By Tim Husson, PhD
Earlier this week, American Realty Capital Properties (ARCP), a traded REIT under the American Realty Capital (ARC) family of real estate investments, announced that it will be merging with American Realty Capital Trust III (ARCTIII), a non-traded REIT in the same family. Investors in ARCTIII will be entitled to either $12.00 in cash or $12.26 per share in ARCP stock, a significant premium over the $10 per share purchase price.
This merger is remarkable for a number of reasons. While the combined company will trade under ARCP's name and ticker, ARCTIII is by far the larger company, with total assets of almost $1.7 billion compared to ARCP's $227 million. Also interesting is that unlike many non-traded REITs, ARCTIII has relatively low amount of debt and a large amount of cash--in fact, its cash position is just over 40% of total assets. According to the press release, ARCTIII has a broadly diversified portfolio of over 600 properties and 100% occupancy.
As pointed out by one commentator, it is very unusual for a non-traded REIT to have a 'liquidity event' (opportunity for investors to sell) so quickly--ARCTIII was first offered only a year and a half ago. Typically non-traded REITs take several years to go public or liquidate, and it is not clear whether some first offered in the early to mid 2000s will ever. Many of those non-traded REITs have current estimated per share values much less than their initial $10 offering price, as we have discussed previously.
It will be interesting to see how the newly merged ARCP will be received by investors. The significant premium paid to ARCTIII investors is odd given its large cash position, and may reflect an optimistic view of the value of ARCTIII's real estate holdings.
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