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February 27, 2013

Full-Cycle Liquidity Events: ARCT & ARC Trust III

The South Coast Team is pleased to announce the recent closure of the proposed merger between American Realty Capital Trust, Inc. (NASDAQ: ARCT) and Realty Income Corporation (NYSE: O). ARCT had previously raised just over $1.5B of equity through independent broker dealers with a goal of building a diversified portfolio of single-tenant, free standing, net leased, retail properties primarily leased to investment grade tenants. At the close of the merger, Realty Income increased its market capitalization to $7.95B, making it easily the largest net leased REIT in business today.

More than 89.7 percent of the shares voting at the Special Meeting voted in favor of the merger, representing more than 64.8 percent of all outstanding shares. Upon closing the transaction, ARCT stockholders received a one-time cash payment of $0.35 per share in addition to a fixed exchange ratio of 0.2874 Realty Income shares for each share of ARCT common stock that they owned. In addition, upon closing, Realty Income’s board of directors intends to increase its annualized dividend to stockholders by $0.35 per share to an annualized rate of $2.17 per share beginning with the February 2013 distribution.

South Coast clients invested in ARCT during the initial offering phase were the benefactors of a stable monthly dividend along with the potential to capitalize on the premium that Realty Income paid to acquire the company. As of January 30th, Realty Income shares closed trading at $43.56 which, after accounting for the share conversion, equates to over a 25% premium to the original ARCT offering price of $10 per share.

Proposed Merger: ARC Trust III & ARCP

On December 14, 2012, American Realty Capital Trust III, Inc. (ARC III), entered into an Agreement and Plan of Merger with American Realty Capital Properties, Inc., (NASDAQ CM:ARCP). ARC Trust III was constructed with a business plan similar to ARCT, focusing on the acquisition of single tenant, net leased, retail properties throughout the US.

Pursuant to the terms set forth in the Merger Agreement, at the effective time of the Merger each outstanding share of common stock of ARC III will be converted into the right to receive (i) 0.95 of a share of common stock of ARCP (“ARCP Common Stock”) or (ii) $12.00 in cash, but in no event will the aggregate consideration paid in cash be paid on more than 30% of the shares of Company Common Stock issued and outstanding as of immediately prior to the closing of the Merger. As of January 30th, ARCP shares closed at $13.52 which, after accounting for the share conversion, equates to over a 28% premium above the original ARC III offering price of $10 per share.

UPDATE 2/27/13: The merger between ARCP and ARC Trust III has been approved by shareholders and will officially take place tomorrow, 2/28. 

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