American Realty Capital Properties Increases Cash Portion of its $9.7 Billion Offer and Calls on Cole Credit Property Trust III Board to Act Now

Lack of Any Real Engagement, Despite Promising Stockholders Otherwise, Suggests Board is More Interested in Insider Dealings Than Protecting Shareholder Rights

Matter Should be Put to a Stockholder Vote

Apr 02, 2013, 16:20 ET from American Realty Capital Properties, Inc.

NEW YORK, April 2, 2013 /PRNewswire/ -- American Realty Capital Properties, Inc. ("ARCP") (NASDAQ: "ARCP") today sent another letter to the Cole Credit Property Trust III, Inc. ("CCPT III") Board of Directors which could increase the cash portion of its acquisition offer up to 60%, calling on the Board to act now on ARCP's offer to acquire 100 percent of the outstanding common stock of CCPT III for either a minimum of at least $13.59 per share in stock, or $12.50 per share in cash. This transaction would create the largest and highest quality publicly traded REIT in the net lease sector. At maximum cash consideration, the transaction would result in ARCP stockholders owning 60% of the combined company.

ARCP expressed frustration at the lack of any real engagement by CCPT III's special committee, despite the committee's promise to its stockholders it would do so. ARCP further questioned whether the committee was more interested in the "consummation of an insider deal that prioritizes and monetarily benefits Cole Holdings and its management over the interests of, and at the expense of, CCPT III's stockholders."

ARCP's offer delivers all of the benefits of the pending transaction involving Cole Holdings.  ARCP's offer provides far greater certainty of price, constructed with a minimum priced bid, and certainty of execution, as a seasoned company whose share currency currently trades on NASDAQ.  Moreover, ARCP's proposal will include an increased dividend payout and a public stock listing to achieve greater liquidity and superior access to capital markets with far lower execution risk.

Once the internalization of Cole Holdings occurs, ARCP asserts, the action will be for all practical purposes, irreversible.  The combined company, ARCP maintains, will join a REIT with a securities company, not contemplated by the original CCPT III SEC filings (including its IPO prospectus), and hardly the risk calculus that the CCPT III stockholders signed on for.  Every other "internalization" in the non-traded REIT industry in which an internalization fee was paid has gone to a stockholder vote, and although CCPT III has scheduled a shareholder meeting for June 19, 2013, this matter is not on the agenda. 

ARCP noted that for the past two weeks it has attempted to engage in constructive conversations with CCPT III's Board and advisors that would lead to a transaction benefiting shareholders of both companies.  However, its efforts had been largely ignored or dismissed without more than a token effort to understand the value behind its proposal or to give CCPT III's shareholders the vote or the voice they deserve.  Even in the past week, after CCPT III said publicly its special committee would seriously consider ARCP's proposal, the committee engaged in only the briefest possible pretense of discussions, not returning with a legitimate response or a counter-proposal. As recently as last night, ARCP reached out to CCPT III's independent board members to communicate this revised proposal, but again they were met with no response.

ARCP once again called on the CCPT III Board to either engage in a meaningful exchange of views characteristic of a genuine negotiation and fulfill their fiduciary duty to CCPT III stockholders, or to allow those stockholders, at last, a voice and a choice between ARCP's offer and Cole Holdings inferior plan.

A copy of the letter follows below:

April 2, 2013


Messrs. Leonard W. Wood, Scott P. Sealy, Sr. and Thomas A. Andruskevich,
Special Committee of the Board of Directors, and the
Board of Directors of
Cole Credit Property Trust III, Inc.
2325 East Camelback Road, Suite 1100
Phoenix, AZ 85016

To the Special Committee of Board of Directors of Cole Credit Property Trust III, Inc. ("CCPT III") and the Board of Directors of CCPT III:

Two weeks ago today, after our prior indications of interest to you and your advisors, we provided you a bona fide written proposal in a good faith effort to engage in constructive discussions regarding the acquisition of CCPT III by American Realty Capital Properties, Inc. (NASDAQ: ARCP) ("ARCP").  We made our written proposal after your March 6th announcement that you were going to internalize Cole Holdings Corporation ("Cole Holdings"), your external advisor and wholesale broker dealer, and subsequently seek to list your shares on the New York Stock Exchange.  By making such announcement, you effectively put CCPT III "in play." 

