Final week, International Internet Lease, a publicly traded actual property funding belief, introduced plans to merge with The Necessity Retail REIT, one other publicly traded REIT, to create a web lease REIT with a mixed $9.6 billion in property.
However an activist investor within the each REITs, Blackwells Capital, has slammed the merger, claiming it’s an try by AR International, the dad or mum firm of the advisor and property supervisor of GNL and RTL, to skirt ongoing proxy fights towards present administration.
“Shareholders ought to be on excessive alert that the compromised boards of GNL and RTL accepted a deal that may arrogate a $375 million ransom fee to AR International, Michael Weil and Nick Schorsch in return for all the worth they’ve destroyed,” stated Jason Aintabi, founder and chief funding officer of Blackwells, in a press release. “Blackwells strongly opposes the cockamamie merger, and expects most different shareholders to do the identical.”
AR International was based by Nicholas Schorsch Sr. and run by CEO Michael Weil, who additionally serves as CEO of RTL.
Schorsch is a well-known title within the wealth administration business, primarily for purchasing up a slew of dealer/sellers a decade in the past to, observers say, distribute his actual property funding trusts. An accounting error at a associated firm introduced an finish to the technique.
Lengthy often called a non-traded REIT guru, Schorsch constructed up American Realty Capital, then made waves when he introduced in June 2013 that he and his companions would purchase impartial dealer/seller First Allied from personal fairness agency Lovell Minnick. In fall 2013, he introduced plans to purchase Buyers Capital Holding and Summit Monetary Group. In early 2014, he purchased Cetera Monetary Group from personal fairness agency Lightyear Capital, and J.P. Turner. He additionally introduced offers to purchase VSR Monetary and Girard Securities, bringing his community to a complete of 9,139 advisors and 11 b/ds on the time below the umbrella of RCS Capital.
However his empire began to fall in October 2014, when RCAP’s sister firm American Realty Capital Properties (ARCP) introduced a $23 million accounting error. Many impartial dealer/sellers bought Schorsch’s high-commission REITs.
Schorsch stepped down from his function at RCAP in 2014. The dealer/seller community, now often called Cetera Monetary Group, filed for chapter in early 2016, and emerged from chapter and reorganization in Might of that 12 months as a non-public firm with a sole give attention to Cetera.
In 2019, AR Capital, Schorsch and his former CFO Brian Block settled costs with the Securities and Trade Fee that they wrongfully obtained thousands and thousands of {dollars} in reference to two separate REIT mergers that had been sponsored and externally managed by AR Capital. They paid over $60 million in disgorgement and penalties.
Now, Schorsch is again within the highlight, going through lawsuits and a proxy battle with Blackwells.
Final October, Blackwells nominated two candidates for election to the board of administrators at GNL, saying that their nominees would pursue the termination of the off-market administration settlement with AR International and change it with a less expensive one which’s in-line with market practices. The agency additionally criticized GNL’s company governance practices.
Blackwells accused the REIT’s board of “company piracy,” arguing that greater than 10% of GNL’s earnings is spent on funds to AR International and that greater than $200 million in charges have been paid to AR since 2016.
Blackwells additionally slammed the REITs’ efficiency, pointing to the truth that GNL’s share value declined 64% and RTL’s inventory value 62% since 2015.
“The years of abysmal outcomes at every publicly listed entity below the millstone of AR International, juxtaposed towards the astronomical charges that AR International continues to build up, is now not tolerable,” Aintabi stated, in a press release.
Blackwells, GNL and RTL are additionally in authorized battles, with lawsuits flying on all fronts. A New York federal courtroom denied RTL’s and GNL’s efforts to stop Blackwells from soliciting proxies.
Requests for remark from GNL and AR International weren’t returned by press time.
Beneath the merger settlement, the mixed entity, which is able to function as International Internet Lease, will internalize the capabilities that had been carried out by AR International, which is predicted to generate $54 million in annual money financial savings, the agency stated. The deal is predicted to shut within the third quarter 2023.
