American Finance Trust’s Reverse Stock Split and Share Class Changes Prior to Listing

James Sprow | July 9, 2018 | Blue Vault 

On July 3, 2018, American Finance Trust, Inc. effected a sequence of corporate actions pursuant to the Company’s previously announced plan to list shares of the Company’s Class A common stock on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “AFIN”.

First, the Company amended its charter to effect a 2-to-1 reverse stock split.

The Company also amended its charter to change the name of the common stock to the “Class A common stock.”

The Company reclassified a number of authorized but unissued shares of Class A common stock equal to half of the number of shares of Class A common stock then outstanding into both shares of Class B-1 common stock and shares of Class B-2 common stock. The Company then paid a stock dividend to the holders of Class A common stock equal to one-half share of Class B-1 common stock and one-half share of Class B-2 common stock for each share of Class A common stock outstanding. The result of these actions means that shareholders will own, compared to their status prior to these actions, 50% of the Class A common stock owned before the actions, and Class B-1 and B-2 common stock representing 25% each of that number.

The reverse stock split was effective at 1:01 p.m. Eastern Time on July 3, 2018, and all other changes were effective by 1:10 p.m. Eastern Time.

To carry out the listing, and to address the potential for selling pressure that may exist at the outset of listing, the Company has applied to list only shares of Class A common stock on Nasdaq. The shares of Class B-1 common stock and Class B-2 common stock will not be listed on Nasdaq. Instead, the shares of Class B-1 common stock and Class B-2 common stock will automatically convert into shares of Class A common stock and thus become listed on Nasdaq no later than 90 days and 180 days, respectively, from the listing date. Shareholders will be able to sell their Class B-1 and Class B-2 shares after 90 and 180 days following the listing, respectively. Each share of Class B-1 common stock and Class B-2 common stock will otherwise be identical to each share of Class A common stock in all other respects, including the right to vote on matters presented to the Company’s stockholders, and shares of all classes of common stock are expected to receive the same distributions.

The Company anticipates the listing date will be on or about July 19, 2018, although there can be no assurance the listing will occur on this date. The actual listing date is subject to final approval by Nasdaq.

The REIT’s strategy for listing, using a reverse stock split to raise the per-share value of its common stock, and the use of “tranches” of B-1 and B-2 common stock that cannot be immediately exchange traded, has been used by other nontraded REITs to give shareholders full liquidity but on a delayed schedule. This reduces the potential for a large volume of shares hitting the market on the listing date and driving down the price per share for shareholders looking to liquidate their holdings.

On July 9, 2018, the Company’s board of directors approved an amendment to the Company’s advisory agreement with American Finance Trust Advisors, LLC, lowering the “Core Earnings per Adjusted Share” that the Company must reach on a quarterly basis for the Advisor to receive the Variable Management Fee. The REIT stated, “In resetting the applicable thresholds, the nominating and corporate governance committee aimed to further align the Advisor with the Company’s shareholders by incentivizing growth through the continued implementation of the Company’s current business strategy.”

American Finance Trust was formerly known as American Realty Capital Trust V.  It raised approximately $1.5 billion in its public offering that began in April 2013. As of March 31, 2018, the REIT owned 558 retail properties, comprising 19.1 million square feet, including 35 retail properties that were acquired in the merger with ARC – Retail Centers of America. The Company’s most recent NAV per share was $23.56 and its distribution yield, based upon the original $25.00 issue price, was 5.20%.

Sources:  SEC, Blue Vault

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