09/02/2014 | by
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Select Income REIT (NYSE: SIR), which primarily owns properties net leased to single tenants, said Sept. 2 that it has reached a deal to pay approximately $3 billion in cash and stock to acquire Cole Corporate Income Trust (CCIT), a public non-listed REIT (PNLR).

The transaction involves Select Income acquiring CCIT’s 64 office and industrial net lease properties and 23 health care properties. Upon closure of the merger, which is expected in the first quarter of 2015, Select Income has agreed to sell the health care properties to Senior Housing Properties Trust (NYSE: SNH) for approximately $539 million. Both Select Income and Senior Housing Properties Trust are managed by Reit Management & Research LLC.

Under the terms of the deal, CCIT stockholders would receive either $10.50 in cash or 0.36 shares of Select Income common stock for each CCIT share for up to 60 percent of CCIT’s outstanding common stock. The $3.0 billion purchase price includes approximately $298 million of mortgage debt and excludes transaction costs.

The acquisition would more than double Select Income’s asset base and enterprise value, which the company said should lower its cost of capital and enhance shareholder value.

David Blackman, president and COO of Select Income, described the transaction as a “once-in-a-lifetime opportunity.” The deal will result in extended lease terms, increased occupancy, reduced risk, diversification of rental income and greater scale for Select Income, he said during a conference call.

Blackman added that Select Income believes CCIT owns the highest-quality portfolio of single-tenant, net lease office and industrial properties among all publicly owned REITs.

Upon completion of the deal, Select Income will own 114 properties in 35 states with a weighted average occupancy of 98 percent.

MLV & Co. analyst Jonathan Petersen noted that Select Income’s “solid portfolio” of industrial real estate in Hawaii should continue to deliver robust internal growth. However, the acquisition of CCIT demonstrates that the majority of external growth will come from the mainland, where capitalization rates are higher, but internal growth less robust.

CCIT is managed by Cole Capital, the private capital management business of American Realty Capital Properties, Inc. (NASDAQ: ARCP). David Kay, president of ARCP, said the deal “demonstrates ARCP's ability through Cole Capital to raise capital, invest in high-credit-quality assets and harvest value for the stockholders” of its PNLRs.