Filed by Realty Income Corporation
Pursuant to Rule 425 Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: American Realty Capital Trust, Inc.
Registration Statement No. 333-184201
 DECEMBER 2012
Creating the Top Net Lease REIT
Acquisition of
The Monthly Dividend Company
®
NYSE: O |
 2
Additional Information and Where to Find It
Participants in Solicitation
Introductory Notes
In connection with the proposed merger, the Company and Realty have
filed a definitive proxy statement with the SEC on December 6,
2012 and commenced mailing the definitive proxy statement and a form of proxy to the stockholders of the
Company. BEFORE MAKING ANY VOTING DECISION, INVESTORS ARE URGED TO READ
THE DEFINITIVE PROXY STATEMENT REGARDING THE PROPOSED MERGER
CAREFULLY AND IN ITS ENTIRETY BECAUSE THE PROXY STATEMENT
CONTAINS IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors
will be able to obtain, without charge, a copy of the definitive proxy
statement and other relevant documents filed with the SEC from
the SEC’s website at http://www.sec.gov. Copies of the documents filed by the Company with the SEC are also
available free of charge on the Company’s website at
http://ir.arctreit.com, and copies of the documents filed by Realty with
the SEC are available free of charge on Realty’s website at
http://www.realtyincome.com.
The Company, Realty and their respective directors and executive
officers may be deemed to be participants in the solicitation of
proxies from the Company’s and Realty’s stockholders in respect of the proposed merger. Information
regarding the Company’s directors and executive officers can be
found in the Company’s definitive proxy statement filed
with the SEC on May 21, 2012. Information regarding Realty’s
directors and executive officers can be found in Realty’s
definitive proxy statement filed with the SEC on March 30, 2012.
Stockholders may obtain additional information regarding the
interests of the Company and its directors and executive officers in the proposed merger, which may be different than
those of the Company’s stockholders generally, by reading the
definitive proxy statement filed in connection with the proposed
merger with the SEC on December 6, 2012 and other relevant documents regarding the proposed merger filed
with the SEC. These documents are available free of charge on the
SEC’s website and from the Company or Realty, as
applicable, using the sources indicated above.
|
 3
Forward-Looking Statements
Information set forth herein (including information included or
incorporated by reference herein) contains “forward-
looking statements”
(as defined in Section 21E of the Securities Exchange Act of 1934, as
amended), which reflect the Company’s and Realty’s
expectations regarding future events. The forward-looking statements involve a number of risks,
uncertainties and other factors that could cause actual results to
differ materially from those contained in the forward-
looking statements. Such forward-looking statements include, but
are not limited to whether and when the transactions
contemplated by the merger agreement will be consummated, the new
combined company’s plans, market and other expectations,
objectives, intentions and other statements that are not historical facts.
The following additional factors, among others, could cause actual
results to differ from those set forth in the forward-
looking statements: the ability to obtain regulatory approvals for the
transaction and the approval of the merger agreement by the
stockholders of both parties; unexpected costs or unexpected liabilities that may arise from the transaction, whether
or not consummated; the inability to retain key personnel; continuation
or deterioration of current market conditions; future regulatory
or legislative actions that could adversely affect the companies; and the business plans of the customers
of the respective parties. Additional factors that may affect future
results are contained in the Company’s and Realty’s
filings with the SEC, which are available at the SEC’s website at
www.sec.gov. The Company and Realty disclaim any obligation to
update and revise statements contained in these materials based on new information or otherwise.
Introductory Notes (Continued) |
 4
A Compelling Transaction for ARCT’s Stockholders
Premium
Valuation:
Realty
Income
is
valuing
ARCT’s
assets
at
a
significantly
higher
price and lower cap rate than ARCT’s cost basis, which represents
the lowest cap rate of similar
net
lease
REIT
transactions
1
–
5.9% cash cap rate / 6.1% GAAP cap rate vs. 8.2% weighted average cap
rate basis –
Cap
rate
is
significantly
lower
than
similar
transactions,
which
range
from
7.1%
-
8.25%
1
–
15.7x forward EBITDA multiple represents second highest amongst
similar REIT transactions
2
Ideal
Strategic
Buyer:
Realty
Income
represents
the
ideal
strategic
buyer
given
their
business
focus,
size
and
scale,
investment
grade
balance
sheet
/
cost
of
capital
and
share
liquidity
No
Inquiries
Received:
Since
announcement
of
the
transaction,
no
third
party
has
approached ARCT or its advisors with an alternative transaction or
with a request for information despite low break fee of ~1.7%
of transaction value 1
2
3
(1)
See page 11 for similar transaction cap rates.
