ARC Properties, ARCT III Will Join in $3B Merger

NEW YORK CITY-American Realty Capital Properties Inc. said Monday that it would acquire American Realty Capital Trust III, one of five nontraded REITs it sponsors, in a merger that will create a combined company with $3 billion of enterprise value. The deal is expected to close by March 31, 2013.

In a conference call Monday morning to discuss the merger, Nicholas Schorsch, ARCP's chairman and CEO, called it “a very transformative transaction” for his company. “It will change dramatically our size, our scale and, most importantly, our growth potential,” he said.

For ARCP, the merger with ARCT III will mean dramatic increases in square footage, number of properties and annualized rental revenue as well as enterprise value. The merger will bump its portfolio from 148 properties to 806, its square footage from 2.4 million to 18.9 million and its rental revenue from $25.6 million to $179.8 million per year, according to an investor presentation issued as the merger was announced. The combined company will also enjoy longer average remaining lease terms than ARCP currently does on its own: 12.4 years, compared to 6.9 years for ARCP, which has specialized in mid-duration net leases.

During the conference call, ARCP CFO Brian Block said the combined company was projecting double-digit growth annually for the next few years. For 2013, the company expects to make $400 million of acquisitions, followed by $1 billion in 2014.

The investor presentation cited other pluses for ARCP shareholders. Among them, the combined company will qualify for inclusion in both the MSCI and Russell 2000 indices and will likely enjoy a lower cost of capital, whether due to the lower cost of equity and debt thanks to the larger scale or to the potential for a future investment grade rating.