Spirit, CCPT II Complete $7.4B Merger

By Gail Kalinoski, Contributing Editor

Thomas Nolan, Spirit’s chairman & CEO

The new bigger Spirit Realty Capital will continue to seek out more growth opportunities as it looks to capitalize on the completion of the $7.4 billion merger with Cole Credit Property Trust II, which doubled its size and made it one of the largest publicly traded net-lease REITs in the United States.

The combined company now owns approximately 1,900 freestanding, single-tenant properties in 48 states. Spirit officials said in a news release announcing the closing that the company has “significantly enhanced scale and scope.” It also has a more diversified portfolio and enhanced access to capital because of the merger.

“The new company’s diversified portfolio and flexible balance sheet will enable us to capitalize on a range of future opportunities, including both organic direct portfolio acquisitions and strategic transactions,” Thomas Nolan, Spirit chairman & CEO, said in a news release Wednesday. “We remain focused on improving our portfolio diversity and scaling our business in order to continue to deliver a durable and growing dividend to shareholders.”

The merger between the two Arizona-based REITs was proposed in January, when the boards of directors of both companies agreed to go forward. On June 12, stockholders of the two firms approved the proposed deal. The combined company will retain the Spirit Realty Capital name and current management will lead the REIT. Seven of the nine-member Board of Directors will be existing Spirit board members and two members designated by CCPT II will join them.

Under the merger deal, Spirit shareholders received nearly two shares of CCPT II for each share of Spirit and previous holders of CCPT II received one share of the combined company for each share of CCPT II previously owned. Stockholders of both Spirit and CCPT II will also receive pro-rated dividends to be paid on or by Friday, July 19.

“From the outset, we have been confident that this transaction is in the best interests of stockholders. The successful completion of this merger demonstrates our ability to deliver positive results,” Marc Nemer, CEO of Cole Real Estate Investments, the parent company of CCPT II’s sponsor and manager, said in the joint news release. “Our commitment to a disciplined investment philosophy of acquiring income-producing properties, net-leased long-term to creditworthy tenants, allowed CCPT II to meet its investment objectives, despite a very challenging time in the real estate cycle. Stockholders now have full liquidity with Spirit Realty Capital, a proven net-lease operator.”

Brad Thomas, editor of Intelligent REIT Investor, said the merger was “a good marriage.” He said Cole needed the liquidity event and Spirit needed to add more investment-grade tenants to its portfolio.

“They needed diversification,” he told Commercial Property Executive. “The quickest way to do that is to roll up with Cole.”

Thomas agreed with Nolan that institutional investors are attracted to net-lease REITs but he said retail investors also like them because of the forced dividend structure.

“Institutional investors see the stability of the REIT platform and recognized the return performance all driven by the durability of the dividend,” he said.

American Stock Transfer & Trust Company, L.L.C. is serving as the combined company’s transfer agent. Barclays was financial advisor to Spirit while Latham & Watkins L.L.P. served as legal advisor. Morgan Stanley and UBS Investment Bank served as financial advisors to CCPT II and Goodwin Proctor L.L.P. was the legal advisor. Gleacher & Co. was financial advisor and Ropes and Gray was the legal advisor to the Special Committee of CCPT II.

CCPT II’s sponsor, Cole Holdings Corp., merged in April with Cole Credit Property Trust III, which also created one of the largest publicly traded net-lease REITs. With more than 2,000 properties, it is now known as Cole Real Estate Investments Inc. CCPT III was a separate net lease REIT that American Realty Capital Properties, headed by Nicholas Schorsch, attempted to buy for as much as $9.7 billion in a very public battle in March and April as he tried to create the largest publicly traded net-lease REIT.