SCOTTSDALE, ARIZ. — In a blockbuster transaction, Spirit Realty Capital Inc. (NYSE: SRC) and Cole Credit Property Trust II (CCPT II) have entered into a merger agreement that will create a company with 2,012 properties in 48 states. The new entity will become the second largest publicly traded triple-net-lease real estate investment trust (REIT) with a pro forma enterprise value of approximately $7.1 billion.
The combined company will retain the Spirit Realty name and trade on the New York Stock Exchange under the ticker symbol “SRC.” The current management team of Spirit Realty will lead the combined company. The deal is expected to close in the third quarter of this year.
As a result of the merger, the company will have a more broadly diversified portfolio of real estate assets and enhanced access to capital. Scottsdale, Ariz.-based Spirit Realty’s portfolio consists of single-tenant, triple-net-lease properties in the retail and distribution industries. CCPT II primarily invests primarily in freestanding, single-tenant buildings that are typically necessity retailers including drugstores, family restaurants and home improvement stores.
“This merger significantly accelerates Spirit Realty’s business strategy and better positions us to deliver long-term value to our shareholders,” says Thomas Nolan, chairman and CEO of Spirit Realty. “CCPT II’s portfolio represents one of the largest and highest-quality portfolios of net lease assets. The addition of CCPT II’s portfolio effectively doubles the size of our portfolio.”
The financial and operational benefits coming from the merger include: more financial flexibility to competitively pursue additional properties due to the company’s added scale; a more diverse credit profile with risk/return characteristics that Spirit Realty believes will offer more opportunities for value creation; and a diversified tenant base where the top tenants of the combined portfolio will represent approximately 37 percent of the total portfolio. Also, operating expenses will be absorbed across a larger portfolio. As a larger company, Spirit will be able to optimize its balance sheet.
“We are confident that this transaction is in the best interest of all shareholders,” says Christopher Cole, founder and executive chairman of Phoenix-based Cole Real Estate Investments, which acquires and manages high-quality retail, office and industrial properties. “It represents a positive cumulative total return on their investment and provides an opportunity for liquidity in what will be one of the largest publicly traded net lease REITs.”
This particular merger only affects Cole Credit Property Trust II. Cole Real Estate Investments remains intact.
Barclays served as financial advisor to Spirit Realty, and Latham & Watkins LLP served as legal advisor to Spirit Realty. Morgan Stanley and UBS Investment Bank served as financial advisors to CCPT II, and Goodwin Procter LLP served as legal advisor.
Following the close of the deal, CCPT II shareholders are expected to own approximately 56 percent and Spirit Realty shareholders approximately 44 percent of the common shares of the combined REIT. Spirit Realty’s largest shareholders, Macquarie Capital and TPG-Axon, who together own approximately 15 percent of Spirit Realty, have executed agreements that state their intention to vote in favor of the transaction.
Spirit Realty’s stock price closed at $17.83 per share on Friday, Jan. 18. That’s up from $15 per share when the company went public on Sept. 20, 2012.
— Rachel Goff