NEWTON, MA—Select Income REIT has agreed to acquire Cole Corporate Income Trust in a cash-and-stock $3 billion deal, which is still subject shareholder approval. The transaction, expected to close in the first quarter of 2015, includes the assumption of $298 million of mortgage debt.

Part of the deal calls for Select Income to sell 23 healthcare properties it is acquiring from Cole to Senior Housing Properties Trust for approximately $539 million, a transaction-within-a-transaction that will net Select some $509 million in proceeds as it assumes $30 million in debt. Select Income will use the proceeds to fund the cash portion of Cole's acquisition; it will also borrow $1 billion from its revolving credit facility and a new bridge loan.

Select Income estimates the acquisition cap rate is approximately 6.4% per annum, with the sale of the healthcare properties calculated on the same cap rate basis. It also estimates the merger will be modestly accretive to its normalized funds from operations per share in 2015.

In the end the deal will create an office and industrial net lease REIT with a portfolio of 43 million square feet of assets located in 35 states that are 98% occupied, according to Select Income's president and COO David Blackman. Cole, a non-traded net lease REIT, is bringing some 64 office and industrial properties with approximately 16.1 million rentable square feet to the table.

The combined portfolio will have an 11.1 year weighted average remaining lease term, an average property age of 10.7 years and investment grade rated tenants paying 37% of annual rents.

"The scale, diversification and improved portfolio metrics are expected to lower SIR's cost of capital and enhance shareholder value," Blackman says in a prepared statement.

For example, the company notes that Cole's assets will lower the average age of Select Income's buildings to 10.7 years from 14.8 years. Also, because such a high percentage of Cole's tenants are investment grade, Select Income's overall percentage of investment grade-rated tenants will increase as well.

Terms of the deal call for Cole shareholders to elect to receive cash for up to 60% of their outstanding common stock or Select Income common shares for up to 60% of Cole's outstanding common stock. Cole stockholders will receive either $10.50 in cash or Select Income common shares at an exchange ratio of 0.36 of a Select common share for each share of Cole common stock held.