Tuesday, April 30, 2013

In The (No) Money

This blog has been harsh on Cole Credit Property Trust III's decision to acquire its sponsor.  But I need to point out what's happening with Cole Credit Property Trust II (CCPT II) and its merger with Spirit Realty (SRC).  Back when it was a game to speculate about CCPT II's liquidity plans, I determined that for Cole to achieve its subordinated listing fee, its stock would have to trade above $11.06 per share.  This was as of September 2012, and was probably high based on the timing of all investors into CCPT II, but then a few more distribution periods have passed that would have increased the price.  So, I am guessing an "in the money" price of $11.06 is not too far off the mark, over which Cole gets a 15% subordinated incentive listing fee.   Today, SRC's stock closed at $21.53 per share, giving a CCPT II conversion price of $11.30 per share ($21.53 times the conversion ratio of .525).

There is only one problem.  Cole waived any subordinated incentive listing listing fee when it agreed to the merger with Spirit.  With an agreed upon January merger price of $9.36 per share for CCPT II stock, waiving a incentive that that required a nearly $2 per share appreciation (nearly $4 for SRC) over six months was probably not a tough decision.  Conversely, I imagine that Cole probably could have kept the subordinated incentive listing fee for the same reason.  I could also argue that since SRC's management is going to take over the combined SRC / CCPT II portfolio, it needs deserves credit for the stock increase, too.  It'd be tough, however, to argue that SRC's stock has not benefited from potential addition of the CCPT II assets.

I'll caution that the CCPT II / SRC merger is yet complete and not scheduled to finalize until early in the third quarter.  Things can change in a short period, but today it looks like Cole waived a fee it would have earned.


Anonymous said...

Or can we take this further? Cole waived the fee on behalf of a company he doesn't own any longer. Any incentive/performance fee in the Spirit transaction would have gone to Cole III shareholders(now that they own the advisor/sponsor)?

Rational Realist said...

You bring up good points to which I have no answer. I would guess that any fee would have flowed to Cole not CCPT III, because the effective date of the merger was before CCPT III bought Cole Holdings, but I don't know. Maybe this one reason, along with the resulting valuation uncertainty played into not taking the fee. It's all speculation at this point.

no money down property investment said...

I might speculate that any expense might have streamed to Cole not Ccpt Iii, in light of the fact that the successful date of the merger was before Ccpt Iii acquired Cole Holdings, yet I don't have the foggiest idea.