"Challenging" market environment leads to slightly lower price for ARC IV.
American Realty Capital Properties Inc. on Monday said it had tweaked the terms of its offer for American Realty Capital Trust IV Inc., a related nontraded real estate investment trust, trimming its value on ARC IV to $3 billion, from $3.1 billion, due to a “challenging” market environment.
A traded REIT run by chief executive Nicholas Schorsch, American Realty Capital Properties in July originally valued ARC IV at $3.1 billion when a merger between the two companies was announced. According to an investor presentation, ARCP's original cash and stock offer for ARC IV was for $30.47 per share; the revised deal is for $30.43 per share.
Unlike most nontraded REITs, which are sold at $10 per share, investors bought shares of ARC IV at $25 per share.
The companies said the changed offer “was precipitated by recent challenging conditions in the capital markets that had a material effect on the economic terms of the original merger agreement,” according to a news release.
Mr. Schorsch in an interview said the revised valuation of ARC IV also stemmed from the REIT rejecting about $80 million in assets in a real estate portfolio the company announced in June it was acquiring. That's when ARC IV said it had agreed to buy from GE Capital a $1.45 billion collection of retail properties with tenants including restaurant brands Taco Bell, KFC and Burger King. The portfolio is part of the formerly publicly traded Truststreet Properties Inc.
“We rejected some properties and didn't close on $80 million in assets,” Mr. Schorsch said. “They were just general properties. When you do due diligence, there's always some slippage” in the real estate portfolio, he said.
Mr. Schorsch noted that REITs in general have performed poorly of late. The MSCI U.S. REIT index is up 5.85% for the year but is well off its highs since its peak in May. The index has dropped almost 15% since then.