One of the giant nontraded real estate investment trusts, Cole Credit Property Trust III, plans to buy its asset manager and sponsor company, Cole Holdings Corp., and will make an upfront payment to management and its founder, Chris Cole, of $127 million in cash and stock for the transaction.
According to investment bank Robert A. Stanger & Co. Inc., the REIT, known in the industry as Cole III, is the second-largest in terms of its market capitalization, with close to $4.8 billion in equity raised from investors since it was launched in 2009.
Using leverage, the REIT has $7.4 billion in real estate assets.
The transaction is scheduled to close next month, and the new company, Cole Real Estate Investments Inc., is expected to be listed in June on the New York Stock Exchange and will continue to be a REIT.
Cole III, which is valued at $10 a share, pays investors an annual dividend of 65 cents a share. That will rise to 70 cents after the transaction.
The Cole III merger is one of a recent spate of nontraded REITs that have announced mergers or listings in an industry that has been roundly criticized for not giving investors a return or way out of the investments.
Cole Holdings is a capital-raising monster, so the REIT is acquiring a formidable presence in the independent-broker-dealer industry, which is the main channel for selling nontraded REITs. According to a presentation to investors, Cole raised $1.28 billion in assets last year, or about $100 million per month, ranking it among the top in the industry.
“Fees from direct real estate investment are derived from new- capital deployment, like a property acquisition fee, or from ongoing management, like a typical advisory fee,” said Jeff Holland, head of capital markets at Cole Real Estate Investments.
“The vast majority of fees earned in the nonlisted-REIT sector are those generated when new capital is deployed into real estate assets, while the ongoing fees are considerably less impactful,” he said. “New capital equates to higher fee generation.”
As part of the transaction, Mr. Cole and management also will receive $20 million in stock once the NYSE listing is accomplished.