American Realty Capital Properties Inc. (NASDAQ: ARCP), a single-tenant net lease REIT, announced on March 20 a proposal to purchase Cole Credit Property Trust III (CCPT III), a non-traded REIT, for $9.3 billion.
The proposed transaction would create the largest publicly traded REIT in the net lease sector in terms of both total capitalization and square footage. In a net lease agreement, in addition to rent, the tenant is responsible for paying property taxes, building insurance and maintenance.
CCPT III invests in so-called necessity retail properties, a property category that the company says includes retail tenants that provide products that its customers consume on a day-to-day basis. These properties include pharmacies, home improvement stores, national superstores and restaurants.
Nicholas Schorsch, American Realty Capital’s CEO, sent a letter on March 19 to the non-traded REIT’s board of directors offering to acquire 100 percent of the outstanding common stock of CCPT III for $5.7 billion in cash and stock. American Realty Capital would also assume CCPT III’s outstanding debt, bringing the total valuation of the offer to $9 billion.
“We believe our offer for CCPT III represents a strength-for-strength merger of complementary portfolios that would provide CCPT III stockholders with certainty of value while benefiting both CCPT III and ARCP stockholders through the creation of the largest, highest quality publicly traded REIT in the net lease sector,” Schorsch noted in the letter.
The proposal represents a 20 percent premium to the original CCPT III offering price of $10 per share.
If accepted, Schorsch said ARCP would have a “diversified asset base” including more than 1,700 properties and more than 400 tenants. Chain stores including Dollar General, FedEx, Walgreens, and Bed Bath & Beyond are among American Realty Capital’s top 10 tenants.
With the deal, American Realty’s annual dividend will also increase to 93 cents a share, according to American Realty. CCPT III stockholders who elect ARCP stock will receive an annualized dividend of .744 per share, a 15 percent increase over CCPT III’s current annualized dividend per share of .65.
Following the announcement of the proposal, shares of American Realty Capital were up approximately 4 percent to $14.49 per share through mid-day trading on Mar. 20.The stock opened the day trading at $13.92.