RCS to Acquire Cole Capital for $700M

 By Gail Kalinoski, Contributing Editor

Michael Weil, RCAP

American Realty Capital Properties Inc. is selling Cole Capital, its private capital management business, to sister company RCS Capital Corp. for at least $700 million in a deal described as “strategically and financially important to RCAP.”

The deal is expected to close in two steps with RCAP paying a portion of the base purchase price at the second closing and the balance in April. The terms call for RCAP to pay ARCP $200 million in cash, $200 million in RCAP common stock and assume $300 million in debt. The common stock portion could also be paid in cash. In addition to the base price, ARCP could earn up to an additional $130 million by early 2016 depending on Cole Capital’s actual 2015 EBITDA.

The sale of Cole Capital, which was acquired as part of the $11.2 billion merger between ARCP and its former rival Cole Real Estate Investments Inc., announced a year ago, lets ARCP focus on growing its single-tenant net-lease business, which is already the largest in the world.

But it also gives ARCP an active and profitable role in Cole Capital because it will be the exclusive sub-advisor on certain non-traded REITs currently advised by Cole Capital. Already the leader in the net lease REIT industry, the sub-advisor role gives ARCP a steady stream of fee income and combines two of the most recognized names in non-traded REITs, according to an investors’ presentation. ARCP has also agreed to source, underwrite and acquire net lease properties in the United States for American Realty Capital Global Trust II, Inc. (ARC Global II).

“This transaction significantly simplifies our business model, provides us a long-term economic stake in the growth and success of Cole Capital’s investment programs and should enhance and accelerate the capitalization of these programs, thus improving the visibility of our fee stream while eliminating considerable overhead and volatility,” David Kay, ARCP’s new CEO, said in a statement.

Kay, the former president of the New York-based REIT, took over Wednesday as CEO of ARCP from Nicholas Schorsch, who remains chairman of the board of ARCP and executive chairman of RCAP’s board. Lisa Beeson has become president and will also retain her COO title and duties. Both moves were previously announced.

Michael Weil, RCAP’s CEO, described the acquisition of Cole Capital as a “win for both companies,” during a Wednesday morning conference call with analysts.

Weil said the firm now has three investing classes, asset management, retail advice and wholesale distribution, which “complement each other quite nicely.”

“We believe the  combination of the two companies will achieve several significant strategic objectives in a single transaction, including growing our outstanding wholesale team’s management and field ranks and materially expanding our investment management business segment by nearly 400 percent,” Weil said in a news release. “Moreover, it diversified RCAP’s revenues substantially, increases our recurring revenue base, and adds a full complement of net lease real estate offerings to our product suite.”

Bill Dwyer, CEO of Realty Capital Securities L.L.C., the wholly owned wholesale broker-dealer for RCAP, said the addition of seven investment products “represents significant equity capital raising potential.”

The seven investment programs are: Cole Corporate Income Trust (CCIT), Cole Credit Property Trust IV (CCPT IV), Cole Office & Industrial REIT (CCIT II), Cole Credit Property Trust V (CCPT V) Cole Real Estate Income Strategy (Daily NAV) and two future programs, Cole Credit Property Trust VI (CCPT VI) and Cole Office & Industrial REIT (CCIT II).

Those programs represent nearly $19 billion in registered equity offerings and more than $30 billion in estimated buying power, according to the release.

Barclays Capital Inc., RCS Capital, the investment banking and capital markets division of Realty Capital Securities, L.L.C., and Citi are acting as financial advisors and Duane Morris L.L.P. is acting as legal counsel to RCAP. Moelis & Co. is acting as financial advisor and Weil, Gotshal & Manges L.L.P. is board counsel to ARCP. Proskauer Rose L.L.P is acting corporate counsel to ARCP and RCAP.