UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 001-37390
Global Net Lease, Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
405 Park Ave., 14 th Floor New York, NY
(Address of principal executive offices)
45-2771978
(I.R.S. Employer Identification No.)
10022
(Zip Code)
(212) 415-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common stock, $0.01 par value per share (Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x
No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x
Yes ¨
No
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x
Yes ¨
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
Smaller reporting company ¨
Accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨
Yes x
No
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $1.5 billion based on the closing sales price on the New York Stock
Exchange as of June 30, 2015 , the last business day of the registrant's most recently completed second fiscal quarter.
On February 12, 2016 , the registrant had 168,936,633 shares of common stock outstanding .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be delivered to stockholders in connection with the registrant’s 2016 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Form 10-K. The registrant intends to file its proxy statement within 120 days after its fiscal year end.
GLOBAL NET LEASE, INC.
FORM 10-K
Year Ended December 31, 2015
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Page
4
9
33
34
42
42
43
49
50
65
69
69
69
69
70
70
70
70
70
71
74
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes
thereto, or because the conditions requiring their filing do not exist.
2
Table of Contents
Forward-Looking Statements
Certain statements included in this Annual Report on Form 10-K are forward-looking statements including statements regarding the intent, belief or current
expectations of Global Net Lease, Inc. (the "Company," "we," "our" or "us"), formerly known as American Realty Capital Global Trust, Inc., and members of our
management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks,"
"anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated
by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless
required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those
presented in our forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
All of our executive officers are also officers, managers and/or holders of a direct or indirect controlling interest in Global Net Lease Advisors, LLC
(the "Advisor") and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital LLC, "AR Global"). As a result,
our executive officers, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation
arrangements with us and other investment programs advised by AR Global affiliates and conflicts in allocating time among these investment
programs and us. These conflicts could result in unanticipated actions.
Because investment opportunities that are suitable for us may also be suitable for other AR Global- advised investment programs, our Advisor and its
affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor,
which could reduce the investment return to our stockholders.
We may be unable to pay or maintain cash dividends or increase dividends over time.
We are obligated to pay fees which may be substantial to our Advisor and its affiliates.
We depend on tenants for our rental revenue and, accordingly, our rental revenue is dependent upon the success and economic viability of our
tenants.
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay dividends to our stockholders.
We may be unable to raise additional debt or equity financing on attractive terms or at all.
Adverse changes in exchange rates may reduce the value of our properties located outside of the United States.
We may not generate cash flows sufficient to pay dividends to our stockholders, as such, we may be forced to borrow at unfavorable rates or depend
on our Advisor to waive reimbursement of certain expense and fees to fund our operations. There is no assurance that our Advisor will waive
reimbursement of expenses or fees.
Any of these dividends may reduce the amount of capital we ultimately invest in properties and other permitted investments and negatively impact
the value of our common stock.
We are subject to risks associated with our international investments, including risks associated with compliance with and changes in foreign laws,
fluctuations in foreign currency exchange rates and inflation.
We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the United States of
America and Europe from time to time.
We may fail to continue to qualify, as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher
taxes, may adversely affect operations and would reduce our NAV and cash available for dividends.
We may be deemed to be an investment company under the Investment Company Act of 1940, as amended ("the Investment Company Act"), and
thus subject to regulation under the Investment Company Act.
We may be exposed to risks due to a lack of tenant diversity, investment types and geographic diversity.
We may be exposed to changes in general economic, business and political conditions, including the possibility of intensified international hostilities,
acts of terrorism, and changes in conditions of United States of America or international lending, capital and financing markets.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of this annual report on Form 10-K.
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Table of Contents
Item 1. Business.
PART I
We were incorporated on July 13, 2011 as a Maryland corporation. We acquired our first property and commenced active operations in October 2012 and
elected and qualified to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2013. We completed our
initial public offering ("IPO") on June 30, 2014 and on June 2, 2015 we listed our common stock ("Common Stock") on the New York Stock Exchange (the
"NYSE") under the symbol "GNL" (the "Listing").
Our investment strategy is to acquire a diversified portfolio of commercial properties, with an emphasis on sale-leaseback transactions involving single tenant
net-leased commercial properties. As of December 31, 2015 , we owned 329 net leased commercial properties consisting of 18.7 million rentable square feet.
Based on original purchase price, 60.4% of our properties are located in the United States (U.S.) and the Commonwealth of Puerto Rico, 20.8% are located in
continental Europe and 18.8% are located in the United Kingdom. The properties were 100% leased, with a weighted average remaining lease term of 11.3 years.
In connection with the Listing, we offered to purchase up to 11.9 million of shares of our Common Stock at a price of $10.50 per share (the "Tender Offer").
As a result of the Tender Offer, on July 6, 2015 we purchased approximately 11.9 million shares of our Common Stock at a price of $10.50 per share, for an
aggregate amount of $125.0 million , excluding fees and expenses relating to the Tender Offer and including fractional shares repurchased thereafter.
Substantially all of the Company's business is conducted through Global Net Lease Operating Partnership, L.P. (the "OP"). As of December 31, 2015 , the
Advisor owned 1,461,753 units of limited partnership interests in the OP ("OP Units"), Moor Park Capital Partners LLP (the "Service Provider") held 347,903 OP
Units and Global Net Lease Special Limited Partner, LLC (the "Special Limited Partner") held 22 OP Units. In accordance with the limited partnership agreement
of the OP, a holder of OP Units has the right to convert OP Units for a corresponding number of shares of the Company's Common Stock or the cash value of those
corresponding shares, at the Company's option. The remaining rights of the limited partner interests are limited and do not include the ability to replace the general
partner or to approve the sale, purchase or refinancing of the OP's assets.
We are externally managed by our Advisor and our properties are managed and leased by Global Net Lease Properties, LLC (the "Property Manager"). The
Advisor, Property Manager and Special Limited Partner are under common control with the parent of the AR Capital Global Holdings, LLC (the "Sponsor"), as a
result of which they are related parties, and have received compensation, fees and expense reimbursements for various services provided to us and for the
investment and management of our assets. The Advisor has retained the Service Provider to provide advisory and property management services with respect to
investments in Europe, subject to the Advisor's oversight. These services include, among others, sourcing and structuring of investments, sourcing and structuring
of debt financing, due diligence, property management and leasing. Realty Capital Securities, LLC (our "Former Dealer Manager") served as the dealer manager of
our IPO, which was ongoing from October 2012 to June 2014 and, together with its affiliates, continued to provide us with various services through December 31,
2015. RCS Capital Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided services to us, filed for Chapter 11
bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of our Sponsor.
Investment Strategy
Our investment strategy is to acquire a portfolio of commercial properties that is diversified in terms of geography, industry, and tenants. We have made
approximately 60.4% of our investments in the U.S. and the Commonwealth of Puerto Rico and 39.6% in the United Kingdom and Continental Europe.
Approximately 54% of our investments are in office properties, 30% of our investments are in industrial/distribution properties, 15% of our investments are in
retail properties and 1% of our properties are in other industries. No individual tenant accounted for more than 10% of our annualized rental income at
December 31, 2015 .
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We seek to:
•
•
•
support a stable dividend by generating stable, consistent cash flow by acquiring properties with, or entering into new leases with, long lease terms;
facilitate dividend growth by acquiring properties with, or entering into new leases with, contractual rent escalations or inflation adjustments included in
the lease terms; and
enhance the diversity of our asset base by continuously evaluating opportunities in different geographic regions of the U.S. and Europe, leveraging the
market presence of our Advisor in the U.S. and our Service Provider in the United Kingdom and Continental Europe.
Acquisition and Investment Policies
Primary
Investment
Focus
We focus on acquisitions of net lease properties with existing net leases or we acquire properties pursuant to sale-leaseback transactions. We may in the future
acquire or originate real estate debt such as first mortgage debt loans but may also include bridge loans, mezzanine loans, preferred equity or securitized loans. As
of December 31, 2015 , we have not invested in any bridge loans, mezzanine loans, preferred equity or securitized loans.
As of December 31, 2015 , we owned 329 properties, including 272 properties located in the United States and Puerto Rico, 40 properties located in the United
Kingdom and 17 properties located across continental Europe.
Investing
in
Real
Property
When evaluating prospective investments in real property, our management, our Advisor and, with respect to foreign investments, our Service Provider,
consider relevant real estate and financial factors, including the location of the property, the leases and other agreements affecting the property, the
creditworthiness of major tenants, its income producing capacity, its physical condition, its prospects for appreciation, its prospects for liquidity, tax considerations
and other factors. In this regard, our Advisor and our Service Provider have substantial discretion with respect to the selection of specific investments, subject to
board approval.
The following table lists the tenants from which we derived more than 10% of our total annualized rental income on a straight-line basis for the years ended
December 31, 2015 , 2014 and 2013 .
Tenant
Encanto Restaurants, Inc.
Western Digital Corporation
Thames Water Utilities Limited
___________________________________________
December 31,
2015
2014
*
*
*
*
*
*
2013
19.4%
14.6%
11.7%
*
Tenant's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.
The termination, delinquency or non-renewal of leases by any major tenant may have a material adverse effect on revenues.
Opportunistic
Investments
We believe that our Advisor’s and our Service Provider’s presence in the commercial real estate marketplace may present attractive opportunities to invest in
properties other than long-term net leased properties, such as partially leased properties, multi-tenanted properties, vacant or undeveloped properties and properties
subject to short-term net leases. In addition, we may acquire or originate investments in commercial real estate-related debt. Real estate-related debt investments
include first mortgage loans, subordinated interests in first mortgage loans and mezzanine loans related to commercial real estate. We may also invest in real
estate-related securities issued by real estate market participants such as real estate funds or other REITs. Real estate-related securities include commercial
mortgage-backed securities ("CMBS"), preferred equity and other higher-yielding structured debt and equity investments. Investments in these opportunistic
investments would be subject to maintaining the requirements for continued qualification as a REIT and the requirements for our exemption from the Investment
Company Act of 1940. As of December 31, 2015 , we are not invested in any of these types of opportunistic investments.
Acquisition
Structure
We acquire properties through the OP and its subsidiaries. We have acquired properties through assets purchases and through purchases of the equity of
entities owning properties. We typically acquire fee interests in properties (a “fee interest” is the absolute, legal possession and ownership of land, property, or
rights), although we have acquired six leasehold interest properties (a “leasehold interest” is a right to enjoy the exclusive possession and use of an asset or
property for a stated definite period as created by a written lease).
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We may enter into joint ventures, partnerships and other co-ownership arrangements (including preferred equity investments) for the purpose of making
investments, provided these investments would not cause us to be required to register as an "investment company" under the Investment Company Act.
Financing Strategies and Policies
We have a revolving credit facility with JPMorgan Chase Bank. N.A. (the “Credit Facility”) providing for maximum borrowings of $740.0 million . As of
December 31, 2015 , we have $717.3 million drawn on the Credit Facility. The Credit Facility bears interest at a floating rate and fixed rate borrowings after
considering interest rate swaps in place (see Note 4 — Revolving Credit Facility to our audited consolidated financial statements in this Annual Report on Form
10-K for Credit Facility and interest rates details). In addition, we have various mortgage loans outstanding, which are secured by our properties. Our mortgage
loans typically bear interest at margin plus a floating rate which is mostly fixed through interest rate swap agreements (see Note 5 — Mortgage Notes Payable to
our audited consolidated financial statements in this Annual Report on Form 10-K for mortgage loans in respective currencies and interest rates details).
We may obtain additional financing for future investments, property improvements, tenant improvements, leasing commissions and other working capital
needs. The form of our indebtedness will vary and could be long-term or short-term, secured or unsecured, or fixed-rate or floating rate. We will not enter into
interest rate swaps or caps, or similar hedging transactions or derivative arrangements for speculative purposes but may do so in order to manage or mitigate our
interest rate risks on variable rate debt.
Under our charter, the maximum amount of our total indebtedness may not exceed 300% of our total “net assets” (as defined in our charter) as of the date of
any borrowing, which is generally expected to be approximately 75% of the cost of our investments; however, we may exceed that limit if approved by a majority
of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit.
This charter limitation, however, does not apply to individual real estate assets or investments. As of December 31, 2015 , our aggregate borrowings are equal to
47.5% of the aggregate purchase price of assets.
Except with respect to the borrowing limits contained in our charter, we may reevaluate and change our financing policies without a stockholder vote. Factors
that we would consider when reevaluating or changing our debt policy include: then-current economic conditions, the relative cost and availability of debt and
equity capital, our expected investment opportunities, the ability of our investments to generate sufficient cash flow to cover debt service requirements and other
similar factors.
Tax Status
We qualified to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"), commencing with our taxable year ended December 31, 2013. Commencing with such taxable year, we were organized and operate in such a manner
as to qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner to continue to qualify as a REIT for U.S. federal income tax
purposes, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT for U.S. federal income tax purposes. In order to
continue to qualify for taxation as a REIT, we must, among other things, distribute annually at least 90% of our REIT taxable income. REITs are subject to a
number of other organizational and operational requirements. Even if we continue to qualify for taxation as a REIT, we may be subject to certain federal, state,
local and foreign taxes on our income and assets, including alternative minimum taxes, taxes on any undistributed income and state, local or foreign income,
franchise, property and transfer taxes. Any of these taxes decrease our earnings and our available cash.
In addition, our international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded entities of
a REIT, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
Competition
The commercial real estate market is highly competitive. We compete for tenants in all of our markets with other owners and operators of real estate. Factors
affecting competition for tenants include location, rental rates, security, suitability of the property’s design to prospective tenants’ needs and the manner in which
the property is operated and marketed. Competition may have a material effect on our occupancy levels, rental rates or on the operating expenses of our properties.
In addition, we compete with other entities engaged in real estate investment activities to locate suitable properties to acquire and to locate tenants and
purchasers for our properties. These competitors include American Realty Capital Global Trust II, Inc., a REIT sponsored by our Sponsor with substantially the
same investment strategy as us, other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual
funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities. There are also other REITs with asset acquisition
objectives similar to ours and others may be organized in the future. Some of these competitors, including larger REITs, have substantially greater marketing and
financial resources than we have and generally may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness
of tenants. In addition, these same entities seek financing through similar channels to our company. Therefore, we compete for financing in a market where funds
for real estate investment may decrease.
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Competition from these and other real estate investors may limit the number of suitable investment opportunities available to us. It also may result in higher
prices, lower yields and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments on attractive terms. In
addition, competition for desirable investments could delay investments in desirable assets, which may in turn reduce our earnings per share and negatively affect
our ability to maintain dividends to stockholders.
Regulations
Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations,
land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle
activity. We believe that we have all permits and approvals necessary under current law to operate our investments.
Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments and foreign governments at various levels.
Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will
have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on
properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future. As part of our efforts to mitigate these risks, we
typically engage third parties to perform assessments of potential environmental risks when evaluating a new acquisition of property, and we frequently require
sellers to address them before closing or obtain contractual protection (indemnities, cash reserves, letters of credit, or other instruments) from property sellers,
tenants, a tenant’s parent company, or another third party to address known or potential environmental issues.
Advisory Agreement
We have entered into the Fourth Amended and Restated Advisory Agreement (the “Advisory Agreement”) with our Advisor which adds clarity and
transparency to our external management agreement and requires us to pay a base management fee (the “Base Management Fee”) of $18.0 million per annum,
payable in cash monthly in advance, a variable fee (the “Incentive Compensation”) equal to 1.25% of net proceeds raised from additional equity issuances,
including issuances of OP Units, and an incentive fee, payable 50% in cash and 50% in shares of common stock, equal to 15% of our Core AFFO (as defined in the
Advisory Agreement) in excess of $0.78 per share plus 10% of our Core AFFO in excess of $1.02 per share. The $0.78 and $1.02 incentive hurdles are subject to
annual increases of 1% to 3%. The Base Management Fee and the Incentive Compensation are each subject to an annual adjustment.
We reimburse the Advisor or its affiliates for expenses of the Advisor and its affiliates incurred on behalf of us, except for those expenses that are specifically
the responsibility of the Advisor under the Advisory Agreement.
The Advisory Agreement has an initial term of 20 years with automatic renewals for consecutive 5-year terms unless terminated in accordance with the terms
of the Advisory Agreement with payments of a termination fee of up to 2.5 times the compensation paid to the Advisor in the previous year, plus expenses.
Employees
As of December 31, 2015 , we had no employees. Instead, the employees of our Service Provider, Property Manager, Advisor and other affiliates of our
Sponsor perform a full range of real estate services for us, including acquisitions, property management, accounting, legal, asset management, wholesale
brokerage, transfer agent and investor relations services.
We are dependent on these third parties and affiliates for services that are essential to us, including asset acquisition decisions, property management and other
general administrative responsibilities. In the event that any of these companies were unable to provide these services to us, we would be required to provide such
services ourselves or obtain such services from other sources at potentially higher cost.
Financial Information About Industry Segments
Our current business consists of owning, managing, operating, leasing, acquiring, investing in and disposing of real estate assets. All of our consolidated
revenues are derived from our consolidated real estate properties. We internally evaluate operating performance on an individual property level and view all of our
real estate assets as one industry segment, and, accordingly, all of our properties are aggregated into one reportable segment.
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Available Information
We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and
proxy statements, with the SEC. We also filed with the SEC our Registration Statement in connection with our offering. You may read and copy any materials we
file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, or you may obtain information by calling the SEC at 1-800-
SEC-0330. The SEC maintains an internet address at http://www.sec.gov that contains reports, proxy statements and information statements, and other information,
which you may obtain free of charge. In addition, copies of our filings with the SEC may be obtained from the website maintained for us and our affiliates at
www.globalnetlease.com. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Form 10-K.
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Table of Contents
Item 1A. Risk Factors
We
have
incurred
operating
losses
and
cannot
assure
you
that
we
will
achieve
profitability.
Risks Related to Our Properties and Operations
Since our inception in July 2011, we have incurred cumulative net losses (calculated in accordance with accounting principles generally accepted in the United
States of America ("GAAP")) equal to $63.1 million . The extent of our future operating losses and the timing of the profitability are highly uncertain, and we may
never achieve or sustain profitability.
Other than our revolving Credit Facility and borrowings secured by our properties, we do not have any established financing sources. If our capital resources
are insufficient to support our operations, we will not be successful.
To be successful, we must, among other things:
•
•
•
•
identify and acquire investments that further our investment strategies;
attract, integrate, motivate and retain qualified personnel for the Advisor to manage our day-to-day operations;
respond to competition for our targeted real estate properties and other investments as well as for potential investors; and
continue to build and expand our operations structure to support our business.
We cannot guarantee that we will succeed in achieving these goals.
If
our
Advisor
or
our
Service
Provider
loses
or
is
unable
to
obtain
key
personnel,
including
in
the
event
another
AR
Global
-sponsored
program
internalizes
its
advisor,
our
ability
to
implement
our
investment
strategies
could
be
delayed
or
hindered,
which
could
adversely
affect
our
ability
to
pay
dividends
and
the
value
of
our
Common
Stock.
Our success depends to a significant degree upon the contributions of our executive officers and other key personnel of our Advisor and our Service Provider,
each of whom would be difficult to replace. Neither we, our Advisor or our Service Provider has an employment agreement with any of these key personnel and
we cannot guarantee that all, or any particular one, will remain affiliated with us or our Advisor or our Service Provider. If any of our key personnel were to cease
their affiliation with our Advisor or our Service Provider, our operating results could suffer. Further, we do not intend to separately maintain key person life
insurance on any person. We believe that our future success depends, in large part, upon the ability of our Advisor or our Service Provider to hire and retain highly
skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and there can be no assurance that our Advisor or our Service
Provider will be successful in attracting and retaining such skilled personnel. If our Advisor our Service Provider loses or is unable to obtain the services of key
personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of an investment in our shares may decline.
In addition, our Advisor and our Service Provider depend upon the fees and other compensation that received from us to conduct its operations. Any adverse
changes in the financial condition of, or our relationship with, our Advisor could hinder its ability to successfully manage our operations and our portfolio of
investments. Additionally, changes in ownership or management practices, the occurrence of adverse events affecting our Advisor or its affiliates or other
companies advised by our Advisor and its affiliates could create adverse publicity and adversely affect us and our relationship with lenders, tenants or
counterparties.
We
may
terminate
our
advisory
agreement
with
our
Advisor
in
only
limited
circumstances,
with
payment
of
a
termination
fee.
On June 2, 2015, we entered into the Advisory Agreement with our Advisor. The agreement has a 20 year term, with automatic renewals for consecutive 5-
year terms and may only be terminated under limited circumstances, such as a change in control of the Company or the Advisor, for cause, or for failure to meet
performance standards in the prior year. This will make it difficult for us to renegotiate the terms of our advisory agreement or replace our Advisor even if the
terms of our agreement are no longer consistent with the terms offered to other externally-managed REITs as the market for advisory services changes in the
future.
During
the
year
ended
December
31,
2015
,
we
paid
dividends
from
sources
other
than
cash
flows
from
operations.
Dividends paid from sources other than our cash flows from operations will result in us having fewer funds available for the acquisition of properties and other
real estate-related investments, which may adversely affect our ability to fund future dividends and may adversely affect your overall return.
Our cash flows provided by operations were $102.2 million for the year ended December 31, 2015 . During the year ended December 31, 2015 , dividends
paid to common stockholders and OP Unit holders were $127.0 million , of which $28.6 million , or 22.5% , was funded from offering proceeds from DRIP. The
remaining $98.4 million , or 77.5% , was funded from cash flows from operations.
If we do not generate sufficient cash flows from our operations to fund dividends, we may have to reduce or suspend dividend payments, or pay dividends
from other sources, such as from borrowings, the sale of additional securities, advances from our Advisor, and/or our Advisor's deferral, suspension and/or waiver
of its fees and expense reimbursements. Moreover, our board of directors may change our dividend policy, in its sole discretion, at any time.
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Funding dividends from borrowings could restrict the amount we can borrow for investments, which may affect our profitability. Funding dividends with the
sale of assets or the proceeds from issuance of Common Stock may affect our ability to generate cash flows. Funding dividends from the sale of additional
securities could dilute your interest in us if we sell shares of our Common Stock or securities that are convertible or exercisable into shares of our Common Stock
to third party investors. Payment of dividends from the mentioned sources could restrict our ability to generate sufficient cash flows from operations, affect our
profitability or affect the dividends payable to you upon a liquidity event, any or all of which may have an adverse effect on your investment.
Our
rights
and
the
rights
of
our
stockholders
to
recover
claims
against
our
officers,
directors
and
our
Advisor
are
limited,
which
could
reduce
any
recovery
against
them
if
they
cause
us
to
incur
losses.
Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably
believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. In
addition, subject to certain limitations set forth therein or under Maryland law, our charter provides that no director or officer will be liable to us or our
stockholders for monetary damages and requires us to indemnify our directors, officers and Advisor and our Advisor’s affiliates and permits us to indemnify our
employees and agents. We have entered into an indemnification agreement formalizing our indemnification obligations with respect to our officers and directors
and certain former officers and directors. However, our charter provides that we may not indemnify a director, our Advisor or an affiliate of our Advisor for any
loss or liability suffered by any of them or hold harmless such indemnitee for any loss or liability suffered by us unless: (1) the indemnitee determined, in good
faith, that the course of conduct that caused the loss or liability was in our best interests, (2) the indemnitee was acting on behalf of or performing services for us,
(3) the liability or loss was not the result of (A) negligence or misconduct, in the case of a director (other than an independent director), the Advisor or an affiliate
of the Advisor, or (B) gross negligence or willful misconduct, in the case of an independent director, and (4) the indemnification or agreement to hold harmless is
recoverable only out of our net assets and not from our stockholders. Although our charter does not allow us to indemnify or hold harmless an indemnitee to a
greater extent than permitted under Maryland law and the North American Securities Administrators Association REIT Guidelines, we and our stockholders may
have more limited rights against our directors, officers, employees and agents, and our Advisor and its affiliates, than might otherwise exist under common law,
which could reduce any recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents
or our Advisor and its affiliates in some cases which would decrease the cash otherwise available for dividend to stockholders.
We
rely
significantly
on
major
tenants
and
therefore
are
subject
to
tenant
credit
concentrations
that
make
us
more
susceptible
to
adverse
events
with
respect
to
those
tenants.
As of December 31, 2015 , we derived 5.0% or more of our consolidated annualized rental income on a straight-line basis from the following two major tenants
and their affiliates:
Tenant
Government Services Administration (GSA I - IX)
RWE AG
Number of Properties
11
3
December 31, 2015
5.6%
5.0%
The financial failure of a major tenant is likely to have a material adverse effect on our results of operations and our financial condition. In addition, the value
of our investment in a real estate asset is historically driven by the credit quality of the underlying tenant, and an adverse change in a major tenant’s financial
condition or a decline in the credit rating of such tenant may result in a decline in the value of our investments and have a material adverse effect on our results of
operations.
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A
high
concentration
of
our
properties
in
a
particular
geographic
area
magnifies
the
effects
of
downturns
in
that
geographic
area
and
could
have
a
disproportionate
adverse
effect
on
the
value
of
our
investments.
If we have a concentration of our properties in any particular geographic area, any adverse situation that disproportionately affects that geographic area would
have a magnified adverse effect on our portfolio. As of December 31, 2015 , we derived 5.0% or more of our consolidated annualized rental income on a straight-
line basis from the following countries and states:
Country
Finland
Germany
United Kingdom
United States
California
Michigan
Texas
Total
December 31, 2015
6.9%
9.0%
19.2%
6.3%
8.6%
11.5%
61.5%
Any adverse situation that disproportionately affects the states and countries listed above may have a magnified adverse effect on our portfolio. Factors that
may negatively affect economic conditions in these states or countries include:
•
•
•
•
•
•
•
•
business lay offs, downsizing or relocations;
industry slowdowns;
changing demographics;
increased telecommuting and use of alternative work places;
infrastructure quality;
any oversupply of, or reduced demand for, real estate;
concessions or reduced rental rates under new leases for properties where tenants defaulted; and
increased insurance premiums.
We
are
subject
to
additional
risks
from
our
international
investments.
Based on original purchase price, approximately 60% of our properties are located in the U.S. and the Commonwealth of Puerto Rico and approximately 40%
are in Europe, primarily in the United Kingdom, Germany, The Netherlands and Finland. We may purchase other properties and may make additional investments
in Europe or elsewhere. These investments may be affected by factors peculiar to the laws and business practices of the jurisdictions in which the properties are
located. These laws and business practices may expose us to risks that are different from and in addition to those commonly found in the United States. Foreign
investments pose several risks, including the following:
•
•
•
•
•
•
•
•
•
•
•
•
the burden of complying with a wide variety of foreign laws;
changing governmental rules and policies, including changes in land use and zoning laws, more stringent environmental laws or changes in such laws;
existing or new laws relating to the foreign ownership of real property or loans and laws restricting the ability of foreign persons or companies to remove
profits earned from activities within the country to the person's or company's country of origin;
the potential for expropriation;
possible currency transfer restrictions;
imposition of adverse or confiscatory taxes;
changes in real estate and other tax rates and changes in other operating expenses in particular countries;
possible challenges to the anticipated tax treatment of the structures that allow us to acquire and hold investments;
adverse market conditions caused by terrorism, civil unrest and changes in national or local governmental or economic conditions;
the willingness of domestic or foreign lenders to make loans in certain countries and changes in the availability, cost and terms of loan funds resulting
from varying national economic policies;
general political and economic instability in certain regions;
the potential difficulty of enforcing obligations in other countries;
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•
•
our limited experience and expertise in foreign countries relative to our experience and expertise in the United States; and
our dependence on the Service Provider.
Investments
in
properties
or
other
real
estate
investments
outside
the
United
States
subject
us
to
foreign
currency
risks.
Investments we make outside the United States generally subject us to foreign currency risk due to fluctuations in exchange rates between foreign currencies
and the U.S. dollar. Revenues generated from properties or other real estate investments we acquire are generally denominated in the local currency. We also may
borrow in local currencies when we purchase properties outside the Unites States. As a result, changes in exchange rates of any such foreign currency to U.S.
dollars may affect our revenues, operating margins and dividends and may also affect the book value of our assets and the amount of stockholders' equity.
Changes in foreign currency exchange rates used to value a REIT's foreign assets may be considered changes in the value of the REIT's assets. These changes
may adversely affect our status as a REIT.
Foreign exchange rates may be influenced by many factors, including:
changing supply and demand for a particular currency;
•
• monetary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment
in a country or an investment by residents of a country in other countries);
changes in balances of payments and trade;
trade restrictions; and
currency devaluations and revaluations.
•
•
•
Also, governments from time to time intervene in the currency markets, directly and by regulation, in order to influence prices. These events and actions are
unpredictable. In particular, sovereign debt issues in Europe could lead to further significant, and potentially longer-term, devaluation of the Euro or British Pounds
against the U.S. dollar, which could adversely impact our European investments and revenue, operating expenses, and net income related to such European
investments as expressed in U.S. dollars.
If we are unsuccessful in hedging these, or any other potential losses related to our exposure to foreign currencies, our operating results could be negatively
impacted and our cash flows could be reduced. In some cases, as part of our risk management strategies, we may choose not to hedge such risks. If we misjudge
these risks, there could be a material adverse effect on our operating results and financial position.
The
commercial
real
estate
industry
may
be
adversely
affected
by
economic
conditions
in
the
European,
U.S.
and
global
financial
markets
generally.
Our business and operations are dependent on the commercial real estate industry generally, which in turn is dependent upon global economic conditions.
Issues with the instability of credit and financial markets, actions by governments or central banks, weak consumer confidence in many markets and geopolitical or
economic instability in certain countries continues to put pressure on European economies. Instability or volatility of certain countries in the European Union may
create risks for stronger countries within the European Union and globally. Global economic and political headwinds, along with global market instability and the
risk of maturing commercial real estate debt that may have difficulties being refinanced, may continue to cause periodic volatility in the commercial real estate
market for some time. Adverse economic conditions could harm our business and financial condition by, among other factors, reducing the value of our existing
investments, limiting our access to debt and equity capital and otherwise negatively impacting our operations.
Challenging
economic
and
financial
market
conditions
could
significantly
reduce
the
amount
of
income
we
earn
on
our
investments
and
further
reduce
the
value
of
our
investments.
Challenging economic and financial market conditions may cause us to experience an increase in the number of investments that result in losses, including
delinquencies, non-performing investments and a decrease in the value of our property, all of which could adversely affect our results of operations. We may incur
substantial losses and need to establish significant provision for losses or impairment. Our revenue from our properties could diminish significantly.
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Table of Contents
Continuing
concerns
regarding
European
debt,
market
perceptions
concerning
the
instability
of
the
Euro
and
recent
volatility
and
price
movements
in
the
rate
of
exchange
between
the
U.S.
dollar
and
the
Euro
could
adversely
affect
our
business,
results
of
operations
and
financing.
Concerns persist regarding the debt burden of certain Eurozone countries and their potential inability to meet their future financial obligations, the overall
stability of the Euro and the suitability of the Euro as a single currency, given the diverse economic and political circumstances in individual Eurozone countries
and recent declines and volatility in the value of the Euro. These concerns could lead to the re-introduction of individual currencies in one or more Eurozone
countries, or, in more extreme circumstances, the possible dissolution of the Euro currency entirely. Should the Euro dissolve entirely, the legal and contractual
consequences for holders of Euro-denominated obligations would be uncertain. Such uncertainty would extend to, among other factors, whether obligations
previously expressed to be owed and payable in Euros would be re-denominated in a new currency (with considerable uncertainty over the conversion rates), what
laws would govern and which country’s courts would have jurisdiction. These potential developments, or market perceptions concerning these and related issues,
could materially adversely affect the value of our Euro-denominated investments and obligations.
Furthermore, market concerns about economic growth in the Eurozone relative to the United States and speculation surrounding the potential impact on the
Euro of a possible Greek or other country sovereign default and/or exit from the Eurozone may continue to exert downward pressure on the rate of exchange
between the U.S. dollar and the Euro, which may adversely affect our results of operations.
Inflation
may
have
an
adverse
effect
on
our
investments.
Certain countries have in the past experienced extremely high rates of inflation. Inflation, along with governmental measures to curb inflation, coupled with
public speculation about the possible future governmental measures to be adopted, has had significant negative effects on these international economies in the past
and this could occur again in the future.
High inflation could cause our revenue from leases that do not contain indexed escalation provisions to decline and erode the value of long-term leases. High
inflation in the countries in which we purchase real estate or make other investments could also increase our expenses, and we may not be able to pass these
increased costs onto our tenants. An increase in our expenses or a decrease in our revenues could adversely impact our results of operations. As of December 31,
2015 , some of our leases for properties in foreign countries contain upward adjustments to fair market value every five years or contain capped indexed escalation
provisions, but there can be no assurance that future leases on properties in foreign countries will contain such provisions or that such provisions will protect us
from all potential adverse effects of inflation.
A
high
concentration
of
tenants
of
our
properties
in
a
similar
industry
magnifies
the
effects
of
downturns
in
that
industry
and
would
have
a
disproportionate
adverse
effect
on
the
value
of
our
investments.
If tenants of our properties are concentrated in a certain industry category, any adverse effect to that industry generally would have a disproportionately
adverse effect on our portfolio. For the year ended December 31, 2015 , the following industries had concentrations of properties where annualized rental income
on a straight-line basis represented 5.0% or greater of our consolidated annualized rental income on a straight-line basis:
Industry
Aerospace
Discount Retail
Energy
Financial Services
Freight
Government Services
Healthcare
Technology
Utilities
December 31, 2015
7.0%
8.8%
6.8%
9.8%
5.4%
6.3%
6.8%
8.0%
6.0%
Any adverse situation that disproportionately affects the industries listed above may have a magnified adverse effect on our portfolio.
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Our
business
and
operations
could
suffer
in
the
event
our
Advisor
or
any
other
party
that
provides
us
with
services
essential
to
our
operations,
experiences
system
failures
or
cyber
incidents
or
a
deficiency
in
cyber
security.
Despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for the internal information technology
systems of our Advisor and other parts that provide us with services essential to our operations are vulnerable to damages from any number of sources, including
computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that
causes interruptions in our operations could results in a material disruption to our business. We may also incur additional costs to remedy damages caused by such
disruptions.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of information resources. More specifically, a
cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data or steal
confidential information. As reliance on technology in our industry has increased, so have the risks posed to our systems, both internal and those we have
outsourced. In addition, the risk of a cyber incident, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the
number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Even the most well protected information,
networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted attacks and intrusions evolve and generally are not
recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected.
The remediation costs and lost revenues experienced by a victim of a cyber incident may be significant and significant resources may be required to repair
system damage, protect against the threat of future security breaches or to alleviate problems, including reputational harm, loss of revenues and litigation, caused
by any breaches.
In addition, a security breach or other significant disruption involving the IT networks and related systems of our Advisor or any other party that provides us
with services essential to our operations could:
•
•
•
•
•
•
•
result in misstated financial reports, violations of loan covenants, missed reporting deadlines and/or missed permitting deadlines;
affect our ability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT;
result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable
information (including information about guests at our hotel or tenants), which others could use to compete against us or for disruptive, destructive or
otherwise harmful purposes and outcomes;
result in our inability to maintain the building systems relied upon by our tenants for the efficient use of their leased space;
require significant management attention and resources to remedy any damages that result;
subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or
adversely impact our reputation among our tenants, guests at our hotel and investors generally.
Although our Advisor and other parties that provide us with services essential to our operations intend to continue to implement industry-standard security
measures, there can be no assurance that those measures will be sufficient, and any material adverse effect experienced by our Advisor and other parties that
provide us with services essential to our operations could, in turn, have an adverse impact on us.
Risks Related to Conflicts of Interest
Our
Advisor
and
our
Service
Provider
face
conflicts
of
interest
relating
to
the
purchase
and
leasing
of
properties,
and
such
conflicts
may
not
be
resolved
in
our
favor,
which
could
adversely
affect
our
investment
opportunities.
We rely on our Sponsor and the executive officers and other key real estate professionals at our Advisor and our Service Provider to identify suitable
investment opportunities for us. Several of the other key real estate professionals of our Advisor are also the key real estate professionals at the parent of our
Sponsor and their other public programs. Many investment opportunities that are suitable for us may also be suitable for other programs sponsored directly or
indirectly by the parent of our Sponsor. For example, American Realty Capital Global Trust II, Inc. seeks, like us, to invest in a diversified portfolio of commercial
properties, with an emphasis on sale-leaseback transactions involving single tenant net-leased commercial properties, in the United States and Europe. The
investment opportunity allocation agreement we have entered into with American Realty Capital Global Trust II, Inc. may result in us not being able to acquire
certain properties identified by our Advisor and its affiliates. Thus, the executive officers and real estate professionals of our Advisor or our Service Provider could
direct attractive investment opportunities to other entities or investors.
We and other programs sponsored directly or indirectly by the parent of our Sponsor also rely on these real estate professionals, and our Service Provider, to
supervise the property management and leasing of properties. Our executive officers and key real
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Table of Contents
estate professionals, and our Sponsor and our Service Provider, are not prohibited from engaging, directly or indirectly, in any business or from possessing interests
in other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, leasing or sale of real estate
investments.
Our
Advisor
faces
conflicts
of
interest
relating
to
joint
ventures,
which
could
result
in
a
disproportionate
benefit
to
the
other
venture
partners
at
our
expense
and
adversely
affect
the
value
of
our
Common
Stock.
We may enter into joint ventures with other AR Global-sponsored programs for the acquisition, development or improvement of properties. Our Advisor may
have conflicts of interest in determining which AR Global-sponsored program should enter into any particular joint venture agreement. The co-venturer may have
economic or business interests or goals that are or may become inconsistent with our business interests or goals. In addition, our Advisor may face a conflict in
structuring the terms of the relationship between our interests and the interest of the affiliated co-venturer and in managing the joint venture. Because our Advisor
and its affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements and transactions between the co-venturers with respect to any
such joint venture will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers, which may result in the co-
venturer receiving benefits greater than the benefits that we receive. In addition, we may assume liabilities related to the joint venture that exceeds the percentage
of our investment in the joint venture.
Our
officers
and
directors
face
conflicts
of
interest
related
to
the
positions
they
hold
with
related
parties,
which
could
hinder
our
ability
to
successfully
implement
our
business
strategy
and
to
generate
returns
to
you.
Certain of our executive officers, including Scott Bowman, chief executive officer and president, and Timothy Salvemini, chief financial officer, treasurer and
secretary, also are officers of our Advisor, our Property Manager and other related parties, including the advisor and property manager of American Realty Capital
Global Trust II, Inc., which is a non-traded REIT sponsored by the parent of our Sponsor that has investment objectives similar to ours. Our directors also are
directors of other traded and non-traded REITs sponsored by the parent of our Sponsor. As a result, these individuals owe fiduciary duties to these other entities
and their stockholders and limited partners, which fiduciary duties may conflict with the duties that they owe to us and our stockholders.
These conflicting duties could result in actions or inactions that are detrimental to our business. Conflicts with our business and interests are most likely to
arise from involvement in activities related to (a) allocation of new investments and management time and services between us and the other entities, (b) our
purchase of properties from, or sale of properties, to entities sponsored by or affiliated with our Sponsor, (c) the timing and terms of the investment in or sale of an
asset, (d) development of our properties by affiliates of our Sponsor, (e) investments with affiliates of our Advisor, and (f) compensation to our Advisor and its
affiliates including our Property Manager.
Moreover, the management of multiple REITs by certain of the officers and other key personnel of our Advisor may significantly reduce the amount of time
they are able to spend on activities related to us, which may cause our operating results to suffer.
Our
Advisor
and
our
Service
Provider
face
conflicts
of
interest
relating
to
the
structure
of
the
fees
they
receive,
which
could
result
in
actions
that
are
not
necessarily
in
the
long-term
best
interest
of
our
stockholders.
Under our Advisory Agreement, the partnership agreement of our OP, and the OPP (as described in “ Item 5 . Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities-Share-Based Compensation-Multi-Year Outperformance Agreement”), our Advisor is
entitled to substantial minimum compensation regardless of performance. Further, because our Advisor does not maintain a significant equity interest in us and is
entitled to receive fees and earn LTIP Units (as described in “ Item 5 . Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities-Share-Based Compensation-Multi-Year Outperformance Agreement”) based on performance, our Advisor may be incentivized to recommend
investments that are riskier or more speculative than investments recommended by an advisor whose interests are more aligned with those of stockholders.
Risks Related to Our Corporate Structure and Common Stock
We
may
be
unable
to
pay
or
maintain
cash
dividends
to
our
stockholders
or
increase
dividends
over
time,
which
could
adversely
affect
the
return
on
an
investment
in
our
shares.
There are many factors that can affect the availability and timing of cash dividends to stockholders. Dividends are based principally on cash available from our
operations. The amount of cash available for dividends is affected by many factors, such as, rental income from our properties and our operating expense levels, as
well as many other variables. Actual cash available for dividends may vary substantially from estimates. We cannot give any assurance that we will be able to pay
or maintain our current level of dividends or that dividends will increase over time. We also cannot give any assurance that rents from our properties will increase,
or that future acquisitions of properties, real estate-related debt or real estate-related securities will increase our cash available for dividends to stockholders. Our
actual results may differ significantly from the assumptions used by our board of directors in establishing the dividend rate to stockholders.
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Table of Contents
Moreover, our failure to meet the market's expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our
Common Stock.
The
trading
price
of
our
Common
Stock
has
declined
and
may
continue
to
decline.
The trading price of our Common Stock is impacted by a number of factors, many of which are outside our control. Among the factors that could affect the
price of our Common Stock are:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our financial condition and performance;
the financial condition of our tenants, including the extent of tenant bankruptcies or defaults;
actual or anticipated quarterly fluctuations in our operating results and financial condition;
our dividend policy;
the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities,
including securities issued by other real estate companies, and fixed income securities;
our reputation and the reputation of our Sponsor, its affiliates or entities sponsored by our Sponsor;
uncertainty and volatility in the equity and credit markets;
fluctuations in interest rates;
changes in revenue or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies
with respect to our securities or those of other REITs;
failure to meet analysts’ revenue or earnings estimates;
speculation in the press or investment community;
strategic actions by us or our competitors, such as acquisitions or restructurings;
the extent of institutional investor interest in us;
the extent of short-selling of our Common Stock;
general financial and economic market conditions and, in particular, developments related to market conditions for REITs and other real estate related
companies;
domestic and international economic factors unrelated to our performance; and
all other risk factors addressed elsewhere in this Annual Report on the Form 10-K.
We
depend
on
our
OP
and
its
subsidiaries
for
cash
flow
and
are
structurally
subordinated
in
right
of
payment
to
the
obligations
of
our
OP
and
its
subsidiaries.
Our only significant asset is the partnership interest we own in our OP. We conduct, and intend to continue conducting, all of our business operations through
our OP. Accordingly, our only source of cash to pay our obligations is dividends from our OP and its subsidiaries. The limited partnership units of the OP Units
held by our Advisor, the Service Provider and their respective affiliates are also entitled to distributions from the OP in the same amount as shares of Common
Stock. Until such time as the LTIP Units held by our Advisor are fully earned in accordance with the provisions of the OPP, the LTIP Units are entitled to
dividends equal to 10% of the dividends made on the OP Units. After the LTIP Units are fully earned, they are entitled to a catch-up distribution and then receive
the same distribution as the OP Units.
There is no assurance that our OP or its subsidiaries will be able to, or be permitted to, pay dividends to us that will enable us to pay dividends to our
stockholders, holders of OP Units and holders of LTIP Units from cash flows from operations or otherwise pay any other obligations. Each of our OP's subsidiaries
is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from these entities. In addition, any
claims we may have will be structurally subordinated to all existing and future liabilities and obligations of our operating partnership and its subsidiaries.
Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our OP and its subsidiaries will be available to satisfy the claims of
our creditors or to pay dividends to our stockholders only after all the liabilities and obligations of our OP and its subsidiaries have been paid in full.
A
stockholder's
interest
in
us
will
be
diluted
if
we
issue
additional
shares,
which
could
adversely
affect
the
value
of
our
Common
Stock.
Existing stockholders do not have preemptive rights to any shares issued by us in the future. Our charter currently authorizes us to issue 350 million shares of
stock, of which 300 million shares are classified as Common Stock and 50 million are classified as preferred stock. Our board of directors may amend our charter
from time to time to increase or decrease the aggregate number of authorized shares of stock, or the number of authorized shares of any class or series of stock, or
may classify or reclassify any unissued shares into the classes or series of stock without the necessity of obtaining stockholder approval. All of our shares may be
issued in the discretion of our board of directors. Existing stockholders will suffer dilution of their equity investment in us, if we: (a) sell additional shares of our
Common Stock, including pursuant to stock awards granted to our officers and directors; (b)
16
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sell securities that are convertible into shares of our Common Stock; or (c) issue shares to our Advisor or its affiliates, successors or assigns, in payment of an
outstanding fee obligation as set forth under our Advisory Agreement or other agreements.
In addition, we may issue shares of our Common Stock in connection with an exchange of OP Units and earnings of LTIP Units. As of December 31, 2015 ,
the Advisor and its affiliates, including certain of our current and former directors and executive officers, owned 1,809,678 OP Units, representing 1.1% of our
fully diluted Common Stock outstanding. After owning an OP Unit for one year, OP Unit holders generally may, subject to certain restrictions, exchange OP Units
for the cash value of a corresponding number of shares of our Common Stock or a corresponding number of shares of our Common Stock, at the Company's
option. As of December 31, 2015 , no LTIP Units have been earned. LTIP Units are convertible into OP Units subject to being earned and vested and several other
conditions. We may also issue OP Units to sellers of properties acquired by us.
If we issue preferred stock, the holders thereof will, upon liquidation, be entitled to receive distributions of liquidation proceeds prior to dividend to the
holders of our Common Stock. Additionally, any preferred stock including convertible preferred stock or other securities convertible, exercisable or exchangeable
for Common Stock that we issue in the future may have rights, preferences and privileges more favorable than those of our Common Stock and will result in
dilution to owners of our Common Stock if converted, exercised or exchanged for Common Stock. Any preferred stock, if issued, could have a preference on
liquidating distributions or a preference on dividend payments that could limit our ability pay dividends to the holders of our Common Stock. Because our decision
to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or
nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the value of our Common Stock and diluting the interest of
existing stockholders.
The
limit
on
the
number
of
shares
a
person
may
own
may
discourage
a
takeover
that
could
otherwise
result
in
a
premium
price
to
our
stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless
exempted by our board of directors, no person may own more than 9.8% in value of the aggregate of the outstanding shares of our stock or more than 9.8% (in
value or in number of shares, whichever is more restrictive) of any class or series of shares of our stock. This restriction may have the effect of delaying, deferring
or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets) that might
provide a premium price for holders of our Common Stock.
Our
charter
permits
our
board
of
directors
to
issue
stock
with
terms
that
may
subordinate
the
rights
of
common
stockholders
or
discourage
a
third
party
from
acquiring
us
in
a
manner
that
might
result
in
a
premium
price
to
our
stockholders.
Our charter permits our board of directors to issue up to 350.0 million shares of stock. In addition, our board of directors, without any action by our
stockholders, may amend our charter from time to time to increase or decrease the aggregate number of shares or the number of shares of any class or series of
stock that we have authority to issue. Our board of directors may classify or reclassify any unissued Common Stock or preferred stock and establish the
preferences, conversion or other rights, voting powers, restrictions and limitations as to dividends or other dividends, qualifications and terms or conditions of
redemption of any such stock. Thus, our board of directors could authorize the issuance of preferred stock with terms and conditions that could have a priority as to
dividends and amounts payable upon liquidation over the rights of the holders of our Common Stock. Preferred stock could also have the effect of delaying,
deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all our assets)
that might provide a premium price for holders of our Common Stock.
We
disclose
Funds
from
Operations
("FFO"),
as
defined
by
the
National
Association
of
Real
Estate
Investment
Trusts
("NAREIT"),
Core
Funds
from
Operations
("Core
FFO")
and
Adjusted
Funds
from
Operations
("AFFO").
These
are
non-GAAP
financial
measures
and
are
not
equivalent
to
our
net
income
or
loss
as
determined
under
GAAP,
and
stockholders
should
consider
GAAP
measures
to
be
more
relevant
to
our
operating
performance.
We use and disclose FFO, as defined by NAREIT, Core FFO and AFFO. All of these are non-GAAP measures and none of them are equivalent to our net
income or loss or cash flow from operations as determined under GAAP. Stockholders should consider GAAP measures to be more relevant to evaluating our
operating performance or our ability to pay dividends. FFO, Core FFO and AFFO and GAAP net income differ because FFO, Core FFO and AFFO exclude gains
or losses from sales of property and asset impairment write-downs, and add back depreciation and amortization, adjusts for unconsolidated partnerships and joint
ventures, and further excludes acquisition-related expenses, amortization of above- and below-market leases, fair value adjustments of derivative financial
instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Because of these differences, FFO, Core FFO and
AFFO may not be accurate indicators of our operating performance, especially with respect to the impact of acquisition expenses. FFO, Core FFO and AFFO are
not necessarily indicative of cash flow available to fund cash needs and stockholders should not consider FFO, Core FFO and AFFO as alternatives to cash flows
from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to pay dividends to our stockholders.
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Table of Contents
Maryland
law
prohibits
certain
business
combinations,
which
may
make
it
more
difficult
for
us
to
be
acquired
and
may
discourage
a
takeover
that
could
otherwise
result
in
a
premium
price
to
our
stockholders.
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a
merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An
interested stockholder is defined as:
•
•
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then outstanding stock of the corporation.
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he or she otherwise would
have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or
after the time of approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by
the board of directors of the corporation and approved by the affirmative vote of at least:
•
•
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or
with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for
their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The business combination
statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the
interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has exempted any business combination involving our
Advisor or any affiliate of our Advisor. Consequently, the five-year prohibition and the super-majority vote requirements will not apply to business combinations
between us and our Advisor or any affiliate of our Advisor. As a result, our Advisor and any affiliate of our Advisor may be able to enter into business
combinations with us that may not be in the best interest of our stockholders, without compliance with the super-majority vote requirements and the other
provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating
any offer.
Maryland
law
limits
the
ability
of
a
third-party
to
buy
a
large
stake
in
us
and
exercise
voting
power
in
electing
directors,
which
may
discourage
a
takeover
that
could
otherwise
result
in
a
premium
price
to
our
stockholders.
The Maryland Control Share Acquisition Act provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition”
have no voting rights except to the extent approved by stockholders by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to
be cast on the matter. Shares of stock owned by the acquirer, by officers or by employees who are directors of the corporation, are excluded from shares entitled to
vote on the matter. “Control shares” are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the
acquirer can exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in
electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having
previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means the acquisition of issued and
outstanding control shares. The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction, or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision
exempting from the Maryland Control Share Acquisition Act any and all acquisitions of our stock by any person. There can be no assurance that this provision will
not be amended or eliminated at any time in the future.
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Table of Contents
Our
stockholders'
investment
return
may
be
reduced
if
we
are
required
to
register
as
an
investment
company
under
the
Investment
Company
Act.
We are not registered, and do not intend to register ourselves or any of our subsidiaries, as an investment company under the Investment Company Act. If we
become obligated to register ourselves or any of our subsidiaries as an investment company, the registered entity would have to comply with a variety of
substantive requirements under the Investment Company Act imposing, among other things:
•
•
•
•
limitations on capital structure;
restrictions on specified investments;
prohibitions on transactions with affiliates; and
compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.
We conduct, and intend to continue conducting, our operations, directly and through wholly or majority-owned subsidiaries, so that we and each of our
subsidiaries are exempt from registration as an investment company under the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company
Act, a company is an “investment company” if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing,
reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an “investment company” if it is
engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment
securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis, or the 40%
test. “Investment securities” excludes U.S. Government securities and securities of majority-owned subsidiaries that are not themselves investment companies and
are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
Because we are primarily engaged in the business of acquiring real estate, we believe that we and most, if not all, of our wholly and majority-owned
subsidiaries will not be considered investment companies under either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act. If we or any of our
wholly or majority-owned subsidiaries would ever inadvertently fall within one of the definitions of “investment company,” we intend to rely on the exception
provided by Section 3(c)(5)(C) of the Investment Company Act.
Under Section 3(c)(5)(C), the SEC staff generally requires us to maintain at least 55% of our assets directly in qualifying assets and at least 80% of the entity’s
assets in qualifying assets and in a broader category of real estate-related assets to qualify for this exception. Mortgage-related securities may or may not constitute
such qualifying assets, depending on the characteristics of the mortgage-related securities, including the rights that we have with respect to the underlying loans.
Our ownership of mortgage-related securities, therefore, is limited by provisions of the Investment Company Act and SEC staff interpretations.
The method we use to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action positions taken by the
SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we
may face, and a number of these no-action positions were issued more than ten years ago. No assurance can be given that the SEC staff will concur with our
classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of
qualifying for an exclusion from regulation under the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance
with the exclusion from the definition of an “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act.
A change in the value of any of our assets could cause us or one or more of our wholly or majority-owned subsidiaries to fall within the definition of
“investment company” and negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To avoid being required to
register the Company or any of its subsidiaries as an investment company under the Investment Company Act, we may be unable to sell assets we would otherwise
want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income- or loss-generating assets that we
might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be
important to our investment strategy.
If we were required to register the Company as an investment company but failed to do so, we would be prohibited from engaging in our business, and civil
actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to
take control of us and liquidate our business.
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Table of Contents
Rapid
changes
in
the
values
of
our
investments
in
real
estate-related
investments
may
make
it
more
difficult
for
us
to
maintain
our
continued
qualification
as
a
REIT
and
our
exception
from
the
Investment
Company
Act.
If the market value or income generated by our real estate-related investments declines, including as a result of increased interest rates, or other factors, we
may need to increase our real estate investments and income or liquidate our non-qualifying assets in order to maintain our REIT qualification or our exception
from registration under the Investment Company Act. If the decline in real estate asset values or income occurs quickly, this may be especially difficult to
accomplish. This difficulty may be exacerbated by the illiquid nature of any non-real estate assets that we may own. We may have to make investment decisions
that we otherwise would not make absent REIT and Investment Company Act considerations.
Our
board
of
directors
may
change
our
investment
policies
without
stockholder
approval,
which
could
alter
the
nature
of
our
portfolio.
Our charter requires that our independent directors review our investment policies at least annually to determine that the policies we are following are in the
best interest of the stockholders. These policies may change over time. The methods of implementing our investment policies also may vary, as new real estate
development trends emerge and new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives,
policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of a stockholder's investment
could change without the consent of stockholders.
Payment
of
fees
to
our
Advisor
and
Service
Provider
and
their
affiliates
reduces
cash
available
for
investment
and
dividends
to
our
stockholders.
Our Advisor and Service Provider and their affiliates perform services for us in connection with the selection and acquisition of our investments, the
management of our properties, the servicing of our debt, and the administration of our investments. They are paid substantial fees for these services.
The
inability
of
a
tenant
in
a
single
tenant
property
to
pay
rent
will
materially
reduce
our
revenues.
Risks Related to Net Lease Sale-Leaseback Investments
Substantially all of our properties are occupied by a single tenant and, therefore, the success of our investments is materially dependent on the financial
stability of these individual tenants. A default of a tenant on its lease payments to us would cause us to lose the revenue from the property and cause us to have to
find an alternative source of revenue to meet any mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event of a default, we
may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and reletting our property. If a lease is
terminated, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. A default by
a tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a tenant’s election not to extend a lease upon its expiration,
could have an adverse effect on our financial condition and our ability to pay dividends.
Adverse
conditions
affecting
geographic
areas,
industries
or
property
categories
in
which
we
have
a
concentration
of
investments
would
have
a
disproportionately
adverse
effect
on
the
value
of
our
investments.
Any adverse conditions affecting geographic areas in which we have a concentration of investments would have a disproportionately adverse effect on our
portfolio. Similarly, if tenants of our properties are concentrated in a certain industry or property category, any adverse effect to that industry or category generally
would have a disproportionately adverse effect on our portfolio. As of December 31, 2015 , based on original purchase price, 60.4% of our properties are located in
the U.S. and Commonwealth of Puerto Rico and 39.6% are in Europe. At December 31, 2015 , our directly owned real estate properties contain significant
concentrations in the following asset types: office ( 54% ), industrial/distribution ( 30% ), retail ( 15% ) and other ( 1% ).
If
a
sale-leaseback
transaction
is
recharacterized
in
a
tenant’s
bankruptcy
proceeding,
our
financial
condition
and
ability
to
pay
dividends
to
you
could
be
adversely
affected.