We attempted repeatedly to engage you to discuss a further refinement to our original proposal. Inasmuch as we were unable to do so, we are again forced to disclose the terms of our revised offer publicly (as discussed in further detail below).  After discussions with CCPT III stockholders and the broker dealer community, we have decided to increase the surety of consideration to be paid to CCPT III stockholders.  While your stockholders would continue to be able to receive either (i) $13.59 (floor/ no cap) in ARCP common stock for each CCPT III share post-internalization or (ii) $12.50 in cash, we are increasing the cash component to a maximum of 60% of outstanding shares of CCPT III post-internalization.  As a result, ARCP's stockholders would retain an approximate 60% ownership in the combined company.

In response to your requests, public and private, as well as those of Cole Holdings and your advisors, we, together with our advisors, have promptly provided you and your advisors with all of the information about our refined proposal, operations and financial condition that you have requested (even if it is more than we think necessary for you to thoroughly evaluate ARCP, our proposal and the combined company).  We have also made our availability and willingness to work with you more than apparent by both our private and public actions.  Indeed, over the past week, we have worked tirelessly to help your financial advisors better understand our prior public filings and earnings guidance. In return for our openness, transparency and accessibility, you have not provided a single additional piece of information about the operations or financial condition of either CCPT III or Cole Holdings that would assist us in further refining our proposal, nor have we received from you a real response to our proposal or a counter offer. 

On Sunday, March 31st, we provided a complete reconciliation of our earnings projections to your advisors at Lazard and Goldman Sachs, who indicated that, although you were not yet prepared to engage in any meaningful discussions regarding the possible timing, due diligence or merger agreement drafting, they would contact us on Monday, April 1st to discuss these matters. We never heard back from them regarding the proposal despite our repeated attempts to contact them.  Furthermore, aside from a single conversation on Friday, March 29th with Mr. Leonard Wood, none of the independent directors, including Messrs. Sealy and Andruskevich, have engaged us directly regarding our offer. 

Your unwillingness to engage in constructive discussions for the past two weeks, we believe, can only be interpreted in one way: you are committed to consummating an insider deal that prioritizes and monetarily benefits Cole Holdings and its management (as shown in the table below) over the interests of, and at the expense of, CCPT III's stockholders in what we view as a direct contravention of your fiduciary duties.  

In fact, the market seems to be reaching the same conclusion:  in its April 2nd article in Seeking Alpha states, "CCPT III's rejection of ARCP's offer is very suspect, and it raises the question as to whether or not the decision to reject the offer was done with the best interests of the company's shareholders in mind."

Here are the fees that we understand that Christopher H. Cole and his company, Cole Holdings, will receive in connection with the transaction that you are recommending (without stockholder vote):

Fees Paid to Cole Holdings by CCPT III Stockholders



Per Share


Internalization Stock Payment



Internalization Cash Payment

$  20,000,000

                Internalization Fees



Contingent Listing Consideration



Earn Out Based on Performance



Subordinated Incentive Fee



  Less: Subordinated Incentive Fee Discount



                Total Fees Paid to Cole Holdings



(1)   10,711,225 shares at $13.59/share.

(2)   2,142,245 shares to be issued upon listing will be cancelled.

(3)   Earn out is payable on a 2-year trailing average multiple of EBITDA in excess of $25 million.  Cole Holdings' management expects approximately $29 million of 2013E pro forma EBITDA contribution from Cole Holdings alone. 

(4)   ($13.59 - $10.45) x 496 million shares outstanding x 15% where $10.45 is the hurdle price and 15% is the promote interest.

