Payoff in nontraded REIT deal

Another sizable nontraded real estate investment trust will provide some liquidity to its investors, this time through a merger with a large traded REIT.
Management at Cole Credit Property Trust II, with $3.7 billion in real estate assets, said on Tuesday the property trust will merge with Spirit Realty Capital, a listed REIT with $3.4 billion in assets that trades under the symbol SRC. The new REIT will retain the Spirit Realty Capital name, and the merger is expected to close in the third quarter.
Investors in the Cole REIT should expect to see a total return of 20% to 42%, including dividends, depending on when investors purchased their shares. The merger gives full liquidity to investors with no lock up period, according to company executives.
According to a presentation to investors, the implied value of Cole Credit Property Trust II is $9.36, based on the Spirit REIT’s closing price on January 18 of $17.82 per share.
The companies expect no disruption of dividends to investors during the merger.
There will be no internalization fee or transaction fees paid to Cole as part of the deal, according to the investor presentation. Nontraded REITs have been broadly criticized for charging such fees at the times of “liquidity event” such as being listed on an exchange or a merger. Several large nontraded REITs have undergone such liquidity events in the past year.
Both the Cole and Spirit REITs are known as “triple net lease” REITs, meaning that the renter pays for upkeep and insurance on the property.
Cole Credit Property Trust II worked through the peaks and troughs of the real estate bubble. It was registered with the Securities and Exchange Commission in 2004 and began buying commercial property the following year.