publication to WealthManagement.com.