Luxor Capital Group Announces That It Intends to Vote Against the Proposed
American Realty Capital Trust Merger
NEW YORK, Oct. 15, 2012
NEW YORK, Oct. 15, 2012 /PRNewswire/ --Luxor Capital Group, LP, a New York
based investment manager ("Luxor"), beneficially owns and controls 10,112,796
common shares of American Realty Capital Trust (NYSE: ARCT), or approximately
6.4% of the common shares outstanding. Luxor will not support the proposed
merger agreement in its current form.
On September 6, 2012 ARCT and Realty Income Corporation (NYSE: O) announced
the terms of their proposed merger, with ARCT shareholders to receive 0.2874
shares of Realty Income for every one share of ARCT. The consideration paid,
based upon the previous night's closing prices of both ARCT and Realty Income,
represented a 2% premium for ARCT shareholders. ARCT's Board of Directors
unanimously recommended the transaction to its shareholders.
The transaction's benefit to Realty Income shareholders is apparent. The
merger is instantly accretive to adjusted funds from operations (AFFO) per
share, it allows for a substantial and immediate increase in Realty Income's
pro forma dividend per share, it extends Realty Income's weighted average
lease life and it raises occupancy rates on a pro forma basis[i]. In one
transaction, Realty Income will be able to increase its dividend per share by
an amount greater than it has achieved through acquisitions and organic growth
over the last 4 years combined[ii].
In contrast, for ARCT shareholders, the deal is dilutive to AFFO per share,
brings additional lease roll risk and, most importantly, dramatically dilutes
the dividend yield. Prior to the proposed merger, ARCT had approximately a 6%
dividend yield with high-quality tenants and no material lease rolls for five
years[iii]. Realty Income had a 4.3% dividend yield and greater lease roll
risk over the next five years. Luxor does not believe that increased size and
liquidity warrant such a dilutive deal.
Luxor also opposes the transaction for reasons related to the compensation
structure at ARCT. Prior to its public listing, ARCT was an
externally-managed, private REIT with a promote structure to reward the
external manager (essentially the current management team of ARCT). As part
of the public listing process, ARCT converted the external manager to an
internal manager, thereby doing away with the promote concept for existing
management. In its place the former ARCT management company was awarded a
one-time payment for the "value" it would create for ARCT shareholders over
the 180 day-period post ARCT's IPO listing. This "value" created was defined
as the difference between the Strike Price and $9.81 per ARCT share, with the
"Strike Price" defined as the weighted average trading price for ARCT shares
for the 30-day period commencing on August 28, 2012[iv]. Had Realty Income
stock appreciated on news of the highly accretive transaction with ARCT,
management of ARCT would have profited materially, drawing into question, to
Luxor, the motivations of the merger with Realty Income particularly in light
of the fact that previous overtures by Realty Income to acquire and/or merge
with ARCT had been repeatedly rejected.[v]
Luxor sees no compelling reason as a shareholder of ARCT to support the
proposed merger in its current form.
[i] Realty Income investor presentation, September 6, 2012, pages 6 and 15.
[ii] Realty Income investor presentation, September 6, 2012, page 15.
[iii] ARCT investor presentation, June 2012, page 6.
[iv] ARCT 10-Q for the period ending June 30, 2012, page 18.
[v] ARCT and Realty Income joint proxy statement, October 1, 2012, pages
CONTACT: Norris Nissim, General Counsel of Luxor Capital Partners, LP,
SOURCE Luxor Capital Group, LP
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