VEREIT Inc. (NYSE: VER), a publicly traded REIT formerly known as American Realty Capital Properties (ARCP), plans to merge with net-lease giant Realty Income Corporation (NYSE: O) in an all-stock transaction, creating a combined company valued at approximately $50 billion. The merger is expected to close during the fourth quarter of 2021.
Under the terms of the agreement, VEREIT shareholders will receive 0.705 shares of Realty Income stock for each share of VEREIT stock they own.
Realty Income will reportedly pay approximately $11 billion to acquire VEREIT, and once the transaction closes, the companies plan to spin-off substantially all of the office properties of both companies into a new, self-managed, publicly traded REIT.
Following the merger and the spin-off, Realty Income will continue as the surviving public entity. Realty Income and former VEREIT shareholders are expected to own approximately 70 percent and 30 percent, respectively, of both Realty Income and the spin-off REIT.
Realty Income’s portfolio will consist of approximately 10,300 primarily single-tenant properties located in the U.S. and the U.K. Total annualized contractual rent is expected to be approximately $2.5 billion.
The spin-off REIT’s portfolio is expected to consist of 97 domestic office properties, with annualized contractual rent of approximately $183 million.
This transaction represents the final chapter of a tumultuous past for VEREIT.
The legacy company, American Realty Capital Properties, was founded by AR Global’s Nicholas Schorsch and was at the center of a highly publicized accounting scandal in 2014 that sent shockwaves throughout the industry and landed its former chief financial officer, Brian Block, in federal prison. Block, along with former chief accounting officer Lisa McAlister, participated in a scheme to manipulate the reported financial results of the company in various SEC filings.
Following the public disclosure of its “accounting irregularities,” ARCP’s market value dropped by more than $3 billion and Schorsch resigned as executive chairman. The company replaced its board members and senior management team and rebranded as VEREIT – a blend of veritas, the Latin word for truth, and REIT.
VEREIT eventually settled its outstanding legacy litigation for close to $1 billion, and last June, paid an $8 million civil penalty to the Securities and Exchange Commission. Its former non-traded alternative investment arm, Cole Capital, was sold to CIM Group in November 2017.
“The objective of our management team from initiation in 2015 was to revitalize VEREIT and increase the value of the enterprise,” said Glenn Rufrano, VEREIT’s chief executive officer. “We put an excellent team in place, enhanced the portfolio, created an investment-grade balance sheet and resolved all legacy issues. The board and management have concluded that a merger with Realty Income, the premier net lease company, will enable us to recognize the value created.”
Realty Income will continue to be led by president and CEO Sumit Roy and its existing senior management team. Michael McKee will remain Realty Income’s non-executive chairman, and two VEREIT directors will be appointed to the Realty Income board.
VEREIT’s real estate investments total $14.6 billion including approximately 3,800 properties and 89.5 million square feet.
Realty Income is structured as a REIT and owns 6,500 real estate properties with long-term lease agreements with commercial clients. To date, the company has declared 610 consecutive common stock monthly dividends throughout its 52-year operating history and increased the dividend 110 times since its public listing in 1994.
Vereit shares closed at $47.88 on Thursday, an increase of 16 percent compared to its previous close of $41.26.
Realty Income shares closed at $69.31, a 1.03 percent increase from the previous close of $68.60.