December 18, 2012 / 7:45 PM / in 5 years

TEXT-S&P: American Realty Capital rating remains on watch positive

Overview
     -- Single-tenant REITs American Realty Capital Trust and Realty
Income Corp. jointly announced that Realty Income Corp. has signed a
definitive agreement to acquire American Realty Capital Trust.
     -- Both companies' boards of directors have unanimously approved the 
transaction and respective shareholder votes have been scheduled for Jan. 16, 
2013.
     -- The CreditWatch listing reflects the likelihood that we would raise 
our 'BB' corporate credit rating on American Realty Capital Trust to that of 
Realty Income if the acquisition closes as expected in the first quarter of 
2013.

Rating Action
On Dec. 18, 2012, Standard & Poor's Ratings Services maintained its 
CreditWatch positive listing on American Realty Capital Trust Inc. (ARCT) in 
advance of the company's acquisition by higher-rated Realty Income Corp. We 
originally placed our 'BB' corporate credit rating on ARCT on CreditWatch with 
positive implications on Sept. 7, 2012, following Realty Income Corp.'s 
proposal to acquire ARCT. ARCT does not currently have any rated debt (see 
list).

Rationale
The CreditWatch positive listing reflects the likelihood that we would raise 
our corporate credit rating on ARCT (BB/Watch Pos/--) to that of Realty Income 
(BBB/Stable/--) if Realty Income's acquisition of ARCT closes as expected in 
the first quarter of 2013. Both companies' boards of directors have 
unanimously approved the transaction and respective shareholder votes have 
been scheduled for Jan. 16, 2013.

ARCT and Realty Income signed a definitive agreement earlier this year, 
whereby Realty Income agreed to acquire all of the outstanding shares of ARCT 
in a transaction valued at approximately $2.95 billion. We estimate that the 
acquisition will increase Realty Income's total enterprise value (market 
basis) to $11.4 billion and advance its strategic objective of increasing its 
investment in nonretail properties that are leased primarily to 
investment-grade rated tenants and are subject to long-term leases.

We expect Realty Income's financial risk profile to remain "intermediate" 
following the acquisition, as the company plans to finance the transaction in 
a leverage-neutral manner through the direct issuance $1.9 billion of its 
common stock to ARCT shareholders, the assumption of roughly $526 million of 
debt, and the immediate repayment of roughly $574 million of outstanding debt 
and transaction expenses. Upon closing of the transaction, we estimate that 
ARCT shareholders will own roughly 25.6% of Realty Income's shares. 

New York City-based ARCT is a relatively young equity REIT that acquired most 
of its portfolio of 507 fully occupied, freestanding commercial real estate 
properties over the past three years. Before the company internalized 
management and listed its common stock on the NASDAQ in March 2012, it was 
external advised by its former sponsor (American Realty Capital) and ARCT's 
common stock was not publicly traded.

Escondido, Calif.-based Realty Income invests in single-tenant properties 
throughout the U.S. The company, an S&P MidCap 400 Index constituent, ended 
the Sept. 30, 2012, quarter with a $5.6 billion portfolio (on a cost basis) of 
2,838 properties dispersed throughout 49 states. Realty Income's portfolio is 
leased to 144 different operators across 34 (largely retail) segments. 
Following the acquisition of ARCT, we estimate that Realty Income will derive 
34% of its revenue from investment-grade rated tenants (up from 19% currently).

CreditWatch
The CreditWatch positive listing reflects the likelihood that we would raise 
our corporate credit rating on ARCT (BB/Watch Pos/--) to that of Realty Income 
(BBB/Stable/--) if Realty Income's acquisition of ARCT closes as expected in 
the first quarter of 2013. We would likely subsequently withdraw our corporate 
credit rating on ARCT based on our expectation that the company will be fully 
integrated into Realty Income.

Related Criteria And Research
     -- Industry Report Card: Strong Capital Access And Gradually Improving 
Fundamentals Continue To Support North American REITs, Oct. 19, 2012
     -- Issuer Ranking: North American REITs and Real Estate Operating 
Companies, Strongest To Weakest, Oct. 10, 2012
     -- Criteria/Corporates/Industrials: Key Credit Factors: Global Criteria 
For Rating Real Estate Companies, June 21, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009

Ratings List
American Realty Capital Trust Inc.
 Corporate Credit Rating            BB/Watch Pos/--


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings referenced 
herein can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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