{"id":1004075098,"date":"2013-05-29T05:08:03","date_gmt":"2013-05-29T13:08:03","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004075098"},"modified":"2022-12-08T01:10:05","modified_gmt":"2022-12-08T09:10:05","slug":"schorsh-on-recent-reit-purchase-caplease-has-higher-leverage","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/schorsh-on-recent-reit-purchase-caplease-has-higher-leverage\/","title":{"rendered":"Schorsch on Recent REIT Purchase: ‘CapLease Has Higher Leverage’"},"content":{"rendered":"

By Gail Kalinoski, Contributing Editor<\/em><\/p>\n

\"\"<\/a><\/p>\n

Calling it a \u201ctransformative deal for both companies,\u201d Nicholas Schorsch, chairman & CEO of American Realty Capital Properties announced Tuesday that ARCP plans to acquire CapLease Inc. for about $2.2 billion, including debt.<\/p>\n

If the deal goes through, ARCP would be the third largest net lease REIT in the United States, boosting its portfolio to about 800 properties with the addition of more than 70 CapLease assets. The proposal still needs approval from CapLease shareholders and the U.S. Securities and Exchange Commission. CapLease, a New York-based REIT, owns and manages a $1.9 billion portfolio of single-tenant properties, including office and industrial assets. The definitive agreement also gives CapLease the right to accept any other third-party bids until July 7. If CapLease gets a better offer and terminates the ARCP offer during the \u201cgo-shop\u201d period, it must pay ARCP $15 million.<\/p>\n

On Tuesday, executives of both REITs conducted a conference call and spoke about the benefits of a potential merger.<\/p>\n

\u201cWe\u2019re very excited about the impact of this acquisition on our company, on our portfolio and our market position,\u201d Schorsch said during the conference call that included CapLease chairman & CEO Paul McDowell.<\/p>\n

The definitive merger agreement unanimously approved by the boards of directors of both firms calls for ARCP to pay $8.50 in cash per share of CapLease common stock. Each share of Series A, Series B and Series C preferred stock of CapLease would be converted into the right to receive $25 in cash plus an amount equal to any accrued and unpaid dividends up to but excluding the merger date.<\/p>\n

ARCP has agreed to assume approximately $580 million of CapLease\u2019s $1.2 billion debt and repay the rest.<\/p>\n

The transaction is expected to be immediately accretive and generate approximately $0.11 per share in additional adjusted funds from operations (AFFO) annually. Upon closing, Schorsch said ARCP would be able to increase its dividends to stockholders by $0.03 per share to an annualized rate of $0.94 per share.<\/p>\n

For McDowell, the focus was on CapLease shareholders. McDowell said during the conference call that CapLease management and its board were pleased that the deal gave shareholders \u201cthe security of a cash transaction.\u201d<\/p>\n

Most, if not all, of the CapLease team is expected to join ARCP.<\/p>\n

\u201cMy management team looks forward to the opportunities of continuing to build out the high quality assets of the company,\u201d McDowell said in a joint press release.<\/p>\n

Schorsch told Commercial Property Executive<\/em> Tuesday that ARCP sought out CapLease after its failed attempt in March and April to acquire Cole Credit Property Trust III for $9.7 billion. CCPT III rejected three unsolicited offers from ARCP, instead acquiring its sponsor, Cole Holdings Inc. During an interview with CPE in early April, Schorsch said the New York-based REIT would continue seeking acquisitions like CCPT III.<\/p>\n

\u201cWe have great prospects for other strategic combinations that are friendly and easy and don\u2019t have all the attendant risks,\u201d he told CPE<\/em> then.<\/p>\n

He apparently received a friendly reception at CapLease.<\/p>\n

\u201cWe looked for other potential partners and we called them. I\u2019ve known Paul for years. We sit on a lot of committees and panels together. We definitely approached them,\u201d Schorsch said on Tuesday.<\/p>\n

Schorsch said ARCP\u2019s \u201cvery strong balance sheet\u201d makes it a good partner for firms looking to make a transaction.<\/p>\n

Brian Block, ARCP\u2019s executive vice president & CFO, said in the release the CapLease deal would offer \u201csignificant synergies and value to our shareholders\u201d and be accretive on an annual basis by approximately 10 percent.<\/p>\n