(2)
See page 12 for similar transaction forward EBITDA multiples.
|
 5
A Compelling Transaction for ARCT’s Stockholders
(Continued)
4
5
6
Favorable
Analyst
Reaction:
The
transaction
has
been
reviewed
favorably
by
the
research analyst community
–
As part of the merger agreement, ARCT management agreed to reduce its
total compensation and capped potential financial upside
Alignment
of
Interests:
Pro
forma
for
the
transaction,
ARCT
management
will
own
~$45
million of equity in Realty Income, including over $25 million of
existing equity in ARCT Future
Growth
Opportunities
and
Value
Creation:
Realty
Income’s
experienced
management team has a successful track record of driving dividend
growth and producing enhanced stockholder returns
|
 6
Transaction Summary |
 7
Transaction Summary
Highly Compelling Offer Unanimously Approved by ARCT and Realty
Income’s Boards As in the Best Interests of the Companies and
Their Stockholders •
Transaction Value:
Realty Income will acquire ARCT for approximately $2.95 billion in a
100% stock transaction at a fixed exchange ratio of 0.2874
shares of Realty Income for each share of ARCT
•
Implied Price Per Share:
As of September 5, 2012, the day prior to the announcement date,
Realty
Income’s
closing
price
implied
a
value
of
$12.21
per
share
for
ARCT
1
,
which was a 6.8%
premium to ARCT’s average closing price for the 30 calendar days
prior to announcement •
Pro Forma Enterprise Value:
Combined
enterprise
value
is
$11.4
2
billion, making Realty
Income
the
largest
net
lease
REIT
and
18
th
largest U.S. REIT
•
Ownership Structure:
ARCT stockholders will own approximately 25.6% of the combined
company’s common stock
•
Approvals and Timing:
Transaction subject to approval of both companies’ stockholders
at special meetings scheduled for January 16, 2013
(1)
Implied price per share of $12.21 based on 0.2874 exchange ratio
applied to Realty Income’s closing share price of $42.48 on
September 5, 2012.
(2)
As of September 5, 2012, one day prior to announcement date. |
 8
Ownership of Realty Income, the Best Performing
Net Lease REIT Over the Past 40 Years
•
Merger will result in ARCT stockholders owning Realty Income, the best
performing publicly traded net lease REIT
•
Realty Income has paid 508 consecutive monthly dividends since 1970 and
has increased its monthly dividend 68 times since its listing on
the New York Stock Exchange in 1994 •
Realty Income has increased its annualized dividend 102%, from $0.90
per share in 1994 to $1.82 per share today; upon the closing of
the transaction the dividend is expected to increase
another
7%
to
$1.95
per
share
1
•
Since
Realty
Income’s
listing,
the
compounded
annual
return
to
stockholders
has
been
17.7%,
which is more than 670 bps higher than the Dow Jones Industrial
Average, Standard & Poor’s 500,
NASDAQ
and
FTSE
NAREIT
Index
for
the
same
time
period
2
(1)
Current annualized dividend based on December declared dividend of
$0.1514 per share. Projected dividend increase assumes a March
2013 close based on 2013E AFFO. (2)
Compounded annual returns per Bloomberg from Realty Income’s NYSE
listing on October 18, 1994 through September 30, 2012. Assumes
reinvestment of dividends, except for NASDAQ.
|
 9
Compelling Growth Potential to Drive Future
Stockholder Value
•
The combined company will be significantly larger and financially
stronger than its competitors and will have one of the lowest
cost of capital in a sector where low cost capital creates
competitive advantage
•
The combined company’s cost of capital advantage positions it to
grow earnings while increasing dividends
•
The combined company’s greater scale will facilitate the execution
of large transactions through improved access to capital,
further enhancing the company’s ability to realize value in the
relatively fragmented net lease real estate sector
As a Result of the Merger, ARCT Stockholders Stand to Benefit from
Greater Risk Adjusted Returns Due to the Enhanced Stability and
Diversity of the Combined Property Portfolio |
 10
Transaction Value Represents a Significant
Premium to ARCT’s Asset Cost
•
On
September
5,
2012,
the
offer
value
implied
a
weighted
average
capitalization
rate
for
ARCT’s assets of 6.1%, or 5.9% based on current cash rents,
significantly below the weighted average capitalization rate of
8.2% paid by ARCT for its assets (1)
2012 YTD as of June 30, 2012 and includes only closed
acquisitions. (2)
Contract purchase price excluding acquisition related costs.
(3)
As reported, calculated as net operating income divided by purchase
price. Year
Acquisition Volume ($ mm)
2
Weighted Average Cap Rate
3
2008
$ 149
7.7%
2009
180
8.7%
2010
543
8.6%
2011
1,239
7.9%
2012 YTD
1
13
8.5%
Total
$ 2,124
8.2%
Proposed Acquisition
$ 2,950
6.1% |
 11
Cap Rate is the Lowest of Similar Public Net Lease
REIT Transactions
Implied Cap Rate
Source: Company filings, Wall Street Research and Investor
Presentations (1) Represents a 5.9% cash cap rate or 6.1% GAAP
cap rate. 5.9%
7.10
-8.25%
7.6%
7.5%
7.5%
7.4%
7.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
American Realty
Capital Trust (1) /
Realty Income
(5-Sep-2012)
American Financial
Realty Trust /
Gramercy Capital Corp.
(5-Nov-2007)
Newkirk Realty Trust / Government Properties
Lexington Realty Trust
(23-Jul-2006)
Trust /
Record Realty Trust
(23-Oct-2006)
Trustreet Properties /
General Electric
Capital Corporation
(30-Oct-2006)
Spirit Finance
Corporation /
Investor Group led by
Macquarie Bank
(13-Mar-2007)
Capital Automotive
REIT /
DRA Advisors LLC
(6-Sep-2005) |
 12
EBITDA Multiple at High End of Similar Public
Net Lease REIT Transactions
Implied
Forward
EBITDA
Multiple
(1)
Based on announced transaction value and forward consensus median
EBITDA estimates. (2)
EBITDA estimate of $251.9 million as at 15-Mar-2007. As of the
announcement date, the EBITDA estimate was $174.0 million
implying a transaction multiple of 20.1x. Source: Company
filings, DataStream, SNL Financial 15.7 x
18.4 x
14.1 x
13.9 x
13.8 x
13.2 x
8.0 x
0.0 x
2.0 x
4.0 x
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
16.0 x
18.0 x
20.0 x
American Realty
Capital Trust /
Realty Income
(5-Sep-2012)
American Financial
Realty Trust /
Gramercy Capital Corp.
