REIT Deal: American Realty Capital Acquires Cole In $7.2 Billion Acquisition
In a deal creating one of the largest commercial landlords in the US, real estate investment trusts American Realty Capital Properties and Cole Real Estate Investments have announced an acquisition agreement totaling $7.2 billion. American Realty Capital Properties did the buying, exchanging cash and stock for Cole, a REIT that went public earlier this year, listed on NYSE as COLE.
Included in the deal was about $4 billion in Cole’s debt, taken on by American Realty, who also paid a premium on Cole shares totaling 14% over the share closing price the day before the announcement.
Net Lease Consolidation
The deal is a major one in the triple net lease area, as tenants of the combined company now include net leasing national giants FedEx, Walgreen’s, and Home Depot. The deal forms a pipeline of lease payments almost directly to investors, as shareholders of REITs are paid usually 90% of earnings in the form of dividends.
Net leases leave maintenance and operations to the tenants. The attraction to investors in trusts is double: first, lease payments under net terms have few or no offsetting costs, and second, the REIT rules compel earnings to show up as dividends.
According to NYT Dealbook, the acquisition is a second attempt on the part of American Realty this year to pull off the buy; a less friendly, unsolicited offer for Cole came from American Realty in March in the time leading up to Cole’s initial public offering.
The origins of the deal date to March, when American Realty made an unsolicited offer for Cole that would have derailed Cole’s move to go public. Cole rejected the offer and went on to list on the New York Stock Exchange. Since the listing in June, Cole shares have climbed more than 17 percent.
Nonetheless, American Realty still wanted to make a deal. It will pay 14 percent above Cole’s closing stock price on Tuesday of $12.82, and assume significant new debt in taking over the larger company.
“These two companies were meant to be together,” American Realty’s chief executive Nicholas S. Schorsch said in an interview. “This is a one plus one equals four or five scenario.”