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RCAP Acquires Cole Capital for $700 Million

American Realty Capital Properties (ARCP) has agreed to sell Cole Capital (Cole), its private capital management business that it acquired earlier this year. RCS Capital Corporation (RCAP), the publicly-traded holding company of the Schorsch Empire, will purchase Cole for at least $700 million.

“Yes it is a sale of Cole Capital but it’s much more than that. It’s a JV of sorts.” said Chief Executive Officer of ARCP, David S. Kay, in a conference call this morning. “We have a better partner now in capital raising.” he added.

The purpose of the transaction is to simplify ARCP’s business model, allowing it to refocus on underwriting, acquiring, and managing high-quality net lease real estate, and realize long-term earnings and benefits through managing third party real estate assets. Cole should benefit from RCAP’s broader client reach in terms of growth and capital raising.

The agreement provides for an earn-out of up to an additional $130 million for ARCP depending on Cole Capital’s 2015 EBITDA. Additionally, ARCP will act as sub-advisor to Cole Capital’s non-traded REITs as well as acquire and manage net lease real estate assets for the REITs. ARCP will also underwrite and acquire net lease properties in the U.S. for non-traded REIT, American Realty Capital Global Trust II (ARC Global II).

The acquisition and asset management fees will be split equally between ARCP and RCAP. Because ARCP is advising the non-traded REITS, the company will receive a share of RCAP’s disposition and incentive fees. The $700 million purchase price will consist of $200 million in cash, $300 million of seller debt, and $200 million of RCAP Class A common stock. ARCP will use the cash proceeds to pay down certain debts.

The transaction will add seven investment programs to RCAP’s distribution platform, including Cole Corporate Income Trust, Cole Credit Property Trust IV, Cole Office & Industrial REIT, Cole Credit Property Trust V, Cole Real Estate Income Strategy, and two future programs, Cole Credit Property Trust VI and Cole Office & Industrial REIT. The programs represent almost $19 billion in registered equity offerings and more than $30 billion in estimated total buying power.

“We are now able to stay true to our pure play net lease strategy while we continue our competitive advantage utilizing non-traded REITs as a source of capital and scale.” stated Mr. Kay.

RCAP will maintain Cole’s sales team as they continue to service the broker-dealer relationships they have, while ARCP will continue to employ about 225 professionals in its offices.

The RCAP wholesaling team now totals 245, which includes the 77 joining from Cole. The deal also provides access to five independent broker-dealers (IBD) that RCAP otherwise does not have selling agreements with. These five are in Cole’s top ten of IBD partners.

The transaction is expected to close during the fourth quarter of 2014, with funding occurring between late 2014 and April 2015.