We may enter into sale-leaseback transactions whereby we would purchase a property and then lease the same property back to the person from whom we
purchased it. In the event of the bankruptcy, the transaction may be re-characterized as either a financing or a joint venture. If the sale-leaseback was re-
characterized as a financing, we might not be considered the owner of the property, and as a result would have the status of a creditor, not a property owner, in
relation to the tenant. In that event, we would no longer have the right to sell or encumber our ownership interest in the property. Instead, we would have a claim
against the tenant for the amounts owed under the lease. The tenant/debtor might have the ability to propose a plan restructuring the term, interest rate and
amortization schedule of its outstanding balance. If such a plan is confirmed by the bankruptcy court, we could be bound by the new terms. If the sale-leaseback
were characterized as a joint venture, our lessee and we could be treated as co-venturers with regard to the property. As a result, we could be held liable, under
some circumstances, for debts incurred by the lessee relating to the property.
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Table of Contents
Highly
leveraged
tenants
may
have
a
higher
possibility
of
filing
for
bankruptcy
or
insolvency.
Highly leveraged tenants that experience downturns in their operating results due to adverse changes to their business or economic conditions may have a
higher possibility of filing for bankruptcy or insolvency. In bankruptcy or insolvency, a tenant may have the option of vacating a property instead of paying rent.
Until such a property is released from bankruptcy, our revenues may be reduced.
If
a
tenant
declares
bankruptcy
or
becomes
insolvent,
we
may
be
unable
to
collect
balances
due
under
relevant
leases.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could become insolvent or be subject to a bankruptcy proceeding pursuant to Title 11 of
the bankruptcy laws of the United States. A bankruptcy filing of our tenants or any guarantor of a tenant’s lease obligations would bar all efforts by us to collect
pre-bankruptcy debts from these entities or their properties, unless we receive an enabling order from the bankruptcy court. If a lease is assumed, all pre-
bankruptcy balances owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would have a general unsecured claim for damages. If a
lease is rejected, it is unlikely we would receive any payments from the tenant because our claim is capped at the rent reserved under the lease, without
acceleration, for the greater of one year or 15% of the remaining term of the lease, but not greater than three years, plus rent already due but unpaid. This claim
could be paid only if funds were available, and then only in the same percentage as that realized on other unsecured claims.
A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection
of these sums. A tenant or lease guarantor bankruptcy could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the
amount available for dividends to our stockholders. In the event of a bankruptcy, there can be no assurance that the tenant or its trustee will assume our lease.
The
credit
profile
of
our
tenants
may
create
a
higher
risk
of
lease
defaults
and
therefore
lower
revenues.
27.4% of our tenants are not evaluated or ranked by credit rating agencies, or are ranked below "investment grade". Our long-term leases with certain of these
tenants may therefore pose a higher risk of default than would long-term leases with tenants whose credit potential has already been recognized by the market.
Net
leases
may
not
result
in
fair
market
lease
rates
over
time,
which
could
negatively
impact
our
income.
As of December 31, 2015 , all of our rental income was generated from net leases, which generally provide the tenant greater discretion in using the leased
property than ordinary property leases, such as the right to freely sublease the property, to make alterations in the leased premises and to terminate the lease prior to
its expiration under specified circumstances.
Long
term
leases
may
result
in
income
lower
than
short
term
leases.
We generally seek to enter into long term leases with our tenants. As of December 31, 2015 , 44% of our annualized rental income was generated from net
leases, with remaining lease term of more than 10 years. Leases of long duration, or with renewal options that specify a maximum rate increase, may not result in
fair market lease rates over time if we do not accurately judge the potential for increases in market rental rates.
Certain of our leases do not contain any rent escalation provisions. As a result, our income may be lower than it would otherwise be if we did not lease
properties through long term leases. Further, if our properties are leased for long term leases at below market rental rates, our properties will be less attractive to
potential buyers, which could affect our ability to sell the property at an advantageous price.
21
Table of Contents
General Risks Related to Investments in Real Estate
Our
operating
results
are
affected
by
economic
and
regulatory
changes
that
have
an
adverse
impact
on
the
real
estate
market
in
general.
These
changes
affect
our
profitability
and
ability
to
realize
growth
in
the
value
of
our
real
estate
properties.
Our operating results are subject to risks generally incident to the ownership of real estate, including:
•
•
•
•
changes in general economic and local economic conditions;
changes in supply of and demand for, similar or competing properties in the areas in which our properties are located;
changes in interest rates and availability of debt financing; and
changes in tax, real estate, environmental and zoning laws
These and other factors may affect the profitability and the value of our properties.
Properties
that
have
vacancies
for
a
significant
period
of
time
could
be
difficult
to
sell,
which
could
diminish
the
return
on
your
investment.
A property may experience vacancies either by the continued default of tenants under their leases or the expiration of tenant leases. Properties that are vacant
will produce no revenue, and the cost of owning the property may be substantial. Vacancies will result in less cash being available to be distributed to stockholders.
In addition, because properties’ market values depend principally upon the value of the properties’ leases, the resale value of properties with prolonged vacancies
would be lower.
We
generally
obtain
only
limited
warranties
when
we
purchase
a
property
and
therefore
have
only
limited
recourse
if
our
due
diligence
does
not
identify
any
issues
that
lower
the
value
of
our
property,
which
could
adversely
affect
our
financial
condition
and
ability
to
pay
dividends
to
you.
We have acquired, and may continue to acquire, properties in “as is” condition on a “where is” basis and “with all faults,” without any warranties of
merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and
indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose
some or all of our invested capital in the property as well as the loss of rental income from that property.
We
may
be
unable
to
secure
funds
for
future
tenant
improvements
or
capital
needs,
which
could
impact
the
value
of
the
applicable
property
or
our
ability
to
lease
the
applicable
property
on
favorable
terms.
If a tenant does not renew its lease or otherwise vacate its space, we likely will be required to expend substantial funds for tenant improvements and tenant
refurbishments to the vacated space. In addition, we will likely be responsible for any major structural repairs, such as repairs to the foundation, exterior walls and
rooftops, even if our leases with tenants require tenants to pay routine property maintenance costs. We will have to obtain financing from sources, such as cash
flow from operations, borrowings, property sales or future equity offerings to fund these capital requirements. These sources of funding may not be available on
attractive terms or at all. If we cannot procure additional funding for capital improvements, the value of the applicable property or our ability to lease the applicable
property on favorable terms could be adversely impacted.
We
may
not
be
able
to
sell
a
property
when
we
desire
to
do
so.
The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including
supply and demand, that are beyond our control. In addition, we may not have funds available to correct defects or make improvements that are necessary or
desirable before the sale of a property. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price
or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close
the sale of a property. In addition, our ability to sell properties that have been held for less than two years is limited as any gain recognized on the sale or other
disposition of such property could be subject to the 100% prohibited transaction tax, as discussed in more detail below.
We
may
acquire
or
finance
properties
with
lock-out
provisions
which
may
prohibit
us
from
selling
a
property,
or
may
require
us
to
maintain
specified
debt
levels
for
a
period
of
years
on
some
properties.
Lock-out provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. Lock out provisions may prohibit us from
reducing the outstanding indebtedness with respect to any properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount
of indebtedness with respect to such properties. Lock-out provisions could impair our ability to take other actions during the lock-out period that could be in the
best interests of our stockholders. In particular, lock-out provisions could preclude us from participating in major transactions that could result in a disposition of
our assets or a change in control.
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Rising
expenses
could
reduce
cash
flow
and
could
adversely
affect
our
ability
to
make
future
acquisitions.
Any properties that we own now or buy in the future are and will be subject to operating risks common to real estate in general, any or all of which may
negatively affect us. If any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be
required to expend funds with respect to that property for operating expenses. The properties will be subject to increases in tax rates, utility costs, operating
expenses, insurance costs, repairs and maintenance and administrative expenses. Renewals of leases or future leases may not be negotiated on that basis, in which
event we may have to pay those costs. If we are unable to lease properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of such
expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs which would, among other things, adversely
affect funds available for future acquisitions.
Losses
relating
to
real
property
or
excessively
expensive
premiums
for
insurance
coverage,
including
due
to
the
non
renewal
of
the
Terrorism
Risk
Insurance
Act
of
2002
("TRIA"),
could
reduce
our
cash
flows
and
the
return
on
our
stockholders’
investments.
There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or
environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.
Insurance risks associated with such catastrophic events could sharply increase the premiums we pay for coverage against property and casualty claims.
This risk is particularly relevant with respect to potential acts of terrorism. The TRIA, under which the U.S. federal government bore a significant portion of
insured losses caused by terrorism, will expire on December 31, 2020, and there can be no assurance that Congress will act to renew or replace the TRIA following
its expiration. In the event the TRIA is not renewed or replace, terrorism insurance may become difficult or impossible to obtain at reasonable costs or at all, which
may result in adverse impacts and additional costs to us.
Changes in the cost or availability of insurance due to the non-renewal of the TRIA or for other reasons could expose us to uninsured casualty losses. If any of
our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of our
stockholders’ investments. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or
reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result
in lower dividends to you.
Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase specific coverage against terrorism as a
condition for providing mortgage loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our
ability to finance or refinance our potential properties. In these instances, we may be required to provide other financial support, either through financial assurances
or self-insurance, to cover potential losses. We may not have adequate, or any, coverage for such losses. The Terrorism Risk Insurance Act of 2002, which was
extended to the end of 2020 by the Terrorism Risk Insurance Program Reauthorization Act of 2015, is designed for a sharing of terrorism losses between insurance
companies and the federal government. We cannot be certain how this act will impact us or what additional cost to us, if any, could result. If such an event
damaged or destroyed one or more of our properties, we could lose both our invested capital and anticipated profits from such property.
Real
estate-related
taxes
may
increase
and
if
these
increases
are
not
passed
on
to
tenants,
our
income
will
be
reduced.
Some local real property tax assessors may seek to reassess some of our properties as a result of our acquisition of the property. Generally, from time to time
our property taxes increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed
valuation of a property for real estate tax purposes will result in an increase in the related real estate taxes on that property. There is no assurance that renewal
leases or future leases will be negotiated on the same basis. Increases not passed through to tenants will adversely affect our income.
Our
properties
and
our
tenants
may
face
competition
that
may
affect
tenants’
ability
to
pay
rent.
Our properties typically are, and we expect properties we acquire in the future will be, located in developed areas. Therefore, there are and will be numerous
other properties within the market area of each of our properties that will compete with us for tenants. The number of competitive properties could have a material
effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in
locations competitive with our properties, causing increased competition for customer traffic and creditworthy tenants. Tenants may also face competition from
such properties if they are leased to tenants in a similar industry. For example, retail tenants face competition from numerous retail channels such as discount or
value retailers, factory outlet centers and wholesale clubs. Retail tenants may additional face competition from alternative retail channels as mail order catalogs and
operators, television shopping networks and shopping via the Internet. Competition that we face from other properties within our market areas, and competition our
tenants face from tenants in such properties could result in decreased cash flow from tenants and may require us to make capital improvements.
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Table of Contents
Costs
of
complying
with
governmental
laws
and
regulations,
including
those
relating
to
environmental
matters,
may
adversely
affect
our
income
and
the
cash
available
for
any
dividends.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations, and various foreign laws and
regulations, relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions,
the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous
materials, and the remediation of contamination associated with disposals. Environmental laws and regulations may impose joint and several liability on tenants,
owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.
This liability could be substantial. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our
ability to sell, rent or pledge such property as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with
new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. State and federal laws in this area are
constantly evolving. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing
condition of land when we buy it, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third
parties may affect our properties. In addition, there are various local, state and federal fire, health, life-safety and similar regulations with which we may be
required to comply, and that may subject us to liability in the form of fines or damages for noncompliance. Any material expenditures, fines, or damages we must
pay will reduce our ability to pay dividends and may reduce the value of your investment.
Although we generally hire third parties to conduct environmental reviews of the real property that we purchase, we may not obtain an independent third-party
environmental assessment for every property we acquire. In addition, any assessment that we do obtain may not reveal all environmental liabilities or that a prior
owner of a property did not create a material environmental condition not known to us.
If
we
sell
properties
by
providing
financing
to
purchasers,
defaults
by
the
purchasers
would
adversely
affect
our
cash
flows,
and
our
ability
to
pay
dividends
to
you.
In some instances we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk that the
purchaser may default, which could negatively impact our cash dividends to stockholders. Even in the absence of a purchaser default, the distribution of the
proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale
are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in
an amount less than the selling price and subsequent payments will be spread over a number of years.
Our
recovery
of
an
investment
in
a
mortgage,
bridge
or
mezzanine
loan
that
has
defaulted
may
be
limited,
resulting
in
losses
to
us.
There is no guarantee that the mortgage, loan or deed of trust securing an investment will, following a default, permit us to recover the original investment and
interest that would have been received absent a default. The security provided by a mortgage, deed of trust or loan is directly related to the difference between the
amount owed and the appraised market value of the property. Although we intend to rely on a current real estate appraisal when we make the investment, the value
of the property is affected by factors outside our control, including general fluctuations in the real estate market, rezoning, neighborhood changes, highway
relocations and failure by the borrower to maintain the property. In addition, we may incur the costs of litigation in our efforts to enforce our rights under defaulted
loans.
Our
costs
associated
with
complying
with
the
Americans
with
Disabilities
Act
may
affect
cash
available
for
dividends.
Our domestic properties are subject to the Americans with Disabilities Act of 1990 (the "Disabilities Act"). Under the Disabilities Act, all places of public
accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance
requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services, including restaurants and retail stores, be
made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the
imposition of injunctive relief, monetary penalties, or, in some cases, an award of damages. However, there can be no assurance that we will be able to acquire
properties or allocate responsibilities in this manner.
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Table of Contents
Terrorist
attacks
and
other
acts
of
violence,
civilian
unrest,
or
war
may
affect
the
markets
in
which
we
operate
our
business
and
our
profitability.
We may acquire real estate assets located in major metropolitan areas as well as densely populated sub-markets that are susceptible to terrorist attack. In
addition, any kind of terrorist activity or violent criminal acts, including terrorist acts against public institutions or buildings or modes of public transportation
(including airlines, trains or buses) could have a negative effect on our business. These events may directly impact the value of our assets through damage,
destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we
may incur. The TRIA, which was designed for a sharing of terrorism losses between insurance companies and the federal government, will expire on December 31,
2020, and there can be no assurance that Congress will act to renew or replace it. See “ Uninsured
losses
relating
to
real
property
or
excessively
expensive
premiums
for
insurance
coverage,
including
due
to
the
non-renewal
of
the
TRIA,
could
reduce
our
cash
flows
and
the
return
on
an
investment
in
our
Common
Stock.
”
More generally, any terrorist attack, other act of violence or war, including armed conflicts, could result in increased volatility in, or damage to, the worldwide
financial markets and economy. Increased economic volatility could adversely affect our hotel properties’ ability to conduct their operations profitably or our
ability to borrow money or issue capital stock at acceptable prices and have a material adverse effect on our financial condition, results of operations and ability to
pay dividends to our stockholders.
Market
and
economic
challenges
experienced
by
the
U.S.
and
global
economies
may
adversely
impact
aspects
of
our
operating
results
and
operating
condition.
Our business may be affected by market and economic challenges experienced by the U.S. and global economies. Countries with high levels of sovereign debt
have had difficulty refinancing their debt, leading to concerns that have created volatility in various currencies. In addition, many governments around the world,
including the U.S. government, are operating at very large financial deficits. Disruptions in the economies of such governments could cause, contribute to or be
indicative of, deteriorating macroeconomic conditions. These conditions may materially affect the value and performance of our properties, and may affect our
ability to pay dividends, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments
on, or refinance, any outstanding debt when due. These challenging economic conditions may also impact the ability of certain of our tenants to enter into new
leasing transactions or satisfy rental payments under existing leases. Specifically, global market and economic challenges may have adverse consequences,
including:
•
•
•
•
•
•
•
decreased demand for our properties due to significant job losses that occur or may occur in the future, resulting in lower occupancy levels, which
decreased demand will result in decreased revenues and which could diminish the value of our portfolio, which depends, in part, upon the cash flow
generated by our properties;
an increase in the number of bankruptcies or insolvency proceedings of our tenants and lease guarantors, which could delay or preclude our efforts to
collect rent and any past due balances under the relevant leases;
widening credit spreads for major sources of capital as investors demand higher risk premiums, resulting in lenders increasing the cost for debt financing;
reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real
estate transaction activity, a reduction the loan-to-value ratio upon which lenders are willing to lend, and difficulty refinancing our debt;
a decrease in the market value of our properties, which would reduce the value of our portfolio and limit our ability to obtain debt financing securing by
our properties;
reduction in the value and liquidity of our short-term investments and increased volatility in market rates for such investments; and
reduction in cash flows from our operations as a result of foreign currency losses resulting from our operations in continental Europe and the United
Kingdom if we are unsuccessful in hedging these potential losses or if, as part of our risk management strategies, we choose not to hedge such risks.
If economic conditions deteriorate, our board of directors may reduce payment of dividends in order to conserve cash.
Disruptions
in
the
economies
of
various
European
countries
could
negatively
impact
our
business,
results
of
operations
and
financial
condition.
Countries with high levels of sovereign debt have had difficulty refinancing their debt, leading to concerns that have created volatility in various currencies. In
addition, many governments around the world, including the U.S. government, are operating at very large financial deficits. Disruptions in the economies of such
governments could cause, contribute to or be indicative of, deteriorating macroeconomic conditions. Furthermore, governmental austerity measures aimed at
reducing deficits could impair the economic recovery.
We may be exposed to foreign currency gains and losses resulting from our operations in continental Europe and the United Kingdom. If we are unsuccessful
in hedging these potential losses, our operating results could be negatively impacted and our
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Table of Contents
cash flows could be significantly reduced. In some cases, as part of our risk management strategies, we may choose not to hedge such risks. If we misjudge these
risks, there could be a material adverse effect on our operating results, financial position and ability to pay dividends.
Foreign exchange rates are influenced by: changing supply and demand for a particular currency, monetary policies of governments (including exchange
control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on investment by residents of a country in other
countries), changes in balances of payments and trade, trade restrictions, and currency devaluations and revaluations. Also, governments from time to time
intervene in the currency markets, directly and by regulation, in order to influence prices directly. These events and actions are unpredictable and not within our
control. The resulting volatility in exchange rates could have a material and adverse effect on our results of operations and ability to pay dividends.
Our
real
estate
investments
may
include
special
use
single
tenant
properties
that
may
be
difficult
to
sell
or
re-lease
upon
tenant
defaults
or
early
lease
terminations,
which
could
adversely
affect
the
value
of
your
investment.
We focus our investments on commercial and retail properties, including special use single tenant properties. If a lease is terminated or not renewed or, in the
case of a mortgage loan, if we take such property in foreclosure, we may be required to renovate the property or to make rent concessions in order to lease the
property to another tenant or sell the property. These types of properties are relatively illiquid compared to other types of real estate and financial assets. This
illiquidity will limit our ability to quickly change our portfolio in response to changes in economic or other conditions. In addition, in the event we are forced to
sell the property, we may have difficulty selling it to a party other than the tenant or borrower due to the special purpose for which the property may have been
designed. These and other limitations may affect our ability to re-lease or sell properties and adversely affect returns to you.
Upcoming
changes
in
U.S.
accounting
standards
regarding
operating
leases
may
make
the
leasing
of
our
properties
less
attractive
to
our
potential
tenants,
which
could
reduce
overall
demand
for
our
properties.
Under current authoritative accounting guidance for leases, a lease is classified by a tenant as a capital lease if the significant risks and rewards of ownership
are considered to reside with the tenant. Under capital lease accounting for a tenant, both the leased asset and liability are reflected on their balance sheet. If the
lease does not meet any of the criteria for a capital lease, the lease is considered an operating lease by the tenant, and the obligation does not appear on the tenant’s
balance sheet, rather, the contractual future minimum payment obligations are only disclosed in the footnotes thereto. Thus, entering into an operating lease can
appear to enhance a tenant’s balance sheet in comparison to direct ownership. The Financial Accounting Standards Board ("FASB") and the International
Accounting Standards Board ("IASB"), conducted a joint project to reevaluate lease accounting. In June 2013, the FASB and the IASB jointly finalized exposure
drafts of a proposed accounting model that would significantly change lease accounting. In March 2014, the FASB and the IASB redeliberated aspects of the joint
project, including the lessee and lessor accounting models, lease term, and exemptions and simplifications. On November 11, 2015, the FASB voted to proceed
with a new accounting standard that would require companies and other organizations to include lease obligations on their balance sheets. The final standards were
released in February 2016. FASB decided that for public companies, the upcoming standard will be effective for fiscal years (and interim periods within those
fiscal years) beginning after December 15, 2018, with early adoption permitted for all companies and organizations upon issuance of the standard. The upcoming
standard, once effective, could affect both our accounting for leases as well as that of our current and potential tenants. These changes may affect how the real
estate leasing business is conducted. For example, as a result of the revised accounting standards regarding the financial statement classification of operating
leases, companies may be less willing to enter into leases in general or desire to enter into leases with shorter terms because the apparent benefits to their balance
sheets could be reduced or eliminated.
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Table of Contents
We
may
incur
mortgage
indebtedness
and
other
borrowings,
which
may
increase
our
business
risks.
Risks Associated with Debt Financing and Investments
We generally acquire real properties by using either existing financing or borrowing new funds. In addition, we typically incur mortgage debt and may pledge
all or some of our real properties as security for that debt to obtain funds to acquire additional real properties or fund working capital. We may borrow if we need
funds to continue to satisfy the REIT tax qualification requirement that we generally distribute annually at least 90% of our REIT taxable income (which does not
equal net income as calculated in accordance with GAAP) to our stockholders, determined without regard to the deduction for dividends paid and excluding net
capital gain. We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.
If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on a property, then the amount available for
dividends to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may
result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of our Common
Stock. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the
outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we
would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, we may be unable to pay the amount of dividends required
in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we provide a
guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any
mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are
foreclosed upon due to a default, our ability to pay cash dividends to our stockholders will be adversely affected which could result in our losing our REIT status
and would result in a decrease in the value of your investment.
Changes
in
the
debt
markets
could
have
a
material
adverse
impact
on
our
earnings
and
financial
condition.
The domestic and international commercial real estate debt markets are subject to changing levels of volatility, resulting in, from time to time, the tightening of
underwriting standards by lenders and credit rating agencies. If our overall cost of borrowings increase, either by increases in the index rates or by increases in
lender spreads, we will need to factor such increases into the economics of future acquisitions. This may result in future acquisitions generating lower overall
economic returns and potentially reducing future cash flow available for dividend. If these disruptions in the debt markets persist, our ability to borrow monies to
finance the purchase of, or other activities related to, real estate assets will be negatively impacted.
If we are unable to borrow monies on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase,
and the return on the properties we do purchase may be lower. In addition, we may find it difficult, costly or impossible to refinance maturing indebtedness.
In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate, which may result in price or value
decreases of real estate assets. This could negatively impact the value of our assets after the time we acquire them.
High
mortgage
rates
may
make
it
difficult
for
us
to
finance
or
refinance
properties.
If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance
on favorable terms. If interest rates are higher when the properties are refinanced, we may not be able to finance the properties and our income could be reduced. If
any of these events occur, our cash flow would be reduced.
Lenders
may
require
us
to
enter
into
restrictive
covenants
relating
to
our
operations,
which
could
limit
our
ability
to
pay
dividends
to
you.
In connection with providing us financing, a lender could impose restrictions on us that affect our dividend and operating policies and our ability to incur
additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage or
replace our Advisor. These or other limitations may adversely affect our flexibility and our ability to achieve our investment and operating objectives.
Increases
in
interest
rates
could
increase
the
amount
of
our
debt
payments
and
adversely
affect
our
ability
to
pay
dividends
to
you.
We have and expect that we will continue to incur indebtedness in the future. We have incurred variable-rate debt. Increases in interest rates on our variable-
rate debt would increase our interest costs, which could reduce our cash flows and our ability to pay dividends to you. In addition, if we need to repay existing debt
during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times that may not permit realization of the
maximum return on such investments.
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Table of Contents
U.S. Federal Income Tax Risks
Our
failure
to
remain
qualified
as
a
REIT
would
subject
us
to
U.S.
federal
income
tax
and
potentially
state
and
local
tax,
and
would
adversely
affect
our
operations
and
the
market
price
of
our
Common
Stock.
We qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013 and intend to operate
in a manner that would allow us to continue to qualify as a REIT for U.S. federal income tax purposes. However, we may terminate our REIT qualification, if our
board of directors determines that not qualifying as a REIT is in the best interests of our stockholders, or inadvertently. Our qualification as a REIT depends upon
our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We have structured and
intend to continue structuring our activities in a manner designed to satisfy all the requirements for qualification as a REIT. However, the REIT qualification
requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, any opinion
of our counsel, including tax counsel, as to our eligibility to remain qualified as a REIT is not binding on the Internal Revenue Service (the "IRS") and is not a
guarantee that we will continue to qualify as a REIT. Accordingly, we cannot be certain that we will be successful in operating so we can remain qualified as a
REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to
a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also
depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be
recharacterized by the IRS, such recharacterization would jeopardize our ability to continue to satisfy all the requirements for continued qualification as a REIT.
Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our
disqualification as a REIT.
If we fail to continue to qualify as a REIT for any taxable year, and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal
income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following
the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distributions to stockholders
because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer
be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Even
if
we
continue
to
qualify
as
a
REIT,
in
certain
circumstances,
we
may
incur
tax
liabilities
that
would
reduce
our
cash
available
for
distribution
to
you.
Even if we maintain our status as a REIT, we may be subject to U.S. federal, state and local income taxes. For example, net income from the sale of properties
that are “dealer” properties sold by a REIT (a “prohibited transaction” under the Code) will be subject to a 100% tax. We may not make sufficient distributions to
avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable
cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital
gain we earn from the sale or other disposition of our property and pay U.S. federal income tax directly on such income. In that event, our stockholders would be
treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would
have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also will
be subject to corporate tax on any undistributed REIT taxable income. We also may be subject to state and local taxes on our income or property, including
franchise, payroll and transfer taxes, either directly or at the level of our operating partnership or at the level of the other companies through which we indirectly
own our assets, such as our taxable REIT subsidiaries, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we
pay directly or indirectly will reduce our cash available for distribution to you.
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Table of Contents
To
continue
to
qualify
as
a
REIT
we
must
meet
annual
distribution
requirements,
which
may
force
us
to
forgo
otherwise
attractive
opportunities
or
borrow
funds
during
unfavorable
market
conditions.
This
could
delay
or
hinder
our
ability
to
meet
our
investment
objectives.
In order to continue to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net
income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject
to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which
distributions we make with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c)
100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real
estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we
intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S federal income and excise taxes on our earnings while we
continue to qualify as a REIT, it is possible that we might not always be able to do so.
Recharacterization
of
sale-leaseback
transactions
may
cause
us
to
lose
our
REIT
status.
With respect to properties acquired in sale-leaseback transactions, we will use commercially reasonable efforts to structure any such sale-leaseback transaction
such that the lease will be characterized as a "true lease" for U.S. federal income tax purposes, thereby allowing us to be treated as the owner of the property for
U.S. federal income tax purposes. However, the IRS may challenge such characterization. In the event that any such sale-leaseback transaction is challenged and
recharacterized as a financing transaction or loan for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property
would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to continue to satisfy the REIT qualification "asset tests" or "income
tests" and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be
recalculated which might also cause us to fail to meet the dividend requirement for a taxable year.
Certain
of
our
business
activities
are
potentially
subject
to
the
prohibited
transaction
tax.
For so long as we continue to qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a
substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a
REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we
own, directly or indirectly through any subsidiary entity, including our operating partnership, but generally excluding taxable REIT subsidiaries, that is deemed to
be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held
primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend
to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT
subsidiary (but such taxable REIT subsidiary will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our
operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction or
(3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for
properties that, among other requirements, have been held for at least two years. Despite our present intention, no assurance can be given that any particular
property we own, directly or through any subsidiary entity, including our operating partnership, but generally excluding taxable REIT subsidiaries, will not be
treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
Our
taxable
REIT
subsidiaries
are
subject
to
corporate-level
taxes
and
our
dealings
with
our
taxable
REIT
subsidiaries
may
be
subject
to
100%
excise
tax.
A REIT may own up to 100% of the stock of one or more taxable REIT subsidiaries. Both the subsidiary and the REIT must jointly elect to treat the subsidiary
as a taxable REIT subsidiary. A corporation of which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value of the
stock will automatically be treated as a taxable REIT subsidiary. Overall, no more than 25% (20% for taxable years beginning after December 31, 2017) of the
gross value of a REIT’s assets may consist of stock or securities of one or more taxable REIT subsidiaries. A taxable REIT subsidiary may hold assets and earn
income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management
contracts. Accordingly, we may use taxable REIT subsidiaries generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or
conduct activities that we cannot conduct directly as a REIT. A taxable REIT subsidiary will be subject to applicable U.S. federal, state, local and foreign income
tax on its taxable income. In addition, the rules, which are applicable to us as a REIT, also impose a 100% excise tax on certain transactions between a taxable
REIT subsidiary and its parent REIT that are not conducted on an arm’s-length basis.
29
Table of Contents
We
may
be
required
to
defer
repatriation
of
cash
from
foreign
jurisdictions
in
order
to
continue
to
qualify
as
a
REIT.
Investments in foreign real property may be subject to foreign currency gains and losses. Certain foreign currency gains will generally be excluded from
income for purposes of determining our satisfaction of one or both of the REIT gross income tests; however, under certain circumstances such gains will be treated
as non-qualifying income. To reduce the risk of foreign currency gains adversely affecting our continued REIT qualification, we may be required to defer the
repatriation of cash from foreign jurisdictions or to employ other structures that could affect the timing, character or amount of income we receive from our foreign
investments. No assurance can be given that we will be able to manage our foreign currency gains in a manner that enables us to continue to qualify as a REIT or to
avoid U.S. federal and other taxes on our income as a result of foreign currency gains.
If
our
operating
partnership
failed
to
qualify
as
a
partnership
or
is
not
otherwise
disregarded
for
U.S.
federal
income
tax
purposes,
we
would
cease
to
qualify
as
a
REIT.
If the IRS were to successfully challenge the status of our operating partnership as a partnership or disregarded entity for such purposes, it would be taxable as
a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This also would result in our failing to
maintain our REIT qualification and becoming subject to a corporate level tax on our income. This substantially would reduce our cash available to pay
distributions to our stockholders. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties,
in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, it would be subject to taxation
as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying property owner could also threaten our
ability to maintain our REIT qualification.
Our
investments
in
certain
debt
instruments
may
cause
us
to
recognize
income
for
U.S.
federal
income
tax
purposes
even
though
no
cash
payments
have
been
received
on
the
debt
instruments,
and
certain
modifications
of
such
debt
by
us
could
cause
the
modified
debt
to
not
qualify
as
a
good
REIT
asset,
thereby
jeopardizing
our
REIT
qualification.
Our taxable income may substantially exceed our net income as determined based on GAAP, or differences in timing between the recognition of taxable
income and the actual receipt of cash may occur. For example, we may acquire assets, including debt securities requiring us to accrue original issue discount
("OID"), or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the
assets. In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may
nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a
corresponding amount of cash available for distribution to you.
As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT
distribution requirements in certain circumstances. In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on
unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distributions of our
shares of Common Stock as part of a distribution in which stockholders may elect to receive shares of Common Stock or (subject to a limit measured as a
percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.
The
failure
of
a
mezzanine
loan
to
qualify
as
a
real
estate
asset
would
adversely
affect
our
ability
to
continue
to
qualify
as
a
REIT.
In general, in order for a loan to be treated as a qualifying real estate asset producing qualifying income for purposes of the REIT asset and income tests, the
loan must be secured by real property or an interest in real property. We may acquire mezzanine loans that are not directly secured by real property or an interest in
real property but instead are secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue
Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan that is not secured by real estate would, if it meets each of the requirements
contained in the Revenue Procedure, be treated by the IRS as a qualifying real estate asset. Although the Revenue Procedure provides a safe harbor on which
taxpayers may rely, it does not prescribe rules of substantive tax law and in many cases it may not be possible for us to meet all the requirements of the safe harbor.
We cannot provide assurance that any mezzanine loan in which we invest would be treated as a qualifying asset producing qualifying income for REIT
qualification purposes. If any such loan fails either the REIT income or asset tests, we may be disqualified as a REIT.
30
Table of Contents
We
may
choose
to
pay
dividends
in
our
own
stock,
in
which
case
you
may
be
required
to
pay
U.S.
federal
income
taxes
in
excess
of
the
cash
dividends
you
receive.
In connection with our continued qualification as a REIT, we are required to distribute annually to our stockholders at least 90% of our REIT taxable income
(which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net
capital gain. In order to satisfy this requirement, we may make distributions that are payable in cash and/or shares of our Common Stock (which could account for
up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to
include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S.
federal income tax purposes. As a result, U.S. stockholders may be required to pay U.S. federal income taxes with respect to such distributions in excess of the
cash portion of the dividend received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such
distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such
distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount
included in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S.
stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable
in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax
imposed. In addition, if a significant number of our stockholders determine to sell shares of our Common Stock in order to pay taxes owed on dividend income,
such sale may put downward pressure on the market price of our Common Stock.
Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS
will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such
taxable cash/stock distributions have not been met.
The
taxation
of
distributions
to
you
can
be
complex;
however,
distributions
that
we
make
to
you
generally
will
be
taxable
as
ordinary
income,
which
may
reduce
the
anticipated
return
from
an
investment
in
us.
Distributions that we make to our taxable stockholders out of current and accumulated earnings and profits (and not designated as capital gain dividends or
qualified dividend income) generally will be taxable as ordinary income. However, a portion of our distributions may (1) be designated by us as capital gain
dividends generally taxable as long-term capital gain to the extent that they are attributable to net capital gain recognized by us, (2) be designated by us as qualified
dividend income generally to the extent they are attributable to dividends we receive from our taxable REIT subsidiaries, or (3) constitute a return of capital
generally to the extent that they exceed our accumulated earnings and profits as determined for U.S. federal income tax purposes. A return of capital is not taxable,
but has the effect of reducing the basis of a stockholder’s investment in our Common Stock.
Dividends
payable
by
REITs
generally
do
not
qualify
for
the
reduced
tax
rates
available
for
some
dividends.
Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%.
Dividends payable by REITs, however, generally are not eligible for this reduced rate. Although this legislation does not adversely affect the taxation of REITs or
dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and
estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could
adversely affect the value of the shares of REITs, including our Common Stock. Tax rates could be changed in future legislation.
Complying
with
REIT
requirements
may
limit
our
ability
to
hedge
our
liabilities
effectively
and
may
cause
us
to
incur
tax
liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest
rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or in certain cases to hedge
previously acquired hedges entered into to manage risks associated with property that has been disposed of or liabilities that have been extinguished, if properly
identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we
enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross
income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT
subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiaries would be subject to tax on gains or expose us to greater
risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a taxable REIT subsidiary generally will not provide any
tax benefit, except for being carried forward against future taxable income of such taxable REIT subsidiary.
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Table of Contents
Complying
with
REIT
requirements
may
force
us
to
forgo
or
liquidate
otherwise
attractive
investment
opportunities.
To continue to qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75%
of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain
kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally
cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one
issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and
qualified real estate assets), and no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets can be represented
by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure
within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax
consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our
qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distributions to you.
The
ability
of
our
board
of
directors
to
revoke
our
REIT
qualification
without
stockholder
approval
may
subject
us
to
U.S.
federal
income
tax
and
reduce
distributions
to
you.
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it
determines that it is no longer in our best interest to continue to qualify as a REIT. While we intend to continue to qualify as a REIT, we may terminate our REIT
election if we determine that continuing to qualify as a REIT is no longer in our best interests. If we cease to be a REIT, we would become subject to U.S. federal
income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse
consequences on our total return to our stockholders and on the market price of our Common Stock.
We
may
be
subject
to
adverse
legislative
or
regulatory
tax
changes
that
could
increase
our
tax
liability,
reduce
our
operating
flexibility
and
reduce
the
market
price
of
our
Common
Stock.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to
investments similar to an investment in shares of our Common Stock. Additional changes to the tax laws are likely to continue to occur, and there can be no
assurance that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our
shares or on the market value or the resale potential of our assets. Investors are urged to consult with an independent tax advisor with respect to the impact of
recent legislation on any investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on
an investment in our shares. Investors also should note that our counsel’s tax opinion is based upon existing law, applicable as of the date of its opinion, all of
which will be subject to change, either prospectively or retroactively.
Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT
having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax
purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our
REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our
stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
The
share
ownership
restrictions
of
the
Code
for
REITs
and
the
9.8%
share
ownership
limit
in
our
charter
may
inhibit
market
activity
in
our
shares
of
stock
and
restrict
our
business
combination
opportunities.
In order to continue to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of
our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made.
Attribution rules in the Code determine if any individual or entity actually or constructively owns our shares of stock under this requirement. Additionally, at least
100 persons must beneficially own our shares of stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT
election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of our shares of stock.
32
Table of Contents
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while
we so qualify. Unless exempted by our board of directors, for so long as we continue to qualify as a REIT, our charter prohibits, among other limitations on
ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than
9.8% in value of the aggregate of our outstanding shares of stock and more than 9.8% (in value or in number of shares, whichever is more restrictive) of any class
or series of our shares of stock. Our board of directors may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of
the 9.8% ownership limit would result in the termination of our continued qualification as a REIT. These restrictions on transferability and ownership will not
apply, however, if our board of directors determines that it is no longer in our best interest to continue to qualify as a REIT or that compliance with the restrictions
is no longer required in order for us to continue to qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our Common Stock or otherwise be
in the best interest of the stockholders.
Non-U.S.
stockholders
will
be
subject
to
U.S.
federal
withholding
tax
and
may
be
subject
to
U.S.
federal
income
tax
on
distributions
received
from
us
and
upon
the
disposition
of
our
shares.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated
earnings and profits. Such dividends ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable
income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant
to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), capital gain distributions attributable to sales or exchanges of “U.S. real property
interests" ("USRPIs"), generally will be taxed to a non-U.S. stockholder (other than a qualified foreign pension plan) as if such gain were effectively connected
with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (a) the distribution is received with respect to
a class of stock that is regularly traded on an established securities market located in the United States and (b) the non-U.S. stockholder does not own more than
10% of the class of our stock at any time during the one-year period ending on the date the distribution is received.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our Common Stock generally will not be subject to U.S. federal income taxation
unless such stock constitutes a USRPI under FIRPTA. Our Common Stock will not constitute a USRPI so long as we are a “domestically-controlled qualified
investment entity.” A domestically-controlled qualified investment entity includes a REIT if at all times during a specified testing period, less than 50% in value of
such REIT’s stock is held directly or indirectly by non-U.S. stockholders. We believe, but there can be no assurance, that we will be a domestically-controlled
qualified investment entity.
Even if we do not qualify as a domestically-controlled qualified investment entity at the time a non-U.S. stockholder sells or exchanges our Common Stock,
gain arising from such a sale or exchange would not be subject to U.S. taxation under FIRPTA as a sale of a USRPI if: (a) our Common Stock is “regularly
traded,” as defined by applicable Treasury regulations, on an established securities market, and (b) such non-U.S. stockholder owned, actually and constructively,
10% or less of our Common Stock at any time during the five-year period ending on the date of the sale.
Potential
characterization
of
distributions
or
gain
on
sale
may
be
treated
as
unrelated
business
taxable
income
to
tax-exempt
investors.
If (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our Common Stock, or
(c) a holder of Common Stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, Common Stock by such tax-exempt
stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.
Item 1B. Unresolved Staff Comments.
None.
33
Table of Contents
Item 2. Properties.
We acquire and operate commercial properties. All such properties may be acquired and operated by us alone or jointly with another party. Our portfolio of
real estate properties was comprised of the following properties as of December 31, 2015 :
Portfolio
Acquisition Date
Country
Number of Properties
Square Feet
Average Remaining
Lease Term (1)
McDonald's
Wickes Building Supplies I
Everything Everywhere
Thames Water
Wickes Building Supplies II
PPD Global Labs
Northern Rock
Kulicke & Soffa
Wickes Building Supplies III
Con-way Freight
Wolverine
Western Digital
Encanto
Rheinmetall
GE Aviation
Provident Financial
Crown Crest
Trane
Aviva
DFS Trading
GSA I
National Oilwell Varco
Talk Talk
OBI DIY
GSA II
DFS Trading
GSA III
GSA IV
Indiana Department of Revenue
National Oilwell Varco II (2)
Nissan
GSA V
Lippert Components
Select Energy Services I
Bell Supply Co I
Axon Energy Products
Lhoist
GE Oil & Gas
Select Energy Services II
Bell Supply Co II
Superior Energy Services
Amcor Packaging
GSA VI
Nimble Storage
FedEx -3-Pack
Sandoz, Inc.
Wyndham
Oct. 2012
May 2013
Jun. 2013
Jul. 2013
Jul. 2013
Aug. 2013
Sep. 2013
Sep. 2013
Nov. 2013
Nov. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Jan. 2014
Jan. 2014
Feb. 2014
Feb. 2014
Feb. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
May 2014
May 2014
May 2014
May 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jul. 2014
Jul. 2014
Jul. 2014
UK
UK
UK
UK
UK
US
UK
US
UK
US
US
US
PR
GER
US
UK
UK
US
UK
UK
US
US
UK
GER
US
UK
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
UK
US
US
US
US
US
1
1
1
1
1
1
2
1
1
7
1
1
18
1
1
1
1
1
1
5
1
1
1
1
2
2
2
1
1
1
1
1
1
3
6
3
1
2
4
2
2
7
1
1
3
1
1
9,094
29,679
64,832
78,650
28,758
76,820
86,290
88,000
28,465
105,090
468,635
286,330
65,262
320,102
369,000
117,003
805,530
25,000
131,614
240,230
135,373
24,450
48,415
143,633
24,957
39,331
28,364
33,000
98,542
23,475
462,155
26,533
539,137
135,877
79,829
213,634
22,500
69,846
143,417
19,136
42,470
294,580
6,921
164,608
338,862
154,101
31,881
8.2
8.8
11.5
6.7
11.0
8.9
7.7
7.8
12.9
7.9
7.1
4.9
9.5
8.0
10.0
19.9
23.1
7.9
13.5
14.2
6.6
7.6
9.2
7.9
7.2
14.2
9.5
9.6
7.0
14.1
12.8
7.3
10.7
11.0
13.0
11.1
7.0
7.7
10.9
13.0
8.5
8.9
8.3
5.8
6.7
10.6
9.3
34
Table of Contents
Properties (continued)
Valassis
GSA VII
AT&T Services
PNC - 2-Pack
Fujitisu
Continental Tire
Achmea
BP Oil
Malthurst
HBOS
Thermo Fisher
Black & Decker
Capgemini
Merck & Co.
Family Dollar - 65-Pack
GSA VIII
Garden Ridge
Waste Management
Intier Automotive Interiors
HP Enterprise Services
Shaw Aero Devices, Inc.
FedEx Freight
Hotel Winston
Dollar General - 39-Pack
FedEx III
Mallinkrodt Pharmaceuticals
Kuka
CHE Trinity
FedEx IV
GE Aviation
DNV GL
Bradford & Bingley
Rexam
FedEx V
C&J Energy
Family Dollar II
Panasonic
Onguard
Metro Tonic
Axon Energy Products
Tokmanni
Fife Council
Family Dollar III
GSA IX
KPN BV
RWE AG
Follett School
Quest Diagnostics
Family Dollar IV
Portfolio
Acquisition Date
Country
Number of Properties
Square Feet
Average Remaining
Lease Term (1)
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Dec. 2014
Dec. 2014
US
US
US
US
UK
US
NETH
UK
UK
UK
US
US
UK
US
US
US
US
US
UK
UK
US
US
NETH
US
US
US
US
US
US
US
US
UK
GER
US
US
US
US
US
GER
US
FIN
UK
US
US
NETH
GER
US
US
US
1
1
1
2
3
1
2
1
2
3
1
1
1
1
65
1
4
1
1
1
1
1
1
39
2
1
1
2
2
1
1
1
1
1
1
34
1
1
1
1
1
1
2
1
1
3
1
1
1
100,597
25,603
401,516
210,256
162,888
90,994
190,252
2,650
3,784
36,071
114,700
71,259
90,475
146,366
541,472
23,969
564,910
84,119
152,711
99,444
130,581
11,501
24,283
369,644
221,260
89,900
200,000
373,593
255,037
102,000
82,000
120,618
175,615
76,035
96,803
282,730
48,497
120,000
636,066
26,400
800,834
37,331
16,442
28,300
133,053
594,415
486,868
223,894
8,030
7.3
8.9
10.6
13.6
10.9
6.6
8.0
9.8
9.9
9.6
8.7
6.1
7.3
9.7
13.7
8.6
13.7
7.0
8.4
10.2
6.8
8.3
13.7
12.3
8.5
8.7
8.5
6.9
7.1
7.0
9.2
13.8
9.2
8.5
10.3
13.8
12.6
8.0
9.8
8.8
17.7
8.1
13.7
6.3
11.0
8.9
9.0
8.7
13.7
35
Table of Contents
Properties (continued)
Diebold
Dollar General
Weatherford Intl
AM Castle
FedEx VI
Constellium Auto
C&J Energy II
Fedex VII
Fedex VIII
Fresenius
Fresenius
Crown Group
Crown Group
Mapes & Sprowl Steel, Ltd.
JIT Steel Services
Beacon Health System, Inc.
Hannibal/Lex JV LLC
FedEx Ground
Office Depot
Finnair
Total
Portfolio
Acquisition Date
Country
Number of Properties
Square Feet
Average Remaining
Lease Term (1)
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Mar. 2015
Mar. 2015
Apr. 2015
May 2015
Jul. 2015
Aug. 2015
Aug. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
US
NETH
FIN
1
1
1
1
1
1
1
1
1
1
1
3
3
1
2
1
1
1
1
4
329
158,330
12,406
19,855
127,600
27,771
320,680
125,000
12,018
25,852
10,155
6,192
295,974
642,595
60,798
126,983
49,712
109,000
91,029
206,331
656,275
18,739,733
6.0
12.2
9.8
8.8
8.7
13.9
10.3
8.8
8.8
14.2
14.5
19.6
19.7
14.0
14.0
10.3
13.8
9.5
13.2
8.7
11.3
______________________________________________________
(1)
If the portfolio has multiple properties with varying lease expirations, average remaining lease term is calculated on a weighted-average basis.Weighted average remaining lease term in
years calculated based on square feet as of December 31, 2015 .
(2) The Company has expanded the property in September 2015 by purchasing additional 15,975 square feet with 14.5 years of remaining lease term as of December 31, 2015 .
The following table details distribution of our portfolio by country/location as of December 31, 2015 :
Country
Finland
Germany
The Netherlands
United Kingdom
United States
Puerto Rico
Total
_______________________________________________________
Acquisition Date
Nov. 2014 - Sep. 2015
Jan. 2014 - Nov. 2014
Jul. 2014 - Sep. 2015
Oct. 2012 - Nov. 2014
Aug. 2013 - Sep. 2015
Dec. 2013
Number of
Properties
Square
Feet
Percentage of
Properties by Square
Feet
Average Remaining
Lease Term (1)
5
7
5
40
254
18
329
1,457,109
1,869,831
553,919
2,708,443
12,085,169
65,262
18,739,733
7.8%
10.0%
3.0%
14.5%
64.4%
0.3%
100.0%
13.2
8.8
11.5
11.5
11.4
9.5
11.3
(1)
If the portfolio has multiple properties with varying lease expirations, average remaining lease term is calculated on a weighted-average basis.Weighted average remaining lease term in
years calculated based on square feet as of December 31, 2015 .
36
Table of Contents
The following table details the tenant industry distribution of our portfolio as of December 31, 2015 :
Industry
Number of Properties
Square Feet
Square Feet as a
Percentage of the Total
Portfolio
Annualized Rental Income
(1)
(In
thousands)
Annualized Rental Income as a
Percentage of the Total
Portfolio
Aerospace
Auto Manufacturing
Automation
Automotive Parts Manufacturing
Automotive Parts Supplier
Biotechnology
Consulting
Consumer Goods
Contract Research
Discount Retail
Education
Electronics
Energy
Financial Services
Foot Apparel
Freight
Government Services
Healthcare
Home Decor
Home Maintenance
Hospitality
Marketing
Metal Fabrication
Metal Processing
Office Supplies
Packaging Goods
Petroleum Services
Pharmaceuticals
Restaurant - Quick Service
Retail Banking
Retail Food Distribution
Specialty Retail
Technology
Telecommunications
Utilities
Waste Management
Total
7
8
1
1
2
1
1
3
1
143
1
1
29
11
2
20
13
6
4
4
2
1
4
2
1
7
3
3
19
3
1
7
8
4
4
1
329
1,257,856
1,939,861
200,000
152,711
411,096
114,700
82,000
271,874
76,820
2,031,558
486,868
48,497
1,042,692
1,650,429
588,635
1,164,455
468,893
663,546
564,910
230,535
56,164
100,597
296,781
448,280
206,331
294,580
6,434
390,367
74,356
36,071
805,530
279,561
891,745
647,816
673,065
84,119
18,739,733
6.7% $
10.4%
1.1%
0.8%
2.2%
0.6%
0.4%
1.5%
0.4%
10.8%
2.6%
0.3%
5.6%
8.8%
3.1%
6.2%
2.5%
3.5%
3.0%
1.2%
0.3%
0.5%
1.6%
2.4%
1.1%
1.6%
*
2.1%
0.4%
0.2%
4.3%
1.5%
4.8%
3.5%
3.6%
0.4%
100.0% $
14,323
6,556
1,092
1,145
3,380
1,013
576
2,030
908
18,248
1,935
686
14,097
20,252
2,141
11,087
13,028
14,083
3,256
2,447
1,694
1,194
2,120
2,862
2,181
1,293
783
9,788
3,419
1,266
5,890
3,390
16,424
8,820
12,288
358
206,053
7.0%
3.2%
0.5%
0.6%
1.6%
0.5%
0.3%
1.0%
0.4%
8.8%
0.9%
0.3%
6.8%
9.8%
1.0%
5.4%
6.3%
6.8%
1.6%
1.2%
0.8%
0.6%
1.0%
1.4%
1.1%
0.6%
0.4%
4.8%
1.7%
0.6%
2.9%
1.6%
8.0%
4.3%
6.0%
0.2%
100.0%
________________________________
(1) Annualized rental income converted from local currency into USD as of December 31, 2015 for the in-place lease in the property on a straight-line basis, which includes tenant concessions
such as free rent, as applicable.
*
Amount is below 0.1%.
37
Table of Contents
The following table details the geographic distribution, by U.S. state or country/location, of our portfolio as of December 31, 2015 :
Number of
Properties
Square Feet
Square Feet as a
Percentage of the Total
Portfolio
Annualized Rental
Income (1)
(In
thousands)
Annualized Rental
Income as a Percentage
of the Total Portfolio
Country
State
Finland
Germany
The Netherlands
United Kingdom
Puerto Rico
United States:
Alabama
Arizona
Arkansas
California
Colorado
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Nebraska
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Pennsylvania
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
5
7
5
40
18
9
3
1
3
1
1
15
6
2
4
6
2
6
7
7
2
1
2
15
4
10
4
6
3
5
2
7
3
12
16
11
15
2
12
46
2
1
1,457,109
1,869,831
553,919
2,708,443
65,262
73,554
158,876
8,320
674,832
26,533
9,967
243,596
47,512
16,267
570,737
1,113,636
32,399
178,807
517,420
136,850
49,572
120,000
127,456
2,296,274
149,690
80,968
138,536
57,572
348,964
46,405
221,260
242,575
47,330
508,375
159,008
376,368
424,236
54,152
789,295
2,009,907
19,966
7,954
18,739,733
7.8% $
10.0%
3.0%
14.5%
0.3%
0.4%
0.8%
*
3.6%
0.1%
0.1%
1.3%
0.3%
0.1%
3.0%
5.9%
0.2%
1.0%
2.8%
0.7%
0.3%
0.6%
0.7%
12.3%
0.8%
0.4%
0.7%
0.3%
1.9%
0.2%
1.2%
1.3%
0.3%
2.7%
0.8%
2.0%
2.3%
0.3%
4.2%
10.7%
0.1%
*
100.0% $
14,163
18,607
8,598
39,530
3,212
791
982
89
12,890
1,088
360
3,421
670
201
2,628
4,475
296
1,275
3,687
1,260
1,874
785
1,772
17,755
2,134
800
2,582
564
8,505
555
2,398
1,467
884
4,203
1,617
3,904
3,587
1,283
7,052
23,638
395
76
206,053
6.9%
9.0%
4.2%
19.2%
1.6%
0.4%
0.5%
*
6.3%
0.5%
0.2%
1.7%
0.3%
0.1%
1.3%
2.2%
0.1%
0.6%
1.8%
0.6%
0.9%
0.4%
0.9%
8.6%
1.0%
0.4%
1.2%
0.3%
4.1%
0.3%
1.2%
0.7%
0.4%
2.0%
0.8%
1.9%
1.7%
0.6%
3.4%
11.5%
0.2%
*
100.0%
Total
329
________________________________
Amount is below 0.1%.
*
(1) Annualized rental income converted from local currency into USD as of December 31, 2015 for the in-place lease in the property on a straight-line basis, which includes tenant concessions
such as free rent, as applicable.
38
Table of Contents
Future Minimum Lease Payments
The following table presents future minimum base rent payments, on a cash basis, due to us over the next ten calendar years and thereafter on the properties
we owned as of December 31, 2015 :
(In
thousands)
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Thereafter
Total
$
Future Minimum
Base Rent Payments (1)
195,718
199,195
201,720
204,203
206,384
204,491
194,822
172,283
147,152
100,601
331,769
$
2,158,338
________________________________
(1)
Based on the exchange rate as of December 31, 2015 .
Future Lease Expirations
The following is a summary of lease expirations for the next ten calendar years on the properties we owned as of December 31, 2015 :
Year of Expiration
Number of Leases
Expiring
Annualized Rental
Income (1)
(In
thousands)
Annualized Rental
Income as a Percentage
of the Total Portfolio
Leased Rentable
Square Feet
Percent of Portfolio
Rentable Square Feet
Expiring
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Total
$
—
—
—
—
2
2
16
25
39
35
—
—
—
—
3,482
5,003
20,260
17,760
45,312
20,667
119
$
112,484
—%
—%
—%
—%
1.7%
2.5%
10.1%
8.8%
22.5%
10.3%
55.9%
—
—
—
—
386,015
322,938
1,552,953
1,890,565
3,867,912
1,758,319
9,778,702
—%
—%
—%
—%
2.1%
1.7%
8.3%
10.1%
20.6%
9.4%
52.2%
________________________________
(1) Annualized rental income converted from local currency into USD as of December 31, 2015 for the in-place lease in the property on a straight-line basis, which includes tenant concessions
such as free rent, as applicable.
Tenant Concentration
As of December 31, 2015 , we did not have any tenants whose rentable square footage or annualized rental income represented greater than 10% of total
portfolio rentable square footage or annualized rental income, respectively.
39
Table of Contents
Significant Portfolio Properties
The rentable square feet or annual straight-line rental income of the RWE AG and Government Services Administration ("GSA") (I - IX) properties, each
represents 5% or more of our total portfolio's rentable square feet or annual straight-line rental income based on the exchange rate as of December 31, 2015 . The
tenant concentration of these properties is summarized below.
RWE AG, located in Essen, Germany, are three freestanding, single-tenant modern office buildings, comprised of 594,415 total rentable square feet and are
100% leased to RWE AG. As of December 31, 2015 , the tenant has 8.9 years remaining on its lease which expires in November 2024. The lease has annualized
rental income on a straight-line basis of $10.4 million and contains two five-year renewal options.
The GSA portfolio is located in nine different states throughout the U.S. with a total of eleven properties. The buildings are freestanding, single-tenant office
buildings, comprised of 333,020 total rentable square feet and is 100% leased to different U.S. government agencies. As of December 31, 2015 , the tenants have
an average of 7.6 years remaining on their leases which expire between April 2022 and July 2028. The leases have annualized rental income on a straight-line
basis of $11.6 million and contain one five-year, two five-year and 20 five-year renewal options for GSA II, GSA VI and GSA VII tenants, respectively. The other
GSA tenants have no renewal options.
