MacKenzie Realty Capital’s Tender for All Classes of AFIN Shares
July 26, 2018 | James Sprow | Blue Vault
On July 25, 2018, MacKenzie Realty Capital, Inc. (“MacKenzie”) sent a tender offer to shareholders of American Finance Trust, Inc. (“AFIN”) that offers $15.00 per share for the Nasdaq-listed Class A shares, $11.27 for Class B-1 shares and $10.00 for Class B-2 shares. The Class B-1 and Class B-2 shares do not convert to Class A shares and become listed for 90 and 180 days, respectively, from the initial listing on July 19, 2018. The tender offer expires on September 10, 2018.
MacKenzie has filed many third-party tender offers for the shares of nontraded REITs over the years, offering shareholders seeking liquidity to sell their shares, usually at steep discounts to the announced NAVs. Blue Vault’s 5th Edition Nontraded REIT Full-Cycle Performance Study (February 2018) analyzes the discounts that these third-party tender offers have included and finds that there were over 50 tender offers by third parties (many by MacKenzie) for the 56 nontraded REITs with full-cycle events in the study. In a sample of 34 such offers, Blue Vault found that the average discount offered by the third-party tenderers to the eventual full-cycle price was 34.8%. These discounts resulted in lower average full-cycle returns by 6.44%. In the sample, shareholders who tendered their shares prior to the full-cycle event had average full-cycle returns of negative 2.69% compared to the average returns of those shareholders in the same REITs that held their shares until the full-cycle event.
AFIN shareholders can elect to sell all of their AFIN common shares or a portion of each share class that they currently own. The tender offer is interesting on several levels. First, MacKenzie is offering $15.00 per share for Class A shares that have traded recently on Nasdaq for as low as $13.50. However, MacKenzie has limited their tender offer to just 400,000 shares of each share class, so based upon the offer’s first-come, first-buy basis, MacKenzie is not obligated to purchase any more than 2.3% of the outstanding AFIN shares. Secondly, the offer for Class B-1 shares at $11.27 and Class B-2 shares at $10.00 per share has rather steep discounts to the recent opening price of AFIN at $13.90 (July 26, 2018). Thus, a shareholder who wishes to cash out immediately would be accepting a 28% discount on their Class B-2 shares, rather than waiting 180 days. MacKenzie’s pitch includes the following points (italics added):
• Guarantee your cash now.
• The share redemption program has been terminated
• Protect yourself against stock market volatility
• Sell without broker fees or commissions
MacKenzie points out correctly that the few secondary markets for nontraded REIT shares incur fees and commissions that can be steep. Blue Vault has reported that auction markets that are available usually offer steep discounts to NAVs in addition to fees and commissions.
It will be interesting to see how many AFIN shares are tendered. Past experience with MacKenzie’s third-party tender offers shows that they are rarely fully subscribed. Given the public market for Class A AFIN shares, the discounts that MacKenzie is offering are more visible to AFIN shareholders than in the past offers where the eventual full-cycle values of shares were more speculative.
Source: SEC, Blue Vault
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