(5)   25% reduction in subordinated incentive listing fee.

It appears to us, as well as our advisors, that your limited efforts vis-à-vis our offer are designed to misdirect the public and aimed at deflecting our highly compelling proposal while you rush to close the internalization of Cole Holdings without respecting the rights of CCPT III stockholders to an affirmative vote on a related party transaction that fundamentally and irreversibly alters CCPT III's business model. Is this your true intent?

We are further baffled by the words of Christopher H. Cole himself who noted as follows on January 22nd of this year when the sale of Cole Credit Property Trust II, Inc. ("CCPT II") was announced.  "We are confident that this transaction is in the best interest of all shareholders. As of the date of this announcement, it represents a positive cumulative total return on their investment and provides an opportunity for liquidity in what will be one of the largest publicly traded net lease REITs."  If a transaction that provides a positive cumulative total return on investment and provides an opportunity for liquidity in what will be one of the largest publicly traded net lease REITs is in the best interests of stockholders in CCPT II, how could it be, less than three months later, in the best interests of CCPT III's stockholders that CCPT III board would fail to at least explore in good faith a transaction with the same characteristics?

The clear and blatant disregard of your fiduciary responsibilities to your stockholders through your continued insistence on hiding behind your financial advisors, lawyers and Maryland law is incomprehensible.  Your own financial advisors have characterized the exercise of the past week as "merely fact finding."  How can you call this engagement? We believe that this has not reflected the good faith engagement or careful consideration that we would expect from directors trying to meet their fiduciary obligations and appropriately consider our $9.7 billion bona fide offer to acquire CCPT III. We and others in the market are shocked.

Detriments of the Cole Holdings Internalization to CCPT III Stockholders

CCPT III's board of directors is required by good faith and by Maryland law to advocate for the best interests of its stockholders – that is what the law requires – and that Cole Holdings' management's gain (e.g., an estimated $165 million internalization fee contrary to industry best practices and payable to Cole Holdings without regard to performance) can never outweigh the interests of CCPT III's stockholders. Further, your public announcements regarding your proposed listing misleadingly fail to address a tentative date of listing, the proposed price of the listing, the size or price of any self-tender offer, or how you intend to stabilize a 508 million share listing (including shares issued to Cole Holdings in connection with the internalization) with unlimited trading.  These are clearly important facts that have been intentionally and misleadingly omitted from your public filings with respect to the insider deal with Cole Holdings and the discussion of the proposed listing or your public responses to our proposal.

We believe that CCPT III's stockholders are being harmed by, among other things:

  • Lack of Transparency – Your internalization of Cole Holdings lacks any transparency related to the relative valuation of CCPT III or Cole Holdings in determining the consideration paid.  Such lack of transparency is highlighted by the lack of any disclosure to CCPT III's stockholders or the public with respect to the financial analyses undertaken by your advisors, Goldman Sachs and Lazard, or the fairness opinions in connection with such analyses.  Both the financial analyses and the fairness opinions would have been addressed and disclosed in a typical proxy statement had the internalization transaction been brought before a stockholder vote. In addition, we note that CCPT III has conspicuously failed to include the annex to its merger agreement containing the valuation of Cole Holdings' businesses in its publicly available filings.
  • Change in CCPT III's Business Model – The internalization of an asset management business and wholesale broker dealer represents a fundamental change in CCPT III's business strategy from what was clearly and unequivocally described to investors in your offering prospectus. When deciding to invest in a non-traded REIT such as CCPT III, retail investors, many of whom are retirees on fixed incomes, relied on CCPT III's prospectus, which described its business as investing "in necessity retail properties that are single-tenant or multi-tenant 'power centers' subject to long-term triple net or double net leases with national or regional creditworthy retailers." We believe that one of the benefits of this stable and straightforward business model is that it is intended to shield investors from risks and liabilities arising from property operations.  The internalization of Cole Holdings' FINRA regulated securities brokerage, investment advisory and investment vehicle sponsorship businesses introduces exotic businesses with investment risks that are significantly greater than those CCPT III stockholders originally bargained for when deciding to invest in CCPT III. If CCPT III investors wanted exposure to securities brokerage, investment advisory or investment vehicle sponsorship businesses, they would have purchased stock in companies operating such specialty finance and asset management businesses.  CCPT III's stockholders should not be denied the opportunity to vote on whether to accept the fundamental changes in CCPT III's business model and assume the investments risks inherent therein.
  • No voice or choice for CCPT III's stockholders – Because the CCPT III board has elected to deny stockholders the opportunity to vote on the internalization, those stockholders opposed to the internalization, the assumption of liabilities related thereto and the payment to an affiliate of the $165 million internalization fee to Cole Holdings' management, have no voice or choice in the matter.  Furthermore, since CCPT III is not currently listed on a national stock exchange, these stockholders are forced to hold on to their shares and wait for the proposed listing, the timing and value of which have yet to be determined.

