UPDATE: MLV Downgrades CapLease to Hold, Raises PT Following American Realty Capital Properties Merger Announcement

In a report published Wednesday, MLV analyst Jonathan Petersen downgraded the rating on CapLease (NYSE: LSE) from Buy to Hold, but raised the price target to $8.50.

In the report, MLV noted, “This morning, CapLease (LSE) and American Realty Capital Properties (ARCP) announced that ARCP has entered into an agreement to merge with LSE and purchase all outstanding common shares for $8.50/sh, or a 20% premium to Friday's close. According to our estimates, this values LSE at a 7.0% cap rate, which is at a premium to our NAV cap rate of 7.5%. The merger provides LSE with a ‘go-shop' period to seek higher bids - this period ends on July 7th and a termination fee of $15M ($0.17/sh) would have to be paid should LSE accept a higher bid before then, and $25M ($0.28/sh) after July 7th. Given that the ARCP offer allows LSE management to become ARCP employees, we expect management's preference is the ARCP bid. The transaction is 10% accretive to ARCP's 2014 AFFO guidance, which suggests to us that the company would be willing to match higher bids, up to a point. We are downgrading LSE to Hold, and raising our price target to $8.50.”

CapLease closed on Tuesday at $8.55.