American Finance Trust to Acquire American Realty Capital - Retail Centers of America in $1.4B Deal

September 7, 2016 6:07 AM EDT

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American Finance Trust, Inc. ("AFIN") announced that the special committee of the board of directors unanimously approved the acquisition of all of the outstanding common stock of American Realty Capital – Retail Centers of America, Inc. ("RCA") for approximately $1.4 billion, payable in a combination of AFIN common shares and cash plus the assumption of certain debt. This transaction creates a premier diversified REIT with a retail focus, with an enterprise value of approximately $3.9 billion1. The transaction enhances AFIN's scale by combining two highly complementary U.S. real estate portfolios comprised of 494 properties aggregating 20.8 million rentable square feet, while improving the Company's capital structure and creating accretion to AFIN's funds from operations per share in 2017.

The special committee of AFIN's board of directors, which consists of the independent members of the board of directors, was formed to evaluate the proposed transaction and has approved the transaction, subject to the approval of AFIN's shareholders and the shareholders of RCA.

Michael Weil, Chief Executive Officer of AFIN, commented, "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. 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. For AFIN, today's announcement is a key step forward in our plan to grow earnings."

David M. Gong, Lead Independent Director of AFIN, explained, "The board of directors of AFIN formed the special committee, which consists of the independent members of the board, to evaluate potential strategic transactions. It further empowered the special committee to negotiate terms of any transaction which the committee determined to pursue. The special committee believes that the combination of the two companies will significantly enhance shareholder value."

Strategic and Financial Benefits of the Merger

Enhances Size, Improves Access to Capital Markets, and Increases Liquidity Options: The combined company will become a premier diversified REIT with a retail focus, with an enterprise value of approximately $3.9 billion1. Increased scale will enhance access to capital markets and increase liquidity options.

Improves Capital Structure: AFIN will have lower leverage with manageable near-term debt maturities and ample near-term liquidity. The improved capital structure also provides AFIN with a strong balance sheet for continued growth and acquisitions.

Creates Accretive Transaction: The transaction is expected to be accretive to AFIN's funds from operations per share in 2017 and strengthens the Company's distribution coverage.

Broadens Tenant Diversification: The addition of RCA's retail portfolio will broaden AFIN's retail tenant base and reduce AFIN's top 10 tenant concentration to 48% from 75% on an annualized straight-line rent basis as of June 30, 2016.

Significantly Reduces Fees and Creates Meaningful Synergies: Expected $10.9 million of annual savings in 2017 from $6.1 million in contractual asset management fee savings and $4.8 million in general and administrative expense savings. Decreased management fees on future equity raised.

Creates Internalization Option: Creates a defined management internalization option under the AFIN advisory agreement benefiting shareholders at both companies.

Terms of the Transaction and Timing

Under the terms of the agreement, RCA shareholders will receive 0.385 shares of AFIN common stock and $0.95 in cash for each share of RCA common stock they own. Upon closing, RCA shareholders will own approximately 37% of the combined company. The approximately 90% stock component of the transaction is expected to be tax-free to shareholders.

The merger agreement also provides RCA with a go-shop period during which time RCA will have the right to actively solicit alternative proposals from third parties for 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 in connection with a superior proposal that arises on or before the date that is fifteen days following the end of the go-shop period.

AFIN will add two independent directors to be appointed by RCA's board of directors, bringing to six the total number of directors for the combined company, five of them independent.

Completion of the transaction is subject to the approval of AFIN and RCA shareholders as well as satisfaction of customary closing conditions. The transaction is expected to close in the first quarter of 2017.

Financial Advisors

UBS Investment Bank is serving as exclusive financial advisor to the special committee of AFIN. Pepper Hamilton LLP is serving as legal counsel to the special committee of AFIN. Proskauer Rose LLP is serving as legal counsel to AFIN.

BMO Capital Markets is serving as exclusive financial advisor to the special committee of RCA. Arnold & Porter LLP is serving as legal counsel to the special committee of RCA. Proskauer Rose LLP is serving as legal counsel to RCA.



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