UPDATE 1-American Realty 'surprised' by Cole's offer rejection

Thu Mar 21, 2013 4:21pm EDT

By Ilaina Jonas

March 21 (Reuters) - American Realty Capital Properties Inc said on Thursday that it was "surprised but disappointed" that Cole Credit Property Trust III Inc's had rejected its $5.7 billion buyout offer, but said it remains committed to the offer.

Cole Credit said the special committee of its board had reviewed the offer and concluded it would not be in the best interests of its stockholders. It said it would proceed with its acquisition of its external adviser, Cole Holdings Corp.

Shareholders of Cole Credit, a non-listed real estate investment trust, do not have a vote on either plan.

American Realty had offered to buy Cole Credit for at least $12 in cash or 0.80 share of its own stock for each Cole Credit share. The combination would create the largest U.S. real estate investment trust owning net-leased properties.

Cole Holdings on Thursday, in a letter to its broker/dealers, said that it also had reviewed American Realty's offer to Cole Credit and characterized it as "not put forward in an effort to foster serious consideration."

"Rather than engaging in a constructive manner, ARCP made their first formal proposal only 12 hours after sending their letter to the Board," Cole Holdings also said,

Shares of American Realty, which is externally managed by ARC Property Advisors LLC, rose about 1 percent on Thursday following a jump of more than 5 percent on Wednesday after the announcement of its offer.

Net leased properties usually have long leases, and their tenants, which are often restaurants, drug-store chains and banks, are responsible for most of the operating costs and taxes. In some cases, they also are responsible for capital costs, such as new roofs.

Cole's plans to roll up its manager into the real estate investment trust that would become publicly traded would require its shareholders to pay the manager, Cole Holdings, about $120 million in fees. American Realty Capital said its deal included a $111 million internalization fee to Cole Holdings.

Cole Credit Property Trust III owns 926 properties with a combined area of nearly 40 million square feet in 47 states and counts Walgreen Co and CVS Caremark Corp among its tenants.

American Realty Capital has 1,706 properties, or about 60 million square feet, according the company's presentation. Its top 10 tenants include Dollar General, Citizens Bank, FedEx Corp and Walgreen.

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