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TheStreet Open House

American Realty Capital Properties Becomes a 'Category Killer'

NEW YORK ( TheStreet) - Last March American Realty Capital Properties (ARCP) made a hostile attempt to take over Cole Real Estate Investments (COLE) for around $9 billion. Cole's board rebuffed the offer and ARCP responded with a counter proposal to pay $9.7 billion in cash, equity issuance and debt assumption. Cole Real Estate again ignored the offer and proceeded to list shares on the New York Stock Exchange in June.

ARCP moved on to other targets including American Realty Capital Trust IV, a related 2,709 property portfolio, CapLease (LSE), a 64 property portfolio, and 471 properties owned by GE Capital (closed May 2013). Like a snowball plowing downhill, ARCP has grown at an amazing clip where the New York-based REIT started out in Sept. 7, 2011 with an IPO that raised just $69.75 million for the purpose of funding 63 assets (all but one being bank branches).

The snowball is getting much larger now. Today, ARCP announced that it is merging with Cole in a more friendly transaction than the one pitched in March.

In a press release this morning ARCP's co-founder and Chief Executive Officer, Nicholas S. Schorsch explained, "ARCP will become the largest net lease REIT and the new industry leader. We benefit by uniting not only two exceptional real estate portfolios, but also by joining forces with Cole's world-class management team."

In just over two years, ARCP has grown in record time from a $70 million (market cap) REIT into a dominating REIT that, subject to merging with Cole Real Estate, will have an enterprise value of around $21.5 billion. ARCP says that it will acquire Cole for $11.2 billion with 80% in ARCP stock and 20% in cash. The combined portfolio will be 64% more than its next largest competitor, Realty Income (O) .

As a result of the merger, ARCP is expected to solidify scale supremacy among triple net lease REITs with a pro forma combined company portfolio of 3,732 properties leased to over 600 tenants occupying over 100 million square feet in 49 states and Puerto Rico. More than 47% of annualized rents will be from investment grade tenants. ARCP will be 99% occupied with an average remaining lease term of 11 years.

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