ESCONDIDO, CALIF. — Realty Income Corp. (NYSE: O) has signed an agreement to acquire all of the outstanding shares of American Realty Capital Trust (NASDAQ: ARCT), an owner and operator of single-tenant commercial properties, for $2.95 billion. The deal is expected to close in the fourth quarter of 2012 or in the first quarter of 2013.
Realty Income will acquire 501 properties, bringing its total portfolio to more than 3,250 properties. Approximately 75 percent of the rental revenue at the properties stems from investment-grade tenants, including FedEx, Walgreens, CVS/pharmacy, the Government Services Administration, Dollar General, Express Scripts, PNC Bank and Whirlpool.
“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,” says Tom Lewis, CEO of Escondido-based Realty Income.
The acquisition will be financed by the buyer directly issuing $1.9 billion of its common stock to ARCT shareholders, the assumption of $526 million of debt and the immediate repayment of approximately $574 million of outstanding debt and transaction expenses.
“This transaction will institutionalize the notion of durable, defensive dividends for our shareholders by allowing them to become owners on a very favorable basis of the largest, and I believe, now the best publicly traded net lease real estate company, period,” says Nicholas Schorsch, chairman of ARCT. “Size, low-cost capital and management skill are the competitive advantages in the net lease sector.”
ARCT shareholders will receive a fixed exchange ratio of .2874 Realty Income shares for each share of ARCT common stock they own, reflecting $12.21 per share. ARCT shareholders are expected to own approximately 25.6 percent of Realty Income’s shares upon completion.
BofA Merrill Lynch and Wells Fargo Securities are the financial advisors for the buyer and Latham & Watkins is the legal counsel. Goldman, Sachs & Co. is the financial advisor for the seller and Proskauer Rose is the legal counsel.
To date, Realty Income has paid 505 consecutive monthly dividend payments and has raised the dividend 67 times since it became listed on the NYSE in 1994. The firm has been in operation for 43 years.
Realty Income’s stock price closed at $42.21 per share on Thursday, Sept. 6, up from $31.74 per share a year earlier. American Realty Capital Trust’s stock price closed at $12.20 per share on Sept. 6, up from $10.49 per share on March 1, when the company first listed its shares on Nasdaq.