40
Table of Contents
Property Financings
The following table presents certain debt information about the properties we owned as of December 31, 2015 and 2014 :
Country
Portfolio
Encumbered
Properties
Finland:
Germany:
Finnair
Tokmanni
Rheinmetall
OBI DIY
RWE AG
Rexam
Metro Tonic
United Kingdom:
Total EUR denominated
McDonald's
Wickes Building Supplies I
Everything Everywhere
Thames Water
Wickes Building Supplies II
Northern Rock
Wickes Building Supplies III
Provident Financial
Crown Crest
Aviva
Bradford & Bingley
Intier Automotive Interiors
Capgemini
Fujitisu
Amcor Packaging
Fife Council
Malthrust
Talk Talk
HBOS
DFS Trading
DFS Trading
HP Enterprise Services
Total GBP Denominated
United States:
Puerto Rico:
Quest Diagnostics
Western Digital
AT&T Services
Encanto Restaurants
Total USD denominated
Total
_________________________
4
1
1
1
3
1
1
12
1
1
1
1
1
2
1
1
1
1
1
1
1
3
7
1
3
1
3
5
2
1
40
1
1
1
18
21
73
Outstanding Loan Amount (1)
December 31, 2015 December 31, 2014
(In
thousands)
(In
thousands)
$
30,976 $
31,603
—
—
11,561
4,908
68,169
5,737
28,904
181,858
1,125
2,882
5,922
8,882
2,443
7,772
2,813
18,875
28,498
23,242
11,192
6,995
8,142
36,684
4,628
2,715
4,737
5,663
7,979
15,010
3,514
13,748
223,461
52,800
17,982
33,550
22,057
126,389
531,708 $
12,884
5,470
75,969
6,394
32,211
132,928
1,180
3,024
6,213
9,319
2,563
8,155
2,951
19,804
29,901
24,387
—
—
—
—
—
—
—
—
—
—
—
—
107,497
—
18,269
—
22,492
40,761
281,186
$
Effective
Interest Rate
Interest Rate Maturity
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Variable
Fixed
Variable
Fixed
Sep. 2020
Oct. 2020
Jan. 2019
Jan. 2019
Oct. 2019
Oct. 2019
Dec. 2019
Oct. 2017
May 2018
Jun. 2018
Jul. 2018
Jul. 2018
Sep. 2018
Nov. 2018
Feb. 2019
Feb. 2019
Mar. 2019
May 2020
May 2020
Jun. 2020
Jun. 2020
Jul. 2020
Jul. 2020
Jul. 2020
Jul. 2020
Jul. 2020
Aug. 2020
Aug. 2020
Aug. 2020
Sep. 2018
Jul. 2021
Dec. 2020
Jun. 2017
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(3)
(4)
2.2%
2.4%
2.6%
2.4%
1.6%
1.8%
1.7%
4.1%
3.7%
4.0%
4.1%
4.2%
4.5%
4.4%
4.1%
4.3%
3.8%
3.5%
3.5%
3.2%
3.2%
3.6%
3.6%
3.6%
3.6%
3.6%
3.4%
3.4%
3.4%
2.0%
5.3%
2.5%
6.3%
3.0%
(1) Amounts borrowed in local currency and translated at the spot rate as of respective date.
(2) Fixed as a result of an interest rate swap agreement.
(3) The interest rate is 2.0% plus 1-month LIBOR.
(4) The interest rate is 2.0% plus 1- month Adjusted LIBOR as defined in the mortgage agreement.
41
Table of Contents
Item 3. Legal Proceedings.
We are not a party to any material pending legal proceedings.
Item 4. Mine Safety Disclosure.
Not applicable.
42
Table of Contents
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
PART II
Our Common Stock is currently traded on the New York Stock Exchange ("NYSE") under the symbol "GNL." Set forth below is a line graph comparing the
cumulative total stockholder return on our Common Stock, based on the market price of the Common Stock, with the FTSE National Association of Real Estate
Investment Trusts Equity Index ("NAREIT") and the New York Stock Exchange Index ("NYSE Index") for the period commencing June 2, 2015 , the date on
which we listed our shares on the NYSE and ending December 31, 2015 . Reinvestment of dividends or distributions is not assumed as the DRIP was suspended as
of May 7, 2015 . The graph assumes an investment of $100 on June 2, 2015 .
For each calendar quarter indicated, the following table reflects high and low sales prices for the Common Stock as reported by NYSE and the amounts paid to
our stockholders in respect of these shares which we refer to as "dividends."
High
Low
Amounts paid per share
_______________________________
Second Quarter 2015
Third Quarter 2015
Fourth Quarter 2015
$
$
$
10.07
8.75
$
$
0.002 (1) $
9.20 $
7.30 $
0.178 $
9.29
7.76
0.178
(1) Cash distributions in the second quarter of 2015 represent dividends paid for June 2, 2015 based on a monthly dividend rate per share of $0.059 .
Holders
As of February 12, 2016 , we had 168.9 million shares outstanding held by 2,143 stockholders.
Dividends
We qualified to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013. As a REIT, we are
required to distribute at least 90% of our REIT taxable income to our stockholders annually. The amount of dividends payable to our stockholders is determined by
our board of directors and is dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements,
as applicable, requirements of Maryland law and annual dividend requirements needed to maintain our status as a REIT for U.S. federal income tax purposes under
the Code. For tax purposes, of the amounts distributed during the year ended December 31, 2015 , 63.1% , or $0.45 per share per annum, and 36.9% , or $0.26 per
share per annum, represented a return of capital and ordinary dividends, respectively. During the year ended December 31, 2014 , 70.4% , or $0.50 per share per
annum, and 29.6% , or $0.21 per share per annum, represented a return of capital and ordinary dividends, respectively.
43
Table of Contents
The following table reflects dividends declared and paid in cash and reinvested through the DRIP to common stockholders, as well as dividends related to
participating LTIP Units and OP Units during the years ended December 31, 2015 and 2014 :
(In
thousands)
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Total
(In
thousands)
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Total
Dividends
Paid in Cash (1)
Other Distributions Paid in
Cash (2)
Dividends Reinvested in
DRIP (1)
Total
Dividends Paid (1)
Dividends
Declared (1)(2)
$
14,268 $
23,516
29,957
29,989
$
97,730 $
— $
—
321
321
642 $
17,007 $
11,571
—
—
31,275 $
35,087
30,278
30,310
31,364
24,289
30,314
30,306
28,578 $
126,950 $
116,273
Dividends
Paid in Cash (1)
Dividends Reinvested in DRIP
(1)
Total
Dividends Paid (1)
Dividends
Declared (1)
$
2,028 $
6,524
13,083
13,780
$
35,415 $
1,937 $
8,286
17,120
17,543
44,886 $
3,965 $
14,810
30,203
31,323
80,301 $
6,730
20,231
31,443
31,760
90,164
_______________________________
(1) Dividend amounts for the periods indicated above exclude distributions related to Class B units. Dividends paid related to Class B units were $0.3 million and $0.2 million for the years
ended December 31, 2015 and 2014 , respectively.
(2) Includes distributions paid of $0.6 million for the OP Units. For the year ended December 31, 2015 total accrued and unpaid distributions to the participating LTIP Units were $0.4 million
and therefore were not included in the table above as they remain unpaid as of December 31, 2015 .
During the year ended December 31, 2015 , cash used to pay our dividends was generated mainly from funds received from cash flows provided by operations
and proceeds from Common Stock issued under the DRIP. In order to improve our operating cash flows and our ability to pay dividends from operating cash flows,
our Advisor may waive certain fees including asset management and property management fees. Until April 1, 2015, the Advisor and the Service Provider were
issued Class B units in lieu of asset management fees. Class B units earned prior to April 2015 were exchanged for OP Units. During the years ended
December 31, 2015 and 2014 , we incurred approximately $4.0 million and $1.3 million , respectively, in property management fees payable to the Property
Manager. The Advisor may elect to waive a portion of property management fees, and will determine if a portion or all of such fees will be waived in subsequent
periods on a quarter-to-quarter basis. During the years ended December 31, 2015 and 2014 , the Property Manager elected to waive approximately $2.5 million and
$0.7 million , respectively, of property management fees. The fees that are waived are not deferrals and accordingly, will not be paid by us. Because the Advisor
may waive certain fees that we may owe, cash flow from operations that would have been paid to the Advisor will be available to pay dividends to our
stockholders.
As we continue to build our portfolio of investments, we expect that we will use funds received from operating activities to pay a greater proportion of our
dividends. As the cash flows from operations become more significant our Advisor may discontinue its practice of forgiving fees and providing contributions and
may charge the full fee owed to it in accordance with our agreements with the Advisor.
44
Table of Contents
Share-Based Compensation
We have a stock option plan (the “Plan”) which authorizes the grant of non-qualified stock options to our independent directors, subject to the absolute
discretion of the board of directors and the applicable limitations of the Plan. The exercise price for all stock options granted under the Plan will be equal to the fair
market value of a share on the last business day preceding the annual meeting of stockholders. A total of 0.5 million shares have been authorized and reserved for
issuance under the Plan.
The following table sets forth information regarding securities authorized for issuance under our stock option plan and our restricted share plan (as described
below) as of December 31, 2015 :
Plan Category
Equity Compensation Plans approved by security holders
Equity Compensation Plans not approved by security holders
Total
Restricted
Share
Plan
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants, and Right
Weighted-Average Exercise
Price of Outstanding
Options, Warrants and Rights
Number of Securities Remaining
Available For Future Issuance
Under Equity Compensation Plans
(Excluding Securities Reflected in
Column (a)
(a)
(b)
(c)
— $
—
— $
—
—
—
—
500,000
500,000
We have an employee and director incentive restricted share plan (the “RSP”) that, prior to the Listing, provided for the automatic grant of 3,000 restricted
shares of common stock to each of the independent directors, without any further action by our board of directors or the stockholders, on the date of initial election
to the board of directors and on the date of each annual stockholder’s meeting. Restricted stock issued to independent directors vested over a five-year period
following the first anniversary of the date of grant in increments of 20% per annum. On April 8, 2015 , we amended the RSP ("Amended RSP"), among other
things, to remove the fixed amount of shares that are automatically granted to the independent directors and remove the fixed vesting period of five years. Under
the Amended RSP, the annual amount granted to the independent directors is determined by the board of directors. Generally, such awards provide for accelerated
vesting of (i) all unvested shares upon a "change in control" or a "termination without cause" (as defined in the Amended RSP) and (ii) the portion of the unvested
shares scheduled to vest in the year of termination upon a voluntary termination or failure to be re-elected to the board. The RSP provides us with the ability to
grant awards of restricted shares to our directors, officers and employees (if we ever have employees), employees of the Advisor and its affiliates, employees of
entities that provide services to us, directors of the Advisor or of entities that provide services to us, certain consultants to us and the Advisor and its affiliates or to
entities that provide services to us.
Effective upon the Listing, our board of directors approved the following changes to independent director compensation: (i) increasing in the annual retainer
payable to all independent directors to $100,000 per year, (ii) increase in the annual retainer for the non-executive chair to $105,000 , (iii) increase in the annual
retainer for independent directors serving on the audit committee, compensation committee or nominating and corporate governance committee to $30,000 . All
annual retainers are payable 50% in the form of cash and 50% in the form of restricted stock units ("RSU") which vest over a three -year period. In addition, the
directors have the option to elect to receive the cash component in the form of RSUs which would vest over a three - year period. Under the Amended RSP,
restricted share awards entitle the recipient to receive shares of Common Stock from the Company under terms that provide for vesting over a specified period of
time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the
termination of the recipient's employment or other relationship with the Company. In connection with the Listing, our board of directors also approved a one-time
retention grant of 40,000 RSUs to each of the directors valued at $8.52 per unit, which vest over a five -year period. On July 13, 2015, we granted an annual
retainer to each of its independent directors comprising of 50% (or $0.1 million ) in cash and 50% (or 7,352 ) in RSUs which vest over a three -year period
with the vesting period beginning on June 15, 2015 . In addition, we granted $0.1 million in non executive chair compensation in cash and 50% (or 5,882 ) in
RSUs which vest over a three -year period with the vesting period beginning on June 15, 2015 .
Prior April 8, 2015 , the total number of shares of Common Stock granted under the RSP could not exceed 5% of our outstanding shares on a fully diluted
basis at any time, and in any event could not exceed 7.5 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar
events). The Amended RSP increased the number of shares of our Common Stock, par value $0.01 per share, available for awards thereunder to 10% of our
outstanding shares of Common Stock on a fully diluted basis at any time. The Amended RSP also eliminated the limit of 7.5 million shares of Common Stock
permitted to be issued as RSUs.
45
Table of Contents
Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares
may receive cash dividends prior to the time that the restrictions on the restricted shares have lapsed. Any dividends payable in common shares shall be subject to
the same restrictions as the underlying restricted shares. As of December 31, 2015 , there were 187,938 unvested restricted shares issued pursuant to the RSP.
Multi-Year
Outperformance
Agreement
In connection with the Listing, the Company entered into the OPP with the OP and the Advisor. Under the OPP, the Advisor was issued 9,041,801 long term
incentive plan ("LTIP Units") in the OP with a maximum award value on the issuance date equal to 5.00% of the Company’s market capitalization (the “OPP
Cap”). The LTIP Units are structured as profits interests in the OP.
The Advisor will be eligible to earn a number of LTIP Units with a value equal to a portion of the OPP Cap upon the first, second and third anniversaries of
the Effective Date, which is the listing date, June 2, 2015 , based on the Company’s achievement of certain levels of total return to its stockholders (“Total
Return”), including both share price appreciation and Common Stock dividends, as measured against a peer group of companies, as set forth below, for the three-
year performance period commencing on the Effective Date (the “ Three -Year Period”); each 12-month period during the Three -Year Period (the “ One -Year
Periods”); and the initial 24-month period of the Three -Year Period (the “ Two -Year Period”), as follows:
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the
beginning of such period:
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance
period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achievement of
cumulative Total Return measured from the beginning of such period:
•
•
•
•
100% will be earned if cumulative Total Return achieved is at least:
50% will be earned if cumulative Total Return achieved is:
0% will be earned if cumulative Total Return achieved is less than:
a percentage from 50% to 100% calculated by linear interpolation will be earned if the cumulative
Total Return achieved is between:
Performance
Period
Annual
Period
Interim Period
21%
7%
14%
18%
—%
—%
6%
—%
—%
12%
—%
—%
0% - 18%
0% - 6%
0% - 12%
___________________________________________
*
The “Peer Group” is comprised of Gramercy Property Trust Inc., Lexington Realty Trust, Select Income REIT, and W.P. Carey Inc.
The potential outperformance award is calculated at the end of each One -Year Period, the Two -Year Period and the Three -Year Period. The award earned
for the Three -Year Period is based on the formula in the table above less any awards earned for the Two -Year Period and One -Year Periods, but not less than
zero; the award earned for the Two -Year Period is based on the formula in the table above less any award earned for the first and second One -Year Period, but not
less than zero. Any LTIP Units that are unearned at the end of the Performance Period will be forfeited.
Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth
anniversaries of the Effective Date. Any earned and vested LTIP Units may be converted into OP Units in accordance with the terms and conditions of the limited
partnership agreement of the OP. The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in the
event Advisor is terminated or in the event the Company incurs a change in control, in either case prior to the end of the Three -Year Period.
On February 25, 2016 , the OPP was amended and restated to reflect the merger of two of the companies in the peer group.
Unregistered Sales of Equity Securities
The OP issued the following securities that were not registered under the Securities Act during the year ended December 31, 2015 .
On June 2, 2015 , the Advisor contributed $0.8 million in exchange for 83,333 OP Units. 1,726,323 OP Units were issued in exchange for Class B Units
which were issued in reliance upon exemptions from registration provided under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder. These OP Units are exchangeable for shares of Common Stock of the Company on a one-for-one basis, or the cash value of shares of Common Stock
(at the option of the Company), after 12 months from the Listing Date subject to the terms of the limited partnership agreement of the OP.
A holder of OP units has the right to convert OP units for the cash value of a corresponding number of shares of our common stock or a corresponding number
of shares of our common stock, at our option, in accordance with the limited partnership agreement of the OP. The remaining rights of the holders of OP units are
limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
46
Table of Contents
Upon occurrence of the Listing, the Special Limited Partnership became entitled to begin receiving dividends of net sale proceeds pursuant to its special
limited partner interest in the OP (the "SLP Interest") in an aggregate amount that is evidenced by the issuance of a note by the OP (the "Listing Note"). The
principal amount of the Listing Note was determined based, in part, on the actual average market value of our outstanding common stock for the period 180 days to
210 days after the Listing. The final value of the Listing Note was determined to be zero dollars.
In connection with the Listing, the Company's board of directors also approved a one-time retention grant of 40,000 RSUs to each of the directors valued at
$8.52 per unit, which vest over a five-year period. On July 13, 2015, the Company granted an annual retainer to each of its independent directors comprising of
50% (or $0.1 million ) in cash and 50% (or 7,352 ) in RSUs which vest over a three-year period with the vesting period beginning on June 15, 2015. In addition,
the Company granted $0.1 million in non executive chair compensation in cash and 50% (or 5,882 ) in RSUs which vest over a three-year period with the vesting
period beginning on June 15, 2015.
In connection with the Listing, Company issued a total of 160,000 RSUs to its directors. On July 7, 2015, the Company issued an additional 27,938 RSUs to
its directors. The RSUs were issued in reliance upon exemptions from registration provided under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation
D promulgated thereunder.
Pursuant to the OPP, the Company issued 9,041,801 LTIP Units to the Advisor. The LTIP Units were issued in reliance upon exemptions from registration
provided under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
Other than as described above, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended (the "Securities
Act"), during the year ended December 31, 2015 .
Use of Proceeds from Sales of Registered Securities
On April 20, 2012, we commenced our IPO on a "reasonable best efforts" basis of up to 150.0 million shares of Common Stock, pursuant to the Registration
Statement filed with the SEC under the Securities Act. The Registration Statement also covers up to 25.0 million shares of Common Stock issuable pursuant the
DRIP under which common stockholders may elect to have their dividends reinvested in additional shares of Common Stock. On June 13, 2014, we announced the
reallocation of 23.8 million shares which represented all remaining unsold shares available pursuant to the DRIP. On June 17, 2014, we registered an
additional 25.0 million shares to be issued under the DRIP pursuant to a registration statement on Form S-3 (File No. 333-196829). As of December 31, 2015 , we
have issued 168.9 million shares of our Common Stock, and received $1.7 billion of offering proceeds from the sale of Common Stock, including shares issued
under the DRIP and shares redeemed. On May 7, 2015, the Company filed a post-effective amendment to the Registration Statement to deregister the unsold shares
registered under the Registration Statement. We operated as a non-traded REIT through June 1, 2015. On June 2, 2015 , we listed our Common Stock on the NYSE
under the symbol GNL.
We have used and expect to continue to use substantially all of the net proceeds from our IPO to primarily acquire a diversified portfolio of income producing
real estate properties, focusing primarily on acquiring freestanding, single-tenant bank branches, convenience stores, office, industrial and retail properties net
leased to investment grade and other credit-worthy tenants. We may also originate or acquire first mortgage loans secured by real estate. As of December 31, 2015
, we have used debt financing of approximately $531.7 million in secured mortgage notes, $717.3 million in Credit Facility and the net proceeds from our IPO to
purchase 329 properties with an aggregate base purchase price of $2.6 billion . We have used and may continue to use net proceeds from our IPO to fund a
portion of our dividends. See Dividends in " Item 7 - Management's Discussion and Analysis of Financial Condition and Non-GAAP Financial Measures -
Dividends" for further discussion.
As of December 31, 2015 , cumulative offering costs included $18.2 million paid to the Advisor and the Former Dealer Manager to reimburse offering costs
incurred. As of December 31, 2015 , we have incurred $188.1 million of total cumulative offering costs in connection with the issuance and distribution of our
registered securities. The Advisor has elected to cap cumulative offering costs incurred by us, net of unpaid amounts, to 11.5% of gross common stock proceeds
during the IPO. Cumulative offering costs, net of unpaid amounts, were less than the 11.5% threshold as of December 31, 2015 .
47
Table of Contents
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On April 7, 2015, the board of directors approved the termination of our Share Repurchase Program (“SRP”). We have processed all of the requests received
under the SRP in the first quarter of 2015 and will not process further requests.
On June 2, 2015 , the Company commenced the Tender Offer. The Tender Offer was completed on June 29, 2015 with the Company purchasing
approximately 11.9 million shares of its Common Stock at a price of $10.50 per share, for an aggregate value of $125.0 million , excluding fees and expenses
relating to the Tender Offer and including fractional shares repurchased thereafter. The Company funded the Tender Offer using cash on hand and funds available
under its existing Credit Facility.
The following table reflects the cumulative number of common shares repurchased as of December 31, 2014 and 2015 :
Cumulative repurchases as of December 31, 2014
Redemptions
Shares repurchased under Tender Offer
Cumulative repurchases as of December 31, 2015
48
Number of Shares
Repurchased
Weighted Average Price
per Share
99,969
135,123
11,904,762
12,139,854 $
9.91
9.78
10.50
10.49
Table of Contents
Item 6. Selected Financial Data
The following is selected financial data as of December 31, 2015 , 2014 , 2013 , 2012 and 2011 , and for the years ended December 31, 2015 , 2014 , 2013 ,
2012 and for the period ended July 13, 2011 (date of inception) to December 31, 2011 :
Balance
sheet
data
(In
thousands)
Total real estate investments, at cost
2015
2014
2013
2012
2011
$
2,546,304 $
2,340,039 $
196,908 $
2,585 $
December 31,
Total assets
Mortgage notes payable
Credit facility
Total liabilities
Total equity
2,547,968
2,428,797
531,708
717,286
1,327,849
1,220,119
281,186
659,268
1,012,128
1,416,669
214,927
76,904
—
92,207
122,720
2,933
1,228
—
3,729
(796)
Year Ended December 31,
Operating
data
(In
thousands,
except
share
and
per
share
data)
2015
2014
2013
2012
Total revenues
Operating expenses
Operating income (loss)
Total other expenses
Income taxes (expense) benefit
Net loss
Non-controlling interests
Net income loss attributable to stockholders
Other data:
Cash flows provided by (used in) operations
Cash flows used in investing activities
Cash flows provided by financing activities
Per share data:
Dividends declared per common share
Net loss per common share - basic and diluted
Weighted-average number of common shares outstanding, basic
and diluted
____________________________
NM - not meaningful
$
205,332 $
93,383 $
3,951 $
30 $
172,123
33,209
(29,335)
(5,889)
(2,015)
(50)
136,943
(43,560)
(11,465)
1,431
(53,594)
—
10,007
(6,056)
(933)
—
(6,989)
—
433
(403)
(10)
—
(413)
—
(2,065) $
(53,594) $
(6,989) $
(413) $
102,155 $
(9,693) $
(3,647) $
(418) $
(222,279)
(1,517,175)
121,604
1,582,907
(111,500)
124,209
0.71 $
(0.01) $
0.71 $
(0.43) $
0.71 $
(1.28) $
(1,357)
2,027
0.71
(6.43)
$
$
$
$
174,309,894
126,079,369
5,453,404
64,252
22,222
49
—
559
—
—
375
184
Period from
July 13, 2011
(date of inception) to
December 31, 2011
—
16
(16)
—
—
(16)
—
(16)
—
—
—
—
NM
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements. The following information contains forward-
looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially
from those expressed or implied by the forward-looking statements. Please see "Forward-Looking Statements" elsewhere in this report for a description of these
risks and uncertainties.
Overview
We were incorporated on July 13, 2011 as a Maryland corporation. We acquired our first property and commenced active operations in October 2012 and
elected and qualified to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2013. We completed our
initial public offering ("IPO") on June 30, 2014 and on June 2, 2015 we listed our common stock ("Common Stock") on the New York Stock Exchange (the
"NYSE") under the symbol "GNL" (the "Listing").
Our investment strategy is to acquire a diversified portfolio of commercial properties, with an emphasis on sale-leaseback transactions involving single tenant
net-leased commercial properties. As of December 31, 2015 , we owned 329 net leased commercial properties consisting of 18.7 million rentable square feet.
Based on original purchase price, 60.4% of our properties are located in the United States (U.S.) and the Commonwealth of Puerto Rico, 20.8% are located in
continental Europe and 18.8% are located in the United Kingdom. The properties were 100% leased, with a weighted average remaining lease term of 11.3 years.
Substantially all of our business is conducted through the OP. As of December 31, 2015 , the Advisor held 1,461,753 OP Units, the Service Provider held
347,903 OP Units and the Special Limited Partner held 22 OP Units. In accordance with the limited partnership agreement of the OP, a holder of OP Units has the
right to convert OP Units for a corresponding number of shares of the Company's Common Stock or the cash value of those corresponding shares, at the
Company's option. The remaining rights of the limited partner interests are limited and do not include the ability to replace the general partner or to approve the
sale, purchase or refinancing of the OP's assets.
We are externally managed by our Advisor and our properties are managed and leased by Global Net Lease Properties, LLC (the "Property Manager"). The
Advisor, Property Manager and Special Limited Partner are under common control with the parent of the sponsor, AR Capital Global Holdings, LLC (the
"Sponsor"), as a result of which they are related parties, and have received compensation, fees and expense reimbursements for various services provided to us and
for the investment and management of our assets. The Advisor has retained the Service Provider to provide advisory and property management services with
respect to investments in Europe, subject to the Advisor's oversight. These services include, among others, sourcing and structuring of investments, sourcing and
structuring of debt financing, due diligence, property management and leasing. Our Former Dealer Manager served as the dealer manager of our IPO, which was
ongoing from October 2012 to June 2014 and, together with its affiliates, continued to provide us with various services through December 31, 2015. RCS Capital
Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided services to us, filed for Chapter 11 bankruptcy protection
in January 2016, prior to which it was also under common control with AR Global, the parent of our Sponsor.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation
of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations
and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant
accounting estimates and critical accounting policies include:
Offering
and
Related
Costs
Offering and related costs include all expenses incurred in connection with our IPO. Offering costs (other than selling commissions and the Former Dealer
Manager fees) include costs that may be paid by the Advisor, the Former Dealer Manager or their affiliates on our behalf. These costs include but are not limited to
(i) legal, accounting, printing, mailing, and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Former Dealer Manager for amounts it may pay to
reimburse the bona fide diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its employees and other costs in
connection with preparing supplemental sales materials and related offering activities. We are obligated to reimburse the Advisor or its affiliates, as applicable, for
organization and offering costs paid by them on our behalf, provided that the Advisor is obligated to reimburse us to the extent organization and offering costs
(excluding selling commissions and the Former Dealer Manager fee) incurred by us in our offering exceed 1.5% of gross offering proceeds in the IPO. As a result,
these costs are only our liability to the extent aggregate selling commissions, the dealer manager fee and other organization and offering costs do not exceed 11.5%
of the gross proceeds determined at the end of the IPO.
50
Revenue
Recognition
Our revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a
straight-line basis over the initial term of the lease. Because many of our leases provide for rental increases at specified intervals, straight-line basis accounting
requires us to record a receivable, and include in revenues unbilled rent receivables that we will only receive if the tenant makes all rent payments required through
the expiration of the initial term of the lease. We defer the revenue related to lease payments received from tenants in advance of their due dates. When we acquire
a property, the acquisition date is considered to be the commencement date of purposes of this calculation.
As of December 31, 2015 and 2014 , we included cumulative straight line rents receivable in Prepaid expenses and other assets in the consolidated balance
sheets of $23.1 million and $8.7 million , respectively. For the year ended December 31, 2015 and 2014 , our rental revenue included impacts of unbilled rental
revenue of $14.5 million and $8.5 million , respectively, to adjust contractual rent to straight line rent.
We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment
history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the
property is located. In the event that the collectability of a receivable is in doubt, we record an increase in our allowance for uncollectible accounts or record a
direct write-off of the receivable in our consolidated statements of operations.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Investments
in
Real
Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs
and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings,
15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold
interests.
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an
acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations. If an
acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired
assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-controlling
interests based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets
or liabilities may include the value of in-place leases, above- and below- market leases and other identifiable assets or liabilities based on lease or property specific
characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests are recorded at their estimated fair
values.
We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an
annual basis with respect to our investments in real estate. These assessments have a direct impact on our net earnings because if we were to shorten the expected
useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income
on an annual basis.
We are required to present the operations related to properties that have been sold or properties that are intended to be sold as discontinued operations in the
consolidated statements of operations for all periods presented. Properties that are intended to be sold are to be designated as “held for sale” on the consolidated
balance sheets.
We evaluate the lease accounting for each new property acquired with existing or new lease and reviews for any capital lease criterias. A lease is classified by
a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is generally considered to be met
if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum lease payments equals
90% or more of the leased property’s fair value at lease inception.
51
Impairment
of
Long
Lived
Assets
When circumstances indicate the carrying value of a property may not be recoverable, we review the asset for impairment. This review is based on an estimate
of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider
factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and
other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying
value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair
value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an
immediate negative adjustment to net earnings.
Purchase
Price
Allocation
We allocate the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible
assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. We utilize various estimates, processes and
information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales,
discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies
performed by independent third parties or on our analysis of comparable properties in our portfolio. Identifiable intangible assets include amounts allocated to
acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.
Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property,
taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other
operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from 12 to 18 months . We also
estimate costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the
risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s
estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases
and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are
amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an
increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. If a tenant
with a below market rent renewal does not renew, any remaining unamortized amount will be taken into income at that time.
The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on our evaluation of the specific characteristics of
each tenant’s lease and our overall relationship with the tenant. Characteristics considered by us in determining these values include the nature and extent of its
existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease
renewals, among other factors.
The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event
does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of
the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including independent appraisals that may be
obtained in connection with the acquisition or financing of the respective property and other market data. We also consider information obtained about each
property as a result of our pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Goodwill
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event. A triggering event is an event or circumstance
that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We performed a qualitative assessment to determine whether it
is more likely than not that the fair value of the reporting unit is less than its carrying value. Based on our assessment we determined that the goodwill is not
impaired as of December 31, 2015 and no further analysis is required.
52
Derivative
Instruments
We may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a
portion of the interest rate risk associated with its borrowings. Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange
rates. These fluctuations may impact the value of our cash receipts and payments in our functional currency, the U.S. dollar. We enter into derivative financial
instruments to protect the value or fix the amount of certain obligations in terms of our functional currency.
We record all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended
use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship
has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and
qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for
the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability
that is attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into
derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting
treatment. If we elect not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in gains
(losses) on derivative instruments in the consolidated statements of operations. If the derivative is designated and qualifies for hedge accounting treatment the
change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income
(loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
Listing
Note
Concurrent with the Listing, we, as the general partner of the OP, caused the OP, subject to the terms of the Second Amended and Restated Agreement of
Limited Partnership, to evidence the OP's obligation to distribute certain amounts to the Special Limited Partner through the issuance of the Listing Note. The
amount of the Listing Note is determined, in part, based on the average market value of our outstanding shares of Common Stock for the period of 30 consecutive
trading days, commencing on the 180th calendar day following the Listing. Until the principal amount of the Listing Note is determined, the Listing Note is treated
as a liability and we estimate the contingent consideration using a valuation model and records the fair value of the Listing Note on the consolidated balance sheets.
The principal amount of the Listing Note was determined to be zero at December 31, 2015 , and therefore no liability was recorded. The Company estimates the
contingent consideration using a valuation model and records the fair value of the Listing Note on the consolidated balance sheets. Changes in the fair value of the
Listing Note are recorded in the consolidated statements of operations. The final fair value of the Listing Note on maturity at January 23, 2016 was determined to
be zero value.
Multi-Year
Outperformance
Agreement
Concurrent with the Listing and modifications to Advisor agreement, we entered into a Multi-Year Outperformance Agreement (the “OPP”) with the OP and
the Advisor. We record equity based compensation expense associated with the awards over the requisite service period of five years on a graded basis. The
cumulative equity-based compensation expense is adjusted each reporting period for changes in the estimated market-related performance.
Recently
Issued
Accounting
Pronouncements
See Note 2 — Summary of Significant Accounting Policies for Recently
Issued
Accounting
Pronouncements
to audited consolidated financial statements in
this Annual Report on Form 10-K for further discussion.
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Results of Operations
Comparison
of
the
Year
Ended
December
31,
2015
to
the
Year
Ended
December
31,
2014
We purchased 22 properties in 2015 compared to our portfolio of 307 properties as of December 31, 2014 . The results of operations for the year ended
December 31, 2015 therefore reflect significant increases in most categories as portfolio was mostly stabilized in last quarter 2014 and 2015 is showing full year of
operations for those assets as well as incremental growth from the addition of 22 properties, 18 of which were acquired in third quarter of 2015 .
Rental
Income
Rental income was $194.6 million and $88.2 million for the years ended December 31, 2015 and 2014 , respectively. The significant increase in rental income
was driven by our acquisition of 22 properties since December 31, 2014 for an aggregate purchase price of $255.0 million , as of the respective acquisition dates.
In addition, we had a full year of rental income on 270 properties acquired during 2014 .
Operating
Expense
Reimbursements
Operating expense reimbursements were $10.7 million and $5.2 million for the years ended December 31, 2015 and 2014 , respectively. Our lease agreements
generally require tenants to pay all property operating expenses, in addition to base rent, however some limited property operating expenses may be absorbed by
us. Operating expense reimbursements primarily reflect insurance costs and real estate taxes incurred by us and subsequently reimbursed by the tenant. The
increase over 2014 is largely driven by acquisitions made in latter part of 2014 and during 2015 .
Property
Operating
Expense
Property operating expenses were $18.2 million for the year ended December 31, 2015 , compared to $7.9 million for the year ended 2014 . These costs
primarily relate to insurance costs and real estate taxes on our properties, which are generally reimbursable by the tenants. The increase is primarily driven by our
acquisition of 22 properties during the year ended December 31, 2015 , compared to our portfolio of 307 properties as of December 31, 2014 , most of which are
triple net leases. The main exceptions are GSA properties for which certain expenses are not reimbursable by tenants.
Operating
Fees
to
Affiliates
Operating fees to affiliates were $15.2 million for the year ended December 31, 2015 , compared to $0.8 million for the year ended December 31, 2014 .
Operating fees to affiliates represent compensation paid to our Advisor for asset management services as well as property management fees paid to the Service
Provider for our European investments. Prior to April 1, 2015 , we compensated our Advisor by issuing restricted performance based subordinated participation
interests in the OP in the form of Class B units for asset management services. These Class B units converted to OP Units as of the Listing. During the years ended
December 31, 2015 and 2014 , the board of directors approved the issuance of 1,020,580 and 682,351 , respectively, Class B units to the Advisor assuming a price
of $9.00 per unit, all of which converted to OP Units upon Listing. There was no charge reflected in the financial statements for the issuance of class B units, until
the Listing Date, at which time they were no longer subject to forfeiture.
Our Service Provider and Property Manager are entitled to fees for the management of our properties. Property management fees are calculated as a
percentage of gross revenues. During the years ended December 31, 2015 and 2014 , property management fees were $4.0 million and $1.3 million , respectively.
The Property Manager elected to waive and $2.5 million and $0.7 million of the property management fees for the years ended December 31, 2015 and 2014 ,
respectively.
Acquisition
and
Transaction
Related
Expenses
Acquisition and transaction related expenses for the year ended December 31, 2015 of $6.1 million primarily related to the purchase of 22 properties with an
aggregate purchase price of $255.0 million . Acquisition and transaction related expenses for the year ended December 31, 2014 of $83.5 million were incurred
related to the 270 properties acquired during that period with an aggregate purchase price of $2.2 billion .
Listing
Fees
During the year ended December 31, 2015 , we paid approximately $18.7 million in listing related fees in association with the Listing. The majority of these
fees were paid to related parties, see Note 11 — Related Party Transactions for details of the breakdown.
Vesting
of
Class
B
units
Vesting of Class B units expense was $14.5 million for the year ended December 31, 2015 , relating to the vesting of Class B units previously issued to the
Advisor for prior asset management services. The performance condition related to these Class B units was satisfied upon completion of the Listing and on June 2,
2015 , the Class B units were converted to OP Units on a one-to-one basis. We did not incur any expense relating to the vesting of Class B units for the year ended
December 31, 2014 .
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Table of Contents
Change
in
Fair
Value
of
Listing
Note
The Listing Note fair value was zero as of December 31, 2015 . The Listing Note was marked-to-market quarterly, with changes in the value recorded in the
consolidated statements of operations. The Listing Note measurement period ended on January 23, 2016 and no amounts were payable pursuant to its terms.
Accordingly, the Listing Note will have no further affect on our operations.
General
and
Administrative
Expenses
General and administrative expenses were $7.2 million for the year ended December 31, 2015 , primarily consisting of board member compensation, directors
and officers' liability insurance, and professional fees including audit and taxation services. General and administrative expenses for the year ended December 31,
2014 were $4.3 million .
Equity
Based
Compensation
During the year ended December 31, 2015 , we recognized approximately $2.2 million of expense related to equity-based compensation primarily related to
the amortization of the OPP and $0.2 million related to amortization of restricted shares granted to our independent directors.
Depreciation
and
Amortization
Expense
Depreciation and amortization expense was $90.1 million and $40.4 million for the years ended December 31, 2015 and 2014 , respectively. The majority of
the portfolio was acquired in 2014 . The purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or
amortized over the estimated useful lives. The increase in 2015 is due to our acquisition of 22 properties, as well as the prior acquisitions incurring a full year of
depreciation and amortization expense in 2015 .
Income
Tax
(Expense)
Benefit
We recognize income tax (expense) benefit for state taxes and local income taxes incurred, if any, in foreign jurisdictions in which we own properties. In
addition, we perform an analysis of potential deferred tax or future tax benefit as a result of timing differences in taxes across jurisdictions. Our current income tax
(expense) benefit fluctuates from period to period based primarily on the timing of those taxes. The income tax (expense) benefit was $(5.9) million and $1.4
million for the years ended December 31, 2015 and 2014 , respectively.
Interest
Expense
Interest expense was $34.9 million and $14.9 million for the years ended December 31, 2015 and 2014 , respectively. The increase was primarily related to an
increase in average borrowings and additional draws under our Credit Facility to fund our 2015 property acquisitions. In addition, during 2015 , we encumbered an
additional 36 properties via mortgages.
We view a mix of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage working capital. Our interest
expense in future periods will vary based on our level of future borrowings, which will depend on our refinancing needs and our acquisition activity.
Foreign
Currency
and
Interest
Rate
Impact
on
Operations
There were minimal realized gains or (losses) on day-to-day foreign currency fluctuations for the year ended December 31, 2015 , reflecting the limited effect
of day-to-day movements in foreign currency exchange rates. A loss on foreign currency of $0.2 million was realized for for the year ended December 31, 2014 .
The gains on derivative instruments of $3.9 million and $1.9 million for the years ended December 31, 2015 and 2014 , respectively, reflect the positive
marked-to-market impact from foreign currency and interest rate hedge instruments used to protect the investment portfolio from adverse currency and interest rate
movements, and was mainly driven by volatility in foreign currencies, particularly the Euro.
The gains on hedges and derivatives deemed ineffective of $5.1 million and $1.4 million for the years ended December 31, 2015 and 2014 , respectively, relate
to the marked-to-market adjustments of slightly over-hedged portion of our European investments.
The unrealized losses on non-functional foreign currency advances that were not designated as net investment hedges for the year ended December 31, 2015
were $3.6 million . There were no corresponding gains or (losses) for the year ended December 31, 2014 . Effective May 17, 2015 , additional foreign currency
advances were designated as net investment hedges.
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Table of Contents
Comparison
of
the
Year
Ended
December
31,
2014
to
the
Year
Ended
December
31,
2013
We purchased 270 properties in 2014 compared to our portfolio of 37 properties as of December 31, 2013 . The results of operations for the year ended
December 31, 2014 therefore reflect significant increases in most categories.
Rental
Income
Rental income was $88.2 million for the year ended December 31, 2014 , compared to $3.9 million for the year ended December 31, 2013 . The increase in
rental income was driven by our acquisition of 270 properties since December 31, 2013 for an aggregate purchase price of $2.4 billion , as of the respective
acquisition dates. In addition, we had a full year of rental income on 37 properties acquired through December 31, 2013 .
Operating
Expense
Reimbursements
Operating expense reimbursements were $5.2 million for the year ended December 31, 2014 , compared to $0.1 million for the year ended December 31,
2013 . Pursuant to some of our lease agreements, tenants are required to reimburse us for property operating expenses, in addition to base rent, whereas under
certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. The operating expense reimbursement
primarily reflects insurance expense and real estate taxes incurred by us and subsequently reimbursed by the tenant. Operating expense reimbursements increased
due to our acquisition of 270 properties since December 31, 2013 , compared to our portfolio of 37 properties as of December 31, 2013 . In addition, we had a
full year of operating expense reimbursements on these properties acquired through December 31, 2013 .
Property
Operating
Expense
Property operating expenses were $7.9 million for the year ended December 31, 2014 , compared to $42,000 for the year ended December 31, 2013 .
Operating expenses increased as a result of our acquisition of 270 properties during the year ended December 31, 2014 , compared to our portfolio of 37
properties as of December 31, 2013 .
These costs primarily relate to real estate taxes and costs associated with maintaining insurance on our properties, which is incurred by us and is reimbursable
by the tenants.
Operating
Fees
to
Affiliate
Our Advisor is entitled to asset management fees in connection with providing asset management services. Effective January 1, 2013, the payment of asset
management fees in cash, shares or restricted stock grants, or any combination thereof to the Advisor was eliminated. Instead we will issue (if approved by the
board of directors) to the Advisor Class B units, which will be forfeited unless certain conditions are met. During the year ended December 31, 2014 the board of
directors approved the issuance of 682,351 Class B units to the Advisor at an estimated fair value of $9.00 per unit. There was no charge reflected in the financial
statements for the issuance of class B units, until the Listing Date, at which time they were no longer subject to forfeiture.
Our Service Provider and Property Manager are entitled to fees for the management of our properties. Property management fees are calculated as a
percentage of gross revenues. During the years ended December 31, 2014 and 2013 , property management fees were $1.3 million and $50,000, respectively. The
Property Manager elected to waive $0.7 million and $25,000 of the property management fees for the years ended December 31, 2014 and 2013 , respectively.
Acquisition
and
Transaction
Related
Expenses
Acquisition and transaction related expenses of $83.5 million were incurred for the year ended December 31, 2014 related to our acquisition of 270
properties during the year. Acquisition and transaction related expenses of $7.7 million were incurred related to the 36 properties purchased during the year
ended December 31, 2013 .
General
and
Administrative
Expenses
General and administrative expenses were $4.3 million for the year ended December 31, 2014 , compared to $0.1 million for the year ended December 31,
2013 . The increase in general and administrative expenses during the year, was primarily driven by higher costs to maintain our larger real estate portfolio, such as
higher professional fees, including strategic advisory fees paid to a former affiliate of our Sponsor, taxes on foreign operations, board compensation and insurance
costs.
Depreciation
and
Amortization
Expense
Depreciation and amortization expense was $40.4 million for the year ended December 31, 2014 , compared to $2.1 million for the year ended December 31,
2013 . The increase in depreciation and amortization expense related to our acquisition of 270 properties during the year ended December 31, 2014 . In addition,
we had a full year of depreciation and amortization on 37 properties acquired during 2013 .
The purchase price of acquired properties was allocated to tangible and identifiable intangible assets and is depreciated or amortized over the estimated useful
life.
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Table of Contents
Income
Tax
(Expense)
Benefit
We recognize current income tax expense for state taxes and local income taxes incurred, if any, in foreign jurisdictions in which we own properties. In
addition, we perform an analysis of potential deferred tax or future tax benefit as a result of timing differences in taxes across jurisdictions. Our current income tax
(expense) benefit fluctuates from period to period based primarily on the timing of those taxes. In 2014 we recognized a future income tax benefit of $1.4 million .
Interest
Expense
Interest expense was $14.9 million for the year ended December 31, 2014 , compared to $1.0 million for the year ended December 31, 2013 . The increase
in interest expense is related to the increase in mortgage notes payable outstanding as a result of our increased rate of property acquisitions during 2014 , along
with an increase in the amortization of deferred financing costs associated with these borrowings. Interest expense also increased as a result of amounts drawn
under our revolving Credit Facility.
In July 2013, we entered into a credit agreement which allows for total borrowings of up to $50.0 million. We have, at various times, amended the facility to
increase the aggregate borrowings available and, on October 16, 2014, further amended the Credit Facility agreement to increase aggregate borrowings to $680.0
million. $659.3 million was outstanding under the facility as of December 31, 2014 . We did not utilize the facility during 2013.
We view a mix of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage working capital. Our interest
expense in future periods will vary based on our level of future borrowings, which will depend on our refinancing needs and our acquisition activity.
Gains
(Losses)
on
Foreign
Currency
We had foreign currency exchange losses of $0.2 million for the year ended December 31, 2014 , compared to exchange gains of $35,000 for the year
ended December 31, 2013 . Exchange gains and losses on foreign currency reflect the effect of changes in foreign currency exchange rates, primarily between the
time deposits related to when acquisitions were made and the time the related transactions were consummated.
Cash
Flows
for
the
Year
Ended
December
31,
2015
During the year ended December 31, 2015 , net cash provided by operating activities was $102.2 million . The level of cash flows provided by operating
activities is driven by the volume of acquisition activity, related rental income received and the amount of interest payments on outstanding borrowings. Cash
flows provided in operating activities during the year ended December 31, 2015 also reflect $6.1 million of acquisition and transaction related costs.
Net cash used in investing activities during the year ended December 31, 2015 of $222.3 million primarily related to our acquisition of 22 properties with an
aggregate base purchase price of $255.0 million , which were partially funded with borrowings under our Credit Facility and mortgage notes payable.
Net cash provided by financing activities of $121.6 million during the year ended December 31, 2015 related to proceeds, net of receivables, from the issuance
of common stock of $0.4 million , borrowings under Credit Facility of $476.2 million , proceeds from mortgage notes payable of $245.5 million and net advances
from affiliates of $0.4 million , partially offset by Common Stock repurchases of $127.3 million and repayments on Credit Facility of $373.2 million . Other
payments included dividends to stockholders of $97.7 million and distributions to non-controlling interest holders of $0.6 million .
Cash
Flows
for
the
Year
Ended
December
31,
2014
During the year ended December 31, 2014, net cash used in operating activities was $9.7 million . The level of cash flows used in or provided by operating
activities is affected by the volume of acquisition activity, the timing of interest payments and the amount of borrowings outstanding during the period, as well as
the receipt of scheduled rent payments. Cash used in operating activities during the year ended December 31, 2014 reflects a net loss, after adjustments for non-
cash items, of $13.1 million (net loss of $53.6 million adjusted for non-cash items including depreciation and amortization of tangible and intangible real estate
assets, amortization of deferred financing costs, net realized and unrealized mark-to-market transactions of $3.3 million and share based compensation of $0.1
million). Operating cash flow during the year ended December 31, 2014 includes $83.5 million of acquisition and transaction related costs reflected in our net loss
and an increase in prepaid expenses and other assets of $20.6 million primarily related to prepaid professional fees due for strategic advisory services from our
Former Dealer Manager and receivables due from our Advisor related to absorbed costs. These cash outflows were partially offset by an increase in deferred rent
of $10.4 million and increased accounts payable and accrued expenses of $15.7 million primarily related to accrued interest payable and local taxes.
Net cash used in investing activities during the year ended December 31, 2014 of $1.5 billion primarily related to our acquisition of 270 properties which were
partially funded with borrowings under our Credit Facility. Net cash used in investing activities also includes a deposit of $0.8 million on a potential future
acquisition.
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Table of Contents
Net cash provided by financing activities of $1.6 billion during the year ended ended December 31, 2014 related to proceeds, net of receivables, from the
issuance of common stock of $1.6 billion and net borrowings under our Credit Facility of $240.0 million, partly offset by payments related to offering costs of
$168.3 million, payments of deferred financing costs of $16.9 million, dividends to stockholders of $35.4 million and restricted cash increases of $5.4 million.
Cash
Flows
for
the
Year
Ended
December
31,
2013
During the year ended December 31, 2013, net cash used in operating activities was $3.6 million. The level of cash flows used in or provided by operating
activities is affected by the volume of acquisition activity, the timing of interest payments and the amount of borrowings outstanding during the period, as well as
the receipt of scheduled rent payments. Cash flows used in operating activities during the year ended December 31, 2013 included $7.7 million of acquisition and
transaction related costs. Cash outflows included a net loss adjusted for non-cash items of $4.6 million (net loss of $7.0 million adjusted for non-cash items
including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs and share based compensation of
$24,000), an increase in prepaid expenses of $1.8 million primarily related to prepaid professional fees due to strategic advisory services from our Former Dealer
Manager and receivables due from our Advisor related to absorbed costs. These cash outflows were partially offset by an increase in accounts payable and accrued
expenses of $1.9 million primarily related to accrued interest payable, local taxes and a roof repair credit received from a seller at acquisition as well as an increase
in deferred rent of $0.9 million.
Net cash used in investing activities during the year ended December 31, 2013 of $111.5 million primarily related to our acquisition of 36 properties, which
were partially funded with mortgage notes payable. Net cash used in investing activities also includes a deposit of $1.5 million on a potential future acquisition.
Net cash provided by financing activities of $124.2 million during the year ended December 31, 2013 related to proceeds, net of receivables, from the issuance
of common stock of $148.9 million, partially offset by payments related to offering costs of $18.8 million, payments of deferred financing costs of $2.3 million,
dividends to stockholders of $1.8 million, net advances from affiliates of $1.0 million and restricted cash increases of $0.7 million.
Liquidity and Capital Resources
As of December 31, 2015 , we had cash and cash equivalents of $69.9 million of which, on January 20, 2016, we had utilized to pay down $20.0 million of our
US dollar advances on our Credit Facility. Principal future demands on cash and cash equivalents will include the purchase of additional properties or other
investments in accordance with our investment strategy, payment of related acquisition costs, improvement costs, the payment of our operating and administrative
expenses, continuing debt service obligations and dividends to our stockholders. Management expects that operating income from our properties should cover
operating expenses and the payment of our monthly dividend.
Generally, we fund our acquisitions through a combination of cash and cash equivalents with mortgage or other debt, but we also may acquire assets free and
clear of permanent mortgage or other indebtedness. See Note 5 — Mortgage Notes Payable to our audited consolidated financial statements in this Annual Report
on Form 10-K for further discussion. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders,
proceeds from future offerings, proceeds from the sale of properties and undistributed cash from operations, if any.
As of December 31, 2015 , we have a revolving Credit Facility that currently permits us to borrow up to $740.0 million . The initial maturity date of the Credit
Facility is July 25, 2016 . The Credit Facility also contains two one-year automatic extension options, subject to certain conditions. See Note 4 — Revolving Credit
Facility to our audited consolidated financial statements in this Annual Report on Form 10-K for further discussion of the terms and conditions of this facility.
As of December 31, 2015 , total outstanding advances under the Credit Facility were $717.3 million . The unused borrowing capacity, based on the value of
the borrowing base properties as of December 31, 2015 was $22.7 million .
As of December 31, 2015 , we had secured mortgage notes payable and mortgage premium of $532.4 million and outstanding advances under our Credit
Facility of $717.3 million . Our debt leverage ratio was 47.5% (total debt as a percentage of total purchase price of real estate investments, based on the exchange
rate at the time of purchase) as of December 31, 2015 .
Loan
Obligations
Our loan obligations generally require principal and interest amounts payable monthly with all unpaid principal and interest due at maturity. Our loan
agreements stipulate compliance with specific reporting covenants. As of December 31, 2015 , we were in compliance with the debt covenants under our loan
agreements.
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Our Advisor may, with approval from our independent board of directors, seek to borrow short-term capital that, combined with secured mortgage financing,
exceeds our targeted leverage ratio. Such short-term borrowings may be obtained from third-parties on a case-by-case basis as acquisition opportunities present
themselves simultaneous with our capital raising efforts. We view the use of short-term borrowings as an efficient and accretive means of acquiring real estate in
advance of raising equity capital. Accordingly, we can take advantage of buying opportunities as we expand our fund raising activities. As additional equity capital
is obtained, these short-term borrowings will be repaid.
On April 7, 2015 , our board of directors approved the termination of our SRP. We processed all of the requests received under the SRP in the first quarter of
2015 and will not process further requests.
The following table reflects the cumulative number of common shares repurchased as of December 31, 2015 and 2014 :
Cumulative repurchases as of December 31, 2014
Redemptions
Shares repurchased under Tender Offer
Cumulative repurchases as of December 31, 2015
Number of Shares
Repurchased
Weighted Average Price
per Share
99,969 $
135,123
11,904,762
12,139,854 $
9.91
9.78
10.50
10.49
In addition, in April 2015 we suspended its DRIP and terminated its SRP. We have enjoyed high participation in DRIP and its suspension will result in higher
monthly cash dividend payments which will be funded from cash earned from the investment portfolio. The termination of SRP will have a positive but immaterial
impact for liquidity purposes.
Acquisitions
In connection with our financings, our Advisor previously received a financing coordination fee equal to 0.75% of the amount made available or outstanding
under such financing, subject to certain limitations. On June 2, 2015 , we entered into Advisory Agreement by and among us, the OP and the Advisor, which,
among other things, terminated the financing coordination fee. See Note 11 — Related Party Transactions of the notes to our consolidated financial statements.
Non-GAAP Financial Measures
This section includes non-GAAP financial measures, including Funds from Operations, Core Funds from Operations and Adjusted Funds from Operations. A
description of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure, which is net income, is provided below.
Funds
from
Operations,
Core
Funds
from
Operations
and
Adjusted
Funds
from
Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts
("NAREIT"), an industry trade group, has promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental
measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is
not equivalent to net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of
NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding
gains or losses from sales of property but including asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with
NAREIT's definition.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, and straight-line
amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time, especially if not adequately maintained or repaired
and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We
believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and
consumer spending, presentations of operating results for a REIT using historical accounting for depreciation and certain other items may be less informative.
Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to
be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which
excludes the impact of real estate related depreciation and amortization, among other things, provides a more complete understanding of our performance to
investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating
costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net
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income. However, FFO, core funds from operations ("Core FFO") and adjusted funds from operations (“AFFO”), as described below, should not be construed to
be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The
method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and
considered more prominently than the non-GAAP FFO, Core FFO and AFFO measures and the adjustments to GAAP in calculating FFO, Core FFO and AFFO.
Other REITs may not define FFO in accordance with the current NAREIT definition (as we do) or may interpret the current NAREIT definition differently than we
do and/or calculate Core FFO and/or AFFO differently than we do. Consequently, our presentation of FFO, Core FFO and AFFO may not be comparable to other
similarly titled measures presented by other REITs.
We consider FFO, Core FFO and AFFO useful indicators of our performance. Because FFO calculations exclude such factors as depreciation and amortization
of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on
historical cost accounting and useful-life estimates), FFO facilitates comparisons of operating performance between periods and between other REITs in our peer
group.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an
expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT's
definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under
GAAP, that are typically accounted for as operating expenses.
Core FFO is FFO, excluding acquisition and transaction related costs as well as certain other costs that are considered to be non-core, such as charges relating
to the Listing Note and listing related fees. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of
our business plan to generate operational income and cash flows in order to make dividend payments to stockholders. In evaluating investments in real estate, we
differentiate the costs to acquire the investment from the operations derived from the investment. By excluding expensed acquisition and transaction related costs
as well as non-core costs, we believe Core FFO provides useful supplemental information that is comparable for each type of real estate investment and is
consistent with management's analysis of the investing and operating performance of our properties.
We exclude certain income or expense items from AFFO that we consider more reflective of investing activities, other non-cash income and expense items
and the income and expense effects of other activities that are not a fundamental attribute of our business plan. These items include unrealized gains and losses,
which may not ultimately be realized, such as gains or losses on contingent valuation rights, gains and losses on investments and early extinguishment of debt. We
also exclude dividends on Class B OP Units as the related shares are assumed to have converted to common stock in our calculation of fully diluted weighted
average shares of common stock. In addition, by excluding non-cash income and expense items such as amortization of above-market and below-market leases
intangibles, amortization of deferred financing costs, straight-line rent and equity-based compensation from AFFO, we believe we provide useful information
regarding income and expense items which have no cash impact and do not provide liquidity to the company or require capital resources of the company. By
providing AFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our ongoing operating
performance without the impacts of transactions that are not related to the ongoing profitability of our portfolio of properties. We also believe that AFFO is a
recognized measure of sustainable operating performance by the REIT industry. Further, we believe AFFO is useful in comparing the sustainability of our
operating performance with the sustainability of the operating performance of other real estate companies that are not making a significant number of acquisitions.
Investors are cautioned that AFFO should only be used to assess the sustainability of our operating performance excluding these activities, as it excludes certain
costs that have a negative effect on our operating performance during the periods in which these costs are incurred.
