American Realty to Acquire CapLease - Analyst Blog

Recently, American Realty Capital Properties Inc. (ARCP) inked an agreement to acquire CapLease Inc. (LSE) in a deal worth approximately $2.2 billion. The acquisition is a strategic fit and American Realty expects to become the 3rd largest net lease real estate investment trust (REIT) (based on total pro forma equity market capitalization) in the U.S. post this merger.  

Deal Terms

American Realty will pay $8.50 per share in cash for each outstanding share of CapLease common stock. Moreover, each share of Series A, Series B and Series C preferred stock of CapLease will be converted into the right to receive $25.00 in cash plus an amount equal to any accrued and unpaid dividends. American Realty plans to assume approximately $580 million of CapLease's $1.2 billion of outstanding debt and repay the balance.

The deal already received the nod from the boards of directors of both the companies and is expected to close during the third quarter of 2013, following a stockholder vote by CapLease.

A Strategic Fit

The deal is a strategic fit for American Realty. It would help the company diversify and expand its portfolio, boost its credit quality, diversify the tenant base and bring on board an expert management team from CapLease.  

The deal is projected to be to be immediately accretive to adjusted funds from operations (AFFO) per share of approximately 11 cents per share. Reflecting the positive impact, American Realty anticipates raising its dividend by 3 cents per share to an annualized rate of 94 cents.

Moreover, the company has raised its estimates and now expects 2014 AFFO to range from $1.17 – $1.21 per share, rising approximately 28% over the 2013 AFFO per share of 93 cents.

As a matter of fact, American Realty is focused on the acquisition and ownership of single tenant freestanding commercial properties subject to net leases with high credit quality tenants. The above-mentioned deal creates pro forma enterprise value of approximately $6.0 billion for the company. With this deal, the company is expected to ride on the growth trajectory and benefit its shareholders simultaneously.

American Realty currently holds a Zacks Rank #4 (Sell). However, other REIT stocks that are performing better and deserve a look are American Assets Trust Inc. (AAT) and Cedar Realty Trust Inc. (CDR), both carrying a Zacks Rank #2 (Buy).

Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.