(5-Nov-2007)
Government Properties
Trust /
Record Realty Trust
(23-Oct-2006)
Spirit Finance
Corporation²
/
Investor Group led by
Macquarie Bank
(13-Mar-2007)
Trustreet Properties /
General Electric
Capital Corporation
(30-Oct-2006)
Capital Automotive
REIT /
DRA Advisors LLC
(6-Sep-2005)
Newkirk Realty Trust /
Lexington Realty Trust
(23-Jul-2006)
1 |
 13
Transaction Value Represents a Significant
Premium to ARCT’s Historical Trading Levels
•
Implied offer value of $12.21 per share of ARCT common stock represents
a premium of: •
23.5% to ARCT’s volume-weighted average price on first day of
trading of $9.89 •
12.3%
to
the
average
closing
price
per
share
of
$10.87
since
its
NASDAQ
listing
on
March 1, 2012 through announcement
•
6.8% to ARCT’s 30-calendar-day average share price prior
to announcement of $11.43 •
2.1% to ARCT’s closing price on the day prior to announcement of
$11.96 $ 11.96
$ 9.50
$ 10.00
$ 10.50
$ 11.00
$ 11.50
$ 12.00
$ 12.50
1-Mar-12
1-Apr-12
1-May-12
1-Jun-12
1-Jul-12
1-Aug-12
1-Sep-12
Implied Value¹
on 5-Sep-2012 = $12.21
Average Since Listing²
(1-Mar-2012) = $10.87
30-Calendar-Day Average Prior to 5-Sep-2012 =
$11.43 Source: Bloomberg
(1)
Implied value based on 0.2874 exchange ratio applied to Realty
Income’s closing share price of $42.48 on September 5, 2012.
(2)
Average closing price per share from listing on March 1, 2012 until
September 5, 2012. |
 14
After a Comprehensive Strategic Review Process the
ARCT Board Concluded That the Realty Income
Offer Was in the Best Interests of Stockholders
Timeline
Process Details
May 2011
•
ARCT filed 8-K to announce it was evaluating strategic
alternatives —
Board hired Goldman, Sachs & Co. as financial advisor and
Proskauer Rose LLP as external legal counsel Early June 2011
to
September 2011
•
Over
40
parties
were
contacted
regarding
interest
in
engaging
in
a
potential
acquisition
of
ARCT
•
18 parties entered dataroom
•
6 parties submitted non-binding indications of interest
—
No proposal was above ARCT’s initial public offering price of
$10.00 per share —
Several proposals only related to the acquisition of a portion of
ARCT’s portfolio June 29, 2011
•
Realty Income submitted a proposal to acquire ARCT’s real estate
portfolio as of May 31, 2011 (350 properties) with
consideration in the form of cash, restricted and unrestricted common stock and convertible preferred stock
—
Complex offer inadequate and difficult to value
—
Burdened stockholders with liquidity constraints
February 21, 2012
•
Realty Income submitted a new non-binding indicative proposal, at
a price of $10.25 per share, composed of a fixed exchange ratio
of 0.168 and $4.10 per share in cash March 1, 2012
•
ARCT internalized its management services and listed on the
NASDAQ |
 15
Transaction Results From Comprehensive
Strategic Review Process (Continued)
Timeline
Process Details
Early August 2012
•
In August 2012, Realty Income contacted ARCT to indicate interest in
revisiting a possible strategic transaction with ARCT
August 16, 2012
•
Realty Income proposed an exchange ratio of 0.2841 for 100% stock
consideration that was rejected by ARCT as being
insufficient August 17, 2012
•
The exchange ratio was negotiated upward to 0.2874
August 2012
to
Early September 2012
•
ARCT’s board of directors met several times to review Realty
Income’s proposals and discuss the merger agreement
•
The independent directors also met several times to discuss various
aspects of the proposed merger September 5, 2012
•
Realty Income’s board of directors unanimously approved the
transaction September 6, 2012
•
ARCT’s board of directors unanimously approved the
transaction •
Transaction was announced before market open through a joint press
release issued by ARCT and Realty Income
|
 16
Transaction Has Been Reviewed Favorably By the
Research Analyst Community
•
“In our view, O’s deal for ARCT is an attractive one as it
has the lowest capital costs in the public markets and we don’t see
better offers being out there for the enterprise.”
-
J.P.
Morgan
research
report,
“3Q
a
Penny
Shy
of
Our
Estimate
on
Lighter
Revenue;
Deal
Volume
as
Expected”
-
October 25, 2012
•
“Points for Solid Execution: Sure, commercial real estate values
have gone up since ARCT bought most of its properties. But if
they have appreciated at the same pace as, say, the typical strip
center owned by the REITs in our coverage universe, then the
weighted average cap rate at today’s values would be about 7.3%.
