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Realty Income to Buy American Realty Capital Trust

Realty Income Corp. of Escondido is poised to become the nation’s 18th largest real estate investment trust, after its recently announced deal to acquire New York-based American Realty Capital Trust Inc.

Company officials said the transaction is valued at approximately $2.95 billion. According to financial information services provider SNL Financial, the deal is also the largest U.S. acquisition involving a REIT in the past five years.

A Realty Income spokeswoman said the company was not commenting beyond a written statement it issued announcing the deal, citing a “quiet period” pending the closing of the transaction by year’s end or in early 2013.

“This acquisition comprehensively advances Realty Income’s strategic objectives of increasing its revenue generated by investment grade tenants and further diversifying its portfolio outside of the retail industry,” Realty Income CEO Tom Lewis said in the Sept. 6 statement.

American Realty Capital Trust Chairman Nicholas S. Schorsch cited Realty Income’s “extraordinary record of continuous dividend payments and dividend growth together with very strong overall performance.”

Branching Out

In its own report, SNL Financial said the deal will likely advance Realty Income’s goal of holding a portfolio with 20 percent to 30 percent in nonretail assets. It also poses somewhat of a risk, as the company moves well beyond the retail comfort zone that has spurred much of its growth in recent years.

SNL notes that once the acquisition closes, Realty Income’s retail holdings will be at 77 percent, down from 86 percent of its portfolio before the deal. Its distribution center holdings will rise from 4 percent to 11 percent, and its office properties will go from 3 percent to 6 percent of its portfolio.

To finance the acquisition, Realty Income will issue $1.9 billion of its common stock to American Realty Capital Trust shareholders. The Escondido REIT will also assume approximately $526 million of debt, and immediately repay approximately $574 million in outstanding debt and transaction expenses.

The Deal

On the close of the transaction, American Realty Capital Trust shareholders are expected to own approximately 25.6 percent of Realty Income’s shares. The deal is expected to make Realty Income the nation’s 18th largest REIT, based on a total pro forma equity market capitalization of $7.6 billion.

Realty Income Chief Investment Officer John P. Case said the acquisition will add 501 properties to the company’s portfolio, taking it to more than 3,250 properties owned under long-term leases to major corporate tenants.

In a June interview, Lewis said Realty Income was planning to make $650 million in acquisitions during 2012, after adding $1 billion in properties to its portfolio in 2011. Lewis said at the time that about half of Realty Income’s acquisitions during 2012 would be outside of retail.

The company favors commercial properties with high-quality, national and global corporate tenants, with proven staying power, even during down economies. During much of its 43-year history, the emphasis has been on retail and related commercial properties, including full shopping centers and stand-alone buildings.

Over the past year, its investments have moved increasingly into manufacturing, distribution and other types of industrial properties, operated nationwide by tenants such as Coca-Cola Co., FedEx, Caterpillar and Boeing Co.

American Realty Capital Trust invests in single-tenant, freestanding commercial properties and trades under the symbol ARCT on the Nasdaq Stock Exchange. Realty Income trades under the symbol O on the New York Stock Exchange.

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