Cole/Cole Merger to Create One of Largest Net-Leased Publicly Traded REITs

Cole Credit Property Trust III has executed a definitive merger agreement to acquire Cole Holdings Corp., a real estate investment management firm that currently manages more than $12 billion of real estate assets.
Christopher Cole, of Cole Holdings

Cole Credit Property Trust III Inc. has executed a definitive merger agreement to acquire Cole Holdings Corp., a real estate investment management firm that currently manages more than $12 billion of real estate assets, the trust announced Wednesday. Both companies are based in Phoenix. On completion of the merger, CCPT III, one of the largest REITs focused on the net lease CRE sector, will change its name to Cole Real Estate Investments Inc.

The purchaser will pay $20 million in cash (subject to adjustment) up front and about 10.7 million shares of CCPT III common stock, along with various further, contingent amounts of stock. The transaction is expected to close in the second quarter, subject to the usual conditions and approvals.

The announcement emphasized that Cole Real Estate Investments Inc. will seek a listing on the NYSE and that once that’s attained, the REIT “will be well positioned to achieve inclusion in a variety of indices … such as the Russell 1000, Russell Midcap and MSCI U.S. REIT Indices.” In addition, following an NYSE listing, the merged company would be the second-largest publicly traded REIT in the net-lease sector.

Given the sometimes problematic nature of selling such a large REIT, and the difficulty of driving growth in a REIT as focused on income as CCPT III, it’s plausible to assume that seeking an NYSE listing is a sound strategy at this point, leading to greater access to capital, an improved credit rating and lower borrowing costs. 

More immediately, the acquisition of Cole Holdings gives CCPT III a proven management team and a full-scale real estate investment management platform with more than 350 employees, as well as a portfolio of more than 2,000 properties with more than76 million square feet of corporate real estate under management. It’s expected to be immediately accretive to CCPT III’s funds from operations and to support an increase in the company’s annualized dividend rate to $0.70 per share on closing.

“For over a decade, a primary strategy in the asset management industry has been the creation of large, full-service firms with the scale and resources necessary to compete effectively in a changing environment,” Christopher Cole, executive chairman of Cole Holdings, said in a press release. “The real estate industry has been lagging behind in terms of the creation of full-service asset managers that can provide a comprehensive suite of products and services to distribution partners. Through this compelling combination, we have the opportunity to realize the vision of creating a world-class real estate platform and providing investors the benefits of owning high-quality, income-producing real estate leased long term to credit-worthy corporations.”

Cole founded Cole Holdings in 1979, after which the company eventually began creating a series of non-traded REITs focused on a high-income, low-volatility approach. Each REIT was externally managed by Cole Holdings. CCPT III was formed in 2008 and began operations in 2009, ultimately raising about $4 billion of capital.

In one noteworthy pair of transactions, CCPT III bought the 583,000-square-foot headquarters of Microsoft’s Bing division, in Bellevue, Wash., for $310 million in July 2010, then sold it about two years later for $375 million.

In related news, CPE reported on Jan. 23 that the boards of Cole Credit Property Trust II Inc. and Spirit Realty Capital, of Scottsdale, Ariz., had approved the companies’ merger into an entity that will be the second-largest publicly traded net-lease REIT, with a pro forma enterprise value of about $7.1 billion. (That distinction, in light of the CCPT III announcement, will presumably be short-lived.) The new company, to be named Spirit Realty, will have a portfolio of commercial and retail assets totaling just over 2,000 properties nationwide.