The giant gap between that figure and the 5.9% cap rate ARCT
management is selling the company for suggests great execution by them on behalf of their shareholders.”
-
Green
Street
Advisors
research
report,
“A
Rare
Non-Traded
REIT
‘Success’
Story”
-
September
11,
2012
•
“In all, through both a major acquisition like ARCT and the
consistent level of acquisition activity on a quarterly basis, Realty
Income is poised for substantial growth in our view.”
-
RBC Capital Markets research report, “3Q Earnings Review:
Operations, Acqs Strong; Raising 12/13 Est, Introducing
‘14”
-
October
29,
2012
•
“For ARCT shareholders, the benefits include a decline in cost
of and a greater access to capital, overhead savings, and
partnering with the best in class management team with a track record
of producing attractive shareholder returns and dividend
growth.”
-
JMP
Securities
research
report,
“Merger
Overshadows
3Q
Report;
Maintain
MP”
-
November
2,
2012
•
“For shareholders in American Realty Capital Trust,
yesterday’s announcement will be greeted with justifiable smiles and
applause; especially given the negative news that has been flowing from
the non-traded REIT space over the past year or
so…Bottom line: AR Capital’s and ARCT management’s
interests were aligned with those of rank-and-file investors, and ARCT
definitely did the right thing.”
-
REIT
Wrap
publication
-
September
7,
2012
(1)
Permission for quotation was neither sought nor obtained.
1
1
1
1
1 |
 17
Overview of Realty Income |
 18
Overview of Realty Income
•
Realty Income (NYSE: O) is an $8.7 billion commercial real estate company
with a Baa1/BBB/BBB+ (Moody’s/S&P/Fitch) credit rating
•
Founded in 1969 to provide monthly dividends to stockholders through the
ownership of net lease real estate
•
508 consecutive monthly dividends with 68 dividend increases since NYSE
listing in 1994 •
Monthly dividends supported by cash flow from long-term
leases •
Over 2,750 properties under long-term leases to commercial and
retail tenants •
Significant growth since NYSE listing in 1994
•
Total capitalization increased from $402 million to $8.7 billion
•
Properties owned increased from 630 to 2,838
•
Property square footage increased from 4.1 million to 34.3
million •
Tenant industries increased from 5 to 44
•
Share price increased from $8.00 to $40.17
•
Dividend per share increased from $0.90 per share to $1.95 per share,
pro forma for this transaction
Note: Capitalization and share price as of December 5,
2012. |
 19
Realty Income’s Long-Term Goals
Moderate FFO growth
Moderate dividend growth
Maintain a conservative business strategy that does not take excessive
risk in the pursuit of objectives
Maintain a conservative financial position for stockholders
Realty Income Delivers Consistent Earnings and Dividend Growth
Using Conservative Operating and Balance Sheet Strategies
Debt:
Maximum 20 -
35%
Preferred:
Maximum 10 -
15%
Interest Coverage Ratio:
3.0x or above
Fixed Charge Ratio:
2.5x or above
Solid dividend coverage
Payout Ratio:
At or below 85% |
 20
Proven Track Record of Consistent Dividend
Growth
•
Realty Income has a consistent track record of generating dividend
growth over its 18 years as a public company
•
Realty
Income
has
increased
its
dividend
68
times
since
its
1994
NYSE
listing
and
has
had 508 consecutive monthly dividends
•
The
dividend
has
increased
every
year
since
the
listing
1
Source: Bloomberg
(1)
Annualized dividend amount reflects the December declared dividend
rate per share multiplied by twelve. |
 21
Realty Income Has Achieved Outsized Returns
Relative to Major Indices Including the S&P 500
Compounded Annual Return
Source: Bloomberg.
Note:
(1)
Calculated as the difference between closing stock price as of period
end, less the closing stock price as of
previous period.
(2)
Per NAREIT website and Factset. Includes reinvestment of dividends.
(3)
Price only index, does not include dividends. Source:
Factset.
All of these compounded average annual total return rates
are calculated in the same manner: from Realty Income’s
NYSE listing on October 18, 1994 through September 30, 2012 and
assuming reinvestment of dividends, except for NASDAQ. Past
performance does not guarantee future performance. Realty Income presents this data only for
informational purposes and makes no representation about its future
performance or how it will compare in performance to other
indices in the future. |
 22
Combined Company Highlights |
 23
Superior Asset Portfolio
•
Achieves greater economies of scale than standalone ARCT and Realty
Income by leveraging Realty Income’s operating platform
over a larger portfolio •
Creates the largest public triple net lease company by over two times;
well-positioned as a premier consolidator in the net lease
sector ARCT Current
Realty Income Current
Combined Company
Meaningfully Increases Size &
Scale
1
506 Properties
15.7 mm Square Feet
~$2.8 billion
Total Capitalization
2,838 Properties
34.3 mm Square Feet
~$8.7 billion
Total Capitalization
3,344 Properties
50.0 mm Square Feet
~$11.6 billion
Total Capitalization
Increased Industry
Diversification
26 Tenant Industries
44 Tenant Industries
48 Tenant Industries
Decreased Top 15 Tenant
Concentration
2
63%
47%
41%
(1)
Total capitalization based on closing share prices as of December 5,
2012. (2)
Based on average annual base rent.
