Attached files
| file | filename |
|---|---|
| EX-99.1 - EX-99.1 - Cole Real Estate Investments, Inc. | d517482dex991.htm |
| 8-K - 8-K - Cole Real Estate Investments, Inc. | d517482d8k.htm |
 A Highly
Attractive Real Estate Company and A Leading Real Estate Investment Manager
Exhibit 99.2 |
 2
Disclaimer
This presentation may be deemed to be solicitation material in respect of the charter
amendments to be presented to Cole Credit Property
Trust
III,
Inc.’s
(“CCPT
III”)
stockholders
for
consideration
at
the
2013
annual
stockholders’
meeting
of
CCPT
III.
CCPT
III
has
filed a preliminary proxy statement and expects to file a definitive proxy statement with the
Securities and Exchange Commission (“SEC”)
in
connection
with
the
2013
annual
stockholders’
meeting.
STOCKHOLDERS
ARE
URGED
TO
READ
THE
DEFINITIVE
PROXY
STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE,
BECAUSE THEY WILL CONTAIN
IMPORTANT
INFORMATION.
You
may
obtain
a
free
copy
of
the
definitive
proxy
statement
and
other
relevant
documents
filed with the SEC at the SEC’s website at www.sec.gov. Copies of the documents filed by
CCPT III with the SEC will be available free of
charge
by
directing
a
written
request
to
Cole
Credit
Property
Trust
III,
Inc.,
2325
East
Camelback
Road,
Suite
1100,
Phoenix,
Arizona 85016, Attention: Investor Relations.
CCPT III and its directors and executive officers and other members of management may be
deemed to be participants in the solicitation
of
proxies
in
respect
of
the
charter
amendments
to
be
considered
at
the
2013
annual
stockholders’
meeting
of
CCPT
III.
Information regarding the interests of CCPT III’s directors and executive officers in the
proxy solicitation will be included in CCPT III’s definitive proxy
statement. This
presentation
contains
a
description
of
certain
terms
of
the
merger
agreement
pursuant
to
which
CCPT
III
will
acquire
Cole
Holdings Corporation (“Cole Holdings”). A copy of the merger agreement has been
filed as an exhibit to a Form 8-K CCPT III filed with the SEC on March 8, 2013. The
description of the merger agreement contained in this presentation does not purport to be complete
and is qualified in its entirety by reference to the full text of the merger agreement.
|
 3
Forward-Looking Statements
In addition to historical information, this presentation contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements, which are based on current expectations, estimates and projections about the
industry and markets in which CCPT III operates, include beliefs of and assumptions
made by CCPT III’s management, and involve risks and uncertainties that could
significantly
affect
the
financial
results
of
CCPT
III.
Words
such
as
“may,”
“expects,”
“anticipates,”
“intends,”
“plans,”
“believes,”
“projects,”
“seeks,”
“estimates,”
“would,”
“could”
and “should”
and variations of such words and similar expressions are intended to
identify such forward-looking statements, which generally are not historical in nature.
Such forward-looking statements include, but are not limited to, statements about
the benefits of the business combination transaction involving CCPT III and Cole Holdings,
future financial and operating results, and the combined company’s plans, objectives,
expectations and intentions. All statements that
address
operating
performance,
events
or
developments
that
we
expect
or
anticipate
will
occur
in
the
future
—
including
statements
relating
to
earnings
accretion,
cost
savings,
an
anticipated
NYSE
listing
and
increased
liquidity
—
are
forward-looking
statements. These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict. Although we believe
the expectations reflected in any forward-looking statements are based on
reasonable assumptions, we can give no assurance that our expectations will be attained and
therefore, actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements. Some of the factors that may affect
outcomes and results include, but are not limited to: (i) national, international, regional
and local economic climates, (ii) changes in financial markets, interest rates, credit
spreads, and foreign currency exchange rates, (iii) changes in the real estate markets, (iv)
continued ability to source new investments, (v) increased or unanticipated competition for
our properties, (vi) risks associated with acquisitions, (vii) maintenance of real
estate investment trust status, (viii) availability of financing and capital, (ix) changes in demand
for
developed
properties,
(x)
risks
associated
with
the
ability
to
consummate
the
CCPT
III
–
Cole
Holdings
transaction
and
the
timing
of the closing of the transaction, and (xi) those additional risks and factors discussed in
reports filed with the SEC by CCPT III from time to time. CCPT III does not make any
undertaking with respect to updating any forward-looking statements appearing in this
presentation. |
 Key
Highlights The Special Committee of CCPT III has reviewed and considered the
unsolicited proposals from American Realty Capital Properties, Inc.
