NEW YORK, Oct. 15, 2012 /PRNewswire/ -- Luxor Capital Group, LP, a New York based investment manager ("Luxor"), beneficially owns and controls 10,112,796 common shares of American Realty Capital Trust (NYSE: ARCT), or approximately 6.4% of the common shares outstanding. Luxor will not support the proposed merger agreement in its current form.
On September 6, 2012 ARCT and Realty Income Corporation (NYSE: O) announced the terms of their proposed merger, with ARCT shareholders to receive 0.2874 shares of Realty Income for every one share of ARCT. The consideration paid, based upon the previous night's closing prices of both ARCT and Realty Income, represented a 2% premium for ARCT shareholders. ARCT's Board of Directors unanimously recommended the transaction to its shareholders.
The transaction's benefit to Realty Income shareholders is apparent. The merger is instantly accretive to adjusted funds from operations (AFFO) per share, it allows for a substantial and immediate increase in Realty Income's pro forma dividend per share, it extends Realty Income's weighted average lease life and it raises occupancy rates on a pro forma basis[i]. In one transaction, Realty Income will be able to increase its dividend per share by an amount greater than it has achieved through acquisitions and organic growth over the last 4 years combined[ii].
In contrast, for ARCT shareholders, the deal is dilutive to AFFO per share, brings additional lease roll risk and, most importantly, dramatically dilutes the dividend yield. Prior to the proposed merger, ARCT had approximately a 6% dividend yield with high-quality tenants and no material lease rolls for five years[iii]. Realty Income had a 4.3% dividend yield and greater lease roll risk over the next five years. Luxor does not believe that increased size and liquidity warrant such a dilutive deal.
Luxor also opposes the transaction for reasons related to the compensation structure at ARCT. Prior to its public listing, ARCT was an externally-managed, private REIT with a promote structure to reward the external manager (essentially the current management team of ARCT). As part of the public listing process, ARCT converted the external manager to an internal manager, thereby doing away with the promote concept for existing management. In its place the former ARCT management company was awarded a one-time payment for the "value" it would create for ARCT shareholders over the 180 day-period post ARCT's IPO listing. This "value" created was defined as the difference between the Strike Price and $9.81 per ARCT share, with the "Strike Price" defined as the weighted average trading price for ARCT shares for the 30-day period commencing on August 28, 2012[iv]. Had Realty Income stock appreciated on news of the highly accretive transaction with ARCT, management of ARCT would have profited materially, drawing into question, to Luxor, the motivations of the merger with Realty Income particularly in light of the fact that previous overtures by Realty Income to acquire and/or merge with ARCT had been repeatedly rejected.[v]
Luxor sees no compelling reason as a shareholder of ARCT to support the proposed merger in its current form.
[i] Realty Income investor presentation, September 6, 2012, pages 6 and 15.
[ii] Realty Income investor presentation, September 6, 2012, page 15.
[iii] ARCT investor presentation, June 2012, page 6.
[iv] ARCT 10-Q for the period ending June 30, 2012, page 18.
[v] ARCT and Realty Income joint proxy statement, October 1, 2012, pages 50-61.
CONTACT: Norris Nissim, General Counsel of Luxor Capital Partners, LP, +1-212-763-8041
SOURCE Luxor Capital Group, LP
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