American Realty Offers to Buy Cole REIT for $5.7 Billion

American Realty Capital Properties Inc. (ARCP) offered to buy Cole Credit Property Trust III Inc. for at least $5.7 billion, seeking to create the one of largest real estate investment trusts that leases space to single tenants.

American Realty bid $12 in cash or 0.80 of its common stock for each Cole Credit share, according to a statement today. The offer is valued at more than $9 billion including assumed debt, American Realty said.

Cole Credit, a Phoenix-based nontraded REIT that owns more than 900 mostly single-tenant office, retail and industrial properties, agreed earlier this month to buy Cole Holdings, the company that sponsors it, with plans to go public after the merger. American Realty’s offer is better for Cole Credit’s shareholders, Nicholas Schorsch, American Realty’s chief executive officer, said in a letter to Cole Credit’s board.

“Our proposal will provide a higher level of consideration delivered sooner and with greater certainty,” he wrote. The company first communicated interest in a potential deal before the Cole Holdings acquisition was announced, and didn’t receive any response, he said.

Eric Waters, a Cole Credit spokesman, said he had no immediate comment. A call to John Bacon, a Cole Holdings spokesman, wasn’t returned.

Share Gain

American Realty Capital Properties, formed in December 2010, owns freestanding buildings with tenants such as Dollar General Corp. (DG) and Citizens Bank. The company surged in size after its acquisition last month of American Realty Capital Trust III Inc. made it the owner of almost 700 properties in 44 states. The deal was valued at about $2.2 billion, Schorsch said on a Dec. 17 conference call, according to a transcript filed with regulators. Both companies had been managed by affiliates of American Realty Capital, a New York-based investment firm with a focus on nontraded REITs.

American Realty Capital Properties gained 5.2 percent today to $14.66, the highest since shares began trading in September 2011. A purchase of Cole would create a combined company with 1,706 properties and more than 400 tenants, the REIT said.

Cole Credit is an attractive target because many of its properties were acquired in 2010 or 2011, close to the bottom of the real estate market, said Dan Fasulo, managing director at Real Capital Analytics Inc., a New York-based research firm that tracks commercial real estate sales.

‘Locked-Up Value’

“That says to me there’s a lot of locked-up value in that portfolio,” he said.

Nonlisted REITs such as Cole Credit are illiquid investments typically marketed to individual investors by brokers. They have a designated lifespan in which they must give shareholders the opportunity to get their money back, often through mergers or listing on exchanges.

Cole Credit holders will have immediate liquidity, with the ability to sell their shares without a lockup period, Schorsch said in the letter to Cole’s board. He doesn’t expect the deal to require regulatory approval, while the Cole Holdings plan must be affirmed by the Financial Industry Regulatory Authority, he said.

The offer is at least 20 percent more than the original Cole Credit offering price to investors in the REIT of $10 a share, Schorsch said.

Cole Credit Property Trust II Inc., another nonlisted owner of primarily single-tenant properties, agreed in January to acquire Spirit Realty Capital Inc. (SRC) through a reverse merger in a deal valued at about $3.6 billion. The new company will take Spirit’s name and keep its management.

Schorsch said in an interview that he expected Cole Credit executives to be “congenial” in response to the offer. His proposal is fully funded and backed by Barclays Plc, he said.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net