W.P. Carey joins nontraded-REIT-liquidity conga line

Merger deal, if OK'd by shareholders, means big premium

Jul 29, 2013 @ 3:14 pm

By Bruce Kelly

Another sizable nontraded real estate investment trust has plans to move toward a liquidity event this year, making it at least the sixth such REIT to announce or transact such a deal so far in 2013.

W.P. Carey Inc., a traded REIT, said last week it will acquire one of its related nontraded REITs, Corporate Property Associates 16, in a transaction valued at close to $4 billion. Following the merger, which is subject to the approval of stockholders from both REITs, the combined company is expected to have an equity market capitalization of about $6.5 billion and an enterprise value of $10.1 billion.

Shareholders of CPA 16, the nontraded REIT, will receive shares of W.P. Carey valued at $11.25 each for the nontraded REIT. At first blush, that represents a hefty premium of 29% over the last estimated net asset value of CPA 16, which was $8.70 per share at the end of last year.

In reality, the premium CPA 16 investors will receive is closer to 12%, said Kristin Brown, head of investor relations for W.P. Carey. That difference stems from two factors, Ms. Brown said. First, the $8.70-per-share valuation from last year was a third-party appraisal and based on historical numbers, and such “appraisals are more conservative than the market value” of properties in a REIT portfolio.

Second, W.P. Carey previously had acquired 18.5% of CPA 16, which had an impact on the size of the premium, she said.

CPA 16 was launched in 2003. The combined portfolio will consist of more than 700 properties. The transaction is expected to close in the first quarter of next year.

Nontraded REITs typically take several years to accomplish a return of capital to investors, dubbed a liquidity event, through a merger or listing of its shares. This year, a spate of such announcements have been made. In May, Chambers Street Properties listed on the New York Stock Exchange, and in June, Cole Credit Property Trust III also listed on the Big Board after an earlier merger with its investment manager. Another Cole REIT, Cole Credit Property Trust II, merged with a publicly traded REIT this month.

REIT sponsor American Realty Capital, a relative newcomer to the nontraded-REIT industry, has worked to more quickly create liquidity events, or mergers and listing of nontraded REITs. In February, traded REIT American Realty Capital Properties Inc. and nontraded REIT American Realty Capital Trust III merged. And this month, American Realty Capital Properties said it was buying the outstanding shares of another related nontraded REIT, American Realty Capital Trust IV.

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