$7B REIT to Emerge from Spirit, Cole Merger
- Jan 23, 2013
By Barbra Murray, Contributing Editor
There are advantages to being one of the big kids on the block and Spirit Realty Capital and Cole Credit Property Trust II Inc. are about to join forces to become part of the higher echelon of publicly traded net-lease REITs. The boards of directors of both companies have just approved a merger that will create an entity that will be the second largest publicly traded net-lease REIT, with a pro forma enterprise value of approximately $7.1 billion.
In commercial real estate, bigger is usually better, as size offers a multitude of advantages. “This merger significantly accelerates the major objectives of our business strategy, including to grow the portfolio, diversify our tenant concentration and reduce our leverage, Thomas H. Nolan, Jr., chairman and CEO of Spirit Realty, told Commercial Property Executive.“The Cole Credit Property Trust II portfolio fits well with our focus on single-tenant, triple-net-lease, operationally essential properties.” Together the new company, which will carry the name of Spirit Realty, will boast a collection of commercial and retail assets encompassing 2,012 properties with a presence in 48 states. Presently, the portfolio’s tenants occupy space under lease agreements with a weighted average term of 10.6 years.
The immediate monetary benefits are not too shabby. “We believe our combination with Cole Credit Property Trust II will enable us to continue to generate attractive, predictable cash flow and provide an attractive and sustainable dividend for shareholders,” added Nolan, who, along with the current Spirit Realty management team, will lead the merged company.
The list of pluses is simple but significant and goes well beyond size and scale and increased income. In addition, it will allow for an increase in operating efficiencies, but that’s not the end of it. “Our combined portfolio also will focus on rated and non-rated as well as investment grade and sub-investment grade tenants–a broader credit profile than our current one that we believe will benefit our investment program and our shareholders,” said Nolan.
And the list goes on. “We think that becoming the second largest publicly traded triple-net-lease company will provide us with improved access to the capital markets, which should afford us greater potential opportunities for value creation,” he concluded.
And it will all happen in one fell swoop should everything–including the final approvals by the usual suspects–fall into place as planned. The all-share merger is on track to close in the third quarter of 2013, based on Spirit Realty’s closing price of $17.82 per share on January 18, 2013, thereby providing for an exchange ratio value of $9.36 per CCPT II share.
Among the publicly traded net-lease REITs, Spirit Realty will be second only to one: the company that will be formed when Realty Income Corp. completes the acquisition of American Realty Capital Trust. Earlier this month, the companies’ shareholders gave the green light for the deal, which will result in a REIT with an enterprise value of approximately $12.4 billion and an equity market capitalization of roughly $8.4 billion.
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