•
Allows ARCT stockholders to exchange their shares for those of Realty
Income, with a broader, more diverse asset portfolio, on a tax
free basis |
 24
Consolidation Opportunity
•
Estimated $1.5 to $2.0 trillion of U.S. real
estate is held by corporate owners / users
•
Highly fragmented market without a dominant
type of investor
•
Sector is underpenetrated by public companies
•
Limited competition from investors due to
constricted bank lending market
•
Increased transaction volume signifies more
inventory from sellers to transact
Source: Public filings and Real Capital Analytics.
Represents total market value of real estate owned by O, NNN, EPR,
ARCT, LXP, SIR, GTY and LSE.
Fragmented Net Lease Market Provides Ample Opportunity for Realty Income
to Continue to Grow
Estimated Ownership Profile
TTM Transaction Volume ($ in billions)
Realty
Income
Can
Drive
Higher
Earnings
and
Earnings
Growth
than
Any
of
its
Public
Comparables
Due to Significant Cost of Capital Advantage
Publicly
Owned
(<5%)
(1)
Not
Publicly
Owned
(>95%)
$39.3
$9.3
$21.3
Aug. 2007
Sep. 2009
Mar. 2012 |
 25
Size is a Competitive Advantage and Drives Value
Source: Bloomberg
(1)
Average total return of the top 20 largest REITs by equity market
capitalization at the end of each year, per NAREIT.
Total Return
The Largest REITs Consistently Outperform The Broader REIT Market
•
Average annual outperformance of 4.5%
5.7%
39.8%
36.8%
15.7%
42.8%
(13.6)%
(21.3)%
31.6%
29.6%
10.8%
16.9%
3.6%
36.7%
31.5%
12.1%
35.9%
(16.8)%
(38.0)%
28.6%
28.5%
8.7%
14.9%
2002
2003
2004
2005
2006
2009
2010
2011
2012
Top 20 Largest REITs¹
MSCI U.S. REIT Index
2007
2008 |
 26
Combined Company Increased Size and Scale
•
Largest public triple net lease company by
over two times
•
18
th
largest public U.S. REIT
•
Cost of capital, operational and economies
of scale advantages
•
Increased float and liquidity
•
Pro forma real estate revenue to be
approximately 35% higher
•
Realty Income positioned as the premier
consolidator in the net lease sector
•
Realty Income’s acquisition volume
through 3Q 2012 far exceeds that of
ARCT’s
Total Market Capitalization
Annual Rental Revenues
Equity Value
Total Debt + Preferred
7,205
5,361
3,831
1,893
2,161
1,860
4,352
3,305
1,473
2,037
1,696
$11,556
$8,665
$5,304
$3,930
$3,857
$2,820
O (PF)
O
NNN
LXP
EPR
ARCT
$681
$505
$335
$332
$256
$176
O (PF)
O
NNN
LXP
EPR
ARCT
959
—
Realty Income has acquired properties at
the rate of approximately $80 million per
month while ARCT has acquired
approximately $5 million per month
Note: $ in millions. Stock price as of December 5, 2012 used to
calculate Total Market Capitalization. Rental revenues and debt
plus preferred per 3Q 2012 Company filings. |
 27
Improved Credit Profile and Access to Capital
•
Lower
cost
of
debt
capital
resulting
from
larger
size,
access
to
multiple
forms
of
capital,
and
Realty
Income’s
investment
grade
credit
rating
•
Well positioned to benefit from external acquisition growth strategy
compared to substantially all competitors with higher capital costs
•
In a worsening fiscal environment ARCT’s current
sub-investment grade credit rating could put the Company at a disadvantage across
capital markets compared to combined company
•
Standalone ARCT is much more exposed to increases in interest rates
than combined company ARCT
Realty Income
Commentary
Unsecured Debt
No
Yes
•
Issued
unsecured
debt
with
coupons
as
low
as
2.0%
(6
year
notes)
and
3.25%
(10
year
notes)
¹
Preferred Equity
No
Yes
•
Issued preferred equity with dividends ranging from 6.625% to
6.750% Public Common Equity
No
Yes
•
Successful track record of follow-on equity offerings
Credit Ratings
Ba2/BB
Baa1/BBB/BBB+
•
ARCT stockholders will immediately benefit from current IG
rating Secured Debt as % of Total
Debt
~54%
~5%
•
More flexible capital structure with increase in unencumbered asset
base Floating Rate Exposure²
~46%
~1%
•
Less reliance on floating rate bank debt or secured mortgage
debt Weighted Average Debt
Tenor
4.1 years
7.6 years
•
Longer weighted average debt maturity
ARCT
Stockholders
Gain
Materially
Improved
Access
To
Capital
and
Benefit
From
Realty Income’s Track Record as an Investment Grade Issuer
(1)
3.25% coupon was in the top 5 lowest issuances for 10-year note
issuances for in the REIT space for 2011-2012 YTD . (2)
Floating rate exposure calculated as floating rate debt as a percentage
of total debt outstanding. Realty Income’s $1.0
billion revolver currently has $0 drawn, subsequent to 3Q 2012. ARCT’s floating rate debt includes a revolver and term loan. |
 28
ARCT’s Long Term Balance Sheet Goals Met Immediately
•
ARCT Balance Sheet Goal:
ARCT’s long term balance sheet goal is to reduce levels of
secured and floating rate debt and increase weighted average
debt maturity in pursuit of an investment grade corporate credit rating
•
ARCT Balance Sheet Risks:
On a standalone basis, ARCT’s goal to reduce the use of floating
rate debt and increase debt duration in order to improve its
