American Realty Capital Properties to Acquire CapLease in $2.2 Billion Deal

by Nate Hunter

New York City — The transaction is expected to close during the third quarter.

New York City — American Realty Capital Properties Inc. (NASDAQ: ARCP) has signed a definitive merger agreement with CapLease Inc. (NYSE: LSE) to acquire all of the outstanding shares of CapLease in a deal valued at $2.2 billion. The board of directors for both American Realty Capital and CapLease unanimously approved the agreement.

“The combination of ARCP with CapLease allows us to expand and further diversify our property portfolio, fortify our credit quality, reduce our tenant concentration and enhance our management team,” says Nicholas Schorsch, chairman and CEO of ARCP.

The parties expect the transaction to close in the third quarter. The merger will make ARCP the third largest net lease REIT in the U.S., based on total pro forma equity market capitalization. ARCP will pay $8.50 per share in cash for each outstanding share of CapLease common stock.

“We believe that the structure of this transaction creates the greatest value for all stockholders over both the near and long term,” says Paul McDowell, chairman of the board of directors and CEO of CapLease. “My management team looks forward to the opportunities of continuing to build out the high-quality assets of the company.”

ARCP intends to assume approximately $580 million of CapLease’s $1.2 billion of outstanding debt. The merger will add more than 70 properties to ARCP’s portfolio, increasing its total number of properties to approximately 800 owned under long-term and medium-term leases to major commercial and retail tenants.

The average remaining lease term after the transaction is approximately 10 years, with only modest lease rollover until 2018. Additionally, the portfolio is likely to be at 100 percent following the transaction.

Based on current prices, ARCP would have a pro forma enterprise value of approximately $6 billion, upon the close of the transaction.

The deal is expected to generate approximately 11 cents per share in additional adjusted funds from operations (AFFO). Dividends for stockholders are supposed to increase to an annualized rate of 94 cents per share.

RCS Capital, the investment banking and capital markets division of Realty Capital Securities LLC, is acting as the financial advisor for the deal; Proskauer Rose LLC is acting as legal counsel; Miles & Stockbridge LLC is acting as Maryland counsel to ARCP; Wells Fargo Securities LLC and Houlihan Lokey Financial Advisors Inc. are acting as financial advisors; Hunton & Williams LLP is acting as legal counsel; and Venable LLP is the Maryland counsel to CapLease in connection with the transaction.

CapLease’s senior management is expected to join the management team of American Realty Capital, the parent company of ARCP. Upon closing, ARCP will maintain its current board membership and structure.

CapLease expects to hold a special meeting of its stockholders to consider and vote on the proposed merger. The merger agreement provides a termination fee and expense reimbursement of $15 million if CapLease terminates the agreement in connection with a superior proposal.

Maryland-based ARCP qualified as a REIT in 2011 and focuses on owning and acquiring single-tenant freestanding commercial properties subject to net leases with tenants that have a high credit quality. ARCP’s stock price closed on Tuesday at $16.64 per share, up from trading at $10.58 per share this time last year.

CapLease is also a REIT that primarily owns and manages single-tenant commercial properties. CapLease’s stock price closed at $8.55 per share, up from trading at $3.99 per share this time last year.

— John Nelson.

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