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ARC’s New York REIT and JBG Call Off Proposed Merger, REIT Plans to Sell Assets

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New York REIT Inc. (NYSE: NYRT), one of Nicholas Schorsch’s former non-traded real estate investment trusts known as American Realty Capital New York Recovery REIT, and private real estate firm JBG Companies have mutually agreed to terminate their previously announced merger agreement.

The merger would have created an $8.4 billion REIT with properties in New York and the Washington D.C. area. New York REIT, which is managed by AR Global – the successor business to AR Capital, said that it now plans to sell off its individual assets.

The proposed merger drew withering criticism from WW Investors, an entity jointly owned by Michael Ashner and Steven Witkoff, who own a combined 1.2 million shares of NYRT stock.

Ashner, the chairman and chief executive officer of Winthrop Realty Trust, and Witkoff, the chairman and chief executive officer of The Witkoff Group, submitted two investor presentations detailing their grievances with the proposed merger, which they viewed as more profitable for company insiders than REIT stockholders. The pair also intended to file preliminary proxy materials with the SEC to solicit votes to elect five director nominees, including themselves, to the board.

“After extensive discussions with our stockholders, the NYRT board of directors determined that it is in the best interests of the company and its stockholders to terminate the combination agreement effective immediately,” said Randolph Read, chairman of the board of NYRT. “We respect the views of our stockholders and are committed to acting in their best interest. The board is taking action to realize the value inherent in our business.”

The board also instructed management to seek new financing to prepay its existing credit facility in full and to provide increased flexibility to sell assets and distribute the permitted proceeds to stockholders. The company noted that the new financing could also be used to purchase the remaining 51.1 percent of Worldwide Plaza.

New York REIT purchased its interest in Worldwide Plaza in 2013 for $220.1 million, based on the property value of $1.3 billion less $875 million in debt on the property. The seller, a joint venture between George Comfort & Sons, RCG Longview, and DRA Advisors, retained the remaining 51.1 percent equity interest. If the REIT fails to exercise its purchase option, which begins in December 2016, it will pay a $25 million fine. The maximum amount of loss that could be incurred by the REIT relating to its investment in Worldwide Plaza is $233.6 million, according to an SEC filing.

The REIT’s current credit facility had an outstanding balance of $485 million as of August 1, 2016. The company said that it plans to refinance partly because the existing credit facility does not permit a liquidation or sale of all or substantially all of its assets.

“NYRT has high quality, well leased assets in one of the best real estate markets in the world and our balance sheet is solid. Throughout the strategic review process, the board has evaluated various potential transactions and I believe the board’s decision to begin selling individual assets, while maintaining compliance with our existing credit facility and Maryland law, is the best way to realize value for our stockholders, and in a manner that does not preclude a sale of the company should a compelling offer be made,” said Michael Happel, chief executive officer and president of NYRT.

Throughout the strategic process conducted by the board, a significant number of potential buyers were interested in acquiring the REIT’s assets. The REIT intends to re-engage in those discussions, seek other qualified buyers, and would also consider a “compelling offer for the entire company.”

Under the terms of the termination agreement, New York REIT will pay JBG $9.5 million as reimbursement for certain costs. The REIT’s asset sales are unlikely to close until new financing is put in place.

New York REIT currently owns 19 New York City properties totaling 3.3 million square feet. Shares of NYRT stock closed at $9.91 on Tuesday.

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