CCPT III Back to ARCP: We're Still Better Off with Cole Holdings

PHOENIX-In its latest response to New York City-based American Realty Capital Property's $9 billion acquisition proposal and follow-up letter, local REIT Cole Credit Property Trust III offered a press release, complete with a laundry list, as to why its planned buy of Cole Holdings Corp. mades more sense than agreeing to ARCP's offer.

In a statement issued this morning, CCPT III listed the following factors involved with its planned acquisition of Cole Holdings:

• CCPT III expects to achieve significant savings in overhead costs,
• CCPT III expects 2013 pro-forma funds from operation per share of $0.80 to $0.85; and pro-forma adjusted funds from operations per share of $0.77 to $0.82,
• CCPT III's board of directors has authorized an increase in the company's dividend to an annualized rate of $0.70 per share, upon closing of the acquisition,
• Expected CCPT III listing in June 2013 will provide stockholders with access to liquidity/flexibility to sell or retain shares based on public market value and
• CCPT III expects $25 million to $33 million of 2013E pro-forma EBITDA contribution from Cole Holdings, excluding any contribution from CCPT II and CCPT III.

However, the release noted, an ARCP acquisition of CCPTIII would mean:

• Excessive leverage levels – including an additional $1.2 million to $2.4 billion of debt to fund the 20% to 40% cash component of ARCP's proposal – presenting significant risk to equity value,
• A surviving company that would continue as an externally managed publicly traded REIT, with plenty of examples of externally managed publicly traded REITs that have underperformed their peers,
• A  notional value of ARCP's unsolicited proposal that represents a 12% discount to the per share value of CCPT III that CCPT III stockholders would achieve if CCPT III trades at the average of the comparables ARCP itself identifies. Furthermore, Assuming that CCPT III should be valued at ARCP's current estimated implied cap rate of approximately 5.3%, then the notional value of ARCP's proposal represents a 22% discount to the implied per share trading value of CCPT III and
• The fact that ARCP is trying to use CCPT III to become relevant in the net lease space; CCPT III is already a dominant player in the net lease space.

"To assist it in this process, the Special Committee engaged a full suite of nationally recognized advisors," the release went on to say. "After its review of the Cole Holdings acquisition and other strategic alternatives, including the advice of its advisors, the Special Committee unanimously concluded that the acquisition of Cole Holdings is in the best interests of CCPT III and its stockholders."

Goldman, Sachs & Co. and Lazard serve as financial advisor, and Wachtell, Lipton, Rosen & Katz and Venable LLP serve as legal advisors to the Special Committee of the Board of Directors of CCPT III.  Morris, Manning & Martin LLP serves as legal advisor to CCPT III.

GlobeSt.com will publish more updates as information becomes available.