Home Alts News American Finance Trust to Acquire Retail Centers of America for $1.4 Billion

American Finance Trust to Acquire Retail Centers of America for $1.4 Billion

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Two non-traded real estate investment trusts sponsored by AR Global – the successor business to AR Capital, will be merging to create a single retail focused REIT with an enterprise value of approximately $3.9 billion. The combined retail-focused portfolio will total 494 properties, comprising 20.8 million rentable square feet of single-tenant net lease, power center, and lifestyle center assets.

American Finance Trust Inc. (AFIN) will acquire all of the outstanding common stock of American Realty Capital – Retail Centers of America Inc. (RCA) for approximately $1.4 billion, payable in a combination of AFIN common shares and cash plus the assumption of certain debt.

The special committee of AFIN’s board of directors, which consists of the independent members of the board of directors, evaluated and approved the proposed transaction, which is still subject to the approval of shareholders of both REITs. Last week, The DI Wire reported that the REITs suspended their distribution reinvestment plans in light of the strategic review process.

“We are pleased to announce today’s transaction which will bring together two high quality real estate portfolios and will create a best-in-class diversified REIT with a retail focus,” said Michael Weil, chief executive officer of AFIN. “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 distributions. For AFIN, today’s announcement is a key step forward in our plan to grow earnings.”

American Finance Trust says that the merger will improve access to capital markets, increase liquidity options, and improve the capital structure of the company. The transaction is also expected to strengthen the company’s distribution coverage.

The addition of RCA’s retail portfolio will broaden AFIN’s retail tenant base and “significantly” reduces fees with an expected $10.9 million of annual savings in 2017 ($6.1 million in contractual asset management fee savings and $4.8 million in general and administrative expense savings

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 approximately 37 percent of the combined company. The approximately 90 percent stock component of the transaction is expected to be tax-free to shareholders.

The merger agreement also provides RCA with a go-shop period during which time RCA will have the right to actively solicit alternative proposals from third parties for 45 days.

AFIN will add two independent directors to be appointed by RCA’s board of directors, bringing to six the total number of directors for the combined company, five of them independent.

Completion of the transaction is subject to the approval of AFIN and RCA shareholders as well as satisfaction of customary closing conditions. The transaction is expected to close in the first quarter of 2017.

American Finance Trust’s portfolio consists of 459 office, retail, and distribution properties totaling 13.1 million square feet with a total purchase price of $2.2 billion. The portfolio is 100 percent leased with a weighted-average remaining lease term of 9.6 years. The company commenced its initial public offering in April 2013, which closed six months later after raising $1.6 billion.

American Realty Capital—Retail Centers of America went effective in March 2011 and closed in September 2014 after raising $973 million in investor equity. The REIT’s portfolio includes 35 properties totaling 7.5 million square feet with an investment cost of $1.2 billion.

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