Benefits of the ARCP Offer

Our further refined offer to acquire CCPT III is bona fide and in the best interest of CCPT III stockholders. Our proposal offers a superior alternative to either the internalization of Cole Holdings or a stand-alone listing in that we guarantee a minimum floor valuation for CCPT III stockholders, offer a combination of substantial cash and stock at the election of each stockholder, and deliver ARCP stock with a stabilized trading history, proven track record of access to public capital markets, sell-side research coverage, and a stable institutional investor base. If listed, CCPT III will require months or possibly even years of trading before it achieves this level of stability. 

In your March 6th announcement, Mr. Leonard Wood, chairman of the special committee of the board of directors is quoted saying, "CCPT III will be able to increase its dividend payout and intends to now pursue a listing of its common stock to achieve greater liquidity and superior access to the capital markets" (emphasis added).  Our proposal offers CCPT III all of these benefits, and more, with far lower execution risk. By refusing to engage us, you are foregoing a significant $1.8 billion (or $3.59 per share) gain to the stockholders and free of execution risk compared to your controversial affiliated internalization and unspecified listing strategy.

Based on conversations with CCPT III stockholders and the broker dealer community, the terms of our further revised proposal are outlined immediately below:

  • CCPT III stockholders will continue to receive, at their option, $12.50 per share in cash or at least $13.59 per share of value: ARCP is prepared to acquire 100% of the outstanding common stock of CCPT III, at the election of CCPT III's stockholder, for either: (i) 0.80 of a share of ARCP common stock for each share of CCPT III common stock, with a guarantee that the value of the share consideration will not be less than $13.59 per share (with the added benefit of a significant upside), or (ii) $12.50 per share in cash. ARCP would be willing to consider increasing the maximum consideration to be paid in cash to 60% of the outstanding shares of CCPT III common stock.
  • CCPT III stockholders will continue to receive an equivalent annual dividend of 74.4 cents per share, a 15% increase over their current dividend: ARCP plans to declare its 7th consecutive quarterly dividend increase to an annual dividend of 93 cents per share, effective upon closing of the transaction.  As a result, CCPT III stockholders who elect stock consideration will receive an equivalent dividend of 74.4 cents per share (93 cents x 0.80 exchange ratio), a 15% increase (9.4 cents per share increase) over CCPT III's current 65 cents per share dividend.
  • CCPT III stockholders will not be "locked up": All CCPT III shares converted into ARCP shares will be immediately tradable on NASDAQ; stockholders will not be "locked up." Unlike the internalization with Cole Holdings and the proposed listing of CCPT III, significant market support and liquidity is anticipated in ARCP common stock from numerous index inclusions at and subsequent to closing.
  • CCPT III stockholders would benefit from greater value creation: Based on your own analysis (see your Form 8-K/DEFA14A filed March 25th), ARCP's 2013 pro forma AFFO of $1.04 per share, using the 0.80x exchange ratio from our proposal, provides CCPT III shareholders greater distributable cash flow and value creation power at any given AFFO multiple than the projected $0.80 per share of 2013 AFFO for CCPT III on a standalone basis.  This differential is even more compelling when one considers that the value of non-REIT qualifying earnings from Cole Holdings will be significantly discounted compared to the value of REIT qualifying earnings from real property rents.

