UPDATE 2-Realty Income to buy American Realty Capital for $1.93 bln

Thu Sep 6, 2012 12:23pm EDT

* Transaction to add 501 properties to Realty Income's portfolio

* Deal to generate $0.20-$0.22/share in FFO annually

* Deal expected to close in late 4th-qtr 2012 or early 1st-qtr 2013

Sept 6 (Reuters) - Realty Income Corp plans to acquire American Realty Capital Trust Inc for about $1.93 billion as it looks to diversify from a predominantly retail portfolio and sign up more creditworthy tenants.

Investment-grade tenants such as FedEx Corp and Walgreen Co would contribute about three-fourths of the rental revenue added through the deal, Realty Income said.

The addition of these and other tenants to Realty Income's existing portfolio is expected to increase the share of total revenue generated by investment grade tenants to 34 percent from about 19 percent.

The deal adds 501 properties to Realty Income's portfolio, increasing the total number of properties to over 3,250 owned under long-term leases to major commercial and retail tenants.

Escondido, California-based Realty Income expects the deal to generate about 20 cents to 22 cents per share in additional funds from operations annually.

RBC Capital Markets analyst Rich Moore said he has the input from Realty Income's management that the company had been actively pursuing the American Realty portfolio for several years.

Moore said there will not be any counter bid as "Realty Income has the lowest cost of capital in the net lease space and few other buyers could swallow an acquisition of this size."

Realty Income shares were up 1 percent at $42.82 in late-morning trading on the New York Stock Exchange.

The deal will also help reduce Realty Income's dependence on its top 10 industries as their contribution of 73 percent of the pro-forma rental revenue would fall to 64 percent post the transaction, Realty Income, which calls itself a monthly dividend company, said.

Real estate investment trusts are required to distribute at least 90 percent of their taxable income to investors, and Realty Income says it has paid out a monthly dividend every month for 43 years.

Under the deal, Realty Income will pay out 0.2874 of its shares for every American Realty share, valuing it at about $12.21, or a 2.1 percent premium, based on the stocks' Wednesday closings.

Due to the gains in Realty Income's stock, American Realty shares were trading up 3 percent at $21.32 on the Nasdaq. American Realty went public in March.

The transaction is expected to close late in the fourth quarter of 2012 or early in the first quarter of 2013.

Realty Income will assume about $526 million of debt and immediately repay about $574 million of outstanding debt and transaction expenses.

BofA Merrill Lynch and Wells Fargo Securities advised Realty Income in the transaction.