American Realty Capital Properties to acquire American Realty Capital Trust III
American Realty Capital Properties (ARCP) is to acquire all of the outstanding shares of American Realty Capital Trust III in a transaction that would result in a combined company with USD3bn of enterprise value.
This will increase ARCP's enterprise value tenfold. Both companies' independent directors have unanimously approved the merger agreement.
The merger agreement is subject to customary closing conditions, including a stockholder vote by both companies, and the transaction is expected to close during the second quarter of 2013. Stockholders of record for each company as of 17 December, 2012 will be entitled to consider and vote on the proposal to approve the merger and the other transactions contemplated by the merger agreement.
Under the terms of the merger agreement, each outstanding share of ARCT III will be converted into a right to receive, at the election of each stockholder, either 0.95 of a share of ARCP common stock (based on ARCP's closing stock price of USD12.90 on 14 December 2012, this consideration would be equivalent to USD12.26 per share) or USD12.00 in cash.
Based on ARCP's closing price of USD12.90 per share on 14 December, the exchange ratio is currently equivalent to USD12.26 per share. ARCT III stockholders may elect to receive 100 per cent stock consideration in a tax-free exchange; however, in no event will the aggregate consideration paid in cash be paid on more than 30 per cent of the shares of ARCT III's common stock issued and outstanding as of immediately prior to the closing of the merger. Any elections for cash in excess of the cap will be reduced on a pro rata basis, with the remaining consideration paid in shares of ARCP. ARCT III stockholders will not be subject to any lockup – only ARCT III's management will be locked up for one year.
Post-closing, the combined company is anticipated to be comprised of a portfolio of over 800 properties that are net leased to investment grade and other credit tenants totalling approximately 18.9 million square feet and located in 44 states. Pursuant to its previously announced fifth consecutive quarterly dividend increase effective on 9 February 2013, ARCP will continue to pay its annual dividend on the 15th day of each month at an increased rate of USD0.90 per share to its stockholders of record at the close of business on the 8th day of each month.
Nicholas S Schorsch (pictured), chairman and chief executive officer of ARCP, says: "Today I am delighted to announce the transformative combination of ARCP and ARCT III. This combination provides unique synergies in the net lease sector, furnishing our investor base with durable income, principal protection and perhaps most importantly, outsized growth potential. This combined company will be guided by a proven management team and seasoned public company directors. Combining these two companies into a USD3bn enterprise will allow us to achieve lower cost capital, substantially greater earnings multiples, and reduced fees."
"We are extremely pleased to announce this transformative transaction," says Michael Weil , president and chief operating officer of ARCT III. "ARCT III is 100 per cent occupied, broadly diversified, made up of roughly 650 properties, with an average remaining lease term of 13 years. It will be combined with ARCP's property portfolio of highly accretive vintage leases. The combined enterprise results in the 5th largest publicly-listed net lease REIT, well positioned for growth and further diversified by tenant, industry and geography.
"ARCP stockholders will benefit from the durable rental income from tenants which are 77 per cent investment grade credit rated. In addition, significant growth opportunity will result from properties with shorter remaining lease terms acquired considerably below replacement cost with below market rents. This transformative transaction will combine the best aspects of both investment strategies and will give the combined company greater access to more attractive financing, inclusion in the important indices, and allow us access to lowest cost capital."