AFFO Multiples


AFFO / Share





Listing Value on CCPT III Standalone(1)






Implied ARCP Price for Proposed Merger






Implied Value to CCPT III Stockholder(3)





Increased Value to CCPT III Stockholders from ARCP Proposal





(1) Includes internalized Cole Holdings.

(2) Peer average AFFO multiple of 17.1x is derived from the following: O: 19.2x, NNN: 18.2x, WPC: 17.8x and SRC: 13.2x.

(3) Fixed exchange ratio of 0.80x.

  • CCPT III stockholders will benefit from a best in class real estate portfolio: The combined company will have a portfolio that leads the net lease sector in nearly every respect.  Importantly, compared to the CCPT III portfolio, ARCP increases the percentage of single tenant properties, increases the percentage of investment grade tenants, reduces the percentage of multi-tenant properties and increases the percentage of top ten tenants that are investment grade.
  • CCPT III stockholders will be led by an experienced management team: The ARCP management team has extensive prior public company experience, as well as a demonstrable, successful track record listing non-traded REITs on a national exchange.  By contrast, the Cole Holdings management has neither prior public company experience nor any experience stabilizing a stock subsequent to a listing. The notable lack of details provided with respect to the proposed listing is evidence of Cole Holdings' inexperience and indecision with these critical matters, all of which will impact negatively the trading value of CCPT III upon listing.
  • CCPT III stockholders will benefit from lower overhead structure and higher operating synergies: We project that overlaying ARCP's management fee structure to the CCPT III portfolio will result in significant general and administrative cost savings in excess of those projected by Cole Holdings.  These savings are projected to add approximately $513 million ($30 million savings x 17.1x 2013E AFFO multiple), or 94 cents per share in value to CCPT III and ARCP stockholders.  The notion, which Cole Holdings has suggested, that ARCP's external advisor structure is somehow discounted by the market is unfounded and inconsistent with published research analyst reports and ARCP's proven track record since its successful IPO in 2011. In fact, the institutional public markets have embraced the merits of ARCP's external management structure and its proposals to CCPT III, as evidenced by outsized trading volume of 49 million shares and an increase in its share price of 4.1% since we first announced our proposal. Notwithstanding, our board is committed to providing all ARCP stockholders with the highest quality management possible and the lowest possible cost and, accordingly, would most certainly consider internalizing management functions at no cost to stockholders if such a move proved to be cost effective and in the best interest of stockholders.

As demonstrated above, our proposal to acquire 100% of the outstanding stock of CCPT III for $13.59 per share of ARCP common stock or $12.50 per share in cash continues to represent a compelling alternative for CCPT III's stockholders.  We strongly encourage you to reverse your strategy denying CCPT III's stockholders a voice and a choice and, instead, engage in meaningful, good faith discussions with us regarding our proposal and give your stockholders a vote – give your stockholders an opportunity to make a choice.

As we have stated previously, we remain flexible to structure a transaction that meets your needs, with or without the affiliated Cole Holdings businesses, providing your stockholders the surety of a transaction with a seasoned public company, price certainty and a greater upside than a conventional listing. Our proposal has the unanimous support of our board of directors, and we are prepared to devote all necessary internal and external resources to consummate this transaction. Our proposal remains subject to customary conditions, including: (1) completion of confirmatory due diligence by ARCP on CCPT III and Cole Holdings; (2) execution of a definitive merger agreement; and (3) receipt of stockholder approvals (for the issuance of shares of ARCP common stock, as required by NASDAQ).