\u201cWe have announced revised earnings guidance for 2014 of between $1.17 to $1.21 per share based on AFFO, representing a 28 percent increase over previously announced 2013 guidance,\u201d he added.<\/p>\n

Schorsch said the merger would have several strategic, financial and portfolio benefits for ARCP, including increased diversification of its properties and tenants. CapLease brings 71 assets, 37 tenants and an additional 11 million square feet to the portfolio. After the merger, the combined rental revenue generated by the combined 10 top tenants would decline from 60 to 43 percent.<\/p>\n

\u201cThat\u2019s very important,\u201d he told CPE<\/em>. \u201cWe would have 92 different tenants, before we had 55.\u201d<\/p>\n

The GSA, which leases space for federal agencies, is currently CapLease\u2019s top tenant, representing about 8.9 percent of its portfolio. It is followed by AON Corp. at 6.3 percent and TJX Companies at 5.4 percent. If the merger goes through, Dollar General goes from being ARCP\u2019s top tenant with 10.8 percent of the portfolio to a combined top tenant with 6.4 percent followed by AON Corp. with 6.4 percent and Citizens Bank with 6 percent.<\/p>\n

Schorsch said in the release that the increased diversification further strengthens the sources of the lease revenue supporting the payment of monthly dividends.<\/p>\n

The increased size and scale is another important benefit. Based on current prices, ARCP would have assets valued at about $6 billion and be among the largest and fastest growing publicly traded net lease REITs. That gives ARCP the ability to execute large transactions in what is still a very fragmented industry, Schorsh said.<\/p>\n

ARCP also plans to take advantage of CapLease\u2019s experience as build-to-suit developers.<\/p>\n

\u201cThat is something they have real expertise in and we see real value there. That is a value add to our company and to our shareholders for the long haul,\u201d Schorsch said during the conference call.<\/p>\n

Schorsch said his team visited 51 of CapLease\u2019s properties during the due diligence period. ARCP has targeted about five or six CapLease assets that may be sold. They did not identify the properties.<\/p>\n

In the meantime, McDowell said CapLease \u201cwill continue to own and operate those assets. We will be intensively trying to lease up those assets during this intervening period. We believe we will be able to get them leased.\u201d<\/p>\n

Schorsch said while the two REITs have much in common, there are some differences. He added that CapLease\u2019s remaining leases are in the 7 to 8 year range, while ARCP\u2019s are in the 11 to 13 year range. He told CPE<\/em> Tuesday that CapLease has a higher leverage.<\/p>\n

\u201cThey used to be a mortgage REIT. They morphed into an equity REIT. They are still carrying around legacy leverage,\u201d Schorsch said, explaining why CapLease has about $1.2 billion in debt.<\/p>\n

The merger could be approved by late third quarter or early fourth quarter. ARCP will continue to seek out more acquisitions during that time. Schorsch said he expects to spend about $800 million this year and more than $1 billion in 2014.<\/p>\n

He also looks forward to bringing the CapLease team into the fold. Describing the investigative process as taking several months, Schorsch said it wasn\u2019t a market-driven decision to pursue CapLease.<\/p>\n

\u201cThe culture and the management have to jive and I think it does,\u201d he said during the conference call. \u201cI didn\u2019t want to see a bad marriage.\u201d<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The Chairman & CEO of American Realty Capital Property chats with CPE about his company’s most recent REIT acquisition. Calling it a \u201ctransformative deal for both companies,\u201d he announced Tuesday that ARCP plans to acquire CapLease Inc. for about $2.2 billion, including debt. <\/p>\n","protected":false},"author":952,"featured_media":1004075104,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21781,21742],"tags":[],"class_list":["post-1004075098","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-real-estate","category-latest"],"acf":[],"yoast_head":"\nSchorsch on Recent REIT Purchase: 'CapLease Has Higher Leverage' - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/schorsh-on-recent-reit-purchase-caplease-has-higher-leverage\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Schorsch on Recent REIT Purchase: 'CapLease Has Higher Leverage'\" \/>\n<meta property=\"og:description\" content=\"The Chairman & CEO of American Realty Capital Property chats with CPE about his company's most recent REIT acquisition. 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