NEW YORK CITY — American Finance Trust Inc. (NASDAQ: AFIN) has entered into a definitive agreement to acquire a portfolio of 81 shopping centers from CIM Real Estate Finance Trust, a REIT managed by Los Angeles-based CIM Group. The transaction is valued at $1.32 billion.
The 9.5 million square foot portfolio includes electrical retail shopping centers and grocery stores, as well as two single-tenant properties. The weighted average lease term in the portfolio is five years, according to CIM. The names and locations of the retail businesses were not disclosed.
The transaction price includes primarily cash consideration, as well as $53.4 million in AFIN shares and additional consideration based on performance metrics achieved during the first 180 days following closing. The transaction is expected to close in the first quarter of 2022.
“This immediately accretive off-market transaction represents a unique value creation opportunity,” said Michael Weil, CEO of AFIN. “We are adding significant scale while enhancing our best-in-class portfolio with pandemic-tested assets on accretive terms.”
For CIM Real Estate Finance Trust, the sale repositions the REIT’s retail portfolio to 437 credit-leased commercial properties with a weighted average lease term of 10.8 years. The remaining portfolio totals 13.2 million square feet in 45 states and was 98.2% occupied as of September 30. CIM Real Estate Finance Trust is an unlisted public REIT based in Phoenix.
At the same time, AFIN is selling three office buildings to Sanofi SA, a Paris-based global healthcare giant. The non-core assets will trade for $261 million, about $10 million more than the original transaction price, according to AFIN. The names and locations of the properties have not been disclosed.
AFIN plans to use the proceeds from the sale of Sanofi to fund the CIM retail transaction. The sale of Sanofi will limit the exposure of AFIN’s offices to its collection of linear rental income (SLR) from 7% before closing to 1% after closing. (SLR is the calculation of the total of all rents divided by the number of months in the term, which gives the average rent per month.)
Portfolio transactions are part of AFIN’s overall rebranding strategy. The New York-based REIT will change its name to “The Necessity Retail REIT Where America Shops” and will trade on the Nasdaq stock exchange under the symbol “RTL.” Weil says the company is pivoting to focus its real estate holdings on shopping malls leased to service and essential retailers, including supermarkets.
“Our best-in-class portfolio, which will be rebranded [and] will focus on tenants and locations where America shops and partner with leading brands such as Walmart and Publix,” Weil said. “We will continue to focus on a diverse mix similar to the 40 existing industry sectors in which our current tenant slate falls, with an emphasis on necessity-based retail industries such as discount retail, groceries, quick service restaurants, recreation and sporting goods. .”
Upon closing of both transactions, Necessity Retail REIT will own a $5 billion retail portfolio covering 28.8 million square feet across 1,048 properties. The portfolio has rental upside potential as the properties were 92.3% occupied at the time of the announcement.
The 10 largest tenants in Necessity Retail’s portfolio will include Truist, Fresenius, Mountain Express Oil, AmeriCold, The Home Depot, PetSmart, Stop & Shop, Dick’s Sporting Goods, Bob Evans and Best Buy. Weil says the company is looking forward to building relationships with the new tenants resulting from the CIM transaction, as well as expanding with their existing tenant base as part of the overall realignment.
“Physical retail is more important than ever, with many of the biggest national brands attracting more shoppers than before the pandemic; Target, Lowe’s, Dick’s Sporting Goods, Ulta Beauty and Bath & Body Works are just a few of the retailers mentioned, and are all our tenants,” says Weil. “We see this as a great opportunity in our well-located centers to drive occupancy growth over time and expand our relationships with these growing tenants.”
He adds that Necessity Retail will also seek new acquisitions in 2022 and beyond that fit the company’s investment criteria.
“We will continue to seek out and acquire the best opportunities in the single-tenant and multi-tenant sectors as we target markets with strong demographics and dense suburban communities that will support these retail locations,” Weil said.
AFIN stock price closed on Monday, December 20 at $8.13 per share, down from $7.87 a year ago. The company will trade under the symbol AFIN until the CIM transaction closes.
— John Nelson