(“ARCP”) on March 27 and April 2 •
The Special Committee and its advisors have also had numerous follow-up
conversations with ARCP and its advisors to provide clarification on the
proposals •
Consistent with its fiduciary duties, the Special Committee has carefully reviewed
and considered the proposals The CCPT III Special Committee has concluded that
ARCP’s proposals are not in the best interests of CCPT III and its
stockholders for the following reasons: 1
2
3
4
5
6
7
8
9
ARCP’s Proposals Would Place the Company in the Hands of an External Manager
with a Mixed Track Record ARCP’s Proposals Would Create an Unattractive
Business Model ARCP Dividend Requires an Aggressive Acquisition and
Financing Strategy ARCP’s Aggressive Business Plan Generates Lower
Quality and Less Sustainable Earnings and Cash Flows ARCP Needs CCPT III to
Transform Itself, Not Vice Versa ARCP’s Proposals Represent Highly
Speculative Financial Engineering ARCP’s Unfunded Proposals Lack
Credibility ARCP’s Proposals Involve an Unsustainable and Excessive
Amount of Leverage ARCP’s Proposals Undervalue CCPT III on a Relative
and Absolute Basis 4 |
 5
1
1. ARCP implied cap rate based on ARCP share price of $14.80 on April 4, 2013.
Assumes 2013E NOI of $172 million based on ARCP’s February 28, 2013 investor
presentation,
annualizing
NOI
for
all
acquisitions
under
contract
per
the
earnings
transcript
of
the
same
date.
ARCP
implied
cap
rate
applied
to
CCPT
III
2013E
real
estate
assets only, with non-real estate assets included at book value. Excludes the
impact of the Holdings acquisition. 2. Assumes a 100% stock election
scenario. 3. Cash value per share of ARCP’s proposal.
•
If one assumes CCPT III should be valued at ARCP’s current estimated implied
cap rate of 5.2%, then
the
notional
value
of
ARCP’s
proposal
represents
a
14%
DISCOUNT
to
the
implied
per
share
trading value of CCPT III
•
The
cash
offer
of
$12.50
represents
a
21%
DISCOUNT
to
CCPT
III’s
implied
per
share
trading
value
NOTIONAL VALUE OF ARCP'S
PROPOSAL IMPLIES A 14% DISCOUNT
TO CCPT III VALUE
VALUE OF ARCP'S CASH PROPOSAL
IMPLIES A 21% DISCOUNT
TO CCPT III VALUE
•
Current
ARCP
share
price
implies
CCPT
III
Stockholders
should
receive
an
exchange
ratio
>1.0x
compared to ARCP’s proposal of 0.8x
$15.78
(1)
$13.59
(2)
$12.50
(3)
CCPT III Trading Value at
ARCP’s Implied 5.2% Cap Rate
to Value Assets
ARCP's April 2, 2013
Notional Proposal Price
ARCP's April 2, 2013
Cash Proposal Price
ARCP’s Proposals Undervalue CCPT III on a Relative and Absolute
Basis |
 6
•
On
April
2,
2013,
ARCP
indicated
that
it
would
provide
up
to
60%
cash
consideration
at
$12.50
per
share
•
This
would
add
approximately
$3.8
billion
of
debt
to
the
balance
sheet
before
any
incremental
leverage
resulting
from
a
cash
“true-up”
mechanism
•
A
very
significant
amount
of
additional
cash
could
be
required
for
any
cash
“true-up”
to
achieve
ARCP’s
proposed “guarantee”
•
The result for equity owners would be a highly levered company with an unstable
capital structure •
Shares
would
be
burdened
with
a
large
overhang
and
would
require
substantially
dilutive
equity
offerings or asset sales to right size the balance sheet
1.
