SCHEDULE 13D/A: Fortress Affiliates Divest Broad Street Realty Subsidiary Interests and Mezzanine Loan in $123 Million Deal

Fortress affiliates are selling their preferred membership interests in Broad Street Eagles JV, LLC and a warrant to purchase Broad Street Realty, Inc. common stock, along with a mezzanine loan, to FMC affiliates for a combined total of over $123 million.

Summary

• CF Flyer PE Investor LLC and CF Flyer Mezz Holdings LLC (Fortress affiliates) have entered into an agreement to sell 100% of their preferred membership interests in Broad Street Eagles JV, LLC, a subsidiary of Broad Street Realty, Inc., to FMC BRST Preferred LLC.
• Concurrently, CF Flyer Mezz Holdings LLC is selling its outstanding warrant to purchase 2,560,000 shares of Broad Street Realty, Inc. common stock at an exercise price of $0.01 per share to FMC BRST Preferred LLC.
• The combined purchase price for the preferred membership interests and the warrant is $105,487,017.21.
• Separately, CF Flyer Mezz Lender LLC (another Fortress affiliate) is selling its rights, title, and interests in a Mezzanine Loan Agreement and a Mezzanine Promissory Note (original principal of $15,000,000) to FMC BRST Mezzanine LLC, an affiliate of FMC BRST Preferred LLC.
• The purchase price for the mezzanine loan is $17,770,816.22, subject to adjustments for principal repayments and unpaid monthly interest.
• The closing of both transactions is expected to occur on or before February 28, 2025, and will happen concurrently.
• Following the closing, the Fortress affiliates will have no remaining ownership in Broad Street Eagles JV and no remaining outstanding warrant or interest in the Mezzanine Loan.
• The reported beneficial ownership of Fortress affiliates is 2,560,000 shares of Broad Street Realty, Inc. common stock, representing 6.9% of the class, calculated based on 35,041,443 shares outstanding as of November 6, 2024, plus the shares issuable upon warrant exercise.

Sentiment

Score: 6

Explanation: The document describes a planned divestiture by a major investor/lender, which resolves existing financial arrangements. While not explicitly positive or negative for the issuer's performance, it represents a structured and expected change in its capital partners, suggesting a neutral to slightly positive sentiment as it brings clarity and new relationships.

Positives

• The transaction provides a clear exit strategy for Fortress affiliates from their preferred equity and warrant positions in Broad Street Realty, Inc.'s subsidiary and their mezzanine loan, potentially simplifying Broad Street's capital structure.
• The introduction of FMC affiliates as the new preferred equity holder and mezzanine lender could bring a new strategic partner and financial stability to Broad Street Eagles JV, LLC.

Negatives

• The divestment by Fortress, a significant financial partner, could signal a shift in Broad Street Realty, Inc.'s strategic direction or financial relationships, which may require new adjustments for the company.
• The document does not disclose the original cost basis for Fortress's investments, so it is unclear if the sale represents a gain or loss for the selling entities.

Risks

• Consummation of the Preferred Membership Interest and Warrant Purchase is subject to the Senior Lender (American General Life Insurance Company and The Variable Annuity Life Insurance Company) providing consent to the acquisition of the preferred membership interest in Broad Street Eagles JV.
• The Note Purchase is subject to the Senior Lender confirming that the Note Purchaser has complied with the requirements of the Intercreditor Agreement.
• Both transactions are subject to customary representations and warranties of each party being true and correct as of the closing date.
• The closing dates for both transactions are subject to potential extensions, specifically if the Midtown Row Senior Consent has not been delivered, allowing for an extension to March 31, 2025.
• Purchaser's obligation to close is contingent on the delivery of a written waiver and release of claims from Broad Street Realty, Inc. in favor of the sellers.
• Purchaser's obligation to close is contingent on the delivery of a Warrant Assignment Agreement, Interest Assignment Agreement, Registration Rights Agreement, Governance Agreement, and Cash Flow Pledge Assignment Agreement.
• Purchaser's obligation to close is contingent on the delivery of resignations from the seller's designees serving as a director on the Board of Directors of Broad Street Realty, Inc. and as a Board Observer.
• The transaction is subject to the purchaser (or its assignee) satisfying the seller's firm-standard KYC/OFAC/AML searches, based on submission of a completed and executed Restricted Party Screening Form.

Future Outlook

The transactions are expected to close on or before February 28, 2025, with an option to extend to March 31, 2025, if the Midtown Row Senior Consent is not obtained. Following the closing, the selling Fortress affiliates will no longer hold interests in Broad Street Eagles JV or the warrant, nor the mezzanine loan.

Industry Context

This transaction represents a significant shift in the capital structure and key financial relationships for Broad Street Realty, Inc., as a major investor and lender (Fortress affiliates) exits its positions and new entities (FMC affiliates) step in. Such changes can reflect evolving investment strategies of large funds or a restructuring of a company's debt and equity profile.

Management Changes

Corporate Governance

Related Party Transactions

• The transaction involves the sale of preferred membership interests in Broad Street Eagles JV, LLC (a subsidiary of Broad Street Realty, Inc.) and a warrant to purchase Broad Street Realty, Inc. common stock by Fortress affiliates to FMC affiliates.
• Concurrently, a mezzanine loan provided by a Fortress affiliate to a Broad Street subsidiary is being sold to an FMC affiliate.
• These transactions represent a significant restructuring of financial relationships between Broad Street Realty, Inc. and its key investors/lenders, involving entities that have had prior agreements and influence over the company's operations and governance.

Stakeholder Impact

• **Shareholders**: The sale of the warrant to purchase 2,560,000 shares of common stock by Fortress affiliates to FMC affiliates signifies a change in a significant potential shareholder. This could impact future share dilution or strategic direction depending on FMC's intentions.
• **Creditors**: The mezzanine loan is being transferred from a Fortress affiliate to an FMC affiliate, changing the mezzanine lender. The transaction requires consent from the Senior Lender, indicating a direct impact on the company's debt structure and relationships with its primary creditors.
• **Management/Board**: Fortress's designees on Broad Street's Board of Directors and as a Board Observer will resign, leading to changes in board composition and potentially governance dynamics.

Next Steps

• Closing of the Preferred Membership Interest and Warrant Purchase Agreement on or before February 28, 2025 (or March 31, 2025, if extended).
• Closing of the Note Sale and Assignment Agreement concurrently with the Preferred Membership Interest and Warrant Purchase.
• Delivery of various assignment agreements (Warrant, Interest, Registration Rights, Governance, Cash Flow Pledge) at closing.
• Resignation of seller's designees from Broad Street Realty, Inc.'s Board of Directors and as a Board Observer at closing.
• Broad Street Realty, Inc. to provide a written waiver and release of claims to the sellers at closing.
• Midtown Row Senior Lender to provide consent to the transactions.
• Purchaser to satisfy KYC/OFAC/AML screening requirements.

Key Dates

Keywords

Broad Street Realty, Fortress Investment Group, FMC BRST Preferred, Mezzanine Loan, Preferred Membership Interest, Warrant Sale, SEC Filing, Schedule 13D, Real Estate Investment, Corporate Finance, Asset Sale