Christopher H. Cole, founder and Executive Chairman of Cole Real Estate Investments, stated, "We are pleased to have reached this agreement with ARCP, which we believe provides compelling value and significant equity upside potential for Cole stockholders at a time when we believe the industry is consolidating. My decision and the decision of our board to merge the companies under Nick's leadership is entirely forward-thinking, namely, our two companies are far better and more powerful together than apart; our union provides immediate and obvious benefits of size, scale and diversification. This transaction represents a major step in achieving our goal of creating the premier real estate company that delivers best-in-class long-term results to our clients. Nick and his team have demonstrated the ability to grow their net lease business rapidly, yet deliberately, realizing value for their stockholders with every carefully mapped step. Our collective portfolio of properties and combined human capital will position the company for outsized growth moving ahead. As I step away from the company which I built and bears my name, I am very proud of and will miss the outstanding people who have helped me construct our world-class enterprise. I am very proud of our exceptional team and am confident that they will become an integral part of the ARCP family."Cole's Chief Executive Officer, Marc Nemer added, "This transaction brings together two high quality property portfolios managed by talented professionals serving investors, broker dealers and financial advisors. Moreover, it underscores our commitment to creating diversified capital sources and income streams and the importance of net lease real estate. This transaction is expected to position ARCP as the go-to company in the net lease sector as the industry continues to evolve and consolidate. The combined company's size, access to low cost equity and debt capital, broad-based institutional and retail ownership, and exceptional leadership and organization, will furnish ARCP considerable competitive advantage as the premier originator of net lease properties and consolidator of net lease companies. Our valued broker dealer and financial advisor relationships will continue to be served by the same distinguished professionals following completion of the merger. Our internal broker dealer, real estate team and the fine people at Cole who service our distribution partners will continue to raise capital and manage assets, just as they have done in the past. As I depart the organization, I do so with the conviction that ARCP will continue to execute on these principles under the umbrella of 'best practices' and generate outsized risk-adjusted returns for all of its stockholders. I would like to thank the employees across our entire organization whose reputations and performance have been so critical to Cole's success – I am sure they will be well served under the experienced leadership team at ARCP. I am confident that under ARCP's management the combined entities will continue to build on Cole's 34-year history and generate outsized risk-adjusted returns for all of its stockholders." Mr. Schorsch added, "In just over two years after listing ARCP on NASDAQ, we have built a company with an enterprise value of over $21 billion, subject to completing this merger, the acquisitions of CapLease and ARCT IV and other recently announced portfolio purchases and property acquisitions. As we enter 2014, we stand to become the largest listed net lease REIT. With this acquisition, we continue to further diversify our asset and tenant base while driving projected 2014 AFFO per share growth. This acquisition represents the continuation of our deliberate and focused growth strategy by improving profitability, mitigating risk through increased property type and tenant diversification, constructing a portfolio of properties that produce durable income and potential asset appreciation while preserving principal, providing some inflation and interest rate protection and enabling us to deliver AFFO per share earnings accretion through further cost of capital advantages. In addition, the merger with Cole furnishes the size and scale to allow us to continue to reduce our operating costs as a percentage of assets and potentially improve our AFFO multiple." Strategic Benefits of the Transaction
- Enhanced Scale and Competitiveness: The nature and evolution of the net lease industry is conducive to consolidation. The combination of ARCP and Cole creates the world's largest net lease REIT and the 14 th largest publicly traded REIT, with a pro forma enterprise value of approximately $21.5 billion, approximately 64% larger than its closest net lease REIT comparable. With its enhanced scale and balance sheet flexibility, the company will be well-positioned to compete for transactions, grow and invest in existing relationships, maintain a cost of capital advantage, and leverage the talents of both companies. Company stockholders will have the opportunity to share in the compelling upside potential of the merger.
- Enhanced Portfolio Diversification: The pro forma ARCP and Cole combined company will have superior portfolio diversification by asset type, industry and geography, best-in-class lease maturity profile and investment grade tenancy. The combined portfolio will increase the number of distinct corporate credit tenants to over 600, occupying over 100 million square feet in 49 states plus Puerto Rico. The combined portfolio is expected to total 3,732 properties with approximately 11 years of average remaining lease duration as of year-end 2013.
- Optimization of Both Companies' Core Capabilities and Talent: ARCP's combined single-tenant net lease portfolio, together with Cole's multi-tenant retail portfolio, will allow the company to leverage its capabilities across two complementary sectors. The multi-tenant retail properties coupled with the "vintage" (mid-term) net leased properties provide significant rent growth potential, especially in an improving economy. This complements the stability inherent in the combined company's net leased portfolio. In addition, the merger will bring together the industry's best talent to form a single, leading professional bench comprising the best acquisition teams in the business with some of the most important tenant relationships in the net lease space. ARCP and Cole have significant integration experience having conducted over $20 billion transactions in the past 12 months combined and expect that the integration of Cole into ARCP will be seamless.
- Potential for Increased Institutional Coverage / Ownership: Following the completion of the merger, ARCP will be well-positioned for a potential inclusion in the S&P 500 Index. Such a potential inclusion would broaden ARCP's investor base, enhance its visibility and provide added liquidity.
- AFFO Growth: ARCP updates AFFO guidance on a pro forma basis for 2014 of $1.13 to $1.19 per share, compared with 2013 guidance of $0.91 to $0.95 per share. Updated guidance allows for potential future dividend growth.
- Continued Strong and Secure Dividends: Stockholders will benefit from ARCP's stable and secure dividend with significant growth potential. ARCP will increase its annualized dividend by $0.06, from $0.94 to $1.00 per share to take effect upon the close of the Cole merger. Each company intends to continue its current dividend rate until the close of the transaction, including ARCP's previously declared $0.03 annual dividend increase to take effect upon the earlier to close of the pending CapLease or ARCT IV transactions. For Cole stockholders who elect to receive stock consideration, annualized dividends per share will increase by approximately $0.37, or 52%. The projected AFFO payout ratio falls within the ARCP Board target of 85% to 90%.
- O perational Efficiencies and Expense Reductions: ARCP expects approximately $70 million of combined expense synergies and expense savings in the first year largely through the reduction and elimination of duplicate overhead costs and other non-essential expenses.
- Cost of Capital Advantage: ARCP's investment grade rating allows for significantly lower cost of financing, which is highly accretive to its overall corporate earnings.
- Significant Value Creation for Cole Stockholders: ARCP's offer is valued at $14.59 per Cole common share based on the fixed exchange ratio of 1.0929 and ARCP's closing price of $13.35 on October 22, 2013. The offer price represents a premium of 13.8% based on Cole's closing price on October 22, 2013 of $12.82.