Luxor Capital Group Announces That It Intends to Vote Against the
Proposed American Realty Capital Trust Merger
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