American Realty strikes $2.2B deal for a traded REIT

Shut out of buying a large nontraded real estate investment trust just last month, American Realty Capital Properties Inc. said last Tuesday that it 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 a share in cash, while holders of preferred stock will receive $25 a 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.

SEEKING INCOME

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 — 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 United States, according to Nicholas Schorsch, its chairman and chief executive. “We are going to grow organically and are also very specifically looking at strategic combinations,” he said. “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,” Mr. Schorsch said. With a market capitalization of $2.7 billion, American Realty Capital has been actively seeking acquisitions. This year, it said it was buying 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. American Realty Capital's buying binge continued last Friday when it said it had struck a deal to acquire the $807 million GE Capital Portfolio, which also owns net-lease properties.