American Realty Capital strikes $2.2B deal for a traded REIT

Second time a charm for ARC CEO Schorsch in net lease market

May 28, 2013 @ 2:33 pm

By Bruce Kelly

Shut out of buying a large nontraded real estate investment trust just last month, American Realty Capital Properties Inc. said today it has signed a definitive merger agreement with a traded REIT, CapLease Inc.

American Realty Capital will pay $2.2 billion for CapLease. Owners of CapLease common stock will receive $8.50 per share in cash, while holders of preferred stock will receive $25 per share in cash plus any accrued or unpaid dividends before the close of the merger, which is expected in the third quarter. American Realty Capital is also assuming $580 million in CapLease debt and paying off debt of $620 million.

(What to watch: Schorsch: Separating the REITs from the chaff)

Both REITs own “net lease” commercial real estate. With interest rates near zero, triple-net-lease REITs, in which high-quality tenants — and not the REIT sponsors — are responsible for maintenance, insurance and tax costs for the properties, have been a favorite of investors and financial advisers seeking income.

The transaction will transform American Realty Capital into the third-largest net-lease REIT in the U.S., according to Nicholas Schorsch, chief executive and chairman of American Realty Capital.

“We've said it over and over again — we are going to grow organically and are also very specifically looking at strategic combinations,” Mr. Schorsch said in an interview. “All the assets are net-lease, with 82% investment-grade. And CapLease has an extraordinary management team. This is real valuable growth for us and we expect it to add 10% to earnings in 2014.”

With a market capitalization of $2.7 billion, American Realty Capital recently has been actively seeking acquisitions. Near the start of the year, it said it was acquiring a related nontraded REIT, American Realty Capital Trust III.

In March, the REIT and Mr. Schorsch made a bid to acquire the nontraded net-lease REIT Cole Credit Property Trust III. After sweetening its initial offer but then failing to generate interest from the board of the Cole REIT, American Realty Capital withdrew its bid in April.

After a merger with its manager in April, Cole III intends to list on the New York Stock Exchange in June.

In midday trading, American Realty Capital shares were up 4% to $17.21 per share. CapLease shares were up almost 21% and were trading at $8.56 per share.

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