ARC’s Listed and Non-Listed New York REITs Form Joint Venture

New York REIT Inc. (NYSE: NYRT), a publicly traded real estate investment trust externally managed by AR Capital, announced a series of governance, strategic and operational actions including implementing a joint venture with American Realty Capital New York City REIT Inc., a non-traded real estate investment trust sponsored by AR Capital.

According to a company press release, New York REIT is taking steps to ensure that its relationship with New York City REIT is aligned with the interests of all shareholders. To that end, the two REITs will form a joint venture to pursue and invest in new transactions together.

The joint venture will replace the existing allocation agreement and will be structured as a 50/50 joint venture with the ability to adjust ownership of any transaction based on available capital. This new structure is expected to facilitate the continued growth and diversification of both portfolios while reducing the need to raise additional equity capital. The boards of both companies will need to approve the terms of the joint venture.

“The steps we are taking today represent our commitment to narrow the gap between NYRT’s net asset value and common share price and are indicative of the approach management and the board intend to take to drive value for all shareholders,” said Michael Happel, chief executive officer of New York REIT.

In addition to the joint venture, the board appointed Marc Rowan as a director and plans to appoint two independent directors in the near future. Rowan’s appointment expands the board to five members, including three independent directors.

Rowan is a co-founder and senior managing director of Apollo Global Management LLC (NYSE: APO), which recently purchased a $378 million majority interest in AR Global Investments, a new company that will own the asset management business of AR Capital. In addition, Apollo paid $25 million in cash for RCS Capital’s (NYSE: RCAP) wholesale distribution business, which will also become part of AR Global Investments. Apollo also entered into a strategic partnership with RCS’s retail advice business, Cetera Financial Group.

“The management team has assembled a portfolio of excellent New York City real estate, forming the basis of a successful REIT,” Rowan said. “Despite the strong portfolio of assets, NYRT’s share price reflects a substantial gap from the true value, which needs to be closed. I am confident the actions taken today will begin the process of closing the value gap.”

The company also engaged the Eastdil Secured division of Wells Fargo Securities as strategic advisor to identify and consider potential strategic transactions at the asset or entity level.

With the assistance of Eastdil, New York REIT is seeking institutional investors as potential asset-level partners and/or to pursue broader strategic options. To facilitate the effectiveness of this process, the company is releasing all parties from non-disclosure and standstill agreements related to their previous strategic process in 2014.

The REIT also intends to continue with its plan to sell the outer borough assets within its portfolio. On September 10, 2015, they announced the sale of 163 Washington Avenue in Brooklyn and are actively marketing four additional non-core, outer borough assets.

The proceeds of any joint venture investments or dispositions may be used to execute on the previously announced $150 million share repurchase program and/or to make new investments.

Additionally, the company is working through changes to the management agreement to be implemented as part of the renewal of the agreement in mid-2016. The one-year agreement specifies that there will be no disposition fees, leasing fees or property management fees paid to the advisor or its affiliates.

Finally, the company is continuing the process to identify and hire a permanent chief financial officer, with Heidrick & Struggles leading this search.

New York REIT is a publicly traded real estate investment trust listed on the NYSE that acquires income-producing commercial real estate, including office and retail properties, in New York City.

American Realty Capital New York City REIT invests in commercial real estate located within the five boroughs of New York City, particularly Manhattan. The REIT, which is closed to new investments, owns five properties consisting of 841,868 rentable square feet. Since commencing its initial public offering in April 2014, the company has raised $736 million in investor equity.