Net lease peers include O, NNN, EPR and LXP.
($ in millions)
Leverage Required for 60% Cash Component
$ 3,757
$ 3,757
$ 3,757
Additional Leverage Required for Cash True-Up
-
319
800
Total Additional Leverage
$ 3,757
$ 4,076
$ 4,557
Net Debt / 2013E EBITDA
2
5.4 x
10.8 x
11.3 x
12.0 x
2.0 x
6.0 x
10.0 x
14.0 x
Net Lease Peers (1)
ARCP Pro Forma 60% Cash
Election at $18.00 True-Up
ARCP Pro Forma 60% Cash
Election at $15.00 True-Up
ARCP Pro Forma 60% Cash
Election at $12.00 True-Up
ARCP’s Proposals Involve an Unsustainable and Excessive Amount of
Leverage |
 7
ARCP’s Unfunded Proposals Lack Credibility
Where is the Money Coming From?
•
On
April
2,
2013,
ARCP
indicated
that
it
would
provide
up
to
60%
cash
consideration
at
$12.50 per share
•
This represents a cash requirement of approximately $3.8 billion
•
Potentially
more
cash
needed
to
fund
the
“guarantee”
via
“true-up”
mechanism
•
While ARCP’s financial advisors believe it can raise capital to fund the
transaction, ARCP does not have the necessary capital or evidence of
its ability to raise capital today •
ARCP would need to raise substantial additional debt and equity to fund the
transaction •
The pro-forma company’s equity would suffer significant dilution from
equity raises and/or asset sales to normalize pro forma leverage
How Can ARCP Bid to Acquire a Company with Funding it Does Not Have?
3 |
 8
ARCP’s Proposals Represent Highly Speculative Financial Engineering
•
ARCP’s
proposals
contain
a
“guarantee”
that
involves
highly
complicated
financial
engineering
that
lacks
certainty
for
both
CCPT
III and ARCP stockholders
•
ARCP’s
proposals
referenced
a
“guarantee”
of
$13.59
of
notional
value
for
stockholders
electing
stock
but
did
not
provide
clarity
on the method of guarantee
•
ARCP’s
financial
advisors
verbally
indicated
that
such
“true-up”
could
come
via
additional
shares
to
CCPT
III
stockholders
and
/
or
additional
cash
in
the
scenario
that
ARCP
trades
below
$16.99
(vs.
$14.80
today¹)
•
ARCP’s
proposed
exchange
ratio
of
0.8x
applied
to
their
current
stock
price
of
$14.80
per
share
would
equate
to
an
$11.84
per
share
value
for
CCPT
III
shares,
resulting
in
a
$1.75
per
share
“true-up”
to
their
so-called
guaranteed
price
of
$13.59
•
Floating exchange ratio under a stock true-up scenario would substantially
dilute ARCP’s stockholders from an ownership and earnings
perspective •
ARCP stockholders will only achieve the proposed 0.8x exchange ratio if ARCP
trades up to $16.99, a 15% increase from current market value
•
ARCP’s proposals involve significant risk to both CCPT III and ARCP
stockholders under each approach by jeopardizing the financial stability of
both companies: Cash “True-up”
Stock “True-up”
•
Too much leverage on balance sheet
•
Lack of clarity around source of funding for proposal creates potential for
substantial earnings and ownership dilution to equity holders post-
transaction
•
ARCP stockholders may suffer significant dilution resulting in uncertainty
around their stockholder vote
•
CCPT III stockholders could own potentially up to 80% of pro forma
company in the form of a lower quality currency
Issues
4
1.
Based on ARCP’s closing stock price on April 4, 2013.
|
 9
Square Footage (millions)
Gross Book Assets
1
($ in billions)
Diversification (% of Rent from Top 5 Tenants)
Source: Latest publicly available financials
1.
Gross book assets plus disclosed real estate depreciation.
2.
Spirit pro forma for CCPT II acquisition. SRC gross book assets represent the sum
of Spirit 3Q12 and CCPT II 3Q12 disclosed numbers. 3.
