Report: Schorsch Seeks to Shore Up Damaged REIT Empire
AR Global, the successor business to AR Capital, is seeking to consolidate seven real estate investment trusts with nearly $10.5 billion in assets, according to a report by Investment News.
According to the report, two unnamed industry sources, including former AR Global employees, indicated that non-traded REIT American Finance Trust would buy Healthcare Trust, Realty Finance Trust, American Realty Capital – Retail Centers of America, and American Realty Capital Healthcare Trust III, while publicly traded Global Net Lease (NYSE: GNL) would acquire American Realty Capital Global Trust II. All of the REITs are externally advised by AR Global-controlled entities.
As reported yesterday by The DI Wire, Healthcare Trust, formerly known as American Realty Capital Healthcare Trust II, initiated a review process to explore strategic alternatives and has retained Gibson, Dunn & Crutcher LLP as special legal counsel in connection with the process.
AR Capital founders Nicholas Schorsch and William Kahane are the controlling partners of AR Global, which also controls the advisor of the seven mentioned REITs. Both American Finance Trust and Global Net Lease have 20-year advisory contracts with AR Global, but it does not hold such long-term agreements with the other REITs it manages and is reportedly working to have acquired.
SEC filings indicate that the extended agreements are automatically renewed in 20-year increments after each 20-year anniversary unless terminated by the board of directors for cause, a much higher exit threshold than those enjoyed by the non-traded REITs that may be acquired.
This could create a more robust revenue stream for AR Global, and could potentially “benefit investors by making American Finance Trust and Global Net Lease more attractive takeover targets.”
AR Capital-related companies have struggled to raise equity after an ARC-affiliate, American Realty Capital Properties, intentionally filed inaccurate financial reports in October 2014. The firm eventually severed ties with the parent company and rebranded itself as Vereit (NYSE: VER).
After being hit with fraud charges by the state of Massachusetts relating to a proxy voter scandal, another affiliate, RCS Capital, paid a multimillion dollar fine and agreed to terminate its business. AR Capital terminated its offerings and stopped selling new investment products at the end of 2015.
The potential REIT roll-up will need to be approved by the boards of each REIT before moving forward.