Ba2/BB credit ratings is subject to significant timing and execution risks
•
Impact on ARCT of Interest Rate Increase:
The table below illustrates how ARCT’s standalone AFFO per share,
and ability to cover its current dividend (“payout
ratio”), could be negatively affected by potential increases in interest rates¹
•
Realty Income’s Balance Sheet Advantage:
Realty Income’s debt is primarily fixed rate and long term and
its investment grade balance sheet and proven access to the
unsecured bond markets allow immediate recapitalization of ARCT’s variable rate debt on
highly favorable terms
•
Combined Balance Sheet Benefits:
Pro forma for the transaction, the combined company will be rated
Baa1/BBB/BBB+ and will enjoy a much longer weighted average debt
maturity than ARCT standalone (7.8 years vs. 4.1 years), further solidifying the
viability of distributable cash flows and dividends
Access to Realty Income’s Long-Term, Fixed-Rate Debt Meets
All of ARCT’s Balance Sheet Goals Immediately, Significantly
Reducing ARCT’s Floating Rate Interest Exposure and Debt Recapitalization Risk
Illustrative
Interest Rate Increase
in Floating Rate Debt
Illustrative
Annual Interest
Expense Increase²
($ in millions)
Illustrative
Annual Decrease in
AFFO Per Share³ ($)
Illustrative
Pro Forma Annual
AFFO Per Share
4
Illustrative
Pro Forma AFFO Per
Share Decrease (%)
Illustrative
Pro Forma
Payout Ratio
5
(%)
0
bps
$
0.0
$
0.00
$
0.76
0.0
%
94.1
%
50
bps
1.9
(0.01)
0.75
(1.6)%
95.6
%
100
bps
3.9
(0.02)
0.74
(3.2)%
97.2
%
150
bps
5.8
(0.04)
0.72
(4.8)%
98.8
%
200
bps
7.7
(0.05)
0.71
(6.4)%
100.5
%
250
bps
9.7
(0.06)
0.70
(8.0)%
102.3
%
300
bps
11.6
(0.07)
0.69
(9.6)%
104.1
%
(1)
$387 million of floating rate debt outstanding as of September 30,
2012 at a weighted average interest rate of 2.55%.
(2)
Illustrative interest rate increase multiplied by $387 million
floating rate debt outstanding.
(3)
Illustrative increase in interest expense divided by 159 million
diluted shares outstanding as of 3Q 2012.
(4)
3Q 2012 announced AFFO per share of $0.19, annualized, less
illustrative decrease in AFFO per share.
(5)
Illustrative pro forma payout ratio assumes constant annualized
dividend of $0.715 per share.
|
 29
Investment Grade Debt Profile
•
The combined company will have few near-term debt maturities and
well-laddered maturities after 2017
•
Weighted
average
debt
duration
increases
from
4.1
years
for
ARCT
to
7.8
years
combined
•
Secured debt as a percentage of total debt decreases from 54% for ARCT
to 17% combined •
Variable rate debt as a percentage of total debt decreases from 46% for
ARCT to 1% combined Note: Based on company 3Q 2012
filings. 26.9
111.4
252.9
23.0
178.0
100.0
150.0
275.0
175.0
2,365.6
$126.9
$44.6
$261.4
$527.9
$198.0
$2,543.6
2013
2014
2015
2016
2017
Thereafter
Mortgage Debt
Senior Unsecured Notes |
 30
Conclusion |
 31
A Compelling Transaction for ARCT’s Stockholders
Premium
Valuation:
Realty
Income
is
valuing
ARCT’s
assets
at
a
significantly
higher
price and lower cap rate than ARCT’s cost basis, which represents
the lowest cap rate of similar
net
lease
REIT
transactions
1
–
5.9% cash cap rate / 6.1% GAAP cap rate vs. 8.2% weighted average cap
rate basis –
Cap
rate
is
significantly
lower
than
similar
transactions,
which
range
from
7.1%
-
8.25%
1
–
15.7x forward EBITDA multiple represents second highest amongst
similar REIT transactions
2
Ideal
Strategic
Buyer:
Realty
Income
represents
the
ideal
strategic
buyer
given
their
business
focus,
size
and
scale,
investment
grade
balance
sheet
/
cost
of
capital
and
share
liquidity
No
Inquiries
Received:
Since
announcement
of
the
transaction,
no
third
party
has
approached ARCT or its advisors with an alternative transaction or
with a request for information despite low break fee of ~1.7%
of transaction value 1
2
3
(1)
See page 11 for similar transaction cap rates.
(2)
See page 12 for similar transaction forward EBITDA multiples.
|
 32
A Compelling Transaction for ARCT’s Stockholders
(Continued)
Alignment
of
Interests:
Pro
forma
for
the
transaction,
ARCT
management
will
own
~$45
million of equity in Realty Income, including over $25 million of
existing equity in ARCT –
As part of the merger agreement, ARCT management agreed to reduce its
total compensation and capped potential financial upside
Favorable
Analyst
Reaction:
The
transaction
has
been
reviewed
favorably
by
the
research analyst community
4
5
6
Future
Growth
Opportunities
and
Value
Creation:
Realty
Income’s
experienced
management team has a successful track record of driving dividend
growth and producing enhanced stockholder returns
|
 33
Appendix |
 34
Break Fee Represents One of the Lowest Break
Fees in Similar REIT Transactions
Break Fee Represents ~1.7% of Transaction Value
Source: SNL Financial
Buyer
Seller
Date
Announced
Reported
Breakup Fee
($ 000)
Reported
Deal Value
($ mm)
Breakup
Fees As % of
Deal Value
Buyer
Seller
Date
Announced
Reported
Breakup Fee
($ 000)
Reported
Deal Value
($ mm)
Breakup
Fees As % of
Deal Value
SL Green Realty Corp.
