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Former Director Blasts AR Global Corporate Governance, Warns of Investor Lawsuits

Realty Finance Trust, Inc. a publicly registered non-traded real estate investment trust sponsored by AR Global, the successor business to AR Capital, disclosed that Robert Froehlich, an independent director who resigned from the board earlier this month, had substantial doubts about an undisclosed merger of two AR Global non-traded REITs, RFT and American Finance Trust.

As reported by The DI Wire last month, AR Global is seeking to consolidate seven of its REITs with nearly $10.5 billion in assets. Two unnamed industry sources indicated that American Finance Trust would 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.

Froehlich, who served on the boards of RFT and Healthcare Trust Inc., resigned from both – although at the time, no explanation was given as to why he was not running for re-election.

“Nothing is easy or without drama and controversy regarding RFT, even something that on the surface appears so simple, like resigning from the board,” said Froehlich in a letter to fellow board members and others. “At the recent board meeting of RFT on April 22nd, Nick Radesca, CFO of RFT, excused himself from our potential merger discussions with [American Finance Trust]. That action was a resounding reminder of the inherent conflict of interest shouldered by Mr. Radesca from having to serve as CFO of both RFT and [American Finance Trust] at a time when [American Finance Trust], through a related-party transaction, was then and is currently attempting to acquire RFT.”

American Finance Trust had its name redacted from the letter due to confidentiality reasons.

Froehlich added, “Frankly, sound corporate governance should have compelled Mr. Radesca to resign as CFO from one firm or the other, rather than straddle clearly conflicting roles.”

Froehlich, who also requested engaging the services of an unnamed third party to explore strategic alternatives, said that he would resign if the board failed to get behind his requests, as he is concerned that his professional reputation will suffer if he remains a member of the RFT board.

He also had strong words for Peter McDonough, who is currently running for his now vacant board seat.

“It is imperative you have notice of the inherent conflicts of interest in, not only the proposed transaction, but the overlapping CFO duties as well,” said Froehlich. “It is equally imperative you enter your prospective new role with your eyes wide open as to, what I consider to be, at best, shoddy corporate governance procedures. Should this activity continue unabated, I believe the shareholders would have a sound case for breach of duty at which trial I am free to testify without repercussion.”

Realty Finance Trust focuses on commercial real estate debt investments secured by income-producing properties and targets loans and securities – diversified by duration, geographic location, property type, ownership, and tenancy. The REIT commenced operations in November 2012 and raised $780.8 million in investor equity prior to terminating the offering in January 2016.

AR Capital-related companies have struggled to raise equity after an ARC-affiliate, American Realty Capital Properties, filed inaccurate financial reports in October 2014 which they left uncorrected. The firm eventually severed ties with the parent company and rebranded itself as Vereit (NYSE: VER).

After being hit with fraud charges by the state of Massachusetts relating to a proxy voter scandal, another affiliate, RCS Capital, paid a multimillion dollar fine and agreed to terminate its business. AR Capital terminated its offerings and stopped selling new investment products at the end of 2015.

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