AR Global Non-Traded REITs to Merge in $1.4B Deal

By Gail Kalinoski

Michael Weil, AR Global

New York—Two non-traded REITs sponsored by New York-based AR Global plan to merge, with American Finance Trust Inc. acquiring the much smaller American Realty Capital–Realty Centers of America Inc.–for $1.4 billion in a combination of cash, stock and assumed debt. The merger will create a retail-focused REIT with an enterprise value of approximately $3.9 billion.

In separate announcements, both REITs said special committees of their boards had unanimously approved the definitive merger agreement. Once combined, the portfolio will comprise 494 properties in 39 states with a total of 20.8 million square feet.

Under the terms of the agreement, RCA shareholders will receive 0.385 shares of AFIN common stock and $0.95 in cash for each share of RCA common stock they own. Upon closing, RCA shareholders will own about 37 percent of the combined company. The deal also gives RCA a 45-day go-shop period in which they can seek proposals from third parties. RCA would pay a $5.1 million termination fee to AFIN if RCA cancels the merger agreement.

Shareholders of both REITs would have to approve the merger, which is expected to close in the first quarter of 2017.

Michael Weil, CEO of both AFIN and its sponsor AR Global, said in prepared remarks the announcement “is a key step forward in our plan to grow earnings.”

Saying it would create a best-in-class diversified REIT with a retail focus, Weil added, “The combination of AFIN and RCA will help the Company achieve critical scale, afford improved access to capital markets, result in significant cost savings for shareholders and increase coverage of our distribution.”

Leslie Michelson, lead independent director of RCA, said the independent directors worked closely with their advisors to evaluate alternatives.

“We believe this is a highly compelling and value-maximizing transaction for our shareholders,” Michelson said in a prepared statement. “The complementary property portfolios of RCA and AFIN provide an attractive opportunity for our shareholders to participate in the future prospects of the combined company.”

The merger increases the scale of RCA significantly. The REIT, which has 35 properties totaling 7.5 million square feet of space and with an enterprise value of $1.4 billion, has focused on acquiring a diversified portfolio of retail properties that were mostly multi-tenant shopping centers throughout the United States. AFIN, with 459 properties worth about $2.5 billion and covering about 13.3 million square feet, has focused mainly on net-leased single tenant buildings. While RCA’s portfolio is smaller, it will bring high-quality retail tenants like Best Buy, Lowe’s, PetSmart, Kohl’s, Home Depot and Michael’s to the combined company.

The merged company will operate as American Finance Trust and Weil will continue as CEO. Other top AFIN managers will remain and Kase Abusharkh, currently CIO at RCA, will join the team as CIO of the multi-tenant portfolio. AFIN will add two independent directors of RCA’s choosing, bringing the board of directors for AFIN up to six, five of them independent.

UBS Investment Bank is financial advisor and Pepper Hamilton LLP is legal counsel to AFIN’s special committee. BMO Capital Markets is financial advisor and Arnold & Porter LLP is legal counsel to RCA’s special committee. Proskauer Rose LLP is legal counsel to both AFIN and RCA.

The merger agreement for AFIN and RCA comes about a month after two other AR Global-sponsored REITS announced a merger. Global Net Lease, a publicly traded REIT, and American Realty Capital Global Trust II, a non-traded REIT, plan to combine and create a global net lease mega-REIT with an enterprise value of $3.3 billion. Asset manager AR Global has been planning mergers among some of its REITs for several months, according to various media reports.

Image courtesy of AR Global