Reckson Associates
8/3/2006
$ 99,800
$ 3,720.3
2.68%
Apollo Investment Corp.
Innkeepers USA Trust
4/15/2007
$ 17,000
$ 871.0
1.95%
Developers Diversified Realty
Inland Retail REIT
10/20/2006
80,000
3,708.0
2.16%
ProLogis
Meridian Industrial Trust
11/16/1998
40,000
852.3
4.69%
ProLogis
Catellus Development Corp.
6/5/2005
90,000
3,599.2
2.50%
Eaton Vance-ProLogis
Keystone Property Trust
5/3/2004
27,000
847.7
3.18%
Simon Property Group Inc.
Chelsea Property Group Inc.
6/20/2004
110,000
3,554.1
3.10%
Duke Realty Investments Inc.
Weeks Corp.
2/28/1999
50,000
825.0
6.06%
Morgan Stanley
CNL Hotels & Resorts
1/18/2007
145,000
3,217.9
4.51%
Security Capital Group Inc.
Storage USA Inc.
12/5/2001
22,500
816.5
2.76%
General Electric Co.
Arden Realty Inc.
12/21/2005
100,000
3,141.9
3.18%
Colonial Properties Trust
Cornerstone Realty Income
10/25/2004
17,000
749.0
2.27%
Public Storage Inc.
Shurgard Storage Centers
3/6/2006
125,000
3,106.0
4.02%
Olympus Real Estate Corp
Walden Residential
9/24/1999
26,750
748.0
3.58%
Georgia-Pacific Corp.
Plum Creek Timber Co.
7/18/2000
100,000
2,986.0
3.35%
Metropolitan Partners LLC
Tower Realty Trust Inc.
12/8/1998
16,750
739.4
2.27%
Blackstone Group L.P.
CarrAmerica Realty Corp.
3/5/2006
70,000
2,899.2
2.41%
U.S. Restaurant Properties
CNL Restaurant Properties
8/9/2004
20,000
710.7
2.81%
Morgan Stanley
Crescent Real Estate Equities
5/22/2007
64,200
2,885.2
2.23%
Inland American Real Estate
Apple Hospitality Five Inc.
7/25/2007
15,000
678.3
2.21%
Equity Office Properties Trust
Cornerstone Properties Inc.
2/11/2000
100,000
2,725.7
3.67%
Equity Residential Properties
Evans Withycombe
8/27/1997
14,000
663.6
2.11%
DRA Advisors
Capital Automotive REIT
9/2/2005
40,000
2,236.2
1.79%
Heritage Property Investment
Bradley Real Estate Inc.
5/15/2000
15,000
596.4
2.51%
Archstone Communities Trust
Charles E. Smith Residential
5/3/2001
95,000
1,842.5
5.16%
General Growth Properties
JP Realty Inc.
3/3/2002
21,000
525.3
4.00%
Centro Watt
Heritage Property Investment
7/9/2006
65,000
1,787.0
3.64%
Kimco Realty Corp.
Price REIT Inc.
1/13/1998
12,500
521.1
2.40%
Starwood Financial Trust
TriNet Corporate Realty Trust
6/15/1999
50,000
1,690.5
2.96%
Health Care Property
American Health Properties
8/4/1999
18,700
504.3
3.71%
Investor group
Spirit Finance Corp.
3/12/2007
31,000
1,583.6
1.96%
Equity Residential Properties
Wellsford Residential
1/16/1997
14,000
489.0
2.86%
Simon Property Group Inc.
DeBartolo Realty Corp.
3/26/1996
35,000
1,462.4
2.39%
ING Groep NV
Apple Hospitality Two Inc.
2/15/2007
18,694
467.3
4.00%
General Electric Co.
Franchise Finance Corp.
3/30/2001
60,000
1,411.1
4.25%
Inland American REIT Inc.
Winston Hotels Inc.
4/2/2007
11,000
460.8
2.39%
Goldman Sachs Group Inc.
Equity Inns Inc.
6/20/2007
38,000
1,287.2
2.95%
US Retail Partners, LLC
First Washington Realty Trust
9/27/2000
18,000
458.5
3.93%
Bay Apartment Communities
Avalon Properties Inc.
3/9/1998
10,000
1,255.6
0.80%
Health Care REIT Inc.
Windrose Medical Properties
9/12/2006
20,300
447.0
4.54%
J.E. Robert Company Inc.
Highland Hospitality Corp.
4/24/2007
50,000
1,209.9
4.13%
Liberty Property Trust
Republic Property Trust
7/23/2007
16,000
435.0
3.68%
Morgan Stanley
AMLI Residential Properties
10/23/2005
40,000
1,191.7
3.36%
LBA Realty LLC
Bedford Property Investors
2/10/2006
16,000
434.9
3.68%
General Electric Co.