In calculating AFFO, we exclude certain expenses, which under GAAP are characterized as operating expenses in determining operating net income. These
expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued merger, acquisition and transaction
related fees and certain other expenses negatively impact our operating performance during the period in which expenses are incurred or properties are acquired
will also have negative effects on returns to investors, the ability to fund dividends or distributions in the future, and cash flows generated by us, unless earnings
from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property and certain other expenses.
AFFO that excludes such costs and expenses would only be comparable to companies that did not have such activities. Further, under GAAP, certain contemplated
non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating
activities. In addition, we view fair value adjustments as items which are unrealized and may not ultimately be realized. We view both gains and losses from fair
value adjustments as items which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Excluding
income and expense items detailed above from our calculation of AFFO provides information consistent with management's analysis of the operating performance
of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market
conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating
performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe AFFO provides useful supplemental information.
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As a result, we believe that the use of FFO, Core FFO and AFFO, together with the required GAAP presentations, provide a more complete understanding of
our performance relative to our peers and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing
activities.
The table below reflects the items deducted or added to net income (loss) attributable to stockholders in our calculation of FFO, Core FFO and AFFO for the
periods indicated. We have calculated our FFO, Core FFO and AFFO based on our net income (loss) attributable to stockholders, and all adjustments are made
based on our gross adjustments, without excluding the portion of the adjustments attributable to our non-controlling interests. The Company previously disclosed
FFO and modified funds from operations as Non-GAAP measures. Prior periods have been recast based on the Non-GAAP Financial Measurements presented.
Management believes these Non-GAAP measures are more meaningful to the users of our financial statements given our Listing.
(In
thousands)
March 31, 2015
June 30, 2015
September 30,
2015
December 31,
2015
Three Months Ended
Year Ended
December 31,
2015
Net income (loss) attributable to stockholders (in accordance with
GAAP)
Depreciation and amortization
FFO (as defined by NAREIT) attributable to stockholders
Acquisition and transaction fees
Listing fees
Vesting of Class B units upon Listing
Change in fair value of Listing Note
Core FFO
Non-cash equity based compensation
Non-cash portion of interest expense
Class B distributions
Non-recurring general and administrative expenses (1)
Straight-line rent
Amortization of above- and below- market leases and ground
lease assets and liabilities, net
Realized losses on investment securities
(Gains) losses on hedges and derivatives deemed ineffective
Unrealized (gains) losses on non-functional foreign currency
advances not designated as net investment hedges
Amortization of mortgage premium
$
25,855
$
(45,664)
$
5,432
$
12,312
$
(2,065)
21,114
46,969
1,085
—
—
—
48,054
8
1,944
124
—
(4,439)
109
—
(1,448)
(8,907)
(42)
22,089
(23,575)
212
18,503
14,480
4,430
14,050
510
1,994
309
—
(3,437)
101
—
508
11,842
(202)
22,949
28,381
4,680
—
—
(1,050)
32,011
1,917
2,306
(94)
188
(3,697)
94
66
23,918
36,230
76
150
—
(3,380)
33,076
(90)
2,365
—
302
(3,236)
(52)
—
90,070
88,005
6,053
18,653
14,480
—
127,191
2,345
8,609
339
490
(14,809)
252
66
(1,505)
(2,679)
(5,124)
—
(123)
623
(122)
3,558
(489)
AFFO
$
35,403
$
25,675
$
31,163
$
30,187
$
122,428
_______________________
(1) Represents the Company's estimate of non-recurring internal audit service fees associated with its SOX readiness efforts and other non-recurring charges.
Dividends
We pay dividends on the 15th day of each month at a rate of $0.059166667 per share to stockholders of record as of close of business on the 8th day of such
month.
The amount of dividends payable to our stockholders is determined by our board of directors and is dependent on a number of factors, including funds
available for dividends, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual dividend requirements
needed to maintain our status as a REIT for U.S. federal income tax purposes under the Code. Dividend payments are dependent on the availability of funds. Our
board of directors may reduce the amount of dividends paid or suspend dividend payments at any time and therefore dividend payments are not assured. There is
no assurance that we will continue to declare dividends at this rate.
During the year ended December 31, 2015 , dividends paid to common stockholders and OP Units holders were $127.0 million , inclusive of $28.6 million of
dividends reinvested pursuant the DRIP and $0.6 million of distributions paid for OP Units. During the year ended December 31, 2015 , cash used to pay dividends
was generated from cash flows from operations, the net proceeds of our IPO and Common Stock issued under the DRIP.
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The following table shows the sources for the payment of dividends to common stockholders for the periods indicated:
Three Months Ended
Year Ended
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
December 31, 2015
Percentage of
Dividends
Percentage of
Dividends
Percentage of
Dividends
Percentage of
Dividends
Percentage of
Dividends
$
31,275
—
$
35,087
—
$
31,275
$
35,087
$
29,957
321
$
30,278
$
29,989
321
$
30,310
$ 126,308
642
$ 126,950
(In
thousands)
Dividends:
Dividends to stockholders (1)
Other distributions (2)
Total dividends
Source of dividend coverage:
Cash flows provided by operations
Proceeds from issuance of Common Stock
Common Stock issued under the DRIP
Total sources of dividend coverage
$
14,268
—
17,007
$
31,275
45.6% $
—%
54.4%
100.0% $
23,516
—
11,571
35,087
67.0% $
—%
33.0%
100.0% $
30,278
—
—
30,278
100.0% $
—%
—%
100.0% $
30,310
—
—
30,310
98,372
—
100.0% $
—%
—%
28,578
100.0% $ 126,950
77.5%
—%
22.5%
100.0%
Cash flows provided by operations (GAAP
basis) (3)
$
34,489
$
9,948
$
56,453
$
1,265
$ 102,155
Net income (loss) attributable to
stockholders (in accordance with
GAAP)
$
25,855
$ (45,664)
$
5,432
$
12,312
$
(2,065)
_______________________________
(1) Dividends for the periods indicated above include cash dividends paid and DRIP dividends issued, and exclude dividends related to Class B units (prior to conversion to OP Units).
(2)
Includes distributions paid of $0.6 million for the OP Units. For the year ended December 31, 2015 total accrued and unpaid distributions to the participating LTIP Units were $0.4 million
and therefore were not included in the table above as they remain unpaid as of December 31, 2015 .
(3) Cash flows provided by operations for the year ended December 31, 2015 reflect acquisition and transaction related expenses of $6.1 million .
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The following table compares cumulative dividends paid to cumulative net loss (in accordance with GAAP) for the period from July 13, 2011 (date of
inception) through December 31, 2015 :
(In
thousands)
Dividends paid:
Common stockholders in cash
Dividends reinvested in DRIP
Vested restricted stockholders in cash
Other (1)
Total dividends paid
Reconciliation of net loss:
Revenues
Acquisition and transaction-related expenses
Listing fees
Vesting of Class B units
Equity based compensation
Depreciation and amortization
Other operating expenses
Income tax benefit (expense)
Other non-operating expense
Non-controlling interest
Net loss attributable to stockholders (in accordance with GAAP) (2)
_______________________________
For the Period from
July 13, 2011
(date of inception) to
December 31, 2015
134,931
74,784
20
642
210,377
302,696
(97,524)
(18,653)
(14,480)
(2,345)
(132,590)
(53,930)
(4,458)
(41,743)
(50)
(63,077)
$
$
$
$
(1)
Includes amounts paid related to participating OP Units. For the year ended December 31, 2015 total accrued and unpaid distributions to the participating LTIP Units were $0.4 million and
therefore were not included in the table above as they remain unpaid as of December 31, 2015 .
(2) Net loss as defined by GAAP includes the non-cash impact of depreciation and amortization expense as well as costs incurred relating to acquisitions and related transactions.
Foreign
Currency
Translation
Our reporting currency is the U.S. dollar. The functional currency of our foreign investments is the applicable local currency for each foreign location in which
we invest. Assets and liabilities in these foreign locations (including intercompany balances for which settlement is not anticipated in the foreseeable future) are
translated at the spot rate in effect at the applicable reporting date. The amounts reported in the consolidated statements of operations are translated at the average
exchange rates in effect during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of accumulated other
comprehensive income (loss) in the consolidated statements of changes in equity.
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Contractual Obligations
The following table presents our estimated future payments under contractual obligations at December 31, 2015 and the effect these obligations are expected
to have on our liquidity and cash flow in the specified future periods:
(In
thousands)
Total
Less than 1 Year
1-3 Years
3-5 Years
More than 5 Years
$
531,708 $
758 $
106,893 $
407,757 $
16,300
Principal on mortgage notes payable
Interest on mortgage notes payable (1)
Principal on credit facility (2)
Interest on credit facility (1)
Operating ground lease rental payments due
62,242
717,286
8,426
49,092
16,196
717,286
8,426
1,306
29,581
—
—
2,614
15,964
—
—
2,614
501
—
—
42,558
59,359
Total (3) (4)
$
1,368,754 $
743,972 $
139,088 $
426,335 $
_________________________
(1) Based on interest rates at December 31, 2015 .
(2) The initial maturity date of the Credit Facility is July 25, 2016 with two one-year extension options, subject to certain conditions.
(3) Amounts in the table above that relate to our foreign operations are based on the exchange rate of the local currencies at December 31, 2015 , which consisted primarily of the Euro and
British Pounds. At December 31, 2015 , we had no material capital lease obligations for which we were the lessee, either individually or in the aggregate.
(4) Derivative payments are not included in this table due to the uncertainty of the timing and amounts of payments. Additionally, as derivatives can be settled at any point in time, they are
generally not considered long-term in nature.
Credit
Facility
On July 25, 2013 , we through the OP, entered into a Credit Facility that provided for aggregate revolving loan borrowings of up to $50.0 million (subject to
borrowing base availability). The Credit Facility has been amended at various times, and maximum borrowings have increased to $740.0 million , with the most
recent increase being on August 24, 2015. We had $717.3 million and $659.3 million outstanding under the Credit Facility as of December 31, 2015 and 2014 ,
respectively.
Foreign currency draws under the Credit Facility are designated as net investment hedges of our investments during the periods reflected in the consolidated
statements of operations. See Note 8 — Derivatives and Hedging Activities to our audited consolidated financial statements in this Annual Report on Form 10-K
for further discussion.
Election as a REIT
We qualified to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Code, commencing with our taxable year
ended December 31, 2013. Commencing with such taxable year, we were organized and operate in such a manner as to qualify for taxation as a REIT under the
Code. We intend to continue to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to
remain qualified as a REIT for U.S. federal income tax purposes. In order to continue to qualify for taxation as a REIT, we must, among other things, distribute
annually at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we continue to
qualify for taxation as a REIT, we may be subject to certain federal, state, local and foreign taxes on our income and assets, including alternative minimum taxes,
taxes on any undistributed income and state, local or foreign income, franchise, property and transfer taxes. Any of these taxes decrease our earnings and our
available cash.
In addition, our international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded entities of
a REIT, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
Inflation
We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. In addition, we may be required to pay costs for
maintenance and operation of properties which may adversely impact our results of operations due to potential increases in costs and operating expenses resulting
from inflation.
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Related-Party Transactions and Agreements
We have entered into agreements with affiliates of our Sponsor, whereby we have paid or may in the future pay certain fees or reimbursements to our Advisor
or its affiliates and entities under common ownership with our Advisor in connection with items such as acquisition and financing activities, transfer agency
services, asset and property management services and reimbursement of operating and offering related costs. The predecessor to AR Global is a party to a services
agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS
Advisory and its affiliates provided us and certain other companies sponsored by AR Global with services (including, without limitation, transaction management,
compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services
performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided
by RCS Advisory. We are also party to a transfer agency agreement with American National Stock Transfer, LLC, a subsidiary of the parent company of the
Former Dealer Manager (“ANST”), pursuant to which ANST provided us with transfer agency services (including broker and stockholder servicing, transaction
processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by a third-party transfer agent.
AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the
transfer agent effective February 29, 2016. Our current provider of sub-transfer agency services will provide us with transfer agency services (including broker and
stockholder servicing, transaction processing, year-end IRS reporting and other services) until we enter into a definitive transfer agency agreement with a transfer
agent. See Note 11 — Related Party Transactions to our audited consolidated financial statements included in this Annual Report on Form 10-K for a discussion of
the various related party transactions, agreements and fees.
In addition, the limited partnership agreement of the OP was amended as of December 31, 2013 to allow the special allocation, solely for tax purposes, of
excess depreciation deductions of up to $10.0 million to our Advisor, a limited partner of the OP. In connection with this special allocation, our Advisor has agreed
to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the
OP. Our Advisor is directly or indirectly controlled by certain officers and directors.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of December 31, 2015 that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to
investors other than our future obligations under nonconcealable operating ground leases (see Note 10 — Commitments and Contingencies and Contractual
Obligations for details).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market
Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary risks to which we
are exposed are interest rate risk and foreign currency exchange risk, and we are also exposed to further market risk as a result of concentrations of tenants in
certain industries and/or geographic regions. Adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease
obligations. In order to manage this risk, we view our collective tenant roster as a portfolio, and in our investment decisions we attempt to diversify our portfolio so
that we are not overexposed to a particular industry or geographic region.
Generally, we do not use derivative instruments to hedge credit/market risks or for speculative purposes. However, from time to time, we may enter into
foreign currency forward contracts to hedge our foreign currency cash flow exposures.
Interest
Rate
Risk
The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is
also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, all of which may affect our ability to
refinance property-level mortgage debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to
many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our
control. An increase in interest rates would likely cause the fair value of our owned and managed assets to decrease, which would create lower revenues from
managed assets and lower investment performance for the Managed REITs. Increases in interest rates may also have an impact on the credit profile of certain
tenants.
We are exposed to the impact of interest rate changes primarily through our borrowing activities. We obtained, and may in the future obtain, variable-rate,
non-recourse mortgage loans, and as a result, we have entered into, and may continue to enter into, interest rate swap agreements or interest rate cap agreements
with lenders. Interest rate swap agreements effectively convert the variable-rate debt service obligations of the loan to a fixed rate, while interest rate cap
agreements limit the underlying interest rate from exceeding a specified strike rate. Interest rate swaps are agreements in which one party exchanges a stream of
interest
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payments for a counterparty’s stream of cash flows over a specific period, and interest rate caps limit the effective borrowing rate of variable-rate debt obligations
while allowing participants to share in downward shifts in interest rates. These interest rate swaps and caps are derivative instruments designated as cash flow
hedges on the forecasted interest payments on the debt obligation. The face amount on which the swaps or caps are based is not exchanged. Our objective in using
these derivatives is to limit our exposure to interest rate movements. At December 31, 2015 , we estimated that the total fair value of our interest rate swaps, which
are included in Derivatives, at fair value in the consolidated financial statements, was in a net liability position of $0.2 million ( Note 8 — Derivatives and Hedging
Activities).
As of December 31, 2015 , our total consolidated debt included borrowings under our Credit Facility and secured mortgage financings, with a total carrying
value of $1.2 billion , and a total estimated fair value of $1.3 billion and a weighted average effective interest rate per annum of 2.5% . At December 31, 2015 , a
significant portion (approximately 63.4% ) of our long-term debt either bore interest at fixed rates, or was swapped to a fixed rate. The annual interest rates on our
fixed-rate debt at December 31, 2015 ranged from 1.6% to 6.3% . The contractual annual interest rates on our variable-rate debt at December 31, 2015 ranged from
1.6% to 2.4% . Our debt obligations are more fully described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-
Contractual Obligations above.
The following table presents future principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2015 :
(In
thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Fixed-rate debt (1)
Variable-rate debt (1)
(2)
$
347,292 (2) $
23,043
31,050
190,249
183,958
16,300
$
791,892
$
370,752
—
52,800
—
33,550
—
457,102
_____________________
(1) Amounts are based on the exchange rate at December 31, 2015 , as applicable.
(2) The initial maturity date of the Credit Facility is July 25, 2016 with two one-year extension options, subject to certain conditions.
The estimated fair value of our fixed-rate debt and our variable-rate debt that currently bears interest at fixed rates or has effectively been converted to a fixed
rate through the use of interest rate swaps is affected by changes in interest rates. A decrease or increase in interest rates of 1% would change the estimated fair
value of this debt at December 31, 2015 by an aggregate increase of $2.2 million or an aggregate decrease of $1.9 million , respectively.
Annual interest expense on our unhedged variable-rate debt that does not bear interest at fixed rates at December 31, 2015 would increase or decrease by $4.0
million and $0.9 million , respectively for each respective 1% change in annual interest rates.
Foreign
Currency
Exchange
Rate
Risk
We own foreign investments, primarily in the European and as a result are subject to risk from the effects of exchange rate movements in various foreign
currencies, primarily the Euro and the British pound sterling which may affect future costs and cash flows. We manage foreign currency exchange rate movements
by generally placing our debt service obligation to the lender and the tenant’s rental obligation to us in the same currency. This reduces our overall exposure to the
net cash flow from that investment. In addition, we may use currency hedging to further reduce the exposure to our equity cash flow. We are generally a net
receiver of these currencies (we receive more cash than we pay out), and therefore our foreign operations benefit from a weaker U.S. dollar, and are adversely
affected by a stronger U.S. dollar, relative to the foreign currency.
The Company has designated all current foreign currency draws as net investment hedge to the extent of the Company’s net investment in foreign subsidiaries.
To the extent foreign draws in each currency exceed the net investment, the Company reflects the effects of changes in currency on such excess in earnings. As of
December 31, 2015 , the Company had draws of £36.0 million and €27.9 million in excess of its net investments.
We enter into foreign currency forward contracts to hedge certain of our foreign currency cash flow exposures. A foreign currency forward contract is a
commitment to deliver a certain amount of foreign currency at a certain price on a specific date in the future. The total estimated fair value of our foreign currency
forward contracts, which are included in derivatives, at fair value in the consolidated balance sheets, was in a net asset position of $2.2 million at December 31,
2015 . We have obtained, and may in the future obtain, non-recourse mortgage financing in the local currency. To the extent that currency fluctuations increase or
66
Table of Contents
decrease rental revenues as translated to U.S. dollars, the change in debt service, as translated to U.S. dollars, will partially offset the effect of fluctuations in
revenue and, to some extent, mitigate the risk from changes in foreign currency exchange rates.
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Table of Contents
Scheduled future minimum rents, exclusive of renewals, under non-cancelable operating leases, for our foreign operations as of December 31, 2015 , during
each of the next five calendar years and thereafter, are as follows (in thousands):
(In
thousands)
2016
2017
2018
2019
2020
Thereafter
Total
_______________________
(1) Based on the exchange rate as of December 31, 2015 .
Future Minimum Base Rent Payments (1)
Euro
British pound
sterling
Total
$
39,777 $
35,725 $
40,070
40,367
40,666
40,945
234,646
436,471 $
37,558
38,320
39,051
39,757
304,719
495,130 $
$
75,502
77,628
78,687
79,717
80,702
539,365
931,601
Scheduled debt service payments (principal and interest) for mortgage notes payable for our foreign operations as of December 31, 2015 , during each of the
next five calendar years and thereafter, are as follows (in thousands):
(In
thousands)
2016
2017
2018
2019
2020
Thereafter
Total
(In
thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Future Debt Service Payments (1)(2)
Mortgage Notes Payable
Euro
British pound
sterling
Total
$
— $
—
—
119,279
62,579
—
— $
1,125
30,714
70,615
121,007
—
$
181,858 $
223,461 $
—
1,125
30,714
189,894
183,586
—
405,319
Future Debt Service Payments (1) (2)
Credit Facility (3)
Euro
British pound
sterling
Total
$
314,604 $
237,232 $
551,836
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
314,604 $
237,232 $
551,836
_______________________
(1) Based on the exchange rate as of December 31, 2015 . Contractual rents and debt obligations are denominated in the functional currency of the country of each property.
(2)
(3) The initial maturity of our Credit Facility is July 25, 2016 with two one-year extension options, subject to certain conditions ( Note 4 — Revolving Credit Facility). Borrowings under our
Interest on unhedged variable-rate debt obligations was calculated using the applicable annual interest rates and balances outstanding at December 31, 2015 .
Credit Facility in foreign currencies are designated and effective as economic hedges of our net investments in foreign entities ( Note 8 — Derivatives and Hedging Activities).
We currently anticipate that, by their respective due dates, we will have repaid or refinanced certain of these loans, but there can be no assurance that we will
be able to refinance these loans on favorable terms, if at all. If refinancing has not occurred, we would expect to use our cash resources, including unused capacity
on our Credit Facility, to make these payments, if necessary.
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Table of Contents
Concentration
of
Credit
Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities or have similar economic risks or conditions that could
cause them to default on their lease obligations to us. We regularly monitor our portfolio to assess potential concentrations of credit risk. While we believe our
portfolio is reasonably well diversified, it does contain concentrations in excess of 10%, based on the percentage of our annualized rental income as of
December 31, 2015 , in certain areas. See Item 2. Properties in this Annual Report on Form 10-K for further discussion on distribution across countries and
industries.
Based on original purchase price, the majority of our properties are located in the U.S. ( 60.4% ) and 39.6% are in Europe. The majority of our directly owned
real estate properties and related loans are located in the United States and the Commonwealth of Puerto Rico 60.4% and the remaining are in Finland ( 6.1% ),
Germany ( 10.6% ), The Netherlands ( 4.1% ) and United Kingdom ( 18.8% ) of our annualized rental income at December 31, 2015 . No individual tenant
accounted for more than 10% of our annualized rental income at December 31, 2015 . At December 31, 2015 , our directly owned real estate properties contain
significant concentrations in the following asset types: office ( 54% ), industrial/distribution ( 30% ), retail ( 15% ) and other ( 1% ).
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is hereby incorporated by reference to our Consolidated Financial Statements beginning on page F-1 of this Annual
Report of Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure
Controls
and
Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we, under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded, as of December 31, 2015 , the end of such period, that our disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, within the time periods specified in the SEC rules and forms, information required to be disclosed by us in our reports that
we file or submit under the Exchange Act, and in such information being accumulated and communicated to management as appropriate to allow timely decisions
regarding required disclosure.
Management's
Annual
Reporting
on
Internal
Control
over
Financial
Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f)
or 15d-15(f) promulgated under the Exchange Act.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 . In making that assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control-Integrated
Framework
(2013).
Based on its assessment, our management concluded that, as of December 31, 2015 , our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated on their report, which is included on page F-2 in this Annual Report on Form 10-K.
Changes
in
Internal
Control
Over
Financial
Reporting
During the quarter ended December 31, 2015 , there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-
15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
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Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
We have adopted a Code of Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and
principal financial officer. A copy of our code of ethics may be obtained, free of charge, by sending a written request to our executive office – 405 Park Avenue –
14th Floor, New York, NY 10022, attention Chief Financial Officer.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2016 annual meeting of shareholders to be filed on
or before April 29, 2016 , and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2016 annual meeting of shareholders to be filed on
or before April 29, 2016 , and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2016 annual meeting of shareholders to be filed on
or before April 29, 2016 , and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2016 annual meeting of shareholders to be filed on
or before April 29, 2016 , and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item will be set forth in our definitive proxy statement with respect to our 2016 annual meeting of shareholders to be filed on
or before April 29, 2016 , and is incorporated herein by reference.
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Item 15. Exhibits and Financial Statement Schedules.
(a) Financial Statement Schedules
PART IV
See the Index to Consolidated Financial Statements at page F-1 of this report.
The following financial statement schedule is included herein at page F-44 of this report:
Schedule III – Real Estate and Accumulated Depreciation
(b) Exhibits
EXHIBITS INDEX
The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the year ended December 31, 2015 (and are
numbered in accordance with Item 601 of Regulation S-K).
Exhibit No.
Description
3.1 (10)
3.2 (12)
3.3 (14)
4.1 (13)
10.1 (13)
10.2 (1)
10.3 (11)
10.4 (1)
10.5 (2)
10.6 (2)
10.7 (3)
10.8 (3)
10.9 (3)
10.10 (3)
10.11 (3)
10.12 (3)
10.13 (3)
10.14 (4)
10.15 (4)
Articles of Amendment to the Amended and Restated Charter of Global Net Lease, Inc. (f/k/a American Realty Capital Global Trust, Inc.),
effective May 5, 2015.
Articles of Amendment of Global Net Lease, Inc. (f/k/a American Realty Capital Global Trust, Inc.)
Amended and Restated Bylaws of Global Net Lease, Inc.
Second Amended and Restated Agreement of Limited Partnership of Global Net Lease Operating Partnership, L.P., dated June 2, 2015,
between Global Net Lease, Inc. and Global Net Lease Special Limited Partner, LLC.
Fourth Amended and Restated Advisory Agreement, dated June 2, 2015, among Global Net Lease, Inc., Global Net Lease Operating
Partnership, L.P. and Global Net Lease Advisors, LLC.
Property Management and Leasing Agreement, dated April 20, 2012, among Global Net Lease, Inc. (f/k/a American Realty Capital Global
Trust, Inc.), Global Net Lease Operating Partnership, L.P (f/k.a American Realty Capital Global Operating Partnership, L.P.) and Global
Net Lease Properties, LLC) (f/k/a American Realty Capital Global Properties, LLC).
Amended and Restated Incentive Restricted Share Plan of Global Net Lease, Inc. (f/k/a American Realty Capital Global Trust, Inc.)
Company’s Stock Option Plan
Agreement for the Sale and Purchase of Wickes Store, dated April 12, 2013, between Aviva Investors Pensions Limited and ARC
WKBPLUK001, LLC.
Facility Letter, dated May 3, 2013, by and between ARC WKBPLUK001, LLC and Santander UK plc.
Asset Sale Contract, dated as of May 22, 2013, by and among Mapeley Acquisition Co (5) Limited, Jemma McAndrew and Richard Stanley
and ARC EEMTRUK001, LLC.
Facility Letter, dated June 7, 2013, by and between ARC EEMTRUK001, LLC and Santander UK plc.
Agreement for Sale of 1, 2 and 3 Walnut Court, Kembrey Park, Swindon SN2 8BW.
Facility Letter, dated July 19, 2013, by and between ARC TWSWDUK001, LLC and Santander UK plc.
Agreement for the Sale of Land Lying to the North West of Reginald Mitchell Way, Tunstall, dated July 23, 2013, by and among (1) St James
Place UK PLC and ARC WKSOTUK001, LLC.
Facility Letter, dated July 22, 2013, by and between ARC WKSOTUK001, LLC and Santander UK plc.
Credit Agreement, dated as of July 25, 2013, by and among American Realty Capital Global Partnership, L.P., JPMorgan Chase Bank, N.A.,
and the lenders and agents party thereto.
Agreement for Purchase and Sale of Real Property, dated as of August 19, 2013, by and between AR Capital, LLC and Alliance HSP Fort
Washington Office I Limited Partnership.
Agreement for Purchase and Sale of Real Property, dated as of August 24, 2013, by and between AR Capital, LLC and Stein Family, LLC
10.16 (4)
Agreement related to the sale and leaseback of Solar House, dated 4 th September, 2013, by Northern Rock (Asset Management) PLC and
ARC NRSLDUK001, LLC.
10.17 (4)
First Amendment to Agreement for Purchase and Sale of Real Property dated as of September 10, 2013, by and between Alliance AR Capital,
LLC and Alliance HSP Fort Washington Office I Limited Partnership.
10.18 (4)
Facility Letter, dated September 4, 2013, by and between ARC NRSLDUK001, LLC and Santander UK plc.
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Table of Contents
Exhibit No.
Description
10.19 (5)
10.20 (6)
10.21 (6)
10.22 (6)
10.23 (6)
10.24 (7)
10.25 (7)
10.26 (7)
10.27 (7)
10.28 (7)
10.29 (7)
10.30 (7)
10.31 (7)
10.32 (7)
10.33 (8)
10.34 (8)
10.35*
10.36 *
10.37*
10.38 (13)
10.39 (13)
10.40 (13)
Purchase and Sale Agreement by and among ARC PADRBPA001, LLC and AR Capital, LLC and the sellers described on schedules thereto,
dated as of July 24, 2013.
Agreement for Purchase and Sale of Real Property, dated September 3, 2013, by and between AR Capital, LLC and Towers Partners, L.L.C.
Amendment to Agreement for Purchase and Sale of Real Property, dated September 9, 2013 by and between AR Capital, LLC and Towers
Partners, LLC.
Agreement to Assign Agreements of Sale, dated November 12, 2013, by and between Setzer Properties XCW, LLC and AR Capital, LLC.
Agreement for Purchase and Sale of Real Property, dated December 3, 2013, by and between AR Capital, LLC and 3W Development II,
L.L.C.
Sale and purchase agreement, dated November 19, 2013, between Axiom Asset 1 GmbH & Co. KG and ARC RMNUSBER01, LLC.
Agreement for lease, dated December 24, 2013, between Coolatinney Developments Limited and ARC PFBFDUK001, LLC.
Sale and purchase agreement, dated December 31, 2013, among Crown Crest Property Developments Limited, ARC CCLTRUK001, LLC,
Crown Crest (Leicester) Plc and Crown Crest Group Limited and Poundstretcher Limited.
Sale and purchase agreement, dated January 21, 2014, between Holaw (472) Limited and ARC ALSFDUK001, LLC.
Loan Agreement, dated February 5, 2014, between ARC RMNUSGER01 LLC and Deutsche Pfandbriefbank AG.
Facility Letter, dated January 30, 2014, between Santander UK Plc and ARC PFBDUK001, LLC.
Facility Letter, dated February 13, 2014, between Santander UK Plc and ARC CCLTRUK001, LLC.
Facility Agreement, dated March 7, 2014, among ARC ALSFDUK001, LLC, Royal Bank of Scotland International Limited and the other
parties named therein.
Omnibus Amendment to Loan Documents, dated as of March 26, 2014, among American Realty Capital Global Partnership, L.P., JPMorgan
Chase Bank, N.A., and the lenders and agents party thereto.
Agreement for Purchase and Sale of Real Property, dated April 29, 2014, between AR Capital, LLC and Mesa Real Estate Partners, L.P.
Third Amendment to Credit Agreement, dated as of June 24, 2014, among American Realty Capital Global Operating Partnership, the
Company, ARC Global Holdco, LLC, JPMorgan Chase Bank, N.A. and the other parties named thereto.
Fourth Amendment to Credit Agreement, dated as of July 29, 2014, among American Realty Capital Global Operating Partnership, the
Company, ARC Global Holdco, LLC, JPMorgan Chase Bank, N.A. and the other parties named thereto.
Fifth Amendment to Credit Agreement, dated as of October 16, 2014, among American Realty Capital Global Operating Partnership, the
Company, ARC Global Holdco, LLC, JPMorgan Chase Bank, N.A. and the other parties named thereto.
Sixth Amendment to Credit Agreement, dated as of December 16, 2014, among American Realty Capital Global Trust, Operating Partnership,
the Company, ARC Holdco. LLC. JPMorgan Chase Bank, N.A. and the other parties named thereto.
Seventh Amendment to Credit Agreement, dated June 1, 2015, among Global Net Lease Operating Partnership, L.P., Global Net Lease, Inc.,
ARC Global Holdco, LLC, the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative
agent for the lenders.
Contribution and Exchange Agreement, dated June 2, 2015, between Global Net Lease Operating Partnership, L.P. and Global Net Lease
Advisors, LLC.
Listing Note Agreement, dated June 2, 2015, between Global Net Lease Operating Partnership, L.P. and Global Net Lease Special Limited
Partner, LLC.
10.41*
Second Amended and Restated 2015 Advisor Multi-Year Outperformance Agreement, dated February 25, 2016, among Global Net Lease,
Inc., Global Net Lease Operating Partnership, L.P. and Global Net Lease Advisors, LLC.
10.42 (15)
Indemnification Agreement, dated June 2, 2015, among Global Net Lease, Inc., Scott J. Bowman, Peter M. Budko, Patrick J. Goulding,
William M. Kahane, P. Sue Perrotty, Nicholas Radesca, Edward G. Rendell, Nicholas S. Schorsch, Abby M. Wenzel, Andrew Winer,
Edward M. Weil, Jr., Global Net Lease Advisors, LLC, AR Capital, LLC and RCS Capital Corporation.
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Table of Contents
Exhibit No.
Description
10.43 (16)
Eighth Amendment to Credit Agreement, dated as of August 24, 2015, among Global Net Lease Operating Partnership, L.P., Global Net
Lease, Inc., ARC Global Holdco, LLC, the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent for the lenders.
10.44 *
Indemnification Agreement between the Company and Timothy Salvemini, dated as of December 22, 2015.
14.1*
21.1*
16.1 (9)
31.1 *
Amended and Restated Code of Business Conduct and Ethics
List of Subsidiaries
Letter from Grant Thornton LLP to the Securities and Exchange Commission dated January 20, 2015.
Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *
Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 *
Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1 *
XBRL (eXtensible Business Reporting Language). The following materials from Global Net Lease, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 2015, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations,
(iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Changes in Equity, (v) the
Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.
___________________________________________
Filed herewith
Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 11, 2013.
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 filed with the SEC on May 10, 2013.
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 filed with the SEC on August 13, 2013.
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 filed with the SEC on November 13, 2013.
Filed as an exhibit to our Current Report on Form 8-K/A filed with the SEC on January 3, 2014.
Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 7, 2014.
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 30, 2014 filed with the SEC on May 15, 2014.
Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 filed with the SEC on August 11, 2014.
Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 20, 2015.
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10) Filed as an exhibit to our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on April 3, 2015.
(11) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on April 9, 2015.
(12) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on May 6, 2015.
(13) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 2, 2015.
(14) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on June 3, 2015.
(15) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 10, 2015.
(16) Filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 filed with the SEC on November 10, 2015.
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized this 29th day of February, 2016 .
GLOBAL NET LEASE, INC.
By:
/s/ Scott J. Bowman
Scott J. Bowman
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Capacity
Date
/s/ P. Sue Perrotty
P. Sue Perrotty
/s/ William M. Kahane
William M. Kahane
/s/ Scott J. Bowman
Scott J. Bowman
Non-Executive Chair of the Board of Directors, Audit Committee Chair
February 29, 2016
Director
February 29, 2016
Chief Executive Officer and President
(Principal Executive Officer)
February 29, 2016
/s/ Timothy Salvemini
Timothy Salvemini
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
February 29, 2016
/s/ Edward G. Rendell
Independent Director
February 29, 2016
Edward G. Rendell
/s/ Abby M. Wenzel
Independent Director
February 29, 2016
Abby M. Wenzel
74
GLOBAL NET LEASE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule III — Real Estate and Accumulated Depreciation
Page
F-2
F-4
F-5
F-6
F-7
F-8
F-10
F-42
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes
thereto, or because the conditions requiring their filing do not exist.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Global Net Lease, Inc.:
In our opinion, the accompanying consolidated balance sheets as of December 31, 2015 and 2014 , and the related consolidated statements of operations,
comprehensive income (loss), changes in equity, and cash flows for the years then ended present fairly, in all material respects, the financial position of Global Net
Lease, Inc. and its subsidiaries as of December 31, 2015 and 2014 , and the results of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index for the years ended December 31, 2015 and 2014 presents fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2015 , based on criteria established in Internal
Control
-
Integrated
Framework
(2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Annual Reporting on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our audits (which was an
integrated audit in 2015). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 29, 2016
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Global Net Lease, Inc.
We have audited the accompanying consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows of Global Net
Lease, Inc. (a Maryland corporation) and subsidiaries (the “Company”) for the year ended December 31, 2013. Our audit of the basic consolidated financial
statements included the financial statement schedule listed in the accompanying index. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Global
Net Lease, Inc. and subsidiaries for the year ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 7, 2014
F-3
GLOBAL NET LEASE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Real estate investments, at cost:
Land
Buildings, fixtures and improvements
Construction in progress
Acquired intangible lease assets
Total real estate investments, at cost
Less accumulated depreciation and amortization
Total real estate investments, net
Cash and cash equivalents
Restricted cash
Derivatives, at fair value ( Note 8 )
Investment securities, at fair value
Prepaid expenses and other assets
Due from affiliates
Deferred tax assets
Goodwill and other intangible assets, net
Deferred financing costs, net
Total assets
LIABILITIES AND EQUITY
Mortgage notes payable
Mortgage premium, net
Credit facility
Below-market lease liabilities, net
Derivatives, at fair value ( Note 8 )
Listing note, at fair value ( Note 6 )
Due to affiliates
Accounts payable and accrued expenses
Prepaid rent
Taxes payable
Deferred tax liability
Dividends payable
Total liabilities
Commitments and contingencies ( Note 10 )
Equity:
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding at December 31, 2015 and
December 31, 2014
Common stock, $0.01 par value, 300,000,000 shares authorized, 168,936,633 and 177,933,175 shares issued and
outstanding at December 31, 2015 and December 31, 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Non-controlling interest
Total equity
Total liabilities and equity
$
$
$
December 31,
2015
2014
341,911 $
1,685,919
180
518,294
2,546,304
(133,329)
2,412,975
69,938
3,319
5,812
—
38,393
136
2,552
2,988
11,855
2,547,968 $
531,708 $
676
717,286
27,978
6,028
—
399
18,659
15,491
5,201
4,016
407
326,696
1,519,558
9,706
484,079
2,340,039
(42,568)
2,297,471
64,684
6,104
13,638
490
24,873
500
2,102
3,665
15,270
2,428,797
281,186
1,165
659,268
21,676
6,115
—
400
14,791
12,252
901
3,665
10,709
1,327,849
1,012,128
—
—
1,692
1,480,162
(3,649)
(272,812)
1,205,393
14,726
1,220,119
$
2,547,968 $
1,782
1,575,592
(5,589)
(155,116)
1,416,669
—
1,416,669
2,428,797
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-4
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Year Ended December 31,
2015
2014
2013
$
194,620 $
10,712
205,332
88,158 $
5,225
93,383
Revenue:
Rental income
Operating expense reimbursements
Total revenues
Expenses:
Property operating
Operating fees to affiliates
Acquisition and transaction related
Listing fees
Vesting of Class B units
Change in fair value of listing note
General and administrative
Equity based compensation
Depreciation and amortization
Total expenses
Operating income (loss)
Other income (expense):
Interest expense
Income from investments
(Losses) gains on foreign currency
Realized losses on investment securities
Gains on derivative instruments
Gains on hedges and derivatives deemed ineffective
Unrealized losses on non-functional foreign currency advances not
designated as net investment hedges
Other income
Total other expense, net
Net income (loss) before income taxes
Income taxes (expense) benefit
Net loss
Non-controlling interest
Net loss attributable to stockholders
Basic and Diluted Earnings Per Share:
Basic and diluted net loss per share attributable to stockholders
Basic and diluted weighted average shares outstanding
$
$
3,900
51
3,951
42
50
7,745
—
—
—
58
—
2,112
10,007
(6,056)
(969)
—
35
—
—
—
—
1
(933)
(6,989)
—
(6,989)
—
(6,989)
18,180
15,167
6,053
18,653
14,480
—
7,175
2,345
90,070
172,123
33,209
7,947
797
83,498
—
—
—
4,314
—
40,387
136,943
(43,560)
(34,864)
(14,852)
15
—
(66)
3,935
5,124
(3,558)
79
(29,335)
3,874
(5,889)
(2,015)
(50)
14
(186)
—
1,881
1,387
—
291
(11,465)
(55,025)
1,431
(53,594)
—
(2,065) $
(53,594) $
(0.01) $
(0.43) $
174,309,894
126,079,369
(1.28)
5,453,404
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-5
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except share and per share data)
Net loss
$
(2,015) $
(53,594) $
(6,989)
Year Ended December 31,
2015
2014
2013
Other comprehensive income (loss)
Cumulative translation adjustment
Designated derivatives, fair value adjustments
Other comprehensive income (loss)
Comprehensive loss
Amounts attributable to non-controlling interest
Net income
Cumulative translation adjustment
Designated derivatives, fair value adjustments
Comprehensive loss attributable to non-controlling interest
Comprehensive loss attributable to stockholders
(5,169)
6,982
1,813
(11,990)
6,082
(5,908)
$
(202) $
(59,502) $
50
(197)
70
(77)
—
—
—
—
2,140
(1,778)
362
(6,627)
—
—
—
—
$
F-6
(279) $
(59,502) $
(6,627)
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
Common Stock
Number of
Shares
Par
Value
Additional
Paid-in
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders'
Equity
Non-
controlling
interest
Total Equity
256,500 $
3 $
(311) $
15,261,350
153
150,484
$
(43)
—
(445) $
—
(796) $
150,637
— $
—
(796)
150,637
Balance, December 31, 2012
Issuance of common stock
Common stock offering costs,
commissions and dealer manager
fees
Common stock issued through
dividend reinvestment plan
Common stock repurchases
Share-based compensation
Dividends declared
Net loss
Cumulative translation adjustment
Designated derivatives, fair value
adjustments
Balance, December 31, 2013
Issuance of common stock
Common stock offering costs,
commissions and dealer manager
fees
Common stock issued through
dividend reinvestment plan
Common stock repurchases
Share-based compensation
Amortization of restricted shares
Dividends declared
Net loss
Cumulative translation adjustment
Designated derivatives, fair value
adjustments
Balance, December 31, 2014
Issuance of common stock
Common stock offering costs,
commissions and dealer manager
fees
Common stock repurchases, inclusive
of fees
Common stock issued through
dividend reinvestment plan
Dividends declared
Issuance of operating partnership
units
Vesting of Class B units
Equity-based compensation
Distributions to non-controlling
interest holders
Net loss
Cumulative translation adjustment
Designated derivatives, fair value
adjustments
Rebalancing of ownership percentage
Balance, December 31, 2015
—
138,977
—
9,000
—
—
—
—
—
1
—
—
—
—
—
—
15,665,827 $ 157 $
157,635,481
1,579
(17,924)
1,319
—
24
—
—
—
—
133,592 $
1,565,738
—
—
(167,693)
4,721,780
(99,969)
10,056
—
—
—
—
47
(1)
—
—
—
—
—
44,839
(990)
10
96
—
—
—
—
—
177,933,175 $1,782 $ 1,575,592 $
—
37,407
420
—
—
—
49
(12,039,885)
(120)
(126,202)
3,005,936
—
—
—
—
—
—
—
30
—
—
—
—
—
—
—
28,548
—
—
—
181
—
—
—
—
—
—
—
168,936,633 $1,692 $ 1,480,162 $
—
1,574
—
—
—
—
—
—
—
(17,924)
—
—
—
(3,914)
(6,989)
—
1,320
—
24
(3,914)
(6,989)
—
362
$
319
—
—
(11,348) $
—
362
122,720 $
1,567,317
—
(167,693)
—
—
—
—
—
—
—
(11,990)
6,082
—
—
—
—
(90,174)
(53,594)
—
—
(5,589)
$
(155,116) $
—
—
—
—
—
—
—
—
—
—
(4,972)
6,912
—
—
—
—
—
(115,631)
—
—
—
—
(2,065)
—
—
—
(3,649)
$
(272,812) $
44,886
(991)
10
96
(90,174)
(53,594)
(11,990)
6,082
1,416,669 $
420
49
(126,322)
28,578
(115,631)
—
—
181
—
(2,065)
(4,972)
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
(17,924)
1,320
—
24
(3,914)
(6,989)
—
362
122,720
1,567,317
(167,693)
44,886
(991)
10
96
(90,174)
(53,594)
(11,990)
—
6,082
— $ 1,416,669
—
420
—
—
—
—
750
14,480
2,164
(1,017)
50
(197)
49
(126,322)
28,578
(115,631)
750
14,480
2,345
(1,017)
(2,015)
(5,169)
6,912
1,574
1,205,393 $
6,982
70
(1,574)
—
14,726 $ 1,220,119
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-7
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation
Amortization of intangibles
Amortization of deferred financing costs
Amortization of mortgage premium
Amortization of below-market lease liabilities
Amortization of above-market lease assets
Amortization of above- and below- market ground lease assets
Unbilled straight line rent
Vesting of Class B units
Equity based compensation
Net realized and unrealized marked-to-market transactions
Change in fair value of listing note
Loss on sale of investment in securities
Changes in assets and liabilities:
Prepaid expenses and other assets
Deferred tax assets
Accounts payable and accrued expenses
Prepaid rent
Deferred tax liability
Taxes payable
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Investment in real estate and real estate related assets
Deposits for real estate acquisitions
Proceeds from termination of derivatives
Capital expenditures
Purchase of investment securities
Proceeds from redemption of investment securities
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under credit facility
Repayments on credit facility
Proceeds from notes payable
Payments on notes payable
Proceeds from mortgage notes payable
Payments on mortgage notes payable
Proceeds from issuance of common stock
Proceeds from issuance of operating partnership units
Payments of offering costs
Payments of deferred financing costs
Dividends paid
Distributions to non-controlling interest holders
Payments on common stock repurchases, inclusive of fees
Payments on share repurchases related to Tender Offer
Advances from affiliates, net
Restricted cash
Year Ended December 31,
2015
2014
2013
$
(2,015) $
(53,594) $
(6,989)
47,649
42,421
8,527
(489)
(2,134)
2,315
71
(14,809)
14,480
2,345
(8,903)
—
66
31
(450)
4,859
3,239
(249)
5,201
102,155
20,856
19,531
3,753
(498)
(1,085)
1,085
32
(8,679)
—
106
(3,272)
—
—
(11,965)
(2,102)
11,183
10,390
3,665
901
(9,693)
837
1,275
250
(1)
(29)
—
—
(172)
—
24
—
—
—
(1,647)
—
1,888
917
—
—
(3,647)
(223,075)
(1,507,072)
(110,026)
773
10,055
(10,495)
—
463
(775)
—
(8,838)
(490)
—
(1,474)
—
—
—
—
(222,279)
(1,517,175)
(111,500)
476,208
(373,167)
—
—
245,483
(721)
420
750
49
(4,881)
(97,730)
(642)
(2,313)
(125,000)
363
2,785
258,500
(18,500)
12,505
(12,505)
—
(135)
—
—
—
—
—
—
1,569,082
148,871
—
(168,270)
(16,888)
(35,415)
—
—
—
(100)
(5,367)
—
(18,770)
(2,345)
(1,769)
—
—
—
(1,041)
(737)
Net cash provided by financing activities
Net change in cash and cash equivalents
Effect of exchange rate changes on cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
121,604
1,582,907
124,209
1,480
3,774
64,684
56,039
(2,855)
11,500
9,062
2,176
262
$
69,938 $
64,684 $
11,500
F-8
GLOBAL NET LEASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Supplemental Disclosures:
Cash paid for interest
Cash paid for income taxes
Non-Cash Investing and Financing Activities:
Mortgage notes payable assumed or used to acquire investments in real estate
Premium on mortgage note payable
Borrowings under line of credit to acquire real estate
Common stock issued through dividend reinvestment plan
Year Ended December 31,
2015
2014
2013
$
$
24,625 $
6,540 $
1,589
—
31,933 $
217,791 $
—
—
28,578
—
446,558
44,886
218
—
75,651
1,664
—
1,320
The
accompanying
notes
are
an
integral
part
of
these
consolidated
financial
statements.
F-9
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Note 1 — Organization
Global Net Lease, Inc. (the "Company"), formerly known as American Realty Capital Global Trust, Inc., incorporated on July 13, 2011, is a Maryland
corporation that elected and qualified to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with our taxable year
ended December 31, 2013.
The Company was formed to primarily acquire a diversified portfolio of commercial properties, with an emphasis on sale-leaseback transactions involving
single tenant net-leased commercial properties. The Company may also originate or acquire first mortgage loans secured by real estate. Based on original purchase
price, 60.4% of our properties are located in the U.S. and the Commonwealth of Puerto Rico and 39.6% are in Europe. As of December 31, 2015 , we have not
invested in any bridge loans, mezzanine loans, preferred equity or securitized loans.
On June 30, 2014 , the Company completed its initial public offering ("IPO") after selling 172.3 million shares of common stock, 0.01 par value per share
("Common Stock"), at a price of 10.00 per share, subject to certain volume and other discounts. In addition, the Company issued an additional 1.1 million shares
pursuant to its dividend reinvestment plan (the "DRIP"). On April 7, 2015 , in anticipation of the listing of the Common Stock (the "Listing") on the New York
Stock Exchange (the "NYSE"), the Company announced the suspension of the DRIP. On May 7, 2015, the Company filed a post-effective amendment to its
Registration statement on Form S-11 (File No. 001-37390) (as amended, the "Registration Statement") to deregister the unsold shares registered under the
Registration Statement.
The Company operated as a non-traded REIT through June 1, 2015 . On June 2, 2015 (the "Listing Date"), the Company listed its Common Stock on the
NYSE under the symbol "GNL". In connection with the Listing, the Company offered to purchase up to 11.9 million shares of its Common Stock at a price of
$10.50 per share (the “Tender Offer”). As a result of the Tender Offer, on July 6, 2015 , the Company purchased approximately 11.9 million shares of its Common
Stock at a price of $10.50 per share, for an aggregate amount of $125.0 million , excluding fees and expenses relating to the Tender Offer and including fractional
shares repurchased thereafter.
As of December 31, 2015 , the Company owned 329 properties (all references to number of properties and square footage are unaudited) consisting of 18.7
million rentable square feet, which were 100% leased, with a weighted average remaining lease term of 11.3 years.
Substantially all of the Company's business is conducted through Global Net Lease Operating Partnership, L.P. (the "OP"), a Delaware limited partnership. As
of December 31, 2015 , the OP had issued 1,809,678 units of limited partner interests ("OP Units") to limited partners other than the Company, of which 1,461,753
OP Units were issued to Global Net Lease Advisors, LLC (the "Advisor"), 347,903 OP Units were issued to Moor Park Capital Partners LLP (the "Service
Provider"), and 22 OP Units were issued to Global Net Lease Special Limited Partner, LLC (the "Special Limited Partner") (see Note 11 — Related Party
Transactions). In accordance with the limited partnership agreement of the OP, a holder of OP Units has the right to convert OP Units for a corresponding number
of shares of the Company's Common Stock or the cash value of those corresponding shares, at the Company's option. The remaining rights of the limited partner
interests are limited and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets.
The Company has no direct employees. The Company has retained the Advisor to manage the Company's affairs on a day-to-day basis. The properties are
managed and leased by Global Net Lease Properties, LLC (the "Property Manager"). The Advisor, Property Manager and Special Limited Partner are under
common control with the parent of AR Capital Global Holdings, LLC (the "Sponsor"), as a result of which they are related parties. These related parties receive
compensation and fees for various services provided to the Company. The Advisor has entered into a service provider agreement with the Service Provider,
pursuant to which the Service Provider provides, subject to the Advisor's oversight, certain real estate related services, as well as sourcing and structuring of
investment opportunities, performance of due diligence, and arranging debt financing and equity investment syndicates, solely with respect to investments in
Europe. Realty Capital Securities, (the "Former Dealer Manager") served as the dealer manager of the IPO, which was ongoing from October 2012 to June 2014
and, together with its affiliates, continued to provide the Company with various services through December 31, 2015 . RCS Capital Corporation, the parent
company of the Former Dealer Manager and certain of its affiliates that provided services to the Company, filed for Chapter 11 bankruptcy protection in January
2016, prior to which it was also under common control with AR Global, the parent of the Sponsor.
Note 2 — Summary of Significant Accounting Policies
Basis
of
Accounting
The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
F-10
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Principles
of
Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been
eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the
accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of
the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary. As of December 31, 2015
, the Company does not have any investments in variable interest entities ("VIE").
Use
of
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, purchase
price allocations to record investments in real estate, real estate taxes, income taxes, derivative financial instruments, hedging activities, equity-based compensation
expenses related to a Multi-Year Outperformance Agreement (the “OPP”) and fair value measurements, as applicable.
Offering
and
Related
Costs
Offering and related costs include all expenses incurred in connection with the Company's IPO. Offering costs (other than selling commissions and the Former
Dealer Manager fees) include costs have been paid by the Advisor, the Former Dealer Manager or their affiliates on the Company's behalf. These costs include but
are not limited to (i) legal, accounting, printing, mailing, and filing fees; (ii) escrow service related fees; (iii) reimbursement of the Former Dealer Manager for
amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; and (iv) reimbursement to the Advisor for a portion of the costs of its
employees and other costs in connection with preparing supplemental sales materials and related offering activities. The Company is obligated to reimburse the
Advisor or its affiliates, as applicable, for organization and offering costs paid by them on the Company's behalf, provided that the Advisor is obligated to
reimburse us to the extent organization and offering costs (excluding selling commissions and the Former Dealer Manager fee) incurred by the Company in its
offering exceed 1.5% of gross offering proceeds in the IPO. As a result, these costs are only our liability to the extent aggregate selling commissions, the dealer
manager fee and other organization and offering costs do not exceed 11.5% of the gross proceeds determined at the end of the IPO.
Revenue
Recognition
The Company's revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease
reported on a straight-line basis over the initial term of the lease. Because many of the Company's leases provide for rental increases at specified intervals, straight-
line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that the Company will only receive if the
tenant makes all rent payments required through the expiration of the initial term of the lease. When the Company acquires a property, the acquisition date is
considered to be the commencement date for purposes of this calculation.
As of December 31, 2015 and 2014 , the Company included unbilled cumulative straight line rents receivable in Prepaid expenses and other assets in the
consolidated balance sheets of $23.1 million and $8.7 million , respectively. As of December 31, 2015 and 2014 , the Company’s rental revenue included impacts
of unbilled rental revenue of $14.5 million and $8.5 million , respectively, to adjust contractual rent to straight line rent.
The Company continually reviews receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the
tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area
in which the property is located. In the event that the collectability of a receivable is in doubt, the Company records an increase in the Company's allowance for
uncollectible accounts or records a direct write-off of the receivable in the Company's consolidated statements of operations.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Investments
in
Real
Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs
and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings,
15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold
interests.
F-11
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The Company evaluates the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition.
If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations. If an
acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired
assets.
In business combinations, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities and non-
controlling interests based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements.
Intangible assets or liabilities may include the value of in-place leases, above- and below- market leases and other identifiable assets or liabilities based on lease or
property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests are recorded at
their estimated fair values.
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows,
which is calculated to account for either above or below-market interest rates.
Disposal of real estate investments that represent a strategic shift in operations that will have a major effect on the Company's operations and financial results
are required to be presented as discontinued operations in the consolidated statements of operations. Properties that are intended to be sold are to be designated as
“held for sale” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be
presented as held for sale. Properties are no longer depreciated when they are classified as held for sale. The Company didn't have any properties held for sale as of
December 31, 2015 and 2014 .
The Company evaluates the lease accounting for each new property acquired with existing or new lease and reviews for any capital lease criteria. A lease is
classified by a tenant as a capital lease if the significant risks and rewards of ownership are considered to reside with the tenant. This situation is generally
considered to be met if, among other things, the non-cancelable lease term is more than 75% of the useful life of the asset or if the present value of the minimum
lease payments equals 90% or more of the leased property’s fair value at lease inception.
Depreciation
and
Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five
years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-
market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option
periods.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases.
Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and
expected below-market renewal option periods.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of
the respective leases.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Impairment
of
Long
Lived
Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on
an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates
consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand,
competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that
the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the
adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss
results in an immediate negative adjustment to net income (loss).
F-12
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Purchase
Price
Allocation
The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values.
Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates,
processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals,
comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost
segregation studies performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable
intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer
relationships, as applicable.
Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property,
taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance
and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from 12 to 18 months . The
Company also estimates costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the
risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s
estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases
and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases. The capitalized above-market lease values are
amortized as a reduction of base rental revenue over the remaining terms of the respective leases, and the capitalized below-market lease values are amortized as an
increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. If a tenant
with a below market rent renewal does not renew, any remaining unamortized amount will be taken into income at that time.
The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific
characteristics of each tenant’s lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these
values include the nature and extent of its existing business relationships with the tenant, growth prospects for developing new business with the tenant, the
tenant’s credit quality and expectations of lease renewals, among other factors.
The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event
does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of
the in-place lease value and customer relationship intangibles is charged to expense.
In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that
may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information
obtained about each property as a result of the Company's pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired
and intangible liabilities assumed.