As we have previously explained, we remain prepared to meet immediately and commence productive discussions with you and your advisors directly.  We are confident that, if we work together, we can quickly complete a transaction that is in the best interests of the stockholders of both of our companies.


/s/ Nicholas S. Schorsch Nicholas S. Schorsch Chairman and CEO American Realty Capital Properties, Inc.

Transaction Advisors

Barclays Capital Inc. and RCS Capital, a division of Realty Capital Securities, LLC, are acting as ARCP's financial advisors and Proskauer Rose LLP and Weil, Gotshal & Manges LLP as its legal advisors.

About ARCP

ARCP is a publicly traded Maryland corporation listed on The NASDAQ Global Select Market that qualified as a real estate investment trust for U.S. federal income tax purposes for the taxable year ended December 31, 2011, focused on acquiring and owning single tenant freestanding commercial properties subject to net leases with high credit quality tenants. Additional information about ARCP can be found on its website at

Additional Information about the Proposed Transaction and Where to Find It

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication relates to a business combination transaction with CCPT III proposed by ARCP, which may become the subject of a registration statement filed with the Securities and Exchange Commission ("SEC"). This material is not a substitute for the proxy statement/prospectus ARCP would file with the SEC regarding the proposed transaction if such a negotiated transaction with CCPT III is reached or for any other document which ARCP may file with the SEC and send to ARCP's or CCPT III's stockholders in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS OF ARCP AND CCPT III ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Such documents would be available free of charge through the website maintained by the SEC at or by directing a request to the ARCP Investor Relations Department, 405 Park Avenue, New York, New York 10022. Copies of such documents filed by ARCP with the SEC also will be available free of charge on ARCP's website at

Participants in Solicitation

ARCP, AR Capital, LLC and their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies from ARCP's and CCPT III's stockholders in respect of the proposed transaction. Information regarding ARCP's directors and executive officers can be found in ARCP's definitive proxy statement filed with the SEC on May 4, 2012, as modified by ARCP's current reports on Form 8-K filed with the SEC on October 17, 2012 and March 6, 2013. Additional information regarding the interests of such potential participants will be included in any proxy statement/prospectus and other relevant documents filed with the SEC in connection with the proposed transaction if and when they become available.

All information in this communication concerning CCPT III, including its business, operations and financial results was obtained from public sources. While ARCP has no knowledge that any such information is inaccurate or incomplete, ARCP has not had the opportunity to verify any of that information.

Forward-Looking Statements

Information set forth in this communication (including information included or incorporated by reference herein) contains "forward-looking statements" (as defined in Section 21E of the Securities Exchange Act of 1934), which reflect ARCP's expectations regarding future events. The forward-looking statements involve a number of risks, uncertainties and other factors, many of which are outside ARCP's control, that could cause actual results to differ materially from those contained in the forward-looking statements. Such risks and uncertainties relating to the proposed transaction include, but are not limited to, CCPT III's failure to accept ARCP's proposal and enter into definitive agreements to effect the transaction, whether and when the proposed transaction will be consummated, the new combined company's plans, market and other expectations, objectives, intentions, as well as any expectations or projections with respect to the combined company, including regarding future dividends and market valuations, and other statements that are not historical facts.

The following additional factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: the ability to obtain regulatory and stockholder approvals for the transaction; market volatility; unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; the inability to retain key personnel; ARCP's ability to achieve the cost-savings and synergies contemplated by the proposed transaction within the expected time frame; ARCP's ability to promptly and effectively integrate the businesses of CCPT III and ARCP; disruption from the proposed transaction making it more difficult to maintain relationships with tenants; the business plans of the tenants of the respective parties; continuation or deterioration of current market conditions; and future regulatory or legislative actions that could adversely affect the companies. Additional factors that may affect future results will be contained in ARCP's filings with the SEC from time to time. ARCP disclaims any obligation to update and revise statements contained in these materials based on new information or otherwise.

SOURCE American Realty Capital Properties, Inc.