Trustreet Properties Inc.
10/30/2006
42,000
1,151.6
3.65%
Westbrook/Sunstone Mgmt
Sunstone Hotel Investors Inc.
7/12/1999
25,000
388.0
6.44%
Blackstone Group L.P.
MeriStar Hospitality
2/20/2006
21,000
1,129.3
1.86%
Developers Diversified Realty
JDN Realty Corp.
10/4/2002
16,000
386.5
4.14%
Gramercy Capital Corp.
American Financial Realty Tr.
11/2/2007
32,000
1,120.3
2.86%
CNL Hospitality Properties
RFS Hotel Investors Inc.
5/8/2003
15,000
382.3
3.92%
Camden Property Trust
Summit Properties Inc.
10/4/2004
50,000
1,111.0
4.50%
Pennsylvania REIT
Crown American Realty Trust
5/13/2003
20,000
381.5
5.24%
CalWest Industrial Properties
Cabot Industrial Trust
10/28/2001
35,000
1,071.8
3.27%
Public Storage Inc.
Storage Trust Realty
11/12/1998
12,000
377.3
3.18%
Hometown America LLC
Chateau Communities Inc.
5/29/2003
40,000
1,028.5
3.89%
Post Properties Inc.
Columbus Realty Trust
8/1/1997
10,000
377.0
2.65%
JV of Morgan Stanley / Onex
Town & Country Trust
12/19/2005
28,000
930.5
3.01%
GEO Group Inc.
CentraCore Properties Trust
9/19/2006
9,000
355.8
2.53%
Morgan Stanley
Glenborough Realty Trust Inc.
8/20/2006
27,750
926.0
3.00%
Camden Property Trust
Paragon Group Inc.
12/16/1996
10,000
342.8
2.92%
DRA Advisors
CRT Properties Inc.
6/17/2005
40,000
902.7
4.43%
Morguard Corp.
Sizeler Property Investors
8/7/2006
NA
325.3
N/A
Average Break Fee
3.28% |
 35
You May Contact Us At
Brian Jones
Chief Financial Officer
OFFICE
(646) 937-6903
EMAIL
bjones@arctreit.com
Heather Gentry
Vice President of Investor Relations
OFFICE
(646) 937-6904
EMAIL
hgentry@arctreit.com
Tere H. Miller
Vice President Corporate Communications
EMAIL
IR@realtyincome.com
Realty Income
600 La Terraza Blvd., Escondido, CA 92025
American Realty Capital Trust
405 Park Avenue, New York, NY 10022
www.arctreit.com
www.realtyincome.com |
Additional Information and Where to Find It
These materials are not a substitute for the Registration Statement on Form S-4 (File No. 333-184201) that Realty Income filed with the SEC in connection with the proposed transaction with ARCT, or the definitive joint proxy statement/prospectus sent to security holders of Realty Income and ARCT on or about December 6, 2012 seeking their approval of the proposed transaction. INVESTORS AND SECURITY HOLDERS OF REALTY INCOME AND ARCT ARE URGED TO CAREFULLY READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS DATED DECEMBER 6, 2012, WHICH WAS SENT TO SECURITY HOLDERS OF REALTY INCOME AND ARCT ON OR ABOUT DECEMBER 6, 2012, AS IT CONTAINS IMPORTANT INFORMATION, INCLUDING DETAILED RISK FACTORS. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus and other documents filed by Realty Income and ARCT with the SEC at the SEC’s web site at www.sec.gov. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any shares of Realty Income or ARCT common stock.
Participants in the Solicitation
Realty Income, its directors, executive officers and certain members of management and employees may be considered “participants in the solicitation” of proxies from Realty Income’s stockholders in connection with the acquisition. Information regarding such persons and a description of their interests in the acquisition is available in Realty Income’s joint proxy statement/prospectus filed with the SEC, and additional information regarding such persons is included in our proxy statement filed with the SEC on March 30, 2012.
ARCT, its directors, executive officers and certain members of management and employees may be considered “participants in the solicitation” of proxies from ARCT’s stockholders in connection with the acquisition. Information regarding such persons and a description of their interests in the acquisition is available in its joint proxy statement/prospectus filed with the SEC, and additional information regarding such persons is included in ARCT’s proxy statement filed with the SEC on May 21, 2012.
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. This notice is being issued pursuant to and in accordance with Rule 135(c) under the Securities Act.
Forward-Looking Statements
Information set forth herein (including information included or incorporated by reference herein) contains “forward-looking statements” (as defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect Realty Income’s and ARCT’s expectations regarding future events. The forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Such forward-looking statements include, but are not limited to whether and when the transactions contemplated by the merger agreement will be consummated, the new combined company’s plans, market and other expectations, objectives, intentions and other statements that are not historical facts.
The following additional factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain regulatory approvals for the transaction and the approval of the merger agreement by the stockholders of both parties; unexpected costs or unexpected liabilities that may arise from the transaction, whether or not consummated; the inability to retain key personnel; continuation or deterioration of current market conditions; future regulatory or legislative actions that could adversely affect the companies; and the business plans of the customers of the respective parties. Additional factors that may affect future results are contained in Realty Income’s and ARCT’s filings with the SEC, which are available at the SEC’s website at www.sec.gov. Realty Income and ARCT disclaim any obligation to update and revise statements contained in these materials based on new information or otherwise.