F-13
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Intangible assets and acquired lease liabilities consist of following:
(In
thousands)
Intangible assets:
December 31,
2015
2014
In-place leases, net of accumulated amortization of $61,857 and $20,131 at December 31, 2015 and 2014,
respectively
$
426,434 $
435,684
Above-market leases, net of accumulated amortization of $3,279 and $1,086 at December 31, 2015 and 2014,
respectively
Below-market ground leases, net of accumulated amortization of $115 and $32 at December 31, 2015, and 2014,
respectively
Total intangible lease assets, net
Intangible liabilities:
Below-market leases, net of accumulated amortization of $3,296 and $1,211 at December 31, 2015 and 2014,
respectively
Above-market ground leases, net of accumulated amortization of $15 and $0 at December 31, 2015 and 2014,
respectively
Total intangible lease liabilities, net
22,322
26,329
4,287
453,043 $
817
462,830
25,984 $
1,994 $
27,978 $
21,676
—
21,676
$
$
$
The following table provides the weighted-average amortization periods as of December 31, 2015 for intangible assets and liabilities and the projected
amortization expense and adjustments to revenues and property operating expense for the next five calendar years:
(In
thousands)
In-place leases
Total to be included in depreciation and amortization
Above-market lease assets
Below-market lease liabilities
Total to be included in rental income
Below-market ground lease assets
Above-market ground lease liabilities
Total to be included in property operating expense
Goodwill
Weighted-
Average
Amortization
Years
10.4
10.5
11.5
29.2
33.7
2016
2017
2018
2019
$
$
44,665 $
44,665 $
44,665 $
44,665 $
44,665 $
44,665 $
44,665 $
44,665 $
2020
44,505
44,505
$
2,271 $
2,271 $
2,271 $
2,271 $
2,271
(2,527)
(2,527)
(2,527)
(2,527)
$
(256) $
(256) $
(256) $
(256) $
$
195 $
195 $
195 $
195 $
(59)
(59)
(59)
(59)
$
136 $
136
$
136 $
136 $
(2,502)
(231)
195
(59)
136
We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event. A triggering event is an event or circumstance
that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We performed a qualitative assessment to determine whether it
is more likely than not that the fair value of the reporting unit is less than its carrying value. Based on our assessment we determined that the goodwill is not
impaired as of December 31, 2015 and no further analysis is required.
Cash
and
Cash
Equivalents
Cash and cash equivalents includes cash in bank accounts as well as investments in highly-liquid money market funds with original maturities of three months
or less. The Company deposits cash with high quality financial institutions. Deposits in the United States and other countries where we have deposits are
guaranteed by the Federal Deposit Insurance Company ("FDIC") in the United States, Financial Services Compensation Scheme ("FSCS") in the United Kingdom,
Duchy Deposit Guarantee Scheme ("DDGS") in Luxembourg and by similar agencies in the other countries, up to insurance limits. The Company had deposits in
the United States, United Kingdom, Luxembourg, Germany, Finland and The Netherlands totaling $69.9 million at December 31, 2015 , of which $40.3 million ,
$11.4 million and $11.7 million are currently in excess of amounts insured by the FDIC, FSCS and European equivalent deposit insurance companies including
DDGS, respectively. At December 31, 2014 , the Company had deposits in the United States, United Kingdom, Luxembourg, Germany, Finland and The
Netherlands totaling $64.7 million , of which $37.8
F-14
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
million , $13.5 million and $7.1 million were in excess of the amount insured by the FDIC, FSCS and European equivalent deposit insurance companies including
DDGS, respectively. Although the Company bears risk to amounts in excess of those insured, it does not anticipate any losses as a result.
Restricted
Cash
Restricted cash primarily consists of debt service and real estate tax reserves. The Company had restricted cash of $3.3 million and $6.1 million as of
December 31, 2015 and 2014 , respectively.
Deferred
Costs,
Net
Deferred costs, net consists of deferred financing costs. Deferred financing costs represent commitment fees, legal fees, and other costs associated with
obtaining commitments for financing. These costs are amortized over the terms of the respective financing agreements using the effective interest method.
Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial
transactions that do not close are expensed in the period in which it is determined that the financing will not close.
Share
Repurchase
Program
Prior to April 7, 2015 , the Company had in place a Share Repurchase Program ("SRP), providing for limited repurchases of the Company's Common Stock.
On April 7, 2015 , the Company's board of directors approved the termination of the Company’s SRP.
The Company accounts for the purchase of capital stock under a method that is consistent with Maryland law (the state of Company's domicile), which does
not contemplate treasury stock. Any capital stock reacquired for any purpose is recorded as a reduction of common stock (at $0.01 par value per share) and an
increase in accumulated deficit.
Dividend
Reinvestment
Plan
Prior to April 7, 2015 , the Company had in place a DRIP, providing for reinvestment of dividends in the Company's Common Stock. On April 7, 2015 , the
Company suspended the DRIP. The final issuance of shares of Common Stock pursuant to the DRIP was made in May 2015 in connection with the Company's
April 2015 dividend. Shares issued under the DRIP were recorded to equity in the accompanying consolidated balance sheets in the period dividends were
declared.
Derivative
Instruments
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge
all or a portion of the interest rate risk associated with its borrowings. Certain of the Company's foreign operations expose the Company to fluctuations of foreign
interest rates and exchange rates. These fluctuations may impact the value of the Company's cash receipts and payments in the Company's functional currency, the
U.S. dollar. The Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional
currency.
The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on
the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the
hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in
the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives
designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow
hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally
provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The
Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the
Company elects not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting
treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately
in gains (losses) on derivative instruments in the consolidated statements of operations. If the derivative is designated and qualifies for hedge accounting treatment
the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income
(loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.
F-15
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Share-Based
Compensation
The Company has a stock-based incentive award plan for its directors, which is accounted for under the guidance for employee share based payments. The
cost of services received in exchange for a stock award is measured at the grant date fair value of the award and the expense for such awards is included in equity
based compensation on consolidated statements of operations and is recognized over the vesting period or when the requirements for exercise of the award have
been met (see Note 13 — Share-Based Compensation).
Income
Taxes
The Company qualified to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), beginning
with the taxable year ended December 31, 2013. Commencing with such taxable year, the Company was organized to operate in such a manner as to qualify for
taxation as a REIT under the Code. The Company intends to continue to operate in such a manner to continue to qualify for taxation as a REIT, but no assurance
can be given that it will operate in a manner so as to remain qualified as a REIT. As a REIT, the Company generally will not be subject to federal corporate income
tax to the extent it distributes at least 90% of its REIT taxable income to its stockholders. REIT's are subject to a number of other organizational and operational
requirements. We conduct business in various states and municipalities within the United States (including Puerto Rico), United Kingdom and continental Europe
and, as a result, the Company or one of its subsidiaries file income tax returns in the United States federal jurisdiction and various state and certain foreign
jurisdictions. As a result, the Company may be subject to certain federal, state, local and foreign taxes on our income and assets, including alternative minimum
taxes, taxes on any undistributed income and state, local or foreign income, franchise, property and transfer taxes. Any of these taxes decrease Company's earnings
and available cash.
In addition, Company's international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded
entities of a REIT, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.During the period
from July 13, 2011 (date of inception) to December 31, 2012, the Company elected to be taxed as a corporation, pursuant to which income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial
statement carrying amounts and income tax basis of assets and liabilities and the expected benefits of utilizing net operating loss and tax credit carryforwards,
using expected tax rates in effect for each taxing jurisdiction in which the Company operates for the year in which those temporary differences are expected to be
recovered or settled. The Company recognizes the financial statement effects of a tax position when it is more-likely-than-not, based on technical merits, that the
position will be sustained upon examination. Because, the Company elected and qualified to be taxed as a REIT commencing with the taxable year ended
December 31, 2013, it did not anticipate that any applicable deferred tax assets or liabilities will be realized.
Significant judgment is required in determining our tax provision and in evaluating our tax positions. The Company establishes tax reserves based on a benefit
recognition model, which the Company believes could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain
circumstances. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is
greater than 50 percent likely of being ultimately realized upon settlement. The Company derecognizes the tax position when it is no longer more likely than not of
being sustained.
The Company recognizes deferred income taxes in certain of its subsidiaries taxable in the United States or in foreign jurisdictions. Deferred income taxes are
generally the result of temporary differences (items that are treated differently for tax purposes than for U.S. GAAP purposes). In addition, deferred tax assets arise
from unutilized tax net operating losses, generated in prior years. The Company provides a valuation allowance against its deferred income tax assets when it
believes that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a
change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred
income tax expense (benefit).
The Company derives most of its REIT income from its real estate operations in the United States. As such, the Company's real estate operations are generally
not subject to federal tax, and accordingly, no provision has been made for U.S. federal income taxes in the consolidated financial statements for these operations.
These operations may be subject to certain state, local, and foreign taxes, as applicable.
•
Basis differences between tax and U.S. GAAP for certain international real estate investments. For income tax purposes, in certain acquisitions, the
Company assumes the seller’s basis, or the carry-over basis, in the acquired assets. The carry-over basis is typically lower than the purchase price, or the
U.S. GAAP basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets;
F-16
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
•
•
Timing differences generated by differences in the U.S. GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs and
depreciation expense; and
Tax net operating losses in certain subsidiaries, including those domiciled in foreign jurisdictions, that may be realized in future periods if the respective
subsidiary generates sufficient taxable income.
The Company’s current income tax provision for the years ended December 31, 2015 and 2014 was $5.1 million and $0.7 million , respectively. The
Company’s deferred income tax provision (benefit) for the years ended December 31, 2015 and 2014 was $0.8 million and $(2.1) million , respectively. The
deferred tax assets included in the consolidated balance sheets is net of a valuation allowance in the amounts of $4.3 million and $3.9 million as of December 31,
2015 and 2014 , respectively.
The Company recognizes current income tax expense for state and local income taxes and taxes incurred in its foreign jurisdictions. The Company's current
income tax expense fluctuates from period to period based primarily on the timing of our taxable income. For the years ended December 31, 2015 and 2014 , the
Company recognized an income tax (expense) benefit of $(5.9) million and $1.4 million , respectively. Deferred income tax (expense) benefit is generally a
function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred
income tax assets from state and local taxes in the United States or in foreign jurisdictions.
The amount of dividends payable to the Company's stockholders is determined by the board of directors and is dependent on a number of factors, including
funds available for distributions, financial condition, capital expenditure requirements, as applicable, and annual dividend requirements needed to qualify and
maintain the Company's status as a REIT under the Code.
The following table details from a tax perspective, the portion of a distribution classified as return of capital and ordinary dividend income, per share per
annum, for the years ended December 31, 2015 , 2014 and 2013 :
(In
thousands)
Return of capital
Ordinary dividend income
Total
Foreign
Currency
Translation
Year Ended December 31,
December 31, 2015
December 31, 2014
December 31, 2013
63.1% $
36.9%
100.0% $
0.45
0.26
0.71
70.4% $
29.6% $
100.0% $
0.50
0.21
0.71
51.7% $
48.3%
100.0% $
0.37
0.34
0.71
The Company's reporting currency is the U.S. dollar. The functional currency of the Company's foreign operations is the applicable local currency for each
foreign subsidiary. Assets and liabilities of foreign subsidiaries (including intercompany balances for which settlement is not anticipated in the foreseeable future)
are translated at the spot rate in effect at the applicable reporting date. The amounts reported in the consolidated statements of operations are translated at the
average exchange rates in effect during the applicable period. The resulting unrealized cumulative translation adjustment is recorded as a component of
accumulated other comprehensive income (loss) in the consolidated statements of changes in equity.
Per
Share
Data
The Company calculates basic earnings per share of Common Stock by dividing net income (loss) for the period by weighted-average shares of its Common
Stock outstanding for a respective period. Diluted income per share takes into account the effect of dilutive instruments such as unvested restricted stock, long term
incentive plan ("LTIP") units and OP units, based on the average share price for the period in determining the number of incremental shares that are to be added to
the weighted-average number of shares outstanding (see Note 13 — Share-Based Compensation).
Reportable
Segments
The Company has determined that it has one reportable segment, with activities related to investing in real estate. The Company’s investments in real estate
generate rental revenue and other income through the leasing of properties, which comprise 100% of total consolidated revenues. Management evaluates the
operating performance of the Company’s investments in real estate on an individual property level.
The Company owns and invests in commercial properties principally in the United States, continental Europe, and the United Kingdom, that are then leased to
companies, primarily on a triple-net lease basis. The Company earns lease revenues from its wholly-owned real estate investments. The Company’s portfolio was
comprised of full ownership interests in 329 properties, substantially all of which were net leased to 86 tenants, with an occupancy rate of 100% , and totaled
approximately 18.7 million square feet.
F-17
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The Company evaluates its results from operations by its major business segments. Other than the U.K., no country or tenant individually comprised more
than 10% of the Company’s total lease revenues, or total long lived-assets at December 31, 2015 .
The following tables present the geographic information (in thousands):
(In
thousands)
Revenues
United States
United Kingdom
Europe
Total
_________________________
Year Ended December 31,
2015
2014
2013 (1)
$
130,598 $
65,651 $
40,830
33,904
18,199
9,533
$
205,332 $
93,383 $
1,132
2,819
—
3,951
(1) The Company did not own any properties denominated in Euro as of December 31, 2013 , and as such there were no revenues or Net Investments in Real Estate in this denomination for
that period.
(In
thousands)
Investments in Real Estate
United States
United Kingdom
Europe
Total
Reclassifications
As of December 31,
2015
2014
$
1,610,720 $
1,446,604
441,586
493,998
466,292
427,143
$
2,546,304 $
2,340,039
Certain reclassifications have been made to the 2014 consolidated financial statements to conform to the current period presentation.
Out-of-period
adjustments
During the first and second quarter of 2015, the Company had recorded the following out-of-period adjustments to correct errors from prior periods: (i)
additional rental income and accrued rent of $0.3 million related to the straight-line rent effect of correctly including termination payments required under leases
with cancellation clauses that were considered probable when assessing the lease term and (ii) additional taxes of $0.9 million representing current foreign taxes
payable of $1.2 million and a deferred tax asset of $0.3 million , both relating to 2014. The Company also recorded an out-of-period adjustment in the fourth
quarter to correct an additional error in income taxes of $0.5 million relating to 2014 which resulted from errors in estimating our income tax expense. The
Company concluded that these adjustments were not material to the financial position or results of operations for the current period or any of the prior periods,
accordingly, the Company recorded the related adjustments in the periods they were identified during the year ended December 31, 2015 .
F-18
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Listing
Note
Concurrent with the Listing, the Company, as the general partner of the OP, caused the OP, subject to the terms of the Second Amended and Restated
Agreement of Limited Partnership, to evidence the OP's obligation to distribute certain amounts to the Special Limited Partner ("the Listing Note"). The amount of
the Listing Note is determined, in part, based on the average market value of the Company’s outstanding shares of Common Stock for the period of 30 consecutive
trading days, commencing on the 180th calendar day following the Listing. The principal amount of the Listing Note was determined to be zero at December 31,
2015 , and therefore no liability was recorded. The Company estimates the contingent consideration using a valuation model and records the fair value of the
Listing Note on the consolidated balance sheets. Changes in the fair value of the Listing Note are recorded in the consolidated statements of operations. The final
fair value of the Listing Note on maturity at January 23, 2016 was determined to be zero value.
Multi-Year
Outperformance
Agreement
Concurrent with the Listing and modifications to the Advisor agreement, the Company entered into OPP with the OP and the Advisor (see Note 13 — Share-
Based Compensation). The Company records equity based compensation expense associated with the awards over the requisite service period of five years . The
cumulative equity-based compensation expense is adjusted each reporting period for changes in the estimated market-related performance.
Recently
Issued
Accounting
Pronouncements
Adopted:
In April 2014, FASB amended the requirements for reporting discontinued operations. Under the revised guidance, in addition to other disclosure
requirements, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal
represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results when the component or group of components meets
the criteria to be classified as held for sale, disposed of by sale or other than by sale. The Company has adopted the provisions of this guidance effective January 1,
2015, and has applied the provisions prospectively. The adoption of this guidance has not had a material impact on the Company's consolidated financial position,
results of operations or cash flows.
In August 2014, the FASB issued ASU 2014-15, Disclosures
of
Uncertainties
about
an
Entities
Ability
to
Continue
as
a
Going
Concern,
which requires
management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The assessment is
required for each annual and interim reporting period. Management’s assessment should evaluate whether there are conditions or events that raise substantial doubt
about the entity's ability to continue as a going concern. Substantial doubt is deemed to exist when it is probable that the company will be unable to meet its
obligations within one year from the financial statement issuance date. If conditions or events give rise to substantial doubt about the entity's ability to continue as a
going concern, the guidance requires management to disclose information that enables users of the financial statements to understand the conditions or events that
raised the substantial doubt, management's evaluation of the significance of the conditions or events that led to the doubt, the entity’s ability to continue as a going
concern and management’s plans that are intended to mitigate or that have mitigated the conditions or events that raised substantial doubt about the entity's ability
to continue as a going concern. The guidance is effective for the annual period ending after December 15, 2016 and for annual and interim periods thereafter. The
Company has elected to adopt the provisions of this guidance effective December 31, 2014, as early application is permitted. The adoption of this guidance did not
have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Pending Adoption:
In May 2014, FASB issued ASU 2014-09, Revenue
from
Contracts
with
Customers
(Topic
606)
. Under the revised guidance, an entity is required to
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. The revised guidance allows entities to apply either a full retrospective or modified retrospective transition method upon
adoption. In July 2015, the FASB finalized a one-year delay of the revised guidance, although entities will be allowed to early adopt the guidance as of the original
effective date. The new guidance will be effective in the Company's 2018 fiscal year. The Company is currently evaluating the impact of the revised guidance on
the consolidated financial statements and has not yet determined the method by which the Company will adopt the standard.
In February 2015, the FASB issued ASU 2015-02 Consolidation
(Topic
810)
-
Amendments
to
the
Consolidation
Analysis
. The new guidance applies to
entities in all industries and provides a new scope exception to registered money market funds and similar unregistered money market funds. It makes targeted
amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard does not
add or remove any of the characteristics that determine if an entity is a VIE. However, when decision-making over the entity’s most significant activities has been
outsourced,
F-19
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
the standard changes how a reporting entity assesses if the equity holders at risk lack decision making rights. Previously, the reporting entity would be required to
determine if there is a single equity holder that is able to remove the outsourced decision maker that has a variable interest. The new standard requires that the
reporting entity first consider the rights of all of the equity holders at risk. If the equity holders have certain rights that are deemed to give them the power to direct
the entity’s most significant activities, then the entity does not have this VIE characteristic. The new standard also introduces a separate analysis specific to limited
partnerships and similar entities for assessing if the equity holders at risk lack decision making rights. Limited partnerships and similar entities will be VIEs unless
the limited partners hold substantive kick-out rights or participating rights. In order for such rights to be substantive, they must be exercisable by a simple majority
vote (or less) of all of the partners (exclusive of the general partner and its related parties). A right to liquidate an entity is viewed as akin to a kick-out right. The
guidance for limited partnerships under the voting model has been eliminated in conjunction with the introduction of this separate analysis, including the rebuttable
presumption that a general partner unilaterally controls a limited partnership and should therefore consolidate it. A limited partner with a controlling financial
interest obtained through substantive kick out rights would consolidate a limited partnership. The standard eliminates certain of the criteria that must be met for an
outsourced decision maker or service provider’s fee arrangement to not be a variable interest. Under current guidance, a reporting entity first assesses whether it
meets power and economics tests based solely on its own variable interests in the entity to determine if it is the primary beneficiary required to consolidate the
VIE. Under the new standard, a reporting entity that meets the power test will also include indirect interests held through related parties on a proportionate basis to
determine whether it meets the economics test and is the primary beneficiary on a standalone basis. The standard is effective for annual periods beginning after
December 15, 2015. Early adoption is allowed, including in any interim period. The Company will adopt the new guidance in fiscal 2016 and believes the guidance
will not have a material impact on its consolidated financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU 2015-03 Interest-Imputation
of
Interest
(Subtopic
835-30).
The guidance changes the presentation of debt issuance costs
on the balance sheet. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after
December 15, 2015. Early adoption is permitted for financial statements that have not previously been issued. If the Company decides to early adopt the revised
guidance in an interim period, any adjustments will be reflected as of the beginning of the fiscal year that includes the interim period. The Company will adopt the
new guidance in fiscal 2016 and believes the guidance will not have a material impact on its consolidated financial position, results of operations or cash flows.
In August 2015, FASB issued ASU 2015-15, Presentation
and
Subsequent
Measurement
of
Debt
Issuance
Costs
Associated
with
Line-of-Credit
Arrangements,
which
amends
ASC
835-30,
Interest
-
Imputation
of
Interest
. This update clarifies the presentation and subsequent measurement of debt issuance
costs associated with lines of credit. These costs may be deferred and presented as an asset and subsequently amortized ratably over the term of the revolving debt
arrangement.
In September 2015, the FASB issued ASU 2015-16 Business
Combination
(Topic
805)
. The guidance eliminates the requirement to adjust provisional
amounts from a business combination and the related impact on earnings by restating prior period financial statements for measurement period adjustments. The
new guidance requires that the cumulative impact of measurement period adjustments on current and prior periods, including the prior period impact on
depreciation, amortization and other income statement items and their related tax effects, shall be recognized in the period the adjustment amount is determined.
The cumulative adjustment would be reflected within the respective financial statement line items affected. The revised guidance is effective for fiscal years, and
for interim periods within those fiscal years, beginning after December 15, 2015. The Company will adopt the new guidance in fiscal 2016 and believes the
guidance will not have a material impact on its consolidated financial position, results of operations or cash flows.
In January 2016, the FASB issued ASU 2016-01 Financial
Instruments-Overall:Recognition
and
Measurement
of
Financial
Assets
and
Financial
Liabilities
(Subtopic
825-10).
The revised guidance amends the recognition and measurement of financial instruments. The new guidance significantly revises an entity’s
accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it
also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years,
and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update.
The Company is currently evaluating the impact of the new guidance.
F-20
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
In February 2016, the FASB issued ASU 2016-02 Leases
(ASC 842), which sets out the principles for the recognition, measurement, presentation and
disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either
finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine
whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also
required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term
of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an
approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The ASU is expected to impact the
Company’s consolidated financial statements as the Company has certain operating and land lease arrangements for which it is the lessee. ASC 842 supersedes the
previous leases standard, ASC 840 Leases.
The standard is effective on January 1, 2019, with early adoption permitted. The Company is in the process of
evaluating the impact of this new guidance.
Note 3 — Real Estate Investments
The following table reflects the number and related base purchase prices of properties acquired as of December 31, 2014 and during the year ended
December 31, 2015 :
As of December 31, 2014
Twelve months ended December 31, 2015
Portfolio as of December 31, 2015
________________________________________________
Number of Properties
Base Purchase Price (1)
307
22
329
$
$
(In
thousands)
2,378,554
255,008
2,633,562
(1) Contract purchase price, excluding acquisition related costs, based on the exchange rate at the time of purchase, where applicable.
The following table presents the allocation of the assets acquired and liabilities assumed during the years ended December 31, 2015 , 2014 and 2013 based on
contract purchase price, excluding acquisition related costs, based on the exchange rate at the time of purchase.
(Dollar
amounts
in
thousands)
Real estate investments, at cost:
Land
Buildings, fixtures and improvements
Total tangible assets
Intangibles acquired:
In-place leases
Above market lease assets
Below market lease liabilities
Below market ground lease assets
Above market ground lease liabilities
Goodwill
Total assets acquired, net
Mortgage notes payable used to acquire real estate investments
Credit facility borrowings used to acquire real estate investments
Other liabilities assumed
Year Ended December 31, (1)
2015
2014
2013
$
23,865 $
288,376 $
192,052
215,917
44,241
1,007
(7,449)
3,363
(2,071)
—
255,008
(31,933)
—
—
1,450,862
1,739,238
418,419
26,711
(17,513)
901
—
3,665
2,171,421
(217,791)
(446,558)
—
Cash paid for acquired real estate investments
$
223,075 $
1,507,072 $
Number of properties purchased
22
270
44,118
103,127
147,245
44,865
2,159
(5,983)
—
—
—
188,286
(75,651)
—
(1,664)
110,971
36
The following table presents unaudited pro forma information as if the acquisitions during the year ended December 31, 2015 , had been consummated on
January 1, 2014. Additionally, the unaudited pro forma net income (loss) attributable to stockholders was adjusted to exclude acquisition and transaction related
expense of $6.1 million for the year ended December 31, 2015 to the year ended December 31, 2014 . Such acquisition and transaction related expenses have been
reflected in the year ended December 31, 2014 as if such acquisitions costs had been consummated on January 1, 2014 .
(In
thousands)
Pro forma revenues
Pro forma net income (loss)
Pro forma basic and diluted net income (loss) per share
Year Ended December 31,
2015
2014
$
$
$
219,932 $
9,716 $
0.06 $
227,134
58,456
0.46
The following presents future minimum base rental cash payments due to the Company during the next five calendar years and thereafter as of December 31,
2015 . These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds
and increases in annual rent based on exceeding certain economic indices among other items.
(In
thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Future Minimum
Base Rent Payments (1)
195,718
199,195
201,720
204,203
206,384
1,151,118
2,158,338
$
$
(1) Based on the exchange rate as of December 31, 2015 .
The following table lists the tenants whose annualized rental income on a straight-line basis represented 10% or greater of consolidated annualized rental
income on a straight-line basis for all properties as of December 31, 2015 , 2014 and 2013 .
Tenant
Encanto Restaurants, Inc.
Western Digital Corporation
Thames Water Utilities Limited
___________________________________________
December 31,
2015
2014
*
*
*
*
*
*
2013
19.4%
14.6%
11.7%
*
Tenant's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.
The termination, delinquency or non-renewal of leases by any major tenant may have a material adverse effect on revenues.
F-21
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The following table lists the countries and states where the Company has concentrations of properties where annualized rental income on a straight-line basis
represented greater than 10% of consolidated annualized rental income on a straight-line basis as of December 31, 2015 , 2014 and 2013 .
Country
Germany
Puerto Rico
United Kingdom
United States:
California
Texas
___________________________________________
2015
*
*
19.2%
*
11.5%
December 31,
2014
10.9%
*
22.0%
*
10.4%
2013
*
19.4%
38.4%
14.6%
*
*
Geography's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income for all portfolio properties as of the period specified.
Note 4 — Revolving Credit Facility
On July 25, 2013 , the Company, through the OP, entered into a credit facility (the "Credit Facility") that provided for aggregate revolving loan borrowings of
up to $50.0 million (subject to borrowing base availability). The Credit Facility has been amended at various times, and maximum borrowings have increased to
$740.0 million , with the most recent increase being on August 24, 2015. The Company had $717.3 million (including £160.2 million and €288.4 million ) and
$659.3 million (including £169.8 million and €128.0 million ) outstanding under the Credit Facility as of December 31, 2015 and 2014 , respectively.
Availability of borrowings is based on a pool of eligible unencumbered real estate assets. The initial maturity date of the facility is July 25, 2016 with two one-
year extension options, subject to certain conditions.
The Company has the option, based upon its consolidated leverage ratio, to have draws under the facility priced at either the Alternate Base Rate (as described
below) plus 0.60% to 1.20% or at adjusted LIBOR plus 1.60% to 2.20% . The Alternate Base Rate is defined in the Credit Facility as a rate per annum equal to the
greatest of (a) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate” in effect on such day, (b) the federal funds
effective rate in effect on such day plus 0.5% of 1% and (c) the Adjusted LIBOR for a one-month interest period on such day plus 1% . Adjusted LIBOR refers to
LIBOR multiplied by the statutory reserve rate, as determined by the Federal Reserve System of the United States. The Credit Facility agreement requires the
Company to pay an unused fee per annum of 0.25% if the unused balance of the Credit Facility exceeds or is equal to 50% of the available facility or a fee per
annum of 0.15% if the unused balance of the Credit Facility is less than 50% of the available facility. As of December 31, 2015 , the Credit Facility reflected
variable and fixed rate borrowings with a carrying value and fair value of $717.3 million , and a weighted average effective interest rate of 2.2% after considering
interest rate swaps in place. The unused borrowing capacity under the Credit Facility as of December 31, 2015 and 2014 was $22.7 million and $20.7 million ,
respectively.
The Credit Facility agreement provides for quarterly interest payments for each Alternate Base Rate loan and periodic payments for each Adjusted LIBOR
Rate loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date in July 2016. The Credit Facility agreement
also contains two one-year extension options, subject to certain conditions. The Credit Facility may be prepaid at any time, in whole or in part, without premium or
penalty, subject to prior notice to the lender. In the event of a default, the lender has the right to terminate their obligations under the Credit Facility agreement and
to accelerate the payment on any unpaid principal amount of all outstanding loans.
The Credit Facility requires the Company to meet certain financial covenants, including the maintenance of certain financial ratios (such as specified debt to
equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. As of December 31, 2015 , the Company was in compliance with the
financial covenants under the Credit Facility.
The total gross carrying value of unencumbered assets as of December 31, 2015 is $1.3 billion .
On January 20, 2016, the Company paid down $20.0 million of its US dollar advances. Foreign currency draws under the Credit Facility are designated as net
investment hedges of the Company's investments during the periods reflected in the consolidated statements of operations (see Note 8 — Derivatives and Hedging
Activities for further discussion).
F-22
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Note 5 — Mortgage Note Payable
Mortgage notes payable as of December 31, 2015 and 2014 consisted of the following:
Country
Portfolio
Finland:
Finnair
Tokmanni
Germany:
Rheinmetall
OBI DIY
RWE AG
Rexam
Metro Tonic
Total EUR denominated
United Kingdom:
McDonald's
Wickes Building Supplies I
Everything Everywhere
Thames Water
Wickes Building Supplies II
Northern Rock
Wickes Building Supplies III
Provident Financial
Crown Crest
Aviva
Bradford & Bingley
Intier Automotive Interiors
Capgemini
Fujitisu
Amcor Packaging
Fife Council
Malthrust
Talk Talk
HBOS
DFS Trading
DFS Trading
HP Enterprise Services
Total GBP denominated
United States:
Quest Diagnostics
Western Digital
AT&T Services
Puerto Rico:
Encanto Restaurants
Total USD denominated
Total
_________________________
Encumbered
Properties
Outstanding Loan Amount (1)
December 31, 2015 December 31, 2014
(In
thousands)
(In
thousands)
Effective
Interest Rate
Interest
Rate
Maturity
4
1
1
1
3
1
1
12
1
1
1
1
1
2
1
1
1
1
1
1
1
3
7
1
3
1
3
5
2
1
40
1
1
1
18
21
73
$
30,976 $
31,603
11,561
4,908
68,169
5,737
28,904
181,858
1,125
2,882
5,922
8,882
2,443
7,772
2,813
18,875
28,498
23,242
11,192
6,995
8,142
36,684
4,628
2,715
4,737
5,663
7,979
15,010
3,514
13,748
223,461
52,800
17,982
33,550
22,057
126,389
531,708 $
$
—
—
12,884
5,470
75,969
6,394
32,211
132,928
1,180
3,024
6,213
9,319
2,563
8,155
2,951
19,804
29,901
24,387
—
—
—
—
—
—
—
—
—
—
—
—
107,497
—
18,269
—
22,492
40,761
281,186
2.2%
2.4%
2.6%
2.4%
1.6%
1.8%
1.7%
4.1%
3.7%
4.0%
4.1%
4.2%
4.5%
4.4%
4.1%
4.3%
3.8%
3.5%
3.5%
3.2%
3.2%
3.6%
3.6%
3.6%
3.6%
3.6%
3.4%
3.4%
3.4%
2.0%
5.3%
2.5%
6.3%
3.0%
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
(3)
Variable
Fixed
(4)
Variable
Fixed
Sep. 2020
Oct. 2020
Jan. 2019
Jan. 2019
Oct. 2019
Oct. 2019
Dec. 2019
Oct. 2017
May 2018
Jun. 2018
Jul. 2018
Jul. 2018
Sep. 2018
Nov. 2018
Feb. 2019
Feb. 2019
Mar. 2019
May 2020
May 2020
Jun. 2020
Jun. 2020
Jul. 2020
Jul. 2020
Jul. 2020
Jul. 2020
Jul. 2020
Aug. 2020
Aug. 2020
Aug. 2020
Sep. 2018
Jul. 2021
Dec. 2020
Jun. 2017
(1) Amounts borrowed in local currency and translated at the spot rate as of respective date.
(2)
(3)
Fixed as a result of an interest rate swap agreement.
The interest rate is 2.0% plus 1-month LIBOR.
(4) The interest rate is 2.0% plus 1- month Adjusted LIBOR as defined in the mortgage agreement.
F-23
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
During the year ended December 31, 2015 , the Company encumbered 29 U.K. properties for which the Company received proceeds of £81.7 million ( $121.0
million based upon an exchange rate of £1.00 to $1.48 as of December 31, 2015 ), one Finnish property for which the Company received proceeds of €29.0 million
( $31.6 million based upon an exchange rate of €1.00 to $1.09 as of December 31, 2015 ) and two U.S. properties for which the Company received proceeds of
$86.4 million .
The following table presents future scheduled aggregate principal payments on the mortgage notes payable over the next five calendar years and thereafter as
of December 31, 2015 :
(In
thousands)
2016
2017
2018
2019
2020
Thereafter
Total
Future Principal Payments
(1)
$
$
758
23,043
83,850
190,249
217,508
16,300
531,708
(1) Based on the exchange rate as of December 31, 2015 .
The Company's mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios.
As of December 31, 2015 and 2014 , the Company was in compliance with financial covenants under its mortgage notes payable agreements.
Note 6 — Fair Value of Financial Instruments
The Company determines fair value based on quoted prices when available or through the use of alternative approaches, such as discounting the expected cash
flows using market interest rates commensurate with the credit quality and duration of the investment. This alternative approach also reflects the contractual terms
of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The guidance
defines three levels of inputs that may be used to measure fair value:
Level
1
— Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level
2
— Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market
data for substantially the entire contractual term of the asset or liability.
Level
3
— Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or
liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The
Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from
quarter to quarter, however, the Company expects that changes in classifications between levels will be rare.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the
Company and its counterparties. As of December 31, 2015 and 2014 , the Company has assessed the significance of the impact of the credit valuation adjustments
on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the
Company's derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
F-24
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis
reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and
implied volatilities. In addition, credit valuation adjustments are incorporated into the fair values to account for the Company's potential nonperformance risk and
the performance risk of the counterparties.
Investment
Securities
On September 3, 2015, the Company redeemed its investment in the AR Capital Global Real Estate Income Fund, a real estate income fund traded in an active
market with an aggregate fair value of $0.5 million as of the redemption date. The real estate income fund is managed by an affiliate of the Sponsor (see Note 11
— Related Party Transactions). The redemption resulted in a recognized loss of approximately $0.1 million for the year ended December 31, 2015 .
As of December 31, 2014 , the investment had an aggregate fair value of $0.5 million and an unrealized loss of $24,000 . Unrealized losses were considered
temporary and therefore no impairment was recorded for the year ended December 31, 2014 .
Financial
Instruments
Measured
at
Fair
Value
on
a
Recurring
Basis
The following table presents information about the Company's assets and liabilities (including derivatives that are presented net) measured at fair value on a
recurring basis as of December 31, 2015 and 2014 , aggregated by the level in the fair value hierarchy level within which those instruments fall.
(In
thousands)
December 31, 2015
Cross currency swaps, net (GBP & EUR)
Foreign currency forwards, net (GBP & EUR)
Interest rate swaps, net (GBP & EUR)
Listing Note (see Note 7 )
OPP (see Note 13 )
December 31, 2014
Cross currency swaps, net (GBP & EUR)
Foreign currency forwards, net (GBP & EUR)
Interest rate swaps, net (GBP & EUR)
Investment securities
Quoted Prices in
Active Markets
Level 1
Significant Other
Observable Inputs
Level 2
Significant
Unobservable Inputs
Level 3
Total
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
490 $
3,042 $
2,203 $
(5,461) $
— $
— $
11,289 $
1,884 $
(5,650) $
— $
— $
— $
— $
— $
3,042
2,203
(5,461)
—
(14,300)
$
(14,300)
— $
— $
— $
— $
11,289
1,884
(5,650)
490
The valuations of the Listing Note and OPP are determined using a Monte Carlo simulation. This analysis reflects the contractual terms of the Listing Note
and OPP, including the performance periods and total return hurdles, as well as observable market-based inputs, including interest rate curves, and unobservable
inputs, such as expected volatility. As a result, the Company has determined that its Listing Note and OPP valuations in their entirety are classified in Level 3 of
the fair value hierarchy.
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain
assets. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2015 or 2014 .
Level
3
Valuations
The following is a reconciliation of the beginning and ending balance for the changes in instruments with Level 3 inputs in the fair value hierarchy for the year
ended December 31, 2015 :
(In
thousands)
Beginning balance as of December 31, 2014
Fair value at issuance
Fair value adjustment
Ending balance as of December 31, 2015
Listing Note
OPP
$
$
— $
8,670
(8,670)
— $
—
27,500
(13,200)
14,300
F-25
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The following table provides quantitative information about the significant Level 3 inputs used (in thousands):
Financial Instrument
Fair Value at December 31,
2015
(In
thousands)
Principal Valuation Technique
Unobservable Inputs
Input Value
Listing Note
OPP
$
$
—
14,300
Monte Carlo Simulation
Monte Carlo Simulation
Expected volatility
Expected volatility
20.0%
21.0%
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation. For the
relationship described below, the inverse relationship would also generally apply.
Expected volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument,
parameter or index changes in value over time. Generally, the higher the expected volatility of the underlying, the wider the range of potential future returns. An
increase in expected volatility, in isolation, would generally result in an increase in the fair value measurement of an instrument.
On August 7, 2015 , the Company amended and restated the OPP (the “Amended OPP”) with the OP and the Advisor to amend certain definitions related to
performance measurement to equitably adjust for share issuances and share repurchases on a go-forward basis. The amendment resulted in an immaterial
adjustment to compensation cost as of the modification date.
Financial
Instruments
not
Measured
at
Fair
Value
on
a
Recurring
Basis
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate value. The fair value of short-term financial
instruments such as cash and cash equivalents, due to/from affiliates, accounts payable and dividends payable approximates their carrying value on the
consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on
the consolidated balance sheets are reported below.
(In
thousands)
Level
Carrying Amount
December 31,
2015
Fair Value
December 31,
2015
Carrying Amount
December 31,
2014
Fair Value
December 31,
2014
Mortgage notes payable (1) (2)
Credit facility
_____________________________
3
3
$
$
532,384 $
717,286 $
534,041 $
717,286 $
282,351 $
659,268 $
280,967
669,824
(1) Carrying value includes $531.7 million mortgage notes payable and $0.7 million mortgage premiums, net as of December 31, 2015 .
(2) Carrying value includes $281.2 million mortgage notes payable and $1.2 million mortgage premiums, net as of December 31, 2014 .
The fair value of the mortgage notes payable is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of
borrowing arrangements. Advances under the Credit Facility are considered to be reported at fair value.
Note 7 — Listing Note
In connection with the Listing, the Company, as the general partner of the OP, caused the OP, subject to the terms of the Second Amended and Restated
Limited Partnership Agreement, to issue a note (the "Listing Note") to the Special Limited Partner, to evidence the OP’s obligation to distribute to the Special
Limited Partner an aggregate amount (the "Listing Amount") equal to 15.0% of the difference (to the extent the result is a positive number) between:
•
•
the sum of (i) the "market value" (as defined in the Listing Note) of all of the Company’s outstanding shares of Common Stock plus (ii) the sum of all
distributions or dividends (from any source) paid by the Company to its stockholders prior to the Listing; and
the sum of (i) the total amount raised in the Company’s IPO and its DRIP prior to the Listing ("Gross Proceeds") plus (ii) the total amount of cash that, if
distributed to those stockholders who purchased shares in the IPO and under the DRIP, would have provided those stockholders a 6.0% cumulative, non-
compounded, pre-tax annual return (based on a 365 -day year) on the Gross Proceeds.
The market value used to calculate the Listing Amount will not be determinable until the end of a measurement period of 30 consecutive trading days,
commencing on the 180th calendar day following the Listing, unless another liquidity event, such as a merger, occurs prior to the end of the measurement period. If
another liquidity event occurs prior to the end of the measurement
F-26
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
period, the Listing Note provides for appropriate adjustment to the calculation of the Listing Amount. The Special Limited Partner will have the right to receive
distributions of Net Sales Proceeds, as defined in the Listing Note, until the Listing Note is paid in full; provided that, the Special Limited Partner has the right, but
not the obligation, to convert the entire special limited partner interest into OP Units. Those OP Units would be convertible for the cash value of a corresponding
number of shares of Common Stock or a corresponding number of shares of Common Stock, at the Company's option, in accordance with the terms contained in
the Second Amended and Restated Limited Partnership Agreement.
Until the amount of the Listing Note can be determined, the Listing Note is considered a liability which is marked to fair value at each reporting date, with
changes in the fair value recorded in the consolidated statements of operations. The Listing Note fair value at issuance and as of December 31, 2015 was
determined using a Monte Carlo simulation, which uses a combination of observable and unobservable inputs. As of December 31, 2015 , the Listing Note had a
fair value of zero (see Note 6 — Fair Value of Financial Instruments). The final fair value of the Listing Note on maturity at January 23, 2016 was determined to be
zero as well.
Note 8 — Derivatives and Hedging Activities
Risk
Management
Objective
of
Using
Derivatives
The Company uses derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all
or a portion of the interest rate risk associated with its borrowings. Certain foreign investments expose the Company to fluctuations of foreign interest rates and
exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The
Company enters into derivative financial instruments to protect the value or fix the amount of certain obligations in terms of its functional currency, the U.S. dollar
("USD").
The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to
hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate and currency
risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are
not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit
ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not
anticipate that any such counterparties will fail to meet their obligations.
The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of
December 31, 2015 and 2014 :
(In
thousands)
Derivatives designated as hedging instruments:
Interest rate swaps (GBP)
Cross currency swaps (GBP)
Cross currency swaps (EUR)
Interest rate swaps (GBP)
Interest rate swaps (EUR)
Cross currency swaps (GBP)
Total
Derivatives not designated as hedging instruments:
Foreign currency forwards (EUR-USD)
Foreign currency forwards (GBP-USD)
Cross currency swaps (GBP)
Cross currency swaps (EUR)
Total
Balance Sheet Location
2015
2014
December 31,
Derivative assets, at fair value
Derivative assets, at fair value
Derivative assets, at fair value
Derivative liabilities, at fair value
Derivative liabilities, at fair value
Derivative liabilities, at fair value
Derivative assets, at fair value
Derivative assets, at fair value
Derivative assets, at fair value
Derivative assets, at fair value
F-27
$
$
$
567 $
—
—
(3,313)
(2,715)
—
(5,461) $
1,113 $
1,090
509
2,533
$
5,245 $
18
4,517
7,219
(4,353)
(1,315)
(447)
5,639
736
1,148
—
—
1,884
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of December 31, 2015 and 2014
. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location
that derivative assets and liabilities are presented on the accompanying consolidated balance sheets.
Gross Amounts Not Offset on the
Balance Sheet
Gross Amounts
of Recognized
Assets
Gross Amounts
of Recognized
(Liabilities)
Gross Amounts
Offset on the
Balance Sheet
Net Amounts of
Assets (Liabilities)
presented on the
Balance Sheet
Financial
Instruments
Cash Collateral
Received (Posted) Net Amount
$
$
5,812 $
(6,028) $
13,638 $
(6,115) $
— $
— $
(216)
$
7,523
$
— $
— $
— $
(216)
— $
7,523
(In
thousands)
December 31,
2015
December 31,
2014
In addition to the above derivative arrangements, the Company also uses non-derivative financial instruments to hedge its exposure to foreign currency
exchange rate fluctuations as part of its risk management program, including foreign denominated debt issued and outstanding with third parties to protect the
value of its net investments in foreign subsidiaries against exchange rate fluctuations. The Company draws foreign currency advances under its Credit Facility to
fund certain investments in the respective local currency which creates a natural hedge against the original equity invested in the real estate investments, removing
the need for the final cross currency swaps (See Note 4 — Revolving Credit Facility). As further discussed below, in conjunction with the restructuring of the cross
currency swaps on February 4, 2015, foreign currency advances of €110.5 million and £68.5 million were drawn under the Company’s Credit Facility. The
Company separately designated each foreign currency draw as a net investment hedge under ASC 815. Effective May 17, 2015, the Company modified the
hedging relationship and designated all foreign currency draws as net investment hedges to the extent of the Company’s net investment in foreign subsidiaries. To
the extent foreign draws in each currency exceed the net investment, the Company reflects the effects of changes in currency on such excess in earnings. As of
December 31, 2015 , the Company had draws of £36.0 million and €27.9 million in excess of its net investments.
.
Interest
Rate
Swaps
The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements. To
accomplish this objective, the Company primarily uses interest rate swaps. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate
amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying
notional amount.
As of December 31, 2015 and 2014 , the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest
rate risk:
Derivatives
Interest rate swaps (GBP)
Interest rate swaps (EUR)
Total
December 31, 2015
December 31, 2014
Number of
Instruments
27
16
43
Notional Amount
(In
thousands)
$
$
697,925
561,282
1,259,207
Number of
Instruments
20
10
30
Notional Amount
(In
thousands)
$
$
371,225
282,999
654,224
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other
comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction impacts earnings. During 2015 ,
such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives
is recognized directly in earnings. During the year ended December 31, 2015 , the Company recorded a loss of $0.4 million of ineffectiveness in earnings. During
the years ended December 31, 2014 and 2013 there were no losses due to ineffectiveness.
F-28
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
During the year ended December 31, 2015 , the Company terminated/partially terminated two of its interest rate swaps and accelerated the reclassification of
amounts in other comprehensive income (loss) to net income (loss) as a result of the hedged forecasted transactions becoming probable not to occur. The
accelerated amounts were a loss of $38,000 .
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are
made on the Company's variable-rate debt. During the next 12 months , the Company estimates that an additional $4.4 million will be reclassified from other
comprehensive income (loss) as an increase to interest expense.
The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the
years ended December 31, 2015 , 2014 and 2013 .
(In
thousands)
Amount of gain (loss) recognized in accumulated other comprehensive (loss) income
from derivatives (effective portion)
Amount of loss reclassified from accumulated other comprehensive income (loss) into
income as interest expense (effective portion)
Amount of loss recognized in income on derivative instruments (ineffective portion,
reclassifications of missed forecasted transactions and amounts excluded from
effectiveness testing)
$
$
$
Cross
Currency
Swaps
Designated
as
Net
Investment
Hedges
Year Ended December 31,
2015
2014
2013
8,800
(4,166)
5,670 $
(2,087) $
(1,901)
(123)
(371)
— $
—
The Company is exposed to fluctuations in foreign exchange rates on property investments in foreign countries which pay rental income, incur property
related expenses and hold debt instruments in currencies other than its functional currency, the USD. The Company uses foreign currency derivatives including
cross currency swaps to hedge its exposure to changes in foreign exchange rates on certain of its foreign investments. Cross currency swaps involve fixing the
applicable exchange rate for delivery of a specified amount of foreign currency on specified dates.
On February 4, 2015, the Company restructured its cross currency swaps and replaced its initial US dollar equity funding in certain foreign real estate
investments with foreign currency debt. As part of the restructuring, foreign currency advances of €110.5 million and £68.5 million were drawn under the
Company’s Credit Facility which created a natural hedge against the original equity invested in the real estate investments, thus removing the need for the final
equity notional component of the cross currency swaps. Through February 4, 2015, these cross currency swaps had been designated as net investment hedges. For
derivatives designated as net investment hedges, the effective portion of changes in the fair value of the derivatives are reported in accumulated other
comprehensive income (loss) (outside of earnings) as part of the cumulative translation adjustment. The ineffective portion of the change in fair value of the
derivatives is recognized directly in earnings. Amounts are reclassified out of accumulated other comprehensive income (loss) into earnings when the hedged net
investment is either sold or substantially liquidated. The restructuring and settlement of the cross currency swaps resulted in a gain of approximately $19.0 million ,
with $10.1 million in proceeds received and $8.9 million retained by the bank as a reduction of outstanding Credit Facility balance. The gain will remain in the
cumulative translation adjustment (CTA) until such time as the net investments are sold or substantially liquidated in accordance with ASC 830. Following the
restructuring noted above, these cross currency swaps no longer qualified for net investment hedge accounting treatment and as such all changes in fair value from
February 5, 2015 through December 31, 2015 were recognized in earnings.
F-29
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
As of December 31, 2015 , the Company did not have any outstanding derivative instruments designated as net investment hedges. The Company had the
following outstanding cross currency swaps that were used to hedge its net investments in foreign operations at December 31, 2014 :
Derivatives
Cross currency swaps (GBP-USD)
Cross currency swaps (EUR-USD)
Total
____________________________________
December 31, 2014
Number of
Instruments (1)
5
10
15
Notional Amount
(1)
(In
thousands)
—
$
$
107,623
134,285
241,908
(1) Payments and obligations pursuant to these foreign currency swap agreements are guaranteed by the Company, ARC Global Holdco, LLC and the OP.
Foreign
Denominated
Debt
Designated
as
Net
Investment
Hedges
Effective May 17, 2015, all foreign currency draws under the Credit Facility were designated as net investment hedges. As such, the effective portion of
changes in value due to currency fluctuations are reported in accumulated other comprehensive income (loss) (outside of earnings) as part of the cumulative
translation adjustment. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts are reclassified out of
accumulated other comprehensive income (loss) into earnings when the hedged net investment is either sold or substantially liquidated.
As of December 31, 2015 , total foreign currency advances under the Credit Facility were approximately $551.8 million , which reflects advances of £160.2
million ( $237.2 million based upon an exchange rate of £1.00 to $1.48 as of December 31, 2015 ) and advances of €288.4 million ( $314.6 million based upon an
exchange rate of €1.00 to $1.09 , as of December 31, 2015 ). The Company recorded gains of $5.1 million and $1.4 million for the years ended December 31, 2015
and 2014 , respectively, due to the ineffectiveness resulting from the over-hedged position of the foreign currency advances over the related net investments. The
Company did not recorded any gains (losses) for the year ended December 31, 2013 due to the ineffectiveness resulting from over-hedging in foreign currency
advances over the related net investments.
Prior to May 16, 2015 , foreign currency advances which comprised of $92.1 million of Pound Sterling ("GBP") draws (based upon an exchange rate of $1.58
to £1.00 , as of May 16, 2015 ) and $126.0 million of Euro ("EUR") draws (based upon an exchange rate of $1.14 to €1.00 , as of May 16, 2015 ) were not
designated as net investment hedges and, accordingly, the changes in value through May 16, 2015 due to currency fluctuations were reflected in earnings. As a
result, the Company recorded remeasurement losses on the foreign denominated draws of $3.6 million for the year ended December 31, 2015 . No such
remeasurement gains (losses) were recorded on the foreign denominate draws for the years ended December 31, 2014 and 2013 . As of December 31, 2015 , total
outstanding draws under the Credit Facility denominated in foreign currency was $551.8 million , and total net investments in real estate denominated in foreign
currency was $468.3 million , this resulted in an overhedge position of $83.5 million (comprised of £36.0 million and €27.9 million draws). As all foreign draws
are now designated as net investment hedges there were no additional remeasurement gains (losses) for the year ended December 31, 2015 .
Non-designated
Derivatives
The Company is exposed to fluctuations in the exchange rates of its functional currency, the USD, against the GBP and the EUR. The Company uses foreign
currency derivatives including currency forward and cross currency swap agreements to manage its exposure to fluctuations in GBP-USD and EUR-USD exchange
rates. While these derivatives are hedging the fluctuations in foreign currencies, they do not meet the strict hedge accounting requirements to be classified as
hedging instruments. Changes in the fair value of derivatives not designated as hedges under qualifying hedging relationships are recorded directly in net income
(loss). The Company recorded total gains of $3.9 million and $1.9 million on the non-designated hedges for the years ended December 31, 2015 and 2014 ,
respectively. The Company did not have any non-designated hedges during the year ended December 31, 2013 and therefore did not record any gains (losses).
As of December 31, 2015 and 2014 , the Company had the following outstanding derivatives that were not designated as hedges under qualifying hedging
relationships.
F-30
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Derivatives
Foreign currency forwards (GBP - USD)
Foreign currency forwards (EUR - USD)
Cross currency swaps (GBP - USD)
Cross currency swaps (EUR - USD)
Total
Credit-risk-related
Contingent
Features
December 31, 2015
December 31, 2014
Number of
Instruments
Notional Amount
(In
thousands)
Number of
Instruments
Notional Amount
(In
thousands)
40
15
9
5
69
$
$
6,628
6,139
82,843
99,847
80
31
—
—
13,664
12,699
—
—
$
195,457
111
$
26,363
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being
declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of December 31, 2015 , the fair value of derivatives in net liability position including accrued interest but excluding any adjustment for nonperformance
risk related to these agreements was $7.1 million . As of December 31, 2015 , the Company had not posted any collateral related to these agreements and was not
in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the
agreements at their aggregate termination value.
Note 9 — Common Stock
The Company listed its Common Stock on the NYSE under the symbol "GNL" on June 2, 2015 . In connection with the Listing, the Company repurchased
approximately 11.9 million shares of its Common Stock for $10.50 per share, for an aggregate amount of $125.0 million , excluding fees and expenses pursuant to
the Tender Offer. The Company funded the Tender Offer using cash on hand and funds available under its Credit Facility.
As of December 31, 2015 and 2014 , the Company had 168,936,633 and 177,933,175 shares of Common Stock outstanding, respectively, including shares
issued under the DRIP, but not including unvested restricted shares, the OP Units issued to limited partners other than the Company or long-term incentive units
issued in accordance with the OPP which are currently, or may be in the future, convertible into shares of Common Stock.
Monthly
Dividends
and
Change
to
Payment
Dates
The Company pays dividends on the 15th day of each month at a rate of $0.059166667 per share to stockholders of record as of close of business on the 8th
day of such month. The Company's board of directors may reduce the amounts of dividends paid or suspend dividend payments at any time and therefore dividend
payments are not assured. For purposes of the presentation of information herein, the Company may refer to distributions by the OP on OP Units, Class B units and
LTIP Units as dividends.
On April 7, 2015, the Company suspended the DRIP. The final issuance of shares of Common Stock pursuant to the DRIP occurred in connection with the
Company’s April dividend which was paid on May 1, 2015.
Share
Repurchase
Program
On April 7, 2015, the Company's board of directors approved the termination of the Company’s SRP. The Company processed all of the requests received
under the SRP in the first quarter of 2015 and will not process further requests.
The following table reflects the cumulative number of common shares repurchased as of December 31, 2014 and 2015 :
Cumulative repurchases as of December 31, 2014
Redemptions
Shares repurchased under Tender Offer
Cumulative repurchases as of December 31, 2015
F-31
Number of Shares
Repurchased
Weighted Average Price
per Share
99,969
135,123
11,904,762
12,139,854 $
9.91
9.78
10.50
10.49
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Note 10 — Commitments and Contingencies
Operating
Ground
Leases
Certain properties are subject to ground leases, which are accounted for as operating leases. The ground leases have varying ending dates, renewal options, and
rental rate escalations, with the latest leases extending to April 2105. Future minimum rental payments to be made by the Company under these noncancelable
ground leases, excluding increases resulting from increases in the consumer price index, are as follows:
(In
thousands)
2016
2017
2018
2019
2020
2021
Thereafter
Total
Future Ground Lease Payments
$
$
1,306
1,307
1,307
1,307
1,307
1,307
41,251
49,092
The Company incurred rent expense on ground leases of $0.3 million during the year ended December 31, 2015 . The Company did not have any rent expense
on ground leases during the year ended December 31, 2014 .
Litigation
and
Regulatory
Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory
proceedings pending or known to be contemplated against the Company.
Environmental
Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters.
As of December 31, 2015 , the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of
any other environmental condition that it believes will have a material adverse effect on the results of operations.
Note 11 — Related Party Transactions
As of December 31, 2015 and 2014 , the Sponsor, the Special Limited Partner and a subsidiary of the Service Provider owned, in the aggregate, 244,444
shares of the Company's outstanding Common Stock. The Advisor, the Service Provider, and their affiliates may incur costs and fees on behalf of the Company. As
of December 31, 2015 and 2014 , the Company had $0.1 million and $0.5 million of receivable from affiliated entities $0.4 million and $0.4 million of payable to
their affiliates, respectively.
The Company is the sole general partner of the OP and holds the majority of OP Units. The Special Limited Partner, a limited partner, held 22 OP Units as of
December 31, 2015 , which represented a nominal percentage of the aggregate OP ownership.
On June 2, 2015, the Advisor and the Service Provider exchanged 1,726,323 previously-issued Class B units for 1,726,323 OP Units pursuant to the OP
Agreement. These OP Units are exchangeable for shares of Common Stock of the Company on a one-for-one basis, or the cash value of shares of Common Stock
(at the option of the Company), 12 months from the Listing Date subject to the terms of the limited partnership agreement of the OP. The Advisor and the OP also
entered into a Contribution and Exchange Agreement pursuant to which the Advisor contributed $0.8 million in cash to the OP in exchange for 83,333 OP Units.