Based
on
straight-line
annualized
rental
revenue.
5
CCPT
III
is
already
a
premium
net
lease
REIT…
ARCP
is
trying
to
use
CCPT
III
to
transform
itself in the net lease space
$ 9.6
$ 7.4
$ 7.3
$ 4.7
$ 4.6
$ 4.3
$ 3.3
$ 2.2
O
CCPT III
SRC²
WPC
LXP
NNN
EPR
ARCP
13 %
20 %
21 %
24 %
29 %
29 %
46 %
52 %
LXP
O
CCPT III³
NNN
SRC
WPC
ARCP
EPR
54.3
>50
43.1
41.2
38.5
19.2
16.4
13.9
SRC
O
CCPT III
LXP
WPC
NNN
ARCP
EPR
ARCP Needs CCPT III to Transform Itself, Not Vice Versa |
 10
ARCP’s Aggressive Business Plan Generates Lower Quality and Less
Sustainable Earnings and Cash Flows
6
•
ARCP uses a short duration, floating rate capital structure to drive earnings
accretion •
Strategy lacks predictability in long-term cash flows as business is
susceptible to interest rate and re-financing risk
•
ARCP’s external manager is motivated to grow assets under management
(“AUM”), not drive value
•
ARCP will increase AUM by more than one-third in 2013 under its current
business plan •
ARCP’s in place earnings are substantially below its year end guidance
Short-Term Floating Rate
Financing
Aggressive Acquisition
Strategy
Lower Quality Earnings
Short-Term Floating Rate
Financing
Aggressive Acquisition
Strategy
Lower Quality Earnings |
 11
ARCP Dividend Requires an Aggressive Acquisition and Financing Strategy
•
ARCP is in a precarious position having guided dividend payout ratio to a level
that requires aggressive acquisitions
•
In-place earnings are significantly below year-end guidance
•
ARCP has guided to an AFFO that requires $1 billion of acquisitions (more than
one-third of its existing portfolio) after which it will still have an
excessive dividend payout ratio of 98% •
CCPT III’s pro forma dividend is well covered and positioned for sustainable
growth Net Lease Comparable Dividend Payout Ratio
7
Note: CCPT III and ARCP AFFO and Dividend estimates based on management guidance
from Investor Presentations dated 25-Mar-2013 and 28-Feb-2013, respectively.
Net Lease Comps estimates are sourced from IBES.
1. Pro forma for the Holdings transaction.
2. Estimates per 27-Mar-2013 Ladenburg Thalmann research.
2013E:
Dividend/Share
$ 0.70
$ 0.91
$ 0.61
$ 1.60
$ 3.30
$ 1.25
$ 3.16
$ 2.18
AFFO/Share
$ 0.80
$ 0.93
$ 0.83
$ 1.95
$ 3.98
$ 1.50
$ 3.73
$ 2.35
88.1 %
97.8 %
73.5 %
82.1 %
82.9 %
83.3 %
84.7 %
92.8 %
CCPT III¹
ARCP
LXP
NNN
WPC²
SRC
EPR
O
Peer Average: 83.2 % |
 12
ARCP’s Proposals Would Create an Unattractive Business Model
External Management Structure for a Listed REIT
•
ARCP is currently externally managed by a private company. Many externally managed
publicly traded REITs have significantly underperformed their peers
•
External managers of publicly-traded companies are incented to grow assets under
management; not grow quality of earnings and net asset value
10-Year
Total
Return
(2003
–
2013)
Source: SNL, Bloomberg, as of 3-Apr-2013
8
Hospitality Properties
Trust
SNL US REIT
Hotel Index
128.9 %
137.2 %
CommonWealth
REIT
SNL US REIT
Office Index
55.5 %
132.4 %
Senior Housing
Properties Trust
SNL US REIT
Healthcare Index
348.0 %
544.5 %
Universal Health Realty
Income Trust
SNL US REIT
Healthcare Index
314.2 %
544.5 % |
 13
•
Nicholas Schorsch was the CEO, President and Chairman of American Financial Realty
Trust (“AFR”) since the REIT was formed in 2002 and till his
resignation in 2006 •
AFR materially underperformed net lease peers by 105.8% and the S&P 500 by
70.4% during the time it was public •
AFR’s underperformance was a result of its aggressive acquisitions, excessive
leverage and unsustainable dividend levels
•
In August 2006, the AFR Board accepted Nicholas Schorsch’s resignation as CEO
and replaced him with a new CEO who elaborated the necessity for a new
strategy, including: •
Aggressively pursue assets sales “for further debt reduction…to reach an
overall debt to total asset leverage of 60-65%”
•
Reduced quarterly dividend from $0.27 to $0.19 to “align its dividend payout
with its quarterly earnings from core operations”
•
Improve transparency in reporting to “conform its reporting of operating
results to more closely reflect industry standards”
AFR Indexed Total Return since IPO
ARCP’s Proposals Would Place the Company in the Hands of an External
Manager with a Mixed Track Record
Source:
Bloomberg,
Wall
Street
Research,
SEC
Filings,
company
press
release
available
at:
1
Net lease peer set includes O, NNN, LXP and EPR. Stock is equally weighted, WPC is
excluded as it was unlisted in 2003 and SRC is excluded due to interim transformational transactions.
