Nick Schorsch, the factory owner-turned-real estate mogul who moved his headquarters to Manhattan from Jenkintown six years back, is back in the news with yet another deal -- his biggest yet:
Schorsch's American Realty Capital Properties Inc. (ARCP) has agreed to pay cash and stock for its larger rival Cole Real Estate Investments Inc., Phoenix, Ariz., in a deal ARCP says values Cole at $11.2 billion. Not counting debt, the offer is worth more like $7 billion. Cole shares rose this morning to near the offer price but have since slipped; ARCP shares were up, approaching the buyout price of $13.82 in cash or nearly 1.1 ARCP shares (worth over $14 at recent prices) per Cole share.
The deal would create the largest "net-lease" real estate investment trust (REIT), a national landlord for grocery, drugstore, discount and restaurant chains including Walgreen's, Walmart, Amazon and Home Depot, among others.
Schorsch's company, which failed to buy Cole for a cheaper price before its IPO earlier this year, "is paying a substantial premium for Cole" -- almost 14% above yesterday's closing share price and 24% above Cole properties' estimated value -- and "any benefits of the transaction could be offset in the near-term" by the cost of the deal, the "execution risk" of combining all the real estate and brokerage companies Scohrsch is currently amalgamating, and the difficulty of continuing to buy properties while management is busy reorganizing what it's acquiring, notes Michael P. Gorman, analyst at Janney Capital Markets, Philadelphia, in a report to clients.
In a statement, Schorsch said the larger company would enjoy "significantly lower [the] cost of financing." REITs are managed to minimize taxes and maximize payouts to shareholders.
Gorman adds that Schorsch's firm's "willingness to undertake an $11.2 billion entity-level transaction could trickle down to other REITs" and benefit stocks like Agree Realty Corp., Realty Income and National Realty Properties.
The ARCP-Cole combination will control 3,700 peroperties with 100 million sq ft, and a total value of more than $21 billion, vs. $13 billion for #2 net-lease investor Realty Income.