As of December 31, 2015 , the Advisor held a total of 1,461,753 OP Units, the Service Provider held a total of 347,903 OP Units, and the Special Limited Partner
held 22 OP Units. The Company paid $0.6 million million of OP Unit distributions during the year ended December 31, 2015 . There were no OP Unit
distributions during the year ended December 31, 2014 .
A holder of OP Units, other than the Company, has the right to convert OP Units for a corresponding number of shares of the Company's Common Stock or
the cash value equivalent of those corresponding shares, at the Company's option, in accordance with the limited partnership agreement of the OP. The remaining
rights of the holders of OP Units are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of
the OP's assets.
On September 30, 2015, the Company fully redeemed its investment of $0.5 million in a real estate income fund managed by an affiliate of the Sponsor (see
Note 6 — Fair Value of Financial Instruments).
F-32
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Fees
Paid
in
Connection
with
the
IPO
The Former Dealer Manager was paid fees and compensation in connection with the sale of the Company's Common Stock in the IPO which was completed
on June 30, 2014. Specifically, the Former Dealer Manager was paid selling commissions of up to 7.0% of the per share purchase price of offering proceeds before
reallowance of commissions earned by participating broker-dealers. In addition, the Former Dealer Manager was paid 3.0% of the per share purchase price from
the sale of the Company's shares, a portion of which was reallowed to participating broker-dealers.
The following table details total selling commissions and dealer manager fees incurred from and payable to the Former Dealer Manager related to the sale of
Common Stock as of and for the periods presented:
(In
thousands)
Year Ended December 31,
Payable as of December 31,
2015
2014
2015
2014
Total commissions and fees to Former Dealer Manager
$
(8) $
148,372 $
— $
13
The Advisor and its affiliates were paid compensation and received reimbursement for services relating to the IPO, including transfer agent services provided
by an affiliate of the Former Dealer Manager. All offering costs incurred by the Company or the Advisor and its affiliated entities on behalf of the Company have
been charged to additional paid-in capital on the accompanying consolidated balance sheets. The following table details fees and offering cost reimbursements
incurred and payable to the Advisor and the Former Dealer Manager related to the sale of Common Stock as of and for the periods presented:
(In
thousands)
Fees and expense reimbursements to the Advisor and Former Dealer
Year Ended December 31,
Payable as of December 31,
2015
2014
2015
2014
Manager
$
— $
16,920 $
— $
61
The Company was responsible for paying offering and related costs from the IPO, excluding commissions and dealer manager fees, up to a maximum of 1.5%
of gross proceeds received from its ongoing offering of Common Stock, measured at the end of the offering. Offering costs in excess of the 1.5% cap as of the end
of the offering were the Advisor's responsibility. During 2015 , the Advisor reimbursed the Company $0.5 million of offering costs. Offering and related costs,
excluding commissions and dealer manager fees, did not exceed 1.5% of gross proceeds received from the IPO.
After the escrow break, the Advisor elected to cap cumulative offering costs incurred by the Company, net of unpaid amounts, to 11.5% of gross common
stock proceeds during the offering period. As of December 31, 2015 , cumulative offering costs were $188.1 million . Cumulative offering costs of the IPO net of
unpaid amounts did not exceed 11.5% .
Fees
Paid
in
Connection
With
the
Operations
of
the
Company
Until June 2, 2015, the Advisor was paid an acquisition fee of 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced
for a loan or other investment. Solely with respect to investment activities in Europe, the Service Provider was paid 50% of the acquisition fees and the Advisor
was paid the remaining 50% , as set forth in the service provider agreement. The Advisor was also reimbursed for insourced expenses incurred in the process of
acquiring properties, which were limited to 0.5% of the contract purchase price and 0.5% of the amount advanced for a loan or other investment. Additionally, the
Company will pay third party acquisition expenses.
The Company's Advisor provides services in connection with the origination or refinancing of any debt that the Company obtained and used to acquire
properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties. Until June 2, 2015, the
Company paid the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain
limitations. Solely with respect to the Company's investment activities in Europe, the Service Provider was paid 50% of the financing coordination fees and the
Advisor received the remaining 50% .
F-33
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Until the Listing, the Company compensated the Advisor for its asset management services in an amount equal to 0.75% per annum of the total of: the cost of
the Company's assets (cost includes the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs, but excluding acquisition
fees) plus costs and expenses incurred by the Advisor in providing asset management services, less the excess, if any, of dividends over FFO plus acquisition fees
expenses and restricted share grant amortization. Until April 1, 2015, as compensation for this arrangement, the Company caused the OP to issue (subject to
periodic approval by the board of directors) to the Advisor and Service Provider performance-based restricted partnership units of the OP designated as "Class B
units," which were intended to be profits interests and would vest, and no longer be subject to forfeiture, at such time as: (x) the value of the OP's assets plus all
distributions made equaled or exceeded the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return
thereon (the "economic hurdle"); (y) any one of the following had occurred: (1) the termination of the advisory agreement by an affirmative vote of a majority of
the Company's independent directors without cause; (2) a listing; or (3) another liquidity event; and (z) the Advisor is still providing advisory services to the
Company (the "performance condition"). The value of issued Class B units was determined and expensed when the Company deemed the achievement of the
performance condition was probable, which occurred as of the Listing. As of June 2, 2015, in aggregate the board of directors had approved the issuance of
1,726,323 Class B units to the Advisor and the Service Provider in connection with this arrangement. The Advisor and the Service Provider received distributions
on unvested Class B units equal to the dividend rate received on the Company's Common Stock. Such distributions on issued Class B units in the amount of $0.3
million and $0.2 million were included in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2015
and 2014 , respectively. Subsequent to the Listing, the Company recorded OP Unit distributions which are included in consolidated statements of changes in
equity. From April 1, 2015 to the Listing Date, the Advisor was paid for its asset management services in cash.
The performance condition related to these Class B units was satisfied upon completion of the Listing, and the Class B units vested at a cost of $14.5 million
on June 2, 2015 . Concurrently, the Class B units were converted to OP Units on a one-to-one basis. The vested value was calculated based, in part, on the closing
price of Company's Common Stock on June 2, 2015 less an estimated discount for the one year lock-out period of transferability or liquidity of the OP Units.
On the Listing Date, the Company entered into the Fourth Amended and Restated Advisory Agreement (the “Advisory Agreement”) by and among the
Company, the OP and the Advisor, which, among other things, eliminated the acquisition fee and finance coordination fee payable to the Advisor under the
original Advisory Agreement, as amended, except for fees with respect to properties under contract, letter of intent or under negotiation as of the Listing Date.
Under the terms of the Advisory Agreement, the Company pays the Advisor:
(i)
a base fee of $18.0 million per annum payable in cash monthly in advance (“Minimum Base Management Fee”);
(ii) plus a variable fee, payable monthly in advance in cash, equal to 1.25% of the cumulative net proceeds realized by the Company from the issuance of any
common equity, including any common equity issued in exchange for or conversion of preferred stock or exchangeable notes, as well as, from any other
issuances of common, preferred, or other forms of equity of the Company, including units of any operating partnership (“Variable Base Management
Fee”); and
(iii) an incentive fee (“Incentive Compensation”), 50% payable in cash and 50% payable in shares of the Company’s Common Stock (which shares are subject
to certain lock up restrictions), equal to: (a) 15% of the Company’s Core AFFO (as defined in the Advisory Agreement) per weighted average share
outstanding for the applicable period (“Core AFFO Per Share”)(1) in excess of an incentive hurdle based on an annualized Core AFFO Per Share of $0.78
, plus (b) 10% of the Core AFFO Per Share in excess of an incentive hurdle of an annualized Core AFFO Per Share of $1.02 . The $0.78 and $1.02
incentive hurdles are subject to annual increases of 1% to 3% . The Base Management Fee and the Incentive Compensation are each subject to an annual
adjustment.
F-34
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The annual aggregate amount of the Minimum Base Management Fee and Variable Base Management Fee (collectively, the “Base Management Fee”) that
may be paid under the Advisory Agreement will also be subject to varying caps based on assets under management (“AUM”) (2) , as defined in the Advisory
Agreement.
_______________________________
(1) For purposes of the Advisory Agreement, Core AFFO per share means (i) Net income adjusted for the following items (to the extent they are included in Net income): (a) real estate related
depreciation and amortization; (b) Net income from unconsolidated partnerships and joint ventures; (c) one-time costs that the Advisor deems to be non-recurring; (d) non-cash equity
compensation (other than any Restricted Share Payments); (e) other non-cash income and expense items; (f) non-cash dividends related to the Class B Units of the OP and certain non-cash
interest expenses related to securities that are convertible to Common Stock; (g) gains (or losses) from the sale of Investments; (h) impairment losses on real estate; (i) acquisition and
transaction related costs; (j) straight-line rent; (k) amortization of above and below market leases and liabilities; (l) amortization of deferred financing costs; (m) accretion of discounts and
amortization of premiums on debt investments; (n) mark-to-market adjustments included in Net income; (o) unrealized gains or losses resulting from consolidation from, or
deconsolidation to, equity accounting, and (p) consolidated and unconsolidated partnerships and joint ventures. (ii) divided by the weighted average outstanding shares of Common Stock
on a fully diluted basis for such period.
(2) For purposes of the Advisory Agreement, "AUM" means, for a specified period, an amount equal to (A) (i) the aggregate costs of the Company's investments (including acquisition fees
and expenses) at the beginning of such period (before reserves for depreciation of bad debts, or similar non-cash reserves) plus
(ii) the aggregate cost of the Company's investment at the
end of such period (before reserves from depreciation or bad debts, or similar non-cash reserves) divided by (B) two (2).
In addition, the per annum aggregate amount of the Base Management Fee and the Incentive Compensation to be paid under the Advisory Agreement is
capped at (a) 1.25% of the AUM for the previous year if AUM is less than or equal to $5.0 billion ; (b) 0.95% if the AUM is equal to or exceeds $15.0 billion ; or
(c) a percentage equal to: (A) 1.25% less (B) (i) a fraction, (x) the numerator of which is the AUM for such specified period less $5.0 billion and (y) the
denominator of which is $10.0 billion multiplied by (ii) 0.30% if AUM is greater than $5.0 billion but less than $15.0 billion . The Variable Base Management Fee
is also subject to reduction if there is a sale or sales of one or more Investments in a single or series of related transactions exceeding $200.0 million and, the
special dividend(s) related thereto.
In connection with providing strategic advisory services related to certain portfolio acquisitions, the Company has entered into arrangements in which the
investment banking division of the Former Dealer Manager is paid a transaction fee of 0.25% of the Transaction Value for such portfolio acquisition transactions.
Pursuant to such arrangements to date, the Transaction Value has been defined as: (i) the value of the consideration paid or to be paid for all the equity securities or
assets in connection with the sale transaction or acquisition transaction (including consideration payable with respect to convertible or exchangeable securities and
option, warrants or other exercisable securities and including dividends or dividends and equity security repurchases made in anticipation of or in connection with
the sale transaction or acquisition transaction), or the implied value for all the equity securities or assets of the Company or acquisition target, as applicable, if a
partial sale or purchase is undertaken, plus (ii) the aggregate value of any debt, capital lease and preferred equity security obligations (whether consolidated, off-
balance sheet or otherwise) of the Company or acquisition target, as applicable, outstanding at the closing of the sale transaction or acquisition transaction), plus
(iii) the amount of any fees, expenses and promote paid by the buyer(s) on behalf of the Company or the acquisition target, as applicable. Should the Former Dealer
Manager provide strategic advisory services related to additional portfolio acquisition transactions, the Company will enter into new arrangements with the Former
Dealer Manager on such terms as may be agreed upon between the two parties.
Property Manager provides property management and leasing services for properties owned by the Company, for which the Company pays fees equal to: (i)
with respect to stand-alone, single-tenant net leased properties which are not part of a shopping center, 2.0% of gross revenues from the properties managed and (ii)
with respect to all other types of properties, 4.0% of gross revenues from the properties managed.
For services related to overseeing property management and leasing services provided by any person or entity that is not an affiliate of the Property Manager,
the Company pays the Property Manager an oversight fee equal to 1.0% of gross revenues of the property managed.
Solely with respect to the Company's investments in properties located in Europe, the Service Provider receives a portion of the fees payable to the Advisor
equal to: (i) with respect to single-tenant net leased properties which are not part of a shopping center, 1.75% of the gross revenues from such properties and (ii)
with respect to all other types of properties, 3.5% of the gross revenues from such properties. The Property Manager is paid 0.25% of the gross revenues from
European single-tenant net leased properties which are not part of a shopping center and 0.5% of the gross revenues from all other types of properties, reflecting a
split of the oversight fee with the Service Provider.
F-35
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The following table reflects related party fees incurred, forgiven and contractually due as of and for the periods presented:
Year Ended December 31,
2015
2014
2013
Payable as of December 31,
(In
thousands)
Incurred
Forgiven
Incurred
Forgiven
Incurred
Forgiven
2015
2014
2013
One-time fees and reimbursements:
Acquisition fees and related cost reimbursements
(1)
Transaction fee
Financing coordination fees (2)
Ongoing fees:
Asset management fees (3)
Property management and leasing fees (4)
Strategic advisory fees
Class B OP Unit Distributions
LTIP Distributions
Vesting of Class B units (3)
Total related party operational fees and
reimbursements
$
735 $
—
1,159
— $
—
—
32,915 $
—
6,546
— $
—
—
2,447 $
165
926
— $
—
—
$
—
—
466 (6)
2 $
—
—
13,501
3,982
—
339
375
14,480
—
2,507
—
—
—
—
—
1,316
561
178
—
—
—
690
—
—
—
—
—
50
359
4
—
—
—
25
—
—
—
—
217 (5)
91 (6)
—
—
375 (7)
—
—
52
—
—
—
—
$
34,571 $
2,507 $
41,516 $
690 $
3,951 $
25 $
1,149
$
54 $
—
—
—
—
1
—
—
—
—
1
___________________________________________________________________________
(1) These affiliated fees are recorded within acquisition and transaction related costs on the consolidated statements of operations.
(2) These affiliated costs are recorded as deferred financing costs and amortized over the term of the respective financing arrangement.
(3) From January 1, 2013 to April 1, 2015, the Company caused the OP to issue to the Advisor (subject to periodic approval by the board of directors) restricted performance based Class B
units for asset management services, which would vest if certain conditions occur. At the Listing Date, all Class B units held by the Advisor converted to OP Units. From April 1, 2015
until the Listing Date, the Company paid the Advisor asset management fees in cash (as elected by the Advisor). From the Listing Date, the Advisor received asset management fees in
cash in accordance with the Amended and Restated Advisory Agreement. No Incentive Compensation was incurred for the year ended December 31, 2015 .
(4) The Advisor waived 100% of fees from U.S. assets and its allocated portion of 50% of fees from European assets.
(5) Balance included within due to affiliates on the consolidated balance sheets as of December 31, 2015 . In addition, due to affiliates includes $0.8 million of costs accrued for transfer asset
and personnel services received from the Company's affiliated parties including ANST, Advisor and RCS which are recorded within general and administrative expenses on the
consolidated statements of operations for the year ended December 31, 2015 and are not reflected in the table above.
(6) Balance included within accounts payable and accrued expenses on the consolidated balance sheets as of December 31, 2015 .
(7) Balance included within dividends payable on the consolidated balance sheets as of December 31, 2015 .
The Company reimburses the Advisor's costs of providing administrative services, subject to the limitation that the Company will not reimburse the Advisor
for any amount by which the Company's operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the
greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash
reserves and excluding any gain from the sale of assets for that period. Additionally, the Company reimburses the Advisor for personnel costs in connection with
other services, in addition to paying an asset management fee; however, the Company does not reimburse the Advisor for personnel costs in connection with
services for which the Advisor receives acquisition fees or real estate commissions. No reimbursement was incurred from the Advisor for providing services during
the years ended December 31, 2015 , 2014 and 2013 .
In order to improve operating cash flows and the ability to pay dividends from operating cash flows, the Advisor may waive certain fees including asset
management and property management fees. Because the Advisor may waive certain fees, cash flow from operations that would have been paid to the Advisor may
be available to pay dividends to stockholders. The fees that may be forgiven are not deferrals and accordingly, will not be paid to the Advisor. In certain instances,
to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's general and administrative costs or property operating
expenses. These absorbed costs are presented net in the accompanying consolidated statements of operations. During the year ended December 31, 2015 , the
Advisor absorbed some of the property management and professional fees. During the year ended December 31, 2014 , there were no property operating and
general administrative expenses absorbed by our Advisor.
F-36
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The predecessor to AR Global is a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer
Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with
services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time
and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in
November 2015 and no services have since been provided by RCS Advisory.
The Company is also party to a transfer agency agreement with American National Stock Transfer, LLC, a subsidiary of the parent company of the Former
Dealer Manager (“ANST”), pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction
processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by a third-party transfer agent.
AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the
transfer agent effective February 29, 2016. The Company’s current provider of sub-transfer agency services will provide the Company with transfer agency
services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services) until the Company enters into a definitive
transfer agency agreement with a transfer agent.
During the year ended December 31, 2015 , the Company has incurred approximately $0.8 million of recurring transfer agent services fees to ANST which
were included in general and administrative expenses in the consolidated statements of operations.
The following table details property operating and general and administrative expenses absorbed by the Advisor during the three years ended December 31,
2015 , 2014 , and 2013 :
(In
thousands)
Property operating expenses absorbed
General and administrative expenses absorbed
Total expenses absorbed (1)
___________________________________________________
Year Ended December 31,
2015
2014
2013
$
$
— $
—
— $
178 $
—
178 $
4
1,292
1,296
(1) The Company had had $0.5 million and $0.1 million receivables from the Advisor related to absorbed costs as of December 31, 2014 and 2013 , respectively,.
Fees
Paid
in
Connection
with
the
Liquidation
or
Listing
of
the
Company's
Real
Estate
Assets
On December 31, 2014, the Company entered into an agreement with RCS Capital, the investment banking and capital markets division of the Former Dealer
Manager, for strategic and financial advice and assistance in connection with (i) a possible sale transaction involving the Company (ii) the possible listing of the
Company’s securities on a national securities exchange, and (iii) a possible acquisition transaction involving the Company. The Company also retained Barclays
Capital Inc. as a strategic advisor. Both RCS Capital and Barclays Capital Inc., were each entitled to receive a transaction fee equal to 0.23% of the transaction
value in connection with a possible sale transaction, listing or acquisition, if any. In connection with Listing, the Company incurred approximately $18.7 million of
listing related fees during the year ended December 31, 2015 of which $6.0 million was paid to RCS Capital and $6.1 million to Barclays Capital Inc., including
out of pocket expense in connection with these agreements. The Company did not incur any additional listing fees during the year ended December 31, 2014 . In
addition, the Company incurred and paid to RCS Capital $2.5 million for personnel and support services in connection with the Listing. The Company also
incurred $0.6 million of transfer agent fees to ANST in relation to the Listing. In connection with the Listing and the Advisory Agreement, the Company
terminated the subordinated termination fee that would be due to the Advisor in the event of termination of the advisory agreement. All costs noted above were
included in listing fees in the consolidated statements of operations under listing fees for the year ended December 31, 2015 .
Note 12 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor, and the
Service Provider, to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of
properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company's Common Stock available for issue, transfer
agency services, as well as other administrative responsibilities for the Company including accounting services and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates and the Service Provider. In the event that these companies are
unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
F-37
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Note 13 — Share-Based Compensation
Stock
Option
Plan
The Company has a stock option plan (the "Plan") which authorizes the grant of nonqualified stock options to the Company's independent directors, officers,
advisors, consultants and other personnel, subject to the absolute discretion of the board of directors and the applicable limitations of the Plan. The exercise price
for all stock options granted under the Plan will be equal to the fair market value of a share on the last business day preceding the annual meeting of stockholders.
A total of 0.5 million shares have been authorized and reserved for issuance under the Plan. As of December 31, 2015 , 2014 and 2013 , no stock options were
issued under the Plan.
Restricted
Share
Plan
The Company's employee and director incentive restricted share plan ("RSP") provides the Company with the ability to grant awards of restricted shares to the
Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide
services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its
affiliates or to entities that provide services to the Company.
Prior to April 8, 2015 , the RSP provided for the automatic grant of 3,000 restricted shares of Common Stock to each of the independent directors, without any
further action by the Company's board of directors or the stockholders, on the date of initial election to the board of directors and on the date of each annual
stockholder's meeting. Restricted stock issued to independent directors will vest over a five -year period beginning on the first anniversary of the date of grant in
increments of 20% per annum. On April 8, 2015 , the Company amended the RSP ("the Amended RSP"), among other things, to remove the fixed amount of
shares that are automatically granted to the independent directors and remove the fixed vesting period of five years. Under the Amended RSP, the annual amount
granted to the independent directors is determined by the board of directors.
Effective upon the Listing Date, the Company’s board of directors approved the following changes to independent director compensation: (i) increasing in the
annual retainer payable to all independent directors to $100,000 per year, (ii) increase in the annual retainer for the non-executive chair to $105,000 , (iii) increase
in the annual retainer for independent directors serving on the audit committee, compensation committee or nominating and corporate governance committee to
$30,000 . All annual retainers are payable 50% in the form of cash and 50% in the form of restricted stock units ("RSU") which vest over a three -year period. In
addition, the directors have the option to elect to receive the cash component in the form of RSUs which would vest over a three-year period. Under the Amended
RSP, restricted share awards entitle the recipient to receive shares of Common Stock from the Company under terms that provide for vesting over a specified
period of time or upon attainment of pre-established performance objectives. Such awards would typically be forfeited with respect to the unvested shares upon the
termination of the recipient's employment or other relationship with the Company. In connection with the Listing, the Company's board of directors also approved
a one-time retention grant of 40,000 RSUs to each of the directors valued at $8.52 per unit, which vest over a five -year period. On July 13, 2015 , the Company
granted an annual retainer to each of its independent directors comprising of 50% (or $0.1 million ) in cash and 50% (or 7,352 ) in RSUs which vest over a three -
year period with the vesting period beginning on June 15, 2015. In addition, the Company granted $0.1 million in non executive chair compensation in cash and
50% (or 5,882 ) in RSUs which vest over a three -year period with the vesting period beginning on June 15, 2015 .
Prior to April 8, 2015 , the total number of shares of Common Stock granted under the RSP could not exceed 5.0% of the Company's outstanding shares on a
fully diluted basis at any time, and in any event could not exceed 7.5 million shares (as such number may be adjusted for stock splits, stock dividends,
combinations and similar events). The Amended RSP increased the number of shares the Company's Common Stock, par value $0.01 per share, available for
awards thereunder to 10% of the Company’s outstanding shares of Common Stock on a fully diluted basis at any time. The Amended RSP also eliminated the limit
of 7.5 million shares of Common Stock permitted to be issued as RSUs.
Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares
may receive cash dividends prior to the time that the restrictions on the restricted shares have lapsed. Any dividends payable in common shares shall be subject to
the same restrictions as the underlying restricted shares.
F-38
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The following table reflects restricted share award activity for the years ended December 31, 2015 , 2014 and 2013 .
Unvested, December 31, 2012
Granted
Vested
Unvested, December 31, 2013
Granted
Vested
Unvested, December 31, 2014
Granted prior to Listing Date (1)
One-time Listing Grant
Granted (2)
Vested (3)
Unvested, December 31, 2015
____________________________
Number of
Restricted Shares
Weighted-Average Issue
Price
9,000 $
9,000
(1,800)
16,200
9,000
(10,800)
14,400
3,000
160,000
27,938
(17,400)
187,938 $
9.00
9.00
9.00
9.00
9.00
9.00
9.00
9.00
8.52
8.84
9.00
8.57
(1) Based on the original RSP in place prior to April 8, 2015 .
(2) Based on the Amended RSP which provides an annual retainer to: (i) all independent directors; (ii) independent directors serving on the Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee; and (iii) the non-executive chair.
(3) RSUs granted prior to April 8, 2015 vested immediately prior to the Listing.
The fair value of the restricted shares granted prior to the Listing Date is based on the per share price in the IPO and the fair value of the restricted shares
granted on or after the Listing Date is based on the market price of Common Stock as of the grant date, and is expensed over the vesting period. Compensation
expense related to restricted stock was approximately $0.2 million , $0.1 million and $24,000 during the year s ended December 31, 2015 , 2014 and 2013 ,
respectively, and is recorded as equity based compensation during 2015 and general and administrative expenses during 2014 and 2013 in the accompanying
consolidated statements of operations. As of December 31, 2015 , the Company had $1.4 million of unrecognized compensation cost related to unvested restricted
share awards granted under the Company’s RSP. That cost is expected to be recognized over a weighted average period of 4.2 years .
Multi-Year
Outperformance
Agreement
In connection with the Listing, the Company entered into the OPP with the OP and the Advisor. Under the OPP, the Advisor was issued 9,041,801 LTIP Units
in the OP with a maximum award value on the issuance date equal to 5.00% of the Company’s market capitalization (the “OPP Cap”). The LTIP Units are
structured as profits interests in the OP.
F-39
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
The Advisor will be eligible to earn a number of LTIP Units with a value equal to a portion of the OPP Cap upon the first, second and third anniversaries of
the Effective Date, which is the Listing Date, June 2, 2015 , based on the Company’s achievement of certain levels of total return to its stockholders (“Total
Return”), including both share price appreciation and Common Stock dividends, as measured against a peer group of companies, as set forth below, for the three-
year performance period commencing on the Effective Date (the “ Three -Year Period”); each 12-month period during the Three -Year Period (the “ One -Year
Periods”); and the initial 24-month period of the Three -Year Period (the “ Two -Year Period”), as follows:
Absolute Component: 4% of any excess Total Return attained above an absolute hurdle measured from the
beginning of such period:
Relative Component: 4% of any excess Total Return attained above the Total Return for the performance
period of the Peer Group*, subject to a ratable sliding scale factor as follows based on achievement of
cumulative Total Return measured from the beginning of such period:
•
•
•
•
100% will be earned if cumulative Total Return achieved is at least:
50% will be earned if cumulative Total Return achieved is:
0% will be earned if cumulative Total Return achieved is less than:
a percentage from 50% to 100% calculated by linear interpolation will be earned if the cumulative
Total Return achieved is between:
Performance
Period
Annual
Period
Interim Period
21%
7%
14%
18%
—%
—%
6%
—%
—%
12%
—%
—%
0% - 18%
0% - 6%
0% - 12%
__________________________________
*
The “Peer Group” is comprised of Gramercy Property Trust Inc., Lexington Realty Trust, Select Income REIT, and W.P. Carey Inc.
The potential outperformance award is calculated at the end of each One -Year Period, the Two -Year Period and the Three -Year Period. The award earned
for the Three -Year Period is based on the formula in the table above less any awards earned for the Two -Year Period and One -Year Periods, but not less than
zero; the award earned for the Two -Year Period is based on the formula in the table above less any award earned for the first and second One -Year Period, but not
less than zero. Any LTIP Units that are unearned at the end of the Performance Period will be forfeited.
Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth
anniversaries of the Effective Date. Any earned and vested LTIP Units may be converted into OP Units in accordance with the terms and conditions of the limited
partnership agreement of the OP. The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in the
event Advisor is terminated or in the event the Company incurs a change in control, in either case prior to the end of the Three -Year Period.
The Company records equity based compensation expense associated with the awards over the requisite service period of five years on a graded vesting basis.
Equity-based compensation expense is adjusted each reporting period for changes in the estimated market-related performance. Compensation expense related to
the OPP was $2.2 million for the year ended December 31, 2015 . There was no compensation expense related to the OPP for the year ended December 31, 2014 .
Subject to the Advisor’s continued service through each vesting date, one third of any earned LTIP Units will vest on each of the third, fourth and fifth
anniversaries of the Effective Date. Until such time as an LTIP Unit is earned in accordance with the provisions of the OPP, the holder of such LTIP Unit is
entitled to dividends on such LTIP Unit equal to 10% of the distributions made per OP Unit. The Company has accrued $0.4 million in distributions related to
LTIP Units during the year ended December 31, 2015 , which is included in non-controlling interest in the consolidated balance sheets. After an LTIP Unit is
earned, the holder of such LTIP Unit is entitled to a catch-up distribution and then the same distributions as the holders of an OP Unit. At the time the Advisor’s
capital account with respect to an LTIP Unit is economically equivalent to the average capital account balance of an OP Unit, the LTIP Unit has been earned and it
has been vested for 30 days , the Advisor, in its sole discretion, will be entitled to convert such LTIP Unit into an OP Unit in accordance with the provisions of the
limited partnership agreement of the OP. The OPP provides for early calculation of LTIP Units earned and for the accelerated vesting of any earned LTIP Units in
the event Advisor is terminated by the Company or in the event the Company incurs a change in control, in either case prior to the end of the Three -Year Period.
On February 25, 2016 , the OPP was amended and restated to reflect the merger of two of the companies in the peer group.
F-40
GLOBAL NET LEASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
Other
Share-Based
Compensation
The Company may issue Common Stock in lieu of cash to pay fees earned by the Company's directors at each director's election. There are no restrictions on
the shares issued since these payments in lieu of cash relate to fees earned for services performed. There were no such shares of Common Stock issued in lieu of
cash during the year ended December 31, 2015 and 2013 . There were 1,056 such shares of Common Stock issued in lieu of cash during the year ended
December 31, 2014 which resulted in additional share based compensation of $10,000 .
Note 14 — Earnings Per Share
The following is a summary of the basic and diluted net income (loss) per share computation for the year s ended December 31, 2015 , 2014 and 2013 :
(In
thousands,
except
share
and
per
share
data)
Net loss attributable to stockholders
Adjustments to net income (loss) attributable to stockholders for common share equivalents
Adjusted net loss attributable to stockholders
Year Ended December 31,
2015
2014
2013
$
(2,065) $
(53,594) $
(442)
(2,507)
—
(53,594)
(6,989)
—
(6,989)
Basic and diluted net loss per share
Basic and diluted weighted average shares outstanding
(0.01) $
(0.43) $
(1.28)
174,309,894
126,079,369
5,453,404
Under current authoritative guidance for determining earnings per share, all nonvested share-based payment awards that contain non-forfeitable rights to
distributions are considered to be participating securities and therefore are included in the computation of earnings per share under the two-class method. The two-
class method is an earnings allocation formula that determines earnings per share for each class of common shares and participating security according to dividends
declared (or accumulated) and participation rights in undistributed earnings. Our nonvested RSUs and LTIPs contain rights to receive non-forfeitable distributions
and therefore we apply the two-class method of computing earnings per share. The calculation of earnings per share below excludes the non-forfeitable
distributions to the nonvested RSUs and LTIPs from the numerator.
Diluted net income (loss) per share assumes the conversion of all Common Stocks share equivalents into an equivalent number of common shares, unless the
effect is anti-dilutive. The Company considers unvested restricted stock, OP Units (excluding converted Class B units) and LTIP Units to be common share
equivalents. For the years ended December 31, 2015 , 2014 and 2013 , the following common share equivalents were excluded from the calculation of diluted
earnings per share:
Unvested restricted stock
OP Units (1)
Class B units
OPP (LTIP Units)
Total anti-dilutive common share equivalents
December 31,
2015
2014
2013
187,938
1,809,678
14,400
22
—
705,743
9,041,801
—
11,039,417
720,165
16,200
22
23,392
—
39,614
(1) OP Units included 1,726,323 of converted Class B units on Listing, 83,333 OP Units issued to the Advisor, and 22 OP Units issued to the Special Limited Partner.
Conditionally issuable shares relating to the OPP award (See Note 13 — Share Based Compensation) would be included in the computation of fully diluted
EPS (if dilutive) based on shares that would be issued if the balance sheet date were the end of the measurement period. No LTIP share equivalents were included
in the computation for the year ended December 31, 2015 because no units or shares would have been issued based on the stock price at December 31, 2015 .
Note 15 – Quarterly Results (Unaudited)
Presented below is a summary of the unaudited quarterly financial information for years ended December 31, 2015 and 2014 :
(In
thousands,
except
share
and
per
share
data)
Quarters Ended
2015
Total revenue
Net income (loss) attributable to stockholders
Adjustments to net income (loss) attributable to stockholders for
common share equivalents
Adjusted net income (loss) attributable to stockholders
Basic and diluted weighted average shares outstanding
Basic and diluted net income (loss) per share attributable to
stockholders
$
$
$
March 31, (1)
June 30,
September 30, (2)
49,969 $
25,855
49,068 $
(45,664)
—
—
25,855 $
(45,664) $
December 31, (3)
56,043
50,252 $
5,432
(249)
5,183 $
12,312
(193)
12,119
179,156,462
180,380,436
168,948,345
168,936,633
0.14
$
(0.25)
$
0.03
$
0.07
(In
thousands,
except
share
and
per
share
data)
Quarters Ended
2014
Total revenue
Net loss
Basic and diluted weighted average shares outstanding
Basic and diluted net loss per share
_______________________
March 31,
June 30,
September 30,
December 31,
$
$
$
7,547 $
(16,349) $
13,628 $
(7,479) $
25,902 $
(24,558) $
46,306
(5,208)
37,602,790
111,819,848
175,401,867
177,414,574
(0.43) $
(0.07) $
(0.14) $
(0.03)
(1) As discussed in Note 2 — Summary of Significant Accounting Policies, the Company reflected adjustments in the three months periods ended March 31, 2015 and December 31, 2015 to
correct errors in straight line rent and taxes relating to fiscal 2014.
(2) The Company identified errors in accounting for certain cross currency derivatives that were no longer designated as hedges subsequent to their restructuring on February 4, 2015 (see Note
8 — Derivatives and Hedging Activities) where gains that should have been included in net income (loss) were instead included in other comprehensive income (loss) of approximately
$0.5 million and $0.6 million during the thee month periods ended March 31, 2015 and June 30, 2015, respectively. The Company has concluded that these adjustments are not material to
the financial position or results of operations for the current period or any of the respective prior periods, accordingly, the Company recorded the additional gains on these non-designated
derivative instruments of $1.1 million during the three month period ended September 30, 2015.
(3) During the fourth quarter of 2015, the Company recorded an out-of-period adjustment to correct for an error identified in accounting for certain accrued operating expense reimbursement
revenue totaling approximately $1.0 million , of which approximately $0.4 million , $0.3 million and $0.3 million related to three month periods ended March 31, 2015, June 30, 2015 and
September 30, 2015, respectively. The Company concluded that this adjustment was not material to its financial position and results of operations for the current period or any of the prior
periods, accordingly, the Company reversed the accrued operating expense reimbursement revenue of $1.0 million during the three month period ended December 31, 2015.
Note 16 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Annual Report on Form 10-K, and determined that there have not been any events
that have occurred that would require adjustments to, or disclosures in, the consolidated financial statements, except for as previously disclosed.
F-41
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Improvements
Building and
$
1,109
Portfolio
McDonalds Corporation
Wickes
City
Carlisle
Blackpool
Everything Everywhere
Merthyr Tydfil
Thames Water
Wickes
PPD Global Labs
Swindon
Tunstall
Highland Heights
Northern Rock
Sunderland
Kulicke & Soffa
Fort Washington
Wickes
Con-Way Freight, Inc.
Clifton
Aurora
Con-Way Freight, Inc.
Grand Rapids
Con-Way Freight, Inc.
Con-Way Freight, Inc.
Riverton
Salina
Con-Way Freight, Inc.
Uhrichsville
Con-Way Freight, Inc.
Con-Way Freight, Inc.
Wolverine
Western Digital
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Vincennes
Waite Park
Howard City
San Jose
Baymon
Caguas
Carolina
Carolina
Guayama
Mayaguez
Ponce
Ponce
Encanto Restaurants
Puerto Neuvo
Encanto Restaurants
Quebrada Arena
Encanto Restaurants
Encanto Restaurants
Rio Piedras
Rio Piedras
Encanto Restaurants
San German
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
Encanto Restaurants
San Juan
San Juan
San Juan
Toa Baja
UK
UK
UK
UK
UK
KY
UK
PA
UK
NE
MI
IL
KS
OH
IN
MN
MI
CA
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
PR
$
Oct. 2012
May 2013
Jun. 2013
Jul. 2013
Jul. 2013
Aug. 2013
Sep. 2013
Sep. 2013
Nov. 2013
Nov. 2013
Nov. 2013
Nov. 2013
Nov. 2013
Nov. 2013
Nov. 2013
Nov. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Dec. 2013
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
$
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
1,584
4,146
6,662
8,882
3,405
8,003
6,661
203
275
323
561
275
758
583
15,146
1,449
3,553
1,965
2,362
1,148
2,304
1,266
932
1,047
14,386
25,750
2,874
2,481
1,366
4,601
1,495
1,367
2,183
1,999
782
2,409
2,751
1,684
1,117
1,557
2,744
765
684
216
212
180
102
234
113
88
87
1,667
1,616
191
275
83
306
91
106
169
161
87
174
198
131
83
129
167
68
71
2,147
2,591
4,811
2,369
6,002
5,181
12,874
2,073
1,670
1,417
804
1,843
886
712
681
13,667
16,729
1,724
2,481
751
2,761
822
957
1,528
1,399
782
1,565
1,788
1,179
726
1,168
1,509
612
616
$
1,125
2,882
5,922
8,882
2,443
—
7,772
—
2,813
—
—
—
—
—
—
—
—
475
1,999
4,071
4,071
1,036
2,001
1,480
2,272
1,480
295
945
344
461
380
220
366
719
17,982
1,794
1,560
858
2,886
936
858
1,365
1,248
507
1,505
1,716
1,053
702
975
9,021
1,150
—
615
1,840
673
410
655
600
—
844
963
505
391
389
1,716
1,235
483
429
153
68
F-42
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
PR
GER
MI
UK
UK
IA
UK
UK
UK
UK
UK
UK
TN
ND
UK
DE
PA
UK
UK
TX
TX
MN
IN
TX
TN
CO
IN
TX
TX
TX
TX
TX
LA
TX
Dec. 2013
Jan. 2014
Jan. 2014
Feb. 2014
Feb. 2014
Feb. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Mar. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
Apr. 2014
May. 2014
May. 2014
May. 2014
May. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
822
5,608
3,174
1,493
8,508
291
3,216
1,503
343
1,263
1,478
869
4,160
211
868
1,097
1,098
1,222
—
—
484
618
350
891
282
966
1,220
3,195
826
416
294
260
301
260
131
1,466
11,561
—
18,875
28,498
—
23,242
3,136
1,737
3,741
3,912
2,486
—
—
5,662
—
—
4,908
1,328
2,186
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-43
1,527
15,746
27,076
27,702
35,133
1,968
36,447
4,261
2,462
5,003
3,795
3,101
30,083
3,513
10,323
1,715
3,572
7,295
1,548
2,017
2,934
3,145
11,182
7,677
5,015
19,573
7,928
6,883
6,132
5,186
2,310
1,445
323
1,054
1,420
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,349
21,354
30,250
29,195
43,641
2,259
39,663
5,764
2,805
6,266
5,273
3,970
34,243
3,724
11,191
2,812
4,670
8,517
1,548
2,017
3,418
3,763
11,532
8,568
5,297
20,539
9,148
10,078
6,958
5,602
2,604
1,705
624
1,314
1,551
169
855
1,442
1,353
1,956
118
1,758
224
136
243
203
196
1,400
221
501
86
160
371
104
91
131
148
511
361
118
813
330
293
247
226
104
75
19
75
62
Portfolio
City
Encanto Restaurants
Vega Baja
Rheinmetall
GE Aviation
Provident Financial
Crown Crest
Trane
Aviva
DFS Trading
DFS Trading
DFS Trading
DFS Trading
DFS Trading
Government Services
Administration
National Oilwell Varco
Talk Talk
Government Services
Administration
Government Services
Administration
OBI DIY
DFS Trading
DFS Trading
Government Services
Administration
Government Services
Administration
Government Services
Administration
Indiana Department of
Revenue
Neuss
Grand Rapids
Bradford
Leicester
Davenport
Sheffield
Brigg
Carcroft
Carcroft
Darley Dale
Somercotes
Fanklin
Williston
Manchester
Dover
Germantown
South Yorkshire
Yorkshire
Dallas
Mission
International Falls
Indianapolis
National Oilwell Varco (5)
Pleasanton
Nissan
Government Services
Administration
Lippert Components
Axon Energy Products
Axon Energy Products
Axon Energy Products
Bell Supply Co
Bell Supply Co
Bell Supply Co
Bell Supply Co
Murfreesboro
Lakewood
South Bend
Conroe
Houston
Houston
Carrizo Springs
Cleburne
Frierson
Gainesville
Mayen
GER
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
Portfolio
Bell Supply Co
Bell Supply Co
GE Oil & Gas
GE Oil & Gas
Lhoist
City
Killdeer
Williston
Canton
Odessa
Irving
Select Energy Services
DeBerry
Select Energy Services
Gainesville
Select Energy Services
Bell Supply Co
Bell Supply Co
Select Energy Services
Select Energy Services
Select Energy Services
Select Energy Services
Victoria
Jacksboro
Kenedy
Alice
Dilley
Kenedy
Laredo
Superior Energy Services
Gainesville
Superior Energy Services
Jacksboro
Amcor Packaging
Government Services
Administration
Nimble Storage
FedEx
FedEx
FedEx
Sandoz
Wyndham
Valassis
Government Services
Administration
Workington
Raton
San Jose
Amarillo
Chicopee
San Antonio
Princeton
Branson
Livonia
Fort Fairfield
AT&T Services, Inc.
San Antonio
PNC Bank
PNC Bank
Achmea
Erie
Scranton
Leusden
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
ND
ND
OH
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
TX
UK
NM
CA
TX
MA
TX
NJ
MO
MI
ME
TX
PA
PA
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jun. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
Jul. 2014
NETH
Jul. 2014
307
162
437
1,611
173
533
519
354
51
190
518
429
815
2,472
322
408
1,289
93
30,227
889
1,030
3,283
7,766
881
1,735
26
5,312
242
1,325
2,777
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,628
—
—
—
—
—
—
—
—
—
33,550
—
—
—
F-44
1,250
2,323
3,039
3,322
2,154
7,551
7,482
1,698
657
1,669
1,331
1,777
8,355
944
480
312
7,597
875
10,708
6,421
7,022
17,729
31,994
3,307
8,119
9,315
41,201
6,195
3,003
21,638
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
180
—
—
—
11,558
—
—
—
—
—
—
—
1,557
2,485
3,476
4,933
2,327
8,084
8,001
2,052
708
1,859
1,849
2,206
9,170
3,416
802
720
8,886
968
41,115
7,310
8,052
21,012
51,318
4,188
9,854
9,341
46,513
6,437
4,328
24,415
63
105
137
270
114
522
307
91
45
90
62
97
392
66
20
18
368
39
425
312
358
718
2,223
142
319
337
1,474
226
113
778
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
Portfolio
Continental Tire
City
Fort Mill
Fujitsu Office Properties
Manchester
BP Oil
HBOS
HBOS
HBOS
Malthurst
Malthurst
Stanley Black & Decker
Thermo Fisher
Capgemini
Merck
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Wootton Bassett
Derby
St. Helens
Warrington
Shiptonthorpe
Yorkshire
Westerville
Kalamazoo
Birmingham
Madison
Abbeville
Aiken
Alapaha
Anniston
Atlanta
Bossier City
Brandenburg
Brownfield
Brownsville
Caledonia
Camden
Camp Wood
Church Point
Columbia
Columbus
Danville
Detroit
Diamond Head
Eatonville
Falfurrias
Fayetteville
Fort Davis
Fort Madison
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
SC
UK
UK
UK
UK
UK
UK
UK
OH
MI
UK
NJ
AL
SC
GA
AL
GA
LA
KY
TX
TX
MS
SC
TX
LA
SC
MS
VA
MI
MS
FL
TX
NC
TX
IA
Jul. 2014
Jul. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
—
36,684
780
4,181
678
680
258
492
312
553
958
1,176
1,843
10,290
115
439
200
176
234
291
178
31
83
415
187
96
247
363
305
124
107
104
332
52
100
114
188
2,159
4,293
2,193
1,493
1,439
1,139
—
—
8,142
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-45
14,259
45,253
2,931
6,854
3,884
2,320
2,218
1,452
6,933
10,179
17,470
32,530
635
505
492
618
1,181
520
748
664
803
162
608
593
563
487
85
660
711
834
584
745
437
698
226
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,039
49,434
3,609
7,534
4,142
2,812
2,530
2,005
7,891
11,355
19,313
42,821
750
944
692
794
1,415
811
926
695
886
577
795
689
810
850
390
784
818
938
916
797
537
812
414
520
1,675
115
279
159
102
96
82
262
365
649
1,106
28
24
24
26
45
22
31
25
31
12
27
26
24
24
6
26
25
32
30
26
16
31
11
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
City
Greenwood
Grenada
Griffin
Hallsville
Hardeeville
Hastings
Haw River
Jacksonville
Kansas City
Knoxville
La Feria
Lancaster
Lillian
Louisville
Louisville
Madisonville
Memphis
Memphis
Memphis
Mendenhall
Mobile
Mohave Valley
N Platte
Nampa
Newberry
North Charleston
North Charleston
Oklahoma City
Orlando
Orlando
Paulden
Pensacola
Poteet
Rockford
Roebuck
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
SC
MS
GA
TX
SC
NE
NC
FL
MO
TN
TX
SC
AL
KY
MS
KY
TN
TN
TN
MS
AL
AZ
NE
ID
MI
SC
SC
OK
FL
FL
AZ
FL
TX
IL
SC
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
629
346
369
96
83
260
310
369
52
82
124
229
410
511
235
389
356
79
158
61
258
284
117
133
172
376
458
144
668
501
468
123
141
183
306
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-46
546
335
715
225
663
515
554
544
986
714
956
721
508
503
410
576
507
342
301
720
682
575
255
1,126
1,562
588
593
1,211
567
769
306
541
169
1,179
508
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,175
681
1,084
321
746
775
864
913
1,038
796
1,080
950
918
1,014
645
965
863
421
459
781
940
859
372
1,259
1,734
964
1,051
1,355
1,235
1,270
774
664
310
1,362
814
22
18
31
8
28
20
30
24
33
29
35
33
22
23
20
25
23
16
15
28
27
30
9
43
59
26
28
41
26
41
19
23
11
43
27
Portfolio
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Portfolio
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Government Services
Administration
Garden Ridge
Garden Ridge
Garden Ridge
Garden Ridge
Hewlett-Packard
Intier Automotive
City
San Angelo
St Louis
Tyler
Union
Williamston
Winter Haven
Winter Haven
Rangeley
Louisville
Lubbock
Mesa
Raleigh
Newcastle
Redditch
Waste Management
Winston-Salem
Winona
TX
MO
TX
MS
SC
FL
FL
ME
KY
TX
AZ
NC
UK
UK
NC
MN
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Aug. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
FedEx
Winston Hotel
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Amsterdam
NETH
Sep. 2014
Allen
Allentown
Caledonia
Cherokee
Choctaw
Clearwater
Dexter
Elmore City
Erie
Eunice
Gore
Gratiot
Greensburg
Heavener
Kingston
Lordsburg
Lyons
Mansfield
OK
PA
OH
KS
OK
KS
NM
OK
PA
NM
OK
OH
PA
OK
OK
NM
KS
LA
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
96
226
217
52
211
486
210
1,377
3,994
1,574
2,727
2,362
1,273
1,314
494
83
7,657
99
347
110
27
247
90
329
21
410
269
143
239
97
99
81
212
120
169
—
—
—
—
—
—
—
—
—
—
—
—
13,748
6,995
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-47
342
1,325
682
622
558
437
527
4,746
4,865
5,950
4,867
4,267
21,193
10,407
3,235
1,785
4,049
793
887
861
769
859
785
585
742
682
569
813
809
970
998
778
719
970
812
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
262
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
438
1,551
899
674
769
923
737
6,385
8,859
7,524
7,594
6,629
22,466
11,721
3,729
1,868
11,706
892
1,234
971
796
1,106
875
914
763
1,092
838
956
1,048
1,067
1,097
859
931
1,090
981
15
48
25
25
25
24
29
166
172
237
189
168
703
384
110
69
127
28
41
30
28
30
28
21
27
27
21
29
29
36
35
28
26
34
29
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Portfolio
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
Dollar General
FedEx
FedEx
Shaw Aero
Mallinckrodt
Trinity Health
FedEx
FedEx
GE Aviation
Bradford & Bingley
DNV GL
Rexam
C&J Energy
FedEx
Santa Rosa
NM
Sep. 2014
City
McKean
Muskogee
Neligh
New Florence
New Paris
Norman
Painesville
Painesville
Peggs
Sapulpa
Schuyler
Spencerville
Tahlequah
Talihina
Townville
Uniontown
Valley Falls
Valliant
Wymore
Wynnewood
Bohemia
Watertown
Naples
St. Louis
Livonia
Hebron
Lexington
Cincinnati
Bingley
Dublin
PA
OK
NE
PA
OH
OK
OH
OH
OK
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
OK
NE
OH
OK
OK
PA
PA
KS
OK
NE
OK
NY
NY
FL
MO
MI
MI
KY
KY
OH
UK
OH
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Sep. 2014
Oct. 2014
Oct. 2014
Reckinghausen
GER
Oct. 2014
Houston
Lake Charles
TX
LA
Oct. 2014
Oct. 2014
Kuka Warehouse
Sterling Heights
107
154
83
70
411
40
340
300
72
324
143
144
213
132
163
78
165
51
183
21
188
4,838
561
998
1,499
1,227
8,953
1,106
1,118
1,393
4,937
2,509
769
3,865
255
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,192
—
5,737
—
—
F-48
1,014
771
1,045
940
488
913
797
715
879
575
745
905
928
925
1,023
882
1,107
922
1,004
872
1,057
19,596
4,757
22,332
16,828
10,790
28,141
7,750
7,961
10,490
12,396
3,140
10,825
9,457
7,485
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
323
—
—
—
—
—
—
—
—
1,121
925
1,128
1,010
899
953
1,137
1,015
951
899
888
1,049
1,141
1,057
1,186
960
1,272
973
1,187
893
1,245
24,434
5,318
23,330
18,327
12,017
37,417
8,856
9,079
11,883
17,333
5,649
11,594
13,322
7,740
37
28
36
35
25
32
28
26
31
21
27
32
32
33
37
33
40
32
36
31
38
706
181
726
553
354
1,065
269
273
345
441
108
336
310
274
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
TN
TX
FL
AL
TN
GA
TX
NC
TN
SC
TX
LA
FL
MI
SC
MS
ID
AL
AL
FL
UT
AR
LA
FL
FL
AL
AL
TX
MS
TX
MS
NC
FL
NC
NJ
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
Oct. 2014
62
80
103
89
155
246
91
237
370
556
287
295
300
132
303
183
188
122
411
230
96
424
243
684
403
463
241
74
447
63
409
474
482
337
1,312
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-49
739
781
673
749
776
757
777
554
1,025
757
634
737
812
1,040
584
747
786
821
646
695
894
649
696
619
907
749
803
774
891
674
1,080
676
851
826
7,075
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
801
861
776
838
931
1,003
868
791
1,395
1,313
921
1,032
1,112
1,172
887
930
974
943
1,057
925
990
1,073
939
1,303
1,310
1,212
1,044
848
1,338
737
1,489
1,150
1,333
1,163
8,387
26
26
29
33
30
40
27
21
42
28
23
26
28
42
27
27
35
37
32
27
41
28
25
25
33
38
28
27
30
23
40
25
31
39
218
Portfolio
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Family Dollar
Panasonic
City
Big Sandy
Boling
Bonifay
Brindidge
Brownsville
Buena Vista
Calvert
Chocowinty
Clarksville
Fort Mill
Hillsboro
Lake Charles
Lakeland
Lansing
Laurens
Marion
Marsing
Montgomery
Montgomery
Monticello
Monticello
North Little Rock
Oakdale
Orlando
Port St. Lucie
Prattville
Prichard
Quinlan
Rigeland
Rising Star
Southaven
Spout Springs
St. Petersburg
Swansboro
Hudson
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
City
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
Initial Costs
Costs Capitalized Subsequent to
Acquisition
Houten
NETH
Portfolio
Onguard
Axon Energy Products
Houston
Havre De Grace
Metro Tonic
Tokmanni
Fife Council
Family Dollar
Family Dollar
Government Services
Administration
KPN BV
RWE AG
RWE AG
RWE AG
Halle Peissen
Matsala
Dunfermline
Doerun
Old Hickory
Rapid City
Essen
Essen
Essen
Follett School
McHenry
Quest Diagnostics, Inc.
Santa Clarita
Family Dollar
Diebold
Dollar General
Weatherford International
AM Castle
FedEx
Constellium Auto
C&J Energy II
Fedex VII
Fedex VIII
Fresenius
Fresenius
Crown Group
Crown Group
Crown Group
Crown Group
Crown Group
Crown Group
Mapes & Sprowl Steel, Ltd.
JIT Steel Services
JIT Steel Services
Tampa
North Canton
Chickasha
Odessa
Wichita
Billerica
Wayne
Houston
Salina
Pierre
Sumter
Hephzibah
Jonesville
Fraser
Warren
Marion
Logansport
Madison
Elk Grove
Chattanooga
Chattanooga
MD
TX
GER
FIN
UK
GA
TN
SD
GER
GER
GER
IL
CA
FL
OH
OK
TX
KS
MA
MI
TX
UT
SD
SC
GA
MI
MI
MI
SC
IN
IN
IL
TN
TN
Oct. 2014
Oct. 2014
Oct. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Nov. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Dec. 2014
Mar. 2015
Mar. 2015
Apr. 2015
May 2015
Jul. 2015
Aug. 2015
Aug. 2015
Aug. 2015
Aug. 2015
Aug. 2015
Aug. 2015
Sep. 2015
Sep. 2015
Sep. 2015
2,216
297
6,628
1,718
390
236
548
504
1,538
4,783
11,712
1,852
3,423
10,714
466
—
248
665
426
1,138
1,180
6,196
428
—
243
234
101
350
297
386
1,843
1,598
954
316
582
—
—
28,903
31,603
2,715
—
—
—
—
23,537
28,508
16,124
—
52,800
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
F-50
6,585
2,432
46,436
51,984
5,029
717
781
7,837
18,812
34,017
41,179
23,658
15,600
69,018
820
9,142
1,293
1,795
6,681
6,674
13,781
21,745
3,334
3,288
3,269
2,235
3,136
3,865
3,325
7,993
5,430
7,513
4,619
1,986
3,122
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,875
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,801
2,729
53,064
53,702
5,419
953
1,329
8,341
20,350
38,800
52,891
25,510
19,023
79,732
1,286
9,142
1,541
2,460
7,107
7,812
22,836
27,941
3,762
3,288
3,512
2,469
3,237
4,215
3,622
8,379
7,273
9,111
5,573
2,302
3,704
289
74
1,595
1,684
158
26
30
247
557
936
1,137
654
540
1,902
28
283
36
80
169
208
904
472
101
89
62
33
37
45
39
79
59
69
42
17
28
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
Portfolio
City
Beacon Health System, Inc.
South Bend
Hannibal/Lex JV LLC
FedEx Ground
Office Depot
Finnair
Total
Houston
Mankato
Venlo
Helsinki
___________________________________
Initial Costs
Costs Capitalized Subsequent to
Acquisition
U.S. State or
Country
Acquisition
Date
Encumbrances at
December 31, 2015
Land
Building and
Improvements
Land
Building and
Improvements
Gross Amount at
December 31,
2015 (1)(2)
Accumulated
Depreciation (3)(4)
IN
TX
MN
NETH
FIN
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
Sep. 2015
—
—
—
—
1,636
2,090
472
3,401
8,190
11,138
6,780
15,043
$
30,976
531,708
2,455
$ 341,911
69,941
$ 1,665,900
$
—
—
—
—
—
— $
—
—
—
—
—
9,826
13,228
7,252
18,444
72,396
58
73
57
114
475
20,199
$
2,028,010
$
68,078
(1) Acquired intangible lease assets allocated to individual properties in the amount of $518.3 million are not reflected in the table above.
(2) The tax basis of aggregate land, buildings and improvements as of December 31, 2015 is $2.6 billion .
(3) The accumulated depreciation column excludes approximately $65.3 million of amortization associated with acquired intangible lease assets.
(4) Each of the properties has a depreciable life of: 40 years for buildings, 15 years for improvements and five years for fixtures.
(5) The Company has expanded the property in September 2015 by purchasing additional land of $0.1 million , building and improvements of $3.4 million and an accumulated depreciation of
$25,000 as of December 31, 2015 .
F-51
Global Net Lease, Inc.
