The mid-December announcement that American Realty Capital Properties Inc (NASDAQ:ARCP) had issued an unsolicited takeover bid for its non-traded competitor Cole Credit Property Trust III stoked investor speculation that American had not yet completed its long-term REIT buying binge. Initially valued at more than $5.5 billion, the offer sought to create a mammoth property trust that specialized in renting to single-occupancy tenants.
For various reasons, Cole Credit determined that American’s initial offer undervalued its assets. As such, American returned with a higher offer that valued Cole at more than $6.5 billion. Barring unforeseen complications, this new deal appears likely to go through as planned. It should close by the end of the third quarter of 2013.
About American Realty Capital Properties Inc (NASDAQ:ARCP)
New York-based American Realty Capital Properties is a REIT that deals primarily with large-scale single-tenant commercial properties. In addition to its signature office space portfolio, the company also has significant retail holdings. Most of its properties are leased to recognizable firms with high credit ratings and stable business models. American Realty Capital Properties Inc (NASDAQ:ARCP) generally leases its properties on a medium-term basis. Once the company has combined with Cole, its portfolio will contain over 800 individual properties.
Although it avoids investing directly in single-tenant commercial properties, Annaly Capital Management, Inc. (NYSE:NLY) Trust is often cited as one of American Realty Capital Properties’s biggest rivals. Annaly Capital Management, Inc. (NYSE:NLY) invests in a wide range of real estate-related financial instruments and credit vehicles, including mortgages, mortgage-backed securities and debt swaps. The company’s portfolio encompasses all geographical segments of the United States. In 2012, Annaly Capital Management, Inc. (NYSE:NLY) earned $1.7 billion on gross revenues of $2.1 billion.
While it is often compared to other raw materials firms, Weyerhaeuser Company (NYSE:WY) also functions as a de facto REIT. Of course, the company’s holdings largely take the form of undeveloped and in-development timberland. Altogether, the company leases or actively manages about 20 million acres of land in various parts of North America. In addition to its real estate investment operations, Weyerhaeuser Company (NYSE:WY) functions as a full-service timber harvesting and processing firm. It ships its products to home-improvement stores, contractors and other clients. In 2012, Weyerhaeuser earned $385 million on about $7.1 billion in gross revenues.
How the Deal Is Structured
Under the terms of the deal, American will issue cash payments of $12.50 per share to each holder of Cole’s non-traded stock. Alternatively, the company will offer .8 American share for each Cole share. Since Cole’s shares do not trade publicly, it is difficult to ascribe a relative valuation to this offer. However, the cash offer currently provides a significantly better deal than the stock offer. Relative to American’s current stock price, the stock offer values each Cole share at about $11.84. As such, those who accept the cash offer will earn a premium of about 5.6 percent.