New York-based American Finance Trust Inc. (AFIN) and American Realty Capital – Retail Centers of America Inc. (RCA), both publicly registered, non-traded real estate investment trusts (REITs) controlled by real estate powerhouse AR Capital, also known as AR Global, co-founded and led by Nicholas S. Schorsch and William M. Kahane, said they agreed to merge. The deal is valued at $1.4 billion, payable in a combination of AFIN common shares and cash, plus the assumption of certain debt.
The scandal-plagued real estate group has been seeking an exit, including a sale or consolidation of over half a dozen of its REITs since last year.
RCA is a REIT focused on the acquisition of core retail properties, with an emphasis on multi-tenant power and lifestyle centers across the United States. AFIN is a REIT focused on acquiring a diversified portfolio of commercial properties, with an emphasis on single tenant buildings with net-leases across the United States.
The deal is said to create a diversified REIT with a retail focus, with an enterprise value of $3.9 billion. It would own 494 properties, comprising 20.8 million rentable square feet of single-tenant net lease, power center, and lifestyle center assets, and would increase RCA’s weighted average remaining lease term from 5.3 years to 8.0 years for the combined company.
“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.”
—Michael Weil, Chief Executive Officer of AR Capital/AR Global, AFIN, and RCA.
Last month, another AR Capital affiliate, New York REIT Inc. (NYSE: NYRT), cancelled a previously announced merger with The JGB Companies to create an $8.4 billion NYC-DC REIT colossus. NYRT said it will sell off its individual assets and distribute the proceeds to shareholders.
The move comes a few months after affiliates American Realty Capital Healthcare Trust III Inc., and Healthcare Trust Inc., formerly operating as American Realty Capital Healthcare Trust II Inc., also started seeking strategic alternatives, including a sale, in the midst of a crowded field of REITs being put up for sale and exploring strategic options.
Other competing REITs recently being shopped include American Farmland Company (NYSE MKT: AFCO), AdCare Health Systems Inc. (NYSE MKT: ADK), KBS Legacy Partners Apartment REIT (non-traded), KBS Strategic Opportunity REIT (non-traded), Stratus Properties Inc. (NASDAQ: STRS), and InvenTrust Properties Corp. (non-traded, formerly Inland American), which announced the spin-off of its Highlands REIT Inc. earlier this year.
Both AFIN and RCA are advised and directly or indirectly owned and controlled by AR Capital LLC, AR Global, and AR Global Investments LLC (the successor business to AR Capital LLC, operating as AR Global), all of which, in addition to NYRT and the Healthcare Trusts, share certain executive officers and directors, as well as the same office space at 405 Park Avenue in Manhattan.
AR Capital, formerly operating as American Realty Capital, was co-founded in 2006 by Nicholas S. Schorsch and William M. Kahane. AR Global Investments LLC operates as a subsidiary of AR Capital LLC, a full service investment management firm providing advisory services to retail and institutional investors.
AR Capital’s AR Global is one of the largest alternative asset managers in the world, with over $18 billion of real estate and loans under management. AR Global’s investment programs include net leased properties in the U.S. and Europe, and domestic strategies focused on healthcare real estate, hotels, retail shopping centers, and New York City office buildings, as well as both real estate loans and corporate credit.
On November 9, 2015, private equity giant Apollo Global Management, LLC (NYSE: APO) and AR Capital, LLC announced that they have mutually agreed to terminate a planned transaction pursuant to which Apollo would have purchased for $378 million a controlling interest in newly formed AR Global Investments LLC, owning a majority of AR Capital’s asset management business.
A week later, on November 16, 2015, AR Capital announced the suspension and acceptance of new subscriptions to certain of its current investment programs effective December 31, 2015, “as a result of regulatory and market uncertainty.”
“Until there is greater clarity, we have decided to sit this one out,” said Kahane at the time, adding, “we do not intend to register any new product offerings nor pursue any of our existing offerings after December 31, 2015. Naturally, as the government’s position becomes clearer, we may reconsider our present posture on these issues.”
AR Capital’s decision came within days after the state of Massachusetts charged Realty Capital Securities (RCS) with fraudulently securing proxy votes to support real estate deals sponsored by AR Capital, which is owned by Schorsch and Kahane.