9
“AFR's P/NAV discount
truly reflects poor
operating trends, higher
leverage, and growing
investor-agitation from
inconsistent performance
and communication..”
~(Wachovia, May 2, 2006) |
 14
CCPT III’s Planned Acquisition of Cole Holdings is Expected to Yield
Substantial Financial Benefits to CCPT III Stockholders
•
Management expects approximately $29 million of 2013E pro forma EBITDA contribution
from Cole Holdings (excludes any
contribution
from
CCPT
II
and
CCPT
III)
(1)
•
In addition to acquiring a world class asset management business
with a 34-year track record:
•
CCPT III will achieve significant savings in overhead
•
Cole Holdings is forgoing 25% of its existing contractual promote
•
In most cases, the earn-out is payable on a 2-year trailing average
multiple of EBITDA only in excess of $25 million— Cole Holdings must
deliver results for future consideration •
Total
performance
must
meet
or
exceed
the
average
of
the
peer
group
for
full
payment
as
well
(2)
Note:
These metrics are among a number of factors considered by the Special Committee in
making its determination |
 15
Near Term Liquidity Event and Pro Forma Company Business Plan
Represent a Compelling Opportunity for Stockholders
•
CCPT III Listing expected June 2013
•
CCPT III expects no
share lockups –
100% to be freely tradable on Day 1
•
Tender offer for shares to support liquidity upon listing is being considered by
CCPT III
•
CCPT III believes CCPT III stockholders will have significant value under the
current planned listing in a few months
•
CCPT III will be a well-positioned company that will drive sustainable,
long- term value |
 Key
Highlights The Special Committee of CCPT III has reviewed and considered the
unsolicited proposals from American Realty Capital Properties, Inc.
(“ARCP”) on March 27 and April 2 •
The Special Committee and its advisors have also had numerous follow-up
conversations with ARCP and its advisors to provide clarification on the
proposals •
Consistent with its fiduciary duties, the Special Committee has carefully reviewed
and considered the proposals The CCPT III Special Committee has concluded that
ARCP’s proposals are not in the best interests of CCPT III and its
stockholders for the following reasons: 1
2
3
4
5
6
7
8
9
ARCP’s Proposals Would Place the Company in the Hands of an External Manager
with a Mixed Track Record ARCP’s Proposals Would Create an Unattractive
Business Model ARCP Dividend Requires an Aggressive Acquisition and
Financing Strategy ARCP’s Aggressive Business Plan Generates Lower
Quality and Less Sustainable Earnings and Cash Flows ARCP Needs CCPT III to
Transform Itself, Not Vice Versa ARCP’s Proposals Represent Highly
Speculative Financial Engineering ARCP’s Unfunded Proposals Lack
Credibility ARCP’s Proposals Involve an Unsustainable and Excessive
Amount of Leverage ARCP’s Proposals Undervalue CCPT III on a Relative
and Absolute Basis 16 |