Realty Income Corp. (O) and American Realty Capital Trust, Inc. (ARCT), Thursday said they have signed a definitive agreement under which Realty Income would acquire all outstanding shares of American Realty in a transaction valued at around $2.95 billion. Further, Realty Income backed its full year profit view.
The deal is immediately accretive and is expected to generate $0.20 to $0.22 per share in additional Funds from Operations or FFO annually. When completed, it is expected to allow the firm to increase its annualized dividends to shareholders by $0.13 per share to an annualized rate of around $1.94 per share.
Realty Income will issue $1.9 billion of its common stock to American Realty Capital Trust shareholders, assume around $526 million of debt, and repay immediately about $574 million of outstanding debt and transaction expenses.
As per the agreement, American Realty Capital Trust shareholders will receive a fixed exchange ratio of 0.2874 Realty Income shares for each of their shares. Based on Realty Income's closing stock price of $42.48 on September 5, this consideration would be equivalent to $12.21 per share.
Upon closing of the deal, American Realty Capital Trust shareholders are expected to own around 25.6 percent of Realty Income's shares. The board of directors of both companies have unanimously approved the agreement. The transaction is expected to close during the fourth quarter or early in the first quarter of 2013.
Through the deal, Realty Income will add 501 properties to its portfolio, increasing the total number of properties to over 3,250 properties owned under long-term leases to major commercial and retail tenants.
Nicholas Schorsch, chairman of American Realty, said, ''This transaction will institutionalize the notion of durable, defensive dividends for our shareholders by allowing them to become owners on a very favorable basis of the largest, and, I believe, now the best, publicly-traded net lease real estate company...Size, low-cost capital, and management skill are the competitive advantages in the net lease sector."
Excluding one-time costs associated with the transaction, Realty Income estimates that 2012 FFO per share should range from $2.00 to $2.04 per share, up from $1.98 in the prior year.
Adjusted Funds from Operations or AFFO for the year is expected to range from $2.06 to $2.11 per share, higher than $2.01 per share reported in 2011.
On average, 13 analysts polled by Thomson Reuters expect earnings of $2.01 per share for the year. Analysts' estimates typically exclude special items.
In July, the company had lowered its FFO expectation for the year to $2.00 to $2.04 per share and adjusted FFO range to $ $2.06 to $2.11 per share. The guidance before that was for FFO of $2.01 to $2.04 per share and adjusted FFO of $2.07 to $2.12 per share.
Further, the firm estimates that 2013 FFO per share should range from $2.30 to $2.36 per share. AFFO is expected to range from $2.31 to $2.37 per share. Wall Street expects earnings of $2.16 per share for 2013.
O, which closed at $42.48 on Wednesday, is adding 4.5 percent in pre-market activity.
ARCT settled at $11.96 and is advancing over 7.9 percent before the start of trading.
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