ARCP Ups Offer to Purchase Merged CCPT III

By Gail Kalinoski, Contributing Editor

American Realty Capital Properties Inc. is continuing its pursuit of Cole Credit Property Trust III, offering now to acquire both the non-traded REIT and its planned merger partner Cole Holdings Corp. for nearly $10 billion. The deal would create the largest publicly traded REIT in the net lease sector.

One week after ARCP first made an offer to acquire CCPT III, it came back today with a proposal to buy 100 percent of the outstanding common stock for at least $13.59 per share in stock or $12.50 in cash. ARCP said this latest proposal was based on information CCPT III made public Monday. It also included Cole Holdings in the bid because CCPT III claims its acquisition of Cole Holdings can’t be stopped, ARCP noted in today’s proposal.

The original offer made March 20 would have paid at least $12 a share or $5.7 billion in cash and stock, plus assumption of debt for a total of at least $9 billion.

“We firmly believe our fully financed proposal, detailed below, is a full and fair offer and well within the valuation you ascribed to CCPT III and Cole Holdings in your March 25 filing, but without all the attendant risks of a proposed listing on uncertain terms and timing,” Nicholas  Schorsch, chairman and CEO of ARCP, wrote in a letter today to the Board of Directors of CCPT III.

CCPT said Thursday its Special Committee of the Board of Directors would “carefully review the revised proposal in consultation with its advisors, and pursue the course of action that it believes in the best interests of CCPT III and its stockholders.” CCPT III added that the Special Committee still “remains committed” to acquiring Cole Holdings.

Saying it wanted to “set the record straight,” CCPT III noted that the Special Committee’s advisors were contacted by ARCP and agreed to meet with them, but that ARCP went public with the revised proposal before a meeting occurred.

A war of words has ensued over the past week with CCPT III, which plans to acquire its sponsor, Cole Holdings, rejecting the ARCP bid and affirming several times that it was moving forward with the acquisition of Cole Holdings for $20 million in cash and about 10.7 million shares of common stock along with other unspecified stock. Cole Holdings is a real estate management firm that manages more than $12 billion in assets.

CCPT III, a Phoenix-based non-traded REIT that owns approximately 1,000 properties with more than 40 million square feet in 47 states, said Monday that the original ARCP proposal had undervalued CCPT III by up to 22 percent. In the presentation to investors that it filed with the U.S. Securities and Exchange Commission, CCPT III also stated that the ARCP proposal would create “an unattractive pro-forma business model” and that combining the companies would bear excessive leverage levels and present what it called significant risk to equity value.

“ARCP is trying to use CCPT III to become relevant in the net lease space but CCPT III is already a dominant player in the net lease space,” the letter stated.

So far today, CCPT III has not responded to the new proposal from ARCP.

On Monday, CCPT III stated that its planned acquisition of Cole Holdings was expected to yield “substantial financial benefits to CCPT III and its stockholders,” including savings in overhead costs. CCPT III also said it expected:
–    2013 pro-forma Funds from Operation (FFO) per share of 80 cents to 85 cents; and pro-forma Adjusted Funds from Operation (AFFO)  per share of 77 cents to 82 cents.

–          Increase in company’s dividend to an annualized rate of 70 cents per share after acquisition.

–          $25 million to $35 million of 2013 pro-forma EBITDA contribution from Cole Holdings.

CCPT III stated in the Monday letter that its Special Committee had met 50 times over four months to consider acquisition and other strategic alternatives and concluded that the Cole Holdings merger was in the best interests of the company and its stockholders. The Special Committee also determined that ARCP’s original and unsolicited proposal was not good for CCPT III or the stockholders. One of the main reasons for rejecting the original bid was that the combined company could bear excessive leverage levels, including an additional $1.2 billion to $2.4 billion of debt to fund the 20 percent to 40 percent cash component of ARCP’s proposal.

Today, ARCP said its new proposal “results in an increase to combined ARCP and CCPT III pro-forma 2013 and 2014 AFFO.” The company said that would come from reduced operating costs, including elimination of CCPT III asset management fees.

ARCP said CCPT III stockholders would receive an equivalent annual dividend of 74.4 cents per share, 15 percent higher than their current dividend.

The company claims CCPT III stockholders would be able to immediately trade ARCP shares on the NASDAQ and not be “locked up.”

ARCP noted that it would prefer not to negotiate in public, but that it felt compelled to because CCPT III, Cole Holdings management and their advisors had not reached out to ARCP to speak in private about the proposal.

Based in New York, ARCP had about 700 net lease properties in 16.4 million square feet as of Feb. 28. The REIT said it had nearly 50 different tenants that come from 20 industries. In February, ARCP acquired American Realty Capital Trust III Inc., a separate net-lease REIT that also shared American Realty Capital as its original sponsor with ARCP, for $2 billion.