Real Estate and Accumulated Depreciation
Schedule III
December 31, 2015
(dollar amounts in thousands)
A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2015 , 2014 and 2013 :
Real estate investments, at cost:
Balance at beginning of year
Additions-Acquisitions
Asset remeasurement
Currency translation adjustment
Balance at end of the year
Accumulated depreciation and amortization:
Balance at beginning of year
Depreciation expense
Currency translation adjustment
Balance at end of the year
2015
December 31,
2014
2013
$
1,855,960 $
226,412
2,318
(56,680)
149,009 $
1,748,944
(675)
(41,318)
1,729
147,245
—
35
2,028,010 $
1,855,960 $
149,009
21,319 $
47,649
(890)
68,078 $
869 $
20,856
(406)
21,319 $
12
837
20
869
$
$
$
F-52
FOURTH AMENDMENT TO CREDIT AGREEMENT
Exhibit 10.35
FOURTH AMENDMENT TO CREDIT AGREEMENT (this “ Agreement ”) dated as of July 29, 2014, among AMERICAN REALTY
CAPITAL GLOBAL OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“ Borrower ”), AMERICAN REALTY CAPITAL GLOBAL TRUST,
INC., a Maryland corporation (“ Parent ”), ARC GLOBAL HOLDCO, LLC, a Delaware limited liability company (“ International Holdco ”), the SUBSIDIARY
GUARANTORS party hereto (the “ Subsidiary Guarantors ”; Parent, International Holdco and each of the Subsidiary Guarantors, individually, a “ Guarantor Party
” and, collectively, the “ Guarantor Parties ”), the LENDERS party hereto, and JPMORGAN CHASE BANK, N.A., as administrative agent for the Lenders
(together with its successors and assigns in such capacity, the “ Administrative Agent ”).
RECITALS:
A. Borrower, the Administrative Agent and certain lenders (together with their respective successors and assigns, the “ Lenders ”) are
parties to that certain Credit Agreement dated as of July 25, 2013, as amended by that certain First Amendment to Credit Agreement dated as of November 22,
2013, that certain letter agreement regarding updated schedules dated as of November 22, 2013, that certain letter agreement regarding updated schedules dated as
of December 20, 2013, that certain letter agreement regarding updated schedules dated as of January 15, 2014, that certain Omnibus Amendment to Loan
Documents dated as of March 26, 2014, that certain letter agreement regarding updated schedules dated as of April 17, 2014, that certain Third Amendment to
Credit Agreement dated as of June 24, 2014, and that certain letter agreement regarding updated schedules dated as of June 24, 2014 (as so amended, the “ Credit
Agreement ”; and except as otherwise herein expressly provided, each initially capitalized term used herein has the meaning assigned to such term in the Credit
Agreement, as amended by this Agreement).
B. Pursuant to Section 2.21 of the Credit Agreement, Borrower has requested, among other things, an increase in the Commitments by
$85,000,000, and Capital One, National Association and Sumitomo Mitsui Banking Corporation (each an “ Electing Lender ” and collectively, the “ Electing
Lenders ”) have agreed to provide such increase.
C. The parties hereto desire to amend the Credit Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree
as follows:
as follows:
Section 1. Amendment of Credit Agreement . Effective as of the Effective Date (defined below), the Credit Agreement is hereby amended
(a) The definition of “Alternate Base Rate” set forth in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced
with the following:
““ Alternate
Base
Rate
” means, for any day, a rate per
annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the
Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or
if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that, for the avoidance of doubt, the Adjusted
LIBO Rate for any day shall be based on the LIBO Screen Rate at approximately 11:00 a.m. London time on such day; provided that, if the
LIBO Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement and provided, further, if the
LIBO Screen Rate shall not be available at such time for such Interest Period then the LIBO Rate shall be the Interpolated Rate, provided, that, if
any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement. Any change in the Alternate
Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including
the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.”
and replaced with the following:
(b) The last sentence of the definition of “Commitment” set forth in Section 1.01 of the Credit Agreement is hereby deleted in its entirety
“As of July 29, 2014, the aggregate amount of the Lenders’ Commitments is $415,000,000.”
(c) The following definition of “Impacted Interest Period” is hereby added to Section 1.01 of the Credit Agreement:
““ Impacted
Interest
Period
” means any Interest Period for which the LIBO Screen Rate is not available.”
(d) The following definition of “Interpolated Rate” is hereby added to Section 1.01 of the Credit Agreement:
““ Interpolated
Rate
” means, at any time, for any Interest Period, the rate per
annum
(rounded to the same number of decimal places
as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error)
to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period (for which the
LIBO Screen Rate is available for the applicable currency) that is shorter than the Impacted Interest Period; and (b) the LIBO Screen Rate for the
shortest period (for which that LIBO Screen Rate is available for the applicable currency) that exceeds the Impacted Interest Period, in each case,
at such time.”
(e) The definition of “LIBO Rate” set forth in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the
following:
“” LIBO
Rate
” means, with respect to any Eurocurrency Borrowing for any applicable currency and for any Interest Period, the
London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such
rate for the relevant currency for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters
screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such
screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected
by the Administrative Agent in its reasonable discretion; in each case the “ LIBO
Screen
Rate
”) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period; provided that if the LIBO Screen Rate shall be less than zero, such rate shall
be deemed to be zero for the purposes of this Agreement; provided further that if the Screen Rate shall not be available at such time for such
Interest Period with respect to the applicable currency then the LIBO Rate shall be the Interpolated Rate; provided that if any Interpolated Rate
shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.”
(f) The last sentence of Section 2.02(c) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of ten
(10) Eurocurrency Borrowings outstanding.”
(g) Schedule 2.01 of the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 2.01 attached hereto.
Section 2. Commitments . Capital One, National Association and Sumitomo Mitsui Banking Corporation each agrees that, as of the
Effective Date, it shall be a Lender for all purposes under the Loan Documents and each agrees to be bound by all of its obligations thereunder. Each Electing
Lender agrees that its respective Commitment shall be equal to the amount set forth on Schedule 2.01 attached hereto.
- 2 -
Section 3. Effective Date . The “ Effective Date ” shall be the date on which all of the following have been satisfied:
(a) the Administrative Agent shall have received signed counterparts of this Agreement from the Required Lenders (after giving effect to
the increase in the Commitments contemplated by this Agreement);
(b) the Administrative Agent shall have received the Electing Lenders’, Borrower’s, Parent’s, International Holdco’s and the Subsidiary
Guarantors’ signed counterparts of this Agreement;
(c) each Electing Lender shall have received a Note executed by Borrower in the principal amount equal to such Electing Lender’s
Commitment as set forth on Schedule 2.01 attached hereto; and
(d) the Administrative Agent shall have been paid all reasonable out-of-pocket expenses, including reasonable legal fees for the
Administrative Agent’s outside counsel, due to it pursuant to the transaction contemplated herein and all reasonable outstanding out-of-pocket fees and expenses, if
any, that have been invoiced to Borrower to date.
Section 4. Borrower’s Representations . Borrower hereby represents and warrants to the Administrative Agent and the Lenders, as follows:
(a) each of the representations and warranties of Borrower contained or incorporated in the Credit Agreement, as amended by this
Agreement, or any of the other Loan Documents to which it is a party, are true and correct in all material respects on and as of the date hereof (except if any such
representation or warranty is expressly stated to have been made as of a specific date, then as of such specific date);
(b) as of the date hereof and immediately after giving effect to this Agreement, no Default and no Event of Default has occurred and is
continuing;
(c) Borrower has all necessary limited partnership power and authority to execute, deliver and perform its obligations under this
Agreement; Borrower has been duly authorized by all necessary limited partnership action on its part; and this Agreement has been duly and validly executed and
delivered by Borrower and constitutes Borrower’s legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and
(ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and
(d) Borrower’s execution and delivery of this Agreement (i) does not require any consent or approval of, registration or filing with, or any
other action by, any governmental authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents of Borrower or any order of any governmental authority and (iii) will not violate or result in
a default under any indenture, agreement or other instrument binding upon Borrower or any of its assets.
Section 5. Guarantor Parties’ Representations . Each Guarantor Party hereby represents and warrants to the Administrative Agent and the
Lenders, as follows:
(a) each of the representations and warranties of such Guarantor Party contained or incorporated in the Guaranty or any of the other Loan
Documents to which it is a party, are true and correct in all material respects on and as of the date hereof (except if any such representation or warranty is expressly
stated to have been made as of a specific date, then as of such specific date);
(b) as of the date hereof and immediately after giving effect to this Agreement, such Guarantor Party is in compliance with its obligations
under the Guaranty and each of the other Loan Documents to which it is a party;
- 3 -
(c) such Guarantor Party has all necessary corporate or limited liability company, as applicable, power and authority to execute, deliver and
perform its obligations under this Agreement; such Guarantor Party has been duly authorized by all necessary corporate or limited liability company, as applicable,
action on its part; and this Agreement has been duly and validly executed and delivered by such Guarantor Party and constitutes such Guarantor Party’s legal, valid
and binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (ii) the application of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law); and
(d) such Guarantor Party’s execution and delivery of this Agreement (i) does not require any consent or approval of, registration or filing
with, or any other action by, any governmental authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any
applicable law or regulation or the charter, by-laws or other organizational documents of such Guarantor Party or any order of any governmental authority and
(iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Guarantor Party or any of its assets.
Section 6. Ratification .
(a) Borrower hereby (i) reaffirms, ratifies, confirms, and acknowledges its obligations under the Credit Agreement (as amended hereby)
and the other Loan Documents to which it is a party and agrees to continue to be bound thereby and perform thereunder and (ii) agrees and acknowledges that the
Credit Agreement (as amended hereby) and the other Loan Documents and all of Borrower’s obligations thereunder are and remain in full force and effect and,
except as expressly provided herein, have not been affected, modified or amended.
(b) Each Guarantor Party hereby (i) reaffirms, ratifies, confirms, and acknowledges its obligations under the Guaranty and the other Loan
Documents to which it is a party and agrees to continue to be bound thereby and perform thereunder and (ii) agrees and acknowledges that the Guaranty and the
other Loan Documents and all of its obligations thereunder are and remain in full force and effect and, except as expressly provided herein, have not been affected,
modified or amended.
Section 7. Miscellaneous .
(a) GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
(b) Amendments, Etc . The terms of this Agreement may be waived, modified and amended only by an instrument in writing duly
executed by the party hereto against whom enforcement of such waiver, modification or amendment is sought (provided that, subject to the terms of the Credit
Agreement, the Administrative Agent may execute any such waiver, modification or amendment on behalf of the Lenders). Any such waiver, modification or
amendment shall be binding upon Borrower, the Guarantors, the Electing Lenders, the Administrative Agent and the Lenders.
Borrower, the Guarantor Parties, the Electing Lenders, the Administrative Agent and the Lenders.
(c) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of
(d) Captions . The captions and section headings appearing herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
(e) Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of this Agreement
by facsimile or email transmission shall be effective as manual delivery of an executed counterpart hereof.
(f) Severability . Any provision hereof which is held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions
hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
[remainder of page intentionally left blank]
- 4 -
written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above
BORROWER:
AMERICAN REALTY CAPITAL GLOBAL OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership
By:
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
PARENT:
AMERICAN REALTY CAPITAL GLOBAL TRUST, INC., a Maryland
corporation
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
INTERNATIONAL HOLDCO:
ARC GLOBAL HOLDCO, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
SUBSIDIARY GUARANTORS :
ARC KSFTWPA001, LLC, a Delaware limited liability company
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC PPHHTKY001, LLC, a Delaware limited liability company
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWARANE001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWGRDMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWRVTIL001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC CWSALKS001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWUVLOH001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWVININ001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWWPKMN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC WWHWCMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GEGRDMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSFRNTN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC TFDPTIA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC NOWILND001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSDVRDE001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSGTNPA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSMSSTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC GSDALTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSIFLMN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC NOPLNTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC NNMFBTN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ADMINISTRATIVE AGENT:
JPMORGAN CHASE BANK, N.A.
By:
/s/ Rita Lai
Name: Rita Lai
Title: Senior Credit Banker
LENDERS:
JPMORGAN CHASE BANK, N.A.
By:
/s/ Rita Lai
Name: Rita Lai
Title: Senior Credit Banker
[signatures continue on following pages]
REGIONS BANK
By:
/s/ Michael R. Mellott
Name: Michael R. Mellott
Title: Director
[signatures continue on following pages]
RBS CITIZENS N.A.
By:
/s/ Donald W. Woods
Name: Donald W. Woods
Title: Senior Vice President
[signatures continue on following pages]
SUMITOMO MITSUI BANKING CORPORATION
By:
/s/ William G. Karl
Name: William G. Karl
Title: Executive Officer
[signatures continue on following pages]
CAPITAL ONE, NATIONAL ASSOCIATION
By:
/s/ Frederick H. Denecke
Name: Frederick H. Denecke
Title: Senior Vice President
[signatures continue on following page]
COMERICA BANK
By:
/s/ Charles Weddell
Name: Charles Weddell
Title: Vice President
[end of signatures]
Lender
JPMorgan Chase Bank, N.A.
Regions Bank
RBS Citizens N.A.
Sumitomo Mitsui Banking Corporation
Capital One, National Association
Comerica Bank
Total Commitments
SCHEDULE 2.01 – COMMITMENTS
Commitment
$
$
$
$
$
$
$
100,000,000
100,000,000
100,000,000
50,000,000
35,000,000
30,000,000
415,000,000
Exhibit 10.36
Execution
Version
FIFTH AMENDMENT TO CREDIT AGREEMENT
FIFTH AMENDMENT TO CREDIT AGREEMENT (this “ Agreement ”) dated as of October 16, 2014, among AMERICAN REALTY
CAPITAL GLOBAL OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“ Borrower ”), AMERICAN REALTY CAPITAL GLOBAL TRUST,
INC., a Maryland corporation (“ Parent ”), ARC GLOBAL HOLDCO, LLC, a Delaware limited liability company (“ International Holdco ”), the SUBSIDIARY
GUARANTORS party hereto (the “ Subsidiary Guarantors ”; Parent, International Holdco and each of the Subsidiary Guarantors, individually, a “ Guarantor Party
” and, collectively, the “ Guarantor Parties ”), the LENDERS party hereto, and JPMORGAN CHASE BANK, N.A., as administrative agent for the Lenders
(together with its successors and assigns in such capacity, the “ Administrative Agent ”).
RECITALS:
A. Borrower, the Administrative Agent and certain lenders (together with their respective successors and assigns, the “ Lenders ”) are
parties to that certain Credit Agreement dated as of July 25, 2013, as amended by that certain First Amendment to Credit Agreement dated as of November 22,
2013, that certain letter agreement regarding updated schedules dated as of November 22, 2013, that certain letter agreement regarding updated schedules dated as
of December 20, 2013, that certain letter agreement regarding updated schedules dated as of January 15, 2014, that certain Omnibus Amendment to Loan
Documents dated as of March 26, 2014, that certain letter agreement regarding updated schedules dated as of April 17, 2014, that certain Third Amendment to
Credit Agreement dated as of June 24, 2014, that certain letter agreement regarding updated schedules dated as of June 24, 2014, that certain Fourth Amendment to
Credit Agreement dated as of July 29, 2014, that certain letter agreement regarding updated schedules dated as of July 30, 2014, and that certain letter agreement
regarding updated schedules dated as of August 25, 2014 (as so amended, the “ Credit Agreement ”; and except as otherwise herein expressly provided, each
initially capitalized term used herein has the meaning assigned to such term in the Credit Agreement, as amended by this Agreement).
B. Pursuant to Section 2.21 of the Credit Agreement, Borrower has requested, among other things, an increase in the Commitments by
$265,000,000, and Barclays Bank PLC, Bank of America, N.A., JPMorgan Chase Bank, N.A., Regions Bank, Capital One, National Association and Mizuho
Bank, Ltd. (each an “ Electing Lender ” and collectively, the “ Electing Lenders ”) have agreed to provide such increase.
C. The parties hereto desire to amend the Credit Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree
as follows:
as follows:
Section 1. Amendment of Credit Agreement . Effective as of the Effective Date (defined below), the Credit Agreement is hereby amended
(a) The following definition of “Anti-Corruption Laws” is hereby added to Section 1.01 of the Credit Agreement:
““ Anti-Corruption
Laws
” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to
time concerning or relating to bribery or corruption.”
and replaced with the following:
(b) The last sentence of the definition of “Commitment” set forth in Section 1.01 of the Credit Agreement is hereby deleted in its entirety
“As of October 16, 2014, the aggregate amount of the Lenders’ Commitments is $680,000,000.”
replaced with the following:
(c) The definition of “Governmental Authority” set forth in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and
““ Governmental
Authority
” means the government of the United States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the
European Union or the European Central Bank).”
(d) The following is hereby added to the Credit Agreement as new Section 3.24 thereof:
“SECTION 3.24 Anti-Corruption . No borrowing, use of proceeds or other transaction contemplated by this Agreement will violate Anti-
Corruption Laws.”
(e) The following is hereby added to the Credit Agreement as new Section 6.22 thereof:
“SECTION 6.22 Anti-Corruption . The Borrower shall not request any Borrowing, and the Borrower shall not use, and shall procure that its
Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing in furtherance of an offer,
payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption
Laws.”
(f) The words “an agent” set forth in the third to last sentence of Section 9.04(c) of the Credit Agreement are hereby deleted in their
entirety and replaced with the words “a non-fiduciary agent”.
(g) The phrase “or other central bank” is hereby added to Section 9.04(d) of the Credit Agreement immediately after the words “Federal
Reserve Bank”.
(h) Schedule 2.01 of the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 2.01 attached hereto.
Section 2. Commitments . Barclays Bank PLC, Bank of America, N.A. and Mizuho Bank, Ltd. each agrees that, as of the Effective Date, it
shall be a Lender for all purposes under the Loan Documents and each agrees to be bound by all of its obligations thereunder. Each Electing Lender agrees that its
respective Commitment shall be equal to the amount set forth on Schedule 2.01 attached hereto.
Section 3. Notes . Notwithstanding anything to the contrary contained in the Credit Agreement, in connection with the increase in the
Commitments contemplated by this Agreement, any Electing Lender may elect to not receive a Note to evidence the Loans made by such Electing Lender.
Section 4. Effective Date . The “ Effective Date ” shall be the date on which all of the following have been satisfied:
(a) the Administrative Agent shall have received signed counterparts of this Agreement from the Required Lenders (after giving effect to
the increase in the Commitments contemplated by this Agreement);
Guarantors’ signed counterparts of this Agreement;
(b) the Administrative Agent shall have received the Electing Lenders’, Borrower’s, Parent’s, International Holdco’s and the Subsidiary
- 2 -
Commitment as set forth on Schedule 2.01 attached hereto (unless, as provided in Section 3 , such Electing Lender shall elect to not receive such Note); and
(c) each Electing Lender shall have received a Note executed by Borrower in the principal amount equal to such Electing Lender’s
(d) the Administrative Agent shall have been paid all reasonable out-of-pocket expenses, including reasonable legal fees for the
Administrative Agent’s outside counsel, due to it pursuant to the transaction contemplated herein and all reasonable outstanding out-of-pocket fees and expenses, if
any, that have been invoiced to Borrower to date.
Section 5. Borrower’s Representations . Borrower hereby represents and warrants to the Administrative Agent and the Lenders, as follows:
(a) each of the representations and warranties of Borrower contained or incorporated in the Credit Agreement, as amended by this
Agreement, or any of the other Loan Documents to which it is a party, are true and correct in all material respects on and as of the date hereof (except if any such
representation or warranty is expressly stated to have been made as of a specific date, then as of such specific date);
(b) as of the date hereof and immediately after giving effect to this Agreement, no Default and no Event of Default has occurred and is
continuing;
(c) Borrower has all necessary limited partnership power and authority to execute, deliver and perform its obligations under this
Agreement; Borrower has been duly authorized by all necessary limited partnership action on its part; and this Agreement has been duly and validly executed and
delivered by Borrower and constitutes Borrower’s legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and
(ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and
(d) Borrower’s execution and delivery of this Agreement (i) does not require any consent or approval of, registration or filing with, or any
other action by, any governmental authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents of Borrower or any order of any governmental authority and (iii) will not violate or result in
a default under any indenture, agreement or other instrument binding upon Borrower or any of its assets.
Section 6. Guarantor Parties’ Representations . Each Guarantor Party hereby represents and warrants to the Administrative Agent and the
Lenders, as follows:
(a) each of the representations and warranties of such Guarantor Party contained or incorporated in the Guaranty or any of the other Loan
Documents to which it is a party, are true and correct in all material respects on and as of the date hereof (except if any such representation or warranty is expressly
stated to have been made as of a specific date, then as of such specific date);
under the Guaranty and each of the other Loan Documents to which it is a party;
(b) as of the date hereof and immediately after giving effect to this Agreement, such Guarantor Party is in compliance with its obligations
(c) such Guarantor Party has all necessary corporate or limited liability company, as applicable, power and authority to execute, deliver and
perform its obligations under this Agreement; such Guarantor Party has been duly authorized by all necessary corporate or limited liability company, as applicable,
action on its part; and this Agreement has been duly and validly executed and delivered by such Guarantor Party and constitutes such Guarantor Party’s legal, valid
and binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (ii) the application of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law); and
(d) such Guarantor Party’s execution and delivery of this Agreement (i) does not require any consent or approval of, registration or filing
with, or any other action by, any governmental authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any
applicable law or regulation or the charter, by-laws or other organizational documents of such Guarantor Party or any order of any governmental authority and
(iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Guarantor Party or any of its assets.
- 3 -
Section 7. Ratification .
(a) Borrower hereby (i) reaffirms, ratifies, confirms, and acknowledges its obligations under the Credit Agreement (as amended hereby)
and the other Loan Documents to which it is a party and agrees to continue to be bound thereby and perform thereunder and (ii) agrees and acknowledges that the
Credit Agreement (as amended hereby) and the other Loan Documents and all of Borrower’s obligations thereunder are and remain in full force and effect and,
except as expressly provided herein, have not been affected, modified or amended.
(b) Each Guarantor Party hereby (i) reaffirms, ratifies, confirms, and acknowledges its obligations under the Guaranty and the other Loan
Documents to which it is a party and agrees to continue to be bound thereby and perform thereunder and (ii) agrees and acknowledges that the Guaranty and the
other Loan Documents and all of its obligations thereunder are and remain in full force and effect and, except as expressly provided herein, have not been affected,
modified or amended.
Section 8. Miscellaneous .
(a) GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
(b) Amendments, Etc . The terms of this Agreement may be waived, modified and amended only by an instrument in writing duly
executed by the party hereto against whom enforcement of such waiver, modification or amendment is sought (provided that, subject to the terms of the Credit
Agreement, the Administrative Agent may execute any such waiver, modification or amendment on behalf of the Lenders). Any such waiver, modification or
amendment shall be binding upon Borrower, the Guarantors, the Electing Lenders, the Administrative Agent and the Lenders.
(c) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of
Borrower, the Guarantor Parties, the Electing Lenders, the Administrative Agent and the Lenders.
(d) Captions . The captions and section headings appearing herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
(e) Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of this Agreement
by facsimile or email transmission shall be effective as manual delivery of an executed counterpart hereof.
(f) Severability . Any provision hereof which is held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions
hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
[remainder of page intentionally left blank]
- 4 -
written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above
BORROWER :
AMERICAN REALTY CAPITAL GLOBAL OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership
By:
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
PARENT :
AMERICAN REALTY CAPITAL GLOBAL TRUST, INC., a Maryland
corporation
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
INTERNATIONAL HOLDCO :
ARC GLOBAL HOLDCO, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
SUBSIDIARY GUARANTORS :
ARC KSFTWPA001, LLC, a Delaware limited liability company
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC PPHHTKY001, LLC, a Delaware limited liability company
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CWARANE001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CWGRDMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CWRVTIL001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC CWSALKS001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CWUVLOH001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CWVININ001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CWWPKMN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC WWHWCMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GEGRDMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GSFRNTN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC TFDPTIA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC NOWILND001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GSDVRDE001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GSGTNPA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GSMSSTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC GSDALTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GSIFLMN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC NOPLNTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC NNMFBTN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC DRINDIN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC VALWDCO001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC LPSBDIN001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC GBLMESA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC NSSNJCA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC FEAMOTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC FECPEMA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC FESANTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC SZPTNNJ001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC WNBRNMO001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC VCLIVMI001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC ATSNTTX001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ARC PNEREPA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC PNSCRPA001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
ARC CTFTMSC001, LLC, a Delaware limited liability company
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
By:
/s/ Jesse C. Galloway
Name: Jesse C. Galloway
Title: Authorized Signatory
[signatures continue on following pages]
ADMINISTRATIVE AGENT:
JPMORGAN CHASE BANK, N.A.
By:
/s/ Rita Lai
Name: Rita Lai
Title: Senior Credit Banker
LENDERS:
JPMORGAN CHASE BANK, N.A.
By:
/s/ Rita Lai
Name: Rita Lai
Title:
Senior Credit Banker
[signatures continue on following pages]
REGIONS BANK
By:
/s/ Michael R. Mellott
Name: Michael R. Mellott
Title: Director
[signatures continue on following pages]
RBS CITIZENS N.A.
By:
Name:
Title:
[signatures continue on following pages]
SUMITOMO MITSUI BANKING CORPORATION
By:
Name:
Title:
[signatures continue on following pages]
CAPITAL ONE, NATIONAL ASSOCIATION
By:
/s/ Frederick G. Denecke
Name: Frederick G. Denecke
Title: Senior Vice President
[signatures continue on following pages]
COMERICA BANK
By:
/s/ Charles Weddell
Name: Charles Weddell
Title: Vice PResident
[signatures continue on following pages]
BARCLAYS BANK PLC
By:
/s/ Ronnie Glenn
Name: Ronnie Glenn
Title: Vice President
[signatures continue on following pages]
BANK OF AMERICA, N.A.
By:
/s/ Michael W. Edwards
Name: Michael W. Edwards
Title: Senior Vice President
[signatures continue on following page]
MIZUHO BANK, LTD.
By:
/s/ Noel Purcell
Name: Noel Purcell
Title: Authorized Signatory
[end of signatures]
Lender
JPMorgan Chase Bank, N.A.
Regions Bank
RBS Citizens N.A.
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking Corporation
Capital One, National Association
Barclays Bank PLC
Bank of America, N.A.
Comerica Bank
Total Commitments
SCHEDULE 2.01 – COMMITMENTS
Commitment
$
$
$
$
$
$
$
$
$
$
125,000,000
125,000,000
100,000,000
100,000,000
50,000,000
50,000,000
50,000,000
50,000,000
30,000,000
680,000,000
Exhibit 10.37
Execution
Version
SIXTH AMENDMENT TO CREDIT AGREEMENT
SIXTH AMENDMENT TO CREDIT AGREEMENT (this “ Agreement ”) dated as of December 16, 2014, among AMERICAN REALTY
CAPITAL GLOBAL OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (“ Borrower ”), AMERICAN REALTY CAPITAL GLOBAL TRUST,
INC., a Maryland corporation (“ Parent ”), ARC GLOBAL HOLDCO, LLC, a Delaware limited liability company (“ International Holdco ”), the SUBSIDIARY
GUARANTORS party hereto (the “ Subsidiary Guarantors ”; Parent, International Holdco and each of the Subsidiary Guarantors, individually, a “ Guarantor Party
” and, collectively, the “ Guarantor Parties ”), ELECTING LENDER (defined below), and JPMORGAN CHASE BANK, N.A., as administrative agent for the
Lenders defined below (together with its successors and assigns in such capacity, the “ Administrative Agent ”).
RECITALS:
A. Borrower, the Administrative Agent and certain lenders (together with their respective successors and assigns, the “ Lenders ”) are
parties to that certain Credit Agreement dated as of July 25, 2013, as amended by that certain First Amendment to Credit Agreement dated as of November 22,
2013, that certain letter agreement regarding updated schedules dated as of November 22, 2013, that certain letter agreement regarding updated schedules dated as
of December 20, 2013, that certain letter agreement regarding updated schedules dated as of January 15, 2014, that certain Omnibus Amendment to Loan
Documents dated as of March 26, 2014, that certain letter agreement regarding updated schedules dated as of April 17, 2014, that certain Third Amendment to
Credit Agreement dated as of June 24, 2014, that certain letter agreement regarding updated schedules dated as of June 24, 2014, that certain Fourth Amendment to
Credit Agreement dated as of July 29, 2014, that certain letter agreement regarding updated schedules dated as of July 30, 2014, that certain letter agreement
regarding updated schedules dated as of August 25, 2014, that certain Fifth Amendment to Credit Agreement dated as of October 16, 2014, that certain letter
agreement regarding updated schedules dated as of October 22, 2014, and that certain letter agreement regarding updated schedules dated as of December 12, 2014
(as so amended, the “ Credit Agreement ”; and except as otherwise herein expressly provided, each initially capitalized term used herein has the meaning assigned
to such term in the Credit Agreement, as amended by this Agreement).
B. Pursuant to Section 2.21 of the Credit Agreement, Borrower has requested, among other things, an increase in the Commitments by
$25,000,000, and RBS Citizens N.A. (“ Electing Lender ”) has agreed to provide such increase, effective January 16, 2015.
C. The parties hereto desire to amend the Credit Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree
as follows:
Section 1. Amendment of Credit Agreement . Effective as of January 16, 2015, the Credit Agreement is hereby amended as follows:
(a) The last sentence of the definition of “Commitment” set forth in Section 1.01 of the Credit Agreement is hereby deleted in its entirety
and replaced with the following:
“As of January 16, 2015, the aggregate amount of the Lenders’ Commitments is $705,000,000.”
(b) Schedule 2.01 of the Credit Agreement is hereby deleted in its entirety and replaced with Schedule 2.01 attached hereto.
Section 2. Commitment . Electing Lender agrees that, effective as of January 16, 2015, its Commitment shall be equal to the amount set
forth on Schedule 2.01 attached hereto.
satisfied:
Section 3. Conditions Precedent . It is a condition precedent to the effectiveness of this Agreement that all of the following have been
(a) the Administrative Agent shall have received Electing Lender’s, Borrower’s, Parent’s, International Holdco’s and the Subsidiary
Guarantors’ signed counterparts of this Agreement;
(b) Electing Lender shall have received a Note, dated effective as of January 16, 2015, executed by Borrower in the principal amount equal
to Electing Lender’s Commitment as set forth on Schedule 2.01 attached hereto; and
(c) the Administrative Agent shall have been paid all reasonable out-of-pocket expenses, including reasonable legal fees for the
Administrative Agent’s outside counsel, due to it pursuant to the transaction contemplated herein and all reasonable outstanding out-of-pocket fees and expenses, if
any, that have been invoiced to Borrower to date.
Section 4. Borrower’s Representations . Borrower hereby represents and warrants to the Administrative Agent and the Lenders, as follows:
(a) each of the representations and warranties of Borrower contained or incorporated in the Credit Agreement, as amended by this
Agreement, or any of the other Loan Documents to which it is a party, are true and correct in all material respects on and as of the date hereof (except if any such
representation or warranty is expressly stated to have been made as of a specific date, then as of such specific date);
(b) as of the date hereof and immediately after giving effect to this Agreement, no Default and no Event of Default has occurred and is
continuing;
(c) Borrower has all necessary limited partnership power and authority to execute, deliver and perform its obligations under this
Agreement; Borrower has been duly authorized by all necessary limited partnership action on its part; and this Agreement has been duly and validly executed and
delivered by Borrower and constitutes Borrower’s legal, valid and binding obligation, enforceable in accordance with its terms, except as such enforceability may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and
(ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and
(d) Borrower’s execution and delivery of this Agreement (i) does not require any consent or approval of, registration or filing with, or any
other action by, any governmental authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents of Borrower or any order of any governmental authority and (iii) will not violate or result in
a default under any indenture, agreement or other instrument binding upon Borrower or any of its assets.
Section 5. Guarantor Parties’ Representations . Each Guarantor Party hereby represents and warrants to the Administrative Agent and the
Lenders, as follows:
(a) each of the representations and warranties of such Guarantor Party contained or incorporated in the Guaranty or any of the other Loan
Documents to which it is a party, are true and correct in all material respects on and as of the date hereof (except if any such representation or warranty is expressly
stated to have been made as of a specific date, then as of such specific date);
under the Guaranty and each of the other Loan Documents to which it is a party;
(b) as of the date hereof and immediately after giving effect to this Agreement, such Guarantor Party is in compliance with its obligations
(c) such Guarantor Party has all necessary corporate or limited liability company, as applicable, power and authority to execute, deliver and
perform its obligations under this Agreement; such Guarantor Party has been duly authorized by all necessary corporate or limited liability company, as applicable,
action on its part; and this Agreement has been duly and validly executed and delivered by such Guarantor Party and constitutes such Guarantor Party’s legal, valid
and binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and (ii) the application of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law); and
- 2 -
(d) such Guarantor Party’s execution and delivery of this Agreement (i) does not require any consent or approval of, registration or filing
with, or any other action by, any governmental authority, except for such as have been obtained or made and are in full force and effect, (ii) will not violate any
applicable law or regulation or the charter, by-laws or other organizational documents of such Guarantor Party or any order of any governmental authority and
(iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon such Guarantor Party or any of its assets.
Section 6. Ratification .
(a) Borrower hereby (i) reaffirms, ratifies, confirms, and acknowledges its obligations under the Credit Agreement (as amended hereby)
and the other Loan Documents to which it is a party and agrees to continue to be bound thereby and perform thereunder and (ii) agrees and acknowledges that the
Credit Agreement (as amended hereby) and the other Loan Documents and all of Borrower’s obligations thereunder are and remain in full force and effect and,
except as expressly provided herein, have not been affected, modified or amended.
(b) Each Guarantor Party hereby (i) reaffirms, ratifies, confirms, and acknowledges its obligations under the Guaranty and the other Loan
Documents to which it is a party and agrees to continue to be bound thereby and perform thereunder and (ii) agrees and acknowledges that the Guaranty and the
other Loan Documents and all of its obligations thereunder are and remain in full force and effect and, except as expressly provided herein, have not been affected,
modified or amended.
Section 7. Miscellaneous .
(a) GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
(b) Amendments, Etc . The terms of this Agreement may be waived, modified and amended only by an instrument in writing duly
executed by the party hereto against whom enforcement of such waiver, modification or amendment is sought (provided that, subject to the terms of the Credit
Agreement, the Administrative Agent may execute any such waiver, modification or amendment on behalf of the Lenders). Any such waiver, modification or
amendment shall be binding upon Borrower, the Guarantors, Electing Lender, the Administrative Agent and the Lenders.
(c) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of
Borrower, the Guarantor Parties, Electing Lender, the Administrative Agent and the Lenders.
(d) Captions . The captions and section headings appearing herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
(e) Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of this Agreement
by facsimile or email transmission shall be effective as manual delivery of an executed counterpart hereof.
(f) Severability . Any provision hereof which is held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions
hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
[remainder of page intentionally left blank]
- 3 -
written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above
BORROWER :
AMERICAN REALTY CAPITAL GLOBAL OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership
By:
By:
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
PARENT :
AMERICAN REALTY CAPITAL GLOBAL TRUST, INC., a Maryland
corporation
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
INTERNATIONAL HOLDCO :
ARC GLOBAL HOLDCO, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
SUBSIDIARY GUARANTORS :
ARC KSFTWPA001, LLC, a Delaware limited liability company
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC PPHHTKY001, LLC, a Delaware limited liability company
By:
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWARANE001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWGRDMI001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWRVTIL001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC CWSALKS001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWUVLOH001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWVININ001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CWWPKMN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC WWHWCMI001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GEGRDMI001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSFRNTN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC TFDPTIA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC NOWILND001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSDVRDE001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSGTNPA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSMSSTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC GSDALTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GSIFLMN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC NOPLNTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC NNMFBTN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC DRINDIN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC VALWDCO001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC LPSBDIN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GBLMESA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC NSSNJCA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FEAMOTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FECPEMA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FESANTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC SZPTNNJ001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC WNBRNMO001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC VCLIVMI001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC ATSNTTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC PNEREPA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC PNSCRPA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC CTFTMSC001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC TFKMZMI001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC SWWSVOH001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC MKMDNNJ001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FD73SLB001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC GRRALNC001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GRMSAAZ001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GRLBKTX001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC GRLOUKY001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC WMWSLNC001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC SANPLFL001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC DG40PCK001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FEWTRNY001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC FEBHMNY001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FEWNAMN001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC FSMCHIL001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
ARC SLSTCCA001, LLC, a Delaware limited liability company
By:
By:
By:
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ARC FUMANUK001, LLC, a Delaware limited liability company
By:
By:
By:
By:
ARC Global Holdco, LLC, a Delaware limited liability company, its sole
member
American Realty Capital Global Operating Partnership, L.P., a Delaware
limited partnership, its sole member
American Realty Capital Global Trust, Inc., a Maryland corporation, its
general partner
/s/ Jesse C. Galloway
Name:
Title:
Jesse C. Galloway
Authorized Signatory
[signatures continue on following pages]
ADMINISTRATIVE AGENT :
JPMORGAN CHASE BANK, N.A.
By:
/s/ Rita Lai
Name: Rita Lai
Title: Senior Credit Banker
[signatures continue on following page]
ELECTING LENDER :
RBS CITIZENS N.A.
By:
/s/ Donald Woods
Name: Donald Woods
Title: Senior Vice President
[end of signatures]
Lender
JPMorgan Chase Bank, N.A.
Regions Bank
RBS Citizens N.A.
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking Corporation
Capital One, National Association
Barclays Bank PLC
Bank of America, N.A.
Comerica Bank
Total Commitments
SCHEDULE 2.01 – COMMITMENTS
Commitment
$
$
$
$
$
$
$
$
$
$
125,000,000
125,000,000
125,000,000
100,000,000
50,000,000
50,000,000
50,000,000
50,000,000
30,000,000
705,000,000
GLOBAL NET LEASE, INC.
SECOND AMENDED AND RESTATED
2015 ADVISOR MULTI-YEAR OUTPERFORMANCE AGREEMENT
Exhibit 10.41
This SECOND AMENDED AND RESTATED 2015 ADVISOR MULTI-YEAR OUTPERFORMANCE AGREEMENT (this “ Agreement ”)
made as of February 25, 2016, by and among GLOBAL NET LEASE INC., a Maryland corporation (the “ Company ”), its subsidiary GLOBAL NET LEASE
OPERATING PARTNERSHIP, L.P., a Delaware limited partnership and the entity through which the Company conducts substantially all of its operations (the “
Partnership ”), and GLOBAL NET LEASE ADVISORS, LLC, a Delaware limited liability company, the Company’s manager (the “ Advisor ”).
RECITALS
The Advisor provides services to the Company pursuant to the Amended and Restated Advisory Agreement by and among the Company, the
Partnership and the Advisor, dated as of November 7, 2012, as amended from time to time.
The Board of Directors of the Company (the “ Board ”), or a committee of the Board designated by the Board, approved this Agreement to
provide the Advisor with the incentive compensation described in this Agreement (the “ Award ”) and thereby provide additional incentive for the Advisor to
promote the progress and success of the business of the Company and its affiliates, including the Partnership. This Agreement evidences the Award and is subject
to the terms and conditions set forth herein and in the Partnership Agreement (as defined herein).
NOW, THEREFORE, the Company, the Partnership and the Advisor agree as follows:
1. Administration . The Award granted under this Agreement shall be administered by a Committee appointed by the Board from
time to time to administer the Plan (the “ Committee ”); provided that all powers of the Committee hereunder can be exercised by the full Board if the Board so
elects. To the extent that no Committee exists that has the authority to administer this Agreement, the functions of the Committee shall be exercised by the Board
and the Board shall be considered the “Committee” hereunder. The Committee shall have the discretionary authority to make all determinations regarding the
Award, including, without limitation, the interpretation and construction of the Award and the determination of relevant facts; provided such determinations are
made in good faith and are consistent with the purpose and intent of the Award. Except as expressly provided herein, no such action by the Committee shall
adversely affect the rights of the Advisor to any earned and outstanding Award LTIP Units (as defined below). Subject to the terms hereof, all decisions made by
the Committee shall be final, conclusive and binding on all persons, including the Company, the Partnership and the Advisor. No member of the Committee, nor
any other member of the Board or any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action,
determination or interpretation taken or made in good faith with respect to the Award, and all members of the Committee and each other member of the Board and
any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
2. Definitions . The definitions for certain terms used herein are set forth in Exhibit A .
3. Outperformance Award .
Award LTIP Units ”), which will be subject to forfeiture and vesting to the extent provided in this Section 3 and Section 4 hereof.
a. On June 2, 2015 (the “ Grant Date ”) the Advisor was granted the Award, consisting of 9,041,801 LTIP Units (the “
b. As soon as practicable following each Valuation Date, but as of such Valuation Date, the Committee will determine the
applicable Annual Amount and divide the resulting dollar amount by the Common Stock Price calculated as of the applicable Valuation Date (appropriately
adjusted to the extent that the Conversion Factor is greater or less than 1.0); the resulting number of unit equivalents determined for each Valuation Date referred to
herein as the “ Annual OPP Unit Equivalent ”.
c. As soon as practicable following the Second Valuation Date, but as of the Second Valuation Date, the Committee will
determine the Interim Amount and divide the resulting dollar amount by the Common Stock Price calculated as of the Second Valuation Date (appropriately
adjusted to the extent that the Conversion Factor is greater or less than 1.0); the resulting number of unit equivalents determined as of the Second Valuation Date
referred to herein as the “ Interim OPP Unit Equivalent ”.
d. As soon as practicable following the Final Valuation Date, but as of the Final Valuation Date, the Committee will:
(i) determine the Final Absolute TRS Amount;
(ii) determine the Final Relative TRS Amount;
(iii) determine the Total Outperformance Amount; and
(iv) divide the resulting dollar amounts by the Common Stock Price calculated as of the Final Valuation Date
(appropriately adjusted to the extent that the Conversion Factor is greater or less than 1.0); the resulting number of unit equivalents determined as of the Final
Valuation Date referred to herein as the “ Final OPP Unit Equivalent .”
If the Total OPP Unit Equivalent is smaller than the number of Award LTIP Units previously issued to the Advisor, as of the Final Valuation Date, the Advisor
shall forfeit the number of Award LTIP Units equal to the difference without payment of any consideration by the Partnership or the Company; thereafter the term
Award LTIP Units will refer only to the Award LTIP Units that were not so forfeited and neither the Advisor nor any of its successors, members or their respective
assigns or personal representatives will have any further rights or interests in the Award LTIP Units that were so forfeited. If the Total OPP Unit Equivalent is
greater than the number of Award LTIP Units previously issued to the Advisor: (A) the Company shall cause the Partnership to issue to the Advisor, as of the Final
Valuation Date, a number of additional LTIP Units equal to the difference; (B) such additional LTIP Units shall be added to the Award LTIP Units previously
issued, if any, and thereby become part of this Award; and (C) the Company and the Partnership shall take such action as is necessary to accomplish the grant of
such additional LTIP Units; provided that such issuance will be subject to the Advisor executing and delivering such documents, comparable to the documents
executed and delivered in connection with this Agreement, as the Company and/or the Partnership reasonably request in order to comply with all applicable legal
requirements, including, without limitation, federal and state securities laws. If the Total OPP Unit Equivalent is the same as the number of Award LTIP Units
previously issued to the Advisor, then there will be no change to the number of Award LTIP Units under this Award.
2
e. If any of the Award LTIP Units have been earned based on performance as provided in Sections 3(b), (c) and (d) , subject
to Section 4 hereof, the Award LTIP Units shall become vested in the following amounts and at the following times, provided that the Continuous Service of the
Advisor must continue through the applicable vesting date:
(i) one-third (1/3) on June 2, 2018;
(ii) one-third (1/3) on June 2, 2019; and
(iii) one-third (1/3) on June 2, 2020.
entitled to convert such Award LTIP Units that vested on such date into OP Units in accordance with the terms of the Partnership Agreement.
f. Within thirty (30) days following each vesting date under Section 3(e) , the Advisor, in its sole discretion, shall be
g. Any Award LTIP Units that do not become vested pursuant to Section 3(e) or Section 4 hereof shall, without payment of
any consideration by the Partnership or the Company automatically and without notice be forfeited and be and become null and void, and neither the Advisor nor
any of its successors, heirs, assigns, members or their respective assigns or personal representatives will thereafter have any further rights or interests in such
forfeited Award LTIP Units.
4. Termination/Change of Control .
a. In the event the Company terminates the Advisor’s Continuous Service for any reason prior to the Final Valuation Date,
the calculations provided in Sections 3(b), (c) and (d) hereof shall be performed as of the Valuation Date next following such termination (and if such Valuation
Date is not the Final Valuation Date, on the Final Valuation Date as well) as if the termination of Continuous Service had not occurred and the Advisor shall be
fully (100%) vested in the Total OPP Unit Equivalent as so determined. Within thirty (30) days of the date such calculations are completed, the Advisor, in its sole
discretion, shall be entitled to convert the Total OPP Unit Equivalent so determined into OP Units in accordance with the terms of the Partnership Agreement.
b. In the event the Company terminates the Advisor’s Continuous Service for any reason after the Final Valuation Date, any
then unvested Award LTIP Units shall be fully (100%) vested and non-forfeitable hereunder. Within thirty (30) days of the date such termination, the Advisor, in
its sole discretion, shall be entitled to convert such Award LTIP Units into OP Units in accordance with the terms of the Partnership Agreement.
3
c. In the event of a Change in Control prior to the Final Valuation Date, (i) the Advisor shall become fully (100%) vested in
any Award LTIP Units that had been earned but were unvested prior to the Change in Control and within thirty (30) days of the date such Change in Control, the
Advisor, in its sole discretion, shall be entitled to convert such Earned Annual and Interim OPP Units into OP Units or common stock in accordance with the terms
of the Partnership Agreement; and (ii) the calculations provided in Sections 3(b), (c) and (d) hereof shall be performed as of the Valuation Date next following
such Change in Control (and if such Valuation Date is not the Final Valuation Date, on the Final Valuation Date as well) and the Advisor shall be fully (100%)
vested in the Total OPP Unit Equivalent as so determined and within thirty (30) days of the date such calculations are completed, the Advisor, in its sole discretion,
shall be entitled to convert the number of Award LTIP Units so determined into OP Units in accordance with the terms of the Partnership Agreement.
d. In the event of a Change in Control after the Final Valuation Date, subject to the Continuous Service of the Advisor
through the date of such Change in Control, any then unvested Award LTIP Units shall be fully (100%) vested and non-forfeitable hereunder. Within thirty (30)
days of the date such Change in Control, the Advisor, in its sole discretion, shall be entitled to convert such Award LTIP Units into OP Units in accordance with
the terms of the Partnership Agreement.
5. Rights of Advisor . The Advisor shall have no rights with respect to this Agreement (and the Award evidenced hereby) unless the
Advisor shall have accepted this Agreement prior to the close of business on the Effective Date by signing and delivering to the Partnership a copy of this
Agreement. Upon acceptance of this Agreement by the Advisor, the Partnership Agreement shall be amended to reflect the issuance to the Advisor of the Award
LTIP Units so accepted. Thereupon, the Advisor shall have all the rights of a Limited Partner of the Partnership with respect to the Award LTIP Units, as set forth
in the Partnership Agreement, subject, however, to the restrictions and conditions specified herein. Award LTIP Units constitute and shall be treated for all
purposes as the property of the Advisor, subject to the terms of this Agreement and the Partnership Agreement.
6. Distributions .
the Partnership Agreement.
a. The Advisor shall be entitled to receive distributions with respect to the Award LTIP Units to the extent provided for in
b. The LTIP Unit Distribution Participation Date (as defined in the Partnership Agreement) with respect to any Award LTIP
Unit shall be the date as of which such Award LTIP Unit is earned pursuant to Sections 3(b), (c) and (d) , and as of such date, the Advisor will be entitled, for each
Award LTIP Unit earned, to a priority distribution from the Partnership in cash equal to the difference of (i) the quotient of (A) the per unit amount of all
distributions paid with respect to each OP Unit on or after the Effective Date and before the date on which such Award LTIP Unit is earned (other than those with
respect to which an adjustment was made pursuant to Section 8 hereof) divided by (B) the Conversion Factor minus (ii) any amounts previously distributed by the
Partnership with respect to such Award LTIP Unit.
4
c. All distributions paid with respect to Award LTIP Units shall be fully vested and non-forfeitable when paid, whether or
not the underlying LTIP Units have been earned based on performance or have become vested based on the passage of time as provided in Section 3 or Section 4
hereof.
7. Restrictions on Transfer . Except as otherwise permitted by the Committee in its sole discretion, none of the Award LTIP Units
granted hereunder nor any of the OP Units of the Partnership into which such Award LTIP Units may be converted (the “ Award OP Units ”) shall be sold,
assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such
action a “ Transfer ”). The transferee in any Transfers of Award LTIP Units or Award OP Units permitted by the Committee must agree in writing with the
Company and the Partnership to be bound by all the terms and conditions of this Agreement and that subsequent transfers shall be prohibited except those in
accordance with this Section 7 . Additionally, all Transfers of Award LTIP Units or Award OP Units must be in compliance with all applicable securities laws
(including, without limitation, the Securities Act) and the applicable terms and conditions of the Partnership Agreement. In connection with any Transfer of Award
LTIP Units or Award OP Units, the Partnership may require the Advisor to provide an opinion of counsel, satisfactory to the Partnership, that such Transfer is in
compliance with all federal and state securities laws (including, without limitation, the Securities Act). Any attempted Transfer of Award LTIP Units or Award OP
Units not in accordance with the terms and conditions of this Section 7 shall be null and void, and the Partnership shall not reflect on its records any change in
record ownership of any Award LTIP Units or Award OP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not
in any way give effect to any such Transfer of any Award LTIP Units or Award OP Units. Except as provided in this Section 7 , this Agreement is personal to the
Advisor, is non-assignable and is not transferable in any manner, by operation of law or otherwise.
8. Changes in Capital Structure . If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation,
reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock split, significant repurchases of stock, or other similar change in the capital stock of the
Company, (iii) any cash dividend or other distribution to holders of share of Common Stock or OP Units shall be declared and paid other than in the ordinary
course, or (iv) any other extraordinary corporate event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of
equitable or proportionate adjustment in the terms of this Agreement or the Award LTIP Units to avoid distortion in the value of this Award, the Committee shall
make equitable or proportionate adjustment and take such other action as it deems necessary to maintain the Advisor’s rights hereunder so that they are
substantially proportionate to the rights existing under this Award and the terms of the Award LTIP Units prior to such event, including, without limitation: (A)
interpretations of or modifications to any defined term in this Agreement; (B) adjustments in any calculations provided for in this Agreement, and (C) substitution
of other awards. All adjustments made by the Committee shall be final, binding and conclusive.
5
9. Miscellaneous .
a. Amendments . This Agreement may be amended or modified only with the consent of the Company and the Partnership
acting through the Committee; provided that any such amendment or modification that adversely affects the rights of the Advisor hereunder must be consented to
by the Advisor to be effective as against it. Notwithstanding the foregoing, this Agreement may be amended in writing signed only by the Company and the
Partnership to correct any errors or ambiguities in this Agreement and/or to make such changes that do not adversely affect the Advisor’s rights hereunder.
by the Partnership in its sole discretion, to the effect that such Award LTIP Units are subject to restrictions as set forth herein and in the Partnership Agreement.
b. Legend . The records of the Partnership evidencing the Award LTIP Units shall bear an appropriate legend, as determined
c. Compliance With Law . The Partnership and the Advisor will make reasonable efforts to comply with all applicable
securities laws. In addition, notwithstanding any provision of this Agreement to the contrary, no Award LTIP Units will become vested or be paid at a time that
such vesting or payment would result in a violation of any such law.
d. Advisor Representations; Registration .
(i) The Advisor hereby represents and warrants that (A) it understands that it is responsible for consulting its own
tax advisor with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Advisor
is or by reason of this Award may become subject, to its particular situation; (B) the Advisor has not received or relied upon business or tax advice from the
Company, the Partnership or any of their respective Affiliates (as defined in the Partnership Agreement), employees, agents, consultants or advisors, in their
capacity as such; (C) the Advisor provides services to the Partnership on a regular basis and in such capacity has access to such information, and has such
experience of and involvement in the business and operations of the Partnership, as the Advisor believes to be necessary and appropriate to make an informed
decision to accept this Award; (D) Award LTIP Units are subject to substantial risks; (E) the Advisor has been furnished with, and has reviewed and understands,
information relating to this Award; (F) the Advisor has been afforded the opportunity to obtain such additional information as it deemed necessary before accepting
this Award; and (G) the Advisor has had an opportunity to ask questions of representatives of the Partnership and the Company, or persons acting on their behalf,
concerning this Award.
(ii) The Advisor hereby acknowledges that: (A) there is no public market for Award LTIP Units or Award OP Units
and neither the Partnership nor the Company has any obligation or intention to create such a market; (B) sales of Award LTIP Units and Award OP Units are
subject to restrictions under the Securities Act and applicable state securities laws; and (C) because of the restrictions on transfer or assignment of Award LTIP
Units and Award OP Units set forth in the Partnership Agreement and in this Agreement, the Advisor may have to bear the economic risk of its ownership of the
Award LTIP Units covered by this Award for an indefinite period of time.
6
e. Section 83(b) Election . In connection with each separate issuance of LTIP Units under this Award pursuant to Section 3
hereof, the Advisor may elect to include in gross income in the year of transfer the applicable Award LTIP Units pursuant to Section 83 (b) of the Code
substantially in the form attached hereto as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder. The
Advisor agrees to file such election (or to permit the Partnership to file such election on the Advisor’s behalf) within thirty (30) days after the Grant Date with the
IRS Service Center where the Advisor files its personal income tax returns, provide a copy of such election to the Partnership and the Company, and to file a copy
of such election with the Advisor’s U.S. federal income tax return for the taxable year in which the LTIP Units are awarded to the Advisor. So long as the Advisor
holds any Award LTIP Units, the Advisor shall disclose to the Partnership in writing such information as may be reasonably requested with respect to ownership of
LTIP Units as the Partnership may deem reasonably necessary to ascertain and to establish compliance with provisions of the Code applicable to the Partnership or
to comply with requirements of any other appropriate taxing authority.
f. Severability . If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not so held invalid, and each such other provision shall to the full extent consistent with law continue in full force and effect. If any
provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such
provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect.
without giving effect to the principles of conflict of laws of such state.
g. Governing Law . This Agreement is made under, and will be construed in accordance with, the laws of State of Delaware,
h. No Obligation to Continue Service as a Consultant or Advisor . Neither the Company nor any affiliate is obligated by or
as a result of this Agreement to continue to have the Advisor as a consultant, advisor or other service provider and this Agreement shall not interfere in any way
with the right of the Company or any affiliate to terminate the Advisor’s service relationship at any time.
i. Notices . Any notice to be given to the Company shall be addressed to the Secretary of the Company at 405 Park Avenue,
14 Floor, New York, New York, 10022, and any notice to be given the Advisor shall be addressed to the Advisor at the Advisor’s address as it appears on the
records of the Company, or at such other address as the Company or the Advisor may hereafter designate in writing to the other.
j. Withholding and Taxes . The Advisor shall be solely responsible for all federal, state, local, foreign, or other taxes or any
taxes under the Federal Insurance Contributions Act with respect to this Award. Notwithstanding the foregoing, if at any time the Company or Partnership are
required to withhold any such taxes, the Advisor shall make arrangements satisfactory to the Committee regarding the payment of any United States federal, state,
local, foreign, or other taxes required by law to be withheld with respect to such amount; provided , however , that if any Award LTIP Units or Award OP Units are
withheld (or returned), the number of Award LTIP Units or Award OP Units so withheld (or returned) shall be limited to the number which have a fair market
value on the date of withholding equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and
foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. The obligations of the Company under this Agreement will
be conditional on such payment or arrangements, and the Company and its affiliates shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Advisor.
7
meaning or interpretation of any of the provisions of this Agreement.
k. Headings . The headings of paragraphs hereof are included solely for convenience of reference and shall not control the
parties had signed the same document. All counterparts shall be construed together and constitute the same instrument.
l. Counterparts . This Agreement may be executed in multiple counterparts with the same effect as if each of the signing
m. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and any
successors to the Company and the Partnership, on the one hand, and any successors to the Advisor, on the other hand, by will or the laws of descent and
distribution, but this Agreement shall not otherwise be assignable or otherwise subject to hypothecation by the Advisor.
n. Section 409A . This Agreement shall be construed, administered and interpreted in accordance with a good faith
interpretation of Section 409A of the Code. Any provision of this Agreement that is inconsistent with Section 409A of the Code, or that may result in penalties
under Section 409A of the Code, shall be amended, with the reasonable cooperation of the Advisor and the Company and the Partnership, to the extent necessary to
exempt it from, or bring it into compliance with, Section 409A of the Code.
