About 54% of Cole Real Estate (COLE) investors chose to receive ARCP stock in exchange for their stakes. About 2% chose cash. Approximately 44% did not make an election and - under the terms of the merger agreement - will receive stock, bringing the total to 98%.
As promised, American Realty Capital Properties (ARCP -1%) today shifts from being externally managed to being self-managed. The management agreement with ARC Properties Advisors is terminated effective today, though certain services of the manager will be used through the completion of the Cole Real Estate (COLE -1.2%) purchase. The deal is close this month, eight weeks earlier than expected.
ARCP will continue to be led by founders Nicholas Schorsch and Brian Block.
"This is taking the number two and number three net-lease REITs and creating kind of a game-over, category-killer in the sector," says Cole Real Estate (COLE +8.7%) CEO Marc Nemer of the deal to sell itself to American Realty Capital Properties (ARCP -1.5%) for $11.2B in cash and stock. The combined company will push into first place in size in the popular triple-net-lease sector, surpassing Realty Income (O +0.7%).
ARCP's acquisition-happy chief Nicholas Schorsch in the past has typically raised private money for non-traded REITs and then sold the portfolios to ARCP in order to cash out his investors, but this is a massive public deal. "How many REITs have the ability to raise both public and private capital," he says. "The ability for us to acquire non-traded REITs, either whole or in part, is only increased" by this Cole deal.
S&P 500 inclusion next? The investor presentation (slide 8) notes the combined company's market cap will be larger than index constituents Kimco Realty and Macerich.
Under the impression the CEOs of the two companies hated each other, SNL Financial's Jake Mooney wants the backstory. Earlier this year: Still a non-traded REIT, Cole rebuffs ARCP's buyout attempt for $9.7B.
American Realty Capital Properties (ARCP) agrees to buy Cole Real Estate investments (COLE) in a deal valued at $11.2B. The board's of each company have approved the deal and ARCP has already secured $2.75B in financing. Combined, the companies will have an enterprise value of $21.5B.
Cole, of course, recently came public after fending off a takeover bid from ARCP when it was a non-traded REIT.
Cole owners will have the option of receiving 1.0929 shares of ARCP stock for each share they own, or $13.82 per share in cash. The stock offer is valued at $14.59 per share based on last night's ARCP close of $13.35. Cole last night closed at $12.82, so the offer is a 13.8% premium. The transaction is expected to close in 2014 Q1.
ARCP 2014 FFO per share guidance is hiked to $1.13-$1.19 in lieu of the merger. Also among post-merger benefits: The annual dividend will be $1.00 (vs. $0.96 now), $70M of expense synergies, increased institutional coverage and possible inclusion in the S&P 500.
Near-term catalysts include the recently gone-public's stock inclusion in several indexes, the shift from retail to institutional shareholders, additional sell-side coverage, and downside support thanks to the share buyback authorization.
Additionally, says FBR, the valuation gap between COLE and its net-lease brethren should narrow as the company gets an investment-grade rating and continues to grow its portfolio. There's also Cole's private capital-management business, which offers diversification and a growing earnings stream.
The company's focus on secondary markets - thus not going up against the big boys - has consistently allowed it to buy properties at better-than-market cap rates ... "the team must remain disciplined in the assets that it buys."
Cole Real Estate Investments (COLE) continues its inclusion in major property indexes just a few months after its IPO, being added to the S&P Global Property Index, the S&P Global REIT Index, and the Dow Jones U.S. Real Estate Index (ETF: IYR).