- Premium Valuation: Realty Income is valuing ARCT's assets at a significantly higher price that represents an exceptional cap rate that is lower than ARCT's cost basis. This represents the lowest cap rate of similar net lease REIT transactions.
- On September 5, 2012, the offer value implied a weighted average capitalization rate for ARCT's assets of 6.1% GAAP cap rate, or 5.9% based on current cash rents. This is significantly below the weighted average capitalization rate of 8.2% paid by ARCT for its assets as well as the weighted average capitalization rates of similar transactions, which range from 7.1% - 8.25%.
- In addition, the 15.7x forward EBITDA multiple represents the second highest amongst similar REIT transactions.
- Ideal Strategic Buyer: Realty Income represents the ideal strategic buyer given their business focus, size and scale, investment grade balance sheet / cost of capital and share liquidity. As part of Realty Income, ARCT stockholders will benefit from:
- The strength and stability that comes from the scale and diversity of the combined portfolio, in particular the $7 million reduction in overhead to service ARCT's properties; and
- The value that is unlocked by the lower cost of capital and risk reduction that comes from being able to better match the maturity of the debt with the duration of the leases.
- Comprehensive Strategic Process: ARCT undertook a comprehensive process to evaluate strategic alternatives to create stockholder value, which concluded that the transaction with Realty Income is superior to other available alternatives, including the status quo. This evaluation began in April 2011. Through this process, with the assistance of Goldman, Sachs & Co., the Company's financial advisor, a number of strategic options were evaluated thoroughly.
- Importantly, since announcement of the transaction, no third party has approached ARCT or its advisors with an alternative transaction or with a request for information despite low break fee of approximately 1.7% of transaction value.
- Management's Interests Firmly Aligned with Stockholders: Pro forma for the transaction, ARCT management will own ~$45 million of equity in Realty Income, including over $25 million of existing equity in ARCT.
- In addition, as part of the merger agreement, ARCT management agreed to reduce its total compensation and capped its potential financial upside.
- Future Growth Opportunities and Value Creation: Realty Income's experienced management team has a successful track record of driving dividend growth and producing enhanced stockholder returns. The combined company will be significantly larger and financially stronger than ARCT as a stand-alone company or than its competitors, and will have one of the lowest costs of capital in a sector where low cost capital creates competitive advantage.
- The combined company's cost of capital advantage positions it to grow earnings while increasing dividends.
- The combined company's greater scale and balance sheet strength will facilitate the execution of large transactions through improved access to capital, further enhancing the Company's ability to realize value in the relatively fragmented net lease real estate market.
- As a result of the merger, ARCT stockholders stand to benefit from greater risk adjusted returns due to the enhanced stability and diversity of the combined property portfolio.
American Realty Capital Trust Files Investor Presentation
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