American Realty Capital Partners (ARCP) and CapLease Inc.have signed a definitive merger agreement under which ARCP will acquire all of the outstanding shares of CapLease in a transaction valued at approximately $2.2 billion.
Both companies’ boards of directors have unanimously approved the agreement. Following a stockholder vote by CapLease, the transaction is expected to close during the third quarter of 2013.
ARCP will pay an amount in cash equal to $8.50 per share for each outstanding share of CapLease common stock, and each share of Series A, Series B and Series C preferred stock of CapLease will be converted into the right to receive the sum of $25.00 in cash plus an amount equal to any accrued and unpaid dividends up to but excluding the closing date of the merger. Additionally, with respect to CapLease’s $1.2 billion of outstanding debt, ARCP intends to assume approximately $580 million and repay the balance.
“The combination of ARCP with CapLease allows us to expand and further diversify our property portfolio, fortify our credit quality, reduce our tenant concentration, and enhance our management team,” ARCP Chairman and CEO Nicholas S. Schorsch said in a statement. “We anticipate that virtually all of CapLease’s senior management will join ARCP’s management team, providing unparalleled bench strength and bringing us considerably closer to being able to ‘internalize’ ARCP’s management.”
“Our board has unanimously approved this merger with ARCP as being in the best interests of CapLease and our stockholders, who will receive a certain cash premium for their shares,” CapLease Chairman and CEO Paul H. McDowell said in a statement. “We believe that the structure of this transaction creates the greatest value for all stockholders over both the near and long term. My management team looks forward to the opportunities of continuing to build out the high quality assets of the company.”
With the acquisition, ARCP will add over 70 properties to its portfolio, increasing the total number of properties to approximately 800 properties. ARCP also announced revised earnings guidance for 2014 of between $1.17 to $1.21 per share based on AFFO, representing a 28 percent increase over previously announced 2013 guidance.
The merger agreement provides for a termination fee and expense reimbursement of $15 million if CapLease terminates the agreement in connection with a superior proposal that first arose during the go-shop period, subject to certain other terms and conditions described in the merger agreement.
With the addition of these properties to the portfolio, the pro forma rental revenue generated by ARCP’s largest 10 tenants declines from 60 percent to 43 percent. This added diversification further strengthens the sources of the lease revenue supporting the payment of monthly dividends. The overall occupancy of the combined real estate portfolio will be approximately 100 percent post-transaction, excluding certain assets anticipated to be held for sale. The average remaining lease term, after the transaction, will be approximately 10 years.
Upon closing of the transaction, based on current prices, ARCP would have a pro forma enterprise value of approximately $6.0.
Upon closing, CapLease stockholders will receive $8.50 in cash for each share of CapLease common stock that they own. This reflects, at an average share price over the last 30 trading days of $7.05 per share, resulting in a premium to CapLease stockholders in excess of 20 percent.