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ARC-Retail Investor Files Lawsuit to Block Proxy and Roll-up

The law firm of Kessler Topaz Meltzer & Check, LLP has filed a federal lawsuit on behalf of a shareholder of American Realty Capital – Retail Centers of America, Inc. against the company’s board of directors in the United States District Court for the Southern District of New York.

ARC-Retail Centers of America is a non-traded real estate investment trust sponsored by AR Global (the Nicholas Schorsch controlled successor to AR Capital) that is currently the reported target of a roll-up strategy being pursued by AR Global among several of the entities under its management.

On April 29, 2016, ARC-Retail filed a proxy statement with the Securities and Exchange Commission setting the company’s annual meeting for June 29, 2016. Therein, the defendants recommended that ARC-Retail’s shareholders vote at the annual meeting to approve numerous amendments to the company’s charter. 

According to the lawsuit, approval of the proposed amendments to the charter will eliminate valuable shareholder protections and rights currently enjoyed by ARC-Retail’s shareholders under the charter, including the right to an independent appraisal of the company’s value in connection with a roll up transaction and the ability to receive a pro rata share of the company’s appraised value in cash, as well as protections concerning the company’s ability to engage in “conflicted transactions” with related parties.

As further alleged in the complaint, although the defendants seek to eliminate valuable protections currently enjoyed by ARC-Retail shareholders under the charter, the proxy statement’s explanation for why shareholder approval is sought for amendments to the charter is materially misleading and incomplete.

As an example, the complaint charges that the proxy statement fails to disclose that AR Global has already taken steps to roll up ARC-Retail and other non-traded REITs controlled by AR Global into American Finance Trust, Inc. – another non-traded REIT controlled by AR Global.

The complaint further alleges that the proxy statement is also 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.

Finally, complaint states that the proxy statement improperly bundles multiple unrelated charter amendments in single voting proposals, illegally requiring ARC-Retail shareholders to vote up or down a number of proposals collectively rather than being able to vote separately on the distinct charter amendments.

The lawsuit seeks injunctive relief to block the company’s annual meeting until the proxy statement is corrected, as well as other relief.