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Carter Validus Mission Critical REIT to Merge into Carter Validus Mission Critical REIT II

April 11, 2019

Carter Validus Mission Critical REIT to Merge into Carter Validus Mission Critical REIT II

April 11. 2019 | James Sprow | Blue Vault

On April 11, 2019, Carter Validus Mission Critical REIT II, Inc. (“REIT II”) and Carter Validus Mission Critical REIT, Inc. (“REIT I”) entered into an Agreement and Plan of Merger. Subject to the terms and conditions of the Merger Agreement, REIT I will merge with and into a subsidiary of REIT II and will continue as a wholly owned subsidiary of REIT II. In accordance with the applicable provisions of the Maryland General Corporation Law, the separate existence of REIT I shall cease.

At the effective time of the merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of REIT I’s common stock (or a fraction thereof) will be converted into the right to receive:

 (i) $1.00 in cash; and
(ii) 0.4681 shares of REIT II Class A Common Stock

Based on the $9.25 estimated NAV per share for REIT II as of June 30, 2018, the value of the merger consideration per share of REIT I common stock is $5.33 ($1.00 + 0.4681 x $9.25). This equates exactly to the estimated NAV per share of REIT I common stock, $5.33 as of June 30, 2018.

The combined company after the merger will retain the name “Carter Validus Mission Critical REIT II, Inc.” The merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.

The combined company will have a total enterprise value of approximately $3.2 billion, and will own 146 properties in 33 states, consisting of approximately 8.4 million square feet. On a pro forma basis, the combined company portfolio will be 96% leased, on a weighted average basis, with a remaining weighted average lease term of 10.4 years. Approximately 20.5% of the combined company portfolio assets, on a pro forma basis, will be leased to tenants and/or guarantors who have investment grade ratings or what management believes are generally equivalent ratings. In addition, no tenant will represent more than 9.9% of the contractual base rents of the combined company, on a pro forma basis, with the top ten tenants comprising a collective 40.8% of the contractual base rents of the combined company.

Agreement and Plan of Merger
The Merger Agreement contains customary representations, warranties and covenants, including covenants prohibiting REIT I and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions after the Go Shop Period End Time (as defined herein), subject to certain limited exceptions.

Pursuant to the terms of the Merger Agreement, during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. New York City time on May 26, 2019 (the “Go Shop Period End Time”), REIT I and its subsidiaries and representatives may initiate, solicit, provide information and enter into discussions concerning proposals relating to alternative business combination transactions.

The Merger Agreement also provides that prior to the Stockholder Approval, the board of directors of REIT I may withdraw its recommendation of the Merger or make an Adverse Recommendation Change (as defined in the Merger Agreement), subject to complying with certain conditions set forth in the Merger Agreement.

The Merger Agreement may be terminated under certain circumstances, including but not limited to, by either REIT II or REIT I (in each case, with the prior approval of their respective special committee, each comprised solely of certain independent directors of the respective board of directors) if the REIT Merger has not been consummated on or before 11:59 p.m. New York time on January 31, 2020.

In addition, REIT I (with the prior approval of its special committee) may terminate the Merger Agreement in order to enter into an “Alternative Acquisition Agreement” with respect to a “Superior Proposal” (each as defined in the Merger Agreement) at any time prior to receipt by REIT I of the Stockholder Approval pursuant to the terms of the Merger Agreement.

REIT II may terminate the Merger Agreement at any time prior to the receipt of the Stockholder Approval, including upon an Adverse Recommendation Change, and in certain other events.

If the Merger Agreement is terminated in connection with the REIT I’s acceptance of a Superior Proposal or making an Adverse Recommendation Change, then REIT I must pay to REIT II a termination fee of (i) $14,400,000. if it occurred within five business days of the end of the specified period for negotiations with REIT II following notice (received within five business days of the Go Shop Period End Time) that REIT I intends to enter into a Superior Proposal or (ii) $28,800,000 if it occurred thereafter.

The obligation of each party to consummate the REIT Merger is subject to a number of conditions, including receipt of the approval of holders of a majority of the outstanding shares of REIT I Common Stock (the “Stockholder Approval”), delivery of certain documents and legal opinions, the truth and correctness of the representations and warranties of the parties, subject to the materiality standards contained in the Merger Agreement, the effectiveness of the registration statement on Form S-4 to be filed by REIT II to register the shares of REIT II Common Stock to be issued as consideration in the REIT Merger, and the absence of a REIT I Material Adverse Effect or REIT II Material Adverse Effect (as each term is defined in the Merger Agreement).

REIT II’s obligation to consummate the Merger is not subject to a financing condition. Until the effective time of the Merger, REIT II and REIT I are each permitted to continue paying distributions based on daily record dates and in amounts consistent with recent distributions.

Sources:  SEC, Blue Vault

 

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Matthew C. Strife
Blue Vault Services
April 11, 2016

Blue Vault's services are without question great resources for the review of the nontraded products offered.