May 28 (Bloomberg) -- American Realty Capital Properties Inc. agreed to buy CapLease Inc. in a deal valued at $2.2 billion, including debt, as it seeks to expand its holdings of single-tenant commercial properties.
American Realty agreed to pay $8.50 a share for CapLease’s common stock, or about $755 million, according to a regulatory filing today from the New York-based real estate investment trust. That’s 20 percent higher than the closing price of $7.10 on May 24. CapLease preferred shares will be converted into the right to receive $25 a share in cash plus accrued dividends.
CapLease, based in New York, owns real estate across the U.S. ranging from single-tenant office buildings to distribution centers. Its largest tenants include the federal government, Aon Corp. and Kroger Co., according to the filing. The acquisition, which is expected to be completed in the third quarter, will add more than 70 properties to American Realty’s portfolio, bringing its total to about 800.
“This transaction will further institutionalize the notion of durable, defensive dividends for our stockholders by allowing them to become owners on a very favorable basis of the third-largest net-lease REIT in the United States,” Nicholas Schorsch, chief executive officer of American Realty, said in a statement included in the filing.
Under net lease arrangements, a tenant pays most costs associated with operating the property, in addition to rent, minimizing the owner’s expenses.
American Realty intends to assume about $580 million of CapLease’s $1.2 billion in debt and and repay the rest, according to the filing. The cost of paying the preferred shares and the balance of the debt is equal to about $879 million, said Anthony DeFazio, an American Realty spokesman with outside firm DDCworks.
The combined company will have the capacity and balance sheet to pursue even larger deals that are expected to come to market, Schorsch said today on a conference call with investors.
“It’s a combination of granular acquisitions and core portfolio acquisitions, as well as strategic opportunities, that will drive this company for the coming decades,” he said.
American Realty expects to acquire $800 million more in assets this year and $1 billion in 2014, Schorsch said.
CapLease rose 20 percent to $8.55 at the close of New York trading, the biggest jump in more than four years. American Realty gained 0.6 percent to $16.64.
The deal is expected to add about 11 cents a share to American Realty’s adjusted funds from operations, and the REIT plans to increase its dividend by 3 cents a share. Almost all of CapLease’s senior management will join the new company.
“We believe that the structure of this transaction creates the greatest value for all stockholders over both the near and long term,” Paul McDowell, chief executive officer of CapLease, said in a statement.
The agreement allows CapLease to solicit alternative proposals from other parties between now and July 7. Until then, CapLease may terminate the deal at a fee of $15 million.
American Realty was spurned earlier this year in its bid to buy Cole Credit Property Trust III, an owner of more than 900 mostly single-tenant properties, in a transaction valued at about $6.7 billion. Cole Credit instead purchased its management company, Cole Holdings Corp.
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