NEW YORK CITY — American Finance Trust Inc. (AFIN) has acquired all of the outstanding common stock of American Realty Capital – Retail Centers of America Inc. (RCA) for approximately $1.4 billion, including the assumption or repayment of $432 million in debt. The merger of the two New York-based, non-traded REITs creates a retail REIT with an enterprise value of approximately $3.9 billion.
The combined company will retain the AFIN name and continue to be led by AFIN’s management team, with the addition of Kase Abusharkh from RCA, who will serve as AFIN’s chief investment officer of the multi-tenant portfolio. Members of both boards of directors will continue to serve on the board of the combined company.
“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,” said Michael Weil, CEO of AFIN. “For AFIN, today’s announcement is a key step forward in our plan to grow earnings.”
AFIN, formerly known as American Realty Capital Trust V Inc., was formed in January 2013 to acquire mostly freestanding, single-tenant retail properties leased to investment grade or other creditworthy tenants. RCA was formed in July 2010 to acquire anchored, core retail properties in the U.S. for a purchase price exceeding $20 million. AFIN and RCA are two of several non-traded REITs sponsored by the American Realty Capital group of companies, or AR Global.
The combined AFIN and RCA real estate portfolio includes 494 properties totaling 20.8 million rentable square feet of single-tenant net lease, power center and lifestyle center assets. The portfolio has a weighted average remaining lease term of eight years.
The special committee of AFIN’s board of directors has approved the transaction, subject to the approval of AFIN’s shareholders and the shareholders of RCA. The total consideration of RCA is approximately $10.26 per share, based on AFIN’s published estimated net asset value as of Dec. 31, 2015 of $24.17 per share.
RCA shareholders will receive consideration comprising $0.95 in cash and 0.385 shares of AFIN common stock for each share of RCA common stock owned.
The merger agreement provides RCA with a go-shop period, giving RCA the right to solicit superior proposals from third parties for the next 45 days. The merger agreement provides for RCA to pay a termination fee of $5.1 million to AFIN if RCA terminates the merger agreement within two weeks after the go-shop period, plus expense reimbursement up to $5 million. If either party terminates the merger agreement after that point, the company that terminates must pay a $25.6 million fee to the other.
BMO Capital Markets is serving as exclusive financial advisor to the special committee of the board of directors of RCA, and Arnold & Porter LLP is serving as legal counsel to the special committee of the board of directors of RCA. Proskauer Rose LLP is serving as legal counsel to RCA.
UBS Investment Bank is serving as exclusive financial advisor to the special committee of AFIN, and Pepper Hamilton LLP is serving as legal counsel to the special committee of AFIN. Proskauer Rose LLP is serving as legal counsel to AFIN.
The transaction is expected to close in the first quarter of 2017.
— John Nelson