An Escondido-based real estate investment trust (REIT) is hoping to finalize an acquisition in January that will substantially diversify and expand its portfolio.
The shareholders of both Escondido-based Realty Income Corp. (NYSE: O) and New York-based American Realty Capital Trust (Nasdaq: ARCT) will be voting on Jan. 16 on whether to approve a $2.9 billion acquisition by Realty Income (RIC) of American Realty (ARCT).
RIC's proposal includes the acquisition of $1.9 billion in stock along with 501 properties totaling about 16 million square feet of space with 100 percent occupancy.
ARCT's tenants are largely retail and include Walgreen’s, Federal Express and CVS. Other holdings are medical office and industrial properties. The acquisition would bring RIC’s portfolio to 3,250 properties from coast to coast.
RIC specializes in, but doesn’t exclusively own, single-tenant retail properties, and has been seeking to diversify its portfolio with industrial and other types of properties during the past couple of years.
“Realty Income seeks to diversify by reducing revenue from retail real estate to 77 percent from 86 percent,” the Escondido company said.
Meanwhile, some ARCT investors disapprove of the proposed acquisition price. Lawsuits in New York and Maryland have been filed on behalf of ARCT shareholders over the proposed $12.21-per-share sales price, which was about 2 percent more than when the acquisition was first announced late last summer.
Both suits claimed the $12.21 price was too low and that a figure around $13 would more fairly reflect the stock’s actual value.
At one point earlier in December, ARCT stock was trading higher than $13, and closed at $12.74. But it has significantly backed off since. The stock has been trading closer to $11.50 in recent days and has been as low as $5.54 per share during the past 52 weeks.
“While ARCT shareholders are losing their equity interests in ARCT for an unfair price, Realty Income is receiving substantial benefits from the proposed acquisition at a bargain-basement price,” said the case of the Carol L. Possehl Living Trust v. American Realty Capital Trust that was filed in the New York State Supreme Court in September.
“American Realty Capital Trust is aware of lawsuits that have been filed in Maryland and New York concerning the proposed merger and will respond to the suits in due course,” the company said in a statement, adding that the acquisition earned unanimous approval from ARCT’s board of directors.
“ARCT’s management continues to believe that the proposed merger is in the shareholders’ best interests.”
Assuming the sale goes forward, RIC says the company would be the largest public, net-lease real estate company in the United States and the 18th largest public REIT overall.
The acquisition would have other benefits, “such as giving the company a meaningful enterprise value of approximately $11.4 billion and potentially leading to improved ability to execute large acquisitions and strengthening the company’s position as an industry consolidator.”
ARCT posted an $87.77 million loss on $137.32 million in revenues for the nine months ended Sept. 30 -- compared to an $18.87 million loss on $86.03 million in revenues for the comparable period a year earlier.
ARCT also has multiple funds that are separately publicly traded. For the first nine months of the year the ARCT III fund recorded a loss of $21.31 million on $25.54 million in revenues -- compared to a loss of $594,000 on just $8,000 in revenues for the comparable period in 2011.
RIC posted $37.45 million in net income on $120.23 million in revenues for the third quarter ended Sept. 30 -- compared to $40.78 million in net income on $106.23 million in revenues for the comparable quarter in 2011.
For the nine months, RIC recorded $120.13 million in net income on $349.93 million in revenues -- compared to $116.02 million in net income on $303.48 million in revenues for the comparable period in 2011.
Realty Income’s stock has ranged from $34.30 to $44.22 during the past year.