American Realty Capital Properties and Cole Real Estate Investments Merging in $11.2 Billion Deal

Andrew Klips  |

American Realty Capital Properties, Inc. (ARCP) said Wednesday morning that it has come to terms to acquire peer Cole Real Estate Investments, Inc. (COLE) in a transaction valued at $11.2 billion.  With an enterprise value of $21.5 billion, the merger will create the largest net-lease real estate investment trust (REIT) in the United States.   The new company will be the fourteenth largest publicly traded REIT in the world.

The boards at both companies have approved the merger.  ARCP said that it has secured $2.75 billion in committed financing from Barclays in connection with the transaction, which is expected to close in the first half of 2014.

The new American Realty will have 3,732 properties with more than 100 million square feet and in excess of 600 tenants in 49 states and Puerto Rico, surpassing Realty Income Corp. (O) , currently the largest single-tenant REIT with 3,681 single-tenant buildings as of June 30.  Nearly half of the merged company’s rents will be investment grade tenants, including companies like Wal-Mart (WMT) .  ARCP specializes in sale/lease-back transactions, meaning that they buy a property from a company like Wal-Mart and then lease it back to them.

In the deleveraging transaction, ARCP’s net debt to EBITDA ratio will drop from 9.1x to 7.7x by the end of 2014 and borrowing cost will be lower for the combined entity.

Upon closing, ARCP will boost its dividend from 94 cents per share to $1.00 per share.

Cole stockholders may elect to receive 1.0929 shares of ARCP common stock or $13.82 cash for each share of Cole common stock.  ARCP's offer is valued at $14.59 per Cole share and ARCP's closing price of $13.35 on October 22, 2013.  The offer price represents a premium of 13.8 percent based on Cole's closing price on Tuesday.

“[ARCP and Cole] share the same disciplined investment philosophy and investment processes, which are focused on investment grade tenancy, long lease durations, a strong diversified tenant base, and a mix of property type and geography,” said ARCP's Chairman and Chief Executive Officer, Nicholas S. Schorsch in a statement today.

ARCP tried in March to buy private Cole Credit Property Trust III for about $6.7 billion, but the REIT opted to acquire its management company and go public as COLE.  Shares of COLE had appreciated about 18 percent since it entered the public domain in May.

ARCP has been busy making acquisitions, including buying CapLease Inc. ($LSE) in May for $2.2 billion, including debt, and American Realty Capital Trust IV Inc. for about $3.1 billion in July.

Shares of ARCP gapped up at the opening bell on Wednesday, but have pulled back to essentially even one hour into the trading day.  Shares of COLE have jumped ahead to $14.25, for gains of 11 percent on the day so far.

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