NEW YORK ( TheStreet) -- Realty Income ( O) calls itself "the monthly dividend company." Its planned acquisition of American Realty Capital Trust ( ARCT) will make that slogan as true as ever.
The company said Wednesday that it has agreed to acquire American Realty Capital Trust in a deal valued at $2.95 billion. When the deal closes in the fourth quarter of this year, Realty Income will be the 18th largest REIT in the U.S., based on total pro forma equity market capitalization. It will be twice as large as the next largest net lease REIT. Realty Income will finance the purchase by issuing $1.9 billion of common stock to American Realty Capital Trust shareholders. It will assume about $526 million in debt and immediately repay about $574 million of outstanding debt and transaction expenses. Under the terms if the deal, American Realty Capital Trust shareholders will receive 0.2874 Realty Income shares for each share of American Realty Capital Trust common stock they own. Based on Realty Income's closing stock price of $42.48 on Sept. 5, that's $12.21 per share. When it's over, American Realty Capital Trust shareholders are expected to own 25.6% of Realty Income's shares. Realty Income CEO Tome A. Lewis said in a statement that the acquisition will help him achieve the strategic objectives of increasing revenue from investment-grade tenants and further diversifying the company's portfolio outside of the retail industry. He expects the transaction to generate 20 to 22 cents per share per year in additional funds from operations -- and to allow him to increase annualized dividends by some 13 cents to approximately $1.94 per share per year.
The Dividend Machine is Bullet Proof
The acquisition should also benefit Realty Income shareholders considerably. The overall credit quality of the portfolio will improve, which will improve the stability and consistency of its rental stream. With the addition of the new properties, the share of Realty Income's pro forma rental revenue from the company's 10 largest industries declines to 64% from 73% and the share from its 15 largest tenants declines to 42% from 49%. Its share of revenue from retail properties declines to 77% from 86%.