Non-traded REIT Cole Corporate Income Trust (CCIT) will be providing liquidity for its investors through a merger with listed REIT, Select Income REIT (SIR). CCIT is managed by Cole Capital, which is the private management business of American Realty Capital Properties (ARCP).
Massachusetts-based SIR will acquire CCIT for approximately $3 billion, payable through a combination of cash, SIR common shares, and the assumption of certain mortgage debt.
CCIT stockholders can elect to receive $10.50 in cash or 0.36 shares of SIR common stock for each share of CCIT common stock, provided that neither the cash nor the stock consideration will exceed 60.0% of the total.
The merger provides CCIT stockholders a cash consideration of $10.70 gross per share or $10.50 net per share (net of incentive fees and transaction-related expenses for CCIT).
As of August 29, 2014, the 0.36 shares are valued at $10.38 per share, calculated using SIR’s 60-day volume weighted average price (“VWAP”) of $28.82 per share. In addition, CCIT stockholders that elect to receive stock have no lockups or trading restrictions after closing, and full stock elections result in a tax-free exchange. This results in a premium to CCIT stockholders of approximately 3.8% more than CCIT’s original issue price of $10.00 per share.
The transaction is expected to close in 2015 and is subject to the approval of CCIT stockholders and SIR stockholders.
CCIT’s portfolio consists of 87 properties in 30 states. It is 100% leased and includes such tenants as Amazon.com, FedEx, and Allstate Insurance. Of the 87 properties, 23 are healthcare properties while the rest are office and industrial. The total enterprise value of the portfolio is $3.1 billion and it is expected to generate $177.6 million in 2014 cash net operating income.
SIR intends to finance part of the cash consideration through a combination of borrowing under its existing credit facility and entry into a new credit agreement for a senior unsecured bridge loan. SIR also intends to sell the 23 CCIT healthcare properties that it will acquire in the merger to Senior Housing Properties Trust.
“The announced merger of CCIT with Select Income REIT demonstrates ARCP’s ability through Cole Capital to raise capital, invest in high-credit-quality assets and harvest value for the stockholders of its managed non-listed REITs through a transaction with an unaffiliated third party that values the total enterprise at approximately $3.1 billion,” commented David S. Kay, President of ARCP.
Mr. Kay explains the benefits the merger will have for ARCP, stating, “As anticipated, the transaction should substantially increase our fourth quarter capital raising activity in Cole Capital and is expected to generate AFFO for ARCP of approximately $0.02 per share through incentive and disposition fees under our management agreement with CCIT. This positive upside event, which has not been included in our prior earnings guidance, demonstrates a key aspect of the value proposition Cole Capital represents to our business, ultimately providing returns to the stockholders of both ARCP and the non-traded REITs. We congratulate CCIT and its stockholders on this transaction.”