Monday, March 11, 2013

Internalization Fee And Then Some

On Friday Cole Credit Property Trust III (CCPT III) released an 8-K that included the merger agreement between it and Cole Holdings, and the compensation arrangements between the new company and Christopher Cole and Marc Nemer.  If a $150 million internalization fee was not enough, as part of their compensation agreements with the new company, Mr. Cole and Mr. Nemer will receive shares in the new entity of $7.5 million and $6.0 million, respectively, payable when the merger closes.  These long-term incentive and retention awards are:
subject to mutually agreed upon future employment and performance conditions and are expected to be reflective of the standard vesting and market practice for awards granted to the most senior executives of similarly situated companies in connection with a new equity listing. 
I find it hard to believe the stock grants won't get realized.  Apparently, according the the 8-K, awards of this nature are "customary."  Really?  I want some of this custom.  Return of investor capital plus the preferred return better be one "performance condition."   I'll add this compensation to the overall level of fees CCPT III investors are paying to buy CCPT III's sponsor.


Anonymous said...

This is a horrible deal for CCPT III, why would CCPT III be buying its own parent and sponser, just puts more money in Chris Cole pocket, the board of CCPT III is not working in shareholders best interests

Anonymous said...

Anonymous 1 -

Because of the high fee structure in these non-traded REITs, in a lot of cases, merging with the sponsor is actually accretive to FFO distribution coverage. Not only does the new entity no longer have the high fees, but it also gets to collect the fees from other Cole REITs.

I don't like the idea of Cole and his buddies getting rich off of it either, but it's not exactly detrimental to shareholders.

Rational Realist said...

Anonymous 1, Anonymous 2 has good points. This is not necessarily a bad deal for CCPT III investors. The problem is the large internalization fee. If this deal is accretive as expected, Cole's 15% profit participation should generate more than enough profit.