By Barbra Murray, Contributing Editor
Image source: Commercial Property Executive
American Realty Capital Properties Inc. and American Realty Capital Trust III Inc., two separate net-lease REITs, are set to merge. With a purchase price of $2.2 billion in cash and shares, the acquisition will result in the creation of a new entity with an enterprise value of $3 billion.
The agreement stipulates that each outstanding share of ARCT III will be converted into the right to receive either 0.95 of a share of ARCP common stock valued at $12.26, or $12 in cash.
ARCP is a publicly traded REIT, while ARCT III is non-traded. Following the merger, the combined company will become the fifth largest publicly-listed net lease REIT, owning a portfolio of 800 retail and industrial properties spanning 44 states and covering 18.9 million square feet.
According to Nicholas S. Schorsch, CEO of American Realty Capital Properties, industry analysts view this transaction as transformative. The merger allows the companies to combine their strengths and create a powerful force in the net-lease market.
ARCP focuses on acquiring freestanding, single-tenant commercial properties occupied by high-credit-quality tenants, while ARCT III specializes in predominantly free-standing, single-tenant retail properties occupied by investment-grade and other creditworthy tenants under long-term lease agreements.
Beyond property diversity, the merger will bring benefits such as longer lease durations, operating synergies, cost reduction, and a greater potential for capital markets benefits, with an equity market capitalization of $1.9 billion. The combined entity's adjusted funds from operations are projected to grow by 16 percent from 2013 to 2014, surpassing the expected growth among its competitors.
Timing is crucial, and the merging of ARCP and ARCT III is taking place at an opportune moment. With the capital markets receptive and open, and a strong balance sheet with access to $1.2 billion in fixed-rate debt at 2.45 percent, the new entity is well-positioned for success.
Looking ahead, both Schorsch and industry experts anticipate a bright future for REITs and the net-lease market. REITs provide significant income compared to S&P and tech companies that do not pay dividends, making them an attractive option for investors seeking income-based, liquid products. In a relatively flat economy, net-lease REITs offer stable and durable income.
By merging, American Realty Capital Properties and American Realty Capital Trust III are poised to create a dynamic force in the net-lease market, leveraging their combined strengths to drive growth and provide stable income for investors.
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