Rich Uncles REITs to Merge and Acquire External Advisor, Disclosed Proposed Settlement of SEC Investigation
RW Holdings NNN REIT Inc., a publicly registered non-traded real estate investment trust also known as Rich Uncles NNN REIT Inc., and an affiliated non-traded REIT, Rich Uncles Real Estate Investment Trust I, have agreed to merge in a proposed transaction where NNN REIT would acquire Rich Uncles REIT I.
RW Holdings NNN REIT Inc., a publicly registered non-traded real estate investment trust also known as Rich Uncles NNN REIT Inc., and an affiliated non-traded REIT, Rich Uncles Real Estate Investment Trust I, have agreed to merge in a proposed transaction where NNN REIT would acquire Rich Uncles REIT I.
In addition, BrixInvest, the external manager and sponsor of both REITs, expects to reach a settlement with the SEC following its investigation into the advertising and sale of securities and compliance with broker-dealer regulations.
Concurrent with the merger, NNN REIT entered into a contribution agreement with BrixInvest LLC, where BrixInvest would contribute substantially all of its assets to NNN REIT’s operating partnership.
The companies claim that the two all-stock transactions will create the largest real estate crowdfunded equity REIT with more than $450 million in real estate assets under management and the first fintech real estate crowdfunding platform to be wholly owned by its own investors.
If the merger is consummated, the combined company will oversee a 2.2 million-square-foot portfolio comprised of 45 properties that are 100 percent occupied.
“Today over 10,000 individual investors should be congratulated. Were it not for these intrepid spirits uniting under the belief that investing in high quality real estate is available to everyone in a better and more cost-effective way, the private REIT industry never would have emerged from the dark ages,” stated Aaron Halfacre, NNN REIT’s CEO.
In exchange for each share of Rich Uncles REIT I common stock, Rich Uncles REIT I stockholders will receive 1.000 share of NNN REIT common stock, which is equivalent to $10.16 per Rich Uncles REIT I share based on NNN REIT’s most recent estimated net asset value per share of $10.16.
In exchange for each BrixInvest unit, BrixInvest unitholders will receive 1.000 Class M unit in NNN OP, which are ultimately convertible into a minimum of 5.000 shares and, contingent upon the successful achievement of specific milestones, a maximum of 9.000 shares of NNN REIT common stock following the fourth anniversary of the transaction close.
Following the fourth year, the converted units will be entitled to dividend distributions and voting rights. Based on NNN REIT’s most recent estimated net asset value per share of $10.16, the minimum conversion ratio of 5.000 shares of NNN REIT common stock is equivalent to $50.80 per BrixInvest unit.
Following the closing of the transactions, NNN REIT, Rich Uncles REIT I, and BrixInvest stockholders are expected to own approximately 58 percent, 29 percent, and 13 percent of the combined company, respectively.
If approved by shareholders, the transactions are expected to close in late December 2019 or early January 2020. The merger and contribution transactions are expected to close concurrently but are not conditioned on the consummation of each other.
In connection with the proposed transactions, all of the registered REIT offerings managed by BrixInvest have been temporarily suspended and, following approval by the respective REITs’ board of directors, will be reopened at a later date. In addition to the Rich Uncles REITs, BrixInvest also sponsors BRIX REIT Inc., a publicly registered non-traded REIT.
BrixInvest expects to reach a settlement with the SEC following its investigation into the advertising and sale of securities in connection with the NNN REIT offering and compliance with broker-dealer regulations.
Since 2017, the SEC has been conducting an investigation where NNN REIT and certain associates have received and responded to subpoenas, including requests for various documents related to the company, the company’s sponsor, and the offering.
Recently, BrixInvest proposed a settlement of the investigation, which would require the securities issued in any offering to be distributed through a registered broker-dealer. The proposed settlement must be approved by the SEC, and the company will disclose the terms if and when that happens.
“I am pleased to announce that over the last several months we have been working hard with the SEC staff to resolve the investigation and that [BrixInvest] has now proposed a settlement of the investigation to the SEC, that subject to SEC approval, could be announced very soon…A key element offered by [BrixInvest] in the settlement was to provide even greater protection to our investors while staying true to our goal of making real estate investing less expensive,” said Halfacre.
He added, “We believe the settlement provides us the opportunity to commit to using securities offering and distribution best practices to implement the guidance of both the SEC and FINRA. We look forward to sharing additional details about our advisor’s settlement once it is approved by the SEC as well as updates on the progress of today’s announced transactions.”
Rich Uncles Real Estate Investment Trust I owns a real estate portfolio comprised of 20 properties, including 10 retail, six industrial, and four office properties with approximately 607,000 square feet of leasable space.
RW Holdings NNN REIT owns 24 operating properties, a 72.7 percent tenant-in-common interest in an office property, and one parcel of land, including 10 office, nine retail, and five industrial properties with approximately 1.5 million square feet of leasable space. Through August 31, 2019, the company had raised $176.6 million in investor equity.
