Select Income plans notes, borrowings for $3 billion CCIT acquisition

By Lisa Kerner

Charlotte, N.C., Sept. 2 – Select Income REIT will use a combination of borrowings on its revolving credit facility and new notes to help fund its acquisition of Cole Corporate Income Trust for about $3 billion.

The purchase price includes the assumption of about $298 million of mortgage debt and is expected to close in the first quarter of 2015, said Select Income chief financial officer John Popeo during a conference call on Tuesday to discuss the transaction details.

According to Popeo, the transaction is structured as a cash-stock election where Cole shareholders may elect up to 60% cash or up to 60% stock, subject to proration if over 60% of either stock or cash is elected.

Select Income will issue about $800 million of common equity to Cole shareholders.

In addition, Select Income plans to sell all 23 of Cole’s health-care properties for approximately $539 million including the assumption of $30 million of mortgage debt to Senior Housing Properties Trust.

After the sale, the net cost of the transaction to Select Income is about $2.5 billion, or a $1.5 billion cash requirement to close.

“To meet this cash requirement, we plan to draw $500 million on our $750 million revolving credit facility and up to $1 billion under our one-year bridge loan facility that has been fully committed to by Citi and UBS,” said Popeo.

“We intend to seek investment-grade credit ratings with the expectation that we will issue a laddered maturity of senior unsecured notes to repay the new term loan in amounts outstanding on our revolving credit facility.”

Popeo said leverage will go up to about 50% from about 23% as a result of the transaction. Select Income’s “comfort level” is 40% to 50% long term and possibly higher on a short-term basis.

The laddered maturities are not expected to be all 10-year debt, but are expected to be a total rate of less than 4% “after we hit the capital markets,” said Popeo.

Transaction details

Select Income will acquire Cole’s full property portfolio, which includes 64 office and industrial net lease properties as well as 23 health-care properties. Cole stockholders will receive either $10.50 in cash or Select Income common shares at an exchange ratio of 0.36 of a Select Income common share for each share of Cole common stock held. Based on the closing price of Select Income’s common shares on August 29, 2014 and assuming 60% of Cole stockholders elect cash consideration, the blended amount to be paid by Select Income as merger consideration is roughly $10.32 per Cole share, according to a news release.

Select income owns properties that are primarily net leased to single tenants and is based in Newton, Mass.

Cole Corporate is the operating partnership of Phoenix-based Cole Office & Industrial REIT (CCIT II), Inc.

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