Following withering criticism and an investor lawsuit, the board of directors at American Realty Capital – Retail Centers of America, have decided not to pursue changing the company’s charter via proxy vote while it and other AR-Global REITs are reportedly reviewing strategic alternatives. It also reached an agreement to settle a related shareholder lawsuit, pending the approval of the court.
Regarding the strategic alternatives, the board announced that it had previously formed a special committee to address the “potential strategic transaction” with American Finance Trust, another AR Global-sponsored non-traded REIT.
The “potential strategic transaction” likely relates to the undisclosed merger that The DI Wire reported on in April.
American Finance Trust is seeking to buy Healthcare Trust, Realty Finance Trust, American Realty Capital – Retail Centers of America, and American Realty Capital Healthcare Trust III, while publicly traded Global Net Lease (NYSE: GNL) would acquire American Realty Capital Global Trust II. All of the REITs are externally advised by AR Global-controlled entities.
Retail Centers of America said that it established a special committee to consider, review and evaluate the proposal and, if appropriate, negotiate the terms of the proposed transaction – although no recommendations have been made. The committee is not authorized to undertake a broader review of the company’s strategic alternatives other than in connection with the proposal or any potential conflicts of interest that may arise. The group said it engaged BMO Capital Markets Corp. to act as its exclusive financial advisor and retained Arnold & Porter LLP as its special legal counsel.
The company also addressed the recent lawsuit filed late last month on behalf of an ARC-Retail shareholder against the board of directors alleging that the company is seeking to eliminate valuable shareholder protections.
A proxy statement filed in April in connection with the 2016 Annual Meeting of Stockholders on June 29th contained proposals soliciting the approval of certain amendments to the company’s charter. The company said the changes were intended “to be more consistent with the charters of publicly-traded REITs and provide the company with enhanced flexibility to pursue various ways to provide liquidity to its stockholders and to engage in other transactions that may be beneficial to the company and its stockholders.”
The lawsuit, however, alleges that the proxy statement is materially misleading and incomplete with respect to disclosures concerning proposed amendments to the charter that would eliminate conflicts of interest protections and restrictions on the company’s advisor, which manages the day-to-day affairs of the company and is also controlled by AR Global.
In addition to the lawsuit, the planned roll-up and various proxy statements were heavily criticized by Robert A. Stanger and Co. in their special report titled “Clear and Present Danger.”
A former director of two of the REITs considered in the undisclosed merger, Robert Froehlich, has also been an outspoken opponent and resigned from his position due to certain misgivings with how the proposed merger was being handled.
As a result of recent events, including the pending litigation, the company decided to remove certain proposed charter amendments from the proxy statement, and withdraw them from the agenda of the annual meeting.
The board also entered into a memorandum of understanding to settle the recent litigation. The company will withdraw the proposed charter amendments and the case will be stayed pending approval by the court of a definitive settlement agreement, after which the case will be dismissed with prejudice. The defendants in the lawsuit have denied, and continue to deny, all allegations of wrongdoing.
The company stated that if discussions between the special committees of both REITs result in a definitive agreement, it may seek separate approval of one or more of the withdrawn charter amendment proposals in connection with seeking stockholder approval of any such transaction.
American Realty Capital – Retail Centers of America focuses on acquiring anchored, stabilized core retail properties for investment purposes, including power centers and lifestyle centers, which are located in the United States.