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(Reuters) - Real estate investment trust American Realty Capital Properties Inc ARCP.O on Wednesday said it offered to buy unlisted Cole Credit Property Trust III Inc for $5.7 billion in cash and stock, sending American Realty's stock up more than 5 percent.
American Realty Capital Property's offer comes about two weeks after Cole Credit Properties Trust III said it would buy its external adviser, Cole Holdings Corp, and pursue a path to become listed on the New York Stock Exchange.
The deal would make American Realty the largest publicly traded REIT in the net-lease sector.
Net-leased properties have become very popular among investors in the current low-interest environment. Because the tenants pick up most of the operating costs associated with the properties and the properties are leased for long periods, they resemble a bond but with a higher dividend.
The sector has been consolidating. Cole Credit Property Trust II merged with Spirit Realty Capital Inc. (SRC.N). That deal also involved a public company providing shareholders of a non-public REIT with the ability to sell their shares.
Nicholas Schorsch, American Realty's chairman and chief executive, said his company's offer is superior to that involving Cole Holdings. He noted that Cole Credit Properties' shareholders would not be required to pay to Cole Holdings $120 million in fees and that American Realty it has a track record as a public company. It is listed on the Nasdaq.
"Our bid is fully banked," Schorsch said. "It's fully financed. We have the stock available. It's approved by our board. It's subject really only to a merger agreement and shareholder approval. It creates a real powerhouse in the REIT industry."
A representative from Cole Credit Property said the independent members of the board were considering the offer Wednesday.
Should Cole Credit Property Trust III accept American Realty Capital's offer, the deal could be completed in six to eight weeks, Schorsch said.
American Realty Capital said it had earlier expressed interest in the company but was surprised not to have received any response.
"They're looking for a liquidity event, and we're looking for an acquisition," Schorsch said. "We've reached out to their advisers. We're hopeful for a positive response. In our minds, at this point there's no real adversarial position here."
American Realty Capital urged Cole Credit Property Trust III to call off its plans to acquire its outside manager.
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 WAG.N and CVS Caremark Corp (CVS.N) among its tenants.
American Realty Capital has 1,706 properties, or about 60 million square feet. Its top 10 tenants include Dollar General, Citizens Bank, FedEx Corp (FDX.N)and Walgreen.
American Realty Capital is offering at least $12 in cash or 0.80 share of its own stock for each Cole Credit share. American Realty Capital's annual dividend will increase by 2 cents per share to 93 percent upon closing, under the terms of the deal. Cole Credit Property stockholders who elect to be paid in shares will receive a prorated 74.4 cents per share, compared with Cole's current dividend of 65 cents per share, American Realty Capital said.
The combination would result in a savings of $30 million annually and reduce the concentration of the top 10 tenants to less than 33 percent from 62 percent.
Cole Holdings will be paid $111 million as a subordinated management incentive fee following the terms of Cole Properties' existing advisory agreement.
American Realty's Capital's offer is valued at more than $9 billion including debt, the company said in its statement on Wednesday.
American Realty Capital is being advised by its affiliated Realty Capital Securities and Barclays. It was unclear who was advising Cole Credit Property Trust.
Shares of American Realty Capital Trust closed up 73 cents, or 5.2 percent, at $14.66.
Reporting by Tanya Agrawal in Bangalore; Editing by Joyjeet Das and Leslie Adler