[Signature page follows]
8
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
GLOBAL NET LEASE, INC.
By:
/s/ Scott J. Bowman
Name: Scott J. Bowman
Title: Chief Executive Officer and President
GLOBAL NET LEASE OPERATING PARTNERSHIP, L.P.
By:
Global Net Lease, Inc., its general partner
By:
/s/ Scott J. Bowman
Name: Scott J. Bowman
Title: Chief Executive Officer and President
GLOBAL NET LEASE ADVISORS, LLC
By:
GLOBAL NET LEASE SPECIAL
LIMITED PARTNER, LLC, its member
By:
AR CAPITAL GLOBAL HOLDINGS, LLC, its member
By:
AR GLOBAL INVESTMENTS, LLC, its member
By:
/s/ William M. Kahane
Name: William M. Kahane
Title: Manager
[Signature Page to Outerperformance Award Agreement]
EXHIBIT A
DEFINITIONS
“ Additional Shares ” means (without double-counting), as of a particular date of determination, the sum of (A) the number of shares of
Common Stock plus (B) the REIT Shares Amount for all Partnership Units (assuming that such Partnership Units were converted, exercised, exchanged or
redeemed for OP Units as of such date of determination at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the
Committee if there is no such stated rate) and such OP Units were then tendered to the Partnership for redemption pursuant to the Partnership Agreement as of such
date) other than those Partnership Units held by the Company, in the case of each (A) and (B), to the extent issued after the Effective Date and on or before such
date of determination in a capital raising transaction, in exchange for assets or securities, or upon the acquisition of another entity; provided , that for the avoidance
of doubt, this definition of “Additional Shares” shall exclude: (i) shares of Common Stock issued after the Effective Date upon exercise of stock options or upon
the exchange (directly or indirectly) of LTIP Units or other Partnership Units issued to employees, non-employee directors, consultants, advisors or other persons
or entities as incentive or other compensation, (ii) shares of Common Stock awarded after the Effective Date to employees or other persons or entities in exchange
for services provided or to be provided to the Company or any of its affiliates, and (iii) all Initial Shares.
“ Adjusted Market Cap ” means (A) the Company’s Initial Market Cap less an amount equal to the total number of Buyback Shares bought
back during the measurement period multiplied by $9.50 with respect to the calculation of (i) the Annual Amount on the First Valuation Date, (ii) the Interim
Amount, (iii) the Final Absolute TRS Amount and (iv) the Final Relative TRS Amount, and (B) the Total Shares as of the prior Valuation Date less any Buyback
Shares bought back during the measurement period multiplied by the spot closing stock price on the prior Valuation Date, with respect to the calculation of the
Annual Amount on the Second Valuation Date and the Final Valuation Date.
“ Annual Absolute TRS ” means, as of each Valuation Date, a dollar amount equal to four percent (4%) of the dollar amount by which, if any,
the amount of the Company’s Total Return, determined as of such date, exceeds the Threshold Amount, determined as of such date.
“ Annual Amount ” means, as of a Valuation Date, an amount equal to up to one and one quarter percent (1.25%) of the Company’s Initial
Market Cap based on the level of achievement of Annual Absolute TRS and Annual Relative TRS as of such Valuation Date for the period commencing on (A) the
Effective Date with respect to the First Valuation Date and (B) the prior Valuation Date with respect to the Second Valuation Date and the Final Valuation Date.
“ Annual Relative TRS ” means, as of each Valuation Date, a dollar amount equal to four percent (4%) of any amount by which the Company’s
Total Return for the period commencing on (A) the Effective Date with respect to the First Valuation Date and (B) the prior Valuation Date with respect to the
Second Valuation Date and the Final Valuation Date, exceeds the Relative Threshold Amount as of such date; provided , that the amount so earned will be subject
to reduction in accordance with a ratable sliding scale factor so that (A) if the Company’s TRS Percentage for the applicable period is six percent (6%) or more,
there will be no reduction to Annual Relative TRS for such period; (B) Annual Relative TRS for such period shall be reduced by fifty percent (50%) if such TRS
Percentage for the applicable period is zero percent (0%); (C) Annual Relative TRS for such period shall be reduced based on a linear interpolation between the
foregoing reduction factors if the Company’s TRS Percentage for the applicable period is between zero percent (0%) and six percent (6%) ( e.g.
, if the Company
achieved a TRS Percentage of three percent (3%), the value of any award would be reduced by a factor of twenty-five percent (25%)); and (D) Annual Relative
TRS for such period shall be reduced by one hundred percent (100%) if the TRS Percentage for the applicable period is below zero percent (0%).
Exhibit A - 1
“ Award OP Units ” has the meaning set forth in Section 7 hereof.
“ Award LTIP Units ” has the meaning set forth in Section 3(a) hereof.
“ Beneficial Owner ” has the meaning set forth in Rule 13d-3 under the Exchange Act.
“ Buyback Shares ” means (without double-counting), as of a particular date of determination, (A) shares of Common Stock or (B) the REIT
Shares Amount for Partnership Units (assuming that such Partnership Units were converted, exercised, exchanged or redeemed for OP Units as of such date of
determination at the applicable conversion, exercise, exchange or redemption rate (or rate deemed applicable by the Committee if there is no such stated rate) and
such OP Units were then tendered to the Partnership for redemption pursuant to the Partnership Agreement as of such date), other than those Partnership Units held
by the Company, in the case of each (A) and (B), to the extent repurchased by the Company after the Effective Date and on or before such date of determination in
a stock buyback transaction or in a redemption of Partnership Units for cash pursuant to the Partnership Agreement; provided , that for the avoidance of doubt, this
definition of “Buyback Shares” shall exclude: (i) shares of Common Stock issued after the Effective Date upon exercise of stock options or upon the exchange
(directly or indirectly) of LTIP Units or other Partnership Units issued to employees, non-employee directors, consultants, advisors or other persons or entities as
incentive or other compensation, and (ii) shares of Common Stock awarded after the Effective Date to employees or other persons or entities in exchange for
services provided or to be provided to the Company or any of its affiliates.
“ Change of Control ” means and includes any of the following events:
(i) any Person is or becomes Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent (30%)
or more of the combined voting power of the then outstanding securities of the Company, excluding (A) any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (x) of subsection (ii) below and (B) any Person who becomes such a Beneficial Owner through the issuance of
such securities with respect to purchases made directly from the Company; or
(ii) the consummation of a merger or consolidation of the Company with any other Person or the issuance of voting securities of the
Company in connection with a merger or consolidation of the Company (or any direct or indirect subsidiary of the Company) pursuant to applicable stock
exchange requirements, other than (x) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent
thereof) seventy percent (70%) or more of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (y) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the
combined voting power of the then outstanding securities of the Company; or
Exhibit A - 2
(iii) the consummation of a sale or disposition by the Company of all or substantially all of the assets of the Company; or
(iv) persons who, as of the Effective Date, constitute the Board (the “ Incumbent Directors ”) cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board; provided that any person
becoming a director of the Company subsequent to such date shall be considered an Incumbent Director if such person’s election was approved by or such person
was nominated for election a vote of at least a majority of the Incumbent Directors.
Notwithstanding the foregoing, with respect to any payment that is triggered upon a Change in Control, a transaction shall not be deemed to be a Change in Control
unless such transaction constitutes a “change in control event” within the meaning of Section 409A of the Code.
“ Code ” means the Internal Revenue Code of 1986, as amended.
“ Common Stock ” means the Company’s common stock, par value $0.01 per share, either currently existing or authorized hereafter.
“ Common Stock Price ” means, as of the Effective Date, $9.50 and, as of any other date, the average of the Fair Market Value of one share of
Common Stock over the fifteen (15) consecutive trading days ending on, and including, such date (or, if such date is not a trading day, the most recent trading day
immediately preceding such date); provided , however , that if such date is the date upon which a Transactional Change of Control occurs, the Common Stock
Price as of such date shall be equal to the fair value, as determined by the Committee, of the total consideration paid or payable in the transaction resulting in the
Transactional Change of Control for one share of Common Stock.
“ Continuous Service ” means the Advisor’s continuous service as manager of the Company without interruption or termination.
“ Conversion Factor ” has the meaning set forth in the Partnership Agreement.
“ Effective Date ” means June 2, 2015.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
Exhibit A - 3
“ Fair Market Value ” means, as of any given date, the fair market value of a security determined by the Committee using any reasonable
method and in good faith (such determination will be made in a manner that satisfies Section 409A of the Code and in good-faith as required by Section 422(c)(1)
of the Code); provided that (A) if such security is admitted to trading on a national securities exchange, the fair market value of such security on any date shall be
the closing sale price reported for such security on the principal stock exchange or, if applicable, any other national exchange on which the security is traded or
admitted to trading on such date on which a sale was reported; and (B) if such security is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System (“ NASDAQ ”) or a successor quotation system, the fair market value of such security on any such date shall be the average of the
highest bid and lowest asked prices for such security on the system on such date on which both the bid and asked prices were reported.
“ Final Absolute TRS Amount ” means, as of the Final Valuation Date, a dollar amount equal to four percent (4%) of the dollar amount by
which, if any, the amount of the Company’s Total Return, determined as of such date, exceeds the Threshold Amount, determined as of such date.
“ Final Relative TRS Amount ” means, as of the Final Valuation Date, a dollar amount equal to four percent (4%) of any amount by which the
Company’s Total Return for the period commencing on the Effective Date through the Final Valuation Date exceeds the Relative Threshold Amount as of such
date; provided , that the amount so earned will be subject to reduction in accordance with a ratable sliding scale factor so that (A) if the Company’s TRS
Percentage for the period commencing on the Effective Date through the Final Valuation Date is eighteen percent (18%) or more, there will be no reduction to the
Final Relative TRS Amount; (B) the Final Relative TRS Amount shall be reduced by fifty percent (50%) if such TRS Percentage is zero percent (0%); (C) the
Final Relative TRS Amount shall be reduced based on a linear interpolation between the foregoing reduction factors if the Company’s TRS Percentage is between
zero percent (0%) and eighteen percent (18%) ( e.g.,
if the Company achieved a TRS Percentage of nine percent (9%), the value of any award would be reduced by
a factor of twenty-five percent (25%)); and (D) the Final Relative TRS Amount shall be reduced by one hundred percent (100%) if such TRS Percentage is below
zero percent (0%).
“ Final Valuation Date ” means June 2, 2018.
“ First Valuation Date ” means June 2, 2016.
“ Initial Market Cap ” means (A) $9.50 multiplied by (B) the number of Initial Shares outstanding on the Effective Date.
“ Initial Shares ” means the sum of: (A) all shares of Common Stock outstanding as of the applicable date (including any vested and nonvested
restricted shares of Common Stock issued under any other incentive plan maintained by the Company prior to the applicable date), plus (B) any shares of Common
Stock representing the REIT Shares Amount for all Partnership Units outstanding as of the applicable date (assuming such Partnership Units were converted,
exercised, exchange or redeemed for OP Units as of the applicable date at the applicable conversion, exercise, exchange or redemption rate (or rate deemed
applicable by the Committee if there is no such stated rate) and such OP Units were then tendered to the Partnership for redemption pursuant to the Partnership
Agreement as of such date) other than Partnership Units held by the Company; provided, that for the avoidance of doubt, this definition of “Initial Shares” shall
exclude shares of Common Stock issuable upon exercise of stock options or upon the exchange (directly or indirectly) of LTIP Units or other Partnership Units
issued to employees, non-employee directors, consultants, advisors or other persons or entities as incentive or other compensation.
Exhibit A - 4
“ Interim Amount ” means, as of the Second Valuation Date, an amount equal to (A) up to three percent (3%) of the Company’s Initial Market
Cap, less (B) any amount of the Annual Amount achieved through the Second Valuation Date (such that the maximum level of achievement through the Second
Valuation Date shall not exceed three percent (3%) of the Company’s Initial Market Cap), based on the level of achievement of: (x) a dollar amount equal to four
percent (4%) of the dollar amount by which, if any, the amount of the Company’s Total Return, determined as of such date, exceeds the Threshold Amount,
determined as of such date (“ Interim Absolute TRS ”), and (y) as of the Second Valuation Date, a dollar amount equal to four percent (4%) of any amount by
which the Company’s Total Return for the period commencing on the Effective Date, exceeds the Relative Threshold Amount as of such date (“ Interim Relative
TRS ”); provided , that the amount so earned will be subject to reduction in accordance with a ratable sliding scale factor so that (A) if the Company’s TRS
Percentage for the applicable period is twelve percent (12%) or more, there will be no reduction to Interim Relative TRS for such period; (B) Interim Relative TRS
for such period shall be reduced by fifty percent (50%) if such TRS Percentage for the applicable period is zero percent (0%); (C) Interim Relative TRS for such
period shall be reduced based on a linear interpolation between the foregoing reduction factors if the Company’s TRS Percentage for the applicable period is
between zero percent (0%) and twelve percent (12%) ( e.g.
, if the Company achieved a TRS Percentage of six percent (6%), the value of any award would be
reduced by a factor of twenty-five percent (25%)); and (D) Interim Relative TRS for such period shall be reduced by one hundred percent (100%) if the TRS
Percentage for the applicable period is below zero percent (0%). For the avoidance of doubt, any Interim Amount will be determined based on the formula in the
preceding sentence which provides for a reduction for any Annual Amounts determined at the First and Second Valuation Dates, but not less than zero.
“ LTIP Units ” means LTIP Units, as such term is defined in the Partnership Agreement.
“ Maximum Total Outperformance Amount ” means five percent (5%) of the Company’s Initial Market Cap.
“ OP Units ” has the meaning set forth in the Partnership Agreement.
“ Partnership Agreement ” means the Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of June 2,
2015, among the Company, as general partner, the Advisor, as a limited partner, and any limited partners that are admitted from time to time to the Partnership and
listed on Schedule A thereto, as amended, restated or supplemented from time to time.
Exhibit A - 5
“ Partnership Units ” has the meaning set forth in the Partnership Agreement.
“ Peer Group ” means Gramercy Property Trust Inc., Lexington Realty Trust, Select Income REIT, and W. P. Carey Inc.
“ Peer Group Return Percentage ” means, the median percentage return to stockholders of the Peer Group (A) for the period commencing on
the Effective Date and ending on the First Valuation Date with respect to the calculation of Annual Relative TRS for the First Valuation Date, (B) for the period
commencing on the day after the prior Valuation Date and ending on the next Valuation Date with respect to calculation of Annual Relative TRS for the Second
Valuation Date and the Final Valuation Date and (C) for the period commencing on the Effective Date and ending on the Second Valuation Date and the Final
Valuation Date with respect to calculating Interim Relative TRS and Final Relative TRS, respectively; in each case as calculated by an independent consultant
engaged by the Committee and as approved by the Committee in its reasonable discretion.
“ Person ” means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated
organization, other entity or “group” (as defined in the Exchange Act).
“ REIT Shares Amount ” has the meaning set forth in the Partnership Agreement.
“ Relative Threshold Amount ” means an amount calculated in the same manner as the Threshold Amount provided that instead of the TRS
Percentage the Peer Group Return Percentage shall be utilized in calculating the Threshold Amount.
“ Second Valuation Date ” means June 2, 2017.
“ Securities Act ” means the Securities Act of 1933, as amended.
“ Subsidiary ” means any corporation or other entity (other than the Company) in which the Company has more than a fifty percent (50%)
interest, either directly or indirectly.
“ Threshold Amount ” means for each measurement period an amount equal to the sum of: (A) the Adjusted Market Cap; plus (B) an amount
equal to (i) seven percent (7%) multiplied by the Adjusted Market Cap for each annual measurement period, (ii) fourteen percent (14%) multiplied by the Adjusted
Market Cap for purposes of calculating Interim Absolute TRS and (iii) twenty-one percent (21%) multiplied by the Adjusted Market Cap for purposes of
calculating the Final Absolute TRS Amount; plus (C) the value of any Additional Shares issued since the start of the measurement period (based on the spot
closing prices on the issuance dates of the Additional Shares); plus (D) an amount equal to the proportional required return (based on a non-compounded daily rate
of .0001918) from the issuance dates of the Additional Shares to the end of the measurement period on the values of the Additional Shares from (C) above; plus
(E) the number of Buyback Shares bought back since the start of the measurement period multiplied by the spot closing price at the start of the measurement period
(or $9.50 for measurement periods beginning on the Effective Date); plus (F) an amount equal to the proportional required return (based on a non-compounded
daily rate of .0001918) from the start of the measurement period to the buyback dates of the Buyback Shares on the values of the Buyback Shares from (E) above.
Exhibit A - 6
“ Total Outperformance Amount ” means, as of the Final Valuation Date, a dollar amount equal to the algebraic sum of: (A) the Final
Absolute TRS Amount, (B) the Final Relative TRS Amount, (C) the Annual Amounts determined as of each Valuation Date and (D) the Interim Amount; provided
that (i) if the resulting amount is a negative number, the Total Outperformance Amount shall be zero, and (ii) in no event shall the Total Outperformance Amount
exceed the Maximum Total Outperformance Amount. For the avoidance of doubt, the Total Outperformance Amount is based on (i) the Annual Amounts granted
at the First, Second and Final Valuation Dates, plus (ii) the Interim Amount less any Annual Amounts granted at the First and Second Valuation Dates, plus (iii)
the sum of the Final Absolute TRS Amount plus the Final Relative TRS Amount, less any Annual Amounts granted at the First, Second and Third Valuation Dates
and any Interim Amount granted at the Second Valuation Date, but not less than zero and not greater than the Maximum Total Outperformance Amount.
“ Total Return ” means (without double-counting), as of a particular date of determination, a dollar amount equal to the sum of: (A) the Total
Shares as of such date of determination multiplied by the Common Stock Price as of such date, plus (B) an amount equal to the sum of the total dividends and other
distributions declared between the beginning of the applicable measuring period and such date of determination so long as the “ex-dividend” date with respect
thereto falls prior to such date of determination (excluding dividends and distributions paid in the form of additional shares of Common Stock or Partnership
Units), in respect of the Total Shares as of such date of determination (it being understood, for the avoidance of doubt, that such total dividends and distributions
shall be calculated by reference to actual securities outstanding as of each record date with respect to each applicable dividend or distribution payment date, and not
by multiplying the aggregate amount of distributions paid on one OP Unit that was outstanding as of the Effective Date between the Effective Date and such date
of determination by the number of Total Shares as of the date of determination), plus (C) the value of any Buyback Shares redeemed from the start of the
measurement period to the date of determination (based on the spot closing prices on the buyback dates of the Buyback Shares).
“ Total Shares ” means (without double-counting), as of a particular date of determination, the algebraic sum of: (A) the Initial Shares, plus (B)
the Additional Shares, minus (C) all Buyback Shares repurchased or redeemed between the Effective Date and such date of determination.
“ Total OPP Unit Equivalent ” means the aggregate of (i) the sum of Annual OPP Unit Equivalents and the Interim OPP Unit Equivalent (the “
Earned Annual and Interim OPP Unit Equivalents ”) and (ii) the excess (if any) of the Final OPP Unit Equivalent over the Earned Annual and Interim OPP
Unit Equivalents.
“ Transactional Change of Control ” means (A) a Change of Control described in clause (i) of the definition thereof where the Person makes a
tender offer for Common Stock, (B) a Change of Control described in clause (ii) of the definition thereof where the Company is not the surviving entity, or (C) a
Change of Control described in clause (iii) of the definition thereof.
“ Transfer ” has the meaning set forth in Section 7 hereof.
Exhibit A - 7
“ TRS Percentage ” means, with respect to the Company, the cumulative total percentage return per share achieved by one share of the
Company’s Common Stock for each applicable measurement period, assuming contemporaneous reinvestment in Common Stock of all dividends and other
distributions, as calculated by an independent consultant engaged by the Committee, which calculation shall be approved by the Committee in its reasonable
discretion.
“ Valuation Date ” means the First Valuation Date, the Second Valuation Date and the Final Valuation Date, as applicable.
Exhibit A - 8
ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF TRANSFER OF PROPERTY PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE
The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and
supplies the following information in accordance with the regulations promulgated thereunder:
EXHIBIT B
1.
The name, address and taxpayer identification number of the undersigned are:
Name: Global Net Lease Advisors, LLC (the “ Taxpayer ”)
Address:
Social Security No./Taxpayer Identification No.: ___-___-___
2.
3.
4.
5.
6.
7.
Description of property with respect to which the election is being made: _____ LTIP Units in Global Net Lease Operating Partnership, L.P. (the “
Partnership ”).
The date on which the LTIP Units were transferred is [•], 2015. The taxable year to which this election relates is calendar year 2015.
Nature of restrictions to which the LTIP Units are subject:
(a)
(b)
With limited exceptions, until the LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the LTIP Units without the
consent of the Partnership.
The Taxpayer’s LTIP Units vest in accordance with the vesting provisions described in the Schedule attached hereto. Unvested LTIP Units are
forfeited in accordance with the vesting provisions described in the Schedule attached hereto.
The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the
LTIP Units with respect to which this election is being made was $[•] per LTIP Unit.
The amount paid by the Taxpayer for the LTIP Units was $0 per LTIP Unit.
A copy of this statement has been furnished to the Partnership and Global Net Lease, Inc.
Dated:
Name:
Exhibit B - 1
SCHEDULE TO EXHIBIT B
Vesting Provisions of LTIP Units
The LTIP Units are subject to time-based and performance-based vesting with the final vesting percentage equaling the product of the time-based vesting
percentage and the performance-based vesting percentage. Performance-based vesting will be from 0% to 100% based (i) 50% on Global Net Lease, Inc.’s (the “
Company’s ”) per-share total return to shareholders and (ii) 50% on total return against the total percentage return to stock holders of a specified peer group, in
each case for the period from [•], 2016 to [•], 2018 (or earlier in certain circumstances). Under the time-based vesting hurdles, one-third (1/3) of the LTIP Units
will vest on June 2, 2018, one-third (1/3) of the LTIP Units will vest on June 2, 2019, and the remaining one-third (1/3) of the LTIP Units will vest on June 2,
2020, provided that the Taxpayer continues its service relationship with the Company and the Partnership through such dates, subject to acceleration in the event of
certain extraordinary transactions or termination of the Taxpayer’s service relationship with the Company under specified circumstances. Unvested LTIP Units are
subject to forfeiture in the event of failure to vest based on the determination of the performance-based percentage or the passage of time.
Exhibit B - 2
INDEMNIFICATION AGREEMENT
Exhibit 10.44
THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made and entered into as of the 16 th day of December, 2015, by and between Global Net
Lease, Inc., a Maryland corporation (the “Company”), and Timothy Salvemini (the “Indemnitee”).
WHEREAS, at the request of the Company, Indemnitee currently serves as a director, officer or service provider of the Company and may, therefore, be
subjected to claims, suits or proceedings arising as a result of his or her service; and
WHEREAS, as an inducement to Indemnitee to serve or continue to serve as a director, officer or service provider, the Company has agreed to indemnify
Indemnitee and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted
by law; and
WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions . For purposes of this Agreement:
(a) “Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to have occurred if, after the Effective Date (i) any “person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 15% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in
the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person’s
attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by
at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of
Directors are not individuals (A) who were directors as of the Effective Date or (B) whose election by the Board of Directors or nomination for election by the
Company’s stockholders was approved by the affirmative vote of at least two-thirds of the directors then in office who were directors as of the Effective Date or
whose election or nomination for election was previously so approved.
(b) “Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director,
trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability
company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company. As a
clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to
be at the request of the Company: (i) if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or
agent of any corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise (1) of which a majority of the voting
power or equity interest is owned directly or indirectly by the Company or (2) the management of which is controlled directly or indirectly by the Company and (ii)
if, as a result of Indemnitee’s service to the Company or any of its affiliated entities, Indemnitee is subject to duties by, or required to perform services for, an
employee benefit plan or its participants or beneficiaries, including as deemed fiduciary thereof.
indemnification and/or advance of Expenses is sought by Indemnitee.
(c) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which
(d) “Effective Date” means the date set forth in the first paragraph of this Agreement.
(e) “Expenses” means any and all reasonable and out-of-pocket attorneys’ fees and costs, retainers, court costs, arbitration and mediation costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees,
federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes
and penalties and any other disbursements or expenses incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or
preparing to be a witness in or otherwise participating in a Proceeding. Expenses shall also include Expenses incurred in connection with any appeal resulting from
any Proceeding including, without limitation, the premium for, security for and other costs relating to any cost bond supersedeas bond or other appeal bond or its
equivalent.
(f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in
the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters
concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to or participant or witness
in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder. Notwithstanding the foregoing, the term “Independent Counsel”
shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
(g) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation,
inquiry, administrative hearing, claim, demand, discovery request or any other actual, threatened or completed proceeding, whether brought by or in the right of the
Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal)
nature, including any appeal therefrom, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the
Company and Indemnitee. If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall
also be considered a Proceeding.
Section 2. Services by Indemnitee . Indemnitee will serve as a director, officer or service provider of the Company. However, this Agreement shall not
impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company. This Agreement shall not be deemed an
employment contract between the Company (or any other entity) and Indemnitee.
Section 3. [RESERVED]
Section 4. General . The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the
maximum extent permitted by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law
shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date. The rights of Indemnitee
provided in this Section 4 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification
permitted by the Maryland General Corporation Law (the “MGCL”), including, without limitation, Section 2-418(g) of the MGCL.
Section 5. Standard for Indemnification . If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any
Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and
reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any such Proceeding unless it is established by clear and convincing evidence that
(a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) Indemnitee actually received an improper personal benefit in money, property or services or (c) in the case of any criminal Proceeding,
Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
Section 6. Certain Limits on Indemnification . Notwithstanding any other provision of this Agreement (other than Section 7), Indemnitee shall not be
entitled to:
(a) indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is adjudged, in a final adjudication of
the Proceeding not subject to further appeal, to be liable to the Company;
(b) indemnification hereunder if Indemnitee is adjudged, in a final adjudication of the Proceeding not subject to further appeal, to be liable on the
basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee, whether or not involving action in the
Indemnitee’s Corporate Status; or
(c) indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee, unless: (i) the Proceeding was brought to
enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Section 13 of this Agreement, or (ii) the
Company’s charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement
approved by the Board of Directors to which the Company is a party expressly provide otherwise.
Section 7. Court-Ordered Indemnification . Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application
of Indemnitee and such notice as the court shall require, may order indemnification of Indemnitee by the Company in the following circumstances:
(a) if such court determines that Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order
indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or
(b) if such court determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether
or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper
personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification contemplated by Section 2-418(d)(2)(ii) of the MGCL.
Section 8. Indemnification for Expenses of an Indemnitee Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement,
and without limiting any such provision, to the extent that Indemnitee was or is, by reason of his or her Corporate Status, made a party to (or otherwise becomes a
participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, Indemnitee shall be indemnified for all Expenses
actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee
under this Section 8 for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each such claim, issue or matter,
allocated on a reasonable and proportionate basis. For purposes of this Section 8, and without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 9. Advance of Expenses for an Indemnitee . If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to
any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all
Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding. The Company shall make such advance within ten days after the receipt by
the Company of a statement or statements requesting such advance from time to time, whether prior to or after final disposition of such Proceeding and may be in
the form of, in the reasonable discretion of the Indemnitee (but without duplication) (a) payment of such Expenses directly to third parties on behalf of Indemnitee,
(b) advance of funds to Indemnitee in an amount sufficient to pay such Expenses or (c) reimbursement to Indemnitee for Indemnitee’s payment of such Expenses.
Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written
affirmation by Indemnitee and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may
be required under applicable law as in effect at the time of the execution thereof. To the extent that Expenses advanced to Indemnitee do not relate to a specific
claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis. The undertaking required by this Section 9 shall
be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced
Expenses and without any requirement to post security therefor.
Section 10. Indemnification and Advance of Expenses as a Witness or Other Participant . Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is or may be, by reason of Indemnitee’s Corporate Status, made a witness or otherwise asked to participate in any Proceeding, whether
instituted by the Company or any other person, and to which Indemnitee is not a party, Indemnitee shall be advanced and indemnified against all Expenses actually
and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith within ten days after the receipt by the Company of a statement or
statements requesting any such advance or indemnification from time to time, whether prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by Indemnitee. In connection with any such advance of Expenses, the Company may require
Indemnitee to provide an undertaking and affirmation substantially in the form attached hereto as Exhibit A.
Section 11. Procedure for Determination of Entitlement to Indemnification .
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and is reasonably necessary or appropriate to determine whether and to what extent
Indemnitee is entitled to indemnification. Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate
in Indemnitee’s sole discretion. The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to Section 11(a) above, a determination, if required by applicable law, with
respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel, in a
written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by Indemnitee and
approved by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL, which approval shall not be unreasonably withheld; or (ii) if a
Change in Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors or, if such a quorum
cannot be obtained, then by a majority vote of a duly authorized committee of the Board of Directors consisting solely of one or more Disinterested Directors, (B)
if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by Indemnitee, which
approval shall not be unreasonably withheld or delayed, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee or (C) if so directed by the Board of Directors, by the stockholders of the Company, other than directors or officers who are parties to the
Proceeding. If it is so determined that Indemnitee is entitled to indemnification, the Company shall make payment to Indemnitee shall be made within ten days
after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to
indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged
or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary or appropriate to such determination in the
discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 11(b). Any Expenses incurred by Indemnitee in so
cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s
entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.
(c) The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed.
Section 12. Presumptions and Effect of Certain Proceedings .
(a) In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 11(a) of this Agreement, and the Company shall have the burden of overcoming that presumption in connection with the making of any
determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo
contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard
of conduct described herein for indemnification.
(c) The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director,
trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability
company, joint venture, trust, employee benefit plan or other enterprise shall not be imputed to Indemnitee for purposes of determining any other right to
indemnification under this Agreement.
Section 13. Remedies of Indemnitee .
(a) If (i) a determination is made pursuant to Section 11(b) of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advance of Expenses is not timely made pursuant to Sections 9 or 10 of this Agreement, (iii) no determination of entitlement to indemnification
shall have been made pursuant to Section 11(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Sections 8 or 10 of this Agreement within ten days after receipt by the Company of a written request therefor, or
(v) payment of indemnification pursuant to any other section of this Agreement or the charter or Bylaws of the Company is not made within ten days after a
determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the
State of Maryland, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification or advance of Expenses. Alternatively,
Indemnitee, at Indemnitee’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the
American Arbitration Association. Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date
on which Indemnitee first has the right to commence such proceeding pursuant to this Section 13(a); provided, however, that the foregoing clause shall not apply to
a proceeding brought by Indemnitee to enforce his or her rights under Section 8 of this Agreement. Except as set forth herein, the provisions of Maryland law
(without regard to its conflicts of laws rules) shall apply to any such arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or
award in arbitration.
(b) In any judicial proceeding or arbitration commenced pursuant to this Section 13, Indemnitee shall be presumed to be entitled to
indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not
entitled to indemnification or advance of Expenses, as the case may be. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 13,
Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 9 of this Agreement until a final determination is made with
respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed). The Company shall, to the fullest extent not
prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound
by all of the provisions of this Agreement.
(c) If a determination shall have been made pursuant to Section 11(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request
for indemnification that was not disclosed in connection with the determination.
(d) In the event that Indemnitee is successful in seeking, pursuant to this Section 13, a judicial adjudication of or an award in arbitration to
enforce Indemnitee’s rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company for, any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication or arbitration. If it shall be
determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought,
the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.
(e) Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial
Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period (i) commencing with either the
tenth day after the date on which the Company was requested to advance Expenses in accordance with Sections 9 or 10 of this Agreement or the 60 th day after the
date on which the Company was requested to make the determination of entitlement to indemnification under Section 11(b) of this Agreement, as applicable, and
(ii) and ending on the date such payment is made to Indemnitee by the Company.
Section 14. Defense of the Underlying Proceeding .
(a) Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment,
request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with
such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding. The failure to give any such notice shall not
disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this
Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced
thereby, and then only to the extent the Company is thereby actually so prejudiced.
(b) Subject to the provisions of the last sentence of this Section 14(b) and of Section 14(c) below, the Company shall have the right to defend
Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such
decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 14(a) above. The Company shall not, without the prior
written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any
settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee, or (iii) would
impose any Expense, judgment, fine, penalty or limitation on Indemnitee. This Section 14(b) shall not apply to a Proceeding brought by Indemnitee under Section
13 of this Agreement.
(c) Notwithstanding the provisions of Section 14(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s
Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably
withheld or delayed, that Indemnitee may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other
defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be
unreasonably withheld or delayed, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or
(iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of
Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld or delayed, at the expense of the Company.
In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to
Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall
not be unreasonably withheld or delayed, at the expense of the Company (subject to Section 13(d) of this Agreement), to represent Indemnitee in connection with
any such matter.
Section 15. Non-Exclusivity; Survival of Rights; Subrogation .
(a) The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the charter or Bylaws of the Company, any agreement or a resolution of the stockholders
entitled to vote generally in the election of directors or of the Board of Directors, or otherwise. Unless consented to in writing by Indemnitee, no amendment,
alteration or repeal of the charter or Bylaws of the Company, this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this
Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal, regardless of
whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the
concurrent assertion or employment of any other right or remedy.
(b) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
Section 16. Insurance . (a) The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions
deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of Indemnitee’s
Corporate Status and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against
Indemnitee by reason of Indemnitee’s Corporate Status. In the event of a Change in Control, the Company shall maintain in force any and all directors and officers
liability insurance policies that were maintained by the Company immediately prior to the Change in Control for a period of six years with the insurance carrier or
carriers and through the insurance broker in place at the time of the Change in Control; provided, however, (i) if the carriers will not offer the same policy and an
expiring policy needs to be replaced, a policy substantially comparable in scope and amount shall be obtained and (ii) if any replacement insurance carrier is
necessary to obtain a policy substantially comparable in scope and amount, such insurance carrier shall have an AM Best rating that is the same or better than the
AM Best rating of the existing insurance carrier; provided, further, however, in no event shall the Company be required to expend in the aggregate in excess of
250% of the annual premium or premiums paid by the Company for directors and officers liability insurance in effect on the date of the Change in Control. In the
event that 250% of the annual premium paid by the Company for such existing directors and officers liability insurance is insufficient for such coverage, the
Company shall spend up to that amount to purchase such lesser coverage as may be obtained with such amount.
(b) Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee
which would otherwise be indemnifiable hereunder arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all
judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in
Section 16(a). The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or
Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall
not in any way limit or affect the rights or obligations of the Company under any such insurance policies. If, at the time the Company receives notice from any
source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect,
the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.
(c) The Indemnitee shall cooperate with the Company or any insurance carrier of the Company with respect to any Proceeding.
Section 17. Coordination of Payments . The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable
or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.
Section 18. Contribution . If the indemnification provided in this Agreement is unavailable in whole or in part and may not be paid to Indemnitee for any
reason, other than for failure to satisfy the standard of conduct set forth in Section 5 or due to the provisions of Section 6, then, in respect to any Proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permissible under applicable law, the
Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for
Expenses, judgments, penalties, and/or amounts paid or to be paid in settlement, in connection with any Proceeding without requiring Indemnitee to contribute to
such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.
Section 19. Reports to Stockholders . To the extent required by the MGCL, the Company shall report in writing to its stockholders the payment of any
amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with
the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to
such meeting.
Section 20. Duration of Agreement; Binding Effect .
(a) This Agreement shall continue until and terminate on the later of (i) the date that Indemnitee shall have ceased to serve as a director, officer,
employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or
domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such
person is or was serving in such capacity at the request of the Company and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding
(including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement).
(b) The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable
by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the
Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation,
partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the
request of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal
representatives.
(c) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such
succession had taken place.
(d) The Company and Indemnitee agree that a monetary remedy for breach of this Agreement, at some later date, may be inadequate,
impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that
Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or
irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to
which Indemnitee may be entitled. Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith. The Company
acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such
requirement of such a bond or undertaking.
Section 21. Severability . If any provision or provisions of this Agreement shall be held to be invalid, void, illegal or otherwise unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any
Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and
(c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this
Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
Section 22. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought
shall be sufficient to evidence the existence of this Agreement.
Section 23. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 24. Modification and Waiver . No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor, unless otherwise expressly stated, shall such waiver constitute a continuing waiver.
Section 25. Notices . All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given
if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, on the day of such delivery, or
(ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
(a) If to Indemnitee, to the address set forth on the signature page hereto.
(b) If to the Company, to:
Global Net Lease, Inc.
405 Park Avenue, 14th Floor
New York, NY 10022
Attn: General Counsel
or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
Section 26. Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland,
without regard to its conflicts of laws rules.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
GLOBAL NET LEASE, INC.
By:
/s/ Scott J. Bowman
Name: Scott J. Bowman
Title: Chief Executive Officer
INDEMNITEE
By:
/s/ Timothy Salvemini
Name: Timothy Salvemini
EXHIBIT A
AFFIRMATION AND UNDERTAKING TO REPAY EXPENSES ADVANCED
To: The Board of Directors of Global Net Lease, Inc.
Re: Affirmation and Undertaking
Ladies and Gentlemen:
This Affirmation and Undertaking is being provided pursuant to that certain Indemnification Agreement, dated the 16 th day of December, 2015, by and
between Global Net Lease, Inc., a Maryland corporation (the “Company”), and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which
I am entitled to advance of Expenses in connection with [Description of Proceeding] (the “Proceeding”).
Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.
I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm my
good faith belief that at all times, insofar as I was involved as a director of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act
with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any
criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.
In consideration of the advance by the Company for Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby
agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and
(a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or
services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the
portion of the Advanced Expenses, relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.
IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this _____ day of _______________, 20____.
Name:
GLOBAL NET LEASE, INC.
SECOND AMENDED AND RESTATED CODE OF BUSINESS CONDUCT AND ETHICS
As Adopted on February 17, 2016
Exhibit 14.1
OVERVIEW
This Code of Business Conduct and Ethics (this “ Code ”) sets forth the guiding principles by which we operate our company and conduct our daily
business with our stockholders, customers, vendors and with each other. These principles apply to all of the directors, officers and employees of Global Net Lease,
Inc. and its subsidiaries (referred to in this Code as the “ Company ”).
The Board of Directors of the Company has adopted this Code in order to promote:
·
·
·
·
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional
relationships;
full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the Company;
compliance with applicable governmental rules and regulations; and
accountability for adherence to this Code.
PRINCIPLES
Complying with Laws, Regulations, Policies and Procedures
All directors, officers and employees of the Company are expected to understand, respect and comply with all of the laws, regulations, policies and
procedures that apply to them in their positions with the Company. Employees are responsible for talking to their supervisors to determine which laws, regulations
and Company policies apply to their position and what training is necessary to understand and comply with them.
Directors, officers and employees are directed to specific policies and procedures available to them and to persons they supervise.
Insider Trading
No director, officer or employee who has access to confidential information may use or share that information for stock trading purposes or for any other
purpose except the conduct of our business. All non-public information about the Company should be considered confidential information. To use non-public
information for personal financial benefit or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also
illegal. You must always have any sales or acquisitions of the Company’s securities pre-approved by the Company’s general counsel. If you have any questions,
please consult the Company’s general counsel.
All directors, officers and employees of the Company should be scrupulous in avoiding any action or interest that conflicts with, or gives the appearance
of a conflict with, the Company’s interests.
Conflicts of Interest
A “conflict of interest” exists whenever an individual’s private interests interfere or conflict in any way (or even appear to interfere or conflict) with the
interests of the Company. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his
or her work for the Company objectively and effectively. Conflicts of interest may also arise when a director, officer or employee or a member of his or her family
receives improper personal benefits as a result of his or her position with the Company, whether from a third party or from the Company.
Sometimes, conflicts of interest will develop accidentally or unexpectedly, and the appearance of a conflict of interest can also easily arise. If an
employee, officer or director has a conflict, actual or potential, the employee, officer or director should report such conflict to higher levels of management, the
general counsel, the board of directors or the chief executive officer. Conflicts of interest may not always be clear-cut, so if a question arises, employees, officers
or directors should consult with higher levels of management, the general counsel, the board of directors or the chief executive officer.
Any employee, officer or director that becomes aware of a conflict or potential conflict should bring it to the attention of higher levels of management, the
general counsel, the board of directors or the chief executive officer. Such communications will be kept confidential to the extent feasible.
Corporate Opportunity
Directors, officers and employees are prohibited from (a) taking for themselves corporate opportunities that properly belong to the Company or are
discovered through the use of corporate property, information or position; (b) using corporate property, information or position for personal gain; and (c)
competing with the Company. Directors, officers and employees owe a duty to the Company to advance its legitimate interests when the opportunity to do so
arises.
Confidentiality
Employees, officers and directors of the Company must maintain the confidentiality of information entrusted to them by the Company, our suppliers, our
business partners and prospective business partners, except when disclosure is either expressly authorized by the Company or required by law. Confidential
information includes all non-public information, including information that might be of use to competitors, or harmful to the Company or its suppliers, business
partners and prospective business partners, if disclosed. It also includes information that suppliers, business partners and prospective business partners have
entrusted to us. The Company expects that each employee, officer and director will preserve all such confidential information even after his or her employment or
relationship with the Company ends. In some cases, disclosure of any such confidential information, even after termination of employment or other relationship,
may result in civil liability to the individual. All employees, officers and directors must, upon termination of employment or relationship with the Company, return
all confidential information to the Company, including originals and copies, whether in electronic or hard copy.
Fair Dealing
The Company seeks to outperform its competition fairly and honestly. The Company seeks competitive advantages through superior performance, never
through unethical or illegal business practices. Stealing proprietary information, possessing or utilizing trade secret information that was obtained without the
owner’s consent or inducing such disclosures by past or present employees of other companies is prohibited.
Each director, officer and employee is expected to deal fairly with the Company’s customers, suppliers, tenants, brokers, competitors, officers and
employees. No one should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material
facts or any other unfair dealing.
2
The purpose of business entertainment and gifts in a commercial setting is to create goodwill and sound working relationships, not to gain unfair
advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by any director, officer or employee of the Company
unless: (1) it is not a cash gift, (2) it is consistent with customary business practices, (3) there was a prior social relationship between the parties, (4) it is nominal in
value, (5) the gift cannot be construed as a bribe or payoff and (6) it does not violate any laws or regulations. No tickets to events should be offered, given,
provided or accepted by any director, officer or employee of the Company unless the party providing the tickets is present at such event or the tickets have been
pre-approved by the chief executive officer. Any gifts that are substantial in nature (i.e., with a value of $250 or more, or of relative scarcity, including but limited
to, gifts of tickets to major sporting or cultural events) must be pre-approved by the chief executive officer. Please discuss with the chief executive officer any gifts
or proposed gifts which you are not certain are appropriate.
Protection and Proper Use of the Company Assets
All employees should endeavor to protect the Company’s assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on the
Company’s profitability. Any suspected incident of fraud or theft should be immediately reported for investigation. Company equipment should not be used for
non-Company business, though incidental personal use may be permitted.
The obligation of employees to protect the Company’s assets includes its proprietary information. Proprietary information includes intellectual property
such as trademarks and copyrights, as well as business, marketing and service plans, databases, records, salary information and any unpublished financial data and
reports. Unauthorized use or distribution of this information would violate Company policy. It could also be illegal and result in civil or even criminal penalties.
Payments to Government Personnel
The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political
candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country.
In addition, the U.S. government has a number of laws and regulations regarding business gratuities which may be accepted by U.S. government
personnel. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not
only violate Company policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules. The
Company’s general counsel can provide guidance to you in this area.
Public Company Reporting
As a public company, it is of critical importance that the Company’s filings with the Securities and Exchange Commission (the “ SEC ”) be accurate,
timely and in accordance with all applicable laws and regulations. Depending on their position with the Company, an employee, officer or director may be called
upon to provide necessary information to assure that the Company’s public reports are complete, fair and understandable. The Company expects employees,
officers and directors to take this responsibility very seriously and to provide prompt accurate answers to inquiries related to the Company’s public disclosure
requirements. However, no employee, officer or director of the Company should respond to inquiries regarding, or otherwise communicate to any outside party,
results, forecasts or trends without the prior approval of the chief executive officer.
3
Financial Statements and Other Records
All of the Company’s books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the
Company’s transactions and must both conform to applicable legal requirements and to the Company’s system of internal controls. Unrecorded or “off the books”
funds or assets should not be maintained unless permitted by applicable law or regulation.
Records should always be retained or destroyed according to the Company’s record retention policies. In accordance with those policies, in the event of
litigation or governmental investigation, please consult the board of directors.
Discrimination and Harassment
The diversity of the Company’s employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment
and will not tolerate any discrimination or harassment of any kind.
Health and Safety
The Company strives to provide each employee, officer and director with a safe and healthful work environment. Each employee, officer and director has
responsibility for maintaining a safe and healthy workplace by following safety and health rules and practices and reporting accidents, injuries and unsafe
equipment, practices or conditions.
Violence and threatening behavior are not permitted. Each employee, officer and director should report to work in condition to perform their duties, free
from the influence of illegal drugs or alcohol. The use of illegal drugs in the workplace will not be tolerated.
REPORTING ILLEGAL OR UNETHICAL BEHAVIOR
Asking Questions and Voicing Concerns
This Code provides an overview of the legal and ethical responsibilities applicable to employees, officers and directors. Each employee, officer and
director is responsible for upholding these responsibilities.
The standards and expectations outlined here are intended to guide such individuals in making the right choices. If any aspect of the Code is unclear, or if
any individual has any questions or faces a situation that is not addressed herein, they should bring them to the Company’s attention. The Company recognizes that
in some situations it is difficult to know right from wrong. Since this Code cannot anticipate every situation that will arise, it is important that the Company have a
way to approach a new question or problem. Each employee, officer and director should keep the following steps and questions to keep in mind:
· Make sure you have all the facts . To reach the right solutions, we must be as fully informed as possible.
· Ask yourself : What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you
are faced with, and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is.
4
·
Clarify your responsibility and role . In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved
and discuss the problem.
· Discuss the problem with your supervisor . This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about
the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor’s responsibility to help solve
problems.
·
Seek help from Company resources . In the rare case where it may not be appropriate to discuss an issue with your supervisor, or where you do not feel
comfortable approaching your supervisor with your question, discuss it:
o
o
o
First
, by reporting to our general counsel at 1 (844) 254-3064. All submissions will be reviewed by the Company’s general counsel and
chairman of the audit committee.
Second
, with any applicable chief risk officer.
Third
, if your conversation with such chief risk officer is not satisfactory, with the chairman of the audit committee.
·
Seek help from the Company resources online . The Company has established a secure website using ethicspoint.com, which is available at
globalnetlease.com/corporate-responsibility.html. The website is be hosted by a third-party vendor on secure servers. You may make a report by
following the link on that website; that report will be monitored by the Company’s general counsel and brought to the attention of the chairman of the
audit committee.
· Always ask first, act later . If you are unsure of what to do in any situation, seek guidance before you act.
Duty to Report
Employees, officers and directors who suspect or know of violations of this Code or illegal or unethical business or workplace conduct by employees,
officers or directors have a duty to report it immediately. Each person is encouraged to report such conduct to a supervisor or superior, but if the individuals to
whom such information is conveyed are not responsive, or if there is reason to believe that reporting to such individuals is inappropriate in particular cases, then
the employee, officer or director may contact chief risk officer or general counsel of the Company. Such communications will be kept in confidence to the extent
appropriate or permitted by law. If the employee is still not satisfied with the response, the employee may contact the chairman of the audit committee or any of the
other members of the audit committee. While employees, officers and directors are encouraged to use the Company’s internal reporting system outlined, above, in
all cases, employees, directors and officers may directly report such violations outside the Company to appropriate authorities in accordance with law.
The Company’s policy is to comply with all applicable financial reporting and accounting regulations. If any director, officer or employee of the
Company has unresolved concerns or complaints regarding questionable accounting or auditing matters of the Company, then he or she is encouraged to submit
those concerns anonymously to the Company’s general counsel at 1 (844) 254-3064. Subject to its legal duties, the Company’s general counsel and chairman of the
audit committee will treat such submissions confidentially. Such submissions may be directed to the attention of the Company’s audit committee, any director who
is a member of the Company’s audit committee or the general counsel.
5
Each director, officer and employee who is involved in the Company’s periodic reports and other documents filed with the SEC, including all financial
statements and other financial information, must comply with applicable federal securities laws and SEC regulations. Each director, officer and employee who is
involved in the Company’s public disclosure process must: (a) be familiar with and comply with the Company’s disclosure controls and procedures and its internal
control over financial reporting; and (b) take all necessary steps to ensure that all filings with the SEC and all other public communications about the financial and
business condition of the Company provide full, fair, accurate, timely and understandable disclosure.
As noted above, the Company has made a telephone hotline available for reporting illegal or unethical behavior as well as questionable accounting or
auditing matters and other accounting, internal accounting controls or auditing matters on a confidential, anonymous basis. Please call the general counsel of the
Company at 1 (844) 254-3064 to report such matters anonymously. Any concerns regarding accounting or auditing matters reported to this hotline will be reviewed
by the Company’s general counsel and communicated directly to the chairman of the audit committee.
When reporting a concern, an individual should supply sufficient information so that the matter may be investigated properly. As the ultimate objective of
any investigation is to uncover the truth, any employee, officer or director who is found to have lied during an internal investigation will be subject to appropriate
discipline, which could include immediate termination without compensation for that act of dishonesty. Full cooperation is expected both from anyone who is
suspected or accused of improper conduct and from anyone who makes accusations against somebody else. Any information provided by an employee, officer or
director will be handled in a confidential manner to the greatest extent possible. Moreover, as described below, the Company prohibits retaliation for reporting
illegal or unethical behavior.
Any person involved in any investigation in any capacity of a possible misconduct must not discuss or disclose any information to anyone outside of the
investigation unless required or permitted by law or when seeking his or her own legal advice, and is expected to cooperate fully in any investigation.
Any use of these reporting procedures in bad faith or in a false or frivolous manner will be considered a violation of this Code. Further, these reporting
methods should not be used for personal grievances not involving this Code.
Non-Retaliation
The Company prohibits retaliation of any kind against individuals who have made good faith reports or complaints of violations of this Code or other
known or suspected illegal or unethical conduct. Specifically, the Company will not discharge, demote, suspend, threaten, harass, or in any other manner
discriminate against an employee for lawfully reporting internally or to appropriate authorities, or providing information or assistance in an investigation regarding
misconduct. Any employee, officer or director who retaliates against another employee, officer or director for reporting known or suspected violations of legal or
ethical obligations will be in violation of this Code and subject to disciplinary action, up to and including dismissal. Such retaliation may also be a violation of the
law, and as such, could subject both the individual offender and the Company to legal liability.
6
AMENDMENT, MODIFICATION AND WAIVER
This Code may be amended or modified by the board of directors of the Company, after receiving appropriate recommendation from any relevant
committee, as appropriate. Only the board of directors or a committee of the board of directors with specific delegated authority may grant waivers of this
Amended and Restated Code of Business Conduct and Ethics. Any waivers will be promptly disclosed as required by law or stock exchange regulation.
VIOLATIONS
Violation of this Code is grounds for disciplinary action up to and including termination of employment. Such action is in addition to any civil or criminal
liability which might be imposed by any court or regulatory agency.
7
Name
ARC ACHNETH001, LLC
ARC ALSFDUK001, LLC
ARC AMWCHKS001, LLC
ARC AMWORUK001, LLC
ARC ATSNTTX001, LLC
ARC BBWYKUK001, LLC
ARC BKSCOUK001, LLC
ARC CABIRUK001, LLC
ARC CCLTRUK001, LLC
ARC CJHSNTX001, LLC
ARC CSVBTMI001, LLC
ARC CTFTMSC001, LLC
ARC CWARANE001, LLC
ARC CWGRDMI001, LLC
ARC CWRVTILI001, LLC
ARC CWSALKS001, LLC
ARC CWUVLOH001, LLC
ARC CWVININ001, LLC
ARC CWWPKMN001, LLC
ARC DBGESRG001, LLC
ARC DBGWSDG001, LLC
ARC DFSMCUK001, LLC
ARC DFSMCUK001, LLC
ARC DG40PCK001, LLC
ARC DINCNOH001, LLC
ARC DNDUBOH001, LLC
ARC DRINDIN001, LLC
ARC EEMTRUK001, LLC
ARC FD34PCK001, LLC
ARC FD73SLB001, LLC
ARC FEAMOTX001, LLC
ARC FEBHMNY001, LLC
ARC FEBILMA001, LLC
ARC FECPEMA001, LLC
ARC FEHBRKY001, LLC
ARC FELEXKY001, LLC
ARC FELKCLA001, LLC
ARC FESANTX001, LLC
ARC FEWNAMN001, LLC
ARC FEWTRNY001, LLC
Subsidiaries of Global Net Lease, Inc.
Jurisdiction of Formation/Incorporation
Exhibit 21.1
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
ARC FSMCHIL001, LLC
ARC FUMANUK001, LLC
ARC GBLMESA001, LLC
ARC GBLMESA001, LLC
ARC GBLMESA01, LLC
ARC GECINOH001, LLC
ARC GEGRDMI001, LLC
ARC Global Holdco, LLC
ARC GRLBKTX001, LLC
ARC GRLOUKY001, LLC
ARC GRMSAAZ001, LLC
ARC GRRALNC001, LLC
ARC GSDALTX001, LLC
ARC GSDVRDE001, LLC
ARC GSFFDME001, LLC
ARC GSFRNTN001, LLC
ARC GSGTNPA001, LLC
ARC GSIFLMN001, LLC
ARC GSMSSTX001, LLC
ARC GSRNGME001, LLC
ARC GSRPCSD001, LLC
ARC GSRTNNM001, LLC
ARC HPDFS Holdco, LLC
ARC HPNEWUK001, LLC
ARC HVHELFI001, LLC
ARC IAREDUK001, LLC
ARC JTCHATN001, LLC
ARC JTCHATN002, LLC
ARC KPHTNNE001, LLC
ARC KSFTWPA001, LLC
ARC KUSTHMI001, LLC
ARC LPSBDIN001, LLC
ARC MCCARUK001, LLC
ARC MEROXUK01, LLC
ARC METHAGER01, LLC
ARC MKMDNNJ001, LLC
ARC MPSTLMO001, LLC
ARC NNMFBTN001, LLC
ARC NOPLNTX001, LLC
ARC NOWILND001, LLC
ARC NRSLDUK001, LLC
ARC NSSNJCA001, LLC
ARC OBMYNGER01, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
ARC OGHDGMD001, LLC
ARC PFBFDUK001, LLC
ARC PNEREPA001, LLC
ARC PNSCRPA001, LLC
ARC PPHHTKY001, LLC
ARC REXREGER01, LLC
ARC RMNUSGER01, LLC
ARC SANPLFL001, LLC
ARC SLKRCP001 LLC
ARC SLSTCCA001, LLC
ARC SPHRSNJ001 Urban Renewal Entity, LLC
ARC SWWSVOH001, LLC
ARC SZPTNNJ001, LLC
ARC TFDTPIA001, LLC
ARC TFKMZMI001, LLC
ARC TKMANUK001, LLC
ARC TOMANFI001, LLC
ARC TRLIVMI001, LLC
ARC TWSWDUK001, LLC
ARC VALWDCO001, LLC
ARC VCLIVMI001, LLC
ARC WHAMSNE001, LLC
ARC WIODSTX001, LLC
ARC WKBPLUK001, LLC
ARC WKMCRUK001, LLC
ARC WKSOTUK001, LLC
ARC WMWSLNC001, LLC
ARC WNBRNMO001, LLC
ARC WWHWCMI001, LLC
Global Net Lease Operating Partnership, L.P.
ROCHESSGER01, LLC
ROCHESSGER02, LLC
ROCHESSGER03, LLC
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Exhibit 31.1
I, Scott J. Bowman , certify that:
1.
I have reviewed this Annual Report on Form 10-K of Global Net Lease, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Dated the 29th day of February, 2016
/s/ Scott J. Bowman
Scott J. Bowman
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO RULE 13a-14(a) AND 15d-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Exhibit 31.2
I, Timothy Salvemini, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Global Net Lease, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Dated the 29th day of February, 2016
/s/ Timothy Salvemini
Timothy Salvemini
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
SECTION 1350 CERTIFICATIONS
Exhibit 32
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the
United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act
of 2002, be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
The undersigned, who are the Chief Executive Officer and Chief Financial Officer of Global Net Lease, Inc. (the “Company”), each hereby certify as follows:
The annual report on Form 10-K of the Company, which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, and all information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated the 29th day of February, 2016
/s/ Scott J. Bowman
Scott J. Bowman
Chief Executive Officer
(Principal Executive Officer)
/s/ Timothy Salvemini
Timothy Salvemini
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)