ARC was formed by Nicholas Schorsch, founder and former CEO of Jenkintown-based American Financial Realty Trust, who left that company by mutual agreement with the board in August 2006. This marks ARC's first deal with a financial firm, Schorsch tells GlobeSt.com, and it occurred within two weeks of his release of a non-compete agreement with AFR.
Of the Harleysville deal, he says, "it's a perfect diversification under our plan," which, as GlobeSt.com previously reported, focuses on sale-leasebacks of creditworthy, single-tenant, primarily retail properties net leased for at least 10 years. "Bank branches are a natural expansion for us," Schorsch says, adding, "absolutely we plan more of them."
The close of the sale is contingent on a 30-day due diligence period and ARC's inspection of each branch. Under the agreement, the buyer can terminate all or some of the individual branch deals, but can't reduce the overall price to below $30 million. Throughout this period and after the close, Harleysville will continue operations as usual and is responsible for operating, repair and maintenance costs on the properties.
Lease payments will be determined individually, and all will be triple-net for terms of between five and 15 years with options to renew on varying terms for periods aggregating up to 45 years. The initial aggregate base rent will be slightly more than $3 million, according to the SEC filing.
Beginning with the second year, the leases will have annual escalations equal to the Consumer Price Index for urban consumers or 2%, whichever is lower. The branches are in Berks, Bucks, Lehigh, Montgomery, Northampton and Carbon counties.
The agreement was announced a day after Harleysville closed on its $85-million acquisition of Emmaus-based East Penn Financial Corp., which, as GlobeSt.com reported, took its total number of branches to 55. The ARC transaction is expected to close on or before the end of this year.
"The reallocation of our real estate assets to drive shareholder value is but one initiative we are executing to deliver positive results in this challenging banking environment," says Paul Geraghty, president and CEO of HNBC, in a statement. The initiative, he adds, "will help us translate a large non-earning asset into an earning asset in the form of loans, which can help bolster earnings and increase liquidity, positively impacting our bottom line."
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